UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
FOHP, Inc.
(Name of Issuer)
Convertible Subordinated Surplus Debentures, convertible into
Common Stock, par value $.01 per share,
and Common Stock, par value $.01 per share
(Title of Class of Securities)
-[Not Applicable]-
(CUSIP Number)
Michael E. Jansen, Esq.
Foundation Health Systems, Inc.
225 North Main Street
Pueblo, CO 81003
(719) 542-0500
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
Copy to:
Mark J. Mihanovic
McDermott, Will & Emery
2049 Century Park East, 34th Floor
Los Angeles, CA. 90067
(310) 277-4110
April 30, 1997
(Date of Event which Requires Filing of this Statement)
Check the following box if a fee is being paid with the statement. / /
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent of
the class of securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent or less of
such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
SCHEDULE 13D
CUSIP No. Not Applicable
_____________________________________________________________________________
1 NAMES OF REPORTING PERSONS S.S. OR
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Foundation Health Systems, Inc. (IRS Identification No. 95-4288333)
_____________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
_____________________________________________________________________________
3 SEC USE ONLY
_____________________________________________________________________________
4 SOURCE OF FUNDS
BK; WC
_____________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
_____________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_____________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF SHARES
BENEFICIALLY 5,109,158 shares of Common Stock, par value $.01 per share
OWNED BY (4,941,049 shares of which are issuable upon conversion of
EACH convertible debentures)<F1>
REPORTING 8 SHARED VOTING POWER
PERSON
WITH: -0-
9 SOLE DISPOSITIVE POWER
5,109,158 shares of Common Stock, par value $.01 per share
(4,941,049 shares of which are issuable upon conversion of
convertible debentures)<F1>
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,109,158 shares of Common Stock, par value $.01 per share (4,941,049 shares
of which are issuable upon conversion of convertible debentures)<F1>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES / /
_____________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
71%
_____________________________________________________________________________
14 TYPE OF REPORTING PERSON
CO
_____________________________________________________________________________
<F1> The Convertible Subordinated Surplus Debentures held by Foundation
Health Systems, Inc. ("FHS") are convertible into such number of shares
as (taken together with the 168,109 shares currently owned by FHS) are
equal to 71 percent of the total equity of FOHP, Inc. at the time of
such conversion. The number of shares of Common Stock is based on the
current number of shares of Common Stock currently outstanding. If the
number of shares of Common Stock currently outstanding changes, then the
number of shares of Common Stock to be issued upon conversion of
convertible debentures will change.
STATEMENT PURSUANT TO RULE 13D-1
OF THE
GENERAL RULES AND REGULATIONS
UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Item 1. Security and Issuer
The securities to which this statement relates are the Convertible
Subordinated Surplus Debentures (the "FOHP Debentures"), convertible into
common stock, par value $.01 per share (the "Common Stock"), of FOHP, Inc., a
New Jersey corporation (the "Company") with principal executive offices
located at 2 Bridge Avenue, Red Bank, New Jersey 07701. (A copy of such FOHP
Debentures is attached hereto as Exhibit A.)
Item 2. Identity and Background
This statement is filed by Foundation Health Systems, Inc., a
Delaware corporation ("FHS") with principal executive offices located at
21600 Oxnard Street, Woodland Hills, California 91367, (818) 719-6978. FHS
is a managed health care company with health maintenance organization,
insured preferred provider organization and government contracts subsidiaries
providing health benefits to nearly 5,000,000 individuals in 17 states
through group, individual, Medicare, Medicaid and CHAMPUS programs.
Schedule I hereto sets forth information with respect to the
identity and background of each director and executive officer of FHS.
During the last five years, neither FHS nor, to the best knowledge
of FHS, any person identified on Schedule I has (a) been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(b) been a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction as a result of which FHS or such person, as the
case may be, was or a subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to
such laws.
To the best knowledge of FHS, all persons identified on Schedule I
are United States citizens.
Item 3. Source and Amount of Funds or other Consideration
The source of the funds paid to FOHP at the closing of the
transaction was borrowings by FHS under a credit facility issued by a
consortium of commercial banks led by Bank of America, National Trust &
Savings Association and working capital of FHS. The aggregate amount of the
FOHP Debentures is $51,701,120.38, of which $50 million was advanced by FHS
to the Company at closing. The remaining $1,701,120.38 reflects fees paid to
FHS by the Company for certain management services provided by FHS prior to
the closing of the sale of the FOHP Debentures; such principal amount was
immediately converted into 168,109 shares of Common Stock.
Item 4. Purpose of Transaction
FHS acquired the FOHP Debentures as an investment and not with the
purpose of changing control of the Company. FHS will review on a continuing
basis its investment in the Company, including the Company's business,
financial condition and operating results and general market and industry
conditions and, based on such review, may choose to exercise its conversion
rights pursuant to the FOHP Debentures.
FHS has the right, under the Amended and Restated Securities
Purchase Agreement (a copy of which is attached hereto as Exhibit B), dated
February 10, 1997, among FHS, the Company and First Option Health Plan of New
Jersey, a New Jersey corporation and a wholly-owned subsidiary of the
Company, and amended by an Amendment (a copy of which is attached hereto as
Exhibit C) dated March 13, 1997 (as so amended, referred to herein as the
"Amended Purchase Agreement"), to advance funds to the Company in exchange
for additional convertible debentures, in form substantially similar to the
FOHP Debentures, in order to satisfy any shortfall (referred to herein as
"Net Capital Shortfall") in the Company's net worth and statutory surplus in
relation to the net worth requirements applicable thereto as defined by the
New Jersey Department of Banking and Insurance and the New Jersey Department
of Health and Senior Services. FHS and the Company have agreed that up to
$5,000,000 will be advanced by December 31, 1997 to the Company in order to
satisfy existing obligations of the Company, and that such amount shall be
treated as Net Capital Shortfall. FHS will receive additional convertible
debentures, in substantially the same form as the FOHP Debentures, in
exchange for such advancement of funds.
The Amended Purchase Agreement also provides that, at any time
during the 1999 calendar year, FHS may acquire the remaining shares of Common
Stock not then owned thereby pursuant to a tender offer, merger, combination
or other business combination transaction for consideration (to be paid in
cash or FHS stock) equal to the value of such Common Stock based on appraiser
determinations. FHS has not made a determination as to whether it will so
acquire such remaining shares of Common Stock.
The FOHP Debentures provide that FHS shall have the right to name
such number of directors (the "FHS Designees") of the Board of Directors of
the Company (the "Company Board") as constitutes no less than 15 percent of
the directors on the Company Board. The Amended and Restated Bylaws of the
Company (a copy of which is attached hereto as Exhibit D) (the "Company
Bylaws") provide that FHS shall also have the right to name FHS Designees as
reflects such greater percentage of the directors on the Company Board as is
equal to the percentage ownership by FHS of all outstanding Common Stock in
the event such percentage exceeds 15 percent.
Pursuant to the General Administrative Management Services
Agreement, dated April 30, 1997, between the Company and FHS (a copy of which
is attached hereto as Exhibit E) and the Management Information Systems and
Claims Processing Services Management Agreement, dated April 30, 1997 (a copy
of which is attached hereto as Exhibit F), FHS will also provide a variety of
management services to the Company, including provider contracting,
utilization review and quality assurance, employee relations, sales and
marketing and strategic planning. FHS, at its option, may also provide
information systems and claims processing services to the Company.
FHS may change its intentions or take any other action with respect
to the Company or any of its debt or equity securities in any manner
permitted by law. Except as described herein, FHS has no current plans which
relate or would result in any of the events described in Sections (a) through
(j) of the instructions to this Item 4 of Schedule 13D.
Item 5. Interest in the Securities of the Issuer
a) FHS owns 168,109 shares of Common Stock and FOHP Debentures
convertible into such number of shares of Common Stock as will result in FHS
owning, at the time of such conversion and including such 168,109 shares of
Common Stock, 71 percent of the then-outstanding shares of Common Stock (on a
fully-diluted basis, taking into account the conversion of the principal
amount of the FOHP Debentures, the conversion of all other securities
convertible into shares of Common Stock, the exercise of all warrants and
options exercisable for shares of Common Stock and such partial conversion of
the principal amount of the FOHP Debentures). Based on the number of shares
of Common Stock currently outstanding, FHS would be entitled to convert such
FOHP debentures into 4,941,049 shares of Common Stock.
b) The responses to Items 7-11 of the cover page of this Schedule
13D relating to beneficial ownership of Common Stock are incorporated herein
by reference.
c) As described in Item 4 hereof, on April 30, 1997, FHS
purchased the FOHP Debentures in the aggregate principal amount of
approximately $51.7 million. Such FOHP Debentures are convertible, at the
option of FHS, into such number of shares as will, taken together with the
168,109 already owned by FHS, equal an aggregate of 71 percent of the
outstanding Common Stock.
Other then as so described, neither FHS nor, to the best knowledge
of FHS, any person identified on Schedule I hereto has affected any other
transaction with respect to the Common Stock or the FOHP Debentures within
the last 60 days.
d) Not applicable.
e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
The Investors Agreement, dated April 30, 1997, between FHS and the
Company (a copy of which is attached hereto as Exhibit G) provides, among
other things, that FHS agrees that all individuals nominated to the Company
Board other than FHS Designees shall be nominated by directors on the Company
Board who are not FHS Designees. FHS also has agreed under the Investors
Agreement to not vote any of its shares of Common Stock for any nominees to
the Company Board who are not either FHS designees or nominees of the
directors on the Company Board who are not FHS Designees.
Except as described in Items 4 and 6 hereof, FHS has not entered
into contracts, arrangements, understandings or relationships described in
the instructions to this Item 6 of Schedule 13D.
Item 7. Material to be filed as Exhibits.
Exhibit A: The Convertible Subordinated Surplus Debentures of the
Company, purchased by FHS, and dated April 30, 1997.
Exhibit B: The Amended and Restated Securities Purchase Agreement, dated
February 10, 1997, among FHS, the Company and FOHP-NJ.
Exhibit C: Amendment to the Amended Purchase Agreement, dated as of March
13, 1997, among FHS, the Company, and FOHP-NJ.
Exhibit D: Amended and Restated Bylaws of FOHP, Inc.
Exhibit E: The General Administrative Management Agreement dated April
30, 1997, among FHS, the Company and FOHP-NJ.
Exhibit F: The Management Information Systems and Claims Processing
Services Management Agreement among FHS, the Company and FOHP-
NJ.
Exhibit G: The Investor's Agreement, entered into among FHS, the Company
and FOHP-NJ.
