EXHIBIT 10.5
PURCHASE AGREEMENT
BY AND AMONG
WELLCARE HOLDINGS, LLC,
AND
WELLCARE ACQUISITION COMPANY,
WELL CARE HMO, INC.,
HEALTHEASE OF FLORIDA, INC.,
COMPREHENSIVE HEALTH MANAGEMENT, INC.,
AND
COMPREHENSIVE HEALTH MANAGEMENT OF FLORIDA, L.C.,
AND
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO
Dated as of May 17, 2002
TABLE OF CONTENTS
Page
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ARTICLE 1 PURCHASE AND SALE............................................................................. 2
1.1 Purchase and Sale of the Shares....................................................... 2
1.2 Purchase Price........................................................................ 2
1.3 Certain Pre-Closing Adjustments....................................................... 2
1.4 Adjustment of Purchase Price.......................................................... 4
1.5 Closing............................................................................... 4
1.6 Appointment of Stockholder Representative............................................. 4
1.7 Closing Deliveries by the Stockholders and the Companies.............................. 5
1.8 Closing Deliveries by Buyer........................................................... 5
1.9 Exemption From Registration; Blue Sky................................................. 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANIES.......................... 6
2.1 Organization and Qualification........................................................ 6
2.2 Authority Relative to this Agreement.................................................. 6
2.3 Capitalization........................................................................ 7
2.4 Subsidiaries; Investments............................................................. 8
2.5 Directors and Officers................................................................ 8
2.6 No Conflicts.......................................................................... 9
2.7 Books and Records; Organizational Documents.......................................... 9
2.8 Companies' Financial Statements...................................................... 10
2.9 Absence of Changes................................................................... 10
2.10 No Undisclosed Liabilities........................................................... 10
2.11 Accounts Receivable.................................................................. 11
2.12 Banks and Brokerage Accounts......................................................... 11
2.13 Capital Adequacy..................................................................... 11
2.14 Taxes................................................................................ 11
2.15 Business Combinations................................................................ 14
2.16 Legal Proceedings.................................................................... 14
2.17 Compliance with Laws and Orders...................................................... 14
2.18 Plans; ERISA......................................................................... 15
2.19 Permits and Approvals................................................................ 18
2.20 Real Property........................................................................ 18
2.21 Tangible Personal Property........................................................... 19
2.22 Intellectual Property................................................................ 20
2.23 Government Healthcare Matters........................................................ 20
2.24 Commercial Subscriber Agreements..................................................... 21
2.25 Provider Agreements.................................................................. 21
2.26 Contracts............................................................................ 22
2.27 Suppliers............................................................................ 22
2.28 Audit Reports........................................................................ 23
2.29 Membership........................................................................... 23
2.30 Premiums............................................................................. 23
2.31 Claims............................................................................... 23
2.32 Insurance............................................................................ 23
2.33 Power of Attorney; Guarantees........................................................ 24
2.34 Affiliate Transactions............................................................... 24
2.35 Employees; Labor Relations........................................................... 25
2.36 Environmental Matters................................................................ 26
2.37 Foreign Corrupt Practices Act; Proper Business Practices............................. 28
2.38 Takeover Statutes.................................................................... 28
2.39 Other Negotiations; Brokers; Third Party Expenses.................................... 28
2.40 Disclosure........................................................................... 28
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................................... 28
3.1 Authorization........................................................................ 28
3.2 Title................................................................................ 29
3.3 Purchase Entirely for Own Account.................................................... 29
3.4 Disclosure of Information............................................................ 29
3.5 Investment Experience................................................................ 29
3.6 Restricted Securities................................................................ 29
3.7 Legends.............................................................................. 29
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER...................................................... 30
4.1 Organization and Qualification....................................................... 30
4.2 Authority Relative to this Agreement................................................. 30
4.3 Capitalization....................................................................... 30
4.4 Issuance of the Warrant and the Buyer Shares......................................... 31
4.5 No Conflicts......................................................................... 31
4.6 Financing............................................................................ 32
4.7 Investment Advisors.................................................................. 32
4.8 Disclosure........................................................................... 32
ARTICLE 5 CONDUCT PRIOR TO THE CLOSING DATE............................................................ 32
5.1 Conduct of Business of the Companies................................................. 32
5.2 Operational Consultation............................................................. 35
5.3 Wind-Down of Commercial Business..................................................... 36
5.4 Pre-Closing Distributions to Stockholders............................................ 36
ARTICLE 6 ADDITIONAL AGREEMENTS........................................................................ 36
6.1 Access to Information................................................................ 36
6.2 Confidentiality...................................................................... 37
6.3 Public Disclosure.................................................................... 37
6.4 No Solicitation...................................................................... 37
6.5 Approvals............................................................................ 38
6.6 Notification of Certain Matters...................................................... 38
6.7 Further Assurances; Cooperation...................................................... 39
6.8 Companies' Auditors.................................................................. 40
6.9 401(k) Plan.......................................................................... 40
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6.10 Takeover Statutes.................................................................... 40
6.11 Delivery of Stock Ledger, Minute Book and Assets and Properties of the Companies..... 40
6.12 Stockholder Vote..................................................................... 41
6.13 Company Common Stock; Releases....................................................... 41
6.14 Consulting Agreements................................................................ 41
6.15 Employment Agreement................................................................. 41
6.16 Resignations......................................................................... 41
6.17 Affiliate Agreements................................................................. 41
6.18 CHM and Comprehensive LLC............................................................ 42
6.19 Payment of Surplus Notes............................................................. 42
6.20 Other Agreements..................................................................... 42
6.21 Assignment of Certain Non-Admitted Assets............................................ 42
6.22 Closing of Margin Accounts........................................................... 43
6.23 Lien Releases........................................................................ 43
6.24 Insurance Policies................................................................... 43
6.25 Form 5500 Filings.................................................................... 43
6.26 COBRA................................................................................ 43
6.27 Transition of Office Space........................................................... 44
6.28 Pledge Agreement..................................................................... 44
ARTICLE 7 TAX MATTERS.................................................................................. 44
7.1 Section 338(h)(10) Election.......................................................... 44
7.2 Tax Returns; Liability for Taxes..................................................... 46
7.3 Termination of Tax Sharing Agreements................................................ 47
7.4 Conduct of Audits and Other Procedural Matters....................................... 48
7.5 FIRPTA Compliance.................................................................... 48
7.6 Other Tax Covenants.................................................................. 48
ARTICLE 8 CONDITIONS TO THE ACQUISITION................................................................ 49
8.1 Conditions to Obligations of Each Party to Effect the Acquisition.................... 49
8.2 Additional Conditions to Obligations of the Stockholders and the Companies........... 49
8.3 Additional Conditions to the Obligations of Buyer.................................... 51
ARTICLE 9 INDEMNIFICATION.............................................................................. 53
9.1 Survival............................................................................. 53
9.2 Indemnification...................................................................... 54
ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER........................................................... 58
10.1 Termination.......................................................................... 58
10.2 Effect of Termination................................................................ 59
ARTICLE 11 MISCELLANEOUS PROVISIONS.................................................................... 60
11.1 Notices.............................................................................. 60
11.2 Expenses............................................................................. 61
11.3 Entire Agreement; Modification....................................................... 61
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11.4 Waiver............................................................................... 62
11.5 Third Party Beneficiaries............................................................ 62
11.6 No Assignment; Binding Effect........................................................ 62
11.7 Headings............................................................................. 62
11.8 Invalid Provisions................................................................... 62
11.9 Governing Law........................................................................ 62
11.10 Jurisdiction; Venue.................................................................. 62
11.11 Waiver of Trial by Jury.............................................................. 63
11.12 Interpretation....................................................................... 63
11.13 Counterparts......................................................................... 63
11.14 Specific Performance................................................................. 63
ARTICLE 12 DEFINITIONS................................................................................. 63
12.1 Definitions.......................................................................... 63
12.2 Construction......................................................................... 76
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Purchase Price Adjustments
EXHIBIT B Form of Senior Subordinated Note
EXHIBIT C Form of Warrant Agreement
EXHIBIT D Form of Stockholder Release
EXHIBIT E Form of Consulting Agreement
EXHIBIT F Form of Employment Agreement
EXHIBIT G Form of Non-Competition Agreement
EXHIBIT H Form of Confidentiality Agreement
EXHIBIT I Form of Investor Rights Agreement
EXHIBIT J Form of LLC Agreement
EXHIBIT K Form of Opinion of Corporate Counsel to the Buyer
EXHIBIT L Form of Opinion of Corporate Counsel to the Companies
EXHIBIT M Form of Pledge Agreement
Schedule 2.1 Qualifications
Schedule 2.3(b) Capitalization
Schedule 2.3(g) Surplus Notes
Schedule 2.4 Subsidiaries; Investments
Schedule 2.5 Directors and Officers
Schedule 2.6 No Conflicts
Schedule 2.7 Comprehensive LLC Organizational Documents
Schedule 2.8 Financial Statements
Schedule 2.9 Absence of Changes
Schedule 2.12 Banks and Brokerage Accounts
Schedule 2.13 Capital Adequacy
Schedule 2.14 Taxes
Schedule 2.15 Business Combinations
Schedule 2.16(a) Legal Proceedings
Schedule 2.16(b) Threatened Actions and Legal Proceedings
Schedule 2.17 Compliance with Law and Orders
Schedule 2.18 Plans; ERISA
Schedule 2.19 Permits and Appeals
Schedule 2.20(a) Leased Real Property
Schedule 2.20(b) Owned Real Property
Schedule 2.21 Tangible Personal Property; Motor Vehicles
Schedule 2.22 Intellectual Property
Schedule 2.23(a) Certain Government Contracts
Schedule 2.23(b) Government Healthcare Matters
Schedule 2.24 Subscriber Agreements
Schedule 2.25 Provider Agreements
Schedule 2.26(a) Contracts
Schedule 2.26(c) Certain Contracts
Schedule 2.27 Suppliers
Schedule 2.28 Audit Reports
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Schedule 2.29 Membership
Schedule 2.30 Premiums
Schedule 2.31 Claims
Schedule 2.32(a) Insurance
Schedule 2.32(b) Insurance Claims
Schedule 2.33 Powers of Attorney; Guarantees
Schedule 2.34 Affiliate Transactions
Schedule 2.35(b) Employee; Labor Relations
Schedule 2.35(c) Employee Claims
Schedule 2.35(d) Policies, Handbooks and Manuals
Schedule 2.39 Brokers
Schedule 4.3 Capitalization
Schedule 4.6 Commitment Letter
Schedule 5.1 Conduct Prior to the Closing Date
Schedule 6.21(b) Certain Provider Advances
Schedule 6.22 Comprehensive LLC Margin Accounts
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT is made and entered into as of May 17, 2002, by
and among WellCare Holdings, LLC, a Delaware limited liability company
("Parent"); WellCare Acquisition Company, a Delaware corporation (the "Buyer");
the stockholders of the Companies listed on the signature page hereto, each of
whom is a resident of the State of Florida (each, a "Stockholder" and
collectively, the "Stockholders"); and Well Care HMO, Inc., a Florida
corporation ("Well Care HMO"), HealthEase of Florida, Inc., a Florida
corporation ("HealthEase"), Comprehensive Health Management, Inc., a Florida
corporation ("CHM") and Comprehensive Health Management of Florida, L.C., a
Florida limited liability company ("Comprehensive LLC"). Each of Well Care HMO,
HealthEase, CHM and Comprehensive LLC are sometimes referred to in this
Agreement individually as a "Company" and collectively as the "Companies."
Capitalized terms used and not otherwise defined herein have the meanings set
forth in Article 12 hereof or Exhibit A attached hereto.
RECITALS
A. Each of (i) the Boards of Directors of each of Well Care HMO,
HealthEase and CHM, (ii) the managers of Comprehensive LLC and (iii) the
Stockholders believes it is in their respective best interests that Buyer
acquire the Companies through the acquisition of all of the outstanding Equity
Securities of the Companies (the "Acquisition") and, in furtherance thereof,
have approved this Agreement and the transactions contemplated hereby.
B. The Stockholders own collectively all of the outstanding
Equity Securities of the Companies.
C. The Stockholders own collectively a majority of the
outstanding Equity Securities of The WellCare Management Group, Inc., a
publicly-traded New York corporation ("WCMG"). WCMG owns all of the outstanding
Equity Securities of Well Care of New York, Inc., a New York corporation
("WCNY"), and WCNY owns all of the outstanding Equity Securities of FirstChoice
HealthPlans of Connecticut, Inc., a Connecticut corporation ("FirstChoice").
D. Concurrently with the execution of this Agreement, WCMG, Buyer
and a wholly-owned subsidiary of Buyer have entered into the WCMG Acquisition
Agreement, which provides, among other things, for the acquisition of WCMG by
Buyer. It is a condition precedent to the obligations to consummate the
Acquisition of both Buyer, on the one hand, and the Stockholders and the
Companies, on the other hand, that Buyer acquire WCMG pursuant to the terms of
the WCMG Acquisition Agreement, and the WCMG Acquisition Agreement requires the
transactions contemplated hereby to be consummated as a condition precedent to
Buyer's and WCMG's respective obligations to consummate the acquisition of WCMG
pursuant to the WCMG Acquisition Agreement.
E. The Companies, Buyer and the Stockholders desire to make
certain representations, warranties, covenants and agreements in connection with
the Acquisition.
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NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
the parties), intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of the Shares. Upon the terms and subject to
the conditions of this Agreement, at the Closing, the Stockholders shall sell
and deliver to Buyer, and Buyer shall purchase and accept from the Stockholders,
the Shares, free and clear of any Liens. Buyer shall be entitled to assign its
rights under this Agreement to a wholly-owned Subsidiary of Buyer, in which
case, notwithstanding anything to the contrary herein, the Stockholders shall,
upon written notice from Buyer prior to the Closing, sell and deliver the
Shares, free and clear of any Liens, to such Subsidiary as the purchaser of the
Shares, and Buyer shall not acquire the Shares. Any such assignment shall not
relieve Buyer of its obligations hereunder or affect the consideration payable
to the Stockholders hereunder.
1.2 Purchase Price. The aggregate purchase price for the Shares
(the "Purchase Price") shall be as follows, subject to adjustment as set forth
herein:
(a) a payment to the Stockholders (to the account or
accounts designated by the Stockholder Representative pursuant to Section
1.8(a)), in the aggregate amount of $50,000,000 in immediately available funds
(the "Cash Consideration"), which shall be reduced (i) to the extent set forth
in Section 1.3(b) and (ii) to the extent necessary to satisfy Buyer's
obligations set forth in Section 6.19;
(b) a promissory note payable to the Stockholder
Representative, or such entity as may be designated by the Stockholder
Representative, on behalf of the Stockholders, in substantially the form
attached hereto as Exhibit B (the "Senior Subordinated Note"), having an
aggregate initial principal amount of $53,000,000 (the "Initial Principal
Amount"), which amount shall be adjusted by the Purchase Price Adjustments, as
provided in Section 1.4 below; and
(c) the transfer to the Stockholder Representative, or
such entity as may be designated by the Stockholder Representative, on behalf of
the Stockholders, of warrants (the "Warrants"), to purchase an aggregate of
6,861.111 Class B Common Units of Parent, which Warrants will be as set forth in
the Equity and Warrant Agreement to be entered into between Parent and the
Stockholders in substantially the form of Exhibit C attached hereto (the
"Warrant Agreement") and which Warrants the parties agree have a value of
$250,000.
1.3 Certain Pre-Closing Adjustments.
(a) Closing Date Balance Sheets. At least 20 days prior
to the Closing Date, the Stockholders shall deliver to Buyer the Companies' Good
Faith Estimate of the balance sheet for each of the Companies as of the Closing
Date (each, an "Estimated Closing Date Balance Sheet" and collectively the
"Estimated Closing Date Balance Sheets"). The Estimated Closing Date Balance
Sheets shall (i) in the case of Well Care HMO, record the establishment prior to
the
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Closing of premium deficiency reserves with respect to all operating losses
anticipated for the Commercial Lines of Business for the period from the Closing
Date through December 31, 2003, in accordance with the Applicable Accounting
Principles, (ii) in the case of Well Care HMO and HealthEase, record the
establishment of a loss adjustment expense reserve in an amount equal to 1.5% of
all unpaid claims of such entities, (iii) show a minimum Net Worth Amount for
CHM of not less than $1,000,000, (iv) be prepared in accordance with all NAIC
standards and the Applicable Accounting Principles (in each case, without
special consideration from any Governmental or Regulatory Authority, but taking
into account the role of Comprehensive LLC as a valid guarantying organization
under Section 409.912(4) of the Florida Statutes with respect to the Medicaid
Contracts held by Well Care HMO and HealthEase), (v) fully comply with all Laws
applicable to the adequacy and maintenance of Statutory Surplus (items (iii)
through (v) collectively, the "Minimum Capital Requirements") and (vi) comply
with all applicable Laws in all material respects. In the event that the
Companies' Good Faith Estimate of the Estimated Closing Balance Sheets does not
reflect the full satisfaction of the Minimum Capital Requirements, then the
Stockholders shall, prior to the Closing, take all actions as may be necessary
to fully cure any shortfall in the Minimum Capital Requirements, as may be
reflected in the Companies' Good Faith Estimate of the Estimated Closing Date
Balance Sheets, including, without limitation, by making appropriate
contributions of capital to the Companies or by agreeing to a reduction in the
Cash Consideration. In the event that Buyer shall object to any of the Estimated
Closing Date Balance Sheets initially delivered by the Stockholders, or if Buyer
and the Stockholders are unable to agree as to whether the Estimated Closing
Date Balance Sheets fully satisfy the Minimum Capital Requirements, Buyer and
the Stockholders shall negotiate in good faith and attempt to agree upon
appropriate adjustments to the Estimated Closing Date Balance Sheets, including
adjustments necessary to fully satisfy the Minimum Capital Requirements (in
which case the mutually agreed upon Estimated Closing Date Balance Sheets shall
be the Estimated Closing Date Balance Sheets for all purposes under this
Agreement). In the event that Buyer and the Stockholders are unable to agree
upon any aspect of the Estimated Closing Date Balance Sheets, then (i) Buyer
shall retain all rights provided under this Agreement including, without
limitation, Buyer's right to terminate this Agreement pursuant to Section
10.1(d)(ii), (ii) Buyer may waive the closing condition set forth in Section
8.3(m), and the Estimated Closing Date Balance Sheets as initially delivered by
the Stockholders shall be the Estimated Closing Date Balance Sheets for all
purposes under this Agreement, and (iii) neither any failure by Buyer to object
nor any agreement by the parties as to adjustments to the Estimated Closing Date
Balance Sheets or the amount of any shortfall in the Minimum Capital
Requirements shall be deemed to be or construed as a waiver of any of Buyer's
rights with respect to the calculation or determination of any Purchase Price
Adjustment (including any component, portion or adjustment thereof) pursuant to
Exhibit A.
(b) CHM Capital Adjustments. In the event that the CHM
Cash Amount is less than $1,000,000, the Cash Consideration payable at the
Closing shall be reduced by the difference between the CHM Cash Amount and
$1,000,000 (such difference, the "Cash Shortfall Amount"). In addition, in the
event that the CHM Working Capital Amount is a negative number, the Cash
Consideration payable at the Closing shall be reduced by the CHM Working Capital
Amount (the amount of such reduction, the "CHM Working Capital Adjustment
Amount").
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(c) Notwithstanding anything to the contrary contained in
this Agreement (including Exhibit A), (i) no Indebtedness of WCMG, WCNY or
FirstChoice owed to any other Company shall be included in the assets of such
Company for the purpose of calculating any Purchase Price Adjustment (including
any component, portion or adjustment thereof) or the CHM Working Capital Amount
and (ii) no Indebtedness of any Consolidated Entity shall be included in the
assets of CHM for purposes of calculating the CHM Net Worth Amount.
1.4 Adjustment of Purchase Price. The Purchase Price set forth in
Section 1.2 shall be adjusted as provided in Section 1.3, this Section 1.4 and
in Exhibit A. The Purchase Price shall be adjusted by each of First Purchase
Price Adjustment and the Second Purchase Price Adjustment, in each case as such
Purchase Price Adjustment is finally determined as provided in Exhibit A. The
aggregate of the First Purchase Price Adjustment and the Second Purchase Price
Adjustment shall be the "Final Purchase Price Adjustment." Any adjustments to
the Purchase Price by virtue of the First Purchase Price Adjustment or the
Second Purchase Price Adjustment shall be made solely by means of an adjustment
to, and in the manner provided in, the Senior Subordinated Note and shall not
constitute, result in, or serve as a basis for an Indemnifiable Loss. Each of
the First Purchase Price Adjustment and the Second Purchase Price Adjustment
shall be calculated as provided in Exhibit A. The Purchase Price, as so modified
by the Final Purchase Price Adjustment, shall be the final Purchase Price for
all purposes under this Agreement.
1.5 Closing. Upon the terms and subject to the conditions of this
Agreement, the sale and purchase of the Shares shall take place at a closing
(the "Closing") to be held at the offices of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP,
0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 A.M. New York time on the later
to occur of (i) July 31, 2002 or (ii) the last Business Day of the calendar
month in which all of the conditions to the obligations of the parties set forth
in Article 8 shall have been satisfied or waived, or at such other place or at
such other time or on such other date as Buyer and the Stockholders may mutually
agree upon in writing (the day on which the Closing actually takes place being
the "Closing Date").
1.6 Appointment of Stockholder Representative. Each of the
Stockholders hereby appoints Xxxxx X. Xxxxx, M.D. (the "Stockholder
Representative") as agent and representative with full discretion to act on
behalf of each of the Stockholders for all purposes described herein and with
respect to the Note, and the Stockholder Representative hereby accepts such
appointment and agrees to act in such capacity. Each Stockholder hereby releases
Buyer, and agrees to indemnify and hold harmless Buyer, from any claims such
Stockholder may have against the Stockholder Representative. In addition to the
foregoing, each Stockholder, by his execution of this Agreement, hereby
constitutes and appoints the Stockholder Representative his true and lawful
attorney in fact, with full power in his name and on his behalf:
(a) to receive, on behalf of the Stockholders, the
closing deliveries from Buyer at the Closing pursuant to Section 1.8, to give
Buyer a receipt therefor on behalf of the Stockholders, and to hold such
deliveries subject to the terms hereof and the instructions of each Stockholder
with respect to the ultimate distribution thereof;
(b) to act on each Stockholder's behalf according to the
terms of this Agreement, including, without limitation, the power to (i) contest
or acquiesce in the
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determination of the Purchase Price in accordance with Section 1.4 and Exhibit
A, (ii) agree to amend this Agreement, or to terminate this Agreement in
accordance with Section 10.1, (iii) waive compliance with conditions precedent
to the Stockholders' and the Companies' obligations set forth in Article 8 or
any other provision of this Agreement pursuant to Section 11.4, (iv) consent to
the assignment of rights under this Agreement in accordance with Section 11.6,
(vi) give and receive notices on behalf of all the Stockholders, and (vii) act
on the Stockholders' behalf in connection with any matter as to which the
Stockholders jointly and severally are an "Indemnified Party" or "Indemnifying
Party" under Article 9, all in the sole and absolute discretion of the
Stockholder Representative; and
(c) in general, to do all things and to perform all acts,
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated or
required in connection with this Agreement.
This power of attorney, and all authority hereby conferred, is granted
subject to the interests of the other Stockholders and the Buyer and in
consideration of the mutual covenants and agreements made herein, and shall be
irrevocable and shall not be terminated by any act of any Stockholder or by
operation of law, whether by the death or incapacity of any Stockholder or by
the occurrence of any other event. Each Stockholder agrees to hold the
Stockholder Representative harmless from any and all loss, damage or liability
which they, or any one of them, may sustain as a result of any action taken in
good faith hereunder.
1.7 Closing Deliveries by the Stockholders and the Companies. At
the Closing, the Stockholders shall deliver or cause to be delivered to Buyer:
(a) stock certificates and/or certificates representing
membership interests, as applicable, evidencing the Shares, duly endorsed in
blank or accompanied by stock powers duly executed in blank, in form
satisfactory to Buyer and with all required stock transfer tax stamps affixed;
(b) receipts for the portion of the Purchase Price
payable at the Closing, duly executed by the Stockholders; and
(c) each of the Ancillary Agreements required to be
signed by any Stockholder or any Company, duly executed by each such Stockholder
and/or Company, as applicable, together with each of the opinions, certificates
and other documents required to be delivered by the Stockholders or the
Companies pursuant to Article 8.
1.8 Closing Deliveries by Buyer. At the Closing, Buyer shall
deliver to the Stockholder Representative, on behalf of the Stockholders:
(a) the Cash Consideration, by wire transfer in
immediately available funds to such account or accounts as the Stockholder
Representative shall designate to Buyer in writing prior to the Closing;
(b) the Senior Subordinated Note;
(c) the Warrant Agreement;
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(d) the Pledge Agreement; and
(e) each of the Ancillary Agreements required to be
signed by Buyer, duly executed by Buyer, together with each of the opinions,
certificates and other documents required to be delivered by Buyer pursuant to
Article 8.
