AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FOUNDATION HEALTH SYSTEMS, INC.,
PHS ACQUISITION CORP.
and
PHYSICIANS HEALTH SERVICES, INC.
May 8, 1997
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effects of the Merger; Subsequent Actions . . . . . . . . . . . . . . . . 2
1.4 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . 3
1.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Consideration for the Merger; Conversion or Cancellation of Shares in the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Company Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
DISSENTING SHARES; EXCHANGE OF SHARES
2.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Corporate Organization and Qualification. . . . . . . . . . . . . . . . . 8
3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Other Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Authority Relative to this Agreement; Fairness Opinion. . . . . . . . . . 9
3.5 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . . . 10
3.6 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 SEC Reports; Financial Statements . . . . . . . . . . . . . . . . . . . 12
3.8 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . 13
3.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.10 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.12 Compliance with Applicable Law. . . . . . . . . . . . . . . . . . . . . 15
3.13 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.15 Environmental Laws and Regulations. . . . . . . . . . . . . . . . . . . 19
3.16 Computer Systems; Intangible Property . . . . . . . . . . . . . . . . . 20
3.17 DOI Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.18 Covered Lives/Subscribers . . . . . . . . . . . . . . . . . . . . . . . 21
i
PAGE
----
3.19 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.20 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.21 Company Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.22 Certain Real Property . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
4.1 Corporate Organization and Qualification. . . . . . . . . . . . . . . . 22
4.2 Authority Relative to This Agreement. . . . . . . . . . . . . . . . . . 23
4.3 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 SEC Reports; Financial Statements . . . . . . . . . . . . . . . . . . . 25
4.6 Information Supplied. . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.7 Interim Operations of Merger Sub. . . . . . . . . . . . . . . . . . . . 26
4.8 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Conduct of Business of the Company. . . . . . . . . . . . . . . . . . . 26
5.2 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5 Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 Stockholder Meeting; Proxy Materials; Opinion of Financial Advisor. . . 31
5.7 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 Termination of Company Stock Plans. . . . . . . . . . . . . . . . . . . 34
5.9 Indemnification of Directors and Officers . . . . . . . . . . . . . . . 35
5.10 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.11 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 Conditions to Obligations of Parent and Merger Sub. . . . . . . . . . . 37
6.2 Conditions to Obligations of the Company. . . . . . . . . . . . . . . . 37
6.3 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . . 38
ARTICLE VII
TERMINATION OF AGREEMENT
ii
PAGE
----
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.2 Certain Actions Prior to Termination. . . . . . . . . . . . . . . . . . 41
7.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.4 Termination Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.3 Governing Laws and Consent to Jurisdiction. . . . . . . . . . . . . . . 43
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.5 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.6 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.7 Amendment and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.8 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.9 Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.10 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.11 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.12 Disclosure Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.13 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 47
EXHIBIT A Form of Voting Trust Agreement
iii
PAGE
----
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 8,
1997, by and among Foundation Health Systems, Inc., a Delaware corporation
("PARENT"), PHS Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("MERGER SUB"), and Physicians Health Services, Inc., a
Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the
Company have each approved the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, in furtherance thereof, upon the terms and subject to the
conditions set forth in this Agreement, (i) Merger Sub would be merged (the
"MERGER") with and into the Company in accordance with the General
Corporation Law of the State of Delaware ("DELAWARE LAW") and (ii) each share
of Class A Common Stock, par value $.01 per share, together with the
associated Right (as defined in Section 3.2) (collectively, "CLASS A COMMON
STOCK"), and Class B Common Stock, par value $.01 per share, together with
the associated Right (collectively, "CLASS B COMMON STOCK"), of the Company
issued and outstanding (the "SHARES") immediately prior to the Effective Time
(as defined in Section 1.2) would, except as otherwise expressly provided
herein, be converted into the right to receive the Merger Consideration (as
defined in Section 1.8); and
WHEREAS, concurrently herewith and as a condition and inducement to
Parent's and Merger Sub's willingness to enter into this Agreement, the
Company, Greater Bridgeport Individual Practice Association, Inc., a
stockholder of the Company, and American Stock Transfer & Trust Company, as
voting trustee, have entered into a Voting Trust Agreement (the "VOTING TRUST
AGREEMENT"), substantially in the form of Exhibit A hereto; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time and upon the terms and
subject to the conditions hereof and in accordance with the provisions of
Delaware Law, Merger Sub will be merged with and into the Company, whereupon
the separate corporate existence of Merger Sub shall cease and the Company
shall continue as the surviving corporation in the Merger (the "SURVIVING
CORPORATION"). The Company and Merger Sub are sometimes hereinafter referred
to collectively as the "CONSTITUENT CORPORATIONS."
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement,
the Merger shall be consummated as promptly as practicable (and in any event
within two business days) after satisfaction or, to the extent permitted
hereunder, waiver of all of the conditions to each party's obligation to
consummate the Merger contained in Article VI, by duly filing an appropriate
certificate of merger (the "CERTIFICATE OF MERGER"), in such form as is
required by, and executed in accordance with, the relevant provisions of
Delaware Law. The Merger shall be effective at such time as the Certificate
of Merger is duly filed with the Secretary of State of the State of Delaware
in accordance with Delaware Law or at such later time agreed to by the
parties as is specified in the Certificate of Merger (the "EFFECTIVE TIME").
The date on which the Effective Time shall occur is referred to herein as the
"EFFECTIVE DATE." This Agreement is intended by the parties to constitute
the agreement of merger contemplated by Section 251 of Delaware Law.
1.3 EFFECTS OF THE MERGER; SUBSEQUENT ACTIONS. (a) The separate
corporate existence of the Company, as the Surviving Corporation, shall continue
unimpaired by the Merger. The Surviving Corporation shall succeed to all the
properties and assets of the Constituent Corporations and to all debts, causes
of action and other interests due or belonging to the Constituent Corporations
and shall be subject to, and responsible for, all the debts, liabilities and
duties of the Constituent Corporations with the effect set forth in Section 259
of Delaware Law.
(b) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company or Merger Sub acquired or to be acquired
by the Surviving Corporation as a result of or in connection with the Merger,
or otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute
2
and deliver, in the name and on behalf of the Company or Merger Sub, all such
deeds, bills of sale, assignments, assumption agreements and assurances and
to take and do, in the name and on behalf of each of such corporations or
otherwise, all such other actions and things as may be necessary or desirable
to vest, perfect or confirm any and all right, title and interest in, to and
under such rights, properties or assets of the Surviving Corporation or
otherwise to carry out this Agreement.
.1 TIME AND PLACE OF CLOSING. The closing (the "CLOSING") of the
Merger shall take place at the offices of Skadden, Arps, Slate, Xxxxxxx &
Xxxx LLP, 919 Third Avenue, New York, New York, as promptly as practicable
(and in any event within two business days) after satisfaction or, to the
extent permitted hereunder, waiver of all of the conditions to each party's
obligation to consummate the Merger contained in Article VI, or at such other
place or time as Parent and the Company may agree.
.2 CERTIFICATE OF INCORPORATION AND BYLAWS. (a) The Certificate
of Incorporation of Merger Sub, as in effect immediately prior to the
Effective Time, shall be amended to change the name of Merger Sub to
"Physicians Health Services, Inc." and, as so amended, the Certificate of
Incorporation of Merger Sub shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein
or under applicable law.
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or under applicable law.
.1 DIRECTORS. The directors of Merger Sub at the Effective Time
shall, from and after the Effective Time, be the initial directors of the
Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation
and Bylaws.
.2 OFFICERS. The officers of the Company at the Effective Time
shall, from and after the Effective Time, be the initial officers of the
Surviving Corporation, and as a result Xxxxxx X. Xxxx will be the Chief
Executive Officer of the Surviving Corporation, until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
.3 CONSIDERATION FOR THE MERGER; CONVERSION OR CANCELLATION OF
SHARES IN THE MERGER. At the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Merger Sub, the Company or the
holders of any
3
Shares or capital stock of Merger Sub:
(a) Each Share issued and outstanding immediately prior to
the Effective Time (other than Shares to be cancelled pursuant to Section
1.8(b) and Dissenting Shares (as defined in Section 2.1)) shall be cancelled
and extinguished and converted into the right to receive $29.25 in cash,
without interest thereon (the "MERGER CONSIDERATION").
(b) Each Share issued and outstanding immediately prior to
the Effective Time and owned by Parent or Merger Sub or any direct or
indirect subsidiary of Parent or Merger Sub, or which is held in the treasury
of the Company or by any of its subsidiaries, shall cease to be outstanding,
be cancelled and retired without payment of any consideration therefor and
cease to exist.
(c) Each share of common stock, par value $.01 per share, of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and become one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
.4 COMPANY STOCK PLANS. As of the Effective Time, each
outstanding option (including any related stock appreciation right) (an
"EMPLOYEE OPTION") issued, awarded or granted pursuant to the Company's 1992
Stock Option Plan or the Company's 1995 Stock Option Plan (the "COMPANY STOCK
PLANS") to purchase Shares shall be cancelled to the Company, subject to
obtaining the consents discussed below, and each holder of a cancelled
Employee Option shall be entitled to receive from the Company (or, at
Parent's option, any subsidiary of the Company) in consideration for the
cancellation of such Employee Option an amount in cash (less applicable
withholding Taxes (as defined in Section 3.11)) equal to the product of (i)
the number of Shares previously subject to such Employee Option and (ii) the
excess, if any, of the Merger Consideration over the exercise price per Share
previously subject to such Employee Option. At or prior to the Closing (x)
the Company shall deliver to Parent agreements (in a form reasonably
acceptable to Parent) executed by each director and officer of the Company
acknowledging that the payment made pursuant to this Section 1.9 is being
made in full satisfaction of such individual's rights under the applicable
Company Stock Plans and any option awards granted thereunder, and (y) the
Company shall use its reasonable best efforts to obtain executed agreements
of the type described in clause (x) from each other holder of an option to
purchase Shares awarded under the Company Stock Plans.
