<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 21, 1997
-----------------
PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-21949 95-4591529
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
5995 Plaza Drive, Cypress, California 90630-5028
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code) (714) 952-1121
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 21, 1997, PacifiCare Health Systems, Inc. ("the Company"
or "PacifiCare") sold the outstanding stock of its wholly owned subsidiary,
PacifiCare of Florida ("PCFL"), to Total Health Choice, Inc. a newly formed
Florida subsidiary of Total Health Care, Inc. ("the Disposition"). The
sales price, which approximated the net book value of PCFL, totaled $8.9
million. As of December 31, 1996, PCFL served approximately 35,000
commercial and Medicaid members.
The sale of PCFL was effected by the Stock Purchase Agreement, as
Amended (the "Agreement"), dated February 21, 1997, by and between the
Company and Total Health Choice, Inc. The Agreement includes a put option
whereby in the event that regulatory approvals are not obtained by
January 31, 1998, Total Health Choice, Inc. shall have the option to
require the Company to repurchase PCFL for $5.9 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
The following Unaudited Pro Forma Condensed Consolidated Statements of
Income of the Company for the fiscal year ended September 30, 1996 and
the three months ended December 31, 1996 present results for the
Company as if the Disposition had occurred on October 1, 1995 and
1996, respectively. The accompanying Unaudited Pro Forma Condensed
Consolidated Balance Sheet for the Company as of December 31, 1996
gives effect to the Disposition as if it had occurred on December 31,
1996.
The Unaudited Pro Forma Condensed Consolidated Financial Statements
are provided for information purposes only and do not purport to
present the financial position or results of operations of the Company
had the Disposition assumed therein occurred on the dates specified,
nor are they necessarily indicative of the results of operations that
may be expected in the future.
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PACIFICARE HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Plus
Less Pro Forma PacifiCare, as
PacifiCare PCFL Adjustments Adjusted
------------- --------- ------------ --------------
(1) (2)
<S> <C> <C> <C> <C>
Total operating revenue $ 4,637,305 $ 59,715 $ - $ 4,577,590
Expenses:
Health care services 3,872,747 60,755 3,811,992
Marketing, general and
administrative expenses 575,928 20,846 977 556,059
Impairment, disposition and
restructuring charges 75,840 67,986 7,854
Office of Personnel Management
reserve charge 25,000 - 25,000
Amortization of goodwill and
intangible assets 9,153 1,163 7,990
------------- --------- ------------ --------------
Operating income (loss) 78,637 (91,035) (977) 168,695
Interest income 46,237 2,231 44,006
Interest expense (2,094) (3) (2,091)
------------- --------- ------------ --------------
Income (loss) before income taxes 122,780 (88,807) (977) 210,610
Provision for income taxes (benefit) 50,827 (32,993)(3) (393) 83,427
------------- --------- ------------ --------------
Net income (loss) $ 71,953 $ (55,814) $ (584) $ 127,183
------------- --------- ------------ --------------
------------- --------- ------------ --------------
Weighted average common shares and
equivalents outstanding used to
calculate earnings per share 31,671 31,671
------------- --------------
Earnings per share $ 2.27 $ 4.02
------------- --------------
------------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
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PACIFICARE HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Plus
Less Pro Forma PacifiCare, as
PacifiCare PCFL Adjustments Adjusted
------------- --------- ------------ --------------
(1) (2)
<S> <C> <C> <C> <C>
Total operating revenue $ 1,234,875 $ 9,124 $ - $ 1,225,751
Expenses:
Health care services 1,039,345 6,612 1,032,733
Marketing, general and
administrative expenses 153,135 2,936 159 150,358
Amortization of goodwill and
intangible assets 1,861 - 1,861
------------- --------- ------------ --------------
Operating income (loss) 40,534 (424) (159) 40,799
Interest income 12,652 688 11,964
Interest expense (350) - (350)
------------- --------- ------------ --------------
Income (loss) before income taxes 52,836 264 (159) 52,413
Provision for income taxes (benefit) 21,079 106 (3) (64) 20,909
------------- --------- ------------ --------------
Net income (loss) $ 31,757 $ 158 $ (95) $ 31,504
------------- --------- ------------ --------------
------------- --------- ------------ --------------
Weighted average common shares and
equivalents outstanding used to
calculate earnings per share 31,800 31,800
------------- --------------
------------- --------------
Earnings per share $ 1.00 $ 0.99
------------- --------------
------------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
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PACIFICARE HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Plus
Less Pro Forma PacifiCare,
PacifiCare PCFL Adjustments as Adjusted
------------ --------- ------------ ------------
(1) (4)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 367,748 $ 353 $ 8,890 $ 376,285
Marketable securities 594,734 - 594,734
Receivables, net 156,212 3,161 153,051
Prepaid expenses 8,876 631 8,245
Deferred income taxes 54,745 - 54,745
------------ --------- ------------ ------------
Total current assets 1,182,315 4,145 8,890 1,187,060
------------ --------- ------------ ------------
Property, plant and equipment, net 91,239 3,860 87,379
Marketable securities - restricted 35,399 2,472 32,927
Goodwill and intangible assets 227,422 - 227,422
Other assets 25,097 37 25,060
------------ --------- ------------ ------------
$ 1,561,472 $ 10,514 $ 8,890 $ 1,559,848
------------ --------- ------------ ------------
------------ --------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical claims and benefits payable $ 278,800 $ 1,678 $ - 277,122
Accounts payable and accrued liabilities 162,882 913 1,870 163,839
Unearned premium revenue 256,416 903 255,513
Long-term debt due within one year 1,511 - 1,511
------------ --------- ------------ ------------
Total current liabilities 699,609 3,494 1,870 697,985
------------ --------- ------------ ------------
Long-term debt due after one year 1,370 - 1,370
Minority interest 391 - 391
Shareholders' equity:
Preferred shares - - -
Common shares 313 - 313
Additional paid-in capital 373,405 - 373,405
Unrealized holding gain on
available-for-sale securities, net of
taxes 3,451 - 3,451
Retained earnings 482,933 7,020 7,020 482,933
------------ --------- ------------ ------------
Total shareholders' equity 860,102 7,020 7,020 860,102
------------ --------- ------------ ------------
$ 1,561,472 $ 10,514 $ 8,890 $ 1,559,848
------------ --------- ------------ ------------
------------ --------- ------------ ------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) PCFL DISPOSITION - Pro forma adjustments to remove the historical operating
results of PCFL and the assets acquired and liabilities assumed by Total
Health Choice, Inc. During the fiscal year ended September 30, 1996,
PacifiCare recognized a charge for the impairment of goodwill, the
disposition of Pasteur Delivery Systems and restructuring charges associated
with its Florida operations totaling $68.0 million ($42.4 million or
$1.34 per share, net of tax).
No pro forma adjustments have been made to reflect interest income for the
fiscal year ended September 30, 1996, or the three months ended December 31,
1996, on the net proceeds from the Disposition.
(2) CORPORATE ALLOCATIONS - Pro forma adjustment to reflect an increase in
marketing, general and administrative expenses for corporate allocations
included in the PCFL results of operations that are expected to remain
after the Disposition, and to recognize the related tax benefit at the
statutory tax rate of 40.2%.
(3) INCOME TAXES - Pro forma adjustment to reflect the tax effects of the
Disposition and related non-deductible goodwill amortization at the
statutory rates in effect during the fiscal year ended September 30, 1996
and the three months ended December 31, 1996 (in thousands).
Fiscal Year Three Months
Ended Ended
September 30, 1996 December 31, 1996
------------------- -----------------
PCFL (loss) income before income taxes $ (88,807) $ 264
Non-deductible goodwill amortization 6,734 -
------------------- -----------------
(82,073) 264
Statutory tax rate 40.2% 40.2%
------------------- -----------------
Pro forma adjustment $ (32,993) $ 106
------------------- -----------------
------------------- -----------------
(4) SALES PRICE - Pro forma adjustments to record cash received by PacifiCare
for the sale of PCFL. The sale of PCFL was effected by the Stock Purchase
Agreement, as Amended (the "Agreement"), dated February 21, 1997, by and
between PacifiCare and Total Health Choice, Inc. The Agreement includes a
put option whereby in the event that regulatory approvals are not obtained
by January 31, 1998, Total Health Choice, Inc. shall have the option to
require PacifiCare to repurchase PCFL for $5.9 million. PacifiCare,
therefore, will defer the gain of approximately $1.9 million on the sale of
PCFL until such regulatory approvals are obtained.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued).
(c) Exhibits.
10.1 Stock Purchase Agreement dated January 21, 1997, by and
between PacifiCare Health Systems, Inc. and Total Health
Choice, Inc.
10.2 First Amendment to Stock Purchase Agreement dated
February 21, 1997, by and between PacifiCare Health Systems,
Inc. and Total Health Choice, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFICARE HEALTH SYSTEMS, INC.
(Registrant)
Date: March 10, 1997 By: /s/ Wayne Lowell
------------------------ -----------------------------
Wayne Lowell
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
(Principal Financial Officer)
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of January 21, 1997 (this
"Agreement"), is made and entered into by and between PACIFICARE HEALTH SYSTEMS,
INC., a Delaware corporation, as seller ("Seller"), and TOTAL HEALTH CHOICE,
INC., a Florida nonprofit corporation, as buyer ("Buyer"), with reference to the
following facts:
PREAMBLE
A. Seller owns all of the issued and outstanding shares of capital stock
of PacifiCare of Florida, Inc., a Florida corporation (the "Company").
B. Buyer desires to purchase all of the issued and outstanding shares of
capital stock of the Company, and Seller desires to sell such capital stock of
the Company to Buyer, pursuant to the terms and subject to the conditions of
this Agreement.
NOW, THEREFORE, in consideration of the above premises and the promises,
covenants, conditions, representations and warranties exchanged by the parties
hereinbelow, Buyer and Seller hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. Unless otherwise defined in this Agreement, the
capitalized terms used in the above premises and throughout this Agreement
(including in the exhibits and schedules attached hereto) shall have the
meanings set forth in this Section 1.1.
ACTUARY: The actuarial firm of Reden & Anders.
ADJUSTED MEMBERS: The number of the Company's HMO members reflected on
the February Enrollment Report, adjusted as provided in Section 10.7 below.
ADJUSTED PRELIMINARY PURCHASE PRICE: The total of the Preliminary
Purchase Price and the Member Adjustment.
ADDITIONAL AGREEMENTS: The Escrow Agreement, Indemnification Agreement
and any other agreements, certificates, instruments or other documents executed
and delivered pursuant to this Agreement.
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AGREEMENT: This Stock Purchase Agreement, including all exhibits and
schedules hereto.
AHCA: The Agency for Health Care Administration, an administrative
agency of the State of Florida.
ASSETS: The assets, properties, business, goodwill and rights of every
kind and description, whether real, personal or mixed or tangible or intangible,
wherever situated, of the Company and of its Subsidiaries, except for the
Excluded Claims and those set forth on Schedule 2.4.
BALANCE SHEETS: The audited consolidated statutory basis balance sheet
of the Company as of September 30, 1994, the audited statutory basis balance
sheet of the Company as of September 30, 1995, the audited statutory basis
balance sheet of the Company as of September 30, 1996, the unaudited balance
sheet of the Company's subsidiaries as of September 30, 1995 and the unaudited
balance sheet of the Company's subsidiaries as of September 30, 1996.
BROKER AGREEMENTS: All agreements or contracts entered into between
the Company and any agent, broker or solicitor, pursuant to which such Person
has agreed to arrange, on behalf of the Company, sales of health plan benefits
to individuals, employers, employer groups or other purchasers.
BUYER: Total Health Choice, Inc., a Florida nonprofit corporation.
CLOSING: The point in time when Buyer's and Seller's respective
conditions precedent to proceed with the purchase and sale of the Shares
pursuant to the terms of this Agreement have been satisfied or waived in writing
by the other party and, if applicable, the meeting for the purpose of completing
and consummating such transaction.
CLOSING DATE: The day on or after which the Closing has occurred as
mutually agreed to by Buyer and Seller; provided, however, that Buyer and Seller
will use reasonable efforts to close within the Preferred Closing Corridor.
COMPANY: PacifiCare of Florida, Inc., a Florida corporation, formerly
known as, Advantage Health Plans, Inc. and before that known as Lourdes Health
Services, Inc. and the successor-in-interest to Pasteur Health Plan, Inc., a
Florida corporation, which was formerly known as Pasteur Health Plan HMO, Inc.,
and any other Person which, after the Closing Date, becomes a successor,
successor-in-interest, assignee or transferee of the Company or of all or any
material portion of the Company's business or the Assets.
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COMPANY EMPLOYEES: Those employees of the Company as of the Closing
Date.
