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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): SEPTEMBER 30, 1998
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)
3120 LAKE CENTER DRIVE, SANTA ANA, CALIFORNIA 92704
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code): (714) 825-5200
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 30, 1998, PacifiCare Health Systems, Inc.
("PacifiCare") sold the outstanding stock of its wholly owned subsidiary,
PacifiCare of Utah, Inc. ("the Utah HMO"), to Elan Health Partners, LLC, a
Utah limited liability company. Under the terms of the stock purchase
agreement, PacifiCare guaranteed the buyer that the Utah HMO would have a
minimum net equity of $10 million based on the audited values of the
assets and liabilities transferred with the Utah HMO on the closing date.
At the closing, both the buyer and PacifiCare extended
subordinated loans to the Utah HMO in the aggregate amount of $1.2 million
to increase the Utah HMO's statutory net equity to $11.2 million. The
loans are subordinated to the Utah HMO's normal trade creditors and
subscribers. However, the $700,000 loan made by PacifiCare is senior to
the $500,000 loan made by the buyer. PacifiCare's loan is repayable after
January 1, 1999 from excess surplus maintained by the Utah HMO.
As of September 30, 1998, the Utah HMO served approximately
107,000 commercial, 11,000 Medicare and 7,000 Medicaid members.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
To be filed by amendment within 60 days of the date of filing of
this Form 8-K.
(c) Exhibits.
2.1 Stock Purchase Agreement dated July 6, 1998, by and
between PacifiCare Health Plan Administrators, Inc.
and Elan Health Partners, LLC.
2.2 First Amendment to Stock Purchase Agreement dated
September 30, 1998, by and between PacifiCare Health
Plan Administrators, Inc. and Elan Health Partners,
LLC.
2.3 Second Amendment to Stock Purchase Agreement dated
September 30, 1998, by and between PacifiCare Health
Plan Administrators, Inc. and Elan Health Partners,
LLC.
99.1 Press release of October 2, 1998.
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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 hereunto duly authorized.
PACIFICARE HEALTH SYSTEMS, INC.
(Registrant)
Date: October 7, 1998 By: /s/ Robert B. Stearns
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Robert B. Stearns
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description of Exhibits
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2.1 Stock Purchase Agreement dated July 6, 1998, by and between
PacifiCare Health Plan Administrators, Inc. and Elan Health
Partners, LLC.
2.2 First Amendment to Stock Purchase Agreement dated September
30, 1998, by and between PacifiCare Health Plan
Administrators, Inc. and Elan Health Partners, LLC.
2.3 Second Amendment to Stock Purchase Agreement dated September
30, 1998, by and between PacifiCare Health Plan
Administrators, Inc. and Elan Health Partners, LLC.
99.1 Press release of October 2, 1998.
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
PACIFICARE HEALTH PLAN ADMINISTRATORS, INC., AS SELLER,
AND
ELAN HEALTH PARTNERS, LLC, BUYER
DATED AS OF JULY 6, 1998
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of July 6, 1998 (this
"Agreement"), is made and entered into by and between PACIFICARE HEALTH PLAN
ADMINISTRATORS, INC., an Indiana corporation, as seller ("Seller"), and ELAN
HEALTH PARTNERS, LLC, a Utah limited liability company, 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 Utah, Inc. (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.
Additional Agreements: The Affiliation Agreement, the Company
Assignment, the Intellectual Property License Agreement, the OPM Assignment
Agreement, the HCFA Assignment Agreement, the Transitional Services Agreement
and any other agreements, certificates, instruments or other documents executed
and delivered pursuant to this Agreement.
Administrative Building: The land and building commonly known as 35
West Broadway, Salt Lake City, Utah.
Administrative Building Lease: A lease of the Administrative
Building as set forth in the exhibits to the real property purchase and sale
agreement entered into between the Company, as seller, and the University of
Utah, as purchaser.
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Affiliate: With respect to any person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such person. As used in this definition, "control" (and the correlatives,
"controlled by" and "under common control with") shall mean (i) possession,
directly or indirectly, of fifty percent (50%) or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation (other than securities having such power only by reason of the
happening of a contingency), and (ii) possession of fifty percent (50%) percent
or more of the partnership or other ownership interests of any non-corporate
Person (other than as a limited partner).
Affiliation Agreement: The Affiliation Agreement, dated no later
than the Closing Date, to be entered into by and between the Company and Buyer,
on the one hand, and PacifiCare Life, on the other hand, pursuant to which
PacifiCare Life will agree to underwrite the Indemnity Products after Closing in
conjunction with the Company's HMO operations, in accordance with the principal
terms set forth on Exhibit A.
Agreement: This Stock Purchase Agreement, including all exhibits
and schedules hereto.
A/R Reconciliation Date: The date which is one hundred eighty (180)
days after the Closing Date.
Balance Sheet Adjustment Period: The 90-day period following the
Closing Date.
Base Net Equity: Shall equal Ten Million Dollars ($10,000,000.00).
Broker Agreements: 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 Benefit Plans to
individuals, employers, employer groups or other purchasers.
Buyer: Elan Health Partners, LLC, a Utah limited liability company.
Buyer's Group: Buyer and its Affiliates, including the Company.
Claim: Any action, suit, litigation, proceeding, grievance,
complaint, claim, charge, arbitration or other method of settling disputes or
disagreements.
Closing: The meeting for the purpose of completing and consummating
the transactions contemplated by this Agreement held at the place and on the
date determined in accordance with Section 8.1 below.
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Closing Date: The date on which the Closing occurs or such other
date as mutually agreed upon by Buyer and Seller.
Company: PacifiCare of Utah, Inc., a Utah corporation, formerly
known as, FHP of Utah, Inc., and the successor-in-interest to PacifiCare Health
Option, Inc., a Utah corporation, formerly known as, Employees Choice Health
Option, Inc., by virtue of the merger of PacifiCare Health Option, Inc. with and
into PacifiCare of Utah, Inc.
Company Assignment: The Assignment and Bill of Transfer, dated no
later than the Closing Date, reflecting the Company, as assignor, and Seller or
its designee, as assignee, respecting the assignment and transfer of the
Excluded Assets, the assignment and assumption of the Excluded Liabilities and
the assignment and transfer of the Excluded Liability Defenses and Claims, the
form of which is attached hereto as Exhibit B.
Company Employees: Any one or more of those individuals who are
employed by the Company, on a regular basis, on the date hereof.
Confidential Information: Any and all information which is
proprietary or confidential to Seller, PHS or the Company, including (i)
discussions and documents relating to Buyer's purchase of the Shares from
Seller, (ii) business methods, business policies, procedures, techniques or
trade secrets, (iii) other proprietary and confidential knowledge or processes
of or developed by Seller, PHS or the Company, as the case may be, including the
names of their respective members, customers, the prices that Seller, PHS or the
Company offer or obtain, or have obtained for products and services, and
Seller's, PHS' or the Company's pricing methods or practices or (iv) other
information designated by Seller, PHS or the Company as confidential,
proprietary or a trade secret. Confidential Information shall not include: (a)
information which came into Buyer's possession prior to the execution of the
Confidentiality Agreement, provided that such information was not known by Buyer
to be subject to another confidentiality agreement with, or other obligation of
secrecy to, Seller, PHS or the Company, as the case may be; (b) information that
became known to Buyer other than through or as a result of the negotiation of
this Agreement through a source other than Seller, PHS or the Company, as the
case may be, or any of their respective directors, officers, employees,
consultants, agents or advisors but only if such source is not bound by a
confidentiality agreement with, or other obligation of secrecy to, Seller, PHS
or the Company, as the case may be, or otherwise prohibited from transmitting
such information by a contractual, legal or fiduciary obligation; or (c)
information that is or becomes generally available to the public or is readily
ascertainable from public or published information or trade sources or is
otherwise public knowledge.
Confidentiality Agreement: The confidentiality letter agreement,
dated March 19, 1998, between PHS, on the one hand, and Val H. Christensen,
Monte M. Deere, Jr. and Stanford J. Ricks, on the other hand.
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Deposit: The cash amount of Five Hundred Thousand Dollars
($500,000.00).
DOI: The Department of Insurance of the State of Utah.
E&Y: Ernst & Young LLP.
Employee Benefit Claim: A Claim for payment or satisfaction by the
Company of Obligations associated with the operation, funding, participation in,
or accrual of benefits under, fiduciary responsibility regarding or reporting
obligations with respect to any of the Company's employee benefit plans,
programs or contracts which occurred, or failed to occur, on or before the
Closing Date.
Equity Deficit Amount: The amount by which the Base Net Equity
exceeds the Final Net Equity.
Equity Surplus Amount: The amount by which the Final Net Equity
exceeds the Base Net Equity.
Excluded Assets: All assets, properties and contractual or other
rights belonging to the Company, whether real, personal or mixed or tangible or
intangible, and wherever situated, which are not part of the Included Assets.
Without limiting the generality of the foregoing, "Excluded Assets" shall
include, without limitation, (i) marketable securities and investments held by,
or for the use of, the Company and cash, (ii) any amounts or other obligations
which may be due or owing to the Company by its current Affiliates, (iii) the
PacifiCare Intellectual Property and (iv) those item categories within "Total
Assets" that are recorded in the "Excluded Balances" column of the Preliminary
Balance Sheet.
Excluded Liabilities: Those item categories within "Total
Liabilities" which are recorded in the "Excluded Balances" column of the
Preliminary Balance Sheet. Without limiting the generality of the foregoing, the
Excluded Liabilities shall include the Company's reserves for OPM Claims, IBNR
Claims, IBNR conservatism and the Company's disputes with Paraselsus Hospital,
Columbia Hospital, and the University of Utah.
Excluded Liability Defenses and Claims: As defined in Section
2.3(c) below.
FEHBP: Federal Employees Health Benefit Plan administered by OPM.
Final Balance Sheet: The balance sheet of the Company which
reflects the Included Assets valued in accordance with GAAP as of the Final
Balance Sheet Date, and the Included Liabilities valued in accordance with GAAP
as of the Final Balance Sheet Date, and which is established, based upon the
Preliminary Balance Sheet, in accordance with the process and procedures set
forth in Section 10.4 below.
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Final Balance Sheet Date: The date which shall be (i) the Closing
Date if the Closing Date occurs on the last day of the calendar month, or (ii)
if the Closing Date does not occur on the last day of a calendar month, then the
last day of the calendar month immediately preceding the calendar month in which
the Closing Date occurs.
Final Net Equity: The Net Equity derived from the Final Balance
Sheet.
Financial Statements: (i) The audited balance sheet of FHP of Utah,
Inc. as of June 30, 1996 and the notes thereto, and the related audited
statements of income and retained earnings of FHP of Utah, Inc. for the fiscal
year ended June 30, 1996, prepared in accordance with GAAP; (ii) the audited
balance sheet of FHP of Utah, Inc. as of December 31, 1996 and the notes
thereto, and the related audited statements of income and retained earnings of
FHP of Utah, Inc. for the six-month period ended December 31, 1996, prepared in
accordance with GAAP; (iii) the audited balance sheet of PacifiCare of Utah,
Inc., and the related audited statements of income and retained earnings of
PacifiCare of Utah, Inc. for the ten months ended December 31, 1997; and (iv)
the unaudited balance sheet of PacifiCare of Utah, Inc./PacifiCare Health
Option, Inc. as of March 31, 1998 and the related unaudited statements of income
and retained earnings of the Company for the three months ended March 31, 1998.
GAAP: Generally accepted accounting principles, as of the date
hereof, consistently applied in accordance with past practices.
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 DOI.
HCFA: The Health Care Financing Administration of the United States
Department of Health and Human Services.