4
ARTICLE I
DISSENTING SHARES; EXCHANGE OF SHARES
1.1 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time
and held by a holder who has not voted to approve and adopt this Agreement or
consented thereto in writing and who has demanded appraisal for such Shares
in accordance with Section 262 of Delaware Law ("DISSENTING SHARES") shall
not be converted into the right to receive the Merger Consideration unless
such holder fails to perfect or withdraws or otherwise loses his right to
appraisal. If, after the Effective Time, such holder fails to perfect or
withdraws or loses his right to appraisal, such Shares shall no longer be
considered Dissenting Shares for the purposes of this Agreement and shall be
treated as if they had been converted as of the Effective Time into the right
to receive the Merger Consideration without interest thereon. The Company
shall give Merger Sub prompt notice of any demands received by the Company
for appraisal of Shares, and, prior to the Effective Time, Merger Sub shall
have the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company shall not,
except with the prior written consent of Merger Sub, make any payment with
respect to, or settle or offer to settle, any such demands.
1.2 EXCHANGE OF CERTIFICATES. (a) Prior to the Effective Time,
Parent shall designate a bank or trust company reasonably acceptable to the
Company to act as paying agent (the "PAYING AGENT") in effecting the exchange
for the Merger Consideration of certificates (the "CERTIFICATES") that, prior
to the Effective Time, represented Shares. Upon the surrender of each such
Certificate formerly representing Shares, together with a properly completed
letter of transmittal, the Paying Agent shall pay the holder of such
Certificate the Merger Consideration multiplied by the number of Shares
formerly represented by such Certificate, in exchange therefor, and such
Certificate shall forthwith be cancelled. Until so surrendered and
exchanged, each such Certificate (other than Certificates representing
Dissenting Shares or Shares held by Parent, Merger Sub or the Company, or any
direct or indirect subsidiary thereof) shall represent solely the right to
receive the Merger Consideration. No interest shall be paid or accrue on the
Merger Consideration. If the Merger Consideration (or any portion thereof)
is to be delivered to any Person (as defined in Section 8.8) other than the
Person in whose name the Certificate formerly representing Shares surrendered
in exchange therefor is registered, it shall be a condition to such exchange
that the Certificate so surrendered shall be properly endorsed or otherwise
be in proper form for transfer and that the Person requesting such exchange
shall pay to the Paying Agent any transfer or other Taxes (as defined in
Section 3.11) required by reason of the payment of the Merger Consideration
to a Person other than the registered
5
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Paying Agent that such Tax has been paid or is not applicable.
(b) Prior to the Effective Time, Parent or Merger Sub shall
deposit, or cause to be deposited, in trust with the Paying Agent for the
benefit of the holders of Shares the aggregate Merger Consideration to which
holders of Shares shall be entitled at the Effective Time pursuant to Section
1.8(a); PROVIDED that no such deposit shall relieve Parent of its obligation
to pay the Merger Consideration pursuant to Section 1.8(a).
(c) The Merger Consideration shall be invested by the Paying
Agent, as directed by Parent, provided such investments shall be limited to
direct obligations of the United States of America, obligations for which the
full faith and credit of the United States of America is pledged to provide
for the payment of principal and interest, commercial paper rated of the
highest quality by Xxxxx'x Investors Services, Inc. or Standard & Poor's
Corporation, or certificates of deposit issued by a commercial bank having at
least $1,000,000,000 in assets; PROVIDED, that no loss on investments made
pursuant to this Section 2.2(c) shall relieve Parent of its obligation to pay
the Merger Consideration pursuant to Section 1.8(a).
(d) Promptly following the date which is six months after the
Effective time, the Paying Agent shall deliver to Parent all cash and
documents in its possession relating to the transactions described in this
Agreement, and the Paying Agent's duties shall terminate. Thereafter, each
holder of a Certificate formerly representing a Share may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Consideration, without any interest thereon.
(e) Promptly after the Effective Time, the Paying Agent shall
mail to each record holder of Certificates that immediately prior to the
Effective Time represented Shares a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the
Merger Consideration in exchange therefor.
(f) After the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of any Shares. If,
after the Effective Time, Certificates formerly representing Shares are
presented to the Surviving Corporation or the Paying Agent, they shall be
cancelled and exchanged for the Merger Consideration, as provided in this
Article II, subject to applicable law in the case of Dissenting Shares.
(g) If any Certificate shall have been lost, stolen or
6
destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Paying Agent will pay in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration deliverable in respect
therefor pursuant to this Agreement.
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub
that, except as set forth with respect to a specifically identified
representation and warranty on the Disclosure Schedule delivered by the
Company to Parent prior to the execution of this Agreement (the "COMPANY
DISCLOSURE SCHEDULE"):
1.1 CORPORATE ORGANIZATION AND QUALIFICATION. Each of the Company
and each of its Significant Subsidiaries (as defined in Section 8.8) is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is qualified and in
good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it
require such qualification, except where the failure to so qualify or be in
good standing would not have a Material Adverse Effect (as defined in Section
8.8) on the Company. Each of the Company and each of its Significant
Subsidiaries has all requisite power and authority (corporate or otherwise)
to own its properties and to carry on its business as it is now being
conducted, except where the failure to have such power and authority would
not have a Material Adverse Effect on the Company. The Company has
heretofore made available to Parent complete and correct copies of its
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws as in effect on the date hereof.
1.2 CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 13,000,000 shares of Class A Common Stock of which, as of the
close of business on May 7, 1997, 5,767,196 shares were issued and
outstanding, (ii) 6,369,789 shares of Class B Common Stock of which, as of
the close of business on May 7, 1997, 3,542,921 shares were issued and
outstanding and (iii) 500,000 shares of preferred stock, par value $.01 per
share, none of which is issued or outstanding. All of the outstanding shares
of capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable and are not subject to preemptive
rights. As of May 7, 1997, (i) 1,348,272 shares of Class A Common Stock were
reserved for issuance upon
7
exercise of outstanding Employee Options pursuant to the Company Plans and
(ii) 200,000 shares of Series A Junior Participating Preferred Stock, par
value $.01 per share ("JUNIOR PREFERRED STOCK"), were reserved for issuance
in connection with the rights (the "RIGHTS") to purchase shares of Junior
Preferred Stock issued pursuant to the Rights Agreement, dated as of February
21, 1995, between the Company and American Stock Transfer & Trust Company, as
rights agent (as amended from time to time, the "RIGHTS AGREEMENT"). Except
as set forth above and except for or as a result of the exercise of Employee
Options outstanding as of May 7, 1997, there are outstanding (i) no shares of
capital stock or other voting securities of the Company, (ii) no securities
of the Company convertible into or exchangeable for shares of capital stock
or voting securities of the Company, (iii) no options, subscriptions,
warrants, calls or other rights to acquire from the Company, and no
obligation of the Company to issue, deliver or sell, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company and (iv) no equity equivalents
(including any phantom stock or SAR rights, whether cash or other),
performance shares, interests in the ownership or earnings of the Company or
any of its Subsidiaries or other similar rights issued by the Company
(collectively, "COMPANY SECURITIES"). There are no outstanding obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities. Each of the outstanding shares of capital
stock of each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and is directly or indirectly owned by
the Company, free and clear of all security interests, liens, claims,
pledges, charges, voting agreements or other encumbrances of any nature
whatsoever (collectively, "LIENS"). There are no existing options,
subscriptions, warrants, calls or commitments of any character relating to
the issued or unissued capital stock or other equity securities of any
Subsidiary of the Company. The execution, delivery and performance of the
Voting Trust Agreement by the parties thereto, and the transactions
contemplated thereby, will not be deemed to be a transfer of beneficial
ownership of the Class B Common Stock subject to the Voting Trust Agreement
and will not cause the shares of Class B Common Stock subject to the Voting
Trust Agreement to be converted into shares of Class A Common Stock pursuant
to the provisions of the Company's Amended and Restated Certificate of
Incorporation or applicable law.
1.3 OTHER INTERESTS. Except for the Company's interests in its
Subsidiaries, neither the Company nor any of its Subsidiaries owns directly
or indirectly any interest or investment (whether equity or debt) in, nor is
the Company or any of its Subsidiaries subject to any obligation or
requirement to provide for or to make any investment (whether equity or debt)
in, any corporation, limited liability company, partnership, joint venture,
business, trust or other entity.
