AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WellCare Acquisition Company,
WellCare Merger Sub, Inc.,
AND
The WellCare Management Group, Inc.
Dated as of May 17, 2002
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is made and entered into as of May 17,
2002, by and among WellCare Acquisition Company, a Delaware corporation
("Parent"), WellCare Merger Sub, Inc., a New York corporation and a wholly-
owned subsidiary of Parent ("Merger Sub"), and The WellCare Management Group,
Inc., a New York corporation originally incorporated under the name Xxxxxx
and Xxxxxxxxx, Inc. (the "Company"). Capitalized terms used and not
otherwise defined herein have the meanings set forth in Article 10 hereof.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub have unanimously determined that it is in the best interests of their
respective companies and the shareholders of their respective companies that
the Company and Merger Sub combine into a single company through the
statutory merger of Merger Sub with and into the Company (the "Merger") and,
in furtherance thereof, have approved this Agreement and the transactions
contemplated hereby.
B. Pursuant to the Merger, among other things, the outstanding
shares of Company Common Stock will be converted into the right to receive
certain cash consideration, as set forth herein.
C. Certain shareholders of the Company, together with their Affiliates,
own collectively all of the outstanding Equity Securities of the Florida
Companies. Concurrently with the execution of this Agreement, Parent, the
Florida Companies and the stockholders of the Florida Companies have entered
into the Florida Companies Purchase Agreement, which provides, among other
things, for the sale of the Florida Companies to Parent.
D. It is a condition precedent to Parent's, Merger Sub's and the
Company's respective obligations to consummate the Merger that Parent acquire
the Florida Companies pursuant to the terms of the Florida Companies Acquisition
Agreement, and the Florida Companies Acquisition Agreement requires the
transactions contemplated hereby to be consummated as a condition precedent to
Parent's obligations under the Florida Companies Acquisition Agreement.
E. Concurrently with the execution of this Agreement and as an
inducement to Parent and Merger Sub to enter into this Agreement, certain
shareholders of the Company have on the date hereof entered into a voting
agreement in the form attached hereto as Exhibit A (each, a "Voting Agreement"
and collectively the "Voting Agreements") to, among other things, vote the
shares of Company Common Stock owned by such persons to approve the Merger and
against any competing proposals.
F. The Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
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NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
the parties), intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and the Certificate of Merger attached hereto
as Exhibit B (the "Certificate of Merger") and in accordance with the applicable
provisions of the Business Corporation Law of the State of New York (the
"NYBCL"), Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article 7 hereof
or at such other time as the parties hereto agree. The Closing shall take place
at the offices of Xxxxxxx, Phleger & Xxxxxxxx LLP, 0000 Xxxxxxxx, 00xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, or at such other location as the parties hereto agree
In connection with the Closing, the parties hereto shall cause the Merger to be
consummated by the filing of the Certificate of Merger by the Department of
State of the State of New York, in accordance with the relevant provisions of
the NYBCL (the time of the effectiveness of such filing being the "Effective
Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the NYBCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of the
Company shall be amended and restated in its entirety in the form attached
hereto as Exhibit C, and such Certificate of Incorporation, as so amended and
restated, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by the NYBCL and such Certificate of
Incorporation.
(b) At the Effective Time, the Bylaws of the Company shall be amended
and restated in their entirety in the form attached hereto as Exhibit D, and
such Bylaws, as so amended and restated, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, those persons who were
the directors of Merger Sub shall be the directors of the Surviving Corporation,
in each case until their successors are elected or appointed or until their
earlier resignation or removal. The officers of Merger Sub shall be the initial
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officers of the Surviving Corporation, until their respective successors are
duly elected or appointed or until their earlier resignation or removal.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the following
securities:
(a) CONVERSION OF COMPANY COMMON STOCK. At the Effective Time, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Common Stock to be canceled
pursuant to Section 1.6(b) and other than Dissenting Shares) will be canceled
and extinguished and be converted automatically into the right to receive in
cash, without interest, an amount equal to (A) $11,750,000 less all amounts to
be deducted pursuant to Sections 1.7(d), 5.13 and 5.15(b) (the "Merger
Consideration") divided by (B) the aggregate number of shares of Company Common
Stock issued and outstanding plus any shares issuable upon exercise of any
Options outstanding immediately prior to the Effective Time. All shares of
Company Common Stock, when converted at the Effective Time as provided herein,
shall no longer be outstanding and shall automatically be canceled and retired
and each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration as prescribed herein.
(b) CANCELLATION OF COMPANY COMMON STOCK OWNED BY PARENT OR COMPANY.
At the Effective Time, all shares of Company Common Stock that are owned by the
Company as treasury stock and all shares of Company Common Stock that are owned
by Parent or any Subsidiary of Parent or the Company immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, if required by the NYBCL (but only to the extent required thereby)
shares of Company Common Stock that are issued and outstanding immediately prior
to the Effective Time and that are held by a holder (a "Dissenting Shareholder")
who properly exercises appraisal rights thereto in accordance with Section 623
of the NYBCL ("Dissenting Shares") shall not be converted as described in
Section 1.6(a), but shall be converted into the right to receive payment of the
appraised value of such shares in accordance with the provisions of such Section
623, until such holder fails to perfect or effectively withdraws or loses such
holder's right to appraisal and payment under the NYBCL. If, after the
Effective Time, any Dissenting Shareholder fails to perfect or effectively
withdraws or loses such right, the shares of such Dissenting Shareholder shall
thereupon be treated as if they had been converted as of the Effective Time into
the right to receive the Merger Consideration, without any interest thereon. The
Company shall give Parent (i) prompt notice of any demands received by the
Company for appraisal of shares (which notice shall in no event be given later
than two Business Days after any such demand) and (ii) the right to participate
in and, in Parent's sole and exclusive discretion, direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
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(d) COMPANY STOCK OPTION. Prior to the Effective Time, the Company
shall take all action required to (i) terminate no later than the Effective Time
the Company's 1993 Incentive and Non-Incentive Stock Option Plan (as amended,
the "1993 Plan") and 1996 Non-Incentive Executive Stock Option Plan (as amended,
the "1996 Plan" and together with the 1993 Plan, the "Stock Option Plans"); (ii)
adjust all outstanding options granted under the Stock Option Plans so that from
and after the Effective Time, each such option shall represent the right to
receive, upon payment of the exercise price thereof, the Merger Consideration
payable per share of Common Stock with respect to each share of Common Stock
subject to such option and (iii) terminate no later than the Effective Time all
outstanding options to purchase shares of Company Common Stock granted under the
Stock Option Plans. The Company will use its best efforts to obtain the consent
of affected optionholders to the termination of all options granted under the
Stock Option Plans as set forth in this Section 1.6(d).
(e) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each share of
common stock, par value $0.001 per share, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
converted into and shall thereafter represent one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation, and the
Surviving Corporation shall be a wholly-owned subsidiary of Parent. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
1.7 ADJUSTMENT OF CONSIDERATION.
(a) DELIVERY OF MONTHLY FINANCIAL REPORTS. The Company shall deliver
to Parent copies of all monthly financial reports of the type referenced in
Section 2.8(c), as delivered by the Company to the NY DOI and/or the CT DOI
after the date of this Agreement, within two Business Days of delivery to the NY
DOI or the CT DOI, as applicable, together with a consolidated balance sheet,
income statement and statement of cash flows for the Company.
(b) Preparation of June 30, 2002 Financials. As soon as practicable
following June 30, 2002, the Company shall cause the Company Accountants to
perform, and to complete by no later than July 31, 2002, a review of, and to
prepare a review report pursuant to Statement on Auditing Standard Number 71
(the "Review Report") with respect to, (i) the consolidated balance sheet of the
Company and the Company Subsidiaries as of June 30, 2002, and the related
consolidated statement of operations, shareholders' deficiency and cash flows
for the six month period ended on such date, (ii) the statements of admitted
assets, liabilities and surplus - statutory basis of WCNY as of June 30, 2002,
and the related statements of operations - statutory basis, changes in surplus -
statutory basis and cash flows - statutory basis for the six month period ended
on such date and (iii) the unaudited statements of admitted assets, liabilities
and surplus - statutory basis of FirstChoice as of June 30, 2002, and the
related unaudited statements of operations - statutory basis, changes in surplus
- statutory basis and cash flows - statutory basis for the six-month period
ended on such date (the "June 30 Financials"). The Company shall deliver a copy
of the Review Report to Parent within two Business Days after its completion
(and in any event by August 10, 2002). In the event that the Closing is to
occur on or before July 31, 2002, the Company shall use its best efforts to
provide Parent with information comparable to that to be provided pursuant to
this Section 1.7(b), on a timetable comparable to that set forth in this Section
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1.7(b), as may be reasonably requested by Parent. The June 30 Financials shall
(i) be prepared in accordance with the Applicable Accounting Principles, (ii)
present fairly and accurately in all material respects the financial condition,
results of operations and cash flows of the Company and each of the Company
Subsidiaries as of the dates and during the periods indicated therein, (iii) in
the case of the June 30 Financials of each of the Company Subsidiaries, present
fairly, in all material respects and in accordance with SAP, the assets,
liabilities and Statutory Surplus of such Person and (iv) be presented on a
basis substantially consistent with the respective Audited Financial Statements
for the Company and each of the Company Subsidiaries for the year ended December
31, 2001, except only with such changes as may be required under the Applicable
Accounting Principles as determined by the Companies with the concurrence of the
Company Accountants and in consultation with Parent and the Parent
Representatives. The Company shall make all Books and Records relating to the
Review Report and the June 30 Financials, as well as appropriate representatives
of the Company and the Company Accountants, reasonably available to Parent in
accordance with the provisions of Section 5.3.
(c) DELIVERY OF BALANCE SHEETS. At least 20 days prior to the
projected date of the Closing, the Company shall prepare in good faith and
deliver to Parent a balance sheet for the Company and each of the Company
Subsidiaries as of the last day of the month immediately preceding the month
during which the Closing is projected to occur (each, a "Balance Sheet"). The
Balance Sheets shall (i) record the establishment by the Company and each
Company Subsidiary prior to the Closing of premium deficiency reserves with
respect to all operating losses anticipated for the period from the date of the
Closing through December 31, 2003, in accordance with the Applicable Accounting
Principles, (ii) record the establishment by the Company and each Company
Subsidiary of a loss adjustment expense reserve in an amount equal to 1.5% of
all unpaid claims of such Person, (iii) be prepared in accordance with all NAIC
standards and the Applicable Accounting Principles (in each case, without
special consideration from any Governmental or Regulatory Authority), (iv) fully
comply with all Laws applicable to the adequacy and maintenance of Statutory
Surplus (items (iii) and (iv) collectively, the "Minimum Capital Requirements")
and (v) comply with all applicable Laws in all material respects. In the event
that Parent shall object to any of the information presented in any of the
Balance Sheets initially delivered by the Stockholders, Parent and the Company
shall negotiate in good faith and attempt to agree upon appropriate adjustments
to the Balance Sheets, in which case the mutually agreed upon Balance Sheets
shall be the Balance Sheets for all purposes under this Agreement. In the event
that Parent and the Company are unable to so agree, Parent shall have the right
to terminate this Agreement pursuant to Section 8.1(h).
(d) CONSIDERATION ADJUSTMENT. If the Aggregate Net Worth Amount is
less than the Aggregate Required Net Worth Amount, then the Merger Consideration
shall automatically be reduced by the amount of such shortfall; provided that
the amount of such reduction shall in no event exceed $1,447,000.
1.8 SURRENDER OF CERTIFICATES.
(a) PAYING AGENT. Prior to the Effective Time, Parent shall designate
a bank, trust company or other Person reasonably satisfactory to the Company to
act as paying agent (the "Paying Agent") in the Merger.
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(b) PARENT TO PROVIDE CASH. Promptly after the Effective Time, Parent
shall make available to the Paying Agent for exchange in accordance with this
Article 1, through such reasonable procedures as Parent may adopt, cash in the
amount necessary to permit payment of the Merger Consideration. Any and all
interest earned on the Merger Consideration made available to the Paying Agent
pursuant to this Agreement shall be paid over to Parent.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon receipt of the Certificates by the Paying Agent, and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, and such other
documents as may be reasonably required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of shares of Company Common Stock that
is not registered in the transfer records of the Company, payment may be made to
a Person other than the Person in whose name the Certificate so surrendered is
registered, if (i) such Certificate shall be properly endorsed or otherwise be
in proper form for transfer, (ii) the Person requesting such payment has posted
a bond in such reasonable amount as Parent or the Paying Agent may direct as
indemnity against any claim that may be made against them with respect to such
Certificate (which requirement may be waived by Parent, in its sole discretion,
upon receipt of an opinion of counsel in form and substance satisfactory to
Parent) and (iii) the Person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of Parent
that such tax has been paid or is not applicable. Until surrendered pursuant to
this Section 1.8(c), each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Common Stock (other than Certificates
representing Dissenting Shares) will be deemed from and after the Effective
Time, for all corporate purposes, to represent only the right to receive upon
such surrender the Merger Consideration. Notwithstanding any other provision of
this Agreement, no interest will be paid or will accrue on the cash payable in
respect of the Merger Consideration upon the surrender of any Certificate.
Parent or the Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement such amounts as
Parent or the Paying Agent is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code or under any
provisions of state, local or foreign tax Law. To the extent that amounts are
so withheld by Parent or the Paying Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the Person in
respect of which such deduction or withholding was made by Parent or the Paying
Agent.
(d) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, none of the Paying Agent, the Surviving Corporation, Parent or any
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party hereto shall be liable to any person for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
payment pursuant to this Article 1 would otherwise escheat to or become the
property of any Governmental Entity) the cash payment in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interests
of any Person previously entitled thereto.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The cash paid as
the Merger Consideration upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed, and there shall be no further registration of transfers on the
stock transfer books or records of the Surviving Corporation of shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 1.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Paying Agent shall pay in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, the Merger Consideration to which
the holder is entitled pursuant to Section 1.6; provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificates to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against Parent, the Surviving Corporation or the Paying Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
1.11 TERMINATION OF PAYING AGENT FUNDING. Any portion of the funds
(including any interest earned thereon) held by the Paying Agent which have not
been delivered to holders of Certificates pursuant to this Article 1 within six
months after the Effective Time shall promptly be paid to Parent, and thereafter
holders of Certificates who have not theretofore complied with the exchange
procedures set forth in and contemplated by Section 1.8(c) shall look only to
Parent (subject to abandoned property, escheat and similar laws) for their claim
for payment of the Merger Consideration to which they are entitled.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
2.1 ORGANIZATION AND QUALIFICATION. Each of the Company and WCNY is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. FirstChoice is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut. The
Company and each of the Company Subsidiaries has full corporate power and
authority to conduct its respective businesses as now conducted and as currently
proposed to be conducted and to own, use, license and lease its respective
Assets and Properties. The Company and each Company Subsidiary is duly
qualified, licensed or admitted to do business and is in good standing as a
foreign corporation in each jurisdiction in which the ownership, use, licensing
or leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary. Schedule
2.1 sets forth separately for the Company and each Company Subsidiary each
jurisdiction where such Person is so qualified, licensed or admitted to do
business and separately lists each other jurisdiction in which such Person owns,
uses, licenses or leases its Assets and Properties, or conducts business or has
employees or engages independent contractors.
2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company and each Company
Subsidiary has full corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Company's Board of Directors has
unanimously (a) declared the Merger advisable and fair to and in the best
interest of the Company and its shareholders, (b) approved this Agreement, (c)
resolved to recommend the adoption of this Agreement and the approval of the
Merger by the Company's shareholders and (d) directed that this Agreement and
the approval of the Merger be submitted to the Company's shareholders for
adoption. The execution and delivery by the Company of this Agreement and the
Ancillary Agreements to which the Company is a party and the consummation by the
Company of the transactions contemplated hereby and thereby, and the performance
by the Company of its obligations hereunder and thereunder, have been duly and
validly authorized by all necessary action by the Company's Board of Directors,
and no other action on the part of the Board of Directors of the Company is
required to authorize the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which the Company is a party and the
consummation by the Company of the transactions contemplated hereby and thereby.
This Agreement and the Ancillary Agreements have been or will be, as applicable,
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof or thereof by Parent and Merger
Sub, as applicable, each constitutes or will constitute, as applicable, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws relating to the enforcement of creditors'
rights generally and by general principles of equity. The affirmative vote of
shares of Company Common Stock representing more than two-thirds of the combined
voting power of all Company Common Stock issued and outstanding on the record
date set for the Shareholder Meeting, with each class of Company Common Stock
voting together as a single class, is the only vote of holders of capital stock
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of the Company necessary to approve this Agreement and the transactions
contemplated hereby.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists only of (i)
75,000,000 shares of Common Stock, $0.01 par value per share (the "Undesignated
Common Stock"), of which 38,798,870 shares were issued and outstanding as of May
13, 2002, (ii) 1,109,292 shares of Class A Common Stock, $0.01 par value per
share (the "Class A Common Stock" and, together with the Undesignated Common
Stock, the "Company Common Stock"), of which 313,555 shares are issued and
outstanding, and (iii) 1,000,000 shares of Preferred Stock, $0.01 per value per
share, none of which are issued and outstanding. All of the issued and
outstanding shares of Company Common Stock are validly issued, fully paid and
nonassessable, and have been issued in compliance with all applicable federal,
state and foreign securities Laws. No shares of Company Common Stock are held
in treasury or are reserved for issuance.
(b) None of the Equity Securities issued by the Company are subject to
a repurchase option on the part of the Company.
(c) Except as set forth on Schedule 2.3(c), there are no outstanding
Options or agreements, arrangements or understandings to which the Company or
any Company Subsidiary is a party (written or oral) to issue any Options or
other Equity Securities with respect to the Company or any Company Subsidiary.
(d) There are no preemptive rights or agreements, arrangements or
understandings to issue preemptive rights with respect to the issuance or sale
of any Equity Securities of the Company or any Company Subsidiary created by
statute, the certificate of incorporation or by-laws (or equivalent
organizational documents) of the Company or any Company Subsidiary, or an
agreement or other arrangement to which the Company or any Company Subsidiary is
a party (written or oral) or to which the Company or any Company Subsidiary is
bound and there are no agreements, arrangements or understandings to which the
Company or any Company Subsidiary is a party (written or oral) pursuant to which
the Company or any Company Subsidiary has the right to elect to satisfy any
Liability by issuing Equity Securities.
(e) Except as set forth on Schedule 2.3(e), neither the Company nor
any Company Subsidiary is a party or subject to any agreement or understanding,
and there is no agreement, arrangement or understanding between or among any
Persons, which affects, restricts or relates to voting, giving of written
consents, dividend rights or transferability of shares with respect to the
Equity Securities of the Company or any Company Subsidiary, including without
limitation any voting trust agreement or proxy.
(f) Schedule 2.3(f) sets forth a schedule of all surplus notes to
which the Company or any Company Subsidiary is a party, the principal amount of
such surplus notes, and any other parties to such surplus notes (such notes, the
"Surplus Notes"). Except for the Surplus Notes and as set forth in Schedule
2.3(f), no debt securities or other Indebtedness of the Company or any Company
Subsidiary are issued and outstanding.
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2.4 SUBSIDIARIES; INVESTMENTS. Except as set forth in Schedule 2.4, the
Company does not have, and for the past five years has not had, any Subsidiaries
other than the Company Subsidiaries, and neither the Company nor any Company
Subsidiary holds, and in the past five years neither the Company nor any Company
Subsidiary has held, any equity, membership, partnership, joint venture or other
ownership interest in any Person. The Company directly owns 100% of the Equity
Securities and voting power of WCNY, and WCNY directly owns 100% of the Equity
Securities and voting power of FirstChoice.
2.5 DIRECTORS AND OFFICERS. The name of each director and officer of the
Company and each Company Subsidiary on the date hereof, and his or her position
with such Person, are listed on Schedule 2.5.