HCFA Assignment: As defined in Section 11.4(b).
HCFA Assignment Agreement: Assignment of Pre-Cutoff Date HCFA
Claims, dated no later than the Closing Date, reflecting the Company, as
assignor, and Seller or PHS, as assignee, the form of which is attached hereto
as Exhibit C.
HCFA Claim: A claim or demand made by or on behalf of HCFA which
involves an allegation that, during the HCFA Indemnification Period, the Company
overcharged HCFA for the reimbursement of costs under the Company's Medicare
cost contracts.
HCFA Indemnification Period: The period occurring up to, and
including, the Closing Date. However, if a HCFA Claim or HCFA Assignment relates
to the Company's Medicare cost operations for the calendar year in which the
Closing occurs, then the HCFA
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Indemnification Period shall include such calendar year and the amount of
Seller's liability under the HCFA Indemnification or the amount to which Seller
is entitled under the HCFA Assignment for such calendar year shall be determined
by multiplying the applicable amount by the percentage obtained from dividing
(i) the number of days in such calendar year which have elapsed through the
Closing Date by (ii) three hundred sixty-five (365).
Health Benefit Plan(s): One or more of the various health benefit
plans or products offered, sold or maintained by the Company which involve the
Company's arrangement, delivery, provision and/or payment under its HMO license
of health care services or benefits to Members enrolled in such plans or
products (including, without limitation, a commercial prepaid health plan, a
commercial point-of-service plan, a Medicare-risk plan or an individual plan).
HMO: Health maintenance organization.
HMO Regulatory Approval: The affirmative approval of the DOI to the
sale of the Company's Shares to Buyer.
Hospital-Related Medicare Claim: A Claim attributable to a hospital
owned by the Company or an Affiliate of the Company in the State of Utah
relating to the furnishing of hospital services to Medicare-eligible individuals
during the period when such hospital was owned by the Company or its Affiliate.
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.
IBNR Claims: Incurred but not reported Provider claims liability of
the Company for covered treatment or services furnished on or before the Final
Balance Sheet Date to Members of the Company's Health Benefit Plans and for
which no invoice has been received by the Company or its processing agent on or
before the Final Balance Sheet Date; provided that (i) with respect to incurred
but not reported claims payable to Providers who or which have a written
agreement with the applicable Company, or one of the Company's other Providers,
such claims are (a) adjudicated in an amount determined in accordance with such
written agreement and (b) presented for payment to the Company or its processing
agent during the IBNR Run-Out Period, and (ii) with respect to incurred but not
reported claims payable to Providers who or which do not have such a written
agreement, such claims are presented for payment to the Company or its
processing agent prior to the expiration of the IBNR Run-Out Period.
IBNR Run-Out Period: The eighteen (18) month period following the
Closing Date.
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Included Assets: Those item categories within "Total Assets" that
are recorded in the "Included Balances" column of the Preliminary Balance Sheet.
Included Liabilities: Those item categories within "Total
Liabilities" that are recorded in the "Included Balances" column of the
Preliminary Balance Sheet.
Indemnity Products: The indemnity health insurance coverage
currently underwritten by PacifiCare Life in the State of Utah (whether stand
alone or in connection with PPO or POS products marketed with the Company's
Health Benefit Plans) and the life insurance, dental and other ancillary
coverages currently underwritten by PacifiCare Life in the State of Utah.
Intellectual Property License Agreement: The Intellectual Property
License Agreement, dated as of the Closing Date, to be entered into by and
between PHS, as licensor, and the Company, as licensee, the form of which
agreement is attached hereto as Exhibit D.
Interest Rate: Six percent (6%) per annum.
Known Third Party Claim: A Claim of a Third Party for damages to
such Third Party caused by, or alleged to have been caused by, the acts or
omissions of the Company, which Claim has been actually asserted or brought
against the Company and is actually known to one or more of the Company's
officers.
Material Adverse Effect: (i) With respect to Seller or the Company,
shall mean circumstances preventing or prohibiting Seller from selling and
transferring the Shares to Buyer as contemplated under this Agreement; and (ii)
with respect to Buyer, an adverse effect upon Buyer's ability to perform all of
its obligations under this Agreement (including, but not limited to, payment of
the Deposit and obtaining HMO Regulatory Approval) or under any of the
Additional Agreements to which Buyer or the Company is a party.
Member(s): An individual who is enrolled in a Health Benefit Plan,
who meets all the eligibility requirements for membership in such Health Benefit
Plan and for whom the applicable premium has been timely paid and received by
the Company.
Net Equity: The value of the Included Assets less the value of the
Included Liabilities, which values are determined in accordance with GAAP.
Obligations: The obligations, liabilities, debts or Claims of every
kind or nature related to the Company, whether any such obligations,
liabilities, debts or Claims are due or payable, known or unknown, absolute or
contingent, liquidated or unliquidated, secured or unsecured, or foreseeable or
unforeseeable.
OPM: The United States Office of Personnel Management.
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OPM Assignment: As defined in Section 11.3(b).
OPM Assignment Agreement: Assignment of Pre-Cutoff Date OPM Claims,
dated no later than the Closing Date, reflecting the Company, as assignor, and
Seller or PHS, as assignee, the form of which is attached hereto as Exhibit E.
OPM Claim: A claim or demand made by or on behalf of OPM which
involves an allegation that the Company has submitted an OPM Defective Price to
OPM and charged and collected fees from the FEHBP in accordance with the OPM
Defective Price during the OPM Indemnification Period, including an OPM
Fraudulent Claim during the OPM Indemnification Period.
OPM Defective Price: An inaccurate "Certificate of Accurate Pricing
for Community Rated Plans" or an inaccurate "Certificate of Accurate Cost and
Pricing Data for Community Rated Plans" such that the certificate was
inconsistent with the "community rate" or the "market price" which the Company
was required to charge the FEHBP in conformity with the Federal Employees Health
Benefits Act (5 U.S.C. Sections 8901 et. seq.) and the regulations promulgated
thereunder (48 C.F.R. 1602 et. seq. as amended and applicable).
OPM Fraudulent Claim: A claim or demand made by or on behalf of
OPM, which involves an allegation that the Company has violated the U.S. False
Claims Act in submitting an OPM Defective Price to OPM and has charged and
collected fees from the FEHBP in accordance with the OPM Defective Price.
OPM Indemnification Period: The period occurring up to, and
including, the Closing Date. However, if an OPM Claim relates to the Company's
FEHBP operations for the calendar year in which the Closing occurs, then the OPM
Indemnification Period shall include such calendar year and the amount of
Seller's liability under such OPM Indemnification or the amount to which Seller
is entitled under the OPM Assignment for such calendar year shall be determined
by multiplying the applicable amount by the percentage obtained from dividing
(i) the number of days in such calendar year which have elapsed through the
Closing Date by (ii) three hundred sixty-five (365).
PacifiCare Intellectual Property: Those service marks, trademarks,
trade names, logos, slogans, tag lines, copyrighted or copyrightable materials
or other intellectual properties listed on Exhibit F.
PacifiCare Life: PacifiCare Life Assurance Company, a California
corporation, formerly known as, FHP Life Insurance Company.
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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.
PHS: PacifiCare Health Systems, Inc., a Delaware corporation.
Post-Closing Payment Date: The 10th day following the date on which
the Final Balance Sheet has been finalized as determined in accordance with
Section 10.4 below.
Preliminary Balance Sheet: A pro forma consolidated balance sheet
of the Company which reflects the projected or estimated balances of the
Included Assets as of the Closing Date, valued in accordance with GAAP, and
reflects the projected or estimated balances of the Included Liabilities as of
the Closing Date, valued in accordance with GAAP, a copy of which balance sheet
is attached hereto as Exhibit G. The Preliminary Balance Sheet will be based on
the unaudited balance sheet of the Company as of April 30, 1998.
Provider: A primary care physician, specialist physician, medical
group, independent practice association (IPA), hospital, health care facility or
other provider of medical, health or related services to the Company's Members.
Provider Agreements: Agreements or contracts into which the Company
has entered with Providers for the provision, arrangement or coordination of
medical, health or related services to the Company's HMO members.
Reference Date: May 1, 1998.
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.
Selected Accounts Receivable: The receivables designated as
accounts numbered 1100, 1135, 1200 and 1201 on the Preliminary Balance Sheet.
Seller: PacifiCare Health Plan Administrators, Inc., an Indiana
corporation, formerly known as TakeCare Administrative Services Corporation.
Seller's Group: Seller, PHS and their respective Affiliates, but
excluding the Company.
Shares: The fifty thousand (50,000) shares of common stock, no par
value, of the Company held by Seller.
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Subscriber Agreements: Agreements or contracts into which the
Company has entered to arrange or provide health care services to eligible
individuals (including their eligible dependents) who, directly or through their
employer or other group purchaser, subscribe to a Health Benefit Plan offered by
the Company.
Tax Claim: A Claim for payment or satisfaction by the Company of
Obligations (including fines, interest, penalties and deficiencies) associated
with the failure to: (i) timely and accurately file any federal, state or local
tax return required to have been filed during the period occurring on or before
the Closing Date by, or on behalf of the Company, by the return's applicable due
date, as may be extended through any extensions which have been timely filed and
obtained; (ii) timely pay all federal, state and local taxes due and payable by
the Company with respect to the period occurring on or before the Closing Date
or pursuant to any other appropriate assessment received with respect to tax
liability of the Company which is due and payable with respect to the period
occurring on or before the Closing Date; (iii) withhold and pay all taxes
required to have been withheld and paid by the Company with respect to the
period occurring on or before the Closing Date in connection with amounts paid
or owing to any employee or Third Party; or (iv) pay any taxes arising from the
transfer of the Excluded Assets or the Excluded Liabilities, or with respect to
the transfer of Shares as contemplated under this Agreement.
Third Party: A Person other than the Company, Buyer, Seller, any of
their respective Affiliates or any successors, successors-in-interests,
transferees or assigns of any of the foregoing.
Transitional Services Agreement: The Transitional Services
Agreement, dated as of the Closing Date, to be entered into by and between
Seller, on the one hand, and Buyer and the Company, on the other hand, in
accordance with the principal terms set forth on Exhibit H.
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" day(s).
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
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or as the same from time to time may be supplemented, modified or amended, are
hereby incorporated herein by this reference.
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 OF SHARES
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 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, shall
provide the following cash consideration:
(a) Execution Date. Concurrent with the execution of this Agreement
by the parties, Buyer shall tender the Deposit to Seller. The Deposit shall not
be refundable for any reason except in the event of a failure to complete and
consummate the purchase and sale of the Shares under this Agreement due solely
to Seller's material breach of this Agreement. In the event that the Deposit
does become refundable, Seller shall return the Deposit to Buyer, together with
interest which has accrued thereon at the Interest Rate from the date of the
Deposit's receipt through the date of the Deposit's return.
(b) Post-Closing Payment Date. In the event that the Final Net
Equity determined from the Final Balance Sheet is greater than the Base Net
Equity, then, on or before the Post-Closing Payment Date, the Company (and, if
the Company fails or refuses to, for any reason whatsoever, then, Buyer) shall
pay Seller the Equity Surplus Amount in cash. Alternatively, in the event that
the Final Net Equity determined from the Final Balance Sheet is
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less than the Base Net Equity, then, on or before the Post-Closing Adjustment
Date, Seller shall pay to the Company the Equity Deficit Amount in cash.
