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EXHIBIT 2.1
PURCHASE AGREEMENT
BY AND AMONG
XXXXXX METHODIST HEALTH PLAN, INC.,
A DELAWARE CORPORATION, AS SELLER,
TEXAS HEALTH RESOURCES,
A TEXAS NONPROFIT CORPORATION
AND
PACIFICARE HEALTH PLAN ADMINISTRATORS, INC.,
AN INDIANA CORPORATION, AS BUYER
RELATING TO THE ACQUISITION OF CAPITAL STOCK OF
XXXXXX METHODIST TEXAS HEALTH PLAN, INC.
D.B.A XXXXXX METHODIST HEALTH PLAN
AND
XXXXXX METHODIST HEALTH INSURANCE COMPANY, INC.
DATED THIS 1ST DAY OF NOVEMBER, 1999
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TABLE OF CONTENTS
SECTION PAGE NO.
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Article I Purchase of Stock and Consideration...................................................1
Section 1.1 Purchase of the Stock............................................................1
Section 1.2 Purchase Price for the Stock.....................................................2
Section 1.3 Post-Closing Adjustments Regarding Statutory Net Worth Amount....................2
(a) Post-Closing Net Worth...........................................................2
(b) Preparation of Closing SAP Balance Sheets........................................2
(i) Special Requirements of the HMTHP Closing Balance Sheet.....................3
(ii) Special Requirements of the HMHIC Closing Balance Sheet.....................3
(c) Procedure for Conclusive Determination of the Closing SAP Balance Sheets
and HMTHP and HMHIC Adjustment Amounts...........................................3
(d) Payment of HMTHP Adjustment Amount and HMHIC Adjustment Amount...................5
(e) Scope of Section.................................................................6
Section 1.4 Post-Closing Adjustment for Pre-Closing HMTHP Incurred Claims....................6
Section 1.5 Post-Closing Adjustment for Pre-Closing HMHIC Incurred Claims....................7
Section 1.6 Transfer Taxes...................................................................8
Article II Closing...............................................................................8
Section 2.1 Time and Place of the Closing....................................................8
Section 2.2 Actions to Be Taken at the Closing...............................................9
(a) Stock Certificates...............................................................9
(b) Corporate Documents..............................................................9
(c) Incumbency and Resolutions Certificates..........................................9
(d) Good Standing Certificates......................................................10
(e) Legal Opinions..................................................................10
(f) Bring-Down Certificates.........................................................10
(g) Purchase Price Payment..........................................................11
(h) Lease Agreement.................................................................11
(i) Transition Services Agreement...................................................11
(j) THR Hospital Provider Agreements................................................11
(k) License Agreement...............................................................11
(l) Regulatory Consents and Approvals...............................................11
(m) Third Party Consents............................................................12
(n) Evidence of Termination of Intercompany Arrangements............................12
(o) Evidence of Discontinuation of Express Scripts Agreement........................12
(p) Withdrawal of HMHIC Products....................................................12
(q) THR Release and Assignment of Claims............................................12
(s) Arlington Memorial Hospital Agreement...........................................12
(t) Evidence of Termination or Assignment of Leases.................................12
(u) Evidence of Assignment of Assets................................................12
Section 2.3 Form of Closing Documents and Timing..............................................13
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TABLE OF CONTENTS (Continued)
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Article III Representations and Warranties of THR, Seller and Target Entities.....................13
Section 3.1 Organization and Existence.......................................................13
Section 3.2 Authority and Enforceability.....................................................14
Section 3.3 No Conflict......................................................................14
Section 3.4 No Consents or Approvals.........................................................15
Section 3.5 Capitalization of Target Entities................................................15
Section 3.6 Title to the Stock...............................................................16
Section 3.7 Interests in Other Entities......................................................16
Section 3.8 Financial Condition..............................................................16
Section 3.9 Absence of Certain Changes or Events.............................................17
Section 3.10 Certain Contracts................................................................18
Section 3.11 Properties and Assets............................................................20
(a) Title to Real Property...........................................................20
(b) Use of Real Property.............................................................20
(c) Title to Personal Property and Other Assets......................................20
(d) Condition of Assets..............................................................21
(e) Investment Assets................................................................21
(f) Books and Records................................................................21
Section 3.12 Litigation.......................................................................22
(a) Existence........................................................................22
(b) Effect...........................................................................22
Section 3.13 Employee Benefit Plans...........................................................22
(a) Identification of Plans..........................................................22
(b) Funding Requirement; Title IV Plans..............................................23
(c) Contributions to Designated Plans................................................23
(d) Multiemployer Plans..............................................................23
(e) Qualifications...................................................................23
(f) Claims...........................................................................23
(g) Penalties........................................................................24
(h) Compliance.......................................................................24
(i) Certain Requirements.............................................................24
Section 3.14 Compliance with Laws and Licenses................................................24
(a) Compliance.......................................................................24
(b) Possession of Licenses...........................................................24
(c) Health Benefit Laws Defined......................................................25
Section 3.15 No Undisclosed Liability; Indebtedness...........................................25
Section 3.16 Personnel Information; Labor Relations...........................................26
(a) Identification of Employees......................................................26
(b) Certain Matters Relating to Employees............................................26
(c) Compliance.......................................................................27
Section 3.17 Taxes 27
(a) Filing of Returns................................................................27
(b) Payment of Taxes.................................................................28
(c) Withholding......................................................................28
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TABLE OF CONTENTS (Continued)
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(d) Encumbrances.....................................................................28
(e) Claims...........................................................................28
(f) Information Provided.............................................................28
(g) No Withholding...................................................................29
(h) Parachute Payments...............................................................29
(i) 341(f) Consents..................................................................29
Section 3.18 Intellectual Property and Information Systems....................................29
(a) Definition.......................................................................29
(b) Right to Use.....................................................................30
(c) Information Systems..............................................................30
Section 3.19 Insurance........................................................................32
Section 3.20 Bank Accounts....................................................................32
Section 3.21 Certain Transactional Fees.......................................................33
Section 3.22 Insurance Filings................................................................33
(a) Licenses.........................................................................33
(b) Status of Licenses...............................................................33
(c) Reports..........................................................................33
(d) No Orders, Proceedings, Fines, etc...............................................33
(e) Statutory Insurance Statements...................................................33
(f) Statutory Financial Statements...................................................34
(g) Accuracy of Future Statutory Financial Statements to be Delivered................34
(h) Reserves, etc....................................................................34
(i) Reports of Examination...........................................................35
Section 3.23 HMO and Insurance Business.......................................................35
(a) Definitions......................................................................35
(b) Reinsurance......................................................................37
(c) Insurance Contracts, Forms and Rates of HMHIC....................................38
(d) No Policy Dividends..............................................................38
(e) Underwriting Standards...........................................................38
(f) Records..........................................................................39
(g) HMTHP's Compliance with Health Benefit Plan Laws.................................39
(h) Enrollment Forms; Subscriber Agreements..........................................39
(i) HMTHP Broker Agreements..........................................................40
(j) HMTHP Provider Agreements........................................................41
(k) HMHIC Insurance Contracts........................................................42
(l) HMHIC Broker Agreements..........................................................43
(m) HMHIC Provider Agreements........................................................44
Section 3.24 Disclosure.......................................................................44
Article IV Representations and Warranties of Buyer...............................................45
Section 4.1 Organization and Good Standing...................................................45
Section 4.2 Authority and Enforceability.....................................................45
Section 4.3 No Conflict......................................................................45
Section 4.4 No Consents or Governmental Approvals............................................45
Section 4.5 Certain Transactional Fees.......................................................46
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TABLE OF CONTENTS (Continued)
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Article V Certain Pre-Closing Covenants.........................................................46
Section 5.1 Conduct of the Target Entities' Respective Businesses Pending
the Closing......................................................................46
Section 5.2 Access to Information............................................................47
Section 5.3 Confidentiality..................................................................48
Section 5.4 Public Announcements.............................................................49
Section 5.5 Disclosure Addendum..............................................................49
Section 5.6 Delivery of Statutory Insurance Statements.......................................49
Section 5.7 No Shop..........................................................................50
Section 5.8 Transition Planning..............................................................50
Section 5.9 Books and Records................................................................50
Section 5.10 Maintenance of Assets............................................................51
Section 5.11 Regulatory Consents and Approvals; Third Party Consents..........................51
Section 5.12 Furnish Notice of Adverse Events.................................................51
Section 5.13 Closing Balance Sheets...........................................................51
Section 5.14 Terminate Intercompany Arrangements..............................................52
Section 5.15 Termination of Employee Benefit Plans............................................52
Section 5.16 Discontinuation of Express Scripts Agreement.....................................52
Section 5.17 Best Efforts; Further Assurances.................................................52
Section 5.18 Intentionally Left Blank.........................................................53
Section 5.19 Stay-Put Bonus...................................................................53
Section 5.20 Stadium Boxes....................................................................53
Section 5.21 Termination of Leases............................................................53
Section 5.22 Assignment of Certain Assets.....................................................53
Section 5.23 Reduction in Force....................................................................53
Article VI Conditions Precedent..................................................................53
Section 6.1 Conditions to Each Party's Obligations..........................................53
(a) No Threats of Invalidity........................................................54
(b) No New Adverse Laws.............................................................54
(c) Authorizations and Legal Requirements...........................................54
Section 6.2 Conditions to the Obligations of Buyer............................................54
(a) Representations by Seller.......................................................54
(b) Fulfillment of Covenants by Seller, and the Target Entities.....................54
(c) Closing Documents...............................................................55
(d) Addendum to Disclosure Schedule.................................................55
(e) Material Adverse Change.........................................................55
(f) Third Party Consents............................................................55
(g) Adverse Regulatory Condition....................................................55
(h) Adequate Extended Reporting Insurance Coverage..................................56
(i) Withdrawal by HMHIC of Certain Products.........................................56
(j) Adverse Litigation or Proceedings...............................................56
(k) Occurrence of a Material Adverse Effect.........................................56
(l) Handling Unfulfilled Closing Conditions.........................................57
(m) Closing SAP Balance Sheets......................................................57
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TABLE OF CONTENTS (Continued)
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Section 6.3 Conditions to the Obligations of Seller...........................................57
(a) Representations by Buyer........................................................57
(b) Fulfillment of Covenants by Buyer...............................................58
(c) Receipt of Payments and Closing Documents......................................58
(d) Release of Seller...............................................................58
Article VII Additional Agreements.................................................................58
Section 7.1 Supplying of Information.........................................................58
Section 7.2 Expenses.........................................................................58
Section 7.3 Taxes, Tax Reporting and Cooperation.............................................58
(a) Preparation of Tax Returns.......................................................58
(b) Tax Controversies and Audits.....................................................59
(c) Books and Records................................................................60
(d) Post-Closing Audits and Adjustments..............................................60
(e) Statutory Filings with TDI.......................................................60
Section 7.4 Employee Benefit Plans...........................................................61
Section 7.5 Further Assignments and Assurances...............................................61
Section 7.6 Legal Name of the Target Entities................................................61
Section 7.7 Covenant Not to Compete..........................................................61
(a) Severable Covenants..............................................................62
(b) Remedies.........................................................................62
(c) Exceptions and Qualifications....................................................62
Section 7.8 Nonsolicitation..................................................................63
Section 7.9 Obligations With Respect to Section 338(h)(10) Election..........................63
(a) Purchase Price Allocation........................................................63
(b) Obligations With Respect to Filing Forms.........................................63
(c) Eligibility Under Section 338(h)(10).............................................64
(d) Cooperation......................................................................64
(e) No Indemnification of Seller.....................................................64
(f) Responsibility for Taxes.........................................................65
Section 7.10 Audit of the Closing GAAP Balance Sheets.........................................65
Section 7.11 Closing Press Release............................................................65
Section 7.12 Employees........................................................................65
Section 7.13 Continue to Perform Settlement Agreement.........................................66
Section 7.14 Survival.........................................................................66
Article VIII Indemnification and Remedies..........................................................66
Section 8.1 Certain Indemnification of Buyer by Seller and THR...............................66
(a) Known Claims and Encumbrances....................................................66
(b) Unknown Claims Covered by Insurance..............................................67
(c) Taxes............................................................................67
(d) Nonprofit Conversion.............................................................68
(e) OPM Indemnification and Assignment...............................................68
(f) Unfulfilled Conditions to Closing................................................70
(g) Employee Benefit Plans...........................................................70
(h) Certain Lawsuits.................................................................70
(i) Limitations Period Applicable to Claims Brought Under this
Section 8.1......................................................................70
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TABLE OF CONTENTS (Continued)
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Section 8.2 Limited Indemnification of Buyer by Seller and THR................................71
(a) Subject of Limited Indemnification...............................................71
(b) Limitation on the Recovery of Losses.............................................71
(c) Maximum Liability for Limited Indemnification....................................71
(d) Limitations Periods for Representations and Warranties...........................72
(e) No Conflicting Indemnification Obligations.......................................72
Section 8.3 Buyer's Indemnification of Seller................................................72
Section 8.4 Third-Party Claims...............................................................72
Section 8.5 Claims Between the Parties.......................................................73
Section 8.6 Survival of Covenants and Agreements; Maximum Indemnification Liability..........73
Article IX General Provisions....................................................................74
Section 9.1 Amendments.......................................................................74
Section 9.2 Notices..........................................................................74
Section 9.3 Waiver...........................................................................75
Section 9.4 Headings.........................................................................75
Section 9.5 Severability.....................................................................76
Section 9.6 Entire Agreement; Schedules and Exhibits.........................................76
Section 9.7 Governing Law and Venue..........................................................76
Section 9.8 Counterparts.....................................................................76
Section 9.9 No Third-Party Beneficiaries.....................................................76
Section 9.10 Assignability....................................................................76
Section 9.11 Termination......................................................................77
Section 9.13 Construction.....................................................................77
Section 9.14 Attorneys' Fees..................................................................78
EXHIBITS
EXHIBIT A - OPINION OF OUTSIDE LEGAL COUNSEL TO SELLER
EXHIBIT B - OPINION OF IN-HOUSE LEGAL COUNSEL TO SELLER
EXHIBIT C - OPINION OF COUNSEL TO BUYER
EXHIBIT D - LEASE AGREEMENT
EXHIBIT E - PER DIEM THR HOSPITAL PROVIDER AGREEMENT AMONG THR, THS
AND HMTHP
EXHIBIT F - RISK SHARING THR HOSPITAL PROVIDER AGREEMENT, AMONG THR,
THS AND HMTHP
EXHIBIT G - LICENSE AGREEMENT
EXHIBIT H - PARAMETERS FOR RATES FOR ARLINGTON MEMORIAL HOSPITAL
AGREEMENT
EXHIBIT I - DISCLOSURE SCHEDULES
EXHIBIT J - TRANSITION PLANNING GUIDELINES
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 1st day of November, 1999 (the "Execution Date"), among XXXXXX METHODIST
HEALTH PLAN, INC., a Delaware corporation ("Seller"), Seller's sole shareholder,
TEXAS HEALTH RESOURCES, a Texas nonprofit corporation ("THR"), and PACIFICARE
HEALTH PLAN ADMINISTRATORS, INC., an Indiana corporation ("Buyer").
RECITALS
WHEREAS, Seller owns all of the outstanding shares of common stock,
$.01 par value per share (the "HMTHP Stock"), of Xxxxxx Methodist Texas Health
Plan, Inc., a Texas corporation d.b.a. Xxxxxx Methodist Health Plan ("HMTHP")
and all of the outstanding shares of common stock, $1.00 par value per share
(the "HMHIC Stock"), of Xxxxxx Methodist Health Insurance Company, Inc., a Texas
corporation ("HMHIC"); and
WHEREAS, Seller wishes to sell, and Buyer wishes to purchase, the HMTHP
Stock and the HMHIC Stock;
WHEREAS, THR, as the sole shareholder of Seller, has entered into this
Agreement as a material inducement for Buyer to enter into this Agreement; and
WHEREAS, THR and THS have entered into concurrently herewith, or as of
the Closing will enter into, the four THR Hospital Provider Agreements as
another material inducement for Buyer to enter into this Agreement.
NOW THEREFORE, in consideration of the mutual agreements and covenants
contained in this Agreement and for other good, fair and valuable consideration,
the receipt and sufficiency of which are acknowledged, Seller, THR and Buyer
(the "Parties") agree as follows:
ARTICLE I
PURCHASE OF STOCK AND CONSIDERATION
SECTION 1.1 PURCHASE OF THE STOCK. On the terms and subject to the
conditions set forth in this Agreement, as of the closing described in Section
2.1 (the "Closing"), Buyer shall purchase from Seller, and Seller shall sell,
assign, transfer, convey and deliver to Buyer, all shares of the HMTHP Stock and
all shares of the HMHIC Stock (sometimes hereinafter, collectively referred to
as the "Stock"), together with the right to receive all unpaid dividends or
other distributions declared or otherwise payable with respect to the Stock on
or after the Closing Date, free and clear of all liens, claims, security
interests, collateral security
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agreements, pledges, attachments, hypothecations, financing statements (whether
or not filed), proxies, voting trusts or other arrangements, options, warrants,
escrows, buy-sell agreements, powers of attorney, exceptions to or defect in
title, claims, charges, mortgages, restrictions on transfer, or other
encumbrances (collectively, "Encumbrances"). Such sale, assignment, transfer,
conveyance and delivery shall be effected by the delivery to Buyer at the
Closing of the certificate(s) representing all of the HMTHP Stock and the
certificate(s) representing all of the HMHIC Stock, with all necessary
documentary or transfer tax stamps affixed thereto, and one or more stock powers
with respect to the HMTHP Stock and the HMHIC Stock, duly executed, in blank, by
Seller.
SECTION 1.2 PURCHASE PRICE FOR THE STOCK. On the terms and subject to
the conditions set forth in this Agreement, at the Closing, as consideration for
the sale, transfer and delivery of the Stock, Buyer shall pay Seller a cash
purchase price in the amount of One Hundred Seventeen Million Five Hundred
Thousand Dollars ($117,500,000) (the "Purchase Price"), subject to post-Closing
adjustment as set forth in Section 1.3 below. All payments made pursuant to
Section 1.2 and 1.3 hereof shall be paid via wire transfer pursuant to signed
written payment instructions delivered to the party who owes the applicable
funds from the party to whom such funds are owed.
SECTION 1.3 POST-CLOSING ADJUSTMENTS REGARDING STATUTORY NET WORTH
AMOUNT.
(a) Post-Closing Net Worth. An adjustment with respect to the
amount by which HMTHP's statutory-basis total net worth at Closing
differs from $10,000,000 (the "Minimum HMTHP Closing Equity") shall be
paid by a Party, in the manner and at the time set forth in Subsection
1.3(d)(i), after conclusive determination of the HMTHP Closing Balance
Sheet pursuant to Subsection 1.3(b). In addition, an adjustment with
respect to the amount by which HMHIC's statutory-basis total net worth
at Closing differs from $7,200,000 (the "Minimum HMHIC Closing Equity")
shall be paid by a Party, in the manner and at the time set forth in
Subsection 1.3(d)(ii), after conclusive determination of the HMHIC
Closing Balance Sheet pursuant to Subsection 1.3(b).
(b) Preparation of Closing SAP Balance Sheets. Within 120 days
after the Closing Date, Seller shall have: (i) prepared the balance
sheet of HMTHP as of the date immediately preceding the Closing Date,
in accordance with statutory accounting principles as construed by the
Texas Department of Insurance ("TDI") under Texas law and regulations
("SAP"), applied in a manner consistent with the audited Financial
Statements, subject to strict adherence to the requirements of
Subsection 1.3(b)(i) which may not be SAP or GAAP requirements (the
"HMTHP Closing Balance Sheet"), and caused the Dallas, Texas office of
Xxxxxx Xxxxxxxx LLP ("Seller's Auditor") to complete an audit of the
HMTHP Closing Balance Sheet in accordance with SAP and the
determinations required to be made below which may not be in accordance
with SAP or GAAP (the "Special Determinations"); and (ii) prepared the
balance sheet of HMHIC as of the date immediately preceding the Closing
Date, in accordance with
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SAP, applied in a manner consistent with the audited Financial
Statements, subject to strict adherence to the requirements of Section
1.3(b)(ii) which may not be SAP or GAAP requirements (the "HMHIC
Closing Balance Sheet"), and caused Seller's Auditor to complete an
audit of the HMHIC Closing Balance Sheet in accordance with SAP and the
Special Determinations. Sometimes hereinafter the HMTHP Closing Balance
Sheet and the HMHIC Closing Balance Sheet will collectively be referred
to as the "Closing SAP Balance Sheets." Seller shall cause copies of
the Closing SAP Balance Sheets to be delivered to Buyer promptly upon
their completion.
(i) Special Requirements of the HMTHP Closing Balance
Sheet. To satisfy the purposes of this Agreement, the HMTHP Closing
Balance Sheet must satisfy the following requirements and shall have
recorded the following balances: (A) the assets recorded on the HMTHP
Closing Balance Sheet in excess of the liabilities recorded on the
HMTHP Closing Balance Sheet necessary to attain the Minimum HMTHP
Closing Equity must be in the form of cash, marketable securities or
other assets which may be immediately liquidated; (B) the HMTHP Closing
Balance Sheet shall have recorded a liability for employee severance
costs in an amount equal to $3,000,000 (the "Severance Reserve"); (C)
the HMTHP Closing Balance Sheet shall have recorded a liability for a
premium deficiency equal to $37,000,000; and (D) the HMTHP Closing
Balance Sheet shall have recorded an asset in the form of cash,
marketable securities, or other liquid assets in an amount equal to the
severance reserve described in the foregoing clause (B) (the "Severance
Cash") and the premium deficiency reserve described in the foregoing
clause (C).
(ii) Special Requirements of the HMHIC Closing
Balance Sheet. To satisfy the purposes of this Agreement, the HMHIC
Closing Balance Sheet must satisfy the following requirements and shall
have recorded the following balances: (A) the assets recorded on the
HMHIC Closing Balance Sheet in excess of the liabilities recorded on
the HMHIC Closing Balance Sheet necessary to attain the Minimum HMHIC
Closing Equity must be in the form of cash, marketable securities or
other assets which may be immediately liquidated; (B) the HMHIC Closing
Balance Sheet shall have recorded a liability for premium deficiency
equal to $22,800,000; and (C) the HMHIC Closing Balance Sheet shall
have recorded an asset in the form of cash, marketable securities or
other liquid assets in an amount equal to the premium deficiency
reserve described in the foregoing clause (B).
(c) Procedure for Conclusive Determination of the Closing SAP
Balance Sheets and HMTHP and HMHIC Adjustment Amounts. (i) During the
initial SAP audit of and Special Determinations for the Closing SAP
Balance Sheets, Seller's Auditor will make itself and its notes and
work papers reasonably available to Buyer and its internal and external
accountants and its personnel. Buyer and its accountants shall have the
opportunity to ask questions of Seller's Auditor and receive feedback
on the valuation of balance sheet items and the audit process. After
the Closing SAP Balance
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Sheets have been received by Buyer, Buyer and Ernst & Young, LLP
("Buyer's Auditor") will have a period of sixty (60) days to review and
evaluate the Closing SAP Balance Sheets. Seller and Seller's Auditor
will fully cooperate with Buyer in the conduct of Buyer's review and
evaluation of the Closing SAP Balance Sheets and will make their
personnel, notes, work papers, and other relevant information
reasonably available to Buyer and Buyer's Auditors. If, by the end of
the 60-day review period, Buyer has not given Seller notice of any
objection to the Closing SAP Balance Sheets prepared by Seller and
audited by Seller's Auditor, subject to the Special Determinations,
then these balance sheets shall become final, binding and conclusive
upon Buyer and Seller for all purposes under this Agreement. If,
however, Buyer has given a notice of objection with respect to the
Closing SAP Balance Sheets, with the corresponding balance sheet
adjustments, prior to the expiration of the 60-day review period, then
the Parties shall attempt to resolve their differences. If the Parties
cannot agree on appropriate changes to be made to the Closing SAP
Balance Sheets within ten (10) business days after the expiration of
Buyer's 60-day review period, then the final and conclusive Closing SAP
Balance Sheets shall be determined in the manner provided in the
following paragraph (ii).
(ii) The HMTHP Adjustment Amount and the HMHIC
Adjustment Amount based upon the Closing SAP Balance Sheets prepared by
Seller and audited by Seller's Auditor, subject to the Special
Determinations ("Seller's Proposed Balance Sheets") will be compared
with the HMTHP Adjustment Amount and the HMHIC Adjustment Amount based
upon the Closing SAP Balance Sheets, as proposed to be adjusted by
Buyer and Buyer's Auditor ("Buyer's Proposed Balance Sheets"). In the
event that the difference between the sum of the HMTHP Adjustment
Amount (whether negative or positive) plus the HMHIC Adjustment Amount
(whether negative or positive) based upon Seller's Proposed Balance
Sheets ("Seller's Total Adjustments") and the sum of the HMTHP
Adjustment Amount plus the HMHIC Adjustment Amount based upon Buyer's
Proposed Balance Sheets ("Buyer's Total Adjustments") is less than or
equal to $100,000 then Seller's Proposed Balance Sheets shall become
final, binding and conclusive on both Parties and the adjustments based
on such balance sheets shall be conclusively determined from such
balance sheets. However, in the event that the difference between
Seller's Total Adjustments and Buyer's Total Adjustments is in excess
of $100,000 then, at the election of Buyer, Seller's Proposed Balance
Sheets will be submitted to the nationally recognized accounting firm
of PricewaterhouseCoopers ("Independent Auditor") to determine, in
accordance with SAP, subject to the Special Determinations, only those
aspects of the Seller's Proposed Balance Sheets to which Buyer still
objects. The Independent Auditor shall complete its review, in
accordance with SAP, subject to the Special Determinations, of Seller's
Proposed Balance Sheets within thirty (30) days after receipt of the
balance sheets and all notes and work papers with respect thereto.
Seller and Seller's Auditor and Buyer and Buyer's Auditor will fully
cooperate with the Independent Auditor's review and evaluation. At the
end of the 30-day Independent Auditor review period, the Independent
Auditor shall make
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such adjustments, if any, to Seller's Proposed Balance Sheets as
appropriate to resolve the matters in controversy and prepare a
restated HMTHP Closing Balance Sheet and restated HMHIC Closing Balance
Sheet based upon the resolution or settlement of the outstanding
matters (the "Independent Closing Balance Sheets"). The Independent
Closing Balance Sheets shall be final, binding, and conclusive upon
Buyer and Seller for all purposes under this Agreement, including the
final determination of the HMTHP Adjustment Amount and the HMHIC
Adjustment Amount. All costs of the Independent Auditor will be borne
equally by Buyer and Seller.
(iii) In the preparation, audit and final
determination of the Closing SAP Balance Sheets for all purposes under
this Agreement, including determinations of the HMTHP Adjustment Amount
and the HMHIC Adjustment Amount, the Parties, Seller's Auditor, Buyer's
Auditor and, if applicable, the Independent Auditor shall be required
to follow all of the terms, conditions and requirements of this
Agreement, including the Special Determinations. In the event of any
conflict or inconsistency between the application of the terms,
conditions or requirements of this Agreement in the preparation, audit
or final determination of the Closing SAP Balance Sheets and either SAP
or GAAP, then the terms, conditions and requirements of this Agreement,
including the Special Determinations, shall govern and be controlling
for all purposes for which the Closing SAP Balance Sheets are used
under this Agreement.
(d) Payment of HMTHP Adjustment Amount and HMHIC Adjustment
Amount. (i) The positive or negative difference between the
statutory-basis total net worth of HMTHP derived from the final and
conclusive HMTHP Closing Balance Sheet and the Minimum HMTHP Closing
Equity shall be referred to as the "HMTHP Adjustment Amount." In the
event that the statutory-basis total net worth of HMTHP derived from
the final and conclusive HMTHP Closing Balance Sheet exceeds the
Minimum HMTHP Closing Equity, then Buyer shall pay Seller an HMTHP
Adjustment Amount equal to the dollar amount of such excess.