8
1.4 AUTHORITY RELATIVE TO THIS AGREEMENT; FAIRNESS OPINION. The
Company has all necessary corporate power and authority to execute and
deliver this Agreement and the Voting Trust Agreement and (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the total outstanding voting power of the Shares,
voting as a single class, as required by Delaware Law (the "Company
Stockholder Approval")) to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
Board of Directors of the Company, at a meeting duly called and held on May
7, 1997, (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, are in the best interests of the stockholders
of the Company, (ii) approved this Agreement and the Voting Trust Agreement
and the transactions contemplated hereby and thereby, including the Merger,
and (iii) resolved, subject to Section 5.6, to recommend that the
stockholders of the Company approve and adopt this Agreement. Xxxxxx Xxxxxxx
& Co. Incorporated (the "COMPANY FINANCIAL ADVISOR") has delivered to the
Board of Directors of the Company its written opinion dated May 7, 1997 to
the effect that, as of the date of such opinion, the consideration to be
received by the holders of Shares pursuant to the Merger Agreement is fair
from a financial point of view to such holders, a copy of which opinion has
been delivered to Parent. The execution, delivery and performance of this
Agreement and the Voting Trust Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby have been
duly and validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the Voting Trust Agreement or to consummate the
transactions contemplated hereby and thereby (other than, with respect to the
Merger, the Company Stockholder Approval and the filing of the appropriate
merger documents as required by Delaware Law). The Board of Directors of the
Company has taken all action necessary with respect to the transactions
contemplated hereby and by the Voting Trust Agreement so as to render
inapplicable to such transactions, including, without limitation, the Merger,
the restrictions on business combinations contained in Section 203 of the
Delaware Law. Each of this Agreement and the Voting Trust Agreement has been
duly and validly executed and delivered by the Company and, assuming it
constitutes a valid and binding agreement of the other parties hereto or
thereto, as the case may be, constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its terms,
except that the enforcement hereof or thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
1.5 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance of this Agreement by the Company and the consummation by the
9
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign
("GOVERNMENTAL ENTITY") other than:
(a) the filing of the Certificate of Merger in accordance
with Delaware Law;
(b) compliance with any applicable requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
ACT");
(c) compliance with any applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "EXCHANGE ACT");
(d) compliance with any applicable foreign or state
securities or "blue sky" laws, rules or regulations;
(e) compliance with Federal, foreign and state laws, rules
and regulations governing insurance, health maintenance organizations, health
care services plans, third party administrators, hospitals or other managed
health care organizations or antitrust; and
(f) such other filings or registrations with, or
authorizations, consents or approvals of, Governmental Entities, the failure
of which to be made or obtained would not, individually or in the aggregate,
(i) have a Material Adverse Effect on the Company or the Surviving
Corporation or (ii) impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
1.6 NON-CONTRAVENTION. The execution, delivery and performance of
this Agreement by the Company do not, and the consummation by the Company of
the transactions contemplated hereby will not:
(a) contravene or conflict with any provision of the
respective charters or bylaws (or similar governing documents) of the Company
or any of its Significant Subsidiaries;
(b) assuming compliance with the matters referred to in
Section 3.5 and assuming the Company Stockholder Approval has been obtained,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company or any Subsidiary of the Company or any of their
respective properties
10
or assets;
(c) conflict with or result in a breach or violation of, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or result in any third party having any right
of termination, amendment, acceleration or cancellation of, or loss of a
material benefit under, (i) any agreement, contract or other instrument
binding upon the Company or any Subsidiary of the Company or, (ii) assuming
compliance with the matters referred to in Section 3.5, any license,
franchise, permit or other similar authorization held by the Company or any
Subsidiary of the Company; or
(d) result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary of the Company;
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that
would not, individually or in the aggregate, (i) have a Material Adverse
Effect on the Company or the Surviving Corporation, (ii) impair the ability
of the Company to consummate the transactions contemplated by this Agreement
or (iii) prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
1.7 SEC REPORTS; FINANCIAL STATEMENTS. Each periodic report,
registration statement, definitive proxy statement and other document filed
by the Company with the Securities and Exchange Commission (the "SEC") since
January 1, 1995 (as such documents have since the time of their filing been
amended, the "COMPANY SEC REPORTS"), as of their respective dates, complied
in all material respects with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder (the
"SECURITIES ACT") or the Exchange Act, as the case may be, applicable to such
Company SEC Reports and none of the Company SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
for such statements, if any, as have been modified by subsequent filings
prior to the date hereof. The Company SEC Reports include all the documents
(other than preliminary material) that the Company was required to file with
the SEC since January 1, 1995. The financial statements of the Company
included in the Company SEC Reports, as of their respective filing dates with
the SEC, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
present
11
fairly the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject in the case of the unaudited statements, to normal, year-end audit
adjustments). Since December 31, 1996, neither the Company nor any of its
Subsidiaries has incurred any liabilities or obligations, whether absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due, except (i) as and to the extent set forth on the
audited balance sheet of the Company and its Subsidiaries as of December 31,
1996 (including the notes thereto) (the "COMPANY BALANCE SHEET"), (ii) for
liability under this Agreement, (iii) as incurred after December 31, 1996 in
the ordinary course of business and consistent with past practices, (iv) as
described in the Company SEC Reports filed and publicly available prior to
the date hereof or (v) as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
1.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed and publicly available prior to the date
hereof, since December 31, 1996, the Company and its Subsidiaries have
conducted their respective business only in the ordinary course, consistent
with past practice, and there has not occurred or arisen any event which
would, individually or in the aggregate, have a Material Adverse Effect on
the Company.
1.9 LITIGATION. There is no action, suit, proceeding, claim or
investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries or any of their assets or
against or involving any of its officers, directors or employees in
connection with the business or affairs of the Company, including, without
limitation, any claims for indemnification arising under any agreement to
which the Company or any of its Subsidiaries is a party, which would,
individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company is not subject to or in default with respect to any
writ, order, judgment, injunction or decree which would, individually or in
the aggregate, have a Material Adverse Effect on the Company. The parties
agree that this representation and warranty shall not cover any actions,
suits, proceedings, claims, investigations, writs, orders, judgments,
injunctions or decrees, pending or threatened, which seek to prevent or
materially delay the consummation of the transactions contemplated by this
Agreement or impose material conditions with respect thereto.
1.10 PROXY STATEMENT. The proxy or information statement or
similar materials distributed to the Company's stockholders in connection
with the Merger, including any amendments or supplements thereto (the "PROXY
STATEMENT"), will not, at the time of mailing to stockholders of the Company
or at the time of the special meeting of the Company's stockholders called
for the purpose
12
of considering and taking action upon this Agreement (the "SPECIAL MEETING"),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act. Notwithstanding the
foregoing two sentences, the Company makes no representation or warranty with
respect to information supplied by Parent or Merger Sub specifically for
inclusion in the Proxy Statement.
1.11 TAXES.
(a) The Company and each of its Subsidiaries (i) has filed
(or the Company has had timely filed on their behalf) when due (taking into
account extensions) with the appropriate Federal, state, local, foreign and
other governmental agencies, all material tax returns, estimates, reports and
documents of a similar nature relating to taxes required to be filed by it,
and all such returns, estimates and reports are or will be at the time of
filing true, correct and complete in all material respects and (ii) has
either paid when due and payable or has established adequate reserves
(including Taxes (as defined below) being contested in good faith) or
otherwise accrued on the Company Balance Sheet, all material Federal, state,
local or foreign taxes, levies, imposts, duties, licenses and registration
fees and charges of any nature whatsoever, and unemployment and social
security taxes and income tax withholding, including interest and penalties
thereon ("TAX" or "TAXES"). There are no Tax liens upon any property of the
Company or any of its Subsidiaries except liens for current Taxes not yet
due, and there are no material Taxes, interest, penalties, assessments or
deficiencies claimed in writing by any Taxing authority and received by the
Company or any such Subsidiary that, in the aggregate, would result in any
Tax liability in excess of the amount of the reserves or accruals, and the
Company and each of its Subsidiaries has or will establish in accordance with
its normal accounting practices and procedures accruals and reserves that are
adequate for the payment of all material Taxes not yet due and payable and
attributable to any period preceding the Closing. The Company has not filed a
consent to the application of Section 341(f)(2) of the Code.
(b) No audit, assessment or other examination relating to
Taxes by any Taxing authority is pending with respect to any material Taxes
due by the Company or any of its Subsidiaries.
(c) Neither the Company nor any predecessor corporation, nor
any of their respective Subsidiaries, has executed or filed with the Internal
Revenue Service or any other governmental authority or any other Taxing
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any material Taxes.
13
(d) Neither the Company nor any of its Subsidiaries is a
party to or is bound by (or will prior to the Closing become a party to or
bound by) any Tax indemnity, Tax sharing or Tax allocation agreement or other
similar arrangement which includes a party other than the Company and its
Subsidiaries. Neither the Company nor any of its Subsidiaries has been a
member of an affiliated group other than one of which Company was the common
parent, or filed or been included in a combined, consolidated or unitary Tax
return other than one filed by the Company (or a return for a group
consisting solely of its Subsidiaries and predecessors).
(e) The Company has not agreed, nor is it required, to make
any adjustment under section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(f) Neither the Company nor any of its Subsidiaries has
entered into a transaction which is being accounted for as an installment
obligation under section 453 of the Code, nor has the Company or any of its
Subsidiaries entered into an interest rate swap, currency swap or other
similar transaction.
1.12 COMPLIANCE WITH APPLICABLE LAW. Section 3.12 of the Company
Disclosure Schedule contains a true and complete list of all regulatory
undertakings, orders or other commitments of any nature not embodied in
applicable statutes or regulations or specifically disclosed in the Company
SEC Reports filed and publicly available prior to the date of this Agreement
entered into by the Company or any of its Subsidiaries with any regulatory
entity, including any insurance or HMO regulatory bodies, which undertakings,
orders or other commitments limit or purport to limit the business of the
Company or any of its Significant Subsidiaries as presently conducted or as
the same may be conducted in the future. The Company and its Subsidiaries
hold, and at all times since January 1, 1995 have held, all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"COMPANY PERMITS"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals which would not, individually or
in the aggregate, have a Material Adverse Effect on the Company. The Company
and its Subsidiaries are, and at all times since January 1, 1995 have been,
in compliance with the terms of the Company Permits, except where the failure
so to comply would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. Except as specifically disclosed in the
Company SEC Reports filed and publicly available prior to the date of this
Agreement, the conduct of the respective businesses of the Company and its
Subsidiaries is, and at all times has been, in conformity with all applicable
federal, state and other governmental and regulatory requirements, except
where nonconformity or noncompliance would not, individually or in the
aggregate, have a Material
14
Adverse Effect on the Company. No investigation or review by any Governmental
Entity with respect to the Company or any of its Subsidiaries is pending or,
to the knowledge of the Company, threatened, other than those which would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company.
1.13 EMPLOYEE BENEFIT PLANS.
(a) Section 3.13(a) of the Company Disclosure Schedule
contains a true and complete list of each deferred compensation and each
bonus or other incentive compensation, stock purchase, stock option and other
equity compensation plan, program, agreement or arrangement; each severance
or termination pay, medical, surgical, hospitalization, life insurance and
other "welfare" plan, fund or program (within the meaning of section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA");
each "pension" plan, fund or program (within the meaning of section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed
to by the Company or by any trade or business, whether or not incorporated
(an "ERISA AFFILIATE"), that together with the Company would be deemed a
"single employer" within the meaning of section 4001(b) of ERISA, or to which
the Company or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of the Company or any Subsidiary
of the Company (the "PLANS"). Neither the Company, any Subsidiary of the
Company nor any ERISA Affiliate has any legal commitment to create any
additional employee benefit plan or modify or change any existing Plan that
would affect any employee (an "Employee") or former employee of the Company
or any Subsidiary of the Company.