2.3 Assets and Liabilities of the Company at Closing.
(a) The Included Assets and Liabilities. At the Closing, the
Company shall own or possess only the Included Assets and the Company's Net
Equity shall be determined only from the Included Assets and the Included
Liabilities reflected on the Preliminary Balance Sheet, subject to audit and
necessary adjustments pursuant to Section 10.4 below. Under no circumstances
shall the assets of the Company as of the Closing include any of the Excluded
Assets.
(b) Excluded Assets. Buyer acknowledges, understands and agrees
that, immediately preceding or contemporaneously with the Closing, the Company
shall distribute or otherwise transfer to Seller or Seller's designee all right,
title and interest in and to the Excluded Assets and any contracts related
thereto. To evidence such transfer of the Excluded Assets and related contracts,
the Company shall enter into the Company Assignment. Buyer shall, or shall cause
the Company to, fully cooperate with Seller or its designee to transfer, perfect
or reduce to possession the Excluded Assets. Notwithstanding the foregoing
provisions of this Section 2.3(b), the Company shall have the right to use the
PacifiCare Intellectual Property subject to the terms and conditions of the
Intellectual Property License Agreement.
(c) Excluded Liabilities. Seller shall pay or otherwise satisfy the
Excluded Liabilities as and when they become due and owing. Immediately
preceding or contemporaneously with the Closing, the Company shall assign and
transfer to Seller or Seller's designee all defenses, set-offs or counterclaims
which the Company may have with respect to the Excluded Liabilities (the
"Excluded Liability Defenses and Claims"). To evidence the transfer of the
Excluded Liability Defenses and Claims, the Company shall enter into the Company
Assignment. Buyer shall, or shall cause the Company to, use reasonable efforts
to cooperate with Seller or its designee to secure, maintain, perfect or enforce
the Excluded Liability Defenses and Claims. Seller shall pay for the cost of the
Company's reasonable out-of-pocket expenses actually incurred in connection with
such cooperation.
2.4 Manner of Payment. All payments made pursuant to Section 2.2 hereof
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 from the party to whom such
funds are owed.
2.5 Transfer Taxes. Seller shall pay any and all federal, state or
local taxes arising out of, or assessed in connection with, the sale or transfer
of the Shares.
2.6 Disclaimer. BUYER HEREBY WAIVES AND RELINQUISHES ALL RIGHTS AND
PRIVILEGES ARISING OUT OF, OR WITH RESPECT OR IN RELATION
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TO, ANY REPRESENTATIONS, WARRANTIES OR COVENANTS OF SELLER RESPECTING THE
COMPANY, ITS HMO OR THE SHARES, WHETHER IMPLIED OR EXPRESS (UNLESS SUCH
REPRESENTATIONS, WARRANTIES OR COVENANTS ARE EXPRESSLY SET FORTH IN THIS
AGREEMENT), WHICH MAY HAVE BEEN MADE OR GIVEN, OR WHICH MAY BE DEEMED TO HAVE
BEEN MADE OR GIVEN, BY SELLER, INCLUDING ANY WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, WARRANTIES ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE AND, EXCEPT AS EXPRESSLY SET FORTH HEREIN, WARRANTIES THAT THE
COMPANY OR ITS HMO NOW OR IN THE FUTURE WILL MEET OR COMPLY WITH THE
REQUIREMENTS OF ANY LAW, CODE OR REGULATION OF ANY APPLICABLE GOVERNMENTAL
AUTHORITY OR JURISDICTION.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof as
follows:
3.1 Corporate Organization. Seller is a corporation duly incorporated
and validly existing and in good standing under the corporate laws of the State
of Indiana. The Company is a corporation duly incorporated, validly existing and
in good standing under the corporate laws of the State of Utah.
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, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and by general equitable principles. 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 No Violations. 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 or the
Company's respective charter documents,
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(as amended and restated to date), bylaws (as amended and restated to date) or
resolutions or actions of Seller's or the Company's respective boards of
directors, shareholders or duly authorized committees thereof; or (ii) the
creation or imposition of a lien which has a Material Adverse Effect with
respect to Seller or the Company.
3.4 Capitalization. The Company has authorized fifty thousand (50,000)
shares of common stock, no par value, of which all such shares are issued and
outstanding. The Shares are validly issued, fully paid and nonassessable and are
held beneficially and 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 common
stock or other securities of the Company.
3.5 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 which may be imposed by
the Securities Laws. There are no voting trusts or proxies with respect to the
voting of the Shares.
3.6 Subsidiaries. The Company has no subsidiaries.
3.7 Title to Included Assets. The Company has good and valid title to
the Included Assets which are not leased. The Company has a valid possessory
interest in the Included Assets which they lease.
3.8 Financial Statements: Seller has delivered or made available to
Buyer the Financial Statements.
3.9 Subscriber Agreements. Seller has delivered or made available to
Buyer copies of (i) forms of individual and group Subscriber Agreements utilized
by the Company in its commercial and Medicare HMO operations, and (ii) the
Subscriber Agreements for the forty (40) largest subscriber groups by membership
as of the Reference Date. In addition, Seller has made available for review and
inspection by Buyer additional samples of individual and group Subscriber
Agreements as requested by Buyer and copies of materials reflecting the
Company's Health Benefit Plans.
3.10 Broker Agreements. Seller has delivered or made available to Buyer
copies of (i) forms of Broker Agreements utilized by the Company in its
commercial and Medicare HMO operations, and (ii) the Broker Agreements, as
available, for the forty (40) largest brokers by membership as of the Reference
Date and for the brokers servicing the forty (40) largest subscriber groups by
membership as of the Reference Date. In addition, Seller has made available for
review and inspection by Buyer additional samples of Broker Agreements as
requested by Buyer.
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3.11 Provider Agreements. Seller has delivered or made available to
Buyer copies of (i) forms of Provider Agreements utilized by the Company for its
medical groups, IPAs and hospital providers, and (ii) Provider Agreements for
the Company's significant medical group or IPA Providers, significant hospital
providers and significant specialty or ancillary providers (in each case
determined by fiscal 1997 revenue). In addition, Seller has made available for
review and inspection by Buyer additional samples of Provider Agreements as
requested by Buyer and has delivered to Buyer copies of the Company's Provider
directories in effect as of the Reference Date.
3.12 List of Material Contracts. Schedule 3.12 sets forth a list of the
contracts, leases and licenses to which the Company is a party and which are
material to the conduct of the Company's business (other than any Subscriber
Agreements, Broker Agreements or Provider Agreements) and which provide for a
period of performance which extends beyond twelve (12) months from the Reference
Date or involve payment of or receipt after the Reference Date of amounts in
excess of Fifty Thousand Dollars ($50,000.00) (the "Material Contracts"). Seller
and the Company have made the Material Contracts available to Buyer for
inspection.
3.13 Tangible Property. The facilities, equipment, furniture,
improvements, fixtures, structures and other tangible property which comprise a
portion of the Included Assets, 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.
3.14 Intangible and Intellectual Properties. Schedule 3.14(a) sets
forth a list of electronic data processing systems, information systems and
computer software programs which comprise a portion of the Included Assets and
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 by
the Company. Schedule 3.14(b) sets forth a list of service marks, trademarks,
trade names, copyrighted or copyrightable materials or other intellectual
properties used in the Company's business, exclusive of the PacifiCare
Intellectual Property.
3.15 Employment Matters.
(a) Employee. Schedule 3.15(a) sets forth a list as of the
Reference Date of the employees of the Company which includes the employee's
name, position, date of hire, present compensation and merit increase date.
(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. To the knowledge of Seller's or the Company's officers, the Company
is not engaged in any unfair labor practices.
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(c) Employee Benefit Arrangements. Schedule 3.15(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 hereunder.
3.16 Litigation and Known Claims. Schedule 3.16 sets forth a list of
all Known Third Party Claims. Except as set forth on Schedule 3.16, there are no
Claims asserted or, to the actual knowledge of Seller's officers threatened,
against the Company.
3.17 Insurance. Schedule 3.17 sets forth a list and summary description
of all binders, certificates or policies of insurance which are maintained by
the Company and will remain in effect after the Closing.
3.18 Bank Accounts. Schedule 3.18 sets forth a list of the banks and
financial institutions at which the Company has an account, deposit,
safe-deposit box, line of credit, loan facility or other relationship. Schedule
3.18 identifies the name of the bank or other institution, account type and
names of the Persons authorized to make withdrawals from or to otherwise engage
in transactions with respect to such accounts.
3.19 No Brokers. 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.
3.20 Limitations of Representations and Warranties. Without limiting
the disclaimer in Section 2.6 above, 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 of
the Included Assets.
3.21 Survival. The representations, warranties and covenants furnished
by Seller in this Agreement or in any agreement, certificate or document
furnished pursuant to this Agreement or in contemplation of the sale of the
Shares to Buyer hereunder, shall survive until the Closing Date.
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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 Organization. Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Utah.
4.2 Authority of Buyer. Buyer has the power and authority to execute
and deliver this Agreement and any Additional Agreements to which Buyer or the
Company is a party, to carry out the transactions contemplated hereunder and
thereunder and to purchase the Shares from Seller. All 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 or the Company is a party constitute, or
when executed will constitute, the legal, valid and binding obligations of Buyer
and the Company, as the case may be, enforceable against each of them in
accordance with the terms herein and therein, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and by general
equitable principles. Each individual executing this Agreement or any Additional
Agreements on Buyer's behalf has full power and authority to execute and deliver
this Agreement and such Additional Agreements.
4.3 No Violations. The execution and delivery of this Agreement and the
Additional Agreements to which Buyer is a party and the consummation of the
transactions contemplated hereby and thereby will not constitute or cause nor
with notice or lapse of time or both would not constitute or cause: (i) a
violation of Buyer's charter documents (as amended and restated to date),
operating agreement (as amended and restated to date) or resolutions or actions
of Buyer's members or managers, or duly authorized committees thereof; or (ii)
except as set forth on Schedule 4.3 or which would not have a Material Adverse
Effect with respect to 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
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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.
4.5 Knowledge of Market; Access to Information. Buyer has experience in
the operation of HMOs in the State of Utah. Buyer is familiar with the
equipment, facilities, systems and other assets used by HMOs and the licenses,
permits, certificates, approvals, registrations, accreditations and
authorizations necessary to operate HMOs in the State of Utah. Furthermore,
Buyer or its representatives and advisors have been provided with 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 or any of
Buyer's Affiliates is a party. In view of the foregoing, Buyer possesses the
information relative to the Company, its HMO business, its Included Assets, its
Included Liabilities and its other arrangements which Buyer would desire to have
in order to make an informed decision whether or not to enter into this
Agreement and to purchase the Shares of the Company. Buyer has decided to rely
solely upon its knowledge of the Company in entering into this Agreement and in
purchasing the Shares. Buyer is not aware of any facts or circumstances which
would cause any representation or warranty made by Seller in this Agreement to
be untrue or inaccurate.
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.