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Foundation Health Systems, Inc.
/s/ Michael E. Jansen
By: Michael E. Jansen, Esq.
Title: Vice President, Assistant Secretary
and Assistant General Counsel
SCHEDULE I
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF
FOUNDATION HEALTH SYSTEMS, INC.
The directors and executive officers of Foundation Health Systems, Inc.
are identified in the tables below. The business address of each person
listed below is 21600 Oxnard Street, Woodland Hills, CA. 91367
DIRECTORS
NAME PRESENT PRINCIPAL
OCCUPATION BUSINESS ADDRESS
Malik M. Hasan, Chairman of the c/o Foundation
M.D. Board and Chief Health
Executive Officer of Systems, Inc.
FHS 21600 Oxnard Street,
Woodland Hills, CA.
91367
Daniel Crowley Former Chairman of c/o Foundation
FHS Health Systems, Inc.
3400 Data Drive
Rancho Cordova, CA.
95670
Patrick Foley Chairman, President DHL Airways, Inc.
and Chief Executive 333 Twin Dolphin
Officer of DHL Drive
Airways Redwood City, CA.
94065
Earl B. Fowler President of Fowler Fowler International
International Corporation
Corporation Crystal Park III
2231 Crystal Drive
Suite 500
Arlington, VA. 22202
Richard W. Hanselman Consultant 3017 Poston Avenue
Nashville, TN. 37203
Richard J. Chairman Emeritus of Unocal Corporation
Stegemeier Unocal Corporation 376 Valencia Avenue
Brea, CA. 92621
Raymond S. Troubh Financial Consultant 10 Rockefeller Plaza
Suite 172
New York, NY. 10020
J. Thomas Bouchard Senior Vice I.B.M.
President, Human One Old Orchard Road
Resources of Mail Drop 326
International Armonk, NY. 10504
Business Machines
Corporation
George Deukmejian Partner, Sidley & Sidley & Austin
Austin 555 West Fifth
Street
40th Floor
Los Angeles, CA.
90013
Thomas T. Farley Senior Partner, Petersen, Fonda,
Petersen, Fonda, Farley, Mattoon,
Farley, Mattoon, Crockenberg and
Crockenberg and Garcia, P.C.
Garcia, P.C. 650 Thatcher
Building
Pueblo, CO. 81003
Roger F. Greaves Consultant 24021 Alder Place
Calabasas, CA. 91302
EXECUTIVE OFFICERS
NAME PRESENT PRINCIPAL BUSINESS ADDRESS
OCCUPATION
Malik M. Hasan, Chairman and Chief c/o Foundation
M.D. Executive Officer Health
Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA 91367
Jay M. Gellert President and Chief c/o Foundation
Operating Officer Health
Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA 91367
Jeffrey L. Elder Senior Vice c/o Foundation
President and Chief Health
Financial Officer Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA
91367
Kirk A. Benson Senior Vice c/o Foundation
President Health
Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA
91367
Dale T. Berkbigler, Executive Vice c/o Foundation
M.D. President of Medical Health
Affairs and Chief Systems, Inc.
Medical Officer 21600 Oxnard
Street, Woodland
Hills, CA
91367
Allen J. Marabito, Senior Vice c/o Foundation
Esq. President and Health
General Counsel Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA
91367
B. Curtis Westen, Senior Vice c/o Foundation
Esq. President, General Health
Counsel and Systems, Inc.
Secretary 21600 Oxnard
Street, Woodland
Hills, CA
91367
Douglas C. Werner Acting President of c/o Foundation
FHS Eastern Division Health
Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA
91367
Arthur M. Southam, President of FHS c/o Foundation
M.D. California Division Health
Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA
91367
Michael D. Pugh President of FHS c/o Foundation
Western Division Health
Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA 91367
Garry Garrison President of FHS c/o Foundation
Specialty Services Health
Division Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA 91367
Maurice Costa President of FHS c/o Foundation
Workers' Health
Compensation Systems, Inc.
Division 21600 Oxnard
Street, Woodland
Hills, CA 91367
Gary Velasquez President of FHS c/o Foundation
Government Health
Operations Division Systems, Inc.
21600 Oxnard
Street, Woodland
Hills, CA 91367
EXHIBIT A EXECUTION COPY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SUCH ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
FOHP, INC.
CONVERTIBLE SUBORDINATED SURPLUS DEBENTURES
April 30, 1997
FOHP, Inc., a New Jersey corporation (the "Company"), for value received,
promises to pay to Foundation Health Systems, Inc., a Delaware corporation
formerly known as "Health Systems International, Inc." ("FHS"), or its
registered assigns, the aggregate principal sum (such aggregate principal sum
being referred to herein as the "Principal Amount") of (i) the sum (such sum
being referred to herein as the "Initial Principal Amount") of (A) $50,000,000
plus (B) the "Phase-In Period Management Fee Amount" (as such term is defined in
Section 4.2(a) of the General Administrative Services Management Agreement,
dated the date hereof, between the Company and FHS) of $1,701,120.38, (ii) the
aggregate amount of Defaulted Interest (as such term is defined in Section 1
hereof), (iii) the aggregate amount of Unpaid Management Fees (as such term is
defined in Section 5.1 hereof) and Indemnification Obligations (as such term is
defined in Section 5.2 hereof), (iv) such other amounts as shall become
additional Principal Amounts pursuant to the terms hereof and (v) accrued and
unpaid interest on the amounts set forth in clauses (i) through (iv) above. The
Principal Amount hereof, and the interest thereon, shall be payable at the main
office of the Company or by mail to the registered address of the holder hereof
on April 30, 2002 (the "Maturity Date"), subject to the provisions set forth in
Section 4 hereof. No such payment shall be required to the extent that such
Principal Amount and interest is or has been converted into Conversion Shares
(as such term is defined in Section 2 hereof) under the terms of the Debentures
evidenced by this instrument (the "Debentures").
These Debentures have been issued pursuant to the Amended and Restated
Securities Purchase Agreement, dated February 10, 1997, as amended by an
Amendment dated as of March 13, 1997, among FHS, the Company and First Option
Health Plan of New Jersey, Inc., a New Jersey corporation and a wholly-owned
subsidiary of FOHP ("FOHP-NJ") (referred to herein, as so amended, as the
"Purchase Agreement"). FHS and the Company have also entered into (i) the
General Administrative Services Management Agreement (the "Administrative
Management Agreement") and (ii) the Management Information Systems and Claims
Processing Services Management Agreement (together, with the Administrative
Management Agreement, referred to herein, collectively, as the "Management
Agreements") each dated April 30, 1997.
The following is a statement of the rights of the holder hereof and the
conditions to which these Debentures are subject, and to which the holder
hereof, by the acceptance hereof, agrees:
1. Interest. The Principal Amount hereof shall bear interest at an
annual rate equal to the rate charged to FHS under its credit facility (the "BA
Facility") issued by a consortium of commercial banks led by Bank of America,
National Trust & Savings Association or such credit facility as is used to
refinance the BA Facility (the "Rate"), which Rate shall be subject to
adjustment at the beginning of each calendar quarter and shall become due and
payable, subject to the provisions of Section 4.1(b) hereof, with respect to any
given calendar quarter within 10 days after the end of such quarter. Any such
interest not paid when due and payable shall be considered "Defaulted Interest"
and shall be included in the Principal Amount hereunder.
2. Conversion.
(a) The Initial Principal Amount in its entirety shall be convertible
at any time on or before the Maturity Date, at the option of FHS or any
subsequent holder hereof, into such number of shares (referred to herein as
"Conversion Shares") of common stock, par value $.01 per share ("Common Stock"),
of the Company as is equal to 71 percent of the total equity of the Company (or
5,109,158 shares given the 2,086,839 shares currently outstanding) as of the
date hereof (as such total equity may be increased from time to time to reflect
any securities issued pursuant to Section 6.2 of, or otherwise expressly
contemplated to be issued under, the Purchase Agreement) on a fully-diluted
basis (i.e., taking into account the conversion of such Initial Principal
Amount, the conversion of all other securities convertible into shares of Common
Stock and the exercise of all warrants and options exercisable for shares of
Common Stock).
(b)(i) Any and all portions of the Principal Amount other than the
Initial Principal Amount shall be convertible into such number of Conversion
Shares at any time prior to or on the Maturity Date (such conversion ratio being
referred to herein as the "Conversion Ratio") which will equal, for each
$1,000,000 of Principal Amount so converted, an additional 1.42 percent of the
total equity of the Company, as of the date hereof (as such total equity may be
increased from time to time to reflect any securities issued pursuant to Section
6.2 of, or otherwise expressly contemplated to be issued under, the Purchase
Agreement) on a fully-diluted basis (i.e., taking into account the conversion of
the Initial Principal Amount, the conversion of all other securities convertible
into shares of Common Stock, the exercise of all warrants and options
exercisable for shares of Common Stock, and such partial conversion of such
Principal Amount).
(ii) Consistent with Section 2(a) hereof, the Initial Principal
Amount shall be convertible, in part, at any time on or before the Maturity
Date, at the option of FHS or any subsequent holder hereof, into such number of
Conversion Shares which will equal, for each $1,000,000 of Initial Principal
Amount so converted, an additional percentage (which is the percentage
calculated by multiplying (A) 1.42 percent by (B) a fraction (I) the numerator
of which is 50,000,000 and (II) the denominator of which is 51,701,120.38) of
the total equity of the Company, as of the date hereof (as such total equity may
be increased from time to time to reflect any securities issued pursuant to
Section 6.2 of, or otherwise expressly contemplated to be issued under, the
Purchase Agreement) on a fully-diluted basis (i.e., taking into account such
partial conversion of the Initial Principal Amount and the conversion of the
remainder of such Initial Principal Amount, the conversion of all other
securities convertible into shares of Common Stock and the exercise of all
warrants and options exercisable for shares of Common Stock).
(c) The Company hereby represents and warrants that each of the
foregoing numbers of Conversion Shares into which these Debentures are
convertible shall represent the respective percentages of total equity of the
Company as set forth in this Section 2. In the event of any inaccuracy in the
representation and warranty of the Company set forth in this Section 2 or any
subsequent issuance of securities by the Company without the consent of the
holder hereof in contravention of the terms hereof, the number of shares of
Common Stock into which the Principal Amount hereof is convertible shall be
increased such that the conversion rights of the holder hereof as of the date
hereof on a fully-diluted basis takes into account the facts giving rise to such
misrepresentation or, unless the Purchaser shall have previously made a claim
for indemnification or declared an event of default under the Purchase Agreement
or these Debentures on the basis of such issuance, the shares so issued by the
Company, as the case may be.