Alternatively, in the event that the statutory-basis total net worth of
HMTHP derived from the final and conclusive HMTHP Balance Sheet is less
than the Minimum HMTHP Closing Equity, then Seller shall pay to Buyer
an HMTHP Adjustment Amount equal to the dollar amount of such deficit.
The HMTHP Adjustment Amount shall be paid within five (5) business days
after its final and conclusive determination in accordance with this
Section 1.3.
(ii) The positive or negative difference between the
statutory-basis total net worth of HMHIC derived from the final and
conclusive HMHIC Closing Balance Sheet and the Minimum HMHIC Closing
Equity shall be referred to as the "HMHIC Adjustment Amount." In the
event that the statutory-basis total net worth of HMHIC derived from
the final and conclusive HMHIC Closing Balance Sheet exceeds the
Minimum HMHIC Closing Equity, then Buyer shall pay Seller an HMHIC
Adjustment Amount equal to the dollar amount of such excess. In the
event that the statutory-basis total net worth of HMHIC derived from
the final and conclusive
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HMHIC Closing Balance Sheet is less than the Minimum HMHIC Closing
Equity, then Seller shall pay to Buyer an HMHIC Adjustment Amount equal
to the dollar amount of such deficit. The HMHIC Adjustment Amount shall
be paid within five (5) business days after its final and conclusive
determination in accordance with this Section 1.3.
(e) Scope of Section. Nothing in this Section 1.3 shall
prejudice, limit or restrict any right of either Party to
indemnification under Article VIII or Buyer's rights under Section 1.4
below.
SECTION 1.4 POST-CLOSING ADJUSTMENT FOR PRE-CLOSING HMTHP INCURRED
CLAIMS. In the event that the liability recorded on the HMTHP Closing Balance
Sheet, as conclusively determined in accordance with Section 1.3 above, for
incurred but not reported claims liability of HMTHP for health care goods or
services furnished before the Closing Date to Members and incurred but not paid
claims liability of HMTHP for health care goods or services furnished before the
Closing Date to Members (which are reflected as account numbers 00000000 due
from FWC/Xxxx, 16500064, SHP Escrow Account,00000000 MCNT, Physician Funds on
Deposit,17000029 IBNR Commercial Medical, and 17000037 PSN IBNR on the July 31,
1999 Financial Statements) (collectively, "Pre-Closing HMTHP Incurred Claims")
is understated, then Seller shall make a cash payment to HMTHP to compensate
HMTHP for such understatement. Alternatively, in the event that the Pre-Closing
HMTHP Incurred Claims is overstated, then Buyer shall make a cash payment to
Seller in the amount of such overstatement. However, before such determination,
Seller will be permitted to engage Seller's Auditor, at its own expense, for the
sole purpose of evaluating the adequacy of the control processes related to the
payment of Pre-Closing HMTHP Incurred Claims. Seller's Auditor shall conduct and
conclude its evaluation during the one hundred eighty (180) day period after the
Closing Date or during the thirty (30) day period after the Pre-Closing HMTHP
Incurred Claims data is converted from HMTHP's information systems to Buyer's
information systems, whichever is later. If, as a result of Seller's Auditor's
review, Seller's Auditor has reasonable evidence to demonstrate that the control
processes related to the payment of Pre-Closing HMTHP Incurred Claims are
inadequate, then Buyer shall make appropriate changes to those processes. To
determine whether there is an understatement or overstatement for the purposes
of this Agreement, Buyer and Seller will mutually engage the actuarial staff or
division of the Irvine, California (Orange County) office of Ernst & Young, LLP
("Actuary") to conduct an actuarial review of the Pre-Closing HMTHP Incurred
Claims recorded on the HMTHP Closing Balance Sheet based upon the actual claims
experience of the HMTHP Business during the twelve month period following the
Closing Date. The Actuary will have ninety (90) days from the first anniversary
of the Closing Date to conduct and complete its review. The Parties, HMTHP and
HMTHP's former internal and external accountants and actuaries shall cooperate
fully with Actuary to facilitate the completion of its review within such time
period. At the end of its review, the Actuary will conclusively determine the
dollar amount of Pre-Closing HMTHP Incurred Claims presented for payment during
the twelve months after Closing (the "Actual HMTHP Incurred Claims Paid") and
establish a reserve amount, as of the one year anniversary of the Closing, for
the remaining
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Pre-Closing HMTHP Incurred Claims which have not yet been paid or presented for
payment ("Outstanding HMTHP Incurred Claims Reserve"). For the purposes of this
Section 1.4 and the Actuary's review, payment of the Pre-Closing HMTHP Incurred
Claims shall not be permitted from any premium deficiency reserve or reserves
created by the Special Determinations. If the sum of the Actual HMTHP Incurred
Claims Paid plus the Outstanding HMTHP Incurred Claims Reserve is greater than
the reserve established for the Pre-Closing HMTHP Incurred Claims recorded on
the final and conclusive HMTHP Closing Balance Sheet, then Seller shall pay to
HMTHP such difference within five (5) business days after receiving a written
report from the Actuary. Alternatively, if the sum of the Actual HMTHP Incurred
Claims Paid plus the Outstanding HMTHP Incurred Claims Reserve is less than the
reserve established for the Pre-Closing HMTHP Incurred Claims recorded on the
final and conclusive HMTHP Closing Balance Sheet, then Buyer shall pay Seller
the difference within five (5) business days after receiving a written report
from the Actuary. In either event, the cost of the Actuary actuarial review
shall be shared equally by Buyer and Seller.
SECTION 1.5 POST-CLOSING ADJUSTMENT FOR PRE-CLOSING HMHIC INCURRED
CLAIMS. In the event that the liability recorded on the HMHIC Closing Balance
Sheet, as conclusively determined in accordance with Section 1.3 above, for
incurred but not reported claims liability of HMHIC for costs associated with
health care services furnished to Insureds before the Closing Date and incurred
but not paid claims liability of HMHIC for costs associated with health care
services furnished to Insureds before the Closing Date, exclusive of any
reserves referenced in Section 3.1(b)(i) (which are reflected as account numbers
00000000 Claim Liability POS, 17000014 Claims Liability HPO, 17000015 Claim
Liability- Dental, 17000016 Claim Liability- Life, 17000017, Claim Liability-
Stop Loss,17000018 Claim Liability- IDY,17000019 Claim Liability- MCS, 17100010
Claim Liability- PPO and 17100011 Claim Liability- IFY PPO on the July 31, 1999
Financial Statements) (collectively, "Pre-Closing HMHIC Incurred Claims") is
understated, then Seller shall make a cash payment to HMHIC to compensate HMHIC
for such understatement. Alternatively, in the event that the Pre-Closing HMHIC
Incurred Claims is overstated, then Buyer shall make a cash payment to Seller in
the amount of such overstatement. However, before such determination, Seller
will be permitted to engage Seller's Auditor, at its own expense, for the sole
purpose of evaluating the adequacy of the control processes related to the
payment of Pre-Closing HMHIC Incurred Claims. Seller's Auditor shall conduct and
conclude its evaluation during the one hundred eighty (180) day period after the
Closing Date or during the thirty (30) day period after the Pre-Closing HMHIC
Incurred Claims data is converted from HMHIC's information systems to Buyer's
information systems, whichever is later. If, as a result of Seller's Auditor's
review, Seller's Auditor has reasonable evidence to demonstrate that the control
processes related to the payment of Pre-Closing HMHIC Incurred Claims are
inadequate, then Buyer shall make appropriate changes to those processes. To
determine whether there is an understatement or overstatement for the purposes
of this Agreement, Buyer and Seller will mutually engage the Actuary to conduct
an actuarial review of the Pre-Closing HMHIC Incurred Claims recorded on the
HMHIC Closing Balance Sheet based upon the actual claims experience of the HMHIC
Business during the twelve month period following the Closing Date. The Actuary
will have
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ninety (90) days from the first anniversary of the Closing Date to conduct and
complete its review. The Parties, HMHIC and HMHIC's former internal and external
accountants and actuaries shall cooperate fully with the Actuary to facilitate
the completion of its review within such time period. At the end of its review,
the Actuary will conclusively determine the dollar amount of Pre-Closing HMHIC
Incurred Claims presented for payment during the twelve months after Closing
(the "Actual HMHIC Incurred Claims Paid") and establish a reserve amount, as of
the one year anniversary of the Closing, for the remaining Pre-Closing HMHIC
Incurred Claims which have not yet been paid or presented for payment
("Outstanding HMHIC Incurred Claims Reserve"). For the purposes of this Section
1.5and the Actuary's review, payment of the Pre-Closing HMHIC Incurred Claims
shall not be permitted from any premium deficiency reserve or reserves created
by the Special Determinations. If the sum of the Actual HMHIC Incurred Claims
Paid plus the Outstanding HMHIC Incurred Claims Reserve is greater than the
reserve established for the Pre-Closing HMHIC Incurred Claims recorded on the
final and conclusive HMHIC Closing Balance Sheet, then Seller shall pay to HMHIC
such difference within five (5) business days after receiving a written report
from the Actuary. Alternatively, if the sum of the Actual HMHIC Incurred Claims
Paid plus the Outstanding HMHIC Incurred Claims Reserve is less than the reserve
established for the Pre-Closing HMHIC Incurred Claims recorded on the final and
conclusive HMHIC Closing Balance Sheet, then Buyer shall pay Seller the
difference within five (5) business days after receiving a written report from
the Actuary. In either event, the cost of the Actuarial review shall be shared
equally by Buyer and Seller.
SECTION 1.6 TRANSFER TAXES. Seller shall pay any and all federal taxes
arising out of, or assessed in connection with, the sale or transfer of the
shares of the Stock. In addition, Seller shall pay any and all state or local
taxes arising out of, or assessed in connection with, the sale or transfer of
the shares of the Stock in Texas or in any other jurisdiction in which Seller or
either Target Entity may be so taxed or assessed.
ARTICLE II
CLOSING
SECTION 2.1 TIME AND PLACE OF THE CLOSING. The Closing of the
transactions described in this Agreement (the "Transactions") shall take place
at the offices of Xxxxxxx, Xxxxxxxx & Xxxxxxxxxx, L.L.P., 0000 Xxxxx Xxxxxx,
00xx Xxxxx, Xxxxxx, Xxxxx 00000 as of 12:01 a.m. on the first day of the month
on or after which all conditions to Closing hereunder have been satisfied or at
12:01 a.m. on such other date as Buyer and Seller mutually agree in writing (the
"Closing Date").
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SECTION 2.2 ACTIONS TO BE TAKEN AT THE CLOSING. At the Closing, the
Parties shall take the following actions and make the following deliveries:
(a) Stock Certificates. Seller shall deliver to Buyer the
stock certificate(s) representing the HMTHP Stock, accompanied by a
stock power endorsed in blank by Seller, and the stock certificate(s)
representing the HMHIC Stock, accompanied by a stock power endorsed in
blank by Seller.
(b) Corporate Documents. Seller shall deliver to Buyer the
stock ledger and minute book of HMTHP and HMHIC, the seal of HMTHP and
HMHIC, if any, and the resignations, effective as of the date
immediately preceding the Closing Date, of all of the directors and
officers of HMTHP and HMHIC.
(c) Incumbency and Resolutions Certificates. (i) THR shall
deliver to Buyer a certificate of corporate incumbency and resolutions
authorizing (1) the execution, delivery and performance by THR of this
Agreement and the Related Documents (as defined in Section 3.2) to
which THR is a party and the consummation of the transactions
contemplated hereby and thereby and (2) the individuals signing this
Agreement and those Related Documents to which THR is a party to do so
on behalf of THR; (ii) Seller shall deliver to Buyer a certificate of
corporate incumbency and resolutions authorizing (1) the execution,
delivery and performance by Seller of this Agreement and the Related
Documents to which Seller is a party and the consummation of the
transactions contemplated hereby and thereby and (2) the individuals
signing this Agreement and all Related Documents to which Seller is a
party to do so on behalf of Seller; (iii) Seller shall deliver to Buyer
a certificate of corporate incumbency and resolutions authorizing (1)
the execution, delivery and performance by Seller's Affiliates of the
Related Documents to which those Affiliates are a party and the
consummation of the transactions contemplated thereby and (2) the
individuals signing those Related Documents to which Seller's
Affiliates are a party to do so on behalf of each such Affiliate; (iv)
Seller shall deliver to Buyer a certificate of the Secretary of HMTHP
attaching true and correct copies of HMTHP's articles of incorporation
(certified by the Secretary of State of Texas as of a date no more than
ten days prior to the Closing Date) and bylaws; (v) Seller shall
deliver to Buyer a certificate of the Secretary of HMHIC attaching true
and correct copies of HMHIC's articles of incorporation (certified by
the Secretary of State of Texas as of a date no more than ten days
prior to the Closing Date) and bylaws; (vi) Buyer shall deliver to
Seller a certificate of corporate incumbency and resolutions
authorizing the individuals signing this Agreement and all Related
Documents to which Buyer is a party to do so on behalf of Buyer; and
(vii) Buyer shall deliver to Seller a certificate of corporate
incumbency and resolutions authorizing (1) the execution, delivery and
performance by Buyer's Affiliates of the Related Documents to which
those Affiliates are a party and the consummation of the transactions
contemplated thereby and (2) the individuals signing those Related
Documents to which Buyer's Affiliates are a party to do so on behalf of
each such Affiliate. For the purposes of this Agreement, an "Affiliate"
of Seller shall mean those Persons listed on Section 2.2(c) of the
Disclosure Schedule, and an "Affiliate" of Buyer shall mean: with
respect to any person, any other Person which
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directly or indirectly controls, is controlled by or is under common
control with such person. As used in the foregoing definition,
"control" (and the correlatives, "controlled by" and "under common
control with") shall mean (i) possession, directly or indirectly, of
fifty percent (50%) or more of the securities having ordinary voting
power for the election of directors or other governing body of a
corporation (other than securities having such power only by reason of
the happening of a contingency), and (ii) possession of fifty percent
(50%) percent or more of the partnership or other ownership interests
of any non-corporate Person (other than as a limited partner).
(d) Good Standing Certificates. (i) Seller shall deliver to
Buyer a certificate of good standing of HMTHP from the State of Texas
and of HMHIC from the State of Texas dated as of a date no more than
ten days prior to the Closing Date.
(e) Legal Opinions. (i) An opinion letter from outside legal
counsel to Seller and THR shall be delivered to Buyer in the form
attached hereto as Exhibit A; (ii) an opinion letter from in-house
legal counsel to Seller and THR to be delivered to Buyer in the form
attached hereto as Exhibit B; and (iii) an opinion letter from legal
counsel to Buyer shall be delivered to Seller in the form attached
hereto as Exhibit C.
(f) Bring-Down Certificates. (i) Seller and THR shall deliver
to Buyer a certificate dated as of the Closing Date and executed
respectively by an executive officer of Seller and THR which certifies
that the representations and warranties made by Seller in this
Agreement and in the Disclosure Schedule, as may be amended, and in any
other certificate delivered by Seller or THR pursuant to this
Agreement, are true and correct as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date,
with the exception of any inaccuracy in such representations and
warranties which does not cause, result in or constitute a Material
Adverse Effect (as defined below) in any single instance or a Material
Adverse Change (as defined in Section 6.2(e)) in any one or more
instances, and all of the conditions to Buyer's obligations set forth
in Section 6.1 and 6.2 below have been fully satisfied or waived in
writing ("Seller's Bring-Down Certificate"); and (ii) Buyer shall
deliver to Seller a certificate dated as of the Closing Date and
executed by an executive officer of Buyer which certifies that the
representations and warranties made by Buyer in this Agreement and in
any other certificate delivered by Buyer pursuant to this Agreement,
are true and correct as of the Closing Date, and all of the conditions
to Seller's obligations set forth in Section 6.1 and 6.3 below have
been fully satisfied or waived in writing ("Buyer's Bring-Down
Certificate").
For the purposes of this Agreement, a "Material Adverse
Effect" means any event, change or circumstance which has had or is
reasonably likely to have an economic or financial impact on the
business, operations, property, financial condition or results of
operations of either Target Entity in excess of $10,000 or any Loss
(defined in Section 8.1(a)) or Claim (defined in Section 8.1(a))
affecting the Target Entities in excess of $10,000.
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(g) Purchase Price Payment. Buyer shall pay Seller the
Purchase Price as described in Section 1.3 via a wire transfer that
will post in Seller's account within one (1) business day after the
Closing Date.
(h) Lease Agreement. A lease for the property located at 000
Xxxx Xxxxx, Xxxxxxxxx, Xxxxx by and between Texas Health Systems
("THS"), as lessor, and Buyer, as lessee, in the form attached hereto
as Exhibit D, shall be executed by THS and Buyer and delivered by Buyer
and Seller (the "Lease Agreement"), and the full service rental rate
for the five-year initial lease term of the premises demised by the
Lease Agreement shall have been mutually agreed to by Buyer and THS.
(i) Transition Services Agreement. Transition Services
Agreement between THS and HMTHP and HMHIC respecting THS' provision of
certain information systems services and support after Closing, shall
have been executed by the parties thereto on or before the date hereof
and delivered by Buyer and Seller at Closing on behalf of their
respective Affiliates (the "Transition Services Agreement").
(j) THR Hospital Provider Agreements. (i) Per diem and
risk-sharing Hospital Provider Agreements among THR, THS on behalf of
all of its hospital facilities and PacifiCare of Texas, Inc. shall have
been executed by the parties thereto effective as of October 1, 1999
and delivered by Buyer and Seller at Closing on behalf of their
respective Affiliates; and (ii) Per diem and risk-sharing Hospital
Provider Agreements between THR, THS on behalf of all of its hospital
facilities and HMTHP, in the forms attached hereto as Exhibit E and
Exhibit F shall have been executed by the parties thereto and delivered
by Buyer and Seller at Closing on behalf of their respective Affiliates
(collectively, the "THR Hospital Provider Agreements").
(k) License Agreement. Trademark License Agreement between
THR, as licensor, and HMTHP, HMHIC, and PacifiCare of Texas, Inc., as
licensee, respecting the use of the "Xxxxxx Methodist" name for a
limited, transitional period of time after Closing, in the form
attached hereto as Exhibit G shall have been executed by the parties
thereto and delivered by Buyer and Seller on behalf of their respective
Affiliates (the "License Agreement").
(l) Regulatory Consents and Approvals. (i) Seller shall
deliver to Buyer written evidence that all consents and approvals from
any Governmental Authority required to be obtained by Seller or either
Target Entity, including the approval of TDI, to consummate the sale
and transfer of the Stock as contemplated by this Agreement; and (ii)
Buyer shall deliver to Seller written evidence of all consents and
approvals from any Governmental Authority required to be obtained by
Buyer to consummate the purchase of the Stock as contemplated by this
Agreement.
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(m) Third Party Consents. Seller shall deliver to Buyer all
Material Consents and Notices as described in Section 6.2(f).
(n) Evidence of Termination of Intercompany Arrangements.
Seller shall deliver to Buyer written evidence of the termination of
the Intercompany Arrangements as required by Section 5.13.
(o) Evidence of Discontinuation of Express Scripts Agreement.
Seller shall deliver to Buyer written evidence that the Contract
involving Express Scripts and the Target Entities has been discontinued
as contemplated by Section 5.16 below.
(p) Withdrawal of HMHIC Products. Seller shall deliver to
Buyer written evidence that HMHIC has given notice of withdrawal
certain products from the State of Texas as referred to in Section
6.2(i).
(q) THR Release and Assignment of Claims. Seller shall deliver
to Buyer a written release executed by THR which releases PacifiCare of
Texas, Inc. from all claims and liabilities arising from hospital
services furnished by THR-affiliated hospitals to PacifiCare of Texas
HMO members who were assigned to Genesis Physicians Practice
Association as their primary care medical group, which release and
assignment of claims shall be in form and substance satisfactory to
PacifiCare of Texas, Inc. and its legal counsel.
(r) Arlington Memorial Hospital Agreement. Per diem Hospital
Provider Agreements between Arlington Memorial Hospital and HMTHP and
PacifiCare of Texas, Inc., respectively, in the forms of the per diem
THR Hospital Provider Agreements, and with the parameters for rates set
forth on Exhibit H attached hereto, shall have been executed by the
parties thereto and delivered by Buyer and Seller at Closing on behalf
of their respective Affiliates.
(s) Evidence of Termination or Assignment of Leases. Seller
shall deliver to Buyer written evidence of the termination or
assignment of all of the Leases as required by Section 5.21.
(t) Evidence of Assignment of Assets. Seller shall deliver to
Buyer written evidence that the Target Entities have acquired title to
certain Assets and leases or licenses of certain Assets which are used
in the business of the Target Entities as required by Section 5.22.
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SECTION 2.3 FORM OF CLOSING DOCUMENTS AND TIMING. Each document
delivered at or before the Closing pursuant to Section 2.2 shall be in form
reasonably satisfactory to counsel for each Party, be appropriately executed
and, if applicable, shall be in form suitable for filing. Each Party shall
deliver such number of executed agreements, certificates and opinions as the
Party to receive such documents may reasonably request. All acts, deliveries and
confirmations comprising the Closing, including all conditions precedent to
Closing, regardless of chronological sequence, shall be deemed to occur
contemporaneously and simultaneously upon the occurrence of the last act,
delivery, confirmation or condition of the Closing and no such act, delivery,
confirmation or condition shall be effective unless and until the last of all
such items shall have occurred.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THR, SELLER AND TARGET ENTITIES
For purposes of this Agreement, HMTHP and HMHIC are sometimes referred
to individually as a "Target Entity" and collectively as the "Target Entities."
The following representations and warranties are made jointly and severally by
Seller and THR as of the Execution Date and as of the Closing Date with
reference to Seller, THR or the referenced Target Entity or Target Entities, as
the context may require.
SECTION 3.1 ORGANIZATION AND EXISTENCE. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. THR is a nonprofit corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. Each of HMTHP and HMHIC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. Each of the Target Entities has the corporate power and
authority to own, operate and lease its properties and assets and carry on its
business and operations in all material respects as now owned, operated, leased
or conducted. There is no state in the United States in which HMTHP or HMHIC is
duly qualified or licensed to do business as a foreign corporation. The
jurisdictions set forth on Schedule 3.1 of the Disclosure Schedule executed by
Seller and THR, and delivered to Buyer concurrently with the delivery of this
Agreement (the "Disclosure Schedule", which is attached hereto as Exhibit I),
are the only jurisdictions in which the property owned, leased or operated by
HMTHP or the conduct of HMTHP's business (the "HMTHP Business") and the property
owned, leased or operated by HMHIC or the conduct of HMHIC's business (the
"HMHIC Business") makes qualification or licensure necessary. The Target
Entities' respective minute books contain correct (other than typographical
errors) and substantially complete records of meetings and consents in lieu of
meetings of the Target Entities' respective boards of directors (and any
committees) and shareholders, and accurately reflect all transactions referred
to therein in all material respects and contain accurate, correct and complete
records of the Target Entities' articles of incorporation (as amended or
restated) and bylaws (as amended or restated). The stock books and stock ledgers
of the Target Entities are complete and correct. The minute books of the Target
Entities' reflect all material corporate actions of the Target Entities'
respective shareholders, board of directors and committees thereof.
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SECTION 3.2 AUTHORITY AND ENFORCEABILITY. (a) Seller has all requisite
corporate power and authority to enter into, deliver and perform this Agreement
and the Disclosure Schedule, the Lease Agreement, the THR Hospital Provider
Agreements, the Transition Services Agreement, the License Agreement, Seller's
Bring Down Certificate and any other documents contemplated by this Agreement
(collectively, the "Related Documents") to which Seller is party and to
consummate the Transactions. All acts or proceedings required to be taken by
Seller to authorize the execution, delivery and performance of this Agreement
and the Transactions have been duly and validly taken and, by Closing, each
Related Document to which Seller is a party will be duly authorized, executed
and delivered by Seller pursuant to all necessary corporate action. Assuming the
due authorization, execution and delivery by the other parties thereto (except
THR), this Agreement constitutes, and upon their execution and delivery at the
Closing, each Related Document to which Seller is a party, will constitute the
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with their respective terms.
(b) THR has all requisite corporate power and authority to
enter into, deliver and perform this Agreement and the Related Documents to
which THR is party and to cause the consummation of the Transactions. All acts
or proceedings required to be taken by THR to authorize the execution, delivery
and performance of this Agreement and the Transactions have been duly and
validly taken and by Closing, each Related Document to which THR is a party will
be duly authorized, executed and delivered by THR pursuant to all necessary
corporate action. Assuming the due authorization, execution and delivery by the
other parties thereto (except Seller), this Agreement constitutes, and upon
their execution and delivery at the Closing, each Related Document to which THR
is a party, will constitute the legal, valid and binding obligation of THR,
enforceable against THR in accordance with their respective terms.
SECTION 3.3 NO CONFLICT. Except as set forth on Schedule 3.3 of the
Disclosure Schedule, neither the execution and delivery by Seller or THR of this
Agreement, the consummation of the Transactions by Seller, nor compliance by
Seller or THR with any of the provisions of this Agreement or any Related
Documents to which Seller or THR is a party will (a) conflict with any provision
of the articles of incorporation or bylaws of Seller, THR or either Target
Entity, (b) violate, breach or conflict with, or constitute a default or require
any consents under (i) any contract, agreement or arrangement, whether written
or oral, to which Seller, THR or either Target Entity is a party or by which any
of the Assets of either of the Target Entities is bound, (ii) any Encumbrances
affecting the Stock, the Target Entities, the HMTHP Business or the HMHIC
Business, or any of their Assets, (iii) any orders, judgments, injunctions,
awards, decrees, writs or similar actions (collectively, "Orders") of a
government or political subdivision of a government, or any agency, department,
commission, board, bureau, court, tribunal, body administrative or regulatory
authority or instrumentality of a government or political subdivision of a
government (collectively, "Governmental
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Authorities") having jurisdiction over or relating to Seller, THR or either of
the Target Entities, or (iv) any franchise, license, certificate, registration,
permit, authorization, approval of, or any required regulation with, a
Governmental Authority, including the Insurance Licenses (collectively,
"Licenses") relating to Seller, THR or either of the Target Entities, or (c)
violate any law, statute, code, restriction, writ, ordinance, order, judgment,
decree, directive, injunction, rule or regulation (collectively, "Legal
Requirements") of a Governmental Authority applicable to Seller, THR or either
Target Entity.
SECTION 3.4 NO CONSENTS OR APPROVALS. (a) Except as set forth on
Schedule 3.4(a) of the Disclosure Schedule, neither Seller, THR nor either
Target Entity is required to obtain any consent, approval, Permit or waiver of,
make any filing with, submit any notification to or seek to obtain any action
by, any Governmental Authority in connection with the execution, delivery or
performance of this Agreement by Seller or THR, the consummation of the
Transactions or the change of ownership or control of either Target Entity.
(b) Except for any individual, trustee, corporation, general
or limited partnership, limited liability company or partnership, joint venture,
joint stock company, bank, firm, trust, association, organization or
unincorporated entity of any kind (together with a Governmental Authority, a
"Person") listed on Schedule 6.2(f) of the Disclosure Schedule, neither Seller,
THR nor either Target Entity is required to seek or obtain the consent or
approval of any other Person or to furnish notice to any other Person as a
result of the sale of the Stock to Buyer or the consummation of the
Transactions.
SECTION 3.5 CAPITALIZATION OF TARGET ENTITIES.