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 Buyer's Due Diligence; Confidentiality. At all times prior to the
Closing, Seller shall provide to Buyer, its legal counsel, accountants,
employees and other representatives (i)
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reasonable opportunities and access (including the right to make copies) to
examine (and discuss with Seller's, employees, independent auditors and
attorneys) all of the books, reports and records, documents, instruments and
properties relating to the businesses, operations, Included Assets and Included
Liabilities of the Company ("Proprietary Information") and (ii) access to the
Company's current employees to communicate information regarding an employee's
continued employment with the Company after the Closing Date, provided the
content and the times and places of such communications are approved in advance
by Seller, which approval shall not be unreasonably withheld. All such
information obtained hereunder shall be used by Buyer and its representatives
only in connection with the transaction contemplated by this Agreement. In the
event of the termination of this Agreement, Buyer shall not use or disclose, and
shall cause its representatives (including Kurt Larsen and Hunter Capital Group)
to refrain from using or disclosing, all Proprietary Information and
Confidential Information of the Company or Seller obtained pursuant to this
Section 5.1 or the Confidentiality Agreement, unless such information is
required to be disclosed by law. Buyer acknowledges that a breach or violation
by Buyer or its representatives of Buyer's obligations under this Section 5.1
shall cause irreparable harm and damage to Seller or the Company in a monetary
amount which may be virtually impossible to ascertain. As a result, Buyer
acknowledges and agrees that Seller and the Company shall be entitled to seek an
injunction from any court of competent jurisdiction enjoining and restraining
any breach or violation by Buyer of any or all of the covenants and agreements
contained in this Section 5.1, and that such right to seek an injunction shall
be without the necessity of posting bond, or otherwise, and shall be cumulative
in addition to whatever rights or remedies Seller may possess hereunder, at law
or in equity. If the Closing does not occur for any reason, then Buyer shall
return to the Company and Seller all records and documents, and all copies or
replications thereof, obtained in connection with its audits, examinations and
investigations, including all of the Proprietary Information and all of the
Confidential Information.
5.2 Best Efforts; Further Assurances. Buyer and Seller shall each use
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 that are consistent with
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, then Buyer and Seller, as the case may be, shall take such
action.
5.3 Consents and Approvals. Without consideration of any applicable
Securities Laws, Seller shall use best efforts to obtain prior to Closing the
approvals, authorizations, consents, orders or other actions of, or
declarations, filings or registrations with, any Governmental Authority or other
Person as may be required to be made or obtained for Seller to consummate the
sale of the Shares to Buyer as contemplated hereunder which are set forth
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on Schedule 5.4 (collectively, "Seller's Notices and Consents"). Buyer shall
promptly provide Seller and the Company with Buyer's full cooperation and
assistance in connection with the furnishing or obtaining of Seller's Notices
and Consents. Buyer shall diligently seek, and use its best efforts to obtain,
HMO Regulatory Approval and the consent or approval of any Governmental
Authorities or other Persons listed on Schedule 4.4. Buyer agrees to promptly
prepare and file the notifications necessary to obtain HMO Regulatory Approval
and agrees to work promptly and cooperatively with the DOI to obtain such
approval. Buyer agrees to respond, as promptly as practicable, to any DOI
inquiries or requests for additional information or documentation in connection
with HMO Regulatory Approval.
5.4 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 Additional Agreements 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 Additional Agreements or the
transactions contemplated hereby or thereby if such disclosure is required under
applicable laws.
5.5 Confidential Information. Buyer acknowledges and agrees that it is
bound by the covenants, obligations and provisions of the Confidentiality
Agreement. Buyer shall, and shall cause its representatives (including Kurt
Larsen and Hunter Capital Group) to, continue to abide by the covenants,
obligations and provisions of the Confidentiality Agreement.
5.6 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 applicable to the
particular schedule. Seller shall use its best efforts to 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.
5.7 Employees. Seller shall cooperate reasonably with Buyer's expressed
desires with respect to the retention or termination of the Company Employees.
In view of the foregoing, the approximately forty-five (45) Company Employees
performing claims functions who may be transferred to Seller, PHS or an
Affiliate thereof prior to Closing shall be retained by the transferee-employer
for at least sixty (60) days following the Closing Date. Seller and/or PHS shall
pay and provide for: (i) severance benefits, in accordance with PHS' current
severance policy, for up to 100 of the Company Employees who are terminated
during the period commencing on the date hereof and concluding six (6) months
after the Closing Date; provided, however, that the amount of such severance
benefits will cease accruing on the Closing Date; and (ii) retention or stay
bonuses which are earned by the Company Employees
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for services rendered through the Closing Date. The obligations of Seller and/or
PHS under this Section 5.7 shall survive the Closing.
5.8 Administrative Building Lease. In the event that the University of
Utah does not purchase the Administrative Building prior to, or
contemporaneously with, the Closing, then: (i) the Administrative Building shall
be distributed, or otherwise transferred from the Company, to Seller or an
Affiliate of Seller; and (ii) Seller or its Affiliate, as the case may be, shall
execute, as landlord, the Administrative Building Lease and shall deliver the
same to Buyer at Closing.
5.9 Affiliation Agreement. Prior to Closing, Buyer and Seller shall
finalize negotiations of (which negotiations shall be conducted in good faith),
and at Closing shall cause the appropriate parties to execute and deliver the
Affiliation Agreement.
5.10 Transitional Services Agreement. Prior to Closing, Buyer and
Seller shall finalize negotiations of (which negotiations shall be conducted in
good faith), and at Closing shall cause the appropriate parties to execute and
deliver the Transitional Services Agreement.
5.11 Expenses. 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 only 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. The representations and
warranties made by Seller in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and shall be true and correct
in all material respects as of the Closing Date. Seller shall have delivered to
Buyer a certificate, dated as of the Closing Date and signed by an executive
officer of Seller ("Seller's Closing Certificate"), which certifies that (i)
such representations and warranties were true in all material respects as of the
date of this Agreement, and (ii) such representations and warranties are true in
all material respects 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 and all other permits, approvals, consents or authorizations of any
Governmental Authority necessary for consummation of the transactions
contemplated by this Agreement shall have been obtained. 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 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 Buyer,
after consultation with Buyer's legal counsel, prohibits consummation of the
transactions as contemplated hereunder.
6.6 Lease of Administrative Building. In the event that the Company
does not sell the Administrative Building to the University of Utah prior to, or
contemporaneously with, the Closing, then the Administrative Building Lease
shall have been executed by Seller or an Affiliate of Seller, as landlord, as
provided in Section 5.8 above, and delivered to Buyer.
6.7 The Transitional Services Agreement. The Transitional Services
Agreement shall have been executed by a duly authorized officer of Seller (or
appropriate Affiliates) and delivered to Buyer.
6.8 Affiliation Agreement. The Affiliation Agreement shall have been
duly executed by Buyer and PacifiCare Life and delivered to Buyer.
6.9 No Termination of this Agreement. This Agreement shall not have
been terminated pursuant to Article 9 below.
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6.10 Other Deliveries. Seller shall have delivered to Buyer any other
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 only 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 shall be true
and correct in all material respects as of the date of this Agreement and shall
be true and correct in all material respects as of the Closing Date. Buyer shall
have delivered to Seller a certificate, dated as of the Closing Date and signed
by a manager of Buyer ("Buyer's Closing Certificate"), which certifies that (i)
such representations and warranties were true in all material respects as of the
date of this Agreement, and (ii) such representations and warranties are true in
all material respects as of the Closing Date.
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 Proceedings. All 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. Seller's Notices and Consents shall have
been furnished and/or obtained and shall be in full force and effect at Closing
and HMO Regulatory Approval shall have been obtained. All other permits,
approvals, consents or authorizations of any Governmental Authority or from any
other Person necessary for consummation of the transactions contemplated by this
Agreement shall have been obtained. 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 No Material Adverse Effect. There has been no Material Adverse
Effect which has occurred with respect to Buyer that is continuing.
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7.6 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 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.
7.7 No Termination of this Agreement. This Agreement shall not have
been terminated pursuant to Article 9 below.
7.8 Intellectual Property License Agreement. The Intellectual Property
License Agreement shall have been executed by a duly authorized officer of the
Company and delivered to Seller.
7.9 Lease of Administrative Building. In the event that the Company
does not sell the Administrative Building to the University of Utah prior to, or
contemporaneously with, the Closing, then the Administrative Building Lease
shall have been executed by the Company and Buyer, jointly and severally, as
tenant, and delivered to Seller.
7.10 The Transitional Services Agreement. The Transitional Services
Agreement shall have been executed by duly authorized officers of Buyer and the
Company and delivered to Seller.
7.11 Affiliation Agreement. The Affiliation Agreement shall have been
duly executed by Buyer and PacifiCare Life and delivered to Seller.
7.12 OPM Assignment Agreement. The OPM Assignment Agreement shall have
been duly executed by the Company and delivered to Seller.
7.13 HCFA Assignment Agreement. The HCFA Assignment Agreement shall
have been duly executed by the Company and delivered to Seller.
7.14 Company Assignment. The Company Assignment shall have been duly
executed by the Company and delivered to Seller.
7.15 Other Deliveries. Buyer shall have delivered to Seller any other
documents required by Section 8.3 below.
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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 Buyer's legal
counsel, Parr Waddoups Brown Gee & Loveless, located at 185 South State Street,
Suite 1300, Salt Lake City, Utah 84111-1536, at 10:00 a.m., local Utah time, 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., local Utah 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. Originals of signature pages to: (i) this Agreement
duly executed by Seller; (ii) the Transitional Services Agreement duly executed
by Seller and/or appropriate Affiliates; (iii) any other Additional Agreements
to which Seller is a party; and (iv) if applicable, the Administrative Building
Lease;
(d) Stock Certificate and Assignment. The stock certificate(s)
representing the Shares and the related stock assignment separate from
certificate, duly executed in blank by Seller;
(e) 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
(f) Resignation of the Company's Officers and Directors. The
written resignations of all of the officers and members of the Board of
Directors of the Company, effective on or before the Closing Date
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8.3 Buyer's Obligations At Closing. At the Closing, Buyer shall
deliver, or cause to be delivered, to Seller the following items:
(a) Resolutions. Duly certified copies of the 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 a manager of Buyer;
(c) Agreements. Originals of signature pages to: (i) this Agreement
duly executed by Buyer; (ii) the Transitional Services Agreement duly executed
by Buyer and the Company; (iii) the Intellectual Property License Agreement duly
executed by the Company; (iv) the Affiliation Agreement duly executed by the
Company and/or Buyer; (v) if applicable, the Administrative Building Lease, duly
executed by the Company and Buyer; and (vi) any other Additional Agreements to
which Buyer or the Company is a party;
(d) 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; and
(e) 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 By Buyer. Buyer may terminate this Agreement prior to Closing
effective upon the giving of written notice to Seller if:
(a) HMO Regulatory Approval has not been obtained on or before
December 31, 1998;
(b) 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 Additional Agreements and such order,
decree, ruling or other action shall have become final and nonappealable;
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(c) Buyer determines that it will not proceed to Closing, after
having used good faith efforts to satisfy all closing conditions and covenants
applicable to Buyer prior to the time that notice of Buyer's intention is given
to Seller; or
(d) 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.
9.3 By Seller. Seller may terminate this Agreement prior to Closing
effective upon the giving of written notice to Buyer if:
(a) HMO Regulatory Approval has not been obtained on or before
September 30, 1998;
(b) 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 Additional Agreements and such order,
decree, ruling or other action shall have become final and nonappealable; or
(c) 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.
9.4 Limitation on Damages. Buyer and Seller acknowledge and agree that,
in the event that Seller terminates this Agreement due to any of the
circumstances set forth in Section 9.3 above or in the event that Buyer
terminates this Agreement due to any of the circumstances set forth in
paragraphs (a) through (c) of Section 9.2 above, (i) Seller shall retain the
Deposit, including any interest which has accrued thereon, and (ii) retention of
the Deposit by Seller shall be Seller's sole remedy against Buyer for Buyer's
failure to consummate the transactions contemplated hereunder. However, the
foregoing limitation on Seller's remedies shall not preclude Seller from
recovering against Buyer appropriate damages or seeking from Buyer other
appropriate remedies (including injunctive relief and other equitable remedies)
arising from any harm caused to the Company's business from actions taken by
Buyer without Seller's consent or from Buyer's violation of the covenants set
forth in Sections 9.5 and 9.6 below.
