EXHIBIT 10.2
ASSET SALE AND PURCHASE AGREEMENT
Between
XXXXXX FOUNDATION HEALTH PLAN OF TEXAS
A TEXAS NON-PROFIT CORPORATION
("SELLER")
AND
HMO TEXAS, L.C.
A TEXAS LIMITED LIABILITY COMPANY
("BUYER")
JUNE 5, 1998
TABLE OF CONTENTS
1. SALE OF ASSETS..................................................................................2
1.1. Sale and Purchase of Assets...................................................2
1.2. Excluded Assets...............................................................4
1.3. Liabilities...................................................................5
1.3.1. Assumed Liabilities...................................................5
1.3.2. Liabilities Not to be Assumed.........................................6
1.3.3. Property and Premium Taxes............................................7
1.3.4. Transfer Taxes; Recording Fees........................................7
1.4. Purchase Price................................................................7
1.4.1. Purchase Price........................................................7
1.4.2. Certain Balance Sheet Adjustments to Purchase Price...................7
1.4.3. Collection of Receivables............................................10
1.4.4. Purchase Price Earn-Out for Growth in Certain Member
Accounts.............................................................10
1.4.5. Purchase Price Earn-Out for NCQA Accreditation.......................12
1.4.6. Purchase Price Decrease for Decrease in Certain Member
Accounts.............................................................12
1.4.7. Purchase Price Adjustment for Premium Yield Attributable
to Certain Members...................................................13
1.4.8. Allocation...........................................................14
1.5. Closing and Closing Date.....................................................14
1.6. Actions to be Taken at Closing...............................................14
1.6.1. Buyer's Deliveries...................................................14
1.6.2. Seller's Deliveries..................................................16
1.6.3. Third Party Consents.................................................17
2. REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................18
2.1. Representations and Warranties of Seller.....................................19
2.1.1. Organization and Good Standing.......................................19
2.1.2. Seller's Authority and No Breach.....................................19
2.1.3. No Violations........................................................19
2.1.4. No Consents..........................................................20
2.1.5. Seller's Financial Statements........................................20
2.1.6. Litigation...........................................................20
2.1.7. Compliance With Applicable Laws......................................21
2.1.8. Labor and Employment Matters.........................................21
2.1.9. Absence of Certain Changes...........................................21
2.1.10.Material Contracts....................................................22
2.1.11.Title to and Condition of Assets......................................23
2.1.12.Patents, Copyrights, Service Marks and Trademarks.....................23
0.0.00.Xx Broker or Finders..................................................23
0.0.00.Xxx Returns and Tax Liabilities.......................................23
0.0.00.Xx Untrue Representation or Warranty..................................23
2.2. Representations and Warranties True and Correct at Closing;
Breaches
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.................................................................................................................24
3. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................24
3.1. Representations and Warranties of Buyer......................................24
3.1.1. Organization and Good Standing.......................................24
3.1.2. Buyer's Authority and No Breach......................................24
3.1.3. No Brokers or Finders................................................25
3.1.4. Buyer's Consents.....................................................25
3.1.5. No Untrue Representation or Warranty.................................25
3.2. Representations and Warranties True and Correct at Closing;
Breaches
.................................................................................................................25
4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................................................25
5. BUYER'S CONDITIONS PRECEDENT TO CLOSING........................................................26
5.1. Opinion of Counsel...........................................................26
5.2. Agreements...................................................................26
5.3. Corporate Resolutions........................................................26
5.4. Seller's Representations and Warranties True and Correct.....................26
5.5. Litigation...................................................................27
5.6. Certain Covenants............................................................27
6. SELLER'S CONDITIONS PRECEDENT TO CLOSING.......................................................27
6.1. Opinion of Counsel...........................................................27
6.2. Corporate Resolutions........................................................27
6.3. Agreements...................................................................27
6.4. Buyer's Representations and Warranties True and Correct......................27
6.5. Litigation...................................................................28
7. JOINT CONDITIONS PRECEDENT TO CLOSING..........................................................28
7.1. Medical Services Agreement...................................................28
7.2. Governmental Consents and Approvals..........................................28
7.3. Xxxx-Xxxxx-Xxxxxx............................................................28
7.4. Closing of Transactions Under Related Agreements.............................28
8. ADDITIONAL AGREEMENTS OF SELLER................................................................29
8.1. Conduct of Business Pending Closing..........................................29
8.2. Access to Documents and Premises.............................................29
8.2.1. Inspection of Books and Records......................................29
8.2.2. Request for Access...................................................30
8.3. Breach by Seller.............................................................30
8.4. Noncompetition and Nonsolicitation...........................................30
9. ADDITIONAL AGREEMENTS OF BUYER.................................................................31
9.1. Maintenance of Records.......................................................31
9.2. Communications...............................................................31
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10. ADDITIONAL AGREEMENTS OF BUYER AND SELLER......................................................32
10.1. Regulatory Milestones Prior to Closing.......................................32
10.1.1. HSR Filing..................................................32
10.1.2. Texas Department of Insurance...............................32
10.2. Health Care Financing Administration.........................................32
10.3. Office of Personnel Management...............................................33
10.4. Employment Matters...........................................................34
10.4.1. Severance Payments..........................................34
10.4.2. WARN, COBRA and HIPAA Notices...............................35
10.4.3. Health Care Coverage for Terminated Employees...............36
10.4.4. Health Care Coverage for Seller's Board of Directors........36
10.5. Transition Issues............................................................36
10.5.1. Use of Materials............................................36
10.5.2. Transition Agreement........................................36
10.6. Public Information Releases..................................................37
10.7. Cooperation..................................................................37
10.8. Group 3000...................................................................37
10.9. Reciprocity Agreement........................................................38
11. INDEMNIFICATION................................................................................38
11.1. Indemnification by Seller....................................................38
11.2. Indemnification by Buyer.....................................................39
11.3. Limitations..................................................................39
11.3.1. Minimum.....................................................39
11.3.2. Maximum.....................................................40
11.4. Notice and Right to Defend...................................................40
11.5. Exclusive Remedy.............................................................41
11.6. Failure to Provide Records Cooperation.......................................41
12. TERMINATION....................................................................................41
12.1. Termination..................................................................41
12.2. Liability for Termination....................................................41
13. ARBITRATION....................................................................................42
13.1. Conciliation and Mediation...................................................42
13.2. Arbitration..................................................................42
13.3. Equitable Relief.............................................................43
13.4. No Applicability.............................................................43
14. GUARANTEES.....................................................................................43
14.1. Seller's Guarantor...........................................................43
14.2. Buyer's Guarantor............................................................43
15. MISCELLANEOUS..................................................................................44
15.1. Notices......................................................................44
15.2. Waiver.......................................................................45
15.3. Counterparts.................................................................45
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15.4. Headings.....................................................................45
15.5. Severability.................................................................45
15.6. Entire Agreement.............................................................46
15.7. Successors and Assigns.......................................................46
15.8. Governing Law................................................................46
15.9. Cost of Transaction..........................................................46
15.10. Further Assurances...........................................................47
15.11. Construction.................................................................47
15.12. Third Parties................................................................47
15.13. Time is of the Essence.......................................................47
15.14. Confidentiality..............................................................47
15.15. Offsets......................................................................48
15.16. No Duplication...............................................................48
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LIST OF SCHEDULES
Schedule 1.1(b) Provider Agreements
Schedule 1.1(c) Contracts
Schedule 1.1(d) Tangible Personal Property
Schedule 1.1(i) Assets of Seller's Affiliates
Schedule 1.1(j) Software, Hardware and Related Data of Seller or Seller's
Affiliates
Schedule 1.2(m) Other Assets to be Excluded
Schedule 1.4.4 Membership Base
Schedule 2.1.6 Litigation
Schedule 2.1.7 Compliance with Applicable Laws
Schedule 2.1.8 Labor and Employment Matters
Schedule 2.1.9 Absence of Certain Changes
Schedule 2.1.11 Title to and Condition of Assets
LIST OF EXHIBITS
Exhibit 1.4.2(a) Opening Balance Sheet
Exhibit 1.4.2(a)-1 Rules
Exhibit 1.6.1(b) Xxxx of Sale, Assignment and Assumption Agreements
Exhibit 1.6.1(c) Assumption Reinsurance Agreement
Exhibit 1.6.1(d) Insurance Assumption Reinsurance Agreement
Exhibit 1.6.1(l) Subsidy Agreement
Exhibit 1.6.1(m) Transition Agreement
Exhibit 1.6.1(n) Medical Services Agreement
Exhibit 5.1 Opinion Letter of Seller's Counsel
Exhibit 6.1 Opinion Letter of Buyer's Counsel
Exhibit 10.8(a) Seller's Group 3000 Rates
Exhibit 10.8(b) Seller's Affiliates' Standard Group 3000 Rates
Exhibit 13.2 Exceptions to AAA Arbitration Rules
LIST OF DEFINITIONS
"Affiliates" can be found in Recital C.
"Agreement" can be found on page 1.
"Applicant"or "Applicants" can be found in Section 10.4.1(c).
"Assets" can be found in Section 1.1.
"Assumed Liabilities" can be found in Section 1.3.1.
"Assumption Reinsurance Agreement" can be found in Section 1.6.1(c).
"Board of Arbitration" can be found in Section 13.2.
"Business" can be found in Recital B.
"Buyer" can be found on page 1.
"Buyer's Parent" can be found in Section 14.2.
"CRF" can be found in Section 10.3(a).
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"COBRA" can be found in Section 10.4.2.
"Closing" can be found in Section 1.5.
"Closing Balance Sheet" can be found in Section 1.4.2(b).
"Closing Date" can be found in Section 1.5.
"Closing Working Capital" can be found in Section 1.4.2(b).
"Code" can be found in Recital A.
"Columbia Hospital Contract" can be found in Section 1.6.3(b).
"Commercial HMO Members" can be found in Section 1.4.6.
"Competitive Business" can be found in Section 8.4(a).
"Confidentiality Agreement" can be found in Recital E.
"Contracts" can be found in Section 1.1(c).
"Control" can be found in Recital C.
"Delivery System" can be found in Recital B.
"Earn-Out Accounts" can be found in Section 1.4.4.
"Excluded Assets" can be found in Section 1.2.
"Excluded Liabilities" can be found in Section 1.3.2.
"Execution Date" can be found on page 1.
"Governmental Entity" can be found in Section 2.1.4.
"HCFA" can be found in Recital C.
"HCFA Novation Agreement" can be found in Section 10.2.
"HIPAA" can be found in Section 10.4.2.
"HMO" can be found in Section 1.1(h).
"HMO Business" can be found in Recital B.
"HSR Act" can be found in Section 2.1.4.
"Indemnification Liability" can be found in Section 10.3(b).
"Indemnity Business" can be found in Recital B.
"Insurance Assumption Reinsurance Agreement" can be found in Recital D.
"Interim Balance Sheet" can be found in Section 1.4.2(b).
"KFH" can be found in Recital C.
"KFHP" can be found in Recital C.
"KPIC" can be found in Recital B.
"Leased Real Property" can be found in 1.6.1(e).
"Liens" can be found in Section 2.1.11.
"Loss" or "Losses" can be found in Section 11.1.
"Master Purchase and Sale Agreement" can be found in Section 1.6.1(e).
"Material Adverse Effect" can be found in Section 2 and Section 3.
"Medical Services Agreement" can be found in Section 1.6.1(n).
"Member" or "Members" can be found in Recital C.
"Membership Base" can be found in Section 1.4.4.
"NCQA" can be found in Section 1.4.5.
"New Accounts" can be found in Section 1.4.4.
"Non-Texas Group 3000 Members" can be found in Section 10.8.
"Notifying Party" can be found in Section 1.4.2(e).
"OPM" can be found in Recital C.
"OPM Novation Agreement" can be found in Section 10.3.
"Old National Accounts" can be found in Section 1.4.4.
"Opening Balance Sheet" can be found in Section 1.2(k).
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"PMAT" can be found in Section 1.2(b).
"Pharmacy Business" can be found in Recital B.
"Premium Yield" can be found in Section 1.4.7.
"Provider Agreements" can be found in Recital C.
"Property Taxes" can be found in Section 1.3.3.
"Purchase Price" can be found in Section 1.4.1.
"Receiving Party" can be found in Section 1.4.2(e).
"Reinsurance Agreements" can be found in Recital D.
"Related Agreements" can be found in Section 7.4.
"Returns" can be found in Section 2.1.14.
"Rules" can be found in Section 1.4.2(a).
"Seller" can be found on page 1.
"Seller's Permits" can be found in Section 2.1.7.
"Severance Payments" can be found in Section 10.4.1(b).
"Subscriber Agreements" can be found in Recital C.
"Subsidy Agreement" can be found in Section 1.3.2(i).
"Tangible Personal Property" can be found in Section 1.1(d).
"Terminated Employees" can be found in Section 10.4.1(a).
"Texas Group 3000 Members" can be found at Section 10.8(a).
"Transfer" can be found in Section 10.2.
"Transition Agreement" can be found in Section 1.6.1(m).
"US GAAP" can be found in Section 2.1.5.
"Violation" can be found in Section 2.1.3.
"WARN" can be found in Section 10.4.2.
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ASSET SALE AND PURCHASE AGREEMENT
THIS ASSET SALE AND PURCHASE AGREEMENT ("Agreement") is made and entered
into as of this 5th day of June, 1998 ("Execution Date"), by and between HMO
Texas, L.C., a Texas limited liability company ("Buyer"), and Xxxxxx Foundation
Health Plan of Texas, a Texas non-profit corporation ("Seller").
RECITALS:
A. Seller is a Texas non-profit corporation that is exempt from federal
income taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("Code"). Buyer is a Texas limited liability company.
B. Seller's business operations are comprised of several business segments,
including (i) its operation in the State of Texas of a health maintenance
organization ("HMO Business"), (ii) the provision and delivery of health care
services in the State of Texas (as distinct from the financial coverage of
health care services that are part of the HMO Business) ("Delivery System"), and
(iii) the provision and delivery of pharmacy services in the State of Texas
("Pharmacy Business"). The HMO Business, the Delivery System, and the Pharmacy
Business are collectively referred to as the "Business." In addition, one of
Seller's Affiliates (as herein defined), Xxxxxx Permanente Insurance Company, a
California domiciled life and disability insurer ("KPIC"), issues certain
indemnity products in Texas ("Indemnity Business") in support of Seller's
Business.