(a) The authorized capital stock of HMTHP consists of
2,000,000 shares of Class A Voting Common Stock, $.01 par value per
share, 2,000,000 shares of Class B Nonvoting Common Stock, $.01 par
value per share, and 2,000,000 shares of Class C Nonvoting Common
Stock, $.01 par value per share. One hundred (100) shares of Class A
Voting Common Stock of HMTHP are held beneficially and of record by
Seller (hereinabove, identified as the HMTHP Stock). Except as
heretofore provided, HMTHP has no other classes of capital stock
authorized or outstanding. Each issued and outstanding share of HMTHP
Stock is duly authorized, validly issued, fully paid and nonassessable
and has not been re-issued and is not owned or held in violation of any
preemptive, subscription or other right of any Person to acquire
securities of HMTHP, and was issued in full compliance with all
applicable state and federal securities Laws. The HMTHP Stock
constitutes in the aggregate all of the issued and outstanding capital
stock of HMTHP. There are no (i) options, warrants, calls, commitments
or rights to purchase or otherwise acquire any shares of capital stock
of HMTHP, (ii) outstanding securities of HMTHP that are convertible
into or exchangeable or exercisable for shares of capital stock of
HMTHP, (iii) options, warrants or other rights to purchase from HMTHP
any convertible or exchangeable securities issued by HMTHP, (iv)
contracts, agreements or other arrangements (written
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or oral) relating to the issuance of any stock by HMTHP, or any
options, warrants or rights pursuant to which HMTHP is subject or bound
or (v) outstanding obligations of HMTHP to repurchase, redeem or
otherwise acquire any capital stock of HMTHP.
(b) The authorized capital stock of HMHIC consists of 700,000
issued shares of common stock at $1.00 par value per share. Except as
provided in the foregoing sentence, HMHIC has no other classes of
capital stock authorized or outstanding. All 700,000 shares of HMHIC
common stock, $1.00 par value per share, are held beneficially and of
record by Seller (hereinabove, identified as the HMHIC Stock). Each
issued and outstanding share of HMHIC Stock is duly authorized, validly
issued, fully paid and nonassessable and has not been re-issued and is
not owned or held in violation of any preemptive, subscription or other
right of any Person to acquire securities of HMHIC, and was issued in
full compliance with all applicable state and federal securities Laws.
The HMHIC Stock constitutes in the aggregate all of the issued and
outstanding capital stock of HMHIC. There are no (i) options, warrants,
calls, commitments or rights to purchase or otherwise acquire any
shares of capital stock of HMHIC, (ii) outstanding securities of HMHIC
that are convertible into or exchangeable or exercisable for shares of
capital stock of HMHIC, (iii) options, warrants or other rights to
purchase from HMHIC any convertible or exchangeable securities issued
by HMHIC, (iv) contracts, agreements, or other arrangements (written or
oral) relating to the issuance of any stock by HMHIC, or any options,
warrants or rights pursuant to which HMHIC is subject or bound or (v)
outstanding obligations of HMHIC to repurchase, redeem or otherwise
acquire any capital stock of HMHIC.
SECTION 3.6 TITLE TO THE STOCK. Seller is the record and beneficial
owner of, and has good, valid and indefeasible title to, all, and not less than
all, shares of the HMTHP Stock and the HMHIC Stock. Seller is the sole,
exclusive and absolute owner of all of the HMTHP Stock and the HMHIC Stock, free
and clear of all Encumbrances. The HMTHP Stock and the HMHIC Stock are not
subject to any restrictions on transferability other than those imposed by
applicable securities laws. There are no options, warrants, calls, commitments
or rights of any character to purchase or otherwise acquire the HMTHP Stock
and/or the HMHIC Stock from Seller pursuant to which Seller may be obligated to
sell or transfer the HMTHP Stock and/or the HMHIC Stock, other than pursuant to
this Agreement. Seller has full voting power over the HMTHP Stock and the HMHIC
Stock and is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of the HMTHP Stock and the HMHIC Stock.
SECTION 3.7 INTERESTS IN OTHER ENTITIES. Neither HMTHP nor HMHIC owns
or controls any securities or other ownership interest in any Person.
SECTION 3.8 FINANCIAL CONDITION. Seller has delivered to Buyer true and
correct copies of (a) the audited financial statements of HMTHP and HMHIC for
the years ended on December 31, 1997 and December 31, 1998 (including a balance
sheet, an income statement
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and the notes thereto), (b) the unaudited financial statements (including a
balance sheet and an income statement) of HMTHP and HMHIC for the seven months
ended on July 31, 1999 and (c) the Statutory Financial Statements defined in
Section 3.23(f) below (collectively, the "Financial Statements"). The Financial
Statements are in accordance with the books of accounts and records of the
Target Entities and present fairly, accurately and completely, in all material
respects, the liabilities and obligations, financial condition and the results
of operations and the cash flows of the applicable entity or entities as of the
dates referred to in those Financial Statements, all in accordance with SAP
(except as otherwise disclosed therein), subject, in the case of interim
statements, to normal year-end adjustments. The Closing SAP Balance Sheets, the
Closing GAAP Balance Sheets and the Statutory Financial Statements to be
delivered to Buyer pursuant to Section 5.6 below (collectively, the "Future
Financial Statements") will be prepared in accordance with SAP or, in the case
of the Closing GAAP Balance Sheets, generally accepted accounting principles,
applied consistently for the period specified ("GAAP"), will be consistent with
the books and records of the Target Entities, and will present fairly,
accurately and completely the liabilities and obligations, financial condition
and the results of operations and the cash flows of the Target Entities as of
the dates referred to in the Future Financial Statements. All outstanding
accounts and notes receivable in an amount in excess of $10,000 reflected on the
Financial Statements and to be reflected on the Future Financial Statements are
valid claims against account debtors for services rendered by the Target
Entities, subject to no defenses, offsets or counterclaims which are not
adequately reserved against on the applicable financial statements. All
receivables of the Target Entities arose in the ordinary course of business. No
receivables of the Target Entities are subject to prior assignment or
Encumbrances. The Target Entities have not incurred any Encumbrances or
liabilities to any Person for discounts or otherwise, other than in the ordinary
course of business. The Target Entities will have no liability in excess of
$10,000 for any refunds, bad debts or uncollectible accounts which are not
reserved against in the Financial Statements or will be reserved against in the
Future Financial Statements regarding services rendered by the Target Entities.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
on Schedule 3.9 of the Disclosure Schedule, since July 31, 1999, neither HMTHP
nor HMHIC has (a) except in the ordinary course of business, consistent with
past practices sold, transferred or otherwise disposed of, or agreed to sell,
transfer or otherwise dispose of any of its assets; (b) entered or agreed to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its assets, or requiring the consent of any Person to the
transfer or assignment of any of its assets; (c) terminated or amended any
Material Contract or any Contract related to a Material Subscriber Group,
Material HMTHP Broker, Material HMHIC Broker, Material HMTHP Provider, Material
Policyholder, Material HMHIC Broker or Material HMHIC Provider; (d) made any
material changes in the accounting, actuarial, investment, reserving,
underwriting or claims administration or servicing policies, practices or
procedures, standards, methods, assumptions or principles of HMTHP or HMHIC; (e)
taken any action with respect to the payment of any distributions in cash or
property to its stockholders; (f) made any change in the authorized or issued
capital stock of HMTHP or
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HMHIC, merged or consolidated with any other entity, repurchased, redeemed or
otherwise acquired any outstanding shares of capital stock or other securities
of HMTHP or HMHIC, or issued or sold any capital stock or issued or granted any
option, warrant, call, commitment, subscription, right to purchase or contract
of any character relating to the authorized or issued capital stock of HMTHP or
HMHIC or any securities convertible into or exchangeable for shares of capital
stock of HMTHP or HMHIC; (g) amended its articles of incorporation, bylaws, or
the terms of the its stock; (h) incurred any indebtedness, in any one or more
instances, for borrowed money in excess of $20,000; (i) created or assumed any
Encumbrance on any Asset of HMTHP or HMHIC; (j) suffered any damage, destruction
or other casualty loss affecting HMTHP or HMHIC which, after giving effect to
any applicable insurance payment, has had or could reasonably be expected to
have a financial impact on HMTHP or HMHIC in excess of $20,000; or (k) entered
into any other transaction or taken any other action other than in the ordinary
course of business.
SECTION 3.10 CERTAIN CONTRACTS. Schedule 3.10 of the Disclosure
Schedule sets forth a complete and correct list of all contracts, agreements or
other arrangements, whether written or oral, to which either of the Target
Entities is a party or is subject or by which any of their respective Assets is
bound ("Contracts"), with the exception of any Broker Agreements, Insurance
Contracts, Provider Agreements or Subscriber Agreements unless specifically
referenced below: (a) relating to any reinsurance arrangements or stop-loss
arrangements; (b) evidencing or relating to indebtedness for borrowed money; (c)
relating to the Real Property (including the Leases, deeds, title policies and
environmental matters) (as defined in Section 3.11(a)); (d) relating to any of
the Intellectual Property or Information Systems; (e) that are operating or
capital leases of Assets relating to or used in the business of either of the
Target Entities and involving monetary obligations of more than $20,000 per
year; (f) that are purchase or supply contracts relating to the businesses of
either of the Target Entities involving monetary obligations by or to any of the
Target Entities of more than $20,000 per year; (g) that are between either of
the Target Entities and Seller, any other Affiliate thereof, or any director or
officer of a Target Entity or Affiliate thereof; (h) are the Employment
Contracts or otherwise relate to employment, severance, employee benefits,
retention, consulting, non-competition or confidentiality arrangements involving
either of the Target Entities; (i) that is a partnership, joint venture or
similar arrangement or involves the sharing of profits, services, expenses or
information involving either of the Target Entities; (j) that is an agency,
dealer, sales representative, marketing or other similar agreement or
arrangement or relates to advertising or public relations; (k) providing for the
sale or acquisition of any asset in excess of $20,000; (l) with respect to the
discharge, storage or removal of wastes, pollutants, hazardous substances or
hazardous wastes; (m) with respect to tax-sharing or to indemnify any Person or
to share any tax liability of any Person; (n) pursuant to which either Target
Entity is required to refrain from competing in any line of business or with any
Person in any geographical area, obligated to do business exclusively or
obligated to provide most favored nations pricing to any Person, including in
the case of this clause (n), any
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such Contracts which are Provider Agreements, Broker Agreements, Insurance
Contracts or Subscriber Agreements; (o) relating to the acquisition of the
business, equity or assets of any Person pursuant to which any party thereto has
any continuing duty, obligation or exposure to liability; (p) with third party
administrators or other Persons for the provision of any management,
administrative or claims processing services; (q) that will extend beyond the
Closing and is not terminable upon ninety (90) calendar days or less notice
without payment or penalty in excess of $20,000; (r) with payors, including
those for joint marketing arrangements; (s) that is a power of attorney, proxy
or similar instrument; (t) pursuant to which either Target Entity has agreed to
indemnify another Person (including an Affiliate) or pursuant to which another
Person (including an Affiliate) has agreed to indemnify either Target Entity; or
(u) involving either of the Target Entities, which otherwise are material to the
business of the Target Entities (the Contracts described in clauses (a) through
(u), including any amendments thereto, being collectively referred to as the
"Material Contracts"). Complete and correct copies of all written Material
Contracts, including any and all amendments and other modifications thereto, and
true and correct written summaries of all oral Material Contracts, have been
delivered to Buyer. All Material Contracts (x) are valid and binding obligations
of the applicable Target Entity and, to the Knowledge of Seller, the other
parties to those Contracts, (y) are in full force and effect and are enforceable
as to the applicable Target Entity and, to the Knowledge of Seller, the other
parties to those Material Contracts, in accordance with their terms and (z) have
not been further amended or modified or terminated through the Execution Date
and subsequently prior to the Closing. Except as set forth on Schedule 6.2(f) of
the Disclosure Schedule, no approval or consent is required to be obtained, and
no notice is required to be given, under any Material Contract in connection
with the sale of the Stock to Buyer. Neither of the Target Entities is in
default under and has not breached any Material Contract, except where such
default or breach would not cause, result in or constitute a Material Adverse
Effect. No other party to any Material Contract has (i) to the Knowledge of
Seller, breached a Material Contract or is in default under such Material
Contract, (ii) given notice that it intends to terminate a Material Contract or
(iii) altered its performance under a Material Contract in any way which would
cause, result in or constitute a Material Adverse Effect. No event, condition or
circumstance has occurred (or, to the Knowledge of Seller, is alleged by any
other party to a Material Contract to have occurred), including the consummation
of the Transactions, that, with or without due notice or lapse of time or both,
would constitute, a breach or event of default on the part of either Target
Entity, would provide a basis for a valid claim or acceleration under any
Material Contract as against either of the Target Entities, would prevent either
of the Target Entities from exercising and obtaining the full benefits of any
rights or options contained therein or would result in the termination,
cancellation or nonrenewal of a Material Contract. Schedule 3.10 of the
Disclosure Schedule sets forth all pending written or, to the Knowledge of
Seller, oral cancellation, termination or nonrenewal notices given by any party
to a Material Contract. Except as summarized on Schedule 3.10 of the Disclosure
Schedule, all Material Contracts are executed and in writing except where such
failure does not cause, result in or constitute a Material Adverse Effect.
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SECTION 3.11 PROPERTIES AND ASSETS.
(a) Title to Real Property. Neither of the Target Entities
currently owns or in the past has owned, any real property. HMTHP has a
valid leasehold interest in the real property on Schedule 3.11(a) of
the Disclosure Schedule (the "Real Property") pursuant to the lease
agreement(s) described in Schedule 3.11(a) of the Disclosure Schedule.
The Disclosure Schedule provides a complete and accurate description of
all leases for real property used in the business of the Target
Entities or to which either Target Entity is a party or is subject (the
"Leases"). No amount payable under any Lease is past due and all
property tax liability with respect to the subject property has been
fully accrued and paid.
(b) Use of Real Property. There are no condemnation or eminent
domain proceedings pending (for which written notice has been provided
to either of the Target Entities) or, to the Knowledge of Seller,
threatened, against the Real Property by any Governmental Authority.
There are no material variances, special exceptions, conditions or
agreements pertaining to the Real Property imposed or granted by or
entered into by HMTHP or, to the Knowledge of Seller, enforceable by,
any Governmental Authority. Except as and to the extent set forth on
Schedule 3.11(b) of the Disclosure Schedule, no written notice from any
Governmental Authority has been provided to either of the Target
Entities requiring or calling attention to the need for any work,
repair, construction, alteration or installation on, or in connection
with, the Real Property. To the Knowledge of Seller, the current and
any previous operations of the Target Entities are permitted uses under
applicable zoning regulations and there is no requirement for any
special exception, variance or other conditional approval to permit the
continued operations on the Real Property.
(c) Title to Personal Property and Other Assets. Except as and
to the extent set forth in Schedule 3.11(c) of the Disclosure Schedule,
each of the Target Entities has good, valid and marketable title to and
is the exclusive legal and equitable owner of, or has a valid leasehold
interest in, all items of personal property, buildings, improvements,
equipment and all other assets and properties (whether personal or
mixed, tangible or intangible and whether or not fully depreciated,
amortized or expensed) used in their respective Businesses ("Assets"),
and those Assets are subject to no Encumbrance, title defect, Contract,
lease, license or sale, except as and to the extent set forth on
Schedule 3.11(c) of the Disclosure Schedule. Attached as Exhibit
3.11(c) to Schedule 3.11(c) is a correct and complete list of all
Assets owned by the Target Entities. Schedule 3.11(c) also sets forth a
correct and complete list of all leases (whether capital or operating)
of personal property and other Assets used in the Target Entities'
businesses. The Target Entities are in peaceable possession of the
Assets covered by each such lease.
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(d) Condition of Assets. Except as and to the extent set forth
on Schedule 3.11(d) of the Disclosure Schedule, the Assets owned or
used by the Target Entities are in good and normal operating condition
and repair (ordinary wear and tear excepted) and are suitable for their
present uses.
(e) Investment Assets. Each of the Target Entities has good,
valid and marketable title to all of their respective Investment
Assets, free and clear of any Encumbrances. Except as set forth on
Schedule 3.11(e), none of the material Investment Assets is in default
in the payment of principal or interest or dividends or permanently
impaired to any extent. All Investment Assets comply, and the
acquisition thereof complied, with all applicable Legal Requirements.
An accurate and complete list of Investment Assets as of the date
immediately preceding the Closing Date will be recorded on the final
and conclusive Closing SAP Balance Sheets. Any Contract pursuant to
which a third party manages any of the Investment Assets is set forth
on Schedule 3.11(e). All Investment Assets are properly valued in
accordance with regulations of the Securities Valuation Office of the
NAIC. For purposes of this Agreement, "Investment Assets" means (i) any
investment assets set forth in the 1998 Statutory Insurance Statements
of the Target Entities including bonds, notes, debentures, mortgage
loans, real estate, collateral loans and all other instruments of
indebtedness, stocks, partnership or joint venture interests and all
other equity interests, certificates issued by or interests in trusts,
derivatives and all other assets acquired for investment purposes
(except investment assets sold since the date of such statements in the
ordinary course of business) and (ii) any Investment Assets acquired
between the period since such date and the Closing Date.
(f) Books and Records. All files, records and incidental
documentation of the Target Entities (including all Contracts, computer
records, general ledgers, books and records, Member and Insured records
and lists, Provider records, Contract information, credit records and
other information maintained by the Target Entities) are kept in the
ordinary course of business in accordance with commercially reasonable
business practice and applicable Legal Requirements Known to Seller and
accurately and fairly reflect all material transactions. Except as set
forth on Schedule 3.11(f) of the Disclosure Schedule, neither of the
Target Entities has any of its records, systems, controls, data or
information recorded, stored, maintained, operated or otherwise wholly
or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or
not) which (including all means of access thereto and therefrom) are
not under its exclusive ownership and direct control.
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SECTION 3.12 LITIGATION.
(a) Existence. Except as set forth on Schedule 3.12 of the
Disclosure Schedule, neither of the Target Entities is subject to (i)
any Order or (ii) any settlement agreement which requires either Target
Entity to perform or to refrain from performing any obligations or
activities after the Closing. Except as set forth on Schedule 3.12 of
the Disclosure Schedule, neither of the Target Entities is a party to,
nor is it bound by, nor does it have any monetary or non-monetary
obligation under any settlement agreement or Order which could
reasonably be expected to affect their respective businesses or any
agreement, waiver or consent tolling any statute of limitations or
which involves any monetary or non-monetary obligation required to be
performed (or otherwise complied with) on or after the Closing Date.
Except as and to the extent set forth on Schedule 3.12 of the
Disclosure Schedule and except for workers' compensation claims in
which damages asserted are less than $50,000, there are no Claims (as
defined in Section 8.1(a) below) pending or, to the Knowledge of
Seller, threatened against either Target Entity or which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the
consummation of the Transactions. Schedule 3.12 of the Disclosure
Schedule sets forth a complete and correct list of all workers'
compensation Claims in excess of $50,000 pending against either of the
Target Entities.
(b) Effect. No Claim set forth on Schedule 3.12 of the
Disclosure Schedule, individually or in the aggregate, if adversely
decided, could reasonably be expected to have a Material Adverse Change
(as defined in Section 6.2(e) below) on either of the Target Entities
or prevent the consummation of the Transaction.
SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) Identification of Plans. Schedule 3.13(a) of the
Disclosure Schedule contains a complete and correct list of (i) all
employee welfare benefit and employee pension benefit plans as defined
in Sections 3(1) and 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), including plans that provide
retirement income or result in a deferral of income by employees for
periods extending to termination of employment or beyond, and plans
that provide medical, surgical or hospital care benefits or benefits in
the event of sickness, accident, disability, death or unemployment and
(ii) all other material employee benefit agreements or arrangements
that are not ERISA plans, including deferred compensation plans,
incentive plans, bonus plans or arrangements, stock option plans, stock
purchase plans, stock award plans, golden parachute agreements,
severance pay plans, dependent care plans, cafeteria plans, employee
assistance programs, scholarship programs, employment contracts,
retention incentive agreements, noncompetition agreements, consulting
agreements, confidentiality agreements, vacation policies, and other
similar plans,
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agreements and arrangements that are currently in effect or were
maintained within three years before the Execution Date to which any of
the Target Entities is a party or contributed or was legally obligated
to contribute, or have been approved but are not yet effective, for the
benefit of one or more directors, officers, employees or former
employees of either of the Target Entities, or their beneficiaries
(collectively, "Designated Plans"). Schedule 3.13(a) of the Disclosure
Schedule identifies each of the Designated Plans that is subject to
Section 302 or Title IV of ERISA or Section 412 of the Internal Revenue
Code of 1986, as amended (the "Code").
(b) Funding Requirement; Title IV Plans. Neither the Target
Entities nor any entity that is treated as a single employer together
with the Target Entities under Section 414 of the Code or Section 4001
of ERISA ("ERISA Affiliate") maintains or has ever maintained any
pension benefit plan subject to the funding requirements of Section 412
of the Code or Section 302 of ERISA other than a plan which is frozen.
As of the Closing Date, neither Buyer's Group nor the Target Entities
will be responsible for any prior, current or future contributions to
any such plan. Neither the Target Entities nor any ERISA Affiliate
maintains or has ever maintained a pension benefit plan subject to
Title IV of ERISA.
(c) Contributions to Designated Plans. All contributions
required to be made with respect to any Designated Plan for plan years
beginning before the Closing Date have been made. All contributions to
any Designated Plan which are intended to be made by salary reduction
or similar means have been withheld from participants and deposited as
required by such plans except for contributions, if any, for the
payroll period commencing immediately before the Execution Date. Seller
shall make, or cause Target Entities to make, all other contributions
required under the Designated Plans up to the Closing Date.
(d) Multiemployer Plans. No Target Entity or any entity that
was at any time during the six year period ending on the Execution Date
an ERISA Affiliate has ever maintained, had an obligation to contribute
to, contributed to, or incurred any liability with respect to a
multiemployer plan, as defined in Section 3(37) of ERISA, or a plan
described in Section 4063(a) of ERISA.
(e) Qualifications. The terms of all Designated Plans that are
intended to qualify under Section 401(a) of the Code (i) have been
determined by the IRS to qualify under Section 401(a) of the Code, or
(ii) the applicable remedial amendment periods under Section 401(b) of
the Code will not have expired prior to the Closing Date.
(f) Claims. There is no litigation, action, proceeding, audit,
examination or claim pending, or to the Knowledge of Seller, threatened
relating to any Designated Plan (other than routine claims for
benefits) that will result in a Material Adverse Effect.
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(g) Penalties. None of the Target Entities or any other entity
has engaged in a transaction that could reasonably be expected to
result in the imposition upon a Target Entity of a civil penalty under
Section 409 or 502 of ERISA or a tax under Section 4975 or 4976 of the
Code with respect to any Designated Plan.
(h) Compliance. There is no risk of a Material Adverse Effect
upon either Target Entity that will result from the failure of any
Designated Plan to have been operated and administered in all material
respects in accordance with its terms and applicable laws, including
ERISA, the Code, the Consolidated Omnibus Budget Reconciliation Act of
1985, and the Health Insurance Portability and Accountability Act of
1996.
(i) Certain Requirements. To the Knowledge of Seller, each
Designated Plan that is intended to satisfy the requirements of Section
501(c)(9) of the Code has satisfied such requirements. Schedule 3.13(i)
of the Disclosure Schedule identifies each Designated Plan that is
intended to satisfy the requirements of Section 501(c)(9) of the Code.
SECTION 3.14 COMPLIANCE WITH LAWS AND LICENSES.
(a) Compliance. Except as set forth on Schedule 3.14(a) of the
Disclosure Schedule, the business of each Target Entity has been
conducted and is now being conducted in all material respects in
substantial compliance with all Legal Requirements (including all
Health Benefit Laws (as defined below) and all environmental laws
applicable to the Target Entities, the use of their Assets, or the
conduct of their businesses), Orders of Governmental Authorities having
jurisdiction over it and all Licenses relating to its Business. No
notice or warning has been served on Seller or either Target Entity
from any Governmental Authority or other Person which alleges or
asserts a violation of any Legal Requirement or which requires, seeks
or calls attention to the necessity of any adjustments, modifications
or alterations in operations, businesses or assets of either Target
Entity, nor to Seller's Knowledge is there any meritorious basis
therefor. Schedule 3.14(a) of the Disclosure Schedule also sets forth a
list of all Orders of Governmental Authorities to which the business or
operations of either Target Entity will be subject after the Closing
which are not applicable to businesses or the Target Entities' industry
in general.
(b) Possession of Licenses. Except as set forth on Schedule
3.14(b) of the Disclosure Schedule, each Target Entity possesses all
Licenses (including Insurance Licenses) necessary to lawfully own and
operate its properties and assets and to lawfully conduct its business
as it is currently conducted, including those applicable to a health
maintenance organization ("HMO"), preferred provider organization
("PPO") or an insurance, reinsurance, third-party administrator ("TPA")
or utilization review
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("UR") agent or administrator business as appropriate. Except as set
forth on Schedule 3.14(b) of the Disclosure Schedule, such Licenses
(including the Insurance Licenses) are valid, subsisting and in full
force and effect, and each Target Entity has fulfilled its obligations
under each of those Licenses (including the Insurance Licenses), and no
event has occurred or condition or state of facts exists that
constitutes or, after notice or lapse of time or both, would
constitute, a default or violation under any of those Licenses
(including the Insurance Licenses) or would permit revocation or
termination of, or limitations or restrictions upon, any of those
Licenses (including the Insurance Licenses) or would give rise to a
fine or other Loss against a Target Entity. No Target Entity has
received any citation, suspension, revocation, limitation, warning or
similar matter issued by any Governmental Authority with respect to its
business activities or operations or Licenses (including the Insurance
Licenses) which has not been resolved to the Governmental Authority's
satisfaction. Except as set forth on Schedule 3.14(b) of the Disclosure
Schedule, in respect of those Licenses (including the Insurance
Licenses), no proceeding or other Claim is pending or, to the Knowledge
of Seller, threatened seeking revocation, termination, limitation or
restriction with respect to any of those Licenses (including the
Insurance Licenses) or imposition of a fine or other Loss against a
Target Entity.
(c) Health Benefit Laws Defined. For purposes of this
Agreement, the term "Health Benefit Law" means all Legal Requirements
relating to the licensure, certification, qualification or authority to
transact business relating to the provision of, payment for,
arrangement of, or administration or utilization of health benefits,
insurance or Provider claims, including ERISA, the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, the Health Insurance
Portability and Accountability Act of 1996, the HMO Act, the
Medicare+Choice Program Laws, and other laws relating to the regulation
of HMOs, workers compensation, managed care organizations, insurance
companies, PPOs, point-of-service plans, third party administrators,
utilization review agents, certificates of need, third-party
administrators, utilization review, coordination of benefits, hospital
reimbursement, Medicare and Medicaid participation, fraud and abuse,
patient referrals and provider incentives.
SECTION 3.15 NO UNDISCLOSED LIABILITY; INDEBTEDNESS. Except as set
forth on Schedule 3.15 of the Disclosure Schedule, neither of the Target
Entities has any liabilities or obligations, whether accrued, absolute,
contingent or otherwise, (i) which are not reflected or fully reserved against
in the Financial Statements and which will not be properly reserved against and
recorded on the Future Financial Statements, or (ii) which would not have to be
recorded on the Target Entities' Financial Statements or Future Financial
Statements, including those reflecting the Target Entities' financial condition
as of the date immediately preceding the Closing Date, if such financial
statements were prepared in accordance with GAAP. Except as set forth on
Schedule 3.15 of the Disclosure Schedule, neither of the Target Entities has any
obligations with respect to borrowed money, letters of credit, notes, bonds or
similar
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instruments, with respect to any capitalized lease or with respect to any
guaranty of debt for borrowed money. The transfer of the Stock will not cause
the acceleration of or otherwise adversely affect the terms or conditions of
those obligations described in the immediately preceding sentence, and will not
create a lien or Encumbrance upon the Stock.
SECTION 3.16 PERSONNEL INFORMATION; LABOR RELATIONS.
(a) Identification of Employees. Schedule 3.16(a) of the
Disclosure Schedule sets forth a complete and correct list of all
directors and officers of the Target Entities and all other individuals
employed by the Target Entities as of the Execution Date, together with
such individual's title or job description and date of hire, and, for
each salaried individual, such individual's salary (with last date of
increase) and incentive compensation paid in respect of the last
calendar year, and benefit arrangements, including any supplemental
retirement benefits or allowances. Except as and to the extent set
forth on Schedule 3.16(a) of the Disclosure Schedule, none of Seller,
or the Target Entities has received notification that any of the
employees named in Schedule 3.16(a) of the Disclosure Schedule plans to
terminate his or her employment during the 1999 calendar year, whether
by reason of the Transactions or otherwise. Schedule 3.16(a) sets forth
a correct and complete list of all written Contracts with officers,
directors and employees of either of the Target Entities (collectively,
"Employment Contracts"). No officer, director or employee of either
Target Entity has received or is contractually entitled to payments
which would constitute "parachute payments" under Section 280G of the
Code.