(b) With respect to each Plan, the Company has heretofore
delivered or made available to Buyer true and complete copies of each of the
following documents:
(i) a copy of the Plan and any amendments thereto (or
if the Plan is not a written Plan, a description thereof);
(ii) a copy of the two most recent annual reports and
actuarial reports, if required under ERISA, and the most recent report
prepared with respect thereto in accordance with Statement of
Financial Accounting Standards No. 87;
(iii) a copy of the most recent Summary Plan Description
required under ERISA with respect thereto;
15
(iv) if the Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding agreement
and the latest financial statements thereof; and
(v) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan intended to
qualify under section 401 of the Code.
(c) No Plan is subject to Title IV of ERISA. No Title IV Plan
is a "multiemployer pension plan," as defined in section 3(37) of ERISA, nor is
any Title IV Plan a plan described in section 4063(a) of ERISA.
(d) All contributions required to be made with respect to any
Plan on or prior to the Closing Date have been or will be timely made on or
prior to the Closing Date.
(e) Neither the Company or any Subsidiary of the Company nor,
to the knowledge of the Company, any trustee or administrator thereof, has
engaged in a transaction in connection with which the Company or any
Subsidiary of the Company or any trustee or administrator thereof could
reasonably be expected to be subject to either a material civil penalty
assessed pursuant to section 409 or 502(i) of ERISA or a material tax imposed
pursuant to section 4975 or 4976 of the Code.
(f) Each Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including
but not limited to ERISA and the Code.
(g) Each Plan intended to be "qualified" within the meaning
of section 401(a) of the Code has received a favorable determination letter
to the effect that the Plan is so qualified and that its related trust
maintained thereunder is exempt from taxation under section 501(a) of the
Code.
(h) No Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees or former
employees of the Company or any Subsidiary for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated
by applicable law, (ii) death benefits under any "pension plan," or (iii)
benefits the full cost of which is borne by the current or former employee
(or his beneficiary).
(i) Except as previously disclosed in writing to Parent, no
amounts payable under the Plans will fail to be deductible for federal income
tax purposes by virtue of section 280G of the Code.
16
(j) Except as set forth in Section 3.13(j) of the Company
Disclosure Schedule or as expressly provided in this Agreement, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or officer of the Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment,
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
(k) There are no pending or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Plan, by any employee
or beneficiary covered under any such Plan, or otherwise involving any such
Plan (other than routine claims for benefits).
1.14 LABOR MATTERS. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any such
Subsidiary and, to the knowledge of the Company, there are no activities or
proceedings of any labor union to organize any such employees.
1.15 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) No written notice, notification, demand, request for
information, citation, summons, complaint or order has been received by the
Company or any of its Subsidiaries, no complaint has been served on the
Company or any of its Subsidiaries, no penalty has been assessed and, to the
knowledge of the Company, no investigation is pending or has been threatened
(each, an "ACTION") by any Governmental Entity or other party with respect to
any (i) alleged violation by the Company or any of its Subsidiaries of any
Environmental Law, (ii) alleged failure by the Company or any such Subsidiary
to have any environmental permit, certificate, license, approval,
registration or authorization required in connection with the conduct of its
business or (iii) Regulated Activity, in each case where such Action has had
or would have, individually or in the aggregate, a Material Adverse Effect on
the Company.
(b) Neither the Company nor any of its Subsidiaries has any
Environmental Liabilities that has had, or would have, individually or in the
aggregate, a Material Adverse Effect on the Company. There has been no
release of Hazardous Substances into the environment or violation of any
Environmental Law in either case by the Company or any such Subsidiary which
in either case has had, or would have, individually or in the aggregate, a
Material Adverse Effect on the Company.
(c) For the purposes of this Agreement, the following terms
have the following meanings:
17
"ENVIRONMENTAL LAWS" shall mean any and all Federal, state,
local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, codes, injunctions and governmental
restrictions relating to the environment or to emissions, discharges
or releases of Hazardous Substances into the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances or
the clean-up or other remediation thereof.
"ENVIRONMENTAL LIABILITIES" shall mean all liabilities which
(i) arise under Environmental Laws and (ii) relate to Regulated
Activities occurring or conditions existing on or prior to the
Effective Time.
"HAZARDOUS SUBSTANCES" shall mean any pollutants,
contaminants, toxic, radioactive, caustic or otherwise hazardous
substance or waste, including petroleum, its derivatives, by-products
and other hydrocarbons and medical or infectious waste that is
regulated under or by any applicable Environmental Law.
"REGULATED ACTIVITY" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
1.16 COMPUTER SYSTEMS; INTANGIBLE PROPERTY.
(a) Except as set forth on Section 3.16 of the Company
Disclosure Schedule, the Company's computer systems, including all hardware and
software (collectively, the "COMPUTER SYSTEMS"), are presently serving the
Company's needs adequately. There are no infringement suits, actions or
proceedings pending or, to the Company's knowledge, threatened, with respect to
the Computer Systems.
(b) The Company or one of its Subsidiaries is the owner of, or a
licensee under a valid license for, all items of intangible property which are
material to the business of the Company and its Subsidiaries as currently
conducted, taken as a whole, including, without limitation, trade names,
unregistered trademarks and service marks, brand names, patents and copyrights.
There are no claims pending or, to the Company's knowledge, threatened, that the
Company or any of its Subsidiaries is in violation of any such intangible
property of any third party which would, individually or in the aggregate, have
a Material Adverse Effect on the Company. No material infringement of any
proprietary right owned by or licensed by or to the Company or any of its
Subsidiaries is
18
known to the Company.
1.17 DOI REPORTS. The Company has made available to Parent at the
Company's offices true, correct and complete copies of all material reports
filed by the Company or any of its Subsidiaries regarding the activities of
the Company and its Subsidiaries in the States of Connecticut, New Jersey and
New York with, and any license applications filed by the Company in such
States with, and all material correspondence regarding such activities and
license applications sent to, or received by the Company or any of its
Subsidiaries from, applicable insurance and HMO regulatory bodies since
January 1, 1995. Each material report required to be filed by the Company or
any of its Subsidiaries with applicable insurance and HMO regulatory bodies
since January 1, 1995 (as such documents have since the time of their filing
been amended, the "DOI REPORTS") has been filed. As of their respective
dates, the DOI Reports complied in all material respects with the
requirements of the laws, rules and regulations applicable to such DOI
Reports, and none of the DOI Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for such
statements, if any, as have been modified by subsequent filings prior to the
date hereof.
1.18 COVERED LIVES/SUBSCRIBERS. As of April 30, 1997, (i) the
Company had a total of 379,026 at-risk members covered under its various
managed health care plans, including 339,742 commercial HMO members, 15,254
Medicare members, 24,030 Medicaid members, and no commercial PPO members, and
(ii) there were 68,844 persons covered by self-funded and other plans for
which the Company provided ASO services.
1.19 CONTRACTS. Neither the Company nor its Subsidiaries is a
party to, or has any obligation under, any contract or agreement, written or
oral, which contains any covenants currently or prospectively limiting the
freedom of the Company, any of its Subsidiaries or any of their respective
affiliates to engage in any line of business or to compete with any entity.
All contracts and agreements to which the Company or any of its Subsidiaries
is a party or by which any of their respective assets are bound are valid and
binding, in full force and effect and enforceable against the parties thereto
in accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and general principles of equity, other than such
failures to be so valid and binding, in full force and effect or enforceable
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. There is not under any such contract or agreement any
existing default, or event which, after notice or lapse of time, or both,
would constitute a default, by the Company or any of its Subsidiaries or, to
the Company's knowledge, any other party, except to the extent such default
19
would not, individually or in the aggregate, have a Material Adverse Effect
on the Company.
1.20 BROKERS AND FINDERS. Except for the fees and expenses
payable to the Company Financial Advisor, which fees and expenses are
reflected in its agreements with the Company, true and complete copies of
which have been furnished to Parent, the Company has not engaged any
investment banker, broker, finder, consultant or intermediary in connection
with the transactions contemplated by this Agreement which would be entitled
to any investment banking, brokerage, finder's or similar fee or commission
in connection with this Agreement or the transactions contemplated hereby.
1.21 COMPANY RIGHTS PLAN. The Rights Agreement has been amended
to (i) render the Rights Agreement inapplicable to the Merger and the other
transactions contemplated by this Agreement and (ii) ensure that (y) neither
Parent nor any of its wholly owned Subsidiaries is an Acquiring Person (as
defined in the Rights Agreement) pursuant to the Rights Agreement and (z) a
Stock Acquisition Date or Distribution Date (in each case as defined in the
Rights Agreement) does not occur solely by reason of the execution of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
1.22 CERTAIN REAL PROPERTY. The Company does not directly own any
real property located in the State of Connecticut.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Each of Parent and Merger Sub represent and warrant jointly and
severally to the Company that, except as set forth with respect to a
specifically identified representation and warranty on the Disclosure
Schedule delivered by Parent to the Company prior to the execution of this
Agreement (the "PARENT DISCLOSURE SCHEDULE"):
II.1 CORPORATE ORGANIZATION AND QUALIFICATION. Each of Parent and
each of its Significant Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of incorporation and is qualified and in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
where the failure to so qualify or be in good standing would not have a
Material Adverse Effect on Parent. Each of Parent and
20
each of its Subsidiaries has all requisite power and authority (corporate or
otherwise) to own its properties and to carry on its business as it is now
being conducted, except where the failure to have such power and authority
would not have a Material Adverse Effect on Parent. Parent and Merger Sub
have heretofore made available to the Company complete and correct copies of
their respective Certificates of Incorporation and Bylaws as in effect on the
date hereof.