1.9 Exemption From Registration; Blue Sky. The Buyer, the
Companies and the Stockholders intend that the Warrant and the Senior
Subordinated Note to be issued pursuant to Section 1.2 will be issued in a
transaction exempt from (a) the registration requirements under the Securities
Act of 1933, as amended (including the rules and regulations promulgated
thereunder, the "Securities Act"), by reason of Section 4(2) of the Securities
Act and SEC rules and regulations promulgated thereunder and (b) the
registration and qualification requirements of applicable state securities laws.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE
COMPANIES
The Stockholders and the Companies hereby jointly and severally
represent and warrant to Buyer as follows:
2.1 Organization and Qualification. Each Company (other than
Comprehensive LLC) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida. Comprehensive LLC is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Florida. The Companies have full corporate power (or,
in the case of Comprehensive LLC, all other requisite power) and authority to
conduct their businesses as now conducted and as currently proposed to be
conducted and to own, use, license and lease their Assets and Properties. Each
Company is duly qualified, licensed or admitted to do business and is in good
standing as a foreign corporation (or, with respect to Comprehensive LLC,
limited liability company) in each jurisdiction in which the ownership, use,
licensing or leasing of its Assets and Properties, or the conduct or nature of
its business, makes such qualification, licensing or admission necessary.
Schedule 2.1 sets forth separately for each Company each jurisdiction where such
Company is so qualified, licensed or admitted to do business and separately
lists each other jurisdiction in which such Company owns, uses, licenses or
leases its Assets and Properties, or conducts business or has employees or
engages independent contractors.
2.2 Authority Relative to this Agreement.
(a) Each Company has full corporate power (or, in the
case of Comprehensive LLC, all other requisite power) and authority to execute
and deliver this Agreement and the Ancillary Agreements to which such Company is
a party, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. Each Company's Board of
Directors (other than Comprehensive LLC) has approved this Agreement. The
managers and members of Comprehensive LLC have taken such actions as they are
required to take in order to approve this Agreement under Comprehensive LLC's
articles of organization and Operating Agreement. The execution and delivery by
each Company of this Agreement and
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the Ancillary Agreements to which such Company is a party and the consummation
by such Company of the transactions contemplated hereby and thereby, and the
performance by each Company of its obligations hereunder and thereunder, have
been duly and validly authorized by all necessary action by such Company's Board
of Directors, in the case of all Companies other than Comprehensive LLC, and, in
the case of Comprehensive LLC, by its managers and members, and no other action
on the part of the Board of Directors or managers and members of such Companies
is required to authorize the execution, delivery and performance of this
Agreement and the Ancillary Agreements to which such Company is a party and the
consummation by such Company of the transactions contemplated hereby and
thereby.
(b) This Agreement and the Ancillary Agreements have been
or will be, as applicable, duly and validly executed and delivered by each
Company which is a party thereto and, assuming the due authorization, execution
and delivery hereof by Buyer, as applicable, each constitutes or will
constitute, as applicable, a legal, valid and binding obligation of such Company
enforceable against such Company in accordance with its respective terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws relating
to the enforcement of creditors' rights generally and by general principles of
equity.
2.3 Capitalization.
(a) (i) The authorized capital stock of Well Care
HMO consists only of 10,000,000 shares of Common Stock, $0.01 par value per
share (the "Well Care Common Stock"), of which 5,275,312.5 shares are issued and
outstanding. All of the issued and outstanding shares of Well Care Common Stock
are validly issued, fully paid and nonassessable, and have been issued in
compliance with all applicable federal, state and foreign securities Laws. No
shares of Well Care Common Stock are held in treasury or are reserved for
issuance.
(ii) The authorized capital stock of HealthEase
consists only of 10,000 shares of Common Stock, $0.01 par value per share (the
"HealthEase Common Stock"), of which 1,000 shares are issued and outstanding.
All of the issued and outstanding shares of HealthEase Common Stock are validly
issued, fully paid and nonassessable, and have been issued in compliance with
all applicable federal, state and foreign securities Laws. No shares of
HealthEase Common Stock are held in treasury or are reserved for issuance.
(iii) The authorized capital stock of CHM consists
only of 10,000 shares of Common Stock, $0.01 par value per share (the "CHM
Common Stock"), of which 1,000 shares are issued and outstanding. All of the
issued and outstanding shares of CHM Common Stock are validly issued, fully paid
and nonassessable, and have been issued in compliance with all applicable
federal, state and foreign securities Laws. No shares of CHM Common Stock are
held in treasury or are reserved for issuance.
(iv) All of the issued and outstanding membership
interests of Comprehensive LLC (the "Comprehensive LLC Units") are validly
issued, fully paid and non-assessable, and have been issued in compliance with
all applicable federal, state and foreign securities laws. No Comprehensive LLC
Units are held in treasury or are reserved for issuance.
7
(b) The Stockholders collectively constitute all of the
holders of all issued and outstanding Equity Securities of each Company, the
Shares collectively comprise one hundred percent (100%) of the outstanding
Equity Securities of the Companies and no Equity Securities of any Company are
held on behalf of any Person except the Stockholder indicated as the owner on
the face of the certificates representing such Equity Securities. Schedule
2.3(b) lists the name and state of residence of each holder of Well Care Common
Stock, HealthEase Common Stock, CHM Common Stock and Comprehensive LLC Units,
and the number of shares of each such security held by (or, in the case of
Comprehensive LLC, the percentage membership interest of) such holders.
(c) None of the Equity Securities issued by any of the
Companies are subject to a repurchase option on the part of any Company.
(d) There are no outstanding Options or agreements,
arrangements or understandings to which any Company is a party (written or oral)
to issue any Options or other Equity Securities with respect to any Company.
(e) There are no preemptive rights or agreements,
arrangements or understandings to issue preemptive rights with respect to the
issuance or sale of any Company's Equity Securities created by statute, the
articles of incorporation or by-laws (or, in the case of Comprehensive LLC, the
articles of organization or Operating Agreement) of any Company, or an agreement
or other arrangement to which any Company is a party (written or oral) or to
which any Company is bound and there are no agreements, arrangements or
understandings to which any Company is a party (written or oral) pursuant to
which any Company has the right to elect to satisfy any Liability by issuing
Equity Securities.
(f) No Company is a party or subject to any agreement or
understanding, and there is no agreement, arrangement or understanding between
or among any Persons, which affects, restricts or relates to voting, giving of
written consents, dividend rights or transferability of shares with respect to
the Equity Securities of any Company, including without limitation any voting
trust agreement or proxy.
(g) Schedule 2.3(g) sets forth a schedule of all surplus
notes to which any Company is a party, the principal amount of such surplus
notes, and any other parties to such surplus notes (such notes the "Surplus
Notes"), and identifying those Surplus Notes as to which no Person other than
the Companies is a party (the "Inter-Company Notes"). Except for the Surplus
Notes and as set forth in Schedule 2.3(h), no debt securities or other
Indebtedness of any Company are issued and outstanding.
2.4 Subsidiaries; Investments. Except as set forth in Schedule
2.4, none of the Companies have, and for the past five years no Company has had,
Subsidiaries and no Company holds, and in the past five years no Company has
held, any equity, membership, partnership, joint venture or other ownership
interest in any Person.
2.5 Directors and Officers. The name of each director and officer
of each Company (except Comprehensive LLC) and the name of each manager and
member of Comprehensive LLC, on the date hereof, and his or her position with
such Company, are listed on Schedule 2.5.
8
2.6 No Conflicts. The execution and delivery by the Companies and
the Stockholders of this Agreement and the Ancillary Agreements to which the
Companies or the Stockholders are parties does not, and the performance by the
Companies and the Stockholders of their respective obligations under this
Agreement and the Ancillary Agreements to which the Companies or the
Stockholders are parties and the consummation of the transactions contemplated
hereby and thereby do not and will not:
(a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the respective articles of
incorporation, bylaws, articles of organization or Operating Agreement of any
Company;
(b) subject to (i) making such filings and giving such
notices as may be required under the HSR Act and by the Center for Medicare and
Medicaid Services and (ii) making such filings and obtaining such Approvals as
may be required by the DOI and AHCA, conflict with or result in a violation or
breach of any Law or Order applicable to any Company or any of the Assets and
Properties of any Company; or
(c) except as disclosed in Schedule 2.6, (i) conflict
with or result in a material violation or breach of, (ii) constitute a default
(or an event that, with or without notice or lapse of time or both, would
constitute a default) under, (iii) require any Company to obtain any Approval or
action of, make any filing with or give any notice to any Person under, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any Company or any of the Assets and Properties of any Company under or (vii)
result in the loss of a material benefit under, any of the terms, conditions or
provisions of any Contract or License to which any Company is a party or by
which any Company's Assets and Properties are bound.
2.7 Books and Records; Organizational Documents. The minute books
and stock record books and other similar records of each Company have been
provided or made available to Buyer or its counsel prior to the execution of
this Agreement, are complete and correct in all material respects and have been
maintained in accordance with sound business practices. Such minute books
contain a true and complete record of all actions taken at all meetings and by
all written consents in lieu of meetings of the directors, stockholders and
committees of the Board of Directors of each Company (or, with respect to
Comprehensive LLC, the members and managers) from the date of each Company's
formation or incorporation, as the case may be, through the date hereof. Each
Company other than Comprehensive LLC has, prior to the execution of this
Agreement, delivered to Buyer true and complete copies of its articles of
incorporation and by-laws, both as amended through the date hereof. True and
complete copies of the articles of organization and Operating Agreement of
Comprehensive LLC, in each case as amended through the date hereof, are attached
hereto as Schedule 2.7. Comprehensive LLC is not in violation of its articles of
organization or Operating Agreement, and no other Company is in violation of any
provisions of its respective articles of incorporation or bylaws.
9
2.8 Companies' Financial Statements. Attached to Schedule 2.8 are
true and complete copies of the Companies' Financials. The Companies' Financials
(a) present fairly and accurately in all material respects the financial
condition, results of operations and cash flows of each Company as of the dates
and during the periods indicated therein, subject, in the case of the Interim
Financial Statements, to normal year-end adjustments, which adjustments will not
be material in amount or significance, and except that the Interim Financial
Statements may not contain footnotes and (b) are consistent with the books and
records of the Companies (which books and records are accurate and complete in
all material respects). The financial statements of each of Well Care HMO and
HealthEase included as part of the Audited Financial Statements (collectively,
the "Companies' SAP Financials") were prepared in accordance with SAP. The
Companies' SAP Financials present fairly, in all material respects and in
accordance with SAP, the assets, liabilities and Statutory Surplus of each of
Well Care HMO and HealthEase. The Companies' Financials (other than the
Companies' SAP Financials) (collectively, the "Companies' GAAP Financials") were
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes attached thereto, and, in the case of the Interim Financial
Statements, subject to normal year-end adjustments, which adjustments will not
be material in amount or significance and except that the Interim Financial
Statements may not contain footnotes). Except as set forth in Schedule 2.8,
since January 1, 1999, there have been no changes in any accounting policies,
principles, methods or practices, including any such change with respect to
reserves (whether for bad debts, contingent liabilities or otherwise) or
Statutory Surplus of any Company. Comprehensive LLC has total assets (as
determined in accordance with GAAP) in excess of $50,000,000, and its total
liabilities (as determined in accordance with GAAP) do not exceed its total
assets (as determined in accordance with GAAP). To the knowledge of the
Companies and the Stockholders, there are no adjustments or material unadjusted
differences required to be made in the Companies' Financials.
2.9 Absence of Changes. Since the Interim Financial Statement
Date, except as set forth in Schedule 2.9, (a) there has not been any Material
Adverse Change, (b) there has been no material amendment or non-renewal of any
of the Approvals held by or granted to any Company, and each Company has used
commercially reasonable efforts to maintain such Approvals, (c) there has been
no physical damage, destruction or other casualty loss (whether or not covered
by insurance) affecting any of the real or personal property or equipment of any
Company or the Companies as a whole in an amount exceeding $50,000, individually
or in the aggregate and (d) none of the Companies or Stockholders has taken, or
permitted to be taken, any action which, if proposed to be taken on or after the
date of this Agreement, would require the consent of Buyer pursuant to Section
5.1, other than any action of the types described in subsections (c), (p), (u)
or (v) of Section 5.1.
2.10 No Undisclosed Liabilities. Except as recorded or reserved
against in the Companies' Financials (including the notes thereto), there are no
Liabilities of, relating to or affecting any Company or any of the Assets and
Properties of any Company, other than Liabilities incurred in the ordinary
course of business consistent with past practice since the Interim Financial
Statement Date.
10
2.11 Accounts Receivable. All accounts and notes receivable of the
Companies reflected on the Interim Financial Statements or incurred in the
normal course of business since the date thereof (a) arose from bona fide
transactions in the ordinary course of business, consistent with past practice,
and are payable on ordinary trade terms, (b) are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their
respective terms, (c) except as disclosed in Schedule 2.30, are not subject to
any valid set-off or counterclaim, (d) except as disclosed in Schedule 2.30, do
not represent obligations subject to approval, rebate or any other repurchase or
return arrangement and (e) to the knowledge of the Companies and the
Stockholders, are good and collectible (net of any reserves for doubtful
accounts shown on the applicable Interim Financial Statements), without resort
to litigation or extraordinary collection activity, in accordance with the terms
thereof.
2.12 Banks and Brokerage Accounts. Schedule 2.12 sets forth (a) a
true and complete list of the names and locations of all banks, trust companies,
securities brokers and other financial institutions at which each Company has an
account or safe deposit box or maintains a banking, custodial, trading or other
similar relationship, (b) a true and complete list and description of each such
account, box and relationship, indicating in each case the account number and
the names of the respective officers, employees, agents or other similar
representatives of each Company having signatory power with respect thereto and
(c) a list of each Investment Asset, the name of the record and beneficial owner
thereof, the location of the certificates, if any, representing each such
Investment Asset, the maturity date, if any, of each such Investment Asset, and
any stock or bond powers or other authority for transfer granted with respect
thereto.
2.13 Capital Adequacy. Except as set forth on Schedule 2.13, each
of the Companies is in full compliance with all Laws applicable to the adequacy
and maintenance of its Statutory Surplus. Neither CHM nor Comprehensive LLC has
any Indebtedness other than as disclosed in the Interim Financial Statements.
2.14 Taxes.
(a) All Tax Returns, excluding Form 5500 Reports,
required to have been filed on or prior to the Closing Date with respect to any
Pre-closing Period by or with respect to any Company or any affiliated,
consolidated, combined, unitary or similar group of which any Company is or was
a member on or prior to the Closing Date (a "Relevant Group") have been duly and
timely filed (including any extensions). All such Tax Returns are true, complete
and correct in all material respects (including with respect to the adoption and
application of all tax accounting methods utilized for each Taxable period by
each of the Companies, including, without limitation, the methods of accounting
for loss reserves, reserves for incurred but not reported losses, loss
adjustment expense reserves and unearned premium reserves). All Taxes due and
payable by each Company or any member of a Relevant Group, including withholding
Taxes, whether or not shown on any Tax Return, or claimed to be due by any Tax
Authority, for periods (or portions of periods) through the Interim Financial
Statement Date, have been paid or accrued on the balance sheet included in the
Interim Financial Statements.
11
(b) No Company (or any member of a Relevant Group) has
incurred any material liability for Taxes in the periods (or portions of
periods) after the Interim Financial Statement Date. The unpaid Taxes of each
Company (i) did not, as of the most recent fiscal month end, exceed the amount
the reserve for Liability for Income Tax (other than the reserve for deferred
taxes established to reflect timing differences between book and tax income) or
Other Tax set forth on the face of the balance sheet included in the Interim
Financial Statements and (ii) will not exceed the amount of such reserve as
adjusted for operations and transactions in the ordinary course of business
through the Closing Date.
(c) No Company is a party to any agreement extending the
time within which to file any Tax Return. No claim has ever been made by a
Taxing Authority of any jurisdiction in which any Company or any member of any
Relevant Group does not file Tax Returns that any Company or such member is or
may be subject to taxation by that jurisdiction.
(d) No Company or Stockholder has knowledge of any
actions by any Taxing Authority in connection with assessing additional Taxes
against or in respect of it or any Relevant Group for any past period. There is
no dispute or claim concerning any Tax Liability of any Company either (i)
threatened, claimed or raised by any Taxing Authority or (ii) of which any
Company is otherwise aware. There are no Liens for Taxes upon the Assets and
Properties of any Company other than Liens for Taxes not yet due. Schedule 2.14
indicates those Tax Returns, if any, of any Company and each member of any
Relevant Group that have been audited or examined by Taxing Authorities, and
indicates those Tax Returns of any Company and each member of any Relevant Group
that currently are the subject of audit or examination. Each Company has
delivered to Buyer complete and correct copies of all federal, state, local and
foreign income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Company and
each member of any Relevant Group since the fiscal year ended December 31, 1998.
(e) There are no outstanding agreements or waivers
extending the statute of limitations period applicable to any Tax Returns
required to be filed by, or which include or are treated as including, any
Company, which period (after giving effect to such agreement or waiver) has not
yet expired.
(f) No Company has received any written ruling related to
Taxes or entered into any agreement with a Taxing Authority relating to Taxes.
(g) No Company has liability for the Taxes of any Person
other than such Company (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign Law), (ii) as a transferee
or successor, (iii) by Contract or (iv) otherwise.
(h) No Company (i) has agreed to make nor is required to
make any adjustment in taxable income for any period ending after the Closing
Date under Section 481 of the Internal Revenue Code by reason of a change in
accounting method or (ii) is a "consenting corporation" within the meaning of
Section 341(f)(1) of the Internal Revenue Code.
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(i) No Company (i) is a party to or bound by any
obligations under any tax sharing agreement, tax allocation agreement, tax
indemnity agreement or similar Contract, or (ii) is obligated under any Contract
to afford any other Person the benefits of any net operating losses, charitable
deductions or other Tax credits, or to permit the transfer of any revenues,
receipts or gains to such Company from any Third Party.
(j) No Company is involved in, subject to, or a party to
any joint venture, partnership, Contract or other arrangement that is treated as
a partnership for federal, state, local or foreign Income Tax purposes.
(k) No Company was included and no Company is includible
in the Tax Return of any Relevant Group with any corporation other than such a
return of which any Company is the common parent corporation.
(l) No Company has made any payments, is obligated to
make any payments, or is a party to any Contract covering any current or former
employee or consultant of Company that under certain circumstances could require
it to make or give rise to any payments that are not deductible as a result of
the provisions set forth in Section 280G of the Internal Revenue Code or the
Treasury regulations thereunder or would result in an excise tax to the
recipient of any such payment under Section 4999 of the Internal Revenue Code.
(m) There is currently no limitation on the utilization
of the net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Company under (i) Section 382 of the Internal Revenue
Code, (ii) Section 383 of the Internal Revenue Code, (iii) Section 384 of the
Internal Revenue Code, and (iv) Section 1502 of the Internal Revenue Code and
Treasury regulations promulgated thereunder.
(n) All material elections with respect to Income Taxes
affecting any Company are set forth in Schedule 2.14.
(o) No Company is nor has any Company ever been a United
States real property holding corporation within the meaning of Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
(p) Well Care HMO, CHM and HealthEase have each duly
elected to be treated and has been qualified as an "S corporation" under the
Internal Revenue Code (and for all pertinent state tax purposes) for each
taxable year (i) in the case of CHM and HealthEase, since the formation of such
entities and (ii) in the case of Well Care HMO, since January 1, 1996, and
currently so qualifies. None of such entities has ever been an "insurance
company subject to tax under subchapter L" within the meaning of Section
1361(b)(2)(B) of the Internal Revenue Code. None of such entities nor any
Stockholder shall take any action prior to Closing which shall disqualify such
entities as S corporations.
(q) Comprehensive LLC has been treated as a partnership
for federal and all pertinent state income tax purposes at all times during its
existence. Neither Comprehensive LLC nor any Stockholder shall take any action
prior to Closing which shall disqualify Comprehensive LLC from partnership
treatment for tax purposes.
13
2.15 Business Combinations. Except as set forth in Schedule 2.15,
none of the Companies have, for the five years preceding the date of this
Agreement, acquired financial, voting, or other control of any other business,
whether by Business Combination or other means (each such transaction
individually a "Company Acquisition" and collectively "Company Acquisitions").
Schedule 2.15 sets forth, with respect to each Company Acquisition, the terms of
any and all non-competition agreements with the sellers in such transactions and
the terms of any existing payment obligations by any Company with respect to
such transactions, whether contingent or otherwise.
2.16 Legal Proceedings.
(a) Except as set forth in Schedule 2.16(a):
(i) there are no Actions or Proceedings pending
or, to the knowledge of the Companies and the Stockholders, threatened against,
relating to or affecting any Company or the Assets or Properties of any Company;
(ii) there are no Actions or Proceedings
initiated by any Company or any Affiliate of any Company;
(iii) there are no facts or circumstances known to
any Company or Stockholder that such Company or Stockholder reasonably expects
to give rise to any Action or Proceeding by or against, relating to or affecting
any Company; and
(iv) no Company or Stockholder has received
notice, and no Company or Stockholder otherwise has knowledge, of any Orders
outstanding against any Company.
(b) Prior to the execution of this Agreement, each
Company has, and all of the Companies as a consolidated group have, delivered to
Buyer all responses of counsel for each Company to all auditor's requests for
information for the preceding three years (together with any of the Companies as
a consolidated group provided by such counsel) regarding Actions or Proceedings
pending or threatened against, relating to or affecting any Company. Schedule
2.16(b) sets forth all Actions or Proceedings since January 1, 2000, relating to
or affecting, or, to the knowledge of the Companies and the Stockholders,
threatened against, any Company or any of the Assets and Properties of such
Company that involve claims in excess of $100,000 or that seek injunctive or
some other form of non-monetary relief against any of the Companies.
2.17 Compliance with Laws and Orders. Except as set forth on
Schedule 2.17, (a) no Company, (b) no corporate director, corporate officer or
Affiliate of any Company, (c) no manager or member of Comprehensive LLC and (d)
to the knowledge of the Companies and the Stockholders, no agent or employee of
any Company, has, since January 1, 2000, violated in any material respect, or is
currently in default or violation in any material respect under, any Law or
Order applicable to such Company or to any of its Assets and Properties,
including but not limited to payment of assessments under the Florida Health
Maintenance Organization Consumer Assistance Plan, the Rehabilitative
Administrative Expense Fund (as codified in Section 641.227 of the Florida
Statutes) and the Florida Health Maintenance Organization Consumer Assistance
Plan (as codified in Section 641.228 of the Florida Statutes), and no
14
Company or Stockholder has knowledge of any claim of material violation, or of
any actual material violation, of any such Laws and Orders by such Company since
January 1, 2000.
2.18 Plans; ERISA
(a) Except as disclosed on Schedule 2.18, (i) none of the
Companies currently maintains or sponsors, or makes or is required to make
contributions to, any Plans, (ii) none of such Company Plans is a
"multi-employer plan", as defined in Section 3(37) of ERISA, (iii) none of such
Company Plans is a "defined benefit pension plan" within the meaning of Section
3(35) of ERISA, (iv) none of such Company Plans provides post-retirement medical
or health benefits (other than COBRA continuation coverage as required by
federal law or similar state insurance law), (v) none of such Company Plans is a
"welfare benefit fund," as defined in Section 419(e) of the Internal Revenue
Code, or an organization described in Sections 501(c)(9) or 501(c)(20) of the
Internal Revenue Code, (vi) none of the Companies is a party to any collective
bargaining agreement, and (vii) none of the Companies has announced or otherwise
made any commitment to create or amend any Plan, other than amendments to any
qualified retirement plan as needed to retain such plan's qualified status.
Notwithstanding any statement or indication in this Agreement to the contrary,
there are no Plans (A) as to which Buyer will be required to make any
contributions or with respect to which Buyer shall have any obligation or
liability whatsoever, whether on behalf of any of the current employees of any
Company or on behalf of any other person, after the Closing, except
contributions or liabilities disclosed on the Companies' Financials with respect
to such Plans that Buyer continues after the Closing, or (B) which Buyer or any
Subsidiary will not be able to terminate immediately after the Closing in
accordance with their terms and ERISA. With respect to each of such Plans, at
the Closing there will be no unrecorded liabilities of the Companies with
respect to the establishment, implementation, operation, administration or
termination of any such Plan, or the termination of the participation in any
such Plan by any Company or any of their respective ERISA Affiliates. With
respect to each Plan currently maintained by the Companies, each Company has
delivered to Buyer true and complete copies of: (I) each of the Plans and any
related funding agreements thereto (including insurance contracts) including all
amendments, all of which are legally valid and binding and in full force and
effect and there are no defaults thereunder, (II) the currently effective
Summary Plan Description pertaining to each of such Plans, (III) all annual
reports for each of such Plans (including all related schedules) filed with
respect to the last three plan years for which a filing is due, (IV) the most
recently filed PBGC Form 1 (if applicable), (V) the most recent IRS
determination letter, opinion, notification or advisory letter (as the case may
be) for each such Plan which is intended to constitute a qualified plan under
Section 401 of the Internal Revenue Code, and (VI) for each funded Plan,
financial statements consisting of (a) the consolidated statement of assets and
liabilities of such Plan as of its most recent valuation date, and (b) the
statement of changes in fund balance and in financial position or the statement
of changes in net assets available for benefits under such Plan for the most
recently-ended plan year, which such financial statements shall fairly present
the financial condition and the results of operations of such Plan in accordance
with GAAP, consistently applied, as of such dates.