(b) Certain Matters Relating to Employees. Except as and to
the extent set forth on Schedule 3.16(b) of the Disclosure Schedule:
(i) there is no labor strike, stoppage, lockout or dispute or slowdown
pending or, to the Knowledge of Seller, threatened against either
Target Entity, and there has not been any such action during the last
three years; (ii) neither of the Target Entities is a party to or bound
by any (A) collective bargaining or similar agreement with any labor
organization or (B) written work rules or practices agreed to with any
labor organization or employee association applicable to employees
named in Schedule 3.16(a) of the Disclosure Schedule; (iii) no employee
named in Schedule 3.16(a) of the Disclosure Schedule is represented by
any labor organization and, to the Knowledge of Seller, there are no
current union organizing activities among those employees; (iv) other
than those previously provided to Buyer and listed on Schedule 3.16(b),
there are no material written personnel policies, rules or procedures
applicable to employees named in Schedule 3.16(a) of the Disclosure
Schedule (complete and correct copies of the listed documents have been
delivered to Buyer); (v) each of the Target Entities, to Seller's
Knowledge, during the last three years has been in substantial
compliance with all applicable laws in respect of employment and
employment practices, terms and conditions of employment, wages, hours
of work and occupational safety and health, and is not engaged in any
unfair labor practices as defined in the National Labor Relations Act;
(vi) there is no unfair
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labor practice charge or complaint against either of the Target
Entities pending (for which notice has been provided to Seller or
either of the Target Entities) or, to the Knowledge of Seller or any
Target Entity, threatened before the National Labor Relations Board or
any similar state or federal agency; (vii) there have been no
arbitration proceedings or material grievance proceedings arising out
of any collective bargaining agreement during the last three years;
(viii) no charges with respect to or relating to either Target Entity
are pending before the Equal Employment Opportunity Commission or any
other agency responsible for the prevention of unlawful employment
practices; (ix) none of Seller or any Target Entity has received notice
of the intent of any Governmental Authority responsible for the
enforcement of labor or employment laws to conduct an investigation
with respect to or relating to either Target Entity and no such
investigation is in progress; and (x) there are no complaints, lawsuits
or other proceedings pending against either Target Entity or, to the
Knowledge of Seller, threatened in any forum by or on behalf of any
present or former employee of any Target Entity, any applicant for
employment or classes of the foregoing, alleging breach of any express
or implied contract of employment, any law governing employment or the
termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship.
(c) Compliance. There is no risk of a Material Adverse Effect
to either Target Entity that will result from the failure of a Target
Entity to be in compliance with all Laws relating to employment or
labor, including ERISA, the WARN Act, and those Legal Requirements
relating to wages, hours, collective bargaining, unemployment
insurance, workers' compensation, equal employment opportunity
occupational health and safety, severance, collective bargaining and
payment of social security and withholding of Taxes, excluding any such
non-compliance which arises only as a result of the actions or
omissions of the Target Entities or the Buyer after the Closing.
SECTION 3.17 TAXES. Except as and to the extent set forth on Schedule
3.17 of the Disclosure Schedule:
(a) Filing of Returns. Each Target Entity and any affiliated
group (within the meaning of Section 1504 of the Code) or similar group
under state, local or other applicable law of which a Target Entity is
or has been a member ("Affiliated Group") has filed, or caused to be
filed in a timely manner (taking into account any and all extensions),
all federal, state, local and foreign tax returns, declarations,
statements, reports, schedules, forms or information returns or claims
for refunds relating to Taxes (as defined below) or other written
information required to be supplied to any taxing authority in
connection with Taxes (as defined below) (including any amended tax
returns) ("Tax Returns") required to be filed on or before the
Execution Date (and at Closing, before the Closing Date) by Seller,
either Target Entity or any member of such Affiliated Group, and all
such Tax Returns are complete and correct in all material respects.
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(b) Payment of Taxes. All taxes, charges, fees, duties,
levies, penalties or other assessments imposed by any federal, state,
local or foreign authority, including income, alternative minimum
income, gross receipts, premium, excise, property, estimated,
intangibles, ad valorem, excise tax, alternative or add on minimum tax,
value added, sales, gains, use, license, capital stock, transfer,
franchise, payroll, withholding, social security or other taxes,
including (i) any interest, estimated payments, penalties or additions
attributable thereto (whether or not disputed), and (ii) any liability
for the payment of any such taxes as a result of Seller or either
Target Entity having become a successor to or transferee of any other
Person at any time before the Closing Date (collectively, "Taxes") due
and payable or claimed to be due and payable from either Target Entity
or any Affiliated Group member have been timely paid in full. Since
January 1, 1998, the Target Entities have not incurred any Taxes other
than in the ordinary course of business. All premium Taxes with respect
to premiums received by the Target Entities before the Closing Date
shall, as appropriate, either be paid or prepaid prior to the Closing
Date, or accrued or reserved for on the final and conclusive Closing
SAP Balance Sheets determined pursuant to Section 1.3.
(c) Withholding. Each of the Target Entities has complied in
all material respects with all applicable laws relating to the
withholding of Taxes (including withholding of Taxes pursuant to
chapters 3 and 24 of the Code or similar provisions under any state,
local, or foreign laws), has, within the time and in the manner
prescribed by such laws, withheld and paid over to the proper
Governmental Authorities all amounts required to be so withheld and
paid over under all such applicable Laws and has, within the time and
within the manner prescribed by such laws, filed all Tax Returns with
respect to such withholding.
(d) Encumbrances. Except for items for ad valorem Taxes and
real and personal property Taxes not yet delinquent, there are no
Encumbrances for Taxes upon any Assets of the Target Entities.
(e) Claims. No deficiency or claim has been formally proposed
(including by either a 30-day or 90-day letter), asserted or assessed
nor, to the Knowledge of Seller, threatened with regard to any Taxes of
either HMTHP, HMHIC or any Affiliated Group or any Tax Returns required
to be filed by HMTHP, HMHIC or any Affiliated Group member which has
not been paid in full.
(f) Information Provided. Seller has provided to Buyer or its
representatives (i) complete and correct copies of the relevant
portions of the consolidated federal income Tax Returns that include
the Target Entities for the taxable
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periods ended December 31, 1997, and separate federal Tax Returns of
Target Entities for December 31, 1996 and the Xxxxxx Health Plan, Inc.
federal tax information return for December 31, 1995, (ii) complete and
correct copies of the relevant portions of the state, local and foreign
income Tax Returns that include HMTHP for the taxable periods ended
December 31, 1995, 1996 and 1997, and (iii) all examination reports,
closing agreements and statements of deficiencies, if any, relating to
the audit of such tax returns or relevant portions thereof by the IRS
or the relevant state, local or foreign taxing authorities.
(g) No Withholding. Buyer shall not be required under any
provision of tax law to withhold any amounts otherwise payable to
Seller hereunder.
(h) Parachute Payments. Neither Target Entity is a party to
any Contract that could result, separately or in the aggregate, in the
payment of any excess parachute payments within the meaning of Section
280G of the Code and has not made any such excess parachute payments.
(i) 341(f) Consents. Neither Target Entity has filed a consent
pursuant to Section 341(f) of the Code (or any predecessor provision)
or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset as such term is defined in
Section 341(f)(4).
SECTION 3.18 INTELLECTUAL PROPERTY AND INFORMATION SYSTEMS.
(a) Definition. For purposes of this Agreement, "Intellectual
Property" shall mean and include all (i) copyrights embodied in the
marketing and sales materials that are currently used by the Target
Entities (the preceding being hereinafter referred to as "Copyrights"),
the right to xxx for past infringement, all copyright applications and
registrations therefor, and all applications and filings with public
and private agencies, (ii) trademarks, logos, proprietary designs,
phrases and other identifications or trade names and service marks or
derivations thereof owned or licensed by the Target Entities, or used
by either of the Target Entities in the conduct of their respective
businesses within the two (2) years prior to the Execution Date
(collectively "Marks"), together with the goodwill of the businesses
symbolized thereby, the right to xxx for past infringement or
misappropriation thereof, and all applications and registrations
therefor, (iii) United States and foreign patents owned by or licensed
to either of the Target Entities ("Patents"), together with the right
to xxx for past infringement or misappropriation thereof, and all
applications and registrations therefor, (iv) proprietary information,
technology, trade secrets, know-how, inventions, drawings and technical
or marketing information owned by the Target Entities, or used by
either of the Target Entities in the conduct of their respective
businesses within the two (2) years prior to the Execution Date, and
the right to xxx for past infringement or misappropriation thereof, and
(v) any licenses relating to the use of the items contained
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in the foregoing clauses (i), (ii), (iii) and (iv). However,
"Intellectual Property" shall not include any right to use the name
"Xxxxxx Methodist," including derivatives thereof, except pursuant to
the License Agreement.
(b) Right to Use. Schedule 3.18 (b) of the Disclosure Schedule
sets forth an accurate and complete list of the Copyrights, Marks and
the Patents (including the registration numbers of any Marks or Patents
which have been registered in the United States Patent and Trademark
Office or in any state) and indicates whether such Copyrights, Marks
and Patents are owned by the Target Entities or licensed from a third
party. Each of the Target Entities either owns sufficient right, title
and interest in and to, or, to the Knowledge of Seller, has the right
to use, all of the Intellectual Property that is used in its business
as currently conducted. To the Knowledge of Seller, such use of the
Intellectual Property (including the Information Systems) does not
conflict with, infringe upon or violate any patent, trademark,
copyright, trade secret or other proprietary, personal or other right
of any other Person and no written claim is existing or has been made
in the past two (2) years to that effect. To the Knowledge of Seller,
there are no administrative, judicial, arbitration or other adversary
proceedings pending in any court, intellectual property registry or
other adjudicatory forum involving either of the Target Entities and
third parties concerning the Intellectual Property or any third
parties' intellectual property.
(c) Information Systems. Except as set forth on Schedule
3.18(c) of the Disclosure Schedule: (i) as to Information Systems
licensed by the Target Entities, Seller represents and warrants that,
to the Knowledge of Seller, such Information Systems are and will be
Year 2000 Compliant for a period of eighteen (18) months after the
Closing Date; and (ii) as to all other Information Systems operated or
used by the Target Entities, Seller represents and warrants that these
Information Systems (A) are and will be Year 2000 Compliant for a
period of six (6) months after the Closing Date, and (B) are and will
be Year 2000 Compliant, only to the Knowledge of Seller, during the
period which commences on the six-month anniversary of the Closing Date
and concludes eighteen (18) months after the Closing Date. Seller
represents and warrants that, except as otherwise hereinabove provided
with respect to Year 2000 Compliance, to the Knowledge of Seller, the
Information Systems licensed by the Target Entities will Function
Normally for a period of eighteen (18) months after the Closing Date
and, as to all other Information Systems operated or used by the Target
Entities, Seller represents and warrants that such other Information
Systems will Function Normally for a period of eighteen (18) months
after the Closing Date. Notwithstanding anything herein or elsewhere to
the contrary, Seller makes no representations or warranties,
whatsoever, and Seller shall not be responsible with respect to any of
the following which occur after the Closing Date: (i) programming
errors or defects attributable to Buyer, its employees or agents; (ii)
any errors or defects introduced in the software of the Information
Systems by Buyer, its employees or agents; (iii) any changes by Buyer,
its employees or agents to the Information Systems; (iv) incomplete,
inaccurate or
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non-compliant data or information input. Schedule 3.18(c) sets forth a
correct and complete list and summary description of all Information
Systems, other than standard off the shelf Information Systems which
have not been substantially modified, used in the business or
operations of the Target Entities and identifies Information Systems or
any components thereof which are owned by the Target Entities, licensed
or sublicensed to the Target Entities or used by either of the Target
Entities under some other verbal or written arrangement. With respect
to the Information Systems: (i) all Information Systems documentation
is current, accurate and in sufficient detail and content to identify
and explain the nature thereof and to allow its full and proper use by
the Target Entities after Closing without reliance on the special
knowledge or memory of others; (ii) to Seller's Knowledge, no
proprietary rights in any Information Systems have been transferred,
whether by sale, assignment or license, or have been lost by the Target
Entities; (iii) all Information Systems owned or developed by the
Target Entities and currently used by the Target Entities do not
infringe any third parties' trademarks, copyrights or other
intellectual property rights and, to the Knowledge of Seller, none of
the owned or developed Information Systems has been used, divulged or
appropriated for the benefit of any other Person or to the detriment of
the Target Entities; (iv) the Target Entities' rights in the
Information Systems which are owned or were developed by the Target
Entities, and, to Seller's Knowledge, the Target Entities' rights in
the Information Systems which are licensed to either of the Target
Entities, are free and clear of any and all Encumbrances, except as set
forth on Schedule 3.18(c); and (v) except for payments which, absent
the Transactions, would be owed by the Target Entities under the
licenses or Encumbrances listed on Schedule 3.18(c) to which either
Target Entity is a party, there will be no additional fees, charges,
licenses or penalties associated with any continued uses of the
Information Systems as a result of the transactions contemplated
hereby, including the transactions and activities contemplated under
the Transition Services Agreement, which will become the financial
responsibility of Buyer or either Target Entity after Closing, it being
understood and agreed that the reference in this clause (v) to fees,
charges, licenses and penalties is not intended to, and does not,
include matters arising out of or in connection with claims of patent
infringement or any other claims of intellectual property infringement.
The term "Information Systems" means all computer
systems, including but not limited to, all associated computer
hardware, application software and system software (including object
code and source code of software developed by the Target Entities or
Seller), networks, user manuals, documentation, training materials, and
other similar or related items of automated, computerized and/or
software systems necessary for the operation, maintenance, support,
repair and modification of the computer systems as they are used or
operated by the Target Entities as of the Execution Date.
The term "Year 2000 Compliant" or "Year 2000
Compliance" means that the Information Systems: (i) will accurately
process date/time data, including
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calculating, comparing and sequencing, from, into and between the
twentieth and twenty-first centuries and the years 1999 and 2000 and
leap year calculations; (ii) will operate prior to, during and after
the calendar year 2000 without material error relating to date data,
including any material error relating to, or the product of, date data
which represents or references different centuries or more than one
century; and (iii) will not abnormally end or provide invalid or
incorrect results as a result of date data, specifically including date
data which represents or references different centuries or more than
one century.
The term "Normal Functionality" or "Function
Normally" means that the Information Systems, together with the back-up
and disaster recovery systems available for use, in connection with the
Information Systems, shall (a) operate, both as to timeliness and
function, on a regular and consistent basis, and (b) handle and process
data and yield results, which are uncorrupted, accurate, correct, and
complete, in all substantial respects.
SECTION 3.19 INSURANCE. Schedule 3.19 of the Disclosure Schedule sets
forth a complete and correct list and summary description (including the name of
the insurer, coverage, premium, policy limits, and expiration date) of all
primary, excess and umbrella policies, bonds and other forms of insurance, and
renewals thereof, owned or held by or on behalf of or providing insurance
coverage to or for the benefit of the Target Entities (the "Insurance"), copies
of which have been provided to Buyer or its representatives. The policies of
Insurance are of such types and in amounts and for risks, casualties and
contingencies as may be required by TDI or under applicable Legal Requirements.
All of such Insurance policies are in full force and effect, all premiums
currently payable or previously due have been paid, no notice of cancellation or
termination has been received by either of the Target Entities with respect to
any such policy and no assignment of proceeds or Encumbrance exists with respect
to the proceeds of any such policy. Such policies of Insurance will continue to
cover, and the benefits under such policies will be paid to, the insured Target
Entity on and after the Closing Date for events or losses that first occurred or
accrued before the Closing Date. The unpaid claims reported by the Target
Entities to the insurer under such policies are set forth on Schedule 3.19 of
the Disclosure Schedule. The policies of Insurance or replacement policies shall
remain in force, without interruption, through the Closing Date, and for such
additional period of time as required by Section 6.2(l) below.
SECTION 3.20 BANK ACCOUNTS. Schedule 3.20 of the Disclosure Schedule
sets forth a complete and correct list of (i) the names and locations of all
financial institutions at which each of the Target Entities maintains a checking
account, deposit account, lock-box account, securities account, safety deposit
box or other deposit or safekeeping arrangement, (ii) the number or other
identification of all such accounts and arrangements and (iii) the names of all
Persons authorized to draw thereon or have access thereto.
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SECTION 3.21 CERTAIN TRANSACTIONAL FEES. No member of Buyer's Group
(including the Target Entities) has nor will it have an obligation to pay any
broker's, finder's, investment banker's, financial advisor's or similar fee or
expense in connection with the transaction described in this Agreement by reason
of any action taken by or on behalf of Seller.
SECTION 3.22 INSURANCE FILINGS.
(a) Licenses. Schedule 3.22(a) of the Disclosure Schedule sets
forth the licenses held by each Target Entity under all applicable
insurance, HMO, TPA, UR or other similar laws ("Insurance Licenses").
(b) Status of Licenses. All Insurance Licenses of the Target
Entities are in full force and effect, and each Target Entity is in
substantial compliance with all of the terms of such Insurance
Licenses. All applications required to have been filed for the renewal
of such Insurance Licenses have been duly filed on a timely basis with
the appropriate Governmental Authorities. Except as set forth in
Schedule 3.22(b) of the Disclosure Schedule, neither of the Target
Entities has received, at any time since December 31, 1998, any notice
or other communication (whether oral or written) from any Governmental
Authority or any other Person regarding (i) any actual, alleged,
possible or potential violation of or failure to comply, in some
material respect, with any term or requirement of any such Insurance
Licenses, or (ii) any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any such Insurance Licenses, which in any instance
might reasonably cause, result in or constitute a Material Adverse
Effect.
(c) Reports. Each Target Entity has, since December 31, 1998,
made all reports required under applicable Health Benefit Plan Laws.
(d) No Orders, Proceedings, Fines, etc. Except as set forth on
Schedule 3.22(d) of the Disclosure Schedule, no Target Entity has,
since December 31, 1998, entered into or been subject to any judgment,
consent decree, compliance order or administrative order with respect
to any insurance, HMO, TPA, UR or other similar law or, other than in
the ordinary course of business, received any request for information,
notice, demand letter, administrative inquiry or formal or informal
complaint or claim with respect to any Health Benefit Plan Law or the
enforcement of any such law. No Governmental Authority has initiated
any proceeding or, to Seller's Knowledge, investigation into the
business or operations of a Target Entity since December 31, 1998.
(e) Statutory Insurance Statements. Schedule 3.22(e) of the
Disclosure Schedule contains a true and complete list of all annual and
quarterly statements ("Statutory Insurance Statements") which the
Target Entities have filed (or caused to be filed) with or submitted to
the insurance regulatory authorities of Texas and in each
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other jurisdiction in which the Target Entities are a licensed HMO or
an admitted insurer since December 31, 1997. Except as indicated in
Schedule 3.22(e), no material deficiencies have been asserted against
either Target Entity by any such regulatory authority with respect to
such filings or submissions. Seller has delivered to Buyer true and
complete copies of the Statutory Insurance Statements.
(f) Statutory Financial Statements. The statutory financial
statements ("Statutory Financial Statements") of the Target Entities
which are included in the Statutory Insurance Statements present
fairly, accurately and completely in all material respects the
statutory financial condition of the Target Entities as of the dates
thereof and the statutory results of their respective operations and
other data contained therein for each of the periods then ended in
conformity with SAP, except as set forth in the notes, exhibits or
schedules thereto.
(g) Accuracy of Future Statutory Financial Statements to be
Delivered. Any Statutory Financial Statements delivered by Seller to
Buyer pursuant to this Agreement will present fairly, accurately and
completely in all material respects the statutory financial condition
of the Target Entities as of the date as of which such statements are
or were prepared and the statutory results of operations of the Target
Entities for the period then ended, in accordance with SAP, except as
set forth in the notes, exhibits or schedules thereto.
(h) Reserves, etc. Except as set forth on Schedule 3.22(h) of
the Disclosure Schedule with respect to changes in the application of
SAP and commonly accepted actuarial standards, the amounts reflected in
the Financial Statements (including the Statutory Financial Statements)
as reserves and liabilities, and the amounts which will be reflected in
the final and conclusive Closing SAP Balance Sheets as reserves and
liabilities, for the expected value of future payments for net loss and
loss adjustment expenses of HMHIC as of the date of the applicable
Financial Statement and for the expected value of future payments for
incurred but not reported and incurred but not paid Provider claims of
HMTHP as of the date of the applicable Financial Statement (i) were
computed in accordance with SAP and commonly accepted actuarial
standards consistently applied and applied in good faith, (ii) were
fairly stated in accordance with sound actuarial principles, (iii) were
based upon the terms of applicable Provider Agreements, Subscriber
Agreements, and Insurance Policies and other factors affecting health
care costs being incurred by the Target Entities or for which the
Target Entities are financial responsible, (iv) met the requirements of
the insurance laws of Texas and directives of TDI and (v) are adequate
and sufficient to cover all unpaid loss and loss expense obligations
and unpaid health care costs of the Target Entities under the terms of
their respective Subscriber Agreements and Insurance Policies pursuant
to which the Target Entities have liability at the dates of such
Statutory Insurance Statements, including any liability arising as a
result of any reinsurance, coinsurance or other similar contract. Such
amounts shown on the Statutory Insurance Statements filed after
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the Execution Date and prior to the Closing Date will be so computed
and based and will meet all such requirements.
(i) Reports of Examination. Schedule 3.22(i) contains a true
and complete list of Reports of Examination as to condition for each of
HMTHP and HMHIC, constituting the most recent examination for HMTHP and
HMHIC under applicable insurance laws, true and complete copies of
which have been delivered to Buyer by Seller. Except as disclosed in
Schedule 3.22(i), all deficiencies or violations in such examination
reports for any prior year have been resolved to the satisfaction of
the TDI.
SECTION 3.23 HMO AND INSURANCE BUSINESS.
(a) Definitions. The following are certain defined terms used
in this Section 3.23 and throughout this Agreement:
"Broker Agreements:" All Contracts entered into
between HMTHP or HMHIC, as the case may be, and any agent, broker or
solicitor, pursuant to which such Person arranges, on behalf of HMTHP
or HMHIC, as the case may be, for sales of Health Benefit Plans or
Insurance Products to individuals, employers or employer groups.
"Enrollment Forms:" All applications and other
documents which are submitted by Members or prospective Members for
enrollment in a HMTHP Health Benefit Plan and which have been accepted
by HMTHP.
"Health Benefit Plans:" Any or all of the health care
benefit plans offered, sold, administered or maintained by HMTHP which
involve HMTHP's arrangement, delivery, provision and/or payment of
health care services or benefits to Members.
"HMO Act:" The Texas Health Maintenance Organization
Act, codified at Tex. Ins. Code Xxx. art. 20A et. seq. (Xxxxxx 1981)
and the rules and regulations promulgated thereunder by TDI, as amended
from time to time.
"Insurance Contracts:" Any of the insurance policies,
Contracts of insurance, policy endorsements, certificates of insurance
and application forms pertaining to the Insurance Products underwritten
by HMHIC.
"Insurance Products:" Any of the health insurance
coverage underwritten in whole or in part by HMHIC on a traditional
indemnity basis or as part of a PPO or POS health benefit plan or
product, indemnity-based dental, life, AD&D or other ancillary
insurance coverages underwritten, in whole or in part, by HMHIC, and
any stop-loss coverage or other insurance covered, offered or
underwritten by HMHIC.
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"Insured(s):" Any individual (i) who is covered under
an Insurance Product pursuant to an Insurance Contract, (ii) who
satisfies all the eligibility requirements for enrollment in the health
care, life or ancillary Insurance Product under such Insurance
Contract, (iii) for whom all premiums are paid current for all periods
up to and including the Closing Date and (iv) who has not terminated or
given notice of termination of his or her enrollment under such
Insurance Contract prior to the Closing Date
"Medicare+Choice Program Law:" Means the provisions
of Title IV, Subtitle A, Chapter 1 of the Balanced Budget Act of 1997
(Pub. L. No.105-33) and rules and regulations promulgated thereunder,
as amended.
"Member(s):" Any individual (i) who is properly
enrolled in a HMTHP Health Benefit Plan offered by HMTHP under HMTHP's
license to operate an HMO under the HMO Act, (ii) who satisfies all the
eligibility requirements of the Health Benefit Plan, (iii) for whom all
health plan premiums are paid current for all periods up to and
including the Closing and (iv) who has not terminated or given notice
of termination of his or her membership in such Health Benefit Plan
prior to the Closing Date.
"Member Materials:" Any and all marketing and
advertising materials, schedules of benefits, evidences of coverage,
disclosure brochures or other member materials used by HMTHP or
disseminated to any Members.
"Provider Agreements: " All Contracts with Providers
for the arrangement or provision of medical, health or related services
to Members or for the provision of medical, health or related services
to Insureds, as the case may be.
"Providers:" Any and all physicians, physician or
medical groups, independent practice associations (IPAs), preferred
provider organizations (PPOs), exclusive provider organizations,
specialist physicians, dentists, optometrists, pharmacies and
pharmacists, mental health professionals, other medical or health
professionals, hospitals, skilled nursing facilities, extended care
facilities, other health care or services facilities, durable medical
equipment suppliers, opticians, home health agencies or alcoholism or
drug abuse centers, duly licensed and qualified to practice and to
prescribe or administer medications in the State of Texas.
"Seller's Knowledge (or the comparable phrases
"Known" to Seller or to the "Knowledge" of Seller):" Means that any
director, officer or executive employee of Seller or either Target
Entity, at some time on or before the Closing Date, either: (i)
actually knows
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the existence or nonexistence of a fact, circumstance or statement
which is being so qualified or actually knows the accuracy, correctness
or completeness of such fact, circumstance or statement which is being
so qualified; or (ii) reasonably should have known the existence or
nonexistence of a fact, circumstance or statement which is being so
qualified or reasonably should have known the accuracy, correctness or
completeness of such fact, circumstance or statement which is being so
qualified (A) from information furnished to him or her, (B) from
information which is recorded in the public records, or (C) after
inquiry of the director and manager level employees who report to him
or her.
"Service Area:" The geographic area, more
particularly described on Schedule 3.23(a), in which HMTHP is duly
licensed and designated to provide or arrange for the provision of
health care services for commercial and Medicare+Choice Members.
"Subscriber Agreements:" All Contracts for the
arrangement or provision of health care services which HMTHP has
entered into with (i) eligible individuals who subscribe to a Health
Benefit Plan, or (ii) certain employers on behalf of their eligible
employees who subscribe to a Health Benefit Plan.
(b) Reinsurance. All material contracts, arrangements,
treaties and agreements to which HMTHP and HMHIC are a party with
respect to reinsurance applicable to insurance or HMO benefits in
force, a list of which is included on Schedule 3.23(b), and all such
material contracts, arrangements, treaties and agreements under which
HMTHP or HMHIC have any obligation to cede insurance, a list of which
is included in Schedule 3.23(b) (collectively, the "Reinsurance
Contracts"), are valid, binding and in full force and effect in
accordance with their terms. HMTHP or HMHIC are in good standing under
their Reinsurance Contracts with respect to the reporting of business
to be ceded and the timely payment of premiums. HMTHP and HMHIC are
not, and to the Knowledge of Seller, no other party thereto is, in
material default of any provision of the Reinsurance Contracts and,
except as set forth on Schedule 3.23(b), no such Reinsurance Contract
contains any provision providing that the other party thereto may
terminate the same, or requiring any consent, by reason of the
Transactions contemplated by this Agreement or any other provision
which would be altered or otherwise become applicable by reason of the
Transactions. Except as provided for in the Statutory Insurance
Statements as of and for the year ended December 31, 1998, or as set
forth in Schedule 3.23(b), all reinsurance represented by Reinsurance
Contracts to which HMTHP or HMHIC is a party represents an admitted
asset or reduction of loss reserves of HMTHP or HMHIC, as the case may
be, in the respective Statutory Financial Statements and their carrying
values have been described in conformity with applicable Legal
Requirements and SAP.