2.6 NO CONFLICTS. The execution and delivery by the Company of this
Agreement and the Ancillary Agreements to which the Company is a party does not,
and the performance by the Company of its obligations under this Agreement and
the Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the respective certificate of incorporation,
bylaws or equivalent organizational documents of the Company or any Company
Subsidiary;
(b) subject to (i) making such filings and giving such notices as may
be required under the HSR Act and by the CMS and (ii) making such filings and
obtaining such Approvals as may be required by the NY DOI, the CT DOI, the NY
DOH and the CT DSS, conflict with or result in a violation or breach of any Law
or Order applicable to the Company or any Company Subsidiary or any of the
Assets and Properties of the Company or any Company Subsidiary; or
(c) except as disclosed in Schedule 2.6, (i) conflict with or result
in a material violation or breach of, (ii) constitute a default (or an event
that, with or without notice or lapse of time or both, would constitute a
default) under, (iii) require the Company or any Company Subsidiary to obtain
any Approval or action of, make any filing with or give any notice to any Person
under, (iv) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (v) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments or performance under, (vi) result
in the creation or imposition of (or the obligation to create or impose) any
Lien upon the Company, any Company Subsidiary or any of the Assets and
Properties of the Company or any Company Subsidiary under or (vii) result in the
loss of a material benefit under, any of the terms, conditions or provisions of
any Contract or License to which the Company or any Company Subsidiary is a
party or by which the Company's or any Company Subsidiary's Assets and
Properties are bound.
2.7 BOOKS AND RECORDS; ORGANIZATIONAL DOCUMENTS. The minute books and
stock record books and other similar records of the Company and each Company
Subsidiary have been provided or made available to Parent or its counsel prior
to the execution of this Agreement, are complete and correct in all material
11
respects and have been maintained in accordance with sound business practices.
Such minute books contain a true and complete record of all actions taken at all
meetings and by all written consents in lieu of meetings of the directors,
shareholders and committees of the Board of Directors of the Company and each
Company Subsidiary from the date of such Person's incorporation through the date
hereof. The Company has, prior to the execution of this Agreement, delivered to
Parent true and complete copies of the certificate of incorporation and bylaws
(or equivalent organizational documents), in each case as amended through the
date hereof, of the Company and each Company Subsidiary. Neither the Company
nor any Company Subsidiary is in violation of any provisions of its respective
certificate of incorporation or bylaws (or equivalent organizational documents).
2.8 SEC FILINGS; COMPANIES' FINANCIAL STATEMENTS.
(a) The Company has made available to Parent a true and complete copy
of each statement, report, registration statement (with the prospectus in the
form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement and other filing made with the SEC by the Company since June 1, 1999
that is not available on the SEC's website at xxx.xxx.xxx, and, prior to the
Effective Time, the Company will have furnished to Parent true and complete
copies of any additional documents filed with the SEC by Company prior to the
Effective Time (collectively, the "Company SEC Documents"). The Company has
timely filed all forms, statements and documents required to be filed by it with
the SEC since June 1, 1999. In addition, the Company has made available to
Parent all exhibits to the Company SEC Documents and will promptly make
available to Parent all exhibits to any additional Company SEC Documents filed
prior to the Effective Time. All material documents required to be filed as
exhibits to the Company SEC Documents are in full force and effect, except those
which have expired in accordance with their terms, and neither the Company nor
any of its Subsidiaries is in material default thereunder. As of their
respective filing dates, the Company SEC Documents complied in all material
respects with the requirements of the Exchange Act and the Securities Act, and
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading, except to the extent corrected by a
subsequently filed Company SEC Document.
(b) Attached to Schedule 2.8 are true and complete copies of the
Companies' Financials. The Companies' Financials (a) present fairly and
accurately in all material respects the financial condition, results of
operations and cash flows of the Company and each Company Subsidiary as of the
dates and during the periods indicated therein, subject, in the case of the
Interim Financial Statements, to normal year-end adjustments, which adjustments
will not be material in amount or significance, and except that the Interim
Financial Statements may not contain footnotes and (b) are consistent with the
books and records of the Company and the Company Subsidiaries (which books and
records are accurate and complete in all material respects). The financial
statements of each of the Company Subsidiaries included as part of the Audited
Financial Statements (collectively, the "Companies' SAP Financials") were
prepared in accordance with SAP. The Companies' SAP Financials present fairly,
in all material respects and in accordance with SAP, the assets, liabilities and
Statutory Surplus of each of the Company Subsidiaries. The Companies'
Financials (other than the Companies' SAP Financials) (collectively, the
12
"Companies' GAAP Financials") were prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes attached thereto, and, in the case of
the Interim Financial Statements, subject to normal year-end adjustments, which
adjustments will not be material in amount or significance and except that the
Interim Financial Statements may not contain footnotes). Except as set forth in
Schedule 2.8, since June 1, 1999, there have been no changes in any accounting
policies, principles, methods or practices, including any such change with
respect to reserves (whether for bad debts, contingent liabilities or otherwise)
or Statutory Surplus of the Company or any Company Subsidiary. To the knowledge
of the Company, there are no adjustments or material unadjusted differences
required to be made in the Companies' Financials.
(c) The Company currently provides to the NY DOI and the CT DOI,
within 30 days after the end of each month, monthly financial reports setting
forth the financial condition, results of operations and cash flows of each
Company Subsidiary for such month.
2.9 ABSENCE OF CHANGES. Since the Interim Financial Statement Date, except
as set forth in Schedule 2.9, (a) there has not been any Material Adverse
Change, (b) there has been no material amendment or non-renewal of any of the
Approvals held by or granted to the Company or either Company Subsidiary, and
the Company and each Company Subsidiary has used commercially reasonable efforts
to maintain such Approvals, (c) there has been no physical damage, destruction
or other casualty loss (whether or not covered by insurance) affecting any of
the real or personal property or equipment of the Company, either Company
Subsidiary or the Company and the Company Subsidiaries as a whole in an amount
exceeding $50,000, individually or in the aggregate and (d) neither the Company
nor either of the Company Subsidiaries has taken, or permitted to be taken, any
action which, if proposed to be taken on or after the date of this Agreement,
would require the consent of Parent pursuant to Section 4.1, other than any
action of the types described in subsections (d), (q) or (v) of Section 4.1.
2.10 NO UNDISCLOSED LIABILITIES. Except as recorded or reserved against in
the Companies' Financials (including the notes thereto), there are no
Liabilities of, relating to or affecting the Company, either Company Subsidiary
or any of the Assets and Properties of the Company or either Company Subsidiary,
other than Liabilities incurred in the ordinary course of business consistent
with past practice since the Interim Financial Statement Date.
2.11 ACCOUNTS RECEIVABLE. All accounts and notes receivable of the Company
and the Company Subsidiaries reflected on the Interim Financial Statements or
incurred in the normal course of business since the date thereof (a) arose from
bona fide transactions in the ordinary course of business, consistent with past
practice, and are payable on ordinary trade terms, (b) are legal, valid and
binding obligations of the respective debtors enforceable in accordance with
their respective terms, (c) except as disclosed in Schedule 2.30, are not
subject to any valid set-off or counterclaim, (d) except as disclosed in
Schedule 2.30, do not represent obligations subject to approval, rebate or any
other repurchase or return arrangement and (e) to the knowledge of the Company,
are good and collectible (net of any reserves for doubtful accounts shown on the
applicable Interim Financial Statements), without resort to litigation or
extraordinary collection activity, in accordance with the terms thereof.
13
2.12 BANKS AND BROKERAGE ACCOUNTS. Schedule 2.12 sets forth (a) a true and
complete list of the names and locations of all banks, trust companies,
securities brokers and other financial institutions at which the Company or
either Company Subsidiary has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship,
indicating in each case the account number and the names of the respective
officers, employees, agents or other similar representatives of the Company or
either Company Subsidiary having signatory power with respect thereto and (c) a
list of each Investment Asset, the name of the record and beneficial owner
thereof, the location of the certificates, if any, representing each such
Investment Asset, the maturity date, if any, of each such Investment Asset, and
any stock or bond powers or other authority for transfer granted with respect
thereto.
2.13 CAPITAL ADEQUACY. Except as set forth on Schedule 2.13, the Company
and each of the Company Subsidiaries is in full compliance with all Laws
applicable to the adequacy and maintenance of its Statutory Surplus and, at the
Closing, will fully satisfy the Minimum Capital Requirements (except that any
shortfall in such requirements will be fully cured by virtue of Section 1.7(d))
2.14 TAXES.
(a) All Tax Returns required to have been filed by or with respect to
the Company, either Company Subsidiary or any affiliated, consolidated,
combined, unitary or similar group of which the Company or either Company
Subsidiary is or was a member (a "Relevant Group") have been duly and timely
filed (including any extensions). All such Tax Returns are true, complete and
correct in all material respects (including with respect to the adoption and
application of all tax accounting methods utilized for each Taxable period by
the Company and each of the Company Subsidiaries, including, without limitation,
the methods of accounting for loss reserves, reserves for incurred but not
reported losses, loss adjustment expense reserves and unearned premium reserves.
All Taxes due and payable by the Company, either Company Subsidiary or any
member of a Relevant Group, including withholding Taxes, whether or not shown on
any Tax Return, or claimed to be due by any Tax Authority, for periods (or
portions of periods) through the Interim Financial Statement Date, have been
paid or accrued on the balance sheet included in the Interim Financial
Statements.
(b) Neither the Company nor either Company Subsidiary (or any member
of a Relevant Group) has incurred any material liability for Taxes in the
periods (or portions of periods) after the Interim Financial Statement Date.
The unpaid Taxes of the Company and each Company Subsidiary (i) did not, as of
the most recent fiscal month end, exceed the amount the reserve for Liability
for Income Tax (other than the reserve for deferred taxes established to reflect
timing differences between book and tax income) or Other Tax set forth on the
face of the balance sheet included in the Interim Financial Statements and (ii)
will not exceed the amount of such reserve as adjusted for operations and
transactions in the ordinary course of business through the Effective Time.
(c) Neither the Company nor either Company Subsidiary is a party to
any agreement extending the time within which to file any Tax Return, which Tax
Return has not since been timely filed. No claim has ever been made by a Taxing
14
Authority of any jurisdiction in which the Company or either Company Subsidiary
or any member of any Relevant Group does not file Tax Returns that the Company,
either Company Subsidiary or such member is or may be subject to taxation by
that jurisdiction.
(d) The Company has no knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against or in respect of
it, either Company Subsidiary or any Relevant Group for any past period. There
is no dispute or claim concerning any Tax Liability of the Company or either
Company Subsidiary either (i) threatened, claimed or raised by any Taxing
Authority or (ii) of which the Company is otherwise aware. There are no Liens
for Taxes upon the Assets and Properties of the Company or either Company
Subsidiary other than Liens for Taxes not yet due. Schedule 2.14 indicates
those Tax Returns, if any, of the Company, either Company Subsidiary and each
member of any Relevant Group that have been audited or examined by Taxing
Authorities, and indicates those Tax Returns of the Company, either Company
Subsidiary and each member of any Relevant Group that currently are the subject
of audit or examination. The Company has delivered to Parent complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, the Company, either Company Subsidiary and each member
of any Relevant Group since the fiscal year ended December 31, 1998.
(e) There are no outstanding agreements or waivers extending the
statute of limitations period applicable to any Tax Returns required to be filed
by, or which include or are treated as including, the Company or either Company
Subsidiary, which period (after giving effect to such agreement or waiver) has
not yet expired.
(f) Neither the Company nor either Company Subsidiary has received any
written ruling related to Taxes or entered into any agreement with a Taxing
Authority relating to Taxes.
(g) Neither the Company nor either Company Subsidiary has liability
for the Taxes of any Person (other than the Company or either Company
Subsidiary) (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign Law), (ii) as a transferee or
successor, (iii) by Contract or (iv) otherwise.
(h) Neither the Company nor either Company Subsidiary (i) has agreed
to make nor is required to make any adjustment under Section 481 of the Internal
Revenue Code by reason of a change in accounting method or (ii) is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Internal Revenue
Code.
(i) Neither the Company nor either Company Subsidiary (i) is a party
to or bound by any obligations under any tax sharing agreement, tax allocation
agreement, tax indemnity agreement or similar Contract, or (ii) is obligated
under any Contract to afford any other Person the benefits of any net operating
losses, charitable deductions or other Tax credits, or to permit the transfer of
any revenues, receipts or gains to such Person from any Third Party.
(j) Neither the Company nor either Company Subsidiary is involved in,
subject to, or a party to any joint venture, partnership, Contract or other
arrangement that is treated as a partnership for federal, state, local or
foreign Income Tax purposes.
15
(k) Except as disclosed in Schedule 2.14, neither the Company nor
either Company Subsidiary was included or is includible in the Tax Return of any
Relevant Group with any corporation other than such a return of which the
Company is the common parent corporation.
(l) Neither the Company nor either Company Subsidiary has made any
payments, is obligated to make any payments, or is a party to any Contract
covering any current or former employee or consultant of the Company or either
Company Subsidiary that under certain circumstances could require it to make or
give rise to any payments that are not deductible as a result of the provisions
set forth in Section 280G of the Internal Revenue Code or the Treasury
regulations thereunder or would result in an excise tax to the recipient of any
such payment under Section 4999 of the Internal Revenue Code.
(m) Except as disclosed in Schedule 2.14, there is currently no
limitation on the utilization of the net operating losses, built-in losses,
capital losses, Tax credits or other similar items of the Company or either
Company Subsidiary under (i) Section 382 of the Internal Revenue Code, (ii)
Section 383 of the Internal Revenue Code, (iii) Section 384 of the Internal
Revenue Code, and (iv) Section 1502 of the Internal Revenue Code and Treasury
regulations promulgated thereunder.
(n) All material elections with respect to Income Taxes affecting the
Company or either Company Subsidiary are set forth in Schedule 2.14.
(o) Neither the Company nor either Company Subsidiary is nor has ever
been a United States real property holding corporation within the meaning of
Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
2.15 BUSINESS COMBINATIONS. Except as set forth in Schedule 2.15, neither
the Company nor either of the Company Subsidiaries has, for the five years
preceding the date of this Agreement, acquired financial, voting, or other
control of any other business, whether by Business Combination or other means
(each such transaction individually a "Company Acquisition" and collectively
"Company Acquisitions"). Schedule 2.15 sets forth, with respect to each Company
Acquisition, the terms of any and all non-competition agreements with the
sellers in such transactions and the terms of any existing payment obligations
by the Company or either Company Subsidiary with respect to such transactions,
whether contingent or otherwise.
2.16 LEGAL PROCEEDINGS.
(a) Except as set forth in Schedule 2.16(a):
(i) there are no Actions or Proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company, either Company Subsidiary or the Assets or Properties of the Company or
either Company Subsidiary;
(ii) there are no Actions or Proceedings initiated by the
Company, either Company Subsidiary or any Affiliate of the Company or either
Company Subsidiary;
16
(iii) there are no facts or circumstances known to the Company
that the Company reasonably expects to give rise to any Action or Proceeding by
or against, relating to or affecting the Company or either Company Subsidiary;
and
(iv) neither the Company nor either Company Subsidiary has
received notice, or otherwise has knowledge, of any Orders outstanding against
the Company or either Company Subsidiary.
(b) Prior to the execution of this Agreement, the Company has
delivered to Parent all responses of counsel for the Company or either Company
Subsidiary to all auditor's requests for information for the preceding three
years (together with the Company and the Company Subsidiaries as a consolidated
group provided by such counsel) regarding Actions or Proceedings pending or
threatened against, relating to or affecting the Company or either Company
Subsidiary. Schedule 2.16(b) sets forth all Actions or Proceedings since
January 1, 2000, relating to or affecting, or, to the knowledge of the Company,
threatened against, the Company, either Company Subsidiary or any of the Assets
and Properties of the Company or either Company Subsidiary that involve claims
in excess of $100,000 or that seek injunctive or some other form of non-monetary
relief against the Company or either of the Company Subsidiaries.
2.17 COMPLIANCE WITH LAWS AND ORDERS. Except as set forth on Schedule
2.17, (a) neither the Company nor either Company Subsidiary, (b) no corporate
director, corporate officer or Affiliate of the Company or either Company
Subsidiary and (c) to the knowledge of the Company, no agent or employee of the
Company or either Company Subsidiary, has, since January 1, 2000, violated in
any material respect, or is currently in default or violation, in any material
respect under any Law or Order applicable to the Company or Company Subsidiary
or to any of its Assets and Properties, including but not limited to the NY
Managed Care Act, the New York Prompt Pay Law (N.Y. Ins. Law sec. 3224-a), the
CT Managed Care Act, the Connecticut Managed Care Accountability Act (Public Act
No. 99-284) and the Connecticut Prompt Pay Law (CT Gen. Statutes sec. 38a-816),
and the Company has no knowledge of any claim of material violation, or of any
actual material violation, of any such Laws and Orders by the Company or either
Company Subsidiary since January 1, 2000.
2.18 PLANS; ERISA.
(a) Except as disclosed on Schedule 2.18, (i) neither the Company nor
either Company Subsidiary currently maintains or sponsors, or makes or is
required to make contributions to, any Plans, (ii) none of such Company Plans is
a "multi-employer plan," as defined in Section 3(37) of ERISA, (iii) none of
such Company Plans is a "defined benefit pension plan" within the meaning of
Section 3(35) of ERISA, (iv) none of such Company Plans provides post-retirement
medical or health benefits (other than COBRA continuation coverage as required
by federal law or similar state insurance law), (v) none of such Company Plans
is a "welfare benefit fund," as defined in Section 419(e) of the Internal
Revenue Code, or an organization described in Sections 501(c)(9) or 501(c)(20)
of the Internal Revenue Code, (vi) neither the Company nor either Company
Subsidiary is a party to any collective bargaining agreement, and (vii) neither
the Company nor either Company Subsidiary has announced or otherwise made any
commitment to create or amend any Plan, other than amendments to any qualified
retirement plan as needed to retain such plan's qualified status.
Notwithstanding any statement or indication in this Agreement to the contrary,
17
there are no Plans (A) as to which Parent will be required to make any
contributions or with respect to which Parent shall have any obligation or
liability whatsoever, whether on behalf of any of the current employees of the
Company or either Company Subsidiary or on behalf of any other person, after the
Closing, except contributions or liabilities disclosed on the Companies'
Financials with respect to such Plans that Parent continues after the Closing,
or (B) which Parent or any Subsidiary will not be able to terminate immediately
after the Closing in accordance with their terms and ERISA. With respect to
each of such Plans, at the Closing there will be no unrecorded liabilities of
the Company or either Company Subsidiary with respect to the establishment,
implementation, operation, administration or termination of any such Plan, or
the termination of the participation in any such Plan by the Company, either
Company Subsidiary or any of their respective ERISA Affiliates. With respect to
each Plan currently maintained by the Company or either Company Subsidiary, the
Company has delivered to Parent true and complete copies of: (I) each of the
Plans and any related funding agreements thereto (including insurance contracts)
including all amendments, all of which are legally valid and binding and in full
force and effect and there are no defaults thereunder, (II) the currently
effective Summary Plan Description pertaining to each of such Plans, (III) all
annual reports for each of such Plans (including all related schedules) filed
with respect to the last three plan years for which a filing is due, (IV) the
most recently filed PBGC Form 1 (if applicable), (V) the most recent IRS
determination letter, opinion, notification or advisory letter (as the case may
be) for each such Plan which is intended to constitute a qualified plan under
Section 401 of the Internal Revenue Code, and (VI) for each funded Plan,
financial statements consisting of (a) the consolidated statement of assets and
liabilities of such Plan as of its most recent valuation date, and (b) the
statement of changes in fund balance and in financial position or the statement
of changes in net assets available for benefits under such Plan for the most
recently-ended plan year, which such financial statements shall fairly present
the financial condition and the results of operations of such Plan in accordance
with GAAP, consistently applied, as of such dates.
(b) The present value of all accrued benefits under any Company Plan
or ERISA Affiliate Plan subject to Title IV of ERISA shall not, as of the
Effective Time, exceed the value of the assets of such Plans allocated to such
accrued benefits, determined on an ongoing basis and based upon the applicable
provisions of the Internal Revenue Code and ERISA, and each such Plan shall be
capable of being terminated as of the Effective Time in a "standard termination"
under Section 4041(b) of ERISA. With respect to each Company Plan or ERISA
Affiliate Plan that is subject to Title IV of ERISA, (i) no amount is due or
owing from any Company or any of its ERISA Affiliates to the PBGC or to any
"multi-employer Plan" as defined in Section 3(37) of ERISA on account of any
withdrawal therefrom and (ii) no such Plan has been terminated within the last
six years other than in accordance with ERISA or at a time when the Plan was not
sufficiently funded. The transactions contemplated hereunder, including without
limitation the termination of any Company Plan or ERISA Affiliate Plan at or
prior to the Closing, shall not result in any such withdrawal or other liability
with respect to the Company or either Company Subsidiary under any applicable
Laws.