(b) The present value of all accrued benefits under any
Company Plan or ERISA Affiliate Plan subject to Title IV of ERISA shall not, as
of the Closing Date, exceed the value of the assets of such Plans allocated to
such accrued benefits, determined on an ongoing basis and based upon the
applicable provisions of the Internal Revenue Code and ERISA, and
15
each such Plan shall be capable of being terminated as of the Closing Date in a
"standard termination" under Section 4041(b) of ERISA. With respect to each
Company Plan or ERISA Affiliate Plan that is subject to Title IV of ERISA, (i)
no amount is due or owing from any Company or any of its ERISA Affiliates to the
PBGC or to any "multi-employer Plan" as defined in Section 3(37) of ERISA on
account of any withdrawal therefrom and (ii) no such Plan has been terminated
within the last six years other than in accordance with ERISA or at a time when
the Plan was not sufficiently funded. The transactions contemplated hereunder,
including without limitation the termination of any Company Plan or ERISA
Affiliate Plan at or prior to the Closing, shall not result in any such
withdrawal or other liability with respect to any Company under any applicable
Laws.
(c) None of the Companies is subject to any material
liability, tax or penalty whatsoever to any person or agency whomsoever as a
result of engaging in a prohibited transaction under ERISA or the Internal
Revenue Code, and neither any Company nor any Stockholder has any knowledge of
any circumstances which reasonably might result in any such material liability,
tax or penalty, including but not limited to, a penalty under Section 502 of
ERISA, as a result of a breach of any duty under ERISA or under other Laws. Each
Plan maintained by any Company which is required to comply with the provisions
of Section 4980C of the Internal Revenue Code, or with the requirements referred
to in Section 4980D of the Internal Revenue Code, has complied in all material
respects. No event has occurred which could subject any Company Plan to tax
under Section 511 of the Internal Revenue Code. None of the Company Plans or
ERISA Affiliate Plans subject to Title IV of ERISA has been completely or
partially terminated nor has there been any "reportable event", as such term is
defined in Section 4043(b) of ERISA, with respect to any of the Plans within the
prior six years nor has any notice of intent to terminate been filed or given
with respect to any such Plan within the prior six years. Within the last six
years, there has been no (i) withdrawal by any Company or any ERISA Affiliates
that is a substantial employer from a single-employer plan which is a Plan and
which has two or more contributing sponsors at least two of whom are not under
common control, as referred to in Section 4063(b) of ERISA, or (ii) cessation by
any Company or any ERISA Affiliates of operations at a facility causing more
than 20% of Plan participants to be separated from employment, as referred to in
Section 4062(f) of ERISA. Neither any Company, nor any of ERISA Affiliate, nor
any other organization of which any of them are a successor or parent
corporation as defined in Section 4069(b) of ERISA, have engaged in any
transaction described in Section 4069(a) of ERISA.
(d) None of the current Company Plans or ERISA Affiliate
Plans nor any trust created thereunder has any "accumulated funding deficiency"
as such term is defined in Section 412 of the Internal Revenue Code, whether or
not waived, as of the most recently completed plan year of such Plan, and no
condition has occurred or exists which by the passage of time could be expected
to result in an accumulated funding deficiency as of the last day of the current
plan year of any such Plan. Furthermore, neither any Company nor any ERISA
Affiliates has any unfunded liability under ERISA in respect of any of the
Company Plans or ERISA Affiliate Plans. Each of the Company Plans which is
intended to be a qualified plan under Section 401(a) of the Internal Revenue
Code has received a favorable determination letter, opinion, notification or
advisory letter from the IRS or has a period of time remaining under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
determination and make any amendments necessary to obtain a favorable
determination as to the
16
qualification of each such Plan. All of the Company Plans have been administered
and maintained in substantial compliance with their terms, ERISA, the Internal
Revenue Code and all other applicable Laws. All contributions required to be
made to each of the Company Plans under the terms of that Plan, ERISA, the
Internal Revenue Code or any other applicable Laws have been timely made. Each
Company Plan intended to meet the requirements for tax-favored treatment under
Subchapter B of Chapter 1 of the Internal Revenue Code is in material compliance
with such requirements. There are no Liens against the property of any Company
or any ERISA Affiliate under Section 412(n) of the Internal Revenue Code or
Sections 302(f) or 4068 of ERISA. The Interim Financial Statements properly
reflect all amounts required to be accrued as liabilities to date under each of
the Company Plans.
(e) Neither the execution of this Agreement nor the
consummation of any of the transactions contemplated hereby (whether alone or
upon the occurrence of any additional or further acts or events) will (i) result
in any obligation or liability (with respect to accrued benefits or otherwise)
on the part of Buyer or its Affiliates to the PBGC, to any Plan, or to any
present or former employee, director, officer, stockholder, contractor or
consultant of Buyer, the Surviving Corporation, or any their respective
Subsidiaries or any of their dependents, except liability or obligations arising
in the normal course as sponsor of a Company Plan or liability accrued on the
Interim Financial Statements, (ii) be a trigger event under any Company Plan
that will result in any payment (whether of severance pay or otherwise) becoming
due to any such present or former employee, officer, director, stockholder,
contractor, or consultant, or any of their dependents (except with respect to
termination of any qualified retirement plan or payment of benefits in the
normal course thereunder, such as upon termination of employment), or (iii)
accelerate the time of payment or vesting (except with respect to termination of
any qualified retirement plan), or increase the amount, of any compensation
theretofore or thereafter due or granted to any employee, officer, director,
stockholder, contractor, or consultant of any Company or any of their
dependents. With respect to any insurance policy which provides, or has
provided, funding for benefits under any Company Plan, (A) there is and will be
no liability of Buyer or its Affiliates in the nature of a retroactive or
retrospective rate adjustment, loss sharing arrangement, or actual or contingent
liability as of the Closing Date, nor would there be any such liability if such
insurance policy were terminated as of the Closing Date, except for liability to
pay premiums as accrued on the Interim Financial Statements and (B) to the
knowledge of the Companies and the Stockholders, no insurance company issuing
any such policy is in receivership, conservatorship, bankruptcy, liquidation, or
similar proceeding, and no such proceedings with respect to any insurer are
imminent.
(f) With respect to each Company Plan or ERISA Affiliate
Plan which provides health care coverage, each Company and each ERISA Affiliate
have complied in all material respects with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), and the applicable COBRA
regulations and (ii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 and the regulations thereunder, and
neither any Company nor any ERISA Affiliate has incurred any liability under
Section 4980B of the Internal Revenue Code.
(g) Other than routine claims for benefits under the
Company Plans, there are no pending, or, to the knowledge of the Companies and
the Stockholders, threatened, Actions or
17
Proceedings involving such Plans, or the fiduciaries, administrators, or
trustees of any of such Plans or the Companies as the employer or sponsor under
any such Plan, with any of the IRS, the Department of Labor, the PBGC, any
participant in or beneficiary of any such Plan or any other person whomsoever.
No Company knows of any reasonable basis for any such claim, lawsuit, dispute,
action or controversy.
2.19 Permits and Approvals.
(a) Each Company has, and the Companies as a consolidated
group have, all Permits and Approvals necessary to conduct their respective and
collective businesses as currently conducted, other than such Permits and
Approvals which are not material to the business of the Companies and could be
obtained promptly and without the imposition of any Liabilities upon payment of
a fee not in excess of $25,000 in any instance, or $100,000 in the aggregate,
and such Permits and Approvals are valid and in full force and effect. Schedule
2.19 contains a list of each Company's Permits and Approvals. No Company has
received any notification of any violations in respect of any such Permit or
Approval, and no proceedings are pending or, to the knowledge of the Companies
and the Stockholders, threatened, concerning the revocation or limitation of any
Permit or Approval of such Company. Since January 1, 2000, each Company has
filed all material reports, registrations and statements, together with any
material amendments required to be made with respect thereto, heretofore
required to be filed with (i) the DOI, (ii) AHCA, (iii) the CMS and (iv) any
other Governmental or Regulatory Authority requiring the same.
(b) HealthEase and Well Care HMO are licensed by the DOI
under the Florida HMO Act to operate as HMOs in the State of Florida. HealthEase
and Well Care HMO hold current Health Care Provider Certificates issued by AHCA
with respect to the health care services provided or arranged by HealthEase and
Well Care HMO, respectively. Except as set forth in Schedule 2.13 with respect
to Laws applicable to the adequacy and maintenance of Statutory Surplus, the
operations of each of HealthEase and Well Care HMO comply in all material
respects with the Florida HMO Act, AHCA's rules and the terms and requirements
of each Medicaid Contract held by them. Except as set forth on Schedule 2.19,
since January 1, 2000, neither HealthEase nor Well Care HMO has received from
AHCA, CMS or the DOI any citation, suspension, revocation, limitation, warning
or similar notice. Neither HealthEase nor Well Care HMO have health plan or
other operations outside of the State of Florida. Neither HealthEase nor Well
Care HMO has any business other than HMO operations and functions related
thereto. CHM is duly licensed as a third party administrator by the State of
Florida, and none of the Companies, Stockholders or any of their respective
Affiliates or Associates holds any other third party administrator license.
Comprehensive LLC is a valid guarantying organization under Section 409.912(14)
of the Florida Statutes with respect to each Medicaid Contract held by Well Care
HMO or HealthEase.
2.20 Real Property.
(a) Schedule 2.20(a) contains a true and correct list of
(i) each parcel of real property leased, utilized and/or operated by any Company
(as lessor or lessee or otherwise) (the "Leased Real Property") and (ii) all
Liens relating to or affecting any parcel of real property referred to in clause
(i) to which each Company is a party.
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(b) Schedule 2.20(b) sets forth the street address and
legal description of each parcel of real property owned by any Company (the
"Owned Real Property"). With respect to each parcel of the Owned Real Property,
(i) the applicable Company has good and marketable title to such parcel, free
and clear of all Liens other than (A) Liens for real estate taxes not yet due
and payable and (B) other encumbrances set forth on Schedule 2.20(b), (ii) there
are no condemnation proceedings or other Actions or Proceedings pending or, to
the knowledge of the Companies and the Stockholders, threatened with respect
thereto, (iii) there are no special assessments which may affect such parcel,
(iv) there are no Contracts granting to any Person the right of use or occupancy
of any portion thereof, (v) there are no outstanding options or rights of first
refusal to purchase such parcel, or any portion thereof or interest therein, and
(vi) there are no parties (other than the Companies) in possession of such
parcel.
(c) Subject to the terms of its respective leases, each
Company has a valid and subsisting leasehold estate in and the right to quiet
enjoyment of the Leased Real Properties for the full term of the leases
(including renewal periods) relating thereto. Each lease referred to in clause
(i) of paragraph (a) above is a legal, valid and binding agreement, enforceable
in accordance with its terms, of each Company and of each other Person that is a
party thereto, and there is no, and no Company has received notice of any,
default (or any condition or event which, after notice or lapse of time or both,
would constitute a default) thereunder. No Company owes brokerage commissions or
finders fees with respect to any such Leased Real Property, except to the extent
that each Company may renew the term of any such lease, in which case, any such
commissions and fees would be in amounts that are reasonable and customary for
the spaces so leased, given their intended use and terms.
(d) All improvements on the Leased Real Property and the
Owned Real Property comply in all material respects with and are operated in all
material respects in accordance with applicable laws (including, without
limitation, Environmental Laws) and all applicable Liens, Approvals, Contracts,
covenants and restrictions. There are no condemnation or appropriation
proceedings pending or, to the knowledge of the Companies and the Stockholders,
threatened against any of such real property or the improvements thereon. To the
knowledge of the Companies and the Stockholders, each of the Leased Real
Properties and the Owned Real Properties and the improvements thereon complies
with the Americans with Disabilities Act.
(e) True and correct copies of the documents under which
the Leased Real Property is leased, subleased (to or by any Company or
otherwise), utilized, and/or operated (the "Lease Documents") have been
delivered to Buyer. The Lease Documents are unmodified and in full force and
effect, and there are no other Contracts between any Company and any third
parties, or, to the knowledge of the Companies and the Stockholders, by and
among any third parties, claiming an interest in the interest of any Company in
the Leased Real Property or the Owned Real Property or otherwise relating to the
use or occupancy of the Leased Real Property or the Owned Real Property.
2.21 Tangible Personal Property. Except as set forth in Schedule
2.21, each Company is in possession of and owns, or has valid leasehold
interests in or valid rights under Contract to use, all tangible personal
property used in the conduct of its business, including all tangible personal
property reflected on the Companies' Financials and tangible personal property
19
acquired since the Audited Financial Statement Date, other than property
disposed of since such date in the ordinary course of business consistent with
past practice. All such tangible personal property (including plant, property
and equipment) is free and clear of all Liens and is adequate and suitable in
all material respects for the conduct by each Company of its business as
presently conducted, and its use complies in all material respects with all
applicable Laws. Schedule 2.21 contains a list of all motor vehicles owned,
leased or otherwise used or insured by any of the Companies, setting forth the
make, model, vehicle identification number and year of manufacture of each
vehicle, indicating whether each vehicle is owned or leased and, if owned, the
name of any lienholder and the amount of the lien or, if leased, the name of the
lessor and the general terms of the lease.
2.22 Intellectual Property.
(a) Schedule 2.22 contains an accurate and complete list
of (i) all patents and patent applications, trademarks, service marks, Internet
domain names and applications therefor, and copyrights and copyright
applications, which are part of the Companies' Intellectual Property and which
have been issued or registered by, or filed with, any United States, foreign or
international governmental or other body having authority to issue, register or
review the same, and (ii) all licenses, sublicenses and other agreements
pursuant to which any Company is granted rights under any third party
Intellectual Property, other than licenses to use "off the shelf" software, or
pursuant to which any third party is authorized to use any Intellectual
Property. With respect to "off the shelf" software, site licenses are maintained
and complied with by each Company, permitting use by all current employees of
such Company.
(b) All of the Companies' Intellectual Property is: (i)
owned solely and exclusively by a Company, free and clear of any and all
mortgages, pledges, liens, security interests, conditional sale agreements or
encumbrances of any kind or (ii) rightfully used or otherwise enjoyed by a
Company pursuant to one or more license agreements, each of which license
agreements is valid and enforceable.
(c) No Company is, and no action is currently pending
which asserts that any Company is, infringing on any Intellectual Property of
any Person. No Company has received notice from any Person asserting that any
Company is infringing on any Intellectual Property of any Person, and there is
no basis for any such claim. No action is currently pending which asserts that
any Person is infringing on any of the Companies' Intellectual Property, no
Company has asserted any claim of such infringement against any Person and, to
the knowledge of the Companies and the Stockholders, there is no basis for any
such claim.
(d) All Intellectual Property registrations included in
the Companies' Intellectual Property have been duly maintained, are in full
force and effect and have not been cancelled, expired or abandoned.
2.23 Government Healthcare Matters.
(a) Schedule 2.23(a) contains a true and complete list of
each Contract, including all amendments, with CMS, the State of Florida Medicaid
Program or any other Governmental or Regulatory Authority to which any Company
is a party. Except as set forth in
20
Schedule 2.23(a), the Companies (i) are in compliance with all such Contracts,
(ii) are not in breach or default of such Contract and (iii) are currently
meeting all conditions of participation for any and all of its Medicare and
Medicaid businesses, in each such case other than any non-compliance, breach,
default or failure to meet such conditions which the Stockholders and the
Companies reasonably expect would not result in the termination of such Contract
or, with respect to each such Contract, the imposition of a fine or corrective
action which would require expenditures in excess of $50,000 in any instance or
$100,000 in the aggregate. There do not exist any factual circumstances that
with notice or lapse of time would constitute a breach or default of any
Contract disclosed or required to be disclosed on Schedule 2.23(a) or the
conditions of participation for the Medicare and Medicaid programs, other than
such circumstances which, individually or in the aggregate, the Stockholders and
the Companies reasonably expect would not result in the termination of such
Contract or, with respect to each such Contract, the imposition of a fine or
corrective action which would require expenditures in excess of $50,000 in any
instance or $100,000 in the aggregate.
(b) Schedule 2.23(b) contains (i) a list of the dates of
all surveys performed by any Governmental or Regulatory Authority to which any
Company was a party at any time since January 1, 2000, and any deficiencies for
which a plan of correction was required and (ii) a list of all notices of
noncompliance, requests for remedial action, return of overpayment or imposition
of fines (whether ultimately paid or otherwise resolved) by any Governmental or
Regulatory Authority or as a result of the Companies' participation in the
Medicare and Medicaid programs at any time since January 1, 2000.
2.24 Commercial Subscriber Agreements. Schedule 2.24 sets forth (i)
a list of any and all forms for small and large group and individual commercial
subscriber, beneficiary or membership agreements which have been approved by the
DOI, (ii) the applicable, approved rates for such agreements and (iii) with
respect to each group subscriber agreement, the name and address of any large
group and the number of members of such group. The Companies have delivered to
the Buyer copies of such agreements with respect to the 20 largest commercial
subscriber groups by membership as of the date hereof. All member or commercial
subscriber agreements to which any Company is a party were entered into in the
ordinary course of business and constitute legal, valid and binding agreements
of the parties thereto. Except as set forth in Schedule 2.24, to the knowledge
of the Companies and the Stockholders, no Company has violated any of the
material terms or conditions of any membership or commercial subscriber
agreement, and all material covenants to be performed by any other party thereto
have, to the knowledge of the Companies and the Stockholders, been fully
performed. Except as set forth in Section 2.6(b), no Approval of any other
party, including but not limited to any Governmental or Regulatory Authority, is
required under any such agreement as a result of the Acquisition or any of the
transactions contemplated hereby.
2.25 Provider Agreements. Schedule 2.25 sets forth a list of all
Persons who are parties to provider agreements or similar Contracts for health
care services, supplies or pharmaceuticals, and sets forth the number of covered
lives serviced by each such Person. The Companies have delivered to Buyer copies
of such agreements for the 20 largest providers doing business with each
Company, on the basis of revenues collected or accrued for the twelve months
ended March 31, 2002. Schedule 2.25 also designates those providers who through
capitation or some other risk sharing means have assumed more than ten percent
of any
21
Company's health care risks, as described by Section 641.2342 of the Florida
Statutes. Except as disclosed in Schedule 2.25, to the knowledge of the
Companies and the Stockholders, no Company has violated any of the material
terms or conditions of any provider agreement or similar Contract, other than
violations which, individually or in the aggregate, could not reasonably be
expected to result in the termination of such Contract or give rise to a claim
which could reasonably be expected to require expenditures in excess of $50,000.
Except as disclosed in Schedule 2.25, no such provider has ceased or materially
reduced its provision of services to any Company plan beneficiary or group or
has threatened to do so. Schedule 2.25 lists all of those provider agreements or
similar Contracts which any Company intends not to renew, which Contract, if not
renewed or replaced, could reasonably be expected to result in a Material
Adverse Change. Attached to Schedule 2.25 are (i) a standard base form (or
forms) of provider agreement used by each Company as an agreement with its
providers and (ii) summary reports setting forth (A) the Companies' primary care
physician membership listing for April 2002, (B) the Companies' primary care
physician capitation report for April 2002, (C) the Companies' primary care
physician check register for April 2002 and (D) a list of all fee-for-service
providers to whom the Companies have made payments in excess of $250,000 per
year, calculated on an annualized basis, during calendar year 2001 or the four
month period ended April 30, 2002, and identifying which providers are par and
which are non-par. Except as disclosed in Schedule 2.25, any and all provider
agreements and similar Contracts are in compliance with all legal requirements
as to form and substance under applicable Laws, including but not limited to any
investment, anti-referral, kickback or fee splitting prohibitions. Except as
disclosed in Schedule 2.25, no contractual or other relationship exists with any
Person which would violate any federal or state Laws as to investment,
anti-referral, kickback or fee splitting prohibitions.
2.26 Contracts.
(a) Schedule 2.26(a) contains a true and complete list of
each Designated Contract to which any Company is a party.
(b) Each Contract required to be disclosed in Schedule
2.26(a) is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms. None of the Companies is,
no Company has received notice that it is and, to the knowledge of the Companies
and the Stockholders, no other party to any such Contract is, nor has received
notice that it is, in violation or breach of or default under any such Contract
(or with notice or lapse of time or both, would be in violation or breach of or
default under any such Contract).
(c) Except as disclosed in Schedule 2.26(c), no Company
is a party to or bound by (i) any Designated Contract that automatically
terminates or allows termination by the other party thereto upon consummation of
the transactions contemplated by this Agreement or (ii) any Contract that
contains any covenant or other provision which limits any Company's ability to
compete with any Person in any line of business or in any area or territory.
2.27 Suppliers. Set forth on Schedule 2.27 are the names and
addresses of all the suppliers from which each Company ordered supplies,
software and other goods or services with an aggregate purchase price of $50,000
or more during the twelve-month period ended
22
March 31, 2002 and the amount for which each such supplier invoiced each Company
during such period. None of the Stockholders or the Companies have received any
notice or has any reason to believe that any such supplier will not sell
supplies, merchandise and other goods to any Company at any time after the
Closing Date on terms and conditions substantially similar to those used in its
current sales to the Company, subject only to general and customary price
increases and decreases.
2.28 Audit Reports. Schedule 2.28 sets forth a true, accurate and
complete list of all reports and correspondence regarding all Agency Audits from
each year (or part thereof) since January 1, 2000.
2.29 Membership. Schedule 2.29 sets forth the true and accurate
number of all of each Company's Medicare subscribers, all of each Company's
Medicaid subscribers and all of each Company's subscribers in Commercial Lines
of Business, in each case as of March 31, 2002 (excluding the effect of
customary retroactive terminations).
2.30 Premiums. Except as set forth in Schedule 2.30, all premiums
or other payments received by each Company since January 1, 2000 were bona fide
payments received from Governmental or Regulatory Authorities without subsequent
setoff, overpayment, disgorgement or recoupment for fiscal years prior to
Closing. Except as set forth in Schedule 2.30, all premiums for any Commercial
Lines of Business were paid by unaffiliated third parties in arms length
transactions and the receipt by and collection of such premiums complied with
all Laws, without setoff, recoupment, dispute or repayment for unearned
premiums.
2.31 Claims. Attached to Schedule 2.31 are copies of lag reports
setting forth the Companies' payment of medical claims during the four-month
period ended April 30, 2002. Except as set forth in Schedule 2.31, (a) subject
to customary lags, consistent with the attached lag reports, all claims made by
any parties under any and all products, lines of business or other medical plans
offered by any Company have been paid within the applicable statutory time
limit, (b) to the knowledge of the Companies and the Stockholders, all claims,
capitated payments and other payments to providers made by any parties under any
and all products, lines of business or other medical plans offered by any
Company have been paid accurately and completely in accordance with the
applicable provider's written Contract for medical services and (c) there has
been no allegation of insufficient, untimely or otherwise inadequate payment or
handling of claims. Except as set forth in Schedule 2.31, all such payments have
been made in material compliance with any and all Contracts between each
Company, and each subscriber, beneficiary, patient or provider to whom or to
which payment is or was due, and there is no basis for any allegation of
noncompliance with respect to the payment of any claims under any such Contract.
2.32 Insurance.
(a) Schedule 2.32(a) contains a true and complete list
(including the names and addresses of the insurers, the expiration dates
thereof, the annual premiums and payment terms thereof, the period of time
covered thereby and a brief description of the interests insured thereby) of all
liability, property, workers' compensation, directors' and officers' liability,
fidelity bond, reinsurance, medical malpractice and other insurance policies
currently in effect that insure the business, operations or employees of each
Company or affect or relate to the
23
ownership, use or operation of any of the Assets and Properties of each Company
and that have been issued to such Company or to any Person for the benefit of
such Company. Except as disclosed in Schedule 2.32(a), none of the insurance
coverage provided by the policies set forth in Schedule 2.32(a) will terminate
or lapse by reason of any of the transactions contemplated by this Agreement or
any of the Ancillary Agreements. Each policy listed in Schedule 2.32(a) is valid
and binding and in full force and effect, all premiums due thereunder have been
paid when due and no Company or Person to whom such policy has been issued has
received any notice of cancellation or termination in respect of any such policy
or is in default thereunder, and to the knowledge of the Companies and the
Stockholders, there is no reason or state of facts that any Company or
Stockholder reasonably expects to lead to the cancellation of any of such
policies or of any threatened termination of, or material premium increase with
respect to, any of such policies. The insurance policies listed in Schedule
2.32(a) are in amounts and have coverages as required by any Contract to which
the Company with such policies is a party or by which any of its Assets and
Properties is bound.
(b) Schedule 2.32(b) contains a list of all claims made
under any insurance policies covering each Company in the last two years. Except
as set forth in Schedule 2.32(b), no Company has received notice that any
insurer under any policy referred to in this Section is denying, disputing or
questioning liability with respect to a claim thereunder or defending under a
reservation of rights clause.
2.33 Power of Attorney; Guarantees. Schedule 2.33 sets forth a
complete list or outstanding powers of attorney executed on behalf of any
Company. Except as set forth on Schedule 2.33, no Company (i) is a guarantor or
otherwise liable for any indebtedness of any other Person, (ii) holds any trust
funds or (iii) acts in the capacity of trustee.