(d) In order to exercise its conversion rights provided under the
terms of this Section 2, the holder hereof will surrender these Debentures,
together with a notice of conversion indicating the portion of the Principal
Amount converted into Conversion Shares substantially in the form attached
hereto as Exhibit A, to the Company at any time during usual business hours at
its office at 2 Bridge Avenue, Building 6, Red Bank, New Jersey 07701-1106,
Attention: President (or at such other address as the Company may designate
from time to time by written notice to the holder). FHS shall also provide to
the New Jersey Department of Banking and Insurance (the "New Jersey Department")
at least three days advance written notice of such conversion right exercise or
the consummation of any other transaction, in either case which would result in
FHS owning greater than 10 percent of the then-issued and outstanding Common
Stock at such time.
3. Issuance of Stock on Conversion.
3.1 Delivery of Certificates. These Debentures shall have been
deemed to have been surrendered for conversion and converted at the close of
business on the date on which these Debentures and notice of conversion from the
holder hereof are received by the Company, and on such receipt the Company will
issue and deliver at its sole expense, as soon as practicable after such date, a
certificate or certificates of its Common Stock evidencing the number of shares
into which these Debentures have been converted to the holder hereto.
3.2 Lost Certificates. In the event such certificate or certificates
are lost, mutilated or destroyed, such certificate or certificates may be
replaced, provided notice is submitted by the holder of such certificate or
certificates, along with any other required supporting documentation.
3.3 No Fractional Shares. No fractional shares shall be issued on
conversion hereof. If upon any conversion of these Debentures the holder hereof
would be entitled to recover a fraction of a share of Common Stock, such
fraction of a share shall be rounded up or down, as the case may be, to the
nearest whole number of shares of Common Stock.
3.4 Adjustment upon Changes in Capitalization. In the event of any
change in Common Stock by reason of a stock dividend, stock split, merger,
recapitalization, combination, exchange of shares, issuer tender offer or share
repurchase or other similar transaction, the type and number of shares or
securities into which the Debentures is convertible shall be adjusted
appropriately.
4. Ranking of Debentures.
4.1 Obligation to Repay.
(a) The obligation of the Company to repay the Principal Amount
and accrued interest under these Debentures shall be subordinated to all
other indebtedness of the Company and its subsidiaries.
(b) (i) No payments shall be made, in respect of all or any
portion of the Principal Amount or interest thereon, except with the prior
approval of the New Jersey Department. Such approval may not be withheld if
the Company or FHS provides the New Jersey Department with notice at least
10 business days in advance of any such payments that FOHP-NJ's statutory
surplus exceeds 125 percent of FOHP-NJ's minimum net worth requirement,
unless the New Jersey Department reasonably determines that FOHP-NJ's
financial condition would be impaired as a result of such payment. The
Principal Amount shall be suspended and shall not mature to the extent
FOHP-NJ's net worth, as determined by the New Jersey Department, is
inadequate to make interest payments on these Debentures.
(ii) It is acknowledged by the parties that only the Initial
Principal Amount shall initially be considered statutory surplus under
relevant regulations promulgated by the New Jersey Department, and any
additional amounts of the Principal Amount shall be considered such
statutory surplus only upon the approval of the New Jersey Department.
4.2 Bankruptcy, Dissolution and Liquidation. Upon any bankruptcy,
dissolution or liquidation of the Company, these Debentures shall thereupon be
deemed to be converted into Conversion Shares and shall thereupon be treated as
pari passu with then-outstanding shares of capital stock of the Company.
4.3 No Impairment. Nothing contained in this Section 4 shall impair,
as between the Company and the holder hereof, the obligation of the Company,
which is absolute and unconditional, to pay to the holder hereof the Principal
Amount and interest thereon (except to the extent these Debentures are converted
into Conversion Shares).
5. Additional Principal.
5.1 Unpaid Management Fees. In the event any of the amounts due and
payable to FHS under the Administrative Management Agreement are not paid when
due (other than as a direct result of the actions of FHS under the Management
Agreements), such amounts (referred to herein as the "Unpaid Management Fees")
may, at the option of the holder hereof by notice provided to the Company, be
added to, and shall thereupon become part of, the Principal Amount; provided,
however, that, for purposes of these Debentures, Unpaid Management Fees shall
not include amounts that become due and payable in the 1998 calendar year but
which are not paid because of actual or projected statutory net worth
deficiencies of the Company (the "Deferred Management Fees") provided that such
Deferred Management Fees are ultimately paid on or before the end of the
immediately following calendar quarter.
5.2 Indemnification Obligations. In the event the Company becomes
obligated to make one or more indemnification payments to FHS under Section 9.1
of the Purchase Agreement, whether due to breach of a representation or warranty
or otherwise, then the amount of such indemnification payment or indemnification
payments (referred to herein as the "Indemnification Obligations") may, at the
option of the holder hereof by notice provided to the Company, be added to, and
shall thereupon become part of, the Principal Amount; provided, however, that in
no event may the holder hereof cause the amount of such indemnification payment
to be so added to the Principal Amount until the date that is the later of (a)
one year from the time FHS first made its claim under Section 9.1 with respect
to such indemnification payment, or (b) six months after adjudication of such
claim.
6. Covenants.
6.1 Affirmative Covenants. From and after the date hereof until the
earlier of the Maturity Date or the conversion of these Debentures, the Company
shall comply with and perform each of the following covenants and agreements:
6.1.1 Financial Reporting. The Company will furnish to FHS
copies of the following financial statements, reports and information:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a copy of the Company's
consolidated annual report (including audited balance sheets, statements of
operations, statements of stockholders' equity and statements of cash flow)
for the Company and its subsidiaries for such fiscal year, prepared in
accordance with generally accepted accounting principles ("GAAP")
consistent with the preceding year, certified by Ernst & Young, LLP or such
other independent public accountants as shall be approved by the holder
hereof, which approval shall not be unreasonably withheld;
(b) as soon as available and in any event within 45 days after
the end of each calendar quarter, a consolidated balance sheet, statement
of operations and statement of cash flow for the Company and its
subsidiaries, as of the end of, and for, each such quarter, prepared in
accordance with GAAP consistently applied (subject to the absence of notes
and to customary and reasonable year-end adjustments), certified by the
Company's chief financial officer as fairly and accurately representing the
financial condition of the Company and its subsidiaries as of the end of,
and for, the period covered thereby; and
(c) such other information with respect to the financial
condition and operations of the Company and its subsidiaries as the holder
hereof may reasonably request.
6.1.2 Payment of Taxes and Claims. The Company will duly pay
and discharge, as the same become due and payable, all taxes, assessments and
governmental and other charges, levies or claims levied or imposed, which are,
or which if unpaid might become, a lien or charge upon the properties, assets,
earnings or business of the Company or any of its operating subsidiaries;
provided, however, that nothing contained in this Section 6.1.2 shall require
the Company to pay and discharge, or cause to be paid and discharged, any such
tax, assessment, charge, levy or claim so long as the Company in good faith
shall contest the validity thereof and shall set aside on its books adequate
reserves with respect thereto. In the event the Company fails to satisfy its
obligations under this Section 6.1.2, FHS may, but is not obligated to, satisfy
such obligations in whole or in part, and any payments made and expenses
incurred in doing so shall constitute additional indebtedness to FHS and shall
be paid or reimbursed by the Company as additional Principal Amount.
6.1.3 Selection of Accountants. As long as these Debentures are
outstanding, the holder hereof shall have the right to approve the accounting
firm retained or to be retained by the Company to render accounting advice
thereto (such approval not to be unreasonably withheld).
6.1.4 Maintenance of Corporate Existence and Properties.
(a) The Company will, and will cause each of its operating
subsidiaries to, at all times do or cause to be done all things necessary
to maintain, preserve and renew its corporate charter and its rights, and
comply in all material respects with all related laws applicable to the
Company and such operating subsidiary; provided, however, that nothing
contained in this paragraph shall (i) require the Company or such operating
subsidiary to maintain, preserve or renew any right not material in the
conduct of the business of the Company or such operating subsidiary, (ii)
prevent the termination of the corporate existence of such operating
subsidiary of the Company if, in the reasonable opinion of the Board of
Directors of the Company, such termination is not disadvantageous to the
holder hereof or (iii) require the Company or such operating subsidiary to
comply with any law so long as the validity or applicability thereof shall
be contested in good faith by appropriate proceedings.
(b) The Company will as soon as practicable give written notice
to the holder hereof of any litigation, arbitration or governmental
investigation or proceeding, which has been instituted or, to the knowledge
of the Company, is threatened against the Company or any of its operating
subsidiaries, or any of their respective properties, which (i) involves or
is likely to involve a claim or claims for damages, penalties or awards in
excess of $100,000 in the case of claims for which the Company is not
adequately insured or in excess of $300,000 in the case of claims for which
the Company is adequately insured; (ii) if determined adversely to the
Company or such operating subsidiary would have a material adverse effect
thereon; or (iii) relates to the Purchase Agreement or any documents
executed pursuant thereto.
(c) The Company will provide or cause to be provided for itself
and its operating subsidiaries insurance against loss or damage of the
kinds customarily insured against by corporations similarly situated, with
reputable insurers, in such amounts, with such deductibles and by such
methods as shall be adequate, and in no event involving material
differences from the insurance currently generally maintained.
(d) The Company will keep true books of records and accounts in
which full and correct entries in all material respects will be made of all
its business transactions and the business transactions of its operating
subsidiaries, and will reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with GAAP
(subject to customary and reasonable year-end adjustments) and as otherwise
required by the New Jersey Department.
(e) The Company will, and will cause each of its operating
subsidiaries to, comply with all applicable statutes, rules, regulations,
orders and restrictions relating to federal, state and local laws and of
any governmental department, commission, board, regulatory authority,
bureau, agency and instrumentality with respect thereto, and of any court,
arbitrator or other body with jurisdiction and authority, in respect of the
conduct of the respective businesses thereof and the ownership of their
respective properties, except those, the violations of which would not have
a material adverse effect thereon and except such as are being contested in
good faith.
6.1.5 Notice of Event of Default. In addition to any other
reporting requirements set forth herein, the Company shall have an immediate
obligation to report to the holder hereof the occurrence of any Event of Default
(as defined in Section 7 hereof) or any event which, with the giving of notice
or the passage of time, or both, would constitute any such Event of Default.