II.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Parent and Merger Sub and the consummation
by Parent and Merger Sub of the transactions contemplated hereby have been
duly and validly authorized by the respective Boards of Directors of Parent
and Merger Sub and by Parent as sole stockholder of Merger Sub, and no other
corporate proceedings on the part of Parent and Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Sub and, assuming this Agreement constitutes the
valid and binding agreement of the Company, constitutes a legal, valid and
binding agreement of each of Parent and Merger Sub, enforceable against each
of them in accordance with its terms, except that the enforcement hereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
II.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance of this Agreement by Parent and Merger Sub and the consummation
by Parent and Merger Sub of the transactions contemplated hereby require no
action by or in respect of, or filing with, any Governmental Entity other
than:
(a) the filing of the Certificate of Merger in accordance
with Delaware Law;
(b) compliance with any applicable requirements of the HSR
Act;
(c) compliance with any applicable requirements of the
Exchange Act;
(d) compliance with any applicable foreign or state
securities or "blue sky" laws, rules or regulations;
(e) compliance with Federal, foreign and state laws, rules
21
and regulations governing insurance, health maintenance organizations, health
care services plans, third party administrators, hospitals or other managed
health care organizations or antitrust; and
(f) such other filings or registrations with, or
authorizations, consents or approvals of, Governmental Entities, the failure
of which to be made or obtained would not, individually or in the aggregate,
(i) have a Material Adverse Effect on Parent or (ii) impair the ability of
Parent and Merger Sub to consummate the transactions contemplated by this
Agreement.
II.4 NON-CONTRAVENTION. The execution, delivery and performance of
this Agreement by Parent and Merger Sub do not, and the consummation by
Parent and Merger Sub of the transactions contemplated hereby will not:
(a) contravene or conflict with any provisions of the
respective charters or bylaws (or similar governing documents) of Parent or
any of its Significant Subsidiaries;
(b) assuming compliance with the matters referred to in
Section 4.3, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Parent or any Subsidiary of Parent or any of
their respective properties or assets;
(c) conflict with or result in a breach or violation of, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or result in any third party having any right
of termination, amendment, acceleration or cancellation of or loss of a
material benefit under, (i) any agreement, contract or other instrument
binding upon Parent or any Subsidiary of Parent or (ii) assuming compliance
with the matters referred to in Section 4.3, any license, franchise, permit
or other similar authorization held by Parent or any Subsidiary of Parent; or
(d) result in the creation or imposition of any Lien on any
material asset of Parent or any Subsidiary of Parent;
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that
would not, individually or in the aggregate, (i) have a Material Adverse
Effect on Parent, (ii) impair the ability of Parent and Merger Sub to
consummate the transactions contemplated by this Agreement or (iii) prevent
or materially delay the consummation of any of the transactions contemplated
by this Agreement.
II.5 SEC REPORTS; FINANCIAL STATEMENTS. Each periodic report,
22
registration statement, definitive proxy statement and other document filed
by the Parent with the SEC since January 1, 1995 (as such documents have
since the time of their filing been amended, the "PARENT SEC REPORTS"), as of
their respective dates, complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
applicable to such Parent SEC Reports and none of the Parent SEC Reports
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof. The Parent SEC Reports include
all the documents (other than preliminary material) that Parent was required
to file with the SEC since January 1, 1995. The financial statements of
Parent included in the Parent SEC Reports, as of their respective filing
dates with the SEC, complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q of the
SEC) and present fairly the consolidated financial position of Parent and its
consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject in the case of the unaudited statements, to normal, year-end audit
adjustments).
II.6 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent or Merger Sub specifically for inclusion in the Proxy
Statement will, at the time of mailing to stockholders of the Company or at
the time of the Special Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
II.7 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated hereby
and has not engaged in any business activities or conducted any operations
other than in connection with the transactions contemplated hereby.
II.8 BROKERS AND FINDERS. Except for the fees and expenses
payable to Credit Suisse First Boston, which fees and expenses are reflected
in its agreements with Parent, Parent has not engaged any investment banker,
broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
23
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS
III.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as set forth in
Section 5.1 of the Company Disclosure Schedule or Section 5.8 hereof, the
Company agrees that during the period from the date of this Agreement to the
Effective Time, the Company shall, and shall cause each of its Subsidiaries
to, conduct its operations according to its ordinary and usual course of
business consistent with past practice and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact its current
business organizations, keep available the service of its current officers
and employees and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that goodwill and ongoing
businesses shall not be impaired. Except as set forth in Section 5.1 of the
Company Disclosure Schedule or Section 5.8 hereof, without limiting the
generality of the foregoing, and except as otherwise expressly permitted in
this Agreement prior to the Effective Time, neither the Company nor any of
its Subsidiaries shall:
(a) except for shares of Class A Common Stock to be issued or
delivered in connection with the exercise of Employee Options outstanding on
the date hereof in accordance with their current terms, issue, deliver, sell,
dispose of, pledge or otherwise encumber, or authorize or propose the
issuance, sale, disposition or pledge or other encumbrance of (A) any
additional shares of capital stock of any class (including the Shares), or
any securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for any shares of capital stock, or any rights,
warrants, options, calls, commitments or any other agreements of any
character to purchase or acquire any shares of capital stock, or (B) any
other securities in respect of, in lieu of, or in substitution for, Shares
outstanding on the date hereof;
(b) except pursuant to the Plans as in effect on the date
hereof, redeem, purchase or otherwise acquire, or propose to redeem, purchase
or otherwise acquire, any shares of capital stock of the Company or any of
its Subsidiaries;
(c) split, combine, subdivide or reclassify any of its
capital stock or declare, set aside for payment or pay any dividend, or make
any other actual, constructive or deemed distribution in respect of any of
its capital stock or otherwise make any payments to stockholders of the
Company in their capacity as such, except for dividends payable to the
Company declared by any wholly owned subsidiary of the Company;
24
(d) adopt or propose to adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
Subsidiaries (other than the Merger);
(e) adopt or propose to adopt any amendments to its Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws;
(f) waive, amend or otherwise alter the Rights Agreement or
redeem the Rights;
(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity in,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, in each case that are material,
individually or in the aggregate, to the Company and its Subsidiaries taken
as a whole;
(h) sell (including by sale-leaseback), lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its
assets that are material, individually or in the aggregate, to the Company
and its Subsidiaries taken as a whole;
(i) make or agree to make any capital expenditure or
expenditures which, individually, is in excess of $100,000 or, in the
aggregate, are in excess of $500,000, except as set forth in Section 5.1(i)
of the Company Disclosure Schedule;
(j) enter into any non-competition or other agreement which
may restrict in any way the conduct of the respective businesses of the
Company or any of its Subsidiaries;
(k) modify its existing provider fee or rate schedules, the
result of which modifications would be, based upon 1996 utilization, an
increase in either (i) the aggregate reimbursements to all physician,
hospital and ancillary providers, taken together, or (ii) reimbursements to
any individual physician, hospital or ancillary provider representing at
least $1,000,000 or more in annual payments for services during 1996;
(l) except as required by law, effect material changes to
rating plans or issue new business or renewal quotations to groups of more
than 1,000 employees or enter into any amendment or modification of any of
its
25
agreements with providers, other than amendments expressly contemplated
hereby, without reasonable evidence that doing so would be in the economic
interests of the Company and would not adversely affect the Company's rights
to medically manage the provision of healthcare except in immaterial respects;
(m) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or guarantee any
debt securities of others, or make any loans, advances or capital
contributions to, or investments in, any other Person, other than to the
Company or any wholly owned Subsidiary of the Company;
(n) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(o) settle or compromise any pending or threatened material
suit, action or claim relating to the transactions contemplated hereby;
(p) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice, or as required by their by
terms, of liabilities reflected or reserved against in, or contemplated by,
the Company Balance Sheet (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice or immaterial liabilities
not incurred in the ordinary course of business consistent with past practice;
(q) increase in any manner the compensation or fringe
benefits of any of its directors, officers or other employees receiving an
annual salary in excess of $40,000, or pay any pension or retirement
allowance not required by any existing plan or agreement to any such
employees, or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee (other than increases in
the compensation of employees who are not officers or directors of the
Company made in the ordinary course of business consistent with past
practice) or voluntarily accelerate the vesting of any compensation or
benefit;
(r) waive, amend or allow to lapse any term or condition of
any confidentiality or "standstill" agreement to which the Company is a
party; or
(s) take, or agree in writing or otherwise to take, any of
the foregoing actions.
26
III.2 REASONABLE BEST EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger, and the
other transactions contemplated by this Agreement, including (a) the prompt
making of their respective filings and thereafter the making of any other
required submission under the HSR Act with respect to the Merger, (b) the
obtaining of all additional necessary actions or non-actions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from any Governmental Entity, (c) the obtaining
of all necessary consents, approvals or waivers from third parties, (d) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (e) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement.
III.3 ACCESS TO INFORMATION. The Company shall, and shall cause
each of its Subsidiaries to, afford to Parent, and to Parent's accountants,
counsel and other representatives, reasonable access and permit them to make
such inspections as they may reasonably require during normal business hours
during the period from the date of this Agreement through the Effective Time
to all their respective properties, books, contracts, commitments and records
and, during such period, the Company shall, and shall cause each of its
Subsidiaries to, furnish promptly to Parent (i) copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state laws other than
product and product-related filings with departments of insurance and (ii)
all other information concerning its business, properties and personnel as
Parent may reasonably request. The financial and operating data requested
pursuant to this Section 5.3 shall specifically include, but shall not be
limited to, all correspondence and reports reasonably relating to any actual
or threatened adverse actions, denials or revocations of accreditation,
sanctions or investigations by the National Committee on Quality Assurance,
the Joint Commission on Hospital Accreditation, the Health Care Financing
Administration or any other state or federal agency and any notice of
termination from any employee group or program representing five percent or
more of the revenue of any Subsidiary of the Company. Parent and each of its
Subsidiaries will hold, and will cause its respective affiliates, associates
and representatives to hold, any nonpublic information in accordance with the
terms of the Confidentiality Agreement, dated
27
as of March 3, 1997, between Parent and Company (the "CONFIDENTIALITY
AGREEMENT").