2.34 Affiliate Transactions.
(a) Except as disclosed in Schedule 2.34, (i) there are
no Contracts or Liabilities between any Company, on the one hand, and (A) any
current or former officer, director, manager, member, stockholder, unit holder
or any Affiliate or Associate of any Company or (B) any Person who is an
Associate of any such officer, director, stockholder, unit holder or Affiliate,
on the other hand, (ii) no Company provides or causes to be provided any assets,
services or facilities to any such current or former officer, director,
stockholder, Affiliate or Associate, (iii) neither any Company nor any current
or former officer, director, manager, member stockholder, unit holder Affiliate
or Associate provides or causes to be provided any assets, services or
facilities to any Company and (iv) no Company beneficially owns, directly or
indirectly, any Investment Assets of any such current or former officer,
director, manager, member stockholder, unit holder, Affiliate or Associate.
(b) Except as disclosed in Schedule 2.34, no current or
former officer, director, manager, member, stockholder, unit holder, employee or
any Affiliate of Associate of any Company owns any Equity Securities in, or
derives any financial benefit from, any provider or Person doing business with
the Companies.
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(c) Except as disclosed in Schedule 2.34, no Material
Adverse Change will result with respect to any Company if any Company loses the
benefits of the Contracts, Liabilities, assets, services or facilities disclosed
or required to be disclosed in Schedule 2.34.
(d) Except as disclosed therein, each of the Contracts
and Liabilities disclosed (or required to be disclosed) on Schedule 2.34 (i) has
been submitted to the DOI for review and approval pursuant to Section 641.234 of
the Florida Statutes and Rule 4-143.047 of the Florida Administrative Code and
(ii) meets the standards set forth in Rule 4-143.047 of the Florida
Administrative Code.
(e) Except as disclosed in Schedule 2.34, none of the
Companies has ever paid excessive dividends or distributions in violation of
Section 641.365 of the Florida Statutes. Schedule 2.34 sets forth all dividends,
distributions and other payments paid by any of the Companies since January 1,
2000 to any Stockholder or any Stockholder's Affiliates or Associates, or
otherwise in respect of such Company's Equity Securities. With respect to any
dividends, distributions or other payments which required the approval of the
DOI, a copy of each such approval is attached to Schedule 2.34.
2.35 Employees; Labor Relations.
(a) No Company is a party to any collective bargaining
agreement and there is no unfair labor practice or labor arbitration proceedings
pending with respect to any Company, or, to the knowledge of the Companies and
the Stockholders, threatened, and there are no facts or circumstances known to
any Company that could reasonably be expected to give rise to such complaint or
claim. To the knowledge of the Companies and the Stockholders, there are no
organizational efforts presently underway or threatened involving any employees
of any Company or any of the employees performing work for any Company but
provided by an outside employment agency, if any. There has been no work
stoppage, strike or, to the knowledge of the Companies and the Stockholders,
other concerted action by employees of any Company.
(b) Except as disclosed in Schedule 2.35(b), all
employees of each Company are employed at will, and no employees of any Company
are represented by a union. Schedule 2.35(b) sets forth, individually and by
category, the name of each officer, employee and consultant of each Company,
together with each such person's position or function, annual base salary or
wage and any incentive, severance or bonus arrangements with respect to such
person. Other than the employees listed on Schedule 2.35(b) and any consultants
retained pursuant to a consulting agreement described on Schedule 2.26(a), no
person (including any Affiliate or Associate of any of the Companies or
Stockholders, or any employee of any such Affiliate or Associate) provides
services in the nature of employment or consulting services to any Company. The
completion of the transactions contemplated by this Agreement will not result in
any payment or increased payment becoming due any Company to any current or
former officer, director, manager, member or employee of, or consultant to, any
Company, and, to the knowledge of the Companies and the Stockholders, no
employee of any Company has made any threat, or otherwise revealed an intent, to
terminate such employee's relationship with any Company, for any reason,
including because of the consummation of the transactions contemplated by this
Agreement. No Company is party to any agreement for the provision of labor from
any outside agency, other than standard Contracts, entered into in the ordinary
course
25
of business, for the provision of temporary personnel on a short-term basis.
Since January 1, 2000, there have been no claims by employees of such outside
agencies against any Company, and no claims by any governmental agency against
any Company with regard to such employees.
(c) Except as set forth on Schedule 2.35(c), since
January 1, 2000, there have been no federal or state claims made against any
Company based on sex, sexual or other harassment, age, disability, race or other
discrimination or common law claims, including claims of wrongful termination,
by any employees of any Company or by any of the employees performing work for
any Company but provided by an outside employment agency, and to the knowledge
of the Companies and the Stockholders there are no facts or circumstances that
could reasonably be expected to give rise to such complaint or claim. Except as
set forth in Schedule 2.35(c), since January 1, 2000 no Company has received any
notice of any claim that it has not complied in any material respect with, any
Laws relating to the employment of employees, including without limitation, the
Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with
Disabilities Act, the Immigration Reform and Control Act of 1986, and any
provisions of any other Laws relating to wages, hours, collective bargaining,
the payment of Social Security and similar taxes, equal employment opportunity,
employment discrimination, the WARN Act or employee safety. Since January 1,
2000, no Company has received any notice that it is liable for any arrearages of
wages or any taxes or penalties for failure to comply with any of the foregoing.
(d) No Company has written policies and/or employee
handbooks or manuals except as described in Schedule 2.35(d).
(e) To the knowledge of the Companies and the
Stockholders, no officer, employee or consultant of any Company is obligated
under any Contract or other agreement or subject to any Order or Law that would
interfere with any Company's business as currently conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of any Company's
business as presently conducted nor any activity of such officers, employees or
consultants in connection with the carrying on of any Company's business as
presently conducted, will conflict with or result in a material breach of the
terms, conditions or provisions of, constitute a default under, or trigger a
condition precedent to any rights under any Contract or other agreement under
which any of such officer's, employees or consultants is now bound.
(f) There are no individuals currently providing
services, or who have within the last five years provided services, to any of
the Companies whose status as an employee or consultant to such Company has not
been properly reflected in the Tax filings of such Company.
2.36 Environmental Matters.
(a) Each Company possesses any and all Environmental
Permits necessary to or required for the operation of its business. Each Company
will obtain, prior to the Closing, any Environmental Permits that must be
obtained as of or immediately after the Closing in order for Buyer and/or such
Company to conduct the business of such Company as it was conducted prior to the
Closing.
26
(b) Each Company is in compliance with (i) all terms,
conditions and provisions of its Environmental Permits; and (ii) all
Environmental Laws.
(c) No Company, no predecessor of any Company, and no
entity previously owned by any Company has received any notice of alleged,
actual or potential responsibility for, or any inquiry regarding, (i) any
Release or threatened or suspected Release of any Hazardous Material, or (ii)
any violation of Environmental Law.
(d) No Company, no predecessor of any Company, any no
entity previously owned by any Company has any obligation or liability with
respect to any Hazardous Material, including any Release or threatened or
suspected Release of any Hazardous Material, and there have been no events,
facts or circumstances which could form the basis of any such obligation or
liability.
(e) No Releases of Hazardous Material(s) have occurred
at, from, in, to, on, or under any Site and no Hazardous Material is present in,
on, about or migrating to or from any Site.
(f) No Company, no predecessor of any Company, and no
entity previously owned by any Company, has transported or arranged for the
treatment, storage, handling, disposal or transportation of any Hazardous
Material at or to any location.
(g) No Site is a current or proposed Environmental
Clean-up Site.
(h) There are no Liens under or pursuant to any
Environmental Law on any Site.
(i) There is no (i) underground storage tank, active or
abandoned, (ii) polychlorinated biphenyl containing equipment, (iii)
asbestos-containing material, (iv) radon, (v) lead-based paint or (vi) urea
formaldehyde at any Site. Any underground storage tank meets all 1998 upgrade
requirements.
(j) There have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted with respect to any
Site which have not been delivered to Buyer prior to execution of this
Agreement.
(k) No Company is a party, whether as a direct signatory
or as successor, assign, third party beneficiary, guarantor or otherwise, to,
and no Company is otherwise bound by, any lease or other contract under which
any Company is obligated or may be obligated by any representation, warranty,
covenant, restriction, indemnification or other undertaking respecting Hazardous
Materials or under which any other person is or has been released respecting
Hazardous Materials.
(l) Each Company and all predecessors of each Company and
any entity previously owned by any Company have provided all notifications and
warnings, made all reports, and kept and maintained all records required
pursuant to Environmental Laws.
27
2.37 Foreign Corrupt Practices Act; Proper Business Practices. To
the knowledge of the Companies and the Stockholders, no Company, and no agent,
employee or other Person associated with or acting on behalf of any Company has,
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds, violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback
or other similar unlawful payment.
2.38 Takeover Statutes. No Takeover Statute applicable to any
Company is applicable to the Acquisition or the transactions contemplated
hereby.
2.39 Other Negotiations; Brokers; Third Party Expenses. None of the
Companies nor any of their respective officers, directors, managers, members,
employees, agents, stockholders, members or Affiliates (nor any investment
banker, financial advisor, attorney, accountant or other Person retained by or
acting for or on behalf of any Company or any such Affiliate) (a) has entered
into any Contract that conflicts with any of the transactions contemplated by
this Agreement or (b) has entered into any Contract or had any discussions with
any Person regarding any transaction involving any Company which could result in
Buyer, any Company, or any general partner, limited partner, manager, member,
officer, director, employee, agent or Affiliate of any of them being subject to
any claim for liability to said Person as a result of entering into this
Agreement or consummating the transactions contemplated hereby. Other than HLHZ,
to whom all fees and commissions payable upon or after the Closing shall be paid
solely by the Stockholders, no broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission in connection with this Agreement and the transactions
contemplated hereby based on arrangements made by or on behalf of any Company. A
complete and correct copy of each contract or agreement between one or more of
the Stockholders or Companies, on the one hand, and HLHZ, on the other hand, is
attached to Schedule 2.39.
2.40 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any schedule to this Agreement
furnished to Buyer pursuant to any provision of this Agreement (including the
Companies' Financials and the notes thereto) or in any of the closing documents
delivered pursuant to Section 1.7 contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
herein or therein, in the light of the circumstances under which they were made,
not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby severally and not jointly represents and
warrants to Buyer that:
3.1 Authorization. Such Stockholder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby (to the extent such transactions involve the Stockholder).
This Agreement has been (or upon execution will have been) duly executed and
delivered by Stockholder, has been effectively authorized by all necessary
action, corporate or otherwise. This Agreement constitutes (or upon execution
will
28
constitute) legal, valid and binding obligations of Stockholder, enforceable
against Stockholder in accordance with its terms.
3.2 Title. Such Stockholder owns such Equity Securities of each
Company as are set forth opposite Stockholder's name on Schedule 2.3(b) attached
hereto free and clear of any liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances or options or claims of any kind
or nature whatsoever and there are no outstanding subscriptions, options,
rights, warrants, convertible securities or other agreements or commitments
obligating Stockholder in any respect in connection with any Equity Securities
of any Company.
3.3 Purchase Entirely for Own Account. This Agreement is made with
Buyer in reliance upon such Stockholder's representation that the Warrants to be
received by Stockholder and the underlying Class B Common Units (the "Buyer
Shares") will be acquired for investment for the Stockholder's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Stockholder has no present intention of selling, granting
any participation in, or otherwise distributing the same, except in each case
for any subsequent resale or distribution effected pursuant to an effective
registration statement under the Securities Act or an available exemption from
the registration requirements thereof.
3.4 Disclosure of Information. Such Stockholder believes that he
has received all of the information he considers necessary or appropriate for
deciding whether to acquire the Warrants and the Buyer Shares.
3.5 Investment Experience. Such Stockholder can bear the economic
risk of his investment, and has such knowledge and experience in financial or
business matters that he is capable of evaluating the merits and risks of the
investment in the Warrants and the Buyer Shares.
3.6 Restricted Securities. Such Stockholder understands that the
Warrant and the Buyer Shares he is receiving are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired in a transaction not involving a public offering an that under such
laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In this
connection, the Stockholder is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Legends. It is understood that the certificates evidencing the
Buyer Shares may bear one or all of the following legends (or substantially
similar legends):
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to WellCare Acquisition Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of any applicable
jurisdiction or any other state.
29
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrant to the Companies and the
Stockholders as follows:
4.1 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Parent is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware. Buyer and Parent
have full corporate power (or, in the case of Parent, all other requisite power)
and authority to conduct their businesses as now conducted and as currently
proposed to be conducted and to own, use and lease their Assets and Properties.
Each of Buyer and Parent is duly qualified, licensed or admitted to do business
and is in good standing in each jurisdiction in which the ownership, use,
licensing or leasing of its Assets and Properties, or the conduct or nature of
its business, makes such qualification, licensing or admission necessary.
4.2 Authority Relative to this Agreement.
(a) Each of Buyer and Parent has full corporate power
(or, in the case of Parent, all other requisite power) and authority to execute
and deliver this Agreement and the Ancillary Agreements to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Buyer and Parent of this Agreement and the Ancillary Agreements to which they
are a party and the consummation by Buyer and Parent of the transactions
contemplated hereby and thereby have been duly and authorized by all necessary
action by the board of directors of Buyer and Parent, and no other action on the
part of the board of directors of Buyer or Parent is required to authorize the
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which Buyer and Parent are a party and the consummation by Buyer
and Parent of the transactions contemplated hereby and thereby.
(b) This Agreement and the Ancillary Agreements to which
either Buyer or Parent are a party have been or will be, as applicable, duly and
validly executed and delivered by Buyer and/or Parent and, assuming the due
authorization, execution and delivery hereof by the Companies, the Stockholders
and/or the other parties thereto, constitutes or will constitute, as applicable,
a legal, valid and binding obligation of Buyer and/or Parent enforceable against
Buyer and/or Parent in accordance with its respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
4.3 Capitalization.
(a) The authorized capital stock of Buyer consists only
of 100 shares of Common Stock, $0.01 par value per share, of which 100 shares
are issued and outstanding. Effective upon the Closing, the members of Parent,
and the number and classes of units held by each such member, shall be as set
forth in Schedule B to the LLC Agreement. All of the issued and outstanding
shares of capital stock of Buyer, and all of the issued and outstanding
30
membership interests of Parent, are validly issued, fully paid and
nonassessable, and have been issued in compliance with all applicable federal,
state and foreign securities laws. As of the date of this Agreement, no shares
of capital stock of Buyer are held in treasury or are reserved for issuance.
(b) Except as set forth on Schedule 4.3, there are no
outstanding Options or agreements, arrangements or understandings to which
either Buyer or Parent is a party (written or oral) to issue any Options or
other Equity Securities with respect to either Buyer or Parent.
(c) Except as set forth on Schedule 4.3, there are no
preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of either Buyer or
Parent's Equity Securities created by statute, Buyer's certificate of
incorporation or bylaws, the articles of organization or Operating Agreement of
Parent, or an agreement or other arrangement to which either Buyer or Parent is
a party (written or oral) or to which either Buyer or Parent is bound and there
are no agreements, arrangements or understandings to which either Buyer or
Parent is a party (written or oral) pursuant to which either Buyer or Parent has
the right to elect to satisfy any Liability by issuing Equity Securities.
(d) Except as set forth on Schedule 4.3, neither Buyer
nor Parent is a party or subject to any agreement or understanding, and to
Buyer's knowledge there is no agreement, arrangement or understanding between or
among any Persons, which affects, restricts or relates to voting, giving of
written consents, dividend rights or transferability of shares with respect to
the Equity Securities of either Buyer or Parent, including without limitation
any voting trust agreement or proxy.
4.4 Issuance of the Warrant and the Buyer Shares. The Warrants and
the Buyer Shares to be issued pursuant to the Acquisition, when issued, will be
duly authorized, validly issued, fully paid, non-assessable and issued in
compliance with applicable federal and state securities laws, subject to the
truth and accuracy of the representations made by each Stockholder in Article 3.
4.5 No Conflicts. The execution and delivery by Buyer and Parent
of this Agreement and the Ancillary Agreements to which Buyer and Parent are a
party does not, and the performance by Buyer and Parent of their respective
obligations under this Agreement and the Ancillary Agreements to which they are
a party and the consummation of the transactions contemplated hereby and thereby
do not and will not:
(a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the certificate of incorporation,
bylaws, articles of organization or Operating Agreement of either Buyer;
(b) conflict with or result in a violation or breach of
any Law or Order applicable to either Buyer or Parent or the Assets or
Properties of either Buyer or Parent; or
(c) (i) conflict with or result in a violation or breach
of, (ii) constitute a default (or an event that, with or without notice or lapse
of time or both, would constitute a default) under, (iii) require either Buyer
or Parent to obtain any consent, approval or action of, make any filing with or
give any notice to any Person as a result of the terms of (except for
31
(A) such consents approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable state or federal securities
laws, (B) such filings as may be required under the HSR Act and (C) such
Approvals as may be required from any Governmental or Regulatory Authority under
the Laws of any state), (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect to,
(v) result in or give to any person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments or performance under,
(vi) result in the creation or imposition of (or the obligation to create or
impose) any Lien upon either Buyer or Parent or their Assets or Properties, or
(vii) result in the loss of a material benefit under, any of the terms,
conditions or provisions of any Contract or License to which either Buyer or
Parent is a party or by which any of its Assets and Properties are bound.
4.6 Financing. As of the time of the Closing, Parent will have
access to funds in an amount sufficient to allow it to pay the Cash
Consideration. Attached to Schedule 4.6 is a binding commitment letter issued to
Parent for funds sufficient to allow it to pay the Cash Consideration at the
Closing and to pay the merger consideration under the WCMG Acquisition
Agreement.
4.7 Investment Advisors. No broker, investment banker, financial
advisor or other Person is entitled to any broker's, finder's, financial
advisor's or similar fee or commission in connection with this Agreement and the
transactions contemplated hereby based on arrangements made by or on behalf of
either Buyer or Parent.
4.8 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any schedule to this Agreement
furnished by Buyer pursuant to any provision of this Agreement or in any of the
closing documents delivered pursuant to Section 1.8 contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE 5
CONDUCT PRIOR TO THE CLOSING DATE
5.1 Conduct of Business of the Companies. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Closing Date, each Company and Stockholder agrees,
unless otherwise required pursuant to the express terms of this Agreement or if
Buyer has given its prior consent in writing (which consent shall not be
unreasonably withheld), to carry on the Companies' respective businesses in the
usual, regular and ordinary course of business, to pay the Companies' respective
Liabilities and Taxes when due in the usual, regular and ordinary course of
business, to pay or perform other obligations when due in the usual, regular and
ordinary course of business (other than Liabilities, Taxes and other
obligations, if any, contested in good faith through appropriate proceedings),
and to use reasonable efforts to preserve intact the Companies' respective
business organizations, keep available the services of their respective officers
and key employees, preserve their respective relationships with key providers,
subscribers, suppliers, licensors, licensees, independent contractors and other
Persons having business dealings with them, and maintain the Companies'
respective Permits and Approvals, all with the express purpose and intent of
32
preserving unimpaired each Company's goodwill and ongoing businesses through the
Closing Date. Except as otherwise expressly permitted by this Agreement, no
Company or Stockholder shall, without the prior written consent of Buyer (which
consent shall not be unreasonably withheld), take or agree in writing or
otherwise to take any action that would make any of the Companies' or
Stockholders' respective representations or warranties contained in this
Agreement to be untrue or incorrect or prevent any Company or Stockholder from
performing, or cause any Company or Stockholder not to perform, its or his
respective agreements and covenants hereunder or knowingly cause any condition
to Buyer's closing obligations in Section 8.1 or Section 8.3 not to be
satisfied. Without limiting the generality of the foregoing, during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date, except as required or
expressly permitted by this Agreement, no Company or Stockholder shall cause or
permit any of the following with respect to any Company without the prior
written consent of Buyer (which consent shall (i) not be unreasonably withheld,
except in the case of those matters set forth in subsections (b), (d) and (u)
below, with respect to which Buyer may grant or deny consent in its sole and
absolute discretion, and (ii) be granted as promptly as reasonably practicable,
and in any event within two Business Days, or such shorter period as may be
warranted due to exigent circumstances):
(a) cause or permit any amendments to its articles of
incorporation or by-laws (or comparable organizational documents);
(b) split, combine or reclassify any of its Equity
Securities or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its Equity Securities;
(c) enter into any Contract or commitment, or amend or
otherwise modify or waive any of the terms of any of its Contracts, other than
(i) Contracts with providers (other than any Affiliate or Associate of any
Company) entered into in the ordinary course of business that have a term of not
more than one year and, in the case of any provider that is a hospital or
similar facility, which involve total obligations of less than $1,000,000 per
annum, and (ii) Contracts (excluding Contracts with providers) which involve
total obligations of less than $50,000 per annum and which are not otherwise
material to the business of the contracting Company; provided that the Companies
shall notify Buyer prior to entering into any Contract with a provider (other
than a hospital or similar facility) that involves total obligations of $150,000
or more per annum;
(d) issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, any Equity Securities, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(e) transfer to any person or entity any rights to any
Intellectual Property other than non-exclusive licenses in connection with the
provision of services or benefits in the ordinary course of business;
(f) sell, lease, license or otherwise dispose of or
encumber any Assets and Properties of any Company, other than transactions in
connection with cash management and investment activities entered into in the
ordinary course of business, consistent with past
33
practice, provided that the Company specifically notifies Buyer of all such
transactions in excess of $100,000;
(g) acquire any Assets and Properties from any other
Person, other than acquisitions in the ordinary course of business, consistent
with past practice, not to exceed $100,000 in the aggregate during any month;
(h) incur any Indebtedness, other than (i) Indebtedness
incurred by Well Care HMO or HealthEase in the ordinary course of business,
consistent with past practice, not to exceed $50,000 in any instance or $100,000
in the aggregate during any month, or (ii) Indebtedness of Well Care HMO or
HealthEase to any Stockholder evidenced by a new surplus note issued to such
Stockholder, provided that (A) the Companies shall notify Buyer thereof in
advance and (B) any such new surplus notes shall be repaid from the Cash
Consideration at Closing pursuant to Section 6.19 as though they had been
disclosed in Schedule 2.3(g);
(i) enter into any operating lease, other than in the
ordinary course of business, consistent with past practice, and providing for
payments of not greater than $50,000 over the term of the lease in any instance
or $100,000 in the aggregate during any month;
(j) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
Companies' Financials and reasonable expenses incurred in connection with the
transactions contemplated by this Agreement;
(k) make any capital expenditures, capital additions or
capital improvements, other than in the ordinary course of business, consistent
with past practice, not to exceed $50,000 in any instance or $100,000 in the
aggregate during any month;
(l) reduce the amount of any insurance coverage provided
by existing insurance policies, or fail to renew any such insurance policy;
(m) terminate or waive any right of substantial value;
(n) (i) adopt or amend any employee benefit or stock
purchase or option plan, (ii) hire any new director level or officer level
consultant or employee, (iii) pay any special bonus or special remuneration to
any employee, consultant or director or (iv) increase the salaries, wage rates,
bonus levels, benefits, severance, termination pay, perquisites or compensation
of any employee or consultant, other than increases in salaries or wage rates to
non-director level or non-officer level employees, on an individual basis, in
the ordinary course of business consistent with past practice;
(o) establish or modify any targets, goals, pools or
similar provisions under any Plan, employment Contract or other employee
compensation arrangement or independent contractor Contract or other
compensation arrangement;
(p) commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where such Company in good faith
determines that failure to commence suit would
34
result in the material impairment of a valuable aspect of its business, provided
that it consults with Buyer prior to the filing of such a suit, or (iii) for a
breach of this Agreement;
(q) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof;
(r) except as specifically permitted or required pursuant
to this Agreement, make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any Tax Return or any
amendment to a Tax Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(s) make any change in accounting policies, principles,
methods, practices or procedures (including for bad debts, contingent
liabilities or otherwise, respecting capitalization or expense of research and
development expenditures, depreciation or amortization rates or timing of
recognition of income and expense);
(t) revalue any of its assets, including writing off
notes or accounts receivable or writing down any other assets;
(u) except as expressly permitted under Section 5.1(h),
(i) enter into any Contract with any Affiliate or Associate of any Company, (ii)
enter into any other transaction which, if it had been entered into prior to the
date hereof, would be required to be disclosed pursuant to Section 2.34, or
(iii) make any payment to any Affiliate or Associate of any Company, other than
payments required to be made pursuant to the express terms of any written
Contract listed on Schedule 5.1;
(v) fail to maintain or renew any Permits, fail to comply
with any Law or Order in any material respect, or violate any Designated
Contract in any material respect;
(w) take or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through (v) above.
5.2 Operational Consultation. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, each Company and Stockholder shall (a) confer
with Buyer concerning any and all material operational matters relating to any
Company, (b) review and obtain Buyer's approval (not to be unreasonably
withheld) for the 2003 Adjustable Community Rate filing for the Medicare line of
business, scheduled to be filed by no later than July 1, 2002, (c) report not
less than monthly to Buyer concerning the business, operations and finances of
the Companies, (d) review with Buyer any material disbursements or payments
(excluding payments to providers that are not Affiliates or Associates of any
Company, and payments required to be made pursuant to the express terms of any
written Contract listed on Schedule 5.1), and (e) cooperate with Buyer as may be
reasonably requested by Buyer from time to time to develop and implement an
integration plan for the Companies.