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(c) Insurance Contracts, Forms and Rates of HMHIC. Except as
set forth on Schedule 3.23(c),(i) the sale, issuance, underwriting and
administration by HMHIC of its Insurance Products and the Insurance
Contracts pursuant to which such products are offered are in compliance
with all applicable Health Benefit Plan Laws, (ii) each Insurance
Product underwritten by HMHIC, each form of Insurance Contract
currently utilized by HMHIC, and any advertising material and rate or
rule currently marketed or used by HMHIC, the use or issuance of which
requires filing or approval, has been appropriately and timely filed,
and if required, approved by the insurance regulatory authorities of
Texas (and any other state in which such policies and forms and rates
are required to be filed) and otherwise conform to the requirements of
the applicable Health Benefit Plan Laws, and (iii) all Insurance
Contracts, advertising materials and rates or rules are in compliance
in all material respects with all applicable Health Benefit Plan Laws
and regulations applicable to them. HMHIC is duly qualified and
licensed as an insurance company throughout the entire State of Texas.
HMHIC is authorized to operate, without restriction, throughout the
entire State of Texas. Except as set forth on Schedule 3.23(c), HMHIC
has not received any citation, suspension, revocation, limitation,
warning or similar matter issued by any applicable Governmental
Authority, including TDI, which has not been resolved to such
Governmental Authority's satisfaction. There are no restrictions placed
upon HMHIC's marketing activities in any part of the State of Texas
except for such restrictions which are placed on the industry in
general. HMHIC has no operations or other activities outside of the
State of Texas and does not underwrite any Insurance Products for
Insureds who reside outside of the State of Texas.
(d) No Policy Dividends. Except as set forth and summarized on
Schedule 3.23(d) of the Disclosure Schedule, no provision in any
Insurance Contract in force gives policyholders the right to receive
dividends or distributions on their policies or otherwise share in the
benefits, revenue or profits of HMHIC. All unpaid dividends or
distributions owing or to become owed under the Insurance Contracts are
properly and fully accrued and recorded on the Financial Statements and
the Future Financial Statements. Except as set forth on Schedule
3.23(d) of the Disclosure Schedule, and except as paid in the ordinary
course of business, HMHIC is not liable to pay commissions on the
renewal of any Insurance Contract or is a party to any agreement
providing for the collection of insurance premiums payable to HMHIC by
any other Person.
(e) Underwriting Standards. HMHIC has complied, in all
material respects, with its underwriting standards and pricing
guidelines and, with respect to Insurance Contracts reinsured in whole
or in part, such Insurance Contracts conform in all material respects
to the standards agreed to with the reinsurer in the related
reinsurance, coinsurance or other similar Reinsurance Contracts. HMTHP
has complied, in all material respects, with its underwriting standards
and pricing guidelines with respect to the Health Benefit Plans which
it offers and the Subscriber Agreements into which it enters.
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(f) Records. All transactions with respect to each Insurance
Contract and the Insurance Products underwritten by HMHIC have been
properly recorded in the books and records of HMHIC. All transactions
with respect to the Subscriber Agreements and the Health Benefit Plans
offered by HMTHP have been properly recorded in the books and records
of HMTHP.
(g) HMTHP's Compliance with Health Benefit Plan Laws. HMTHP is
duly qualified and licensed as an HMO under the HMO Act. HMTHP and its
operations are in material compliance with the HMO Act, the
Medicare+Choice Program Law and all other Health Benefit Plan Laws.
Except as set forth on Schedule 3.23(g) of the Disclosure Schedule,
HMTHP has not received any citation, suspension, revocation,
limitation, warning or similar matter issued by any applicable
Governmental Authority, including TDI or HCFA, which has not been
resolved to such Governmental Authority's satisfaction. HMTHP's Health
Benefit Plans have been submitted to and approved by TDI and HCFA, as
applicable, and otherwise comply, in all material respects, with the
requirements of the HMO Act, the Medicare+Choice Program Law and other
Health Benefit Plan Laws, as applicable. The forms of HMTHP Member
Materials currently in use by HMTHP in connection with HMTHP's Health
Benefit Plans have been submitted to and approved by TDI and HCFA, as
applicable, and otherwise conform, in all material respects, to the
requirements of the HMO Act, the Medicare+Choice Program Law and the
other Health Benefit Plan Laws. HMTHP's Service Area as described on
Schedule 3.23 of the Disclosure Schedule is a correct and complete
description of the geographic area in which HMTHP is licensed to
operate its business under the HMO Act and the Medicare+Choice Program
Law, respectively. HMTHP is otherwise authorized to operate, without
restriction, throughout the entirety of the Service Area. There are no
restrictions placed upon HMTHP's marketing activities in any part of
the Service Area except for such restrictions which are placed on the
industry in general. HMTHP has no operations or other activities
outside of the State of Texas and does not provide or arrange for
health care services or benefits for any Members who reside outside of
the State of Texas.
(h) Enrollment Forms; Subscriber Agreements. Attached as
Exhibit 3.23(h)(i) of Schedule 3.23(h) of the Disclosure Schedule is an
accurate and complete list of each Person which is a party to a
Subscriber Agreement and an accurate and complete summary of each
Subscriber Agreement which identifies the subscriber group in an
appropriate manner, initial contract date, renewal or termination date
and Membership attributable to that subscriber group. Seller has
delivered to Buyer true and correct copies of all forms of Enrollment
Forms and Subscriber Agreements currently in use by HMTHP. Seller
represents and warrants that the largest Subscriber Agreements
representing eighty percent (80%) of the Membership as of August 31,
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1999 (the "Material Subscriber Groups") are enrolled in Health Benefit
Plans pursuant to the standard Enrollment Form and Subscriber Agreement
attached to Schedule 3.23(h) as Exhibit 3.23(h)(ii), except for those
Material Subscriber Groups listed on Exhibit 3.23(h)(iii) of Schedule
3.23(h) which have entered into non-standard Enrollment Forms or
Subscriber Agreements. True and correct copies of those non-standard
Enrollment Forms or Subscriber Agreements entered into by a Material
Subscriber Group (as listed on Exhibit 3.23(h)(iii)) have been
delivered to Buyer by Seller. Except as set forth on Schedule 3.23(h)
of the Disclosure Schedule, all of the Enrollment Forms and Subscriber
Agreements for the Material Subscriber Groups are in writing and signed
and were entered into in the ordinary course of business and constitute
valid, binding and enforceable agreements of the parties thereto,
subject to enforcement of applicable bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles. HMTHP
has, and to Seller's Knowledge, each subscriber group has, performed
all services, commitments and obligations on their respective parts to
be observed or performed under each of he Subscriber Agreements prior
to the Closing Date in conformity with all contractual commitments. All
forms of Enrollment Forms and Subscriber Agreements currently in use by
HMTHP have been approved by TDI and otherwise conform, in all material
respects, to the requirements of the HMO Act and any other applicable
Health Benefit Plan Laws. Except as set forth on Schedule 6.2(f) of the
Disclosure Schedule, no approval or consent is required to be obtained,
and no notice required to be given, under any Enrollment Form or any
Subscriber Agreement in connection with the sale of the HMTHP Stock to
Buyer hereunder. To Seller's Knowledge, (ii) there are no
circumstances, including the consummation of the Transactions, which
are likely to result in the termination, cancellation or nonrenewal of
a Material Subscriber Agreement or the cessation of business being
transacted between HMTHP and a Material Subscriber Group. Schedule
3.23(h) of the Disclosure Schedule sets forth all pending written or
oral cancellation, termination or nonrenewal notices given respecting
any Material Subscriber Group.
(i) HMTHP Broker Agreements. Attached as Exhibit 3.23(i)(i) of
Schedule 3.23(i) of the Disclosure Schedule is an accurate and complete
list of each Person which is a party to a HMTHP Broker Agreement and an
accurate and complete summary of each HMTHP Broker Agreement which
identifies the broker in an appropriate manner, initial contract date,
renewal or termination date and subscriber groups associated with such
broker which are identified an appropriate manner. Seller has delivered
to Buyer true and correct copies of all forms of Broker Agreements
currently in use by HMTHP. Seller represents and warrants that the
largest brokers of HMTHP representing eighty percent (80%) of the
Membership as of August 31, 1999 and the largest brokers of HMTHP
representing eighty percent (80%) of commissions paid as of August 31,
1999 (the "Material HMTHP Brokers") are parties to the standard forms
of Broker Agreement attached to Schedule 3.23(i) as Exhibit
3.23(i)(ii), except for those Material HMTHP Brokers listed on Exhibit
3.23(i)(iii) of Schedule
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3.23(i) which have entered into non-standard Broker Agreements. True
and correct copies of those non-standard Broker Agreements entered into
by a Material HMTHP Broker (as listed on Exhibit 3.23(i)(iii)) have
been delivered to Buyer by Seller. Except as set forth on Schedule
3.23(i) of the Disclosure Schedule, all of the Broker Agreements for
Material HMTHP Brokers are in writing and signed and were entered into
in the ordinary course of business and constitute valid, binding and
enforceable agreements of the parties thereto. Except as set forth on
Schedule 3.23(i) of the Disclosure Schedule or incurred in the ordinary
course of business after July 31, 1999, no past due amounts are owing
under any HMTHP Broker Agreement. HMTHP has, and to Seller's Knowledge,
each HMTHP broker has, performed all services, commitments and
obligations on their respective parts to be observed or performed under
each HMTHP Broker Agreement prior to the Closing Date in conformity
with all contractual commitments. All forms of the Broker Agreements
which are currently in use by HMTHP conform to the requirements of the
HMO Act and any other applicable Health Benefit Plan Laws. Except as
set forth on Schedule 6.2(f) of the Disclosure Schedule, no consent or
approval is required to be obtained, and no notice required to be
given, under any Broker Agreement in connection with the sale of the
HMTHP Stock to Buyer hereunder. To the Seller's Knowledge: (i) no
Material HMTHP Broker has given notice to Seller or HMTHP of such
broker's insolvency or of its intention to file a petition in
bankruptcy; and (ii) there are no circumstances, including the
consummation of the Transactions, which are likely to result in the
termination, cancellation or nonrenewal of a Material HMTHP Broker
Agreement, or the cessation of business being transacted between HMTHP
and a Material HMTHP Broker. Schedule3.23(i) of the Disclosure Schedule
sets forth all pending written or oral cancellation, termination or
nonrenewal notices given respecting any Material HMTHP Broker.
(j) HMTHP Provider Agreements. Attached as Exhibit 3.23(j)(i)
of Schedule 3.23(j) of the Disclosure Schedule is an accurate and
complete list of each Person which is a party to a HMTHP Provider
Agreement and an accurate and complete summary of each HMTHP Provider
Agreement which identifies the Provider, initial contract date and
renewal or termination date. Seller has delivered to Buyer copies of
the Provider Agreements for HMTHP's twenty (20) largest hospital
Providers by revenue as of August 31, 1999, thirty (30) largest
physician, physician group, or IPA Providers by revenue as of June 30,
1999, twenty (20) largest ancillary or specialty Providers by revenue
as of August 31, 1999 and any other Provider who or which has been
responsible for treating Members who constitute greater than one-half
of one percent (.5%) of HMTHP's total Membership as of August 31, 1999
(collectively, the "Material HMTHP Providers"). Except as set forth on
Schedule 3.23(j) of the Disclosure Schedule, all Provider Agreements
with Material HMTHP Providers are in writing and signed and were
entered into by HMTHP in the ordinary course of business and constitute
valid, binding and enforceable agreements of the parties thereto. All
forms of the Provider Agreements which are currently in use by HMTHP
conform to
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the requirements of the HMO Act, the Medicare+Choice Program Laws and
any other applicable Health Benefit Plan Laws. HMTHP has, and to
Seller's Knowledge, each HMTHP Provider has, performed all services,
commitments and obligations on their respective parts to be observed or
performed under each HMTHP Provider Agreement prior to the Closing Date
in conformity with all contractual commitments. Except as set forth on
Schedule 6.2(f) of the Disclosure Schedule, no approval or consent is
required to be obtained, and no notice required to be given, under any
Provider Agreement in connection with the sale of the HMTHP Stock to
Buyer hereunder. To Seller's Knowledge: (i) no Material HMTHP Provider
is, or before Closing is likely to be, insolvent or intends to file a
petition in bankruptcy; and (ii) there are no circumstances, including
the consummation of the Transactions, which are likely to result in the
termination, cancellation or nonrenewal of a Material HMTHP Provider
Agreement, or the cessation of business being transacted between HMHIC
and a Material HMTHP Provider. Schedule3.23(j) of the Disclosure
Schedule sets forth all pending written or oral cancellation,
termination or nonrenewal notices given respecting any Material HMTHP
Provider. All Providers have been appropriately and fully credentialed.
(k) HMHIC Insurance Contracts. Attached as Exhibit 3.23(k)(i)
of Schedule 3.23(k) of the Disclosure Schedule is an accurate and
complete list of each Person which is a party to an Insurance Contract
and an accurate and complete summary of each Insurance Contract which
identifies the Policyholder in an appropriate manner, initial contract
date, renewal date and number of Insureds. Seller has delivered to
Buyer true and correct copies of all forms of Insurance Contracts
currently in use by HMHIC. Seller represents and warrants that the
largest Insurance Contracts representing eighty percent (80%) of the
total number of Insureds as of August 31, 1999 (the "Material
Policyholders") are enrolled in an Insurance Product pursuant to the
standard Insurance Contract attached to Schedule 3.23(k) as Exhibit
3.23(k)(ii), except for those Material Policyholders listed on Exhibit
3.23(k)(iii) of Schedule 3.23(h) which have entered into non-standard
Insurance Contracts. True and correct copies of those non-standard
Insurance Contracts entered into by a Material Policyholder (as listed
on Exhibit 3.23(k)(iii)) have been delivered to Buyer by Seller. Except
as set forth on Schedule 3.23(k) of the Disclosure Schedule, all of the
Insurance Contracts for the Material Policyholders are in writing and
signed and were entered into in the ordinary course of business and
constitute valid, binding and enforceable agreements of the parties
thereto, subject to enforcement of applicable bankruptcy, insolvency,
reorganization and other Laws of general applicability relating to or
affecting creditors' rights and to general equity principles. HMHIC
has, and to Seller's Knowledge, each Policyholder has, performed all
services, commitments and obligations on their respective parts to be
observed or performed under each Insurance Contract prior to the
Closing Date in conformity with all contractual commitments. Except as
set forth on Schedule 6.2(f) of the Disclosure Schedule, no approval or
consent is required to be obtained, and no notice required to be given,
under any
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Insurance Contract in connection with the sale of the HMHIC Stock to
Buyer hereunder. To Seller's Knowledge, (ii) there are no
circumstances, including the consummation of the Transactions, which
are likely to result in the termination, cancellation or nonrenewal of
a Material Policyholder's Insurance Contract or the cessation of
business being transacted between HMHIC and a Material Policyholder.
Schedule 3.23(k) of the Disclosure Schedule sets forth all pending
written or oral cancellation, termination or nonrenewal notices given
respecting any Material Policyholder.
(l) HMHIC Broker Agreements. Attached as Exhibit 3.23(l)(i) of
Schedule 3.23(l) of the Disclosure Schedule is an accurate and complete
list of each Person which is a party to a HMHIC Broker Agreement and an
accurate and complete summary of each HMHIC Broker Agreement which
identifies the broker in an appropriate manner, initial contract date,
renewal or termination date and Policyholders associated with such
broker which are identified an appropriate manner. Seller has delivered
to Buyer true and correct copies of all forms of Broker Agreements
currently in use by HMHIC. Seller represents and warrants that the
largest brokers of HMHIC representing eighty percent (80%) of the total
number of Insureds as of August 31, 1999 and the largest brokers of
HMHIC representing eighty percent (80%) of commissions paid as of
August 31, 1999 (the "Material HMHIC Brokers") are parties to the
standard forms of Broker Agreement attached to Schedule 3.23(l) as
Exhibit 3.23(l)(ii), except for those Material HMHIC Brokers listed on
Exhibit 3.23(l)(iii) of Schedule 3.23(l) which have entered into
non-standard Broker Agreements. True and correct copies of those
non-standard Broker Agreements entered into by a Material HMHIC Broker
(as listed on Exhibit 3.23(l)(iii)) have been delivered to Buyer by
Seller. Except as set forth on Schedule 3.23(l) of the Disclosure
Schedule, all of the Broker Agreements for Material HMHIC Brokers are
in writing and signed and were entered into in the ordinary course of
business and constitute valid, binding and enforceable agreements of
the parties thereto. Except as set forth on Schedule 3.23(l) of the
Disclosure Schedule or incurred in the ordinary course of business
after July 31, 1999, no past due amounts are owing under any HMHIC
Broker Agreement. HMHIC has, and to Seller's Knowledge, each HMHIC
broker has, performed all services, commitments and obligations on
their respective parts to be observed or performed under each HMHIC
Broker Agreement prior to the Closing Date in conformity with all
contractual commitments. All forms of the Broker Agreements which are
currently in use by HMHIC conform to the requirements of any applicable
Health Benefit Plan Laws. Except as set forth on Schedule 6.2(f) of the
Disclosure Schedule, no consent or approval is required to be obtained,
and no notice required to be given, under any HMHIC Broker Agreement in
connection with the sale of the HMHIC Stock to Buyer hereunder. To the
Seller's Knowledge: (i) no Material HMHIC Broker has given notice to
Seller or HMHIC of such broker's insolvency or of its intention to file
a petition in bankruptcy; and (ii) there are no circumstances,
including the consummation of the Transactions, which are likely to
result in the termination, cancellation or
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nonrenewal of a Material HMHIC Broker Agreement, or the cessation of
business being transacted between HMHIC and a Material HMHIC Broker.
Schedule 3.23(l) of the Disclosure Schedule sets forth all pending
written or oral cancellation, termination or nonrenewal notices given
respecting any Material HMHIC Broker.
(m) HMHIC Provider Agreements. Attached as Exhibit 3.23(m)(i)
of Schedule 3.23(m) of the Disclosure Schedule is an accurate and
complete list of each Person which is a party to a HMHIC Provider
Agreement and an accurate and complete summary of each HMHIC Provider
Agreement which identifies the Provider, initial contract date and
renewal or termination date. Seller has delivered to Buyer copies of
the Provider Agreements for HMHIC's twenty (20) largest hospital
Providers by revenue as of August 31, 1999, thirty (30) largest
physician, physician group, or IPA Providers by revenue as of August
31, 1999, twenty (20) largest ancillary or specialty Providers by
revenue as of August 31, 1999 and any other Provider who or which has
been responsible for treating Members who constitute greater than one
percent (1%) of HMHIC's total number of Insureds as of June 30, 1999
(collectively, "Material HMHIC Providers"). Except as set forth on
Schedule 3.23(m) of the Disclosure Schedule, all Provider Agreements
with Material HMHIC Providers are in writing and signed and were
entered into by HMHIC in the ordinary course of business and constitute
valid, binding and enforceable agreements of the parties thereto. All
forms of the Provider Agreements which are currently in use by HMHIC
conform to the requirements of any applicable Health Benefit Plan Laws.
HMHIC has, and to Seller's Knowledge, each HMHIC Provider has,
performed all services, commitments and obligations on their respective
parts to be observed or performed under each HMHIC Provider Agreement
prior to the Closing Date in conformity with all contractual
commitments. Except as set forth on Schedule 6.2(f) of the Disclosure
Schedule, no approval or consent is required to be obtained, and no
notice required to be given, under any Provider Agreement in connection
with the sale of the HMHIC Stock to Buyer hereunder. To Seller's
Knowledge: (i) no Material HMHIC Provider is, or before Closing is
likely to be, insolvent or intends to file a petition in bankruptcy;
and (ii) there are no circumstances, including the consummation of the
Transactions, which are likely to result in the termination,
cancellation or nonrenewal of a Material HMHIC Provider Agreement, or
the cessation of business being transacted between HMHIC and a Material
HMHIC Provider. Schedule 3.23(m) of the Disclosure Schedule sets forth
all pending written or oral cancellation, termination or nonrenewal
notices given respecting any Material HMHIC Provider. All Providers of
HMHIC have been appropriately and fully credentialed.
SECTION 3.24 DISCLOSURE. The representations, warranties and statements
made in this Agreement, the Disclosure Schedule and Exhibits hereto are
accurate, correct and complete and do not, at the date of this Agreement, and
will not at the Closing Date contain any untrue statement of a material fact and
do not and will not omit to state a material fact necessary in order to make the
representations, warranties and statements contained therein or herein not
misleading in light of the context in which they were made.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
SECTION 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation,
duly organized, validly existing and in good standing under the laws of Indiana
and has the corporate power and authority to own, operate and lease its
properties and assets and carry on its business and operations in all material
respects as now owned, operated, leased or conducted.
SECTION 4.2 AUTHORITY AND ENFORCEABILITY. Buyer has all requisite
corporate power and authority to enter into, deliver and perform this Agreement
and any Related Document to which Buyer is a party and to consummate the
Transactions. This Agreement has been, and at the Closing, each Related Document
to which Buyer is a party will be, duly authorized, executed and delivered by
Buyer pursuant to all necessary corporate action. Assuming the due
authorization, execution and delivery by the other Parties, this Agreement
constitutes, and upon their execution and delivery at the Closing, each Related
Document to which Buyer is a party will constitute, the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with their
respective terms.
SECTION 4.3 NO CONFLICT. Neither the execution and delivery by Buyer of
this Agreement or any Related Document to which Buyer is a party, the
consummation of the transactions described in this Agreement by Buyer, nor
compliance by Buyer with any of the provisions of this Agreement or any Related
Document to which Buyer is a party will (a) conflict with any provision of the
articles of incorporation or the bylaws of Buyer, or (b) violate, breach or
conflict with, or constitute a default or require any consents under, any
Contract binding upon Buyer, any Encumbrance, any Orders of a Governmental
Authority having jurisdiction over Buyer or its assets and businesses, or any
License relating to Buyer or its businesses.
SECTION 4.4 NO CONSENTS OR GOVERNMENTAL APPROVALS. Except as follows,
Buyer is not required to obtain any consent, License or waiver of, make any
filing with, submit any notification to, or seek to obtain any action by, any
Governmental Authority in connection with the execution, delivery or performance
of this Agreement by Buyer and the consummation of the Transactions by Buyer:
(a) a notification and report form in compliance with the HSR Act shall have
been filed by PacifiCare Health Systems, Inc. and such form and the applicable
waiting period with respect to such form, including any extension thereof by
reason of a
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request for additional information, shall have expired or been terminated; (b)
TDI approval of the combined Statement of Acquisition on Form A to be submitted
by Buyer to obtain TDI's approval of Buyer's acquisition of the Target Entities;
and (c) courtesy notice to the Health Care Financing Administration ("HCFA")
which provides HCFA with written notice of the proposed acquisition of HMTHP by
Buyer, and seeks confirmation that HCFA will not be requiring approval of a
novation agreement with respect to HMTHP's Medicare+Choice Program contract with
HCFA.
SECTION 4.5 CERTAIN TRANSACTIONAL FEES. Seller neither has nor will
have any obligation to pay any broker's, finder's, investment banker's,
financial advisor's or similar fee or expense in connection with the
Transactions by reason of any Contract to which Buyer or an Affiliate of Buyer
is a party.
ARTICLE V
CERTAIN PRE-CLOSING COVENANTS
SECTION 5.1 CONDUCT OF THE TARGET ENTITIES' RESPECTIVE BUSINESSES
PENDING THE CLOSING. Except as expressly permitted or contemplated by this
Agreement, during the period between the Execution Date and the Closing Date:
(a) Seller shall cause the Target Entities to use commercially
reasonable, good faith efforts to (i) carry on their respective
businesses in the usual and ordinary course consistent with past
practices, (ii) maintain their relationship with and preserve the
goodwill of their present Providers, subscriber groups, Policyholders,
Brokers, Members, Insureds, suppliers and customers of the Target
Entities and (iii) maintain its Licenses and Permits in good standing,
including HMTHP's HMO license, and to comply with the HMO Act, the
Medicare+Choice Program Law and all other laws applicable to their
respective businesses.
(b) Seller shall not cause or permit the Target Entities to:
(i) change any of their significant business policies relating to
marketing, pricing, underwriting, billing and collection, enrollment
functions, claims administration, processing and payment, payment of
trade debts, purchasing, except changes in the ordinary course of their
business; (ii) make any change in the accounting methods or practices
of the Target Entities, except as may be required to become consistent
with SAP or as may be required by applicable Legal Requirements; (iii)
sell, assign, distribute, lease, transfer or otherwise dispose of, or
agree to dispose of, a material portion of the Target Entities' Assets;
(iv) enter into a material amendment or modification of any of the
Material Contracts, terminate any Licenses or Permits or, except in the
ordinary course of the Target Entities' respective businesses or as
required by this Agreement, terminate any Material Contracts or enter
into any new Material Contract; (v) permit or suffer any Encumbrance or
other restrictions on any material Assets belonging to or
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used by either of the Target Entities; (vi) with the exception of the
settlement and disposition of any lawsuits or proceedings, cancel any
indebtedness or waive, forgive, compromise or settle any rights having
a dollar value to either of the Target Entities in excess of $20,000 in
any single instance or in excess of $50,000 in any multiple number of
instances; (vii) execute any lease, license, purchase agreement or
other contract or incur any commitment or liability therefor involving
annual payments in excess of $50,000 individually or $100,000 in the
aggregate; (viii) incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise become responsible for obligations of
any other Person (including an Affiliate) or make any loans or advances
to any Person; (ix) defer, modify or increase compensation paid to the
Target Entities' employees except for customary salary adjustments made
in the ordinary course of their business or for retention bonuses
arrangements which will be appropriately reserved against on the final
and conclusive Closing SAP Balance Sheets; (x) make any capital
expenditure or financing in excess of $50,000 individually or $100,000
in the aggregate; (xi) make any change in the investment policies or
practices of either of the Target Entities or the classes of assets in
which the Target Entities' funds are invested; (xii) terminate or
modify any insurance policies covering the Target Entities, their
Assets or their businesses except when appropriate replacement
insurance policies, upon terms no less favorable than existing
insurance coverage, has been entered into without any lapse in
coverage; or (xiii) enter into or engage in any transaction of the type
prohibited by Section 3.9.
(c) Seller shall not mortgage or pledge the Stock or subject
the Stock to any Encumbrance or allow either of the Target Entities to
issue any shares of capital stock or securities convertible into or
exchangeable for shares of their capital stock.
(d) Seller shall not, and shall not allow the Target Entities
to, engage in any transactions or activities which would adversely
affect the Transactions or the likelihood of their consummation or
would result in a Material Adverse Change.
(e) Seller shall cause each Target Entity to invest the
proceeds from any Investment Assets that mature during the period prior
to the Closing Date in government securities with maturity dates of one
(1) year or less.
SECTION 5.2 ACCESS TO INFORMATION. Between the Execution Date and the
Closing or the earlier termination of this Agreement, Seller shall, and shall
cause each Target Entity to, afford Buyer and its Representatives with full and
complete access, during normal business hours, to the books and records
(including such independent auditors' working papers), reports, documents,
instruments, and properties relating to the businesses, operations and Assets of
the Target Entities and to furnish Buyer with all information that it may
reasonably request to investigate all aspects of the Target Entities and their
respective businesses; provided, however, that such investigation shall be
conducted in such a manner so as to not cause any unreasonable disruption of or
to the personnel and operations of the entity providing
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such access; provided, further, however, that such investigation shall not
exceed acceptable boundaries under applicable antirust laws. Buyer's access to
information concerning the Target Entities shall include a right to conduct a
physical inventory of the Assets prior to Closing.
SECTION 5.3 CONFIDENTIALITY.