C. Seller desires to sell, assign, and deliver to Buyer, or to arrange or
cause to be sold, assigned, and delivered by Seller's Affiliates to Buyer, and
Buyer desires to purchase, accept assignment, and accept delivery from Seller or
Seller's Affiliates, substantially all of the operating assets used by Seller in
the operation of its Business, including, without limitation, (1) the subscriber
agreements ("Subscriber Agreements") and government contracts under which Seller
has agreed to provide or arrange for the provision of health care services to be
delivered to covered individuals and group enrollees (including their covered
spouses and covered dependents) under direct pay, group, welfare trust, and
other plans or policies, and (2) certain provider agreements ("Provider
Agreements") through which Seller has arranged for health care services to be
delivered to Members (as hereinafter defined), and certain other property owned,
leased or otherwise used by Seller in the operation of its Business. Each person
enrolled under the Subscriber Agreements or under governmental contracts with
the Health Care Financing Administration ("HCFA") or the Office of Personnel
Management ("OPM"), or Texas and Non-Texas Group 3000 Members is referred to
individually as a "Member" or collectively as "Members." The term "Affiliates"
shall mean any entity which controls, which is under control of, or which is
under common control with, either Buyer or Seller. Affiliates of Seller shall
include Xxxxxx Foundation Hospitals ("KFH") and Xxxxxx Foundation Heath Plan,
Inc. ("KFHP"). "Control," as used in the definition of Affiliates, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of another entity, whether through the
authority to elect the board of directors of such entity or otherwise.
D. KPIC desires to sell, assign and deliver the Indemnity Business to Buyer
or an Affiliate of Buyer, such sale, assignment and delivery to be the subject
of a separate agreement, including its exhibits, ("Insurance ") between KPIC or
Buyer or Buyer's Affiliate. The Insurance and the Assumption Insurance Agreement
including its exhibits, (as herein defined) shall be referred to as the
"Reinsurance Agreements."
E. Buyer and Seller executed two confidentiality agreements
("Confidentiality Agreement") dated March 28 and March 30, 1998, respectively,
relating to the transactions set forth in this Agreement.
F. Buyer and Seller wish to set forth the terms and conditions under which
Buyer will buy and Seller will sell, or cause to be sold, the assets of the
Business.
NOW, THEREFORE, for and in consideration of the above recitals and the
representations, warranties, mutual covenants, and agreements herein expressed,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby expressly acknowledged, the parties hereby agree as follows:
1. SALE OF ASSETS.
1.1. Sale and Purchase of Assets.
Seller hereby agrees to sell and assign to Buyer, or cause to be sold and
assigned to Buyer, and Buyer hereby agrees to purchase and accept assignment
from Seller or Seller's Affiliates, for payment of the Purchase Price specified
in Section 1.4, on the Closing Date referred to in Section 1.5, all of the
assets ("Assets") of every kind and description that are owned and used by
Seller in the operation of the Business, or owned by Seller's Affiliates (as
listed on Schedule 1.1(i)) including, without limitation, the following assets:
(a) All of Seller's rights, title and interests in the Subscriber
Agreements, as more fully described in the Reinsurance Agreements. Buyer and
Seller shall execute the Assumption Reinsurance Agreement simultaneous with the
execution of this Agreement, and the Assumption Reinsurance Agreement is hereby
incorporated by reference into this Agreement;
(b) Seller's rights, title and interests in the Provider Agreements,
including, without limitation, those with hospitals, ancillary and other
institutional providers, laboratories, vision providers, durable medical
equipment services providers, and provider HMOs that are set forth on Schedule
1.1(b), as may be amended prior to Closing through terminations, expirations,
and additions made in the ordinary course of business, but specifically
excluding (i) those contracts to obtain services or supplies on a group basis
that are listed as Excluded Assets in Section 1.2(d), and (ii) those certain
provider agreements providing for transplant services, except with respect to
Group 3000 Members for whom Seller shall make such contracts available through
December 31, 1999. To the extent that there
2
are parties to any particular Provider Agreement other than Seller and the
provider, Seller shall arrange to have the Provider Agreement amended or
otherwise restructured as necessary for Buyer to receive substantially all of
the benefits and to assume substantially all of the performance obligations
accruing or arising with respect to periods after Closing previously assumed by
Seller under such Provider Agreement;
(c) All of Sellers' rights, title and interests in all other contracts of
Seller which relate to the Business, including, without limitation, vendor
agreements set forth on Schedule 1.1(c), as may be amended prior to Closing
through terminations, expirations, and additions made in the ordinary course of
business ("Contracts"), but specifically excluding contracts solely between
Seller and Seller's Affiliates and any other contract listed as an Excluded
Asset;
(d) All of Seller's rights, title and interests in the tangible personal
property used in the operation of the Business, including, without limitation,
(i) furniture, fixtures and equipment, whether leased or owned, unless such
furniture, fixtures and equipment are attached to real property not to be
transferred to Seller pursuant to this Agreement or any other agreement between
the parties and dated as of the date hereof, less any dispositions plus any
additions made prior to the Closing Date in the ordinary course of business, and
(ii) all supplies, stock-in-trade, over-the-counter drug inventory, and all
replacements thereof ("Tangible Personal Property"), as specifically listed on
Schedule 1.1(d);
(e) All of Seller's rights, title and interests in intangible personal
property, including, without limitation, (i) to the extent shown on the Closing
Balance Sheet (as herein defined), cash, cash deposits, cash investments,
securities and receivables, and (ii) all licenses, permits, and warranties to
the extent permitted by law and the terms of such licenses, permits and
warranties, and (iii) all other rights necessary to Seller's operation of the
Business;
(f) All of Seller's rights, title and interests in prepayments or other
payments by or on behalf of Members, except to the extent otherwise expressly
agreed in Sections 10.2 and 10.3;
(g) Originals of or true and correct copies of financial and other books,
records and title documents necessary for Buyer to operate the Business;
(h) All of Seller's rights, title and interests in and to the formulary,
the software license and the hardware comprising Seller's Pharmacy Business
information system known as "NDC," except that with regard to the formulary,
Seller hereby grants to Buyer a non-exclusive, non-transferable, royalty-free
license, to use the formulary for the limited purpose of Buyer's health
maintenance organization ("HMO") business in the service area (as
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of the Execution Date) of Seller in Texas and any contiguous expansion of
such area by Buyer;
(i) Certain assets of Seller's Affiliates, as set forth on Schedule 1.1(i);
and
(j) The software listed on Schedule 1.1(j).
1.2. Excluded Assets.
The following assets of Seller are not included in the defined term
"Assets," and are not being transferred or assigned to Buyer under this
Agreement ("Excluded Assets"):
(a) Seller's rights, title and interests in the real property owned or
leased by Seller or Seller's Affiliates which is being transferred pursuant to a
Master Purchase and Sale Agreement (as herein defined);
(b) Seller's rights, title and interests in that certain Medical Services
Agreement, dated January 1, 1990, as amended, between Seller and Permanente
Medical Association of Texas ("PMAT") under which PMAT agrees to arrange or
provide professional services to Members;
(c) Seller's rights, title and interests in its contracts of employment;
(d) Except as otherwise set forth in this Agreement, Seller's rights, title
and interests in contracts (i) between Seller and Seller's Affiliates, (ii)
among third parties and Seller and Seller's Affiliates, and (iii) between
Seller's Affiliates and third parties that inure to Seller's benefit, including,
without limitation, contracts to obtain services or supplies on a group basis
(including contracts for the procurement of pharmaceuticals);
(e) Seller's rights, title and interests in its prescription drug
inventory;
(f) Seller's rights, title and interests in Seller's contracts with HCFA
and OPM and amounts due to Seller from OPM for periods prior to the Closing,
which shall be transferred in accordance with Sections 10.2 and 10.3;
(g) Seller's rights, title and interests in the insurance policies or
programs covering Seller, its officers, directors, employees and agents, and any
claims for refunds or recoveries under any insurance policies or programs;
(h) Seller's rights, title and interests in claims against third parties
arising with respect to acts and omissions occurring on dates prior to the
Closing, if any;
(i) Except as set forth in Section 1.1(h), Seller's rights, title and
interests in the name of Seller and all derivations thereof, including, without
limitation, trademarks, service marks, trade names and logos, and all pending
4
applications for the foregoing, and Seller's patents, copyrights, trade
secrets, know-how, processes and other intellectual property and all pending
applications for the foregoing, other than Excluded Assets that Buyer may be
entitled to utilize under the terms of the Transition Agreement;
(j) Seller's rights, title and interests in the assets of the
administrative facility known as the "Consolidated Service Center" used in
connection with the provision of membership accounting and third party
administration services for Seller and certain of Seller's Affiliates, including
all employment contracts with employees of Seller working for the Consolidated
Service Center, other than Excluded Assets that Buyer may be entitled to utilize
under the terms of the Transition Agreement;
(k) Seller's rights, title and interests in the assets which shall be
disposed of after the date of the opening balance sheet, attached as Exhibit
1.4.2(a) ("Opening Balance Sheet"), but prior to the Closing Date in the
ordinary course of business;
(l) Seller's rights, title and interests in the administrative procedures
and systems used by Seller, including, without limitation, internal policies and
methodologies, other than Excluded Assets that Buyer may be entitled to utilize
under the terms of the Transition Agreement;
(m) Seller's rights, title and interests in certain other assets to be
retained by Seller and Seller's Affiliates, as specifically listed on Schedule
1.2(m); and
(n) Any assets expressly listed as being excluded in Section 1.1.
1.3. Liabilities.
1.3.1. Assumed Liabilities.
As of the Closing, Buyer shall assume and agree to pay, discharge, and
perform, as appropriate, all of the following obligations of Seller and no
others (collectively, "Assumed Liabilities"):
(a) All obligations shown on the Closing Balance Sheet;
(b) All obligations accruing or arising under the Subscriber Agreements, on
the terms and conditions described in the Assumption Reinsurance Agreement;
(c) All obligations accruing or arising with respect to periods after the
Closing under those Provider Agreements and Contracts assigned or otherwise
transferred to Buyer, including, without limitation, all obligations to pay and
administer payment under the Provider Agreements;
5
(d) All obligations accruing or arising with respect to periods after the
Closing relating to the other Assets transferred to Buyer under Section 1.1 and
not listed in Section 1.3.1(a) through 1.3.1(c); and
(e) Only those employee related obligations as expressly set forth in
Section 10.4.
1.3.2. Liabilities Not to be Assumed.
Buyer shall not assume and shall not be obligated to pay, discharge or
perform any obligations and liabilities of Seller or Seller's Affiliates
relating to the Business not listed in Section 1.3.1, including, without
limitation, the following (collectively, "Excluded Liabilities"):
(a) Any and all liabilities of Seller, Seller's Affiliates or any third
party (including, without limitation, PMAT), whether currently known or unknown,
with respect to claims or potential claims for medical malpractice or
professional liability with respect to the Business relating to periods prior to
the Closing in each case regardless of when the claim is asserted;
(b) Any and all liabilities of Seller, Seller's Affiliates or any third
party (including, without limitation, PMAT), whether currently known or unknown,
relating to litigation or claims of any kind or nature with respect to the
Business relating to periods prior to the Closing, in each case regardless of
when the claim is asserted;
(c) Liabilities relating to the Excluded Assets;
(d) Liabilities that do not relate to the Business;
(e) Liabilities to any of Seller's Affiliates;
(f) Liabilities which are not related to the Assets and Assumed
Liabilities;
(g) Seller's obligations relating to Seller's health and welfare benefit
plans, pension, and retirement plans with respect to the Terminated Employees
(as hereinafter defined) or any former employees of Seller;
(h) Liabilities of Seller or Seller's Affiliates that are not required to
be stated on a balance sheet by US GAAP (as herein defined); and
(i) Any liability relating to that certain subsidy agreement ("Subsidy
Agreement") among Seller, Buyer, PMAT, and Sierra Health Services, Inc., such
Subsidy Agreement to be delivered at Closing.
1.3.3. Property and Premium Taxes.
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All annual or periodic ad valorem fees, taxes, assessments, licensing fees,
vehicle use fees, and similar charges imposed by taxing authorities on the
Assets (collectively, "Property Taxes") shall be borne and paid (a) by Seller
for all full tax years or periods ending before the Closing and for that portion
of any tax year or period ending on or after the Closing from the date of
commencement of such year or period to the date immediately preceding the
Closing, and (b) by Buyer for all full tax years or periods beginning on or
after the Closing and for that portion of any tax year or period ending on or
after the Closing from and including the Closing to the final date of such year
or period, regardless of when or by which party such Property Taxes are actually
paid to the applicable taxing authority. Premium taxes shall be allocated
between Buyer and Seller pursuant to the terms of the Assumption Reinsurance
Agreement, except that premium taxes relating to Seller's contracts with OPM and
HCFA shall be allocated as provided in this Agreement.
1.3.4. Transfer Taxes; Recording Fees.
The Buyer and Seller shall share equally any and all sales, use, transfer
or other similar taxes imposed as a result of the consummation of the
transactions between Buyer and Seller contemplated by this Agreement.
1.4. Purchase Price.
1.4.1. Purchase Price.
The consideration for the transfer of the Assets from Seller and Seller's
Affiliates to Buyer shall be One Hundred Twenty Seven Million Two Hundred Twenty
Four Thousand Three Hundred Nine Dollars ($127,224,309.00), as adjusted as
provided in this Section 1.4 ("Purchase Price"). Ninety Seven Million Two
Hundred Twenty Four Thousand Three Hundred Nine Dollars ($97,224,309.00) of the
Purchase Price shall be paid by Buyer to Seller by Federal Reserve Bank wire
transfer of good funds at Closing, as adjusted as provided in this Section 1.4.
The remaining Thirty Million Dollars ($30,000,000.00) of the Purchase Price
shall be paid in accordance with the earn-outs set forth in Sections 1.4.4 and
1.4.5 below. The parties acknowledge that the amount of Two Hundred Seventy Five
Thousand Six Hundred Ninety One Dollars ($275,691.00) is the purchase price
associated with the Insurance Assumption Reinsurance Agreement and that such
amount is not included in the term Purchase Price for purposes of this
Agreement.
1.4.2. Certain Balance Sheet Adjustments to Purchase Price.
(a) The Opening Balance Sheet (and related worksheets, working papers,
notes and schedules thereto, if applicable), attached hereto as Exhibit
1.4.2(a), sets forth, at March 31, 1998, the book value of the assets and
liabilities of Seller. Except as expressly provided by the rules set forth in
Exhibit 1.4.2(a)-1 ("Rules"), the Opening Balance Sheet (i) fairly presents the
financial position of Seller at March 31, 1998, in conformity with US GAAP,
applied on a consistent basis, and (ii) reflects all write-offs or
7
revaluations of assets (except as specified therein). The reserves recorded
in the Opening Balance Sheet were prepared in accordance with US GAAP and are
consistent with the statutory or other accounting practices prescribed or
permitted by the insurance regulatory authorities of the State of Texas and of
all the jurisdictions in which Seller is licensed to transact insurance business
and make good and sufficient provision for all insurance obligations of Seller.
If there is a conflict between US GAAP and the Rules, the Rules shall take
precedence.