35
5.3 Wind-Down of Commercial Business. During the period between
the date hereof and the Closing Date, (a) the Companies and the Stockholders
will continue to implement the Companies' strategy to terminate all Contracts
which obligate any Company to provide plan participation to, or otherwise serve,
the small group product lines within the Commercial Lines of Business and (b)
the Companies and Buyer will jointly develop a strategy with respect to the
individual and other product lines within the Commercial Lines of Business, it
being the express intention of the parties (i) to mitigate the detrimental
effect to the Companies of losses associated with the Commercial Lines of
Business from the date hereof and following the Closing Date and (ii) that any
losses or other detrimental effect on the Companies resulting from any deviation
following the Closing from the strategy to terminate, as soon as is commercially
reasonable, all Contracts within the Commercial Lines of Business shall not
result in a Purchase Price Adjustment or be factored into the Initial FY2002
Commercial Adjustment, the Final FY2002 Commercial Adjustment or the FY2003
Commercial Adjustment. Following the Closing, for a period of not less than 12
months and subject to Buyer's option to renew and other customary terms, Buyer
(or a Subsidiary thereof) shall employ Xx. Xxxxxx Xxxx, pursuant to the
Employment Agreement, as a key executive with respect to the Commercial Lines of
Business, among other things, and Buyer shall seek Xx. Xxxx'x input, acting on
behalf of the Stockholders, regarding the most prudent means to mitigate losses
associated with the Commercial Lines of Business.
5.4 Pre-Closing Distributions to Stockholders. Nothing in this
Article 5 to the contrary, the Companies shall be permitted, prior to the
Closing Date, to distribute to the Stockholders any cash of the Companies to the
extent permitted or authorized consistent with applicable Laws. Nothing in this
Section 5.4 shall be construed as altering, limiting or otherwise affecting in
any way the terms and conditions of Section 1.3, the Purchase Price Adjustments
contemplated by Section 1.4, the representations and warranties set forth in
Articles 2 and 3, the indemnification provisions set forth in Article 9, the
termination provisions contained in Article 10 or the miscellaneous provisions
contained in Article 11.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access to Information. Between the date of this Agreement and
the earlier of the Closing Date or the termination of this Agreement, upon
reasonable notice each Company shall (a) give Buyer and its officers, employees,
accountants, actuaries, counsel, financing sources and other agents and
representatives (collectively, the "Buyer Representatives") full access during
normal business hours to all buildings, offices, and other facilities and to all
Books and Records of such Company, whether located on the premises of such
Company or at another location; (b) permit Buyer and the Buyer Representatives
to make such inspections during normal business hours as they may require; (c)
cause its officers to furnish Buyer and the Buyer Representatives such
financial, operating, technical, actuarial and cost data and other information
with respect to the business and Assets and Properties and Taxes of each Company
as Buyer and the Buyer Representatives from time to time may request, including
without limitation financial statements, schedules and work papers; (d) allow
Buyer and the Buyer Representatives the opportunity to interview during normal
business hours such officers, employees, accountants, actuaries, counsel and
other personnel and Affiliates of each Company with each Company's prior
consent, which consent shall not be unreasonably withheld or delayed; and (e)
assist and
36
cooperate with Buyer and the Buyer Representatives in the development of
integration plans for implementation by Buyer and the Companies following the
Closing Date; provided, however, that no investigation pursuant to this Section
6.1 shall affect or be deemed to modify any representation or warranty made by
each Company or the Companies as a consolidated group herein. Materials
furnished to Buyer pursuant to this Section 6.1 may be used by Buyer for
strategic and integration planning purposes relating to accomplishing the
transactions contemplated hereby.
6.2 Confidentiality. Each of the parties hereto hereby agrees to
keep the existence and terms of this Agreement (except to the extent
contemplated hereby) and such information or knowledge obtained in any
investigation pursuant to Section 6.1, or pursuant to the negotiation and
execution of this Agreement or the effectuation of the transactions contemplated
hereby, confidential; provided, however, that the foregoing shall not apply to
information or knowledge which (a) a party can demonstrate was already lawfully
in its possession prior to the disclosure thereof by the other party, (b) is or
becomes generally known to the public and did not become so known through any
violation of Law, or a confidentiality agreement or other contractual, legal or
fiduciary obligation of confidentiality of the disclosing party or any other
party with respect to such information, (c) is later lawfully acquired by such
party without confidentiality restrictions from other sources not bound by
applicable confidentiality restrictions, (d) is required to be disclosed by
order of court or Governmental or Regulatory Authority with subpoena powers
(provided that such party shall have provided the other party with prior notice
of such order and an opportunity to object or seek a protective order and take
any other available action), (e) is disclosed without obligation of
confidentiality in the course of any Action or Proceeding between any of the
parties hereto or (f) is required to be disclosed under applicable Law in
connection with (i) the Approvals required to be obtained from Governmental or
Regulatory Authorities pursuant to Section 6.5 or (ii) the solicitation of the
approval by the shareholders of WCMG of the WCMG Acquisition Agreement, as
determined in good faith by Buyer's and the Stockholders' respective outside
counsel.
6.3 Public Disclosure. Unless otherwise required by Law (including
federal and state securities laws), prior to the Closing Date, no party hereto
shall (and each party hereto shall cause its respective Affiliates, Associates,
employees, agents and representatives not to) issue any press release or make
any other public disclosure (whether or not in response to any inquiry) with
respect to the existence of, any subject matter of, or the terms and conditions
of, this Agreement unless approved by the other party prior to release.
6.4 No Solicitation. Until the earlier of the Closing Date and the
date of termination of this Agreement pursuant to the provisions of Section 10.1
hereof, the Companies and the Stockholders will not take (and since April 10,
2002 have not taken), nor will any Company or Stockholder permit (and since
April 10, 2002 have not permitted) any Company's officers, directors, managers,
employees, stockholders, members, attorneys, investment advisors, agents,
representatives, Affiliates or Associates (collectively, "Representatives") to
(directly or indirectly), take any of the following actions with any Person
other than Buyer and its designees: (a) solicit, encourage, initiate or
encourage any proposals or offers from, or participate in or conduct discussions
with or engage in negotiations with, any Person relating to any offer or
proposal, oral, written or otherwise, formal or informal (a "Competing Proposed
Transaction"), with respect to any possible Business Combination with any
Company or any of its Subsidiaries
37
or Affiliates (whether such Subsidiaries are in existence on the date hereof or
are hereafter organized), or the Companies as a consolidated group, (b) provide
information with respect to any Company to any Person, other than Buyer,
relating to (or which any Company or Stockholder believes would be used for the
purpose of formulating an offer or proposal with respect to), or otherwise
assist, cooperate with, facilitate or encourage any effort or attempt by any
such Person with regard to, any possible Business Combination with any Company
or any Subsidiary or Affiliate of such Company (whether such Subsidiaries are in
existence on the date hereof or are hereafter organized), (c) agree to, enter
into a Contract with any Person, other than Buyer, providing for, or approve a
Business Combination with any Company or any Subsidiary or Affiliate (whether
such Subsidiaries are in existence on the date hereof or are hereafter
organized), (d) make or authorize any statement, recommendation, solicitation or
endorsement in support of any possible Business Combination with any Company or
any Subsidiary or Affiliate (whether such Subsidiary is in existence on the date
hereof or are hereafter organized) other than by Buyer, or (e) authorize or
permit any of any Company's Representatives to take any such action. Each
Company shall immediately cease and cause to be terminated any such contacts or
negotiations with any Person relating to any such transaction or Business
Combination. In addition to the foregoing, if any Company or Stockholder
receives, or the Companies as a consolidated group receive, prior to the Closing
Date or the termination of this Agreement any offer or proposal (formal or
informal, oral, written or otherwise) relating to, or any inquiry or contact
from any Person with respect to, a Competing Proposed Transaction, such Company
(or, if the Companies collectively receive such offer or proposal, each Company)
or Stockholder shall immediately notify Buyer thereof and provide Buyer with the
details thereof, including the identity of the Person or Persons making such
offer or proposal, and will keep Buyer fully informed on a current basis of the
status and details of any such offer or proposal and of any modifications to the
terms thereof; provided, however, that this provision shall not in any way be
deemed to limit the obligations of each Company and its Representatives and each
Stockholder, and of the Companies as a consolidated group, set forth in the
previous sentence. Each Company, Stockholder and Buyer acknowledges that this
Section 6.4 was a significant inducement for Buyer to enter into this Agreement
and the absence of such provision would have resulted in either (i) a material
reduction in the Purchase Price for the Acquisition or (ii) a failure to induce
Buyer to enter into this Agreement.
6.5 Approvals. Buyer shall use commercially reasonable efforts to
obtain all Approvals from Governmental or Regulatory Authorities as may be
required in connection with the Acquisition, and each Company and Stockholder
shall provide Buyer with such assistance and information as is required to
obtain such Approvals. Each Company and Stockholder shall use commercially
reasonable efforts to obtain all Approvals from any other Person as may be
required in connection with the Acquisition. The Companies and the Stockholders
shall cause HLHZ to cooperate with the parties in preparing and making the
disclosures required by Section 641.255 of the Florida Statutes with respect to
the Companies' agreement with HLHZ.
6.6 Notification of Certain Matters. The Stockholders, each
Company and the Companies as a consolidated group shall give prompt notice to
Buyer, and Buyer shall give prompt notice to each Company and the Stockholders,
of (a) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which will cause any representation or warranty of the
Companies, the Stockholders or Buyer, respectively, contained in this Agreement
to be untrue or inaccurate at or prior to the Closing Date and (b) any failure
of the Stockholders, the
38
Companies or Buyer, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 6.6
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
6.7 Further Assurances; Cooperation.
(a) At any time or from time to time after the Closing,
each party hereto, at the reasonable request of any other party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things (including, but not limited to, all action reasonably necessary to
obtain any and all Approvals of any Government or Regulatory Authority or Person
required in connection with the Acquisition) as may be necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby. Without limiting the generality of the preceding sentence,
if, at any time after the Closing, any further action is necessary or desirable
to carry out the purposes of this Agreement or to vest Buyer with full right,
title and possession to all assets, properties, rights, privileges, powers and
franchises of the Companies, or to the Shares, the Stockholders shall take any
such further action as may be reasonably requested by Buyer. Each party agrees
to use commercially reasonable efforts to cause the conditions to its
obligations to consummate the Acquisition to be satisfied.
(b) Except as otherwise expressly permitted by this
Agreement, Buyer shall not, without the prior written consent of the Stockholder
Representative (which consent shall not be unreasonably withheld), take or agree
in writing or otherwise to take any action that would make any of Buyer's
representations or warranties contained in this Agreement to be untrue or
incorrect or prevent Buyer from performing its agreements and covenants
hereunder or knowingly cause any condition to the Stockholders' and Companies'
closing obligations in Section 8.1 or Section 8.2 not to be satisfied.
(c) Each of the Stockholders shall take all actions
within their respective power to cause WCMG to perform its covenants, agreements
and other obligations under the WCMG Acquisition Agreement, subject to any
fiduciary duties of the Stockholders to WCMG. Without limiting the generality of
the preceding sentence, in the event that the Aggregate Net Worth Amount is less
than the Aggregate Required Net Worth Amount (as such terms are defined in the
WCMG Acquisition Agreement) by an amount in excess of $1,447,000, the
Stockholders shall take all actions as may be necessary to fully cure such
shortfall in the Aggregate Net Worth Amount.
(d) Parent shall (i) upon the satisfaction of the
conditions set forth in Sections 8.1 and 8.3, transfer to Buyer sufficient funds
to allow Buyer to pay the Cash Consideration at the Closing or otherwise make
arrangements to satisfy Buyer's obligation to pay the Cash Consideration and
(ii) upon the satisfaction of the conditions set forth in Sections 7.1 and 7.3
of the WCMG Acquisition Agreement, transfer to Buyer sufficient funds to allow
Buyer to pay the Merger Consideration (as defined therein) or otherwise make
arrangements to satisfy Buyer's obligation to pay such Merger Consideration.
39
(e) The Stockholders and the Companies shall use their
respective good faith efforts to ensure that (i) the financial condition of the
Companies as of the Closing Date is consistent in all material respects with the
respective Estimated Closing Date Balance Sheets of the Companies, (ii) the
financial condition of WCMG, WCNY and FirstChoice as of the Closing Date is
consistent in all material respects with the Balance Sheets (as such term is
defined in the WCMG Acquisition Agreement), subject to actual changes in the
assets and liabilities of such entities arising in the ordinary course of
business from the date of the Balance Sheets to the Closing Date.
6.8 Companies' Auditors. Each Company will use commercially
reasonable efforts to cause its independent auditors to facilitate on a timely
basis the review of any Company's audit or work papers, including the
examination of selected interim financial statements and data.
6.9 401(k) Plan. Prior to the Closing Date, the Board of Directors
of each Company (or, in the case of Comprehensive LLC, the managers and members)
shall adopt resolutions, effective prior to the Closing Date, terminating their
participation in the Comprehensive Health Management, Inc. 401(k) Profit Sharing
Plan (the "CHMI 401(k) Plan") and providing that, effective as of such
termination, Statcare, Inc. shall become the plan sponsor of the CHMI 401(k)
Plan. Buyer shall establish, or cause to be established, a 401(k) plan for the
benefit of the employees of the Companies (the "Buyer 401(k) Plan") as soon as
administratively possible following the Closing. The Stockholders shall take all
necessary action to insure that the employees of the Companies are fully vested
in their account balances under the CHMI 401(k) Plan. The CHMI 401(k) Plan shall
be amended to provide for distributions to participants upon a severance from
employment so that participants in the CHMI 401(k) Plan who are employees of any
of the Companies shall be entitled to a distribution as a result of the
Acquisition and that rollover of participant loans out of the CHMI 401(k) Plan
shall be permitted. If such a distribution is made to such participants in the
CHMI 401(k) Plan, Buyer shall provide the opportunity for such participants to
roll over their account balances (including any outstanding participant loans)
into the Buyer 401(k) Plan to the extent permitted by applicable law and, for
purposes of eligibility for and vesting of benefits thereunder, shall credit
such CHMI 401(k) Plan participants' service with the Companies.
6.10 Takeover Statutes. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, the Board of Directors of
each Company (or, in the case of Comprehensive LLC, the managers) will grant
such approvals within its power and take such actions within its power as are
necessary so that the transactions contemplated by this Agreement and the
Ancillary Agreements may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise take such actions within its power to
eliminate the effects of any Takeover Statute on any of the transactions
contemplated hereby.
6.11 Delivery of Stock Ledger, Minute Book and Assets and
Properties of the Companies. At the Closing, (a) each Company shall deliver its
original stock or unit ledgers and minute books to Buyer and (b) each
Stockholder shall, and shall cause its respective Affiliates and Associates to,
return to the Companies any Assets and Properties of any Company used by such
Stockholder, Affiliate or Associate.
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6.12 Stockholder Vote. Each of the Stockholders, in executing this
Agreement, consents as a shareholder of the Company to the transactions
contemplated hereby, and waives notice of any meeting in connection therewith
and hereby releases and waives all rights with respect to the transactions
contemplated hereby under any agreements relating to the sale, purchase or
voting of any capital stock of the Company.
6.13 Company Common Stock; Releases. At the Closing, each of the
Stockholders covenants and agrees to deliver to Buyer (a) all certificates
evidencing the Shares, duly endorsed to Buyer (or its designee) by each of the
Stockholders and (b) a release in the form of Exhibit D (collectively, the
"Stockholder Releases").
6.14 Consulting Agreements. On the Closing Date, each of Xxxxx X.
Xxxxx, M.D. and Xxxxxx X. Xxxxx shall enter into six-month consulting agreements
with Buyer (or a Subsidiary of Buyer) in substantially the form of Exhibit E
(collectively, the "Consulting Agreements").
6.15 Employment Agreement. On the Closing Date, Xxxxxx Xxxx shall
enter into a twelve-month employment agreement with Buyer (or a subsidiary of
Buyer) in substantially the form of Exhibit F (the "Employment Agreement").
6.16 Resignations. At the Closing, the Stockholders shall deliver
to Buyer the resignations of all officers and directors of each of the
Companies, and all managers of Comprehensive LLC, from such positions, effective
on the Closing Date, and the resignation of each Stockholder as an employee of
each of the Companies effective on the Closing Date.
6.17 Affiliate Agreements. The Companies and the Stockholders shall
cause all Contracts disclosed or required to be disclosed in Schedule 2.34,
other than the third-party administrator Contracts with CHM and any such
additional Contracts designated by Buyer in writing prior to the Closing, to be
terminated prior to the Closing. Any such terminations shall not result in any
financial penalties or termination costs being imposed on the Companies by such
Affiliates, it being the express intention that all such penalties or
termination costs shall be borne by the Stockholders and not by the Companies
and Buyer following the Closing. The Companies and the Stockholders shall cause
(i) any Contracts for consulting services (but not including any written
provider agreement) with Bay Area Primary Care, Inc., Bay Area MultiSpecialty of
Tampa, Inc., and/or any of their respective Affiliates and (ii) if requested by
Buyer, the written provider agreement with Bay Area MultiSpecialty of Tampa,
Inc. to be terminated prior to the Closing. The Companies and the Stockholders
shall cause any risk arrangements between Well Care HMO and any Affiliates of
the Companies (other than Bay Area Primary Care, Inc.) or the Stockholders,
including, without limitation, Bay Area MultiSpecialty of Tampa, Inc., to be
terminated prior to the Closing, and shall use their reasonable best efforts to
minimize any adverse effect on the Companies resulting from such termination
with any net settlements returned to the Companies in cash prior to the Closing.
The Companies and the Stockholders shall cause each of Bay Area Primary Care,
Inc. and Bay Area MultiSpecialty of Tampa, Inc. to enter into amendments to
their current provider agreements, or enter into new agreements with the
Companies, in either case in form and substance reasonably satisfactory to
Buyer, pursuant to which they shall agree not to enter into, directly or
indirectly, any risk-sharing arrangements with any HMO other than the Companies
for so long as the Note remains outstanding.
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6.18 CHM and Comprehensive LLC. The Companies and the Stockholders
shall cause (a) Comprehensive LLC to maintain total assets (as determined in
accordance with GAAP) of not less than $50,000,000 at all times from the date of
this Agreement until the time of the Closing, (b) Comprehensive LLC to not
increase its Liabilities in excess of its total assets (as determined in
accordance with GAAP) at any time prior to the time of the Closing and (c) CHM
not increase long-term Indebtedness except in compliance with Section 5.1 (in
each case, as determined in accordance with GAAP) as of the Closing.
6.19 Payment of Surplus Notes. At the Closing, Buyer shall repay,
from the Cash Consideration, all Surplus Notes (other than any Inter-Company
Notes) disclosed or required to be disclosed in Schedule 2.3(g), which repayment
shall reduce the Cash Consideration dollar-for-dollar to the full extent of the
Surplus Notes so repaid. Thereafter, following the Closing, the Companies shall
not assume or be responsible for repayment of the Surplus Notes (other than any
Inter-Company Notes), it being the express intention of the parties that such
Surplus Notes will not be repaid by Buyer or its Affiliates after the Closing.
6.20 Other Agreements. Prior to or at the Closing, (a) each of
Xxxxx X. Xxxxx, M.D., Xxxxxx Xxxx and Xxxxxx X. Xxxxx shall execute and deliver
to Buyer a restrictive covenant agreement in the form attached as Exhibit G
(collectively, the "Non-Competition Agreements"), (b) Xxxxxx X. Xxxxx shall
execute and deliver to Buyer a confidentiality agreement in the form attached as
Exhibit H (the "Confidentiality Agreement"), (c) Buyer and each of the
Stockholders shall execute and deliver the Warrant Agreement, (d) Buyer and the
Stockholders shall execute and deliver an investor rights agreement in the form
of Exhibit I (the "Investor Rights Agreement") and (e) each Stockholder who is
to become a member of Parent shall execute and deliver to Buyer the Amended and
Restated Limited Liability Company Operating Agreement of Parent (or a Joinder
Agreement with respect thereto) in substantially the form of Exhibit J (the "LLC
Agreement").
6.21 Assignment of Certain Non-Admitted Assets
(a) The amounts, if any, of pharmacy rebates, refunds and
insurance subrogation receivables relating to claims arising prior to the
Closing Date and which are actually collected by the Companies following the
Closing Date (net of any third-party collection costs), shall be paid by Buyer
to the Stockholder Representative within 30 days of collection (or such longer
period as may be required to properly process and verify such items, but in no
event to exceed 90 days).
(b) The Companies and the Stockholders shall, prior to
the Closing Date, use commercially reasonable efforts to cause the provider
advances listed on Schedule 6.21(b) to be documented such that they constitute
admitted assets of the applicable Companies pursuant to applicable NAIC
standards relating to Statutory Surplus, provided that the Companies and
Stockholders shall not take any action to impair the Companies' business
relationships with such providers. Following the Closing, if prior to the one
year anniversary of the Closing Date the amounts of any such provider advances
are (i) actually collected by the Companies, (ii) credited by the Companies
against claims paid, or (iii) qualified as admitted assets pursuant to
applicable NAIC standards relating to Statutory Surplus, such amounts, not to
exceed $1,380,000 in the aggregate, shall be paid by Buyer to the Stockholder
Representative within 30 days after such
42
collection, crediting or qualification (or such longer period as may be required
to properly process and verify such items, but in no event to exceed 90 days).
During such one-year period, Buyer shall use commercially reasonable efforts to
cause the amounts of such provider advances to be qualified as admitted assets
pursuant to applicable NAIC standards relating to Statutory Surplus, provided
that Buyer shall not be required to take any action to impair Buyer's or the
Companies' business relationships with such providers.
6.22 Closing of Margin Accounts. The Companies and the Stockholders
shall cause any and all margin accounts owned or held by any of the Companies
(other than the margin accounts of Comprehensive LLC listed on Schedule 6.22))
to be closed prior to the Closing.
6.23 Lien Releases. At or prior to the closing, the Companies and
the Stockholders shall deliver to Buyer executed UCC-3 termination statements
from any lender to the Companies or the Stockholders including, as applicable,
Bank of America and SunTrust Bank, together with such other customary
documentation as Buyer may reasonably require (including, without limitation,
payoff letters, estoppel certificates and releases), releasing any and all Liens
held by any such Person on any of the Assets and Properties of any of the
Companies.
6.24 Insurance Policies.
(a) At or prior to the Closing, the Company and the
Stockholders shall cause all Persons other than the Companies to be removed as
insured parties under the insurance policies disclosed (or required to be
disclosed) on Schedule 2.32(a) such that, at the Closing, no Persons other than
the Companies shall be covered under such policies; provided, however, that no
tail coverage applicable to any of the Stockholders under any policy of
directors' and officers' liability insurance need be terminated pursuant hereto.
(b) For three years after the Closing Date, Buyer will
provide "run-off" officers' and directors' liability insurance in respect of
acts or omissions occurring on or prior to the Closing Date on terms
substantially similar to those of such policy in effect on the date hereof.
6.25 Form 5500 Filings. Prior to the Closing Date, each Company
shall prepare and file all Form 5500 reports since 1988 that were required to be
filed prior to the Closing Date with respect to any Company Plan pursuant to the
Department of Labor's Delinquent Filer Voluntary Compliance Program and pay the
applicable penalty amounts.
6.26 COBRA. Buyer shall be responsible for providing the continued
health coverage required under Section 4980B of the Internal Revenue Code
("COBRA Coverage") with respect to any employees of the Companies or eligible
dependents who incurred a qualifying event under Section 4980B of the Internal
Revenue Code on or before the Closing Date, and shall be responsible for
providing COBRA Coverage for any employees of the Companies or eligible
dependents who, with respect to their coverage under Buyer's health plan, incur
a qualifying event under Section 4980B of the Internal Revenue Code at any time
after the Closing Date.
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6.27 Transition of Office Space.
(a) The Stockholders shall, prior to the Closing, cause
any subleases with respect to executive office space at North Park Center Office
Lease dated February 14, 1997, as subsequently amended, to be terminated.
(b) Except as otherwise contemplated by the Employment
Agreement or the Consulting Agreements, or as Buyer may otherwise reasonably
agree, the Stockholders shall, upon the Closing, vacate the executive office
space currently used by them at the Companies' headquarters facility. The
Stockholders shall be entitled, within 30 days following the Closing, to remove,
at their own expense, and retain any furniture and movable leasehold
improvements (provided that the removal of any such items shall not cause any
damages to the premises) used by the Stockholders and located in such executive
office space, all subject to the advance review and approval by Buyer, which
shall not be unreasonably withheld.
6.28 Pledge Agreement. Buyer shall, at the Closing, execute and
deliver to the Stockholder Representative a Pledge Agreement in substantially
the form of Exhibit M hereto (the "Pledge Agreement").
ARTICLE 7
TAX MATTERS
7.1 Section 338(h)(10) Election.
(a) The Stockholders shall, at the request of Buyer, join
with Buyer in making a timely election under Section 338(h)(10) of the Internal
Revenue Code and any corresponding elections under state and local tax laws
(collectively, the "Election") to treat the acquisition of the stock of Well
Care HMO, HealthEase and/or CHM by Buyer as a deemed purchase of the assets of
such entities. Buyer and the Stockholders shall cooperate with each other to
take all actions necessary and appropriate (including filing such forms,
returns, elections, schedules and other documents as may be required) to effect
and preserve a timely Election. Buyer and the Stockholders shall report the
transactions pursuant to this Agreement consistent with any Election.
