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AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 3, 2003
AMONG
WELLPOINT HEALTH NETWORKS INC.
CROSSROADS ACQUISITION CORP.
AND
COBALT CORPORATION
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TABLE OF CONTENTS
Page
ARTICLE I THE MERGER..........................................................1
1.1 The Merger..................................................1
1.2 Closing.....................................................2
1.3 Effective Time..............................................2
1.4 Effects of the Merger.......................................2
1.5 Certificate of Incorporation................................3
1.6 By-Laws.....................................................3
1.7 Officers and Directors of Surviving Corporation.............3
1.8 Effect on Capital Stock.....................................3
1.9 Target Stock Options........................................4
1.10 Certain Adjustments.........................................5
ARTICLE II EXCHANGE OF CERTIFICATES...........................................5
2.1 Exchange Fund...............................................5
2.2 Exchange Procedures.........................................5
2.3 Distributions with Respect to Unexchanged Shares............6
2.4 No Further Ownership Rights in Target Common Stock..........6
2.5 No Fractional Shares of Purchaser Common Stock..............6
2.6 Termination of Exchange Fund................................7
2.7 No Liability................................................7
2.8 Investment of the Exchange Fund.............................7
2.9 Lost Certificates...........................................7
2.10 Withholding Rights..........................................8
2.11 Further Assurances..........................................8
2.12 Stock Transfer Books........................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................8
3.1 Representations and Warranties of Purchaser.................8
3.2 Representations and Warranties of Target...................13
3.3 Representations and Warranties of Purchaser and
Merger Sub.................................................25
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS.........................26
4.1 Conduct of Business of Target Pending the Merger...........26
4.2 Conduct of Business of Purchaser Pending the Merger........29
4.3 Governmental Filings.......................................29
ARTICLE V ADDITIONAL AGREEMENTS..............................................29
5.1 Preparation of Form S-4 and the Proxy Statement;
Stockholders Meeting.......................................29
5.2 Accountant's Letters.......................................30
5.3 Access to Information......................................31
5.4 Reasonable Best Efforts....................................31
5.5 No Solicitation of Transactions............................32
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5.6 Employee Benefits Matters..................................33
5.7 Directors' and Officers' Indemnification and Insurance.....34
5.8 Notification of Certain Matters............................35
5.9 Public Announcements.......................................35
5.10 Listing of Shares of Purchaser Common Stock................35
5.11 Affiliates.................................................35
5.12 Transition Team............................................36
5.13 Tax-Free Reorganization Treatment..........................36
5.14 HIPAA Remediation..........................................36
5.15 Medicare Part A Claims Processing..........................36
5.16 Cobalt Corporation Foundation..............................37
ARTICLE VI CONDITIONS PRECEDENT..............................................37
6.1 Conditions to Each Party's Obligation to Effect
the Merger.................................................37
6.2 Additional Conditions to Obligations of
Purchaser and Merger Sub...................................37
6.3 Additional Conditions to Obligations of Target.............39
ARTICLE VII TERMINATION AND AMENDMENT........................................40
7.1 Termination................................................40
7.2 Effect of Termination......................................41
7.3 Fees and Expenses..........................................41
7.4 Amendment..................................................42
7.5 Extension; Waiver..........................................42
ARTICLE VIII GENERAL PROVISIONS..............................................42
8.1 Non-Survival of Representations, Warranties
and Agreements.............................................42
8.2 Notices....................................................43
8.3 Interpretation.............................................43
8.4 Counterparts...............................................44
8.5 Entire Agreement; No Third Party Beneficiaries.............44
8.6 Governing Law..............................................44
8.7 Severability...............................................44
8.8 Assignment.................................................44
8.9 Submission to Jurisdiction; Waivers........................45
8.10 Enforcement................................................45
8.11 Definitions................................................45
______________________________ [Intentionally Left Blank]..........48
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AGREEMENT AND PLAN OF MERGER, dated as of June 3, 2003 (this "Agreement"),
among WELLPOINT HEALTH NETWORKS INC., a Delaware corporation ("Purchaser"),
CROSSROADS ACQUISITION CORP., a Delaware corporation and a direct wholly-owned
subsidiary of Purchaser ("Merger Sub"), and COBALT CORPORATION, a Wisconsin
corporation ("Target").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Target and Purchaser deem it advisable
and in the best interests of each corporation and its respective stockholders
that Target and Purchaser engage in a business combination in order to advance
the long-term strategic business interests of Target and Purchaser;
WHEREAS, the combination of Target and Purchaser shall be effected by the
terms of this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Target and Purchaser have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of common
stock, no par value, of Target (other than the Subsidiary Held Stock (as defined
in Section 3.2(b)) ("Target Common Stock") issued and outstanding immediately
prior to the Effective Time (as defined in Section 1.3), other than the Target
Treasury Shares (as defined in Section 1.8(a)), and shares of Target Common
Stock owned by Purchaser or Merger Sub, will be converted into the right to
receive shares of common stock, par value $.01 per share, of Purchaser
("Purchaser Common Stock") and an amount of cash, each as set forth in Section
1.8;
WHEREAS, Purchaser and Wisconsin United for Health Foundation, Inc. (the
"Foundation") have entered into a Voting and Lockup Agreement simultaneously
herewith, which has been approved by the Board of Directors of Target for the
purposes of Section 180.1141 of the Wisconsin Business Corporation Law (the
"WBCL"); and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder, and that this Agreement shall qualify as a "plan of
reorganization" as that term is defined under Section 368(a) of the Code and the
regulations promulgated thereunder (subject to the election provided for in
Section 1.1).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Delaware General Corporation Law
("DGCL") and the WBCL, Target shall be merged with and into Merger Sub at the
Effective Time. Immediately
following the Merger, the separate corporate existence of Target shall cease and
Merger Sub shall continue as the surviving corporation (the "Surviving
Corporation") under the name Cobalt Corporation. In lieu of Target being merged
with and into Merger Sub, if all of the conditions set forth in Article VI
(excluding conditions that, by their terms, cannot be satisfied until the
Closing Date) have been satisfied or waived other than the conditions set forth
in Section 6.2(c) or 6.3(c) (relating to the receipt of opinions that the Merger
is a reorganization under Section 368(a) of the Code), Purchaser shall have the
right to irrevocably elect (the "Reverse Merger Election") by notice delivered
to Target, and upon the terms and subject to the conditions set forth in this
Agreement, to cause the "Merger" to be a merger of Merger Sub with and into
Target at the Effective Time, in which case, following the Merger, the separate
corporate existence of Merger Sub shall cease and Target shall continue as the
Surviving Corporation.
(b) For these purposes, the "continuity of interest" requirement of
Section 368 of the Code shall be deemed satisfied by all parties hereto if the
amount of Total Cash (as defined below) is less than or equal to 55% of the
aggregate of the Merger Consideration (as defined in Section 1.8(b)), based on
the average high and low price of Purchaser Common Stock on the day before the
Closing Date. "Total Cash" shall mean the sum of (i) Cash Consideration to be
paid pursuant to Section 1.8(b)(i) hereof, (ii) redemptions of or distributions
with respect to Target Common Stock or Subsidiary Held Stock in connection with
the Merger that would be treated as "other property" or money for purposes of
Section 356 of the Code, and (iii) repurchases or acquisitions of Purchaser
Common Stock issued in connection with the Merger by Purchaser or certain
parties related to Purchaser (within the meaning of Treas. Reg. Sec.
1.368-1(e)(3)).
1.2 Closing. Subject to the terms and conditions hereof, the closing of the
Merger and the transactions contemplated by this Agreement (the "Closing") will
take place on the second Business Day after the satisfaction or waiver (subject
to applicable law) of the conditions set forth in Article VI (other than any
such conditions which by their terms cannot be satisfied until the Closing Date,
which shall be required to be so satisfied or waived on the Closing Date),
unless another time or date is agreed to in writing by the parties hereto (the
actual time and date of the Closing being referred to herein as the "Closing
Date"). The Closing shall be held at the offices of Xxxxxxx Xxxxxxx & Xxxxxxxx
LLP, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, unless another place is agreed to
in writing by the parties hereto.
1.3 Effective Time. At the Closing, the parties shall (i) file a
certificate or articles of merger (the "Certificate of Merger") in such form as
is required by and executed in accordance with the relevant provisions of the
DGCL and the WBCL and (ii) make all other filings or recordings required under
the DGCL and the WBCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with both the Secretary of State of Delaware
and the Department of Financial Institutions of the State of Wisconsin or at
such subsequent time as Purchaser and Target shall agree and as shall be
specified in the Certificate of Merger (the date and time the Merger becomes
effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will
have the effects set forth in the DGCL and the WBCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Target and Merger Sub
shall be vested in the Surviving Corporation, and all
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debts, liabilities and duties of Target and Merger Sub shall be the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation. Unless the Reverse Merger Election is
made, the certificate of incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the certificate of incorporation of the
Surviving Corporation, until thereafter changed or amended as provided therein
or by applicable law. If the Reverse Merger Election is made, the articles of
incorporation of Target as amended in their entirety as set forth in Exhibit 1.5
shall be the articles of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
1.6 By-Laws. At the Effective Time and without any further action on the
part of Target and Merger Sub, the By-Laws of Merger Sub shall be the By-Laws of
the Surviving Corporation and thereafter may be amended or repealed in
accordance with their terms or the Certificate of Incorporation of the Surviving
Corporation and as provided by law. If the Reverse Merger Election is made, the
By-Laws of Target as amended in their entirety as set forth in Exhibit 1.6 shall
be the By-Laws of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
1.7 Officers and Directors of Surviving Corporation. The officers of Merger
Sub as of the Effective Time shall be the officers of the Surviving Corporation,
until the earlier of their resignation or removal or otherwise ceasing to be an
officer or until their respective successors are duly elected and qualified, as
the case may be. The directors of Merger Sub as of the Effective Time shall
serve as directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified.
1.8 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Target
Common Stock or Subsidiary Held Stock:
(a) All shares of Target Common Stock that are owned by Target as
treasury stock or otherwise (the "Target Treasury Shares"), Purchaser or Merger
Sub shall be canceled and retired and shall cease to exist and no cash,
Purchaser Common Stock or other consideration shall be delivered in exchange
therefor.
(b) Each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time (other than the Target Treasury Shares
and shares of Target Common Stock owned by Purchaser or Merger Sub) shall be
converted at the Effective Time into the following (the "Merger Consideration"):
(i) the right to receive $10.25 in cash (the "Cash
Consideration"); and
(ii) the right to receive the Exchange Ratio (as defined in
Section 8.11) of a fully paid and nonassessable share of Purchaser Common Stock
(the "Stock Consideration").
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Upon such conversion, all such shares of Target Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate which immediately prior to the Effective Time
represented any such shares of Target Common Stock (a "Certificate") shall
thereafter represent the right to receive the Merger Consideration and cash for
fractional shares in accordance with Section 2.5 upon the surrender of the
Certificate in accordance with the terms hereof.
(c) Each share of common stock, par value $0.01, of Merger Sub
outstanding immediately prior to the Effective Time shall remain outstanding and
unchanged following the Effective Time as shares of the Surviving Corporation.
In the case of a Reverse Merger, each share of common stock shall be converted
into and become one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
(d) Each share of Subsidiary Held Stock shall be converted into the
right to receive two times the Exchange Ratio in Purchaser Common Stock
("Subsidiary Stock Consideration"). Upon such conversion, all such shares of
Subsidiary Held Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate which
immediately prior to the Effective Time represented any such shares of
Subsidiary Held Stock (a "Subsidiary Held Certificate") shall thereafter
represent the right to receive the Subsidiary Stock Consideration and cash for
fractional shares in accordance with Section 2.5 upon the surrender of the
Subsidiary Held Certificates in accordance with the terms hereof.
1.9 Target Stock Options. Target and Purchaser shall take all action
reasonably necessary so that, immediately prior to the Effective Time, each
stock option (the "Target Stock Options") heretofore granted or granted after
the date hereof in compliance with the provisions hereof under any stock option
or similar plan of Target (the "Target Stock Option Plans") and outstanding
immediately prior to the Effective Time shall become vested and exercisable as
of the Effective Time pursuant to the terms of such Target Stock Options and
shall be converted into an option to purchase a number of shares of Purchaser
Common Stock (a "Converted Option") equal to the product of the number of shares
of Target Common Stock subject to such Target Stock Option multiplied by twice
the Exchange Ratio (provided that any fractional share resulting from such
multiplication shall be rounded down to the nearest whole share). The terms and
conditions of the Converted Option shall otherwise remain the same as the terms
and conditions of the Target Stock Option, except that the exercise price per
share of each Converted Option shall equal the exercise price per share of such
Target Stock Option divided by twice the Exchange Ratio (provided that such
exercise price shall be rounded up to the nearest whole cent). Purchaser shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of Purchaser Common Stock for delivery upon exercise of the Converted
Options. Purchaser shall use its reasonable best efforts to cause the
registration of the shares of Purchaser Common Stock subject to the Converted
Options to become effective as part of the Form S-4 or a registration statement
on Form S-8, on the same date as the Form S-4 is declared effective; and,
thereafter, Purchaser shall file one or more registration statements on
appropriate forms with respect to shares of Purchaser Common Stock subject to
the Converted Options and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements for so
long as the Converted Options remain outstanding. Target and Purchaser shall
take all such steps as may be required to cause the transactions contemplated by
this Section 1.9
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and any other dispositions of Target equity securities (including derivative
securities) or acquisitions of Purchaser equity securities (including derivative
securities) in connection with this Agreement by each individual who (i) is a
director or officer of Target or (ii) at the Effective Time will become a
director or officer of Purchaser to become exempt under Rule 16b-3 promulgated
under the Exchange Act. As soon as practicable after the Effective Time,
Purchaser shall deliver or cause to be delivered to each holder of Converted
Options an appropriate notice setting forth such holder's rights pursuant to the
Target Stock Option Plan and agreements evidencing the grants of such Converted
Options, after giving effect to the transactions hereunder.