(a) Each Party to this Agreement shall hold in strict
confidence all documents, correspondence, materials and information
furnished, provided or made available to it in connection with this
Agreement and the Transactions ("Confidential Information"); provided,
however, that each Party may disclose any such Confidential Information
to its respective directors, officers, employees, agents, advisors or
other representatives (including, without limitation, lawyers,
accountants, bankers and financial advisors) prospective financing
sources, subsidiaries or Affiliates, as applicable (collectively,
"Representatives"), so long as such Representatives agree to be bound
by the provisions of this Section 5.3. Each Party shall be responsible
for any breach of the provisions of this Section 5.3 by any of its
Representatives. If any Party or any of its respective Representatives
is requested or required (by oral questions, written interrogatories,
request for information or documents, subpoena, civil investigatory
demand or similar process issued by a court or Governmental Authority
of competent jurisdiction) to disclose any such Confidential
Information, such Party shall provide the other Parties with immediate
notice of such request or requirement so that the other Parties (or any
of them) may seek an appropriate protective order. Further, in the
absence of a protective order or the receipt of a waiver hereunder,
each Party and its respective Representatives agree to furnish only
that portion of the Confidential Information which, in the opinion of
counsel, is legally required and shall use its best efforts to ensure
that confidential treatment is accorded such Confidential Information.
Such disclosure shall not result in liability hereunder unless such
disclosure to such court or Governmental Authority was caused by or
resulted from a previous disclosure by such Party or its
Representatives in breach of this Section 5.3.
(b) In the event that this Agreement is terminated in
accordance with its terms, each Party (the "Recipient"), upon request
of any other Party (the "Disclosing Party"), shall promptly destroy or
return to the Disclosing Party all Confidential Information provided to
the Recipient by the Disclosing Party pursuant to this Section 5.3 or
in connection with the Transactions contemplated by this Agreement and
shall not retain any copies, extracts or other reproductions in whole
or in part of such Confidential Information. In such event (i) the
Recipient also shall destroy all documents, memoranda, notes and other
writings prepared by any Recipient based on the information contained
in such Confidential Information and (ii) the Recipient shall use
commercially reasonable efforts to cause its Representatives to
similarly destroy their documents, memoranda, notes and other writings;
provided, however, that the Recipient may keep a log of the returned
Confidential Information and the Recipient's
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legal counsel may retain documents prepared by it which is considered
attorney work product and such documents shall continue to be subject
to the terms of this Section 5.3.
(c) Notwithstanding the foregoing, Seller may disclose this
Agreement to Baylor Health Care System, a Texas non-profit corporation
("Baylor") provided that (i) prior to such disclosure Baylor agrees in
writing with Buyer to abide by the terms of this Section 5.3, and (ii)
Seller shall be responsible for any violation by Baylor of such
agreement.
SECTION 5.4 PUBLIC ANNOUNCEMENTS. Except as required by applicable law,
without the prior written approval of the other Parties, no Party will issue, or
permit any agent or Representative of such Party to issue, any press release or
otherwise make, or permit any agent or Representative of such Party to make, any
public statement or announcement with respect to this Agreement, its execution
or the Transactions; provided, however, that to the extent that, in the opinion
of its legal counsel, any public statement is required to be made by any of the
Parties or any of its Affiliates pursuant to any applicable law, the Party
seeking to make the public announcement shall be permitted to do so after
consultation with the other Parties prior to issuing any such press release or
written public statement. When mutual consent to a public announcement is
required, the Parties will use good faith efforts to agree to the timing and
content of such announcement.
SECTION 5.5 DISCLOSURE ADDENDUM. Seller shall, on or before ten (10)
business days prior to the Closing Date, deliver to Buyer an addendum to the
Disclosure Schedule to update the Disclosure Schedule delivered concurrently
with the execution and delivery of this Agreement so that the Disclosure
Schedule, together with the addendum, are accurate as of the date of delivery;
provided, however, that Seller shall make further updates to the Disclosure
Schedule as soon as reasonably practicable to account for additional updates
occurring up to the Closing Date. Notwithstanding the foregoing, Buyer, in its
sole discretion, may refuse to accept any updates or addenda to the Disclosure
Schedule which, in any single instance cause, result in or constitute a Material
Adverse Effect or which, in any one or more instances, cause, result in or
constitute a Material Adverse Change; provided, however, that Buyer shall be
required to accept any updates or addenda to the Disclosure Schedule which
cause, result in or constitute a Material Adverse Effect after Seller has
either: (i) fully paid or reimbursed Buyer or the Target Entities for the
Material Adverse Effect; or (ii) fully reserved against the Material Adverse
Effect on the final and conclusive Closing SAP Balance Sheets.
SECTION 5.6 DELIVERY OF STATUTORY INSURANCE STATEMENTS. Seller shall
cause the Target Entities to deliver to Buyer as soon as they are filed any
interim or annual Statutory Insurance Statements that may be required to be
filed with any state insurance regulatory authorities on behalf of HMTHP or
HMHIC between the Execution Date and the Closing Date.
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SECTION 5.7 NO SHOP. Unless or until this Agreement is terminated as
provided in Section 9.11 below, Seller shall not, and shall cause the Target
Entities and their respective Representatives not to, directly or indirectly,
solicit or initiate any discussions or negotiations with, participate in any
negotiations with or provide any information to or otherwise cooperate in any
other way with, or facilitate or encourage any effort or attempt by any Person
concerning any sale of any or all of the Target Entities, including a sale of
any of the HMTHP Stock, any of the HMHIC Stock or all or any substantial portion
of Target Entities' Assets, or any merger or reorganization involving either
Target Entity or any similar transaction involving either Target Entity.
Notwithstanding the foregoing, the Parties may discuss any of the foregoing
matters (a) as required by any written Contract to which a Target Entity or any
Party hereto is a Party or is subject, including any listing agreement with a
national securities exchange, (b) with any of Seller's or either Target Entity's
Representatives who must know such specifics to facilitate the consummation of
the Transactions, (c) with any present or prospective customer or client of
either Target Entity (including subscriber groups, Policyholders, brokers or
Providers) when such communication is consistent with the protocol established
pursuant to Section 5.4 above, (d) as required by any Legal Requirement to which
any Party or either Target Entity is subject, (e) as required by the performance
of one's duties as an officer, director or shareholder of either Target Entity,
(f) as required by the terms of this Agreement, or (g) as otherwise agreed to in
writing by Buyer and Seller.
SECTION 5.8 TRANSITION PLANNING. Buyer and Seller mutually acknowledge
and agree that an integral component for the success of the Transactions for
Buyer will be the speed and ease with which the operations of the Target
Entities are integrated into those of Buyer's Affiliates operating in the State
of Texas after the Closing has occurred. To facilitate this objective, Buyer and
Seller each desire to designate and dedicate teams (which will include
independently contracted consultants) devoted to permissible transition planning
and activities which may be accomplished during the period between the Execution
Date and the Closing. Buyer and Seller will each apprise their respective teams
of the limits placed upon them under the antitrust laws for sharing
competitively sensitive information and maintaining separate business operations
until the Transactions have been consummated. Buyer and Seller acknowledge that
the guidelines to govern the conduct of the transition teams are set forth on
Exhibit J. Within the framework of the transition team guidelines, Seller agrees
to cause the Target Entities and their employees, personnel, consultants and
advisors to consult and meet regularly with Buyer's transition team and to fully
assist them in the planning for the integration of the Target Entities'
operations after Closing.
SECTION 5.9 BOOKS AND RECORDS. Seller shall cause the Target Entities
to (i) accurately maintain their books, accounts and records in the usual,
regular and ordinary manner, in accordance with SAP and good business practices
and on a basis consistent with prior years, (ii) accurately maintain its minute
books, and (iii) close its stock transfer books until the Closing.
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SECTION 5.10 MAINTENANCE OF ASSETS. Seller shall cause the Target
Entities to maintain all of their tangible Assets and properties in customary
repair, order and condition (reasonable wear and tear excepted) and insured in
accordance with past practices.
SECTION 5.11 REGULATORY CONSENTS AND APPROVALS; THIRD PARTY CONSENTS.
Seller shall, and shall cause each of the Target Entities to, diligently seek
the consent or approval of, furnish any notices to or make any filings or
registrations with, those Governmental Authorities listed on Schedule 3.4(a) or
other Persons listed on Schedule 6.2(f). Seller shall use its best efforts to
obtain the foregoing governmental and third party consents and approvals. Buyer
and Seller shall work cooperatively together to promptly prepare and file the
notifications required (if any) under the HSR Act in connection with the
purchase and sale of the Stock hereunder. Buyer and Seller agree to respond, as
promptly as practicable, to (i) any inquiries or requests received from the
Federal Trade Commission or the Antitrust Division of the Department of Justice
for additional information or documentation, and (ii) any inquiries or requests
received from any state attorney general or other Governmental Authority in
connection with antitrust, competitive or related matters. Further, without
limiting the foregoing and as soon as practicable, Buyer shall make all
necessary filings with, and furnish all information as may be required by, the
TDI in connection with the purchase of the Stock by Buyer. Seller shall furnish
its full cooperation and assistance, as necessary, for Buyer to make complete
fillings with the TDI and to promptly respond to any inquiries or questions from
TDI.
SECTION 5.12 FURNISH NOTICE OF ADVERSE EVENTS. Seller shall provide
Buyer with prompt written notice of any event of which Seller has Knowledge
which causes any of the representations and warranties furnished by Seller in
Article III hereof to be untrue or inaccurate, or of any failure or inability
to perform, in some material respect, any covenant or agreement required to be
performed by Seller under this Agreement. Seller shall, and shall cause the
Target Entities to, promptly inform Buyer of any Material Adverse Effect,
Material Adverse Change or Adverse Regulatory Condition of which Seller has
Knowledge. In addition, Seller shall, and shall cause the Target Entities to,
advise Buyer in writing promptly of the assertion, commencement or overt
threat of any Claim, litigation, proceeding, investigation or Order involving
either of the Target Entities, their Assets, their respective businesses or
the Stock in which a restraining order, injunction or preliminary injunction
is sought or in which money damages are asserted in excess of Fifty Thousand
Dollars ($50,000).
SECTION 5.13 CLOSING BALANCE SHEETS. Seller shall prepare unaudited,
projected Closing SAP Balance Sheets to be delivered by Seller to Buyer no later
than fifteen (15) days prior to the Closing Date. In addition, Seller shall
prepare an unaudited, projected balance sheet of HMTHP as of the date
immediately preceding the Closing Date, in accordance with GAAP and an
unaudited, projected balance sheet of HMHIC as of the date immediately preceding
the Closing Date, in accordance with GAAP (collectively, the "Closing GAAP
Balance Sheets") which shall be delivered by Seller to Buyer no later than
fifteen (15) days prior to the Closing Date.
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SECTION 5.14 TERMINATE INTERCOMPANY ARRANGEMENTS. Seller shall cause
all Tax allocation, Tax sharing, Tax reimbursement and similar arrangements or
agreements between Seller or its Affiliates on the one hand, and the Target
Entities, on the other hand, to be extinguished and terminated prior to the
Closing Date with respect to the Target Entities and any rights or obligations
existing under any such agreement or arrangement to no longer be enforceable on
or after the Closing Date. Seller shall cause the termination, effective prior
to the Closing Date, of any other financial, shared services, or other
intercompany Contracts or arrangements between either of the Target Entities, on
the one hand, and Seller, THR, or any other Affiliate thereof, on the other
hand, including any indebtedness, obligations or other liabilities which may be
payable by a Target Entity to one of their Affiliates or payable by one of the
Affiliates to a Target Entity, any executed, unexecuted or oral lease of the
premises located at 000 Xxxx Xxxxx Xxxxx, Xxxxxxxxx, Xxxxx and any executed,
unexecuted or oral information systems or technology agreement between Seller or
its Affiliates and the Target Entities (collectively, along with the Tax
agreements referred to in the first sentence hereof, the "Intercompany
Arrangements"). Except for liabilities adequately reserved for on the final and
conclusive Closing SAP Balance Sheets, Seller shall cause each of the Target
Entities to be released prior to the Closing Date from any and all liabilities
(known or unknown or absolute or contingent) arising out of or in connection
with the Intercompany Arrangements.
SECTION 5.15 TERMINATION OF EMPLOYEE BENEFIT PLANS. Seller shall cause
the Target Entities, as of the Closing Date, to terminate the Target Entities'
participation in each Designated Plan, including the termination of, and release
from, any further funding obligations and to withdraw the Target Entities as
plan administrators and/or named fiduciaries for all clams for benefits made,
and all claims for benefits incurred but not reported, under any Designated
Plans as of the Closing Date.
SECTION 5.16 DISCONTINUATION OF EXPRESS SCRIPTS AGREEMENT. Seller shall
use appropriate measures to cause the Target Entities to discontinue using the
services of Express Scripts, Inc. for pharmacy benefit management, pharmacy
network management, mail order, and all other pharmacy-related services prior to
the Closing Date. Seller shall use its best good faith efforts to obtain from
Express Scripts, Inc. all claims and other data related to the HMTHP Business
and HMHIC Business in the possession of Express Scripts, Inc.
SECTION 5.17 BEST EFFORTS; FURTHER ASSURANCES. Each of the Parties
shall exercise commercially reasonable efforts and good faith to perform, comply
with and otherwise satisfy all of the conditions and covenants required of it
under this Agreement. Each of the Parties shall perform any and all other acts
and shall execute and deliver any and all additional documents as are or may
become reasonably necessary to fully carry out the provisions of this Agreement
or to fully consummate the Transactions which are consistent with the Parties'
intentions as expressed in this Agreement.
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SECTION 5.18 INTENTIONALLY LEFT BLANK.
SECTION 5.19 STAY-PUT BONUS. Promptly after execution of this
Agreement, Seller shall cause the Target Entities to enter into reasonable stay
put bonus agreements with the Target Entities' employees designated by Buyer to
appropriately incentivize such employees to remain employed with the Target
Entities for a period of at least six months after the Closing Date (the "Stay
Put Agreements"). The Stay Put Agreements shall be subject to Buyer's reasonable
approval. All bonus amounts payable to the Target Entities' employees under the
Stay Put Agreements shall be paid one-third by Seller (and not the Target
Entities) and two-thirds by Buyer.
SECTION 5.20 STADIUM BOXES. Pursuant to a letter agreement with Frost
Bank, THR or Seller acquired a one-half interest in a stadium box at Ballpark in
Arlington which is owned by Frost Bank. Prior to Closing, Seller or THR shall
assign and transfer to HMTHP or PacifiCare of Texas, Inc. one-half of Seller's
or THR's one-half interest in the Ballpark in Arlington stadium box, including
any and all rights, benefits and privileges (including parking privileges)
incident to the one-fourth interest in the stadium box being transferred to
HMTHP or PacifiCare of Texas, Inc.
SECTION 5.21 TERMINATION OF LEASES. Seller shall either: (i) cause the
termination of all Leases, without any liability owing by either Target Entity
under the Leases after the Closing Date which has not been adequately reserved
against in the final and conclusive Closing SAP Balance Sheets; or (ii) cause
the assignment of all Leases to Seller or any Affiliate of Seller, without any
liability owing by either Target Entity under the Leases after the Closing Date
which has not been adequately reserved against in the final and conclusive
Closing SAP Balance Sheets.
SECTION 5.22 ASSIGNMENT OF CERTAIN ASSETS. Seller shall, or shall cause
its Affiliates to, fully, irrevocably and forever assign to the Target Entities
title to all Assets or all right, title and interest in or to leases or licenses
of all Assets which are used in the business of the Target Entities, but to
which Seller or such Affiliates hold or retain title.
SECTION 5.23 CONSIDERATION OF THE TARGET ENTITIES' EMPLOYEES. Seller
and the Target Entities shall permit Buyer to interview, during regular business
hours, such employees of the Target Entities as Buyer may select. Seller and the
Target Entities also shall permit Buyer to review personnel files of those
employees of the Target Entities who have consented to such review.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. Unless waived in
writing by the Party adversely affected, the obligations of the Parties to
consummate the Transactions
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shall be subject to the fulfillment on or prior to the Closing Date of each of
the following conditions as they relate to that Party:
(a) No Threats of Invalidity. No unresolved claim shall have
been instituted or threatened by any third party that (i) questions the
validity or legality of this Agreement or any of the Transactions, (ii)
seeks to enjoin the consummation of any of the Transactions or (iii)
seeks material damages from a Party or its Affiliates as a result of
this Agreement or the consummation of any of the Transactions.
(b) No New Adverse Laws. No law shall have been enacted or
issued by any Governmental Authority, and no Order issued by any
Governmental Authority, or other legal restraint or prohibition, shall
be in effect, in any case, which prevents the consummation of the
Transactions or makes the consummation of any of the Transactions
illegal (each Party agreeing to use commercially reasonable efforts to
prevent the entry of any such Order and to appeal as promptly as
possible any such Order that may be entered).
(c) Authorizations and Legal Requirements. All governmental or
other authorizations, approvals, consents, waivers and expiration of
waiting periods, including those required by or under (i) the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended ("HSR
Act"), (ii) the Texas Department of Insurance, (iii) the Texas Attorney
General, (iv) the Texas Department of Health, if applicable or (v) the
United States Health Care Financing Administration, if applicable, and
all other filings shall have been made by Buyer, Seller or the Target
Entities, the lack of which would render the purchase and sale of the
Stock illegal under any applicable Legal Requirements.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF BUYER. Unless waived in
writing by Buyer, the obligations of Buyer to consummate the Transactions shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following additional conditions:
(a) Representations by Seller. The representations and
warranties furnished by Seller in this Agreement and the Disclosure
Schedule, as amended, and in any certificate delivered by Seller
pursuant to the provisions of this Agreement, shall be true and correct
on the Execution Date and on the Closing Date, with the exception of
any inaccuracy in such representations and warranties which does not
cause, result in or constitute a Material Adverse Effect in any single
instance or a Material Adverse Change in any one or more instances.
(b) Fulfillment of Covenants by Seller, and the Target
Entities. Each of Seller and the Target Entities shall have fulfilled
its covenants, obligations and agreements as set forth in this
Agreement and which are required to be fulfilled prior to
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Closing, including the covenants in Section 5.1 respecting the conduct
of the Target Entities' businesses prior to Closing.
(c) Closing Documents. Buyer shall have received all documents
described in Article II that are to be delivered by Seller to Buyer at
Closing, whether such documents are to executed by Seller or an
Affiliate of Seller.
(d) Addendum to Disclosure Schedule. Buyer shall have received
the proposed addendum to the Disclosure Schedule delivered pursuant to
Section 5.5, and the information contained in any addendum or update to
the Disclosure Schedule shall not in any single instance cause, result
in or constitute a Material Adverse Effect or in any one or more
instances cause, result in or constitute a Material Adverse Change.
(e) Material Adverse Change. There shall not be a Loss or
Claim affecting the Target Entities in excess of $10,000,000 or any
event or change which has or is reasonably likely to have an adverse
financial or economic impact upon the properties, Assets, business,
financial condition or results of operations of HMTHP or HMHIC in
excess of $10,000,000 (a "Material Adverse Change").
(f) Third Party Consents. All notices to or consents,
approvals or authorizations from third parties (with respect to either
Seller or a Target Entity) which result from the sale of the Stock to
Buyer or the consummation of the Transactions hereunder, except for
such notices, consents, approvals or authorizations which, if not
sought, obtained or furnished would not cause, result in or constitute
a Material Adverse Effect (collectively, "Material Notices and
Consents") are set forth on Schedule 6.2(f) and shall have been
furnished or obtained in writing and delivered by Seller to Buyer.
(g) Adverse Regulatory Condition. (i) A Governmental Authority
shall not issue a decree or ruling, expressing verbally or in writing a
directive or take any other action restraining, enjoining or otherwise
prohibiting Buyer's acquisition of the Stock of the Target Entities
without (A) Buyer, one of its Affiliates, or either or both of the
Target Entities taking any affirmative action or being restrained from
taking any action which is reasonably likely to have an economic or
financial impact in excess of $5,000,000, (B) Buyer or one of its
Affiliates advancing, expending, contributing or loaning funds in
excess of $5,000,000 or (C) any restriction or prohibition upon Buyer's
ownership or operation of either Target Entities which is reasonably
likely to have an economic or financial impact in excess of $5,000,000;
and (ii) there shall not be asserted or outstanding (A) any action by a
Governmental Authority threatened or pending which could result in
suspension or revocation of or restriction upon any Licenses and
Permits held by either of the Target Entities, or (B) any actual or
threatened termination, revocation or other loss or modification of any
certificate of authority or other approval necessary for either Target
Entity to conduct business or
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sell any product in the State of Texas or in any other state in which
such termination, revocation, loss or modification is reasonably likely
to be material to HMTHP, HMHIC or their respective businesses (any of
the circumstances described in this clause (ii) and the foregoing
clause (i) shall be referred to as an "Adverse Regulatory Condition").
(h) Adequate Extended Reporting Insurance Coverage. Seller
shall deliver to Buyer evidence that the following policies of
Insurance or extended reporting coverage purchased by Seller thereunder
will cover the Target Entities and their successors for Unknown Claims
which are asserted after Closing with respect to events arising prior
to the Closing Date, and that such Insurance coverage will satisfy the
following requirements: (i) National Union Fire Insurance Company
policy number 8610362; (ii) the insurance policies that comprise the
THR excess liability program for covered claims arising out of the
operations of HMTHP and HMHIC: (A) $15,000,000 per occurrence and
$15,000,000 policy aggregate excess of a self-insured retention of
$2,000,000 per occurrence and $12,000,000 annual aggregate, under
policy number UL199000 reinsured with Swiss Reinsurance Corporation;
(B) $20,000,000 per occurrence and $20,000,000 policy aggregate excess
of underlying coverage under policy number UL299000 reinsured with
Zurich American Insurance Company; (C) $10,000,000 per occurrence and
$10,000,000 policy aggregate excess of underlying coverage under policy
number UL399000 reinsured with Continental Casualty Company; and (D)
$10,000,000 per occurrence and $10,000,000 policy aggregate excess of
underlying coverage under policy number UL499000 reinsured with Munich
American; (iii) directors & officers liability coverage for claims
brought against directors and officers of HMTHP and HMHIC (the current
primary directors and officers insurance is provided by National Union
Fire Insurance Company under policy number 4860374, and several
insurance companies provide excess coverage above the primary policy to
a total limit of $100,000,000; and (iv) upon termination of Lloyd's
policy number NB99AD14, Seller agrees to exercise, at its sole cost and
expense, the Optional Extension Period for at least three years (this
policy provides Managed Healthcare Professional Liability coverage to
HMTHP in the amount of $2,000,000 for any one claim and $4,000,000 in
the aggregate, and Seller warrants that Lloyd's policy number NB99AD14
includes HMHIC, as named insureds) (collectively, items (i), (ii),
(iii) and (iv) shall be referred to as the "Relevant Insurance
Policies").
(i) Withdrawal by HMHIC of Certain Products. Seller shall
deliver to Buyer written evidence that HMHIC took all appropriate
regulatory and other actions (including submitting any withdrawal plan
required by TDI), and furnished all appropriate notices within ten (10)
days after the Execution Date to withdraw HMHIC's small group PPO and
individual PPO products from the State of Texas.
(j) Adverse Litigation or Proceedings. There shall not be any
suit, action, claim, proceeding or investigation instituted with
respect to the Transactions or against any Party or Target Entity, by
any private or governmental litigant which, after taking
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into account applicable insurance coverage of Seller, reasonably could
be expected to result in a Material Adverse Change or an Adverse
Regulatory Condition.
(k) Occurrence of a Material Adverse Effect. Upon the
occurrence of an event, fact or circumstance which causes, results in
or constitutes a Material Adverse Effect which would otherwise prevent
the fulfillment of a condition to Buyer's obligations to close the
Transactions, Buyer must waive the Material Adverse Effect (and the
unfulfilled condition specifically related thereto) until the
occurrence of one or more Material Adverse Effect exceeds the amount of
$250,000 (the "Pre-Closing Basket"). If and when the aggregate amount
of all Losses or Claims likely attributable to one or more Material
Adverse Effect exceeds the Pre-Closing Basket, then Buyer shall be
permitted not to close the Transactions due to the failure or
non-fulfillment of the conditions to Buyer's obligations to close.
Notwithstanding the foregoing, once the Pre-Closing Basket has been
filled, Seller still may require Buyer to close the Transactions
pursuant to Subsection 6.2(l) below if Seller pays, reimburses or
causes the Target Entities to be fully reserved for all Losses or
Claims to the full extent of all Material Adverse Effects, including
those within the Pre-Closing Basket.
(l) Handling Unfulfilled Closing Conditions. In the event that
any one or more of Buyer's conditions to Closing in this Section 6.2,
excluding Subsection 6.2(e), or in the preceding Section 6.1 is not
fulfilled, including the occurrence of one or more Material Adverse
Effect which exceeds the Pre-Closing Basket, Buyer shall nonetheless be
required to close the Transactions once Seller has paid or reimbursed
Buyer or the Target Entities for the Loss or Claim associated with such
unfulfilled condition or, if appropriate, Seller has fully reserved for
such Loss or Claim on the Closing SAP Balance Sheets. However, if
Seller fails to pay, reimburse or fully reserve for such Loss or Claim,
then Buyer will not be obligated to close the Transactions. In the
event that the condition of Subsection 6.2(e) fails to occur and a
Material Adverse Change has occurred, Buyer may elect to, but shall not
be required to, close the Transactions. Upon the occurrence of a
Material Adverse Change, Buyer, in its sole, absolute and subjective
discretion, may elect to waive the Material Adverse Change and proceed
with Closing the Transactions if, and only if, Seller elects to pay or
reimburse Buyer or the Target Entities for the Loss or Claim amounting
to the Material Adverse Change or, if appropriate, fully reserve for
such Loss or Claim on the Closing SAP Balance Sheets. In the event of a
Material Adverse Change, neither Buyer nor Seller shall be required to
close the Transactions, irrespective of the election of the other
Party.
(m) Closing SAP Balance Sheets. Seller shall have prepared the
unaudited, projected Closing SAP Balance Sheets in accordance with the
requirements of Section 1.3(b), delivered them to Buyer as provided in
Section 5.13, and, subject to Buyer's continuing rights under Section
1.3(c), such unaudited, projected Closing SAP Balance Sheets shall be
reasonably acceptable to Buyer.
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SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. Unless waived in
writing by Seller, the obligations of Seller to consummate the Transactions
shall be subject to the fulfillment on or prior to the Closing Date of each of
the following additional conditions:
(a) Representations by Buyer. The representations and
warranties made by Buyer in this Agreement and in any certificate
delivered by Buyer pursuant to the provisions hereof, shall be true and
correct in all material respects on the Execution Date and on the
Closing Date to the same extent as if made on the Closing Date.
(b) Fulfillment of Covenants by Buyer. Buyer shall have
fulfilled its covenants, obligations and agreements as set forth in
this Agreement which are required to be fulfilled prior to Closing.
(c) Receipt of Payments and Closing Documents. Seller shall
have received all payments and documents described in Article II that
are to be delivered to Seller at the Closing.
(d) Release of Seller. Seller shall have received a release,
in form and content reasonably satisfactory to Seller, from any
guaranties it has been required to give by Health Care Financing
Administration and the Texas Department of Insurance with respect to
HMTHP.
ARTICLE VII
ADDITIONAL AGREEMENTS
Seller and Buyer covenant and agree with each other that, after the
Closing:
SECTION 7.1 SUPPLYING OF INFORMATION. Each Party shall furnish to the
other and its Representatives such information as may reasonably be requested in
cooperation with any review, audit, investigation or examination of the books
and records, accounts, contracts, properties, Assets, operations and facilities
relating to the Target Entities or as may reasonably be requested in cooperation
with any litigation with a Person who is not a party to this Agreement.
SECTION 7.2 EXPENSES. Except as otherwise specified in this Agreement,
each Party shall pay its own costs and expenses (including all legal and
accounting fees) relating to this Agreement, whether or not the Transactions are
consummated, the negotiations leading up to this Agreement and the transactions
described in this Agreement; provided that Seller will not allocate to, or
burden the Target Entities with, any of the costs and expenses of Seller. Buyer
shall pay the filing fees required to be paid in connection with the HSR Act
filing.