(b) Not less than five business days prior to the Closing Date, Seller
shall deliver to Buyer a balance sheet ("Interim Balance Sheet") for the most
recent month end prior to the Closing Date, prepared in accordance with US GAAP,
the Rules, and other standards applicable to the Closing Balance Sheet. Not more
than 15 days after the Closing Date, Seller shall deliver to Buyer the closing
balance sheet ("Closing Balance Sheet") pursuant to which the book value of the
current assets included in the Assets less the book value of the current
liabilities included in the Assumed Liabilities ("Closing Working Capital") will
be zero at the Closing Date. The Closing Balance Sheet will (i) fairly present
the financial position of Seller as at the Closing Date, in conformity with US
GAAP, applied on a consistent basis, and (ii) will reflect all write-offs or
revaluation of assets. Seller will provide a list of all write-offs or partial
write-downs of assets from the Opening Balance Sheet in excess of $5,000.00. The
reserves recorded in the Closing Balance Sheet will be prepared in accordance
with US GAAP and will be consistent with the statutory or other accounting
practices prescribed or permitted by the insurance regulatory authorities of the
State of Texas and of all the jurisdictions in which Seller is licensed to
transact insurance business and make good and sufficient provisions for all
insurance obligations of Seller. If there is a conflict between US GAAP and the
Rules, the Rules shall take precedence. If the book value of the current assets
included in the Assets of Seller less the book value of the current liabilities
included in the Assumed Liabilities of Seller set forth on the Interim Balance
Sheet is less than zero, the Purchase Price payable at Closing shall be reduced
by the amount of such deficit, without prejudice to either party to assert any
adjustments pursuant to this Section 1.4.2. If the book value of the current
assets included in the Assets of Seller less the book value of the current
liabilities included in the Assumed Liabilities of Seller set forth on the
Interim Balance Sheet is more than zero, the Purchase Price payable at Closing
shall be increased by the amount of such excess, without prejudice to either
party to assert any adjustments pursuant to this Section 1.4.2. The parties may,
by mutual agreement, arrange for Seller to retain and discharge on or before
Closing certain liabilities set forth on the Closing Balance Sheet in the place
of all or part of any necessary adjustment to the Purchase Price payable at
Closing.
(c) Seller shall promptly pay to Buyer the amount of any payable of Seller
booked to the Closing Balance Sheet under Rule 9 on Exhibit 1.4.2(a)-1,
8
and Buyer shall promptly pay to Seller the amount of any payable of Buyer
booked to the Closing Balance Sheet under Rule 9 on Exhibit 1.4.2(a)-1. In
addition, if at any time, either party determines that the Closing Balance Sheet
is not in conformity with the standards set forth in Section 1.4.2(b), and the
Closing Working Capital was not zero, it shall promptly notify the other party
of such discrepancy in writing, setting forth in detail the basis for its belief
that a discrepancy exists, and the Purchase Price shall be adjusted as set forth
below; provided however, (i) no adjustments shall be made with respect to any
event that occurs subsequent to December 31, 1999; and (ii) no adjustments shall
be made with respect to any proposed adjustment not asserted in writing
containing a reasonable description of the proposed adjustment sent on or before
March 31, 2000.
(d) If, as a result of an adjustment to the Closing Balance Sheet, the
Closing Working Capital is less than zero, Seller shall promptly pay in full the
amount by which it is less than zero to Buyer. If, as a result of an adjustment
to the Closing Balance Sheet, the Closing Working Capital is more than zero,
Buyer shall promptly pay the amount by which it is more than zero to Seller. All
amounts due hereunder shall be paid within 30 days of receipt of notice from the
other party that an amount is due and owing unless, within such 30-day period,
the matter has been made the subject of a dispute resolution proceeding as set
forth in Section 1.4.2(e).
(e) If one party ("Notifying Party") has given the other ("Receiving
Party") written notice that it believes an adjustment to the Closing Balance
Sheet or the Closing Working Capital is appropriate, and the Receiving Party
does not agree that an adjustment is appropriate, or disputes the amount of the
adjustment, then the Receiving Party shall give the Notifying Party notice that
it is submitting the matter to the dispute resolution procedure set forth in
this Section 1.4.2(e). In that event, the parties shall seek, for a 30-day
period following the notice from the Receiving Party to the Notifying Party, to
come to an agreement on the amount, if any, of the appropriate adjustment.
During that 30-day period, (i) each party shall share with the other the
information in its possession that causes it to believe that an adjustment is
required, and (ii) representatives of each party who are authorized to settle
the dispute shall meet to discuss the resolution thereof. If the parties are
unable to reach resolution of the dispute within the 30-day period, they shall
promptly submit the matter to an independent "Big Six" accounting firm,
acceptable to both parties, and the determination of the independent accounting
firm as to the amount, if any, of the adjustment, shall be conclusive and not
subject to arbitration under this Agreement. Each party shall cooperate fully
with the independent accounting firm and provide to it such documents and work
papers as it may request in making its determination. The cost of the submission
of the adjustment to the independent accounting firm shall be borne by the party
whose position is most at variance with the final determination of the
independent accounting
9
firm. All amounts due from one party to the other shall be promptly paid in
full upon the resolution of the matter by the independent accounting firm.
(f) Either party may, through its own employees or through designated
representatives, review and audit the proposed adjustments asserted by the other
party. Each party shall fully cooperate with such review and audit and shall
share with the other party and its designated representatives, such working
papers and accounting records as they may reasonably request. Each party shall
use commercially reasonable efforts to conduct its review and audit in such a
manner as to not unreasonably interfere with the other party's conduct of its
business.
(g) The entries on the Opening Balance Sheet and the Closing Balance Sheet
that are the subject of the Post Closing Reconciliation and Report Procedures,
as defined and set forth in the Reinsurance Agreements, shall be adjusted in
accordance with the terms of the Reinsurance Agreements. Such adjustments under
the Assumption Reinsurance Agreement shall not be duplicated under this
Agreement and shall be netted against any adjustments or indemnification
payments hereunder made with respect to the same event or circumstance.
1.4.3. Collection of Receivables.
(a) Seller may, from time to time, review the collection efforts being made
by Buyer with respect to accounts receivable included on the Closing Balance
Sheet which are aged at least 90 days. If at any time, or from time to time,
Seller wishes to assume responsibility for collection of all or any part of such
receivables listed on the Closing Balance Sheet, Seller shall notify Buyer in
writing that it wishes to do so, and Buyer shall provide Seller with all
information necessary or appropriate to enable Seller to collect the amounts due
on the accounts so designated. Buyer shall not have any responsibility to take
any action with respect to accounts receivable following the transfer of
responsibility for their collection to Seller.
(b) Any amounts collected by Seller on national or multi-state accounts
with respect to Members under Subscription Agreements transferred pursuant to
this Agreement shall be paid to Buyer within 15 business days of receipt.
1.4.4. Purchase Price Earn-Out for Growth in Certain Member Accounts.
Buyer shall pay to Seller, in accordance with this Section 1.4.4, up to an
additional Twenty Seven Million Dollars ($27,000,000.00) on account of (i)
post-Closing increases in the membership count of employer groups identified by
Seller prior to Closing as national accounts ("Old National Accounts") over the
membership level of such accounts at the Closing, and (ii) new accounts written
by Buyer or Buyer's Affiliates in their Dallas, Houston, Las Vegas, and Reno
service areas after the Closing ("New Accounts") which Seller or Seller's
Affiliates has been primarily responsible for obtaining on Buyer's behalf.
10
The names and membership levels of the Old National Accounts ("Membership
Base") at March 31, 1998 is set forth in Schedule 1.4.4. This Schedule shall be
replaced by Seller within 60 days after Closing to reflect additions and
deletions to names and membership levels effective the Closing Date. The Old
National Accounts and the New Accounts are, collectively, the "Earn-Out
Accounts."
(a) If the number of Members in the Earn-Out Accounts at the first annual
anniversary of the Closing Date is equal to or in excess of the First Membership
Milestone percentages of the number of Members in the Earn- Out Accounts at the
Closing Date, Buyer shall pay Seller the amount opposite the percentage. The
amount paid to Seller shall be prorated between the First Membership Milestone
percentages. First Membership Milestones (1st Anniversary Compared to the
Closing Date) Earn-Out 107% $9 Million 100% $6.75 Million 90% $4.5 Million 80%
$2.25 Million Less than 80% - 0 -
(b) If the number of Members in the Earn-Out Accounts at the second annual
anniversary of the Closing is equal to or in excess of the following Second
Membership Milestone percentages of the number of Members in the Earn- Out
Accounts at the Closing Date plus 7%, Buyer shall pay Seller the amount opposite
such percentage, less any amount already paid to Seller at the first annual
anniversary of the Closing. The amount paid to Seller shall be prorated between
the Second Membership Milestone percentages. If the amount owed Seller is less
than the amount paid Seller at the first anniversary, Seller shall return to
Buyer the difference. Second Membership Milestones (2nd Anniversary Compared to
the Closing Date) Earn-Out 114% $18 Million 107% $13.5 Million 96% $9 Million
86% $4.5 Million Less than 86% - 0 -
(c) If the number of Members in the Earn-Out Accounts at the third annual
anniversary of the Closing Date is equal to or in excess of the Third Membership
Milestone percentages of the number of Members in the Earn- Out Accounts at the
Closing Date plus 14%, Buyer shall pay Seller the amount opposite such
percentage, less any amount already paid to Seller at the first and second
annual anniversaries of the Closing. The amount paid to Seller shall be prorated
between the Third Membership Milestone percentages. If the amount owed Seller is
less than the amount paid Seller at the first and second anniversaries (net of
any payments from Seller to
11
Buyer at the first and second anniversaries) Seller shall return to Buyer
the difference. Third Membership Milestones (3rd Anniversary Compared to the
Closing Date) Earn-Out 122% $27 Million 114% $20.25 Million 103% $13.5 Million
91% $6.75 Million Less than 91% - 0 -
(d) Buyer agrees to make available to the Earn-Out Accounts benefit designs
and rates consistent with prudent business practices. Such benefit designs shall
also be materially consistent with the Old National Accounts existing as of the
Closing Date.
(e) Calculations and audits thereof shall be undertaken by Seller and Buyer
within 90 days of each annual anniversary, with any payment owed by one party to
the other paid within 120 days of each annual anniversary. Seller and Buyer
shall each have the right to inspect and photocopy those books and records of
the other necessary to verify any amounts that may be owed by one party to the
other under this Section.
1.4.5. Purchase Price Earn-Out for NCQA Accreditation.
Buyer shall pay Seller Three Million Dollars ($3,000,000.00) if Seller
achieves for the HMO Business a full one-year or better non-provisional National
Committee on Quality Assurance ("NCQA") accreditation certificate for the NCQA
survey currently scheduled on or about July of 1998. Buyer shall pay Seller such
amount within five business days of receipt of proof of such certification from
NCQA. Buyer agrees not to take any action other than entering into this
Agreement which might delay the July, 1998 NCQA site visit.
1.4.6. Purchase Price Decrease for Decrease in Certain Member Accounts.
If at Closing, the total number of Seller's Commercial HMO Members (as
herein defined) plus Medicare risk HMO Members is less than 114,000, Buyer shall
be entitled to reduce the Purchase Price by an amount equal to Seven Hundred
Forty Five Dollars ($745.00) multiplied by the difference between the total
number of Seller's Commercial HMO Members plus Medicare risk HMO Members and
114,000; provided, however, that if Buyer declines to accept the assignment,
reinsurance, novation or other transfer of certain Commercial HMO Members or
Medicare risk HMO Members from Seller to Buyer, including, without limitation,
Group 3000, such Commercial HMO Members or Medicare risk HMO Members shall not
be included in this difference. Calculation and audits of Seller's actual
Commercial HMO Members plus Medicare risk HMO Members as of Closing shall be
undertaken by Seller and Buyer within 90 days of the Closing. Such calculation
and audit shall be completed within 180 days following the Closing. For purposes
of such calculation, an individual shall not be considered a Commercial HMO
12
or Medicare risk HMO Member if there is an account receivable for premiums
associated with such individual in excess of 120 days. Buyer shall apply such
reduction first to offset any amounts owed by Buyer to Seller under Sections
1.4.4 and 1.4.5. If such offset proves to be inadequate, Seller shall be
required to refund to Buyer the remaining amount owed within 15 business days.
The term "Commercial HMO Members" shall mean those persons enrolled with Seller
for HMO and point-of-service benefits under group and individual Subscriber
Agreements, including, without limitation, through the Old National Accounts and
OPM and other governmental groups, but excluding any Medicare cost enrollees,
fee-for-service patients and preferred provider organization beneficiaries.
13
1.4.7. Purchase Price Adjustment for Premium Yield Attributable to Certain
Members.
Seller's estimated commercial HMO Premium Yield (as hereinafter defined)
for the first quarter of 1998 is $123.12 as illustrated by the table below.
Account Dues Member Premium
Number Revenue Months Yield
Group 4100 & 4110 $40,166,169 331,298 $121.24
Member Dues Allowance & Adj 4060 (470,543) ---- ---
Direct Pay 4150,4151,4152 2,952,240 16,770 $176.04
POS Note 1 1,685,221 12,003 $140.40
------------ ------ --------
Net Commercial Revenue
w/Gross POS Revenue Note 2 44,333,087 360,071 $123.12
==========================================
Note 1: POS revenue shall be calculated as follows: account number 4020
less account number 4920; gross up net balance by 40%.
Note 2: Account number 4950, other regions' members dues is not included in this
calculation.
If, for the first calendar quarter of 1998, the actual Premium Yield for
all Commercial HMO Members is not $123.12, (i) Seller shall (up to a maximum of
Three Million Five Hundred Thousand Dollars ($3,500,000.00)) pay to Buyer if the
Premium Yield is lower than $123.12, or (ii) Buyer shall (up to a maximum of
Three Million Five Hundred Thousand Dollars ($3,500,000.00)) pay to Seller if
the Premium Yield is higher than $123.12, the difference between the actual
Premium Yield and $123.12 multiplied by the actual number of Commercial HMO
Member months for the same quarter times four. "Premium Yield" shall mean gross
billed premiums (including 100% of premium revenue due Seller and Seller's
Affiliates for point-of-service Members, without offset for the indemnity
component of the point-of-service plan), less cancellations, returned premiums,
and bad debt but shall not include deductions for commissions, premium taxes or
Texas Health Insurance Risk Pool Assessments. The calculation required by this
Section shall be made by Seller and Buyer within 60 days of Closing with any
payment owed due within 90 days of Closing. Such calculation shall be performed
using the identical methodology as the calculations set forth above, subject to
such methodology being consistent with Seller's past practice as it relates to
payment of commissions.
1.4.8. Allocation.
Prior to the Closing Date, the parties shall agree to an allocation of the
Purchase Price among the Assets in accordance with the Code; provided, however,
the parties' agreement on such allocation shall not be a condition to Closing.