(b) In the event that Buyer determines to make an
Election it shall, within 60 days after the Closing Date, provide to the
Stockholders (i) a draft schedule which sets forth the proposed allocation of
the Purchase Price (and any deemed assumption of liabilities for Tax purposes)
first to the Companies and second among the assets of the Companies (the
"Allocation Schedule"), which allocation shall be made in accordance with
Section 338(h)(10) of the Internal Revenue Code and any applicable Treasury
Regulations, and (ii) Buyer's good faith estimate of the Section 338(h)(10)
Adjustment (as defined below), if any, prepared in a manner consistent with the
Allocation Schedule and the Internal Revenue Code. The Stockholders shall
provide such information to Buyer as may be necessary to calculate the Section
338(h)(10) Adjustment. For purposes hereof, "Section 338(h)(10) Adjustment"
shall mean the dollar amount by which (A) the combined federal, state and local
income, franchise, sales and use taxes payable by the Stockholders for 2002
solely with respect to the sale of the Shares pursuant to the terms of this
Agreement and the making of the Election (which shall include the amount of
federal, state and
44
local income taxes payable on the payment of the amount of the Section
338(h)(10) Adjustment) exceed (B) the combined federal, state and local income,
franchise, sales and use taxes that would have been payable by the Stockholders
for 2002 solely with respect to such sale on the terms provided herein had the
Election not been made. For this purpose, the Stockholders shall be deemed to be
taxable at a combined federal, state and local income tax rate of 20% on any net
long-term capital gains and at a 38.6% rate on any net ordinary income (subject
to any increase or decrease in applicable tax rates between the Closing and the
payment of any Section 338(h)(10) Adjustment amounts) and the Stockholders shall
be deemed to be taxable in 2002 on all of the gain realized from the sale of the
Shares and all gain realized by the Company upon deemed sale of its assets
pursuant to the Election. As of the date of this Agreement, based on
consideration of all relevant facts, circumstances and Law in existence on the
date hereof, Buyer and the Stockholders agree that the amount of the Section
338(h)(10) Adjustment will be zero, and Buyer and the Stockholders shall prepare
and file Form 8023 (or any other necessary forms) on the basis of such zero
amount of the Section 338(h)(10) Adjustment, subject only to such changes in
facts, circumstances or applicable Law as may arise prior to the Closing. For
purposes of clarification, the Section 338(h)(10) Adjustment shall not include
any amount of additional Taxes of the Companies for any periods or portions of
periods through and including the Closing Date.
(c) The draft Allocation Schedule shall be deemed
acceptable to the Stockholders if not objected to by the Stockholder
Representative within 30 days following receipt of such Allocation Schedule.
Neither the Stockholders nor the Stockholder Representative shall have any right
to object to Buyer's calculation of the Section 338(h)(10) Adjustment, except
solely in the event and on the basis of any changes in facts, circumstances or
applicable Law arising prior to the Closing and not existing on the date of this
Agreement, and then only if such changes would cause the Section 338(h)(10)
Adjustment to be an amount other than zero as contemplated pursuant to Section
7.1(b) above. In any event, the Section 338(h)(10) Adjustment calculation shall
be deemed acceptable to the Stockholders if not objected to by the Stockholder
Representative within 30 days following receipt of such Section 338(h)(10)
Adjustment calculation. Any objection to the manner or amount of the proposed
allocation or adjustment, as applicable and only as permitted herein, shall be
made in writing and shall state the determination of the Stockholder
Representative or the Stockholders' Accountants of the Allocation Schedule or
the Section 338(h)(10) Adjustment calculation, as applicable (including, in the
case of any objection to the amount of the Section 338(h)(10) Adjustment, a
concise statement of the changes in facts, circumstances or applicable Law
arising prior to the Closing and not existing on the date of this Agreement).
(d) In the event of an objection to either (i) the
proposed Allocation Schedule or (ii) the Section 338(h)(10) Adjustment (but only
as permitted herein), the Stockholder Representative and Buyer shall negotiate
in good faith regarding such allocation or such adjustment, as applicable, with
a view to determining a final Allocation Schedule or Section 338(h)(10)
Adjustment, as applicable, as soon as practicable. Any dispute not resolved in
good faith by mutual agreement within 15 days following receipt of the written
objection of the Stockholder Representative shall be resolved by the Independent
Accountants. The Independent Accountants shall deliver a final and binding
Allocation Schedule or Section 338(h)(10) Adjustment, as applicable, to Buyer
and the Stockholders within 30 days of having the dispute referred to them
pursuant to such procedures as they may require.
45
(e) With respect to any dispute as to the proposed
Allocation Schedule, the fees and expenses for the services of the Independent
Accountants shall be borne equally by Buyer and the Stockholders. With respect
to any dispute as to the Section 338(h)(10) Adjustment, the fees and expenses
for the services of the Independent Accountants shall be shared by Buyer and the
Stockholder Representative as follows: the Stockholder Representative shall pay
a percentage of such fees and expenses equal to A/(A+B) and Buyer shall pay a
percentage of such fees and expenses equal to B/(A+B), where A is equal to the
absolute value of the difference (in dollars) between the Section 338(h)(10)
Adjustment as finally determined by the Independent Accountants and the Section
338(h)(10) Adjustment as reflected in the objection prepared and delivered by
the Stockholder Representative in accordance with this Section, and B is equal
to the absolute value of the difference (in dollars) between the Section
338(h)(10) Adjustment as finally determined by the Independent Accountants and
the Section 338(h)(10) Adjustment as reflected in the report prepared and
delivered by Buyer in accordance with this Section.
(f) The parties shall report any deemed sale of assets of
the Companies pursuant to any Election in a manner consistent with the
Allocation Schedule. To the extent that disclosures of the Allocation Schedule
are required to be made by the parties to the IRS under the provisions of the
Internal Revenue Code, Buyer and the Stockholders shall disclose such reports to
the other prior to filing with the IRS.
(g) If Buyer elects to make an Election with respect to
one or more of the Companies, Buyer shall pay to the Stockholder Representative,
on behalf of the Stockholders, the amount of any Section 338(h)(10) Adjustment,
as finally determined in accordance with this Section 7.1, by April 1, 2003. In
the event that a subsequent final determination of any court or Taxing Authority
(e.g., as a result of a reallocation of the purchase price among the assets)
causes a Section 338(h)(10) Adjustment or causes the Section 338(h)(10)
Adjustment to be greater than the amount (if any) of any Section 338(h)(10)
Adjustment originally determined, Buyer shall immediately pay additional amounts
to the Stockholder Representative (including (i) any interest and penalties
arising in connection with such Section 338(h)(10) Adjustment and (ii) any taxes
resulting from such payments) to take into account the revision to the
calculation of the Section 338(h)(10) Adjustment as a result of such proceeding.
Buyer and the Stockholder Representative shall promptly notify each other of any
investigation or audits that could result in any additional payments hereunder
and shall cooperate in any proceedings relating to such investigation or audits.
(h) In the event it is later finally determined by any
court or Taxing Authority that the Election was invalid due to a failure of any
of the Companies to qualify as an S corporation, the Stockholders shall
immediately repay to Buyer the full amount of the Section 338(h)(10) Adjustment
payments received with respect to such Company.
7.2 Tax Returns; Liability for Taxes.
(a) The Stockholders shall prepare and file (or cause to
be prepared and filed) on a timely basis all Tax Returns with respect to the
Companies for all taxable periods ending on or before the Closing Date and, if
required by applicable Law, Buyer will, and will cause its Affiliates to, join
in the execution of any such Tax Returns. Such Tax Returns shall be prepared
46
in a manner consistent with and utilizing the accounting methods utilized in the
preparation of the prior Tax Returns of the Companies. The Stockholders shall
submit all such Tax Returns to Buyer for review at least 30 Business Days prior
to filing and shall not file such Tax Returns without Buyer's consent, which
consent shall not be unreasonably withheld. The Stockholders shall pay, when
due, (i) all Taxes of the Companies for all taxable periods which end on or
before the Closing Date; and (ii) with respect to any taxable period commencing
before the Closing Date and ending after the Closing Date (a "Straddle Period"),
all Taxes of the Companies attributable to the portion of the Straddle Period
prior to and including the Closing Date (the "Pre-closing Period"). For purposes
of this Agreement, the portion of any Tax that is attributable to the
Pre-closing Period shall be (i) in the case of a Tax that is not based on net
income, gross income or gross receipts, the total amount of such Tax for the
period in question multiplied by a fraction, the numerator of which is the
number of days in the Pre-closing Period, and the denominator of which is the
total number of days in such Straddle Period, and (ii) in the case of a Tax that
is based on net income, gross income or gross receipts, the Tax that would be
due with respect to the Pre-closing Period if such Pre-closing Period were a
separate taxable period, subject to the last sentence of this subsection (a).
For purposes hereof, all Taxes arising from the transactions hereunder,
excluding any Taxes to the Companies resulting from any Election, shall be
deemed to be Taxes attributable to the Pre-closing Period and shall be the
responsibility of the Stockholders. All determinations necessary to give effect
to the foregoing allocations of Tax shall be made in a manner consistent with
the prior practice of the Companies to the extent permissible under applicable
Law. For purposes of determining federal and state income and franchise Taxes
for the short taxable year (under subchapter S of the Internal Revenue Code) of
Well Care HMO, CHM and HealthEase ending the day prior to the Closing Date, the
Stockholders shall duly elect under Section 1362(e)(3) of the Internal Revenue
Code (and any corresponding provisions of state law) to utilize the
closing-of-the-books method of determining the taxable items for the subject
entity for the Pre-closing Period.
(b) Buyer shall prepare and file (or cause to be prepared
and filed) on a timely basis all Tax Returns of the Companies relating to
taxable periods ending after the Closing Date and, except as provided in
subsection (a) hereof, shall pay or cause the Companies to pay (i) all Taxes of
the Companies for any taxable period commencing on or after the Closing Date,
(ii) all Taxes of the Companies for any Straddle Period other than Taxes
attributable to the Pre-closing Period and (iii) any Taxes on built-in gains
arising under Section 1374 of the Code or comparable provisions of state law
imposed upon Well Care HMO or upon the stockholders with respect to Well Care
HMO as a result of any Election. The Stockholders shall pay to Buyer the amount
of any Taxes of the Companies attributable to the Pre-closing Period of any
Straddle Period, other than Taxes arising to the Companies directly or
indirectly from the Election, by the due date of any Tax Returns required to be
filed by Buyer with respect to any Straddle Period.
(c) The Stockholders will, upon the request of Buyer,
cause Comprehensive LLC to make an election under Section 754 of the Internal
Revenue Code (and any corresponding provision of any pertinent state or local
Tax law), if not already in effect, with respect to the transfer of the
interests in Comprehensive LLC contemplated hereby.
7.3 Termination of Tax Sharing Agreements. The Stockholders hereby
agree and covenant that none of the Companies has or will have any obligations
to another party pursuant to any tax sharing agreement or any similar
arrangement in effect at any time before or on the
47
Closing Date, and any further obligation that might otherwise have existed
thereunder shall be extinguished as of the Closing Date.
7.4 Conduct of Audits and Other Procedural Matters. Buyer shall
have the right to control any audit or examination by any Taxing Authority, and
have the right to initiate any claim for refund or amended return, and contest,
resolve and defend against any assessment, notice of deficiency or other
adjustment or proposed adjustment of Taxes (collectively with any audits or
examinations, "Tax Proceedings") for all taxable periods of the Companies. The
Stockholders shall have the right (but not the duty) to participate in any Tax
Proceedings with respect to taxable periods for which the Stockholders are
charged with the payment of the Taxes of the Companies, and to employ counsel,
at their own expense, separate from the counsel employed by Buyer. Buyer and the
Stockholders shall cooperate in the defense or prosecution of any Tax
Proceeding. Buyer shall promptly forward to the Stockholders all written
notifications and other written communications, including (if available) the
original envelope showing any postmark, sent to any Taxing Authority by Buyer or
any of the Companies or received by Buyer or any of the Companies from any
Taxing Authority relating to any liability for Taxes for any taxable period for
which the Stockholders are charged with the payment of Taxes of the Companies.
Buyer and the Stockholders agree to retain or cause to be retained all books and
records pertinent to the Companies until the applicable period for assessment
under applicable Law (giving effect to any and all extensions or waivers) has
expired, and to abide by or cause the abidance with all record retention
agreements entered into with any Taxing Authority. Buyer agrees to give the
Stockholder Representative reasonable notice prior to transferring, discarding
or destroying any such books and records relating to Tax matters and, if the
Stockholder Representative so requests, Buyer shall allow the Stockholder
Representative to take possession of such books and records. Buyer shall not
enter into any closing agreement or final settlement with any Taxing Authority
with respect to any such liability without the written consent of the
Stockholders, which consent shall not be unreasonably withheld. The Stockholders
shall reimburse Buyer for all costs, including legal costs, of conducting such
Tax Proceedings relating to periods or portions of taxable periods prior to the
Closing Date. The Stockholders shall execute or cause to be executed any powers
of attorney or other documents reasonably requested by Buyer to enable Buyer to
take any and all actions it reasonably needs to take with respect to any Tax
Proceedings.
7.5 FIRPTA Compliance. On or prior to the Closing Date, each
Company shall deliver to Buyer a properly executed statement in a form
reasonably acceptable to Buyer for purposes of satisfying Buyer's obligations
under Treasury Regulation Section 1.1445-2(c)(3).
7.6 Other Tax Covenants. Except as specifically contemplated in
this Agreement, Buyer shall not cause or permit any of the Companies to (a) take
any action on the Closing Date other than in the ordinary course of business,
including but not limited to the sale or distribution of property of any of the
Companies as a dividend or the effectuation of any redemption using property of
any of the Companies, that could give rise to any increase in the taxable income
or decrease in the taxable loss of the Stockholders for the Pre-closing period,
(b) make any election or deemed election under Section 338 of the Internal
Revenue Code (other than Section 338(h)(10) of the Internal Revenue Code and any
resulting deemed election by virtue thereof), or (c) make or change any tax
election for a Pre-closing period, amend any Tax Return for a Pre-closing period
or take any tax position with respect to a Pre-closing period that results
48
in any increased Tax liability or reduction of any Tax asset of the Stockholders
in respect of any Pre-closing tax period other than in accordance with the
procedures under Section 7.4 or as required by any Tax authority. Buyer agrees
that the Stockholders shall not have any liability for any tax to the Companies
resulting from any of the foregoing impermissible actions of Buyer, the
Companies or any Affiliate of Buyer and agrees to indemnify and hold harmless
the Stockholders from and against any Tax liabilities to them from any such
impermissible actions. Except as specifically contemplated in this Agreement,
the Stockholders shall not cause or permit the Company to make or change any tax
election, amend any tax Return or take any tax position or any action that
results in any increased Tax liability or reduction of any Tax asset of any of
the Companies.
ARTICLE 8
CONDITIONS TO THE ACQUISITION
8.1 Conditions to Obligations of Each Party to Effect the
Acquisition. The respective obligations of each party to this Agreement to
effect the Acquisition shall be subject to the satisfaction at or prior to the
Closing of the following conditions:
(a) HSR Approval. Any waiting period applicable to the
consummation of the Acquisition under the HSR Act shall have expired or been
terminated.
(b) No Injunctions or Regulatory Restraints; Illegality.
No temporary restraining order, preliminary or permanent injunction or other
Order issued by any court of competent jurisdiction or Governmental or
Regulatory Authority or other legal or regulatory restraint or prohibition
preventing the consummation of the Acquisition shall be in effect; no
Governmental or Regulatory Authority shall have notified such party that such
Governmental or Regulatory Authority intends to commence proceedings to restrain
or prohibit the transactions contemplated hereby or force rescission, unless
such Governmental or Regulatory Authority shall have withdrawn such notice and
abandoned any such proceedings prior to the time which otherwise would have been
the Closing Date; nor shall there be any action taken, or any Law or Order
enacted, entered, enforced or deemed applicable to the Acquisition or the other
transactions contemplated by the terms of this Agreement that would prohibit the
consummation of the Acquisition.
8.2 Additional Conditions to Obligations of the Stockholders and
the Companies. The obligations of the Stockholders and the Companies to
consummate the Acquisition and the other transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing, by the
Stockholder Representative:
(a) Representations and Warranties. The representations
and warranties made by Buyer in this Agreement shall be true and correct in all
material respects when made and on and as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date (other
than representations and warranties which by their express terms are made solely
as of a specified earlier date and except for any changes specifically
contemplated or permitted by this Agreement), and the representations and
warranties made as of a specified date earlier than the Closing Date shall also
be true and correct in all material respects as of such
49
earlier date; provided, however, that in the case of any representation or
warranty that is already qualified by materiality (whether by means of the use
of the term "material" or a variation thereof, or the use of a minimum dollar
threshold), such materiality qualifiers shall not be taken into account in
determining whether the conditions set forth in this Section 8.2(a) have been
satisfied.
(b) Performance. Buyer shall have performed and complied
with each agreement, covenant and obligation required by this Agreement to be so
performed or complied with by Buyer on or before the Closing Date.
(c) Officers' Certificate. Buyer shall have delivered to
the Stockholders (i) a certificate, dated the Closing Date and executed by its
President and Chief Executive Officer, certifying that the conditions set forth
in Sections 8.2(a) and 8.2(b) have been fulfilled and (ii) a certificate
attaching (A) copies of the certificate of incorporation and bylaws of Buyer as
in effect immediately prior to the Closing Date, (B) copies of resolutions
adopted by Buyer's board of directors authorizing the transactions contemplated
by this Agreement and (C) a certificate of good standing of Buyer issued by the
Secretary of State of the State of Delaware as of a date not more than ten days
prior to the Closing Date, certified in the case of (A) and (B) as of the
Closing Date by the Secretary of Buyer as being true, correct and complete.
(d) Legal Opinion. The Stockholders shall have received a
legal opinion from Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, corporate counsel to Buyer,
in the form attached as Exhibit K.
(e) Acquisition of WCMG. Buyer shall have consummated the
acquisition of all of the outstanding capital stock of WCMG (other than any
shares of such capital stock, not to exceed 10% of the total number of shares of
such outstanding capital stock, the holders of which shall have delivered timely
written notice of their intent to demand payment as a dissenting shareholder for
such shares) pursuant to the terms of the WCMG Acquisition Agreement.
(f) Investor Rights Agreement. Buyer shall have executed
and delivered to the Stockholders the Investor Rights Agreement.
(g) Consulting Agreements. Buyer (or a Subsidiary
thereof) shall have executed and delivered to each of the persons listed on
Schedule 6.14 a Consulting Agreement.
(h) Employment Agreement. Buyer (or a Subsidiary thereof)
shall have executed and delivered to Xxxxxx Xxxx the Employment Agreement.
(i) Governmental and Regulatory Approvals. Approvals from
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated hereby shall have been obtained without the imposition
of any conditions or requirements which are materially adverse to the
Stockholders or the Companies.
(j) Comprehensive LLC. Comprehensive LLC shall fail to be
treated as a valid guarantying organization under Section 409.912(14) of the
Florida Statutes with respect to any Medicaid Contract held by Well Care HMO or
HealthEase (other than as a result of any willful action taken by any of the
Companies or Stockholders).
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(k) Warrant Agreement. Buyer shall have executed and
delivered to the Stockholder Representative the Warrant Agreement.
(l) Pledge Agreement. Buyer shall have executed and
delivered to the Stockholder Representative the Pledge Agreement.
8.3 Additional Conditions to the Obligations of Buyer. The
obligations of Buyer to consummate the Acquisition and the other transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by Buyer:
(a) Representations and Warranties. The representations
and warranties made by the Companies and the Stockholders in this Agreement
shall be true and correct in all material respects when made and on and as of
the Closing Date as though such representations and warranties were made on and
as of the Closing Date (other than representations and warranties which by their
express terms are made solely as of a specified earlier date and except for any
changes specifically contemplated or permitted by this Agreement) and the
representations and warranties made as of a specified date earlier than the
Closing Date shall also have been true and correct in all material respects on
and as of such earlier date; provided, however, that in the case of any
representation or warranty that is already qualified by materiality (whether by
means of the use of the term "material" or a variation thereof, or the use of a
minimum dollar threshold), such materiality qualifiers shall not be taken into
account in determining whether the conditions set forth in this Section 8.3(a)
have been satisfied.
(b) Performance. The Companies and the Stockholders shall
have respectively performed and complied with each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
them on or before the Closing Date.
(c) Officers' Certificates. Each Company shall have
delivered to Buyer (i) a certificate, dated the Closing Date and executed by the
President and Chief Executive Officer of such Company, certifying that the
conditions set forth in Sections 8.3(a), 8.3(b) and 8.3(i) have been fulfilled
and (ii) a certificate attaching (A) copies of the articles of incorporation and
by-laws (or comparable organizational documents) of such Company as in effect
immediately prior to the Closing Date, (B) copies of resolutions adopted by such
Company's board of directors and stockholders (or, in the case of Comprehensive
LLC, its members and managers) authorizing the transactions contemplated by this
Agreement and (C) a certificate of good standing of such Company issued by the
Secretary of State of the State of Florida as of a date not more than ten days
prior to the Closing Date, certified in the case of (A) and (B) as of the
Closing Date by the Secretary of such Company as being true, correct and
complete.
(d) Consents. Buyer shall have been furnished with
evidence reasonably satisfactory to them of the written Approval of those
Persons whose Approval is required in connection with the Acquisition under any
Contract listed on Schedule 2.6.
(e) Regulatory Approvals. There shall not have been any
action taken, or any Law or Order enacted, entered, enforced or deemed
applicable to the Acquisition or the other transactions contemplated by the
terms of this Agreement which would permit consummation of
51
the Acquisition only (i) if material divestitures were made, (ii) if Buyer were
to agree to material limitations on the business activities or operations of
Buyer or the Companies or (iii) upon satisfaction of any other condition or
requirement, the effect of which, either individually or in the aggregate, in
the reasonable opinion of Buyer, would materially adversely effect the business
or operations of Buyer or the Companies or the consummation of the transactions
contemplated by this Agreement.
(f) Corporate Legal Opinion. Buyer shall have received a
legal opinion from Xxxxx & Xxxxxxx, corporate counsel to the Companies, in the
form attached as Exhibit L.
(g) Ancillary Agreements. Each of the Stockholders shall
have executed and delivered to Buyer the Stock Restriction Agreement and the
Investor Rights Agreement, each of the persons listed in Section 6.14 shall have
executed and delivered to Buyer a Consulting Agreement, Xxxxxx Xxxx shall have
executed and delivered to Buyer the Employment Agreement, each of the persons
listed in Section 6.20 shall have executed and delivered to Buyer a
Non-Competition Agreement, Xxxxxx X. Xxxxx shall have executed and delivered to
Buyer the Confidentiality Agreement, and each of the Stockholders who is to
become a member of Parent shall have executed and delivered to Buyer the LLC
Agreement (or a Joinder Agreement with respect thereto).
(h) No Material Adverse Change. There shall have occurred
no Material Adverse Change.
(i) Acquisition of WCMG. Buyer shall have consummated the
acquisition of all of the outstanding capital stock of WCMG (other than any
shares of such capital stock, not to exceed 10% of the total number of shares of
such outstanding capital stock, the holders of which shall have delivered timely
written notice of their intent to demand payment as a dissenting shareholder for
such shares), pursuant to the terms of the WCMG Acquisition Agreement.
(j) 401(k) Plan Matters. Each Company shall have provided
to Buyer (i) executed resolutions of the Board of Directors of such Company (or,
in the case of Comprehensive LLC, of its managers and members) terminating their
participation in the CHMI 401(k) Plan, and providing that Statcare, Inc. shall
become the plan sponsor of the CHMI 401(k) Plan, in each case effective at or
prior to the Closing, and (ii) copies of all Form 5500 reports required to be
filed pursuant to Section 6.25, and evidence satisfactory to Buyer that such
reports shall have been duly filed and all applicable penalty amounts shall have
been paid.
(k) Release of Claims. Each Stockholder shall have
executed and delivered to Buyer a Stockholder Release.
(l) Resignations. Buyer shall have received each of the
resignations described in Section 6.16.
(m) Minimum Capital Requirements. The Estimated Closing
Date Balance Sheets delivered by the Stockholders shall satisfy the Minimum
Capital Requirements.
(n) Release of Liens. Buyer shall have received the UCC-3
termination statements and other documentation referred to in Section 6.23.
52
(o) Insurance Policies. Buyer shall have received
evidence satisfactory to it that the covenants set forth in Section 6.24 shall
have been complied with.
(p) Governmental and Regulatory Approvals. Approvals from
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated hereby shall have been obtained without the imposition
of any conditions or requirements which are materially adverse to Buyer.
(q) Forms 8023. The Stockholders shall have duly executed
and delivered to Buyer an IRS Form 8023 and any corresponding state tax forms
with respect to each of the Companies for which an Election may be made, which
forms shall be completed and utilized by Buyer in making any Election pursuant
and subject to the procedures set forth in this Agreement.
(r) Warrant Agreement. The Stockholders shall have duly
executed and delivered to Buyer the Warrant Agreement.
(s) Bay Area. Bay Area Primary Care, Inc. and Bay Area
MultiSpecialty of Tampa, Inc. shall have executed and delivered the agreements
described in the last sentence of Section 6.17.