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SECTION 7.3 TAXES, TAX REPORTING AND COOPERATION.
(a) Preparation of Tax Returns. (i) Seller shall be solely
responsible for preparing, or causing to be prepared, any Tax Returns
in connection with the payment of any Taxes which relate to or involve
the operations or businesses of the Target Entities for any period of
time prior to the Closing Date, including, if applicable, any
short-year return due for the period of time between January 1, 1999
and the Closing Date or, if the Closing occurs after January 1, 2000,
any short-year return due for any period of time between January 1,
2000 and the Closing Date. Seller shall cause all such Tax Returns to
be accurately prepared and timely filed (taking into account any
extensions) and shall pay all Taxes shown as required to be paid on
such Tax Returns. Seller shall, and Buyer shall cause the Target
Entities to, cooperate, and shall cause their employees, agents,
accountants and Representatives to cooperate, in preparing and filing
all Tax Returns of or involving the Target Entities (including any Tax
Returns to which this Agreement relates), in handling audits,
examinations, investigations, administrative, court or other
proceedings relating to Taxes owing for or in respect of the Target
Entities. Such cooperation may include making employees available to
assist the requesting party, timely providing information reasonably
requested, and maintaining and making available to the requesting party
available records which are reasonably necessary to satisfy the purpose
of the request.
(ii) Seller shall prepare and provide to Buyer such
Tax information as is reasonably requested by Buyer with respect to the
operations, ownership, assets or activities of the Target Entities or
the Subsidiaries for all pre-Closing periods to the extent such
information is relevant to any Tax Return which Buyer has the right and
obligation under this Agreement to file.
(iii) Seller shall, on the one hand, and Buyer shall,
on the other hand, with respect to any Tax Return which such party is
responsible hereunder for preparing and filing, or causing to be
prepared and filed, make such Tax Return and related work papers
available for review by the other party if the Tax Return (A) is with
respect to Taxes for which the other Party or one of its Affiliates may
be liable hereunder or under applicable tax law, or (B) claims Tax
benefits which the other Party or one of its Affiliates is entitled to
receive hereunder. The filing party shall use its reasonable best
efforts to make Tax Returns available for review as required under this
paragraph sufficiently in advance of the due date for filing such Tax
Returns to provide the non-filing party with a meaningful opportunity
to analyze and comment on such Tax Returns and have such Tax Returns
modified before filing, accepting the position of the filing party
unless such position is contrary to the provisions of this Agreement.
(iv) Any Tax Return which includes or is based on the
operations, ownership, assets or activities of the Target Entities or
for any pre-Closing period, shall
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be prepared in accordance with past Tax accounting practices used with
respect to the Tax Returns in question (unless such past practices are
no longer permissible under the applicable tax law).
(b) Tax Controversies and Audits. All tax audits relating to
any period before the Closing Date shall be handled and controlled by
Seller. All tax audits relating to any period on or after the Closing
Date will be handled and controlled by the Buyer. Buyer and Seller
agree not to settle any Tax liability or compromise any claim with
respect to Taxes, which settlement or compromise affects the liability
of the other party for Taxes (or right to tax benefit) as determined
hereunder, without such other party's consent (which consent shall not
be unreasonably withheld or delayed). Buyer and Seller shall, bear
their own expenses incurred in connection with audits and other
administrative judicial proceedings relating to Taxes for which such
party and its Affiliates are liable under this Section. Seller on the
one hand, and Buyer and Target Entities, on the other hand, shall
cooperate (and cause their Affiliates to cooperate) with each other's
agents, including accounting firms and legal counsel, in connection
with Tax matters relating to the Target Entities, including, (i)
preparation and filing of Tax Returns, (ii) determining the liability
and amount of any Taxes due or the right to and amount of any refund of
Taxes, (iii) examinations of Tax Returns, and (iv) any administrative
or judicial proceeding in respect of Taxes assessed or proposed to be
assessed. Such cooperation shall include each party making all
information and documents in its possession relating to the Target
Entities available to the other party. The parties shall retain all Tax
Returns, schedules and work papers, and all material records and other
documents relating thereto, until the expiration of the applicable
statute of limitations (including, to the extent notified by any party,
and extension hereof) of the Tax Period to which such Tax Returns and
other documents and information relate. Each of the parties shall also
make available to the other party, as reasonably requested and
available, personnel (including officers, directors, employees and
agents) responsible for preparing, maintaining, and interpreting
information and documents relevant to Taxes, and personnel reasonably
required as witnesses or for purposes of providing information or
documents in connection with any administrative or judicial proceedings
relating to Taxes.
(c) Books and Records. Promptly after Closing, Seller shall,
and shall use its best efforts to cause its Affiliates to, promptly
turn over and deliver to the Target Entities any Books and Records
which remain in the possession of Seller or any of its Affiliates. Upon
request, Seller shall make available to Buyer any other information in
the possession of Seller or its Affiliates that concerns or relates to
the Target Entities and any personnel whose assistance or participation
is reasonably required by Buyer in connection with any financial or
accounting matters (including, without limitation, with respect to the
preparation or audit of financial statements), existing or future
litigation (including, without limitation, with respect to hearings,
depositions and investigations), Tax Returns, tax audits, inquiries,
investigations or any related Tax matters, or any other business matter
requiring such personnel in which either of the Target Entities is
involved.
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(d) Post-Closing Audits and Adjustments. Buyer and Seller
shall cooperate fully and promptly with any audits or any Special
Determinations with respect to the Closing SAP Balance Sheets and the
actuarial review of the HMTHP Pre-Closing Incurred Claims and the HMHIC
Pre-Closing Incurred Claims. Buyer and Seller shall each promptly
furnish Buyer's Auditor, the Independent Auditor, if any, or the
Actuary with any and all documentation (including auditor's notes and
work papers), data and information reasonably related to the audit or
review.
(e) Statutory Filings with TDI. Seller, at its own expense,
shall cause the preparation, audit and filing of the Target Entities'
Statutory Insurance Statements and Statutory Financial Statements which
become prior to the Closing Date. Seller shall file such statements
with TDI on a timely basis. Seller and its internal and external
accountants shall fully cooperate and assist the Target Entities (and
Buyer) prepare, audit and file any Statutory Insurance Statements and
Statutory Financial Statements which become after the Closing.
SECTION 7.4 EMPLOYEE BENEFIT PLANS. Buyer shall have no obligation to
assume or be responsible in any way for any Designated Plans (as defined in
Section 3.13(a)). The right of employees of the Target Entities to participate
in any employee benefit plans or fringe benefit programs maintained by Buyer
shall be determined in accordance with the provisions of Buyer's plans or
programs. After the Closing Date, neither Buyer nor the Target Entities shall
have any obligation to make payments, contributions or transfers in respect of,
or have any liability with respect to, any of the Designated Plans under which
the Target Entities' participation has been terminated on or before the Closing
Date, or any employee benefit plan or arrangement to which an ERISA Affiliate is
a party or contributed or was legally obligated to contribute for the benefit of
one or more directors, officers, employees or former employees of an ERISA
Affiliate, or their beneficiaries. Seller shall make available the continuation
coverage mandated by Code Section 4980B and any applicable state law ("COBRA
Coverage") to all individuals who are receiving COBRA Coverage as of the Closing
Date or who are eligible to elect COBRA Coverage as of the Closing Date. Within
20 days after the end of each month, Buyer shall provide a list of all employees
who were employed by the Target Entities on the Closing Date that have separated
from service during the month. Any amounts paid by the Target Entities'
employees for the plan year including the Closing Date under the group medical,
dental, vision and other health plans in which such employees participate prior
to the Closing shall be included in determining the deductible and maximum
out-of-pocket expenditures required under Buyer's plans, policies or programs
covering those matters for the plan year of Buyer which includes the Closing
Date.
SECTION 7.5 FURTHER ASSIGNMENTS AND ASSURANCES. If at any time after
the Closing legal counsel for Buyer or Seller shall deem it necessary, advisable
or appropriate to take
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further or additional steps for the purpose of assigning, assuming,
transferring, conveying, perfecting and/or confirming or reducing to possession
the Stock, or any Assets or properties of the Target Entities or for the purpose
of fully consummating the Transactions, the other party shall execute,
acknowledge and deliver any such assignments, assumptions, conveyances,
certificates or other documents or instruments of transfer consistent with the
terms of this Agreement as may reasonably be requested by legal counsel.
SECTION 7.6 LEGAL NAME OF THE TARGET ENTITIES. Within sixty (60) days
after the Closing or after such additional time as may be required by
Governmental Authorities exercising jurisdiction over the health plan and health
insurance business of the Target Entities, Buyer shall cause the Target Entities
to change their legal names to ones which do not contain the words "Xxxxxx
Methodist." Buyer shall cause the Target Entities to use the words "Xxxxxx
Methodist" in connection with its post-Closing operations only as permitted
under the License Agreement.
SECTION 7.7 COVENANT NOT TO COMPETE. During the five (5) year period
after the Closing Date (the "Noncompetition Period"), neither Seller nor any
Affiliate of Seller (including THR) shall, except as permitted by this Section
7.7, as a proprietor, partner, director, officer, employee, consultant, joint
venturer or beneficial owner of more than five percent (5%) of the outstanding
equity of any Person, engage in any managed care business or health insurance
business which provides products or services in competition with the businesses
or operations of either of the Target Entities in the State of Texas, including
the business or operations of an HMO, point-of-service (POS) plan or product,
PPO, provider sponsored organization, or indemnity insurance company
(collectively, "Prohibited Businesses"). In addition, neither Seller nor any of
its Affiliates shall undertake the planning for or organization of any such
business activity competitive with the Target Entities' operations, either alone
or in combination with others, during the Noncompetition Period.
(a) Severable Covenants. The covenants contained in this
Section 7.7 shall be construed as a series of separate covenants, one
for each county located in the State of Texas. Except for their
geographic scope, each such separate covenant shall be deemed
identical in terms to all other covenants. The provisions of this
Section 7.7 are severable and if one or more provision should be
determined to be judicially unenforceable, in whole or in part, then
the remaining provisions shall nevertheless be binding and judicially
enforceable in any one or more counties, that provision shall not be
affected with respect to each other county within the State of Texas.
Furthermore, to the extent that the geographic scope of any separate
covenant is found judicially unenforceable because of its breadth,
then that covenant or limited portion thereof shall remain enforceable
within the narrower geographic scope determined by the court.
(b) Remedies. A breach of any of the covenants contained in
this Section 7.7 may cause irreparable damage and harm to Buyer, the
Target Entities or Buyer's
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other Affiliates. In the event of any such actual or threatened breach,
Buyer shall have, in addition to any and all remedies at law or
otherwise, the right to seek an injunction, specific performance or
other equitable relief to prevent an actual or continuing breach of the
covenants, agreements and obligations of this Section 7.7.
(c) Exceptions and Qualifications. The foregoing covenants
furnished under this Section 7.7 shall not prohibit: (i) THR's or its
successors activities in the North Texas Healthcare Network ("NTHN");
or (ii) in the event that THR engages in a subsequent transaction with
Baylor, then any arrangement or activity of Baylor existing or under
contract on the date of such transaction between THR and Baylor. In
addition, the covenants of this Section 7.7 shall not restrict or
limit THR or its Affiliates from entering into a contract with a payor
(e.g. an insurer or HMO or ERISA plan) pursuant to which THR or its
Affiliates undertakes to provide medical or hospital services to or on
behalf of the individuals covered by such payor. In the event that no
Affiliate of Buyer (including a Target Entity) is arranging or
providing services under the Medicare+Choice Program or any successor
program involving contracting with HCFA, then Seller or its Affiliates
may obtain a certification to become a Provider Sponsored Organization
(as defined in 42 C.F.R. Section 422.350) or like entity for the
purposes of contracting directly or indirectly with HCFA. In the event
that current or future legislation or regulation permits new types of
health care business which fall within the Prohibited Businesses, then
Buyer and Seller agree that, at Seller's or THR's request, the Parties
will enter into good faith discussions to consider the appropriateness
of further amending, modifying or qualifying the covenants of this
Section 7.7 towards an effort to permit Seller or its Affiliates to
engage in such new type of health care business.
SECTION 7.8 NONSOLICITATION. During the Noncompetition Period, neither
Seller nor any of its Affiliates shall recruit, solicit or otherwise knowingly
induce any employee, subscriber group, broker, provider, vendor, or customer of
either of the Target Entities, Buyer or PacifiCare of Texas, Inc. to terminate
or discontinue such relationship. Notwithstanding the foregoing, the covenants
of this Section 7.8 shall not extend to any employee of a Target Entity once
that employee has resigned, quit or been terminated from his or her employment
with a Target Entity.
SECTION 7.9 OBLIGATIONS WITH RESPECT TO SECTION 338(H)(10) ELECTION.
Buyer and Seller agree to make an election under Code Section 338(h)(10), and
any corresponding election made under any state's law (the "Section 338(h)(10)
Election") in connection with the purchase and sale of the Stock contemplated
hereunder. Buyer and Seller agree to execute and file all applicable state and
federal tax forms (the "338(h)(10) Tax Forms") in connection with the Section
338(h)(10) Election in accordance with applicable tax laws.
(a) Purchase Price Allocation. Buyer and Seller agree to
allocate the Purchase Price in the manner required by Section 338 of
the Code and the Treasury
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Regulations promulgated thereunder. Such allocation shall be used for
purposes of determining the Modified Aggregate Deemed Sales Price, as
defined under applicable Treasury regulations ("MADSP") under the
applicable Treasury Regulations and in reporting the deemed sale of
assets of the Target Entities in connection with the Section 338(h)(10)
Election.
(b) Obligations With Respect to Filing Forms. (i) Buyer shall
make the Section 338(h)(10) Election and be responsible for the
preparation and filing with appropriate taxing authorities of any
initial, supplemental or subsequent 338(h)(10) Tax Forms with respect
to the Section 338(h)(10) Election. Seller shall deliver to Buyer at
least one hundred fifty (150) days prior to the date the Section 338
Forms are required to be filed, such information documents and other
forms as reasonably requested by Buyer to properly complete the Section
338 Forms, and shall cooperate fully with Seller in making the Section
338(h)(10) Election and the preparation of any 338(h)(10) Tax Forms. At
least ninety (90) days prior to the filing date of the initial
338(h)(10) Tax Form, Buyer shall prepare and deliver to Seller a
statement which sets forth the computation of the MADSP of the Target
Entities' assets and the allocation of such MADSP among the Target
Entities' assets (the "Allocation Statement"). Seller shall have the
right to review, confirm and suggest adjustments, as necessary, with
respect to the computations set forth on the Allocation Statement.
Seller shall complete its review of the Allocation Statement within
fifteen (15) days after delivery to Seller of Buyer's proposed
statements and the accountants' data. Seller agrees to accept the
Allocation Statement setting forth the MADSP allocations, as proposed
by Buyer, so long as such allocations comply with existing and
applicable tax laws.
(ii) Upon the earlier of forty-five (45) days prior
to the filing date of any 338(h)(10) Tax Form or within ten (10) days
after Seller's approval of the Allocation Statement, Buyer shall
deliver to Seller the 338(h)(10) Tax Form for Seller's review and
approval. If consistent with the Allocation Statement and otherwise
appropriately prepared, Seller shall execute the 338(h)(10) Tax Form
and return the same to Buyer no later than ten (10) business days prior
to the applicable filing date. Buyer shall furnish Seller with copies
of all 338(h)(10) Tax Forms filed with any taxing authority.
(c) Eligibility Under Section 338(h)(10). Seller represents
and covenants to Buyer that Seller has filed a consolidated federal
income tax return with the Target Entities for the taxable year
immediately preceding the 1999 taxable year, that Seller will continue
to file a consolidated federal income tax return for all periods
(including a short-year) up to the Closing and that Seller is eligible
to make the Section 338(h)(10) with respect to Target Entities.
(d) Cooperation. It is acknowledged that after filing the
338(h)(10) Tax Forms, Buyer and Seller (or their respective ultimate
taxpayers) will have the occasion
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to prepare initial and supplemental tax returns which take into account
the effect of the Section 338(h)(10) Election. The parties agree to
file all such tax returns, and to do or take such other actions, in a
manner consistent with the Section 338(h)(10) Election, the 338(h)(10)
Tax Forms and their underlying assumptions. Furthermore, Buyer, Seller
or their respective Affiliates or successors may be asked to respond to
assertions, inquiries, investigations or audits from the Internal
Revenue Service or state taxing authorities, the subject matter of
which may include the Section 338(h)(10) Election or the assumptions
underlying the 338(h)(10) Tax Forms ("Tax Inquiries"). The parties
agree to respond to the Tax Inquiries in a good faith and reasonable
manner which is consistent with the Section 338(h)(10) Election and the
assumptions underlying the 338(h)(10) Tax Forms. In responding to Tax
Inquiries in such reasonable manner, the Parties will use their best
good faith efforts to maintain the Section 338(h)(10) Election and the
tax positions and other assumptions underlying the 338(h)(10) Tax
Forms. Buyer and Seller will in all other respects reasonably cooperate
with the other in the administration, satisfaction or disposition of
any Tax Inquiries made to the other Party in any reasonable manner
which such party may request, including the exchange or furnishing of
then-existing information or calculations.
(e) No Indemnification of Seller. In no event shall Buyer or
any member of Buyer's Group be responsible for, or indemnify or hold
harmless Seller from, any federal or state income Taxes or state
premium Taxes imposed currently or in the future upon Seller or any
other member of Seller's Group as a result of Seller making the Section
338(h)(10) Election, including, without limitation, any assessments,
deficiencies, interest, penalties, liabilities, liens, claims,
judgments, payments, costs, fees (including reasonable attorney,
accountant, or expert fees), or other state or federal tax-related
amounts which Seller or any member of Seller's Group may incur.
(f) Responsibility for Taxes. Seller shall be financially
responsible for all federal income Taxes attributable to Target
Entities which result from the Section 338(h)(10) Election. Seller also
shall be financially responsible for any state, local, or foreign Tax
attributable to an election under the state, local, or foreign law
similar to the Section 338(h)(10) Election in Texas or in any other
jurisdiction in which Seller or a Target Entity is subject to taxation.
Furthermore, if a state, local, or foreign jurisdiction as described in
the preceding sentence does not have provisions similar to the election
available under Section 338(h)(10) of the Code, Seller will be liable
for any Tax imposed upon the Target Entities by such state, local,
and/or foreign jurisdiction resulting from the Transactions.
SECTION 7.10 GAAP AUDIT AND FINANCIALS. Seller, at its sole expense,
shall cause Seller's Auditor to perform an audit of the Closing GAAP Balance
Sheets in accordance with GAAP. In addition, Seller shall cause Seller's Auditor
to conduct a GAAP audit of (i) the balance sheet of HMTHP as of September 30,
1998 and the related statements of income and retained earnings of HMTHP for the
fiscal year ended September 30, 1998, and (ii) the
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balance sheet of HMHIC as of September 30, 1998 and the related statements of
income and retained earnings of HMHIC for the fiscal year ended September 30,
1998 (collectively, the "1998 GAAP Audited Financials"). Seller shall, with any
necessary assistance from Seller's Auditor, prepare, in accordance with GAAP (i)
the balance sheet of HMTHP as of September 30, 1999 and the related statements
of income and retained earnings of HMTHP for the fiscal year ended September 30,
1999, and (ii) the balance sheet of HMHIC as of September 30, 1999 and the
related statements of income and retained earnings of HMHIC for the fiscal year
ended September 30, 1999 (collectively, the "1999 GAAP Unaudiated Financials").
The cost of the GAAP audit of HMTHP and HMHIC with respect to the 1998 GAAP
Audited Financials and the Closing GAAP Balance Sheets and the cost of preparing
the 1999 GAAP Unaudited Financials shall be borne equally by Buyer and Seller.
Seller shall deliver to Buyer, the Closing GAAP Balance Sheets, the 1998 GAAP
Audited Financials and the 1998 GAAP Unaudited Financials within 45 days after
the Closing. During the audit of the Closing GAAP Balance Sheets and the 1998
GAAP Audited Financials, and the preparation of the 1999 GAAP Unaudited
Financials, Seller's Auditor will make itself and its notes and work papers
available to Buyer and Buyer's Auditor. Buyer and Buyer's Auditor shall have the
opportunity to ask questions of Seller's Auditor and receive feedback on the
valuation of balance sheet and income statement items and the audit process.
SECTION 7.11 CLOSING PRESS RELEASE. The timing and content of any press
release respecting the consummation of the Transactions shall be mutually agreed
upon by Buyer and Seller.
SECTION 7.12 EMPLOYEES. As of the Closing Date, Buyer shall cause the
Target Entities to continue to employ on an "at will" employment basis all
remaining employees of the Target Entities. Such employment on an "at will"
basis will be at comparable overall compensation and other terms and conditions
of employment and in comparable positions as those in effect immediately prior
to the Closing. Buyer agrees that all services of employees of the Target
Entities credited by the Target Entities prior to the Closing Date in accordance
with its normal policies shall be recognized by Buyer for all employee benefit
purposes, including paid-time off (PTO) accrual, severance benefits, retirement
benefit accrual, vesting, and eligibility for all benefits. After Closing, Buyer
shall cause the Target Entities to pay to the Target Entities' employees any
unused PTO benefits as reserved against on the Closing SAP Balance Sheets and
severance amounts as reserved against on the Closing SAP Balance Sheets in
accordance with Buyer's severance policies. At or before Closing, Seller shall
provide Buyer with a schedule reflecting the service of all employees of the
Target Entities on the Closing Date.
SECTION 7.13 CONTINUE TO PERFORM SETTLEMENT AGREEMENT. The Parties
acknowledge and understand that THR is a party to that certain Settlement
Agreement made and entered into by and among THR, HMTHP, HMHIC, and Xxxxxx
Methodist Select, a Texas certified non-profit medical corporation ("Select"),
made the 31st day of December, 1998, respecting THR's obligations for certain
liabilities related to Select's medical practice (the "Select Settlement
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Agreement"). THR covenants and agrees that THR shall perform and fulfill all,
and not less than all, of THR's indemnification and other obligations and
commitments under the Select Settlement Agreement for the benefit of HMTHP and
HMHIC. Any amounts which THR satisfies or pays under the Select Settlement
Agreement, whether or not covered by insurance, shall not be subject to Article
VIII or credited toward the Limited Indemnification Maximum or the Maximum
Indemnification Liability.
SECTION 7.14 MAINTAIN THE RELEVANT INSURANCE POLICIES. Seller agrees to
maintain in full force and effect the Relevant Insurance Policies at Seller's
sole cost and expense for a period of at least three (3) years after the Closing
Date. If any of the Relevant Insurance Policies are cancelled or expire prior to
that time, then Seller agrees to secure, at its sole cost and expense,
appropriate replacement coverage with policy limits, deductibles and maximums
which are no less favorable than those currently existing under the Relevant
Insurance Policies.
SECTION 7.15 SURVIVAL. The covenants, agreements and obligations of
this Article VII shall survive the Closing until the expiration of the
applicable statute of limitations period.
ARTICLE VIII
INDEMNIFICATION AND REMEDIES
SECTION 8.1 CERTAIN INDEMNIFICATION OF BUYER BY SELLER AND THR.
Notwithstanding any due diligence investigation or inquiry made by Buyer and its
Representatives, Seller and THR jointly and severally agree as follows:
(a) Known Claims and Encumbrances. Seller and THR jointly and
severally agree to be solely financially responsible for, and jointly
and severally shall defend, indemnify and hold harmless Buyer, Buyer's
past, present and future Affiliates (including the Target Entities) and
their respective shareholders, officers, directors, employees, agents,
successors, successors-in-interest and assigns (collectively, "Buyer's
Group") from and against, any claim, loss, loss of tax benefits or
deductions, cost, damages of every kind or nature, expense, fine, debt,
penalty, deficiency, action, cause of action, proceeding or obligation,
including any amounts paid in investigation, defense or settlement,
including court costs and expenses and reasonable attorneys' fees and
expenses (a "Loss") which arises out of or in connection with: (i) any
action, suit, litigation, proceeding (including a regulatory or
administrative proceeding or a proceeding seeking equitable or
injunctive relief), arbitration, mediation, grievance proceeding, or
other method of settling disputes or disagreements, or any complaint,
charge, investigation, or other assertion or allegation involving
either of the Target Entities or their respective businesses,
existence, ownership, Assets, or operations (a "Claim") which is Known
by Seller ("Known Claims"), including those Known Claims listed on
Schedule 3.12; (ii) any Encumbrance affecting the Assets of either of
the Target Entities which is Known by Seller or recorded in the public
records before the
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Closing Date; (iii) any exceptions to the representations or warranties
furnished by Seller in this Agreement or in any certificate delivered
pursuant to this Agreement as identified on the Disclosure Schedule, as
such Disclosure Schedule may be amended or updated prior to Closing,
which cause, result in or constitute a Material Adverse Effect; (iv)
any performance penalties owing under Subscriber Agreements which are
related to any operations or activities of the Target Entities
occurring prior to the Closing Date to the extent that they have not
been adequately reserved against on the final and conclusive Closing
SAP Balance Sheets; or (v) any Loss or Claim which is asserted by
Buyer's Group after Closing under the provisions of Section 8.2 below
which Buyer's Group can demonstrate was Known to Seller on or before
the Closing Date.
(b) Unknown Claims Covered by Insurance. Seller and THR
jointly and severally agree to be solely financially responsible for,
and jointly and severally shall defend, indemnify and hold harmless any
member of Buyer's Group from and against, any Loss which arises out of
or in connection with (i) any Claim not Known to Seller which occurs,
accrues or arises prior to the Closing Date or which results from facts
or circumstances relating to the period occurring prior to the Closing
Date, (ii) any errors, actions or omissions of the Target Entities or
their employees, personnel, agents or Representatives which first
occurred prior to the Closing Date or (iii) any other Claim arising
from the existence, ownership, management, operation or conduct of the
business of either of the Target Entities prior to the Closing Date
(collectively, "Unknown Claims"), irrespective of when the Unknown
Claim is first asserted, so long as the Unknown Claim described in the
foregoing clause (i), (ii) or (iii) is covered under any of the
Relevant Insurance Policies or under any other policy of insurance
maintained by Seller or its Affiliates as of the Closing Date.
(c) Taxes. Seller and THR jointly and severally agree to be
solely financially responsible for, and jointly and severally shall
defend, indemnify and hold harmless any member of Buyer's Group from
and against any and all Taxes attributable to Seller or the Target
Entities, whether now or hereafter due, for any period occurring prior
to the Closing Date, including any Taxes which become due and owing as
a result of any audit, whether or not commenced prior to Closing and
any loss or Claim arising from such Taxes.
(d) Nonprofit Conversion. Seller and THR jointly and severally
agree to be solely financially responsible for, and jointly and
severally shall defend, indemnify and hold harmless any member of
Buyer's Group from any Loss that it may suffer or incur which arises
out of or in connection with the transfer of assets from seller's
non-profit Affiliate to HMTHP.
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(e) OPM Indemnification and Assignment.
(i) The following are defined terms for the purposes
of this Agreement:
"FEHBP:" Federal Employees Health Benefit Program administered
by OPM.
"OPM:" The United States Office of Personnel Management.
"OPM Assignment:" As defined in Subsection 8.1(e)(iii).
"OPM Assignment Period:" The period occurring up to and
including December 31, 1998.
"OPM Claim:" A claim or demand made by or on behalf of OPM,
including an OPM Fraudulent Claim, which involves an allegation that a
Target Entity has submitted an OPM Defective Price to OPM and charged
and collected fees from the FEHBP in accordance with the OPM Defective
Price during the OPM Indemnification Period.
"OPM Defective Price:" An inaccurate "Certificate of Accurate
Pricing for Community Rated Plans" or an inaccurate "Certificate of
Accurate Cost and Pricing Data for Community Rated Plans" such that the
certificate was inconsistent with the "community rate" or the "market
price" which the Target Entity was required to charge the FEHBP in
conformity with the Federal Employees Health Benefits Act (5 U.S.C.
Sections 8901 et. seq.) and the regulations promulgated thereunder (48
C.F.R. 1602 et. seq. as amended and applicable).