14
1.5. Closing and Closing Date.
The actions contemplated to consummate the transactions under this
Agreement shall take place on the date ("Closing Date") which, unless otherwise
agreed by Buyer and Seller, shall be effective the last day of the month during
the calendar month after all conditions precedent of Buyer and Seller which are
set forth in this Agreement have been fully satisfied or have been waived in
writing; provided, however, that notwithstanding the actual time of the day on
the Closing Date at which the actions contemplated to consummate this Agreement
shall occur, and unless otherwise agreed to by the parties, the closing
("Closing") shall be deemed to be effective as of and to occur, and the risk of
loss shall pass Seller to Buyer, at 12:01:01 a.m. (Central Standard Time,
adjusted for daylight savings time, if applicable) on the Closing Date. Closing
shall commence on the Closing Date at the offices of Seller's counsel, the law
firm of Jenkens & Xxxxxxxxx, A Professional Corporation, 0000 Xxxx Xxxxxx, Xxxxx
0000, Xxxxxx Xxxxx 00000, at 10:00 a.m. (Central Standard Time, adjusted for
daylight savings time, if applicable). Notwithstanding the foregoing, Buyer
shall not be obliged to close prior to October 31, 1998 if it has not received
approval of the HCFA Novation Agreement prior to that date.
1.6. Actions to be Taken at Closing.
Subject to the terms and conditions set forth in this Agreement, at the
Closing:
1.6.1. Buyer's Deliveries.
Buyer shall deliver to Seller:
(a) Ninety Seven Million Two Hundred Twenty Four Thousand Three Hundred
Nine Dollars ($97,224,309.00) of the Purchase Price (as may be adjusted pursuant
to this Agreement) by Federal Reserve Bank wire transfer of good funds;
(b) One or more Xxxx of Sale, Assignment and Assumption Agreements,
substantially in the form of Exhibit 1.6.1(b) relating to the Assets (except the
Subscriber Agreements) conveyed to the Buyer hereunder, and such other
instruments and agreements as may be reasonably necessary to effect Buyer's
assumption of the Assumed Liabilities (except those relating to the Subscriber
Agreements);
(c) An assumption reinsurance agreement ("Assumption Reinsurance
Agreement"), substantially in the form of Exhibit 1.6.1(c), relating to the
Subscriber Agreements conveyed to Buyer hereunder, and such other instruments
and agreements as may be reasonably necessary to effect Buyer's assumption of
the Subscriber Agreements;
(d) The Insurance Assumption Reinsurance Agreement, substantially in the
form as set forth in Exhibit 1.6.1(d), executed by Sierra Health and Life
15
Insurance Company, Inc. and KPIC, together with confirmation of Federal
Reserve Bank wire transfer of good funds of the purchase price thereunder to
KPIC in the amount specified in such agreement, and delivery of all documents
required under that agreement;
(e) The sublease agreements relating to the certain leased real property
("Leased Real Property"), executed by Buyer, Seller and the applicable lessor,
and the documents and transfer of funds required by the Master Purchase and Sale
Agreement ("Master Purchase and Sale Agreement") of even date herewith between
Seller and Southwest Realty, Inc., a Nevada corporation;
(f) The opinion of Buyer's counsel in the form described in Section 6.1;
(g) All necessary consents, approvals or authorizations of third parties
required to be obtained by Buyer under the terms of this Agreement, it being
expressly agreed by the parties that failure by Buyer to obtain or provide such
consents, estoppels, approvals or authorizations shall not be a condition to
Seller's obligations to close the transactions contemplated hereby;
(h) Good standing certificates for Buyer, dated no earlier than 30 days
before the Closing Date, from its state of incorporation;
(i) Copies of the resolutions duly adopted by the Board of Directors or
Executive Committees of Buyer authorizing Buyer's execution, delivery and
performance of this Agreement and of all documents related hereto or
contemplated herein;
(j) Certificate of Buyer, dated as of the Closing Date, signed by an
authorized representative of Buyer and certifying that the covenants and
agreements to be performed and complied with by Buyer have been performed and
complied with in all material respects;
(k) Certificate of Buyer, dated as of the Closing Date, signed by
authorized representatives of Buyer and certifying that each of the respective
representations and warranties of Buyer set forth in this Agreement shall be
true and correct at and as of the Closing Date, as contemplated by Section 3.2;
(l) The Subsidy Agreement, in the form of Exhibit 1.6.1(l), executed by
Buyer and Buyer's Affiliates, as the case may be, and such other instruments and
agreements as specifically provided therein;
(m) That certain transition agreement ("Transition Agreement"),
substantially in the form of Exhibit 1.6.1(m), executed by Buyer and Buyer's
Affiliates, as
16
the case may be, and such other instruments and agreements as specifically
provided therein; and
(n) That certain medical services agreement ("Medical Services Agreement"),
substantially in the form of Exhibit 1.6.1(n), executed by Buyer and Buyer's
Affiliates, as the case may be, and such other instruments and agreements as
specifically provided therein.
1.6.2. Seller's Deliveries.
Seller, and Seller's Affiliates, as applicable, shall deliver to Buyer, or
to the extent any Assets are owned by Seller's Affiliates, shall cause Seller's
Affiliates to deliver to Buyer:
(a) Possession of the Assets to be conveyed to Buyer hereunder;
(b) One or more Xxxx of Sale, Assignment and Assumption Agreements,
substantially in the form of Exhibit 1.6.1(b), conveying all Assets to be
conveyed to Buyer hereunder, and such other instruments and agreements as may be
reasonably necessary to effect Seller's assignment of the Assumed Liabilities
(except those relating to the Subscriber Agreements);
(c) The Reinsurance Agreements, substantially in the form of Exhibits
1.6.1(c) and 1.6.1(d), and such other instruments and agreements as may be
reasonably necessary to effect Buyer's assumption of the Subscriber Agreements;
(d) The opinion of Seller's counsel in the form described in Section 5.1;
(e) All necessary consents, estoppels, approvals, authorizations or other
documents from third parties in a form reasonably satisfactory to Buyer required
to be obtained by Seller or Seller's Affiliates hereunder, it being expressly
agreed by the parties that failure by Seller to obtain or provide all such
consents, estoppels, approvals or authorizations shall not be a condition to
Buyer's obligation to close the transactions contemplated hereby;
(f) All necessary consents, estoppels, approvals, authorizations or other
documents executed by Seller's Affiliates in a form reasonably satisfactory to
Buyer which are necessary to convey to Buyer the Assets owned by Seller's
Affiliates;
(g) Good standing certificates for Seller dated no earlier than 30 days
before the Closing Date, from its state of incorporation;
(h) Copies of the resolutions duly adopted by the Board of Directors or
Executive Committee of Seller authorizing Seller's execution, delivery and
17
performance of this Agreement and of all documents related hereto or
contemplated herein;
(i) Certificate of Seller, dated as of the Closing Date, signed by
authorized representatives of Seller and certifying that the covenants and
agreements to be performed and complied with by Seller have been performed and
complied with in all material respects or have been waived by Buyer; it being
expressly agreed by the parties that, except as expressly provided in Section
5.4 and Section 5.6, Seller's compliance with the covenants and agreements
contained in this Agreement shall not be a condition to Buyer's obligation to
close the transactions contemplated hereby. Notwithstanding the above, if such
covenants and agreements have not been complied with in all material respects,
Seller shall provide a list describing in reasonable detail the extent of the
non-compliance;
(j) Certificate of Seller, dated as of the Closing Date, signed by
authorized representatives of Seller and certifying that each of the respective
representations and warranties of Seller set forth in this Agreement shall be
true and correct at and as of the Closing Date or has been waived by Buyer, as
contemplated by Section 2.2; it being expressly agreed by the parties that,
except as expressly provided in Section 5.4 and Section 5.6, Seller's
representations and warranties being accurate at Closing (other than the
representations in Section 2.1.1, 2.1.2, 2.1.5, 2.1.9 and 2.1.11) is not a
condition to Buyer's obligation to close the transactions contemplated hereby.
Notwithstanding the above, if such representations and warranties are not true
and correct on the Closing Date, Seller shall provide a list describing in
reasonable detail the extent of the discrepancies;
(k) Such other documents reasonably required by Buyer to transfer fully the
Assets to Buyer or to complete the transactions contemplated hereunder;
(l) The Subsidy Agreement, in the form of Exhibit 1.6.1(l), executed by
Seller and Seller's Affiliates, as the case may be, and such other instruments
and agreements as specifically provided therein; and
(m) The Transition Agreement, substantially in the form of Exhibit
1.6.1(m), executed by Seller and Seller's Affiliates, as the case may be, and
such other instruments and agreements as specifically provided therein.
1.6.3. Third Party Consents.
(a) To the extent that Seller's rights under any contracts (other than the
Subscriber Agreements) relating to the Business may not be assigned without the
consent of a third party, which consent has not been obtained prior to Closing,
this Agreement shall not constitute an agreement to assign the same if an
attempted assignment would constitute a breach thereof or be unlawful. Seller,
at its expense, shall use its commercially reasonable
18
efforts to obtain any such required consents as promptly as possible after
Closing. If any such consents are not obtained or if any attempted assignment
would be ineffective or would impair Buyer's rights so that Buyer would not in
effect acquire the benefit of all such rights, Seller, to the maximum extent
permitted by law and by the terms of the applicable contract(s), at Seller's
expense, shall act for six months after the Closing as Buyer's agent in order to
obtain for Buyer the benefits thereunder, and shall cooperate, to the maximum
extent permitted by law and by the terms of the applicable contract(s), with
Buyer in any other reasonable arrangement designed to provide the benefits of
such contracts to Buyer. Alternatively, at Seller's option, Seller may
recharacterize any contract of Seller for which the required consent of a third
party could not be obtained at Closing or within six months after Closing Date
as an Excluded Asset (and not an Asset to be transferred to Buyer), and all
rights and obligations relating to such contract shall remain with Seller.
(b) Notwithstanding Section 1.6.3(a) above, should Seller be unable to
obtain the third party consents required to assign the hospital contract with
certain Columbia hospitals, dated January 1, 1995, as amended ("Columbia
Hospital Contract"), Seller shall attempt to substitute an adequate hospital
network for the existing service area of the HMO Business. Irrespective of
whether Seller or Buyer provides such substitute hospital network, Seller shall
pay to Buyer 75% of the excess (if any) of the amount that Buyer must pay for
hospital services with such substitute hospital delivery network over the amount
which Buyer would have enjoyed as an assignee of Seller pursuant to the Columbia
Hospital Contract, for the period from the Closing Date through December 31,
1999. The amount due hereunder shall be determined by repricing the services
actually used during the period in question as if they had been provided under
the Columbia Hospital Contract.
(c) All third party consent issues with respect to the Subscriber
Agreements shall be resolved pursuant to the terms of the Assumption Reinsurance
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
The parties acknowledge that there are additional representations and
warranties relating to the Subscriber Agreements set forth in the Assumption
Reinsurance Agreement. "Material Adverse Effect" means, with respect to Seller,
an adverse effect on the Assets or the Assumed Liabilities which would
materially impair the ability of Buyer to operate the Business in substantially
the manner it has been heretofore conducted.
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2.1. Representations and Warranties of Seller.
As of the Execution Date, Seller represents and warrants to Buyer as
follows:
2.1.1. Organization and Good Standing.
Seller is a non-profit corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction if its organization, has all
requisite corporate power and corporate authority to own, lease and operate its
properties and to carry on the Business, as it is now being conducted, and is
duly qualified and in good standing to do business under the corporate laws of
each jurisdiction in which the nature of the Business or the ownership or
leasing of its properties makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
2.1.2. Seller's Authority and No Breach.
Seller has all requisite corporate power and corporate authority to enter
into this Agreement and to consummate the transactions contemplated hereby. 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 Seller and, as necessary, Seller's Affiliates.
This Agreement constitutes a valid and binding obligation of Seller, enforceable
against Seller in all material respects in accordance with its terms, except
insofar as enforcement may be limited by insolvency or similar laws affected the
enforcement of creditors' rights in general, and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.1.3. No Violations.
Except for consents of third parties required under contracts, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, (i) conflict with, or result in, any
material violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or the loss of a material benefit under,
or the creation of a material lien, material security interest or other material
encumbrance with respect to, any material portion of the Assets or Assumed
Liabilities (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation"), pursuant to any
provision of the Articles of Incorporation or By- laws of Seller, (ii) result in
any Violation of any material agreement which constitutes part of the Assets or
Assumed Liabilities, (iii) result in any Violation of any judgment, order or
decree entered with respect to Seller or to which the Assets or the Assumed
Liabilities are subject, or, (iv) to Seller's knowledge, result in any Violation
of any statute, law, ordinance, rule or regulation applicable to the Assets or
the Assumed Liabilities, except in each of clauses (i) through (iv), where such
Violations, individually or in the aggregate, would not have a Material Adverse
Effect.
2.1.4. No Consents.
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No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign
("Governmental Entity"), is required by or with respect to Seller in connection
with the execution and delivery of this Agreement by Seller, or the consummation
by Seller of the transactions contemplated hereby, except for (i) the filing of
a premerger notification report by Seller under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and (ii) such filings,
authorizations, orders and approvals as may be required by federal, state and
local Governmental Entities, including those in connection with Seller's
insurance business.
2.1.5. Seller's Financial Statements.
Seller has delivered (or if not yet available as of the Execution Date will
promptly deliver when available prior to the Closing Date) to Buyer, complete
and correct copies of (i) the audited balance sheets of Seller as at December
31, 1995, 1996 and 1997, and those related audited statements of income and cash
flows, for the fiscal years ended on those dates, together with all footnotes
and (ii) the unaudited interim balance sheet and statement of income for Seller
for the fiscal period ended on March 31, 1998 and subsequent quarters prior to
Closing. All of such financial statements fairly present, in all material
respects, as at and for the periods then ended, as the case may be (subject, in
the case of the unaudited balance sheet and income statement, to normal,
recurring adjustments and the absence of footnotes), the financial position and
results of operations of Seller in conformity with generally accepted accounting
principles prevailing in the United States ("US GAAP") or statutory or other
accounting practices prescribed or permitted by the insurance regulatory
authorities in the State of Texas, in each case applied on a basis consistent
throughout the reported periods. Such financial statements (i) do not contain or
when delivered will not contain, as the case may be, any item of extraordinary
or non-recurring income or expense (except as specified therein); and (ii)
reflects all write-offs or necessary revaluation of assets (except as specified
therein). The reserves recorded in the accounting records of Seller for
insurance or HMO policy benefits, losses, claims and expenses and any other
reserves were prepared in accordance with the statutory or other accounting
practices prescribed or permitted by the insurance regulatory authorities of the
State of Texas and make good and sufficient provisions for all insurance
obligations of Seller.
2.1.6. Litigation.
To Seller's knowledge, except as set forth on Schedule 2.1.6, there are no
actions, suits, proceedings, of any kind pending, or investigations of any kind
now pending or threatened in writing and involving Seller, the Assets or the
Assumed Liabilities, which may have a Material Adverse Effect.
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2.1.7. Compliance With Applicable Laws.