COMPANY LIABILITIES: Liabilities of the Company and its Subsidiaries
which shall include, but not be limited to, the Company Payables and the other
liabilities of the Company as reflected on the Final Balance Sheet and any
Liabilities which arise, occur or accrue after the Closing Date.
COMPANY PAYABLES: Obligations to pay for goods or other property sold,
leased or licensed, or for services rendered, to or on behalf of the Company or
its Subsidiaries, including accounts payable attributable to the Company's or
its Subsidiaries' operations such as lease and vendor payments.
DOI: The Department of Insurance of the State of Florida.
DOWN PAYMENT: The cash amount of Six Million Dollars ($6,000,000.00).
ESCROW AGREEMENT: The Escrow Agreement, of even date herewith, made
and entered into by and among Buyer, Seller and Escrow Holder.
ESCROW HOLDER: The law firm of Ruden McClosky Smith Schuster &
Russell, P.A.
EXCLUDED CLAIMS: Any and all of the Company's right, title or interest
in or to any claims, causes of action, damages (of every kind and nature),
judgments, awards, settlements or indemnities which the Company may not or
hereafter assert against or recover from Alma Hernandez and/or Ismael Hernandez,
M.D., together with any monetary amounts, fees, expenses or other consideration
which is, or becomes, payable by either Hernandez to the Company.
FEBRUARY ENROLLMENT REPORT. The enrollment report generated by the
Company which reflects the number of HMO members enrolled in the Company's
health plan on and as of January 31, 1997.
FINAL ADJUSTMENT DATE: The one hundred twentieth (120th) day following
the Closing Date, provided that if such day is not a business day, then the next
business day following such day.
FINAL BALANCE SHEET: The unaudited consolidated balance sheet of the
Company as of January 31, 1997, established by adjusting the Preliminary Balance
Sheet pursuant to the process and procedures set forth in Section 10.6 below.
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FINAL MEMBER PRICE: The amount determined by multiplying (i) Two
Hundred Dollars ($200.00), times (ii) the number of Adjusted Members.
FINAL PURCHASE PRICE: The total of the Adjusted Preliminary Purchase
Price plus, if applicable, the TNE Excess Amount or minus, if applicable, the
TNE Deficit Amount.
FINANCIAL STATEMENTS: The Balance Sheets, the audited consolidated
statutory basis statement of operations of the Company for the period commencing
December 16, 1993 and ended September 30, 1994, the audited statutory basis
statement of operations of the Company as of the fiscal year ended September 30,
1995, the audited statutory basis statement of operations of the Company as of
the fiscal year ended September 30, 1996, the unaudited statement of operations
of the Company's subsidiaries as of the fiscal year ended September 30, 1995 and
the unaudited statement of operations of the Company's subsidiaries as of the
fiscal year ended September 30, 1996. The Financial Statements are attached
hereto as Exhibit "A."
FIXED PRICE: The amount of Two Million Six Hundred Thousand Dollars
($2,600,000.00).
FLORIDA HMO ACT: The Florida Health Maintenance Organization Act,
codified at Sections 641.17 to 641.395, Florida Statutes, and any rules and
regulations promulgated thereunder by the DOI, as from time to time may be
amended.
GOVERNMENTAL AUTHORITY: The federal government, any state, county,
municipal, local or foreign government, and any governmental agency, department,
bureau, commission, court, authority or body, including AHCA and DOI.
H-S-R ACT: The Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and any rules and regulations promulgated thereunder, as from time to time may
be amended.
HMO: Health Maintenance Organization.
HMO REGULATORY APPROVAL: The approval by the DOI, and AHCA as
applicable, of the sale of the Company's capital stock to Buyer as contemplated
hereunder.
INDEMNIFICATION AGREEMENT: The Indemnification Agreement, dated as of
the Closing Date, to be entered into by and among Seller, the Company and Buyer,
the form of which agreement is attached hereto as Exhibit "B."
I S TERMS: Those terms pursuant to which the Company will use and
license certain of Seller's software as set forth on Exhibit "C."
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LIABILITIES: Any and all debts, indebtedness, liabilities, liens,
claims, judgements, damages, of every kind and nature, including incidental and
consequential damages, losses or other obligations, of every kind or nature,
whether due or payable, known or unknown, absolute or contingent, liquidated or
unliquidated, secured or unsecured or foreseeable or unforeseeable, which are
required to be paid, satisfied or fulfilled.
MATERIAL ADVERSE EFFECT: As applicable: (i) With respect to the
Company, shall mean a material and adverse effect upon the business, operations
or Assets of the Company and its Subsidiaries, when taken as a whole, or any
lien or restriction on the Shares; and (ii) with respect to Buyer, an adverse
effect upon Buyer's ability to perform all of its obligations, as and when they
become due, under this Agreement (including, but not limited to, payment of the
Final Purchase Price) or under any of the Additional Agreements to which Buyer
or the Company is a party.
MATERIALLY ADVERSE LOSS: As a result of a Material Adverse Effect upon
the Company, those losses (other than operating losses of the Company),
liabilities, judgments, damages, assessments, fines, interest, penalties,
deficiencies, costs or expenses, which in any single instance or in the
aggregate, amount to One Million Five Hundred Thousand Dollars ($1,500,000.00)
or more.
MEMBER ADJUSTMENT: The positive or negative amount, as the case may
be, determined by reducing the Final Member Price by the Preliminary Member
Price.
MEMBER ADJUSTMENT DATE: The forty-fifth (45th) day following the
Closing Date, provided that if such day is not a business day, then the next
business day following such day.
PERSON: Any individual, trustee, corporation, general or limited
partnership, limited liability company or partnership, joint venture, joint
stock company, bank, firm, Governmental Authority, trust, association,
organization or unincorporated entity of any kind.
PREFERRED CLOSING CORRIDOR: The month of February, 1997.
PRELIMINARY BALANCE SHEET: A pro forma consolidated balance sheet of
the Company as of the January 31, 1997, together with those schedules attached
thereto, as prepared by Seller, a copy of which balance sheet is attached hereto
as Exhibit "D."
PRELIMINARY MEMBER PRICE: The amount determined by multiplying (i) Two
Hundred Dollars ($200.00), times (ii) the number of the Company's HMO members as
reflected on the February Enrollment Report.
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PRELIMINARY PURCHASE PRICE: The total of the Fixed Price plus the
Preliminary Member Price minus (if applicable) the Purchase Refund.
PROVIDER AGREEMENTS: All contracts or agreements with health care
providers for the provision, arrangement or coordination of medical, health or
related services to the Company's HMO members.
PURCHASE REFUND: Provided that Seller provides Buyer with notice that
Seller is prepared to close the transactions contemplated under this Agreement
and the Additional Agreements within the Preferred Closing Corridor, then if
Buyer proceeds with the Closing within two (2) business days after receipt of
such notice, the Preliminary Purchase Price shall be reduced by an amount equal
to the product of (i) Four Hundred Thousand Dollars ($400,000.00), multiplied by
(ii) a fraction the numerator of which is the number of days which have elapsed
in the month of February through the Closing Date and the denominator of which
is twenty-eight (28), the number of days in the month of February.
REAL ESTATE: The parcels of real property currently owned by the
Company or one of its Subsidiaries as set forth on Parts A.1 and A.2 of Schedule
3.24.
REFERENCE DATE: January 1, 1997.
SECURITIES LAWS: The Securities Act of 1933, and the rules and
regulations promulgated thereunder and the securities laws of any state, and the
rules and regulations promulgated thereunder.
SELLER: PacifiCare Health Systems, Inc., a Delaware corporation.
SHARES: Thirteen Thousand One Hundred Thirty-Five (13,135) shares of a
single class of capital stock of the Company, par value Fifty Dollars ($50.00)
per share, held by Seller.
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SUBSCRIBER AGREEMENTS: All agreements or contracts in which the
Company has entered to arrange or provide health care services to (i) eligible
individuals who subscribe to a prepaid health plan offered by the Company's HMO,
or (ii) certain employers, employer groups or other purchasers who subscribe to
a prepaid health plan offered by the Company's HMO.
SUBSIDIARIES: Those subsidiaries of the Company as set forth on
Schedule 3.8.
TANGIBLE NET EQUITY: The amount determined by (i) reducing the total
book value of the tangible assets of the Company, by (ii) the total liabilities
of the Company (including medical Claims, IBNR reserves and provider risk
pools), as all such items are reflected on the Final Balance Sheet.
THIRD PARTY: A Person other than the Company, Buyer or Seller.
TNE DEFICIT AMOUNT: The amount by which Two Million Six Hundred
Thousand Dollars ($2,600,000.00) exceeds the Tangible Net Equity.
TNE EXCESS AMOUNT: The amount by which the Tangible Net Equity exceeds
Two Million Six Hundred Thousand Dollars ($2,600,000.00).
WARN ACT: The Worker Adjustment and Retraining Act and the rules and
regulations promulgated thereunder, as from time to time may be amended.
1.2 USE OF DEFINED TERMS. Any defined term used in the plural shall refer
to all members of the relevant class and any defined term used in the singular
shall refer to any one or more of the members of the relevant class.
1.3 DAY OR DAYS. Use of the terms "day" or "days" in this Agreement shall
mean and refer to calendar days unless either term is expressly modified by a
reference to "business" days.
1.4 ARTICLES, SECTIONS, EXHIBITS AND SCHEDULES. References in this
Agreement to articles, sections, exhibits and schedules are to articles,
sections, exhibits and schedules of and to this Agreement. All exhibits and
schedules to this Agreement, either as originally existing or as the same from
time to time may be supplemented, modified or amended, are hereby incorporated
herein by this reference.
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1.5 CONSTRUCTION OF TERMS. The term "or" shall not be exclusive. The terms
"herein," "hereof," "hereto," "hereunder" and other terms similar to such terms
shall refer to this Agreement as a whole and not merely to the specific article,
section, paragraph or clause where such terms may appear. The term "including"
shall mean "including, but not limited to."
1.6 GENDER. The use of the neuter gender in referring to any Person in
this Agreement also shall apply to that Person if such is masculine or feminine.
Hence, the use of the words "it" or "its" shall include and shall be
interchangeable with the use of the words "him" or "his" or "her" or "hers," as
the case may be, when the context so requires.
ARTICLE 2
PURCHASE AND SALE;
FURNISHING OF OTHER COVENANTS
2.1 SALE OF THE SHARES. Upon the terms and subject to the conditions of
this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and
deliver to Buyer all of Seller's right, title and interest in and to all of the
Shares, including the right to receive all unpaid dividends or other
distributions declared or otherwise payable with respect to the Shares. Such
sale, assignment, transfer, conveyance and delivery shall be effected by the
delivery to Buyer at the Closing of the certificate(s) representing all of the
Shares and a stock assignment separate from certificate duly executed, in blank,
by Seller.
2.2 PURCHASE OF THE SHARES. Upon the terms and subject to the conditions
of this Agreement, at the Closing, Buyer shall purchase the Shares from Seller
and, in consideration of and in exchange for the Shares, Buyer agrees to (i)
assume, pay and perform certain Company Liabilities in accordance with the terms
and conditions set forth in the Indemnification Agreement, and (ii) pay Seller
the Final Purchase Price in the amounts and in the manner hereinafter set forth:
(a) JANUARY 21, 1997: On or before such date, Buyer shall pay Seller
the Down Payment, subject to the provisions in Section 9.6 below, by
depositing the Down Payment with the Escrow Holder pursuant to the Escrow
Agreement;
(b) CLOSING DATE: On or before the Closing Date, (i) the Escrow Holder
shall deliver to Seller the Down Payment plus all interest which has
accrued thereon; Seller and (ii) Buyer shall pay Seller the cash amount
equal to the Preliminary Purchase Price minus the total of the Down Payment
plus all interest which has accrued thereon;
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(c) MEMBER ADJUSTMENT: On or before the Member Adjustment Date,
as applicable: (i) Buyer shall pay to Seller the cash amount of the Member
Adjustment if the Member Adjustment is a positive number; or (ii) Seller
shall pay to Buyer the cash amount of the Member Adjustment if the Member
Adjustment is a negative number; and
(d) FINAL ADJUSTMENT DATE. On or before the Final Adjustment Date,
Buyer or Seller shall make a cash payment to the other, as applicable:
(i) in the event that the Final Purchase Price exceeds the Adjusted
Preliminary Purchase Price, then Buyer shall pay Seller the amount of such
difference; or (ii) in the event that the Preliminary Purchase Price exceeds
the Final Purchase Price, then Seller shall pay and return such amount to
Buyer.