"OPM Fraudulent Claim:" A claim or demand made by or on behalf
of OPM, which involves an allegation that a Target Entity has violated
the U.S. False Claims Act in submitting an OPM Defective Price to OPM
and has charged and collected fees from the FEHBP in accordance with
such OPM Defective Price.
"OPM Indemnification:" As defined in Subsection 8.1(e)(ii).
"OPM Indemnification Period:" The period occurring up to the
Closing Date.
(ii) Seller and THR jointly and severally agree to be
solely financially responsible for, and jointly and severally shall
defend, indemnify and hold harmless, to the fullest extent permitted by
law, any member of Buyer's Group from and against any amount payable by
a Target Entity to the FEHBP which arises out of an OPM Claim which
relates to the OPM Indemnification Period (the "OPM Indemnification").
(iii) In conjunction with the OPM Indemnification and
in consideration thereof, the Target Entities agree to assign to Seller
the right to receive and the power to pursue any amount which may be
payable by FEHBP to the Target
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Entities as a result of an overpayment by the Target Entities to FEHBP
relating to an OPM Defective Price which relates to the OPM
Indemnification Period (the "OPM Assignment"). Moreover, if Seller
determines that, in view of the OPM Indemnification or the OPM
Assignment, it is in the best interests of Seller to re-file or amend
the Target Entities' FEHBP rate filings or certificates with OPM for
any of the contract years occurring during the OPM Indemnification
Period, then the Target Entities will reasonably cooperate with Seller
in re-filing such rate filings at Seller's request and instruction.
(iv) The Target Entities shall notify Seller in
writing if they receive any notification that OPM intends to conduct an
audit of the Target Entities' FEHBP operations applicable to the OPM
Indemnification Period. Such notice shall include any documents
received by HMTHP from OPM in respect thereto. If OPM conducts such an
audit, then HMTHP must cooperate reasonably with OPM in disclosing all
relevant information necessary for OPM to properly complete the entire
audit. Promptly following receipt of any indication from OPM of an OPM
Claim, the Target Entities shall give written notice to Seller of the
same. Thereafter, the Target Entities shall reasonably cooperate with
Seller in identifying all necessary documents and materials of the
Target Entities which may be used to defend their interests relating to
the OPM Claim.
(v) Upon receiving notice from the Target Entities of
an OPM Claim, Seller shall immediately undertake at its sole cost,
expense and risk, the defense or settlement of the OPM Claim and shall
certify in writing to the Target Entities that Seller has undertaken
the defense or settlement of the OPM Claim on behalf of HMTHP. Buyer
shall have the right to approve the legal counsel retained by Seller in
connection with the settlement of the OPM Claim.
(vi) Seller shall defend, compromise and/or settle
the OPM Claim relating to the OPM Indemnification Period; provided,
however, that Buyer shall have the right to participate in such defense
and settlement negotiations with OPM and to approve any settlement,
which approval shall not be unreasonably withheld. Seller understands
that OPM generally audits plans for a period of five or six years, and
that an audit may include years that are within the OPM Indemnification
Period as well as years that are not within the OPM Indemnification
Period. Pursuant to the OPM Assignment, Seller shall be entitled to
receive and retain any overpayments attributable to the OPM Assignment
Period which are actually collected by HMTHP from the FEHBP.
(vii) Notwithstanding anything to the contrary
herein, the OPM Indemnification does not cover any claim or portion
thereof, which does not relate to a contract year occurring during the
OPM Indemnification Period.
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(viii) Notwithstanding anything to the contrary
herein, the OPM contingency fund, if any, shall accrue to the benefit
of Buyer and the Target Entities.
(f) Unfulfilled Conditions to Closing. Provided that Buyer has
consummated the Transactions hereunder, Seller and THR jointly and
severally agree to be financially responsible for, and jointly and
severally shall defend, indemnify and hold harmless, any member of
Buyer's Group from any Loss that it may suffer or incur as a result of
Seller's inability to fulfill the following conditions precedent to
Buyer's obligations to close the Transactions: those conditions
described in Subsections (a), (b), (c), (f), (g) and (j) of Section
6.2.
(g) Employee Benefit Plans. Seller and THR jointly and
severally agree to be solely financially responsible for, and jointly
and severally shall defend, indemnify and hold harmless any member of
Buyer's Group from and against any Losses or Claims (including
sanctions and penalties) attributable to the Designated Plans and
distributions required or permitted to be made from the Designated
Plans, whether now or hereafter due, including any Losses which become
due and owing as a result of any audit, whether or not commenced prior
to Closing.
(h) Certain Lawsuits. Seller and THR jointly and severally
agree to be solely financially responsible for, and jointly and
severally shall defend, indemnify and hold harmless any member of
Buyer's Group from and against, any and all Losses or Claims
attributable to the Target Entities' delivery, arrangement or provision
of health care benefits to, or payment of health care benefits for,
Members or Insureds prior to the Closing Date, including, without
limitation, Claims alleging (i) the Target Entities' failure to
properly disclose benefit limitations or financial incentives to
Providers, or (ii) a breach of the Target Entities' fiduciary duty owed
to Members or Insureds.
(i) Limitations Period Applicable to Claims Brought Under this
Section 8.1. Except for Subsection 8.1(b), Seller's and THR's joint and
several obligations under each other subsection of this Section 8.1
shall survive the Closing and extend for such length of time during
which any Person or Governmental Authority may assert a Claim against
Buyer or any member of Buyer's Group with respect to any of the matters
covered by the applicable subsections of this Section 8.1. Seller's and
THR's joint and several obligations under Subsection 8.1(b) shall
survive the Closing for a period of three (3) years thereafter;
provided, however, that any Claim or Loss which may be the subject of
indemnification under both Subsections 8.1(h) and 8.1(b) shall be
treated for limitations purposes, as if the Claim or Loss arose
exclusively under Subsection 8.1(h). Notwithstanding the foregoing
provisions of this Subsection 8.1(i), any claim for indemnification
made within the applicable limitations periods for the matters covered
by Section 8.1 shall survive that period indefinitely, may continue to
be asserted after the expiration of that period and shall continue to
be subject to the indemnification provisions of this Article VIII after
the expiration of that period.
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SECTION 8.2 LIMITED INDEMNIFICATION OF BUYER BY SELLER AND THR.
Notwithstanding any due diligence investigation or inquiry made by Buyer and its
Representatives, Seller and THR jointly and severally agree as follows:
(a) Subject of Limited Indemnification. Seller and THR jointly
and severally agree to defend, indemnify and hold harmless any member
of Buyer's Group from any Loss that it may suffer or incur which arises
out of or in connection with: (i) any breach or inaccuracy in the
representations or warranties furnished by Seller or THR in this
Agreement, in the Disclosure Schedule as may be amended or updated
prior to Closing, in any certificate furnished by Seller or THR
pursuant to this Agreement or in any Related Document signed by Seller;
(ii) any insurance deductible amounts for Unknown Claims which are the
subject of indemnification pursuant to Subsection 8.1(b) above and any
amounts in excess of insurance policy limits for Unknown Claims which
are the subject of indemnification pursuant to Subsection 8.1(b) above
(the deductibles and excess liability referred to in this clause (ii)
shall be referred to collectively as the "Excluded Amounts for Insured
Unknown Claims"); and (iii) any Unknown Claim or Losses related thereto
which are not covered under the insurance policies and extended
reported coverage referred to in Section 6.2(h) above and therefore are
not the subject of indemnification pursuant to in Subsection 8.1(b),
excluding any Unknown Claim which is the subject of indemnification
pursuant to Subsection 8.1(h).
(b) Limitation on the Recovery of Losses. Buyer's Group shall
be entitled to indemnification pursuant to this Section 8.2 only when
the Loss attributable to a claim for indemnification covered by Section
8.2 exceeds $10,000 (a "Recoverable Loss") and only after the sum of
all Recoverable Losses exceeds $250,000 (the "Post-Closing Basket").
For the purposes of this Agreement, any Loss or Claim attributable to a
Material Adverse Effect which is contained within the Pre-Closing
Basket shall, unless and until paid, reimbursed or fully reserved for
by Seller, be treated as a Recoverable Loss to be included in the
Post-Closing Basket. When the aggregate of all Recoverable Losses,
including those from the Pre-Closing Basket, exceeds the Post-Closing
Basket, Seller shall be liable and responsible for all such Recoverable
Losses suffered or incurred by Buyer's Group to the full extent of the
total amount thereof, including the Post-Closing Basket.
(c) Maximum Liability for Limited Indemnification. Seller's
and THR's joint and several liability shall not exceed, individually or
in the aggregate, the total amount of $15,000,000 (the "Limited
Indemnification Maximum") for (i) Recoverable Losses under this Section
8.2, and (ii) Excluded Amounts for Insured Unknown Claims actually paid
by Seller or THR.
(d) Limitations Periods for Representations and Warranties and
Other Claims. The representations and warranties furnished by Buyer,
Seller and THR in this
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Agreement, in the Disclosure Schedule as may be amended or updated
prior to Closing, and in any certificate furnished pursuant to this
Agreement, and which are the subject of indemnification under this
Section 8.2 shall survive the Closing for a period of eighteen (18)
months, except for the representations and warranties furnished by
Seller in this Agreement, in the Disclosure Schedule as may be amended
or updated prior to Closing, and in any such certificate with respect
to (i) Sections 3.13 and 3.17, which shall survive until the expiration
of the applicable statute of limitations, and (ii) Sections 3.2., 3.3,
3.4 and 3.6, which shall survive the Closing indefinitely. The
limitations period applicable to Excluded Amounts for Insured Unknown
Claims shall survive for a period of three (3) years after the Closing.
Notwithstanding the limitations periods set forth in this Section 8.2,
any claim for indemnification made within the applicable limitations
periods for the matters covered by this Section 8.2 shall survive that
period indefinitely, may continue to be asserted after the expiration
of that period and shall continue to be subject to the indemnification
provisions of this Article VIII after the expiration of that period.
(e) No Conflicting Indemnification Obligations. In the event
that a member of Buyer's Group has a Loss or Claim which may be the
subject of indemnification under both Section 8.1 above and this
Section 8.2, then the Parties shall treat such Loss or Claim as if it
is the subject of indemnification exclusively under Section 8.1
SECTION 8.3 BUYER'S INDEMNIFICATION OF SELLER. Buyer shall defend,
indemnify and hold harmless Seller, Seller's past, present and future Affiliates
(but, excluding the Target Entities) and their respective shareholders,
officers, directors, employees, agents, successors, successors-in-interest, and
assigns (collectively, "Seller's Group") from and against any Loss which arises
out of or in connection with (i) any breach or inaccuracy in the representations
or warranties furnished by Buyer in this Agreement, in any certificate furnished
by Buyer pursuant to this Agreement or in any Related Document signed by Buyer,
and (ii) any claim arising out of the conduct of the business of a Target Entity
which first accrues or occurs on or after the Closing Date, and is not the
subject of indemnification by Seller pursuant to Section 8.1 or 8.2 above.
SECTION 8.4 THIRD-PARTY CLAIMS. If any claim covered by this Article
VIII is made by any Person who is not a party to this Agreement (including a
Governmental Authority or a private party), or if any notice of audit or
investigation covered by this Article VIII is given by a Governmental Authority
(in either case, a "Third-Party Claim"), the Party receiving the notice of the
Third Party Claim (the "Indemnified Party") shall, if it intends to seek
indemnification under this Article VIII, promptly notify the Party from whom
indemnification is sought (the "Indemnifying Party") to indemnify the
Indemnified Party, and the Indemnifying Party shall, if it acknowledges that it
is responsible for the Third-Party Claim or other matter described in the
notice, have an opportunity to defend or settle the Third-Party Claim and to
control the investigation or audit, with counsel reasonably acceptable to the
Indemnified Party; provided that any such settlement shall be made only with the
prior written consent of the
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Indemnified Party or in a manner that releases the Indemnified Party from all
liability with respect to such Third-Party Claim. Subject to any applicable
limitation periods, the failure of the Indemnified Party to give such notice of
a Third-Party Claim shall not relieve the Indemnifying Party of its
indemnification obligations hereunder unless such failure shall result in
material prejudice to the Indemnifying Party. If the Indemnifying Party assumes
the defense or control of a Third-Party Claim (including an investigation or
audit) and, under applicable standards of professional conduct, a conflict of
interest exists on any significant issue between the positions of the
Indemnified Party and the Indemnifying Party such that counsel chosen by the
Indemnifying Party is ethically prohibited from representing both the
Indemnified Party and the Indemnifying Party, or if relief other than money
damages is being sought as part of the Third-Party Claim, then the Indemnified
Party may retain counsel reasonably satisfactory to the Indemnifying Party to
represent the Indemnified Party with respect to the issue as to which there is a
conflict, and the Indemnifying Party shall pay all reasonable fees and expenses
of the Indemnified Party's counsel. If the Indemnifying Party fails to promptly
assume the defense or control of a claim, investigation or audit covered by this
Article VIII, after notice or to thereafter diligently defend against or control
the claim, investigation or audit or if any such claim is determined valid by a
court having proper jurisdiction, the Indemnified Party shall have the right to
pay, defend or settle such claim and demand immediate payment from the
Indemnifying Party. All amounts owing on a Third-Party Claim are payable
immediately upon demand upon the resolution thereof. The Indemnified Party also
shall be entitled to recover any costs or expenses incurred in enforcing the
rights to indemnity hereby granted as such expenses are incurred. The
Indemnified Party and the Indemnifying Party shall cooperate with the party
assuming the defense of any such action in accordance herewith in any manner
that such party reasonably may request, including making books and records,
Contracts and personnel available during normal business hours.
SECTION 8.5 CLAIMS BETWEEN THE PARTIES. In the event that Buyer or
Seller have a Loss or Claim arising under this Agreement (the "Aggrieved Party")
for which recovery is sought from the other or from THR (the "Responsible
Party") and which is not covered under Section 8.4 above, the Aggrieved Party
shall deliver to the Responsible Party written notice of the Claim ("Notice of
Claim") which specifies in reasonable detail the basis of the Loss or Claim for
which recovery is sought. Subject to any applicable limitations periods, the
failure of the Aggrieved Party to give such Notice of Claim shall not relieve
the Responsible Party of its obligations hereunder unless such failure shall
result in material prejudice to the Aggrieved Party. The Responsible Party shall
pay the Aggrieved Party all amounts attributable to a valid Loss or Claim,
pursuant to the terms of this Agreement, within forty-five (45) days after
receipt of the Notice of Claim.
SECTION 8.6 SURVIVAL OF COVENANTS AND AGREEMENTS; MAXIMUM
INDEMNIFICATION LIABILITY. The covenants and agreements contained in this
Agreement, including the Parties' respective obligations under this Section
VIII, shall survive the Closing indefinitely or as otherwise may be specified by
their own terms. However, Seller's and THR's joint and several liability shall
not exceed, in any single instance or in the aggregate, the total amount of
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$75,000,000 (the "Maximum Indemnification Liability") for: (i) Losses actually
paid or reimbursed to Buyer' Group pursuant to the provisions of Section 8.1;
(ii) Losses actually paid or reimbursed to Buyer's Group within the Limited
Indemnification Maximum pursuant to the provisions of Section 8.2; and/or (iii)
Losses or Claims actually paid or reimbursed to Buyer's Group prior to Closing
pursuant to Subsection 6.2(l); provided, however, that in determining the
Limited Indemnification Maximum and the Maximum Indemnification Liability for
which Seller and THR are responsible hereunder, (A) only amounts paid by Seller
or THR as deductibles or amounts in excess of the insurance policy limits for
Claims covered by insurance may be counted toward and included within the
Limited Indemnification Maximum or the Maximum Indemnification Liability, as the
case may be, and (B) any insurance proceeds payable to any member of Buyer's
Group with respect to Losses or Claims which are the subject of indemnification
pursuant to Section 8.1 or 8.2 shall not be counted toward or included within
the Limited Indemnification Maximum or the Maximum Indemnification Liability, as
the case may be.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 AMENDMENTS. This Agreement may be amended only by a written
agreement signed by Seller and Buyer.
SECTION 9.2 NOTICES. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given on the date delivered, if delivered
personally or sent by facsimile to the Persons identified below, or three days
after mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
(i) If to Buyer:
PacifiCare Health Plan Administrators, Inc.
c/o PacifiCare Health Systems, Inc.
0000 Xxxx Xxxxxx Xxxxx
Xxxxx Xxx, Xxxxxxxxxx 00000
Fax No: (000) 000-0000
Attn.: President
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with a copy to the following legal counsel:
Konowiecki & Rank
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn.: Xxxxxx X. Xxxxx, Esq.
Fax No.: (000) 000-0000
(ii) If to Seller or THR:
Xxxxxx Methodist Health Plan, Inc.
Texas Health Resources
000 X. Xxx Xxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxxxxx
Fax No.: (000) 000-0000
with a copy to the following legal counsel:
Texas Health Resources Legal Department
000 X. Xxx Xxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: General Counsel
Fax No.: (000) 000-0000
with an additional copy to:
Xxxxxxx, Xxxxxxxx & Xxxxxxxxxx, L.L.P.
0000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxx
Fax No.: (000) 000-0000
Provided, however, that no notice shall be deemed ineffective solely because it
was not received by any party designated above as legal counsel. The addresses
and numbers may be changed by means of a notice given in the manner provided in
this Section 9.2.
SECTION 9.3 WAIVER. Any waiver of any term or condition of this
Agreement by any Party shall only be effective if in writing and shall not be
construed as a waiver of any subsequent breach or failure of the same term or
condition, or a waiver of any other term or condition of this Agreement.
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SECTION 9.4 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.5 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated by this Agreement is not affected in
a manner adverse to a Party to this Agreement. Upon a determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties to this Agreement shall negotiate in good faith to modify this Agreement
to effect the original intent of the parties to this Agreement as closely as
possible in an acceptable manner to the end that transactions contemplated by
this Agreement are fulfilled to the extent possible.
SECTION 9.6 ENTIRE AGREEMENT; SCHEDULES AND EXHIBITS. This Agreement,
the Exhibits and the Disclosure Schedule constitute the entire agreement of the
Parties and supersede all other prior agreements and undertakings, both written
and oral, between the Parties with respect to the subject matter of this
Agreement. The Disclosure Schedule identified in this Agreement has been
delivered to Buyer and Seller separate from this Agreement; that Schedule,
however, shall constitute a part of this Agreement and is incorporated by
reference into this Agreement. As of and after the Closing, this Agreement, the
Exhibits, the Disclosure Schedule, the Related Documents (including Seller's
Bring-Down Certificate and Buyer's Bring-Down Certificate) and, if any, the
Addendum to the Disclosure Schedule shall constitute the entire agreement and
supersede all other prior agreements and undertakings, both written and oral,
between the Parties with respect to the subject matter of this Agreement.
SECTION 9.7 GOVERNING LAW AND VENUE. THIS AGREEMENT SHALL BE GOVERNED
AS TO ALL MATTERS BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, EXCLUDING ANY RULE OF LAW THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN TEXAS. THE EXCLUSIVE
SITUS FOR ANY RESOLUTION OF DISPUTES ARISING UNDER THIS AGREEMENT OR IN ANY
MANNER RELATED TO THIS AGREEMENT SHALL BE IN THE APPROPRIATE FEDERAL, STATE OR
LOCAL COURT IN AND FOR DALLAS COUNTY.
SECTION 9.8 COUNTERPARTS. This Agreement and all agreements executed
and delivered pursuant to this Agreement may be executed in one or more
counterparts, and by the different Parties to this Agreement in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which shall constitute one and the same agreement.
SECTION 9.9 NO THIRD-PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
Person who is not a party to this Agreement.
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SECTION 9.10 ASSIGNABILITY. No Party to this Agreement may assign any
or all of its rights under this Agreement, in whole or in part, without the
written consent of the other Party. Nevertheless, this Agreement shall be
binding upon and insure to the benefit of the Parties hereto and their
respective successors and permitted assigns.
SECTION 9.11 TERMINATION. At any time before the Closing, this
Agreement may be terminated and abandoned:
(a) by the mutual written consent of the Parties;
(b) by either Party in writing if the Closing shall not have
occurred by 11:59 p.m., Central time, on January 1, 2000.
(c) by Buyer or Seller if the other commits a breach of or
default under an agreement, covenant, representation or warranty
contained in this Agreement and such breach or default has not been
waived by the non-breaching party or cured to its reasonable
satisfaction prior to the Closing Date, in which event the
non-breaching party may terminate this Agreement upon the giving of
written notice to the breaching party.
If this Agreement is terminated pursuant to this Section 9.11, then
this Agreement shall be of no further force or effect, except for Sections 5.3,
5.4, 7.2 and 8.6 and Article IX, which shall survive and not be affected by such
termination.
SECTION 9.13 CONSTRUCTION. Unless the context requires otherwise: (a)
the gender (or lack of gender) of all words used in this Agreement includes the
masculine, feminine and neuter; and (b) references to Articles and Sections
(other than in connection with the Code or another specified law or regulation
or another specified document) refer to Articles and Sections of this Agreement;
and (c) "including" means "including, without limitation."
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SECTION 9.14 ATTORNEYS' FEES. In the event of any dispute with respect
to the subject matter of this Agreement (including an arbitration or mediation),
the substantially prevailing party shall be entitled to recover its reasonable
attorneys' fees and court, arbitration or mediation costs incurred in resolving
or settling the dispute, in addition to any and all other damages or relief
which a court, arbitrator or mediator may deem proper.
IN WITNESS WHEREOF, Seller, THR and Buyer have executed this Agreement
as of the date first set forth above.
SELLER:
XXXXXX METH0DIST HEALTH PLAN, INC.,
a Delaware corporation
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
THR:
TEXAS HEALTH RESOURCES,
a Texas nonprofit corporation
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
BUYER:
PacifiCare HEALTH PLAN ADMINISTRATORS,
INC., an Indiana corporation
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
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GLOSSARY OF TERMS
DEFINED TERM PAGE NO.
------------ -------
Actual HMHIC Incurred Claims Paid............................................8
Actual HMTHP Incurred Claims Paid............................................6
Actuary......................................................................6
Adverse Regulatory Condition................................................56
Affiliate....................................................................9
Affiliated Group............................................................27
Aggrieved Party.............................................................74
Agreement....................................................................1
Allocation Statement........................................................64
Assets......................................................................20
Baylor......................................................................49
Broker Agreements...........................................................35
Buyer........................................................................1
Buyer's Auditor..............................................................4
Buyer's Bring-Down Certificate..............................................10
Buyer's Group...............................................................67
Buyer's Proposed Balance Sheets..............................................4
Buyer's Total Adjustments....................................................4
Claim.......................................................................67
Closing......................................................................1
Closing Date.................................................................8
Closing GAAP Balance Sheets.................................................52
Closing SAP Balance Sheets...................................................3
COBRA Coverage..............................................................61
Code........................................................................23
Confidential Information....................................................48
Contracts...................................................................18
Copyrights..................................................................29
Designated Plans............................................................23
Disclosing Party............................................................48
Disclosure Schedule.........................................................13
Employment Contracts........................................................26
Encumbrances.................................................................2
Enrollment Forms............................................................35
ERISA.......................................................................22
ERISA Affiliate.............................................................23
Excluded Amounts for Insured Unknown Claims.................................72
Execution Date...............................................................1
FEHBP.......................................................................69
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GLOSSARY OF TERMS (Continued)
DEFINED TERM PAGE NO.
------------ -------
Financial Statements........................................................17
Function Normally...........................................................32
Future Financial Statements.................................................17
GAAP........................................................................17
Governmental Authorities....................................................15
Health Benefit Law..........................................................25
Health Benefit Plans........................................................35
HMHIC........................................................................1
HMHIC Adjustment Amount......................................................5
HMHIC Business..............................................................13
HMHIC Closing Balance Sheet..................................................3
HMHIC Stock..................................................................1
HMO.........................................................................24
HMO Act.....................................................................35
HMTHP........................................................................1
HMTHP Adjustment Amount......................................................5
HMTHP Business..............................................................13
HMTHP Closing Balance Sheet..................................................2
HMTHP Stock..................................................................1
HSR Act.....................................................................54
Indemnified Party...........................................................73
Indemnifying Party..........................................................73
Independent Auditor..........................................................4
Independent Closing Balance Sheets...........................................5
Information Systems.........................................................31
Insurance...................................................................32
Insurance Contracts.........................................................35
Insurance Licenses..........................................................33
Insurance Products..........................................................35
Insured(s)..................................................................36
Intellectual Property.......................................................29
Intercompany Arrangements...................................................52
Investment Assets...........................................................21
Known Claims................................................................67
Lease Agreement.............................................................11
Leases......................................................................20
Legal Requirements..........................................................15
License Agreement...........................................................11
Licenses....................................................................15
Limited Indemnification Maximum.............................................72
Loss........................................................................67
MADSP.......................................................................64
Marks.......................................................................29
Material Adverse Change.....................................................55
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89
GLOSSARY OF TERMS (Continued)
DEFINED TERM PAGE NO.
------------ -------
Material Adverse Effect.....................................................10
Material Contracts..........................................................19
Material HMHIC Brokers......................................................43
Material HMHIC Providers....................................................44
Material HMTHP Brokers......................................................40
Material HMTHP Providers....................................................41
Material Notices and Consents...............................................55
Material Policyholders......................................................42
Material Subscriber Groups..................................................40
Maximum Indemnification Liability...........................................75
Medicare+Choice Program Law.................................................36
Member Materials............................................................36
Member(s)...................................................................36
Minimum HMHIC Closing Equity.................................................2
Minimum HMTHP Closing Equity.................................................2
Noncompetition Period.......................................................62
Normal Functionality........................................................32
Notice of Claim.............................................................74
NTHN........................................................................63
OPM.........................................................................69
OPM Assignment..............................................................69
OPM Assignment Period.......................................................69
OPM Claim...................................................................69
OPM Defective Price.........................................................69
OPM Fraudulent Claim........................................................69
OPM Indemnification.........................................................69
OPM Indemnification Period..................................................69
Orders......................................................................14
Outstanding HMHIC Incurred Claims Reserve....................................8
Outstanding HMTHP Incurred Claims Reserve....................................7
Parties......................................................................1
Patents.....................................................................29
Person......................................................................15
Post-Closing Basket.........................................................72
PPO.........................................................................24
Pre-Closing Basket..........................................................57
Pre-Closing HMHIC Incurred Claims............................................7
Pre-Closing HMTHP Incurred Claims............................................6
Prohibited Businesses.......................................................62
Provider Agreements.........................................................36
Providers...................................................................36
Purchase Price...............................................................2
Real Property...............................................................20
Recipient...................................................................48
iii
90
GLOSSARY OF TERMS (Continued)
DEFINED TERM PAGE NO.
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Recoverable Loss............................................................72
Reinsurance Contracts.......................................................37
Related Documents...........................................................14
Representatives.............................................................48
Responsible Party...........................................................74
SAP..........................................................................2
Select......................................................................66
Select Settlement Agreement.................................................67
Seller.......................................................................1
Seller's Auditor.............................................................2
Seller's Bring-Down Certificate.............................................10
Seller's Group..............................................................73
Seller's Knowledge..........................................................36
Seller's Proposed Balance Sheets.............................................4
Seller's Total Adjustments...................................................4
Service Area................................................................37
Severance Cash...............................................................3
Severance Reserve............................................................3
Special Determinations.......................................................2
Statutory Financial Statements..............................................34
Statutory Insurance Statements..............................................33
Stay Put Agreements.........................................................53
Stock........................................................................1
Subscriber Agreements.......................................................37
Target Entities.............................................................13
Target Entity...............................................................13
Tax Inquiries...............................................................65
Tax Returns.................................................................27
Taxes.......................................................................28
TDI..........................................................................2
Third-Party Claim...........................................................73
THR..........................................................................1
THR Hospital Provider Agreements............................................11
THS.........................................................................11
TPA.........................................................................24
Transactions.................................................................8
Transition Services Agreement...............................................11
Unknown Claims..............................................................68
UR..........................................................................25
Year 2000 Compliant.........................................................31
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