Except as set forth on Schedule 2.1.7, and except to the extent that
non-compliance would not have a Material Adverse Effect, the Business of Seller
is being conducted in compliance with all applicable laws, rules, ordinances,
regulations, licenses, or judgments, or orders, rules, regulations, licenses,
judgments, or decrees of Governmental Entities. Seller holds all certificates of
authority, permits, licenses, consents, certificates, orders and approvals from
all Governmental Entities (collectively, "Seller's Permits") which are necessary
to own, lease and operate the Assets in the manner heretofore conducted, except
to the extent that failure to hold same does not result in a Material Adverse
Effect. Seller has filed all material statements and reports with insurance
regulatory authorities required by the law, regulations, licensing requirements
and orders administered or issued by such regulatory authorities. To Seller's
knowledge, no event has occurred with respect to any of such Seller's Permits
which would cause revocation, termination or suspension of any of such Seller's
Permits if such revocation, termination, suspension or impairment would have a
Material Adverse Effect. Seller has not, and, to Seller's knowledge, none of its
executive officers, directors or employees (in their respective capacities as
such), has engaged in any activity constituting fraud or abuse under the laws
relating to health care or insurance.
2.1.8. Labor and Employment Matters.
Except as set forth on Schedule 2.1.8, (i) Seller has no employees who are
represented by a labor union or organization, no labor union or organization has
been certified or recognized as a representative of any such employees, and
Seller is not a party to and does not have any obligation under any collectively
bargaining agreement or other contract or agreement with any labor union or
organization; (ii) there are no pending or, to Seller's knowledge, threatened,
representation campaigns, elections or proceedings or questions concerning union
representation involving any employees of Seller; and (iii) Seller does not have
any knowledge of any activities or efforts of any labor union or organizations
(or representatives thereof) to organize any of its employees, any demands for
recognition for collective bargaining, any strikes, slowdowns, work stoppages or
lock-outs of any kind, or threats thereof, by or with respect to any employees
of Seller, and no such activities, efforts, demands, strikes, slowdowns, work
stoppages or lock-outs occurred during a three-year period preceding the
Execution Date.
2.1.9. Absence of Certain Changes.
Since March 31, 1998, except (i) as set forth on Schedule 2.1.9, (ii) for
the execution and delivery of this Agreement and changes in Seller's properties
or Business attributable to the transactions contemplated or necessitated by
this Agreement and the Related Agreements (as herein defined) (including,
without limitation, the spin-off of Consolidated Service Center assets,
employees and operations on or before Closing), and (iii) as disclosed in
Seller's financial statements as previously delivered or to be delivered to
Seller:
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(a) Seller has not made any material change in its accounting methods or
practices with respect to its condition, operations, the Business, the Assets,
or the Assumed Liabilities;
(b) Seller has not entered into or materially amended any contract
requiring payment by Seller, on an annualized basis, of more than $250,000,
which contract is not terminable without cause on 90 days notice or less;
(c) Seller has not permitted any lien, charge or encumbrance on the Assets,
to the extent such lien, charge or encumbrance would have a Material Adverse
Effect;
(d) Seller has not increased, or agreed to increase, the compensation of
any of the Terminated Employees, over the rate being paid to them on March 31,
1998, other than normal merit and cost-of-living increases pursuant to customary
arrangements consistently followed and any special retention bonuses relating to
the winding down of Seller's Business;
(e) Except for transactions that, individually or in the aggregate, would
not have a Material Adverse Effect, Seller has (i) conducted its Business in a
commercially prudent manner, as a going concern and in the ordinary course, and
consistent with such operation, complied in all material respects with
applicable legal and contractual obligations, consistent with past practice;
(ii) used commercially reasonable efforts, consistent with past practice, to
preserve the goodwill of its Members and its employees, including without
limitation, issuing rate quotes and taking such other action as may be
necessary; and (iii) not intentionally taken any action outside of the ordinary
course of business which would tend to cause employer groups, suppliers or
Members to cease their respective affiliations with Seller.
2.1.10. Material Contracts.
Each material contract constituting part of the Assets or the Assumed
Liabilities is in full force and effect and is valid and enforceable by Seller
in accordance with its terms, except insofar as enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights in general, and except as enforceability may be limited by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). Seller is not in material default in the
observance or the performance of any term or obligation to be performed by its
under any such Agreement to the extent that such default would cause a Material
Adverse effect. To Seller's knowledge, no other person is in material default in
the observance or the performance of any term or obligation to be performed by
it under any such contract to the extent that such a default would cause a
Material Adverse Effect. There is currently no outstanding bid or contract
proposal by Seller which, if accepted or entered into, might reasonably be
expected to result in a Material Adverse Effect. Seller has provided, or will
provide before 60 days after the Execution Date, originals or true and correct
copies of
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all contracts constituting part of the Assets or Assumed Liabilities
requiring payment by Seller, on an annualized basis, of more than $250,000 and
which contracts are not terminable on 90 days notice or less.
2.1.11. Title to and Condition of Assets.
Except as set forth on Schedule 2.1.11 or reflected on the Opening Balance
Sheet, Seller has good title to the Assets, whether owned or leased, in each
case subject to no mortgage, pledge, conditional sales contract lien, security
interest, right of possession in favor of any third party, claim or other
encumbrance (collectively, "Liens"), and except with respect to leased property,
the provisions of the applicable leases. No representation or warranty is being
made with respect to the physical condition of the Assets, and Buyer shall
receive the Assets in their "AS-IS" condition.
2.1.12. Patents, Copyrights, Service Marks and Trademarks.
Seller is not transferring to Buyer any patents, copyrights, service marks,
trademarks, or other intellectual property other than its rights, as a licensee,
to use certain software, as described elsewhere in this Agreement.
2.1.13. No Broker or Finders.
No broker or finder is involved on behalf of Seller or an Affiliate of
Seller in connection with the sale of the Assets, nor may any broker or finder
involved on behalf of Seller claim any commission on account of the sale of the
Assets. The parties acknowledge that Xxxxxxxxxxx Xxxxxxx & Co. has been engaged
by Seller as a financial advisor to Seller, and the fees of Xxxxxxxxxxx Xxxxxxx
& Co. shall be paid for by Seller.
2.1.14. Tax Returns and Tax Liabilities.
To Seller's knowledge, Seller has made and is current with respect to all
reports, returns and other filings (collectively, "Returns") required to be
furnished from time to time to all federal, state, local or other governmental
tax or fiscal authorities (including, without limitation, all real and personal
property, informational, franchise and withholding taxes and other Returns); all
such Returns so furnished were correct in all material respects; and based on
the applicable measure of Seller's operations or Assets during the period in
question; each such Return correctly stated and reported the amount due in all
material respects; true and correct copies of all such Returns are included in
Seller's files; and all amounts reflected as due and payable on the Returns have
been paid.
2.1.15. No Untrue Representation or Warranty.
To Seller's knowledge, no representation or warranty by Seller in this
Agreement, nor any statement or certificate furnished or to be furnished to
Buyer pursuant hereto or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact.
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2.2. Representations and Warranties True and Correct at Closing; Breaches.
Seller shall execute and deliver to Buyer a certificate signed by an
authorized representative of Seller, dated as of the Closing Date, stating that
each of the representations and warranties of Seller made herein are true and
correct in all respects as of the Closing Date, or describing the manner in
which such representations and warranties are not true and correct. With the
exception of Sections 2.1.1, 2.1.2, 2.1.5, 2.1.9 and 2.1.11, if any of the
representations and warranties of Seller are not true and correct as of the
Closing Date, then Buyer shall be entitled to indemnification for any and all
losses as provided in Section 11, but shall nevertheless be obligated to
conclude the transactions contemplated hereby. The consummation of the
transactions under this Agreement by Buyer shall not constitute a waiver of
Buyer's rights to indemnification for a breach of a representation or warranty
provided for in this Section.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
The parties acknowledge that there are additional representations and
warranties relating to the Subscriber Agreements set forth in the Assumption
Reinsurance Agreement. "Material Adverse Effect" means, with respect to Buyer, a
material adverse effect on Buyer's ability to consummate the transactions set
forth herein.
3.1. Representations and Warranties of Buyer.
As of the Execution Date, Buyer represents and warrants to Seller as
follows:
3.1.1. Organization and Good Standing.
Buyer is a limited liability company duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization, has all
requisite corporate power and corporate authority to own, lease and operate its
properties and to carry on its business, as it is now being conducted, and is
duly qualified and in good standing to do business under the corporate laws of
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
3.1.2. Buyer's Authority and No Breach.
Buyer has all requisite corporate power and corporate authority to enter
into this Agreement and to consummate the transactions contemplated hereby. 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 Buyer, and, as necessary, Buyer's Affiliates.
This Agreement constitutes a valid and binding obligation of Buyer, enforceable
against Buyer in all material respects in accordance with its terms, except
insofar as enforcement may be limited by insolvency or similar laws affected the
enforcement of creditors' rights in general, and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
25
3.1.3. No Brokers or Finders.
No broker or finder is involved on behalf of Buyer in connection with the
sale of the Assets, nor may any broker or finder involved on behalf of Buyer
claim any commission on account of the sale of the Assets. The parties
acknowledge that Bear Xxxxxxx has been engaged by Buyer as a financial advisor
to Buyer, and the fees of Bear Xxxxxxx shall be paid for by Buyer.
3.1.4. Buyer's Consents.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer in connection with the execution and delivery of this Agreement
by Buyer, or the consummation by Buyer of the transactions contemplated hereby,
except for (i) the filing of a premerger notification report by Seller under the
HSR Act, and (ii) such filings, authorizations, orders and approvals as may be
required by foreign, state and local Governmental Entities, including those in
connection with Buyer's insurance business.
3.1.5. No Untrue Representation or Warranty.
To Buyer's knowledge, no representation or warranty by Buyer in this
Agreement, nor any statement or certificate furnished or to be furnished to
Seller pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact.
3.2. Representations and Warranties True and Correct at Closing; Breaches.
Buyer shall execute and deliver to Seller a certificate signed by an
authorized representative of Buyer, dated as of the Closing Date, stating that
each of the representations and warranties of Buyer made herein are true and
correct in all respects as of the Closing Date, or describing the manner in
which such representations and warranties are not true and correct. If any of
the representations and warranties of Buyer are not true and correct as of the
Closing Date, then Seller shall be entitled to indemnification for any and all
losses as provided in Section 11. The consummation of the transactions under
this Agreement by Seller shall not constitute a waiver of Seller's rights to
indemnification for a breach of a representation or warranty provided for in
this Section.
4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Buyer and Seller contained in
Sections 2 and 3 of this Agreement shall survive for a period of 18 months
following the Closing.
5. BUYER'S CONDITIONS PRECEDENT TO CLOSING.
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Buyer's agreement to purchase and to pay for the Assets hereunder is
subject to compliance with and the occurrence of each of the following
conditions on or before Closing, except as any thereof may be waived in writing
by Buyer:
5.1. Opinion of Counsel.
Seller shall have furnished Buyer with an opinion of its counsel, Jenkens &
Xxxxxxxxx, A Professional Corporation, dated the Closing Date, substantially in
the form and substance attached hereto as Exhibit 5.1.
5.2. Agreements.
Seller shall have executed and delivered to Buyer all agreements,
instruments, certificates and other documents to be delivered by Seller or, as
necessary, Seller's Affiliates, as required by Section 1.6.2(a) through (j) and
(l)-(m). Seller shall have executed and delivered to Buyer all other agreements,
instruments, certificates, and other documents to be delivered by Seller, or, as
necessary, Seller's Affiliates (including, without limitation, to those items
contemplated by Section 1.6.2(k)); provided, however, that Buyer shall be
obligated to consummate this transaction if Seller has substantially performed
its obligations and is proceeding in good faith and with due diligence to obtain
these particular documents not delivered at Closing with respect to deliveries
required by Section 1.6.2(k).
5.3. Corporate Resolutions.
Seller shall provide Buyer with appropriate resolutions from its Board of
Directors, authorizing Seller to effectuate the actions required by Seller to
consummate the transactions contemplated by this Agreement.
5.4. Seller's Representations and Warranties True and Correct.
The representations and warranties of Seller set forth in Section 2.1.1,
2.1.2, 2.1.5, 2.1.9 and 2.1.11 shall be true and correct in all material
respects as of the Execution Date and as of the Closing Date as though made on
and as of the Closing Date. Buyer shall have received a certificate signed on
behalf of Seller by an authorized officer of Seller to the effect that the
representations and warranties of Seller set forth in those Sections (as amended
through disclosure submitted to Buyer on or before the Closing regarding events
arising since the Execution Date) shall be true and correct in all material
respects as of the Execution Date and as of the Closing Date as though made on
and as of the Closing Date, except as otherwise contemplated by this Agreement.
5.5. Litigation.
No order has been issued in any action, suit or proceeding before any court
or administrative authority in any domestic or foreign jurisdiction of any kind,
that enjoins the consummation of this Agreement or any Related Agreements.
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5.6. Certain Covenants.
Seller shall have complied with its obligations in Sections 8.1(a) and
8.1(b), and 8.2 in all material respects.
6. SELLER'S CONDITIONS PRECEDENT TO CLOSING.
Seller's agreement to sell and to deliver the Assets to be sold hereunder
is subject to the payment at Closing of the Purchase Price payable at Closing
and compliance with and the occurrence of each of the following conditions on or
before Closing, except as any thereof may be waived in writing by Seller.
6.1. Opinion of Counsel.
Buyer shall have furnished Seller with one or more opinions of its counsel,
dated the Closing Date, substantially in the form and substance attached hereto
as Exhibit 6.1.
6.2. Corporate Resolutions.
Buyer shall provide Seller with appropriate resolutions from its Board of
Directors (which resolutions were obtained prior to the execution of this
Agreement), authorizing Buyer to effectuate the actions required by Buyer to
consummate the transactions contemplated by this Agreement.
6.3. Agreements.
Buyer shall have executed and delivered to Seller all agreements,
instruments, certificates and other documents to be delivered by Buyer or
Buyer's Affiliates.
6.4. Buyer's Representations and Warranties True and Correct.
The representations and warranties of Buyer set forth in Section 3.1.1 and
3.1.2 shall be true and correct in all material respects as of the Execution
Date and as of the Closing Date as though made on and as of the Closing Date.
Seller shall have received a certificate signed on behalf of Buyer by the chief
executive officer and the chief financial officer of Buyer to the effect that
the representations and warranties of Buyer set forth in those Sections (as
amended through disclosure submitted to Seller on or before the Closing
regarding events arising since the Execution Date) shall be true and correct in
all material respects as of the Execution Date and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement.
6.5. Litigation.
No order has been issued in any action, suit or proceeding before any court
or administrative authority in any domestic or foreign jurisdiction of any kind,
that enjoins the consummation of this Agreement or Related Agreements.
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7. JOINT CONDITIONS PRECEDENT TO CLOSING.
In addition to the matters set forth in Sections 5 and 6, Seller's and
Buyer's agreement hereunder are subject to the occurrence of the following
conditions:
7.1. Medical Services Agreement.
Buyer or its Affiliate shall have executed the Medical Services Agreement
relating to the provision of professional physician services to the Members, in
substantially the form attached as Exhibit 1.6.1(n)..
7.2. Governmental Consents and Approvals.
Buyer and Seller shall have obtained from any and all local, state and
federal Governmental Entities all appropriate and necessary approvals or
consents required, or exemptions thereof (but which shall not include OPM or
HCFA), to effect the transactions set forth in this Agreement and to enable
Buyer to operate the Business; provided, however, each of the parties shall have
used its best efforts to obtain such approvals, consents or exemptions.