9.5 Confidential Information. Upon termination of this Agreement, for
any reason whatsoever, Buyer shall, and shall cause its representatives
(including Kurt Larsen and Hunter Capital Group) to, continue to abide by the
terms and conditions of the Confidentiality Agreement and Section 5.1 hereof
and, at Seller's request, shall return to Seller or destroy all Confidential
Information or Proprietary Information obtained from Seller or the Company.
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9.6 Non-Competition; Non-solicitation. In the event that this Agreement
terminates, for any reason whatsoever, Buyer and its Affiliates shall abide by
the following covenants for a period of two (2) years after the effective date
of this Agreement's termination:
(a) Buyer, its Affiliates, Val H. Christensen, Monte M. Deere, Jr.,
Kurt Larsen and Stanford J. Ricks, individually or together, agree not to become
a partner, joint venturer, consultant, independent contractor, employee,
officer, director or owner of more than five percent (5%) of the equity interest
of, or in any other capacity engage in the business of, nor to own, manage or
operate a health maintenance organization, competitive medical plan, physician
sponsored organization or other managed care plan or program within the State of
Utah. The foregoing covenant shall be construed as a series of separate
covenants, one for each county in the State of Utah. Except for their geographic
scope, each such separate covenant shall be deemed identical in terms to all
other covenants. The provisions of this Section 9.6(a) are severable and if one
or more provisions should be determined to be judicially unenforceable, in whole
or in part, then the remaining provisions shall nevertheless be binding and
enforceable. To the extent that any provision shall be found judicially
unenforceable in any one or more counties, that provision shall not affect the
other covenants pertaining to the other counties. Furthermore, to the extent
that the geographic scope of any separate covenant is found judicially
unenforceable because of its breadth, that covenant or limited portion thereof
shall remain enforceable within the geographic scope determined by a court of
competent jurisdiction.
(b) Buyer and its Affiliates shall not solicit for hire or hire any
of the Company Employees, without Seller's consent.
ARTICLE 10
POST-CLOSING COVENANTS AND OBLIGATIONS
10.1 Further Assignments and Assurances. 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, the Included Assets, the Excluded Assets or the Excluded Liability
Defenses and Claims, as the case may be, then 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.
10.2 Change Name of the Company. Within three (3) business days 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" or "FHP." Immediately after the Closing,
but subject to appropriate regulatory approval and the Intellectual Property
License Agreement, Buyer shall cause the Company and
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its successors, to discontinue any use of the name or mark "PacifiCare," "Secure
Horizons," "FHP," or any other PacifiCare Intellectual Property in relation to
the Company's post-Closing operations, communications or marketing.
10.3 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 through the Closing Date (the "Books and Records") for a period of at
least seven (7) years from the date of creation of the applicable Books and
Records and for such additional period as requested by Seller if related to a
specific pending action or proceeding of any kind. Buyer shall cause the Company
to fully cooperate with Seller in promptly furnishing Seller or its designees
with copies of any Books and Records as reasonably requested by Seller.
10.4 Establishment of Final Balance Sheet. (a) To determine the
existence of an Equity Deficit Amount or an Equity Surplus Amount, Buyer and
Seller shall jointly retain E&Y to audit the Final Balance Sheet in accordance
with the provisions of this Section 10.4. Within thirty (30) days after the
Closing, Seller shall prepare a proposed Final Balance Sheet and deliver the
same to Buyer and E&Y. The proposed Final Balance Sheet shall be prepared by
Seller in accordance with GAAP, using the same accounting policies and
procedures applied in the preparation of the Financial Statements and the
Preliminary Balance Sheet. During the Balance Sheet Adjustment Period, Buyer and
Seller shall cooperate fully and diligently with E&Y to enable E&Y to conduct
its audit of the Final Balance Sheet prior to the expiration of the Balance
Sheet Adjustment Period. Buyer and Seller each agrees to promptly furnish E&Y
with all documentation and other information reasonably requested by E&Y.
Buyer's and Seller's joint engagement of E&Y shall be limited to E&Y's review,
verification and, if necessary, adjustment of the balances of the Included
Assets and the Included Liabilities reflected on the Final Balance Sheet. The
valuation of the balances of the Included Assets and the Included Liabilities to
be finally recorded on the Final Balance Sheet and any necessary audit
adjustments thereto shall be made by E&Y in accordance with GAAP, using the same
accounting policies and procedures applied in the preparation of the Financial
Statements and the Preliminary Balance Sheet. Buyer and Seller further agree
that E&Y's audit shall not take into account the effect of any depreciation of
fixed assets attributable to any period after August 31, 1998.
(b) The audited Final Balance Sheet shall be delivered by E&Y to Buyer
and Seller on or before the expiration of the Balance Sheet Adjustment Period.
Once E&Y has delivered the audited Final Balance Sheet to Buyer and Seller, it
shall be final, binding and conclusive upon both Buyer and Seller. However, in
the event that Buyer or the Company fails to fully cooperate with E&Y's audit or
E&Y otherwise is unable to obtain sufficient information from the Company or
Buyer to complete its audit by the end of the Balance Sheet Adjustment Period,
E&Y shall abandon the audit, without rendering an opinion or disclaimer of any
kind and without any recourse from Buyer or Seller. Upon the occurrence of the
events in the foregoing sentence, the Final Balance Sheet, as proposed by
Seller, shall become final, binding
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and conclusive upon Buyer and Seller for the purposes of this Agreement. E&Y's
costs, expenses and fees shall be borne equally by Buyer and Seller, whether or
not E&Y is permitted to complete its audit.
(c) Once the Final Balance Sheet has been completed in accordance with
the process set forth in paragraph (b) above, the parties shall finally and
conclusively determine the existence of either an Equity Deficit Amount or an
Equity Surplus Amount and payment of the applicable amount shall be made in
accordance with Section 2.2(b) above.
10.5 Selected Accounts Receivable Reconciliation. E&Y shall perform a
reconciliation of the Selected Accounts Receivable as of the A/R Reconciliation
Date within thirty (30) days after the occurrence of such date. The
reconciliation shall determine the positive or negative difference between (i)
the total of the Selected Accounts Receivable balances reflected on the Final
Balance Sheet, minus (ii) the monies collected on the Accounts Receivable during
the period between the Final Balance Sheet Date through the A/R Reconciliation
Date (the "A/R Variance"). In the event that the A/R Variance is a positive
number, then Seller shall pay to the Company an amount equal to seventy-five
percent (75%) of such A/R Variance. In the alternative event that the A/R
Variance is a negative number, then the Company (and if the Company is unable
to, Buyer) shall pay Seller fifty percent (50%) of such A/R Variance. E&Y's
reconciliation shall be final, binding and conclusive upon Buyer, Seller and the
Company and the cost of E&Y's services shall be borne equally by Buyer and
Seller.
10.6 Processing and Payment of IBNR Claims. Seller shall be responsible
for the payment of the IBNR Claims as provided in Section 11.1 below. Buyer
shall, and shall cause the Company to, fully cooperate and assist Seller in the
administration and management of the IBNR Claims and shall promptly furnish or
forward Seller with any information or documentation necessary for Seller to
timely pay the IBNR Claims.
10.7 WARN Act. Buyer shall be solely responsible for any financial or
other responsibility which arises under the WARN Act in respect of the
termination of any of the Company Employees.
10.8 Seller's Notices and Consents. In the event that any of Seller's
Notices and Consents were not furnished or obtained prior to Closing, then Buyer
shall furnish any applicable notices as soon as practicable and take appropriate
actions to obtain any applicable consents as promptly as possible. Buyer shall
use its best good faith efforts to diligently prosecute to full completion any
of Seller's Notices and Consents not furnished or obtained prior to Closing. In
the prosecution of Seller's Notices and Consents, Buyer shall, or shall cause
the Company to, promptly comply with all requests for information or
documentation and all other commercially reasonable requests required by the
Person whose consent or approval is required.
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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 until the expiration of the applicable statute of
limitations period.
ARTICLE 11
INDEMNIFICATION
11.1 IBNR Claims Indemnification by Seller. Provided that Buyer fully
complies with its obligations under Section 10.6 above and under the
Transitional Services Agreement, after notice and a reasonable opportunity to
cure, Seller shall be financially responsible for, and shall defend, indemnify
and hold harmless Buyer's Group from and against, any IBNR Claims presented for
payment to the Company or its processing agent at any time during the IBNR
Run-Out Period.
11.2 General Indemnification Obligations.
(a) Indemnification by Seller. Seller shall defend, indemnify and
hold harmless members of Buyer's Group from and against: (i) any and all losses,
damages, liabilities, deficiencies or obligations of or to Buyer or the Company
resulting from or arising out of any Known Third Party Claims, any Employee
Benefit Claims, Hospital-Related Medicare Claims and any Tax Claims or in
respect of any Excluded Assets or Excluded Liabilities; and (ii) any and all
claims, actions, suits, proceedings, demands, judgments, assessments, fines,
interest, penalties, costs and expenses (including settlement costs and
reasonable legal, accounting, experts' and other fees, costs and expenses)
relating to or resulting from any Known Third Party Claims, Employee Benefit
Claims, Tax Claims or Hospital-Related Medicare Claims or in respect of any
Excluded Assets or Excluded Liabilities (collectively "Buyer's Losses and
Expenses"). Buyer's Losses and Expenses shall be reduced by any amounts
recovered by any member of Buyer's Group as proceeds from an insurance policy
covering a Known Third Party Claim, an Employee Benefit Claim, Hospital-Related
Medicare Claim, a Tax Claim, a Hospital-Related Medicare Claim, an Excluded
Assets or an Excluded Liability, as the case may be.
(b) Indemnification by Buyer. Buyer and the Company jointly and
severally shall defend, indemnify and hold harmless members of Seller's Group
from and against: (i) any and all losses, damages, liabilities, deficiencies or
obligations of or to any member of Seller's Group resulting from or arising out
of (a) any material misrepresentation or material breach of any representation,
warranty or covenant of Buyer contained in this Agreement or (b) Claims arising
from the operations of the Company after the Closing Date, including from
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the Company's failure to pay, as and when due, the Included Liabilities; and
(ii) any and all Claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) relating to or resulting from any of the foregoing.
(c) Indemnification Procedure. Promptly after the receipt by
either party hereto of notice of any Claim by a Third Party which is subject to
indemnification pursuant to this Section 11.2 (collectively, "Action"), such
party (the "Indemnified Party") shall deliver to the party from whom
indemnification is sought (the "Indemnifying Party") written notice (the "Notice
of Claim") which shall specify in reasonable detail the basis of the Claim for
indemnification hereunder. The failure of the Indemnified Party to give such
Notice of Claim shall not relieve the Indemnifying Party of its indemnification
obligations hereunder unless such failure shall result in material prejudice to
the Indemnifying Party. The Indemnified Party shall be entitled, at the sole
expense and liability of the Indemnifying Party, to exercise full control of the
defense, compromise or settlement of any Action unless the Indemnifying Party,
within ten (10) business days after the delivery of the Notice of Claim, shall:
(i) notify the Indemnified Party in writing of the Indemnifying Party's
intention to assume the defense thereof; and (ii) retain legal counsel
reasonably satisfactory to the Indemnified Party to conduct the defense of such
Action. The Indemnified Party and the Indemnifying Party shall cooperate with
the party assuming the defense of any such Action in accordance herewith in any
manner that such party reasonably may request.
