Exhibit 2.4
PURCHASE AND SALE AGREEMENT
BY AND AMONG
APS HEALTHCARE BETHESDA, INC.
CC HOLDINGS, LLC,
INNOVATIVE RESOURCE GROUP, LLC
AND
COBALT CORPORATION
EFFECTIVE MARCH 29, 2002
TABLE OF CONTENTS
PAGE
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1. SALE OF INTEREST TO APS....................................................1
1.1. Member Interest to be Purchased.....................................1
1.2. Purchase Price......................................................1
1.3. Payment of Purchase Price...........................................1
2. REPRESENTATIONS AND WARRANTIES OF CC HOLDINGS AND IRG......................2
2.1. Authority of CC Holdings............................................2
2.2. Authority of IRG and CNR............................................2
2.3. Subsidiaries........................................................3
2.4. No Violation........................................................3
2.5. Financial Statements................................................4
2.6. Tax Matters.........................................................4
2.7. Accounts Receivable.................................................4
2.8. Insurance Policies; Bank Accounts...................................5
2.9. Absence of Certain Changes..........................................5
2.10. Absence of Undisclosed Liabilities..................................6
2.11. No Litigation.......................................................6
2.12. Compliance With Laws................................................6
2.13. Certain Business Practices..........................................7
2.14. Fraud and Abuse.....................................................7
2.15. Title to and Condition of Properties................................7
2.16. Contracts and Commitments...........................................8
2.17. Cobalt's Relationships to IRG......................................10
2.18. Employee Benefit Plans.............................................10
2.19. Trade Rights.......................................................11
2.20. Proprietary Information of Third Parties...........................12
2.21. No Broker or Finder................................................12
2.22. Disclosure.........................................................12
3. REPRESENTATIONS AND WARRANTIES OF APS.....................................12
3.1. Corporate..........................................................13
3.2. Authority..........................................................13
3.3. No Violation.......................................................13
3.4. No Litigation......................................................13
3.5. Financing..........................................................13
3.6. No Broker or Finder................................................14
3.7. Disclosure.........................................................14
4. COVENANTS OF CC HOLDINGS, IRG AND COBALT..................................14
4.1. IRG Action.........................................................14
4.2. Service Agreements.................................................17
4.3. Assignment and Assumption of 000 X. Xxxxxxxxx Xxxxx Lease..........19
4.4. Sublease Agreement.................................................19
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4.5. Furniture..........................................................19
4.6. Telephones, Routers and Switches...................................19
4.7. Disclosure Schedule................................................20
4.8. Insurance..........................................................20
4.9. Cooperation on Tax Matters.........................................20
4.10. Responsibility for Tax Audit Liabilities...........................20
4.11. Medical Data License...............................................20
4.12. Employee Matters...................................................20
4.13. Closing Date Balance Sheet.........................................21
5. COVENANTS OF APS..........................................................22
5.1. Assignment and Assumption of 000 X. Xxxxxxxxx Xxxxx Lease..........22
5.2. Sublease Agreement.................................................22
5.3. Severance..........................................................22
5.4. Financing Amendments...............................................23
5.5. Cooperation on Tax Matters.........................................23
6. CONDITIONS PRECEDENT TO APS' OBLIGATIONS..................................23
6.1. Representations and Warranties True on the Closing Date............23
6.2. Compliance With Agreement..........................................23
6.3. Absence of Suit....................................................24
6.4. Consents and Approvals.............................................24
6.5. Board of Directors Approval........................................24
7. CONDITIONS PRECEDENT TO CC HOLDINGS' OBLIGATIONS..........................24
7.1. Representations and Warranties True on the Closing Date............24
7.2. Compliance With Agreement..........................................24
7.3. Absence of Suit....................................................24
8. CLOSING...................................................................24
8.1. Documents to be Delivered by CC Holdings...........................25
8.2. Documents to be Delivered by APS...................................26
9. INDEMNIFICATION...........................................................27
9.1. By Cobalt and CC Holdings..........................................27
9.2. By APS.............................................................27
9.3. Conditions of Indemnification......................................28
9.4. Limitations on Indemnification.....................................28
10. TERMINATION AND ABANDONMENT...............................................29
10.1. Termination Events.................................................29
11. MISCELLANEOUS.............................................................30
11.1. Disclosure Schedule................................................30
11.2. Materiality........................................................30
11.3. Knowledge..........................................................30
11.4. Further Assurance..................................................30
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11.5. Successors and Assigns.............................................30
11.6. Law Governing Agreement............................................30
11.7. Severability.......................................................30
11.8. Amendment and Modification.........................................31
11.9. Notice.............................................................31
11.10. Announcements......................................................32
11.11. Expenses...........................................................32
11.12. Entire Agreement...................................................32
11.13. Counterparts.......................................................32
11.14. Headings...........................................................32
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PURCHASE AND SALE AGREEMENT
This Purchase And Sale Agreement (this "AGREEMENT"), is entered into
effective March 29, 2002, by and among APS Healthcare Bethesda, Inc., a
corporation organized and existing under the laws of the State of Iowa ("APS"),
CC Holdings, LLC, a limited liability company organized and existing under the
laws of the State of Wisconsin ("CC HOLDINGS"), Innovative Resource Group, LLC,
a limited liability company organized and existing under the laws of the State
of Wisconsin ("IRG"), and Cobalt Corporation, a corporation organized and
existing under the laws of the State of Wisconsin ("COBALT"), as to Sections
4.1(b)(xv), 4.2, 4.4, 4.6, 4.8, 4.11, 4.12(e), 9, 10 and 11.
RECITALS
WHEREAS, IRG is engaged in the business of contracting with insurance
carriers, health maintenance organizations, employers, government agencies and
other third party payors to provide certain behavioral health management and
administration, medical management, EAP, workers compensation, consulting and/or
pharmacy services to such payors and the policyholders, members, employees and
other individuals who are covered under the policies and plans of such payors;
WHEREAS, CC Holdings owns all of the membership and voting interests of
IRG;
WHEREAS, Cobalt owns all of the issued and outstanding stock of CC
Holdings' parent corporation, Compcare Health Services Insurance Corporation
("COMPCARE"); and
WHEREAS, APS desires to purchase from CC Holdings, and CC Holdings desires
to sell to APS, all of the interests of IRG on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the payments and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1. SALE OF INTEREST TO APS
1.1. MEMBER INTEREST TO BE PURCHASED. On the Closing Date (as defined in
Section 8), CC Holdings shall sell, assign, transfer and convey to APS all of
its right, title and interest in all of the membership and voting interests of
IRG (the "MEMBER Interest"), free and clear of all liens, encumbrances, charges
and assessments of every nature and subject to no restrictions with respect to
transferability, by delivering to APS a duly executed assignment(s) or
certificate(s) evidencing the Member Interest duly endorsed in blank by CC
Holdings.
1.2. PURCHASE PRICE. The price at which CC Holdings will sell and APS will
purchase the Member Interest shall be Twenty-Seven Million Dollars
($27,000,000.00).
1.3. PAYMENT OF PURCHASE PRICE. The purchase price specified in Section
1.2 shall be paid on the Closing Date by APS delivering to CC Holdings the
following:
(a) the sum of Seventeen Million Dollars ($17,000,000.00) in the
form of a certified or bank cashier's check payable to CC Holdings or, at CC
Holdings' option, by wire transfer of immediately available funds to an account
designated by CC Holdings (the "CASH"); and
(b) a promissory note in the amount of Ten Million Dollars
($10,000,000.00) made by APS for the benefit of CC Holdings in the form attached
hereto as EXHIBIT A to this Agreement (the "NOTE").
2. REPRESENTATIONS AND WARRANTIES OF CC HOLDINGS AND IRG
CC Holdings and IRG make the following representations and warranties to
APS, each of which is true and correct on the date hereof and shall remain true
and correct to and including the Closing Date, except as disclosed in the
Disclosure Schedule delivered to APS at the time of the execution of this
Agreement.
2.1. AUTHORITY OF CC HOLDINGS.
(a) POWER. CC Holdings has full power, legal right and authority to
enter into, execute and deliver this Agreement and the other agreements,
instruments and documents contemplated hereby (such other documents referred to
herein as "ANCILLARY Instruments"), and to carry out the transactions
contemplated hereunder and thereunder.
(b) AUTHORIZATION. The execution and delivery of this Agreement and
the Ancillary Instruments, and full performance thereunder, have been duly
authorized by the members and/or managers of CC Holdings, and no other or
further act on the part of CC Holdings or IRG is necessary therefor.
(c) VALIDITY. This Agreement has been duly and validly executed and
delivered by CC Holdings and is, and when executed and delivered each Ancillary
Instrument will be, the legal, valid and binding obligation of CC Holdings,
enforceable in accordance with its terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
generally, and by general equitable principles.
(d) TITLE. As of the date hereof, CC Holdings is the record owner
and holder of the Member Interest, all of which is fully paid and
non-assessable. CC Holdings will continue to own all of the Member Interest
until the delivery thereof to APS on the Closing Date. Except for this Agreement
and that certain Operating Agreement, dated December 28, 2000, by and between CC
Holdings (as the successor sole member of IRG) and IRG (the "OPERATING
AGREEMENT"), there are no outstanding options, contracts, commitments,
agreements or demands of any character relating to the Member Interest, and the
Member Interest is or will be on the Closing Date owned free and clear of all
liens, encumbrances, charges and assessments of every nature and subject to no
restrictions with respect to transferability.
2.2. AUTHORITY OF IRG AND CNR.
(a) MEMBER INTEREST. The Member Interest constitutes and represents
all of the membership and voting interests of IRG.
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(b) ORGANIZATION. IRG is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Wisconsin.
CNR Partners, Inc., a Texas corporation and a wholly owned subsidiary of IRG
("CNR"), is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas.
(c) POWER. IRG and CNR have all requisite power and authority to (i)
own, operate and lease their respective properties and to carry on their
businesses as and where such is now being conducted and (ii) enter into the
Ancillary Instruments (and in the case of IRG to enter into this Agreement) and
to carry out the transactions contemplated thereunder (and hereunder).
(d) QUALIFICATION. Except as set forth on Schedule 2.2(d) of the
Disclosure Schedule, IRG and CNR are duly licensed or qualified to do business
and in good standing in each jurisdiction wherein the character of the
properties owned or leased by them respectively, or the nature of their
respective businesses, makes such licensing or qualification necessary. The
states in which IRG and CNR are licensed or qualified to do business are listed
in Schedule 2.2(d) of the Disclosure Schedule.
2.3. SUBSIDIARIES. As of the date hereof, IRG is the record owner and
holder of all of the issued and outstanding shares of CNR (the "Shares"), all of
which are fully paid and non-assessable. IRG will continue to own all of the
Shares through the Closing. Except for this Agreement, there are no outstanding
options, contracts, commitments, agreements or demands of any character relating
to the Shares, and the Shares are or will be on the Closing Date owned free and
clear of all liens, encumbrances, charges and assessments of every nature and
subject to no restrictions with respect to transferability. Other than its
ownership of CNR, IRG does not own any interest in any corporation, limited
liability company, partnership or proprietorship (other than publicly traded
companies in which IRG owns less than five percent (5%) of the issued and
outstanding equity interest).