1.10 Certain Adjustments. If, between the date of this Agreement and the
Effective Time, the outstanding Purchaser Common Stock, Target Common Stock or
Subsidiary Held Stock shall have been changed into a different number of shares
or different class by reason of any reclassification, recapitalization, stock
split, split-up, combination or exchange of shares or a stock dividend or
dividend payable in any other securities shall be declared with a record date
within such period, or any similar event shall have occurred, the Stock
Consideration or Subsidiary Stock Consideration shall be appropriately adjusted
to provide to the holders of Target Common Stock or Subsidiary Held Stock the
same economic effect as contemplated by this Agreement prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, Purchaser shall appoint an
exchange agent hereunder for the purpose of exchanging Certificates for the
Merger Consideration (the "Exchange Agent"). Purchaser shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of Target Common
Stock, at or prior to the Effective Time (a) certificates representing the
Purchaser Common Stock issuable pursuant to Section 1.8 in exchange for
outstanding shares of Target Common Stock and (b) cash sufficient to pay the
cash portion of the Merger Consideration. Purchaser agrees to make available to
the Exchange Agent from time to time as needed, additional cash sufficient to
pay cash in lieu of fractional shares pursuant to Section 2.5 and any dividends
and other distributions pursuant to Section 2.3. Any cash and certificates of
Purchaser Common Stock deposited with the Exchange Agent shall hereinafter be
referred to as the "Exchange Fund."
2.2 Exchange Procedures. Within five Business Days after the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of a Certificate (a) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, and which
letter shall be in customary form and have such other provisions as Purchaser
may reasonably specify and (b) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
one or more shares of Purchaser Common Stock (which shall be in uncertificated
book-entry form unless a physical certificate is requested) representing, in the
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aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 1.8 (after taking into account all shares of Target Common
Stock then held by such holder) and (ii) a check for the cash portion of the
Merger Consideration and for the cash that such holder has the right to receive
pursuant to the provisions of this Article II, including cash in lieu of any
fractional shares of Purchaser Common Stock pursuant to Section 2.5 and
dividends and other distributions pursuant to Section 2.3. No interest will be
paid or will accrue on any cash payable for the cash portion of the Merger
Consideration or pursuant to Section 2.3 or Section 2.5. In the event of a
transfer of ownership of Target Common Stock which is not registered in the
transfer records of Target, one or more shares of Purchaser Common Stock
evidencing, in the aggregate, the proper number of shares of Purchaser Common
Stock and a check for the cash portion of the Merger Consideration, the cash in
lieu of any fractional shares of Purchaser Common Stock pursuant to Section 2.5
and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.3, may be issued with respect to such Target Common Stock
to such a transferee if the Certificate representing such shares of Target
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of Purchaser Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Purchaser Common Stock
that such holder would be entitled to receive upon surrender of such Certificate
until such holder shall surrender such Certificate in accordance with Section
2.2. Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to such holder of shares of Purchaser Common
Stock issuable in exchange therefor, without interest, (a) promptly after the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date prior to such surrender payable with respect to such shares of Purchaser
Common Stock and (b) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Purchaser Common Stock.
2.4 No Further Ownership Rights in Target Common Stock. All shares of
Purchaser Common Stock issued and cash paid upon conversion of shares of Target
Common Stock or Subsidiary Held Stock in accordance with the terms of Article I
and this Article II (including any cash paid pursuant to Section 2.3 or 2.5)
shall be deemed to have been issued or paid in full satisfaction of all rights
pertaining to the shares of Target Common Stock or Subsidiary Held Stock. Until
surrendered as contemplated by this Article II, each Certificate or Subsidiary
Held Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger Consideration
or the Subsidiary Stock Consideration, as the case may be.
2.5 No Fractional Shares of Purchaser Common Stock. (a) No certificates or
scrip or shares of Purchaser Common Stock representing fractional shares of
Purchaser Common Stock or book-entry credit of the same shall be issued upon the
surrender for exchange of Certificates or Subsidiary Held Stock and such
fractional share interests will not entitle the
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owner thereof to vote or to have any rights of a stockholder of Purchaser or a
holder of shares of Purchaser Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder
of shares of Target Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Purchaser
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to the product of (i) such fractional part of a share of Purchaser Common
Stock multiplied by (ii) the closing price for a share of Purchaser Common Stock
on the New York Stock Exchange, Inc. ("NYSE") Composite Transactions Tape on the
date of the Effective Time or, if such date is not a Business Day, the Business
Day immediately following the date on which the Effective Time occurs. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional interests, the Exchange Agent shall so
notify Purchaser, and Purchaser shall cause the Surviving Corporation to deposit
such amount with the Exchange Agent and shall cause the Exchange Agent to
forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to Purchaser or otherwise on the instruction
of Purchaser and any holders of the Certificates who have not theretofore
complied with this Article II shall thereafter look only to the Surviving
Corporation and Purchaser for the Merger Consideration with respect to the
shares of Target Common Stock formerly represented thereby to which such holders
are entitled pursuant to Section 1.8 and Section 2.2, any cash in lieu of
fractional shares of Purchaser Common Stock to which such holders are entitled
pursuant to Section 2.5 and any dividends or distributions with respect to
shares of Purchaser Common Stock to which such holders are entitled pursuant to
Section 2.3. Any such portion of the Exchange Fund remaining unclaimed by
holders of shares of Target Common Stock five years after the Effective Time (or
such earlier date immediately prior to such time as such amounts would otherwise
escheat to or become property of any Governmental Entity (as defined in Section
3.1(c)(iii)) shall, to the extent permitted by law, become the property of
Purchaser free and clear of any claims or interest of any Person previously
entitled thereto.
2.7 No Liability. None of Purchaser, Merger Sub, Target, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Purchaser on a daily basis.
Any interest and other income resulting from such investments shall promptly be
paid to Purchaser.
2.9 Lost Certificates. If any Certificate shall have been lost, stolen or
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 Exchange Agent
will
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deliver in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of Target Common
Stock formerly represented thereby, any cash in lieu of fractional shares of
Purchaser Common Stock, and unpaid dividends and distributions on shares of
Purchaser Common Stock deliverable in respect thereof, pursuant to this
Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and Purchaser
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Target Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Purchaser, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Target Common Stock
in respect of which such deduction and withholding was made by the Surviving
Corporation or Purchaser, as the case may be.
2.11 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Target or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
Target or Merger Sub, any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
2.12 Stock Transfer Books. The stock transfer books of Target shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of Target Common Stock thereafter on the
records of Target. On or after the Effective Time, any Certificates presented to
the Exchange Agent or Purchaser for any reason shall be converted into the
Merger Consideration with respect to the shares of Target Common Stock formerly
represented thereby, any cash in lieu of fractional shares of Purchaser Common
Stock to which the holders thereof are entitled pursuant to Section 2.5 and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Purchaser. Except as set forth in the
Purchaser Disclosure Schedule delivered by Purchaser to Target prior to the
execution of this Agreement (the "Purchaser Disclosure Schedule") (each section
of which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein; provided, however that any fact or
condition disclosed in any section of the Purchaser Disclosure Schedule in such
a way as to make its relevance to a representation or representations made
elsewhere in this Agreement or information called for by another section of the
Purchaser Disclosure Schedule readily apparent shall be deemed to be an
exception to such representation or representations or to be disclosed on such
other section of the Purchaser Disclosure Schedule
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notwithstanding the omission of a reference or cross reference thereto),
Purchaser represents and warrants to Target as follows:
(a) Organization, Standing and Power. Each of Purchaser and each of
its Subsidiaries (as defined in Section 8.11) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not reasonably be expected to
have a Material Adverse Effect (as defined in Section 8.11) on Purchaser, and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary, other than in such jurisdictions where the failure
so to qualify or to be in good standing would not reasonably be expected to have
a Material Adverse Effect on Purchaser. The copies of the certificate of
incorporation and by-laws of Purchaser which were previously furnished or made
available to Target are true, complete and correct copies of such documents as
in effect on the date of this Agreement.
(b) Capital Structure. The authorized capital stock of Purchaser
consists of (i) 300,000,000 shares of Purchaser Common Stock of which
146,415,690 shares were issued and outstanding as of the date hereof and (ii)
50,000,000 shares of Preferred Stock, $.01 par value per share, none of which
were outstanding as of the date hereof. Since December 31, 2002 to the date of
this Agreement, there have been no issuances of shares of the capital stock of
Purchaser or any other securities of Purchaser other than issuances of shares
pursuant to options or rights outstanding under the Benefit Plans (as defined in
Section 8.11) of Purchaser. All issued and outstanding shares of the capital
stock of Purchaser are duly authorized, validly issued, fully paid and
nonassessable, and no class of capital stock is entitled to preemptive rights.
There are outstanding as of the date hereof no options, warrants or other rights
to acquire capital stock from Purchaser other than options, restricted stock and
share equivalents representing in the aggregate the right to purchase no more
than 20,028,673 shares of Purchaser Common Stock. All shares of Purchaser Common
Stock to be issued in connection with the Merger and the other transactions
contemplated hereby (including without limitation all shares of Purchaser Common
Stock to be issued upon exercise of the Converted Options) will, when issued in
accordance with the terms hereof, have been duly authorized, validly issued,
fully paid and non-assessable, free and clear of all Liens. As of the date
hereof, there are no stockholder agreements, voting trusts or other agreements
or understandings to which the Purchaser is a party or by which it is bound
relating to the voting of any shares of the capital stock of the Purchaser.
(c) Authority; No Conflicts.
(i) Purchaser has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, including, without limitation, the issuance of the shares of Purchaser
Common Stock to be issued in the Merger and upon the exercise of the Converted
Options (the "Share Issuance"). The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and constitutes a
valid and binding agreement of Purchaser, enforceable against it in accordance
with its terms, except as
9
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
(ii) The execution and delivery of this Agreement by Purchaser
does not or will not, as the case may be, and the consummation by Purchaser of
the Merger and the other transactions contemplated hereby will not, conflict
with, or result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation or the loss of a
material benefit under, or the creation of a Lien on any assets (any such
conflict, violation, default, right of termination, amendment, cancellation or
acceleration, loss or creation, is hereinafter referred to as a "Violation")
pursuant to: (A) any provision of the certificate of incorporation or by-laws of
Purchaser or any material Subsidiary of Purchaser or (B) except as would not
reasonably be expected to have a Material Adverse Effect on Purchaser, subject
to obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii) below,
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Purchaser or any Subsidiary of Purchaser, or their respective
properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national, state,
municipal, local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority (a "Governmental Entity"),
is required by or with respect to Purchaser or any Subsidiary of Purchaser in
connection with the execution and delivery of this Agreement by Purchaser or the
consummation of the Merger and the other transactions contemplated hereby,
except for those required under or in relation to (A) the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (B) state
securities or "blue sky" laws, (C) the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act"), (D) the
Exchange Act; (E) the WBCL with respect to the filing of the Certificate of
Merger, (F) rules and regulations of the NYSE, (G) the OCI (as defined in
Section 3.2(s)) and the California Department of Managed Health Care and (H)
such consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to make or obtain would not reasonably be
expected to have a Material Adverse Effect on Purchaser. Consents, approvals,
orders, authorizations, registrations, declarations and filings required under
or in relation to any of the foregoing clauses (A) through (G) are hereinafter
referred to as "Necessary Consents."
(d) Reports and Financial Statements.
(i) Purchaser has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents required
to be filed by it with the SEC since January 1, 2001 (collectively, including
all exhibits thereto, the "Purchaser SEC Reports"). No Subsidiary of Purchaser
is required to file any form, report, registration
10
statement, prospectus or other document with the SEC. None of the Purchaser SEC
Reports, as of their respective dates (and, if amended or superseded by a filing
prior to the date of this Agreement or the Closing Date, then on the date of
such filing), contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Purchaser SEC Reports, together with
any public announcements in a news release made by Purchaser after the date
hereof, as of the Effective Time will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances existing
as of the Effective Time, not misleading. Each of the financial statements
(including the related notes) included in the Purchaser SEC Reports presents
fairly, in all material respects, the consolidated financial position and
consolidated results of operations and cash flows of Purchaser and its
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with GAAP applied on a consistent basis throughout
the periods involved except as otherwise noted therein, and subject, in the case
of the unaudited interim financial statements, to normal and recurring
adjustments that were not or are not expected to be material in amount, and the
absence of footnote disclosure. All of such Purchaser SEC Reports, as of their
respective dates (and as of the date of any amendment to the respective
Purchaser SEC Report), complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder.