11.3 OPM Indemnification and Assignment.
(a) Seller agrees to defend, indemnify and hold harmless, to the
fullest extent permitted by law, the Company from and against any amount payable
by the Company to the FEHBP which arises out of an OPM Claim which relates to
the OPM Indemnification Period (the "OPM Indemnification"). The OPM
Indemnification is contingent upon Buyer causing the Company to provide the
notice and cooperation, and to otherwise comply with, all of the requirements
and obligations set forth under this Section 11.3 and all of its paragraphs,
subject to notice of, and a reasonable opportunity to cure, any default under
such requirements and obligations, provided that such default does not prejudice
Seller.
(b) In conjunction with the OPM Indemnification and in
consideration thereof, the Company agrees to assign to Seller or PHS the right
to receive and the power to pursue any amount which may be payable by FEHBP to
the Company as a result of an overpayment by the Company to FEHBP relating to an
OPM Defective Price which relates to the OPM Indemnification Period (the "OPM
Assignment") and shall execute the OPM Assignment Agreement prior to, or
contemporaneously with, Closing to effect the same. Moreover, if Seller or PHS
determines that, in view of the OPM Indemnification or the OPM Assignment, it is
in the best interests of Seller or PHS to re-file or amend the Company's FEHBP
rate filings or certificates with OPM for any of the contract years occurring
during the OPM Indemnification Period, then the Company will cooperate with
Seller in re-filing such
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rate filings at Seller's request and instruction. The Company may not re-file
any filing or certificates with OPM relating to the OPM Indemnification Period
without the prior written consent of Seller or PHS.
(c) The Company must promptly notify Seller or PHS in writing if
the Company receives any notification or indication that OPM intends to conduct
an audit of the Company's FEHBP operations applicable to the OPM Indemnification
Period. Such notice shall include any documents received by the Company from OPM
in respect thereto. If OPM conducts such an audit, then the Company must
cooperate fully with OPM in disclosing all relevant information necessary for
OPM to properly complete the entire audit. Immediately upon receiving any
indication from OPM of an OPM Claim, the Company shall give written notice to
Seller or PHS of the same. Thereafter, the Company must diligently cooperate
with Seller or PHS in identifying all necessary documents and materials of the
Company which may be used to defend the Company's interests relating to the OPM
Claim. To the extent that employees of the Company or of Buyer are necessary to
assist in the defense or collection of information, use of such employees shall
be made available to Seller, PHS or their legal counsel or auditors. The Company
agrees to provide Seller, PHS and their legal counsel and auditors with
unrestricted access to all of the Company's records and documents relating to
the operation of the Company, which were, or could have been, used to determine
the rates charged to FEHBP and all of the alleged or potential "similarly sized
subscriber groups" during the OPM Indemnification Period.
(d) Upon receiving notice from the Company of an OPM Claim, Seller
or PHS shall immediately undertake at its sole cost, expense and risk, the
defense or settlement of the OPM Claim and shall certify in writing to the
Company that Seller has undertaken the defense or settlement of the OPM Claim on
behalf of the Company.
(e) Seller or PHS shall have the exclusive right to control the
defense, compromise or settlement of the OPM Claim relating to the OPM
Indemnification Period. The Company understands that OPM generally audits plans
for a period of five or six years, and that an audit may include years that are
within the OPM Indemnification Period as well as years that are not within the
OPM Indemnification Period. Buyer, on behalf of itself and the Company,
understand that the OPM Indemnification is contingent upon allowing Seller or
PHS to control the defense and the Company's positions regarding interpretation
of the laws and regulations governing the establishment of an FEHBP "market
price" as it relates to the OPM Claim.
(f) Notwithstanding anything to the contrary herein, the OPM
Indemnification does not cover any claim or portion thereof, which does not
specifically relate to a contract year occurring during the OPM Indemnification
Period.
11.4 HCFA Indemnification and Assignment.
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(a) Seller agrees to defend, indemnify and hold harmless, to the
fullest extent permitted by law, the Company from and against any amount payable
by the Company to HCFA which arises out of a HCFA Claim which relates to the
HCFA Indemnification Period (the "HCFA Indemnification"). The HCFA
Indemnification is contingent upon Buyer causing the Company to provide the
notice and cooperation, and to otherwise comply with, all of the requirements
and obligations set forth under this Section 11.4 and all of its paragraphs,
subject to notice of, and a reasonable opportunity to cure, any default under
such requirements and obligations provided that such default does not prejudice
Seller.
(b) In conjunction with the HCFA Indemnification and in
consideration thereof, the Company agrees to assign to Seller or PHS the right
to receive and the power to pursue any amount which may be payable by HCFA to
the Company as a result of an overpayment by the Company to HCFA in respect of
the Company's Medicare cost contract operations (the "HCFA Assignment") and
shall execute the HCFA Assignment Agreement prior to, or contemporaneously with,
Closing to effect the same. Moreover, if Seller or PHS determines that, in view
of the HCFA Indemnification or the HCFA Assignment, it is in the best interests
of Seller or PHS to re-file or amend any of the Company's submissions to HCFA
for any of the contract years occurring during the HCFA Indemnification Period,
then the Company will cooperate with Seller in re-filing such submissions at
Seller's request and instruction. The Company may not re-file any HCFA
submissions relating to the HCFA Indemnification Period without the prior
written consent of Seller or PHS.
(c) The Company must promptly notify Seller or PHS in writing if
the Company receives any notification or indication that HCFA intends to conduct
an audit of the Company's Medicare cost operations applicable to the HCFA
Indemnification Period. Such notice shall include any documents received by the
Company from HCFA in respect thereto. If HCFA conducts such an audit, then the
Company must cooperate fully with HCFA in disclosing all relevant information
necessary for HCFA to properly complete the entire audit. Immediately upon
receiving any indication from HCFA of a HCFA Claim, the Company shall give
written notice to Seller or PHS of the same. Thereafter, the Company must
diligently cooperate with Seller or PHS in identifying all necessary documents
and materials of the Company which may be used to defend the Company's interests
relating to the HCFA Claim. To the extent that employees of the Company or of
Buyer are necessary to assist in the defense or collection of information, use
of such employees shall be made available to Seller, PHS or their legal counsel
or auditors. The Company agrees to provide Seller, PHS and their legal counsel
and auditors with unrestricted access to all of the Company's records and
documents relating to the operation of the Company, which were, or could have
been, used to determine the rates or costs charged to HCFA during the HCFA
Indemnification Period.
(d) Upon receiving notice from the Company of a HCFA Claim, Seller
or PHS shall immediately undertake at its sole cost, expense and risk, the
defense or settlement of
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the HCFA Claim and shall certify in writing to the Company that Seller has
undertaken the defense or settlement of the HCFA Claim on behalf of the Company.
(e) Seller or PHS shall have the exclusive right to control the
defense, compromise or settlement of the HCFA Claim relating to the HCFA
Indemnification Period. Buyer, on behalf of itself and the Company, understand
that the HCFA Indemnification is contingent upon allowing Seller or PHS to
control the defense and the Company's positions regarding interpretation of the
laws and regulations governing the establishment of rates or costs charged to
HCFA.
(f) Notwithstanding anything to the contrary herein, the HCFA
Indemnification does not cover any claim or portion thereof, which does not
specifically relate to a contract year occurring during the HCFA Indemnification
Period.
ARTICLE 12
GENERAL PROVISIONS
12.1 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, in each case to the parties at the following addresses (or at such
other addresses as shall be specified by like notice) with postage or delivery
charges prepaid 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:
Val H. Christensen
348 North, 1160 East
Orem, Utah 84097
and
Monte M. Deere, Jr.
3865 S. Wasatch, Suite 300
Salt Lake City, Utah 84109
Fax: (801) 278-1541
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With a copy to:
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Fax: (801) 532-7750
Attn: Kent Larsen, Esq.
If to Seller:
PacifiCare Health Plan Administrators, Inc.
c/o PacifiCare Health Systems, Inc.
3120 Lake Center Drive
Santa Ana, California 92704
Fax: (714) 825-5041
Attn: President
With a copy to:
Konowiecki & Rank
First Interstate World Center
633 West Fifth Street, Suite 3500
Los Angeles, California 90071
Fax: (213) 229-0920
Attn: Joseph S. Konowiecki, Esq.
12.2 Time of the Essence. Time is of the essence with respect to each
and every provision of this Agreement.
12.3 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.
12.4 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 waiver. The waiver by any party hereto of a breach of
any provision hereunder shall not operate or be
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<PAGE> 38
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
12.5 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.
12.6 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.
12.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Utah and Federal law where
state law is pre-empted or applicable, without regard to principles of conflicts
of law.
12.8 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors, successors-in-interests,
transferees and assigns. However, Buyer may not assign its rights or delegate
its duties or obligations under this Agreement, whether voluntarily,
involuntarily or by operation of law, without the prior written consent of
Seller.
12.9 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.
12.10 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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12.11 No Rights in Third Parties. Nothing in this Agreement, whether
expressed or implied, is intended to confer upon any Third Party any rights or
remedies under or by reason of this Agreement.
12.12 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.
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of
the date first written above.
BUYER: ELAN HEALTH PARTNERS, LLC,
a Utah limited liability company
By: /s/ VAL H. CHRISTENSEN
------------------------------------
Title: Manager
---------------------------------
SELLER: PACIFICARE HEALTH PLAN ADMINISTRATORS,
INC., an Indiana corporation
By: /s/ JOSEPH S. KONOWIECKI
------------------------------------
Title: Secretary
---------------------------------
38
<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT, dated as of September
30, 1998 (this "First Amendment"), is made and entered into by and between
PACIFICARE HEALTH PLAN ADMINISTRATORS, INC., an Indiana corporation, as seller
("Seller"), and ELAN HEALTH PARTNERS LLC, a Utah limited liability company, as
buyer ("Buyer"), with reference to the following facts:
PREAMBLE
A. On or about July 6, 1998, Buyer and Seller entered into that certain
Stock Purchase Agreement pursuant to which Buyer agreed to purchase all of the
issued and outstanding shares of capital stock of PacifiCare of Utah, Inc. (the
"Company") and Seller agreed to sell such capital stock to Buyer (the "Stock
Purchase Agreement").
B. Buyer and Seller mutually desire to amend the Stock Purchase
Agreement in accordance with the terms of this First Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree as
follows:
1. Amendments to the Stock Purchase Agreement. The Stock Purchase
Agreement is hereby amended as follows:
1.1 Section 2.2(a) of the Stock Purchase Agreement is amended
by deleting the third sentence thereof and substituting the following sentence
therefor:
"In the event that the Deposit becomes refundable, Seller
shall return the Deposit to the Company, together with interest which
has accrued thereon at the Interest Rate from the date of the Deposit's
receipt through the date of the Deposit's return."
1.2 Article 2 of the Stock Purchase Agreement is amended by
adding the following new section 2.7:
"2.7 Additional Assurances at Closing.
(a) The PacifiCare Subordinated Loan. Notwithstanding the
provisions of Section 2.3 above or any other provision of this Agreement, before
or as of the Closing, Seller shall extend to the Company a subordinated loan in
the original principal amount of Seven Hundred Thousand Dollars ($700,000) upon
the following principal terms and conditions (the "PacifiCare Subordinated
Loan"): (i) the PacifiCare Subordinated Loan shall be evidenced
1
<PAGE> 2
by a promissory note which contains terms and conditions consistent with
applicable Utah regulatory laws; (ii) the PacifiCare Subordinated Loan shall
accrue interest at the lesser of 10% per annum or the highest rate permissible
by Utah law; (iii) the PacifiCare Subordinated Loan shall be subordinated to
payments owed by the Company to the Company's normal trade creditors and
subscribers; (iv) the PacifiCare Subordinated Loan shall have a superior
position to the holders of all other debt incurred by the Company, including,
without limitation, amounts borrowed from banks, lenders, and other third
parties, dividends or other amounts owed to the Company's shareholders, and the
Elan Subordinated Loan (as defined in Paragraph (b) below); (v) until the
PacifiCare Subordinated Loan has been repaid: (A) the Company shall not issue
additional shares of its capital stock or other securities and Buyer shall not
sell, encumber, or otherwise dispose of any of the Shares, and (B) in
furtherance of the foregoing covenants, Elan shall cause a legend reflecting
such restrictions on transfer to be borne on all certificates representing any
authorized, issued, or treasury shares or securities of the Company; and (vi)
after January 1, 1999, the PacifiCare Subordinated Loan shall be repayable only
from funds which the Company maintains in excess of the sum of the Minimum
Capital, as required by Utah Code Ann. Section 31A-8-209(1), plus the Compulsory
Surplus, as required by Utah Code Ann. Section 31A-8-210(b).