2.4. NO VIOLATION. Except as set forth on Schedule 2.4 of the Disclosure
Schedule, neither the execution and delivery of this Agreement or the Ancillary
Instruments, nor the consummation by CC Holdings and IRG of the transactions
contemplated hereunder and thereunder (a) will violate any statute or law or any
rule, regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any third party, including, without limitation, any
governmental entity, or (c) subject to obtaining the consents referred to in
Schedule 2.4 of the Disclosure Schedule, will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the assets of IRG or CNR
under, any term or provision of the articles of organization of IRG, the
Operating Agreement, the articles of organization or operating agreement of CC
Holdings, the articles of incorporation or bylaws of CNR, or of any material
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which CC Holdings, IRG or CNR are parties or by which
CC Holdings, IRG or CNR or any of their assets or properties may be bound or
affected.
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2.5. FINANCIAL STATEMENTS(a) . Included as Schedule 2.5 of the Disclosure
Schedule are true and complete copies of the unaudited financial statements of
IRG and its predecessor companies consisting of balance sheets as of December
31, 1999, 2000 and 2001, and the related unaudited statements of income and
statements of changes in equity for the years then ended. All of such financial
statements are true, complete and accurate, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
have been prepared in accordance with the books and records of IRG and its
predecessor companies, and fairly present, in accordance with generally accepted
accounting principles, the financial position and the results of operations of
IRG and its predecessor companies as of the dates and for the years and period
indicated.
2.6. TAX MATTERS.
(a) FOR TAXES. Except as provided in Section 4.10 of this Agreement,
the provision made for taxes on the balance sheet dated December 31, 2001
included in the Disclosure Schedule is sufficient, in the aggregate, for the
payment of all ad valorem, excise, profit, income, franchise, occupation,
property, sales, use, gross receipts and other taxes and assessments of CNR, IRG
and IRG's predecessor companies (where the liability for such taxes and
assessments was acquired by IRG), whether or not disputed at such date, and for
all years and periods prior thereto. Since December 31, 2001, neither IRG nor
CNR has incurred any taxes other than taxes incurred in the ordinary course of
business consistent in type and amount with the past practices of IRG and CNR,
respectively.
(b) TAX RETURNS FILED. Except as set forth on Schedules 2.6(b) and
2.6(c) of the Disclosure Schedule, all federal, state, foreign, county, local
and other tax returns required to be filed by or on behalf of CNR, IRG and IRG's
predecessor companies (where the liability to file such returns was acquired by
IRG) have been filed, and were true, correct and complete when filed, and the
taxes required thereunder have been paid or adequately accrued, in the
aggregate, by inclusion in the provision for taxes on the balance sheet dated
December 31, 2001 included in the Disclosure Schedule.
(c) TAX AUDITS. Except as set forth on Schedule 2.6(c), neither IRG
nor CNR has received from the Internal Revenue Service or from the tax
authorities of any state, county, local or other jurisdiction any notice of
underpayment of taxes or other deficiency which has not been paid.
(d) CONSOLIDATED GROUP. Schedule 2.6(d) of the Disclosure Schedule
lists every year since 1997 that CNR, IRG and Innovative Resource Group, Inc.,
the predecessor to IRG, were part of a group that filed a consolidated tax
return on which the statute of limitations does not bar a federal tax
assessment, and any corporation that has been part of such group.
(e) TAX STATUS OF IRG. Since its formation, IRG has been taxed, for
federal income tax purposes, as an entity disregarded from its owner.
2.7. ACCOUNTS RECEIVABLE. All accounts receivable (net of reserves for
doubtful accounts, as determined in accordance with past practices and generally
accepted accounting principles) of IRG reflected on (a) the balance sheet dated
December 31, 2001 included in the
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Disclosure Schedule and (b) the Estimated Closing Date Balance Sheet and the
Final Closing Date Balance Sheet represent obligations arising from sales
actually made or services actually performed in the ordinary course of business.
Such accounts receivable are, to CC Holdings' and IRG's knowledge, collectible
in the ordinary course of business net of the reserves for doubtful accounts
shown on the respective balance sheets, which reserves have been or will be
determined in accordance with past practices and generally accepted accounting
principles, and will not represent a material adverse change in the composition
of such accounts receivable in terms of aging. There is no contest, claim, or
right of set-off, other than returns in the ordinary course of business, under
any contract with any obligor in respect of any such accounts receivable
relating to the amount or validity thereof. For purposes of this Section 2.7,
"ordinary course of business" shall mean the ordinary and customary conduct of
the business of IRG consistent in all respects with its own past practices,
policies and procedures and customary practice in the industry.
2.8. INSURANCE POLICIES; BANK ACCOUNTS. IRG has provided or made available
to APS copies of all policies of insurance maintained by IRG or under which IRG
has coverage, and Schedule 2.8 of the Disclosure Schedules contains a list of
each bank in which IRG has an account or safe deposit box, the name and number
of each such account or box and the names of all persons authorized to draw
thereon or who have access thereto, with the amounts they are authorized to
draw.
2.9. ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth in
Schedule 2.9 of the Disclosure Schedule or as otherwise expressly required or
permitted under this Agreement, since December 31, 2001, there has not been:
(a) NO ADVERSE CHANGE. Any material adverse change in the financial
condition, assets, liabilities, business, prospects or operations of IRG or CNR;
(b) NO DAMAGE. Any material loss, damage or destruction, whether
covered by insurance or not, affecting IRG's or CNR's business or properties;
(c) NO INCREASE IN COMPENSATION. Any material increase in the
compensation, salaries or wages payable or to become payable to any employee of
IRG or CNR, or any bonus or other employee benefit granted, made or accrued,
other than (i) as set forth in Schedule 2.16(c) of the Disclosure Schedule, (ii)
as required under any of the Plans (as defined in Section 2.18) or (iii) in the
ordinary course of business or pursuant to pre-existing plans;
(d) NO COMMITMENTS. Any material commitment or transaction by IRG or
CNR (including, without limitation, any borrowing or capital expenditure);
(e) NO REDEMPTIONS, PURCHASES OR ACQUISITIONS. Any (i) redemption,
purchase or other acquisition by IRG of the Member Interest, or any portion
thereof or any security relating thereto; or (ii) any other payment (other than
a distribution in respect of the Member Interest) to any member of IRG;
(f) NO DISPOSITION OF PROPERTY. Any material sale, lease or other
transfer or disposition of any properties or assets of IRG or CNR;
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(g) NO INDEBTEDNESS. Any indebtedness for borrowed money incurred,
assumed or guaranteed by IRG or CNR;
(h) NO LIENS. Any mortgage, pledge, lien or encumbrance made on any
material portion of the properties or assets of IRG or CNR, other than liens
arising in the ordinary course of business;
(i) NO AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by IRG or CNR of any Material Contract (as defined in Section
2.16(b));
(j) NO UNUSUAL EVENTS. Any other material event or condition in the
business of IRG or CNR.
2.10. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Schedules
2.6(c) and 2.10 of the Disclosure Schedule, or as provided in Section 4.10 of
this Agreement, IRG has no material liability of any nature except contractual
liabilities (whether absolute, accrued, contingent or otherwise), including,
without limitation, liabilities for federal state, local or foreign taxes, other
than (a) liabilities for which full provision has been made on the balance sheet
dated December 31, 2001 included in the Disclosure Schedule or which have been
otherwise disclosed to APS and (b) other liabilities arising since December 31,
2001 in the ordinary course of business and consistent with past practice which
are not inconsistent with the representations, warranties and covenants of CC
Holdings and IRG or any other provision of this Agreement or the Ancillary
Instruments.
2.11. NO LITIGATION. Except as set forth in Schedule 2.11 of the
Disclosure Schedule, there is no action, suit, arbitration proceeding,
investigation or inquiry pending or, to CC Holdings' or IRG's knowledge,
threatened against IRG or CNR or any of their assets.
2.12. COMPLIANCE WITH LAWS.
(a) COMPLIANCE. Except as set forth in Schedule 2.12(a) of the
Disclosure Schedule or where the failure to comply would not have a material
adverse effect, each of IRG and CNR (including its operations, practices,
properties and assets) is in compliance with all applicable federal, state,
local and foreign laws, ordinances, orders, rules and regulations, including
without limitation, those applicable to business operations, employment
practices, retirement and the environment. Except as set forth in Schedule
2.12(a), neither IRG nor CNR has received notice of any violation or alleged
violation of any federal, state, local or foreign laws, ordinances, orders,
rules or regulations.
(b) NO ENVIRONMENTAL CLAIMS. There is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to CC Holdings'
or IRG's knowledge, threatened against IRG or CNR relating in any way to
pollution or protection of the environment or any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(c) CONTINUED COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as set
forth in Schedule 2.12(c) of the Disclosure Schedule, to CC Holdings' and IRG's
knowledge, there are
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no past or present events, conditions, circumstances, activities, practices,
incidents or actions of IRG or CNR which may materially interfere with or
prevent compliance or continued compliance by IRG or CNR with any federal, state
or local law pertaining to pollution or protection of the environment or with
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder.
(d) NO CONDEMNATION OR EXPROPRIATION. Neither the whole nor any
portion of the property or any other assets of IRG or CNR is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor to CC Holdings' and IRG's knowledge has any such condemnation,
expropriation or taking been proposed.
2.13. CERTAIN BUSINESS PRACTICES. Neither IRG nor CNR has (a) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity, (b) made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, (c) made any other payment prohibited by
applicable law or (d) authorized or directed any of its directors, officers,
agents or employees to do any of the foregoing.
2.14. FRAUD AND ABUSE. None of CC Holdings, IRG or CNR, and none of their
respective officers and directors, and, to the knowledge of CC Holdings or IRG,
any persons who provide professional services under agreements with IRG or CNR,
have engaged in any activities on behalf of or attributable to either IRG or CNR
which are prohibited under federal Medicare and Medicaid statutes, 42 U.S.C. ss.
1320a-7b, or the regulations promulgated pursuant to such statutes or related
state or local statutes or regulations or which are prohibited by rules of
professional conduct, including but not limited to the following: (a) knowingly
and willfully making or causing to be made a false statement or representation
of a material fact in any application for any benefit or payment; (b) knowingly
and willfully making or causing to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment; (c)
failing to disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure such benefit
or payment; (d) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in whole or in
part by Medicare or Medicaid.