III.4 PUBLICITY. The parties will consult with each other and
will mutually agree upon any press releases or public announcements
pertaining to this Agreement and the transactions contemplated hereby and
shall not issue any such press releases or make any such public announcements
prior to such consultation and agreement, except as may be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange, in which case the party proposing to issue such
press release or make such public announcement shall use its reasonable best
efforts to consult in good faith with the other party before issuing any such
press releases or making any such public announcements.
III.5 NOTICES OF CERTAIN EVENTS. The Company shall, upon obtaining
knowledge of any of the following, promptly notify Parent in writing of: (i)
any Material Adverse Effect with respect to the Company; (ii) any change which
makes it likely that any representation or warranty set forth in this Agreement
regarding the Company or any of its Subsidiaries will not be true in any
material respect at the Closing and which would be likely to cause any condition
to the obligations of any party to effect the Merger not to be satisfied; (iii)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any condition to the obligations of any party
to effect the Merger not to be satisfied; (iv) the failure of the Company to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it pursuant to this Agreement which would be likely to cause any
condition to the obligations of any party to effect the Merger not to be
satisfied; (v) any notice or other communication from any Governmental Entity in
connection with the Merger; or (vi) any actions, suits, claims, investigations
or other proceedings (or communications indicating that the same may be
contemplated) commenced or threatened against the Company or any of its
Subsidiaries which, if pending on the date of this Agreement, would have
resulted in any of the representations and warranties set forth in Section 3.9
being untrue or inaccurate or which relate to the consummation of the Merger;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 5.5
shall not cure any breach of any representation or warranty or otherwise limit
or affect the remedies available to Parent.
III.6 STOCKHOLDER MEETING; PROXY MATERIALS; OPINION OF FINANCIAL
ADVISOR.
(a) Unless the Board of Directors of the Company shall take any
action permitted by the third sentence of this Section 5.6(a), the Company shall
cause the Special Meeting to be duly called and held as soon as practicable
28
after the date of this Agreement for the purpose of voting on the approval
and adoption of this Agreement (the "COMPANY STOCKHOLDER APPROVAL"). Except
as provided in the next sentence, the Board of Directors of the Company shall
recommend approval and adoption of this Agreement by the Company's
stockholders. The Board of Directors of the Company shall be permitted to (i)
not recommend to the Company's stockholders that they vote in favor of the
approval and adoption of this Agreement or (ii) withdraw or modify in a
manner adverse to Parent its recommendation to the Company's stockholders
that they vote in favor of the approval and adoption of this Agreement, but
in each of cases (i) and (ii) only if and to the extent that the Company has
complied with Section 5.7, a Superior Proposal (as defined in Section 5.6(b))
is pending at the time the Company's Board of Directors determines to take
any such action or inaction and the Company's Board of Directors determines
in good faith, based upon the advice of its outside legal counsel, that such
action or inaction is necessary for such Board of Directors to comply with
its fiduciary duties under applicable law; PROVIDED that no such failure to
recommend, withdrawal or modification shall be made unless the Company shall
have delivered to Parent a written notice advising Parent that the Board of
Directors of the Company has received a Superior Proposal and identifying the
Person making such Superior Proposal; PROVIDED, FURTHER, that nothing
contained in this Agreement shall prevent the Board of Directors of the
Company from complying with Rule 14e-2 under the Exchange Act with regard to
an Acquisition Proposal (as defined in Section 5.6(b)).
(b) For purposes of this Agreement, "SUPERIOR PROPOSAL" means
any bona fide written Acquisition Proposal for all of the outstanding Shares
or all or substantially all of the assets of the Company and its Subsidiaries
on terms that the Board of Directors of the Company determines in good faith
(based on the advice of a financial advisor of nationally recognized
reputation) are more favorable and provide greater value to all the Company's
stockholders than this Agreement and the Merger. For purposes of this
Agreement, "ACQUISITION PROPOSAL" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
the Company or any Significant Subsidiary of the Company or the acquisition
of any equity interest in, or a substantial portion of the assets of, the
Company or any Significant Subsidiary of the Company, other than the
transactions contemplated by this Agreement.
(c) In connection with such Special Meeting, the Company (i)
will promptly prepare and file with the SEC, will use its reasonable best
efforts to have cleared by the SEC as promptly as practicable and will
promptly thereafter mail to its stockholders the Proxy Statement and all
other proxy materials for such meeting, (ii) will use its reasonable best
efforts, subject to the immediately preceding sentence, to obtain the Company
Stockholder Approval and (iii) will otherwise comply with all legal
requirements applicable to such meeting. The Company shall notify Parent
promptly of the receipt of comments from the SEC
29
and of any request by the SEC for amendments or supplements to the Proxy
Statement or for additional information, and shall supply Parent with copies
of all correspondence between the Company or its representatives, on the one
hand, and the SEC or members of its staff, on the other hand, with respect to
the Proxy Statement. If at any time prior to the Special Meeting, any event
should occur relating to the Company or its officers or directors which
should be described in an amendment of, or a supplement to, the Proxy
Statement, the Company shall promptly inform Parent. Whenever any event
occurs which should be described in an amendment of, or a supplement to, the
Proxy Statement, the Company shall, upon learning of such event, prepare
promptly, file and clear with the SEC and mail to the Company's stockholders
such amendment or supplement; PROVIDED, HOWEVER, that prior to such mailing,
to the extent practicable (i) the Company shall consult with Parent with
respect to such amendment or supplement and (ii) the Company shall afford
Parent reasonable opportunity to comment thereon, it being understood that
the Company will not mail any Proxy Statement, or any amendment or supplement
thereto, to which Parent reasonably objects.
(d) The Company shall use its reasonable best efforts to
cause the Company Financial Advisor to provide its opinion to the effect
that, as of a date no earlier than three business days prior to the date that
the Proxy Statement is mailed to stockholders of the Company, the
consideration to be received by the holders of Shares pursuant to the Merger
is fair to such holders from a financial point of view, and shall include
such updated opinion in the Proxy Statement.
30
III.7 NO SOLICITATION.
(a) The Company shall not, directly or indirectly, through
any officer, director, employee, investment banker, attorney, representative
or agent of the Company or any of its Subsidiaries, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, an Acquisition Proposal, (ii) engage in negotiations or
discussions concerning, or provide any non-public information or data to any
Person or entity relating to, any Acquisition Proposal, or (iii) agree to,
approve or recommend any Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; PROVIDED,
HOWEVER, that nothing contained in this Agreement shall prevent the Company
or its Board of Directors from (A) furnishing nonpublic information or data
to, or entering into discussions or negotiations with, any Person in
connection with an unsolicited Acquisition Proposal, if and only to the
extent that the Company's Board of Directors determines in good faith, based
upon the advice of its outside legal counsel, that such action is necessary
for such Board of Directors to comply with its fiduciary duties under
applicable law and prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such Person or entity, the
Company or its Board of Directors receives from such Person or entity an
executed customary confidentiality agreement, PROVIDED, that in the event
that any term of such confidentiality agreement is more favorable to such
Person or entity than the Confidentiality Agreement is to Parent, (x) the
Company shall promptly (and in no event later than 24 hours after execution
thereof) notify Parent of the more favorable provisions of such
confidentiality agreement and (y) the Confidentiality Agreement shall
automatically be deemed to have been amended to provide Parent with the
benefit of the more favorable term(s); (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(b) The Company shall (i) promptly (and in no event later
than 24 hours after receipt of any Acquisition Proposal) notify Parent after
receipt by it (or its advisors) of any Acquisition Proposal or any inquiries
indicating that any Person is considering making or wishes to make an
Acquisition Proposal, identifying such Person, (ii) promptly notify Parent
after receipt of any request for nonpublic information relating to it or any
of its Subsidiaries or for access to its or any of its Subsidiaries'
properties, books or records by any Person, identifying such Person and the
information requested by such Person, that may be considering making, or has
made, an Acquisition Proposal and promptly provide Parent with any nonpublic
information which is given to such Person pursuant to this Section 5.7(b),
and (iii) keep Parent advised of the status and principal financial terms of
any such Acquisition Proposal, indication or request. The
31
Company shall give Parent at least 24 hours' advance notice of any
information to be supplied to any Person making such Acquisition Proposal.
III.8 TERMINATION OF COMPANY STOCK PLANS. Except as may be
otherwise agreed to by Parent and the Company, the Company Stock Plans shall
terminate as of the Effective Time. Prior to the Effective Time, the Board
of Directors of the Company (or, if appropriate, any committee thereof) shall
adopt such resolutions or take such other actions as are required to (i)
effect the transactions contemplated by Section 1.9 and (ii) with respect to
any stock option, stock appreciation or other stock benefit plan of the
Company or any of its Subsidiaries not addressed by the preceding clause (i),
ensure that, following the Effective Time, no participant therein shall have
any right thereunder to acquire any capital stock of the Surviving
Corporation or any subsidiary thereof.
III.9 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) From and after the Effective Time, Parent agrees to, and
to cause the Surviving Corporation to, indemnify and hold harmless all past
and present officers, directors, employees and agents (the "INDEMNIFIED
PARTIES") of the Company and of its Subsidiaries to the full extent such
Persons may be indemnified by the Company pursuant to the Company's Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws (or
similar charter documents of any of its Subsidiaries), in each case as in
effect as of the date hereof, for acts and omissions occurring at or prior to
the Effective Time and shall advance reasonable litigation expenses incurred
by such Persons in connection with defending any action arising out of such
acts or omissions, provided that such Persons provide the requisite
undertaking, as set forth in the Company's Amended and Restated Bylaws prior
to the Effective Time.
(b) Parent will provide, or cause the Surviving Corporation
to provide, for a period of not less than six years after the Effective Time,
the Company's current directors and officers with an insurance and
indemnification policy that provides coverage for events occurring at or
prior to the Effective Time (the "D&O INSURANCE") that is no less favorable
than the existing policy or, if substantially equivalent insurance coverage
is unavailable, the best available coverage; PROVIDED, HOWEVER, that Parent
and the Surviving Corporation shall not be required to pay an annual premium
for the D&O Insurance in excess of one and one-half times the last annual
premium paid prior to the date hereof, but in such case shall purchase as
much of such coverage as possible for such amount.