2.3 TREATMENT OF THE COMPANY'S LIABILITIES AND CERTAIN ASSETS. Provided
that the Closing occurs, Buyer and Seller agree that:
(a) Buyer, Seller and the Company shall assume and be responsible for
the payment or performance of the Company Liabilities in accordance with the
process and procedures established in the Indemnification Agreement and Section
10.1 below;
(b) Except for those Company Liabilities expressly assumed by Seller
pursuant to the Indemnification Agreement or this Agreement, Buyer, jointly and
severally with the Company, shall be responsible for the payment, performance
and satisfaction of all other Company Liabilities, including those liabilities
reflected on the Final Balance Sheet; and
(c) Buyer acknowledges and agrees that all, and not less than all, of
the Excluded Claims will be assigned and transferred to Seller as of, or prior
to, the Closing.
2.4 EXCLUDED ASSETS AND LIABILITIES. Buyer and Seller acknowledge and
agree that the assets and liabilities of the Company, as currently reflected on
Schedule 2.4, shall be excluded from the Company. Such assets, as they may
increase or decrease in value, shall be assigned, transferred and conveyed by
the Company to Seller as of the Closing or as soon thereafter as reasonably
practicable. Such liabilities, as they may increase or decrease, shall be
assumed and transferred by the Company to Seller as of the Closing or as soon
thereafter as reasonably practicable. Buyer, Seller and the Company shall take
all necessary actions, whether prior to or after the Closing, which are
necessary to accomplish such assignment, transfer, conveyance or assumption, as
the case may be.
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2.5 MANNER OF PAYMENT. All payments of the Final Purchase Price or
adjustments made thereto shall be paid via wire transfer or other form of
electronic funds transmission, by cashier's check or in certified funds pursuant
to payment instructions delivered to the party who owes the applicable funds by
the party to whom such funds are owed or are to be received.
2.6 TRANSFER TAXES. Buyer shall pay any and all federal, state and local
taxes arising out of, or assessed in connection with, the sale or transfer of
the Shares, except for taxes assessed against Seller's gross receipts or income
and except that the cost of the Florida state documentary stamp taxes shall be
shared equally between Buyer and Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the Reference Date as of the
Closing Date as follows:
3.1 CORPORATE ORGANIZATION. Seller is a corporation duly incorporated and
validly existing under the laws of the State of Delaware and is in good standing
under the laws of the States of Delaware and California. The Company and its
Subsidiaries each is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Florida.
3.2 CORPORATE AUTHORITY OF SELLER. Seller has the corporate power and
authority to execute and deliver this Agreement and any Additional Agreements to
which Seller is a party, to carry out the transactions contemplated hereunder
and thereunder and to sell the Shares to Buyer. All corporate acts and/or
proceedings required to be taken by Seller to authorize the execution, delivery
and performance of this Agreement, the Additional Agreements to which Seller is
a party and all transactions contemplated hereby or thereby have been duly and
validly taken as of the date hereof. This Agreement and the Additional
Agreements to which Seller is a party constitute, or when executed will
constitute, the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with the terms herein and therein, subject to
applicable laws and equitable remedies. Each individual executing this Agreement
or any Additional Agreements on Seller's behalf has full corporate power and
authority to execute and deliver this Agreement and such Additional Agreements.
3.3 ABSENCE OF BREACH OF CONTRACT OR VIOLATION OF CHARTER DOCUMENTS. The
execution and delivery of this Agreement and the Additional Agreements to which
Seller is a party and the consummation of the transactions contemplated hereby
and thereby will not constitute nor with notice or lapse of time or both would
constitute: (i) a violation of Seller's, the Company's or the Subsidiaries'
charter documents, (as amended or restated to date) or
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resolutions or actions of Seller's, the Company's or the Subsidiaries'
respective boards of directors, shareholders or duly authorized committees
thereof; or (ii) except as set forth on Schedule 3.3 or except that which does
not cause a Material Adverse Effect upon the Company, (a) a breach or default
under any contract, judgment, indenture, mortgage, deed of trust, instrument or
understanding to which Seller, the Company or the Subsidiaries is a party or is
subject, (b) an event which would permit any Person to terminate any such
contract or to accelerate the maturity of any indebtedness or other obligation
of Seller, the Company or the Subsidiaries or (c) the creation or imposition of
any lien affecting the Company, its Subsidiaries or the Shares.
3.4 CONSENTS OF THIRD PARTIES. Schedule 3.4 sets forth a list of all
approvals, authorizations, consents, orders or other actions of, or
declarations, filings or registrations with, any Governmental Authority or other
Person which are required to be made or obtained by Seller or the Company to
permit Seller to execute and deliver this Agreement and to consummate the
transactions contemplated hereunder and which, if not made or obtained, would
cause a Material Adverse Effect upon the Company.
3.5 CAPITALIZATION. The Company has authorized One Hundred Thousand
(100,000) shares of a single class of capital stock, par value Fifty Dollars
($50.00) per share, of which only the Shares are issued and outstanding. All of
the issued and outstanding Shares are validly issued, fully paid and
nonassessable and are held of record by Seller. There are no outstanding or
authorized rights, warrants, options, subscriptions, agreements or commitments
giving any Person any right to require the Company to sell or issue any capital
stock or other securities of the Company.
3.6 TITLE TO THE SHARES. Seller is the sole owner of all of the Shares and
has good and marketable title to the Shares, free and clear of all liens,
encumbrances, security agreements, equities, options, rights to acquire, claims,
charges or restrictions on transfer, except for those (i) which may be set forth
on Schedule 3.3 or 3.4, or (ii) which may be imposed by the Securities Laws.
There are no voting trusts or proxies with respect to the voting of the Shares.
3.7 FINANCIAL STATEMENTS. Seller or the Company has furnished to Buyer the
Financial Statements. The Financial Statements and the Preliminary Balance Sheet
have been prepared, and the Final Balance Sheet will be prepared, in accordance
with generally accepted accounting principles, applied consistently for the
periods specified, and are consistent with the books and records of the Company
and its Subsidiaries (which books and records are true, complete and correct in
all material respects). The Financial Statements fairly present the financial
condition of the Company and its Subsidiaries and the Preliminary Balance Sheet
does, and the Final Balance Sheet will, fairly present the items included
thereon.
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3.8 SUBSIDIARIES. The Company owns directly or indirectly the Florida
corporations set forth on Schedule 3.8. Except as set forth on Schedule 3.8, the
Company does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any other Person. The Company is the sole owner,
either directly or indirectly of the Subsidiaries and has good and marketable
title to their outstanding shares, free and clear of all liens, encumbrances,
security agreements, equities, options, rights to acquire, claims, charges or
restrictions on transfer, except for those (i) which may be set forth on
Schedule 3.3 or 3.4 or (ii) which may be imposed by the Securities Laws. There
are no voting trusts or proxies with respect to the voting of the shares of the
Subsidiaries' outstanding capital stock.
3.9 TITLE TO ASSETS. The Company or its Subsidiaries has good and
indefeasible title to its Assets which are not leased. The Company or its
Subsidiaries has a valid possessory interest in its leased Assets.
3.10 RECEIVABLES. All accounts receivable of the Company as reflected on
the Balance Sheets have arisen, and all accounts receivable of the Company as
reflected on the Final Balance Sheet will have arisen, in the ordinary course of
business of the Company.
3.11 LICENSES AND PERMITS. Schedule 3.11 contains a list and summary
description of each material license, permit, certificate, approval, franchise,
registration, accreditation or authorization issued to the Company and used in
the Company's business (collectively, the "Licenses and Permits"). The Licenses
and Permits are valid and in full force and effect and there are no pending or,
to the best knowledge of an officer of Seller or of the Company, overtly
threatened proceedings which could result in the termination, revocation,
limitation, restriction or impairment of any of the Licenses and Permits. The
Licenses and Permits are sufficient to enable the Company to lawfully conduct
its business as currently conducted, except where the failure to have obtained
or maintained a License or Permit would not result in a Material Adverse Effect
upon the Company. Except as set forth on Schedule 3.11, the Company has not
received from any Governmental Authority any citation, suspension, revocation,
limitation, warning or similar matter material to the Company's business
activities or operations which has not been finally resolved to such
Governmental Authority's satisfaction.
3.12 HEALTH PLAN OPERATIONS. The Company is licensed by DOI under the
Florida HMO Act to operate as a HMO in the State of Florida. The Company holds a
current Health Care Provider Certificate issued by AHCA with respect to the
health care services provided or arranged by the Company's HMO in the State of
Florida. The Company's HMO operations are in material compliance with the
Florida HMO Act and AHCA's rules and, except as set forth on Schedule 3.12, the
Company has not received from AHCA or DOI any citation, suspension, revocation,
limitation, warning or similar matter material to the Company's HMO operations
which has not been finally resolved to such Governmental Authority's
satisfaction.
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Neither the Company nor any of its Subsidiaries has any health plan operations
or other business activities outside of the State of Florida. The Company does
not engage in any business other than HMO operations and functions related
thereto. The principal business activities of the Subsidiaries are set forth on
Schedule 3.8.
3.13 MEMBERSHIP AND SUBSCRIBER AGREEMENTS. Schedule 3.13 sets forth a list
of all Persons who are parties to group Subscriber Agreements as of the month
end immediately preceding the Reference Date. Seller has delivered to Buyer
copies of the Subscriber Agreements for the twenty (20) largest subscriber
groups by membership as of the month ended immediately preceding the Reference
Date. All Subscriber Agreements were entered into in the ordinary course of
business and constitute legal, valid and binding agreements of the parties
thereto, subject to applicable laws and equitable remedies. Except as set forth
on Schedule 3.13, no approval or consent is required under any of the top twenty
(20) Subscriber Agreements in connection with the sale of Shares to Buyer
hereunder.
3.14 BROKER AGREEMENTS. Schedule 3.14 sets forth a list of all Persons who
are parties to Broker Agreements as of the month end immediately preceding the
Reference Rate. Seller has delivered to Buyer copies of the Broker Agreements
for the twenty (20) largest brokers by membership as of the month ended
immediately preceding the Reference Date. All Broker Agreements were entered
into in the ordinary course of business and constitute legal, valid and binding
agreements of the parties thereto, subject to applicable laws and equitable
remedies. Except as set forth on Schedule 3.14, no approval or consent is
required under any of the top twenty (20) Broker Agreements in connection with
the sale of Shares to Buyer hereunder.
3.15 PROVIDER AGREEMENTS. Schedule 3.15 sets forth a list of all Persons
who are parties to Provider Agreements as of the month end immediately preceding
the Reference Date. Seller has delivered to Buyer copies of the Provider
Agreements for the seven (7) largest medical group or IPA providers, nine (9)
largest hospital providers and ten (10) largest specialist or ancillary
providers (in each case determined by fiscal 1996 revenue) as of the month ended
immediately preceding the Reference Date. All Provider Agreements were entered
into in the ordinary course of business and constitute legal, valid and binding
agreements of the parties thereto, subject to applicable laws and equitable
remedies. Except as set forth on Schedule 3.15, no approval or consent is
required under any of the top physician, hospital or specialty Provider
Agreements in connection with the sale of Shares to Buyer hereunder.
3.16 LIST OF MATERIAL CONTRACTS. Schedule 3.16 sets forth a list of all
material contracts, leases and licenses to which the Company or any of its
Subsidiaries is a party and which provide for a period of performance which
extends beyond twelve (12) months from the Reference Date, involve payment of or
receipt after the Reference Date of amounts in excess
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of Twenty-Five Thousand Dollars ($25,000.00) or otherwise is material to the HMO
operations of the Company (collectively, the "Material Contracts"). Seller and
the Company have made available to Buyer all Material Contracts. Except as set
forth on Schedule 3.16, the Material Contracts (i) have not been assigned or
amended, and (ii) are believed to be in full force and valid and binding upon
the Company in accordance with their respective terms, subject to applicable
laws and equitable remedies. The Company is not in default in any material
respect under any Material Contract, nor has any event occurred which, after the
giving of notice or the passage of time or both, would constitute such a default
by the Company under any Material Contract. To the best knowledge of an officer
of Seller or of the Company, no other party to any Material Contract is in
default in any material respect under such Material Contract, nor has any event
occurred which, after the giving of notice or the passage of time or both, would
constitute such a default under any Material Contract. Except as set forth on
Schedule 3.16, or any other schedule to this Agreement, no approval or consent
is required under any Material Contracts in connection with the sale of Shares
to Buyer hereunder.
3.17 TANGIBLE PROPERTY. The facilities, equipment, furniture, improvements,
fixtures, structures and related capitalized items and other tangible property
material to the business of the Company, when taken as a whole, are in good
operating condition and repair, reasonable wear and tear excepted and subject to
continued repair and replacement in accordance with past practices.