2.15. TITLE TO AND CONDITION OF PROPERTIES.
(a) MARKETABLE TITLE. IRG and CNR have good and marketable title to
all of their respective assets, business and properties reflected in the balance
sheet dated December 31, 2001 included in the Disclosure Schedule, free and
clear of all mortgages, liens, claims, pledges or encumbrances of any nature
whatsoever except those described in Schedule 2.15(a) of the
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Disclosure Schedule, liens for the taxes not yet due or which are being
contested in good faith by appropriate proceedings, municipal and zoning
ordinances and easements for public utilities, none of which interfere with the
use of the property as currently utilized. None of the assets, business or
properties are subject to any restrictions with respect to the transferability
thereof.
(b) ASSETS NECESSARY TO BUSINESS. Except as set forth in Schedules
2.15(b) and 2.19 of the Disclosure Schedule, IRG and CNR presently have and
immediately prior to the Closing will have good, valid and marketable title to
all property and assets, tangible and intangible, and all leases, licenses and
other agreements, necessary to carry on their respective businesses as presently
conducted.
(c) CONDITION. Except for the physical medical system, which is run
on software that is no longer supported by the seller/licensor, all property and
assets utilized by IRG and CNR are in good operating condition and repair, free
from any defects (except such minor defects as do not interfere with the use
thereof in the conduct of the normal operations of IRG and CNR), have been
maintained consistent with the standards generally followed in the industry and
are sufficient to carry on the respective businesses of IRG and CNR as conducted
during the preceding twelve (12) months.
2.16. CONTRACTS AND COMMITMENTS.
(a) REAL PROPERTY LEASES. Except as set forth in Schedule 2.16(a) of
the Disclosure Schedule, neither IRG nor CNR leases any real property.
(b) MATERIAL CONTRACTS. Except as set forth in Schedules 2.16(a),
2.16(b), 2.16(c), 2.17(a), 2.17(b) and 2.18(a) of the Disclosure Schedule,
neither IRG nor CNR is a party to any lease (including any personal property
lease), contract or commitment of any nature involving consideration or other
expenditure on the part of either of them in excess of One Hundred Thousand
Dollars ($100,000.00), or involving performance by either of them over a period
of more than twelve (12) months (in each case a "MATERIAL CONTRACT").
(c) CONTRACTS WITH EMPLOYEES. Except as set forth in Schedules
2.16(c) and 2.18(a) of the Disclosure Schedule, neither IRG nor CNR has any
employment agreements, or any agreements that contain any severance or
termination pay, liabilities or obligations, or any bonus, vacation, deferred
compensation, stock purchase, stock option, profit sharing, pension, retirement
or other employee benefit plans. Schedule 2.16(c) contains the name of each IRG
and CNR employee and his or her current rate of pay.
(d) INSIDER ARRANGEMENTS. No present officer, director or employee
of CC Holdings, IRG or CNR (i) owns, directly or indirectly, in whole or in
part, any of the properties used in the respective businesses of IRG and CNR,
(ii) has received a loan or advance from IRG or CNR which is currently
outstanding, (iii) has any other business relationship with IRG or CNR other
than in his or her capacity as an officer, director or employee. No present
officer, director, or employee of CC Holdings, IRG or CNR owns, in whole or in
part, directly or indirectly, any interest in excess of five percent (5%) in, or
controls, or is an employee, officer, director, or partner of, or participant
in, or consultant to, any corporation, association,
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partnership, limited partnership, joint venture, or other entity which is a
competitor of IRG or CNR.
(e) EXCLUSIVITY ARRANGEMENTS. Except as set forth in Schedule
2.16(e) of the Disclosure Schedule, neither IRG nor CNR is a party to any
exclusive client contracts, partnership agreements or alliance agreements in
favor of third parties.
(f) NEGATIVE COVENANTS. Except as set forth in Schedule 2.16(f) of
the Disclosure Schedule, neither IRG nor CNR is a party to any contract or
arrangement relating to IRG or IRG's business or CNR or CNR's business, which
contract or arrangement contains a clause or provision which is, or could be
construed as, a negative covenant relating to the conduct of the business of IRG
or CNR, as the case may be.
(g) LOAN AGREEMENTS. Except as set forth in Schedule 2.16(g) of the
Disclosure Schedule, neither IRG nor CNR is obligated under any loan agreement,
promissory note or other evidence of indebtedness as a signatory, guarantor or
otherwise.
(h) GUARANTEES. Except as set forth in Schedule 2.16(h) of the
Disclosure Schedule, neither IRG nor CNR has guaranteed the payment or
performance of any other person, firm or corporation.
(i) NO DEFAULT. Neither IRG nor CNR is in default under any lease,
contract or commitment, nor has any event occurred, which through the passage of
time or the giving of notice, or both, would constitute a default thereunder or
cause the acceleration of any of IRG's or CNR's obligations or result in the
creation of any lien, encumbrance or restriction on any of the assets of IRG or
CNR. To CC Holdings' and IRG's knowledge (i) no third party is in default under
any lease, contract or commitment to which IRG or CNR is a party and (ii) no
event by a third party has occurred which, through the passage of time or the
giving of notice, or both, would constitute a default thereunder.
(j) PERFORMANCE. Except as set forth in Schedule 2.16(j) or where
failure to do so would not have a material adverse effect, each of IRG and CNR
has processed all claims under each contract with respect to which IRG or CNR
performs claims processing services in accordance with the terms contained
therein.
(k) PROVIDER AGREEMENTS. IRG has the express authority to
contractually bind the behavioral health service providers with whom it
contracts to provide mental health and substance abuse services (the "NETWORK
PROVIDERS") to the terms and conditions contained in the Service Agreements (as
defined in Section 4.2(a) of this Agreement). Each Network Provider holds all
licenses and/or certifications issued by the State of Wisconsin, or any other
state(s) law(s), as necessary to perform the services required of it under any
of the Service Agreements. Each Network Provider that provides any services
required under the Service Agreements:
(i) Meets the IRG credentialing standards provided in the Service
Agreement(s) under which such Network Provider provides services;
9
(ii) Is prohibited from billing or collecting payment from Covered
Persons for Covered Services (both as defined in the Service Agreements) except
applicable copayments, coinsurance or deductibles;
(iii) Maintains medical malpractice insurance as required by the
laws of the State of Wisconsin, or any other applicable state(s) laws, which
insurance provides coverage for providers and provider's staff, agents and
employees, as appropriate; and
(iv) Is obligated to provide IRG evidence of such required insurance
upon IRG's request, and to notify IRG in writing of any restriction, change,
cancellation or termination of any of such required insurance within ten (10)
after the occurrence of any such restriction, change, cancellation or
termination.
Each of IRG's current contracts with a Network Provider that will provide any
services required under the Service Agreements obligates such Network Provider
to continue to meet the requirements enumerated in Sections 2.16(k)(i),
2.16(k)(ii), 2.16(k)(iii) and 2.16(k)(iv) above.
2.17. COBALT'S RELATIONSHIPS TO IRG.
(a) CONTRACTS WITH COBALT. All leases, contracts, agreements or
other arrangements between IRG or CNR, on the one hand, and Cobalt or any entity
in which Cobalt has any interest (except through ownership of securities listed
on a national securities exchange), on the other hand, are listed on Schedule
2.17(a) of the Disclosure Schedule.
(b) OBLIGATIONS. Other than any obligations contained in any of the
leases, contracts, agreements or other arrangements listed on Schedule 2.17(a)
of the Disclosure Schedule, all obligations of Cobalt or any entity in which
Cobalt has any interest (except through ownership of securities listed on a
national securities exchange), to IRG or CNR, and all obligations of IRG or CNR
to any such persons or entities, are listed on Schedule 2.17(b) of the
Disclosure Schedule.
2.18. EMPLOYEE BENEFIT PLANS.
(a) DISCLOSURE. Schedule 2.18(a) of the Disclosure Schedule lists
all employee benefit plans or arrangements sponsored by IRG or CNR, or under
which or to which IRG or CNR currently contributes (the "PLANS"). IRG has
provided or made available to APS copies of (i) the Plans, and all amendments
thereto, including applicable trust documents or other funding arrangements,
(ii) all reports filed within the last three years with respect to the Plans
with the United States Department of Labor, the Internal Revenue Service, the
Pension Benefit Guaranty Corporation and any other federal or state regulatory
agency, (iii) all current summary plan descriptions, notices and other reporting
and disclosure material furnished to participants in any of the Plans, (iv) all
actuarial, accounting and/or financial reports prepared with respect to any of
the Plans within the last three years, and (v) all currently effective Internal
Revenue Service rulings or determination letters with respect to the Plans.
Whenever applicable, the Plans have been, and up to the Closing Date shall
continue to be, maintained in material compliance with the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of
1986, as amended (the "CODE") and all other applicable federal and
10
state laws and regulations. None of the Plans, nor any trust established
thereunder, shall be amended or terminated prior to the Closing Date, except as
may be required as a condition to the issuance of a favorable determination
letter by the Internal Revenue Service, or as otherwise may be required to
comply with the requirements of applicable laws.
(b) NO PENALTIES. Neither IRG, CNR, the Plans, nor any trustee or
administrator of any of the Plans has engaged in a transaction in connection
with which IRG could be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code. No
"reportable event," as that term is defined in ERISA, will occur with respect to
any of the Plans as a result of the transactions contemplated herein.
(c) PENSION PLANS. The employee pension benefit plans as such term
is defined in ERISA, if any, listed in the Disclosure Schedule which are
intended to be qualified under Section 401(a) of the Code (collectively the
"PENSION PLANS") at all times have qualified as tax-exempt plans under Section
401(a) of the Code, as amended, and the trusts which are a part of such Pension
Plans at all times have qualified as tax-exempt trusts under Section 501(a) of
the Code. All such Pension Plans and trusts shall continue to so qualify up to
the Closing Date.
(d) FULL PAYMENT. All contributions required of IRG and CNR under
the Plans (other than contributions not yet due) have been made in full.
(e) MULTI-EMPLOYER PLANS. Neither IRG nor CNR has ever participated
in or contributed to a "multi-employer" plan within the meaning of Title IV of
ERISA.
(f) LITIGATION. There are no actions, suits or claims (other than
routine claims for benefits) pending, or to the knowledge of CC Holdings or IRG,
threatened against any of the Plans.
2.19. TRADE RIGHTS. Schedule 2.19 of the Disclosure Schedule lists all
patents, patent rights, patent applications, trademarks, trademark applications,
service marks, service xxxx applications, trade names and copyrights
(collectively "TRADE RIGHTS"), and all applications for such which are in the
process of being prepared, which are owned by, or are registered in the name of
IRG or CNR, or of which IRG or CNR is a licensor or licensee, or in which IRG or
CNR has any right. Except as set forth in Schedule 2.19 of the Disclosure
Schedule or where failure to do so would not have a material adverse effect, (a)
IRG or CNR, as the case may be, owns or possesses adequate licenses or other
rights to use all of the Trade Rights necessary to the conduct of its business
as conducted, (b) no claim is pending, or to the knowledge of CC Holdings and
IRG threatened, to the effect that the operations of IRG or CNR infringe upon or
conflict with the asserted rights of any other person under any Trade Rights,
and, to the knowledge of CC Holdings and IRG, there is no basis for any such
claim (whether or not pending or threatened), (c) no claim is pending, or to the
knowledge of CC Holdings and IRG threatened, to the effect that any Trade Rights
owned or licensed by IRG or CNR or which IRG or CNR otherwise has the right to
use, is invalid or unenforceable by IRG, and there is no known basis for any
such claim (whether or not pending or threatened), (d) all technical information
developed by and belonging to IRG and CNR has been patented or has been kept
confidential by IRG or has otherwise been established as a trade secret, (e)
neither IRG nor CNR has granted or assigned to any other person or entity any
right to sell or produce the products or proposed
11
products or provide the services or proposed services of IRG or CNR, as the case
may be, and (f) no officer, director or employee of CNR, IRG or CC Holdings has
an ownership interest in any of the Trade Rights.