(ii) Except as disclosed in the Purchaser SEC Reports filed prior
to the date hereof, Purchaser and its Subsidiaries have not incurred any
liabilities or obligations (whether or not accrued, contingent or otherwise)
that are of a nature that would be required to be disclosed on a balance sheet
of Purchaser and its Subsidiaries or the footnotes thereto prepared in
conformity with GAAP, other than (A) liabilities incurred in the ordinary course
of business or (B) liabilities that would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect on Purchaser.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by
Purchaser for inclusion or incorporation by reference in (A) the registration
statement on Form S-4 to be filed with the SEC by Purchaser in connection with
the issuance of shares of Purchaser Common Stock in connection with the Merger,
or any of the amendments or supplements thereto (collectively, the "Form S-4")
will, at the time the Form S-4 is filed with the SEC, at any time it is amended
or supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (B) the proxy statement for use relating to the adoption by
the stockholders of Target of this Agreement or any of the amendments or
supplements thereto (collectively, the "Proxy Statement") will, on the date it
is first mailed to Target stockholders or at the time of the Target Stockholders
Meeting (as defined in Section 5.1), 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 were made, not misleading.
11
The Form S-4 will comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act and the rules and
regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section
3.2(e), no representation or warranty is made by Purchaser with respect to
statements made or incorporated by reference in the Form S-4 based on
information supplied by Target.
(f) Litigation; Compliance with Laws.
(i) Except as disclosed in the Purchaser SEC Reports filed prior
to the date of this Agreement, there is no suit, action, investigation or
proceeding pending or, to the Knowledge of Purchaser, threatened, against or
affecting Purchaser or any Subsidiary of Purchaser having, or which would
reasonably be expected to have, a Material Adverse Effect on Purchaser, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Purchaser or any Subsidiary of Purchaser
having, or which would reasonably be expected to have, a Material Adverse Effect
on Purchaser.
(ii) Except as disclosed in the Purchaser SEC Reports filed prior
to the date of the Agreement and except as would not reasonably be expected to
have a Material Adverse Effect on Purchaser, Purchaser and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the operation of the businesses of Purchaser
and its Subsidiaries, taken as a whole (the "Purchaser Permits"). Purchaser and
its Subsidiaries are in compliance with the terms of the Purchaser Permits,
except where the failure to so comply would not reasonably be expected to have a
Material Adverse Effect on Purchaser. Except as disclosed in the Purchaser SEC
Reports filed prior to the date of this Agreement, the businesses of Purchaser
and its Subsidiaries are not being conducted in violation of, and Purchaser has
not received any notices of violations with respect to, any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
would not reasonably be expected to have a Material Adverse Effect on Purchaser.
(iii) Purchaser is in compliance in all material respects with
all rules and regulations of the BCBSA.
(g) Board Approval. The Board of Directors of Purchaser, by
resolutions duly adopted by unanimous vote at a meeting duly called and held and
not subsequently rescinded or modified in any way, has duly approved this
Agreement, the Merger and the Share Issuance.
(h) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of Purchaser, except X.X. Xxxxxx Securities Inc., whose fees and
expenses will be paid by Purchaser in accordance with Purchaser's agreement with
such firm.
(i) No Vote Required. No vote or other action of the stockholders of
Purchaser is required by law, Purchaser's certificate or incorporation or
by-laws or otherwise in
12
order for Purchaser and Merger Sub to consummate the Merger and the transactions
contemplated hereby.
3.2 Representations and Warranties of Target. Except as set forth in the
Target Disclosure Schedule delivered by Target to Purchaser prior to the
execution of this Agreement (the "Target Disclosure Schedule") (each section of
which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein; provided, however that any fact or
condition disclosed in any section of the Target Disclosure Schedule in such a
way as to make its relevance to a representation or representations made
elsewhere in this Agreement or information called for by another section of the
Target Disclosure Schedule readily apparent shall be deemed to be an exception
to such representation or representations or to be disclosed on such other
section of the Target Disclosure Schedule notwithstanding the omission of a
reference or cross reference thereto), Target represents and warrants to
Purchaser as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Target and each of its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power and authority would not reasonably be
expected to have a Material Adverse Effect on Target, and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify or
to be in good standing would not reasonably be expected to have a Material
Adverse Effect on Target. The copies of the articles of incorporation and
by-laws of Target which were previously furnished or made available to Purchaser
are true, complete and correct copies of such documents.
(ii) Section 3.2 of the Target Disclosure Schedule lists all the
Subsidiaries of Target which as of the date of this Agreement are Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the SEC). All the
outstanding shares of capital stock of, or other equity interests in, each such
Significant Subsidiary have been validly issued and are fully paid and
nonassessable (except to the extent provided by Section 180.0622(2)(b) of the
WBCL) and are owned directly or indirectly by Target, free and clear of all
Liens and free of any other restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests). Except as set forth in the Target SEC Reports (as defined in Section
3.2(d)), neither Target nor any of its Subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity, that is or would reasonably be expected to
be material to Target and its Subsidiaries taken as a whole.
(b) Capital Structure.
(i) The authorized capital stock of Target consists of (A)
75,000,000 shares of Target Common Stock, of which 41,990,405 shares were
outstanding
13
as of the date hereof, excluding 7,949,904 shares held of record by Blue Cross &
Blue Shield United of Wisconsin ("BCBSUW"), a wholly owned Subsidiary of Target
(the "Subsidiary Held Stock"), and (B) 1,000,000 shares of Preferred Stock, no
par value per share, none of which are outstanding. Since December 31, 2002,
there have been no issuances of shares of the capital stock of Target or any
other securities of Target other than issuances of shares pursuant to Target
Stock Options under the Target Stock Option Plans. All issued and outstanding
shares of the capital stock of Target are duly authorized, validly issued, fully
paid and nonassessable (except to the extent provided by Section 180.0622(2)(b)
of the WBCL), and no capital stock is entitled to preemptive rights. There are
outstanding as of the date hereof no options, warrants or other rights to
acquire capital stock from Target other than Target Stock Options representing
in the aggregate the right to purchase no more than 4,307,616 shares of Target
Common Stock under the Target Stock Option Plans. Section 3.2(b) of the Target
Disclosure Schedule sets forth a complete and correct list, as of June 3, 2003,
of the number of shares of Target Common Stock subject to Target Stock Options
or other rights to purchase or receive Target Common Stock granted under the
Target Stock Option Plans or otherwise, the dates of grant and the exercise
prices thereof. No options or warrants or other rights to acquire capital stock
from Target have been issued or granted since December 31, 2002.
(ii) No bonds, debentures, notes or other indebtedness of Target
having the right to vote on any matters on which stockholders may vote are
issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), there
are no securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Target or any of its
Subsidiaries is a party or by which any of them is bound obligating Target or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Target or any of its Subsidiaries or obligating Target or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. There
are no outstanding obligations of Target or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of Target or
any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Target has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, subject in the case of the consummation of the Merger to the adoption of
this Agreement by the Required Target Vote (as defined in Section 3.2(h)). The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target, subject in the case of the consummation
of the Merger to the adoption of this Agreement by the Required Target Vote.
This Agreement has been duly executed and delivered by Target and constitutes a
valid and binding agreement of Target, enforceable against it in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditors generally or by general equity principles (regardless of whether such
14
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(ii) The execution and delivery of this Agreement by Target does
not or will not, as the case may be, and the consummation by Target of the
Merger and the other transactions contemplated hereby will not, conflict with,
or result in a Violation pursuant to: (A) any provision of the articles of
incorporation or by-laws of Target or any Subsidiary of Target or (B) subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii) below,
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Target or any Subsidiary of Target or their respective properties
or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Target or any Subsidiary of Target in connection with the
execution and delivery of this Agreement by Target or the consummation of the
Merger and the other transactions contemplated hereby, except the Necessary
Consents and such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would not
reasonably be expected to have a Material Adverse Effect on Target.
(d) Reports and Financial Statements.
(i) Target has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents required
to be filed by it with the SEC since January 1, 2001 (collectively, including
all exhibits thereto, the "Target SEC Reports"). No Subsidiary of Target is
required to file any form, report, registration statement or prospectus or other
document with the SEC. None of the Target SEC Reports, as of their respective
dates (and, if amended or superseded by a filing prior to the date of this
Agreement or the Closing Date, then on the date of such filing), contained or
will contain any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Target SEC Reports and any public announcements made by
Target after the date hereof as of the Effective Time will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances existing as of the Effective Time, not misleading. Each of the
financial statements (including the related notes) included in the Target SEC
Reports presents fairly, in all material respects, the consolidated financial
position and consolidated results of operations and cash flows of Target and its
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with GAAP applied on a consistent basis throughout
the periods involved except as otherwise noted therein, and subject, in the case
of the unaudited interim financial statements, to normal and recurring
adjustments that were not or are not expected to be material in amount, and the
absence of footnote disclosure. All of such Target SEC Reports, as of their
respective dates (and as of the date of any amendment to the respective Target
SEC Report), complied as to form in all material
15
respects with the applicable requirements of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Target SEC Reports filed prior to
the date hereof, Target and its Subsidiaries have not incurred any liabilities
or obligations (whether or not accrued, contingent or otherwise) that are of a
nature that would be required to be disclosed on a balance sheet of Target and
its Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than liabilities that would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect on Target.
(e) Reserves. The loss reserves and other actuarial amounts of Target
and its Subsidiaries recorded in their respective financial statements contained
in the Target SEC Reports and all statutory reports as of December 31, 2002 and
March 31, 2003 (i) were determined in accordance with generally accepted
actuarial standards consistently applied (except as otherwise noted in such
financial statements), (ii) were fairly stated in all material respects in
accordance with sound actuarial principles, (iii) satisfied all applicable laws
and the requirements of the BCBSA in all material respects and have been
computed on the basis of methodologies consistent with those used in computing
the corresponding reserves in the prior fiscal years and (iv) include provisions
for all actuarial reserves and related items which ought to be established in
accordance with applicable laws and regulations and prudent insurance practices.
Target is not aware of any facts or circumstances which would necessitate, in
the good faith application of prudent reserving practices and policies, any
material adverse change in the statutorily required reserves or reserves above
those reflected in the most recent balance sheet (other than increases
consistent with past experience resulting from increases in enrollment with
respect to services provided by the Target or its Subsidiaries). The capital and
surplus for Target on a consolidated basis is now, and immediately prior to the
Closing will be, not less than 200% of the authorized control level as defined
in NAIC Risk-Based Capital Guidelines required by applicable law.
(f) Information Supplied.
(i) None of the information supplied or to be supplied by Target
for inclusion or incorporation by reference in (A) the Form S-4 will, at the
time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (B) the Proxy Statement will, on the date it is first mailed
to Target stockholders or at the time of the Target Stockholders 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 were made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section
3.2(f), no representation or warranty is made by Target with respect to
statements made
16
or incorporated by reference in the Form S-4 or the Proxy Statement based on
information supplied by Purchaser or Merger Sub.
(g) Board Approval. The Board of Directors of Target, by resolutions
duly adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly approved this Agreement, the Merger, the Voting
and Lockup Agreement referred to in the fourth Whereas clause hereof and the
transactions contemplated hereby and thereby, including without limitation, for
purposes of Section 180.1141 of the WBCL. Such approval is sufficient to render
inapplicable the restrictions on business combinations set forth in Section
180.1141(1) of the WBCL to all such transactions and is sufficient to satisfy
Section 180.1141(2)(a) with respect to future business combinations to which
such Section would apply. Other than Section 180.1141 of the WBCL, no takeover
statute or other similar statute is applicable to the Merger, the Voting and
Lockup Agreement or the other transactions contemplated hereby or thereby.
(h) Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Target Common Stock to approve the Merger (the
"Required Target Vote") is the only vote of the holders of any class or series
of Target capital stock necessary to adopt this Agreement and approve the Merger
and the other transactions contemplated hereby.
(i) Litigation; Compliance with Laws.
(i) Except as disclosed in the Target SEC Reports filed prior to
the date of this Agreement, there is no suit, action, investigation or
proceeding pending or, to the Knowledge of Target, threatened, against or
affecting Target or any Subsidiary of Target having, or which would reasonably
be expected to have a Material Adverse Effect on Target, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Target or any Subsidiary of Target having, or
which reasonably would be expected to have a Material Adverse Effect on Target.
(ii) Except as disclosed in the Target SEC Reports filed prior to
the date of this Agreement and except as would not reasonably be expected to
have a Material Adverse Effect on Target, Target and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the operation of the businesses of Target
and its Subsidiaries, taken as a whole (the "Target Permits"). Target and its
Subsidiaries are in compliance with the terms of the Target Permits, except
where the failure so to comply would not reasonably be expected to have a
Material Adverse Effect on Target. Except as disclosed in the Target SEC Reports
filed prior to the date of this Agreement, the businesses of Target and its
Subsidiaries are not being conducted in violation of, and Target has not
received any notices of violations with respect to, any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
would not reasonably be expected to have a Material Adverse Effect on Target.
(iii) The Target and each of its officers and directors are in
compliance with, and have complied, in all material respects with (A) the
applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 and the related rules
and regulations promulgated under such act or the Exchange Act
("Xxxxxxxx-Xxxxx") and (B) the applicable listing and corporate
17
governance rules and regulations of the NYSE. The Target has previously
disclosed to Purchaser any of the information required to be disclosed by the
Target and certain of its officers to the Target's Board of Directors or any
committee thereof pursuant to the certification requirements contained in Form
10-K and Form 10-Q under the Exchange Act. Since the enactment of
Xxxxxxxx-Xxxxx, neither the Target nor any of its affiliates has made any loans
to any executive officer or director of the Target. The Target has adopted a
plan which would enable it to comply with the requirements of Section 404 of
Xxxxxxxx-Xxxxx by the time such requirements would be applicable to the Target
if it remained a public company.