7.3. Xxxx-Xxxxx-Xxxxxx.
Buyer and Seller shall have made the required filings under the HSR Act
with respect to the transactions contemplated by this Agreement, and all
additional submissions required to be made thereunder, and the waiting periods
under the HSR Act shall have terminated; provided, however, each of the parties
shall have used its best efforts to obtain such approvals, consents or
exemptions.
7.4. Closing of Transactions Under Related Agreements.
The transactions contemplated by the Master Purchase and Sale Agreement,
the Reinsurance Agreements, and the Asset Sale and Purchase Agreement between
Permanente Medical Association of Texas and Buyer, shall have closed
concurrently with the transactions contemplated by this Agreement. The Medical
Services Agreement described in Section 1.6.1(n), the Transition Agreement
described in Section 1.6.1(m), the Subsidy Agreement described in Section
1.6.1(l), and the agreements described in this Section, together with their
schedules and exhibits, shall be known as the "Related Agreements."
8. ADDITIONAL AGREEMENTS OF SELLER.
8.1. Conduct of Business Pending Closing.
From the Execution Date until the Closing, Seller agrees that, with respect
to the operation and maintenance of the Business, except as otherwise consented
to by Buyer in writing, Seller will:
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(a) Conduct the Business in a commercially prudent manner, as a going
concern and in the ordinary course, and consistent with such operation, comply
in all material respects with applicable legal and contractual obligations,
consistent with past practice;
(b) Use commercially reasonable efforts, consistent with past practice, to
preserve the goodwill of its Members and its employees including without
limitation, issuing rate quotes and taking such other action as may be
necessary;
(c) Not intentionally take any action outside of the ordinary course of
business which would tend to cause employer groups, suppliers or Members to
cease their respective affiliations with Seller;
(d) Not enter into or materially amend any contract requiring payment, on
an annualized basis, of more than $250,000.00 which contract is not terminable
without cause on 90 days notice or less;
(e) Not permit any lien, charge or encumbrance on the Assets, to the extent
such lien, charge or encumbrance would have a Material Adverse Effect; or
(f) Not take any action (or omit to take any action), which action or
omission would cause any representation or warranty contained herein to be
untrue in any material respect at any time through the Closing Date, as if such
representation or warranty were made at and as of such time.
8.2. Access to Documents and Premises.
8.2.1. Inspection of Books and Records.
From the Execution Date through the Closing Date, Buyer, its counsel,
accountants, and other representatives shall, subject to confidentiality
covenants made by Seller to third parties and state and federal antitrust laws,
have the right to inspect the books and records of Seller relating to the
Business and the Assets, including inspection (without photocopying) by Buyer's
counsel to the extent possible without waiving any privileges with respect to
information regarding all actions, suits, proceedings or investigations of any
kind, now pending or threatened in writing, involving Seller or Seller's
Affiliates with respect to the Business. Any such inspection shall occur during
normal business hours and shall be scheduled by Buyer and Seller following
request for inspection made to Seller. All inspections shall be conducted by
Buyer and Seller in such a manner as to maximize all applicable privileges.
Buyer and its representatives shall use their best efforts to conduct their
inspection in such a manner as not to be disruptive to Seller's employees or
business operations. Buyer shall reimburse Seller for any damage, whether to the
Assets or otherwise, caused by Buyer or Buyer's representatives during the
inspection process.
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8.2.2. Request for Access.
All requests of Buyer, its counsel and such other representatives for
books, records, or interviews with Seller's officers, directors, or employees
shall be coordinated through Xxxxx Xxxx, Director of Acquisitions/Alliance
Services for Seller, or his designee.
8.3. Breach by Seller.
Except as provided in Section 5.6, Seller's compliance with the covenants
of Sections 8.1 and 8.2 shall not be a condition to Closing, but, rather, breach
of such covenants shall entitle Buyer to recover their actual damages resulting
therefrom in accordance with Section 11.
8.4. Noncompetition and Nonsolicitation.
(a) Seller agrees that for a period of five years after the Closing Date,
neither Seller nor Seller's Affiliates will, directly or indirectly, through an
entity controlled by them or their Affiliates, (i) own, manage, operate,
develop, join, control or participate in the ownership, management, operation,
development or control of, any Competitive Business (as defined below) whether
in corporate, proprietorship, professional association or partnership form or
otherwise located in the greater metropolitan areas of Houston, Texas, or
Dallas-Fort Worth, Texas, or any other area within the State of Texas where
Seller or its Affiliates conducted business as of the Closing Date, or (ii) make
any federal, state or local regulatory filing with the purpose of being granted
a permit, license or any other authorization, or otherwise qualifying to
participate in the State of Texas in any Competitive Business. "Competitive
Business" shall mean any health insurance, medical group practice, health care
provider or hospital business, including, without limitation, any health
maintenance organization, health care preferred provider organization, multiple
employer trust program or traditional indemnity program offered by Seller or any
other Affiliate of Seller. The parties specifically acknowledge and agree that
the remedy at law for breach of the foregoing will be inadequate and that Buyer,
in addition to any other relief available to it, shall be enticed to temporary
and permanent injunctive relief without the necessity of proving actual damage.
If the provisions of this Section should ever be deemed to violate, exceed or
otherwise contravene the provisions of applicable law, then the parties agree
that such provisions shall be reformed to set forth the maximum permissible
limitations or provisions allowable by law.
(b) The foregoing covenant not to compete shall not apply to fulfillment by
Seller of its obligations under Seller's existing contracts with HCFA or OPM,
existing accounts that are reinsured instead of assigned, or ownership of less
than 5% of the issued and outstanding shares of stock in publicly traded
corporations.
31
9. ADDITIONAL AGREEMENTS OF BUYER.
9.1. Maintenance of Records.
Buyer shall retain all business and other records and documents relating to
the Business and the Assets which are transferred to Buyer pursuant to this
Agreement in accordance with Buyer's own record retention policies for the
longer of six years or the time required by applicable law. Buyer shall make
such records available for Seller's review and copying upon request of Seller or
its agents, in a prompt manner, at a reasonable time and place, and Buyer shall
be entitled to its actual costs of such cooperation; provided, however, that
Seller shall keep all such records confidential to the extent required by law.
Buyer shall be responsible for obtaining any and all consents required to
release records to Seller. Buyer shall provide the records requested by Seller
in the format requested by Seller, including, without limitation, on paper, on
computer disk, or by direct electronic transmission, in a form compatible with
Buyer's then existing systems. Buyer shall permit Seller to have access to and
to copy such records during normal business hours with prior notice to Buyer of
the time that such access shall be needed. Seller's employees, representatives,
and agents shall conduct themselves in such a manner that Buyer's normal
business activities shall not be unduly or unnecessarily disrupted. The
provisions of this Section 9.1 shall survive for a period of six years after the
Closing Date, or longer if required by applicable law.
9.2. Communications.
Between the Execution Date and the Closing Date, and unless otherwise
specifically authorized in this Agreement or the Assumption Reinsurance
Agreement, Buyer may not communicate, orally or in writing, with Members,
service providers of Seller, employees of Seller, vendors of Seller, suppliers
of Seller, or other third party contractors of Seller, concerning this
transaction, without the prior written consent of Seller (which shall not be
unreasonably withheld) except for Xxxxx Xxxx, Director of Acquisitions/Alliance
Services for Seller, and Xxxxxx Xxxxxxxxx, Senior Counsel for Seller, or their
designees. Nothing in this Section shall preclude either Buyer or Seller from
communicating as it deems advisable with its own subscribers, government
regulators, service providers, employees, vendors, shareholders, suppliers, and
third party contractors required by law or in the ordinary course of business.
In no event shall either party cause any oral or written communication to be
issued relating to this transaction which disparages any other party or its
Affiliates, unless otherwise required by law. Communications with the media
shall be subject to the joint work plan to be developed by Buyer and Seller
pursuant to Section 10.6.
10. ADDITIONAL AGREEMENTS OF BUYER AND SELLER.
10.1. Regulatory Milestones Prior to Closing.
Seller and Buyer shall diligently and timely prepare and file the
applications and submissions as may be required with respect to the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby,
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including, without limitation, the filings set forth below. Buyer and
Seller agree to take all reasonable actions required or requested by such
authorities for the expeditious consideration and rendering of all such
approvals, consents and authorizations. Seller and Buyer shall diligently and
timely cooperate with each other and with all other parties in the submission of
applications and of any and all such additional information or documentation
requested by any such regulatory authorities.
10.1.1. HSR Filing.
Seller and Buyer shall submit all notifications, report forms and other
submissions to the Federal Trade Commission and the Antitrust Division of the
Department of Justice sufficient to trigger the HSR Act waiting period within 14
calendar days of the Execution Date. Buyer shall provide Seller with
time-stamped copies of all correspondence with the Federal Trade Commission and
the Antitrust Division of the Department of Justice as proof of compliance with
this Section.
10.1.2. Texas Department of Insurance.
Buyer shall use its best efforts file all submissions required by the Texas
Department of Insurance to approve the transactions contemplated hereby,
including, without limitation, the Assumption Reinsurance Agreement, the
application for Certificate of Authority or service area expansion, as
necessary, and such other submissions as may be required by the Texas Department
of Insurance, as soon as practicable after the Execution Date. Buyer shall make
its initial filing with the Texas Department of Insurance pursuant to this
Section within 14 calendar days of the Execution Date. Buyer shall provide
Seller with time-stamped copies of all correspondence with the Texas Department
of Insurance as proof of compliance with this Section.
10.2. Health Care Financing Administration.
Buyer and Seller acknowledge and agree that Seller's contracts with HCFA
are not assignable without the written consent or approval of HCFA, and
assignment of such contracts shall require the preparation and execution of a
novation or other agreement and the submission of any and all applications or
other documentation necessary to effectuate the novation ("HCFA Novation
Agreement") among Seller, Buyer, and HCFA. Seller shall transfer and assign to
Buyer as of the Closing the contracts with HCFA, or, at Buyer's election, Seller
shall take all actions reasonably necessary to terminate the contracts with HCFA
and Seller's obligations to provide services under the contracts with HCFA
effective as of a date after the Closing that is acceptable to Buyer and HCFA,
or to take any other actions reasonably required by Buyer or HCFA to transfer
beneficiaries under the HCFA contracts to Buyer (each of which actions is
referred to as the "Transfer"). If Seller has any obligations under the HCFA
contracts to provide services to Medicare beneficiaries during the period
commencing on the Closing Date to termination of the HCFA contracts, Buyer shall
arrange or provide all such services to such beneficiaries. All amounts paid in
respect of coverage or services during such period will be paid by Seller to and
become the property of Buyer. Seller shall prepare a cost report for 1998 as
required by HCFA and shall be responsible for, or entitled to the
33
return of, any amounts due to, or from (as the case may be) HCFA with
respect to contract periods prior to the Closing.
Buyer shall make the initial filing required to be made by Buyer to effect
the HCFA Novation Agreement within 14 calendar days of the Execution Date,
unless a later date is requested by Seller. Buyer shall provide Seller with
time-stamped copies of all correspondence with HCFA as proof of compliance with
this Section. Buyer's and HCFA's entering into the HCFA Novation Agreement is
not a condition to Buyer's obligation to close the transactions contemplated
hereby.
10.3. Office of Personnel Management.
(a) Buyer and Seller acknowledge and agree that Seller's contract with OPM
is not assignable without the written consent or approval of OPM, and assignment
of such contract shall require the preparation and execution of a novation or
other agreement ("OPM Novation Agreement") by and among Buyer, Seller and OPM.
Seller shall cooperate in all commercially reasonable respects with Buyer in the
preparation of the OPM Novation Agreement. Any documents which must be executed
or prepared by Seller after the Closing shall be transmitted by Seller to OPM
within a reasonable period of time after the Closing. Seller and Buyer shall
cooperate reasonably to effect the transfer of the contingency reserve fund
("CRF") to Buyer's federal contract for the benefit of Buyer.
(b) Subject to Sections 10.3(c) and 11.5 below, but not Sections 11.1
through 11.4, Seller hereby agrees to indemnify and hold harmless Buyer from and
against any and all losses, damages, costs and expenses (including reasonable
attorneys' fees) arising out of or sustained as a result of any negative
adjustment made by the government under Seller's contract with OPM (such losses,
damages, costs and expenses are hereinafter referred to as the "Indemnification
Liability") with respect to contract periods prior to contract year 1999.
(c) With respect to contract year 1999, Seller's indemnification obligation
shall be limited to 75% of any Indemnification Liability up to a maximum amount
of $2,000,000. Provided, however, that Seller shall have no liability under this
Section to the extent that any rate adjustment required by OPM is (i) the result
of rates quoted by Buyer which are lower than the current rates for existing
groups of Seller as long as standard rating methodology was employed for rating
similarly sized groups; and/or (ii) the result of rates quoted by Buyer for new
groups. Seller further agrees that the rate charged OPM for contract year 1999
shall not be less than the rate charged OPM for 1998.
(d) The CRF is and will be properly funded in accordance with OPM
regulations and applicable laws. Only those amounts which OPM deems are in
excess of what is required and OPM allows to be removed by a contractor under
34
applicable laws and regulations as a lump sum payment will be considered an
excess. Buyer shall, upon receipt from OPM of any lump sum payment resulting
from any positive adjustment made by OPM for contract periods prior to contract
year 1999, remit such amount to Seller. For contract year 1999, Buyer shall
retain 25% of any lump sum payment resulting from any positive adjustment made
by the OPM for that year and the balance shall be remitted to Seller. Payments
to be made hereunder shall be by wire transfer within five business days of time
of receipt of Buyer's payment from OPM. Buyer retains the right to offset any
amounts otherwise due Seller under Section 10.3(b) from any such payment. Such
payment shall be accompanied by a statement identifying the amount of the
payment from OPM and the specific time period covered by the payment.
(e) Buyer shall make all filings required to be made by Buyer to effect the
OPM Novation Agreement within 14 calendar days of the Execution Date, unless a
later date is requested by Seller. Buyer shall provide Seller with time- stamped
copies of all correspondence with OPM as proof of compliance with this Section.
Buyer's and OPM's entering into the OPM Novation Agreement is not a condition to
Buyer's obligation to close the transactions contemplated hereby.
10.4. Employment Matters.
10.4.1. Severance Payments.
(a) Seller shall terminate all of Seller's employees relating to the
Business (except Consolidated Service Center employees, who shall be transferred
to a Seller's Affiliate on or before Closing) whether such employees are at-will
or are subject to employment agreements, as of the Closing (collectively,
"Terminated Employees").