2.20. PROPRIETARY INFORMATION OF THIRD PARTIES. To the knowledge of CC
Holdings and IRG, no third party has claimed or has any reason to claim that any
person employed by or affiliated with IRG has: (a) violated or may be violating
any of the material terms or conditions of his or her employment,
non-competition, or non-disclosure agreement with such third party or (b)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party in violation of
law or in breach of any agreement. To the knowledge of CC Holdings and IRG, no
third party has requested information from IRG or CNR that suggests that such a
claim might be contemplated. To the knowledge of CC Holdings and IRG, no person
employed by or affiliated with IRG or CNR has employed or proposes to employ any
trade secret or any information or documentation proprietary to any former
employer in violation of such former employer's legal or contractual rights, and
no person employed by or affiliated with IRG or CNR has violated any
confidential relationship which such person may have had with any third party in
connection with the development or sale of any product or proposed product or
the development or sale of any service or proposed service of IRG or CNR, and CC
Holdings and IRG have no reason to believe there will be any such violation. To
the knowledge of CC Holdings and IRG, none of the execution, delivery or
performance of this Agreement, or the carrying on of the business of IRG or CNR
as officers, employees, or agents by any officer, director, or key employee or
affiliated person of IRG or CNR or the conduct of the businesses of IRG or CNR,
will result in a material breach of the terms, conditions, or provisions of, or
constitute a default under any material contract, covenant, or instrument under
which any such person is obligated.
2.21. NO BROKER OR FINDER. None of CC Holdings, IRG or CNR, nor any of
their respective directors, officers, employees or members have retained any
broker or finder in connection with the transactions provided for herein or the
negotiation thereof.
2.22. DISCLOSURE. No representation or warranty by CC Holdings in this
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of CC Holdings pursuant to this Agreement,
nor any document or certificate delivered to APS pursuant to this Agreement or
in connection with transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a material fact
necessary to make the statement contained therein not misleading. All statements
and information contained in any certificate, instrument or document delivered
by or on behalf of CC Holdings pursuant to this Agreement and the transactions
contemplated hereby shall be deemed representations and warranties by CC
Holdings hereunder.
3. REPRESENTATIONS AND WARRANTIES OF APS
APS makes the following representations and warranties to CC Holdings,
each of which is true and correct on the date hereof and shall remain true and
correct to and including the Closing Date, except as disclosed in the Disclosure
Schedule delivered to CC Holdings at the time of the execution of this
Agreement.
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3.1. CORPORATE.
(a) ORGANIZATION. APS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Iowa.
(b) CORPORATE POWER. APS has all requisite corporate power to enter
into this Agreement and the Ancillary Instruments and to carry out the
transactions contemplated hereunder and thereunder.
3.2. AUTHORITY. Subject to obtaining the requisite authorization of the
Board of Directors of APS, no other corporate act or proceeding on the part of
APS or its stockholders is necessary to authorize this Agreement or the
Ancillary Instruments or the consummation of the transactions contemplated
hereunder and thereunder. Following the requisite authorization of the Board of
Directors of APS, this Agreement will constitute, and when executed and
delivered each Ancillary Instrument will be, the legal, valid and binding
obligation of APS, enforceable in accordance with its terms, except as such may
be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
3.3. NO VIOLATION. Except as set forth on Schedule 3.3 of the Disclosure
Schedule, neither the execution and delivery of this Agreement or the Ancillary
Instruments, nor the consummation by APS of the transactions contemplated
hereunder and thereunder (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any third party, including, without limitation, any
governmental entity or (c) subject to obtaining the consents referred to in
Schedule 3.3 of the Disclosure Schedule, will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the assets of APS under,
any term or provision of the articles of incorporation or bylaws of APS, or of
any material contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which APS is a party or by which APS or
any of its assets or properties may be bound or affected.
3.4. NO LITIGATION. Except as set forth in Schedule 3.4 of the Disclosure
Schedule, there is no action, suit, arbitration proceeding, investigation or
inquiry pending or, to APS' knowledge, threatened against APS or any of its
affiliates, or the assets, officers or directors of any of them, relating to, or
arising out of or in connection with, this Agreement, the Ancillary Instruments,
or the transactions contemplated hereunder or thereunder, or seeking to
restrain, prevent or change such transactions, questioning the validity or
legality of any such transactions, or seeking damages in connection with any
such transactions.
3.5. FINANCING. APS has a comittment for any and all loans necessary for
it to perform its obligations under, and consummate the transactions
contemplated in, this Agreement, including, without limitation, delivery of the
Cash and the Note required under Section 8.2(a) of this Agreement.
13
3.6. NO BROKER OR FINDER. Except for Angler West Consultants, Inc., the
commissions, fees, costs and other expenses of which or associated therewith
shall be the responsibility of and shall be paid by APS, neither APS nor any of
its affiliates, nor any of their respective directors, officers, employees,
shareholders, members or managers have retained any broker or finder in
connection with the transactions provided for herein or the negotiation thereof.
3.7. DISCLOSURE. No representation or warranty by APS in this Agreement,
nor any statement, certificate, schedule or exhibit hereto furnished or to be
furnished by or on behalf of the APS pursuant to this Agreement, nor any
document or certificate delivered to CC Holdings pursuant to this Agreement or
in connection with transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading. All
statements and information contained in any certificate, instrument or document
delivered by or on behalf of APS pursuant to this Agreement and the transactions
contemplated hereby shall be deemed representations and warranties by APS
hereunder.
4. COVENANTS OF CC HOLDINGS, IRG AND COBALT
4.1. IRG ACTION. CC Holdings and IRG covenant and agree to cause the
following:
(a) ACCESS TO INFORMATION AND RECORDS. From the date hereof until
the Closing, IRG shall give APS, its counsel, accountants and other
representatives access during normal business hours to all of IRG's and CNR's
properties, books, records, contracts and documents, and IRG shall furnish or
cause to be furnished to APS and its representatives all information with
respect to the business and affairs of IRG and CNR as APS may reasonably
request. During the period prior to the Closing, IRG and CNR shall give APS, its
counsel, accountants and other representatives reasonable access to employees,
agents and representatives for the purposes of such meetings and communications
as APS reasonably desires.
(b) CONDUCT OF BUSINESS PENDING THE CLOSING. From the date hereof
until the Closing, except as otherwise expressly required under this Agreement
or approved in writing by APS:
(i) NO CHANGES. IRG and CNR will carry on their respective
businesses diligently and in the same manner as heretofore and will not make or
institute any material changes in their methods of purchase, sale, management,
accounting or operation.
(ii) MAINTAIN ORGANIZATION. IRG and CNR will take such actions
as may be necessary to maintain, preserve, renew and keep in favor and effect
the existence and rights of IRG and CNR and will use their best efforts to
preserve the business organization of IRG and CNR intact, to keep available to
APS the present officers and employees, and to preserve for APS their present
relationships with suppliers and customers and others having business
relationships with IRG or CNR.
(iii) NO BREACH. Neither IRG nor CNR will commit any act which
constitutes a breach of any Material Contract, or of any representation,
warranty, covenant or agreement made by CC Holdings or IRG herein.
14
(iv) NO INCREASES IN COMPENSATION. Neither IRG nor CNR will
grant any material increase in the salary or rates of pay of any director,
officer, employee or agent, or by any means otherwise increase by any amount the
benefits or compensation of any director, officer, employee or agent of either
of them, other than in the ordinary course of business or pursuant to
pre-existing plans.
(v) NO MATERIAL CONTRACTS. No contract or commitment will be
entered into, and no purchase or sale of assets (real, personal, or mixed,
tangible or intangible) will be made, by or on behalf of IRG or CNR, except
purchases or sales in the ordinary course of business and consistent with past
practice which are not material to IRG or CNR and contracts which do not
constitute Material Contracts.
(vi) NO TERMINATION. Neither IRG nor CNR will terminate or
modify any Material Contract to which it is a party.
(vii) CAPITAL EXPENDITURES. Except for salary and other
compensation expenditures, neither IRG nor CNR will make any capital
expenditures or commitments in excess of One Hundred Fifty Thousand Dollars
($150,000.00) in the aggregate for additions to property or equipment or agree
to make any expenditure or commitment; provided, however, that IRG and CNR will
continue any existing expenditure or commitment programs in a manner consistent
with the performance of such programs to date.
(viii) NO REDEMPTIONS, PURCHASES OR ACQUISITIONS. IRG shall
not directly or indirectly redeem, purchase or otherwise acquire the Member
Interest, or any portion thereof, and shall not issue any interest in IRG.
(ix) NO CORPORATE CHANGES. IRG shall not amend its articles of
organization or the Operating Agreement. CNR will not amend its articles of
incorporation or bylaws.
(x) INDEBTEDNESS. Neither IRG nor CNR shall create any
indebtedness, other than short term indebtedness incurred in the usual and
ordinary course of business consistent with past practices pursuant to existing
contracts disclosed in the Disclosure Schedule.
(xi) MAINTENANCE OF INSURANCE. IRG and CNR shall maintain all
of the insurance in effect with respect to their respective business operations
as of the date hereof, and shall procure additional insurance, in the usual and
ordinary course of business.
(xii) MONTHLY FINANCIAL STATEMENTS. Within twenty-five (25)
days after the end of each calendar month, IRG shall provide APS with true and
complete copies of the unaudited financial statements of IRG consisting of a
balance sheet as of the end of such month and the related unaudited statements
of income and changes in financial position for such month. Except as and to the
extent indicated in the notes thereto, all of such financial statements shall be
true, complete and accurate, prepared in accordance with the books and records
of IRG and generally accepted accounting principles applied on a consistent
basis, and shall fairly present, in accordance with generally accepted
accounting principles, the financial position and the results of operations of
IRG as of the dates and for the periods indicated.
15
(xiii) MAINTENANCE OF PROPERTY. IRG and CNR shall use,
operate, maintain and repair all of their property in a normal business manner.
(xiv) LOANS AND ADVANCES. Neither IRG nor CNR will make any
loan or advance (other than advances to employees in the ordinary course of
business for travel and entertainment in accordance with past practices) to any
person, including, without limitation, any officer, director or employee of IRG
or CNR.