ARTICLE 9
INDEMNIFICATION
9.1 Survival. Notwithstanding any right of Buyer (whether or not
exercised) to investigate the affairs of the Companies (whether pursuant to
Section 6.1 or otherwise) or any waiver by Buyer, the Stockholders or the
Companies of any condition to Closing set forth in Article 8, each party shall
have the right to rely fully upon the representations, warranties, covenants and
agreements of the other parties contained in this Agreement or in any instrument
delivered pursuant to this Agreement. Each of the representations and warranties
made by the Companies in this Agreement shall expire at the Closing; provided,
however, each of such representations and warranties made jointly and severally
by the Stockholders shall survive and continue as provided herein. Each of the
representations and warranties made by the Stockholders (including those made
jointly and severally with the Companies) and Buyer in this Agreement, other
than those in Sections 2.3 [Capitalization], 2.14 [Tax], 2.19 [Permits], 2.23
[Government Healthcare Matters], 2.24 [Subscriber Agreements], 2.36
[Environmental Matters] and 4.3 [Capitalization] (such representations and
warranties, the "Special Representations") or in any instrument delivered
pursuant to this Agreement shall survive the Acquisition and continue until the
third anniversary of the Closing Date (the "General Expiration Date"). The
Special Representations shall survive the Acquisition and continue until the
fifth anniversary of the Closing Date (the "Special Expiration Date"). No claim
by any Indemnified Party for the recovery of Indemnifiable Losses with respect
to (a) any of the representations or warranties in this Agreement may be
asserted after the General Expiration Date or the Special Expiration Date, as
applicable, (b) any of the matters specified in clauses (iii) (other than any
claim, cause of action, Action or Proceeding of any Governmental or Regulatory
Authority) or (iv) of Section 9.2(a) may be asserted after the General
Expiration Date and (c) any of the matters specified in clauses (iii) (other
than any claim, cause of action, Action or Proceeding of any third party that is
not a Governmental or Regulatory Authority) or (v) of Section 9.2(a) or clause
(iii) of Section
53
9.2(b) may be asserted after the Special Expiration Date; provided, however,
that claims for Indemnifiable Losses first asserted prior to the applicable date
shall not thereafter be barred. Notwithstanding the foregoing General Expiration
Date or Special Expiration Date, (i) no representation or warranty made under
this Agreement shall survive any earlier date that the Senior Subordinated Note
is fully paid, satisfied and canceled and (ii) no claim by any Indemnified Party
for the recovery of Indemnifiable Losses with respect to any of the matters
specified in clauses (i), (iii), (iv) and (v) of Section 9.2(a) or in clauses
(i) or (iii) of Section 9.2(b) may be asserted after the Senior Subordinated
Note is fully paid, satisfied and canceled.
9.2 Indemnification.
(a) The Stockholders shall, jointly and severally,
indemnify and hold harmless Buyer and its Affiliates, officers, directors,
employees, agents, successors and assigns (each, a "Buyer Indemnified Party"),
jointly and severally, from and against any and all Liabilities, losses, damages
(excluding special and consequential damages, other than any such damages
awarded to any third party in connection with Liabilities asserted against any
Indemnified Party), claims, costs, expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable attorneys' and consultants'
fees and expenses) (collectively, "Indemnifiable Losses") suffered or incurred
by a Buyer Indemnified Party (including, without limitation, any Actions or
Proceedings brought or otherwise initiated by any of them), arising out of or
resulting from (i) the inaccuracy of any representation or warranty made by any
of the Stockholders or the Companies, whether jointly or individually and
contained herein or in any exhibit or schedule attached hereto or in any
Ancillary Agreement, (ii) the breach of any covenant or agreement by the
Stockholders or the Companies, whether jointly or individually and contained
herein or in any exhibit or schedule attached hereto or in any Ancillary
Agreement, (iii) any claim, cause of action, Action or Proceeding of any third
party (including, without limitation, any Governmental or Regulatory Authority)
to the extent arising out of any action, inaction, fact, event, circumstance,
condition, liability or obligation of any Company or any Stockholder occurring
or existing prior to the Closing, except for liabilities and obligations
reflected on the Interim Financial Statements and employee payroll obligations,
and other accounts payable incurred in the ordinary course of business after the
Interim Financial Statement Date, (iv) the failure by any of the Companies prior
to the Closing to comply with any applicable Laws, including all Laws
promulgated by any Governmental or Regulatory Authority, (v) any Taxes of any of
the Companies for any taxable periods which end on or prior to the Closing Date,
or attributable to any Pre-closing Period, or (vi) any dispute among the
Stockholders, including, without limitation, any dispute relating to the
allocation of the Purchase Price among the Stockholders or the conduct of the
Stockholder Representative; provided, however, that the Stockholders shall have
no liability for (x) the payment of any loss attributable to or resulting from
any action of Buyer that is not permitted under Section 7.6(a)-(c), including,
but not limited to, an election made or deemed made by Buyer under Section 338
of the Internal Revenue Code or any comparable provision of state law that is
not permitted under Section 7.6 (for purposes of clarification, an election
under Section 338(h)(10) of the Internal Revenue Code and comparable provisions
of state law with respect to the Companies is permitted under Section 7.6) and
(y) any Taxes on built-in gain arising under Section 1374 of the Internal
Revenue Code or comparable provisions of state law imposed upon Well Care HMO;
and provided, further, that, except with the Stockholder Representative's
consent, the Stockholders shall have no liability for any Tax the payment of
which was made without compliance with the terms of Section 7.4 to the extent
54
applicable. Notwithstanding the foregoing, no Buyer Indemnified Party shall be
entitled to indemnification on account of any Indemnifiable Losses arising out
of or relating to (A) the failure or invalidity of the Election, other than by
reason of the breach of a covenant, representation or warranty by any of the
Companies or the Stockholders hereunder (not including the representation set
forth in Section 2.14(p)) or (B) the matters specified in clauses (i), (iii) or
(iv) of the previous sentence unless and until the aggregate of all such
Indemnifiable Losses exceeds $575,000 (the "Buyer Indemnification Threshold"),
in which case the Buyer Indemnified Parties shall be entitled to the full amount
of all Indemnifiable Losses hereunder. The Buyer Indemnification Threshold shall
not be applicable to, and the Buyer Indemnified Parties shall be entitled to
indemnification on account of any and all Indemnifiable Losses arising out of or
relating to, the matters specified in clauses (ii), (v) and (vi) of the first
sentence of this Section 9.2(a). For purposes of this Section, in the case of
any Taxes that are payable for a Tax period that includes (but does not end on)
the Closing Date, the portion of such tax related to the portion of such Tax
period ending on and including the Closing Date shall (i) in the case of any
Taxes other than gross receipts, sales or use Taxes and Taxes based upon or
related to income, be deemed to be the amount of such Tax for the entire Tax
period multiplied by a fraction, the numerator of which is the number of days in
the entire Tax period ending on and including the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (ii) in
the case of any Tax based upon or related to income and gross receipts, sales or
use Tax be deemed equal to the amount which would be payable if the relevant Tax
period ended on and included the Closing Date. The portion of any credits
relating to a Tax period that begins before and ends after the Closing Date
shall be determined as though the relevant Tax period ended on and included the
Closing Date. All determinations necessary to give effect to the foregoing
allocations of Tax shall be made in a manner consistent with the prior practice
of the Companies.
(b) The Buyer shall indemnify and hold harmless each
Stockholder and each of their respective Affiliates, agents, successors and
assigns (each, a "Seller Indemnified Party") from and against any and all
Indemnifiable Losses arising out of or resulting from (i) the inaccuracy of any
representation or warranty made by Buyer, whether contained herein or in any
agreement, exhibit or schedule attached hereto or in any Ancillary Agreement,
(ii) the breach of any covenant or agreement by Buyer, whether contained herein
or in any agreement, exhibit or schedule attached hereto or in any Ancillary
Agreement, or (iii) any Taxes of any of the Companies for any taxable period
commencing after the Closing Date, or for any Straddle Period (other than Taxes
attributable to the Pre-closing Period). Notwithstanding the foregoing, no
Seller Indemnified Party shall be entitled to indemnification on account of any
Indemnifiable Losses arising out of or relating to the matters specified in
clause (i) of the previous sentence unless and until the aggregate of all such
Indemnifiable Losses exceeds $575,000 (the "Seller Indemnification Threshold"),
in which case the Seller Indemnified Parties shall be entitled to the full
amount of all Indemnifiable Losses hereunder. The Seller Indemnification
Threshold shall not be applicable to, and the Seller Indemnified Parties shall
be entitled to indemnification on account of any and all Indemnifiable Losses
arising out of or relating to, the matters specified in clauses (ii) and (iii)
of the first sentence of this Section 9.2(b).
(c) The indemnification obligation of an Indemnifying
Party shall be adjusted upward or downward so as to give effect to any net
increase or reduction in federal, state, local or foreign income or franchise
tax liability actually realized at any time by the Indemnified Party
55
in connection with the satisfaction by the Indemnifying Party of the
Indemnifiable Losses with respect to which indemnification is sought hereunder.
(d) The obligation of any Indemnifying Party to indemnify
any Indemnified Party on account of any Indemnifiable Losses shall be reduced by
the full amount of any insurance proceeds actually collected by the Indemnified
Party with respect to such Indemnifiable Losses or the underlying facts relating
to such Indemnifiable Losses; provided, however, that any such amount credited
to an Indemnifying Party shall not count against the Buyer Indemnification Cap
or the Stockholder Indemnification Cap in determining whether the Buyer
Indemnification Cap or the Stockholder Indemnification Cap, as applicable, has
been met. The Indemnified Party shall either (i) in good faith and with
reasonable diligence seek any such insurance proceeds which may be available to
it with respect to any Indemnifiable Losses or (ii) assign to the Indemnifying
Party the right to seek such insurance proceeds.
(e) Any Buyer Indemnified Party or Seller Indemnified
Party (as applicable, an "Indemnified Party") shall give the indemnifying party
hereunder (the Stockholders or Buyer, as applicable, an "Indemnifying Party")
notice of any matter with respect to which an Indemnified Party determines to
seek indemnification under this Agreement, stating the amount of the
Indemnifiable Loss, if known, and method of computation thereof. The obligations
and liabilities of any Indemnifying Party under this Article 9 with respect to
Indemnifiable Losses arising from claims of any third party which are subject to
the indemnification provided for in this Article 9 ("Third Party Claims") shall
be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim within 15 days of the receipt by the Indemnified Party of such
notice; provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this Article 9
except to the extent the Indemnifying Party is materially prejudiced by such
failure. The Indemnifying Party shall be entitled to assume and control the
defense of such Third Party Claim at its expense and through counsel of its
choice, subject to the approval of the Indemnified Party, which approval shall
not be unreasonably withheld, if the Indemnifying Party gives notice of its
intention to do so to the Indemnified Party within 15 days of the receipt of
such notice from the Indemnified Party; provided, however, that if (i) there
exists or is reasonably likely to exist a conflict of interest that would make
it inappropriate in the judgment of the Indemnified Party, in its reasonable
discretion, for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, (ii) the Indemnifying Party shall not have engaged counsel
reasonably satisfactory to the Indemnified Party within a reasonable time after
notice of the commencement of the Third Party Claim, or shall otherwise fail to
actively and in good faith defend against such Third Party Claim, or (iii) such
Third Party Claim involves remedies or disputes other than claims for monetary
damages, or (iv) would impair ongoing business relationships with any material
provider or with any Governmental or Regulatory Authority, then the Indemnified
Party shall be entitled to retain and control the defense of such Third Party
Claim, using counsel of its own choice, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the sole cost and expense
of the Indemnifying Party. In the event the Indemnifying Party exercises the
right to undertake any such defense against any such Third Party Claim as
provided above, the Indemnified Party shall make reasonable efforts to cooperate
with the Indemnifying Party in such defense and make available to the
Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent
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records, materials and information in the Indemnified Party's possession or
under the Indemnified Party's control relating thereto as is reasonably required
by the Indemnifying Party. Similarly, in the event the Indemnified Party is,
directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnifying Party shall make reasonable efforts to cooperate with
the Indemnified Party in such defense and make available to the Indemnified
Party, at the Indemnifying Party's expense, all such witnesses, pertinent
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
any Indemnified Party without the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld. No such Third Party
Claim may be settled by any Indemnifying Party without the prior written consent
of the Indemnified Party, which consent shall not be unreasonably withheld,
unless such settlement (i) includes as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Party of a release from all
Liabilities in respect of such Third Party Claim, (ii) does not impose any
obligations of any kind upon the Indemnified Party and (iii) does not otherwise
impair ongoing business relationships with any material provider or Governmental
or Regulatory Authority of the Indemnified Party. In the event of any claim by
an Indemnified Party for an Indemnifiable Loss that does not involve a Third
Party Claim, if the Indemnifying Party disputes its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party shall proceed in
good faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction.
(f) Buyer's exclusive source of recovery of amounts due
on account of any Indemnifiable Losses shall be the Senior Subordinated Note,
the principal amount of which shall be decreased as provided therein by the
amount of any such Indemnifiable Losses, and as a result of such decrease, the
Stockholders shall be deemed to have satisfied their indemnification obligations
under this Article 9 with respect thereto in full and shall have no further
liability with respect thereto; provided, however, that in no event shall the
total amount of Indemnifiable Losses for which the Stockholders shall be liable
under this Agreement exceed $37,000,000 (the "Stockholder Indemnification Cap");
and provided, further, that in the event of (i) Indemnifiable Losses that are
found in a final, nonappealable judgment by a court of competent jurisdiction to
have resulted from any fraudulent acts of any Company or Stockholder, (ii) any
breach of subsections (a) through (f) of Section 2.3, the first two sentences of
Section 3.1 or Section 3.2, (iii) any breach by any Company or Stockholder of
any of the covenants or agreements contained herein, or (iv) Indemnifiable
Losses arising out of or relating to the matters specified in clauses (v) or
(vi) of the first sentence of Section 9.2(a), Buyer shall not be limited as to
source or amount of recovery, and shall be entitled to seek all other remedies
available under Law or equity.
(g) The Stockholders' exclusive source of recovery of
amounts due on account of any Indemnifiable Losses shall be the Senior
Subordinated Note, the principal amount of which shall be increased as provided
therein by the amount of any such Indemnifiable Losses, and as a result of such
increase, Buyer shall be deemed to have satisfied its indemnification
obligations under this Article 9 with respect thereto in full and shall have no
further liability with respect thereto; provided, however, that in no event
shall the total amount of Indemnifiable Losses for which Buyer shall be liable
under this Agreement exceed $37,000,000 (the "Buyer Indemnification Cap"); and
provided, further, that in the event of (i) Indemnifiable Losses that
57
are found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from any fraudulent acts of Buyer or (ii) any
breach of either of the first two sentences of Section 4.1, Section 4.2(a) or
Section 4.3 (iii) any breach by Buyer of any of the covenants or agreements
contained herein, or (iv) Indemnifiable Losses arising out of or relating to the
matters specified in clause (iii) of the first sentence of Section 9.2(b), the
Stockholders shall not be limited as to source or amount of recovery, and shall
be entitled to seek all other remedies available under Law or equity.
(h) Each of the Stockholders hereby waives any right to
contribution or any similar rights it may have against any of the Companies
arising out of the Stockholders' agreement to indemnify Buyer pursuant to this
Article 9.
(i) Upon making any indemnification payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnified Party against any third party (other than the
Consolidated Entities, any material provider or any Governmental or Regulatory
Authority) in respect of the Indemnifiable Losses to which the payment relates.
(j) Each Indemnified Party shall use its commercially
reasonable efforts to mitigate to the extent reasonably practicable the amount
of any Indemnifiable Losses for which it is entitled to seek indemnification
hereunder.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.2 below, this
Agreement may be terminated and the Acquisition cancelled at any time prior to
the Closing Date:
(a) by mutual written agreement of Buyer and the
Stockholder Representative;
(b) by Buyer or the Stockholders if: (i) the Closing Date
has not occurred before 5:00 p.m. (Eastern Time) on October 31, 2002 (provided,
however, that (A) the right to terminate this Agreement under this Section
10.1(b)(i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Closing Date to occur on or before such date and (B) such date shall
automatically be extended until December 31, 2002 in the event that any of the
conditions set forth in Section 8.1(a), 8.2(i) or 8.3(p) shall not have been
satisfied by October 31, 2002); (ii) there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the
Acquisition; (iii) there shall be any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Acquisition by any
Governmental or Regulatory Authority that would make consummation of the
Acquisition illegal; or (iv) any of the Approvals required to be obtained from
any Governmental or Regulatory Authority to permit the consummation of the
Acquisition as provided in Section 6.5 shall be denied, or shall be granted with
conditions or requirements that are materially adverse to the terminating party,
and any applicable periods to appeal such decision shall have expired (provided,
however, that the right to terminate this Agreement under this Section
10.1(b)(iv) shall not be available to any party whose willful failure
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to fulfill any obligation hereunder has been the cause of, or resulted in, the
failure to obtain such Approval);
(c) by Buyer if there shall be any action taken, or any
Law or Order enacted, promulgated or issued or deemed applicable to the
Acquisition, by any Governmental or Regulatory Authority, which would: (i)
prohibit Buyer's ownership or operation of all or any material portion of the
business of the Companies, (ii) compel Buyer to dispose of or hold separate all
or any portion of the Assets and Properties of the Companies as a result of the
Acquisition, or (iii) prevent or impair Buyer's ability to operate the Companies
in a manner substantially similar to the operations of the Companies prior to
the date of this Agreement;
(d) by Buyer if (i) any representation or warranty of the
Stockholders is not true and correct in any material respect either on the date
of this Agreement or at the Closing, such that the conditions set forth in
clauses (a) or (h) of Section 8.3 would not be satisfied, and, if such breach of
a representation or warranty is capable of being cured, such breach shall not
have been fully cured within 15 days following delivery by Buyer to the
Stockholder Representative of written notice of such breach, or (ii) the
Stockholder or the Companies shall not have complied in full with any covenant
or agreement contained in this Agreement, and, if such failure to comply is
capable of being cured, such non-compliance shall not have been fully cured
within 15 days following delivery by Buyer to the Stockholder Representative of
written notice of such non-compliance, or (iii) any Company makes a general
assignment for the benefit of creditors, or any proceeding shall be instituted
by or against any Company seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up or reorganization, arrangement, adjustment,
protection, relief or composition of any Indebtedness under any applicable Laws;
or
(e) by the Stockholders if (i) any representation or
warranty of Buyer is not true and correct in any material respect either on the
date of this Agreement or at the Closing, such that the conditions set forth in
clause (a) of Section 8.2 would not be satisfied, and, if such breach of a
representation or warranty is capable of being cured, such breach shall not have
been fully cured within 15 days following delivery by the Stockholder
Representative to Buyer of written notice of such breach, or (ii) Buyer shall
not have complied in full with any covenant or agreement contained in this
Agreement, and, if such failure to comply is capable of being cured, such
non-compliance shall not have been fully cured within 15 days following delivery
by the Stockholder Representative to Buyer of written notice of such
non-compliance, or (iii) Buyer makes a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against Buyer seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or composition of
any Indebtedness under any applicable Laws.
10.2 Effect of Termination. In the event of a valid termination of
this Agreement as provided in Section 10.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of the
Stockholders, Buyer, or any Company, or their respective officers, directors,
managers, members, stockholders or Affiliates or Associates; provided, however,
that termination of this Agreement shall be without prejudice to any rights any
party may have hereunder against any other party for any breaches of this
Agreement prior to its termination (except that no party shall have any
liability or responsibility for any consequential damages that may be alleged
under this Agreement); and provided, further, that the provisions of
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Sections 6.2, 6.3, Section 10.2 and Article 11, and the applicable definitions
set forth in Article 12, of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission
against facsimile confirmation or mailed by internationally recognized overnight
courier prepaid, to the parties at the following addresses or facsimile numbers:
If to Buyer to:
WellCare Acquisition Company
00 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxxx, Chief Executive Officer
with a copy to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
0000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxxx Xxxxxxx, Esq.
If to the Companies (prior to the Closing) to:
Well Care Companies
0000 Xxxx Xxxxx, Xxxxx 000
Xxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx Xxxxx, Esq.
with a copy to:
Xxxxx & Xxxxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxx, Esq.
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If to the Stockholders to:
Xxxxx X. Xxxxx, M.D.
00000 Xxxxxxxxxx Xx.
Xxxxx, XX
Facsimile No.: (000) 000-0000
with copies to:
Xxxxx & Lardner
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxx, Esq.
and to:
Xxxxxx X. Xxxxx, Esq.
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section 11.1, be deemed given upon
delivery, (b) if delivered by facsimile transmission to the facsimile number as
provided for in this Section 11.1, be deemed given upon facsimile confirmation,
and (c) if delivered by overnight courier to the address as provided in this
Section 11.1, be deemed given on the earlier of the first Business Day following
the date sent by such overnight courier or upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this Section
11.1). Any party from time to time may change its address, facsimile number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
11.2 Expenses. Regardless of whether the Closing occurs, the
parties hereto shall pay their own Expenses except that (a) contemporaneously
with the execution of this Agreement, the Companies shall pay to Buyer, by wire
transfer of immediately available funds, the sum of $125,000, and (b) at or
before the Closing, or if the Closing does not occur, upon the termination of
this Agreement, the Companies shall pay to Buyer, by wire transfer of
immediately available funds, an additional $90,000.
11.3 Entire Agreement; Modification. This Agreement and the
Exhibits and Schedules hereto, and each of the Ancillary Agreements, constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof. This Agreement may
be amended or modified only by an instrument in writing duly executed by the
parties to this Agreement.
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11.4 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
11.5 Third Party Beneficiaries. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights, and this Agreement does not
confer any such rights, upon any other Person other than any Person entitled to
indemnity under Article 9.
11.6 No Assignment; Binding Effect. Subject to Section 1.1, neither
this Agreement nor any right, interest or obligation hereunder may be assigned
(by operation of law or otherwise) by any party without the prior written
consent of the other party and any attempt to do so will be void. Subject to the
preceding sentence, this Agreement is binding upon, inures to the benefit of and
is enforceable by the parties hereto and their respective successors and
assigns.
11.7 Headings. The headings and table of contents used in this
Agreement have been inserted for convenience of reference only and do not define
or limit the provisions hereof.
11.8 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
11.10 Jurisdiction; Venue. All actions and proceedings arising out
of or relating to this Agreement shall be heard and determined in any New York
state or federal court sitting in the City of New York, and each party hereby
irrevocably accepts and consents to the exclusive personal jurisdiction of those
courts for such purpose. In addition, each party hereby irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any action or proceeding arising out of or
relating to this Agreement or any judgment entered by any court in respect
thereof brought in any state or federal court sitting
62
in the city of New York and further irrevocably waives any claim that any action
or proceeding brought in any such court has been brought in an inconvenient
forum.
11.11 Waiver of Trial by Jury. IN ANY ACTION OR PROCEEDING ARISING
HEREFROM, THE PARTIES HERETO CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER OR
THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION OR PROCEEDING.
11.12 Interpretation. The parties hereto agree that this Agreement
is the product of negotiation between sophisticated parties and individuals, all
of whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction.
11.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
11.14 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof.
ARTICLE 12
DEFINITIONS
12.1 Definitions. As used in this Agreement, certain defined terms
shall have the meanings set forth in Exhibit C and the following defined terms
shall have the meanings set forth below:
"Acquisition" has the meaning set forth in Recital A.
"Actions or Proceedings" means any action, suit, complaint, petition,
investigation, proceeding, arbitration, litigation, audit or other proceeding,
whether civil, criminal or administrative, in law or in equity, or commenced by
or before any arbitrator or Governmental or Regulatory Authority.
"Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, (b) any other Person that owns or controls (i) ten percent (10%) or
more of any class of equity securities of that Person or any of its Affiliates
or (ii) ten percent (10%) or more of any class of equity securities (including
any equity securities issuable upon the exercise of any option or convertible
security) of that Person or any of its Affiliates, or (c) as to a corporation,
each director and officer thereof, and as to a partnership, each general partner
thereof, and as to a limited liability company, each
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managing member or similarly authorized person thereof (including officers), and
as to any other entity, each Person exercising similar authority to those of a
director or officer of a corporation. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by", and "under common control with") as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
ownership of voting securities or by contract or otherwise.
"Agency Audits" means any audits and all other state or federal audits,
recoupments and overpayment, false claim, fine or penalty actions, in each case
including any threatened or preliminary reports, audits, recoupments and
overpayment, false claim, fine or penalty actions, (i) covering any of the
following, or any matter similar to any of the following: Medicare/Medicaid dual
HMO enrollment, newborn eligibility payments, downward substitution of (nursing
home) care, death audits (payments for deceased members), recipients enrolled in
counties with no certificates of authority, recipients ineligible for HMO
coverage, coordination of benefits, patient responsibility, deductible, dual
payments to another provider, and non-compliance with the Medicaid or Medicare
HMO/managed care contract or applicable Laws, including but not limited to
non-compliance with quality assurance requirements, reporting requirements,
emergency room and other claim payment requirements, marketing practices
requirements, employee compensation requirements, member grievance requirements
or similar matters, or (ii) conducted or threatened to be conducted by the CMS,
the DOI or AHCA.
"Agreement" means this Purchase Agreement, including (unless the
context otherwise requires) the Exhibits and Schedules and the certificates and
instruments delivered in connection herewith, or incorporated by reference, as
the same may be amended or supplemented from time to time in accordance with the
terms hereof.
"AHCA" means the Agency for Health Care Administration of the State of
Florida.