(iv) Each of Target and its Subsidiaries is in compliance in all
material respects with all rules and regulations of the BCBSA.
(j) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby and except as disclosed in the Target SEC Reports filed prior to the date
of this Agreement, since December 31, 2002, Target and its Subsidiaries have
conducted their business only in the ordinary course and there has not been (i)
any change, circumstance or event which has had, or would reasonably be expected
to have, a Material Adverse Effect on Target or (ii) any action taken by Target
or any of its Subsidiaries during the period from December 31, 2002 through the
date of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time, would have constituted a breach of Section
4.1.
(k) Environmental Matters. Except as disclosed in Section 3.2(k) of
the Target Disclosure Schedule and except as would not reasonably be expected to
have a Material Adverse Effect on Target, (i) the operations of Target and its
Subsidiaries have been and are in compliance with all applicable Environmental
Laws and with all Environmental Permits, (ii) there are no pending or, to the
Knowledge of Target, threatened, actions, suits, claims, investigations or other
proceedings under or pursuant to Environmental Laws against Target or its
Subsidiaries or, to the Knowledge of Target, involving any real property
currently or formerly owned, operated or leased by Target or its Subsidiaries,
(iii) Target and its Subsidiaries are not subject to any Environmental
Liabilities and, to the Knowledge of Target, no facts, circumstances or
conditions relating to, arising from, associated with or attributable to any
real property currently or formerly owned, operated or leased by Target or its
Subsidiaries or operations thereon would reasonably be expected to result in
Environmental Liabilities, (iv) all real property owned and all real property
operated or leased by Target or its Subsidiaries is free of Hazardous Materials
in conditions or concentrations that would reasonably be expected to have an
adverse effect on human health or the environment and none of Target or any of
its Subsidiaries has disposed of any Hazardous Materials on or about such
premises, (v) no release, discharge, spillage or disposal of any Hazardous
Material and no soil, water or air contamination by any Hazardous Material has
occurred or is occurring in, from or on such premises the result of which would
have a Material Adverse Effect on Target, and (vi) Target has provided to
Purchaser all material Environmental Reports in the possession or control of
Target or any of its Subsidiaries.
As used in this Agreement, "Environmental Laws" means any and all laws,
rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or
other legally enforceable requirements (including, without limitation, common
law) of any international authority, foreign
18
government, the United States, or any state, local, municipal or other
Governmental Entity, regulating, relating to or imposing liability or standards
of conduct concerning protection of the environment or of human health,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. xx.xx. 9601 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. xx.xx. 1801 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. xx.xx. 6901 et seq., the Clean Water
Act, 33 U.S.C. xx.xx. 1251 et seq., the Clean Air Act, 42 U.S.C. xx.xx. 7401 et
seq., the Toxic Substances Control Act, 15 U.S.C. xx.xx. 2601 et seq., the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C., xx.xx. 136 et seq.
and the Oil Pollution Act of 1990, 33 U.S.C. xx.xx. 2701 et seq., as such laws
have been amended or supplemented, and the regulations promulgated pursuant
thereto, and all analogous state or local statutes. As used in this Agreement,
"Environmental Liabilities" with respect to any Person means any and all
liabilities of or relating to such Person or any of its Subsidiaries (including
any entity which is, in whole or in part, a predecessor of such Person or any of
such Subsidiaries), whether vested or unvested, contingent or fixed, actual or
potential, known or unknown, which (i) arise under applicable Environmental Laws
or with respect to Hazardous Materials, and (ii) relate to actions occurring or
conditions existing on or prior to the Closing Date. As used in this Agreement,
"Environmental Permits" means any and all permits, consents, licenses,
approvals, registrations, notifications, exemptions and any other authorization
required under any applicable Environmental Law. As used in this Agreement,
"Environmental Report" means any report, study, assessment, audit, or other
similar document that addresses any issue of noncompliance with, or liability
under, any Environmental Law that may affect Target or any of its Subsidiaries.
As used in this Agreement, "Hazardous Materials" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity, and any other substances of any kind, whether or
not any such substance is defined as hazardous or toxic under any Environmental
Law, that is regulated pursuant to or could give rise to liability under any
applicable Environmental Law.
(l) Intellectual Property. Except as would not reasonably be expected
to have a Material Adverse Effect on Target, (i) Target and each of its
Subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of its
business as currently conducted; (ii) to the Knowledge of Target, the use of any
Intellectual Property by Target and its Subsidiaries does not infringe on or
otherwise violate the rights of any Person and is in accordance with any
applicable license pursuant to which Target or any Subsidiary acquired the right
to use any Intellectual Property; (iii) no Person is challenging or, to the
Knowledge of Target, infringing on or otherwise violating any right of Target or
any of its Subsidiaries with respect to any Intellectual Property owned by or
licensed to Target or its Subsidiaries; and (iv) neither Target nor any of its
Subsidiaries has received any written notice of any pending claim with respect
to any Intellectual Property used by Target and its Subsidiaries and to the
Knowledge of Target no Intellectual Property owned or licensed by Target or its
Subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" shall mean
trademarks, service marks, brand names, certification marks, trade dress and
other indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of
19
any such registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations, continued prosecution
applications, continuations in part and renewal applications), and any renewals,
extensions or reissues thereof, in any jurisdiction; know-how, trade secrets and
confidential information and rights in any jurisdiction to limit the use or
disclosure thereof by any Person; writings and other works, whether
copyrightable or not, in any jurisdiction; registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions
thereof; and any similar intellectual property or proprietary rights.
(m) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of Target except UBS Warburg LLC (the "Target Financial Advisor"),
whose fees and expenses will be paid by Target in accordance with Target's
agreement with such firm, a copy of which has been provided to Purchaser solely
for informational purposes.
(n) Taxes. (i) Target and each of its Subsidiaries (A) have prepared
in good faith and duly and timely filed (taking into account any extension of
time within which to file) all Tax Returns (as defined below) required to be
filed by any of them and all such filed Tax Returns are complete and accurate in
all material respects; (B) have paid all Taxes that are shown as due and payable
on such filed Tax Returns or that Target or any of its Subsidiaries are
obligated to pay without the filing of a Tax Return; (C) have paid all other
assessments received to date in respect of Taxes other than those being
contested in good faith for which provision has been made in accordance with
GAAP on the most recent balance sheet included in Target's Annual Report on Form
10-K for the year ended December 31, 2002; (D) have properly accrued on the
balance sheet, in accordance with GAAP, all contingent or deferred Taxes that
have not become due; (E) have withheld from amounts owing to any employee,
creditor or other Person all Taxes required by law to be withheld and have paid
over to the proper governmental authority in a timely manner all such withheld
amounts to the extent due and payable; (F) have not waived any applicable
statute of limitations with respect to United States federal or state income or
franchise Taxes and have not otherwise agreed to any extension of time with
respect to a United States federal or state income or franchise Tax assessment
or deficiency; (G) have never been members of any consolidated group for income
tax purposes other than the consolidated group of which Target is the common
parent; and (H) have no liability under Treasury Regulations Section 1.1502-6
(or any similar provision of applicable state, local or foreign law), as a
transferee or successor, by contract or otherwise for Taxes of any affiliated
group of which Target is not the common parent. No liens for Taxes exist with
respect to any of the assets or properties of Target or its Subsidiaries, except
for statutory liens for Taxes not yet due or payable or that are being contested
in good faith. Target has made available to Purchaser true and correct copies of
the United States federal income Tax Returns filed by Target and its
Subsidiaries for the year ended December 31, 2001. There is no contract or
agreement, plan or arrangement by Target or its Subsidiaries covering any Person
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible by Target or its Subsidiaries by reason of Section
280G of the Code or would constitute compensation in excess of the limitation
set forth in Section 162(m) of the Code. There are not being conducted or, to
the Knowledge of
20
Target, threatened in writing any material audits, examinations, investigations,
litigation, or other proceedings in respect of Taxes of Target or any
Subsidiary.
(ii) The conversion of BCBSUW into a for-profit stock corporation
(the "Conversion") was a tax-free reorganization within the meaning of Section
368(a)(1)(E) of the Code. Neither Target nor any of its Subsidiaries has taken
any action or failed to take any action that could adversely affect the tax-free
reorganization. Pursuant to the Conversion, Target contributed stock to the
Foundation on March 23, 2001 and claimed a deduction on its Tax Return for
taxable year 2001 in the amount of $193,000,000 (the "Conversion Deduction").
Target has not offset (or otherwise utilized) any portion of the Conversion
Deduction against taxable income as reported on any Tax Return.
(iii) As used in this Agreement, (A) the term "Tax" (including,
with correlative meaning, the term "Taxes") includes all federal, state, local
and foreign income, profits, premium, franchise, gross receipts, environmental,
customs duty, capital stock, severance, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise, production, value
added, occupancy and other taxes, duties or governmental levies of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts or filing requirements and any interest in respect of
such penalties and additions, and (B) the term "Tax Return" includes all returns
and reports (including elections, declarations, disclosures, schedules,
estimates, information returns, claim for refund, and amended returns) required
to be supplied to a Tax authority relating to Taxes.
(o) Certain Contracts.
(i) Section 3.2(o)(i) of the Target Disclosure Schedule lists
each of the following contracts, agreements or arrangements to which Target or
any of its Subsidiaries is a party or by which it is bound: (A) any "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC); provided, that any such contract previously filed as an exhibit to one or
more of the Target SEC Reports shall not be required to be listed on the Target
Disclosure Schedule but shall be deemed to be a "material contract" for purposes
of this Agreement, (B) the ten largest provider and the ten largest customer
contracts measured in terms of payments to or receipts from Target and its
Subsidiaries in the aggregate, (C) any contract that involves (1) annual
premiums or payments of greater than $5 million or annual administrative
services fees or similar payments of greater than $1 million and (2) by its
terms, does not terminate within one year after the date of such contract and is
not cancelable during such period without penalty or without payment (other than
customer agreements that are not terminable within one year solely as a result
of HIPAA (as defined below) or other statutory or regulatory requirements), (D)
promissory notes, loans, agreements, indentures, evidences of indebtedness or
other instruments providing for the lending of money, whether as borrower,
lender or guarantor in amounts greater than $500,000 (excluding trade payables
or receivables arising in the ordinary course of business), (E) any contract or
other agreement restricting the payment of dividends or the repurchase of stock
or other equity, (F) employment agreements, (G) change in control or similar
arrangements with any officers, employees or agents of Target or any of its
Subsidiaries that will result in any obligation (absolute or contingent) to make
any payment to any officers, employees or agents of Target or any of its
Subsidiaries following either the consummation of the transactions contemplated
hereby, termination of employment, or both,
21
(H) labor contracts, (I) joint venture, partnership agreements or other similar
agreements, (J) any contract for the pending acquisition, directly or indirectly
(by merger or otherwise), of any entity or business, (K) any contract, agreement
or policy for reinsurance, (L) any contract or agreement that is material to the
business, assets or condition (financial or otherwise) of the Target and its
Subsidiaries taken as a whole that is not otherwise included as a "material
contract" under this Section 3.2(o)(i), or (M) any non-competition agreement or
any other agreement or arrangement that limits or otherwise restricts Target or
any of its Subsidiaries or any successor thereto or that would, after the
Effective Time, limit or restrict Purchaser or any of its affiliates (including
the Surviving Corporation) or any successor thereto, from engaging or competing
in any line of business or in any geographic area (collectively, the "Material
Contracts").
(ii) Neither Target nor any of its Subsidiaries is, or has
received any notice or has any Knowledge that any other party is, in default (or
would be in default but for the lapse of time or the giving of notice or both)
in any respect under any such Material Contract, except for those defaults which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Target.
(p) Employee Benefit Plans.
(i) Section 3.2(p)(i) of the Target Disclosure Schedule contains
a true and complete list of each Benefit Plan, stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, collective bargaining,
bonus, incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject to
ERISA, whether formal or informal, oral or written, legally binding or not under
which any employee or former employee of Target or any of its Subsidiaries has
any present or future right to benefits or under which Target or any of its
Subsidiaries has any present or future liability. All such plans, agreements,
programs, policies and arrangements shall be collectively referred to as the
"Plans"; provided, however, that for purposes of this Section 3.2(p), the term
"Plans" shall not include any benefit plans, agreements, policies, programs or
arrangements sold or marketed by Target.
(ii) With respect to each Plan, Target has delivered or made
available to Purchaser a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement, annuity contract or other funding
instrument; (B) the most recent determination letter; (C) any summary plan
description and other written communications (or a description of any oral
communications) by Target or any of its Subsidiaries to its employees concerning
the extent of the benefits provided under a Plan; and (D) for the three most
recent years: (I) the Form 5500 and attached schedules; (II) audited financial
statements; (III) actuarial valuation reports; and (IV) attorney responses to
auditors' requests for information.
(iii) (A) Each Plan has been established and administered in
accordance with its terms, and in material compliance with the applicable
provisions of ERISA, the Code and other applicable laws, rules and regulations
and if intended to be qualified within the meaning of Section 401(a) of the Code
is so qualified; (B) with respect to any Plan, no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or,
to the Knowledge of Target, threatened; (C) neither Target nor any other party
has engaged in
22
a prohibited transaction, as such term is defined under Section 4975 of the Code
or Section 406 of ERISA, which would subject Target, the Surviving Corporation
or any of their Subsidiaries to any taxes, penalties or other liabilities under
Section 4975 of the Code or Section 409 or 502(i) of ERISA and Target has no
other liability under the Code with respect to any Plan, including liability
under any other provision of Chapter 43 of the Code; (D) no Plan provides for an
increase in benefits on or after the Closing Date; and (E) each Plan may be
amended or terminated without obligation or liability (other than those
obligations and liabilities for which specific assets have been set aside in a
trust or other funding vehicle or reserved for on Target's March 31, 2003
balance sheet included in Target's Form 10-Q for the quarterly period ended
March 31, 2003), except as otherwise required by ERISA.
(iv) Neither Target nor any member of its Controlled Group has
ever maintained, sponsored, administered or contributed to an employee benefit
plan subject to Title IV of ERISA, a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) or a welfare benefit plan that provide coverage or
benefits to former employees (other than benefit continuation rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended).
(v) No Plan exists which could result in the payment to any
employee of Target or any of its Subsidiaries of any money or other property or
rights or accelerate or provide any other rights or benefits to any such
employee as a result of the transactions contemplated by this Agreement.
(vi) Except due to random and inadvertent administrative error,
all individuals who are or have been eligible to participate in the Plans based
upon the eligibility provisions set forth therein or under applicable law have
been provided with a timely opportunity to participate.
(q) Labor Matters. (i) Neither Target nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization (other than
contracts or other agreements or understandings with labor unions or labor
organizations in connection with products and services offered and sold to such
unions and organizations by Target or its Subsidiaries); (ii) neither Target nor
any of its Subsidiaries is the subject of any proceeding asserting that it or
any Subsidiary has committed an unfair labor practice or sex, age, race or other
discrimination or seeking to compel it to bargain with any labor organization as
to wages or conditions of employment; (iii) there are no current or threatened
organizational activities or demands for recognition by a labor organization
seeking to represent employees of Target or any Subsidiary, or labor strike and
no such activities have occurred during the past 24 months; (iv) no grievance,
arbitration, complaint or investigation is pending or, to the Knowledge of
Target, threatened against Target or any of its Subsidiaries which, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect with respect to Target; (v) Target and each Subsidiary is in compliance
with all applicable laws (domestic and foreign), agreements, contracts, and
policies relating to employment, employment practices, wages, hours, and terms
and conditions of employment except for failures so to comply, if any, that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect with respect to Target; (vi) Target has complied in all
material respects with its payment obligations to all
23
employees of Target and its Subsidiaries in respect of all wages, salaries,
commissions, bonuses, benefits and other compensation due and payable to such
employees under any Target policy, practice, agreement, plan, program or any
statute or other law; (vii) Target is not liable for any severance pay or other
payments to any employee or former employee arising from the termination of
employment under any benefit or severance policy, practice, agreement, plan, or
program of Target, nor will Target have any liability which exists or arises, or
may be deemed to exist or arise, under any applicable law or otherwise, as a
result of or in connection with the transactions contemplated hereunder or as a
result of the termination by Target of any Persons employed by Target or any of
its Subsidiaries on or prior to the Effective Time of the Merger except as
required by Code Section 4980B; and (viii) Target is in compliance with its
obligations pursuant to the Worker Adjustment and Retraining Notification Act of
1988 ("WARN") and part 6 and 7 of Title I of ERISA, to the extent applicable,
and all other employee notification and bargaining obligations arising under any
collective bargaining agreement or statute.
(r) Affiliate Transactions. Except as disclosed in the Target SEC
Reports or Section 3.2(r) of the Target Disclosure Schedule, there are no
contracts, commitments, agreements, arrangements or other transactions between
Target or any of its Subsidiaries, on the one hand, and any (i) officer or
director of Target or any of its Subsidiaries, (ii) record or beneficial owner
of five percent or more of the voting securities of Target or (iii) affiliate
(as such term is defined in Regulation 12b-2 promulgated under the Exchange Act)
of any such officer, director or beneficial owner, on the other hand.
(s) Statutory Financial Statements. Except as otherwise set forth
therein, the annual statements and the quarterly statements filed by Target or
any of its Subsidiaries with the Wisconsin Office of the Commissioner of
Insurance ("OCI") for the years ended December 31, 2001 and 2002, and for the
quarterly period ended March 31, 2003 and for any period ending after the date
hereof (the "OCI Filings") and the statutory balance sheets and income
statements included in such OCI Filings fairly present in all material respects
the statutory financial condition and results of operations of Target or such
Subsidiaries, as applicable, as of the date and for the periods indicated
therein and have been prepared in accordance with applicable statutory
accounting principles consistently applied throughout the periods indicated,
except as may be reflected in the notes thereto and subject to the absence of
notes required by statutory accounting principles and to normal year-end
adjustments.
(t) Insurance. Target has provided or made available to Purchaser a
true, correct and complete listing of all policies of insurance to which Target
is currently a party or is a beneficiary or named insured. Target maintains
insurance coverage with reputable insurers in such amounts and covering such
risks as are in accordance with normal industry practice for companies engaged
in businesses similar to that of Target (taking into account the cost and
availability of such insurance).
(u) Opinion of Target Financial Advisor. The Board of Directors of
Target has received the opinion of the Target Financial Advisor, dated the date
of this Agreement, to the effect that, as of such date, the Merger Consideration
is fair, from a financial point of view, to the holders of Target Common Stock
(other than Purchaser, BCBSUW and their respective affiliates), a copy of which
opinion will be made available to Purchaser solely for informational purposes,
after receipt thereof by Target.
24
(v) HIPAA. Target is, and its business is being conducted, in
compliance in all material respects with the Administrative Simplification
provisions of the Health Insurance Portability and Accountability Act and the
regulations promulgated thereunder (including 45 C.F.R. parts 160, 162, and 164)
(collectively, "HIPAA"). Target has formulated and is in the process of
implementing a remediation plan designed to ensure compliance by Target, no
later than October 14, 2003, with any applicable state or federal privacy laws
or regulations (including HIPAA) governing the security, privacy or electronic
or other exchange of health information that are effective or scheduled to
become effective on or prior to December 31, 2003. This remediation plan is
referred to as the "HIPAA/Privacy Remediation Plan." A copy of the HIPAA/Privacy
Remediation Plan has been provided to Purchaser. The HIPAA/Privacy Remediation
Plan is based upon reasonable determinations concerning: (i) the application of
HIPAA and other state and federal privacy laws and regulations to Target and
(ii) the measures that must be taken to attain compliance with such laws and
regulations by their mandated compliance dates. Target reasonably believes that
the objectives set forth in the HIPAA/Privacy Remediation Plans are attainable
in the manner and within the time periods set forth therein (which time periods
have been established to ensure full compliance by the compliance dates imposed
by HIPAA and other state and federal privacy laws and regulations). Target has
completed, and will complete, in all material respects all scheduled actions set
forth in the HIPAA/Privacy Remediation Plan on or before the dates set forth in
the HIPAA/Privacy Remediation Plan.
3.3 Representations and Warranties of Purchaser and Merger Sub. Purchaser
and Merger Sub represent and warrant to Target as follows:
(a) Organization. Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of Delaware
and Merger Sub is a direct wholly-owned subsidiary of Purchaser.
(b) Corporate Authorization. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors generally or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby do not and will not contravene or conflict with
the certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with the organization of Merger Sub, the
negotiation and execution of
25
this Agreement and the consummation of the transactions contemplated hereby.
Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Conduct of Business of Target Pending the Merger. Target covenants and
agrees that, during the period from the date hereof to the Effective Time and
except as otherwise agreed to in writing by Purchaser, the businesses of Target
and its Subsidiaries shall be conducted only in, and Target and its Subsidiaries
shall not take any action except in the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws; and
Target and its Subsidiaries shall each use its commercially reasonable efforts
to preserve substantially intact the business organization of Target and its
Subsidiaries, to keep available the services of the present officers, employees
and consultants of Target and its Subsidiaries and to preserve the present
relationships of Target and its Subsidiaries with such of the customers,
suppliers, licensors, licensees, or distributors with which Target or any of its
Subsidiaries has significant business relations. By way of amplification and not
limitation, neither Target nor any of its Subsidiaries shall, between the date
of this Agreement and the Effective Time, except as set forth in Section 4.1 of
the Target Disclosure Schedule, directly or indirectly do, or propose or commit
to do, any of the following:
(a) Amend its articles of incorporation or by-laws or equivalent
organizational documents;
(b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, any
shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest (including but not limited to stock appreciation
rights or phantom stock), of Target or any of its Subsidiaries (except for the
issuance of securities issuable pursuant to options outstanding as of the date
hereof under any Benefit Plans or, consistent with past practice, pursuant to
Target's 401(k) plan), except for the issuance of options to officers and
employees (which issuance shall be in the ordinary course of business in
accordance with past practices) to purchase up to 100,000 shares of Target
Common Stock under the Target Stock Option Plans;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock (other than a dividend or distribution payable in cash,
stock, property or otherwise, from any of Target's wholly-owned Subsidiaries to
Target);
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) Acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
or line of business;
(f) Modify its current investment policies or investment practices in
any material respect except to accommodate changes in applicable law;
26
(g) Transfer, lease, mortgage, or otherwise dispose of or subject to
any Lien any of its assets, including capital stock of Subsidiaries (except (i)
by incurring Permitted Liens and (ii) equipment and property no longer used in
the operation of Target's business);
(h) Incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any Person, or make any loans,
advances or capital contributions to, or investments in, any other Person
(except for borrowings under and in accordance with the Credit Documents);
(i) Enter into or amend any Material Contract, any other contract or
agreement (with "other contract or agreement" being defined for purposes of this
subsection as a contract or agreement which involves Target incurring a
liability in excess of $1 million individually or $10 million in the aggregate
and which is not terminable by Target without penalty upon one year or less
notice (other than (A) contracts or amendments issued or entered into in the
ordinary course of business and consistent with Target's practice since January
1, 2003 with customers or providers of Target or its Subsidiaries (1) using
Target's or any of its Subsidiaries' standard templates (as the same may be
amended with non-material changes made for other customers or providers or for
purposes of compliance with laws or accreditation requirements) and (2) which do
not contain any rate guarantees for any period greater than 12 months, and (B)
customer agreements that are not terminable within one year solely as a result
of HIPAA or other statutory or regulatory requirements)) or contract or
agreement with an affiliate of Target; provided, that if Target is required to
obtain the consent of Purchaser to enter into or amend a Material Contract,
"other contract or agreement" or agreement with an affiliate of Target pursuant
to this Section 4.1(i), Purchaser shall consider and respond to Target's request
for such consent within two Business Days of Purchaser's receipt of such request
and such other information as is reasonably necessary to evaluate such request.
For purposes of this section, a "rate guarantee" shall mean any provision
pursuant to which the premiums, administrative services fees or other similar
payments to be received by Target or its Subsidiaries, or in the instance of
agreements with providers the rates to be paid by Target or its Subsidiaries,
are set either at a fixed amount or by reference to a pre-determined formula
(such as an index of inflation) for a specified period of time;
(j) Except to the extent required under this Agreement or pursuant to
applicable law, increase the compensation or fringe benefits of any of its
directors, officers or employees, except for increases in salary or wages of
officers and employees of Target or its Subsidiaries in the ordinary course of
business in accordance with past practice, or grant any severance or termination
pay not currently required to be paid under existing severance plans or enter
into, or amend, any employment, consulting or severance agreement or arrangement
with any present or former director, officer or other employee of Target or any
of its Subsidiaries, or establish, adopt, enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, welfare, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any directors, officers or
employees;
27
(k) Except as may be required as a result of a change in law or in
generally accepted accounting or actuarial principles, make any change to the
accounting practices or principles or reserving or underwriting practices or
principles used by it;
(l) Take, or permit any of its Subsidiaries to take, any action that
would prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code;
(m) Settle or compromise any pending or threatened suit, action or
claim in excess of $500,000;
(n) Adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of Target or any of its
Subsidiaries;
(o) Effectuate a "plant closing" or "mass layoff", as those terms are
defined in WARN, affecting in whole or in part any site of employment, facility,
operating unit or employee of Target or any of its Subsidiaries;
(p) Fail to maintain in full force and effect the existing insurance
policies covering Target or its Subsidiaries or their respective properties,
assets and businesses or comparable replacement policies to the extent available
for a cost not exceeding 300% of the current cost of such policy;
(q) Authorize any single capital expenditure which is in excess of
$500,000 or capital expenditures which are, in the aggregate, in excess of $5
million for Target and its Subsidiaries taken as a whole;
(r) Create any new products or expand its marketing efforts beyond
Wisconsin;
(s) Make any Tax election or settle or compromise any material
federal, state, local or foreign Tax liability, change any annual tax accounting
period, change any method of Tax accounting, enter into any closing agreement
relating to any Tax, surrender any right to claim a Tax refund, or consent to
any extension or waiver of the limitations period applicable to any Tax claim or
assessment;
(t) 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 and
consistent with past practice, of liabilities reflected or reserved against in
the financial statements of Target or incurred in the ordinary course of
business and consistent with past practice;
(u) (i) Take, or permit any of its Subsidiaries to take, any action or
fail to take any action that would adversely affect the Conversion from
qualifying as a tax-free reorganization or (ii) claim any portion of the
Conversion Deduction against taxable income as reported on any Tax Return; or
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(v) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.1(a) through 4.1(u) or any
action which would result in any of the conditions set forth in Article VI not
being satisfied or materially delay the Closing.
4.2 Conduct of Business of Purchaser Pending the Merger. Purchaser shall
not, between the date of this Agreement and the Effective Time, except as set
forth in Section 4.2 of the Purchaser Disclosure Schedule, directly or
indirectly do, or propose or commit to do, any of the following:
(a) Amend its certificate of incorporation or by-laws or equivalent
organizational documents in a manner adverse to Target or its stockholders;
(b) Take, or permit any of its Subsidiaries to take, any action that
would prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code;
(c) Declare, set aside, make or pay any dividend or other distribution
(other than a share repurchase in accordance with Purchaser's share repurchase
program, stock dividend or cash dividend comparable to dividends of other
companies of similar size), payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) Adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of Purchaser; or
(e) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.2(a) through 4.2(d) or any
action which would result in any of the conditions set forth in Article VI not
being satisfied or materially delay the Closing.
4.3 Governmental Filings. Each of Purchaser and Target shall (a) confer on
a regular and frequent basis with the other and (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. Target and Purchaser shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities) between
the date of this Agreement and the Effective Time and each of Purchaser (to the
extent any report, announcement and publication relates to this Agreement and
the Merger or materially impacts the Merger) and Target shall (to the extent
permitted by law or regulation or any applicable confidentiality agreement)
deliver to the other party copies of all such reports, announcements and
publications promptly after the same are filed.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and the Proxy Statement; Stockholders Meeting.
(a) Promptly following the date of this Agreement, Target and Purchaser shall
prepare and Target shall file with the SEC the Proxy Statement, and Purchaser
shall prepare and file with the SEC the Form S-4, in which the Proxy Statement
will be included as a prospectus. Each of Target and Purchaser shall use its
reasonable best efforts to have the Form S-4 declared effective under the
29
Securities Act as promptly as practicable after such filing. Target will use its
reasonable best efforts to cause the Proxy Statement to be mailed to its
stockholders as promptly as practicable after the Form S-4 is declared effective
under the Securities Act. Purchaser shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified) required to be taken under any applicable state securities law in
connection with the issuance of Purchaser Common Stock in connection with the
Merger, and Target shall furnish all information concerning Target and the
holders of Target Common Stock and rights to acquire Target Common Stock
pursuant to the Target Stock Option Plans as may be reasonably required in
connection with any such action. Each of Purchaser and Target shall furnish all
information concerning itself to the other as may be reasonably requested in
connection with any such action and the preparation, filing and distribution of
the Form S-4 and the preparation, filing and distribution of the Proxy
Statement. Target, Purchaser and Merger Sub each agrees to correct any
information provided by it for use in the Form S-4 or the Proxy Statement that
shall have become false or misleading.
(b) Target, acting through its Board of Directors, shall, subject to
and in accordance with its articles of incorporation and by-laws, promptly and
duly call, give notice of, convene and hold as soon as practicable following the
date upon which the Form S-4 becomes effective a meeting of the holders of
Target Common Stock (the "Target Stockholders Meeting") for the purpose of
voting to approve and adopt this Agreement and the transactions contemplated
hereby, and (i) except as otherwise provided herein, recommend approval and
adoption of this Agreement and the transactions contemplated hereby by the
stockholders of Target and include in the Proxy Statement such recommendation
and (ii) use its commercially reasonable efforts to solicit and obtain such
approval. The Board of Directors of Target shall not withhold, withdraw, amend
or modify in a manner adverse to Purchaser its recommendation referred to in
clause (i) of the preceding sentence (or announce publicly its intention to do
so), except that such Board of Directors shall be permitted to withhold,
withdraw, amend or modify its recommendation (or publicly announce its intention
to do so) if such Board of Directors determines in good faith, after
consultation with its outside legal counsel, that its failure to withhold,
withdraw, amend or modify its recommendation is or is reasonably likely to be,
inconsistent with its fiduciary duties in accordance with Wisconsin law.
Notwithstanding the foregoing, a communication by the Board of Directors of
Target to Target's stockholders pursuant to Rule 14d-9(f) under the Exchange
Act, or any similar type of communication to Target's stockholders in connection
with the making or amendment of a tender offer or exchange offer, shall not be
deemed to constitute a breach of Target's obligations under this Section 5.1(b).
(c) Target will cause its transfer agent to make stock transfer
records relating to Target available to the extent reasonably necessary to
effectuate the intent of this Agreement.
5.2 Accountant's Letters. (a) Purchaser shall use reasonable best efforts
to cause to be delivered to Target a letter from Purchaser's independent public
accountants, dated the date on which the Form S-4 shall become effective,
addressed to Purchaser, in form and substance reasonably satisfactory to Target
and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
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(b) Target shall use reasonable best efforts to cause to be delivered
to Purchaser a letter from Target's independent public accountants, dated the
date on which the Form S-4 shall become effective, addressed to Target and
Purchaser, in form and substance reasonably satisfactory to Purchaser and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
5.3 Access to Information(a) . Upon reasonable notice, each party shall
(and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior to
the Effective Time, to such of its properties, books, contracts, commitments,
records, officers and employees as the other party may reasonably request and,
during such period, such party shall (and shall cause its Subsidiaries to)
furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed, published, announced or
received by it during such period pursuant to the requirements of Federal or
state securities laws, as applicable (other than documents which such party is
not permitted to disclose under applicable law), and (b) consistent with its
legal obligations, all other information concerning it and its business,
properties and personnel as such other party may reasonably request; provided,
however, that either party may restrict the foregoing access to the extent that
any law, treaty, rule or regulation of any Governmental Entity applicable to
such party requires such party or its Subsidiaries to restrict access to any
properties or information. The parties will hold any such information which is
non-public in confidence to the extent required by, and in accordance with, the
provisions of the confidentiality agreement dated April 29, 2003 between Target
and Purchaser (the "Confidentiality Agreement"). Any investigation by Purchaser
or Target shall not affect the representations and warranties of Target or
Purchaser, as the case may be. Notwithstanding anything herein to the contrary,
any party to this Agreement (and any employee, representative, or other agent of
any party to this Agreement) may disclose to any and all persons, without
limitation of any kind, the U.S. federal income tax treatment and tax structure
of the transactions contemplated by this Agreement (the "Transactions") and all
materials of any kind (including opinions or other tax analyses) that are
provided to it relating to such tax treatment and tax structure; provided,
however, that neither party (nor any employee, representative or other agent
thereof) shall disclose any information (a) that is not relevant to an
understanding of the U.S. federal income tax treatment or tax structure of the
Transactions, including the identity of any party to this Agreement (or its
employees, representatives, or other agents) or other information that could
lead any person to determine such identity, (b) to the extent such disclosure
could result in a violation of any federal or state securities laws or (c) until
the earlier of (i) the date of the public announcement of discussions relating
to the Transactions, (ii) the date of the public announcement of the
Transactions and (iii) the date of the execution of an agreement to enter into
the Transactions.
5.4 Reasonable Best Efforts. (a) Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to prepare and
file as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings, tax ruling requests and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, tax rulings and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this
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Agreement. Upon the terms and subject to the conditions hereof, each party will
use its reasonable best efforts to take, or cause to be taken, all actions to
do, or cause to be done, all things reasonably necessary to satisfy the
conditions to Closing set forth herein and to consummate the transactions
contemplated hereby.
(b) In furtherance and not in limitation of the foregoing, each party
hereto agrees to make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby as
promptly as practicable after the date hereof and to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act. Each of Purchaser and Target shall cooperate
in all respects with each other in connection with any filing or submission and
in connection with any investigation or other inquiry.
(c) In furtherance and not in limitation of the foregoing, the parties
agree that Purchaser shall make such filings as are required in connection with
this Agreement and the transactions contemplated hereby on its behalf, including
the "Form A" regulatory filings to be made with the OCI, and shall coordinate
the conduct of the hearing or hearings before the OCI in connection with such
filings. Target and Purchaser will reasonably cooperate with regard to the
content of the filings referred to in the first sentence of this Section 5.4(c),
and every such filing shall be subject to the prior approval of Target, which
approval shall not be unreasonably withheld or delayed. Target and Purchaser, as
the case may be, shall submit all such filings and hearing testimony, witness
lists and other similar materials relating to hearing to the other for its
review prior to filing.
5.5 No Solicitation of Transactions. Target agrees that neither it nor any
of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, initiate or solicit or knowingly encourage or facilitate (including
by way of furnishing information) any inquiries or the making of any proposal or
offer with respect to (a) a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving it or any of its Subsidiaries, or (b) any
purchase or sale of any significant portion of its assets or equity securities
of it or any of its Subsidiaries, other than as disclosed in Schedule 5.5 of the
Target Disclosure Schedule (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). Target further agrees that neither it
nor any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any Person relating to an Acquisition Proposal or engage in any
negotiations concerning an Acquisition Proposal. Notwithstanding the foregoing,
Target or its Board of Directors shall be permitted to (a) to the extent
applicable, comply with Rule 14e-2(a) promulgated under the Exchange Act with
regard to an Acquisition Proposal; (b) make any disclosure required by
applicable law or by obligations pursuant to any listing agreement with or rules
of any securities exchange; or (c) engage in any discussions or negotiations
with, or provide any information to, any Person in response to an unsolicited
bona fide written Acquisition Proposal by any such Person, if and only to the
extent that, in the case of
32
the actions referred to in clause (c), (i) the Board of Directors of Target
concludes in good faith, after consultation with its outside legal counsel, that
the failure to provide such information or engage in such negotiations is or is
reasonably likely to be inconsistent with the directors' fiduciary duties in
accordance with Wisconsin law, (ii) prior to providing any information or data
to any Person in connection with an Acquisition Proposal by any such Person, the
Board of Directors of Target receives from such Person an executed
confidentiality agreement containing terms and provisions at least as
restrictive as those contained in the Confidentiality Agreement (which shall not
preclude discussions or negotiations with Purchaser relating to the proposal or
offer from such Person) and (iii) prior to providing any information or data to
any Person or entering into discussions or negotiations with any Person, the
Board of Directors of Target notifies Purchaser promptly of such inquiries,
proposals or offers received by, or any such discussions or negotiations sought
to be initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person and the providing to
Purchaser a copy of any written Acquisition Proposal or if no such document
exists providing material terms and conditions of any proposals or offers.
Target agrees that it will keep Purchaser informed, on a prompt basis, of the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations. Target agrees that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any Acquisition Proposal or
similar transaction or arrangement and will not waive any rights under any
standstill or confidentiality agreements entered into with such parties. Target
agrees that it will take the necessary steps to promptly inform the individuals
or entities referred to in the first sentence of this Section 5.5 of the
obligations undertaken in this Section 5.5.
5.6 Employee Benefits Matters. (a) Continuation and Comparability of
Benefits. Except to the extent the parties mutually agree, from the Effective
Time until December 31, 2004, the Surviving Corporation shall provide
compensation and employee benefits to the employees of Target and its
Subsidiaries (other than those employees whose terms and conditions of
employment are subject to a collective bargaining agreement) employed as of the
Effective Time that are in the aggregate no less favorable than those provided
to Purchaser's employees generally.
(b) Pre-Existing Limitations; Service Credit. With respect to any
Benefit Plans in which any employees of the Target first become eligible to
participate, on or after the Effective Time, and which are plans that the
employees of the Target did not participate in prior to the Effective Time (the
"New Target Plans"), Purchaser shall: (i) waive all pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the employees of the Target under any New Target
Plans in which such employees may be eligible to participate after the Effective
Time and deductibles, coinsurance or maximum out-of-pocket payments made by any
employees of Target during the calendar year in which the Effective Time occurs
shall reduce the amount of deductibles, coinsurance and maximum out-of-pocket
payments under the New Target Plans; provided that such employee of Target and
covered family members were enrolled in comparable coverage under the Benefit
Plans of Target on the Effective Time and continuously thereafter until the
effective time of coverage in the New Target Plans, and to the extent such
waiver is permissible under the insurance contracts of Purchaser, and (ii)
recognize service of the employees of the Target with Target accrued prior to
the Effective Time for purposes of eligibility to participate
33
and vesting credit in any New Target Plan in which such employees may be
eligible to participate after the Effective Time, to the extent such service is
taken into account under the applicable New Target Plan. Service with Target
will also be considered under any New Target Plan that is a defined benefit
pension plan with a benefit formula based upon final average compensation, with
an offset for any benefit payable for the same period of service with Target
under any defined benefit plan of Target. Purchaser shall credit each employee
of Target with accrued sick leave and vacation as of the Effective Time.
Purchaser shall, or shall cause the Surviving Corporation to, either (i)
maintain Target's Code Section 125 plans (the "Target 125 Plans") for the
remainder of the calendar year in which the Effective Time occurs, or (ii)
terminate the Target 125 Plans after the Effective Time and adopt new Code
Section 125 plans (the "New 125 Plans") for employees of Target who were
participating in the Target 125 Plans and transfer the account balances of such
employees under the Target 125 Plans to the New 125 Plans as soon as practicable
after such New 125 Plans are established.
5.7 Directors' and Officers' Indemnification and Insurance. (a) The
Surviving Corporation shall, and Purchaser shall cause the Surviving Corporation
to, (i) indemnify and hold harmless, and provide advancement of expenses to, all
past and present directors, officers and employees of Target and its
Subsidiaries (the "Indemnified Personnel") to the same extent such persons are
indemnified or have the right to advancement of expenses as of the date of this
Agreement by Target pursuant to Target's certificate of incorporation, by-laws
and indemnification agreements, if any, in existence on the date hereof with any
current or former directors, officers and employees of Target and its
Subsidiaries for acts or omissions occurring at or prior to the Effective Time
(including for acts or omissions occurring in connection with the approval of
this Agreement and the consummation of the transactions contemplated hereby),
and (ii) purchase as of the Effective Time a tail policy to the current policy
of directors' and officers' liability insurance and fiduciary liability
insurance maintained by Target which tail policy shall be effective for a period
from the Effective Time through and including the date six years after the
Closing Date with respect to claims arising from facts or events that occurred
on or before the Effective Time; provided, however, that in no event shall the
Surviving Corporation be required to expend in excess of 900% of the annual
premium currently paid by Target for its current policy of directors' and
officers' liability insurance and fiduciary liability insurance; and, provided,
further, that if the premium of such insurance coverage exceeds such amount, the
Surviving Corporation after consultation with Target shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
(b) The certificate of incorporation and by-laws of the Surviving
Corporation shall contain provisions with respect to indemnification,
advancement of expenses and exculpation from liability at least as favorable to
the Indemnified Personnel as those set forth in the current articles of
incorporation and by-laws of Target, and for a period of six years from the
Effective Time, those provisions shall not be repealed or amended or otherwise
modified in any manner that would adversely affect the rights thereunder of the
Indemnified Personnel, except to the extent, if any, that such modification is
required by applicable law.
(c) Notwithstanding anything herein to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising before, at or after
the Effective Time) is made against any Indemnified Personnel, on or prior to
the sixth anniversary of the Effective
34
Time, the provisions of this Section 5.7 shall continue in effect until the
final disposition of such claim, action, suit, proceeding or investigation.
(d) The covenants contained in this Section 5.7 are intended to be for
the benefit of, and shall be enforceable by, each of the Indemnified Personnel
and their respective heirs and legal representatives, and shall not be deemed
exclusive of any other rights to which an Indemnified Personnel is entitled,
whether pursuant to laws, contract or otherwise.
(e) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors or assigns of the Surviving
Corporation, as the case may be, shall succeed to the obligations set forth in
this Section 5.7
5.8 Notification of Certain Matters. Target shall give prompt notice to
Purchaser, and Purchaser shall give prompt notice to Target, of (a) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate and (b) any failure of Target, Purchaser or
Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.8
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
5.9 Public Announcements. Purchaser and Target shall develop a joint
communications plan and each party shall (a) ensure that all press releases and
other public statements with respect to this Agreement or the transactions
contemplated hereby shall be consistent with such joint communications plan, and
(b) unless otherwise required by applicable law or by obligations pursuant to
any listing agreement with or rules of any securities exchange, consult with
each other before issuing any press release or otherwise making any public
statement with respect to this Agreement or the transactions contemplated
hereby. In addition to the foregoing, except to the extent disclosed in or
consistent with the Proxy Statement in accordance with the provisions of Section
5.1, neither Purchaser nor Target shall issue any press release or otherwise
make any public statement or disclosure concerning the other party or the other
party's business, financial condition or results of operations without the
consent of the other party, which consent shall not be unreasonably withheld or
delayed.
5.10 Listing of Shares of Purchaser Common Stock. Purchaser shall use its
reasonable best efforts to cause the shares of Purchaser Common Stock to be
issued in the Merger to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the Closing Date.
5.11 Affiliates. Promptly after execution and delivery of this Agreement,
Target shall deliver to Purchaser a letter identifying all Persons who, in the
opinion of Target, may be deemed as of the date hereof "affiliates" of Target
for purposes of Rule 145 under the Securities Act, and such list shall be
updated as necessary to reflect changes from the date thereof. Target shall use
reasonable best efforts to cause each Person identified on such list to
35
deliver to Purchaser not less than 30 days prior to the Effective Time, a
written agreement substantially in the form attached as Exhibit 5.11 hereto.
5.12 Transition Team. (a) Promptly following execution of this Agreement,
the parties shall establish a transition planning team (the "Transition Team")
comprised of an equal number of representatives of Target and Purchaser. The
Transition Team shall be responsible for facilitating a transition and
integration planning process to ensure the successful combination of the
operations of Target with those of Purchaser. The Transition Team shall be
responsible for developing, and monitoring the development of, and deliverables
due under, an action plan for the combination of the businesses which, among
other things, shall include an information systems action plan intended to
facilitate the most effective combination of the information systems resources
of Target and Purchaser. The Transition Team, or designated representatives
thereof, shall meet monthly to review the financial performance of Target and
its affiliates and at such meetings Target shall advise the Transition Team of
the status of achieving Target's then current Operating Plan (as has been
presented to Purchaser), including all of the material components thereof, such
as sales, enrollment, revenues, investment income, quarterly claim trends,
medical loss ratio, administrative expenses, net income, reserves and statutory
capital (as indicated on the quarterly balance sheet). The Transition Team shall
be informed at each quarterly meeting of the applicable trends and retention
experience arising from Target's business planning and underwriting process.
5.13 Tax-Free Reorganization Treatment. The parties hereto shall use their
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368(a) of the Code and shall not
knowingly take or fail to take any action which action or failure to act would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code. Unless required by law, each of
Purchaser, Merger Sub, and Target shall not file any return or take any position
inconsistent with the treatment of the Merger as a reorganization described in
Section 368(a) of the Code. Prior to the Effective Time, the parties shall use
their commercially reasonable efforts to obtain the opinion of their respective
tax counsel in such form and upon such matters as described in Section 6.2(c)
and Section 6.3(c).
5.14 HIPAA Remediation. From the date hereof through the Closing Date,
Target will, and will cause each of its Subsidiaries to, use their respective
best efforts to continue to implement the HIPAA/Privacy Remediation Plan in
accordance with its terms. Target shall cooperate with Purchaser's reasonable
requests to allow Purchaser to verify the results and efficacy of Target's
implementation of the HIPAA/Privacy Remediation Plan (including, for example,
conducting and participating in testing procedures concerning the transmission
of electronic transactions and reviewing policies and procedures that are
necessary to meet the administrative obligations of the HIPAA privacy rules).
5.15 Medicare Part A Claims Processing. On or before the Closing Date, the
parties shall cooperate in announcing Purchaser's intention that its national
headquarters for Medicare Part A Claims Processing will be located in Milwaukee,
Wisconsin; and Purchaser shall effectuate such intention as promptly as
practicable after the Effective Time.
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5.16 Cobalt Corporation Foundation. Purchaser agrees that after the
Effective Time, the assets of Cobalt Corporation Foundation, Inc. will continue
to be used for charitable purposes based or occurring in, or shall be
distributed to charitable organizations based or located in, the State of
Wisconsin.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of Target, Purchaser and Merger Sub to effect the Merger
are subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) No Injunctions or Restraints, Illegality. (i) No Governmental
Entity or federal or state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, judgment, injunction or other order (whether temporary,
preliminary or permanent), in any case which is in effect and which prevents or
prohibits consummation of the Merger or any other transactions contemplated in
this Agreement; and (ii) no Governmental Entity shall have instituted any action
or proceeding (which remains pending at what would otherwise be the Closing
Date) before any United States court or other governmental body of competent
jurisdiction seeking to enjoin, restrain or otherwise prohibit consummation of
the transactions contemplated by this Agreement.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) NYSE Listing. The shares of Purchaser Common Stock to be issued in
the Merger and such other shares to be reserved for issuance in connection with
the Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(d) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order suspending
the effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) Stockholder Approval. The Merger shall have been approved by the
Required Target Vote at the Target Stockholders Meeting.
(f) Purchaser Common Stock Price. The Purchaser Common Stock Price
shall be at least $62.50; provided that this condition shall expire at the end
of the tenth Business Day after the Determination Date.
6.2 Additional Conditions to Obligations of Purchaser and Merger Sub. The
obligations of Purchaser and Merger Sub to effect the Merger are subject to the
satisfaction or waiver by Purchaser, on or prior to the Closing Date, of the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Target set forth in this Agreement (read without any materiality,
Material or Material Adverse Effect qualifications) shall be true and correct as
of the date of this Agreement
37
and as of the Closing Date as though made on and as of the Closing Date (except
to the extent in either case that such representations and warranties speak as
of another date) other than such failures to be true and correct that in the
aggregate would not reasonably be expected to have a Material Adverse Effect on
Target. Purchaser shall have received a certificate of the chief executive
officer and the chief financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have performed
or complied in all material respects with all agreements and covenants required
to be performed by it under this Agreement at or prior to the Closing Date, and
Purchaser shall have received a certificate of the chief executive officer and
the chief financial officer of Target to such effect.
(c) Tax Opinion. Unless the Reverse Merger Election is made, Purchaser
shall have received from Xxxxxxx Xxxxxxx & Xxxxxxxx LLP, counsel to Purchaser,
on or before the date the Form S-4 shall become effective and, subsequently, on
the Closing Date, a written opinion dated as of such dates, based on customary
representations of Target and Purchaser, in form and substance reasonably
satisfactory to counsel, to the effect that (i) the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and (ii) Target, Purchaser and Merger Sub will each be a
party to the reorganization within the meaning of Section 368(b) of the Code.
(d) No Litigation. There shall not be pending any suit, litigation or
other similar proceeding relating to the transactions contemplated by this
Agreement and as to which there is a significant likelihood of material
liability to any of Purchaser, Target or any of their affiliates (a "Material
Case"); provided, however, that in the event Purchaser notifies Target that it
considers a matter to be a Material Case, Target and Purchaser agree that
Purchaser may refer the matter to an independent arbitrator mutually acceptable
to the parties (the "Independent Arbitrator") for a determination of whether the
matter is a Material Case. The Independent Arbitrator shall hold a hearing and
render his decision, which shall be final and binding upon the parties, within
10 days following Purchaser's request. Each party shall be entitled to submit a
written brief to the Independent Arbitrator (with a copy being simultaneously
provided to the other party) prior to the hearing. The costs and expenses of the
arbitrator shall be borne equally by Purchaser and Target.
(e) No Material Adverse Change. At any time on or after the date of
this Agreement there shall not have occurred any change, circumstance or event
that, individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect on Target.
(f) BCBSA. Any required approval of the BCBSA shall have been obtained
without any Material Conditions (as defined Section 8.11) imposed on Target or
Purchaser or any of their Subsidiaries. The licenses of Target and those of its
Subsidiaries licensed on the date hereof to use the BCBS name shall be in full
force and effect.
(g) Wisconsin Consents. The required consent of the Wisconsin
Commissioner of Insurance shall have been obtained without any Material
Conditions imposed on Target or Purchaser or any of their Subsidiaries.
38
(h) Required Governmental Consents. Any material governmental consents
or approvals required to consummate the transactions contemplated hereby shall
have been obtained, and shall be in full force and effect, without any Material
Conditions.
(i) Required Third Party Consents. Any material third party consents
or approvals required to consummate the transactions contemplated hereby (other
than those referred to in Sections 6.2(f) through (h)) shall have been obtained
and shall be in full force and effect.
(j) HIPAA. Target shall be, and its business shall be conducted, in
compliance in all material respects with all of the provisions of HIPAA and
other applicable state and federal privacy laws and regulations that are
effective or scheduled to become effective on or prior to the later of (i)
October 14, 2003 or (ii) the Effective Time.
6.3 Additional Conditions to Obligations of Target. The obligations of
Target to effect the Merger are subject to the satisfaction of, or waiver by
Target, on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Purchaser set forth in this Agreement (read without any
materiality or Material Adverse Effect qualifications) shall be true and correct
as of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent in either case that such
representations and warranties speak as of another date) other than such
failures to be true and correct that in the aggregate would not reasonably be
expected to have a Material Adverse Effect on Purchaser. Target shall have
received a certificate of the chief executive officer and the chief financial
officer of Purchaser to such effect.
(b) Performance of Obligations of Purchaser. Purchaser shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date. Target shall have received a certificate of the chief executive officer
and the chief financial officer of Purchaser to such effect.
(c) Tax Opinion. Unless the Reverse Merger Election is made, Target
shall have received from Xxxxx & Lardner, counsel to Target, on or before the
date the Form S-4 shall become effective and, subsequently, on the Closing Date,
a written opinion dated as of such dates, based on customary representations of
Target and Purchaser, in form and substance reasonably satisfactory to counsel,
to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code;
and (ii) Target, Purchaser and Merger Sub will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
(d) BCBSA. Any required approval of the BCBSA shall have been
obtained.
(e) Wisconsin Consents. The required consent of the Wisconsin
Commissioner of Insurance shall have been obtained.
39
(f) Required Governmental Consents. Any material governmental consents
or approvals required to consummate the transactions contemplated hereby shall
have been obtained.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Closing Date,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of Target (except as otherwise stated herein):
(a) By mutual written consent of Purchaser and Target;
(b) By either Purchaser or Target, if the Merger shall not have been
consummated on or before January 31, 2004 (other than due to the failure of the
party seeking to terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time);
(c) By Purchaser or Target, if any required approval of the
stockholders of Target for this Agreement or the Merger shall not have been
obtained by reason of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders or at any adjournment thereof;
(d) By Purchaser or Target if any court or other governmental body of
competent jurisdiction shall have issued a final order, decree or ruling or
taken any other final action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action is or shall have become
final and nonappealable (provided that the party seeking to terminate the
Agreement shall have used its reasonable best efforts to take, or cause to be
taken, all actions to do, or cause to be done, all things reasonably necessary
to prevent the entry of such order, decree, ruling or other action);
(e) By Target if (i) prior to the Closing Date there shall have been a
breach of any representation, warranty, covenant or agreement on the part of
Purchaser contained in this Agreement, which breach would (A) give rise to the
failure of a condition set forth in Section 6.3 and (B) is incapable of being
cured by Purchaser or is not cured within 30 days of notice of such breach, or
(ii) any of the conditions to Target's obligations to perform set forth in
Article VI shall have become incapable of fulfillment;
(f) By Purchaser if (i) prior to the Closing Date there shall have
been a breach of any representation, warranty, covenant or agreement on the part
of Target contained in this Agreement, which breach would (A) give rise to the
failure of a condition set forth in Section 6.2 and (B) is incapable of being
cured by Target or is not cured within 30 days of notice of such breach, or (ii)
any of the conditions set forth to Purchaser's obligations to perform set forth
in Article VI shall have become incapable of fulfillment; or
(g) By Purchaser or Target (i) if the Board of Directors of Target
authorizes Target to execute a binding written agreement with respect to a
transaction that
40
constitutes a Superior Proposal, (ii) Target notifies Purchaser in writing that
it intends to enter into such an agreement and provides Purchaser with the
proposed definitive documentation for such Superior Proposal and (iii) Purchaser
does not, within seven days after the receipt of such written notice and
documentation, provide a written offer that is at least as favorable as the
Superior Proposal to the stockholders of Target; or
(h) By Purchaser or Target on or prior to the tenth Business Day after
the Determination Date if the Purchaser Common Stock Price is less than $62.50.
7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in the confidentiality provisions of Section 5.3 and Sections 7.3 and 8.1;
provided, however, that nothing herein shall relieve any party from liability
for any willful breach hereof.
7.3 Fees and Expenses. (a) If (i) Purchaser or Target terminates this
Agreement pursuant to Section 7.1(c) and an Alternative Transaction or the
intention to propose an Alternative Transaction shall have been publicly
announced and not withdrawn prior to the Target Stockholders Meeting and within
12 months thereafter Target enters into an Agreement with respect to an
Alternative Transaction or an Alternative Transaction is consummated, (ii)
Purchaser terminates this Agreement pursuant to Section 7.1(f) and the Board of
Directors of Target was aware of the existence of an Alternative Transaction or
the intention to propose an Alternative Transaction and such Alternative
Transaction had not been withdrawn prior to such breach and within 12 months
thereafter Target enters into an agreement with respect to an Alternative
Transaction or an Alternative Transaction is consummated or (iii) Purchaser or
Target terminates this Agreement pursuant to Section 7.1(g), then Target shall
pay to Purchaser and Merger Sub, within one Business Day following the date
Target enters into an agreement with respect to an Alternative Transaction or an
Alternative Transaction is consummated (in the cases of clauses (i) and (ii)
above) or within one Business Day following the date of such termination (in the
case of clause (iii) above), a fee, in cash, of $27.2 million, which the parties
agree shall be the appropriate measure of liquidated damages and shall represent
complete reimbursement of expenses incurred by Purchaser and Merger Sub up to
the date of termination, and which amount shall be the total damages and sole
remedy of Purchaser and Merger Sub upon the termination of this Agreement for
any of the reasons described in this Section 7.3(a).
For purposes of this Section 7.3, "Alternative Transaction" means any of
the following events: (i) the acquisition of Target by merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
dissolution or otherwise by any Person other than Purchaser, Merger Sub or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
20% or more of the assets of Target and its Subsidiaries, taken as a whole;
(iii) the acquisition by a Third Party of 20% or more of the outstanding shares
of Target Common Stock; (iv) the adoption by Target of a plan of liquidation or
the declaration or payment of a liquidating dividend; or (v) the repurchase by
Target or any of its Subsidiaries of 20% or more of the outstanding shares of
Target Common Stock.
(b) If Purchaser terminates this Agreement pursuant to Section 7.1(h),
then Purchaser shall (i) reimburse the Foundation for its documented Expenses
(as defined in
41
Section 7.3 (c)) in an amount not to exceed $600,000, and (ii) reimburse Target
for its documented Expenses (other than any broker's or finder's fee or any
payment to any broker, investment banker or financial advisor, including,
without limitation, any payment or fee to the Target Financial Advisor) in an
amount not to exceed $1.5 million, in each case within one Business Day
following the date of such termination.
(c) Except as otherwise specifically provided herein, each party shall
bear its own Expenses in connection with this Agreement and the transactions
contemplated hereby, except that each of Purchaser and Target shall bear and pay
one-half of the costs and expenses incurred in connection with the filing,
printing and mailing of the Form S-4 and the Proxy Statement. As used in this
Agreement, "Expenses" includes all reasonable out-of-pocket expenses (including,
without limitation, all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates) incurred
by a party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby, including the preparation, printing, filing
and mailing of the Form S-4 and the Proxy Statement and the solicitation of
stockholder approvals and all other matters related to the transactions
contemplated hereby.
7.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Target, but, after any such approval, no amendment shall
be made which by law or in accordance with the rules of any relevant stock
exchange requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. Subject to
the proviso in Section 7.2, none of the representations, warranties, covenants
and other agreements in this Agreement or in any instrument delivered pursuant
to this Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the
Effective Time or the termination of this Agreement pursuant to Section 7.1, as
the case may be, except for those covenants and agreements contained herein and
therein that by their terms apply or are to be performed in whole or in part
after the Effective
42
Time. Notwithstanding the foregoing, this Article VIII shall survive the
Effective Time and the confidentiality provisions of Section 5.3 and Section 7.3
shall survive the termination of this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy upon confirmation of receipt, (b) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier service, or (c) on the third Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) if to Purchaser or Merger Sub, to
WellPoint Health Networks Inc.
0 XxxxXxxxx Xxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: General Counsel
with a copy to
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx
(b) if to Target, to
Cobalt Corporation
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
with a copy to
Xxxxx & Lardner
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
8.3 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents and
headings contained in this
43
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The parties have participated
jointly in the negotiating and drafting of this Agreement. In the event of an
ambiguity or a question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties, and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. (a) This Agreement and
the Confidentiality Agreement constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof. In entering into this Agreement, each
party has relied solely on the representations and warranties set forth in this
Agreement and acknowledges that neither of the parties nor any of their
respective directors, officers, employees, agents, representatives or advisors
makes any representation or warranty, either express or implied (and agrees that
none of such Persons shall have any liability or responsibility to it in respect
thereof), except as and only to the extent expressly provided for in this
Agreement.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement; provided,
however, that Section 5.7 may be enforced against Purchaser and the Surviving
Corporation by the Person identified or described therein.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Wisconsin.
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other party, and any attempt to make any such assignment without
such consent shall be null and void, except that
44
Merger Sub may assign, in its sole discretion, any or all of its rights,
interests and obligations under this Agreement to any direct wholly owned
Subsidiary of Purchaser without the consent of Target, but no such assignment
shall relieve Merger Sub of any of its obligations under this Agreement. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
8.9 Submission to Jurisdiction; Waivers. Each of Purchaser and Target
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the State Courts of the States of Delaware or New York or the
Federal courts located in such states and each of Purchaser and Target hereby
irrevocably submits with regard to any such action or proceeding for itself and
in respect to its property, generally and unconditionally, to the exclusive
jurisdiction of the aforesaid courts. Each of Purchaser and Target hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this
Agreement, (a) any claim that it is not personally subject to the jurisdiction
of the above-named courts for any reason other than the failure to lawfully
serve process, (b) that it or its property is exempt or immune from jurisdiction
of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (c) to the
fullest extent permitted by applicable law, that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper and (iii) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.11 Definitions. As used in this Agreement:
(a) "BCBSA" means the Blue Cross and Blue Shield Association.
(b) "Benefit Plans" means, with respect to any Person, each employee
benefit plan, program, arrangement and contract (including, without limitation,
any "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and any bonus,
deferred compensation, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, stay agreement or bonus, change in control and
severance plan, program, arrangement and contract) in effect on the date of this
Agreement or disclosed on the Target Disclosure Schedule or the Purchaser
Disclosure Schedule, as the case may be, to which such Person or its Subsidiary
is a party, which is maintained or contributed to by such Person, or with
respect to which such Person could incur material liability under Section 4069,
4201 or 4212(c) of ERISA.
(c) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
45
(d) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(e) "Controlled Group" means any trade or business (whether or not
incorporated) under common control with Target within the meaning of Sections
414(b), (c), (m) or (o) of the Code.
(f) "Credit Documents" means the Target's three-year revolving credit
facility with M&I Xxxxxxxx & Xxxxxx Bank, dated August 7, 2002 and the Target's
existing $20 million line of credit, each as in effect on the date hereof.
(g) "Determination Date" means the Business Day immediately following
the day on which all conditions set forth in Article VI (other than the
condition set forth in Section 6.1(f)) have been satisfied or waived (other than
those conditions that by their terms cannot be satisfied until the Closing
Date); provided that if after such Business Day (or after the establishment of a
later Determination Date pursuant to this proviso) an event occurs which causes
any condition set forth in Article VI (other than the condition set forth in
Section 6.1(f)) to no longer be satisfied, then "Determination Date" means the
Business Day immediately following the day on which all conditions set forth in
Article VI (other than the condition set forth in Section 6.1(f)) have again
been satisfied or waived (other than those conditions that by their terms cannot
be satisfied until the Closing Date), and, in such event, such later
Determination Date shall be used to calculate the Purchaser Common Stock Price
and for purposes of Section 6.1(f) and Section 7.1(h).
(h) "Exchange Ratio" means .1233 shares of Purchaser Common Stock;
provided, that if the Purchaser Common Stock Price (as defined in Section
8.11(q)) is less than $70.97, the Exchange Ratio shall be equal to $8.75 divided
by the Purchaser Common Stock Price, rounded to the nearest 1/10,000.
(i) "GAAP" means generally accepted accounting principles as in effect
in the United States from time to time.
(j) "good standing" means, when used with respect to the status of any
corporation domiciled or doing business in the State of Wisconsin, that such
corporation has filed its most recent required annual report and (i) if a
domestic corporation, has not filed articles of dissolution, and (ii) if a
foreign corporation, has not applied for a certificate of withdrawal and is not
the subject of a proceeding to revoke its certificate of authority.
(k) "Known" or "Knowledge" means, (i) with respect to Target, the
knowledge of Xxxxxxx Xxxxxxxx, Xxxxxxx Xxxxxxxxx, Xxxx Xxxxxx, Xxxxx Xxxxxxx,
Xxxxxxx Xxxxxx, Xxxxxx Xxxxxx, Xxxxxxxxx Xxxxxxxx and Xxxxxxx Xxxxxx, and (ii)
with respect to Purchaser, the knowledge of Xxxxxx Xxxxxx, Xxxxxx Xxxxxx and
Xxxxxx Xxxxx.
(l) "Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), other charge or
security interest; or any preference, priority or other agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any capital
lease having substantially the same economic effect as any of the foregoing).
46
(m) "Material Adverse Effect" means, with respect to Target, any
material adverse effect on the business, assets or condition (financial or
otherwise) of Target (and, as applicable, its Subsidiaries, taken as a whole)
and with respect to Purchaser any material adverse effect on the ability of
Purchaser to consummate the Merger.
(n) "Material Condition" for purposes of Sections 6.2(f), (g) and (h)
means any conditions that are material and adverse to Target or Purchaser or any
of their Subsidiaries and that differ materially in character, degree or scope
from conditions commonly imposed by such consents or approvals.
(o) "the other party" means, with respect to Target, Purchaser and
means, with respect to Purchaser, Target.
(p) "Permitted Liens" means (i) any liens for taxes not yet due or
which are being contested in good faith by appropriate proceedings, (ii)
carriers', warehousemen's, mechanics', materialmen's, repairmen's or other
similar liens, (iii) pledges or deposits in connection with workers'
compensation, unemployment insurance, and other social security legislation and
(iv) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto.
(q) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(r) "Purchaser Common Stock Price" means the average of the closing
sales prices of Purchaser Common Stock on the NYSE Composite Transactions Tape
on each of the 15 consecutive NYSE trading days ending on, and including, the
Determination Date.
(s) "SEC" means the Securities and Exchange Commission.
(t) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(u) "Superior Proposal" means a bona fide written proposal made by a
Person other than Purchaser, Merger Sub or an Affiliate thereof which is (i) for
a merger, consolidation, share exchange, business combination, reorganization,
recapitalization, liquidation, dissolution or other similar transaction
involving, or any purchase or acquisition of, (A) more than fifty percent (50%)
of the voting power of Target's capital stock or (B) all or substantially all of
the consolidated assets of Target and its Subsidiaries, and (ii) otherwise on
terms which Target's Board of Directors determines in good faith after
consultation with its
47
advisors would result in a transaction that, if consummated, is more favorable
to Target's stockholders, from a financial point of view (which determination of
the Board of Directors shall take into account, among other things, the legal,
financial, regulatory and other aspects of the proposal, including conditions to
consummation and the likelihood of timely consummation), than the transactions
contemplated hereby.
______________________________
[Intentionally Left Blank]
48
IN WITNESS WHEREOF, Purchaser, Merger Sub and Target have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
WELLPOINT HEALTH NETWORKS INC.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Secretary
CROSSROADS ACQUISITION CORP.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Secretary
COBALT CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: CEO, Chairman