(c) Neither the Company nor either Company Subsidiary is subject to
any material liability, tax or penalty whatsoever to any person or agency
whomsoever as a result of engaging in a prohibited transaction under ERISA or
18
the Internal Revenue Code, and neither the Company nor either Company Subsidiary
has any knowledge of any circumstances which reasonably might result in any such
material liability, tax or penalty, including but not limited to, a penalty
under Section 502 of ERISA, as a result of a breach of any duty under ERISA or
under other Laws. Each Plan maintained by the Company or either Company
Subsidiary which is required to comply with the provisions of Section 4980C of
the Internal Revenue Code, or with the requirements referred to in Section 4980D
of the Internal Revenue Code, has complied in all material respects. No event
has occurred which could subject any Company Plan to tax under Section 511 of
the Internal Revenue Code. None of the Company Plans or ERISA Affiliate Plans
subject to Title IV of ERISA has been completely or partially terminated nor has
there been any "reportable event," as such term is defined in Section 4043(b) of
ERISA, with respect to any of the Plans within the prior six years nor has any
notice of intent to terminate been filed or given with respect to any such Plan
within the prior six years. Within the last six years, there has been no (i)
withdrawal by the Company, either Company Subsidiary or any of their respective
ERISA Affiliates that is a substantial employer from a single-employer plan
which is a Plan and which has two or more contributing sponsors at least two of
whom are not under common control, as referred to in Section 4063(b) of ERISA,
or (ii) cessation by the Company, either Company Subsidiary or any of their
respective ERISA Affiliates of operations at a facility causing more than 20% of
Plan participants to be separated from employment, as referred to in Section
4062(f) of ERISA. None of the Company, either Company Subsidiary, any of their
respective ERISA Affiliates or any other organization of which any of them are a
successor or parent corporation as defined in Section 4069(b) of ERISA, have
engaged in any transaction described in Section 4069(a) of ERISA.
(d) None of the current Company Plans or ERISA Affiliate Plans nor any
trust created thereunder has incurred any "accumulated funding deficiency" as
such term is defined in Section 412 of the Internal Revenue Code, whether or not
waived, as of the most recently completed plan year of such Plan, and no
condition has occurred or exists which by the passage of time could be expected
to result in an accumulated funding deficiency as of the last day of the current
plan year of any such Plan. Furthermore, none of the Company, either Company
Subsidiary or any of their respective ERISA Affiliates has any unfunded
liability under ERISA in respect of any of the Company Plans or ERISA Affiliate
Plans. Each of the Company Plans which is intended to be a qualified plan under
Section 401(a) of the Internal Revenue Code has received a favorable
determination letter, opinion, notification or advisory letter from the IRS or
has a period of time remaining under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination and make any
amendments necessary to obtain a favorable determination as to the qualification
of each such Plan. All of the Company Plans have been administered and
maintained in substantial compliance with their terms, ERISA, the Internal
Revenue Code and all other applicable Laws. All contributions required to be
made to each of the Company Plans under the terms of that Plan, ERISA, the
Internal Revenue Code or any other applicable Laws have been timely made. Each
Company Plan intended to meet the requirements for tax-favored treatment under
Subchapter B of Chapter 1 of the Internal Revenue Code is in material compliance
with such requirements. There are no Liens against the property of the Company,
either Company Subsidiary or any of their respective ERISA Affiliates under
Section 412(n) of the Internal Revenue Code or Sections 302(f) or 4068 of ERISA.
The Interim Financial Statements properly reflect all amounts required to be
accrued as liabilities to date under each of the Company Plans.
19
(e) Neither the execution of this Agreement nor the consummation of
any of the transactions contemplated hereby (whether alone or upon the
occurrence of any additional or further acts or events) will (i) result in any
obligation or liability (with respect to accrued benefits or otherwise) on the
part of Parent or its Affiliates to the PBGC, to any Plan, or to any present or
former employee, director, officer, stockholder, contractor or consultant of
Parent, the Surviving Corporation, or any their respective Subsidiaries or any
of their dependents, except liability or obligations arising in the normal
course a sponsor of a Company Plan or liability accrued on the Interim Financial
Statements, (ii) be a trigger event under any Company Plan that will result in
any payment (whether of severance pay or otherwise) becoming due to any such
present or former employee, officer, director, stockholder, contractor, or
consultant, or any of their dependents (except with respect to termination of
any qualified retirement plan or payment of benefits in the normal course
thereunder, such as upon termination of employment), or (iii) accelerate the
time of payment or vesting (except with respect to termination of any qualified
retirement plan), or increase the amount, of any compensation theretofore or
thereafter due or granted to any employee, officer, director, shareholder,
contractor, or consultant of the Company or either Company Subsidiary or any of
their dependents. With respect to any insurance policy which provides, or has
provided, funding for benefits under any Company Plan, (A) there is and will be
no liability of Parent or its Affiliates in the nature of a retroactive or
retrospective rate adjustment, loss sharing arrangement, or actual or contingent
liability as of the Effective Time, nor would there be any such liability if
such insurance policy were terminated as of the Effective Time, except for
liability to pay premiums as accrued on the Interim Financial Statements and (B)
to the knowledge of the Company, no insurance company issuing any such policy is
in receivership, conservatorship, bankruptcy, liquidation, or similar
proceeding, and no such proceedings with respect to any insurer are imminent.
(f) With respect to each Company Plan or ERISA Affiliate Plan which
provides health care coverage, the Company, each Company Subsidiary and each
ERISA Affiliate has complied in all material respects with (i) the applicable
health care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), and the applicable
COBRA regulations and (ii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 and the regulations thereunder, and
none of the Company, either Company Subsidiary or any of their respective ERISA
Affiliates has incurred any liability under Section 4980B of the Internal
Revenue Code.
(g) Other than routine claims for benefits under the Company Plans,
there are no pending, or, to the knowledge of the Company, threatened, Actions
or Proceedings involving such Plans, or the fiduciaries, administrators, or
trustees of any of such Plans or the Company or either Company Subsidiary as the
employer or sponsor under any such Plan, with any of the IRS, the Department of
Labor, the PBGC, any participant in or beneficiary of any such Plan or any other
person whomsoever. The Company knows of any reasonable basis for any such claim,
lawsuit, dispute, action or controversy.
2.19 PERMITS AND APPROVALS.
(a) The Company and each Company Subsidiary has, and the Company and
the Company Subsidiaries as a consolidated group have, all Permits and Approvals
necessary to conduct their respective and collective businesses as currently
20
conducted, other than such Permits and Approvals which are not material to the
business of the Company or either Company Subsidiary and could be obtained
promptly and without the imposition of any Liabilities upon payment of a fee not
in excess of $25,000 in any instance, or $100,000 in the aggregate, and such
Permits and Approvals are valid and in full force and effect. Schedule 2.19
contains a list of each of the Permits and Approvals of the Company and each
Company Subsidiary. Neither the Company nor either Company Subsidiary has
received any notification of any violations in respect of any such Permit or
Approval, and no proceedings are pending or, to the knowledge of the Company,
threatened, concerning the revocation or limitation of any Permit or Approval of
the Company or either Company Subsidiary. Since January 1, 2000, the Company
and each Company Subsidiary has filed all material reports, registrations and
statements, together with any material amendments required to be made with
respect thereto, heretofore required to be filed with (i) the NY DOI, (ii) the
CT DOI, (iii) the NY DOH, (iv) the CT DSS, (v) the CMS and (vi) any other
Governmental or Regulatory Authority requiring the same.
(b) WCNY is an HMO certified under Article 44 of the New York Public
Health Law. FirstChoice is an insurer licensed pursuant to Chapter 698 of the
Connecticut General Statutes. Except as set forth in Schedule 2.13 with respect
to Laws applicable to the adequacy and maintenance of Statutory Surplus, the
operations of the Company and each Company Subsidiary comply in all material
respects with the applicable provisions of the NY Managed Care Act and the CT
Managed Care Act, the applicable rules of the NY DOI, the CT DOI, the NY DOH and
the CT DSS and the terms and requirements of each Medicaid Contract, Child
Health Plus Contract, Family Health Plus Contract and Medicare Plus Choice
Contract held by them, as applicable. Except as set forth on Schedule 2.19,
since January 1, 2000, neither the Company nor either Company Subsidiary has
received from the NY DOI, the CT DOI, the NY DOH, the CT DSS or CMS any
citation, suspension, revocation, limitation, warning or similar notice. The
Company does not have health plan or other operations outside of the States of
New York and Connecticut, WCNY does not have health plan or other operations
outside of the State of New York and FirstChoice does not have health plan or
other operations outside of the State of Connecticut. Neither of the Company
Subsidiaries has any business other than HMO operations and functions related
thereto. None of the Company, either of the Company Subsidiaries or any of
their respective Affiliates or Associates holds any third party administrator
license.
2.20 REAL PROPERTY.
(a) Schedule 2.20 contains a true and correct list of (i) each parcel
of real property leased, utilized and/or operated by the Company or either
Company Subsidiary (as lessor or lessee or otherwise) (the "Leased Real
Property") and (ii) all Liens relating to or affecting any parcel of real
property referred to in clause (i) to which the Company or either Company
Subsidiary is a party. Neither the Company nor either Company Subsidiary owns
real property other than leasehold improvements, if any, on the Leased Real
Property.
(b) Subject to the terms of its respective leases, the Company and
each Company Subsidiary has a valid and subsisting leasehold estate in and the
right to quiet enjoyment of the Leased Real Properties for the full term of the
leases (including renewal periods) relating thereto. Each lease referred to in
clause (i) of paragraph (a) above is a legal, valid and binding agreement,
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enforceable in accordance with its terms, of the Company or Company Subsidiary,
as applicable, and of each other Person that is a party thereto, and there is
no, and neither the Company nor either Company Subsidiary has received notice of
any, default (or any condition or event which, after notice or lapse of time or
both, would constitute a default) thereunder. Neither the Company nor either
Company Subsidiary owes brokerage commissions or finders fees with respect to
any such Leased Real Property, except to the extent that the Company or Company
Subsidiary may renew the term of any such lease, in which case, any such
commissions and fees would be in amounts that are reasonable and customary for
the spaces so leased, given their intended use and terms.
(c) All improvements on the Leased Real Property comply in all
material respects with and are operated in all material respects in accordance
with applicable laws (including, without limitation, Environmental Laws) and all
applicable Liens, Approvals, Contracts, covenants and restrictions. There are
no condemnation or appropriation proceedings pending or, to the knowledge of the
Company, threatened against any of such real property or the improvements
thereon. To the knowledge of the Company, each of the Leased Real Properties
and the improvements thereon complies with the Americans with Disabilities Act.
(d) True and correct copies of the documents under which the Leased
Real Property is leased, subleased (to or by the Company, either Company
Subsidiary or otherwise), utilized, and/or operated (the "Lease Documents") have
been delivered to Parent. The Lease Documents are unmodified and in full force
and effect, and there are no other Contracts between the Company or either
Company Subsidiary and any third parties, or, to the knowledge of the Company,
by and among any third parties, claiming an interest in the interest of the
Company or either Company Subsidiary in the Leased Real Property or otherwise
relating to the use or occupancy of the Leased Real Property.
2.21 TANGIBLE PERSONAL PROPERTY. Except as set forth in Schedule 2.21, the
Company and each Company Subsidiary is in possession of and owns, or has valid
leasehold interests in or valid rights under Contract to use, all tangible
personal property used in the conduct of its business, including all tangible
personal property reflected on the Companies' Financials and tangible personal
property acquired since the Audited Financial Statement Date, other than
property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property (including
plant, property and equipment) is free and clear of all Liens and is adequate
and suitable in all material respects for the conduct by the Company or such
Company Subsidiary, as applicable, of its business as presently conducted, and
its use complies in all material respects with all applicable Laws. Schedule
2.21 contains a list of all motor vehicles owned, leased or otherwise used or
insured by the Company or either Company Subsidiary, setting forth the make,
model, vehicle identification number and year of manufacture of each vehicle,
indicating whether each vehicle is owned or leased and, if owned, the name of
any lienholder and the amount of the lien or, if leased, the name of the lessor
and the general terms of the lease.
2.22 INTELLECTUAL PROPERTY.
(a) Schedule 2.22 contains an accurate and complete list of (i) all
patents and patent applications, trademarks, service marks, Internet domain
names and applications therefor, and copyrights and copyright applications,
which are part of the Companies' Intellectual Property and which have been
issued or registered by, or filed with, any United States, foreign or
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international governmental or other body having authority to issue, register or
review the same, and (ii) all licenses, sublicenses and other agreements
pursuant to which the Company or either Company Subsidiary is granted rights
under any third party Intellectual Property, other than licenses to use "off the
shelf" software, or pursuant to which any third party is authorized to use any
Intellectual Property. With respect to "off the shelf" software, site licenses
are maintained and complied with by the Company or a Company Subsidiary, as
applicable, permitting use by all current employees of such Person.
(b) All of the Companies' Intellectual Property is: (i) owned solely
and exclusively by the Company or a Company Subsidiary, free and clear of any
and all mortgages, pledges, liens, security interests, conditional sale
agreements or encumbrances of any kind or (ii) rightfully used or otherwise
enjoyed by the Company or a Company Subsidiary pursuant to one or more license
agreements, each of which license agreements is valid and enforceable.
(c) Neither the Company nor either Company Subsidiary is, and no
action is currently pending which asserts that the Company or either Company
Subsidiary is, infringing on any Intellectual Property of any Person. Neither
the Company nor either Company Subsidiary has received notice from any Person
asserting that the Company or either Company Subsidiary is infringing on any
Intellectual Property of any Person, and, to the knowledge of the Company, there
is no basis for any such claim. No action is currently pending which asserts
that any Person is infringing on any of the Companies' Intellectual Property,
neither the Company nor either Company Subsidiary has asserted any claim of such
infringement against any Person and, to the knowledge of the Company, there is
no basis for any such claim.
(d) All Intellectual Property registrations included in the Companies'
Intellectual Property have been duly maintained, are in full force and effect
and have not been cancelled, expired or abandoned.
2.23 GOVERNMENT HEALTHCARE MATTERS.
(a) Schedule 2.23(a) contains a true and complete list of each
Contract, including all amendments, with CMS, the NY DOH, any county located in
the State of New York, the CT DSS or any other Governmental or Regulatory
Authority to which the Company or either Company Subsidiary is a party. Except
as set forth in Schedule 2.23(a), the Company and each Company Subsidiary (i) is
in compliance with all such Contracts, (ii) is not in breach or default of such
Contract and (iii) is currently meeting all conditions of participation for any
and all of its Medicare and Medicaid businesses, and for the Child Health Plus
and Family Health Plus programs, in each such case other than any non-
compliance, breach, default or failure to meet such conditions which the Company
reasonably expects would not result in the termination of such Contract or, with
respect to each such Contract, the imposition of a fine or corrective action
which would require expenditures in excess of $50,000 in any instance or
$100,000 in the aggregate. There do not exist any factual circumstances that
with notice or lapse of time would constitute a breach or default of any
Contract disclosed or required to be disclosed on Schedule 2.23(a) or the
conditions of participation for the Medicare and Medicaid programs or for the
Child Health Plus or Family Health Plus programs, other than such circumstances
which, individually or in the aggregate, the Company reasonably expects would
not result in the termination of such Contract or, with respect to each such
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Contract, the imposition of a fine or corrective action which would require
expenditures in excess of $50,000 in any instance or $100,000 in the aggregate.
(b) Schedule 2.23(b) contains (i) a list of the dates of all surveys
performed by any Governmental or Regulatory Authority to which the Company or
either Company Subsidiary was a party at any time since January 1, 2000, and any
deficiencies for which a plan of correction was required and (ii) a list of all
notices of noncompliance, requests for remedial action, return of overpayment or
imposition of fines (whether ultimately paid or otherwise resolved) by any
Governmental or Regulatory Authority or as a result of the participation by the
Company or either Company Subsidiary in the Medicare, Medicaid, Child Health
Plus or Family Health Plus programs at any time since January 1, 2000.
2.24 COMMERCIAL SUBSCRIBER AGREEMENTS. Schedule 2.24 sets forth (i) a list
of any and all forms for small and large group and individual commercial
subscriber, beneficiary or membership agreements which have been approved by the
DOI, (ii) the applicable, approved rates for such agreements and (iii) with
respect to each group subscriber agreement, the name and address of any large
group and the number of members of such group. The Company has delivered to
Parent copies of such agreements with respect to the 20 largest commercial
subscriber groups by membership as of the date hereof. All member or commercial
subscriber agreements to which the Company or either Company Subsidiary is a
party were entered into in the ordinary course of business and constitute legal,
valid and binding agreements of the parties thereto. Except as set forth in
Schedule 2.24, to the knowledge of the Company, neither the Company nor either
Company Subsidiary has violated any of the material terms or conditions of any
membership or commercial subscriber agreement, and all material covenants to be
performed by any other party thereto have, to the knowledge of the Company, been
fully performed. Except as set forth in Section 2.6(a), no Approval of any
other party, including but not limited to any Governmental or Regulatory
Authority, is required under any such agreement as a result of the Merger or any
of the transactions contemplated hereby.
2.25 PROVIDER AGREEMENTS. Schedule 2.25 sets forth a list of all Persons
who are parties to provider agreements or similar Contracts for health care
services, supplies or pharmaceuticals, and sets forth the number of covered
lives serviced by each such Person. The Company has delivered to Parent copies
of such agreements for the 20 largest providers doing business with the Company
and each Company Subsidiary, on the basis of revenues collected or accrued for
the twelve months ended March 31, 2002. Schedule 2.25 also designates those
providers who through capitation or some other financial risk transfer
arrangements have contractually assumed liability of ten percent or more for the
delivery of specified health care services to members or subscribers. Except as
disclosed in Schedule 2.25, to the knowledge of the Company, neither the Company
nor either Company Subsidiary has violated any of the material terms or
conditions of any provider agreement or similar Contract, other than violations
which, individually or in the aggregate, could not reasonably be expected to
result in the termination of such Contract or give rise to a claim which could
reasonably be expected to require expenditures in excess of $50,000. Except as
disclosed in Schedule 2.25, no such provider has ceased or materially reduced
its provision of services to any plan beneficiary or group of the Company or
either Company Subsidiary or has threatened to do so. Schedule 2.25 lists all
of those provider agreements or similar Contracts which the Company or either
Company Subsidiary intends not to renew, which Contract, if not renewed or
replaced, could reasonably be expected to result in a Material Adverse Change.
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Attached to Schedule 2.25 are (i) a standard base form (or forms) of provider
agreement used by the Company or either Company Subsidiary as an agreement with
its respective providers and (ii) summary reports setting forth (A) the
Company's and each Company Subsidiary's primary care physician membership
listing for April 2002, (B) the Company's and each Company Subsidiary's primary
care physician capitation report for April 2002, (C) the Company's and each
Company Subsidiary's primary care physician check register for April 2002 and
(D) a list of all fee-for-service providers to whom the Company or either
Company Subsidiary have made payments in excess of $250,000 per year, calculated
on an annualized basis, during calendar year 2001 or the four-month period ended
April 30, 2002, and identifying which providers are par and which are non-par.
Except as disclosed in Schedule 2.25, any and all provider agreements and
similar Contracts are in compliance with all legal requirements as to form and
substance under the applicable Laws, including but not limited to any
investment, anti-referral, kickback or fee splitting prohibitions. Except as
disclosed in Schedule 2.25, no contractual or other relationship exists with any
Person which would violate any federal or state Laws as to investment, anti-
referral, kickback or fee splitting prohibitions.
2.26 CONTRACTS.
(a) Schedule 2.26(a) contains a true and complete list of each
Designated Contract to which the Company or either Company Subsidiary is a
party.
(b) Each Contract required to be disclosed in Schedule 2.26(a) is in
full force and effect and constitutes a legal, valid and binding agreement,
enforceable in accordance with its terms. Neither the Company nor either
Company Subsidiary is, neither the Company nor either Company Subsidiary has
received notice that it is and, to the knowledge of the Company, no other party
to any such Contract is, nor has received notice that it is, in violation or
breach of or default under any such Contract (or with notice or lapse of time or
both, would be in violation or breach of or default under any such Contract).
(c) Except as disclosed in Schedule 2.26(c), neither the Company nor
either Company Subsidiary is a party to or bound by (i) any Designated Contract
that automatically terminates or allows termination by the other party thereto
upon consummation of the transactions contemplated by this Agreement or (ii) any
Contract that contains any covenant or other provision which limits the ability
of the Company or either Company Subsidiary to compete with any Person in any
line of business or in any area or territory.
2.27 SUPPLIERS. Set forth on Schedule 2.27 are the names and addresses of
all the suppliers from which the Company or either Company Subsidiary ordered
supplies, software and other goods or services with an aggregate purchase price
of $50,000 or more during the twelve-month period ended March 31, 2002, and the
amount for which each such supplier invoiced the Company or Company Subsidiary,
as applicable, during such period. Neither the Company nor either Company
Subsidiary has received any notice or has any reason to believe that any such
supplier will not sell supplies, merchandise and other goods to the Company or
either Company Subsidiary at any time after the Effective Time on terms and
conditions substantially similar to those used in its current sales to the
Company or a Company Subsidiary, subject only to general and customary price
increases and decreases.
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2.28 AUDIT REPORTS. Schedule 2.28 sets forth a true, accurate and complete
list of all reports and correspondence regarding all Agency Audits, and all
other audit reports prepared by the CMS, the NY DOI, the CT DOI, the NY DOH, the
CT DSS or any other Governmental or Regulatory Authority relating to the
operations or business of the Company or either Company Subsidiary, from each
year (or part thereof) since January 1, 2000.
2.29 MEMBERSHIP. Schedule 2.29 sets forth the true and accurate number,
with respect to the Company and each Company Subsidiary, of all (i) Medicare
subscribers, (ii) Medicaid subscribers, (iii) subscribers in the Commercial
Lines of Business, (iv) Child Health Plus subscribers and (v) Family Health Plus
subscribers, in each case as of March 31, 2002 (excluding the effect of
customary retroactive terminations).
2.30 PREMIUMS. Except as set forth in Schedule 2.30, all premiums or other
payments received by the Company or either Company Subsidiary since January 1,
2000 were bona fide payments received from Governmental or Regulatory
Authorities without subsequent setoff, overpayment, disgorgement or recoupment
for fiscal years prior to Closing. Except as set forth in Schedule 2.30, all
premiums for any Commercial Lines of Business were paid by unaffiliated third
parties in arms length transactions and the receipt by and collection of such
premiums complied with all Laws, without setoff, recoupment, dispute or
repayment for unearned premiums.
2.31 CLAIMS. Attached to Schedule 2.31 are copies of lag reports setting
forth the Company's and each Company Subsidiary's payment of medical claims
during the four-month period ended April 30, 2002. Except as set forth in
Schedule 2.31, (a) subject to customary lags, consistent with the attached lag
reports, all claims made by any parties under any and all products, lines of
business or other medical plans offered by the Company or either Company
Subsidiary have been paid within the applicable statutory time limit, (b) to the
knowledge of the Company, all claims, capitated payments and other payments to
providers made by any parties under any and all products, lines of business or
other medical plans offered by the Company or either Company Subsidiary have
been paid accurately and completely in accordance with the applicable provider's
written Contract for medical services and (c) there has been no allegation of
insufficient, untimely or otherwise inadequate payment or handling of claims.
Except as set forth in Schedule 2.31, all such payments have been made in
material compliance with any and all Contracts between the Company or either
Company Subsidiary, and each subscriber, beneficiary, patient or provider to
whom or to which payment is or was due, and there is no basis for any allegation
of noncompliance with respect to the payment of any claims under any such
Contract.
2.32 INSURANCE.
(a) Schedule 2.32(a) contains a true and complete list (including the
names and addresses of the insurers, the expiration dates thereof, the annual
premiums and payment terms thereof, the period of time covered thereby and a
brief description of the interests insured thereby) of all liability, property,
workers' compensation, directors' and officers' liability, fidelity bond,
reinsurance, medical malpractice and other insurance policies currently in
effect that insure the business, operations or employees of the Company or
either Company Subsidiary or affect or relate to the ownership, use or operation
26
of any of the Assets and Properties of the Company or either Company Subsidiary
and that have been issued to the Company, such Company Subsidiary or to any
Person for the benefit of the Company or such Company Subsidiary. Except as
disclosed in Schedule 2.32(a), none of the insurance coverage provided by the
policies set forth in Schedule 2.32(a) will terminate or lapse by reason of any
of the transactions contemplated by this Agreement or any of the Ancillary
Agreements. Each policy listed in Schedule 2.32(a) is valid and binding and in
full force and effect, all premiums due thereunder have been paid when due and
none of the Company, either Company Subsidiary or any Person to whom such policy
has been issued has received any notice of cancellation or termination in
respect of any such policy or is in default thereunder, and to the knowledge of
the Company, there is no reason or state of facts that the Company reasonably
expects to lead to the cancellation of any of such policies or of any threatened
termination of, or material premium increase with respect to, any of such
policies. The insurance policies listed in Schedule 2.32(a) are in amounts and
have coverages as required by any Contract to which the Company or either
Company Subsidiary with such policies is a party or by which any of their
respective Assets and Properties is bound.
(b) Schedule 2.32(b) contains a list of all claims made under any
insurance policies covering the Company or either Company Subsidiary in the last
two years. Except as set forth in Schedule 2.32(b), neither the Company nor
either Company Subsidiary has received notice that any insurer under any policy
referred to in this Section is denying, disputing or questioning liability with
respect to a claim thereunder or defending under a reservation of rights clause.
2.33 POWER OF ATTORNEY; GUARANTEES. Schedule 2.33 sets forth a complete
list or outstanding powers of attorney executed on behalf of the Company or
either Company Subsidiary. Except as set forth on Schedule 2.33, neither the
Company nor either Company Subsidiary (i) is a guarantor or otherwise liable for
any indebtedness of any other Person, (ii) holds any trust funds or (iii) acts
in the capacity of trustee.
2.34 AFFILIATE TRANSACTIONS.
(a) Except as disclosed in Schedule 2.34, (i) there are no Contracts
or Liabilities between the Company or either Company Subsidiary, on the one
hand, and (A) any current or former officer, director, manager, member,
shareholder, unit holder or any Affiliate or Associate of the Company or either
Company Subsidiary or (B) any Person who is an Associate of any such officer,
director, shareholder, unit holder or Affiliate, on the other hand, (ii) neither
the Company nor either Company Subsidiary provides or causes to be provided any
assets, services or facilities to any such current or former officer, director,
manager, member, shareholder, unit holder, Affiliate or Associate, (iii) none of
the Company, either Company Subsidiary nor any current or former officer,
director, manager, member, shareholder, unit holder, Affiliate or Associate
provides or causes to be provided any assets, services or facilities to the
Company or either Company Subsidiary and (iv) neither the Company nor either
Company Subsidiary beneficially owns, directly or indirectly, any Investment
Assets of any such current or former officer, director, manager, member,
shareholder, unit holder, Affiliate or Associate.
27
(b) Except as disclosed in Schedule 2.34, no current or former
officer, director, manager, member, shareholder, unit holder, employee or any
Affiliate or Associate of the Company or either Company Subsidiary owns any
Equity Securities in, or derives any financial benefit from, any provider or
Person doing business with the Company or either Company Subsidiary.
(c) Except as disclosed in Schedule 2.34, no Material Adverse Change
will result with respect to the Company or either Company Subsidiary if the
Company or either Company Subsidiary loses the benefits of the Contracts,
Liabilities, assets, services or facilities disclosed or required to be
disclosed in Schedule 2.34.
(d) Except as disclosed therein, each of the Contracts and Liabilities
disclosed (or required to be disclosed) on Schedule 2.34 has been submitted to
and approved by each applicable Governmental or Regulatory Authority, as
required by applicable Law (including, without limitation, the NY DOH pursuant
to 10 NYCRR sec. 98-1.11).
(e) Except as disclosed in Schedule 2.34, neither the Company nor
either of the Company Subsidiaries has ever paid excessive dividends or
distributions in violation of any applicable Law, including, without limitation,
the New York Insurance Law and Connecticut General Statutes section 38a.
Schedule 2.34 sets forth all dividends, distributions and other payments paid by
the Company or either of the Company Subsidiaries since January 1, 2000 to any
of their shareholders or their respective Affiliates or Associates, or otherwise
in respect of the Company's or either Company Subsidiary's Equity Securities.
With respect to any dividends, distributions or other payments which required
the approval of any Governmental or Regulatory Authority, a copy of each such
approval is attached to Schedule 2.34.
2.35 EMPLOYEES; LABOR RELATIONS.
(a) Neither the Company nor either Company Subsidiary is a party to
any collective bargaining agreement and there is no unfair labor practice or
labor arbitration proceedings pending with respect to the Company or either
Company Subsidiary, or, to the knowledge of the Company, threatened, and there
are no facts or circumstances known to the Company or either Company Subsidiary
that could reasonably be expected to give rise to such complaint or claim. To
the knowledge of the Company, there are no organizational efforts presently
underway or threatened involving any employees of the Company or either Company
Subsidiary or any of the employees performing work for the Company or either
Company Subsidiary but provided by an outside employment agency, if any. There
has been no work stoppage, strike or, to the knowledge of the Company, other
concerted action by employees of the Company or either Company Subsidiary.
(b) Except as disclosed in Schedule 2.35(b), all employees of the
Company and either Company Subsidiary are employed at will, and no employees of
the Company or either Company Subsidiary are represented by a union. Schedule
2.35(b) sets forth, individually and by category, the name of each officer,
employee and consultant of the Company and each Company Subsidiary, together
with each such person's position or function, annual base salary or wage and any
incentive, severance or bonus arrangements with respect to such person. Other
than the employees listed on Schedule 2.35(b) and any consultants retained
pursuant to a consulting agreement described on Schedule 2.26(a), no person
28
(including any Affiliate or Associate of the Company or either Company
Subsidiary, or any employee of any such Affiliate or Associate) provides
services in the nature of employment or consulting services to the Company or
either Company Subsidiary. The completion of the transactions contemplated by
this Agreement will not result in any payment or increased payment becoming due
by the Company or either Company Subsidiary to any current or former officer,
director or employee of, or consultant to, the Company or either Company
Subsidiary, and, to the knowledge of the Company, no employee of the Company or
either Company Subsidiary has made any threat, or otherwise revealed an intent,
to terminate such employee's relationship with the Company or either Company
Subsidiary, for any reason, including because of the consummation of the
transactions contemplated by this Agreement. Neither the Company nor either
Company Subsidiary is party to any agreement for the provision of labor from any
outside agency, other than standard Contracts, entered into in the ordinary
course of business, for the provision of temporary personnel on a short-term
basis. Since January 1, 2000, there have been no claims by employees of such
outside agencies against the Company or either Company Subsidiary, and no claims
by any governmental agency against the Company or either Company Subsidiary with
regard to such employees.
(c) Except as set forth on Schedule 2.35(c), since January 1, 2000,
there have been no federal or state claims made against the Company or either
Company Subsidiary based on sex, sexual or other harassment, age, disability,
race or other discrimination or common law claims, including claims of wrongful
termination, by any employees of the Company or either Company Subsidiary or by
any of the employees performing work for the Company or either Company
Subsidiary but provided by an outside employment agency, and to the knowledge of
the Company there are no facts or circumstances that could reasonably be
expected to give rise to such complaint or claim. Except as set forth in
Schedule 2.35(c), since January 1, 2000, neither the Company nor has either
Company Subsidiary received any notice of any claim that it has not complied in
any material respect with, any Laws relating to the employment of employees,
including without limitation, the Civil Rights Act of 1964, the Fair Labor
Standards Act, the Americans with Disabilities Act, the Immigration Reform and
Control Act of 1986, and any provisions of any other Laws relating to wages,
hours, collective bargaining, the payment of Social Security and similar taxes,
equal employment opportunity, employment nor either Company Subsidiary has
received any notice that it is liable for any arrearages of wages or any taxes
or penalties for failure to comply with any of the foregoing.
(d) Neither the Company nor either Company Subsidiary has written
policies and/or employee handbooks or manuals except as described in Schedule
2.35(d).
(e) To the knowledge of the Company, no officer, employee or
consultant of the Company nor either Company Subsidiary is obligated under any
Contract or other agreement or subject to any Order or Law that would interfere
with the Company's or either Company Subsidiary's business as currently
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's or either Company Subsidiary's business as
presently conducted nor any activity of such officers, employees or consultants
in connection with the carrying on of the Company's or either Company
Subsidiary's business as presently conducted, will conflict with or result in a
29
material breach of the terms, conditions or provisions of, constitute a default
under, or trigger a condition precedent to any rights under any Contract or
other agreement under which any of such officer's, employees or consultants is
now bound.
(f) There are no individuals currently providing services, or who have
within the last five years provided services, to the Company or either of the
Company Subsidiaries whose status as an employee or consultant to such Person
has not been properly reflected in the Tax filings of such Person.
2.36 ENVIRONMENTAL MATTERS.
(a) The Company and each Company Subsidiary possesses any and all
Environmental Permits necessary to or required for the operation of its
business. The Company and/or each Company Subsidiary will obtain, prior to the
Closing, any Environmental Permits that must be obtained as of or immediately
after the Closing in order for Parent, the Surviving Corporation and/or such
Person to conduct the business of such Person as it was conducted prior to the
Closing.
(b) The Company and each Company Subsidiary is in compliance with (i)
all terms, conditions and provisions of its Environmental Permits; and (ii) all
Environmental Laws.
(c) None of the Company, either Company Subsidiary, any predecessor of
the Company or either Company Subsidiary, nor any entity previously owned by the
Company or either Company Subsidiary has received any notice of alleged, actual
or potential responsibility for, or any inquiry regarding, (i) any Release or
threatened or suspected Release of any Hazardous Material, or (ii) any violation
of Environmental Law.
(d) None of the Company, either Company Subsidiary, any predecessor of
the Company or either Company Subsidiary, nor any entity previously owned by the
Company or either Company Subsidiary has any obligation or liability with
respect to any Hazardous Material, including any Release or threatened or
suspected Release of any Hazardous Material, and there have been no events,
facts or circumstances which could form the basis of any such obligation or
liability.
(e) No Releases of Hazardous Material(s) have occurred at, from, in,
to, on, or under any Site and no Hazardous Material is present in, on, about or
migrating to or from any Site.
(f) None of the Company, either Company Subsidiary, any predecessor of
the Company or either Company Subsidiary, nor any entity previously owned by the
Company or either Company Subsidiary, has transported or arranged for the
treatment, storage, handling, disposal or transportation of any Hazardous
Material at or to any location.
(g) No Site is a current or proposed Environmental Clean-up Site.
(h) There are no Liens under or pursuant to any Environmental Law on
any Site.
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(i) There is no (i) underground storage tank, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, (iii) asbestos-containing
material, (iv) radon, (v) lead-based paint or (vi) urea formaldehyde at any
Site. Any underground storage tank meets all 1998 upgrade requirements.
(j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted with respect to any Site which have
not been delivered to Parent prior to execution of this Agreement.
(k) Neither the Company nor either Company Subsidiary is a party,
whether as a direct signatory or as successor, assign, third party beneficiary,
guarantor or otherwise, to, and neither the Company nor either Company
Subsidiary is otherwise bound by, any lease or other contract under which the
Company or either Company Subsidiary is obligated or may be obligated by any
representation, warranty, covenant, restriction, indemnification or other
undertaking respecting Hazardous Materials or under which any other person is or
has been released respecting Hazardous Materials.
(l) The Company, each Company Subsidiary, all predecessors of the
Company or either Company Subsidiary, and any entity previously owned by the
Company or either Company Subsidiary have provided all notifications and
warnings, made all reports, and kept and maintained all records required
pursuant to Environmental Laws.
2.37 FOREIGN CORRUPT PRACTICES ACT; PROPER BUSINESS PRACTICES. To the
knowledge of the Company, neither the Company nor either Company Subsidiary, and
no agent, employee or other Person associated with or acting on behalf of the
Company or either Company Subsidiary has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other similar unlawful payment.
2.38 TAKEOVER STATUTES. The Company's Board of Directors has taken all
appropriate action to approve this Agreement, the Voting Agreements, the Merger
and the other transactions contemplated hereby pursuant to the provisions of
Section 912 of the NYBCL such that Section 912 of the NYBCL does not apply to
this Agreement or the transactions contemplated hereby. No other Takeover
Statute applicable to the Company or either Company Subsidiary is applicable to
this Agreement, the Voting Agreements, the Merger or the other transactions
contemplated hereby.
2.39 OTHER NEGOTIATIONS; BROKERS; THIRD PARTY EXPENSES. None of the
Company, either Company Subsidiary, nor any of their respective officers,
directors, employees, agents, shareholders, members or Affiliates (nor any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of the Company, either Company Subsidiary
or any such Affiliate) (a) has entered into any Contract that conflicts with any
of the transactions contemplated by this Agreement or (b) has entered into any
Contract or had any discussions with any Person regarding any transaction
involving the Company or either Company Subsidiary which could result in Parent,
the Company, either Company Subsidiary or any general partner, limited partner,
31
officer, director, employee, agent or Affiliate of any of them being subject to
any claim for liability to said Person as a result of entering into this
Agreement or consummating the transactions contemplated hereby. Other than
HLHZ, no broker, investment banker, financial advisor or other Person is
entitled to any broker's, finder's, financial advisor's or similar fee or
commission in connection with this Agreement and the transactions contemplated
hereby based on arrangements made by or on behalf of the Company or either
Company Subsidiary. A complete and correct copy of each Contract between the
Company or either Company Subsidiary, on the one hand, and HLHZ, on the other
hand, is attached to Schedule 2.39.
2.40 OPINION OF FINANCIAL ADVISOR. The Company has been advised in writing
by HLHZ that in the opinion of HLHZ, as of the date hereof, the consideration to
be received by the shareholders of the Company pursuant to this Agreement is
fair, from a financial point of view, to the shareholders of the Company, a
signed copy of which opinion will be delivered to Parent upon the execution of
this Agreement.
2.41 PROXY STATEMENT. The proxy statement (other than any information
supplied by Parent in writing and stated to be specifically for use in such
proxy statement) to be sent to the shareholders of the Company in connection
with the Shareholder Meeting (such proxy statement as amended or supplemented is
referred to herein as the "Proxy Statement") shall not, on the date the Proxy
Statement is first mailed to the Company's shareholders, at the time of the
Shareholder Meeting or at the Effective Time, contain any statement which, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Shareholder Meeting which has become false or misleading. The
Proxy Statement shall at all relevant times (including, without limitation, on
the date of mailing to the Company's shareholders, at the time of the
Shareholder Meeting and at the Effective Time) comply in all material respects
as to form and substance with the provisions of the Exchange Act. If at any
time prior to the Effective Time any event or information should be discovered
by the Company which should be set forth in a supplement to the Proxy Statement,
the Company shall promptly inform Parent.
2.42 NON-SOLICITATION. Since April 10, 2002, neither the Company nor
either Company Subsidiary has taken, nor has the Company permitted the officers,
directors, employees, shareholders, attorneys, investment advisors, agents,
representatives, Affiliates or Associates of the Company or either Company
Subsidiary (collectively, "Representatives") to (directly or indirectly) take,
any of the following actions with any Person other than Parent and its
designees: (a) solicit, encourage, initiate, entertain, accept receipt of,
review or encourage any proposals or offers from, or participate in or conduct
discussions with or engage in negotiations with, any Person relating to any
offer or proposal, oral, written or otherwise, formal or informal (a "Competing
Proposed Transaction"), with respect to any possible Business Combination with
the Company, either of the Company Subsidiaries or any of their respective
Subsidiaries or Affiliates, (b) engage in any discussions or negotiations with,
or provide any non-public information with respect to or access to any of the
books or records of the Company or either Company Subsidiary to any Person,
32
other than Parent, relating to (or which the Company or either Company
Subsidiary believed would be used for the purpose of formulating an offer or
proposal with respect to), or otherwise assist, cooperate with, facilitate or
encourage any effort or attempt by any such Person with regard to, any possible
Business Combination with the Company, either Company Subsidiary or any of their
respective Subsidiaries or Affiliates, (c) agree to, enter into a Contract with
any Person, other than Parent, providing for, or approve a Business Combination
with the Company, either Company Subsidiary or any of their respective
Subsidiaries or Affiliates, (d) make or authorize any statement, recommendation,
solicitation or endorsement in support of any possible Business Combination with
the Company, either Company Subsidiary or any of their respective Subsidiaries
or Affiliates other than by Parent, or (e) authorize or permit any of the
Company's Representatives to take any such action.