3.18 INTANGIBLE PROPERTY. Schedule 3.18(a) sets forth a list of all
trademarks, copyrights, service marks and trade names owned by the Company or in
which the Company claims a proprietary right, and all applications for any of
the foregoing by the Company. Seller is not aware that any of the trademarks,
copyrights, service marks or trade names listed on Schedule 3.18(a) infringe on
the rights of any Person; provided, however, that all rights in and to the name
and mark "PacifiCare" belong solely and exclusively to Seller. Schedule 3.18(b)
sets forth a list of all electronic data processing systems, information systems
and computer software programs which the Company uses in its business, except
for off the shelf software programs, and indicates whether such software or
system is owned or licensed. The Company has not lost or transferred any rights
in or to the software or systems listed on Schedule 3.18(b). The Company's
application and related work papers submitted to the Health Care Financing
Administration seeking authorization to arrange for medical services on a risk-
basis to Medicare-eligibles shall remain the property of the Company, subject to
Seller's removal and retention of documentation and other information which is
proprietary to, and owned by, Seller.
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3.19 EMPLOYMENT MATTERS.
(a) EMPLOYMENT LIST. Schedule 3.19(a) sets forth an accurate list
as of the Reference Date of all employees of the Company and its Subsidiaries
which includes the employee's name, position, present compensation, merit
increase date and employer.
(b) LABOR CONTROVERSIES. The Company is not a party to any collective
bargaining agreement or any other contract, agreement or understanding with any
labor union and no such agreement is currently being negotiated.
(c) EMPLOYEE BENEFIT ARRANGEMENTS. Schedule 3.19 -C- sets forth the
employee benefit plans and arrangements of the Company, including severance,
stay bonus programs involving key employees and written employment agreements,
which are not terminating as a result of the sale of Shares to Buyer.
3.20 TAXES. Except as set forth on Schedule 3.20, the Company and the
Subsidiaries or Seller on their behalf: (i) has duly and timely filed or caused
to be filed all federal, state, local and foreign tax returns (including,
without limitation, consolidated and/or combined tax returns) required to be
filed prior to the date hereof, except where a timely extension has been
obtained and has not expired; and (ii) has paid or fully accrued for all taxes
shown to be due and payable on such returns (which taxes are all the taxes due
and payable under such returns or pursuant to any assessment received with
respect to the Company). No deficiency with respect to the Company in the
payment of taxes for any period has been asserted in writing by any taxing body
which remains unsettled as of the date hereof. The Company has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other Third Party.
3.21 LITIGATION AND KNOWN CLAIMS. Except as set forth in Schedule 3.21,
there are no judicial or administrative actions, suits or proceedings with
respect to the Company or its Subsidiaries involving claims by or against the
Company or its properties or the Subsidiaries or their properties pending, at
law or in equity, before any Governmental Authority or arbitrator. There are no
orders, judgments, injunctions or decrees of any Governmental Authority with
respect to which the Company or any of the Subsidiaries has been named or is a
party which would have a Material Adverse Effect upon the Company. To the best
knowledge of the Company's officers, Schedule 3.21 sets forth a list of all
other Claims asserted in writing by Third Parties against the Company or its
Subsidiaries.
3.22 MINUTE BOOKS. To the best knowledge of the Company's officers, the
respective minute books of the Company and its Subsidiaries accurately reflect
the proceedings of the directors and the sole shareholder of the Company and of
the Subsidiaries which were held during Seller's ownership of the Company and,
for such period, contain appropriate
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corporate approval of the material transactions involving the Company or its
Subsidiaries, as the case may be. True and complete copies of the Articles of
Incorporation and Bylaws of the Company and of its Subsidiaries, as each is
amended to date, are attached hereto as Schedule 3.22.
3.23 INSURANCE. Schedule 3.23 sets forth a list and summary description of
all binders, certificates or policies of insurance which are maintained by the
Company and which will remain in effect after the Closing.
3.24 REAL PROPERTY. Schedule 3.24 sets forth a list of all real property
owned or leased by the Company or its Subsidiaries by the property's common
street address. Any material liens affecting the Real Estate are set forth on
Schedule 3.24.
3.25 BANK ACCOUNTS. Schedule 3.25 sets forth a list of all banks and
financial institutions in which the Company or any of its Subsidiaries has an
account, deposit, safe-deposit box, line of credit, loan facility or other
relationship. Schedule 3.25 identifies the name of the bank or other
institution, account type and number and the Persons authorized to make
withdrawals from or to otherwise engage in transactions with respect to such
accounts.
3.26 COMPLIANCE WITH LAWS. Except for matters which would not cause a
Material Adverse Effect and except for those matters set forth on Schedule 3.26
with respect to the Company and except for matters disclosed on Schedules to
this Agreement, the Company and its Subsidiaries are in material compliance with
all laws applicable to their respective businesses.
3.27 NO OTHER AGREEMENTS RELATING TO THE SHARES. Except for this Agreement,
neither Seller, the Company nor any of its Subsidiaries has entered into any
agreement or legally binding arrangement or obligation to sell the Shares or to
dispose of the business or a material portion of the Assets, when taken as a
whole, or to effect any merger, consolidation or other reorganization with
respect to the Company.
3.28 NO BROKERS. Except for Dillon Read & Co., Inc., Seller has not entered
into any contract, arrangement or understanding with any Person which may result
in Seller's obligation to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
and Seller is not aware of any claim or basis for claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby. The Company has not entered into any
contract, arrangement or understanding with any Person which may result in the
Company's obligation to pay any finder's fees, brokerage or agent's commissions
or other like payments in
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connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, and the Company is not aware of any
claim or basis for claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
3.29 EFFECT OF MATERIAL ADVERSE EFFECT UPON REPRESENTATIONS AND WARRANTIES.
Without consideration of the information disclosed on the schedules as
exceptions to the representations and warranties furnished by Seller in this
Article 3, those representations and warranties which are qualified by a
Material Adverse Effect shall not, when taken as a whole, contain any untrue
statement or omission of fact which results in a Materially Adverse Loss.
3.30 LIMITATIONS OF REPRESENTATIONS AND WARRANTIES. Except as specifically
set forth in this Article 3 and the information disclosed in schedules pursuant
to this Article 3, Seller makes no other representations or warranties to Buyer,
whether expressed, implied or statutory, in connection with the purchase and
sale of the Shares. Except as provided in this Article 3, Buyer shall have full
responsibility for ascertaining all matters pertaining to the Shares being
purchased and sold hereunder, including the value and condition of the Company's
business and the Assets.
3.31 DISCLOSURE. The representations and warranties furnished by Seller in
this Agreement and in the schedules and exhibits hereto are accurate, correct
and complete in all material respects and do not contain any untrue statement of
a material fact or, when considered in the context in which presented, omit to
state a material fact necessary to make the statements and information contained
herein not misleading.
3.32 NON-SURVIVAL. The representations and warranties furnished by Seller
in this Agreement and in any certificate delivered pursuant to this Agreement
shall not survive the Closing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as of the
Closing Date as follows:
4.1 CORPORATE ORGANIZATION. Buyer is a nonprofit corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Florida.
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4.2 CORPORATE AUTHORITY OF BUYER. Buyer has the corporate power and
authority to execute and deliver this Agreement and any Additional Agreements to
which Buyer is a party, to carry out the transactions contemplated hereunder and
thereunder and to purchase the Shares from Seller. All corporate acts and/or
proceedings required to be taken by Buyer to authorize the execution, delivery
and performance of this Agreement, the Additional Agreements to which Buyer or
the Company is a party and all transactions contemplated hereby and thereby have
been duly and validly taken as of the date hereof. This Agreement and the
Additional Agreements to which Buyer is a party constitute, or when executed
will constitute, the legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with the terms herein and therein, subject to
applicable laws and equitable remedies. Each individual executing this Agreement
or any Additional Agreements on Buyer's behalf has full corporate power and
authority to execute and deliver this Agreement and such Additional Agreements.
4.3 ABSENCE OF BREACH OF CONTRACT OR VIOLATION OF CHARTER DOCUMENTS. The
execution and delivery of this Agreement and the Additional Agreements to which
Buyer or the Company is a party and the consummation of the transactions
contemplated hereby and thereby will not constitute nor with notice or lapse of
time or both would constitute: (i) a violation of Buyer's charter documents (as
amended or restated to date) or resolutions or actions of Buyer's board of
directors, shareholders or duly authorized committees thereof; or (ii) except as
set forth on Schedule 4.3 or that which would not cause a Material Adverse
Effect upon Buyer, (a) a breach of or default under any contract, judgment,
indenture, mortgage, deed of trust, instrument or understanding to which Buyer
is a party or is subject, (b) an event which would permit any Person to
terminate any such contract or to accelerate the maturity of any indebtedness or
other obligation of Buyer or -C- the creation or imposition of any lien
affecting Buyer's ability to consummate all of the transactions contemplated
hereunder and under any Additional Agreements to which Buyer is a party.
4.4 CONSENTS OF THIRD PARTIES. Schedule 4.4 sets forth a list of all
approvals, authorizations, consents, orders or other actions of, or
declarations, filings or registrations with, any Governmental Authority or other
Person which are required to be made or obtained for Buyer to purchase the
Shares, for Buyer's execution and delivery of this Agreement and the Additional
Agreements to which Buyer is a party and for the consummation of the
transactions contemplated hereunder or thereunder and which, if not made or
obtained, would cause a Material Adverse Effect upon Buyer.
4.5 KNOWLEDGE OF MARKET: ACCESS TO INFORMATION. Buyer has extensive
experience in the ownership and operation of HMOs. Buyer is familiar with the
equipment, facilities, systems and other assets used by HMOs and the licenses,
permits, certificates, approvals, registrations, accreditations or
authorizations necessary to operate HMOs in the State of Florida. In view of the
foregoing, Buyer is well-positioned to evaluate the value of the Shares
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and to evaluate the Assets and the Company's operations. Subject to Buyer's
continuing due diligence after the date hereof, Buyer or its representatives and
advisors has been provided with all of the information which Buyer desires to
have to make a decision whether or not to enter into this Agreement and the
Additional Agreements to which Buyer is a party.
4.6 NO BROKERS. Buyer has not entered into any contract, arrangement or
understanding with any Person which may result in Buyer's obligation to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, and Buyer is not aware of any claim or
basis for a claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
4.7 DISCLOSURE. The representations and warranties furnished by Buyer in
this Agreement are accurate, correct and complete in all material respects and
do not contain any untrue statement of a material fact or, when considered in
the context in which presented, omit to state a material fact necessary to make
the statements and information contained herein not misleading.
4.8 NON-SURVIVAL. The representations and warranties furnished by Buyer in
this Agreement and in any certificate delivered pursuant to this Agreement shall
not survive the Closing.
ARTICLE 5
CONDUCT PRIOR TO CLOSING
During the period between the execution of this Agreement and the Closing
of the transactions contemplated hereunder, Buyer and Seller each covenants and
agrees to use its best efforts to do and perform the following obligations, as
applicable to it:
5.1 THE COMPANY'S BUSINESS. During the period from the date of this
Agreement through the Closing Date, Seller shall not, without the prior written
consent of Buyer, which consent shall not be unreasonably withheld, conditioned
or delayed: (i) cause the Company to change any of its significant business
policies relating to marketing, pricing, billing and collection, payment of
trade debts, purchasing, member services and the delivery of health care; (ii)
mortgage, pledge or subject to any lien, security interest, restriction or other
encumbrance the Shares or cause the Company to so encumber any material portion
of the Assets; (iii) cause the Company to sell, assign, distribute, lease,
transfer or otherwise dispose of, or agree to dispose of, a material portion of
the Assets, except in the ordinary course of
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business and except for the sale of the Miami Beach and Pembroke Pines real
property owned by a Subsidiary; provided, however, in the event of either such
real property sales, the cash proceeds of the sale shall be retained by the
Company and not transferred to Seller; or (iv) except in the ordinary course of
business, cause the Company to enter into a material amendment or modification
of any of the Material Contracts. Seller shall provide Buyer with prompt written
notice of any event which cause the representations and warranties furnished by
Seller to be untrue, in any material respect, as of the Reference Date, or which
has resulted in a Material Adverse Effect upon the Company and its Subsidiaries
as of the Reference Date.
5.2 BUYER'S DUE DILIGENCE. At all times prior to the Closing, Seller shall
provide to Buyer, its legal counsel, accountants, employees and other
representatives, full opportunities and access (including the right to make
copies) to examine (and discuss with Seller's officers, employees, independent
auditors and attorneys) all of the books, reports and records, documents,
instruments and properties relating to the businesses, operations and Assets of
the Company and its Subsidiaries. All such due diligence shall be conducted by
Buyer and its representatives pursuant to the confidentiality provisions of
Section 5.6 below.