(xv) NO NEGOTIATIONS. None of Cobalt, CC Holdings, IRG or CNR
will directly or indirectly (through a representative or otherwise) solicit or
furnish any information to any prospective buyer, commence, or conduct presently
ongoing, negotiations with any other party or enter into any agreement with any
other party concerning the sale of IRG, CNR, or IRG's or CNR's assets or
business or any part thereof.
(c) CONSENTS. IRG will use its best efforts prior to Closing to
obtain all approvals, consents and waivers from the parties set forth on EXHIBIT
B to this Agreement that are necessary for the consummation of the transactions
contemplated hereby. From the date hereof until the Closing Date, IRG shall
permit APS to contact the key customers set forth on EXHIBIT C to this
Agreement. APS hereby acknowledges and agrees that such contact shall be made
jointly with IRG and shall be subject to that certain Confidentiality and
Non-Disclosure Agreement, effective September 11, 2001, by and between IRG and
APS Healthcare, Inc (an affiliate of APS), as if APS were a party thereto.
(d) EMPLOYEE AGREEMENTS. From the date hereof until the Closing, IRG
shall use its best efforts to ensure that each of the IRG employees identified
by APS, and approved by CC Holdings (whose approval shall not be unreasonably
withheld), in writing after the execution of this Agreement but reasonably prior
to the Closing shall execute and deliver to APS a non-compete and non-disclosure
agreement (collectively the "NON-COMPETE AND NON-DISCLOSURE AGREEMENTS")
substantially in the form attached as EXHIBIT D to this Agreement.
(e) ASSIGNMENT AND ASSUMPTION OF LEASES. Prior to the Closing, IRG
shall assign to CC Holdings or an affiliate thereof (and CC Holdings or an
affiliate thereof shall assume from IRG) the three office space leases located
at the addresses listed on EXHIBIT E to this Agreement, in a form and manner
reasonably satisfactory to CC Holdings and APS (such assignments referred to
herein as the "LEASE ASSIGNMENTS").
(f) PROVIDER RESERVE. Prior to the Closing, IRG shall determine the
aggregate amount owed by IRG to providers as of the Closing Date, including,
without limitation, amounts customarily stated on IRG's balance sheets under the
liability heading "Due to Providers" (the "PROVIDER RESERVE"), which shall be
reflected on the Estimated Closing Date Balance Sheet, as provided in Section
4.13(a). The Provider Reserve shall be determined using the methodology employed
by Ernst and Young, LLP ("E&Y") in E&Y's most recent review of IRG's reserving
practices, applied to claims and other relevant data from the period beginning
on September 1, 2001 and ending on February 28, 2002, and shall equal the low
end of the range of results produced by application of such methodology to such
data, multiplied by one and five-hundredths percent (1.05%).
16
4.2. SERVICE AGREEMENTS
(a) EXECUTION AND FORM. At the Closing, IRG shall enter into the
service agreements and the IRG service agreement amendments listed on EXHIBIT F
to this Agreement, each in a form and manner (i) substantially similar to the
form attached to EXHIBIT F (modified as necessary for the services provided
under each such service agreement and the line of business for which such
services are being performed), unless indicated otherwise on EXHIBIT F, and (ii)
reasonably satisfactory to APS, Cobalt and the Cobalt affiliate indicated on
EXHIBIT F as a party thereto (the "SERVICE AGREEMENTS").
(b) REVENUE GUARANTEE. For the first five (5) calendar years of the
initial seven (7) year term of the Service Agreements (the "FIVE YEAR PERIOD"),
Cobalt, on behalf of each of the Cobalt affiliates indicated as parties to the
Service Agreements on EXHIBIT F, hereby guarantees that IRG shall receive the
Aggregate Revenue Floor (as defined below) under the Service Agreements as
provided in this Section 4.2(b). For each calendar year during the Five Year
Period, Cobalt shall pay to IRG the amount, if any, by which the Aggregate
Revenue Floor for such year exceeds the actual aggregate revenue earned by IRG
under all Service Agreements still in effect as of the end of such year
(including revenue received by, and revenue payable to, IRG for services
rendered during such year) (such amount referred to herein as the "GUARANTEED
REVENUE"). The "AGGREGATE REVENUE FLOOR" for each such year shall equal the
revenue projected to be earned by IRG under the Service Agreements during 2002
(excluding revenues earned from the RxCel line of business), as reflected in
IRG's annual operating plan for 2002 attached as EXHIBIT G to this Agreement
(the "2002 AOP"), multiplied by the following percentage for such year:
YEAR PERCENTAGE
2002 90%
2003 85%
2004 80%
2005 75%
2006 70%
For purposes of determining the Guaranteed Revenue, if any, that
Cobalt shall pay to IRG for 2002, any revenue earned by IRG for services
provided on or after January 1, 2002 through the Closing Date shall be included
in the aggregate revenue earned by IRG under the Service Agreements for 2002.
For purposes of determining the Guaranteed Revenue, if any, that Cobalt shall
pay to IRG for any year during the Five Year Period, (i) any revenue earned
under any Service Agreement terminated (pursuant to the terms therein) prior to
the end of such year shall be excluded from the aggregate revenue earned by IRG
under the Service Agreements for such year and (ii) any revenue projected to be
earned by IRG under any Service Agreement so terminated shall be excluded from
the projected revenue under the 2002 AOP used to calculate the Aggregate Revenue
Floor for such year. The Guaranteed Revenue, if any, owed by Cobalt to IRG for
each calendar year during the Five Year Period shall be determined (as provided
in this Section 4.2(b)) and mutually agreed upon in good faith by Cobalt and IRG
within sixty (60) days after the end of such calendar year (the "DETERMINATION
PERIOD"). Cobalt shall pay IRG the Guaranteed Revenue, if any, owed by Cobalt to
IRG for any calendar year during the Five Year Period within thirty (30) days
following the end of the Determination Period with respect to such
17
year. Any payments of such Guaranteed Revenue shall, if not paid when due,
accrue interest on the unpaid principal amount at the rate applicable under the
Note upon an Event of Default (as defined therein) (the "DEFAULT RATE"). Such
rate of interest shall begin accruing on the thirty-first (31st) day after the
expiration of the Determination Period and shall be calculated on the basis of a
three hundred sixty-five (365) day year and the number of days elapsed in any
period.
(c) IRG REVENUE EXCESS. For each calendar year during the Five Year
Period (as defined in Section 4.2(b)), IRG shall pay to CC Holdings an amount
(referred to herein as the "EXCESS SERVICE FEE") equal to the sum of:
(i) One and one-half percent (1.5%) of the product of (1) the
Revenue Spread (as defined below) for such year, multiplied by (2) a fraction,
the numerator of which shall be that portion of the Actual Revenue (as defined
below) for such year which is attributable to services provided by IRG pursuant
to any Service Agreement still in effect as of the end of such year under which
IRG was compensated on a capitated basis and was at risk for payments to
providers of clinical services, and the denominator of which shall be the Actual
Revenue for such year (the "CAPITATED FRACTION"); plus
(ii) Five percent (5%) of the product of (1) the Revenue
Spread for such year, multiplied by (2) a fraction equal to the difference
between One (1) and the Capitated Fraction.
The "REVENUE SPREAD" for such year shall be the amount, if any by which the
actual aggregate revenue earned by IRG under all Service Agreements still in
effect as of the end of such year (such actual aggregate revenue for such year
referred to herein as the "ACTUAL REVENUE") exceeds the Aggregate Revenue
Ceiling (as defined below) for such year. The "AGGREGATE REVENUE CEILING" for
such year shall equal the revenue projected to be earned by IRG under the
Service Agreements during 2002 (excluding revenues earned from the RxCel line of
business), as reflected in the 2002 AOP, multiplied by the following percentage
for such year:
YEAR PERCENTAGE
2002 110%
2003 115%
2004 120%
2005 125%
2006 130%
For purposes of determining the Excess Service Fee, if any, that IRG shall pay
to CC Holdings for 2002, any revenue earned by IRG for services provided on or
after January 1, 2002 through the Closing Date shall be included in the
aggregate revenue earned by IRG under the Service Agreements. For purposes of
determining the Excess Service Fee, if any, that IRG shall pay to CC Holdings
for any year during the Five Year Period, (i) any revenue earned under any
Service Agreement terminated (pursuant to the terms therein) prior to the end of
such year shall be excluded from the aggregate revenue earned by IRG under the
Service Agreements for such year and (ii) any revenue projected to be earned by
IRG under any Service Agreement so terminated shall be excluded from the
projected revenue under the 2002 AOP used to calculate the Aggregate Revenue
Floor for such year. The Excess Service Fee, if any, owed by IRG to CC
18
Holdings for each calendar year during the Five Year Period shall be determined
(as provided in this Section 4.2(c)) and mutually agreed upon in good faith by
CC Holdings and IRG by the expiration of the Determination Period (as defined in
Section 4.2(b)) with respect to such year. IRG shall pay CC Holdings the Excess
Service Fee, if any, owed by IRG to CC Holdings for any calendar year during the
Five Year Period within thirty (30) days following the end of the Determination
Period with respect to such year. Any payments of such Excess Service Fee shall,
if not paid when due, accrue interest on the unpaid principal amount at the
Default Rate (as defined in Section 4.2(b)). Such rate of interest shall begin
accruing on the thirty-first (31st) day after the expiration of the
Determination Period and shall be calculated on the basis of a three hundred
sixty-five (365) day year and the number of days elapsed in any period.
4.3. ASSIGNMENT AND ASSUMPTION OF 000 X. XXXXXXXXX XXXXX LEASE. Effective
as of the Closing, CC Holdings or an affiliate thereof shall assign to APS the
lease for the office building located at 000 X. Xxxxxxxxx Xxxxx, Xxxxxxxxxx,
Xxxxxxxxx in a form and manner reasonably satisfactory to CC Holdings and APS
(such assignment referred to herein as the "EXECUTIVE DRIVE LEASE ASSIGNMENT");
provided, however, that CC Holdings or an affiliate thereof shall pay APS
Twenty-Nine Thousand Five Hundred Dollars ($29,500.00) by the close of the fifth
working day occurring in April, May, June and July 2002 (for a total of
$118,000.00) as rent abatement with respect to such lease.
4.4. SUBLEASE AGREEMENT. Effective as of the Closing, Cobalt shall enter
into a sublease agreement with APS substantially in the form attached as EXHIBIT
H to this Agreement (such sublease agreement referred to herein as the "SUBLEASE
AGREEMENT").