6.1.6 Board Composition.
(a) Prior to full conversion of these Debentures and while they
are outstanding, FHS shall be permitted to designate such number of
directors on the Board of Directors of the Company and the Boards of
Directors of each of the Company's Subsidiaries as represents the greater
of (i) no less than 15 percent of the directors on the Board of Directors
of the Company and the Boards of Directors of each of the Company's
subsidiaries or (ii) such greater percentage of the directors on the Board
of Directors of the Company and of the Boards of Directors of each of the
Company's subsidiaries as is equal to the percentage ownership by FHS of
all outstanding Common Stock in the event such percentage exceeds 15
percent.
(b) Upon conversion of the entire Principal Amount, FHS, through
its ownership of Conversion Shares, shall be permitted to designate and
elect such number of directors on the Board of Directors of the Company and
the Boards of Directors of each of the Company's subsidiaries as represents
the percentage of the directors on the Board of Directors of the Company
and the Board of Directors of each of the Company's subsidiaries as is
equal to FHS' percentage ownership of all outstanding Common Stock, with
such number of directors to be increased as such ownership may be increased
from time to time notwithstanding any "staggered term" or other conflicting
provision.
(c) In no event shall the number of directors of the Board of
Directors of the Company or the board of directors of any of the Company's
subsidiaries exceed 12 without the prior written consent of the holder
hereof (subject to the requirements set forth in Article III Section 1 of
the Bylaws of the Company that, during the period specified therein, there
be at least three directors on such Board of Directors who are not
designees of FHS).
6.1.7 Letters of Credit.
(a) The Company shall not draw any amounts under any letter
of credit during the period when these Debentures are outstanding unless so
required by either the New Jersey Department or the New Jersey Department
of Health and Senior Services to so draw amounts under any such letter of
credit, in which event all amounts so drawn shall be placed and maintained
in a separate and segregated account from which funds shall be used to
satisfy in full all such obligations relating to letters of credit. The
Company shall provide written notice to FHS of its intent to draw any
amounts under any letter of credit during the period when these Debentures
are outstanding.
(b) The Company has placed and maintained all amounts drawn
under letters of credit prior to or on the date hereof in a separate and
segregated account, which amounts shall be used immediately after the
Initial Closing (as such term is defined in the Purchase Agreement) to
satisfy all obligations relating to such letters of credit.
6.1.8 Use of Proceeds. The Company shall, immediately upon
receipt of the Initial Principal Amount at the Initial Closing on the date
hereof, make a capital contribution of such amount (less fees and expenses
incurred by the Company in connection with the transactions consummated at the
Initial Closing pursuant to the Purchase Agreement) to FOHP-NJ.
6.2 Negative Covenants. From and after the date hereof, the Company
shall not, and shall cause its operating subsidiaries to not, do any of the
following:
6.2.1 Restrictions on Sale of Assets, Consolidations, Mergers
and Acquisitions.
(a) The Company will not, and will cause each of its operating
subsidiaries to not, sell, lease, transfer or otherwise dispose of all or a
substantial portion of its assets (other than in connection with the sale
of securities issued by the United States government the proceeds of which
are used to purchase additional securities of the United States
government).
(b) The Company shall not, and shall cause each of its operating
subsidiaries to not, without the prior written consent of the holder
hereof, consolidate with or merge into any other person or entity or permit
any other person or entity to consolidate with or merge into it; provided,
however, that a subsidiary of the Company may consolidate with or merge
into the Company or a wholly-owned subsidiary of the Company.
(c) The Company shall not and shall cause each of its operating
subsidiaries to not, acquire, by asset or stock purchase, merger or
otherwise, the assets or stock of any other corporation or partnership
without the prior written consent of the holder hereof.
6.2.2 Additional Indebtedness. The Company will not, and will
cause each of its operating subsidiaries to not, create, incur, assume or suffer
to exist any indebtedness for borrowed money ("Borrowed Money") after the date
hereof except for (i) Borrowed Money evidenced by these Debentures and
(ii) other Borrowed Money, incurred with the consent of the holder hereof, the
proceeds of which are used in the ordinary course of business of the Company or
such operating subsidiary, as the case may be.
6.2.3 Liens and Encumbrances. The Company will not, and will
cause each of its operating subsidiaries to not, cause or permit any of its
assets or properties, whether now owned or hereafter acquired, to be subject to
any liens or encumbrances except in the ordinary course of business of the
Company or such operating subsidiary, as the case may be.
6.2.4 Guarantees. The Company shall not and shall cause each of
its operating subsidiaries to not, become liable as a guarantor, or otherwise,
without the prior written consent of the holder hereof, except for guarantees
provided as to obligations of a wholly-owned subsidiary of the Company.
6.2.5 Restrictions on Dividends, Distributions and Investments.
The Company will not, without the prior written consent of the holder hereof:
(a) declare or pay any dividend or make any other distributions
on any shares of the Company's capital stock;
(b) except as otherwise permitted by the Purchase Agreement,
redeem, purchase or otherwise acquire for value any shares of the Company's
capital stock or any warrants, rights or other options to purchase such
capital stock; or
(c) except as otherwise permitted by the Purchase Agreement
permit its ownership of voting capital stock of any subsidiary of the
Company to be less than 100 percent.
6.2.6 Issuance of Additional Stock. Except as otherwise
expressly contemplated herein, the Company will not, without the prior written
consent of the holder hereof, issue any additional shares of Common Stock or any
other capital stock of the Company, or any options, stock appreciation rights,
warrants or other rights to acquire the Common Stock or any interest therein, or
other rights to acquire authorized and unissued shares of capital stock of the
Company, or modify terms of existing securities so as to in any manner dilute
the existing conversion rights of the holder hereof.
6.2.7 Granting of Pre-Emptive Rights and Rights of First
Refusal. Except as otherwise expressly contemplated herein, the Company will
not, without the prior written consent of the holder hereof, grant any pre-
emptive rights or rights of first refusal to any shareholders of the Company.
6.2.8 Additional Prohibited Transactions. Neither the Company
nor any of its subsidiaries shall take any of the following actions or engage in
any of the following transactions without the prior written consent of the
holder hereof:
(a) amend its certificate of incorporation or bylaws;
(b) make capital expenditures (including such expenditures made
by the Company and all such subsidiaries) exceeding, in the aggregate,
$1,000,000 during any calendar year;
(c) make any material change in the scope of the business of the
Company;
(d) file for receivership, dissolution, liquidation or
bankruptcy;
(e) acquire equity securities (other than pursuant to a buyback
or repurchase of equity securities issued by the Company) or assets of any
other person or entity involving payments aggregating in excess of
$1,000,000 during any calendar year;
(f) file a registration statement with respect to the public
sale of securities of the Company under the Securities Act of 1933, as
amended; or
(g) enter into, assume or become bound by any agreement to do
any of the foregoing or otherwise attempt to do any of the foregoing.
7. Default.
7.1 Events of Default. An "Event of Default" shall exist if any of
the following occurs and is continuing as to the Company:
(a) Default shall be made by the Company on a payment of the
Principal Amount or interest on these Debentures, when and as such
Principal Amount and interest, as the case may be, shall become due and
payable by acceleration or otherwise; or
(b) Default shall be made in the performance or observance of
any covenant, condition, undertaking or agreement contained in these
Debentures or in the Purchase Agreement (other than any defaults relating
to actions taken by, or omissions of, FHS in connection with the
performance of its obligations under the Management Agreements), and such
default shall continue for 20 days without being cured after the holder
hereof provides to the Company written notice of such default; or
(c) Any warranty, representation or other statement made by or
on behalf of the Company contained in these Debentures or the Purchase
Agreement shall be false or misleading in any material respect at the time
such warranty, representation or other statement, as the case may be, was
made; or
(d) The Company or any of its operating subsidiaries shall (i)
file a petition seeking relief for itself under the United States
Bankruptcy Code, as now constituted or hereafter amended from time to time,
or file an answer consenting to, admitting the material allegations of or
otherwise not controverting, or fail timely to controvert, a petition filed
against the Company seeking relief under the United States Bankruptcy Code,
as now constituted or hereafter amended from time to time or (ii) file a
petition or answer with respect to relief under the provisions of any other
now-existing or future applicable bankruptcy, insolvency or other similar
law of the United States or any state thereof or of any other country or
province thereof or jurisdiction providing for the reorganization,
winding-up or liquidation of corporations or an arrangement, composition,
extension or adjustment with creditors; or
(e) (i) An order for relief shall be entered against the Company
or any of its operating subsidiaries under the United States Bankruptcy
Code, as now constituted or hereafter amended from time to time, which
order is not stayed and remains unstayed for a period of 45 days, (ii) the
entry of an order, judgment or decree by operation of law or by a court or
by the New Jersey Department having jurisdiction in the premises which is
not stayed and remains unstayed for a period of 45 days (A) adjudging the
Company or any of its operating subsidiaries bankrupt or insolvent under,
or ordering relief against the Company or any of its operating subsidiaries
or by the New Jersey Department under, or approving a properly-filed
petition seeking relief against the Company or any of its operating
subsidiaries or by the New Jersey Department under the provisions of any
other now-existing or future applicable bankruptcy, insolvency or other
similar law of the United States or any state thereof or of any other
country or province thereof or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or any
arrangement, composition, extension or adjustment with creditors, (B)
appointing a receiver, supervisor, liquidator, assignee, sequestrator,
trustee or custodian of the Company or any of its operating subsidiaries or
of any substantial portion of the property of the Company or any such
operating subsidiaries, or (C) ordering the reorganization, winding-up or
liquidation of the affairs of the Company or any of its subsidiaries, or
(iii) the expiration of 60 days after the filing of any involuntary
petition against the Company or any of its operating subsidiaries seeking
any of the relief specified in paragraph (d) of this Section 7.1 or this
Section 7.1 (e) without dismissal of such petition; or
(f) The Company or any of its operating subsidiaries shall (i)
make a general assignment for the benefit of creditors, (ii) consent to the
appointment of, or taking possession of all or a substantial part of the
property of the Company or any such operating subsidiary by, a receiver,
supervisor, liquidator, assignee, sequestrator, trustee or custodian of the
Company or any such operating subsidiary, (iii) admit its insolvency or
inability to pay its debts generally as such debts become due, (iv) fail
generally to pay its debts as such debts become due or (v) take any action
(including such actions taken by the Company's directors or a majority of
the Company's shareholders) regarding the dissolution or liquidation of the
Company or any such operating subsidiary.