(b) Buyer shall reimburse Seller for all severance payments arising under
Seller's severance policy in effect on the date of execution of this Agreement
due to those Terminated Employees to whom Buyer does not offer comparable
employment with comparable pay following their termination from their employment
with Seller ("Severance Payments"). Buyer shall also assume the obligation to
provide or pay for all accrued but unused vacation to Terminated Employees, but
only to the extent such benefits would be owed under Seller's policies and to
the extent adequate reserves have been made in the Closing Balance Sheet. Seller
shall retain the responsibility to pay any transition bonuses to the Terminated
Employees pursuant to Seller's policies. If any Terminated Employee is hired by
Buyer pursuant to this Section 10.4.1 and such Terminated Employee's employment
is severed by Buyer within 60 days of the Closing without cause, Buyer shall
reimburse Seller for such Terminated Employee severance in an amount which would
have been due the Terminated Employee under Seller's severance policies in
effect on the date of
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execution of this Agreement as if Buyer had not offered comparable
employment at comparable pay.
(c) Promptly following the Execution Date, Buyer (i) will provide
information regarding its employment application process to the Terminated
Employees, and (ii) will actively begin to interview and consider for
employment, to be effective as of the Closing, any Terminated Employee who
submits an application for employment in accordance with Buyer's customary
application process requirements and who are qualified for employment with Buyer
(each individually, an "Applicant," or collectively, "Applicants").
(d) On or before July 15, 1998, Buyer shall provide Seller with a list of
the Terminated Employees that Buyer has elected to hire effective as of the
Closing Date, as provided in Section 10.4.2. Seller shall provide WARN notices
to all employees on or before 60 days prior to Closing. Buyer shall provide
Seller, at the same time Buyer provides Seller with a list of Terminated
Employees that Buyer has elected to hire, with an offer of employment for each
such employee so that Seller may enclose such offer in the WARN notice.
(e) All Terminated Employees who are hired by Buyer shall be given credit
for the time that they were employed by Seller for purposes of calculating such
Terminated Employees' rights under each of Buyer's employee benefits plans,
including without limitation, vacation pay, sick pay, and vesting for purposes
of deferred compensation and retirement plans.
(f) After the Execution Date, Seller agrees to cooperate with Buyer and to
release information to Buyer regarding Terminated Employees which Buyer
considers for employment prior to Closing. All information regarding the
Terminated Employees shall be provided subject to (i) all applicable laws and
regulations regarding protection of the confidentiality of employment
information, (ii) Buyer's obtaining the written consent of such employees, and
(iii) Buyer's adherence to any policies of Seller with respect to the protection
of the confidentiality of employee information, as if such policies were Buyer's
own. Buyer shall respect and protect the confidentiality of all such employee
information.
10.4.2. WARN, COBRA and HIPAA Notices.
To the extent required of Seller by law, Seller shall provide all notices
relating to the termination of the Terminated Employees, including, without
limitation, the notice obligations arising under the Workers Adjustment and
Retraining Notification Act ("WARN"), the Consolidated Omnibus Budget and
Reconciliation Act of 1985 ("COBRA"), or the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). WARN- related liabilities to the
Terminated Employees which result from any delay in providing WARN notices to
the Terminated Employees shall be paid by the party causing the delay.
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10.4.3. Health Care Coverage for Terminated Employees.
Buyer shall offer health care coverage to all Terminated Employees which
shall be at least substantially equivalent to the health care coverage they
would be entitled to receive under COBRA if Seller remained in existence after
the Closing, effective as of the date of Closing, for a period of up to 36
months after the Closing Date or such shorter period as permitted by law. To the
extent that any Terminated Employee becomes employed by Buyer, and the
Terminated Employee does not meet the eligibility requirements for Buyer's own
COBRA health care coverage prior to the Buyer's termination of the Terminated
Employee, Buyer agrees to offer the health care coverage set forth in this
Section to such Terminated Employee, effective as of his date of termination
from Buyer, until the expiration of the 36th month after the Closing Date. Each
Terminated Employee shall be responsible for payment of his own premiums
relating to health care coverage provided pursuant to this Section.
10.4.4. Health Care Coverage for Seller's Board of Directors.
Seller shall prepay through December 31, 1998 the premiums for whatever
health care coverage a member of the Board of Directors of Seller maintains
under Seller's Subscriber Agreements (be it individual, spouse, family, or other
health coverage) provided Buyer accepts the assignment, reinsurance, or other
transfer of such Subscriber Agreement under this Agreement. Buyer shall offer
renewal of such coverage, without medical underwriting, for the calendar year
1999, or until Medicare eligibility. Buyer and such individual shall agree on
the premium payment amount, if any, as Buyer and the individual may agree.
10.5. Transition Issues.
10.5.1. Use of Materials.
Buyer shall have the right to use all existing stock of any and all
advertising brochures, marketing materials, literature, form contracts, form
certificates of coverage, membership handbooks and other pre-printed material
relating to the Business, as authorized by law, until the later of one year
after the Closing Date or (with respect to any particular Subscriber Agreement),
the renewal date for the Member, or for some other shorter time limitation as
may be required by law. Buyer shall make a commercially reasonable effort to
sticker such materials with Buyer's name to avoid confusion.
10.5.2. Transition Agreement.
On or before the Closing Seller and Buyer shall enter into the Transition
Agreement, in substantially the form attached hereto as Exhibit 1.6.1(m),
pursuant to which certain of Seller's Affiliates will provide Buyer, for a fee
measured by the direct cost of providing such services, with certain transition
assistance, including membership accounting, claims processing, information
systems training and other administrative support.
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10.6. Public Information Releases.
Between the Execution Date and the Closing, and for a period of six months
following the Closing Date, Seller and Buyer agree to use reasonable efforts to
consult with each other prior to any press release, public announcement or
publicly disseminated communication concerning this transaction, to discuss the
content of any such announcement, and to refrain from making any such press
releases or public announcements without first receiving the other's prior
written consent, which shall not be unreasonably withheld. The parties shall
develop and implement a joint work plan for this transaction regarding
communications with the media. In no event shall either party cause any oral or
written communication to be issued relating to this transaction which disparages
any other party or its Affiliates, unless required by law. The provisions of
this Section shall survive the termination of this Agreement.
10.7. Cooperation.
Buyer and Seller agree to cooperate reasonably with each other, from the
Execution Date up through and following the Closing Date, and use their
respective best efforts in good faith, to satisfy all conditions, undertakings
and agreements contained in this Agreement.
10.8. Group 3000.
(a) Seller currently provides or arranges to provide health care services
to certain enrollees in Texas ("Texas Group 3000 Members") who are employed by
employers that have subscriber agreements with various Seller's Affiliates.
Buyer agrees to continue Seller's current practice of providing, or arranging
for one of Buyer's Affiliates to provide, health care services to the Texas
Group 3000 Members through the end of the term of each of the subscriber
agreements covering the Texas Group 3000 Members, in exchange for which Buyer or
Buyer's Affiliate shall be entitled to charge, and Seller's Affiliates shall
pay, Seller's standard Group 3000 rates through December 31, 1998. Thereafter,
Seller's Affiliates agree to pay Buyer a rate actuarially sufficient to provide
the benefits required by the Subscriber Agreement. A copy of Seller's standard
Group 3000 rates is set forth as Exhibit 10.8(a).
(b) Seller's Affiliates currently provide or arrange health care services
to certain enrollees outside Texas ("Non-Texas Group 3000 Members") who are
employed by Texas employers that have subscriber agreements with Seller, which
Subscriber Agreements will be assigned to Buyer pursuant to this Agreement.
Seller agrees to cause Seller's Affiliates to continue their current practice of
providing, or arranging for one of Seller's Affiliates to provide, health care
services to the Non-Texas Group 3000 Members through the end of the term of each
of the subscriber agreements covering the Non-Texas Group 3000 Members, in
exchange for which Seller's Affiliates shall be entitled to charge, and Buyer
shall pay Seller's Affiliates'
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standard Group 3000 rates through December 31, 1998. Thereafter, Buyer
agrees to pay Seller's Affiliates a rate actuarially sufficient to provide the
benefits required by the Subscriber Agreement. A copy of Seller's Affiliates'
Standard Group 3000 rates is set forth in Exhibit 10.8(b).
(c) Following the Closing Date, Seller shall cause Seller's Affiliates to
make commercially reasonable efforts not to offer any new or renewal subscriber
agreements providing for services for Members located in Texas which services
would be required to be provided by Buyer absent a separate agreement providing
for same. In addition, Buyer shall make commercially reasonable efforts not to
offer any new or renewal agreements covering services for Members located
outside of Texas which would be required to be provided by Seller's Affiliates
absent a separate agreement providing for same.
10.9. Reciprocity Agreement.
Buyer and Seller shall cause their Affiliates to endeavor in good faith to
enter into reciprocity agreements regarding the provision or arrangement of
health care in various states. Failure to enter into such arrangements before or
after the Closing shall not be a condition, covenant, representation, warranty,
obligation or otherwise give any party any right or remedy with respect to this
Agreement.
11. INDEMNIFICATION.
11.1. Indemnification by Seller.
Subject to the limitations of Section 11.3, Seller shall indemnify and
hold harmless Buyer and its respective officers, directors, employees, agents
and affiliates against any and all actual damages resulting from claims, losses,
costs, expenses, fees, liabilities and damages, including interest, penalties
and reasonable attorneys' fees and disbursements (each individually a "Loss,"
and collectively, "Losses"), arising out of, in connection with or otherwise
relating to:
(a) The Excluded Assets;
(b) The Excluded Liabilities;
(c) The material breach by Seller of any representation, warranty, covenant
or agreement made by Seller in this Agreement, or in any other agreement
executed in connection herewith;
(d) Any claim, obligation or other liability arising from the Business with
respect to any period prior to the Closing Date other than to the extent such
claims, obligations or liabilities constitute part of the Assumed Liabilities;
and
39
(e) Any action or litigation which challenges, seeks damages arising from
or seeks to enjoin any of the transactions contemplated by this Agreement or
Related Agreements, other than any actions commenced by shareholders of Buyer or
Buyer's Affiliates or primarily involving the operations of Buyer's or Buyer's
Affiliates' businesses.
11.2. Indemnification by Buyer.
Subject to the limitations of Section 11.3, Buyer shall indemnify and hold
harmless Seller and its respective officers, directors, employees, agents and
affiliates, against any and all Losses, arising out of, in connection with or
otherwise relating to:
(a) The Assets;
(b) The Assumed Liabilities;
(c) The material breach by Buyer of any representation, warranty, covenant
or agreement made by Buyer in this Agreement, or in any other agreement executed
in connection herewith;
(d) Any claim, obligation or other liability arising from Buyer's operation
of the Assets or the Assumed Liabilities as part of an HMO in Texas with respect
to any period after the Closing Date;
(e) Any action or litigation commenced by members or shareholders (as the
case may be) of Buyer or Buyer's Affiliates or primarily involving the
operations of Buyer's or Buyer's Affiliates' businesses which challenges, seeks
damages arising from or seeks to enjoin any of the transactions contemplated by
this Agreement or Related Agreements.
11.3. Limitations.
The indemnification rights and obligations set forth in this Section 11
shall survive the Closing and shall expire 18 months after Closing; provided,
however, that (i) with respect to claims notified in good faith to the
indemnifying party prior to the expiration of the indemnity rights, the parties'
obligations with respect to its indemnity rights and obligations shall continue
in effect until payment or other resolution of such claims; and (ii) with
respect to liabilities under Section 1.3.2, the indemnification rights and
obligations shall continue until the expiration of the statute of limitations
applicable thereto. Each party's liability hereunder shall be limited to actual
damages and no party shall be liable to any other party hereunder for special,
consequential, incidental, punitive or other damages. Any indemnified claim
under Article VII of the Assumption Reinsurance Agreement and Article X of the
Insurance Assumption Reinsurance Agreement shall apply towards the maximums and
minimums set forth in this Section 11.3.
11.3.1. Minimum.
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No party to this Agreement shall have any liability, whether pursuant to
Section 11 or otherwise, for breach of any covenant or warranty, for
misrepresentation, or otherwise, unless the aggregate amount of all claims for
which such party would, but for this Section 11, be liable, exceeds
$1,000,000.00 on a cumulative basis. Each claim making up the $1,000,000.00
cumulative amount shall be a claim of $5,000.00 or more. If such party's
aggregate liability for such claims exceeds $1,000,000.00 on a cumulative basis,
then such party shall be liable for all claims, including claims which are part
of the $1,000,000.00 minimum. Excluded Liabilities and reconciliations under
Section 3.3 of the Assumption Reinsurance Agreement and Section 3.3 of Schedule
2.5 of the Assumption Reinsurance Agreement or this Agreement are not subject to
and do not count towards these minimum limitations.
11.3.2. Maximum.
In no event shall the aggregate liability of any party to this Agreement
(whether for breach of covenant or warranty, misrepresentation pursuant to
Section 11, or otherwise) exceed 50% of the Purchase Price, net of any
adjustments provided by this Agreement. Excluded Liabilities and reconciliations
under Section 3.3 of the Assumption Reinsurance Agreement and Section 3.3 of
Schedule 2.5 of the Assumption Reinsurance Agreement or this Agreement are not
subject to and do not count towards this maximum limitation.
11.4. Notice and Right to Defend.
(a) Should any claim or action by a third party arise after the Closing
Date for which Buyer or Seller may be liable to the other under the indemnity
provisions of this Agreement, the indemnitee shall notify the indemnitor in
writing and in reasonable detail as soon as practicable after the indemnitee
receives notice of such claim or action in the manner provided for the giving of
notices under this Agreement. The expenses of all proceedings, contests,
lawsuits, or investigations of claims with respect to such claims or actions,
shall be borne by the indemnitor. If an indemnitor wishes to assume the defense
of such claim or action, it shall give written notice to the indemnitee within
10 days after notice from the indemnitee of such claim or action of its
intention to assume the defense, and the indemnitor shall thereafter assume the
defense of any such claim or liability through counsel reasonably satisfactory
to the indemnitee, provided that the indemnitee may also participate in such
defense at its own expense;
(b) If the indemnitor shall not assume the defense of, or if after so
assuming it shall fail to defend, any such claim or action, the indemnitee may
defend against any such claim or action in such manner as it may reasonably deem
appropriate and the indemnitee may settle such claim or litigation on such terms
as it may reasonably deem appropriate, and the indemnitor shall promptly
reimburse the indemnitee for the amount of all reasonable expenses, legal and
otherwise, incurred by the indemnitee in connection with the defense and/or
settlement of such claim or action. If no settlement
41
of such claim or action is made, the indemnitor shall satisfy any judgment
rendered with respect to such claim or in such action before indemnitee is
required to do so, and pay all expenses, legal or otherwise, incurred by the
indemnitee in the defense against such claim or litigation.
11.5. Exclusive Remedy.
If a party is entitled to indemnification under this Agreement with respect
to a particular claim, then such indemnification shall be such party's sole and
exclusive remedy.
11.6. Failure to Provide Records Cooperation.
If Buyer materially breaches its obligations under Section 9.1 that Seller
can establish were actually transferred by Seller to Buyer under this Agreement,
and Seller establishes that such breach resulted in the loss or destruction of
documents material to the defense of Buyer by Seller of an action or claim by a
third party pursuant to Seller's indemnification obligations under this
Agreement, Seller shall be entitled to recover from Buyer its actual losses
incurred in the matter directly resulting from Buyer's breach. The amount of the
losses recoverable from Buyer shall in no event exceed the amount of the third
party claim, and shall not include special, consequential, incidental, punitive
or other damages.