(b) The Elan Subordinated Loan. Notwithstanding the provisions
of Section 2.3 above or any other provision of this Agreement, before or as of
the Closing, Buyer shall extend to the Company a subordinated loan in the
original principal amount of Five Hundred Thousand Dollars ($500,000) upon the
following principal terms and conditions (the "Elan Subordinated Loan"): (i) the
Elan Subordinated Loan shall be evidenced by a promissory note which contains
terms and conditions consistent with applicable Utah regulatory laws; (ii) the
Elan Subordinated Loan shall accrue interest at the lesser of 10% per annum or
the highest rate permissible by Utah law; (iii) the Elan Subordinated Loan shall
be subordinated to payments owed by the Company to the Company's normal trade
creditors and subscribers; (iv) the Elan Subordinated Loan shall have a superior
position to the holders of all other debt incurred by the Company, including,
without limitation, amounts borrowed from banks, lenders, and other third
parties, dividends or other amounts owed to the Company's shareholders, except
for the PacifiCare Subordinated Loan which is superior to the Elan Subordinated
Loan; and (v) after January 1, 1999 and after the PacifiCare Subordinated Loan
has been repaid, the Elan Subordinated Loan shall be repayable only from funds
which the Company maintains in excess of the sum of the Minimum Capital, as
required by Utah Code Ann. Section 31A-8-209(1), plus the Compulsory Surplus, as
required by Utah Code Ann. Section 31A-8-210(b)."
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<PAGE> 3
2. Capitalized Terms. Any capitalized terms used in this First
Amendment which are not defined herein shall have the meanings ascribed to those
terms in the Stock Purchase Agreement.
3. Effect of this First Amendment. Except as amended by this First
Amendment, the Stock Purchase Agreement shall not be further amended, modified,
or revised and the Stock Purchase Agreement, as hereby amended, shall continue
in full force and effect and shall be enforced in accordance with its terms and
conditions. The Stock Purchase Agreement may only be further amended, modified,
revised, or supplemented by a dated written instrument executed by Buyer and
Seller.
4. Integrated Agreement. This First Amendment constitutes the final
written integrated expression of all of the agreements between Buyer and Seller
with respect to those matters addressed herein and is a complete and exclusive
statement of those terms. This First Amendment supersedes all prior or
contemporaneous, written or oral, memoranda, arrangements, contracts, and
understandings between Buyer and Seller 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.
5. Severability. In the event that any provision in this First
Amendment shall be found by a court or Governmental Authority 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.
6. Governing Law. This First Amendment shall be governed by and
construed in accordance with the internal laws of the State of Utah and Federal
law where state law is pre-empted or applicable, without regard to principles of
conflicts of law.
7. Successors and Assigns. This First Amendment shall be binding upon
the parities hereto and their respective successors, successors-in-interest,
transferees, and assigns. However, Buyer may not assign its rights or delegate
its duties or obligations under this Agreement, whether voluntarily,
involuntarily, or by operation of law, without the prior written consent of
Seller.
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<PAGE> 4
8. Counterparts. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be considered one and the same agreement
IN WITNESS WHEREOF, Buyer and Seller have executed this First Amendment
as of the date first written above.
BUYER: ELAN HEALTH PARTNERS LLC,
a Utah limited liability company
By: /s/ VAL H. CHRISTENSEN
------------------------------------
Title: Manager
---------------------------------
SELLER: PACIFICARE HEALTH PLAN ADMINISTRATORS,
INC., Indiana corporation
By: /s/ JEFF FOLICK
------------------------------------
Title: President
---------------------------------
4
<PAGE> 1
EXHIBIT 2.3
SECOND AMENDMENT TO
STOCK PURCHASE AGREEMENT
This SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT, dated as of
September 30, 1998 (this "Second Amendment"), is made and entered into by and
between PACIFICARE HEALTH PLAN ADMINISTRATORS, INC., an Indiana corporation, as
seller ("Seller"), and ELAN HEALTH PARTNERS LLC, a Utah limited liability
company, as buyer ("Buyer"), with reference to the following facts:
PREAMBLE
A. On or about July 6, 1998, Buyer and Seller entered into that certain
Stock Purchase Agreement pursuant to which Buyer agreed to purchase all of the
issued and outstanding shares of capital stock of PacifiCare of Utah, Inc. (the
"Company") and Seller agreed to sell such capital stock to Buyer (the "Stock
Purchase Agreement").
B. On or about September 30, 1998, Buyer and Seller entered into that
certain First Amendment to Stock Purchase Agreement to amend certain terms and
provisions of the Stock Purchase Agreement (the "First Amendment").
C. Buyer and Seller mutually desire to further amend the Stock Purchase
Agreement in accordance with the terms of this Second Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree as
follows:
1. Amendments to the Stock Purchase Agreement. The Stock Purchase
Agreement is hereby amended as follows:
1.1 Section 1.1 of the Stock Purchase Agreement is amended by adding
the following sentence to the definition of "Final Balance Sheet":
"For the purposes of this Agreement, the determination of the Final
Balance Sheet shall not take into consideration the delivery of the
Deposit to the Company, the Elan Subordinated Loan, or the PacifiCare
Subordinated Loan."
1.2 Section 1.1 of the Stock Purchase Agreement is amended by
deleting the definition of "Health Benefit Plans" in its entirety and
substituting the following definition therefor:
"Health Benefit Plan(s): One or more of the various health benefit
plans or products offered, sold, or maintained by the Company which
involve the Company's arrangement, delivery, provision, and/or payment
under
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<PAGE> 2
its HMO license of health care services or benefits to individuals
enrolled in such plans or products (including, without limitation, a
commercial prepaid health plan, a commercial point-of-service plan, a
Medicare-risk plan, an individual plan, or a dental product)."
1.3 Section 1.1 of the Stock Purchase Agreement is amended by
deleting the definition of "IBNR Claims" its entirety.
1.4 Section 1.1 of the Stock Purchase Agreement is amended by
deleting the definition of "IBNR Run-Out Period" in its entirety.
1.5 Section 1.1 of the Stock Purchase Agreement is amended by adding
the following new definitions:
"Covered Services: Services or treatment furnished by a
Provider that is covered under a Health Benefit Plan of the Company.
IBNP Claims: Incurred but not paid Provider claims liability
of the Company for Covered Services furnished on or before the Final
Balance Sheet Date to Members for which an invoice or billing has been
received by the Company or its processing agent on or before the Final
Balance Sheet Date, but not paid on or before the Final Balance Sheet
Date; provided that, with respect to the incurred but not paid claims
payable to Providers who or which have a written agreement with the
Company, or one of the Company's other Providers, such claims are
adjudicated in an amount determined in accordance with such written
agreement.
IBNR Claims: Incurred but not reported Provider claims
liability of the Company for Covered Services furnished on or before
the Final Balance Sheet Date to Members for which no invoice or billing
has been received by the Company or its processing agent on or before
the Final Balance Sheet Date; provided that (i) with respect to these
incurred but not reported claims payable to Providers who or which have
a written agreement with the Company, or one of the Company's other
Providers, such claims are (a) adjudicated in an amount determined in
accordance with such written agreement and (b) presented for payment to
the Company or its processing agent during the Incurred Claims Run-Out
Period, and (ii) with respect to incurred but not reported claims
payable to Providers who or which do not have such a written agreement,
such claims are presented for payment to the Company or its processing
agent prior to the expiration of the Incurred Claims Run-Out Period.
Incurred Claims: IBNR Claims and/or IBNP Claims; provided,
however, that Incurred Claims shall not include Provider claims
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<PAGE> 3
(including claims for vision services) which are adjudicated,
processed, or paid by the Company on behalf of capitated providers who
were at the applicable time financially at risk for such Provider
claims, irrespective of the dates of service of such Provider claims;
provided, further, however, that with respect to Incurred Claims which
relate to the provision of Covered Services (e.g., in-patient hospital
stays, stays in skilled nursing facilities, or physical therapy) for a
period of time which includes both (i) Covered Services on or before
the Final Balance Sheet Date and (ii) Covered Services furnished after
the Final Balance Sheet Date, Seller will only be responsible for the
Incurred Claim to the extent that it relates to services or treatment
furnished or rendered on or before the Final Balance Sheet Date,
notwithstanding any provision to the contrary contained in this
Agreement, and the remainder of such claim will be the responsibility
of the Company.
Incurred Claims Run-Out Period: The eighteen (18) month period
following the Closing Date."
1.6 The Stock Purchase Agreement is amended by replacing the defined
term "IBNR Claim(s)" with the newly defined term "Incurred Claim(s)" in each
instance where the former term appears in the Stock Purchase Agreement.
1.7 The Stock Purchase Agreement is amended by replacing the defined
term "IBNR Claims Run-Out Period" with the newly defined term "Incurred Claims
Run-Out Period" in each instance where the former term appears in the Stock
Purchase Agreement.
1.8 Section 1.1 of the Stock Purchase Agreement is amended by
deleting the final sentence in the definition of "Preliminary Balance Sheet" in
its entirety and substituting the following sentence therefor:
"The Preliminary Balance Sheet will be based on the unaudited balance
sheet of the Company as of August 31, 1998."
1.9 Section 2.2 (a) of the Stock Purchase Agreement is deleted
in its entirety and the following provisions are substituted therefor:
"(a) Execution Date. Concurrent with the execution of this
Agreement by the parties, Buyer shall tender the Deposit to Seller. The
Deposit shall not be refundable for any reason except in the event of a
failure to complete and consummate the purchase and sale of the Shares
under this Agreement due solely to Seller's material breach of this
Agreement. In the event that the Deposit does become refundable, Seller
shall return the Deposit to Buyer, together with interest which has
accrued thereon at the Interest Rate from the date of the Deposit's
receipt
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<PAGE> 4
through the date of the Deposit's return. Notwithstanding the
foregoing, in the event that the sale of the Shares to Buyer is
consummated as contemplated under this Agreement, then Seller shall (i)
deliver to the Company the Deposit, for the benefit and account of
Buyer and for the purpose of funding the Elan Subordinated Loan , and
(ii) tender to Buyer the interest which has accrued on the Deposit at
the Interest Rate from the date of the Deposit's receipt by Seller
through the date of the Deposit's delivery to the Company."
1.10 Section 3.5 of the Stock Purchase Agreement is amended by
adding the following sentence at the end of such provision:
"Notwithstanding the foregoing, when the certificate representing the
Shares is delivered to Buyer, it shall contain the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED, HYPOTHECATED, OR OTHERWISE
DISPOSED OF UNTIL THE COMPANY HAS PAID IN FULL: (i) THAT CERTAIN
SUBORDINATED SURPLUS CONTRIBUTION NOTE, IN THE ORIGINAL PRINCIPAL
AMOUNT OF SEVEN HUNDRED THOUSAND DOLLARS ($700,000), DATED AS OF
SEPTEMBER 30, 1998, EXECUTED BY PACIFICARE OF UTAH, INC. TO THE ORDER
OF PACIFICARE HEALTH SYSTEMS, INC., OR ANY OTHER PROMISSORY NOTE,
AGREEMENT, OR INSTRUMENT WHICH AMENDS, RESTATES, CONSOLIDATES,
SUBSTITUTES FOR, REPLACES, OR SUPERSEDES SAID ORIGINAL SUBORDINATED
SURPLUS CONTRIBUTION NOTE; AND (ii) THAT CERTAIN SUBORDINATED SURPLUS
CONTRIBUTION NOTE, IN THE ORIGINAL PRINCIPAL AMOUNT OF FIVE HUNDRED
THOUSAND DOLLARS ($500,000), DATED AS OF SEPTEMBER 30, 1998, EXECUTED
BY PACIFICARE OF UTAH, INC. TO THE ORDER OF ELAN HEALTH PARTNERS LLC,
OR ANY OTHER PROMISSORY NOTE, AGREEMENT, OR INSTRUMENT WHICH AMENDS,
RESTATES, CONSOLIDATES, SUBSTITUTES FOR, REPLACES, OR SUPERSEDES SAID
ORIGINAL SUBORDINATED SURPLUS CONTRIBUTION NOTE."
The above legend also shall appear on all unissued share certificates."
1.11 Section 5.7 of the Stock Purchase Agreement is amended by
deleting the second sentence thereof in its entirety.
1.12 Section 8.2 of the Stock Purchase Agreement is amended by
deleting Paragraph (f) in its entirety and substituting the following paragraph
therefor:
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<PAGE> 5
"(f) Resignation of the Company's Officers and Directors. The
written resignations of all of the officers and members of the Board of
Directors of the Company, effective on or before the Closing Date,
except for the resignation of Irene Sweeney from the Board of
Directors; provided, however, that, before the Closing, Irene Sweeney
shall have been removed from the Board of Directors by an action of the
sole shareholder of the Company."
1.13 Section 8.2 of the Stock Purchase Agreement is amended by
adding a new Paragraph (g) as follows:
"(g) The Deposit. (i) The Deposit shall be delivered to the
Company for the benefit and the account of Buyer and for the purpose of
funding the Elan Subordinated Loan; and (ii) the interest which has
accrued on the Deposit at the Interest Rate from the date of the
Deposit's receipt by Seller through the date of the Deposit's delivery
to the Company shall be paid to Buyer."
1.14 Section 10.5 of the Stock Purchase Agreement is amended by
deleting the phrase "Accounts Receivable" in clause (ii) thereof and
substituting the phrase "Selected Accounts Receivable" therefor.
1.15 Article 10 of the Stock Purchase Agreement is amended by adding
a new Section 10.11 as follows:
"10.11 Buyer's Cooperation. Buyer shall use reasonable good
faith efforts, and shall cause the Company to use reasonable good faith
efforts to, cooperate with Seller in the resolution or other
disposition of any Excluded Liabilities or other matters pertaining to
the pre-closing operations of the Company for which Seller has assumed
financial or other responsibility under the terms of this Agreement.
Buyer shall use reasonable good faith efforts to cause the Company to
make available reasonable resources and personnel to assist Seller in
the resolution or disposition of all such matters. In the event that
the Company receives cash payment on any receivables (including
refunds) or other outstanding amounts which are Excluded Assets, Buyer
shall cause the Company to remit such payments or amounts to Seller,
without deduction or offset of any kind. In addition, Buyer
acknowledges that Seller may be entitled to certain refunds resulting
from overpayments to specialist Providers (the "Specialist
Overpayments") and that Seller shall be entitled to any refunds or
other amounts, if any, which are recoverable in respect to the
disposition of the Incurred Claims, including, without limitation,
refunds owed to the Company by Providers, amounts recoverable from
voided checks or stop payment orders, amounts recoverable due to the
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<PAGE> 6
Company's subrogation rights, and amounts recoverable from Third
Parties as a result of coordination of benefits. Buyer shall cause any
cash amounts which are received or recovered by, or in the name of, the
Company in respect to the Specialist Overpayments or other items
referenced in the foregoing sentence in respect of the Incurred Claims
to be remitted to Seller, without deduction or offset of any kind.
Buyer shall cause the Company to use reasonable good faith efforts to
cooperate in the collection of Specialist Overpayments. If Seller
requests Buyer to cause the Company to deduct and offset any Specialist
Overpayments from payments which will become due to these specialist
Providers from the Company after Closing, then Buyer shall reasonably
consider such request, based upon the information then available to
Buyer and the Company (including the effect, in Buyer's reasonable
judgement, that taking such action will have upon Buyer's relationships
with the applicable specialist Providers), and make a reasonable
determination of the appropriateness of taking such action. In the
event that Buyer does cause the Company to offset and deduct the
Specialist Overpayments from amounts owed to these specialist Providers
by the Company, then the Company shall promptly remit any deducted or
offset Specialist Overpayment to Seller, less twenty percent (20%) of
such deducted or offset Specialist Overpayment which the Company is
entitled to retain."
1.16 Article 10 of the Stock Purchase Agreement is amended by adding
a new Section 10.12 as follows:
"10.12 Irene Sweeney Consideration. Buyer shall cause the
Company to honor the contractual arrangements, if any, which the
Company may have with Irene Sweeney, as disclosed in the Action by
Written Consent of Ad Hoc Committee of Employee Directors of the Board
of Directors of FHP International Corporation, effective on or about
July 1, 1994, that survive the Closing and her removal from the
Company's Board of Directors, including rights that Ms. Sweeney may
have to continuation of health or other benefits of the Company. In the
event that the Company determines that Ms. Sweeney shall continue to
receive a cash stipend after the Closing and after her removal from the
Company's Board of Directors, then Seller shall reimburse the Company
for the cash stipend paid to Ms. Sweneey during the twenty-four (24)
month period following the Closing."
1.17 Section 11.2(b) of the Stock Purchase Agreement is
amended by deleting clause (i)(b) in its entirety and substituting the following
clause therefor:
"(b) Claims arising from the operations of the Company after the
Closing Date, including from the Company's failure to pay, as and when
due, the Included Liabilities and including the Company's use after the
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<PAGE> 7
Closing Date of software systems or applications (including
off-the-shelf or shrink-wrap software) which are licensed to the
Company in violation of applicable license agreements;"
1.18 Section 11.3(b) of the Stock Purchase Agreement is amended by
deleting the first sentence thereof and substituting the following provisions
therefor:
"In conjunction with the OPM Indemnification and in consideration
thereof, the Company agrees to assign to Seller or PHS the right to
receive and the power to pursue any amount which may be payable by
FEHBP to the Company as a result of (i) an overpayment by the Company
to FEHBP relating to an OPM Defective Price which relates to the OPM
Indemnification Period, (ii) an overpayment to the OPM contingency fund
which relates to the OPM Indemnification Period, (iii) an overpayment
determined as a result of a voluntary rate reconciliation which relates
to the OPM Indemnification Period, or (iv) any other type of
overpayment determined to have been made to the FEHBP which relates to
the OPM Indemnification Period (the "OPM Assignment"). To effect the
OPM Assignment, the Company shall execute the OPM Assignment Agreement
prior to, or contemporaneously with, the Closing."
2. Capitalized Terms. Any capitalized terms used in this Second
Amendment which are not defined herein shall have the meanings ascribed to those
terms in the Stock Purchase Agreement.
3. Effect of this Second Amendment. The amendment to Section 2.2(a)
contained in this Second Amendment shall supersede the amendment to Section
2.2(a) contained in the First Amendment. Except as amended by the First
Amendment and this Second Amendment, the Stock Purchase Agreement shall not be
further amended, modified, or revised and the Stock Purchase Agreement, as
hereby and heretofore amended, shall continue in full force and effect and shall
be enforced in accordance with its terms and conditions. The Stock Purchase
Agreement may only be further amended, modified, revised, or supplemented by a
dated written instrument executed by Buyer and Seller.
4. Integrated Agreement. This Second Amendment constitutes the final
written integrated expression of all of the agreements between Buyer and Seller
with respect to those matters addressed herein and is a complete and exclusive
statement of those terms. This Second Amendment supersedes all prior or
contemporaneous, written or oral, memoranda, arrangements, contracts, and
understandings between
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Buyer and Seller relating to the subjects addressed herein. Any representations,
promises, warranties, or statements made by any party which differ in any way
from the terms of this Second Amendment shall be given no force or effect.
5. Severability. In the event that any provision in this Second
Amendment shall be found by a court or Governmental Authority 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 Second Amendment shall not in any way be affected
or impaired thereby.
6. Governing Law. This Second Amendment shall be governed by and
construed in accordance with the internal laws of the State of Utah and Federal
law where state law is pre-empted or applicable, without regard to principles of
conflicts of law.
7. Successors and Assigns. This Second Amendment shall be binding upon
the parities hereto and their respective successors, successors-in-interest,
transferees, and assigns. However, Buyer may not assign its rights or delegate
its duties or obligations under this Second Amendment, whether voluntarily,
involuntarily, or by operation of law, without the prior written consent of
Seller.
8. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be considered one and the same agreement
IN WITNESS WHEREOF, Buyer and Seller have executed this Second
Amendment as of the date first written above.
BUYER: ELAN HEALTH PARTNERS LLC,
a Utah limited liability company
By: /s/ VAL H. CHRISTENSEN
------------------------------------
Title: Manager
---------------------------------
SELLER: PACIFICARE HEALTH PLAN ADMINISTRATORS,
INC., Indiana corporation
By: /s/ JEFF FOLICK
------------------------------------
Title: President
---------------------------------
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[LETTERHEAD]
NEWS RELEASE
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<S> <C> <C>
Contact: Dee Brewer Ben Singer David K. Erickson
Altius & PacifiCare of Utah Media Relations Investor Relations
(801) 532-5242 PacifiCare Health Systems PacifiCare Health Systems (801)
933-3500 (714) 825-5120 (714) 825-5491
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FOR IMMEDIATE RELEASE
PACIFICARE HEALTH SYSTEMS COMPLETES
SALE OF ITS UTAH OPERATIONS
SANTA ANA, CALIF., OCTOBER 2, 1998--PacifiCare Health Systems, Inc. (Nasdaq:
PHSYA and PHSYB) today announced it has completed the sale of its Utah
operations to a Salt Lake City-based company effective September 30, 1998. The
health plan's new name will be Altius Health Plans.
The transaction has received all state regulatory approval. The sale of
the Utah operations is expected to result in a $10-$15 million loss on
disposition which will be included in the results for the quarter ended
September 30, 1998.
Altius Health Plans will provide managed health insurance plans for the
125,000 members of PacifiCare of Utah and will honor PacifiCare's contracts with
local physicians and hospitals.
"We are pleased that the agreement has been finalized," said Alan
Hoops, president and CEO of PacifiCare Health Systems. "Altius's management team
has a unique understanding of the Utah health care market which will well serve
members, contracted physicians and employer groups."
PacifiCare acquired the Utah health plan in February 1997 as part of
its purchase of FHP International. Last November, the company announced its
intent to exit its Utah operations and has since announced its intent to exit
the Medicare product line in the state.
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PHS UTAH
2-2-2
PacifiCare Health Systems is one of the nation's leading managed health
care services companies. Primary operations include managed care products for
employer groups and Medicare beneficiaries in 9 states and Guam serving
approximately 3.5 million members. Other specialty managed care operations
include life and health insurance, behavioral health services, workers'
compensation, dental and vision services, pharmacy benefit management and
Medicare risk management services.
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