7.2 Remedies. In case any one or more of the Events of Default
specified in Section 7.1 hereof shall have occurred and be continuing, the
holder hereof shall have the right to accelerate payment of the entire Principal
Amount, and all interest accrued thereon, and, upon such acceleration, such
Principal Amount and interest shall thereupon become immediately due and
payable, without any presentment, demand, protest or other notice of any kind
(which presentment demand, protest or other notice of any kind are hereby
expressly waived), and the Company shall forthwith pay to the holder hereof the
entire then outstanding Principal Amount, and interest accrued thereon, due
pursuant to these Debentures; provided, however, that any such payment by the
Company must be in accordance with Section 4.1(b)(i) hereof.
8. Miscellaneous.
8.1 Waiver and Amendment. Any provision of these Debentures may be
amended, waived or modified only upon the written consent of the Company, the
holder hereof and the New Jersey Department.
8.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission, sent by certified, registered or
express mail, postage prepaid, or sent by reputable overnight courier. Any such
notice shall be deemed given when so delivered personally, telegraphed, telexed
or sent by facsimile transmission or, if mailed, two days after the date of
deposit in the United States mail or, if sent by overnight courier, the business
day next succeeding the date the notice is sent, as follows:
(a) if to FHS, to:
Foundation Health Systems, Inc.
225 North Main Street
Pueblo, Colorado 81003
Attention: Senior Vice President, General Counsel and
Secretary
Fax: (719) 585-8175
(b) if to the Company, to:
FOHP, Inc.
2 Bridge Avenue
Red Bank, New Jersey 07701
Attention: Senior Vice President, General Counsel and
Secretary
Fax: (908) 842-5404
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Charles I. Weissman, Esq.
Fax: (212) 758-9526
and with an additional copy to:
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
Post Office Box 190
Middletown, New Jersey 07748
Attention: Paul T. Colella, Esq.
Fax: (908) 224-6599
Any party may by notice given in accordance with this section to the other party
designate another address or person for receipt of notices hereunder.
8.3 Governing Law. These Debentures shall be governed by, and
construed in accordance with, the laws of the State of New Jersey.
8.4 Headings. The headings herein are for purposes of convenience
and reference only, and shall not affect the construction hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed, issued and delivered this 30th day of April, 1997.
FOHP, INC.
By:_____________________
Name: Donald Parisi
Title: Acting President and Chief Executive
Officer and General Counsel
Acknowledged and Agreed:
FOUNDATION HEALTH SYSTEMS, INC.
By:________________________
Name:
Title:
EXHIBIT A TO CONVERTIBLE SUBORDINATED SURPLUS DEBENTURES
The holder of Convertible Subordinated Surplus Debentures, dated as of
April 30, 1997 (the "Debentures"), issued by FOHP, Inc. (the "Company") hereby
notifies the Company, in accordance with Section 2 of the Debentures, of its
conversion of $ ____ of the Principal Amount (as such term is defined in the
Debentures) of the Debentures into _____ shares of common stock, par value $.01
per share, of the Company.
Principal Amount to be Converted Number of Shares
IN WITNESS WHEREOF, this Notice of Conversion is executed as of ______
___, ____.
____________________
EXHIBIT B EXECUTION COPY
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
FOHP, INC.,
FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.
AND
HEALTH SYSTEMS INTERNATIONAL, INC.
February 10, 1997
TABLE OF CONTENTS
Page
ARTICLE I
SALE AND PURCHASE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . .
1.1 Purchase of Debentures . . . . . . . . . . . . . . . . . . . . . .
1.2 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FOHP-NJ . . . . . . . . . .
2.1 Organization; Subsidiaries; and Good Standing . . . . . . . . . . .
2.2 Power; Authorization; Binding Agreements . . . . . . . . . . . . .
2.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . .
2.5 Absence of Certain Developments . . . . . . . . . . . . . . . . . .
2.6 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . .
2.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.8 No Governmental Proceeding or Litigation . . . . . . . . . . . . .
2.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . .
2.10 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . .
2.11 Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . .
2.12 Licenses, Permits and Governmental Approvals . . . . . . . . . . .
2.13 Securities Exchange Act Reports Supplied to Purchaser . . . . . . .
2.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . .
2.15 Title to Properties and Assets . . . . . . . . . . . . . . . . . .
2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.17 DOI Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.18 Information Supplied . . . . . . . . . . . . . . . . . . . . . . .
2.19 Certain Business Practices and Regulations . . . . . . . . . . . .
2.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.21 Labor Issues . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.22 Employment/Severance Matters . . . . . . . . . . . . . . . . . . .
2.23 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . .
2.24 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . .
2.25 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . .
2.26 Brokerage and Other Fees . . . . . . . . . . . . . . . . . . . . .
2.27 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . .
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . .
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . .
3.2 Authorization; Power . . . . . . . . . . . . . . . . . . . . . . .
3.3 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . .
3.4 Unregistered Securities; Legend . . . . . . . . . . . . . . . . . .
3.5 Access to Data; Experience; Investment Decision . . . . . . . . . .
3.6 Brokerage and Other Fees . . . . . . . . . . . . . . . . . . . . .
3.7 No Financing Required . . . . . . . . . . . . . . . . . . . . . . .
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.9 Claims Processing System . . . . . . . . . . . . . . . . . . . . .
3.10 Securities Exchange Act Reports Supplied to the Company . . . . . .
ARTICLE IV
PRE-CLOSING COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . .
4.1 Fulfillment of Obligations . . . . . . . . . . . . . . . . . . . .
4.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Conduct of Businesses . . . . . . . . . . . . . . . . . . . . . . .
4.4 No Solicitation of Other Offers . . . . . . . . . . . . . . . . . .
4.5 Interim Financial Statements . . . . . . . . . . . . . . . . . . .
4.6 Updated Disclosure; Breaches . . . . . . . . . . . . . . . . . . .
4.7 Consummation of Amended Agreement . . . . . . . . . . . . . . . . .
4.8 Approvals of Third Parties . . . . . . . . . . . . . . . . . . . .
4.9 Restated Certificates and By-laws . . . . . . . . . . . . . . . . .
4.10 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . .
4.11 Provider Contracts . . . . . . . . . . . . . . . . . . . . . . . .
4.12 Letters of Credit; Guarantees . . . . . . . . . . . . . . . . . . .
4.13 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE V
COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . .
5.2 Claims Processing System . . . . . . . . . . . . . . . . . . . . .
5.3 Updated Disclosure; Breaches . . . . . . . . . . . . . . . . . . .
5.4 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VI
OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Provider Contracts . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . .
6.3 New York Subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
6.4 Post-Closing Acquisition . . . . . . . . . . . . . . . . . . . . .
(a) Exchange/Cash Offer for Shares. . . . . . . . . . . . . . . .
(b) Post-Closing Merger. . . . . . . . . . . . . . . . . . . . . .
6.5 Additional HSR Act Filings . . . . . . . . . . . . . . . . . . . .
6.6 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS . . . . . . . . . . . . .
7.1 Conditions Precedent to Initial Closing . . . . . . . . . . . . . .
7.2 Conditions Precedent to each Additional Debenture Advance
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Additional Debenture Advance Elections and Adjustment . . . . . . .
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS . . . . . . . . . . . . . .
8.1 Receipt of Payment . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Representations and Warranties . . . . . . . . . . . . . . . . . .
8.3 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . .
8.4 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.5 Injunction, Etc . . . . . . . . . . . . . . . . . . . . . . . . . .
8.6 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.7 Investors Agreement . . . . . . . . . . . . . . . . . . . . . . . .
8.8 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IX
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.1 Indemnification by the Company . . . . . . . . . . . . . . . . . .
9.2 Indemnification by the Purchaser . . . . . . . . . . . . . . . . .
9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . .
9.4 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . .
ARTICLE X
SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XI
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1 (a) Termination Events . . . . . . . . . . . . . . . . . . . . . .
(b) Termination Fees . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.1 Entire Agreement; Amendments and Waivers . . . . . . . . . . . . .
12.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.4 Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . .
12.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.6 Confidentiality; Publicity and Disclosures . . . . . . . . . . . .
12.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . .
12.11 Effectiveness of Amended Agreement . . . . . . . . . . . . . .
EXHIBITS
Exhibit A Form of Debentures
Exhibit B-1 Form of Amended and Restated Certificate of Incorporation of
FOHP, Inc.
Exhibit B-2 Form of By-laws of FOHP, Inc.
Exhibit B-3 Form of Amended and Restated Certificate of Incorporation of
FOHP-NJ.
Exhibit B-4 Form of By-laws of FOHP-NJ
Exhibit C-1 Form of Exclusive Plan Hospital Provider Agreement
Exhibit C-2 Forms of Non-Exclusive Plan Hospital Provider Agreements
Exhibit D-1 Form of General Administrative Services Management Agreement
Exhibit D-2 Form of Management Information Systems and Claims Processing
Services Agreement
Exhibit E Form of Investors Agreement
Exhibit F Form of Opinion of Outside Counsel of FOHP, Inc. and FOHP-NJ
Exhibit G Form of Officer's Certificate
Exhibit H Form of Opinion of Outside Counsel of Health Systems International,
Inc.
SCHEDULES
Schedule 2.1A Subsidiaries
Schedule 2.1B Good Standing
Schedule 2.3 Rights of First Refusal
Schedule 2.4(a) SEC Reports
Schedule 2.4(b) Unreported Liabilities and Obligations
Schedule 2.5 Company's Reports
Schedule 2.6 Noncontravention
Schedule 2.7 Litigation
Schedule 2.9 Compliance with Law
Schedule 2.10 Certain Material Contracts and Defaults
Schedule 2.11 Consents
Schedule 2.12 Licenses, Permits and Governmental Approvals
Schedule 2.14 Environmental Matters
Schedule 2.15 Properties and Assets
Schedule 2.16 Taxes
Schedule 2.20 Insurance
Schedule 2.22 Employment/Severance Matters
Schedule 2.25 Employee Benefit Plans
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
This Amended and Restated Securities Purchase Agreement (this "Amended
Agreement"), dated February 10, 1997, is executed by and among FOHP, Inc., a New
Jersey corporation (the "Company"), First Option Health Plan of New Jersey,
Inc., a New Jersey corporation ("FOHP-NJ"), and Health Systems International,
Inc., a Delaware corporation (the "Purchaser"), and shall be effective as of the
Effective Date (as such term is defined in Section 12.11 hereof).