12. TERMINATION.
12.1. Termination.
This Agreement and the transactions contemplated hereby may be terminated
or abandoned at any time prior to the Closing Date:
(a) By the mutual consent of Buyer and Seller; or
(b) By Seller or Buyer if the Closing shall not have occurred on or before
October 31, 1998.
Termination of this Agreement shall terminate the Related Agreements. Where
a Related Agreement is only between Buyer and Seller, no further action or
notice shall be required for such termination to take effect. Where an Affiliate
or a third party is involved in a Related Agreement, Buyer and Seller (as may be
the case) shall cause termination of such Related Agreement.
12.2. Liability for Termination.
If this Agreement is terminated pursuant to this Section 12, all further
obligations of the parties under this Agreement shall be terminated without
further liability of any party to the other, provided that nothing shall relieve
either party from any liability it may have for any breach hereof.
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13. ARBITRATION.
13.1. Conciliation and Mediation.
If a dispute between Buyer and Seller relating to this Agreement, or under
any other agreement executed and delivered in connection herewith, is not
resolved within 15 days from the date that either party has notified the other
that such dispute exists, then such dispute shall be submitted jointly for
conciliation to the president or his designee of each party. If such senior
executive officers are unable to resolve the dispute within 30 days from the
date that it is first presented to them, either party may give notice to the
other party that the dispute shall be submitted to non-binding mediation with a
mediator acceptable to both parties, and the parties shall, for a 60-day period
from the receipt of such notice, seek in good faith to resolve such dispute in
mediation. If the parties are not able to resolve the dispute in mediation, then
such dispute shall be referred to binding arbitration.
13.2. Arbitration.
Any dispute submitted to arbitration pursuant to this Section shall be
determined by the decision of a board of arbitration consisting of three members
("Board of Arbitration") selected as hereinafter provided. Buyer shall select an
arbitrator and Seller shall select an arbitrator, each of whom shall be a member
of the Board of Arbitration who is independent of the parties. A third Board of
Arbitration member, independent of the parties, shall be selected by mutual
agreement of the other two Board of Arbitration members. If the other two Board
of Arbitration members fail to reach agreement on such third member within 20
days after their selection, such third member shall thereafter be selected by
the American Arbitration Association upon application made to it for such
purpose by any party to the arbitration. The Board of Arbitration shall meet in
Dallas, Texas, or such other place as a majority of the members of the Board of
Arbitration determines more appropriate, and shall reach and render a decision
in writing (which shall state the reasons for its decisions in writing and shall
make such decisions entirely on the basis of the substantive law governing the
Agreement and which shall be concurred in by a majority of the members of the
Board of Arbitration) with respect to the items in dispute. In connection with
rendering its decisions, the Board of Arbitration shall adopt and follow the
Commercial Rules of Arbitration of the American Arbitration Association in
effect as of the date of the arbitration, except as provided in Exhibit 13.2. To
the extent practical, decisions of the Board of Arbitration shall be rendered no
more than 30 calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to Buyer and Seller. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such 30 calendar day period) shall
be final, binding and conclusive on Buyer and Seller (except as may be provided
in Exhibit 13.2) and each party to the arbitration shall be entitled to enforce
such decision to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The fees and expenses of the Board of Arbitration and
the reasonable fees and expenses of legal counsel and consultants of the parties
shall be allocated among the parties as the Board of Arbitration deems
appropriate.
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13.3. Equitable Relief.
Notwithstanding any other provision of this Agreement, any party shall have
the right to seek equitable relief, in a court of competent jurisdiction, to the
extent that equitable relief is available to a party hereto. If a party chooses
to pursue equitable relief, such conduct shall not constitute a waiver of or be
deemed inconsistent with the arbitration provisions set forth in this Section
13. The Board of Arbitration may consider the findings of, rulings of, and any
evidence submitted in every legal proceeding for equitable relief as the Board
of Arbitration deems proper; however, any such findings, rulings and evidence
shall not necessarily be binding on the Board of Arbitration in connection with
any arbitration proceedings conducted by such Board of Arbitration.
13.4. No Applicability.
This Section is not applicable to disputes required by the terms of this
Agreement to be resolved pursuant to the procedures set forth in Section
1.4.1(e).
14. GUARANTEES.
14.1. Seller's Guarantor.
KFH hereby irrevocably and unconditionally agrees to cause Seller to fully
perform its obligations under this Agreement and the Reinsurance Agreements in a
timely manner, and further irrevocably and unconditionally guarantees the full
and timely performance of this Agreement and the Reinsurance Agreements by
Seller in accordance with its terms. The foregoing guarantee includes a
guarantee of the immediate payment when due of all amounts for which Seller may
at any time be liable on account of this Agreement or the Reinsurance
Agreements. Buyer may, at its option, proceed directly against KFH for the
performance of any obligation of Seller hereunder or for any amounts which may
be recoverable as a result of any misrepresentation, breach of warranty, breach
of covenant or other cause of Seller's liability under this Agreement or the
Reinsurance Agreements, without any requirement to proceed against Seller either
prior to or concurrently with proceeding against KFH. KFH further agrees that
its guarantee shall continue in effect notwithstanding any modification,
extension, waiver or other change in or under this Agreement or the Reinsurance
Agreements or any guaranteed obligation or any other act or thing which might
otherwise operate as a legal or equitable discharge of a guarantor. KFH hereby
waives all special suretyship defenses and notice requirements. Any claim under
this Section shall be resolved in accordance with Section 13.
14.2. Buyer's Guarantor.
Sierra Health Services, Inc. ("Buyer's Parent") hereby irrevocably and
unconditionally agrees to cause Buyer to fully perform its obligations under
this Agreement and the Reinsurance Agreements in a timely manner, and further
irrevocably and unconditionally guarantees the full and timely performance of
this Agreement and the Reinsurance Agreements by Buyer in accordance with its
terms. The foregoing guarantee includes a guarantee of the immediate payment
when due of all amounts for
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which Buyer may at any time be liable on account of this Agreement and the
Reinsurance Agreements, including but not limited to the promissory note which
will shall be payment for the real property transferred to Buyer simultaneous
with the closing of this transaction. Seller may, at its option, proceed
directly against Buyer's Parent for the performance of any obligation of Buyer
hereunder or for any amounts which may be recoverable as a result of any
misrepresentation, breach of warranty, breach of covenant or other cause of
Buyer's liability under this Agreement and the Reinsurance Agreements, without
any requirement to proceed against Buyer either prior to or concurrently with
proceeding against Buyer's Parent. Buyer's Parent further agrees that its
guarantee shall continue in effect notwithstanding any modification, extension,
waiver or other change in or under this Agreement and the Reinsurance Agreements
or any guaranteed obligation or any other act or thing which might otherwise
operate as a legal or equitable discharge of a guarantor. Buyer's Parent hereby
waive all special suretyship defenses and notice requirements. Any claim under
this Section shall be resolved in accordance with Section 13.
15. MISCELLANEOUS.
15.1. Notices.
All notices and other communications hereunder shall be in writing and
shall be either (i) be deposited in first class United States mail, certified,
with postage prepaid, (ii) delivered by messenger, (iii) sent by overnight
courier, or (iv) sent by fully completed and confirmed facsimile transmission
(with a written confirmation simultaneously sent in first class United States
mail), as follows:
If to Seller or Seller's Affiliate Copy to:
(as the case may be):
Xxxxxx Foundation Health Plan of Texas Jenkens & Xxxxxxxxx,
or Xxxxxx Foundation Health Plan, Inc. A Professional Corporation
or Xxxxxx Foundation Hospitals 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
c/o Kaiser Foundation Health Plan, Inc. Xxxxxxx, Xxxxx 00000
One Xxxxxx Plaza Attention: Xxxxxxxx X. Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000 Fax: (000) 000-0000
Attention: Xxxxx Xxxx, Director of
Acquisitions/Alliance Services
Fax: (000) 000-0000
If to Buyer or Buyer's Parent: Copy to:
HMO Texas, X.X. Xxxxxx, Xxxxx & Xxxxxxx, LLP
c/o Sierra Health Services, Inc. 000 Xxxxx Xxxxx Xxxxxx
0000 X. Xxxxxx Xxx (for FedEx) Xxxxxx-Xxxxxx Xxxxx
Xxx Xxxxx, Xxxxxx 00000 Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
P.O. Box 15645 (for U.S. Mail) Attention: Xxxxxxx X. Xxxxx, Xx.
Xxx Xxxxx, Xxxxxx 00000-0000 Fax: (000) 000-0000
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Attn: Xxxx Xxxxxx, Vice President
of Finance and CFO
Fax: (000) 000-0000
or such other address or fax number as any party may request by notice
given as aforesaid. Notices sent as provided herein shall be deemed given on the
date received by the recipient. If a recipient rejects or refuses to accept a
notice given pursuant to this Section, or if a notice is not deliverable because
of a changed address or fax number of which no notice was given in accordance
with the provisions hereof, such notice shall be deemed to be received two days
after such notice was mailed (whether as the actual notice or as the
confirmation of a faxed notice) in accordance with the terms hereof. The
foregoing shall not preclude the effectiveness of actual written notice given to
a party at any address or by any means.
15.2. Waiver.
No waiver by either Buyer or Seller hereto of its rights under any
provision of this Agreement shall constitute a waiver of such party's rights
under such provision at any other time or a waiver of such party's rights under
any other provision of this Agreement.
15.3. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. An executed faxed copy of this Agreement shall be deemed an
original executed copy of this Agreement.
15.4. Headings.
The headings contained in this Agreement have been inserted for convenience
of reference only and shall in no way restrict or modify any of the terms or
provisions hereof.
15.5. Severability.
If any provision of this Agreement is held by final judgment of a court of
competent jurisdiction to be invalid, illegal or unenforceable, such invalid,
illegal or unenforceable provision shall be severed from the remainder of this
Agreement, and the remainder of this Agreement shall be enforced. In addition,
the invalid, illegal or unenforceable provision shall be deemed to be
automatically modified, and, as so modified, to be included in this Agreement,
such modification being made to the minimum extent necessary to render the
provision valid, legal and enforceable. Notwithstanding the foregoing, however,
if the severed or modified provision concerns all or a portion of the essential
consideration to be delivered under this Agreement by one party to the other,
the remaining provisions of this Agreement shall also be modified to the extent
necessary to adjust equitably the parties' respective rights and obligations
hereunder.
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15.6. Entire Agreement.
This Agreement (including the Exhibits and Schedules), the Related
Agreements, and the other agreements, certificates and documents of Seller and
Buyer contemplated herein constitute the entire agreement between the parties
hereto with respect to the matter hereof, and supersedes all prior agreements or
understandings between the parties, except the Confidentiality Agreement, which
will continue in effect until terminated pursuant to the terms set forth
therein. No amendment, alteration, or modification of this Agreement shall be
valid unless in each instance such amendment, alteration, or modification is
expressed in a written instrument duly executed by the parties hereto.
15.7. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto.
Notwithstanding the foregoing, this Agreement shall not be assignable by any
party without the prior written consent of the other, and any attempt at an
assignment in violation of this Section shall be void ab initio.
15.8. Governing Law.
This Agreement is to be governed by and interpreted under the laws of the
State of Texas, without resort to choice of law or conflict of law principles
which direct the application of the laws of a different state.
15.9. Cost of Transaction.
Whether or not the transactions contemplated hereby are consummated:
(a) Buyer shall pay the fees, expenses, and disbursements of Buyer and its
agents, representatives, accountants, and counsel; and
(b) Seller shall pay the fees, expenses and disbursements of Seller and its
agents, representatives, accountants and counsel.
15.10. Further Assurances.
Each party hereto agrees for the benefit of the other parties hereto to
execute and deliver any necessary documents, instruments or agreements, and to
take any and all necessary actions, in order to (i) fully vest in Buyer all
right, title and interest to the Assets, and (ii) carry out the terms of this
Agreement and the transactions contemplated by this Agreement.
15.11. Construction.
Whenever the context of this Agreement requires, the gender of all words
herein shall include the masculine, feminine, and neuter, and the number of all
words herein
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shall include the singular and plural. All parties to this Agreement have
been represented by counsel and, accordingly, this Agreement shall not be
construed strictly for or against any party hereto. The Schedules and Exhibits
attached hereto are incorporated herein for all purposes and made a part of this
Agreement as if set out in full in this Agreement. All references to section
numbers in this Agreement shall be references to sections in this Agreement,
unless otherwise specifically indicated.
15.12. Third Parties.
None of the provisions of this Agreement shall confer rights or benefits as
third party beneficiaries or otherwise upon any third party that is not
expressly a party to this Agreement including, without limitation, the
Terminated Employees or the Members, and the provisions of this Agreement shall
not be enforceable by any such third party.
15.13. Time is of the Essence.
Time is of the essence with regard to all of the provisions of this
Agreement. The parties acknowledge and agree that strict compliance with all of
the deadlines set forth in this Agreement, including, without limitation, the
deadlines for filings pursuant to Section 10.
15.14. Confidentiality.
The parties acknowledge and agree that this Agreement and the Related
Agreements are part of the "Confidential Information" of the Confidentiality
Agreement. Notwithstanding the Confidentiality Agreement, which shall survive
the execution of this Agreement, or any confidentiality, proprietary, or similar
clause in any Related Agreement, the parties may disclose any terms or
conditions of this Agreement to any third parties to comply with securities laws
or HMO or insurance laws, and as needed to meet prudent business requirements of
shareholders, investors, bondholders, members and other creditors.
15.15. Offsets.
Either party may offset any amount owed the other by amounts owed by the
other to the party.
15.16. No Duplication.
The intent of the parties is that the Reinsurance Agreements and this
Agreement are different memorializations of substantially similar agreements
between the parties, and that the claims, offsets, adjustments,
indemnifications, reconciliations, liabilities, rights, and remedies under the
Reinsurance Agreements and this Agreement shall not be duplicative. If any
particular event or circumstances gives rise to any claim, offset, adjustment,
indemnification, reconciliation, liability, right, or remedy under this
Agreement and under one or both of the Reinsurance Agreements, Buyer or Seller
must elect to exercise its rights either under this Agreement or any one of the
Reinsurance
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Agreements, and may not exercise duplicative rights with respect to the
same event or circumstances.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Execution Date.
BUYER:
HMO TEXAS, L.C.
By: /s/ Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: President
SELLER:
XXXXXX FOUNDATION HEALTH PLAN OF TEXAS
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: President
Sierra Health Services, Inc. and Xxxxxx Foundation Hospitals have executed
this Agreement below solely with respect to their respective guarantee
obligations set forth in Section 14.
SIERRA HEALTH SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx, M.D.
Title: Chairman and CEO
XXXXXX FOUNDATION HOSPITALS
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title:___President_____