4.5. FURNITURE. Effective as of the Closing, CC Holdings shall contribute
to IRG (and IRG shall receive from CC Holdings) all of the furniture listed on
EXHIBIT I to this Agreement (such contribution referred to herein as the
"EXECUTIVE DRIVE FURNITURE CONTRIBUTION"). Effective as of the Closing, IRG
shall distribute to CC Holdings (and CC Holdings shall receive from IRG) all of
the furniture listed on EXHIBIT J to this Agreement (such distribution referred
to herein as the "IRG FURNITURE DISTRIBUTION"). The parties hereto hereby
acknowledge and agree that any of the furniture listed on EXHIBIT J to this
Agreement which is presently located on any portion of the Premises (as defined
in the Sublease Agreement) and used by IRG in its business operations shall
remain at its location, and IRG shall be entitled to the continued reasonable
use of such furniture after the Closing until the termination of the Sublease
Agreement.
4.6. TELEPHONES, ROUTERS AND SWITCHES. Effective as of the Closing, Cobalt or an
affiliate shall, at its option, (a) assign each of the leases listed on EXHIBIT
K to this Agreement, (b) sublet the equipment leased under all such leases for
the remainder of the term thereof or (c) transfer such equipment by xxxx of sale
to IRG (and IRG shall assume such leases or sublet or receive such equipment, as
the case may be) at no cost to IRG (such assignment, sublease or xxxx of sale
referred to herein as the "TELEPHONE EQUIPMENT TRANSFER"). In the event that
Cobalt or an affiliate exercises either option "a" or "b" above and breaches, or
has breached, any of its obligations under any of the leases listed on EXHIBIT
K, IRG shall be entitled to cure any such breach, and Cobalt or its affiliate
shall reimburse IRG for all reasonable costs and expenses incurred by IRG in
curing such breach. Cobalt or its affiliate shall, if necessary at the
expiration of each of such leases, transfer the equipment leased thereunder by
xxxx of sale to IRG at no cost to IRG.
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4.7. DISCLOSURE SCHEDULE. From the date hereof until the Closing, CC
Holdings shall have a continuing obligation to promptly notify APS in writing
with respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule.
4.8. INSURANCE. After the Closing and until the natural expiration of each
policy of insurance providing coverage to IRG and CNR, Cobalt shall notify APS
if Cobalt terminates any such policy.
4.9. COOPERATION ON TAX MATTERS. After the Closing, CC Holdings shall, at
its own expense, cooperate fully with APS, as and to the extent reasonably
requested by APS, in connection with the filing of any tax returns with any tax
authority and any audit, appeal, hearing, litigation or other proceeding with
respect to taxes which relate in any way to IRG or CNR. Such cooperation shall
include the retention and (upon APS' request) provision of records and
information which are reasonably relevant to any such audit, appeal, hearing,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any such
records or information. CC Holdings agrees to (i) retain all books and records
with respect to tax matters pertinent to IRG and CNR relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by APS, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (ii) give APS reasonable written
notice prior to destroying or discarding any such books and records and, if APS
so requests, allow APS to take possession of such books and records.
4.10. RESPONSIBILITY FOR TAX AUDIT LIABILITIES. After the Closing, IRG
shall remain liable for any underpayment of taxes or other deficiency which is
disclosed on item number two (2) on Schedule 2.6(c) of the Disclosure Schedule,
regardless of the adequacy of any reserve or accrual with respect thereto
reflected on the Estimated Closing Date Balance Sheet (as defined in Section
4.13(a)) or the balance sheet dated December 31, 2001 included in the Disclosure
Schedule.
4.11. MEDICAL DATA LICENSE. To the extent and in the same manner as used
by IRG as of the Closing Date, Cobalt and its affiliates hereby grant IRG a
non-exclusive, non-transferable license to use the Medical Criteria Set and the
Medical Informatics (data), described in item numbers three (3) and four (4) on
Schedule 2.15(b) of the Disclosure Schedule, in IRG's business operations (the
"MEDICAL DATA LICENSE"). The grant of the Medical Data License by Cobalt and its
affiliates to IRG under this Section 4.11 is made at no cost to IRG, shall
require no payments, including royalty payments, by IRG for the continued use of
the Medical Data License, and shall be irrevocable as of the Closing. It is
hereby understood and agreed that neither Cobalt nor any of its affiliates shall
have any duty to update or otherwise support any of the data and information, or
any associated documentation, made available to IRG under the Medical Data
License. Cobalt and its affiliates shall be indemnified with respect to the
Medical Data License and IRG's use thereof as provided in Section 9 of this
Agreement.
4.12. EMPLOYEE MATTERS.
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(a) TERMINATION LIABILITY. Prior to the Closing, IRG shall
terminate, simultaneous with the Closing, each employee listed on EXHIBIT L to
this Agreement (collectively, the "SEVERED EMPLOYEES") and shall pay each of the
Severed Employees severance compensation, the amount of which shall be
determined by IRG prior to the Closing in accordance with past practices (in the
aggregate, the "SEVERANCE COMPENSATION") (for which APS shall be responsible, as
provided in Section 5.3). Prior to the Closing, IRG shall provide the Severed
Employees with any termination notices required under any federal, state or
local plant closing law. IRG shall be responsible for any liability arising out
of or in connection with the termination of IRG employees after the Closing,
including, without limitation, the payment of severance compensation (which
shall be made in accordance with IRG's past practices) and the provision of
termination notices and benefits under any federal, state or local plant closing
law.
(b) SERVICE CREDITS. IRG shall be responsible for crediting each IRG
employee for his or her time of service with IRG prior to the Closing under any
employee benefit plan or arrangement sponsored by IRG or APS, or under which or
to which IRG or APS contributes, after the Closing.
(c) RETIREE HEALTH CARE BENEFITS. IRG shall be responsible for the
payment of premiums for health care insurance on behalf, and for the benefit, of
former IRG employees which become due after the Closing, the liability for which
is reflected on the balance sheet dated December 31, 2001 included in the
Disclosure Schedule.
(d) KIEHL XXXXXXXXX. IRG shall be responsible for the payment of
Forty-Two Thousand Dollars ($42,000.00) in severance compensation due to Xxxxxx
Xxxxx on or before March 31, 2002, which shall be made from IRG's pre-Closing
earnings. CC Holdings or an affiliate thereof shall be responsible for payment
of Forty-Two Thousand Dollars ($42,000.00) in severance compensation due to
Xxxxxx Xxxxx on or prior to June 30, 2002.
(e) RXCEL EMPLOYEES AND OTHER RESOURCES. After the Closing, each
service agreement between IRG and Compcare and/or Cobalt or any other affiliate
of Cobalt with respect to the RxCel line of business, and each service agreement
assigned to and assumed by IRG with respect to such business, including, without
limitation, that certain Service Agreement, effective January 1, 2001, by and
between IRG and Compcare for staff time and certain specified resources, shall
remain in force; provided, however, that notwithstanding anything to the
contrary contained in any such agreement, (i) Compcare or such other affiliate
of Cobalt that is a party thereto, shall be permitted to terminate any such
agreement on sixty (60) days prior written notice and (ii) IRG shall not
terminate any such agreement until January 1, 2003 and not without providing to
Compcare sixty (60) days prior written notice thereof. APS and IRG shall be
indemnified with respect to IRG's involvement in the RxCel line of business as
provided in Section 9 of this Agreement.
4.13. CLOSING DATE BALANCE SHEET .
(a) ESTIMATED CLOSING DATE BALANCE SHEET. Prior to Closing, IRG
shall prepare an unaudited balance sheet of IRG as of the Closing Date (the
"ESTIMATED CLOSING DATE BALANCE SHEET") that includes the Provider Reserve and
reflects a current ratio (i.e. a ratio of
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current assets to current liabilities), calculated in the manner set forth on
EXHIBIT M, that equals or exceeds One and One-Tenth (1.1) (the "PERMITTED
CURRENT RATIO").
(b) FINAL CLOSING DATE BALANCE SHEET. Within forty-five (45) days after
the Closing, IRG and CC Holdings shall use their best efforts to prepare and
agree upon an unaudited balance sheet of IRG as of the Closing Date, which (i)
shall be prepared based on principles and in a manner followed in preparing
previous IRG balance sheets and (ii) takes into account financial data relating
to IRG's business operations prior to Closing, which is gathered after Closing
and which may necessitate changes to estimates reflected on the Estimated
Closing Date Balance Sheet, including, without limitation, data necessitating
changes to the Provider Reserve (the "FINAL CLOSING DATE BALANCE SHEET").
(c) RESOLUTION OF FINAL CLOSING DATE BALANCE SHEET. If IRG and CC Holdings
are unable to agree on the Final Closing Date Balance Sheet within forty-five
(45) days after the Closing, they shall attempt in good faith to resolve their
differences within an additional fifteen (15) days. If IRG and CC Holdings are
still unable to agree on the Final Closing Date Balance Sheet after the
expiration of such fifteen (15) day period, then E&Y, or such other reputable
accounting firm as may be agreed by IRG and CC Holdings, shall prepare the Final
Closing Date Balance Sheet. The Final Closing Date Balance Sheet so prepared
shall be conclusive and binding on IRG and CC Holdings.
(d) CURRENT RATIO RECONCILIATION. In the event that the current ratio
(calculated in the manner set forth on EXHIBIT M) reflected on the Final Closing
Date Balance Sheet (the "FINAL CURRENT RATIO") exceeds the Permitted Current
Ratio, IRG shall immediately transfer to CC Holdings cash in the form of a
certified or bank cashier's check payable to CC Holdings or, at CC Holdings'
option, by wire transfer of immediately available funds to an account designated
by CC Holdings, such that the Final Current Ratio (calculated after the Final
Closing Date Balance Sheet is adjusted to reflect the receipt of such cash)
equals the Permitted Ratio. In the event that the Final Current Ratio is less
than the Permitted Ratio, CC Holdings shall immediately transfer to IRG cash in
the form of a certified or bank cashier's check payable to IRG or, at IRG's
option, by wire transfer of immediately available funds to an account designated
by IRG, such that the Final Current Ratio (calculated after the Final Closing
Date Balance Sheet is adjusted to reflect the receipt of such cash) equals the
Permitted Ratio.
5. COVENANTS OF APS
5.1. ASSIGNMENT AND ASSUMPTION OF 000 X. XXXXXXXXX XXXXX LEASE. Effective
as of the Closing, APS shall assume from CC Holdings or an affiliate thereof the
lease for the office building located at 000 X. Xxxxxxxxx Xxxxx, Xxxxxxxxxx,
Xxxxxxxxx by entering into the Executive Drive Lease Assignment.
5.2. SUBLEASE AGREEMENT. Effective as of the Closing, APS shall enter into
the Sublease Agreement with Cobalt.
5.3. SEVERANCE. Prior to the Closing, APS shall reimburse IRG for the
Severance Compensation paid by IRG to the Severed Employees. In addition to the
Severance
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Compensation, APS shall be responsible for all other liabilities arising out of
or in connection with the termination of the Severed Employees.