5.3 BEST EFFORTS: FURTHER ASSURANCES. Buyer and Seller shall each exercise
its best efforts in good faith to perform, comply with and otherwise satisfy all
of the conditions and covenants to be satisfied by such party under this
Agreement prior to the Closing of the transactions contemplated hereunder. Each
of the parties hereto shall perform any and all acts and shall execute and
deliver any and all additional documents as are or may become reasonably
necessary to carry out the provisions of this Agreement and the intent of the
parties hereto. If at any time contemporaneously with, or after, the execution
of this Agreement any further action to carry out the purposes of this Agreement
is reasonably necessary or required by either party's legal counsel or by any
Governmental Authority, then Buyer and Seller, as the case may be, shall take
such action.
5.4 CONSENTS AND APPROVALS. Seller shall diligently seek the consent or
approval of, furnish any notices to or make any filings or registrations with,
those Governmental Authorities or other Persons listed on Schedule 3.4. Without
consideration of any applicable Securities Laws, Seller shall use its best good
faith efforts to obtain any consents or approvals necessary to consummate the
sale of the Shares to Buyer as contemplated hereunder and any other transactions
contemplated under the Additional Agreements to which Seller is a party. Buyer
shall diligently seek the consent or approval of, furnish any notices to or make
any filings or registrations with those Governmental Authorities or other
Persons listed on Schedule 4.4. Buyer shall use its best good faith efforts to
obtain any consents or approvals necessary to consummate the purchase of the
Shares from Seller as contemplated hereunder and any other transactions
contemplated under the Additional Agreements to which Buyer is a party. Without
limiting the generality of any of the foregoing, Buyer and Seller shall work
cooperatively together to promptly prepare and file the notifications required
(if any) under the
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H-S-R Act in connection with the purchase and sale of the Shares hereunder.
Buyer and Seller agree to respond, as promptly as practicable, to (i) any
inquiries or requests received from the Federal Trade Commission or the
Antitrust Division of the Department of Justice for additional information or
documentation, and (ii) any inquiries or requests received from any state
attorney general or other Governmental Authority in connection with antitrust or
related matters.
5.5 PUBLICITY. At all times from the date hereof through the Closing Date,
Buyer and Seller shall agree with each other as to timing and content prior to
issuing any announcement, press release, public statement or other information
to the public or any Third Party (including any Governmental Authority) with
respect to this Agreement, the related documents or the transactions
contemplated hereby and thereby; provided, however, that nothing herein shall
prohibit either party to this Agreement from making any public disclosure
regarding this Agreement, the related documents or the transactions contemplated
hereby or thereby if, in the opinion of legal counsel to such party, such
disclosure is required under applicable laws.
5.6 CONFIDENTIAL INFORMATION. Buyer shall, and shall cause its
representatives to, continue to maintain in confidence and to not disclose any
and all data, documents, agreements, financials and other information furnished
by Seller or the Company in connection with Buyer's evaluation of the Company
and the transactions contemplated hereunder ("Confidential Information");
provided, however, that Buyer may disclose such Confidential Information to its
management, employees, agents, accountants and other representatives who have a
need to know such information in order to assist in such evaluation. Buyer's
obligations with respect to Confidential Information about the Company shall
expire on the Closing Date, if such occurs.
5.7 ADJUSTMENTS TO SCHEDULES. Until the Closing, Seller shall from time to
time update, revise or supplement the schedules attached to this Agreement to
set forth changes in the information disclosed therein occurring after the date
applicable to the particular schedule until the Closing Date. Seller shall
deliver such updates, revisions and supplements no later than two (2) business
days prior to Closing and any updates, revisions or supplements which are
warranted after such time shall be delivered by Seller promptly to Buyer. Buyer
shall accept all such updates, revisions and supplements, subject to Buyer's
rights arising from Section 6.10 below.
5.8 BREAK-UP FEE. In the event that the purchase and sale of the Shares as
contemplated hereunder and under the Additional Agreements is not consummated
due to Buyer's unwillingness to close, then Buyer shall pay Seller a break-up
fee as follows:
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(a) Buyer shall pay Seller a break-up fee equal to Five Hundred
Thousand Dollars ($500,000.00) in the event that Buyer refuses to close due
to the discovery of any inaccuracies of which Seller knew or should have
known in the representations or warranties furnished by Seller hereunder or
in any of the information scheduled pursuant to such representations or
warranties and such inaccuracies, whether individually or in the aggregate,
disclose a Material Adverse Effect which results in a Materially Adverse
Loss; or
(b) Except as governed by Section 5.8(a) above, Buyer shall pay
Seller a break-up fee equal to One Million Five Hundred Thousand Dollars
($1,500,000.00) in the event that Buyer refuses to close due to the
occurrence of a Material Adverse Effect discovered after the date hereof
which results in a Materially Adverse Loss.
The provisions of this Section 5.8 shall survive the termination of this
Agreement.
5.9 No Shop. Unless or until this Agreement is terminated as provided in
Article 9 below, neither Seller nor the Company nor any of their respective
shareholders, affiliates, directors, officers, employees, agents, investment
bankers, financial advisors, attorneys or other representatives may, directly or
indirectly, solicit or initiate any discussions or negotiations with,
participate in any negotiations with or provide any information to or otherwise
cooperate in any other way with, or facilitate or encourage any effort or
attempt by any Person concerning any merger, sale of a substantial portion of
the Company's or its Subsidiaries, Assets, Contracts when taken as a whole, sale
of the Company's capital stock or any similar transaction involving the Company,
its Subsidiaries or their Assets.
5.10 SPECIAL UNDERSTANDINGS OF THE PARTIES. Because of the dynamic nature
of the considerations used to establish the Final Purchase Price, Buyer and
Seller agree as follows:
(a) Since the parties desire to close the transactions under this
Agreement as soon as reasonably practicable, Buyer and Seller intend that, so
long as the parties' have expended their best efforts to obtain various
contractual consents arising from the sale of the Company's capital stock to
Buyer, then Buyer and Seller shall give strong consideration to closing the
purchase and sale prior to receipt of every contractual consent;
(b) In the event that the transactions under this Agreement do not
close in the Preferred Closing Corridor, then Buyer and Seller will use their
best efforts to adjust the Final Purchase Price to address: (i) any capital
which Seller contributes to the Company after the expiration of the Preferred
Closing Corridor to fund the Company's losses for the months following the
Preferred Closing Corridor through the Closing Date; (ii) that any Final
Purchase Price adjustments shall take into consideration both the Company's
approximate monthly losses for each month which the Closing has been delayed
beyond the Preferred Closing Corridor and
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the number of members enrolled in the Company's HMO as of a date close to the
Closing Date; and (iii) any other considerations related to a mid-month closing,
if applicable; and
(c) Buyer shall have a strong advisory role in, and influence upon,
the administrative and operational aspects of the Company's business during the
period prior to Closing, subject to the appropriate oversight, direction and
control by the Company's management.
5.11 EXPENSES. Except as provided in Section 5.8 above, whether or not the
transactions contemplated by this Agreement and the Additional Agreements are
consummated, Buyer and Seller each shall pay its own expenses (including fees of
any attorneys, accountants, brokers or other professionals engaged by such
party) in connection with the preparation and negotiation of this Agreement, the
Additional Agreements and the consummation of the transactions contemplated
hereby and thereby.
ARTICLE 6
BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to proceed to Closing and to purchase the Shares
pursuant to this Agreement are subject to the satisfaction or Buyer's written
waiver, at or prior to Closing, of the following conditions precedent:
6.1 REPRESENTATIONS AND WARRANTIES TRUE: CLOSING CONDITIONS SATISFIED. The
representations and warranties made by Seller in this Agreement and in any
certificate delivered pursuant to the provisions hereof shall be true and
correct in all material respects as of the Reference Date and, as a result of
the due diligence efforts of Buyer and its representatives conducted through the
Closing, Buyer shall not have discovered any material error, misstatement or
omission in such representations and warranties. As a condition precedent to
Closing the transactions hereunder, Seller shall have delivered to Buyer a
certificate ("Seller's Closing Certificate"), dated as of the Closing Date and
signed by an executive officer of Seller, which certifies that (i) such
representations and warranties were true in all material respects as of the
Reference Date, (ii) such representations and warranties are true in all
material respects as of the Closing Date as though made on and as of the Closing
Date and (iii) all of the conditions to Seller's obligations set forth in this
Article 6 have been fully satisfied or waived in writing by Seller and (iii) all
of the conditions to Buyer's obligations set forth in this Article 6 have been
fully satisfied or waived in writing by Buyer. Seller's Closing Certificate
shall be true and correct as of the Closing Date.
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6.2 SELLER'S PERFORMANCE. Seller shall have performed and complied in all
material respects with all applicable covenants and agreements required by this
Agreement to be performed or complied with by Seller prior to or at Closing.
6.3 CORPORATE PROCEEDINGS. All corporate proceedings of Seller approving
the transactions contemplated by this Agreement and the Additional Agreements to
which Seller is a party shall be in form and substance reasonably satisfactory
to Buyer and Buyer's legal counsel.
6.4 CONSENTS AND APPROVALS. HMO Regulatory Approval shall have been
obtained. Seller shall have used its best efforts to obtain any necessary
consents or approvals to the sale of the Shares. Seller shall have used its best
efforts to obtain any permits, approvals, consents or authorizations from any
Governmental Authority of competent jurisdiction which may be necessary for
consummation of the transactions contemplated under this Agreement. Without
limiting the generality of the foregoing, any Person required to file a
notification and report form in compliance with the H-S-R Act in connection with
the purchase and sale of the Shares shall have filed such notification and
report and the applicable waiting period with respect to each such filing
(including any extension thereof by reason of a request for additional
information) shall have expired or been terminated.
6.5 THE INDEMNIFICATION AGREEMENT. The Indemnification Agreement shall
have been duly executed by Seller and delivered to Buyer.
6.6 UPDATED SCHEDULES. Seller shall have delivered to Buyer any updated
schedules pursuant to Section 5.7 above.
6.7 RESIGNATIONS AND TERMINATIONS. Seller shall have delivered to Buyer
the written resignations of all officers and directors of the Company and its
Subsidiaries effective as of the Closing. The Company shall have terminated the
employment of the Company Employees as of the Closing Date.
6.8 NO GOVERNMENTAL ACTION OR OTHER ADVERSE PROCEEDINGS. No Governmental
Authority shall have threatened or issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the performance
of this Agreement, which has not been resolved to the Governmental Authority's
satisfaction. There shall not be any other action or claim instituted with
respect to the transactions contemplated by this Agreement by any Governmental
Authority or other Person or order enacted, entered, enforced or deemed
applicable to the transactions contemplated hereunder by any Governmental
Authority or arbitrator or any preliminary or permanent injunction or order
entered by any federal or state
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court which, in the opinion of Buyer, after consultation with Buyer's legal
counsel, prohibits consummation of the transactions as contemplated hereunder or
makes the consummation of such transactions illegal or reasonably likely to
result in damages of a material amount to Buyer.
6.9 NO TERMINATION OF THIS AGREEMENT. This Agreement shall not have been
terminated pursuant to Article 9 below.
6.10 NO MATERIAL ADVERSE EFFECT. Subject to the provisions of Section 5.8
above: (i) Any inaccuracies in the representations or warranties furnished by
Seller hereunder or in the information scheduled pursuant to such
representations or warranties, collectively taken together with any updates to
such information, shall not disclose a Material Adverse Effect as of the Closing
Date which results in a Materially Adverse Loss; or (ii) between the date hereof
and the Closing Date, there shall not have occurred a Material Adverse Effect
which results in a Materially Adverse Loss.
6.11 TERMINATION OF INTERCOMPANY OBLIGATIONS. The Company shall have
terminated all oral or written service agreements with its existing affiliates
and the Company shall owe no further amounts under such agreements after the
Closing Date.
6.12 OTHER DELIVERIES. Seller shall have delivered to Buyer any documents
required by Section 8.2 below.
ARTICLE 7
SELLER'S CONDITIONS TO CLOSING
The obligations of Seller to proceed to Closing and to sell the Shares
pursuant to this Agreement are subject to the satisfaction or Seller's written
waiver, at or prior to Closing, of the following conditions precedent:
7.1 REPRESENTATIONS AND WARRANTIES TRUE: CLOSING CONDITIONS SATISFIED. The
representations and warranties made by Buyer in this Agreement and in any
certificate delivered pursuant to the provisions hereof shall be true and
correct in all material respects as of the date hereof and shall be true and
correct in all material respects as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date and
Seller shall not have discovered any material error, misstatement or omission in
such representations and warranties. As a condition precedent to Closing the
transactions hereunder, Buyer shall have delivered to Seller a certificate
("Buyer's Closing Certificate"), dated as of the Closing Date and signed by
Buyer's president, which certifies that (i) such representations and warranties
were true in all material respects as of the date hereof, (ii) such
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representations and warranties are true in all material respects as of the
Closing Date as though made on and as of the Closing Date and (iii) all of the
conditions to Seller's obligations set forth in this Article 7 have been fully
satisfied or waived in writing by Seller.