WITNESSETH:
WHEREAS, the Company, FOHP-NJ and the Purchaser are parties to a Securities
Purchase Agreement, dated as of October 24, 1996 (the "Original Agreement"),
pursuant to which, among other things, the Company would issue and sell to the
Purchaser, and the Purchaser would purchase from the Company, convertible
subordinated surplus debentures in the initial aggregate principal amount of
$30,000,000; and
WHEREAS, each of the Company, FOHP-NJ and the Purchaser believe it
necessary and appropriate to amend and restate the Original Agreement to modify
various agreements and terms and conditions, including an increase in the
aggregate principal amount of convertible subordinated surplus debentures (the
"Debentures") committed to be purchased by the Purchaser to the sum of
$50,000,000 (subject to adjustment as set forth herein), plus the Phase-In
Period Management Fee Amount (as such term is defined in Section 4.4 of the
General Administrative Services Management Agreement the form of which is
attached hereto as Exhibit D-1);
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SECURITIES
1.1 Purchase of Debentures. In reliance upon the representations,
warranties and covenants contained in this Amended Agreement, (a) the Purchaser
agrees to purchase from the Company, and the Company agrees to issue and sell to
the Purchaser at the Initial Closing (as such term is defined in Section 1.2(a)
hereof), Debentures, in the form attached hereto as Exhibit A, in aggregate
principal amount equal to the sum of (i) $41,600,000 and (ii) the Phase-In
Period Management Fee Amount (referred to herein as the "Initial Debenture
Advance Amount") and (b) during the remainder of the 1997 calendar year (and in
no event later than December 31, 1997), the Purchaser shall loan and advance to
the Company additional principal amounts (the principal amount of each such loan
and advance being referred to herein as an "Additional Debenture Advance
Amount"), from time to time and in Additional Debenture Advance Amounts as
determined, in each case, by the Purchaser in its sole discretion; provided,
however, that all such Additional Debenture Advance Amounts shall, in the
aggregate, taken together with the Initial Principal Advance Amount, equal the
amount of (i) the sum of (A) $50,000,000 and (B) the Phase-In Period Management
Fee Amount less (ii) the amount of all Additional Debenture Advance Adjustments
(as defined in Section 7.3 hereof) (such net amount referred to as the
"Debentures Commitment Amount").
1.2 Closings.
(a) The closing of the purchase and sale of the Debentures (the
"Initial Closing") shall occur on (i) the date that is two business days after
the satisfaction or waiver of all conditions set forth in Section 7.1 or
Article VIII hereof or (ii) such other date as shall be agreed upon by the
Company and the Purchaser (the "Initial Closing Date"). The Initial Closing
shall be held at 10:00 a.m., New York time, at the offices of McDermott, Will &
Emery, 50 Rockefeller Plaza, 11th Floor, New York, New York 10020 or such other
place as the parties may mutually agree upon in writing. At the Initial
Closing, the Company shall deliver to the Purchaser the Debentures purchased by
the Purchaser (which Debentures shall be registered in the Purchaser's name),
and the Purchaser shall deliver to the Company a sum equal to the Initial
Debenture Advance Amount (the "Initial Debenture Purchase Price") by certified
check or wire transfer of immediately available funds in accordance with wire
transfer instructions provided by the Company, denominated in United States
dollars.
(b) The closing (each such closing being referred to herein as an
"Additional Debenture Advance Closing") of any loan and advance by the Purchaser
to the Company of any Additional Debenture Advance Amount shall occur on (i) the
later of (A) such date during the 1997 calendar year as shall be determined by
the Purchaser in its sole discretion (but in no event later than December 31,
1997) or (B) two business days after the satisfaction or waiver of all
conditions set forth in Section 7.2 hereof with respect to such advance of an
Additional Debenture Advance Amount or (ii) such other date as shall be agreed
upon by the Company and the Purchaser (the "Additional Debenture Advance Closing
Date"). The Purchaser shall provide to the Company at least 10 days' prior
notice of an Additional Debenture Advance Closing, including in such notice the
Additional Debenture Advance Amount to be advanced by the Purchaser to the
Company at such Additional Debenture Advance Closing (along with a description
of any Additional Debenture Advance Adjustment used to arrive at such Additional
Debenture Advance Amount as described in Section 7.3 hereof). At each
Additional Debenture Advance Closing, the Purchaser shall deliver to the Company
a sum equal to the Additional Debenture Advance Amount to be advanced by the
Purchaser to the Company at such Additional Debenture Advance Closing by
certified check or wire transfer of immediately available funds in accordance
with wire transfer instructions provided by the Company, denominated in United
States dollars, and such Additional Debenture Advance Amount shall be added to
the Debentures as Principal Amount (as such term is defined in the Debentures)
which the Company is obligated to pay to the Purchaser pursuant to the terms of
the Debentures.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FOHP-NJ
The Company and FOHP-NJ (with respect to matters relating to itself)
represent and warrant to the Purchaser as follows:
2.1 Organization; Subsidiaries; and Good Standing.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey. The Company has all
necessary power and authority under applicable law and its organizational
documents to own or lease its properties and to carry on its business as
presently conducted. All of the subsidiaries of the Company are identified on
Schedule 2.1A (each a "Subsidiary," and collectively the "Subsidiaries"). There
are no subsidiaries of the Subsidiaries. Each of the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has all necessary power and authority
under applicable law to own or lease its properties and to carry on its business
as presently conducted.
(b) Except as set forth on Schedule 2.1B, each of the Company and
each of the Subsidiaries, to the extent conducting business as a health
maintenance organization ("HMO"), insurance company, managed care organization,
third-party administrator or otherwise requiring any form of governmental
licensure, qualification or authorization, is duly licensed, qualified or
authorized and in good standing under the applicable laws and regulations,
respectively, of each state or territory in which the conduct of such business
so requires, except where the failure would not have a material adverse effect
on the business, conditions, prospects, properties or results of operations of
the Company and the Subsidiaries taken as a whole (a "Material Adverse
Effect"). Except as set forth on Schedule 2.1B, the conduct of the
respective businesses of the Company, FOHP-NJ and the other Subsidiaries is
in conformity with all applicable federal, state and other governmental and
regulatory requirements and the forms, procedures and practices of the
Company and each of the Subsidiaries in the conduct of their respective
businesses are also in compliance with all such requirements, to the extent
applicable, except where nonconformity or noncompliance would not constitute
a Material Adverse Effect.
(c) Complete and accurate copies of the certificate of incorporation
(the "Certificate") and by-laws of the Company and the certificates of
incorporation and by-laws of each of the Subsidiaries have been delivered to the
Purchaser.
2.2 Power; Authorization; Binding Agreements. The Company has the power
and authority to enter into this Amended Agreement and to perform fully its
obligations hereunder (other than the issuance and sale of the Debentures and
the issuance of the shares of common stock of the Company (the "Conversion
Shares") issuable upon conversion of the Debentures) and, upon approval of the
shareholders of the Company as described in Section 2.11 hereof, to issue and
sell the Debentures and to issue the Conversion Shares. FOHP-NJ has the power
and authority to enter into this Amended Agreement and to perform fully its
obligations hereunder. The execution and delivery of this Amended Agreement,
the issuance and sale of the Debentures, the issuance of the Conversion Shares
upon conversion of the Debentures and the consummation of the other transactions
contemplated hereunder and thereunder have been duly authorized by all necessary
corporate action of the Company (except as disclosed in Section 2.11 and Section
12.11 hereof). This Amended Agreement has been duly and validly executed and
delivered by, and constitutes the valid and binding obligations of, the Company
and FOHP-NJ and is enforceable in accordance with its terms. The Debentures,
the Management Agreements (as such term is defined in Section 7.1(g) hereof) and
the other agreements required to consummate the transactions contemplated
thereunder and under this Amended Agreement will be, on or prior to the Initial
Closing Date, duly and validly executed and delivered by, and constitute valid
and binding obligations of, the Company and are enforceable in accordance with
their terms. As of the Initial Closing Date neither the Debentures nor the
Conversion Shares (issuable upon conversion of the Debentures) will be subject
to any preemptive right or right of first refusal.
2.3 Capitalization. The authorized capital stock of the Company consists
of 100,000,000 shares of common stock, par value $.01 per share ("Common
Stock"). The authorized Common Stock is divided into five classes: 15,000,000
shares of Common Stock-NJ ("Common Stock-NJ"), 15,000,000 shares of Common
Stock-NY, 15,000,000 shares of Common Stock-PA, 15,000,000 shares of Common
Stock-DE and 40,000,000 shares of Unclassified Capital Stock, of which 2,100,173
shares of Common Stock-NJ are issued and outstanding on the date hereof. No
shares of preferred stock of the Company are authorized. All of the presently
outstanding shares of Common Stock have been duly and validly authorized and
issued, are fully paid and non-assessable, and except as set forth on Schedule
2.3 hereto are not subject to and were not issued in violation of any preemptive
rights or rights of first refusal. The relative rights, preferences,
restrictions and other matters relating to the Common Stock are as reflected in
the Certificate and on Schedule 2.3 hereto. There are no outstanding
subscriptions, warrants, options, calls, commitments or other rights to purchase
or acquire, or securities convertible into or exchangeable for, any capital
stock of, or any stock appreciation rights, phantom stock or similar securities
or instruments issued by, the Company or any of the Subsidiaries. Except as
expressly contemplated by this Amended Agreement, as of the Initial Closing Date
there will be no preemptive rights or rights of first refusal with respect to
the issuance or sale of capital stock of the Company or any Subsidiary. Except
as set forth in the Certificate and as expressly contemplated by this Amended
Agreement, there are no outstanding contractual or other obligations of the
Company or any of the Subsidiaries to purchase, redeem or otherwise acquire any
shares of its capital stock. Except as set forth in the Certificate and as
contemplated by this Amended Agreement, there is currently not, and as of the
Initial Closing there will not be, any stockholders' agreement, voting trust or
other agreement or understanding to which the Company or any of the Subsidiaries
is a party or bound relating to the voting of any shares of capital stock of the
Company or any of such Subsidiaries. The maximum number of Conversion Shares
issuable upon conversion of the Debentures in the amount of the Debenture
Commitment Amount will, as of the Initial Closing, be duly and validly reserved
and, when issued upon conversion of the Debentures, will be duly and validly
issued, fully paid and non-assessable. At the Initial Closing, the Purchaser
will receive good title to the Debentures and, at the time of the issuance of
the Conversion Shares upon the conversion of the Debentures, the Purchaser will
receive good title to the Conversion Shares free and clear of all liens, claims
or encumbrances except those created by the Purchaser. All of the outstanding
shares of capital stock of each Subsidiary are validly issued, fully paid and
nonassessable and are owned beneficially and of record by the Company, free and
clear of any liens, claims or encumbrances.