5.4. FINANCING AMENDMENTS. Prior to the Closing, the CapitalSource Credit
Agreement and the CanPartners Note Purchase Agreement (each as defined in the
Note) and any other documents and instruments relating to the financing
arrangements of APS and its affiliates shall be amended in a form and manner
reasonably satisfactory to CC Holdings and APS to give full force and effect to
the Note such that the execution, delivery and performance of the Note by APS
does not result in a default or breach under any such financing arrangement,
including, without limitation, to permit payments by APS under the Note in the
event that APS is not in breach of its other obligations to the Senior Lenders
(as defined in the Note) and as otherwise permitted under the Note (the
"FINANCING AMENDMENTS").
5.5. COOPERATION ON TAX MATTERS. After the Closing, APS shall, at its own
expense, cooperate, and cause IRG to cooperate, fully with CC Holdings, as and
to the extent reasonably requested by CC Holdings, in connection with the filing
of any tax returns with any tax authority and any audit, appeal, hearing,
litigation or other proceeding with respect to taxes which relate in any way to
IRG or CNR. Such cooperation shall include the retention and (upon CC Holdings'
request) provision of records and information which are reasonably relevant to
any such audit, appeal, hearing, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any such records or information. APS agrees to do
the following and to cause IRG and CNR to do the following: (i) retain all books
and records with respect to tax matters pertinent to IRG and CNR relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by CC Holdings, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii)
give reasonable written notice prior to destroying or discarding any such books
and records and, if CC Holdings so requests, allow CC Holdings to take
possession of such books and records.
6. CONDITIONS PRECEDENT TO APS' OBLIGATIONS
Each and every obligation of APS to be performed on the Closing Date shall
be subject to the satisfaction, prior to or at the Closing, of each of the
following conditions:
6.1. REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties made by CC Holdings and IRG in this Agreement,
and the statements contained in the Disclosure Schedule or in any instrument,
list, certificate or writing delivered by CC Holdings or IRG pursuant to this
Agreement, shall be true and correct when made and shall be true and correct at
and as of the Closing Date as though such representations, warranties and
statements were made or given on and as of the Closing Date, except for any
changes permitted by the terms of this Agreement or consented to in writing by
APS.
6.2. COMPLIANCE WITH AGREEMENT. CC Holdings and IRG shall have performed
and complied with all of their respective agreements and obligations under this
Agreement which are to be performed or complied with prior to or on the Closing
Date, including the delivery of the Closing documents specified in Section 8.1.
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6.3. ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against APS, CC Holdings, IRG or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with any such transactions.
6.4. CONSENTS AND APPROVALS. All approvals, consents and waivers required
from the parties set forth on EXHIBIT B to this Agreement that are necessary for
the consummation of the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to APS. A
response from each of the parties set forth on EXHIBIT C to this Agreement
reasonably indicating that such party will continue its business relationship
with IRG after the Closing shall have been received by APS.
6.5. BOARD OF DIRECTORS APPROVAL. The Board of Directors of APS shall have
approved the execution and delivery of this Agreement and the other documents
and instruments to be executed and delivered to APS pursuant hereto, and the
consummation of the transactions contemplated hereby and thereby.
7. CONDITIONS PRECEDENT TO CC HOLDINGS' OBLIGATIONS
Each and every obligation of CC Holdings to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing of the
following conditions:
7.1. REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties made by APS in this Agreement shall be true and
correct when made and shall be true and correct at and as of the Closing Date as
though such representations and warranties were made or given on and as of the
Closing Date.
7.2. COMPLIANCE WITH AGREEMENT. APS shall have performed and complied with
all of its agreements and obligations under this Agreement which are to be
performed or complied with by APS prior to or on the Closing Date, including the
delivery of the Closing documents specified in Section 8.2.
7.3. ABSENCE OF SUIT. No action suit or proceeding before any court or any
governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against APS, CC Holdings, IRG or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with any such transactions.
8. CLOSING
The Closing of this transaction (the "CLOSING") shall take place at the
offices of Xxxxx & Xxxxxxx, 000 Xxxx Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxx, at
9:00 A.M., CST, on March 29, 2002, or at such other time and place as the
parties hereto shall agree upon. Such date is referred to in this Agreement as
the "CLOSING DATE".
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8.1. DOCUMENTS TO BE DELIVERED BY CC HOLDINGS. At the Closing, CC Holdings
shall deliver to APS the following documents:
(a) MEMBER INTEREST. The assignment(s) or certificate(s) for the
Member Interest in the form and manner required under Section 1.1 hereof.
(b) COMPLIANCE CERTIFICATE. A certificate signed by CC Holdings that
the representations and warranties made by CC Holdings in this Agreement are
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of the
Closing Date (except as disclosed in the Disclosure Schedule, permitted by the
terms of this Agreement, or consented to in writing by APS), and that CC
Holdings has performed and complied with all of its obligations under this
Agreement which are to be performed or complied with on or prior to the Closing
Date.
(c) ORGANIZATIONAL DOCUMENTS. A copy of the articles of organization
of IRG and the Operating Agreement certified by the secretary of IRG. A copy of
the articles of incorporation and bylaws of CNR certified by the secretary of
CNR.
(d) ASSIGNMENT AND ASSUMPTION OF OPERATING AGREEMENT. An agreement
under which CC Holdings assigns to APS, and APS assumes from CC holdings, all of
CC Holdings' rights, duties and obligations under the Operating Agreement,
effective as of the Closing (the "Operating Agreement Assignment"), duly
executed by CC Holdings and IRG.
(e) INCUMBENCY CERTIFICATE. Incumbency certificates relating to each
person executing any document executed and delivered to APS pursuant to the
terms hereof.
(f) REMOVAL OF OFFICERS AND DIRECTORS. Written removal of the
officers of IRG by the directors of IRG and written removal of the directors of
IRG by CC Holdings.
(g) LEASE ASSIGNMENTS. The Lease Assignments duly executed by CC
Holdings or its affiliate and IRG.
(h) SUBLEASE AGREEMENT. The Sublease Agreement duly executed by
Cobalt.
(i) EXECUTIVE DRIVE LEASE ASSIGNMENT. The Executive Drive Lease
Assignment duly executed by CC Holdings or its affiliate.
(j) SERVICE AGREEMENTS. The Service Agreements duly executed by the
appropriate parties.
(k) FURNITURE CONTRIBUTIONS AND DISTRIBUTIONS. The Executive Drive
Furniture Contribution and the IRG Furniture Distribution each duly executed and
certified by the secretary of CC Holdings and IRG, respectively.
(l) TELEPHONE EQUIPMENT TRANSFER. The Telephone Equipment Transfer
duly executed by CC Holdings.
(m) CLOSING DATE BALANCE SHEET. The Estimated Closing Date Balance
Sheet.
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(n) OPINION OF COUNSEL. A written opinion of Xxxxx & Lardner,
counsel to Cobalt, CC Holdings and IRG, dated as of the Closing Date, addressed
to APS substantially in the form attached hereto as EXHIBIT N.
(o) OTHER DOCUMENTS. All other documents, instruments or writings
required to be delivered to APS at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as APS may
reasonably request.
8.2. DOCUMENTS TO BE DELIVERED BY APS. At the Closing, APS shall deliver
to CC Holdings the following documents:
(a) PURCHASE PRICE. The Cash and the Note (duly executed by APS) in
the form and manner required under Sections 1.3(a) and 1.3(b) hereof,
respectively.
(b) COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officer of APS that the representations and warranties made by APS in
this Agreement are true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given on
and as of the Closing Date (except for any changes permitted by the terms of
this Agreement or consented to in writing by CC Holdings), and that APS has
performed and complied with all of APS' obligations under this Agreement which
are to be performed or complied with on or prior to the Closing Date.
(c) CERTIFIED RESOLUTIONS. A certified copy of the resolutions of
the board of directors of APS authorizing and approving this Agreement and the
consummation of the transactions contemplated by this Agreement.
(d) ASSIGNMENT AND ASSUMPTION OF OPERATING AGREEMENT. The Operating
Agreement Assignment duly executed by APS.
(e) INCUMBENCY CERTIFICATE. Incumbency certificates relating to each
person executing any document executed and delivered to CC Holdings pursuant to
the terms hereof.
(f) EXECUTIVE DRIVE LEASE ASSIGNMENT. The Executive Drive Lease
Assignment duly executed by APS.
(g) SUBLEASE AGREEMENT. The Sublease Agreement duly executed by APS.
(h) FINANCING AMENDMENTS. The Financing Amendments duly executed by
the appropriate parties.
(i) OPINION OF COUNSEL. A written opinion of Xxxxxxx, Xxxxxx &
Green, P.C., counsel to APS, dated as of the Closing Date, addressed to APS
substantially in the form attached hereto as EXHIBIT O to this Agreement.
(j) OTHER DOCUMENTS. All other documents, instruments or writings
required to be delivered to CC Holdings at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as CC
Holdings may reasonably request.
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9. INDEMNIFICATION
9.1. BY COBALT AND CC HOLDINGS. Subject to the terms and conditions of
this Section 9, Cobalt and CC Holdings hereby agree to jointly and severally
indemnify, defend and hold harmless APS from, for and against all demands,
claims, actions, causes of action, assessments, losses, damages, liabilities,
awards, settlements, costs, penalties and expenses, including, without
limitation, interest, penalties and attorneys' fees and expenses ("CLAIMS"),
asserted against, resulting to, imposed upon or incurred by APS, directly or
indirectly, by reason of or resulting from:
(a) the falsity or breach of any representation, warranty or
covenant of CC Holdings or IRG contained herein or made pursuant to this
Agreement;
(b) the three office space leases for the property located at the
addresses listed on EXHIBIT E to this Agreement (except as otherwise expressly
provided in this Agreement or the Sublease Agreement) and IRG's involvement in
the RxCel line of business, including, without limitation, Claims arising out of
IRG's employment of RxCel personnel, if not caused by the negligent acts, errors
or omissions of IRG after the Closing or of APS (the "EXCLUDED LEASES AND
OPERATIONS");
(c) IRG's failure to hold a certificate of authority to do business
in Illinois for the period prior to Closing and a reasonable time thereafter;
(d) IRG's failure, if any, to be licensed to perform utilization
review services in Nevada during the period beginning on March 1, 2002 and
ending a reasonable time after Closing;
(e) IRG's failure to be licensed to perform third party
administration services in Florida for the period prior to Closing and a
reasonable time thereafter;
(f) IRG's failure to be licensed as a Division of Workers
Compensation Qualified Rehab Provider in Florida for the period prior to Closing
and a reasonable time thereafter; and
(g) IRG's failure to hold occupational licenses with respect to its
office building in Broward County, Florida for the period prior to Closing and a
reasonable time thereafter.
(the matters enumerated in Sections 9.1(c), 9.1(d), 9.1(e), 9.1(f) and 9.1(g)
above referred to herein as the "LICENSING FAILURES").