"Allocation Schedule" has the meaning set forth in Section 7.1(c).
"Ancillary Agreements" means the Senior Subordinated Note, the Pledge
Agreement, the LLC Agreement, the Consulting Agreements, the Non-Competition
Agreements, the Warrant Agreement, the Investor Rights Agreement and the
Stockholder Releases.
"Approval" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from or made with, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental or Regulatory Authority or any
other Person.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned, licensed or leased by such Person, including cash,
cash equivalents, Investment Assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.
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"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of ten percent (10%) or more of any
class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Audited Financial Statements" means the following financial
statements, in each case, as audited by the Stockholders' Accountants: (a) with
respect to Well Care HMO, the statements of admitted assets, liabilities and
surplus - statutory basis as of December 31, 2001 and December 31, 2000, and the
related statements of income - statutory basis, changes in surplus - statutory
basis and cash flows - statutory basis for the years ended December 31, 2001 and
December 31, 2000; (b) with respect to HealthEase, the statements of admitted
assets, liabilities and surplus - statutory basis as of December 31, 2001 and
December 31, 2000, and the related statements of income - statutory basis,
statements of cash flows - statutory basis and changes in surplus - statutory
basis for the years ended December 31, 2001 and December 31, 2000; and (c) with
respect to CHM, the balance sheets as of December 31, 2001 and December 31,
2000, and the related statements of operations, changes in shareholders' equity
and cash flow for the years ended December 31, 2001 and December 31, 2000.
"Audited Financial Statement Date" means December 31, 2001.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the business or Assets and Properties of a
Company, including financial statements, internal reports, Tax Returns and all
related work papers, schedules, correspondence, auditor communications,
actuarial worksheets or calculations, budgets, pricing guidelines, ledgers,
journals, deeds, title policies, minute books, stock certificates and books,
stock transfer ledgers, Contracts, Licenses, customer lists, computer files,
claims data, medical management information and programs (including data
processing files and records), retrieval programs, operating data and plans and
environmental studies and plans.
"Business Combination" means, with respect to any Person, (a) any
merger, consolidation, share exchange reorganization or other business
combination transaction to which such Person is a party, (b) any sale, dividend,
split or other issuance or disposition of any capital stock or other equity
interests of such Person (except for issuances of common stock upon conversion
of preferred stock outstanding on the date hereof or the exercise of options or
warrants outstanding on the date hereof or issued in accordance with the
covenants of this Agreement), (c) any tender offer (including a self tender),
exchange offer, recapitalization, restructuring, liquidation, dissolution or
similar or extraordinary transaction, (d) any sale, dividend or other
disposition of all or a material or significant portion of the Assets and
Properties of such Person (including by way of exclusive license or joint
venture formation) or (e) the entering into of any agreement or understanding,
the granting of any rights or options, or the acquiescence of such Person, with
respect to any of the foregoing.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
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"Buyer" has the meaning set forth in the forepart of this Agreement.
"Buyer 401(k) Plan" has the meaning set forth in Section 6.9.
"Buyer Indemnified Party" has the meaning set forth in Section 9.2.
"Buyer Indemnification Cap" has the meaning set forth in Section 9.2.
"Buyer Indemnification Threshold" has the meaning set forth in Section
9.2(b).
"Buyer Representatives" has the meaning set forth in Section 6.1.
"Buyer Shares" has the meaning set forth in Section 3.3.
"Cash Consideration" has the meaning set forth in Section 1.2.
"Cash Shortfall Amount" has the meaning set forth in Section 1.3(b).
"CHM" has the meaning set forth in the forepart of this Agreement.
"CHM Cash Amount" shall mean the amount of cash set forth on the
Estimated Closing Date Balance Sheet for CHM.
"CHM Common Stock" has the meaning set forth in Section 2.3.
"CHM Working Capital Adjustment Amount" has the meaning set forth in
Section 1.3(b).
"CHM Working Capital Amount" shall mean the positive or negative number
calculated as (a) the estimated total current assets (determined in accordance
with GAAP), as of the Closing Date, reflected on the Estimated Closing Date
Balance Sheet for CHM reduced by (b) the estimated total current liabilities
(determined in accordance with GAAP), as of the Closing Date, reflected on the
Estimated Closing Date Balance Sheet for CHM; provided, however, that the Cash
Shortfall Amount, if any, shall be added to the total current assets of CHM as
of the Closing Date for purposes of calculating the CHM Working Capital Amount
(and for no other purpose).
"CHMI 401(k) Plan" has the meaning set forth in Section 6.9.
"Closing" has the meaning set forth in Section 1.5.
"Closing Date" has the meaning set forth in Section 1.5.
"CMS" means the United States Center for Medicare and Medicaid
Services.
"COBRA" has the meaning set forth in Section 2.18.
"COBRA Coverage" has the meaning set forth in Section 6.26.
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"Commercial Lines of Business" shall mean all commercial lines of
business of Well Care HMO, whether large group, small group, individual or point
of service but shall exclude all Medicare business.
"Companies' Financials" means the Audited Financial Statements for each
of the Companies, the Comprehensive LLC Financial Statements and the Interim
Financial Statements.
"Companies' GAAP Financials" has the meaning set forth in Section 2.8.
"Companies' SAP Financials" has the meaning set forth in Section 2.8.
"Companies' Intellectual Property" shall mean any Intellectual Property
that (a) is owned by; (b) is licensed to; (c) was developed or created by or for
any Company or (d) is used in or necessary for the conduct of the business of
each Company as presently or heretofore conducted or as proposed to be
conducted, including any Intellectual Property created by any of the Companies'
founders, employees or consultants and including any Intellectual Property
created by any of the Companies' founders prior to the creation of such Company.
"Company" and "Companies" have the meanings ascribed to them in the
forepart of this Agreement.
"Company Acquisition" and "Company Acquisitions" shall have the
meanings ascribed to them in Section 2.15 of this Agreement.
"Company Plan" means a Plan maintained by a Company, or to which a
Company contributes, for the benefit of its current or former employees.
"Competing Proposed Transaction" has the meaning set forth in Section
6.4.
"Comprehensive LLC" has the meaning set forth in the forepart of this
Agreement.
"Comprehensive LLC Financial Statements" means the financial statements
of Comprehensive LLC for the years ended December 31, 2001 and December 31,
2000.
"Comprehensive LLC Units" has the meaning set forth in Section 2.3.
"Consulting Agreements" has the meaning set forth in Section 6.14.
"Contract" means any contract, agreement, arrangement or understanding,
whether oral or written.
"Designated Contract" means any Contract of the following types:
(i) any distributor, sales, advertising, agency or
manufacturer's representative Contract;
(ii) any continuing Contract for the purchase of
materials, supplies, equipment or services involving more than $100,000 per
annum;
67
(iii) any Contract with any officer, director, employee,
consultant, or Affiliate or Associate of the foregoing;
(iv) any Contract that expires, or may be renewed at the
option of any person other than a Company so as to expire, more than one year
after the date of this Agreement;
(v) any trust indenture, mortgage, promissory note, loan
agreement or other Contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with generally accepted accounting
principles;
(vi) any Contract for capital expenditures in excess of
$100,000 in the aggregate;
(vii) any Contract limiting the freedom of any Company to
engage in any line of business or to compete with any other Person or any
confidentiality, secrecy or non-disclosure Contract;
(viii) any Contract pursuant to which a Company is a lessor
or lessee of any machinery, equipment, motor vehicles, office furniture,
fixtures or other personal property involving in the case of any such Contract
more than $50,000 per annum; or
(ix) any Contract of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person.
"DOI" means the Department of Insurance in the State of Florida.
"Election" has the meaning set forth in Section 7.1(b).
"Environment" means air, surface water, ground water, or land,
including land surface or subsurface, and any receptors such as persons,
wildlife, fish, biota or other natural resources.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the CHM Environmental
Response, Compensation and Liability Information System, or on any similar state
list of sites relating to investigation or cleanup, or which is the subject of
any pending or threatened action, suit, proceeding, or investigation related to
or arising from any location at which there has been a Release or threatened or
suspected Release of a Hazardous Material.
"Environmental Law" means any federal, state, local or foreign
environmental, health and safety or other Law relating to of Hazardous
Materials, including without limitation the CHM, Environmental Response
Compensation and Liability Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Solid Waste Disposal Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the California Safe Drinking Water and Toxic
Enforcement Act.
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"Environmental Permit" means any permit, license, approval, consent or
authorization required under or in connection with any Environmental Law and
includes without limitation any and all orders, consent orders or binding
agreements issued by or entered into with a Governmental or Regulatory
Authority.
"Equity Equivalents" means securities (including Options to purchase
any shares of capital stock or limited liability company units) which, by their
terms, are or may be exercisable, convertible or exchangeable for or into common
stock, preferred stock, limited liability company units or other securities
either at the election of the holder thereof or otherwise.
"Equity Security" or "Equity Securities" means all shares of capital
stock of all classes, any and all limited liability company units, membership
interests or other equity of any type and all Equity Equivalents.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any corporation or other entity that, along
with any Company, constitutes a controlled group of business within the meaning
of Section 4001(a)(14) of ERISA.
"ERISA Affiliate Plan" means a Plan maintained by an ERISA Affiliate,
other than a Company.
"Estimated Closing Date Balance Sheet" and "Estimated Closing Date
Balance Sheets" have the meanings set forth in Section 1.3.
"Expenses" shall mean all out-of-pocket expenses (including, without
limitation, reasonable attorneys fees and expenses, all fees and expenses of
accountants, financial advisors, experts and consultants) incurred by any party
hereto, or by any of their respective Affiliates or Associates, in connection
with or related to the preparation, negotiation or execution of this Agreement,
the performance of any obligations pursuant to this Agreement or the
consummation of the transactions contemplated hereby, including, without
limitation, the filing of any HSR Act notice or any other filings required to be
filed by any Governmental or Regulatory Authority.
"Final Purchase Price Adjustment" has the meaning set forth in Section
1.4.
"FirstChoice" has the meaning set forth in Recital C.
"Florida HMO Act" means the Florida Health Maintenance Organization
Act, codified at Chapter 641 of the Florida Statutes, and any rules and
regulations promulgated thereunder by the DOI, as from time to time may be
amended.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"General Expiration Date" has the meaning set forth in Section 9.1.
69
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department, official
or other instrumentality of the United States, any state thereof, any foreign
country or any domestic or foreign state, county, city or other political
subdivision, and shall include all self regulatory organizations and insurance
and health care authorities. The foregoing shall include, but not be limited to,
the DOI, the AHCA, any Medicare or Medicaid authorities, the CMS and any other
federal or state insurance, health care, or HMO regulatory body that regulates
any of the Companies.
"Hazardous Material" means (a) any chemical, material, substance or
waste including, containing or constituting petroleum or petroleum products,
solvents (including chlorinated solvents), nuclear or radioactive materials,
asbestos in any form that is or could become friable, radon, lead-based paint,
urea formaldehyde foam insulation or polychlorinated biphenyls, (b) any
chemicals, materials, substances or wastes which are now defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants" or words of similar import under any
Environmental Law, (c) any biohazardous or biomedical waste, as such terms are
defined by the Laws of the State of Florida and the United States, including
Sections 381.0098, 381.0098(2)(a) and 395.1011 of the Florida Statutes or (d)
any other chemical, material, substance or waste which is regulated by any
Governmental or Regulatory Authority or which could constitute a nuisance.
"HealthEase" has the meaning set forth in the forepart of this
Agreement.
"HealthEase Common Stock" has the meaning set forth in Section 2.3.
"HLHZ" means Xxxxxxxx Xxxxx Xxxxxx and Xxxxx, financial advisor to the
Companies.
"HMO" means health maintenance organization.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Income Tax" means (a) any income, alternative or add-on minimum, gross
income, gross receipts, franchise or profits tax, including estimated taxes
relating to any of the foregoing, or other similar tax or other like assessment
or charge of similar kind whatsoever, excluding any Other Tax, together with any
interest and any penalty, addition to tax or additional amount imposed by any
Taxing Authority responsible for the imposition of any such Tax (domestic or
foreign); or (b) any liability of a Person for the payment of any taxes,
interest, penalty, addition to tax or like additional amount resulting from the
application of Treas. Reg. Section 1.1502-6 or comparable provisions of any
Taxing Authority in respect of a Tax Return of a Relevant Group or any Contract.
"Indebtedness" of any Person means all obligations of such Person (a)
for borrowed money evidenced by notes, bonds, debentures or similar instruments,
(b) for the deferred purchase price of goods or services (other than provider
claims, rent payments and trade payables or accruals incurred in the ordinary
course of business), (c) under capital leases and (d) in the nature of
guarantees of the obligations described in clauses (a) through (c) above of any
other Person.
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"Indemnifiable Losses" has the meaning set forth in Section 9.2.
"Indemnified Party" has the meaning set forth in Section 9.2.
"Indemnifying Party" has the meaning set forth in Section 9.2.
"Initial Principal Amount" has the meaning set forth in Section 1.2.
"Intellectual Property" means all trademarks and trademark rights,
trade names and trade name rights, service marks and service xxxx rights,
service names and service name rights, patents and patent rights, utility models
and utility model rights, copyrights, mask work rights, brand names, trade
dress, product designs, product packaging, business and product names, logos,
slogans, rights of publicity, trade secrets, inventions (whether patentable or
not), invention disclosures, improvements, processes, formulae, industrial
models, processes, designs, specifications, technology, methodologies, computer
software (including all source code and object code), firmware, development
tools, flow charts, annotations, all Web addresses, sites and domain names, all
data bases and data collections and all rights therein, any other confidential
and proprietary right or information, whether or not subject to statutory
registration, and all related technical information, manufacturing, engineering
and technical drawings, know-how and all pending applications for and
registrations of patents, utility models, trademarks, service marks and
copyrights, and the right to xxx for past infringement, if any, in connection
with any of the foregoing, and all documents, disks, records, files and other
media on which any of the foregoing is stored.
"Inter-Company Notes" has the meaning set forth in Section 2.3.
"Interim Financial Statements" means the unaudited consolidated balance
sheet of the Companies as of March 31, 2002, and the related unaudited statement
of operations and statement of cash flows for the three-month period ended on
such date.
"Interim Financial Statement Date" means March 31, 2002.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans, margin accounts
and other investment or portfolio assets owned of record or beneficially by the
Companies.
"Investor Rights Agreement" has the meaning set forth in Section 6.20.
"IRS" means the United States Internal Revenue Service or any successor
entity.
"Law" or "Laws" means any law, statute, order, decree, consent decree,
judgment, rule, regulation, ordinance or other pronouncement having the effect
of law whether in the United States, any foreign country, or any domestic or
foreign state, county, city or other political
71
subdivision or of any Governmental or Regulatory Authority. "Law" and "Laws"
shall include, but not be limited to, all Laws relating to (i) the licensure,
certification, qualification or authority to transact business relating to the
provision of and/or payment for health benefits and insurance, including but not
limited to ERISA, the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, the Health Insurance Portability and Accounting Act of 1996 and Titles
XVIII and XIX of the United States Code, (ii) all Laws relating to the
regulation of HMOs, workers compensation, managed care organizations, insurance,
preferred provider organizations, point-of-service plans, certificates of need,
third-party administrators, utilization review, coordination of benefits,
hospital reimbursement, Medicare and Medicaid participation, physician
investment, fraud and abuse and patient referrals and (iii) all other Laws
governing the corporate, business, financial or other activities of the
Companies.
"Lease Documents" has the meaning set forth in Section 2.20.
"Leased Real Property(ies)" has the meaning set forth in Section 2.20.
"Liabilities" means all Indebtedness, obligations and other liabilities
of a Person, whether absolute, accrued, contingent (or based upon any
contingency), known or unknown, fixed or otherwise, or whether due or to become
due.
"License" means any Contract that grants a Person the right to use or
otherwise enjoy the benefits of any Intellectual Property (including without
limitation any covenants not to xxx with respect to any Intellectual Property).
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, easement, license, covenant, condition, restriction, adverse claim,
levy, charge, option, equity, adverse claim or restriction or other encumbrance
of any kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing, except for any restrictions on transfer
generally arising under any applicable federal or state securities law.
"LLC Agreement" has the meaning set forth in Section 6.20.
"Material Adverse Change" means any circumstance, change in, or effect
on any Company that, individually or in the aggregate with any other
circumstances, changes in, or effects on, the Company is, or would be reasonably
expected to be, materially adverse to the financial condition, business,
operations, assets or Liabilities, key provider relationships, Governmental or
Regulatory Authority relationships (as they currently exist), compliance with
Laws, results of operations or the condition (financial or otherwise) of any
Company. A Material Adverse Change shall occur, but not be limited to, the
occurrence of the failure of Comprehensive LLC to be treated as a valid
guarantying organization under Section 409.912(14) of the Florida Statutes with
respect to any Medicaid Contract held by Well Care HMO or HealthEase.
"Medicaid" means the applicable provision of Title XIX of the Social
Security Act and the regulations promulgated thereunder and the state laws and
regulations implementing the Medicaid program.
72
"Medicare" means the applicable provisions of Title XVIII of the Social
Security Act and the regulations promulgated thereunder.
"Minimum Capital Requirements" has the meaning set forth in Section
1.3.
"NAIC" means the National Association of Insurance Commissioners.
"Non-Competition Agreement" has the meaning set forth in Section 6.20.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (a) purchase or otherwise receive or be issued any Equity
Securities of such Person or any security of any kind convertible into or
exchangeable or exercisable for Equity Securities or other equity interests of
such Person or (b) receive any benefits or rights similar to any rights enjoyed
by or accruing to the holder of Equity Securities or other equity interests of
such Person, including any rights to participate in the equity, income or
election of directors or officers of such Person.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Other Tax" means any sales, use, ad valorem, business license,
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, value added, custom duty, severance, windfall
profit or license tax, governmental fee or other similar assessment or charge,
together with any interest and any penalty, addition to tax or additional amount
imposed by any Taxing Authority responsible for the imposition of any such tax
(domestic or foreign).
"Owned Real Property" has the meaning set forth in Section 2.20.
"Parent" has the meaning ascribed to it in the forepart of this
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"Permit" or "Permits" means any license, permit, franchise or
authorization.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Plan" mean (a) an "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) and (b) any similar employment, severance or other
arrangement or policy (whether written or oral) providing for health, life,
vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
"Pledge Agreement" has the meaning set forth in Section 6.28.
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"Pre-closing Period" has the meaning set forth in Section 7.2(a).
"PTO" means the United States Patent and Trademark Office.
"Purchase Price" has the meaning set forth in Section 1.2.
"Regulated Entities" means Well Care, HealthEase and, to the extent
regulated, CHM and Comprehensive LLC.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the Environment.
"Relevant Group" has the meaning set forth in Section 2.14.
"Representatives" has the meaning set forth in Section 6.4.
"SAP" means with respect to any Company regulated as an HMO, statutory
accounting principles as defined under Chapter 641 of the Florida Statutes,
including but not limited to the accounting standards as codified by the NAIC.
"SEC" means the Securities and Exchange Commission or any successor
entity.
"SEC Documents" means, with respect to any Person, each report,
schedule, form, statement or other document filed or required to be filed with
the SEC by such Person pursuant to Section 13(a) of the Exchange Act.
"Securities Act" has the meaning set forth in Section 1.9.
"Seller Indemnified Party" has the meaning set forth in Section 9.2.
"Seller Indemnification Cap" has the meaning set forth in Section 9.2.
"Seller Indemnification Threshold" has the meaning set forth in Section
9.2(a).
"Senior Subordinated Note" has the meaning set forth in Section 1.2.
"Shares" means 5,275,312.5 shares of Well Care Common Stock, 1,000
shares of HealthEase Common Stock, 1,000 shares of CHM Common Stock, and
Comprehensive LLC Units representing 100% of the membership interests in
Comprehensive LLC.
"Site" means any of the real properties currently or previously owned,
leased, occupied, used or operated by any Company, any predecessors of such
Company, or any entities previously owned by a Company, including all soil,
subsoil, surface waters and groundwater.
"Social Security Act" means the Social Security Act of the United
States, as amended.
"Special Expiration Date" has the meaning set forth in Section 9.1.
74
"Special Representations" has the meaning set forth in Section 9.1.
"Statutory Surplus" means, with respect to any Regulated Entity, the
amount of such Company's surplus determined in accordance with SAP, which amount
is used to determine compliance with the minimum surplus requirements of Section
641.225 of the Florida Statutes.
"Stock Restriction Agreement" has the meaning set forth in Section
6.20.
"Stockholder" and "Stockholders" have the meanings ascribed to them in
the forepart of this Agreement.
"Stockholder Releases" has the meaning set forth in Section 6.13.
"Stockholder Representative" has the meaning set forth in Section 1.6.
"Stockholders' Accountants" shall mean Deloitte & Touche LLP.
"Straddle Period" has the meaning set forth in Section 7.2.
"Subsidiary" means any Person in which any Company or Buyer, as the
context requires, directly or indirectly through Subsidiaries or otherwise,
beneficially owns at least 50% of either the equity interest in, or the voting
control of, such Person, whether or not existing on the date hereof.
"Surplus Notes" has the meaning set forth in Section 2.3.
"Takeover Statute" means a "fair price," "merger moratorium," "control
share acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States.
"Tax" or "Taxes" means Income Taxes and/or Other Taxes, as the context
requires.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Tax Laws" means the Internal Revenue Code, federal, state, county,
local or foreign laws relating to Taxes and any regulations or official
administrative pronouncements released thereunder.
"Tax Proceedings" has the meaning set forth in Section 7.4.
"Tax Returns" means any return, report, information return, schedule,
certificate, statement or other document (including any related or supporting
information) filed or required to be filed with, or, where none is required to
be filed with a Taxing Authority, the statement or other document issued by, a
Taxing Authority in connection with any Tax.
"Third Party Claims" has the meaning set forth in Section 9.2(e).
75
"Warrant" has the meaning set forth in Section 1.2.
"WCMG" has the meaning set forth in Recital C.
"WCMG Acquisition Agreement" means the Agreement and Plan of Merger of
even date herewith entered into by and among Buyer, a wholly-owned subsidiary of
Buyer and WCMG.
"WCNY" has the meaning set forth in Recital C.
"Well Care Common Stock" has the meaning set forth in Section 2.3.
"Well Care HMO" has the meaning set forth in the forepart of this
Agreement.
12.2 Construction.
(a) Unless the context of this Agreement otherwise
requires, (i) words of any gender include each other gender, (ii) words using
the singular or plural number also include the plural or singular number,
respectively, (iii) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of a Company, (iv) the words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation" and (v) the
predicate of any noun or pronoun shall be the immediately preceding prior noun.
All accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
(b) When used herein, the phrase "to the knowledge of"
any Person, "to the best knowledge of" any Person, "known to" any Person or any
similar phrase, means (i) with respect to any Person who is an individual, the
actual knowledge of such Person, (ii) with respect to any other Person, the
actual knowledge of the directors and officers of such Person and other
individuals that have a similar position or have similar powers and duties as
the officers and directors of such Person, and (iii) in the case of each of (i)
and (ii), the knowledge of facts that such individuals should have after due
inquiry. For this purpose, "due inquiry" with respect to any matter means
inquiry of and consultations with (A) the directors and officers of such Person
and other individuals that have a similar position or have similar powers and
duties as such officers and directors, (B) other employees of and the advisors
to such Person, including legal counsel and outside auditors, who have principal
responsibility for the matter in question or are otherwise likely to have
information relevant to the matter, and (C) the stockholders owning more than
ten percent (10%) of the equity interests, by vote or value, of such Person.
(c) All references to "dollars" or "$" in this Agreement
shall mean United States dollars.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Buyer, Parent, each Stockholder and each Company
have executed this Agreement or caused this Agreement to be signed by their duly
authorized representatives, all as of the date first written above.
WellCare Acquisition Company WellCare Holdings, LLC
By: /s/ Xxxx X. Xxxxx By: /s/ Xxxx X. Xxxxx
------------------------------------- --------------------------------
Xxxx Xxxxx Xxxx Xxxxx
President and Chief Executive President and Chief Executive
Officer Officer
STOCKHOLDERS
/s/ Xxxxx X. Xxxxx /s/ Xxxxxxx Xxxxx
-------------------------------------- --------------------------------
Xxxxx X. Xxxxx Xxxxxxx Xxxxx
/s/ Xxxxxx X. Xxxxx /s/ Xxxxx Xxxxx
-------------------------------------- --------------------------------
Xxxxxx X. Xxxxx Xxxxx Xxxxx
/s/ Xxxxxx Xxxx /s/ Xxxx Xxxx
-------------------------------------- --------------------------------
Xxxxxx Xxxx Xxxx Xxxx
THE COMPANIES
Well Care HMO, Inc. HealthEase of Florida, Inc.
By: /s/ Xxxxxx Xxxx By: /s/ Xxxxxx X. Xxxxx
------------------------------------ ------------------------------
Name: Xxxxxx Xxxx Name: Xxxxxx X. Xxxxx
Title: CEO Title: President
Comprehensive Health Management, Inc. Comprehensive Health Management of
Florida, L.C.
By: /s/ Xxxxxx Xxxx By: /s/ Xxxxx X. Xxxxx
------------------------------------ ------------------------------
Name: Xxxxxx Xxxx Name: Xxxxx X. Xxxxx, M.D.
Title: CEO Title: Manager
77