2.4 Financial Statements.
(a) Each of the sets of financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports (as such term is
hereinafter defined), a list of which SEC Reports is attached as Schedule 2.4(a)
hereto, and the Company's balance sheet as of September 30, 1996 and the related
income statement for the fiscal quarter then ended (referred to herein,
collectively, as the "September 30 Statement" and together with such financial
statements contained in the SEC Reports as the "Past Financial Statements") was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and fairly
presents the consolidated financial position of the Company and the Subsidiaries
as of the respective dates thereof and the consolidated results of operations
and cash flows for the periods indicated of the Company and the Subsidiaries,
except that the September 30 Statement included in the Past Financial Statements
(i) was or is subject to normal year-end audit adjustments which were not or are
not expected to be material in amount and (ii) does not contain footnotes.
(b) Except as reflected or disclosed in the Past Financial Statements
and on Schedule 2.4(b) (including any related notes and schedules), other than
liabilities incurred since September 30, 1996 in the ordinary course of their
respective businesses or liabilities incurred in connection with the proposed
issuance of the Debentures expressly contemplated or permitted by this Amended
Agreement, neither the Company nor any of the Subsidiaries is subject to any
liabilities or obligations (whether accrued, absolute, contingent or otherwise)
that would have a Material Adverse Effect.
(c) As of January 3, 1997, the claims backlog of the Company and
FOHP-NJ consisted of 35,775 claims received but not reflected in the claims
processing system thereof and 102,485 claims received and reflected in such
claims processing system but not yet adjudicated. For purposes of this Section
2.4(c), the term "claims" means hospital, physician and ancillary provider
claims on full-risk business and does not include claims submitted for pharmacy,
dental or mental health and substance abuse.
2.5 Absence of Certain Developments. Except for this Amended Agreement or
as described on Schedule 2.5 hereto or as disclosed on any of the Quarterly
Reports on Form 10-Q of the Company for the quarters ended March 31, 1996, June
30, 1996, or September 30, 1996, respectively, or the Company's Reports on Form
8-K listed on Schedule 2.5 hereto filed with the Securities and Exchange
Commission (the "SEC"), since December 31, 1995 (a) there has not been, and the
Company is not aware of any events, facts or circumstances which individually or
in the aggregate could cause, any (i) Material Adverse Effect or (ii) material
obligation, contingent or otherwise, to be directly or indirectly incurred by
the Company or any Subsidiary and (b) there has not been, and the Company is not
contemplating, any (i) transaction which is material to the Company and the
Subsidiaries on a consolidated basis or (ii) payment of dividends or
distributions of any kind.
2.6 Noncontravention. Neither the Company nor any of the Subsidiaries is
in violation or default of any provision of (a) its certificate of incorporation
or by-laws or (b) any contract, agreement, obligation, commitment, license,
indenture, mortgage, deed of trust, loan or credit agreement or any other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or any of their assets are bound, except for violations with respect to
this clause (b) as are set forth on Schedule 2.6 hereto or that would not have a
Material Adverse Effect. The execution and delivery of this Amended Agreement
do not, and the consummation of the transactions contemplated hereby will not,
with or without notice or the lapse of time, conflict with or result in a breach
or default or any material modification of, or result in the creation of a lien
or encumbrance on any of the assets of the Company or any of the Subsidiaries
pursuant to (i) any provision of the certificate of incorporation or by-laws of
the Company or any of the Subsidiaries except as set forth on Schedule 2.6, or
(ii) the terms of any material contract, agreement, obligation, commitment,
license, indenture, mortgage, deed of trust, loan or credit agreement, pledge
agreement, lease, permit, franchise, evidence of indebtedness or any other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or any of their assets are bound (except as set forth on Schedule 2.6), or
the creation of any lien, charge or encumbrance of any nature upon any of the
properties or assets of the Company or any of the Subsidiaries or result in the
revocation of any licenses owned by the Company or any of the Subsidiaries. The
execution and delivery of this Amended Agreement do not, and the execution and
delivery of the Debentures and the Management Agreements and the consummation of
the transactions contemplated hereby will not (A) violate or conflict with any
judgment, decree, order, writ, injunction, statute, rule or regulation of any
federal, state or local government or agency applicable to the Company or any of
the Subsidiaries or any of their respective properties or assets or (B) result
in any adverse change in any employee benefit plan of the Company, FOHP-NJ or
any of the other Subsidiaries.
2.7 Litigation. Except as set forth on Schedule 2.7, there is, to the
knowledge of the Company or FOHP-NJ, no examination, audit, review, arbitration,
litigation, action, suit, claim, proceeding or investigation pending or
threatened by or before any court, governmental authority or arbitral tribunal
to which the Company or any of the Subsidiaries is a party or otherwise involved
or to which any of the business or assets of the Company or any of the
Subsidiaries is subject which has or would reasonably be expected to have a
Material Adverse Effect. There is no action pending seeking to enjoin or
restrain the issuance and sale of the Debentures by the Company or any of the
transactions contemplated by this Amended Agreement. Except as set forth on
Schedule 2.7, neither the Company nor any of the Subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of the Company or FOHP-NJ, pending
or proposed investigation by, any governmental entity, or any judgment, order,
writ, injunction, decree or award of any governmental entity or arbitrator,
including, without limitation, cease-and-desist or other orders. As used in
this Amended Agreement, the terms "to the best of the knowledge of the Company
or FOHP-NJ" and "to the knowledge of the Company or FOHP-NJ" shall mean the
actual knowledge of any of the executive officers of the Company or any of the
executive officers of FOHP-NJ.
2.8 No Governmental Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding has been instituted against the
Company or, to the Company's knowledge, threatened which questions the validity
or legality of the transactions contemplated hereby.
2.9 Compliance with Laws. Except as set forth on Schedule 2.9, neither
the Company nor any of the Subsidiaries is or has at any time since June 30,
1996 been in violation of, or delinquent in respect to, any decree, order or
arbitration award or law, statute or regulation of, or agreement with, or any
license or permit from, any governmental authority to which any of its
properties, assets, personnel or business activities are subject or to which any
of them is subject, including laws, rules and regulations relating to the
environment, insurance companies, HMOs, third-party administrators or other
businesses required to be licensed under Section 2.1(b) hereof, occupational
health and safety, employee benefits, wages, workplace safety, equal employment
opportunity and race, religious, sex and age discrimination which has had or
would reasonably be expected to have a Material Adverse Effect.
2.10 Material Contracts.
(a) For purposes of this Amended Agreement, "Material Contracts"
shall mean (i) each contract, agreement or other arrangement of or involving the
Company or any of the Subsidiaries with respect to indebtedness for money
borrowed in excess of $50,000 (other than trade payables in the ordinary and
usual course of business), including, without limitation, letters of credit,
guaranties and swap and similar agreements, (ii) each contract, agreement or
other arrangement which limits or restricts the right or ability of the Company
or any of the Subsidiaries to engage in, or compete with any person in, any
business (including each contract, agreement or arrangement containing
exclusivity provisions restricting the geographical area in which, or the method
by which, any business may be conducted by the Company or any such Subsidiary),
or to otherwise conduct its business in any manner or place which materially
affects the Company or any Subsidiary, (iii) each contract, agreement or other
arrangement between the Company or any of the Subsidiaries, on the one hand, and
any director or executive officer (or any affiliate of a director or executive
officer) of the Company or any of the Subsidiaries, on the other hand (other
than health care provider contracts entered into in the ordinary course of
business of the Company or such Subsidiary, as the case may be, and containing
terms and conditions standard in the industry), (iv) each mortgage, contract,
license, lease, indenture or other agreement of the Company or any of the
Subsidiaries (A) which would be required by Rule 601(b)(10) of SEC Regulation
S-K to be filed as an exhibit to an Annual Report on Form 10-K or (B) which
constitutes any other liability (including, without limitation, any guarantee,
surety contract or similar instrument), obligation or transaction and, in the
case of any item referred to in this clause, is material to the Company and the
Subsidiaries or their businesses or prospects taken as a whole, (v) for each
state in which the Company or any Subsidiary conducts business as an HMO,
insurance company, third-party administrator or otherwise requiring licensure as
set forth in Section 2.1(b) hereof, (A) the material contracts (based on gross
revenues generated thereunder) of the Company or any Subsidiary with government
agencies or employer or other groups, (B) the material contracts (based on
payments made thereunder) of the Company or any Subsidiary with physician
providers of health care services, (C) the material contracts (based on payments
made thereunder) of the Company or any Subsidiary with providers of hospital
services, (D) the material contracts (based on payments made thereunder) of the
Company or any Subsidiary with providers of non-hospital, non-physician health-
care services, and (E) the material contracts of the Company or any Subsidiary
with other customers of or vendors to the Company or any of the Subsidiaries,
(vi) each contract or agreement of the Company or any of the Subsidiaries
concerning a partnership or joint venture with, or equity or ownership
investment in, another person and (vii) each contract or agreement of the
Company or any of the Subsidiaries pursuant to which any of the business affairs
thereof are managed by a third party. Schedule 2.10 attached hereto lists each
Material Contract which is not (I) provided as an exhibit to the Annual Report
on Form 10-K of the Company for the year ended December 31, 1995 or (II)
expressly called for to be executed in this Amended Agreement. True and
complete copies of all Material Contracts have been delivered to Purchaser.
(b) Each of the Material Contracts is in full force and effect and is
binding upon the Company or a Subsidiary, as the case may be, and, to the
Company's knowledge, is binding on the other parties thereto, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Except as set forth on Schedule 2.10, no
material default by the Company or, to the knowledge of the Company or FOHP-NJ,
any of the Subsidiaries has occurred under any of the Material Contracts and
(i) to the knowledge of the Company or FOHP-NJ, no material default by any of
the other parties to such Material Contracts has occurred thereunder and (ii) no
event has occurred which with the giving of notice or the lapse of time, or
both, would constitute a material default by the Company or, to the knowledge of
the Company or FOHP-NJ, any of the Subsidiaries or any of the other parties to
such Material Contracts. There is no fact or circumstance, including, without
limitation, any pending or, to the knowledge of the Company or FOHP-NJ,
threatened termination, indicating that any Material Contract (including,
without limitation, any relationship with any customer currently accounting for
five percent or more of the consolidated revenue of the Company) will terminate
(or, to the knowledge of the Company or FOHP-NJ, will not be renewed), except
for those Material Contracts described in Sections 2.10(a)(v)(B), (C) and (D)
hereof, the termination or failure to renew of which would not in the aggregate
have a Material Adverse Effect on the Company or any of the Subsidiaries.