7.2 BUYER'S PERFORMANCE. Buyer shall have performed and complied in all
material respects with all applicable covenants and agreements required by this
Agreement to be performed or complied with by Buyer prior to Closing.
7.3 CORPORATE PROCEEDINGS. All corporate proceedings of Buyer approving
the transactions contemplated by this Agreement and the Additional Agreements to
which Buyer or the Company is a party shall be in form and substance reasonably
satisfactory to Seller and Seller's legal counsel.
7.4 CONSENTS AND APPROVALS. HMO Regulatory Approval shall have been
obtained. Buyer shall have used its best efforts to obtain any necessary
consents or approvals for the purchase of the Shares and consummation of the
transactions contemplated hereunder and under the Additional Agreements to which
Buyer is a party. Buyer shall have used its best efforts to obtain any permits,
approvals, consents or authorizations from any Governmental Authority of
competent jurisdiction which may be necessary for consummation of the
transactions contemplated under this Agreement and the Additional Agreements to
which Buyer or the Company is a party. Without limiting the generality of the
foregoing, any Person required to file a notification and report form in
compliance with the H-S-R Act in connection with the purchase and sale of the
Shares shall have filed such notification and report and the applicable waiting
period with respect to each such filing (including any extension thereof by
reason of a request for additional information) shall have expired or been
terminated.
7.5 THE INDEMNIFICATION AGREEMENT. The Indemnification Agreement shall
have been duly executed by Buyer and the Company and delivered to Seller.
7.6 NO MATERIAL ADVERSE EFFECT. Since the date hereof, there is no
Material Adverse Effect which has occurred with respect to Buyer that is
continuing.
7.7 NO GOVERNMENTAL ACTION OR OTHER ADVERSE PROCEEDINGS. No Governmental
Authority shall have threatened or issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the performance
of this Agreement, which has not been resolved to the Governmental Authority's
satisfaction. There shall not be any other action or claim instituted with
respect to the transactions contemplated by this Agreement by any Governmental
Authority or other Person or order enacted, entered, enforced or deemed
applicable to the transactions contemplated hereunder by any Governmental
Authority or arbitrator or any preliminary or permanent injunction or order
entered by any federal or state court which, in the opinion of Seller, after
consultation with Seller's legal counsel, prohibits
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consummation of the transactions as contemplated hereunder or makes the
consummation of such transactions illegal or reasonably likely to result in
damages of a material amount to Seller or its affiliates.
7.8 NO TERMINATION OF THIS AGREEMENT. This Agreement shall not have been
terminated pursuant to Article 9 below.
7.9 OTHER DELIVERIES. Buyer shall have delivered to Seller any documents
required by Section 8.3 below.
ARTICLE 8
CLOSING
8.1 THE CLOSING. Provided that all conditions to Closing hereunder have
been satisfied or appropriately waived, the Closing of the transactions
contemplated by this Agreement shall occur at the offices of Seller's legal
counsel, Konowiecki & Rank, located at 633 West Fifth Street, Suite 3500, Los
Angeles, California 90071, at 10:00 a.m. Pacific Standard Time on a day on or
before the Closing Date. All acts, deliveries and confirmations comprising the
Closing, including all conditions precedent to Closing, regardless of
chronological sequence, shall be deemed to occur contemporaneously and
simultaneously at 11:59 p.m. Pacific Standard Time on the Closing Date.
8.2 SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller shall deliver,
or cause to be delivered, to Buyer the following items:
(a) CORPORATE RESOLUTIONS. Duly certified copies of the corporate
proceedings of Seller authorizing the execution, delivery and performance of
this Agreement, the Additional Agreements to which Seller is a party and
approving all of the transactions contemplated hereby and thereby;
(b) SELLER'S CLOSING CERTIFICATE. Seller's Closing Certificate duly
executed by an executive officer of Seller;
(c) AGREEMENTS. Originally-executed signature pages to this
Agreement, the Indemnification Agreement (together with any updates to the
schedules or exhibits thereto as reasonably agreed by Buyer and Seller) and any
other Additional Agreements to which Seller is a party;
(d) STOCK CERTIFICATE AND ASSIGNMENT. The stock certificate(s)
representing the Shares and a stock assignment separate from certificate, duly
executed in blank by Seller;
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(e) CONSENTS AND APPROVALS. Any consents or approvals required under
Section 6.4 above;
(f) UPDATED SCHEDULES. Any updated schedules pursuant to Section 6.6
above;
(g) RESIGNATIONS. Duly executed resignations of officers and
directors of the Company and its Subsidiaries;
(h) INCUMBENCY CERTIFICATE. An Incumbency Certificate listing the
officers of Seller who are authorized to execute this Agreement and any
Additional Agreement to which Seller is a party and certifying as to such
officers' authority; and
(i) OTHER DOCUMENTS. Such other instruments, assignments and
documents as Buyer may reasonably request, consistent with the intent and
purposes of this Agreement.
8.3 BUYER'S OBLIGATIONS AT CLOSING. At the Closing, Buyer shall deliver,
or cause to be delivered, to Seller the following items:
(a) CORPORATE RESOLUTIONS. Duly certified copies of the corporate
proceedings of Buyer authorizing the execution, delivery and performance of this
Agreement, the Additional Agreements to which Buyer or the Company is a party
and approving all of the transactions contemplated hereby and thereby;
(b) BUYER'S CLOSING CERTIFICATE. Buyer's Closing Certificate duly
executed by Buyer's president;
(c) AGREEMENTS. Originally-executed signature pages to this
Agreement, the Indemnification Agreement and any other Additional Agreements to
which Buyer or the Company is a party;
(d) CONSENTS AND APPROVALS. Any consents or approvals required under
Section 7.4 above;
(e) INCUMBENCY CERTIFICATE. An Incumbency Certificate listing the
officers of Buyer who are authorized to execute this Agreement and any
Additional Agreement to which Buyer or the Company is a party and certifying as
to such officers' authority;
(f) THE PRELIMINARY PURCHASE PRICE. The Preliminary Purchase Price
payable in cash in the manner prescribed by Section 2.5 above; and
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(g) OTHER DOCUMENTS. Such other instruments, assignments and
documents as Seller may reasonably request, consistent with the intent and
purposes of this Agreement.
ARTICLE 9
TERMINATION
9.1 MUTUAL AGREEMENT. Buyer and Seller may, by mutual written consent,
terminate this Agreement at any time before the Closing.
9.2 CLOSING FAILS TO OCCUR. In the event that the Closing of the
transactions contemplated hereunder fails to occur on or before January 31,
1998, Buyer or Seller may terminate this Agreement by giving written notice to
the other party; provided, however, that the foregoing shall not alter the fact
that time is of the essence with respect to this Agreement.
9.3 BY BUYER. Buyer may terminate this Agreement prior to Closing
effective upon the giving of written notice to Seller if:
(a) Any Governmental Authority of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting consummation by Buyer of the transactions
contemplated hereunder or under the related documents and such order, decree,
ruling or other action shall have become final and nonappealable;
(b) There has been a material breach by Seller of an agreement,
covenant representation or warranty contained in this Agreement and such breach
has not been waived by Buyer or cured to Buyer's reasonable satisfaction on or
before the Closing Date; or
(c) A Materially Adverse Loss as set forth in Section 6.10 above has
occurred.
9.4 BY SELLER. Seller may terminate this Agreement prior to Closing
effective upon the giving of written notice to Buyer if:
(a) Any Governmental Authority of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining, or otherwise prohibiting consummation by Seller of the transactions
contemplated hereunder or under the related documents and such order, decree,
ruling or other action shall have become final and nonappealable; or
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(b) There has been a material breach by Buyer of an agreement,
covenant representation or warranty contained in this Agreement and such breach
has not been waived by Seller or cured to Seller's reasonable satisfaction on or
before the Closing Date.
9.5 CONFIDENTIAL INFORMATION. Upon termination of this Agreement, for any
reason whatsoever, Buyer shall, and shall cause its representatives to, continue
to abide by the terms and conditions of Section 5.6 above and, at Seller's
request, shall return to Seller or destroy all confidential information obtained
from Seller or the Company.
9.6 REFUND OF DOWN PAYMENT. In the event that this Agreement is terminated
pursuant to this Article 9, then the Escrow Holder shall immediately return to
Buyer the Down Payment together with interest which has accrued thereon from the
date on which the Down Payment was received by Seller through the date on which
the Down Payment is returned to Buyer. A termination of this Agreement pursuant
to Section 9.3(c) hereof shall not relieve Buyer from its obligation under
Section 5.8 above.
ARTICLE 10
POST-CLOSING COVENANTS AND OBLIGATIONS
10.1 PAYMENT OF THE COMPANY'S LIABILITIES. After the Closing, Buyer shall,
or shall cause the Company to, administer and manage the payment or performance
of all Company Payables in a timely manner, consistent with customary and
prudent business practices. Prior to or as of Closing, Seller shall have
deposited in a special account of the Company the amount of Three Million
Dollars ($3,000,000.00) (the "Special Fund") to be applied to payment of claims
for specialist referrals made by PrimeCare of Florida, Inc. dba PrimeCare
Physician Network, Inc. on or before the Closing Date or claims for hospital
services furnished to PrimeCare patients on or before the Closing Date (the
"PrimeCare Pre-Closing IBNR"). However, Seller's creation of the Special Fund is
conditioned upon the Company assigning to Seller all of the Company s right,
title and interest in and to the PrimeCare Pre-Closing IBNR up to Three Million
Dollars ($3,000,000.00) under that certain Health Services Agreement, dated as
of May 31, 1996, made and entered into by and between the Company and PrimeCare
of Florida.
Buyer shall, or shall cause the Company to, apply the Special Funds
only to payment of the PrimeCare Pre-Closing IBNR until the Prime Care Pre-
Closing IBNR has been paid in full. Any of the Special Funds which remain after
the payment of the PrimeCare Pre-Closing IBNR shall be remitted to PrimeCare.
Creation of the Special Fund creates no liability of Seller for any PrimeCare
Pre-Closing IBNR in excess of the Special Funds. Except
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for the Special Fund and those Company Liabilities expressly assumed by Seller
pursuant to the Indemnification Agreement and Section 2.4 above, Buyer, jointly
and severally with the Company, shall be responsible for the payment,
performance and satisfaction of all other Company Liabilities.
10.2 FURTHER ASSIGNMENTS. If at any time after the Closing legal counsel
for Buyer or Seller shall deem it necessary, advisable or appropriate to take
further or additional steps for the purpose of assigning, transferring,
conveying, perfecting and/or confirming or reducing to possession the Shares or
the Assets, the other party shall execute, acknowledge and deliver any such
assignments, conveyances, certificates or other documents or instruments of
transfer consistent with the terms of this Agreement as may reasonably be
requested by legal counsel.
10.3 OBLIGATIONS RELATING TO THE COMPANY'S EMPLOYEES.
10.3.1 TERMINATING EMPLOYEES. The Company shall have terminated all of
the Company Employees as of the Closing Date.
10.3.2 OBLIGATIONS TO EMPLOY THE COMPANY EMPLOYEES. Buyer agrees to,
or to cause an affiliated management company to use reasonable efforts in good
faith to employ and retain, subject to the limitations in Section 10.3.3, no
less than forty (40) of the terminated Company Employees (the "Minimum Hires").
Buyer agrees to use reasonable efforts in good faith to retain the Minimum Hires
for a period of not less than one hundred (100) days after the Closing Date, and
shall not consummate or cause any "plant closing" or "mass layoff" with respect
to such employees or their business enterprise prior to the expiration of such
100-day period. Any "plant closing" or "mass layoff" instituted by Buyer or its
related or affiliated management company after the Closing shall comply in all
respects with the WARN Act. Nothing in this Section 10.3.2 or in any other
provision of this Agreement shall create any rights which inure to the Company
Employees.
10.3.3 CONTINUED BENEFITS FOR THE EMPLOYED COMPANY EMPLOYEES. For a
period of not less than six (6) months after the Closing Date, Buyer shall, or
shall cause an affiliated management company to, continue to make available to
any employed Company Employees those employee benefit plans, arrangements and
programs which are provided to similarly situated employees of Buyer or an
affiliated management company which employs such employees. In determining the
extent to which the employed Company Employees may participate in the employee
benefit plans, arrangements or programs of the new employer, Buyer shall credit
such employees' prior service with the Company and/or any of the Company's
affiliates for such purposes as eligibility to participate in, vesting and
calculation of benefits and, if applicable, shall waive any pre-existing
condition limitations or waiting periods for benefits.