III.10 EXPENSES. Except as otherwise provided in Section 7.4 and
in addition to the amounts that may be owed pursuant to Section 7.4, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, except that
32
the liability, if any, for New York State Real Estate Transfer Tax, New York
City Real Property Transfer Tax and Connecticut Controlling Interest Transfer
Tax, if and to the extent applicable and due with respect to the Merger, will
be borne by the Surviving Corporation.
III.11 EMPLOYEE MATTERS.
(a) EMPLOYEE BENEFITS. Parent shall maintain (or cause its
Subsidiaries to maintain), without interruption, through December 31, 1997,
employee compensation and benefit plans and arrangements that will provide
benefits to those provided to similarly situated employees of Parent and its
Subsidiaries. Notwithstanding the foregoing, Parent shall provide, or cause
it Subsidiaries to provide, to each Employee severance pay and benefits that
are no less favorable than those provided under the employee benefit plans
and current practices of Parent as in effect on the date of this Agreement.
(b) PARTICIPATION IN BENEFIT PLANS. Employees shall be given
credit for all service with the Company and its Subsidiaries under all
employee benefit plans and arrangements of Parent or any of its Subsidiaries
in which they become participants for purposes of eligibility and vesting to
the same extent as if rendered to Parent or any of its Subsidiaries.
Employees shall also be given credit for any deductible or co-payment amounts
paid in respect of the Plan year in which the Effective Time occurs, to the
extent that, following the Effective Time, they participate in any employee
benefit plan of the Parent for which deductibles or co-payments are required.
Parent shall also cause each of its employee benefit plans to waive (i) any
preexisting condition restriction which was waived under the terms of any
analogous Plan immediately prior to the Effective Time or (ii) waiting period
limitation which would otherwise be applicable to an Employee on or after the
Effective Time to the extent such Employee had satisfied any similar waiting
period limitation under an analogous Plan prior to the Effective Time.
(c) ACCRUED VACATION/SICK/PERSONAL DAYS. Parent shall assume the
Company's obligations to Employees with respect to accrued but untaken
vacation and sick and personal days, to the extent such obligations are
reflected on the Company's balance sheet.
ARTICLE IV
CONDITIONS TO CONSUMMATION OF THE MERGER
IV.1 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub hereunder to consummate the Merger are
subject to the satisfaction or waiver by Parent, at or prior to the Effective
Time, of
33
each of the following conditions:
(a) COVENANTS; ACCURACY OF REPRESENTATIONS AND WARRANTIES.
(i) The Company shall have performed in all material respects all of its
material obligations and complied in all material respects with all of its
material agreements and covenants to be performed or complied with by it
under this Agreement at or prior to the Effective Time; (ii) the
representations and warranties of the Company contained in Article III shall
be true and accurate at the date of this Agreement and as of the Effective
Time with the same force and effect as if they had been made as of the
Effective Time (except to the extent a representation or warranty speaks
specifically as of an earlier date and except as contemplated by this
Agreement), except, in each case, for inaccuracies in any such
representations and warranties that would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect
on the Company and the Surviving Corporation; and (iii) the Company shall
have provided Parent with a certificate executed by two executive officers of
the Company, dated as of the Effective Date, to such effect.
(b) CERTAIN WAIVERS. The Company shall have obtained waivers
or amendments, as the case may be, from each of the parties other than the
Company to the agreements set forth on Schedule 6.1, whereby each such other
party expressly waives any rights to termination under the applicable
agreement that may arise as a result of the consummation of the transactions
contemplated by this Agreement and consents to those matters more
specifically set forth on Schedule 6.1.
IV.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company hereunder to consummate the Merger is subject to the satisfaction
or waiver by the Company, at or prior to the Effective Time, of the following
condition:
(a) COVENANTS; ACCURACY OF REPRESENTATIONS AND WARRANTIES.
(i) Parent shall have performed in all material respects all of its material
obligations and complied in all material respects with all of its material
agreements and covenants to be performed or complied with by it under this
Agreement at or prior to the Effective Time; (ii) the representations and
warranties of Parent contained in Article IV shall be true and accurate at
the date of this Agreement and as of the Effective Time with the same force
and effect as if they had been made as of the Effective Time (except to the
extent a representation or warranty speaks specifically as of an earlier date
and except as contemplated by this Agreement) except, in each case, for
inaccuracies in any such representations and warranties that would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect on Parent; and (iii) Parent shall have provided the
Company with a certificate executed by two executive officers of Parent,
dated as of the Effective Date, to such effect.
34
IV.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of the Company, on the one hand, and Parent and Merger Sub, on
the other hand, to consummate the Merger are further subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:
(a) STOCKHOLDER APPROVAL. The Company Stockholder Approval
shall have been obtained.
(b) ILLEGALITY OR LEGAL CONSTRAINT. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall
have been enacted, promulgated or enforced (and not repealed, superseded or
otherwise made inapplicable) by any court of competent jurisdiction or other
Governmental Entity which prohibits the consummation of the transactions
contemplated by this Agreement or imposes material conditions with respect
thereto (collectively, "RESTRAINTS"); PROVIDED, HOWEVER, that the party
asserting the failure of this condition shall have used reasonable best
efforts to prevent the entry of any such Restraint and, if applicable to such
party, to appeal promptly any such Restraints that may be entered.
(c) GOVERNMENTAL APPROVALS. The parties hereto shall have
made the requisite filings with all Governmental Entities as shall be
required pursuant to applicable laws, rules and regulations, and such
Governmental Entities (including, but not limited to, the Insurance
Departments of the States of New York, New Jersey and Connecticut), to the
extent required by applicable law, shall have approved the transactions
contemplated by this Agreement, except where the failure to obtain any such
approval would not, individually or in the aggregate, have a Material Adverse
Effect on Parent and the Surviving Corporation, taken as a whole, or upon the
consummation of the transactions contemplated hereby.
(d) HSR ACT. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been
terminated.
ARTICLE V
TERMINATION OF AGREEMENT
V.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time whether before or after the approval by the
stockholders of the Company:
35
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company (i) if the Effective Date
shall not have occurred on or before December 31, 1997, subject to the two
business day period set forth in Section 1.4 (or February 28, 1998, subject
to the two business day period set forth in Section 1.4, if the only
condition remaining unfulfilled on December 31, 1997 is any required approval
by any Governmental Entity or the expiration of any waiting period), (ii) if
any Governmental Entity, the approval of which is a condition to the
obligations of Parent, Merger Sub and the Company to consummate the Merger,
shall have determined not to grant its approval and all appeals of such
determination shall have been taken and have been unsuccessful or (iii) if
any court of competent jurisdiction shall have issued an order, judgment or
decree (other than a temporary restraining order or temporary injunction)
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment or decree shall have become final and nonappealable; PROVIDED,
HOWEVER, that the right to terminate this Agreement pursuant to clause (i)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of
the Effective Date to occur on or before such date;
(c) by either Parent or the Company, if, at the Special
Meeting (including any adjournment or postponement thereof) called pursuant
to Section 5.6, the Company Stockholder Approval shall not have been obtained;
(d) by Parent (i) if there has been a breach by the Company
of any representation or warranty set forth in this Agreement, which breach
would give rise to the failure of a condition set forth in Section 6.1 or
6.3, which has not been cured within 15 business days following receipt by
the Company of written notice of such breach; (ii) if there has been a breach
by the Company of any covenant or agreement set forth in this Agreement,
which breach would give rise to the failure of a condition set forth in
Section 6.1 or 6.3, which has not been cured within 15 business days
following receipt by the Company of written notice of such breach; or (iii)
if the Board of Directors of the Company shall have failed to recommend or
withdrawn or modified or changed in a manner adverse to Parent its approval
or recommendation of this Agreement, or recommended an Acquisition Proposal
or shall have entered into a definitive agreement providing for the
transaction or transactions contemplated by an Acquisition Proposal (or the
Board of the Directors of the Company shall have resolved to do any of the
foregoing); PROVIDED, HOWEVER, that the right to terminate this Agreement
pursuant to this Section 7.1(d)(i) or (ii) shall not be available to Parent
if it, at such time, is in breach of any representation, warranty, covenant
or agreement set forth in this Agreement, which breach would give rise to the
failure of a condition set forth in Section 6.2 or 6.3, which has not been
cured within 15 business days following receipt by Parent of written notice
of such breach;
36
(e) by the Company (i) if there has been a breach by Parent
of any representation or warranty set forth in this Agreement, which breach
would give rise to the failure of a condition set forth in Section 6.2 or
6.3, which has not been cured within 15 business days following receipt by
Parent of written notice of such breach; (ii) if there has been a breach by
Parent of any covenant or agreement set forth in this Agreement, which breach
would give rise to the failure of a condition set forth in Section 6.2 or
6.3, which has not been cured within 15 business days following receipt by
Parent of written notice of such breach; or (iii) subject to Section 7.2, if
the Board of Directors of the Company shall have failed to recommend or
withdrawn or modified or changed in a manner adverse to Parent its approval
or recommendation of this Agreement in order to permit the Company to execute
a definitive agreement providing for the transaction or transactions
contemplated by a Superior Proposal; PROVIDED, HOWEVER, that the right to
terminate this Agreement pursuant to this Section 7.1(e)(i) or (ii) shall not
be available to the Company if it, at such time, is in breach of any
representation, warranty, covenant or agreement set forth in this Agreement,
which breach would give rise to the failure of a condition set forth in
Section 6.1 or 6.3, which has not been cured within 15 business days
following receipt by the Company of written notice of such breach.