9.2. BY APS. Subject to the terms and conditions of this Section 9, APS
hereby agrees to indemnify, defend and hold harmless Cobalt and CC Holdings,
from, for and against all Claims asserted against, resulting to, imposed upon or
incurred by Cobalt or CC Holdings, directly or indirectly, respectively, by
reason of or resulting from (a) the falsity or breach of any representation,
warranty or covenant of APS contained herein or made pursuant to this Agreement
and (b) IRG's use of the Medical Data License or any data and information, or
any associated documentation, made available to IRG under the Medical Data
License.
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9.3. CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of any
party to indemnify the other under this Section 9 shall be subject to the
following terms and conditions:
(a) NOTICE AND DEFENSE. The party to be indemnified (the
"INDEMNIFIED PARTY") will give the other party (the "INDEMNIFYING PARTY") notice
of any Claim, and the Indemnifying Party will undertake the defense thereof by
representatives chosen by it. Failure to give such notice shall not affect the
Indemnifying Party's duty or obligations under this Section 9, except to the
extent the Indemnifying Party is prejudiced thereby. So long as the Indemnifying
Party is defending any such Claim actively and in good faith, the Indemnified
Party shall not settle such Claim. The Indemnified Party shall make available to
the Indemnifying Party or its representatives all records and other materials
required by them and in the possession or under the control of the Indemnified
Party, for the use of the Indemnifying Party and its representatives in
defending any such Claim, and shall in other respects give reasonable
cooperation in such defense.
(b) FAILURE TO DEFEND. If the Indemnifying Party, within a
reasonable time after notice of any Claim, fails to defend such Claim, the
Indemnified Party will (upon further notice) have the right to undertake the
defense, compromise or settlement of such Claim on behalf of and for the account
and risk of the Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof.
(c) INDEMNIFIED PARTY'S RIGHTS. Anything in this Section 9.3 to the
contrary notwithstanding, (i) if there is a reasonable probability that a Claim
may materially and adversely affect the Indemnified Party other than as a result
of money damages or other money payments, the Indemnified Party shall have the
right, at its own cost and expense, to defend, compromise or settle such Claim,
and (ii) the Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any Claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party a release from all
liability in respect of such Claim.
9.4. LIMITATIONS ON INDEMNIFICATION.
(a) TIME LIMITATION. No claim or action shall be brought under this
Section 9 for breach of a representation or warranty after the lapse of eighteen
(18) months following the Closing. Regardless of the foregoing, however, or any
other provision of this Agreement:
(i) There shall be no time limitation on claims or actions
brought (a) for breach of any covenant made by any party in or pursuant to this
Agreement and (b) with respect to the Excluded Leases and Operations, and each
party to this Agreement waives all applicable statutory limitation periods with
respect thereto.
(ii) Any claim or action brought for breach of any
representation, warranty or covenant made in or pursuant to Sections 2.6, 4.9,
4.10 or 5.5 may be brought at any time until the underlying tax obligation(s) is
barred by the applicable period of limitation under federal and state laws
relating thereto (as such period(s) may be extended by waiver).
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(iii) Any claim made by a party hereunder for breach of a
representation or warranty prior to the termination of the survival period for
such claim shall be preserved despite the subsequent termination of such
survival period.
(b) AMOUNT LIMITATION. Except for Cobalt's and CC Holdings'
indemnification obligations with respect to the breach of the representations
and warranties contained in Section 2.17 and the Excluded Leases and Operations
(which shall be enforceable without regard to the Minimum Claim Amount provided
herein), an Indemnified Party shall not be entitled to indemnification under
this Section 9 for breach of a representation, warranty or covenant, unless the
aggregate of the Indemnifying Party's indemnification obligations to the
Indemnified Party pursuant to this Section 9 (but for this Section 9.4(b))
exceeds One Hundred Thousand Dollars ($100,000.00) (the "MINIMUM CLAIM AMOUNT").
In determining whether the Minimum Claim Amount has been satisfied, (i) the
Indemnifying Party's indemnification obligations with respect to breaches of
representations, warranties and covenants involving materiality qualifiers shall
be included in the calculation of the Minimum Claim Amount and (ii) the amount
of any such obligation shall be determined without regard to the Threshold
Amount (as defined in Section 11.2). In the event that an Indemnifying Party's
aggregate indemnification obligations (but for this Section 9.4(b)) exceed the
Minimum Claim Amount, the Indemnifying Party shall be obligated to indemnify the
Indemnified Party under this Section 9 only for the aggregate of such
obligations in excess of the Minimum Claim Amount, and the total amount paid to
an Indemnified Party by an Indemnifying Party under this Section 9 (including
amounts paid with respect to the Excluded Leases and Operations by Cobalt and CC
Holdings as the Indemnifying Party) shall be subject to an aggregate cap or
limit of Seventeen Million Dollars ($17,000,000.00); provided, however, that
such cap or limit shall increase to Twenty-Seven Million Dollars
($27,000,000.00) when the principal amount due under the Note is paid in full by
APS.
10. TERMINATION AND ABANDONMENT
10.1. TERMINATION EVENTS. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual agreement of CC Holdings and APS;
(b) By APS, if there has been a material violation or breach by CC
Holdings of any of the agreements, representations or warranties contained in
this Agreement which has not been waived in writing or if there has been a
material failure of satisfaction of a condition to the obligations of APS
hereunder which has not been waived in writing;
(c) By CC Holdings, if there has been a material violation or breach
by APS of any of the agreements, representations or warranties contained in this
Agreement which has not been waived in writing or if there has been a material
failure of satisfaction of a condition to the obligations of CC Holdings
hereunder which has not been waived in writing;
(d) By any party hereto if the Closing shall not have occurred on or
before March 31, 2002.
11. MISCELLANEOUS
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11.1. DISCLOSURE SCHEDULE. The Schedules (the "DISCLOSURE SCHEDULE") have
been executed by CC Holdings, IRG and APS and dated and delivered to each other
on the date of this Agreement. Any information set forth in the Disclosure
Schedule shall be deemed to be disclosed with respect to all sections of the
Disclosure Schedule.
11.2. MATERIALITY. Unless and only as otherwise expressly defined in this
Agreement, wherever used herein, the words "material" or "materially" shall mean
or refer to any matter which involves, imposes or requires a cost or
expenditure, or would involve, impose or require a cost or expenditure, in
excess of Fifty Thousand Dollars ($50,000.00) (the "THRESHOLD AMOUNT").
11.3. KNOWLEDGE. Wherever used in this Agreement, the word "knowledge"
shall mean:
(a) CC HOLDINGS AND IRG. With respect to CC Holdings, IRG and CNR,
actual knowledge of Xxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx, or
knowledge that such individuals should have through due inquiry and reasonable
review of materials and information accessible to them in the normal performance
of their responsibilities for APS.
(b) APS. With respect to APS, actual knowledge of Xxx Xxxxxxx, Xxxx
Xxxxxx, Xxxxx Xxxxxxxxx and Xxxxx Xxxxxxxxx, or knowledge that such individuals
should have through due inquiry and reasonable review of materials and
information accessible to them in the normal performance of their
responsibilities for APS.
11.4. FURTHER ASSURANCE. From time to time, each of the parties to this
Agreement shall execute and deliver to the other parties hereto such documents
and take such other actions as may be necessary or desirable, or as any of the
other parties hereto may reasonably request, in order to carry out the terms of
this Agreement and any other agreement or instrument contemplated hereunder.
11.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and assigns
of each of the parties hereto. None of the parties hereto shall assign, transfer
or convey all or any portion of this Agreement or their respective rights or
obligations hereunder, either directly or indirectly, without the prior written
consent of the other parties hereto.
11.6. LAW GOVERNING AGREEMENT. This Agreement may not be modified or
terminated orally, and shall be construed and interpreted according to the laws
of the State of Wisconsin. Each party to this Agreement hereby consents to
personal jurisdiction over itself in state or federal court within Wisconsin.
11.7. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Agreement, a
legal,
30
valid, and enforceable provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible.
11.8. AMENDMENT AND MODIFICATION. The parties hereto may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in
writing.
11.9. NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by facsimile transmission or other electronic means of transmitting written
documents; or (c) sent to the parties at their respective addresses indicated
herein by registered or certified U.S. mail, return receipt requested and
postage prepaid, or by private overnight mail courier service. The respective
addresses to be used for all such notices, demands or requests are as follows:
(a) If to APS, to:
Xxxxxxx X. Xxxxxxx, M.D.
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
(with a copy to)
Xxxxx Xxxxxxxxx, X.X.
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other person or address as APS shall furnish.
(b) If to CC Holdings, to:
Xxxxxxx X. Xxxxxxxxx
00000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
(with a copy to)
Xxxxx X. Xxxxxxxxxx
Xxxxx & Lardner
000 X. Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
31
or to such other person or address as CC Holdings shall furnish.
If personally delivered, such communication shall be deemed
delivered upon actual receipt; if electronically transmitted pursuant to this
section, such communication shall be deemed delivered the next business day
after transmission and sender shall bear the burden of proof of delivery (which,
if notice is transmitted by facsimile, shall be met by facsimile confirmation);
if sent by overnight courier pursuant to this section, such communication shall
be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this
section, such communication shall be deemed delivered as of the date of delivery
indicated on the receipt issued by the relevant postal service, or, if the
addressee fails or refuses to accept delivery, as of the date of such failure or
refusal. Any party to this Agreement may change its address for the purposes of
this Agreement by giving notice thereof in accordance with this Section.
11.10. ANNOUNCEMENTS. Announcements concerning the transactions provided
for in this Agreement by any of the parties hereto shall be subject to the
approval of the other parties hereto in all essential respects, except as may be
required by law.
11.11. EXPENSES. Each of the parties hereto shall bear its own costs and
expenses and the costs and expenses of its counsel and other agents in
connection with the transactions contemplated hereby.
11.12. ENTIRE AGREEMENT. This Agreement and the agreements and instruments
contemplated hereunder embody the entire agreement between the parties hereto
with respect to the transactions contemplated herein and therein, and there have
been and are no agreements, representations or warranties between the parties
other than those set forth or provided for herein or therein.
11.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.14. HEADINGS. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof.
32
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
APS HEALTHCARE BETHESDA, INC.
By: /s/ Xxxx X. Xxxxxx
--------------------------------------
Name: Xxxx X. Xxxxxx
------------------------------------
Title: President
-----------------------------------
CC HOLDINGS, LLC
By: /s/ Xxx Xxxxxxx
--------------------------------------
Name: Xxx Xxxxxxx
------------------------------------
Title: Vice President
-----------------------------------
INNOVATIVE RESOURCE GROUP, LLC
By: /s/ Xxx Xxxxxxx
--------------------------------------
Name: Xxx Xxxxxxx
------------------------------------
Title: President and COO
-----------------------------------
COBALT CORPORATION (as to Sections
4.1(b)(xv), 4.2, 4.4, 4.6, 4.8, 4.11,
4.12(e), 9, 10 and 11)
By: /s/ Xxx Xxxxx
--------------------------------------
Name: Xxx Xxxxx
------------------------------------
Title: Chairman, President & CEO
-----------------------------------