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10.4 CHANGE NAME OF THE COMPANY. Immediately after the Closing, Buyer shall
cause the Company to change its corporate name to one which does not include the
word "PacifiCare" or any other word or phrase which is confusingly similar to
"PacifiCare." Immediately after the Closing, Buyer shall cause the Company to
immediately discontinue any use of the name or mark "PacifiCare" or "Secure
Horizons" in connection with any of the Company's operations, communications or
marketing, except as reasonably necessary for the collection or enforcement of
pre-Closing obligations or otherwise to identify itself as the legal successor
of the Company.
10.5 RETENTION OF CERTAIN RECORDS BY THE COMPANY. Buyer shall cause the
Company to retain possession of and to not destroy any books, records or other
written materials or information respecting the conduct of the Company's
business prior to the Closing Date for a period of at least seven (7) years from
the date of creation of the book, record or other written material.
10.6 ESTABLISHING THE FINAL BALANCE SHEET. (a) In accordance with the
process and procedures described in this Section 10.6, Buyer and Seller shall
work with the Company to review, verify and, if necessary, adjust the line items
on the Preliminary Balance Sheet for the purpose of establishing the Final
Balance Sheet. The review period shall begin immediately after the Closing and
shall expire thirty (30) days thereafter. During the 30-day review period, Buyer
and Seller shall take reasonable and appropriate steps to verify the following
line items (with their corresponding schedules) of the Preliminary Balance
Sheet: Premiums Receivable, Restricted Investments, Deposits, Other Accrued
Liabilities, Accounts Payable, Unearned Premiums and L/T Debt, Current Portion.
To accomplish such verification, Buyer shall afford Seller access to the books
and records of the Company and its subsidiaries. In the event of a discrepancy
between the amount of any such line item as reflected on the Preliminary Balance
Sheet and the amount of such item, as verified and mutually agreed to by Buyer
and Seller, the appropriate adjustment in such line item shall be made for the
Final Balance Sheet.
(b) Buyer and Seller also shall review and evaluate the Company's
actual payment experience with respect to the Incurred But Not Paid claims,
exclusive of the PrimeCare IBNR, as reflected on the Preliminary Balance Sheet
(the "Normalized IBNR"). In view of the Company's actual claims payment
experience prior to Closing, Buyer and Seller shall agree to appropriate
adjustments to the Normalized IBNR to be reflected on the Final Balance Sheet.
For the purpose of adjusting the Normalized IBNR, any adjustments shall be
mutually agreed to by Buyer and Seller prior to the Final Adjustment Date. If
Buyer and Seller have not reached mutual agreement as to any such adjustments
prior to the ten (10) business day period preceding such date, then the matter
immediately shall be submitted to the Actuary for its review and determination.
The Actuary's review shall be limited to a determination of the adequacy of the
reserves set aside to pay the then-unpaid Normalized
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IBNR. In its review and determination, the Actuary shall make a final point
estimate without conservatism of the appropriate reserve amount for the then-
unpaid Normalized IBNR. The Actuary's estimation shall be made and delivered to
Buyer and Seller no later than two (2) business days prior to the Final
Adjustment Date. The Actuary's final point estimate, made without conservatism,
shall be final, binding and conclusive upon Buyer and Seller and shall finally
determine the amount of the Normalized IBNR to be reflected on the Final Balance
Sheet. The cost of the Actuary shall be borne equally between Buyer and Seller.
(c) The value of the PPE and the Real Estate as reflected on the
Preliminary Balance Sheet shall not be adjusted and shall remain unchanged for
the purposes of the Final Balance Sheet; provided, however, that Buyer and
Seller acknowledge and agree that, if any parcel of the Real Estate is sold
prior to Closing, the Final Balance Sheet shall be adjusted only to (i) increase
the Cash by the amount of the sale proceeds, and (ii) reduce the value of the
Real Estate by such sale proceeds.
(d) Any capitalized terms used in this Section 10.6 which are not
defined in this Section 10.6 or in Section 1.1 above shall be as described on
the Preliminary Balance Sheet.
10.7 ADJUSTMENTS TO THE COMPANY'S HMO MEMBERS. The number of the Company's
HMO members reflected on the February Enrollment Report will be reviewed and
evaluated during the forty-five (45) days following the Closing to determine the
actual number of HMO members enrolled in the Company's HMO as of February 1,
1997. The number of Adjusted Members will be determined by adjusting the number
of HMO members reflected on the February Enrollment Report to take into account
retroactive additions to the HMO membership and retroactive disenrollments from
the HMO membership. Adjusted Members shall include only those HMO members who,
on February 1, 1997, (i) were properly enrolled as a subscriber or dependent of
a subscriber in one of the Company's health benefit plans, (ii) satisfied all
the eligibility requirements for membership in that health benefit plan, (iii)
paid all applicable premiums and (iv) had not (a) been terminated by the
Company's HMO, or (b) voluntarily terminated membership in the Company's HMO.
The adjustments to the February Enrollment Report will be based upon the best
information available to the Company from internal and governmental sources
during the 45-day review period. Buyer and Seller shall work cooperatively and
diligently, and in good faith, to determine the number of Adjusted Members based
upon this information. At the end of the 45-day review period, Buyer shall cause
the Company to generate an updated February Enrollment Report to reflect the
retroactive additions to, or disenrollments from, the Company's HMO membership
as mutually agreed to by Buyer and Seller and this updated report shall be the
basis for the number of Adjusted Members and shall be final, binding and
conclusive upon the parties.
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10.8 INFORMATION SYSTEMS AGREEMENT. After the Closing, the Company, Buyer
or Buyer's affiliated management company will use and license from Seller the
information systems, software and services described on Exhibit "C" in
accordance with the I S Terms. Buyer shall cause full compliance with the I S
Terms and shall promptly pay to Seller all fees in connection with the services
provided by Seller.
10.9 EXPENSES. Buyer and Seller each shall pay its own expenses (including
fees of any attorneys, accountants, brokers or other professionals engaged by
such party) in connection with the preparation and negotiation of this
Agreement, the Additional Agreements and the consummation of the transactions
contemplated hereby and thereby.
10.10 SURVIVAL. The covenants and obligations of this Article 10 shall
survive the Closing.
ARTICLE 11
GENERAL PROVISIONS
11.1 NOTICES. Any and all notices, requests, consents, demands or other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (i) when delivered, if sent by
United States registered or certified mail (return receipt requested), (ii) when
delivered, if delivered personally by commercial courier, (iii) on the second
following business day, if sent by United States Express Mail or overnight
courier; or (iv) upon the date reflected on a fax confirmation from the
transmitting fax machine, if sent by facsimile transmission and delivery of the
facsimile transmission is confirmed telephonically within one (1) business day,
in each case to the parties at the following addresses or facsimile numbers (or
at such other addresses or facsimile numbers as shall be specified by like
notice) with applicable postage or delivery charges prepaid::
If to Buyer:
Total Health Choice, Inc.
1600 Fisher Building
Detroit, Michigan 48202
Fax No.: (313) 871-6400
Attn: Chief Executive Officer
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With a copy to:
Pepper Hamilton & Scheetz
36th Floor
100 Renaissance Center
Detroit, Michigan 48243
Fax No.: (313) 259-7926
Attn: Robert C. Ludolph, Esq.
If to Seller:
PacifiCare Health Systems, Inc.
5995 Plaza Drive
Cypress, California 90630
Fax No.: (714) 220-3725
Attn: President
With a copy to:
Konowiecki & Rank
First Interstate World Center
633 West Fifth Street, Suite 3500
Los Angeles, California 90071
Fax No.: (213) 229-0992
Attn: Joseph S. Konowiecki, Esq.
11.2 TIME OF THE ESSENCE. Time is of the essence of each and every
provision of this Agreement.
11.3 AMENDMENTS. This Agreement shall not be amended, modified, revised or
supplemented, in any minor or material respect, except pursuant to a dated
written instrument executed by Buyer and Seller.
11.4 WAIVERS. Either Buyer, on the one hand, or Seller, on the other hand,
may waive: (i) the time for the performance of any of the obligations or other
actions of the other under this Agreement; (ii) any inaccuracies in the
representations or warranties of the other contained in this Agreement, in any
certificate delivered pursuant to this Agreement or in connection with the
transactions contemplated hereunder; (iii) compliance with any of the conditions
or covenants of the other contained in this Agreement; or (iv) performance of
any of the obligations of the other under this Agreement, provided that, in each
case, a waiver must be evidenced by a dated written instrument duly executed by
the party granting such
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<PAGE>
waiver. The waiver by any party hereto of a breach of any provision hereunder
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provision hereunder.
11.5 INTEGRATED AGREEMENT. This Agreement, together with the exhibits and
schedules hereto and the Additional Agreements, constitute the final written
integrated expression of all of the agreements between Buyer and Seller with
respect to the purchase and sale of the Shares and the other subjects addressed
herein and is a complete and exclusive statement of those terms. This Agreement,
together with the exhibits and schedules hereto and the Additional Agreements,
supersedes all prior or contemporaneous, written or oral, memoranda,
arrangements, contracts or understandings between the parties hereto relating to
the subject matter hereof. Any representations, promises, warranties or
statements made by any party which differ in any way from the terms of this
Agreement, together with the exhibits and schedules hereto and the Additional
Agreements, shall be given no force or effect. The parties specifically
represent, each to the other, that there are no additional or supplemental
agreements or contracts between them related in any way to the matters herein
contained unless specifically included or referred to herein.
11.6 SEVERABILITY. In the event that any provision in this Agreement shall
be found by a Governmental Authority or arbitrator of competent jurisdiction to
be invalid, illegal or unenforceable, such provision shall be construed and
enforced as if it had been narrowly drawn so as not to be invalid, illegal or
unenforceable, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
11.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors, successors-in-interests,
transferees and assigns.
11.9 CONSTRUCTION. This Agreement has been drafted with the joint
participation of each of the parties hereto and shall be construed to be neither
against nor in favor of any party hereto, but rather in accordance with the fair
meaning hereof.
11.10 SECTION HEADINGS. The section and article headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
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<PAGE>
11.11 NO RIGHTS IN THIRD PARTIES. Nothing in this Agreement, whether
expressed or implied, is intended to confer upon any Person (other than Buyer
and Seller and their respective successors, successors-in-interest and assigns)
any rights or remedies under or by reason of this Agreement.
11.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall be considered one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of the
date first written above.
Buyer: TOTAL HEALTH CHOICE, INC.,
a Florida nonprofit corporation
By: /s/ K.G. Rimmer
--------------------------------
Title: CEO
-----------------------------
Seller: PACIFICARE HEALTH SYSTEMS, INC.,
a Delaware corporation
By: /s/ Joseph S. Konowiecki
--------------------------------
Title: Secretary
-----------------------------
<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT, dated as of February 21,
1997 (this "First Amendment"), is made and entered into by and between
PACIFICARE HEALTH SYSTEMS, INC., a Delaware corporation, as seller ("Seller"),
and TOTAL HEALTH CHOICE, INC., a Florida nonprofit corporation, as buyer
("Buyer"), with reference to the following facts:
PREAMBLE
A. Buyer and Seller have entered into that certain Stock Purchase
Agreement, dated as of January 21, 1996 (the "Agreement"), pursuant to which
Buyer has agreed to purchase all of the issued and outstanding shares of capital
stock of the Company, and Seller has agreed to purchase the capital stock of the
Company.
B. Notwithstanding the conditions to Closing set forth in the Agreement,
applicable Florida law pertaining to HMO Regulatory Approval permits Buyer and
Seller to consummate the transactions contemplated under the Agreement subject
to obtaining HMO Regulatory Approval as a condition subsequent to such
transactions.
C. In view of the flexibility under applicable regulatory law, among
other reasons, Buyer and Seller desire to amend the Agreement as of the Closing
in accordance with the terms and subject to the conditions set forth in this
First Amendment.
NOW, THEREFORE, in consideration of the above premises and the promises,
covenants, conditions, representations and warranties exchanged by the parties
hereinbelow, Buyer and Seller hereby agree as follows:
1. AMENDMENTS TO THE AGREEMENT. Buyer and Seller agree to amend the
Agreement as follows:
1.1 Article 1, Section 1.1, entitled DEFINED TERMS, is amended by
adding the following new definitions:
"ADJUSTED REAL ESTATE VALUE: (i) With respect to those parcels
of Real Estate which are owned or held by the Company, Buyer or one of
their subsidiaries or affiliates at the end of the Regulatory
Negotiation Period, the depreciated book value of such parcels; plus
(ii) with respect to those parcels of Real Estate which have been sold
prior to the end of the Regulatory Negotiation Period, the greater of
the assumed book value (as reflected on Schedule 2.4) of such parcels
on the Closing Date or the proceeds received from the sale of such
parcels.
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<PAGE>
PUT OPTION: As defined in Section 10.11(c).
PUT OPTION PERIOD: The thirty (30) day period which follows (if
applicable) the Regulatory Negotiation Period.