(f) by Parent at any time following the date 30 days after
notice is delivered by the Company as required in Section 5.7(b)(i)
concerning the receipt of an Acquisition Proposal unless, prior to
termination under this subsection (f), the Company provides written notice to
Parent that such Acquisition Proposal has been rejected or withdrawn or the
Company is no longer engaged in negotiations or discussions with such other
Person concerning the Acquisition Proposal; PROVIDED that the 30-day time
period shall be reduced with respect to any subsequent Acquisition Proposal
made by a Person whose Acquisition Proposal was previously rejected or
withdrawn as provided in this subsection (f) to a number of days equal to the
greater of (i) 30 minus the number of days lapsed from the receipt of any
notice of any prior Acquisition Proposal from such Person until the rejection
or withdrawal of any such prior Acquisition Proposal(s) and (ii) 10.
V.2 CERTAIN ACTIONS PRIOR TO TERMINATION. The Company shall
provide to Parent the written notice required by Section 5.7(b) prior to any
termination of this Agreement pursuant to Section 7.1(e)(iii) advising Parent
that the Board of Directors of the Company has received a Superior Proposal.
At any time after the third business day following such notice, the Company
may terminate this Agreement as provided in Section 7.1(e)(iii) only if (i)
the Board of Directors of the Company determines that such Superior Proposal
remains more favorable and provides greater value to the Company's
stockholders than this Agreement and the Merger (which determination shall be
made in light of any
37
revised proposal made by Parent prior to the expiration of such
three-business day period) and (ii) the termination fee contemplated by
Section 7.4(a) shall have been paid to the Parent.
V.3 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 7.1, this
Agreement shall forthwith become void (except as set forth in the last
sentence of Section 5.3 and in Sections 5.10 and 7.4 and Article VIII) and
there shall be no liability on the part of Parent, Merger Sub or the Company
or their respective officers or directors, except (i) as set forth in this
Section 7.3, the last sentence of Section 5.3 or Sections 5.10 or 7.4 or
Article VIII and (ii) nothing herein shall relieve any party from liability
for (x) any willful or intentional breach of any representations or
warranties contained in this Agreement or (y) any breach of any covenant or
agreement contained in this Agreement.
V.4 TERMINATION FEES.
(a) Notwithstanding any other provision of this Agreement, so
long as the Company is not entitled to terminate this Agreement by reason of
Section 7.1(e)(ii), (i) if this Agreement is terminated pursuant to Section
7.1(d)(iii) or Section 7.1(e)(iii), then the Company shall promptly pay to
Parent a fee of $9 million (the amount of such fee being hereinafter referred
to as the "TERMINATION FEE"), plus an amount equal to all of the costs and
expenses incurred by Parent and Merger Sub in connection with this Agreement
and the transactions contemplated hereby (upon receipt of reasonable
documentation in respect thereto) up to an aggregate of $2.5 million (the
"TERMINATION EXPENSES"); (ii) if this Agreement is terminated pursuant to
Section 7.1(c) , then the Company shall promptly pay to Parent an amount
equal to the Termination Expenses; (iii) if within 12 months of a termination
of this Agreement pursuant to Section 7.1(c), the Company or any of its
Subsidiaries accepts a written offer for, or otherwise enters into an
agreement to consummate or consummates, a Transaction Proposal (as defined in
Section 7.4(b)) with another Person, upon the signing of a definitive
agreement relating to such Transaction Proposal, or, if no such agreement is
signed, then upon consummation of any such Transaction Proposal, the Company
shall pay to Parent an amount equal to the Termination Fee; or (iv) if within
12 months of the termination of this Agreement pursuant to Section 7.1(f) the
Company or any of its Subsidiaries accepts a written offer for, or otherwise
enters into an agreement to consummate or consummates, a Transaction Proposal
with another Person, upon the signing of a definitive agreement relating to
such a Transaction Proposal, or, if no such agreement is signed, then upon
consummation of any such Transaction Proposal, the Company shall pay to
Parent an amount equal to the Termination Fee.
(b) As used in this Section 7.4 "TRANSACTION PROPOSAL" shall
mean a proposal or offer (other than by another party hereto) (i) to acquire
38
beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of 50%
or more of the outstanding capital stock of the Company or any of its
Subsidiaries holding substantially all of the assets of the Company and its
Subsidiaries pursuant to a merger, consolidation or other business
combination, sale of shares of capital stock, tender offer or exchange offer
or similar transaction, including, without limitation, any single or
multi-step transaction or series of related transactions which is structured
to permit such third party to acquire beneficial ownership of 50% or more of
the outstanding capital stock of the Company or any of its Subsidiaries
holding substantially all of the assets of the Company and its Subsidiaries,
(ii) to purchase all or substantially all of the business or assets of the
Company and its Subsidiaries or (iii) to otherwise effect a business
combination involving the Company or any of its Subsidiaries holding
substantially all of the assets of the Company and its Subsidiaries.
(c) The obligation to pay the Termination Fee or Termination
Expenses pursuant to Section 7.4(a) shall be in addition to the expenses to
be paid by the Company pursuant to Section 5.10. The Company shall make all
such payments promptly (and in any event within two days of receipt by the
Company of written notice from Parent) by wire transfer of immediately
available funds to an account designated by Parent.
ARTICLE VI
MISCELLANEOUS AND GENERAL
VI.1 SURVIVAL. The representations and warranties made herein
shall not survive the termination of this Agreement or the Effective Time.
This Section 8.1 shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after termination of this
Agreement or the Effective Time.
VI.2 COUNTERPARTS. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
VI.3 GOVERNING LAWS AND CONSENT TO JURISDICTION. The laws of the
State of Delaware (irrespective of its choice of law principles) shall govern
all issues concerning the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware (and the
Delaware State and Federal courts having
39
jurisdiction over appeals therefrom) in respect of the transactions
contemplated by this Agreement, the other agreements and documents referred
to herein and the transactions contemplated by this Agreement and such other
documents and agreements.
VI.4 NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to the other parties shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, or by facsimile transmission (with a confirming copy sent by
overnight courier), as follows:
(a) If to the Company, to:
Xxxxxx X. Xxxx
Physicians Health Services, Inc.
Xxx Xxx Xxxx Xxxxxxxx
X.X. Xxx 000
Xxxxxxx, XX 00000
(000) 000-0000 (telephone)
(000) 000-0000 (telecopier)
with a copy to:
Xxxxxx X. Xxxxxxx, Esq.
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000-0000
(000) 000-0000 (telephone)
(000) 000-0000 (telecopier)
(b) If to Parent or Merger Sub, to:
Foundation Health Systems, Inc.
000 Xxxxx Xxxx
Xxxxxx, XX 00000
Attn: General Counsel
(000) 000-0000 (telephone)
(000) 000-0000 (telecopier)
40
with a copy to:
Xxxxxxx X. Xxxxxxx, Xx., Esq.
Xxxx X. Xxxxxx, Esq.
Skadden, Arps, Slate, Xxxxxxx & Xxxx (Illinois)
000 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
(000) 000-0000 (telephone)
(000) 000-0000 (telecopier)
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice.
VI.5 ENTIRE AGREEMENT. This Agreement and the Confidentiality
Agreement constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof.
VI.6 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their respective
permitted successors and assigns. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement; PROVIDED, HOWEVER, that the provisions of Section 5.9 shall inure
to the benefit of and be enforceable by the Indemnified Parties.
VI.7 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to be
bound thereby. The waiver by a party of any breach hereof or default in the
performance hereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default, unless such waiver so expressly
states. At any time before or after the Company Stockholder Approval and
prior to the Effective Time, this Agreement may be amended or supplemented by
the parties hereto with respect to any of the terms contained in this
Agreement, except that following the Company Stockholder Approval there shall
be no amendment or change to the provisions hereof with respect to the Merger
Consideration without further approval by the stockholders of the Company,
and no other amendment shall be made which by law requires further approval
by such stockholders without such further approval.
41
VI.8 CERTAIN DEFINITIONS. As used herein:
(a) "MATERIAL ADVERSE EFFECT" shall mean any adverse change
in or effect on the financial condition, business or results of operations of
the Company or any of its Subsidiaries or Parent or any of its Subsidiaries,
as the case may be, which is material to the Company and its Subsidiaries,
taken as a whole, or Parent and its Subsidiaries, taken as a whole, as the
case may be, other than any change or effect relating to the United States
economy in general or to the health care industry in general and not
specifically relating to the Company and its Subsidiaries or to Parent and
its Subsidiaries, as the case may be.
(b) "PERSON" shall mean any individual, partnership, firm,
corporation, association, joint venture, trust or other entity.
(c) "SIGNIFICANT SUBSIDIARY" shall mean, when used with
reference to any entity, any subsidiary of such entity that constitutes a
"significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X
promulgated by the SEC and any Subsidiary that is subject to regulation by
any insurance or HMO regulatory authority.
(d) "SUBSIDIARY" shall mean, when used with reference to any
entity, any corporation a majority of the outstanding voting securities of
which are owned directly or indirectly by such former entity.
VI.9 VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, each of which shall remain in full
force and effect.
VI.10 CAPTIONS. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
VI.11 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise, by any of the parties without the
prior written consent of the other parties; PROVIDED, HOWEVER, that Parent
may assign its rights hereunder to any of its Subsidiaries, provided that no
such assignment shall relieve Parent of its obligations hereunder. Any
assignment in violation of the preceding sentence shall be void.
VI.12 DISCLOSURE SCHEDULES. Matters reflected on the Company
42
Disclosure Schedule and the Parent Disclosure Schedule are not necessarily
limited to matters required by this Agreement to be reflected therein and the
inclusion of such matters shall not be deemed an admission that such matters
were required to be reflected on the Company Disclosure Schedule or the
Parent Disclosure Schedule, as the case may be. Such additional matters are
set forth for informational purposes only and do not necessarily include
other matters of a similar nature.
VI.13 SPECIFIC PERFORMANCE. The parties agree that irreparable
damage would occur and that the parties would not have any adequate remedy at
law 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 accordingly 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 of this Agreement in any Federal court
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity.
43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
PHYSICIANS HEALTH SERVICES, INC.
By:
--------------------------------------------
Name:
Title:
FOUNDATION HEALTH SYSTEMS, INC.
By:
--------------------------------------------
Name:
Title:
PHS ACQUISITION CORP.
By:
--------------------------------------------
Name:
Title:
