Exhibit 10.7
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 29th
day of September, 1997, by and between United Payors & United Providers, Inc., a
Delaware corporation ("Buyer") and Principal Holding Company, an Iowa
corporation ("Seller"), a wholly owned subsidiary of Principal Mutual Life
Insurance Company, an Iowa mutual insurance company ("Principal Mutual").
WHEREAS, Seller owns all of the issued and outstanding shares of common
stock, par value $0.01 per share (the "Shares") of UP&UP, Inc., formerly known
as America's Health Plan, Inc., a Maryland corporation (the "Company"); and
WHEREAS, Seller wishes to sell, transfer, and assign to Buyer and Buyer
wishes to purchase from Seller, all of the issued and outstanding Shares; and
WHEREAS, in connection with Buyer's acquisition of the Shares, Seller,
Principal Mutual and certain of their Affiliates wish to enter into certain
agreements identified on Schedule 1 attached hereto and by reference
incorporated herein (the "Other Agreements") pursuant to which, among other
things, Buyer and the Company will provide a national network of health care
providers for the benefit of Seller, Principal Mutual and such Affiliates as set
forth therein.
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations and warranties contained herein, the parties agree as
follows:
1. Definitions.
1.1. Certain Defined Terms.
For purposes of this Agreement, certain capitalized
terms used in this Agreement shall have the meanings
set forth in Addendum I attached hereto and by
reference incorporated herein, except as otherwise
expressly provided herein.
2. Sale and Transfer of Shares; Closing.
2.1. Shares.
Subject to the terms and conditions of this
Agreement, at the Closing Seller will sell and
transfer the Shares to Buyer and Buyer will purchase
the Shares from Seller.
2.2. Purchase Price.
The Purchase Price (the "Purchase Price") for the
Shares will be fourteen million seven hundred and
fifty thousand dollars ($14,750,000) plus the
Adjustment Amount. The Purchase Price shall be paid
in cash or immediately available funds at Closing.
The Purchase Price shall be increased after Closing
by the Adjustment Amount as set forth in Section 2.5.
below, which Adjustment Amount is based on a
third-party valuation of the Company.
2.3. Closing.
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The Closing of the sale and purchase of the Shares
(the "Closing") shall take place at the office of the
Seller at 000 Xxxx Xxxxxx, Xxx Xxxxxx, Xxxx 00000, on
September 29, 1997, (the "Closing Date") at 10:00
a.m., or at such other time or place as may be
mutually agreed upon by the parties.
2.4. Closing Obligations.
At the Closing,
(a) Seller will deliver to Buyer:
(i) certificates representing the
Shares, duly endorsed to Buyer or
with assignments of stock attached
thereto duly endorsed to Buyer, with
all necessary transfer taxes affixed
or provided for;
(ii) a certificate executed by Seller to
the effect that each of Seller's
representations and warranties in
this Agreement was accurate in all
respects as of the date of this
Agreement and, except as otherwise
stated in such certificate, is
accurate in all respects as of the
Closing Date as if made on the
Closing Date;
(iii) the opinion of counsel to Seller,
dated the Closing Date,
substantially in the form of
Addendum II;
(iv) the Principal Mutual Service
Agreement, executed by Principal
Mutual; and
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(v) the AHP License Agreement, executed
by Principal Mutual.
(b) Buyer will deliver to Seller:
(i) the Purchase Price;
(ii) a certificate executed by Buyer to
the effect that each of Buyer's
representations and warranties in
this Agreement was accurate in all
respects as of the date of this
Agreement and, except as otherwise
stated in such certificate, is
accurate in all respects as of the
Closing Date as if made on the
Closing Date; and
(iii) the opinion of counsel to Buyer,
dated the Closing Date,
substantially in the form of
Addendum III.
(c) Buyer shall execute the Principal Mutual
Service Agreement and the AHP License
Agreement.
2.5. Adjustment Amount.
Buyer shall pay to Seller an amount determined for
the period July 1, 1997, to December 31, 1997, and
thereafter annually through calendar year-end 2001
based on variances from expected revenue targets set
forth below (the "Targeted Revenue"). Within ninety
(90) days of the end of each of the calendar years
1997 through and including 2001, Buyer shall pay to
Seller in cash an amount equal to forty percent (40%)
of the amount by which Actual Revenues exceed
Targeted Revenue for the immediately preceding year
or portion thereof (such amount in
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aggregate referred to herein as the "Adjustment
Amount").
Year Targeted Revenue (millions)
---- ----------------
1997 (7/1 - 12/31) $ 5
1998 14
1999 16
2000 18
2001 20
In no event shall the Adjustment Amount exceed
thirteen million dollars ($13,000,000). Actual
Revenues for the period July 1, 1997, to December 31,
1997, and thereafter for calendar years 1998 through
and including 2001 shall be audited annually by an
independent auditor (which may be Buyer's independent
auditor provided the same is a nationally recognized
accounting firm).
2.6. Effective Date.
Notwithstanding the Closing Date, the Closing shall
be effective as of July 1, 1997 (the "Effective
Date").
2.7. Company Cash.
All cash of the Company (net of taxes payable on the
Effective Date) as of the Effective Date shall be
delivered to and become the property of Seller as of
Closing.
3. Representations and Warranties of Seller.
Seller represents and warrants to Buyer as follows:
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3.1. Organization.
Seller is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Iowa.
3.2. Corporate Authority.
The execution, delivery and performance of this
Agreement has been duly authorized and this Agreement
constitutes the valid and binding obligation of the
Seller and is enforceable in accordance with its
terms and conditions. The execution, delivery and
performance of the Other Agreements to which Seller
is a party will, prior to the Closing Date, be duly
authorized and will when executed constitute the
valid and binding obligations of Seller enforceable
in accordance with their terms. The execution,
delivery and performance of the Other Agreements to
which an Affiliate is a party will, prior to the
Closing Date, be duly authorized and will when
executed constitute the valid and binding obligations
of the Affiliate enforceable in accordance with their
terms.
3.3. Non-Contravention.
This Agreement and all transactions contemplated
hereby will not result in a violation of the Articles
of Incorporation or By-Laws of the Seller or the
Affiliates or conflict with, or result in a breach of
any provision of, or constitute a default (or an
event which, with notice or lapse of time or both,
would constitute a default) under any of the terms or
provisions of any material agreement to which the
Seller or the Affiliates is a party or by which it
may otherwise be bound or of any law, rule, license,
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regulation, judgment, order or decree governing or
affecting the operation of the business of Seller or
the Affiliates.
3.4. Ownership of the Shares.
Seller owns the Shares free and clear of all
mortgages, pledges, liens, claims, charges, security
interests, options, restrictions on transfer or other
legal and equitable encumbrances of any nature
whatsoever.
3.5. Broker's Fees.
Seller has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with
respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or
obligated.
3.6. Transaction.
Seller shall use Best Efforts to effect a smooth
transition from current ownership of the Company
Cooperating Provider Network ("Network") for current
Company Network clients to ownership by Buyer.
4. Representations and Warranties of Buyer.
Buyer hereby represents and warrants to Seller as follows:
4.1. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware and is duly authorized to do
business in the State of Maryland.
4.2. Corporate Authority.
The execution, delivery and performance of this
Agreement has been duly authorized and this Agreement
constitutes the valid and binding obligation of Buyer
enforceable in accordance with its terms and
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conditions. The execution, delivery and performance
of the Other Agreements will, prior to the Closing
Date, be duly authorized and will when executed
constitute the valid and binding obligations of Buyer
enforceable in accordance with their terms.
4.3. Non-Contravention.
This Agreement and all transactions contemplated
hereby will not result in a violation of the
Certificate of Incorporation or By-Laws of Buyer or
conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a
default) under any of the terms or provisions of any
material agreement to which Buyer is a party or by
which it may otherwise be bound or of any law, rule,
license, regulation, judgment, order or decree
governing or affecting the operation of the business
of Buyer.
4.4. Broker's Fees.
Buyer has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with
respect to the transactions contemplated by this
Agreement for which Seller could become liable or
obligated.
4.5. Purchase Price.
Buyer has, and at the Closing will have, sources of
funds in an amount and available on terms sufficient
to enable Buyer to pay the Purchase Price due at
Closing in accordance with the terms of this
Agreement.
4.6. Best Efforts.
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Through December 31, 2001, Buyer shall use Best
Efforts, including, but not limited to, effecting a
smooth transition from current ownership of the
Network for current Company Network clients to
ownership by Buyer, maintaining current Company
Network clients, increasing revenues from current
Company Network clients, adding new clients and
developing utilization of the Network in connection
with the PIP (personal injury protection) auto
coverage and workers' compensation coverage, to
increase Actual Revenues. Buyer may use the
Healthcare Network Sales Specialists of Seller's
Affiliate, Principal Health Care, Inc. ("PHC") to
develop Network utilization in connection with the
PIP auto coverage and workers' compensation coverage.
5. Representations and Warranties concerning the Company.
Seller hereby further represents and warrants to Buyer as
follows:
5.1. Organization and Qualification of the Company.
The Company is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Maryland and has all necessary corporate
powers to own its properties and carry on its
business as now owned and operated. To Seller's
knowledge except as set forth in the following
sentence, the Company is in good standing and is duly
qualified to do business in each jurisdiction where
such qualification is required, except where such
lack of qualification would not have a material
adverse effect on the financial condition of the
Company. The Company prior to Closing changed its
name and Seller
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makes no representation regarding the impact of the
Company's name change on its standing or
qualification to do business in any state.
5.2. Capitalization.
The authorized capital stock of the Company consists
of 100 shares of common stock, with $0.01 par value
per share, of which 100 shares are issued and
outstanding. Such common stock is the only class of
capital stock authorized by the Company's Articles of
Incorporation. Each issued and outstanding share of
capital stock of the Company is duly authorized,
validly issued, fully paid and non-assessable and is
owned beneficially and of record by Seller.
5.3. Non-Contravention.
This Agreement and all transactions contemplated
hereby will not result in a violation of the Articles
of Incorporation or By-Laws of the Company or
conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with
notice of lapse of time or both, would constitute a
default) under any of the terms or provisions of any
material agreement to which the Company is a party or
by which it may otherwise be bound or of any law,
rule, license, regulation, judgment, order or decree
governing or affecting the operation of the business
of the Company. Notwithstanding anything to the
contrary set forth in this Agreement, Seller makes no
representation regarding the impact of this Agreement
and the transactions contemplated hereby on any
agreements to which the Company is a party and which
contain
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provisions limiting assignment of such agreements by
either party without the consent of the other party
thereto.
5.4. Books and Records.
The minute books and stock record books of the
Company are complete and correct in all material
respects.
5.5. Subsidiaries.
The Company does not beneficially own any securities
of any issuer or any interest in any other business
enterprise.
5.6. Financial Statements.
Seller and the Company have heretofore delivered or
made available to Buyer audited balance sheets,
statements of income and cash flow of the Company for
the years ended December 31, 1995 and 1996,
respectively, and an internal unaudited balance sheet
and statement of income and cash flow of the Company
as of August 31, 1997, and the period ended August 31,
1997 ("Financial Statements"). The Financial
Statements present fairly the financial position of
the Company as of the respective dates of the balance
sheets included in the Financial Statements and the
results of operations and cash flow for the periods
then ended, subject to normal year-end adjustments.
5.7. Operations in the Ordinary Course; No Material
Adverse Change.
Since December 31, 1996, the Company has conducted its
business in the ordinary course, except as set forth
in Schedule 5.7. Since December 31, 1996, except as
set forth in Schedule 5.7., there has not
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been any material adverse change in the financial
condition or results of operations of the Company.
Without limiting the generality of the foregoing and
except as otherwise disclosed on Schedule 5.7., since
that date, to the knowledge of Seller, the Company has
not engaged in any practice, taken any action or
entered into any transaction outside the ordinary
course of its business.
5.8. Legal Compliance.
To Seller's knowledge, except as otherwise disclosed
to Buyer, the Company has complied with all
applicable laws of federal, state and local
governments (and all agencies thereof), except where
the failure to comply would not have a material
adverse effect upon the financial condition of the
Company.
5.9. Assets.
To Seller's knowledge, the Company has good title to,
or a valid leasehold interest in or license right to,
the computers, phones, furniture and workstations it
uses regularly in the conduct of its business.
5.10. Real Property.
The Company is the sublessee under that certain
sublease dated as of August 15, 1997, by and between
the Company as sublessee and Principal Health Care,
Inc., as sublessor, (the "Sublease") a copy of which
Sublease has been provided to Buyer. To the knowledge
of Seller, the Sublease is legal, valid, binding,
enforceable and in full force and effect, except
where the illegality, invalidity, non-binding nature,
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unenforceability or ineffectiveness would not have a
material adverse effect on the financial condition or
results of operations of the Company.
5.11. Contracts.
Schedule 5.11. lists the ten (10) largest written
contracts or the written agreements with payors to
which the Company is a party. Seller or the Company
has delivered or made available to Buyer a correct
and complete copy of each contract listed on Schedule
5.11. To Seller's knowledge, all contracts of the
Company with Network providers are in full force and
effect subject to the rights to terminate contained
therein. Seller makes no representation with respect
to the assignability of any contracts of the Company
without the consent of other parties to such
contracts.
5.12. Litigation.
Except as listed on Schedule 5.12. or otherwise
disclosed to Buyer, there is:
(a) no suit, action, arbitration or other legal
proceeding pending or to Seller's knowledge
threatened against the Company;
(b) no final judgment, decree, injunction or similar
order outstanding against the Company or any of
its property or assets; and
(c) no lawsuit, proceeding, or investigation
pending or to Seller's knowledge threatened
against the Company or the Seller which questions
the validity of this Agreement or the
consummation of the transactions contemplated
hereby.
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5.13. Articles of Incorporation and By-Laws.
The Seller has delivered to Buyer a true and complete
copy of the Company's Articles of Incorporation and
By-Laws.
5.14. Taxes.
(a) The Company has completed and filed or will
complete and file on or before the due dates
thereof (with applicable grace periods available
without financial penalty or obligation) all tax
returns and filings required by applicable law to
be filed by the Company for all taxable periods
ended or ending on or before the Effective Date,
and has paid, or where payment is not yet
required to be made, has set up an adequate
accrual in accordance with generally accepted
accounting principles for the payment of all
taxes required to be paid in respect of the
periods covered by such returns and filings. To
the extent any accrual for the taxes referenced
herein is inadequate, Seller shall be responsible
for any deficiency.
(b) The Company is not delinquent in the payment
of any tax, assessment or governmental charge
required to be paid by it and:
(i) no deficiencies for any tax, assessment or
governmental charge have been proposed
(tentatively or definitively), asserted or
assessed against the Company and to Seller's
knowledge there is no basis for any such
deficiency, assessment or charge; and
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(ii) The Company has not executed any request for
a waiver or extension of the time to assess
any tax except for tax year 1993,
responsibility for which shall be Seller's
after Closing.
(c) For purposes of this Agreement, the term Tax
shall include all taxes, deficiencies, levies or
like assessments, charges or fees, including,
without limitation, income, profits, gains, gross
receipts, excise, property (tangible and
intangible), sales, use, occupation, ad valorem,
license, payroll and franchise or other
governmental taxes, imposed by the United States,
or any state, county, local or foreign government
or subdivision or agency thereof on the Company
and/or any of its business activities and any
interest, penalties, fines or additions to tax
attributable to such assessments. To the
knowledge of Seller, the Company is not a party
to nor expected to become a party to any pending
or threatened action or proceeding, assessment or
collection of taxes by any governmental authority
relating to the business and operations of the
Company.
5.15. Employees of the Company.
Buyer has been provided a list of all current
employees of the Company, showing each person's name,
position with the Company and cash compensation
payable by the Company for the current calendar year
(including any bonus plan such employees may be
eligible for). Buyer
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acknowledges that certain employees will become
employees of PHC. Unless agreed to by PHC and Buyer,
PHC and Buyer will not recruit employees of each
other for a period of eighteen (18) months from the
Closing Date. Seller shall be responsible for
reimbursement to Buyer for payment to the Company
employees of any bonus earned by such employees under
the Company bonus plan as it exists on the date of
this Agreement through the Closing Date.
5.16. Employee Benefits.
(a) The Company has made all contributions and
other payments required by and due under
each Employee Benefit Plan (the "Benefit
Plans") maintained by the Company and
identified in Schedule 5.16.
(b) To the knowledge of Seller, each Benefit
Plan complies in form and operation in all
respects with the applicable requirements of
the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income
Security Act of 1974 ("ERISA"), except where
the failure to comply would not have a
material adverse effect on the financial
condition of the Company.
(c) The Benefit Plans will not be transferred to
Buyer after Closing and Seller shall retain
all rights and responsibilities of the
Benefit Plans after Closing.
5.17. Disclosure.
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No representation or warranty of Seller in this
Agreement omits to state a material fact necessary to
make the statements herein, in light of the
circumstances in which they were made, not
misleading.
5.18. Disclaimer of Other Representations and Warranties.
Except as expressly set forth in Section 3 and this
Section 5, Seller makes no representation or
warranty, express or implied, at law or in equity, in
respect of the Company or any of its assets,
liabilities or operations, and any such other
representations or warranties are hereby expressly
disclaimed.
6. Covenants of Buyer and Seller.
6.1. Compliance with Conditions Precedent.
Each of the parties shall use its commercially
reasonable efforts to cause the conditions precedent
for which such party is responsible to be fulfilled.
6.2. Further Acts.
Each of the parties will, at any time, and from time
to time, after the Closing Date, upon the request of
the appropriate party, do, execute, acknowledge and
deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts,
deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be required to
complete the transactions contemplated by this
Agreement.
6.3. Access to Information.
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Seller has caused the Company to permit
representatives of Buyer to have full access at
reasonable times, and in any manner so as not to
interfere with the normal business operations of the
Company, to all premises, properties, personnel,
books, records, contracts and documents of or
pertaining to the Company since May of 1997. Since
May of 1997 Buyer has and will treat and hold as
confidential any information concerning the
businesses and affairs of the Company that is not
already generally available to the public
("Confidential Information") it received or will
receive from Seller or the Company in the course of
the reviews contemplated by this Section 6.3., will
not use any of the Confidential Information except in
connection with this Agreement and that certain
Confidentiality Agreement between Buyer and Seller
dated September 8, 1997, and if this Agreement is
terminated for any reason whatsoever, will return to
Seller all tangible embodiments (and all copies) of
the Confidential Information which are in its
possession. The confidentiality provisions contained
in this Section 6.3. shall survive termination of
this Agreement.
6.4. Public Announcements.
Through October 31, 1997, Buyer and Seller will
consult with each other before issuing any press
releases or otherwise making any public statements
with respect to the transactions contemplated herein
and shall not issue any press release or make any
such public statement without
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the approval of the other, except as may be required
by law, and then only after consultation with each
other.
6.5. Company Name.
Seller caused the name of the Company to be changed
to UP&UP, Inc., prior to the date of this Agreement.
Seller shall assist Buyer with state filings required
by the change of name.
6.6. Computer Access Agreement.
Within thirty (30) days after the Closing Date, PHC
and Buyer shall in good faith negotiate and execute
an agreement allowing continuation of PHC's access to
the Company software system for claims repricing and
other purposes as desired for a reasonable fee.
6.7. HNS Agreement.
Within thirty (30) days after the Closing Date, PHC
and Buyer shall in good faith negotiate and execute
an agreement for a minimum term of one (1) year
providing for the marketing by PHC's Healthcare
Network Sales Specialists ("HNS") of products of
Buyer. Buyer hereby agrees that as a part of such
agreement it shall pay one-third of the HNS overhead
costs, not to exceed one hundred and twenty-five
thousand dollars ($125,000) per year, and commissions
to HNS in accordance with the HNS Sales Compensation
Plan.
7. Conditions Precedent.
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The obligation of the parties to consummate the transactions
contemplated by this Agreement is subject to the satisfaction
on or before the Closing Date of the following:
7.1. Conditions to Obligations of Buyer.
The obligation of the Buyer to consummate the
transactions to be performed by it in connection with
the Closing is subject to the satisfaction of the
following conditions:
(a) the representations and warranties set forth in
Sections 3 and 5 above shall be true and correct
in all material respects at and as of the
Closing;
(b) Seller shall have performed and complied with all
of its covenants hereunder in all material
respects;
(c) there shall not be any injunction, judgment,
order, decree, ruling or charge in effect
preventing consummation of any of the
transactions contemplated by this Agreement;
(d) if requested by Buyer, Seller shall deliver
to the Buyer a certificate to the effect that
each of the conditions specified above in this
Section 7.1. are satisfied in all material
respects;
(e) there shall have been delivered to Buyer as of
the Closing Date, signed resignations of the
Company directors;
(f) Buyer's board of directors shall have approved
the acquisition and other agreements set forth
herein; and
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(g) if required, all applicable waiting periods (and
any extensions thereto) under the
Xxxx-Xxxxx-Xxxxxx Act shall have expired or
otherwise been terminated and the parties shall
have received all other authorizations, consents
and approvals required to consummate this
transaction.
Buyer may waive any condition specified in this
Section 7.1. if it executes a writing so stating at
or prior to the Closing.
7.2. Conditions to Obligations of Seller.
The obligation of Seller to consummate the
transactions to be performed by it in connection with
the Closing is subject to satisfaction of the
following conditions:
(a) the representations and warranties set forth in
Section 4 above shall be true and correct in all
material respects at and as of the Closing;
(b) Buyer shall have performed and complied with all
of its covenants hereunder in all material
respects;
(c) there shall not be any injunction, judgment,
order, decree, ruling or charge in effect
preventing the consummation of any of the
transactions contemplated by this Agreement;
(d) if requested by Seller, Buyer shall have
delivered to Seller a certificate to the effect
that each of the conditions specified above in
this Section 7.2. is satisfied in all material
respects;
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(e) Seller's board of directors shall have approved
the disposition and other agreements set forth
herein; and
(f) if required, all applicable waiting periods (and
any extensions thereof) under the Xxxx-Xxxxx-
Xxxxxx Act shall have expired or otherwise been
terminated and the parties shall have received
all other authorizations, consents and approvals
required.
Seller may waive any condition specified in this
Section 7.2. if it executes a writing so stating at
or prior to the Closing.
8. Indemnifications; Remedies.
8.1. Survival.
The representations, warranties, covenants and
obligations in this Agreement, the certificates
delivered pursuant to Section 2.4. and any other
certificate or document delivered pursuant to this
Agreement shall survive for a period of twelve (12)
months following the Closing (unless the damaged
party knew or had reason to know of any
misrepresentation or breach of warranty at the time
of Closing in which case the misrepresentation or
breach of warranty shall not survive Closing);
provided, however, that the representations and
warranties set forth in Section 4.6. shall survive
through and including December 31, 2001, the
representations and warranties set forth in Sections
5.1. and 5.2. shall survive the Closing forever
thereafter, subject to any applicable statute of
limitations and the obligations of Buyer set forth in
Section 2.5. shall survive the Closing until
satisfied in whole.
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8.2. Indemnification by Seller.
Seller hereby indemnifies and holds Buyer harmless
for any and all loss, cost, liability, claim, damage
and expense (including reasonable attorneys' fees)
arising from:
(a) any breach of any misrepresentation or warranty
made by Seller in this Agreement, the certificate
delivered by Seller pursuant to Section 2.4., or
any other certificate or document delivered by
Seller pursuant to this Agreement; and
(b) any breach by Seller of any covenant or
obligation of Seller in this Agreement.
8.3. Indemnification by Buyer.
Buyer hereby indemnifies and holds Seller harmless
for any and all loss, cost, liability, claim, damage
and expense (including reasonable attorneys' fees)
arising from:
(a) any breach of any representation or warranty made
by Buyer in this Agreement, the certificate
delivered by Buyer pursuant to Section 2.4., or
any other certificate or document delivered by
Buyer pursuant to this Agreement; and
(b) any breach by Buyer of any covenant or obligation
of Buyer in this Agreement.
8.4. Procedure for Indemnification - Third-Party Claims.
In the event that any claim shall be asserted against
a party entitled to indemnification under this
Section 8, such party will, if a claim is to be
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made against the other party for indemnification,
give notice in writing to the other party of the
commencement of such claim. The indemnifying party
will have the right to assume and conduct the defense
of the claim with counsel of its choice (subject to
the reasonable approval of the indemnified party);
provided, however, that the indemnifying party shall
not consent to the entry of any judgment or enter
into any settlement without the prior written consent
of the indemnified party (which consent shall not be
unreasonably withheld or delayed). Unless and until
the indemnifying party assumes the defense of a
claim, the indemnified party shall defend against the
claim. In no event will the indemnified party consent
to the entry of any judgment or enter into any
settlement with respect to the claim without the
prior written consent of the indemnifying party.
8.5. Procedure for Indemnification - Other Claims.
A claim for indemnification for any matter not
involving a third-party claim may be asserted by
notice to the indemnifying party from the party
seeking indemnification.
8.6. Exclusive Remedy.
Buyer and Seller acknowledge and agree that the
foregoing indemnification provisions in this Section
8 shall be the exclusive remedy of the Buyer and
Seller with respect to this Agreement and the
transactions contemplated by this Agreement.
9. Termination.
24
9.1. Buyer and Seller may terminate this Agreement by
mutual written consent at any time prior to
Closing.
9.2. Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to Closing:
(a) in the event Seller has breached any
material representation, warranty or covenant
contained in this Agreement in any material
respect, Buyer has notified Seller of the breach
and the breach is continued without the
commencement of attempts by Seller to cure such
breach prior to Closing; or
(b) if Closing shall not have occurred on or
before the Closing Date by reason of a failure of
any condition precedent under Section 7.1.
(unless the failure results primarily from Buyer
itself, breaching any representation, warranty or
covenant contained in this Agreement).
9.3. Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to Closing:
(a) in the event Buyer has breached any material
representation, warranty or covenant contained in
this Agreement in any material respect, Seller
has notified Buyer of the breach and the breach
has continued without the commencement of
attempts by Buyer to cure such breach prior to
Closing; or
(b) if Closing shall not have occurred on or before
the Closing Date by reason of a failure of any
condition precedent under Section
25
7.2. (unless the failure results primarily from
Seller itself, breaching any representation,
warranty or covenant contained in this
Agreement).
10. Miscellaneous.
10.1. Expenses.
Buyer agrees that all fees incurred by it in
connection with this Agreement shall be borne by
Buyer, including, without limitation, all fees of
counsel and accountants for Buyer, and Seller agrees
that all fees and expenses incurred by Seller shall
be borne by Seller, including, without limitation,
all fees of counsel and accountants for Seller. Buyer
shall pay all costs incurred in connection with any
Xxxx-Xxxxx-Xxxxxx Act filing. Seller shall pay all
sales, use, stamp, transfer and like taxes, if any,
imposed by the United States or any state or
political subdivision thereof, required to be paid in
connection with the transfer of the Shares.
10.2. No Third-Party Beneficiary.
This Agreement shall not confer any rights or
remedies upon any person other than the parties and
their respective successors and permitted assigns.
10.3. Notices.
All notices, requests, demands and other
communications required or permitted hereunder shall
be in writing and delivered personally or by
overnight courier or registered mail, return receipt
requested:
(a) If to Seller:
26
Principal Holding Company, Inc.
000 Xxxx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
Attn: Xxxx X. Xxxxxxx
copy to:
Principal Mutual Life Insurance Company
000 Xxxx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
Attn: Xxxxx X. Xxxxx
(b) If to Buyer:
United Payors & United Providers, Inc.
0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx
or to such other person or address as any party shall
furnish to the other parties in writing.
10.4. Tax Election.
Buyer reserves the right to make a timely election
under Section 338 of the Internal Revenue Code of
1986, as amended. At the request of Buyer, Buyer and
Seller shall jointly make an election under Section
338(h)(10) of the Code (collectively, a "Section
338(h)(10) election"). Buyer and Seller shall:
27
(a) take, and cooperate with each other to take, all
actions necessary and appropriate (including such
forms, returns, elections, schedules and other
documents as may be required to affect and
preserve a timely Section 338(h)(10) election) in
accordance with Section 338 of the Code and any
Treasury regulations thereunder, or any successor
provisions as soon as practicable following the
Closing Date, but not later than the date which
is the latest date for making such election, and
from time to time thereafter; and
(b) Buyer and Seller shall report the sale of
the Shares pursuant to this Agreement consistent
with the Section 338(h)(10) election and shall
take no position contrary thereto or inconsistent
therewith in any tax return, any discussion with,
or proceeding before, any tax authority, or
otherwise.
10.5. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware
without regard to principles of conflict of laws.
10.6. Amendments and Waivers.
No amendment of any provision of this Agreement shall
be valid unless the same shall be in writing and
signed by Buyer and Seller. No waiver by any party of
any default, misrepresentation or breach of warranty
or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach
28
of warranty or covenant hereunder or affect in any
way rights arising by virtue of any prior or
subsequent such occurrence.
10.7. Severability.
Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the
offering term or provision in any other situation or
jurisdiction.
10.8. Entire Agreement.
This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior
agreements, understandings, negotiations and
discussions, both written and oral, of the parties
hereto, with respect to the subjects hereof.
10.9. Binding Effect; No Assignment.
This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and their
permitted assigns. This Agreement is not assignable
by either party without the prior written consent of
the other party except Seller may assign this
Agreement to Principal Mutual or an Affiliate of
Seller.
10.10. Counterparts.
This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be
deemed an original but all of which shall
together constitute one and the same instrument.
29
10.11. Approvals.
This Agreement is subject to and conditioned upon
the approvals of Buyer's and Seller's boards of
directors and the Corporate Finance Committee of
Principal Mutual.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
UNITED PAYORS & UNITED PRINCIPAL HOLDING COMPANY
PROVIDERS, INC.
By: /s/ Xxxxxx X. Xxxxxx By: /s/ Xxxxxxx X. Xxxxxx
---------------------------- --------------------------------
Name: Xxxxxx X. Xxxxxx Name: Xxxxxxx X. Xxxxxx
-------------------------- ------------------------------
Title: President & C.O.O. Title: Senior Vice President
------------------------- -----------------------------
By: /s/ Xxxx X. Xxxxxxx
--------------------------------
Name: Xxxx X. Xxxxxxx
------------------------------
Title: Assistant Corporate Secretary
-----------------------------
30
ADDENDUM I
Definitions
-----------
Actual Revenues shall be defined as follows:
(i) Listed as Attachment A to this Addendum are those entities
that have entered into existing payor contracts ("Existing
Payor Contracts") with the Company to access medial provider
contracts that comprise the Network. For purposes of this
definition, the Network shall include medical providers that
are currently under contract with the Company and/or Buyer,
directly or indirectly, and medical providers that may
contract at a future date with the Company and/or Buyer,
directly or indirectly. For Existing Payor Contracts, the
Company is presently paid a monthly fee by each existing payor
client ("Existing Payor Client"). Such fee, net of any client
remittances and/or rebates ("Net Fee") paid pursuant to
Existing Payor Contracts, is based on a percent of savings or
on a capitated basis. Actual Revenue shall be computed as the
total Net Fee paid by Existing Payor Clients or new Company
Network clients as a result of such clients assessing the
Network.
(ii) Actual Revenue shall also include revenue collected by the
Company and/or Buyer from the following product lines:
Personal Injury Protection (PIP), and workers' compensation.
These two product lines are currently in the development stage
and had no revenue through July, 1997.
Affiliate shall mean any wholly owned subsidiary (or subsidiary of such
subsidiary) of Seller.
31
AHP License Agreement shall mean that certain agreement dated as of the Closing
Date by and between Principal Mutual and Buyer.
Best Efforts shall mean pursuing a business course of action that is consistent
with maximizing the Adjustment Amount using good business judgment.
Material. For purposes of this Agreement, where the term "material" is used, an
item shall be considered material if it involves in excess of $100,000 in which
case the parties agree to discuss the issue in good faith.
Principal Mutual Services Agreement shall mean that certain agreement dated as
of the Closing Date by and between Principal Mutual and Buyer.
32
Attachment A
Affiliated
Amalgamated Life Insurance Co.
American Service Life Insurance Co.
AmeriHealth Administrators
Xxxxx, Xxxxx & Dobsen
Beech Street
Benefit Claims Payors, Inc.
Xxxxx Xxxxxxx Co.
Capital Health Care, Inc.
Central States Health & Life
Christian Brothers Services
City of Mountain View
Community Medical Management Service
Continental General Insurance Co.
Continental Life & Accident Co.
Contract Freightors, Inc.
Core Source, Susquehanna Administrators, Inc.
County of Reno
Development Center of the Ozarks
Employee Benefit Service, Inc.
Employer Alternative
Employers Mutual, Inc.
Georgia Pacific
Golden Rule
Grand Valley Health Plan
Group Benefit Services
Healthy Benefit Alliance, Inc.
Insurance and Risk Management, Inc.
Inter-County Hospitalization Plan, Inc.
X.X. Xxxxxx
Xxxxxx & Co.
MAPA/ACMG
MedPlans 2000, Inc.
Midland Group, Inc.
Montana Medical Benefit Plan
Mountain State Administration Company
Mutual Of Omaha
National Benefit Plans, Inc.
National Claims Administration Services
Nippon Life Insurance Co. of America
Pioneer (excludes Washington National Insurance Co.)
Xxx & Xxxxx Benefits, Inc.
Principal Mutual
Principal Health Care
Professional Services Industries, Inc.
PSATS Trustees Insurance Fund
The Benefit Group, Inc.
The Araz Group
UIS, Inc./Champion Laboratories, Inc.
United Group Insurance Co.
York Public Schools
ADDENDUM II
Form of Seller Legal Opinion
----------------------------
Attached
33
[LETTERHEAD OF THE PRINCIPAL FINANCIAL GROUP APPEARS HERE]
September 29, 1997
United Payors & United Providers, Inc.
0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
RE: Stock Purchase Agreement dated as of September 29, 1997, by and
between Principal Holding Company, Inc., and United Payors &
United Providers, Inc.
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Principal Holding
Company, Inc., an Iowa stock corporation ("PHC"), in connection with the
transactions contemplated by that certain Stock Purchase Agreement (the
"Agreement") made as of September 29, 1997, among United Payors & United
Providers, Inc. ("UP&UP") and PHC whereby, among other things, UP&UP is
acquiring ownership of the stock of UP&UP, Inc., formerly known as America's
Health Plan, Inc., a Maryland corporation ("AHP"). This Opinion Letter is
provided to you pursuant to Section 2.4. of the Agreement. All capitalized terms
used in this Opinion Letter and not otherwise defined herein have the meanings
set forth in the Agreement.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith.
For purposes of this Opinion, the "Documents" refer to the Agreement,
the AHP License Agreement and the Principal Mutual Services Agreement.
In conjunction with the delivery of this Opinion, I have examined
originals, or copies certified or otherwise identified to our satisfaction, of
the following documents:
A. The Documents; and
B. The Articles of Incorporation and By-Laws of PHC.
The foregoing are collectively referred to herein as the "Documents."
United Payors & United Providers, Inc.
September 29, 1997
Page 2
I have also examined originals, executed counterparts or copies of such
other agreements, corporate records, instruments and certificates, certificates
of public authorities and such matters of law as I have deemed necessary for
purposes of this Opinion. To the extent that I deemed necessary for purposes of
this Opinion, I have relied upon (i) the statements and representations of
officers of PHC as to factual matters, and (ii) certificates and other documents
obtained from public officials. I have further relied as to factual matters on
the representations and warranties contained in the Documents and I have assumed
the completeness and accuracy of all such representations and warranties as to
factual matters.
I have assumed the genuineness of all signatures, the legal capacity of
all individuals who have executed the Documents and all other documents I have
reviewed, the authenticity of all documents submitted to me as originals and the
conformity to original documents of all documents submitted to me as certified,
photostatic, reproduced or conformed copies. I have also assumed that the
Documents have been duly authorized, executed and delivered by UP&UP and are
enforceable in accordance with their terms against UP&UP and that the execution,
delivery and performance of the Documents by UP&UP do not and will not result in
a breach of, or constitute a default under, any agreement, instrument or other
document to which UP&UP is a party or any judgment, writ or decree applicable to
UP&UP or to which UP&UP's property is subject.
Based upon and subject to my examination as aforesaid and subject to
the qualifications set forth herein, I am of the opinion that:
1. PHC is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Iowa and has the requisite corporate
power and authority to own and lease its properties, to lease any properties, to
lease any properties it operates under lease and to conduct its business, and to
enter into and perform all of its obligations under the Documents.
2. The execution, delivery and performance by PHC of the Documents have
been duly authorized by all necessary corporate action on the part of PHC, are
not in contravention of any provision of the Certificates of Incorporation or
By-Laws of PHC.
3. The Documents have been duly executed and delivered by PHC and
constitute the valid and binding obligation of PHC enforceable against PHC in
accordance with their terms, except to the extent that enforcement thereof may
be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws of general application relating to or
affecting the enforcement of the rights of creditors and the application of
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) and further subject to any
United Payors & United Providers, Inc.
September 29, 1997
Page 3
provision of the Documents to the extent that such provision purports to waive
any rights, remedies or defenses or of any provision for contribution or
indemnification.
4. The shares of capital stock of AHP, consisting of one hundred (100)
shares of common stock, $0.01 par value (the "Shares"), are the only outstanding
shares of AHP capital stock, have been duly authorized and validly issued, and
are fully paid and non-assessable under the General Business Law of the State of
Maryland.
The foregoing opinions are limited to the laws and regulations of the
United States and the State of Iowa, where the undersigned is admitted to
practice. I have not considered and express no opinion on the laws or
regulations of any other jurisdiction. This Opinion is rendered only with
respect to the laws and the regulations thereunder which are in effect as of the
date hereof. I assume no responsibility for updating this Opinion to take into
account any event, action, interpretation or change or law occurring subsequent
to the date hereof that may affect the validity of any of the opinions expressed
herein.
This Opinion is furnished solely for your benefit for use in connection
with the Documents and the transactions contemplated thereby, and it may not be
furnished or quoted to, or relied upon by, any other person, without my prior
written consent.
Very truly yours,
By:
-------------------------
ADDENDUM III
Form of Buyer Legal Opinion
---------------------------
Attached
34
[LETTERHEAD OF UNITED PAYORS & UNITED PROVIDERS, INC. APPEARS HERE]
September 29, 1997
Principal Holding Company, Inc.
000 Xxxx Xxxxxx
Xxx Xxxxxx, XX 00000
Re: Acquisition of UP&UP, Inc., formerly known as America's Health Plan, Inc.
("AHP") by United Payors & United Providers, Inc.
To Whom It May Concern:
This opinion is given in connection with the Stock Purchase Agreement dated
September 29, 1997, but effective July 1, 1997 (the "Purchase Agreement") by and
between Principal Holding Company, Inc. ("PHC") and United Payors & United
Providers, Inc. ("UP&UP"). Terms not otherwise defined herein shall have the
meanings assigned to them in the Purchase Agreement.
In the course of my legal review relating to the opinions expressed herein I
have examined: (1) the Purchase Agreement; (2) the Principal Mutual Services
Agreement; (3) the America's Health Plan License Agreement; (4) the articles of
Incorporation and bylaws of AHP in effect on the date hereof; (5) the
resolutions adopted by the Board of Directors of UP&UP approving the execution
and delivery of the Purchase Agreement in consummation of the related
transaction; and (6) such other documents, communications, certificates or
statements, and matters of law and fact that I determined to be relevant and
necessary with respect to the opinions expressed herein.
I have relied upon all of the above documents, communications, certificates and
statements with respect to the accuracy of factual matters contained herein. I
have not independently verified the accuracy of such factual matters and assume
the genuiness of all signatures, the authenticity of all documents submitted to
me as originals and the conformity to original documents of all documents
submitted to me as copies.
Based upon, and subject to the foregoing, I am of the opinion that as of the
date hereof:
(1) UP&UP is a corporation duly organized, valid and existing in good
standing as a domestic corporation under the laws of the State of
Delaware;
(2) The Purchase Agreement and the ancillary agreements, when executed and
delivered by UP&UP as contemplated in the Purchase Agreement, will
have been duly authorized, executed and delivered by UP&UP, and,
assuming those same agreements constitute binding obligations of the
other party, will constitute, valid and binding obligations of UP&UP
enforceable against it in
Principal Holding Company, Inc.
September 29, 1997
Page 2
accordance with the respective terms of such agreements except that:
(a) such enforcement may be subject to bankruptcy, insolvency
reorganization, moratorium, or other similar laws now or hereafter in
effect relating to creditors' rights; (b) to the extent the remedies
of specific performance, injunctive relief and other forms of
equitable relief are subject to any equitable defenses that may be
asserted as well as the discretion of the court before which any
proceeding relating to this agreement may be brought; and (c) insofar
as the enforceability of the indemnifications contained in the
agreements may be limited by public policy considerations.
(3) The execution and delivery of the Purchase Agreement, Principal Mutual
Services Agreement, America's Health Plan License Agreement, by UP&UP
and the performance of their respective obligations thereunder have
been duly and validly authorized by all requisite corporate action on
the part of UP&UP;
(4) UP&UP has complied with the conditions precedent to the obligations of
the Seller to consummate the transaction as set forth in Section 7.2
of the Purchase Agreement.
In rendering the opinions expressed herein, I do not purport to have reviewed
any laws, rules or regulations other than the laws, rules and regulations
governing the corporate existence of UP&UP. I express no opinion as to the laws
and regulations of any other jurisdiction.
My opinion is given pursuant to paragraph 2.4(b)(iii) of the Purchase Agreement
and is solely for the benefit of PHC and its affiliates. Further, and unless I
give my prior written consent, this opinion may not be quoted in whole or in
part or otherwise referred to in any document or instrument, or be furnished or
relied upon by any person or entity other than PHC and its affiliates.
Sincerely,
UNITED PAYORS & UNITED PROVIDERS, INC.
/s/ Xxxxxx X. Xxxx
Xxxxxx X. Xxxx
General Counsel
SCHEDULE 1
Other Agreements
----------------
AHP License Agreement
Principal Mutual Services Agreement
35
SCHEDULE 5.7.
Ordinary Course
---------------
Revenues of the Company have declined over the past two (2) years due in part to
the transfer of certain payor clients of the Company to Buyer, and due to the
decline in volume of claims of Principal Mutual Life Insurance Company and other
payor clients through the Network, the termination of a large payor client and
the termination of two networks.
36
SCHEDULE 5.11.
Contracts
---------
Contracts between the Company and each of the following:
Principal Mutual Life Insurance Company
Mutual of Omaha Insurance Company, United of Omaha Life Insurance Company and
United World Life Insurance Company
Golden Rule Insurance Company
Pioneer Life Insurance Company of Illinois, National Group Life Insurance
Company, Continental Life and Accident Company
Affiliated Healthcare, Inc.
Christian Brothers Services, Inc.
Principal Health Care, Inc. and its HMO subsidiaries
Georgia-Pacific Corporation
37
Continental General Insurance Company
Central States Health & Life Co. of Omaha
38
SCHEDULE 5.12.
Litigation
----------
1. AmeriCare Health Alliance of Georgia LLC v. America's Health Plan, Inc.
Northern District of Georgia, Civil Action No. 1-97CV242-CC.
2. Xxxxxx Xxxxxx v. America's Health Plan, Inc. Missouri State Court action, in
Cass County, Division III, Case No. CV397-225AC.
3. Xxxxxx X. Xxxxxxx v. Primary Health Services, Inc., et al. Court of Common
Pleas, Cuyahoga County, Ohio, Case No. 315802.
39
SCHEDULE 5.16.
Employee Benefit Plans
----------------------
Medical: The Principal Welfare Benefit Plan for Select Subsidiaries
Dental: The Principal Welfare Benefit Plan for Select Subsidiaries
Life Insurance: The Principal Welfare Benefit Plan for Select Subsidiaries
Select Savings: The Principal Select Savings Plan for Employees
Pension Plan: The Principal Pension Plan for Employees
Flex 2: Section 125 Cafeteria Plan Coverage
LTD: The Principal Long-Term Disability Plan for Employees
40