PUT OPTION PRICE: The Final Purchase Price minus Three Million
Dollars ($3,000,000.00).
REGULATORY NEGOTIATION PERIOD: The thirty (30) day period which
follows (if applicable) the earlier to occur of (i) DOI's final and
nonappealable rejection or disapproval of Buyer's completed application for
HMO Regulatory Approval, or (ii) the expiration of one (1) year after Buyer
has submitted its completed application for HMO Regulatory Approval without
having obtained such approval."
1.2 Article 1, Section 1.1, entitled DEFINED TERMS, is further
amended by deleting the definition of "Assets" in its entirety and
substituting the following definition therefor:
"ASSETS: The assets, properties, business, goodwill and rights
of every kind and description, whether real, personal or mixed or
tangible or intangible, wherever situated, of the Company and of its
Subsidiaries, except for the (i) Excluded Claims, (ii) the items
listed in the last column of Schedule 2.4 entitled "Balances Retained
by PacifiCare"; and (iii) account number 22072, entitled Accrued
Legal, with the current balance of approximately $25,182, which
account was inadvertently excluded from the "Balances Retained by
PacifiCare" column."
1.3 Article 1, Section 1.1, entitled DEFINED TERMS, is further
amended by deleting the definition of "Closing Date" in its entirety and
substituting the following definition therefor:
"CLOSING DATE: February 21, 1997."
1.4 Article 1, Section 1.1, entitled DEFINED TERMS, is further
amended by deleting the definition of "Purchase Refund" in its entirety and
substituting the following definition therefor:
"PURCHASE REFUND: To compensate Buyer for the deterioration in
the value of the Company due to the Company's projected losses in the
month of February, 1997, the Preliminary Purchase Price shall be
reduced by an amount equal the product of (i) Four Hundred Thousand
Dollars ($400,000.00), multiplied by (ii) a fraction the numerator of
which is the number of days which
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have elapsed in the month of February through the Closing Date and
the denominator of which is twenty-eight (28), the number of days
in the month of February."
1.5 Article 2 is amended by adding a new Section 2.7 as follows:
"2.7 SUBSEQUENT HMO REGULATORY APPROVAL. Without limiting any
other provision of this Agreement, the purchase and sale of the
Company's Shares as contemplated hereunder is subject to Buyer
obtaining HMO Regulatory Approval as a condition subsequent to such
transaction. Buyer's inability to obtain HMO Regulatory Approval
shall result in a rescission of the purchase and sale of the Shares in
accordance with the provisions of Section 10.10 below."
1.6 Article 6, Section 6.1, entitled REPRESENTATIONS AND WARRANTIES
TRUE; CLOSING CONDITIONS SATISFIED, is amended by (1) deleting the first clause
designated "(iii)" in its entirety, which reads as follows: "(iii) all of the
conditions to Seller's obligations set forth in this Article 6 have been fully
satisfied or waived in writing by Seller" and (2) deleting the second clause
designated "(iii)" in its entirety and substituting the following provision
therefor: "(iii) all of the conditions to Buyer's obligations set forth in this
Article 6 have been fully satisfied by Seller or waived in writing by Buyer."
1.7 Article 6, Section 6.4, entitled CONSENTS AND APPROVALS, is
amended by deleting the first sentence thereof in its entirety. The deleted
sentence read as follows: "HMO Regulatory Approval shall have been obtained."
1.8 Article 7, Section 7.1, entitled REPRESENTATIONS AND WARRANTIES
TRUE; CLOSING CONDITIONS SATISFIED, is amended by deleting clause "(iii)" in its
entirety and substituting the following provision therefor: "(iii) all of the
conditions to Seller's obligations set forth in this Article 7 have been fully
satisfied by Buyer or waived in writing by Seller."
1.9 Article 7, Section 7.4, entitled CONSENTS AND APPROVALS, is
amended by deleting the first sentence thereof in its entirety. The deleted
sentence read as follows: "HMO Regulatory Approval shall have been obtained."
1.10 Article 10 is amended by adding the following provisions at the
end of Section 10.5:
"After the Closing, Buyer shall fully cooperate with any appropriate
requests made by Seller or others to review, copy or otherwise
duplicate any books, records or other written materials or information
respecting the conduct of the
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Company's business which may be reasonably necessary under the
circumstances."
1.11 Article 10 is amended by adding new Sections 10.11 and Section
10.12 as follows:
"10.11 SEEKING HMO REGULATORY APPROVAL. (a) Seller shall use
its best good faith efforts to continue to seek and to diligently
pursue HMO Regulatory Approval. In connection with its pending
application for HMO Regulatory Approval, Buyer shall, and shall cause
the Company to, promptly respond to all governmental requests for
additional information and comments to the application. Buyer shall,
and shall cause the Company to, provide DOI or AHCA with all
information and documentation necessary to obtain HMO Regulatory
Approval. Buyer shall comply with all reasonable regulatory
requirements of DOI or AHCA in obtaining regulatory approval.
(b) During the continued pendency of HMO Regulatory
Approval, Buyer shall preserve the Company's value and shall comply
with the remaining obligations of this Section 10.11(b). Buyer shall
promote the Company's HMO business and market the Company's health
benefit plans. Buyer shall use reasonable and customary business and
financial practices to enhance the Company's value and to preserve the
Company's financial condition. Buyer shall cause the Company to be
operated in compliance with applicable regulatory and other laws.
(c) In the event that HMO Regulatory Approval cannot be
obtained prior to January 31, 1998 or, prior to such time, DOI has
rendered a final and nonappealable order disapproving or rejecting
such completed application, then Buyer and Seller shall work
cooperatively, diligently and in good faith during the Regulatory
Negotiation Period to persuade DOI and/or AHCA to provide HMO
Regulatory Approval. If HMO Regulatory Approval has not been obtained
prior to the expiration of the Regulatory Negotiation Period, then
Buyer shall have the option (the "Put Option") to cause Seller to
repurchase the Shares in exchange for the Put Option Price; provided,
however, that Buyer's right to exercise the Put Option is conditioned
upon satisfaction of the following obligations:
(i) Buyer shall have complied with its obligations
under Section 10.11(a) and 10.11(b) with respect to obtaining HMO
Regulatory Approval and the conduct of the Company's business;
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<PAGE>
(ii) The Tangible Net Equity of the Company as of the
end of the Regulatory Negotiation Period shall not be less than the
Adjusted Real Estate Value; and
(iii) Buyer agrees to and shall be solely
responsible for and shall defend, indemnify and hold harmless Seller
and Seller's shareholders, directors, officers, subsidiaries,
affiliates, successors, successors-in-interest and assigns from and
against: (A) any balance sheet liabilities necessary to increase the
Company's Tangible Net Equity to the Adjusted Real Estate Value; and
(B) any other Liabilities of the Company or of any of its Subsidiaries
which have arisen, occurred or accrued from and after the Closing Date
through the date of repurchase of the Shares by Seller.
Provided that the conditions in the foregoing clauses
(i), (ii) and (iii) are satisfied, then, upon the conditions described
in this Section 10.11(c), including Buyer's timely exercise of the Put
Option, Seller shall be required to repurchase the Shares for the Put
Option Price. Seller shall be required to effect such repurchase
within ten (10) business days after Buyer's proper exercise of the Put
Option. Upon Buyer's exercise of the Put Option, the Put Option
Price, in Seller's sole discretion, may be reduced by any known
balance sheet liabilities or other known Liabilities of the Company
for which Buyer has agreed to indemnify Seller pursuant to clause
(iii) of this Section 10.11(c). The covenants and obligations of this
Section 10.11 shall survive the Closing.
10.12 OTHER NOTICES, CONSENTS AND APPROVALS. In the event
that any notices to, or filings or registrations with, Governmental
Authorities or other Persons necessary to consummate the purchase and
sale of the Shares as contemplated hereunder were not given or made
prior to Closing, then Buyer and Seller, as the case may be, shall
provide such notice or make such filings or registrations as soon
after Closing as possible. In the event that any consents or
approvals, other than HMO Regulatory Approval, necessary to, or
contemplated by, the purchase and sale of the Shares hereunder were
not obtained prior to Closing ("Other Consents"), Buyer shall
diligently continue to use its best good faith efforts to obtain such
Other Consents as expeditiously as possible. In order to obtain such
Other Consents, Buyer shall, or shall cause the Company to, comply
with all requests for information and all other reasonable requests
required by the Person whose consent or approval is required. Buyer
acknowledges that Seller has, prior to the Closing, provided Buyer
with copies of all requests for the Other Consents required to be
obtained on Seller's part to consummate the transactions contemplated
hereunder. The covenants and obligations of this Section 10.12 shall
survive the Closing.
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<PAGE>
1.12 Schedule 3.16 is deleted in its entirety and Schedule 3.16
attached to this First Amendment ("Revised Schedule 3.16") is substituted
therefor. Revised Schedule 3.16 attached to this First Amendment shall fully
replace and supersede Schedule 3.16 to the Agreement. From and after the date
hereof, all references in the Agreement to Schedule 3.16 shall mean and refer to
Revised Schedule 3.16.
1.13 Schedule 3.21 is deleted in its entirety and Schedule 3.21
attached to this First Amendment ("Revised Schedule 3.21") is substituted
therefor. Revised Schedule 3.21 attached to this First Amendment shall fully
replace and supersede Schedule 3.21 to the Agreement. From and after the date
hereof, all references in the Agreement to Schedule 3.21 shall mean and refer to
Revised Schedule 3.21.
1.14 Part A of Schedule 3.24 is deleted in its entirety and Part A of
Schedule 3.24 attached to this First Amendment ("Revised Schedule 3.24(A)") is
substituted therefor. Revised Schedule 3.24(A) attached to this First Amendment
shall fully replace and supersede Part A of Schedule 3.24 to the Agreement.
From and after the date hereof, all references in the Agreement to Part A of
Schedule 3.24 shall mean and refer to Revised Schedule 3.24(A).
2. EXHIBITS AND SCHEDULES. References in this First Amendment to
exhibits and schedules are to exhibits and schedules of and to this First
Amendment. All exhibits or schedules of or to this First Amendment are hereby
incorporated herein by this reference.
3. EFFECT OF THIS FIRST AMENDMENT. Except as amended by this First
Amendment, the Agreement shall not be further amended, modified or revised and
the Agreement, as hereby amended, shall continue in full force and effect and
shall be enforced in accordance with its terms and conditions.
4. INTEGRATED AGREEMENT. This First Amendment, together with the
exhibits and schedules, collectively constitute the final written integrated
expression of all of the agreements and understandings between Buyer and Seller
with respect to the subjects addressed herein and is a fully integrated
agreement with respect to such subjects. As a fully integrated agreement, this
First Amendment supersedes all prior or contemporaneous, written or oral,
memoranda, arrangements, contracts or understandings between the parties hereto
relating to the subject matter hereof. Any representations, promises,
warranties or statements made by any party which differ in any way from the
terms of this First Amendment shall be given no force or effect. The parties
specifically represent, each to the other, that there are no additional or
supplemental agreements or contracts between them related in any way to the
matters herein contained unless specifically included or referred to herein. No
addition to or modification of any provision of this First Amendment shall be
binding upon any party unless embodied in a dated written instrument signed by
Buyer and Seller.
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<PAGE>
5. CAPITALIZED TERMS. The capitalized terms used in this First Amendment
which are not otherwise defined herein shall have the meanings ascribed to them
in the Agreement.
6 SEVERABILITY. In the event that any provision in this First Amendment
shall be found by a Governmental Authority or arbitrator of competent
jurisdiction to be invalid, illegal or unenforceable, such provision shall be
construed and enforced as if it had been narrowly drawn so as not to be invalid,
illegal or unenforceable, and the validity, legality and enforceability of the
remaining provisions of this First Amendment shall not in any way be affected or
impaired thereby.
7. GOVERNING LAW. This First Amendment shall be governed by and
construed in accordance with the laws of the State of Florida.
8. SUCCESSORS AND ASSIGNS. This First Amendment shall be binding upon
the parties hereto and their respective successors, successors-in-interests,
transferees and assigns.
9. CONSTRUCTION. This First Amendment has been drafted with the joint
participation of each of the parties hereto and shall be construed to be neither
against nor in favor of any party hereto, but rather in accordance with the fair
meaning hereof.
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<PAGE>
10. COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Buyer and Seller have executed this First Amendment as
of the date first written above.
BUYER: TOTAL HEALTH CHOICE, INC.,
a Florida nonprofit corporation
By: /s/ K.G. Rimmer
---------------------------------
Title: CEO
--------------------------------
SELLER: PACIFICARE HEALTH SYSTEMS, INC.,
a Delaware corporation
By: /s/ Joseph S. Konowiecki
---------------------------------
Title: Secretary
--------------------------------
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