2.43 DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any schedule to this Agreement
furnished to Parent pursuant to any provision of this Agreement (including the
Companies' Financials and the notes thereto) or in any of the closing documents
delivered by Parent pursuant to any provision of this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company that:
3.1 ORGANIZATION AND QUALIFICATION. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation. Each of Parent and Merger Sub has full
corporate power and authority to conduct its business as now conducted and as
currently proposed to be conducted and to own, use and lease its respective
Assets and Properties. Each of Parent and Merger Sub is duly qualified, licensed
or admitted to do business and is in good standing in each jurisdiction in which
the ownership, use, licensing or leasing of its respective Assets and
Properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger Sub
has full corporate power and authority, to execute and deliver this Agreement
and the Ancillary Agreements to which it is a party, to perform its respective
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by each of Parent
and Merger Sub of this Agreement and the Ancillary Agreements to which it is a
party and the consummation by each of Parent and a Merger Sub of the
transactions contemplated hereby and thereby have been duly and authorized by
all necessary action by the respective Boards of Directors of Parent and Merger
Sub, and no other action on the part of the Board of Directors of either Parent
or Merger Sub is required to authorize the execution, delivery and performance
of this Agreement and the Ancillary Agreements to which it is a party and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
and thereby. This Agreement and the Ancillary Agreements to which Parent and/or
Merger Sub is a party have been or will be, as applicable, duly and validly
33
executed and delivered by Parent and/or Merger Sub, as applicable, and, assuming
the due authorization, execution and delivery hereof by the Company and/or the
other parties thereto, constitutes or will constitute, as applicable, a legal,
valid and binding obligation of Parent and/or Merger Sub, as applicable,
enforceable against Parent and/or Merger Sub, as applicable, in accordance with
its respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
3.3 MERGER SUB CAPITALIZATION. The authorized capital stock of Merger Sub
consists only of 100 shares of Common Stock, $0.01 par value per share, all of
which are issued and outstanding.
3.4 NO CONFLICTS. The execution and delivery by each of Parent and Merger
Sub of this Agreement and the Ancillary Agreements to which it is a party does
not, and the performance by each of Parent and Merger Sub of its respective
obligations under this Agreement and the Ancillary Agreements to which it is a
party and the consummation of the transactions contemplated hereby and thereby
do not and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of its respective certificate of incorporation
or bylaws;
(b) conflict with or result in a violation or breach of any Law or
Order applicable to it or its Assets or Properties; or
(c) (i) conflict with or result in a violation or breach of, (ii)
constitute a default (or an event that, with or without notice or lapse of time
or both, would constitute a default) under, (iii) require it to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result of the terms of (except for (A) such consents approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state or federal securities laws, (B) such filings as
may be required under the HSR Act and (C) such Approvals as may be required from
any Governmental or Regulatory Authority under the Laws of any state), (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
it or its Assets or Properties, or (vii) result in the loss of a material
benefit under, any of the terms, conditions or provisions of any Contract or
License to which it is a party or by which any of its Assets and Properties are
bound.
3.5 FINANCING. As of the Effective Time, Parent will have access to funds
in an amount sufficient to allow it to pay the Merger Consideration.
3.6 INVESTMENT ADVISORS. No broker, investment banker, financial advisor
or other Person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission in connection with this Agreement and the transactions
contemplated hereby based on arrangements made by or on behalf of Parent.
34
3.7 DISCLOSURE. No representation or warranty contained in this Agreement,
and no statement contained in any schedule to this Agreement furnished by Parent
pursuant to any provision of this Agreement or in any of the closing documents
delivered by Parent pursuant to any provision of this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees, unless otherwise required
pursuant to the express terms of this Agreement or if Parent has given its prior
consent in writing (which consent shall not be unreasonably withheld), to carry
on, and to cause each Company Subsidiary to carry on, its business in the usual,
regular and ordinary course of business, to pay, and to cause each Company
Subsidiary to pay, its Liabilities and Taxes when due in the usual, regular and
ordinary course of business, to pay or perform and to cause each Company
Subsidiary to pay or perform its other obligations when due in the usual,
regular and ordinary course of business (other than Liabilities, Taxes and other
obligations, if any, contested in good faith through appropriate proceedings),
and to use, and to cause each Company Subsidiary to use, reasonable efforts to
preserve intact its business organization, keep available the services of its
officers and key employees and preserve its relationships with key providers,
subscribers, suppliers, licensors, licensees, independent contractors and other
Persons having business dealings with the Company and/or the Company
Subsidiaries, and maintain the Company's and the Company Subsidiaries'
respective Permits and Approvals, all with the express purpose and intent of
preserving unimpaired the Company's and each Company Subsidiary's goodwill and
ongoing business through the Effective Time. Except as otherwise expressly
permitted by this Agreement, neither the Company nor either Company Subsidiary
shall, without the prior written consent of Parent (which consent shall not be
unreasonably withheld), take or agree in writing or otherwise to take any action
that would make any of the Company's representations or warranties contained in
this Agreement to be untrue or incorrect or prevent the Company from performing,
or cause the Company not to perform, its agreements and covenants hereunder or
knowingly cause any condition to Parent's closing obligations in Section 7.1 or
Section 7.3 not to be satisfied. Without limiting the generality of the
foregoing, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
except as required or expressly permitted by this Agreement, neither the Company
nor any Company Subsidiary shall cause or permit any of the following with
respect to the Company or any Company Subsidiary, without the prior written
consent of Parent (which consent shall (i) not be unreasonably withheld, except
in the case of those matters set forth in subsections (e) and (v) below, with
respect to which Parent may grant or deny consent in its sole and absolute
discretion, and (ii) be granted as promptly as reasonably practicable, and in
any event within two Business Days, or such shorter period as may be warranted
due to exigent circumstances):
(a) cause or permit any amendments to its certificate of incorporation
or by-laws (or comparable organizational documents);
35
(b) declare or pay any dividend on or make any other payment, dividend
or distribution (whether in stock or property) in respect of any of its Equity
Securities, or split, combine or reclassify any of its Equity Securities or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its Equity Securities; provided, however,
that the Company or either Company Subsidiary may declare or pay cash dividends,
so long as such dividends will not impair the obligation of the Company and the
Company Subsidiaries to satisfy the Minimum Capital Requirements;
(c) except as expressly contemplated by Section 1.6(d), accelerate,
amend or change the period of exercisability or vesting of options or other
rights granted under its stock plans or authorize cash payments in exchange for
any options or other rights granted under any of such plans;
(d) enter into any Contract or commitment, or amend or otherwise
modify or waive any of the terms of any of its Contracts, other than (i)
Contracts with providers (other than any Affiliate or Associate of the Company
or either Company Subsidiary) entered into in the ordinary course of business
which (A) involve total obligations of less than $1,000,000 per annum in the
case of any provider that is a hospital or similar facility, or $150,000 per
annum in the case of any other provider, and (B) have a term of not more than
one year and (ii) Contracts (excluding Contracts with providers) which involve
total obligations of less than $50,000 per annum and which are not otherwise
material to the business of the Company or the contracting Company Subsidiary,
as applicable;
(e) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any Equity Securities, or other agreements or commitments
of any character obligating it to issue any such shares or other convertible
securities;
(f) transfer to any person or entity any rights to any Intellectual
Property other than non-exclusive licenses in connection with the provision of
services or benefits in the ordinary course of business;
(g) sell, lease, license or otherwise dispose of or encumber any of
its Assets and Properties, other than transactions in connection with cash
management and investment activities entered into in the ordinary course of
business, consistent with past practice, provided that the Company specifically
notifies Parent of all such transactions in excess of $100,000;
(h) acquire any Assets and Properties from any other Person, other
than acquisitions in the ordinary course of business, consistent with past
practice, not to exceed $100,000 in the aggregate during any month;
(i) incur any Indebtedness, other than Indebtedness incurred in the
ordinary course of business, consistent with past practice, not to exceed
$50,000 in any instance or $100,000 in the aggregate during any month;
(j) enter into any operating lease, other than in the ordinary course
of business, consistent with past practice, and providing for payments of not
greater than $50,000 over the term of the lease in any instance or $100,000 in
the aggregate during any month;
36
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Companies'
Financials and reasonable expenses incurred in connection with the transactions
contemplated by this Agreement;
(l) make any capital expenditures, capital additions or capital
improvements, other than in the ordinary course of business, consistent with
past practice, not to exceed $50,000 in any instance or $100,000 in the
aggregate during any month;
(m) reduce the amount of any insurance coverage provided by existing
insurance policies, or fail to renew any such insurance policy;
(n) terminate or waive any right of substantial value;
(o) (i) adopt or amend any employee benefit or stock purchase or
option plan, (ii) hire any new director level or officer level consultant or
employee, (iii) pay any special bonus or special remuneration to any employee,
consultant or director or (iv) increase the salaries, wage rates, bonus levels,
benefits, severance, termination pay, perquisites or compensation of any
employee or consultant, other than increases in salaries or wage rates to non-
director level or non-officer level employees, on an individual basis, in the
ordinary course of business consistent with past practice;
(p) establish or modify any targets, goals, pools or similar
provisions under any Plan, employment Contract or other employee compensation
arrangement or independent contractor Contract or other compensation
arrangement;
(q) commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where it in good faith determines that failure to
commence suit would result in the material impairment of a valuable aspect of
its business, provided that it consults with Parent prior to the filing of such
a suit, or (iii) for a breach of this Agreement;
(r) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof;
(s) make or change any election in respect of Taxes, adopt or change
any accounting method in respect of Taxes, file any Tax Return or any amendment
to a Tax Return (except for any Tax return that relates to the 2001 taxable
period), enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(t) make any change in accounting policies, principles, methods,
practices or procedures (including for bad debts, contingent liabilities or
otherwise, respecting capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of recognition of
income and expense);
37
(u) revalue any of its assets, including writing off notes or accounts
receivable or writing down any other assets;
(v) (i) enter into any Contract with any Affiliate or Associate of the
Company or either Company Subsidiary, (ii) enter into any other transaction
which, if it had been entered into prior to the date hereof, would be required
to be disclosed pursuant to Section 2.34, or (iii) make any payment to any
Affiliate or Associate of the Company or either Company Subsidiary, other than
payments required to be made pursuant to the express terms of any written
Contract listed on Schedule 4.1;
(w) fail to maintain or renew any Permits, fail to comply with any Law
or Order in any material respect, or violate any Designated Contract in any
material respect;
(x) take or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (w) above.
4.2 OPERATIONAL CONSULTATION. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, the Company shall, and shall cause each Company
Subsidiary to, (a) confer with Parent concerning any and all material
operational matters relating to the Company or either Company Subsidiary, (b)
review and obtain Parent's approval (not to be unreasonably withheld) for the
2003 Adjustable Community Rate filing for the Medicare line of business,
scheduled to be filed by no later than July 1, 2002, (c) report not less than
monthly to Parent concerning the business, operations and finances of the
Company and the Company Subsidiaries, (d) review with Parent any material
disbursements or payments (excluding payments to providers that are not
Affiliates or Associates of the Company or either Company Subsidiary, other than
payments required to be made pursuant to the express terms of any written
Contract listed on Schedule 4.1) and (e) cooperate with Parent as may be
reasonably requested by Parent from time to time to develop and implement an
integration plan for the Company and the Company Subsidiaries.
4.3 CHILD HEALTH PLUS AUDIT. Notwithstanding anything to the contrary
contained herein, at the Closing, the amount of any premium overpayments
determined to be due in connection with the audit by NY DOH of WCNY's
participation in the Child Health Plus program shall be fully reserved for the
outstanding liability on the Company's financial statements.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 SHAREHOLDER MEETING. The Company will, consistent with applicable Law
and its certificate of incorporation and bylaws, as soon as practicable
following the date of this Agreement (but in any event not later than the date
of mailing of the Proxy Statement as prescribed by Section 5.2), duly call, give
notice of, convene and hold a meeting of shareholders (the "Shareholder
Meeting") for the purpose of considering the approval and adoption of this
Agreement and the Merger and at such meeting call for a vote in respect of the
approval and adoption of this Agreement and the Merger. The Company shall
consult with Parent regarding the date of the Shareholder Meeting and shall not
postpone or adjourn (other than for the absence of a quorum or as may be
38
reasonably necessary due to a delay in mailing the Proxy Statement solely as a
result of the period of time necessary to respond to any comments received from
the SEC staff with respect to the Proxy Statement) the Shareholder Meeting
without the consent of Parent. The Company will, through its Board of
Directors, recommend to its shareholders the adoption of this Agreement, and
shall not withdraw or modify such recommendation (provided, however, that the
Board of Directors of the Company may exclude such recommendation from the Proxy
Statement and otherwise change its recommendation if, pursuant to Section 5.5,
it is permitted to endorse, recommend or approve and/or agree on a Superior
Proposal). Subject to Section 5.5, the Company shall use its reasonable best
efforts to solicit from shareholders of the Company proxies in favor of the
adoption of this Agreement and the Merger and shall take all other action
necessary or advisable to secure the vote or consent of shareholders required to
effect the Merger. Without limiting the generality of the foregoing, the
Company agrees that its obligations pursuant to the first sentence of this
Section 5.1 shall not be affected in any way by the commencement, public
proposal, public disclosure or communication to the Company of a Competing
Proposed Transaction or by any modification or withdrawal by the Board of
Directors of its recommendation with respect to this Agreement and the Merger.
5.2 PREPARATION OF THE PROXY STATEMENT. The Company shall as soon as
practicable after the date hereof (but in no event later than 20 days after the
date hereof) prepare and file a preliminary Proxy Statement with the SEC and
shall use its reasonable best efforts to respond to any comments of the SEC or
its staff as promptly as practicable and to cause the Proxy Statement to be
mailed to the Company's shareholders as promptly as practicable (but in no event
later than five Business Days after (a) the tenth day after the filing date of
the preliminary Proxy Statement (in the event the SEC staff does not review such
preliminary Proxy Statement), or (b) the Company has received notification from
the SEC staff that its review of the preliminary Proxy Statement has been
satisfactorily completed, if applicable). The Company shall notify Parent
promptly (but in any event not later than two Business Days) after the receipt
of any comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger. If
at any time prior to the Shareholder Meeting there shall occur any event or
circumstance that should be set forth in an amendment or supplement to the Proxy
Statement (provided that the receipt of any comments from the SEC or its staff
relating to the Proxy Statement shall not be deeded to be an "event" or
"circumstance" for such purposes), the Company shall as soon as practicable (but
in no event later than five Business Days after the occurrence of such event or
circumstance) prepare and file such an amendment or supplement with the SEC and
shall use its reasonable best efforts to respond to any comments of the SEC or
its staff as promptly as practicable and to cause such amendment or supplement
to be mailed to the Company's shareholders as promptly as practicable (but in no
event later than five Business Days after (a) the tenth day after the filing
date of such amendment or supplement (in the event the SEC staff does not review
such preliminary Proxy Statement), or (b) the Company has received notification
from the SEC staff that its review of such amendment or supplement has been
satisfactorily completed, if applicable). The Company shall not file or mail
any Proxy Statement, or any amendment or supplement thereto, to which Parent
reasonably objects. Parent shall cooperate with the company in the preparation
39
of the Proxy Statement or any amendment or supplement thereto. The Proxy
Statement shall (i) solicit the adoption of this Agreement and the Merger by the
shareholders of the Company, (ii) subject to Section 5.5, include the
recommendation of the Board of Directors of the Company to the Company's
shareholders that they vote in favor of the adoption of this Agreement and the
Merger and (iii) include the fairness opinion of HLHZ referred to in Section
2.40.
5.3 Access to Information. Between the date of this Agreement and the
earlier of the Effective Time or the termination of this Agreement, upon
reasonable notice the Company shall, and shall cause each Company Subsidiary to,
(a) give Parent and its officers, employees, accountants, actuaries, counsel,
financing sources and other agents and representatives (collectively, the
"Parent Representatives") full access during normal business hours to all of its
buildings, offices, and other facilities and to all of its Books and Records,
whether located on its premises or at another location; (b) permit Parent and
the Parent Representatives to make such inspections during normal business hours
as they may require; (c) cause its officers to furnish Parent and the Parent
Representatives such financial, operating, technical, actuarial and cost data
and other information with respect to the business and Assets and Properties and
Taxes of the Company and each Company Subsidiary as Parent and the Parent
Representatives from time to time may request, including without limitation
financial statements, schedules and work papers; (d) allow Parent and the Parent
Representatives the opportunity to interview during normal business hours such
officers, employees, accountants, actuaries, counsel and other personnel and
Affiliates of the Company and each Company Subsidiary with the Company's prior
written consent, which consent shall not be unreasonably withheld or delayed;
and (e) assist and cooperate with Parent and the Parent's Representatives in the
development of integration plans for implementation by Parent and the Company
following the Effective Time; provided, however, that no investigation pursuant
to this Section 5.3 shall affect or be deemed to modify any representation or
warranty made by the Company herein. Materials furnished to Parent pursuant to
this Section 5.3 may be used by Parent for strategic and integration planning
purposes relating to accomplishing the transactions contemplated hereby.
5.4 PUBLIC DISCLOSURE. Unless otherwise required by Law (including federal
and state securities laws), prior to the Effective Time, no party hereto shall
(and each party hereto shall cause its respective Affiliates, Associates,
employees, agents and representatives not to) issue any press release or make
any other public disclosure (whether or not in response to any inquiry) with
respect to the existence of, any subject matter of, or the terms and conditions
of, this Agreement unless approved by the other party prior to release.
5.5 NO SOLICITATION
(a) The Company acknowledges that the Company's Board of Directors has
extensively solicited proposals for the sale of the Company from financial and
strategic buyers and obtained valuations of the Company and relevant comparables
from investment banks. Accordingly, and as a material inducement to Parent to
execute this Agreement, until the earlier of the Effective Time and the date of
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
the Company will not take, and will not permit either Company Subsidiary to
take, nor will the Company permit any of the Company's Representatives to
(directly or indirectly) take any of the following actions with any Person other
than Parent and its designees: (a) solicit, initiate or knowingly encourage any
40
proposals or offers from, or participate in or conduct discussions with or
engage in negotiations with, any Person relating to any Competing Proposed
Transaction with respect to any possible Business Combination with the Company,
either of the Company Subsidiaries or any of their respective Subsidiaries or
Affiliates (whether such Subsidiaries are in existence on the date hereof or are
hereafter organized), (b) engage in any discussions or negotiations with, or
provide any non-public information with respect to or access to any of the books
or records of the Company or either Company Subsidiary to any Person, other than
Parent, relating to (or which the Company or either Company Subsidiary believes
would be used for the purpose of formulating an offer or proposal with respect
to), or otherwise knowingly assist, cooperate with, facilitate or encourage any
effort or attempt by any such Person with regard to, any possible Business
Combination with the Company, either Company Subsidiary or any of their
respective Subsidiaries or Affiliates (whether such Subsidiaries are in
existence on the date hereof or are hereafter organized), (c) agree to, enter
into a Contract with any Person, other than Parent, providing for, or approve a
Business Combination with the Company, either Company Subsidiary or any of their
respective Subsidiaries or Affiliates (whether such Subsidiaries are in
existence on the date hereof or are hereafter organized), (d) make or authorize
any statement, recommendation, solicitation or endorsement in support of any
possible Business Combination with the Company, either Company Subsidiary or any
of their respective Subsidiaries or Affiliates (whether such Subsidiaries are in
existence on the date hereof or are hereafter organized) other than by Parent,
or (e) authorize or permit any of the Company's Representatives to take any such
action; provided, however, that nothing herein shall prohibit the Company's
Board of Directors from, to the extent applicable, complying with Rules 14d-9
and 14e-2 promulgated under the Exchange Act with regard to a Competing Proposed
Transaction. Notwithstanding the immediately preceding sentence, at any time
prior to the time at which this Agreement shall have been adopted by the
Company's shareholders, if the Board of Directors of the Company shall have not
violated the provisions of this Section 5.5(a) and shall have received an
unsolicited written Competing Proposed Transaction then, to the extent that the
Board of Directors of the Company (i) believes in good faith after advice from
its financial advisor and after considering all terms and conditions of such
written Competing Proposed Transaction, including the likelihood and timing of
its consummation, that such Competing Proposed Transaction would result in a
transaction more favorable to Company's shareholders from a financial point of
view than the transaction contemplated by this Agreement (any such more
favorable Competing Proposed Transaction being referred to in this Agreement as
a "Superior Proposal") and (ii) determines in good faith after receiving advice
from outside legal counsel that it is necessary for the Board of Directors of
the Company to take any of the following actions to comply with its fiduciary
duties to shareholders under applicable law, Company and the Representatives
may, subject to compliance with Section 5.5(c), furnish in connection therewith
information to, and enter into, maintain or continue discussions or negotiations
with, any person that makes such unsolicited Superior Proposal after the date
hereof, and such actions shall not be considered a breach of this Section 5.5 or
any other provisions of this Agreement, provided that in each such event the
Company notifies Parent of such determination by the Company's Board of
Directors and provides Parent with a true and complete copy of the Superior
Proposal received from such third party, and provides (or has provided) Parent
with all documents containing or referring to non-public information of Company
that are supplied to such third party; provided, however, that the Company
provides such non-public information pursuant to a non-disclosure agreement at
least as restrictive on such third party as the Confidentiality Agreement is on
41
Parent. The Company shall, and shall cause each Company Subsidiary to,
immediately cease and cause to be terminated any such contacts or negotiations
with any Person relating to any such transaction or Business Combination
referred to in the second sentence of this Section 5.5(a).
(b) Neither the Company's Board of Directors nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Parent or Merger Sub, the approval of this Agreement or the
transactions contemplated hereby or the recommendation that the shareholders of
the Company vote in favor of the adoption of this Agreement at the Shareholders
Meeting or (ii) recommend, adopt or approve, or proposed publicly to recommend,
adopt or approve, any Competing Proposed Transaction (such actions are
hereinafter referred to as an "Adverse Recommendation Change"); provided,
however, that nothing herein shall prohibit the Company's Board of Directors
from, to the extent applicable, complying with Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to a Competing Proposed Transaction.
Notwithstanding the immediately preceding sentence, at any time prior to the
time at which this Agreement shall have been adopted by Company's shareholders,
if the Board of Directors of the Company shall have not violated the provisions
of Section 5.5(a) and shall have received an unsolicited written Competing
Proposed Transaction then, to the extent that the Board of Directors of the
Company (i) believes in good faith after receiving advice from its financial
advisor and after considering all terms and conditions of such written Competing
Proposed Transaction, including the likelihood and timing of its consummation,
that such Competing Proposed Transaction would result in a transaction more
favorable to the Company's shareholders from a financial point of view than the
transaction contemplated by this Agreement and (ii) determines in good faith
after advice from outside legal counsel that it is necessary for the Board of
Directors of the Company to take any of the following actions to comply with its
fiduciary duties to shareholders under applicable Law, the Company's Board of
Directors may make an Adverse Recommendation Change, and such actions shall not
be considered a breach of this Section 5.5, provided that in each such event
Company notifies Parent of such determination by the Company Board of Directors
and provides Parent with a true and complete copy of the Superior Proposal
received from such third party, and provides (or has provided) Parent with all
documents containing or referring to non-public information of Company that are
supplied to such third party; provided, however, that Company provides such non-
public information pursuant to a non-disclosure agreement at least as
restrictive on such third party as the Confidentiality Agreement is on Parent;
and provided, further, that the Company's Board of Directors may not make an
Adverse Recommendation Change in response to an unsolicited Superior Proposal
until after the third Business Day following Parent's receipt of written notice
(a "Notice of Adverse Recommendation") from the Company advising Parent that the
Company's Board of Directors intends to make such an Adverse Recommendation
Change and specifying the terms and conditions of such Superior Proposal (it
being understood and agreed by the parties that any amendment to the financial
terms or any other material term of such Superior Proposal shall require a new
Notice of Adverse Recommendation and a new three Business Day period). In
determining whether to make an Adverse Recommendation Change in response to a
Superior Proposal, the Company's Board of Directors shall take into account any
changes to the terms of this Agreement proposed by Parent in response to a
Notice of Adverse Recommendation or otherwise.
(c) In addition to the obligations of the Company set forth in
subsections (a) and (b) of this Section 5.5, if the Company receives prior to
42
the Effective Time or the termination of this Agreement any offer or proposal
(formal or informal, oral, written or otherwise) relating to, or any inquiry or
contact from any Person with respect to, a Competing Proposed Transaction, the
Company shall immediately notify Parent thereof and provide Parent with the
details thereof, including the identity of the Person or Persons making such
offer or proposal, and will keep Parent fully informed on a current basis of the
status and details of any such offer or proposal and of any modifications to the
terms thereof. The Company acknowledges that this Section 5.5 was a significant
inducement for Parent to enter into this Agreement and the absence of such
provisions would have resulted in either (i) a material reduction in the Merger
Consideration or (ii) a failure to induce Parent to enter into this Agreement.
5.6 APPROVALS. Subject to Section 5.2, Parent shall use commercially
reasonable efforts to obtain all Approvals from Governmental or Regulatory
Authorities as may be required in connection with the Merger, and the Company
shall provide Parent with such assistance and information as is required to
obtain such Approvals. The Company shall use commercially reasonable efforts to
obtain all Approvals from any other Person as may be required in connection with
the Merger.
5.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which will cause any representation or warranty of the Company or Parent,
respectively, contained in this Agreement to be untrue or inaccurate at or prior
to the Effective Time and (b) any failure of the Company or Parent, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.7 shall not limit or otherwise affect
any remedies available to the party receiving such notice.
5.8 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES; COOPERATION.
(a) At any time or from time to time after the Closing, each party
hereto, at the request of any other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things (including, but
not limited to, all action reasonably necessary to seek and obtain any and all
Approvals of any Government or Regulatory Authority or Person required in
connection with the Merger) as may be necessary or desirable for effecting
completely the consummation of this Agreement and the transactions contemplated
hereby. Without limiting the generality of the preceding sentence, if, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full right, title and possession to all assets, properties, rights,
privileges, powers and franchises of the Company, the officers and directors of
the Company are fully authorized in the name of the Company to take, and will
take, all such lawful and necessary action, so long as such action is not
inconsistent with the Agreement. Each party agrees to use commercially
reasonable efforts to cause the conditions to its obligations to consummate the
Merger to be satisfied.
(b) Except as otherwise expressly permitted by this Agreement, Parent
shall not, without the prior written consent of the Company (which consent shall
not be unreasonably withheld), take or agree in writing or otherwise to take any
action that would make any of Parent's representations or warranties contained
43
in this Agreement to be untrue or incorrect or prevent Parent from performing
its agreements and covenants hereunder or knowingly cause any condition to the
Company's closing obligations in Section 7.1 or Section 7.2 not to be satisfied.
5.9 COMPANY'S AUDITORS. The Company will use commercially reasonable
efforts to cause its independent auditors to facilitate on a timely basis (a)
the review of the Company's audit or work papers, including the examination of
selected interim financial statements and data and (b) the delivery of such
representations from the Company's independent accountants as may be reasonably
requested by Parent or its accountants.
5.10 TAKEOVER STATUTES. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, the Board of Directors of
the Company will grant such approvals within its power and take such actions
within its power as are necessary so that the transactions contemplated by this
Agreement and the Ancillary Agreements may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise take such actions
within its power to eliminate the effects of any Takeover Statute on any of the
transactions contemplated hereby.
5.11 DELIVERY OF STOCK LEDGER, MINUTE BOOK AND ASSETS AND PROPERTIES OF THE
COMPANY. At the Closing, (a) the Company shall deliver the original stock
ledgers and minute books of the Company and each Company Subsidiary to Parent
and (b) the Company shall cause the directors and officers of the Company and
each Company Subsidiary, and their respective Affiliates and Associates, to
return to the Company and/or the Company Subsidiaries any Assets and Properties
of the Company or either Company Subsidiary used by such director, officer,
Affiliate or Associate.
5.12 RESIGNATIONS. At the Closing, the Company shall deliver to Parent the
resignations of all officers and directors of the Company and each of the
Company Subsidiaries from such positions, effective at the Effective Time.
5.13 CERTAIN EXPENSES. Any Expenses payable by the Company, including,
without limitation, any fees payable by the Company to HLHZ, shall be deducted
and paid from the aggregate Merger Consideration.
5.14 TERMINATION OF AFFILIATE AGREEMENTS. The Company shall cause all
Contracts disclosed or required to be disclosed in Schedule 2.34, other than any
such Contracts designated by Parent in writing prior to the Closing, to be
terminated prior to the Closing.
5.15 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Parent and the Surviving Corporation agree that all rights to
indemnification and exculpation from Liabilities or acts or omissions occurring
at or prior to the Effective Time in favor of current or former directors or
officers of the Company or either Company Subsidiary, as provided in the
Company's and the Company Subsidiaries' respective certificate of incorporation
and bylaws, in each case as in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect after the Effective Time;
provided, however, that such indemnification and exculpation obligations shall
be subject to any limitation imposed from time to time under applicable Law.
44
(b) For six years after the Effective Time, Parent will cause the
Surviving Corporation to provide "run-off" officers' and directors' liability
insurance in respect of acts or omissions occurring on or prior to the Effective
Time on terms substantially similar to those of such policy in effect on the
date hereof; provided that $300,000 shall be deducted and paid from the
aggregate Merger Consideration to defray the cost to the Surviving Corporation
of providing such insurance.
ARTICLE 6
TAX MATTERS
6.1 TAX RETURNS. Parent shall prepare and file (or cause to be prepared
and filed) all Tax Returns with respect to the Company and the Company
Subsidiaries for all taxable periods ending on or before the date of the Closing
and not filed prior to the Closing, as well as all Tax Returns for all taxable
periods ending after the Closing.
6.2 TERMINATION OF TAX SHARING AGREEMENTS. The Company hereby agrees and
covenant that neither the Company nor either Company Subsidiary has or will have
any obligations to another party pursuant to any tax sharing agreement or any
similar arrangement in effect at any time before or at the Effective Time, and
any further obligation that might otherwise have existed thereunder shall be
extinguished as of the Effective Time.
6.3 CONDUCT OF AUDITS AND OTHER PROCEDURAL MATTERS. Parent shall have the
right to control any audit or examination by any Taxing Authority, and have the
right to initiate any claim for refund or amended return, and contest, resolve
and defend against any assessment, notice of deficiency or other adjustment or
proposed adjustment of Taxes for all taxable periods of the Company and the
Company Subsidiaries.
6.4 FIRPTA COMPLIANCE. At or prior to the Effective Time, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
ARTICLE 7
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(A) HSR APPROVAL. Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
(b) NO INJUNCTIONS OR REGULATORY RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other Order issued by
any court of competent jurisdiction or Governmental or Regulatory Authority or
other legal or regulatory restraint or prohibition preventing the consummation
of the Merger shall be in effect; no Governmental or Regulatory Authority shall
have notified any party to this Agreement that such Governmental or Regulatory
Authority intends to commence proceedings to restrain or prohibit the
transactions contemplated hereby or force rescission, unless such Governmental
45
or Regulatory Authority shall have withdrawn such notice and abandoned any such
proceedings prior to the time which otherwise would have been the Effective
Time; nor shall there be any action taken, or any Law or Order enacted, entered,
enforced or deemed applicable to the Merger or the other transactions
contemplated by the terms of this Agreement that would prohibit the consummation
of the Merger.
(c) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the shareholders of the
Company in accordance with the NYBCL and the certificate of incorporation of the
Company.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger and the other transactions contemplated
by this Agreement shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Parent in this Agreement shall be true and correct in all
material respects when made and at and as of the Effective Time as though such
representations and warranties were made at and as of the Effective Time (other
than representations and warranties which by their express terms are made solely
as of a specified earlier date and except for any changes specifically
contemplated or permitted by this Agreement), and the representations and
warranties made as of a specified date earlier than the Effective Time shall
also be true and correct in all material respects as of such earlier date;
provided, however, that in the case of any representation or warranty that is
already qualified by materiality (whether by means of the use of the term
"material" or a variation thereof, or the use of a minimum dollar threshold),
such materiality qualifiers shall not be taken into account in determining
whether the conditions set forth in this Section 7.2(a) have been satisfied.
(b) PERFORMANCE. Parent shall have performed and complied with each
agreement, covenant and obligation required by this Agreement to be so performed
or complied with by Parent at or before the Effective Time.
(c) OFFICERS' CERTIFICATE. Parent shall have delivered to the Company
(i) a certificate, dated as of the date of the Closing and executed by its
President and Chief Executive Officer, certifying that the conditions set forth
in Sections 7.2(a) and 7.2(b) have been fulfilled and (ii) a certificate
attaching (A) copies of the certificate of incorporation and by-laws of Parent
as in effect immediately prior to the Effective Time, (B) copies of resolutions
adopted by Parent's board of directors authorizing the transactions contemplated
by this Agreement and (C) a certificate of good standing of Parent issued by the
Secretary of State of the State of Delaware as of a date not more than ten days
prior to the Effective Time, certified in the case of (A) and (B) as of the date
of the Closing by the Secretary of Parent as being true, correct and complete.
(d) ACQUISITION OF THE FLORIDA COMPANIES. Parent shall have
consummated the acquisition of all of the outstanding Equity Securities of the
Florida Companies, pursuant to the terms of the Florida Companies Acquisition
Agreement.
(e) Governmental and Regulatory Approvals. Approvals from any
Governmental or Regulatory Authority necessary for the consummation of the
46
transactions contemplated hereby shall have been obtained without the imposition
of any conditions or requirements which are materially adverse to the Company.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of
Parent to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects when made and at and as of the Effective Time as though
such representations and warranties were made at and as of the Effective Time
(other than representations and warranties which by their express terms are made
solely as of a specified earlier date and except for any changes specifically
contemplated or permitted by this Agreement) and the representations and
warranties made as of a specified date earlier than the Effective Time shall
also have been true and correct in all material respects on and as of such
earlier date; provided, however, that in the case of any representation or
warranty that is already qualified by materiality (whether by means of the use
of the term "material" or a variation thereof, or the use of a minimum dollar
threshold), such materiality qualifiers shall not be taken into account in
determining whether the conditions set forth in this Section 7.3(a) have been
satisfied.
(b) PERFORMANCE. The Company shall have performed and complied with
each agreement, covenant and obligation required by this Agreement to be so
performed or complied with by the Company at or before the Effective Time.
(c) OFFICERS' CERTIFICATES. The Company shall have delivered to
Parent (i) a certificate, dated as of the date of the Closing and executed by
its President and Chief Executive Officer, certifying that the conditions set
forth in Sections 7.3(a), 7.3(b) and 7.3(i) have been fulfilled and (ii) a
certificate attaching (A) copies of the certificate of incorporation and by-laws
(or comparable organizational documents) of the Company and each Company
Subsidiary as in effect immediately prior to the Effective Time, (B) copies of
resolutions adopted by the Company's board of directors and shareholders
authorizing the transactions contemplated by this Agreement and (C) a
certificate of good standing of the Company and each Company Subsidiary issued
by the Secretary of State of the state of its incorporation as of a date not
more than ten days prior to the Effective Time, certified in the case of (A) and
(B) as of the date of the Closing by the Secretary of the Company as being true,
correct and complete.
(d) CONSENTS. Parent shall have been furnished with evidence
reasonably satisfactory to it of the written Approval of those Persons whose
Approval is required in connection with the Merger under any Contract listed on
Schedule 2.6.
(e) REGULATORY APPROVALS. There shall not have been any action taken,
or any Law or Order enacted, entered, enforced or deemed applicable to the
Merger or the other transactions contemplated by the terms of this Agreement
which would permit consummation of the Merger only (i) if material divestitures
were made, (ii) if Parent, the Surviving Corporation or either of the Company
Subsidiaries were to agree to material limitations on the business activities or
47
operations of Parent, the Surviving Corporation or either of the Company
Subsidiaries or (iii) upon satisfaction of any other condition or requirement,
the effect of which, either individually or in the aggregate, in the reasonable
opinion of Parent, would materially adversely effect the business or operations
of Parent, the Surviving Corporation or either of the Company Subsidiaries or
the consummation of the transactions contemplated by this Agreement.
(f) CORPORATE LEGAL OPINION. Parent shall have received a legal
opinion from Xxxxx & Xxxxxxx, corporate counsel to the Company, in the form
attached as Exhibit E.
(g) NO MATERIAL ADVERSE CHANGE. There shall have occurred no Material
Adverse Change.
(h) ACQUISITION OF THE FLORIDA COMPANIES. Parent shall have
consummated the acquisition of all of the outstanding Equity Securities of the
Florida Companies, pursuant to the terms of the Florida Companies Acquisition
(i) DISSENTING SHAREHOLDERS. Holders of not more than 10% of the
outstanding shares of Company Common Stock shall have delivered prior to the
Shareholder Meeting timely written notice of such holder's intent to demand
payment as a dissenting shareholder for such shares in accordance with the
NYBCL.
(j) RESIGNATIONS. Parent shall have received each of the resignations
described in Section 5.12.
(k) MINIMUM CAPITAL REQUIREMENTS. The Balance Sheets delivered by the
Company shall satisfy the Minimum Capital Requirements.
(l) GOVERNMENTAL AND REGULATORY APPROVALS. Approvals from any
Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated hereby shall have been obtained without the imposition
of any conditions or requirements which are materially adverse to Parent.
(m) TERMINATION OF OPTIONS. Parent shall have received evidence
reasonably satisfactory to it that the Stock Option Plans, and all Options
granted under the Stock Option Plan, shall have been terminated in accordance
with Section 1.6(d).
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger cancelled at any time prior to the Effective
Time:
(a) by mutual written agreement of Parent and the Company;
(b) by Parent or the Company if: (i) the Closing has not occurred
before 5:00 p.m. (Eastern Time) on October 31, 2002 (provided, however, that (A)
the right to terminate this Agreement under this Section 8.1(b)(i) shall not be
available to any party whose willful failure to fulfill any obligation hereunder
has been the cause of, or resulted in, the failure of the Closing to occur on or
before such date and (B) such date shall automatically be extended until
48
December 31, 2002 in the event that any of the conditions set forth in Section
7.1(a), 7.2(e) or 7.3(l) shall not have been satisfied by October 31, 2002);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental or Regulatory Authority that would make
consummation of the Merger illegal; or (iv) any of the Approvals required to be
obtained from any Governmental or Regulatory Authority to permit the
consummation of the Merger as provided in Section 5.6 shall be denied, or shall
be granted with conditions or requirements that are materially adverse to the
terminating party, and any applicable periods to appeal such decision shall have
expired (provided, however, that the right to terminate this Agreement under
this Section 8.1(b)(iv) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure to obtain such Approval);
(c) by Parent if there shall be any action taken, or any Law or Order
enacted, promulgated or issued or deemed applicable to the Merger, by any
Governmental or Regulatory Authority, which would: (i) prohibit Parent's
ownership or operation of all or any material portion of the business of the
Company or the Company Subsidiaries, (ii) compel Parent to dispose of or hold
separate all or any portion of the Assets and Properties of the Company or the
Company Subsidiaries as a result of the Merger, or (iii) prevent or impair
Parent's ability to operate the Company or the Company Subsidiaries in a manner
substantially similar to their respective operations prior to the date of this
Agreement;
(d) by Parent if (i) any representation or warranty of the Company in
this Agreement is not true and correct in any material respect either on the
date of this Agreement or at the Closing, such that the conditions set forth in
clauses (a) or (h) of Section 7.3 would not be satisfied, and, if such breach of
a representation or warranty is capable of being cured, such breach shall not
have been fully cured within 15 days following delivery by Parent to the Company
of written notice of such breach, or (ii) the Company shall not have complied in
full with any covenant or agreement contained in this Agreement and, if such
failure to comply is capable of being cured, such non-compliance shall not have
been fully cured within 15 days following delivery by Parent to the Company of
written notice of such non-compliance, or (iii) the Company or any Company
Subsidiary makes a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against the Company or any Company
Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up or reorganization, arrangement, adjustment, protection,
relief or composition of any Indebtedness under any applicable Laws;
(e) by the Company if (i) any representation or warranty of Parent in
this Agreement is not true and correct in any material respect either on the
date of this Agreement or at the Closing, such that the conditions set forth in
clause (a) of Section 7.2 would not be satisfied, and, if such breach of a
representation or warranty is capable of being cured, such breach shall not have
been fully cured within 15 days following delivery by the Company to Parent of
written notice of such breach, or (ii) Parent shall not have complied in full
with any covenant or agreement contained in this Agreement and, if such failure
to comply is capable of being cured, such non-compliance shall not have been
fully cured within 15 days following delivery by the Company to Parent of
written notice of such non-compliance, or (iii) Parent makes a general
49
assignment for the benefit of creditors, or any proceeding shall be instituted
by or against Parent seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up or reorganization, arrangement, adjustment,
protection, relief or composition of any Indebtedness under any applicable Laws;
(f) by Parent, if (i) the Company shall have failed to comply with
Section 5.5, (ii) the board of directors of the Company shall have failed to
present and recommend the approval and adoption of this Agreement and the Merger
to the shareholders of the Company, or withdrawn, modified or changed its
recommendation of this Agreement or the Merger in a manner adverse to Parent,
(iii) the board of directors of the Company shall have approved or recommended
to the shareholders of the Company a Competing Proposed Transaction, (iv) a
Competing Proposed Transaction shall have been announced or otherwise become
publicly known and the Board of Directors of the Company shall have (A) failed
to recommend against acceptance of such by its shareholders (including by taking
no position, or indicating its inability to take a position, with respect to the
acceptance of a Competing Proposed Transaction involving a tender offer or
exchange offer by its stockholders), (B) failed to reconfirm its approval and
recommendation of this Agreement and the transactions contemplated hereby within
10 Business Days of the first announcement or other public knowledge of such
proposal for a Competing Proposed Transaction or (C) determined that the
Competing Proposed Transaction was a Superior Proposal, or (v) the board of
directors of the Company shall have resolved to take any of the actions
described above; or
(g) by Parent or the Company, if the Merger shall fail to receive the
requisite votes for approval at the Shareholders' Meeting or any adjournment or
postponement thereof (provided that the right to terminate this Agreement under
this subsection (g) shall not be available to the Company in the event that the
failure to obtain such shareholder approval shall have been caused by the action
or failure to act of the Company and such action or failure constitutes a breach
by the Company of this Agreement)
(h) by Parent, if Parent and the Company are unable to agree upon the
Balance Sheets pursuant to Section 1.7(c).
8.2 EFFECT OF TERMINATION. Except as set forth in Section 8.3, in the
event of a valid termination of this Agreement as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger, or the Company, or their respective
officers, directors, shareholders, members or Affiliates or Associates;
provided, however, that termination of this Agreement shall be without prejudice
to any rights any party may have hereunder against any other party for any
breaches of this Agreement prior to its termination; and provided, further, that
the provisions of Sections 5.4, 8.2 and Article 9, and the applicable
definitions set forth in Article 10, of this Agreement shall remain in full
force and effect and survive any termination of this Agreement.
8.3 EXPENSES AND TERMINATION FEE.
(a) Except as otherwise set forth in this Section 8.3, regardless of
whether the Closing occurs, the parties hereto shall pay their own Expenses
arising after April 10, 2002.
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(b) Without limiting any other remedies available to Parent for any
willful or intentional breach of this Agreement, in the event that (i) Parent
shall terminate this Agreement pursuant to Section 8.1(d) or Section 8.1(f),
(ii) Parent or the Company shall terminate this Agreement pursuant to Section
8.1(b)(i) without the Shareholders' Meeting having occurred (provided that the
sole reason for the failure of the Shareholders' Meeting to have occurred shall
not be the failure of the SEC to approve the Proxy Statement, notwithstanding
the Company's best efforts to obtain such approval) or (iii) Parent or the
Company shall terminate this Agreement pursuant to Section 8.1(g) and at any
time after the date of this Agreement and prior to the Shareholders' Meeting
there shall have been a Competing Proposed Transaction with respect to the
Company, and the Company shall have executed a definitive agreement with respect
to such Competing Proposed Transaction, or such Competing Proposed Transaction
shall have been consummated within nine months of such termination, then the
Company shall pay to the Company (the "Termination Fee") a sum equal to all of
Parent's Expenses (other than any such Expenses previously paid by the Company),
and an additional amount equal to $300,000. Any Termination Fee shall be paid by
wire transfer in same day funds to the account or accounts designated by Parent
within three Business Days of the date of termination.
(c) In the event that Parent or the Company shall terminate this
Agreement pursuant to Section 8.1(g) and the Termination Fee is not payable
pursuant to subsection (b)(iii) of this Section 8.3, then the Company shall pay
to Parent, in same day funds within three (3) Business Days of the date of
termination, a sum equal to all of Parent's Expenses (other than any such
Expenses previously paid by the Company).
8.4 TERMINATION OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Parent, the Company and Merger Sub
contained in this Agreement shall terminate at the Effective Time.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 NOTICES. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission against
facsimile confirmation or mailed by internationally recognized overnight courier
prepaid, to the parties at the following addresses or facsimile numbers:
If to Parent or Merger Sub:
WellCare Acquisition Company
00 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxxx, President and Chief Executive Officer
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with a copy to:
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxxx Xxxxxxx, Esq.
If to the Company to:
The WellCare Management Group, Inc.
0000 Xxxx Xxxxx, Xxxxx 000
Xxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx Xxxxx, Esq.
with a copy to:
Xxxxx & Xxxxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxx, Esq.
All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section 9.1, be deemed given upon
delivery, (b) if delivered by facsimile transmission to the facsimile number as
provided for in this Section 9.1, be deemed given upon facsimile confirmation,
and (c) if delivered by overnight courier to the address as provided in this
Section 9.1, be deemed given on the earlier of the first Business Day following
the date sent by such overnight courier or upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this Section
9.1). Any party from time to time may change its address, facsimile number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
9.2 ENTIRE AGREEMENT; MODIFICATION. This Agreement and the Exhibits and
Schedules hereto, and each of the Ancillary Agreements, constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof. This Agreement may be
amended or modified only by an instrument in writing duly executed by the
parties to this Agreement.
9.3 WAIVER. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
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9.4 THIRD PARTY BENEFICIARIES. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights, and this Agreement does not confer any
such rights, upon any other Person.
9.5 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be void. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
9.6 HEADINGS. The headings and table of contents used in this Agreement
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.
9.7 INVALID PROVISIONS. 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 hereto 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, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
9.9 JURISDICTION; VENUE. All actions and proceedings arising out of or
relating to this Agreement shall be heard and determined in any New York state
or federal court sitting in the City of New York, and each party hereby
irrevocably accepts and consents to the exclusive personal jurisdiction of those
courts for such purpose. In addition, each party hereby irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any action or proceeding arising out of or
relating to this Agreement or any judgment entered by any court in respect
thereof brought in any state or federal court sitting in the city of New York
and further irrevocably waives any claim that any action or proceeding brought
in any such court has been brought in an inconvenient forum.
9.10 WAIVER OF TRIAL BY JURY. IN ANY ACTION OR PROCEEDING ARISING
HEREFROM, THE PARTIES HERETO CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER OR
THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION OR PROCEEDING.
53
9.11 INTERPRETATION. The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction.
9.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof.
ARTICLE 10
DEFINITIONS
10.1 DEFINITIONS. As used in this Agreement, the following defined terms
shall have the meanings set forth below:
"1993 Plan" has the meaning set forth in Section 1.6(d).
"1996 Plan" has the meaning set forth in Section 1.6(d).
"Actions or Proceedings" means any action, suit, complaint, petition,
investigation, proceeding, arbitration, litigation, audit or other proceeding,
whether civil, criminal or administrative, in law or in equity, or commenced by
or before any arbitrator or Governmental or Regulatory Authority.
"Adverse Recommendation Change" has the meaning set forth in Section 5.5.
"Affiliate" means, as applied to any Person, (a) any other Person directly
or indirectly controlling, controlled by or under common control with, that
Person, (b) any other Person that owns or controls (i) ten percent (10%) or more
of any class of equity securities of that Person or any of its Affiliates or
(ii) ten percent (10%) or more of any class of equity securities (including any
equity securities issuable upon the exercise of any option or convertible
security) of that Person or any of its Affiliates, or (c) as to a corporation,
each director and officer thereof, and as to a partnership, each general partner
thereof, and as to a limited liability company, each managing member or
similarly authorized person thereof (including officers), and as to any other
entity, each Person exercising similar authority to those of a director or
officer of a corporation. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by",
and "under common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of voting
securities or by contract or otherwise.
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"Agency Audits" means any audits and all other state or federal audits,
recoupments and overpayment, false claim, fine or penalty actions, in each case
including any threatened or preliminary reports, audits, recoupments and
overpayment, false claim, fine or penalty actions, (i) covering any of the
following, or any matter similar to any of the following: Medicare/Medicaid dual
HMO enrollment, newborn eligibility payments, downward substitution of (nursing
home) care, death audits (payments for deceased members), recipients enrolled in
counties with no certificates of authority, recipients ineligible for HMO
coverage, coordination of benefits, patient responsibility, deductible, dual
payments to another provider, and non-compliance with the Medicaid or Medicare
HMO/managed care contract or applicable Laws, including but not limited to non-
compliance with quality assurance requirements, reporting requirements,
emergency room and other claim payment requirements, marketing practices
requirements, employee compensation requirements, member grievance requirements
or similar matters, or (ii) conducted or threatened to be conducted by the CMS,
the NY DOI, the CT DOI, the NY DOH or the CT DSS.
"Aggregate Net Worth Amount" means the sum (whether a positive or negative
number) of the Net Worth Amounts reflected on the Balance Sheets for the Company
and each Company Subsidiary.
"Aggregate Required Net Worth Amount" means the sum of the Required Net
Worth Amounts for the Company and each Company Subsidiary, in each case as of
the date of the Balance Sheets.
"Agreement" means this Agreement and Plan of Merger, including (unless the
context otherwise requires) the Exhibits and Schedules and the certificates and
instruments delivered in connection herewith, or incorporated by reference, as
the same may be amended or supplemented from time to time in accordance with the
terms hereof.
"Ancillary Agreements" means the Voting Agreements and the Non-Competition
Agreements.
"Applicable Accounting Principles" shall mean (a) with respect to the
Company, GAAP, and (b) with respect to each of the Company Subsidiaries, SAP
applied in accordance with all applicable Laws.
"Approval" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from or made with, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental or Regulatory Authority or any
other Person.
"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise and wherever situated), including the goodwill related thereto,
operated, owned, licensed or leased by such Person, including cash, cash
equivalents, Investment Assets, accounts and notes receivable, chattel paper,
documents, instruments, general intangibles, real estate, equipment, inventory,
goods and Intellectual Property.
55
"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of ten percent (10%) or more of any
class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Audited Financial Statement Date" means December 31, 2001.
"Audited Financial Statements" means the following financial statements:
(a) with respect to the Company, the audited consolidated balance sheet of the
Company and subsidiaries as of December 31, 2001 and December 31, 2000, and the
related audited consolidated statements of operations, shareholders' deficiency
and cash flows for the years ended December 31, 2001 and December 31, 2000, (b)
with respect to WCNY, the audited statements of admitted assets, liabilities and
surplus - statutory basis as of December 31, 2001 and December 31, 2000, and the
related audited statements of operations - statutory basis, changes in surplus -
statutory basis and cash flows - statutory basis for the years ended December
31, 2001 and December 31, 2000, and (c) with respect to FirstChoice, the audited
statements of admitted assets, liabilities and surplus - statutory basis as of
December 31, 2001 and December 31, 2000, and the related audited statements of
operations - statutory basis, changes in surplus - statutory basis and cash
flows - statutory basis for the years ended December 31, 2001 and December 31,
2000.
"Balance Sheet(s)" has the meaning set forth in Section 1.7(c).
"Books and Records" means all files, documents, instruments, papers, books
and records relating to the business or Assets and Properties of a Company,
including financial statements, internal reports, Tax Returns and all related
work papers, schedules, correspondence, auditor communications, actuarial
worksheets or calculations, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, minute books, stock certificates and books, stock
transfer ledgers, Contracts, Licenses, customer lists, computer files, claims
data, medical management information and programs (including data processing
files and records), retrieval programs, operating data and plans and
environmental studies and plans.
"Business Combination" means, with respect to any Person, (a) any merger,
consolidation, share exchange reorganization or other business combination
transaction to which such Person is a party, (b) any sale, dividend, split or
other disposition of any capital stock or other equity interests of such Person
(except for issuances of common stock upon conversion of preferred stock
outstanding on the date hereof or the exercise of options or warrants
outstanding on the date hereof or issued in accordance with the covenants of
this Agreement), (c) any acquisition, tender offer (including a self tender), or
exchange offer for 15% or more of the outstanding shares of capital stock of
such Person or the filing of a registration statement under the Securities Act
in connection therewith, (d) any sale, dividend or other disposition of all or a
material or significant portion of the Assets and Properties of such Person
(including by way of exclusive license or joint venture formation) or (e) the
entering into of any agreement or understanding, the granting of any rights or
options, or the acquiescence of such Person, with respect to any of the
foregoing.
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"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
"Certificate of Merger" has the meaning set forth in Section 1.1.
"Certificates" has the meaning set forth in Section 1.8(c).
"Child Health Plus" shall mean the State of New York's Child Health Plus
program and the State of Connecticut's Healthcare for Uninsured Kids and Youth
Part B ("Husky B") program.
"Class A Common Stock" has the meaning set forth in Section 2.3(a).
"Closing" has the meaning set forth in Section 1.2.
"CMS" means the United States Center for Medicare and Medicaid Services.
"COBRA" has the meaning set forth in Section 2.18(f).
"Commercial Lines of Business" shall mean the commercial lines of business
of FirstChoice but shall exclude all Medicare business.
"Companies' Financials" means the Audited Financial Statements and the
Interim Financial Statements.
"Companies' GAAP Financials" has the meaning set forth in Section 2.8(b).
"Companies' Intellectual Property" shall mean any Intellectual Property
that (a) is owned by, (b) is licensed to, (c) was developed or created by or for
any Company or (d) is used in or necessary for the conduct of the business of
each Company as presently or heretofore conducted or as proposed to be
conducted, including any Intellectual Property created by any of the Companies'
founders, employees or consultants and including any Intellectual Property
created by any of the Companies' founders prior to the creation of such Company.
"Companies' SAP Financials" has the meaning set forth in Section 2.8(b).
"Company" has the meaning set forth in the forepart of this Agreement.
"Company Accountants" shall mean Deloitte & Touche LLP.
"Company Acquisition" and "Company Acquisitions" shall have the meanings
ascribed to them in Section 2.15 of this Agreement.
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"Company Common Stock" has the meaning set forth in Section 2.3(a).
"Company Plan" means a Plan maintained by the Company or either Company
Subsidiary, or to which the Company or either Company Subsidiary contributes,
for the benefit of its current or former employees.
"Company SEC Documents" has the meaning set forth in Section 2.8(a).
"Company Subsidiaries" shall mean WCNY and FirstChoice.
"Competing Proposed Transaction" has the meaning set forth in Section 2.42.
"Confidentiality Agreement" shall mean that certain letter agreement dated
May 2, 2001 between HLHZ and the Company.
"Contract" means any contract, agreement, arrangement or understanding,
whether oral or written.
"CT DOI" means the State of Connecticut Department of Insurance.
"CT DSS" means the State of Connecticut Department of Social Services.
"CT Managed Care Act" means the Connecticut Managed Care Act (Public Act
No. 97-99, as amended by Public Act No. 97-8).
"Designated Contract" means any Contract of the following types:
(i) any distributor, sales, advertising, agency or manufacturer's
representative Contract;
(ii) any continuing Contract for the purchase of materials, supplies,
equipment or services involving more than $100,000 per annum;
(iii) any Contract with any officer, director, employee, consultant,
or Affiliate or Associate of the foregoing;
(iv) any Contract that expires or may be renewed at the option of any
person other than a Company so as to expire more than one year after the date of
this Agreement;
(v) any trust indenture, mortgage, promissory note, loan agreement or
other Contract for the borrowing of money, any currency exchange, commodities or
other hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with generally accepted accounting principles;
(vi) any Contract for capital expenditures in excess of $100,000 in
the aggregate;
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(vii) any Contract limiting the freedom of any Company to engage in
any line of business or to compete with any other Person or any confidentiality,
secrecy or non-disclosure Contract;
(viii) any Contract pursuant to which a Company is a lessor or lessee
of any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property involving in the case of any such Contract more than $50,000
per annum; or
(ix) any Contract of guarantee, support, indemnification, assumption
or endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other Person.
"Dissenting Shareholders" has the meaning set forth in Section 1.6(c).
"Dissenting Shares" has the meaning set forth in Section 1.6(c).
"Effective Time" has the meaning set forth in Section 1.2.
"Environment" means air, surface water, ground water, or land, including
land surface or subsurface, and any receptors such as persons, wildlife, fish,
biota or other natural resources.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the CHM Environmental
Response, Compensation and Liability Information System, or on any similar state
list of sites relating to investigation or cleanup, or which is the subject of
any pending or threatened action, suit, proceeding, or investigation related to
or arising from any location at which there has been a Release or threatened or
suspected Release of a Hazardous Material.
"Environmental Law" means any federal, state, local or foreign
environmental, health and safety or other Law relating to of Hazardous
Materials, including without limitation the CHM, Environmental Response
Compensation and Liability Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Solid Waste Disposal Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the California Safe Drinking Water and Toxic
Enforcement Act.
"Environmental Permit" means any permit, license, approval, consent or
authorization required under or in connection with any Environmental Law and
includes without limitation any and all orders, consent orders or binding
agreements issued by or entered into with a Governmental or Regulatory
Authority.
"Equity Equivalents" means securities (including Options to purchase any
shares of capital stock or limited liability company units) which, by their
terms, are or may be exercisable, convertible or exchangeable for or into common
stock, preferred stock, limited liability company units or other securities
either at the election of the holder thereof or otherwise.
"Equity Security" or "Equity Securities" means all shares of capital stock
of all classes, any and all limited liability company units, membership
interests or other equity of any type and all Equity Equivalents.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any corporation or other entity that, along with
the Company or either Company Subsidiary, constitutes a controlled group of
business within the meaning of Section 4001(a)(14) of ERISA.
"ERISA Affiliate Plan" means a Plan maintained by an ERISA Affiliate, other
than the Company or either Company Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Expenses" shall mean all out-of-pocket expenses (including, without
limitation, reasonable attorneys fees and expenses, all fees and expenses of
accountants, financial advisors, experts and consultants) incurred by any party
hereto, or by any of their respective Affiliates or Associates, in connection
with or related to the preparation, negotiation or execution of this Agreement,
the performance of any obligations pursuant to this Agreement or the
consummation of the transactions contemplated hereby, including, without
limitation, the filing of any HSR Act notice or any other filings required to be
filed by any Governmental or Regulatory Authority.
"Family Health Plus" shall meant the State of New York's Family Health Plus
program (N.Y. Social Services Law section 369-ee).
"FirstChoice" means FirstChoice HealthPlans of Connecticut, Inc., a
Connecticut corporation.
"Florida Companies" means, collectively, Well Care HMO, Inc., a Florida
corporation, HealthEase of Florida, Inc., a Florida corporation, Comprehensive
Health Management, Inc., a Florida corporation, and Comprehensive Health
Management of Florida, L.C., a Florida limited liability company.
"Florida Companies Acquisition Agreement" means the Purchase Agreement of
even date herewith entered into among Parent, the Florida Companies and the
stockholders of the Florida Companies.
"GAAP" means generally accepted accounting principles in the United States,
as in effect from time to time.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department, official
or other instrumentality of the United States, any state thereof, any foreign
country or any domestic or foreign state, county, city or other political
subdivision, and shall include all self regulatory organizations, insurance and
health care authorities and any stock exchange, quotation service and the
National Association of Securities Dealers. The foregoing shall include, but not
be limited to, the NY DOI, the CT DOI, the NY DOH, the CT DSS, any Medicare or
Medicaid authorities, the CMS and any other federal or state insurance, health
care, or HMO regulatory body that regulates the Company or either Company
Subsidiary.
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"Hazardous Material" means (a) any chemical, material, substance or waste
including, containing or constituting petroleum or petroleum products, solvents
(including chlorinated solvents), nuclear or radioactive materials, asbestos in
any form that is or could become friable, radon, lead-based paint, urea
formaldehyde foam insulation or polychlorinated biphenyls, (b) any chemicals,
materials, substances or wastes which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law, (c)
any biohazardous or biomedical waste, as such terms are defined by the Laws of
the United States or (d) any other chemical, material, substance or waste which
is regulated by any Governmental or Regulatory Authority or which could
constitute a nuisance.
"HLHZ" means Xxxxxxxx Xxxxx Xxxxxx and Xxxxx, financial advisor to the
Company.
"HMO" means health maintenance organization.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
"Income Tax" means (a) any income, alternative or add-on minimum, gross
income, gross receipts, franchise or profits tax, including estimated taxes
relating to any of the foregoing, or other similar tax or other like assessment
or charge of similar kind whatsoever, excluding any Other Tax, together with any
interest and any penalty, addition to tax or additional amount imposed by any
Taxing Authority responsible for the imposition of any such Tax (domestic or
foreign); or (b) any liability of a Person for the payment of any taxes,
interest, penalty, addition to tax or like additional amount resulting from the
application of Treas. Reg. Section 1.1502-6 or comparable provisions of any
Taxing Authority in respect of a Tax Return of a Relevant Group or any Contract.
"Indebtedness" of any Person means all obligations of such Person (a) for
borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) for the deferred purchase price of goods or services (other
than provider claims, rent payments and trade payables or accruals incurred in
the ordinary course of business), (d) under capital leases and (e) in the nature
of guarantees of the obligations described in clauses (a) through (d) above of
any other Person.
"Intellectual Property" means all trademarks and trademark rights, trade
names and trade name rights, service marks and service xxxx rights, service
names and service name rights, patents and patent rights, utility models and
utility model rights, copyrights, mask work rights, brand names, trade dress,
product designs, product packaging, business and product names, logos, slogans,
rights of publicity, trade secrets, inventions (whether patentable or not),
invention disclosures, improvements, processes, formulae, industrial models,
processes, designs, specifications, technology, methodologies, computer software
(including all source code and object code), firmware, development tools, flow
charts, annotations, all Web addresses, sites and domain names, all data bases
and data collections and all rights therein, any other confidential and
proprietary right or information, whether or not subject to statutory
registration, and all related technical information, manufacturing, engineering
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and technical drawings, know-how and all pending applications for and
registrations of patents, utility models, trademarks, service marks and
copyrights, and the right to xxx for past infringement, if any, in connection
with any of the foregoing, and all documents, disks, records, files and other
media on which any of the foregoing is stored.
"Interim Financial Statement Date" means March 31, 2002.
"Interim Financial Statements" means (a) the unaudited consolidated balance
sheet of the Company and subsidiaries as of March 31, 2002, and the related
unaudited consolidated statement of operations, shareholders' deficiency and
cash flows for the three month period ended on such date, (b) the unaudited
statements of admitted assets, liabilities and surplus - statutory basis of WCNY
as of March 31, 2002, and the related unaudited statements of operations -
statutory basis, changes in surplus - statutory basis and cash flows - statutory
basis for the three month period ended on such date and (c) the unaudited
statements of admitted assets, liabilities and surplus - statutory basis of
FirstChoice as of March 31, 2002, and the related unaudited statements of
operations - statutory basis, changes in surplus - statutory basis and cash
flows - statutory basis for the three month period ended on such date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans, margin accounts
and other investment or portfolio assets owned of record or beneficially by the
Company or either Company Subsidiary.
"IRS" means the United States Internal Revenue Service or any successor
entity.
"June 30 Financials" has the meaning set forth in Section 1.7(b).
"Law" or "Laws" means any law, statute, order, decree, consent decree,
judgment, rule, regulation, ordinance or other pronouncement having the effect
of law whether in the United States, any foreign country, or any domestic or
foreign state, county, city or other political subdivision or of any
Governmental or Regulatory Authority. "Law" and "Laws" shall include, but not be
limited to, all Laws relating to (i) the licensure, certification, qualification
or authority to transact business relating to the provision of and/or payment
for health benefits and insurance, including but not limited to ERISA, the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, the Health
Insurance Portability and Accounting Act of 1996 and Titles XVIII and XIX of the
United States Code, (ii) all Laws relating to the regulation of HMOs, workers
compensation, managed care organizations, insurance, preferred provider
organizations, point-of-service plans, certificates of need, third-party
administrators, utilization review, coordination of benefits, hospital
reimbursement, Medicare and Medicaid participation, physician investment, fraud
and abuse and patient referrals and (iii) all other Laws governing the
corporate, business, financial or other activities of the Companies.
62
"Lease Documents" has the meaning set forth in Section 2.20(d).
"Leased Real Property(ies)" has the meaning set forth in Section 2.20(a).
"Liabilities" means all Indebtedness, obligations and other liabilities of
a Person, whether absolute, accrued, contingent (or based upon any contingency),
known or unknown, fixed or otherwise, or whether due or to become due.
"License" means any Contract that grants a Person the right to use or
otherwise enjoy the benefits of any Intellectual Property (including without
limitation any covenants not to xxx with respect to any Intellectual Property).
"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, easement, license, covenant, condition, restriction, adverse claim, levy,
charge, option, equity, adverse claim or restriction or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing, except for any restrictions on transfer
generally arising under any applicable federal or state securities law.
"Material Adverse Change" means any circumstance, change in, or effect on
the Company or either Company Subsidiary that, individually or in the aggregate
with any other circumstances, changes in, or effects on, the Company or either
Company Subsidiary is, or would be reasonably expected to be, materially adverse
to the financial condition, business, operations, assets or Liabilities, key
provider relationships, Governmental or Regulatory Authority relationships (as
they currently exist), compliance with Laws, results of operations or the
condition (financial or otherwise) of any Company.
"Medicaid" means the applicable provision of Title XIX of the Social
Security Act and the regulations promulgated thereunder and the state laws and
regulations implementing the Medicaid program.
"Medicare" means the applicable provisions of Title XVIII of the Social
Security Act and the regulations promulgated thereunder.
"Merger" has the meaning set forth in Recital A.
"Merger Consideration" has the meaning set forth in Section 1.6(a).
"Merger Sub" has the meaning set forth in the forepart of this Agreement.
"Merger Sub Common Stock" has the meaning set forth in Section 1.6(e).
"Minimum Capital Requirements" has the meaning set forth in Section 1.7(c).
"NAIC" means the National Association of Insurance Commissioners.
"Net Worth Amount" means, with respect to the Company or either Company
Subsidiary, the positive or negative number calculated as (a) the total assets
of such Person reduced by (b) the total liabilities of such Person, calculated
in each case in accordance with the Applicable Accounting Principles; provided,
however, that in calculating the Net Worth Amount of the Company, the Net Worth
Amounts of the Company Subsidiaries shall be excluded to the extent that the Net
Worth Amounts of the Company Subsidiaries would otherwise be included in the Net
Worth Amount of the Company on a GAAP basis.
63
"Notice of Adverse Recommendation" has the meaning set forth in Section
5.5.
"NYBCL" has the meaning set forth in Section 1.1.
"NY DOH" means the State of New York Department of Health.
"NY DOI" means the State of New York Department of Insurance.
"NY Managed Care Act" means the New York Managed Care Act, codified at 1996
N.Y. Laws Ch. 705.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (a) purchase or otherwise receive or be issued any Equity
Securities of such Person or any security of any kind convertible into or
exchangeable or exercisable for Equity Securities or other equity interests of
such Person or (b) receive any benefits or rights similar to any rights enjoyed
by or accruing to the holder of Equity Securities or other equity interests of
such Person, including any rights to participate in the equity, income or
election of directors or officers of such Person.
"Order" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Authority (in each such case whether preliminary
or final).
"Other Tax" means any sales, use, ad valorem, business license,
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, value added, custom duty, severance, windfall
profit or license tax, governmental fee or other similar assessment or charge,
together with any interest and any penalty, addition to tax or additional amount
imposed by any Taxing Authority responsible for the imposition of any such tax
(domestic or foreign).
"Parent" has the meaning set forth in the forepart of this Agreement.
"Parent Representatives" has the meaning set forth in Section 5.3.
"Paying Agent" has the meaning set forth in Section 1.8(a).
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"Permit" or "Permits" means any license, permit, franchise or
authorization.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Plan" mean (a) an "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) and (b) any similar employment, severance or other
arrangement or policy (whether written or oral) providing for health, life,
64
vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
"Proxy Statement" has the meaning set forth in Section 2.41.
"PTO" means the United States Patent and Trademark Office.
"Regulated Entities" means WCNY and FirstChoice.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the Environment.
"Relevant Group" has the meaning set forth in Section 2.14(a).
"Representatives" has the meaning set forth in Section 2.42.
"Required Net Worth Amount" means, with respect to the Company and each of
the Company Subsidiaries, the minimum Net Worth Amount that will permit such
Person to comply, as of the date of determination, with all applicable Laws, all
NAIC standards and the Applicable Accounting Principles (in each case, without
special consideration from any Governmental or Regulatory Authority), taking
into account the total liabilities of such Person as of the date of
determination (and including the effect of any audit adjustments, adjustments
for regulatory charges, refunds, assessments or allocations).
"Review Report" has the meaning set forth in Section 1.7(b).
"SAP" means, with respect to WCNY, statutory accounting principles as
defined under NY DOI regulation 172, including but not limited to the accounting
standards as codified by the NAIC and, with respect to FirstChoice, the
accounting standards as codified by the NAIC.
"SEC" means the Securities and Exchange Commission or any successor entity.
"SEC Documents" means, with respect to any Person, each report, schedule,
form, statement or other document filed or required to be filed with the SEC by
such Person pursuant to Section 13(a) of the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Shareholder Meeting" has the meaning set forth in Section 5.1.
"Site" means any of the real properties currently or previously owned,
leased, occupied, used or operated by any Company, any predecessors of such
Company, or any entities previously owned by a Company, including all soil,
subsoil, surface waters and groundwater.
65
"Social Security Act" means the Social Security Act of the United States,
as amended.
"Stock Option Plans" has the meaning set forth in Section 1.6(d).
"Statutory Surplus" means, with respect to any of the Regulated Entities,
the amount of such Company's surplus determined in accordance with SAP.
"Subsidiary" means any Person in which any Company or Parent, as the
context requires, directly or indirectly through Subsidiaries or otherwise,
beneficially owns at least 50% of either the equity interest in, or the voting
control of, such Person, whether or not existing on the date hereof.
"Superior Proposal" has the meaning set forth in Section 5.5.
"Surplus Notes" has the meaning set forth in Section 2.3(f).
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Takeover Statute" means a "fair price," "merger moratorium," "control
share acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States.
"Tax" or "Taxes" means Income Taxes and/or Other Taxes, as the context
requires.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Tax Laws" means the Internal Revenue Code, federal, state, county, local
or foreign laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"Tax Returns" means any return, report, information return, schedule,
certificate, statement or other document (including any related or supporting
information) filed or required to be filed with, or, where none is required to
be filed with a Taxing Authority, the statement or other document issued by, a
Taxing Authority in connection with any Tax.
"Termination Fee" has the meaning set forth in Section 8.3(b).
"Undesignated Common Stock" has the meaning set forth in Section 2.3(a).
"Voting Agreement" and "Voting Agreements" have the meanings set forth in
Recital E.
"WCNY" means Well Care of New York, Inc., a New York corporation.
10.2 CONSTRUCTION.
(a) Unless the context of this Agreement otherwise requires, (i) words
of any gender include each other gender, (ii) words using the singular or plural
66
number also include the plural or singular number, respectively, (iii) the
phrases "ordinary course of business" and "ordinary course of business
consistent with past practice" refer to the business and practice of a Company,
(iv) the words "include," "includes" and "including" shall be deemed to be
followed by the phrase "without limitation" and (v) the predicate of any noun or
pronoun shall be the immediately preceding prior noun. All accounting terms used
herein and not expressly defined herein shall have the meanings given to them
under GAAP.
(b) When used herein, the phrase "to the knowledge of" any Person, "to
the best knowledge of" any Person, "known to" any Person or any similar phrase,
means (i) with respect to any Person who is an individual, the actual knowledge
of such Person, (ii) with respect to any other Person, the actual knowledge of
the directors and officers of such Person and other individuals that have a
similar position or have similar powers and duties as the officers and directors
of such Person, and (iii) in the case of each of (i) and (ii), the knowledge of
facts that such individuals should have after due inquiry. For this purpose,
"due inquiry" with respect to any matter means inquiry of and consultations with
(A) the directors and officers of such Person and other individuals that have a
similar position or have similar powers and duties as such officers and
directors, (B) other employees of and the advisors to such Person, including
legal counsel and outside auditors, who have principal responsibility for the
matter in question or are otherwise likely to have information relevant to the
matter, and (C) the stockholders owning more than ten percent (10%) of the
equity interests, by vote or value, of such Person.
(c) All references to "dollars" or "$" in this Agreement shall mean
United States dollars.
[SIGNATURE PAGE FOLLOWS]
67
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have executed this
Agreement or caused this Agreement to be signed by their duly authorized
representatives, all as of the date first written above.
WellCare Acquisition Company
By:
------------------------------------
Xxxx Xxxxx
President and Chief Executive Officer
WellCare Merger Sub, Inc.
By:
------------------------------------
Xxxx Xxxxx
President and Chief Executive Officer
The WellCare Management Group, Inc.
By:
-------------------------------------
Name:
Title:
i
TABLE OF CONTENTS
Page
----
ARTICLE 1 THE MERGER 2
1.1 The Merger 2
1.2 Closing; Effective Time 2
1.3 Effect of the Merger 2
1.4 Certificate of Incorporation; Bylaws 2
1.5 Directors and Officers 2
1.6 Effect on Capital Stock 3
1.7 Adjustment of Consideration. 4
1.8 Surrender of Certificates 5
1.9 No Further Ownership Rights in Company Common Stock 7
1.10 Lost, Stolen or Destroyed Certificates 7
1.11 Termination of Paying Agent Funding 7
1.12 Taking of Necessary Action; Further Action 7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 8
2.1 Organization and Qualification 8
2.2 Authority Relative to this Agreement 8
2.3 Capitalization 9
2.4 Subsidiaries; Investments 10
2.5 Directors and Officers 10
2.6 No Conflicts 10
2.7 Books and Records; Organizational Documents 10
2.8 SEC Filings; Companies' Financial Statements 11
2.9 Absence of Changes 12
2.10 No Undisclosed Liabilities 12
2.11 Accounts Receivable 12
2.12 Banks and Brokerage Accounts 12
2.13 Capital Adequacy 13
2.14 Taxes 13
2.15 Business Combinations 15
2.16 Legal Proceedings 15
2.17 Compliance with Laws and Orders 16
2.18 Plans; ERISA 16
2.19 Permits and Approvals 19
2.20 Real Property 20
2.21 Tangible Personal Property 21
2.22 Intellectual Property 21
2.23 Government Healthcare Matters 22
2.24 Commercial Subscriber Agreements 23
2.25 Provider Agreements 23
2.26 Contracts 24
2.27 Suppliers 24
ii
2.28 Audit Reports 25
2.29 Membership 25
2.30 Premiums 25
2.31 Claims 25
2.32 Insurance 25
2.33 Power of Attorney; Guarantees 26
2.34 Affiliate Transactions 26
2.35 Employees; Labor Relations 27
2.36 Environmental Matters 29
2.37 Foreign Corrupt Practices Act; Proper Business Practices 30
2.38 Takeover Statutes 30
2.39 Other Negotiations; Brokers; Third Party Expenses 30
2.40 Opinion of Financial Advisor 31
2.41 Proxy Statement 31
2.42 Non-Solicitation 31
2.43 Disclosure 32
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT 32
3.1 Organization and Qualification 32
3.2 Authority Relative to this Agreement 32
3.3 Merger Sub Capitalization 33
3.4 No Conflicts 33
3.5 Financing 33
3.6 Investment Advisors 33
3.7 Disclosure 33
ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME 34
4.1 Conduct of Business of the Company 34
4.2 Operational Consultation 37
4.3 Child Health Plus Audit 37
ARTICLE 5 ADDITIONAL AGREEMENTS 37
5.1 Shareholder Meeting 37
5.2 Preparation of the Proxy Statement 38
5.3 Access to Information 39
5.4 Public Disclosure 39
5.5 No Solicitation 39
5.6 Approvals 42
5.7 Notification of Certain Matters 42
5.8 Additional Documents and Further Assurances; Cooperation 42
5.9 Company's Auditors 43
5.10 Takeover Statutes 43
5.11 Delivery of Stock Ledger, Minute Book and Assets and
Properties of the Company 43
5.12 Resignations 43
5.13 Certain Expenses 43
5.14 Termination of Affiliate Agreements 43
5.15 Indemnification of Directors and Officers 43
iii
ARTICLE 6 TAX MATTERS 44
6.1 Tax Returns 44
6.2 Termination of Tax Sharing Agreements 44
6.3 Conduct of Audits and Other Procedural Matters 44
6.4 FIRPTA Compliance 44
ARTICLE 7 CONDITIONS TO THE MERGER 44
7.1 Conditions to Obligations of Each Party to Effect the Merger 44
7.2 Additional Conditions to Obligations of the Company 45
7.3 Additional Conditions to the Obligations of Parent 46
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER 47
8.1 Termination 47
8.2 Effect of Termination 49
8.3 Expenses and Termination Fee 49
8.4 Termination of Representations and Warranties 50
ARTICLE 9 MISCELLANEOUS PROVISIONS 50
9.1 Notices 50
9.2 Entire Agreement; Modification 51
9.3 Waiver 51
9.4 Third Party Beneficiaries 52
9.5 No Assignment; Binding Effect 52
9.6 Headings 52
9.7 Invalid Provisions 52
9.8 Governing Law 52
9.9 Jurisdiction; Venue 52
9.10 Waiver of Trial by Jury 52
9.11 Interpretation 53
9.12 Counterparts 53
9.13 Specific Performance 53
ARTICLE 10 DEFINITIONS 53
10.1 Definitions 53
10.2 Construction. 65
iv
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Form of Voting Agreement
EXHIBIT B Form of Certificate of Merger
EXHIBIT C Form of Amended and Restated Certificate of Incorporation
EXHIBIT D Form of Amended and Restated Bylaws
EXHIBIT E Form of Opinion of Corporate Counsel to the Company
Schedule 2.1 Qualifications
Schedule 2.3(c) Capitalization - Options
Schedule 2.3(e) Capitalization - Certain Arrangements
Schedule 2.3(f) Surplus Notes
Schedule 2.4 Subsidiaries; Investments
Schedule 2.5 Directors and Officers
Schedule 2.6 No Conflicts
Schedule 2.8 Financial Statements
Schedule 2.9 Absence of Changes
Schedule 2.12 Banks and Brokerage Accounts
Schedule 2.13 Capital Adequacy
Schedule 2.14 Taxes
Schedule 2.15 Business Combinations
Schedule 2.16(a) Legal Proceedings
Schedule 2.16(b) Threatened Actions and Legal Proceedings
Schedule 2.17 Compliance with Law and Orders
Schedule 2.18 ERISA
Schedule 2.19 Permits and Appeals
Schedule 2.20 Real Property
Schedule 2.21 Motor Vehicles
Schedule 2.22 Intellectual Property
Schedule 2.23(a) Certain Government Contracts
Schedule 2.23(b) Government Healthcare Matters
Schedule 2.24 Commercial Membership and Subscriber Agreements
Schedule 2.25 Provider Agreements
Schedule 2.26(a) Contracts
Schedule 2.26(c) Certain Contracts
Schedule 2.27 Suppliers
Schedule 2.28 Audit Reports
Schedule 2.29 Membership
Schedule 2.30 Premiums
Schedule 2.31 Claims
Schedule 2.32(a) Insurance
Schedule 2.32(b) Insurance Claims
Schedule 2.33 Powers of Attorney; Guarantees
Schedule 2.34 Affiliate Transactions
Schedule 2.35(b) Employee; Labor Relations
Schedule 2.35(c) Employee Claims
v
Schedule 2.35(d) Policies, Handbooks and Manuals
Schedule 2.39 Brokers
Schedule 4.1 Conduct Prior to the Effective Time