(c) The Company's New York contract with Sierra Health Services, Inc.
("Sierra") has been terminated by the Company without requiring payment by the
Company or any Subsidiary in connection therewith and without the incurrence of
any further obligations by the Company or any Subsidiary.
2.11 Consents, Etc. Except as set forth on Schedule 2.11 hereto or as may
be required by the laws governing insurance companies, HMOs, and third-party
administrators or other businesses operated by the Company or the Subsidiaries
requiring licensure, qualification or authorization and, except for the approval
of the Company's shareholders of the transactions contemplated by this Amended
Agreement, there is no requirement applicable to the Company or any of the
Subsidiaries to make any filing with, or to obtain any permit, authorization,
consent or approval of, any federal, state or local governmental or regulatory
agency, department, commission or other authority or any third party, except for
such filings, permits, authorizations, consents or approvals the failure of
which to make or obtain, as the case may be (a) would not have a Material
Adverse Effect and (b) would not adversely impact the ability of the Company to
consummate the transactions contemplated hereunder or otherwise hinder or delay
the consummation of such transactions.
2.12 Licenses, Permits and Governmental Approvals. Schedule 2.12 hereto
sets forth as to the Company and the Subsidiaries a true and complete list of
(a) all licenses, permits, franchises, authorizations and approvals (except for
those which, if not possessed, would not have a Material Adverse Effect) issued
or granted to the Company and the Subsidiaries by the United States, any state
or local government or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (the "Licenses"), and all pending
applications therefor, and (b) all contracts, agreements and other documents
containing agreements of the Company or any Subsidiary with, or undertakings of
the Company or any Subsidiary with, the United States, any state or local
government or any department, agency, board, commission, bureau or
instrumentality. Each License has been duly obtained, is valid and in full
force and effect, and is not subject to any pending or, to the Company's
knowledge, threatened administrative or judicial proceeding to revoke, cancel or
declare such License invalid in any respect except as set forth on Schedule
2.12. The Licenses are sufficient to permit the continued lawful conduct of
each of the Company's and the Subsidiaries' respective businesses in the manner
now conducted, and none of the Company's or any Subsidiary's operations are
being conducted in any manner which violates any of the terms or conditions
under which any such License was granted except as set forth on Schedule 2.12.
No License by its terms will terminate or lapse by reason of the transactions
contemplated by this Amended Agreement.
2.13 Securities Exchange Act Reports Supplied to Purchaser. The Company
has delivered to the Purchaser a complete and accurate copy of each report,
schedule, registration statement and definitive proxy statement filed by the
Company with the SEC on or after January 1, 1995 (the "SEC Reports"), which are
all the forms, reports and documents required to be filed by the Company with
the SEC since January 1, 1995. The SEC Reports (a) complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange of 1934, as amended (the "Exchange
Act"), as the case may be, in each case including the rules and regulations
promulgated thereunder, at and as of the times they were filed (or, if amended
or superseded by a filing prior to the date of this Amended Agreement, then on
the date of such filing), (b) were filed with the SEC during the 12 months
preceding the date hereof on a timely basis, and (c) did not at and as of the
time they were filed (or, if amended or superseded by a filing prior to the date
of this Amended Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.14 Environmental Matters. Except as set forth on Schedule 2.14, the
premises owned or leased by the Company and the Subsidiaries for their
operations (the "Premises") and all operations conducted thereon, are now and
since the Company or any Subsidiary, as applicable, began to use such Premises,
always have been, in compliance with all federal, state and local statutes,
ordinances, regulations, rules and standards concerning or relating to the
protection of health and the environment (collectively, the "Environmental
Laws") which, if not complied with, would have a Material Adverse Effect. To
the Company's knowledge, there are no conditions on, about, beneath or arising
from the Premises which might give rise to liability, the imposition of a
statutory lien or require "Response," "Removal" or "Remedial Action" as defined
herein, under any of the Environmental Laws, which would have a Material Adverse
Effect. In addition, and without limiting the generality of the foregoing,
except for matters that would not have a Material Adverse Effect, the Company
has not received notice nor does it have knowledge of:
(i) any claim, demand, suit or other action, investigation or
regulatory action instituted or threatened against it or the Premises
relating to any Environmental Laws;
(ii) any communication to or from any governmental or regulatory
agency arising out of or in connection with Hazardous Substances or
Hazardous Materials (as defined by applicable Environmental Laws) on,
about, beneath, arising from or generated at the Premises, including,
without limitation, any notice of violation, citation, complaint, order,
directive, request for information or response thereto, notice letter,
demand letter or compliance schedule. As used herein, the terms
"Response," "Removal" or "Remedial Action" shall be defined with reference
to Sections 101(23)-101(25) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 9601(23)-9601(25); or
(iii) an existing or potential claim or enforcement action under
Environmental Laws for any cleanup costs, removal or remedial work, damage
to natural resources or personal injury related to an off-site location
where Hazardous Substances or Hazardous Materials generated, transported,
recycled or stored by the Company or any Subsidiary have been disposed.
2.15 Title to Properties and Assets. Except as set forth on Schedule 2.15
and as reflected in the September 30 Statement, the Company and the Subsidiaries
have sole and exclusive possession of, and good and marketable title to, all of
their properties and assets and such properties and assets are held by the
Company and the Subsidiaries free and clear of all mortgages, liens, claims, or
encumbrances. With respect to the real property it leases, the Company is in
compliance with such leases and holds a valid leasehold interest, free of any
liens, claims, or encumbrances.
2.16 Taxes.
(a) Except as set forth on Schedule 2.16, each of the Company,
FOHP-NJ and the other Subsidiaries has filed all federal, state, county, local
and foreign income, franchise and other tax returns required to be filed thereby
through the date hereof and has paid or adequately accrued for all taxes
reflected as due thereon, other than those tax returns or taxes that, if not
filed or paid, would not have a Material Adverse Effect. There are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any Federal income tax return for any period.
(b) There is no pending dispute, audit or investigation with any
taxing authority, and neither the Company nor FOHP-NJ has any knowledge of any
proposed dispute, audit or investigation or any proposed liability for any tax
to be imposed upon any of the properties or assets of the Company or any of the
Subsidiaries for which there is not an adequate reserve reflected in the
September 30 Statement. There does not exist any issue that, if raised by any
taxing authority with respect to any fiscal period, would, individually or in
the aggregate, be expected to result in an assessment against the Company or the
Subsidiaries that would have, or is reasonably likely to have, a Material
Adverse Effect.
(c) Except as set forth in Schedule 2.16, neither the Company nor any
of the Subsidiaries is a party to any contract arrangement that has or will
result in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
2.17 DOI Reports. The Company has made available to Purchaser at the
Company's offices a true and complete copy of all material reports filed by the
Company or any of the Subsidiaries regarding the activities of the Company and
the Subsidiaries in the State of New Jersey and the license application filed by
the Company in the State of New York with, and all material correspondence
regarding such activities and license application sent by the Company or FOHP-NJ
or First Option Health Plan of New York, Inc., a New York corporation and a
wholly-owned subsidiary of the Company ("FOHP-NY"), to, or received by the
Company or FOHP-NY or FOHP-NJ from, applicable insurance and HMO regulatory
bodies since January 1, 1994. Each material report required to be filed by the
Company or any of the Subsidiaries with applicable insurance and HMO regulatory
bodies since January 1, 1994 (as such documents have since the time of their
filing been amended, the "DOI Reports") has been filed. As of their respective
dates, the DOI Reports complied in all material respects with the requirements
of the laws, rules and regulations applicable to such DOI Reports, and none of
the DOI Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof.
2.18 Information Supplied. All information supplied or to be supplied by
the Company or the Subsidiaries (a) soliciting approval from the shareholders of
the Company for either the issuance and sale of the Debentures or for any act of
the Company to be taken in connection with the transactions contemplated under
this Amended Agreement will not, either at the date mailed (or otherwise
disseminated) to such shareholders or at the time of the meeting of shareholders
of the Company to be held in connection with the transactions contemplated by
this Amended Agreement, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading or (b) disclosed in any report or document filed with
the SEC as required under the Exchange Act or the Securities Act in connection
with the transactions contemplated hereunder will not, either at the time such
report or document (or any amendment thereto) is filed with the SEC or at the
time it becomes effective under the Securities Act or supplied to the Purchaser
or to shareholders of the Company or any of their respective representatives or
advisers in connection with the transactions contemplated by this Amended
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. All information disseminated by the Company or FOHP-NJ
in connection with the transactions contemplated by this Amended Agreement will
comply as to form in all material respects with all applicable laws, including
all relevant provisions of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation is made by
the Company with respect to information supplied by the Purchaser for inclusion
therein.
2.19 Certain Business Practices and Regulations. Neither the Company nor
any of the Subsidiaries, nor, to the knowledge of the Company or FOHP-NJ, any of
its or their respective executive officers, directors, or managerial employees
has (a) made or agreed to make any contribution, payment or gift to any
customer, supplier, governmental official, employee or agent where either the
contribution, payment or gift or the purpose thereof was illegal under any law,
(b) established or maintained any unrecorded fund or asset of the Company, FOHP-
NJ or any of the other Subsidiaries for any improper purpose or made any false
entries on its books and records for any reason, (c) made or agreed to make any
contribution, or reimbursed any political gift or contribution made by any other
person, to any candidate for federal, state or local public office in violation
of any law, or (d) engaged in any activity constituting fraud or abuse under the
laws relating to health care, insurance or the regulation of professional
corporations.
2.20 Insurance. All policies and binders of insurance for professional
liability, directors and officers, property and casualty, fire, liability,
workers' compensation and other customary matters held by or on behalf of the
Company or the Subsidiaries ("Insurance Policies") have been made available to
the Purchaser. The Insurance Policies are in full force and effect and neither
the Company nor any of the Subsidiaries is in default with respect to any
provision contained in any Insurance Policy, which default has had or would have
a Material Adverse Effect nor, to the knowledge of the Company or FOHP-NJ, has
the Company or the Subsidiaries failed to give any notice of any claim under any
Insurance Policy in due and timely fashion, nor has any coverage for current
claims been denied, which failure or denial has had or would have a Material
Adverse Effect. Set forth on Schedule 2.20 hereto is a list of insurance
currently maintained by the Company, FOHP-NJ or any of the Subsidiaries. The
Company and each of the Subsidiaries require as part of their contractual
relationships that each individual or entity rendering professional health care
services as an employee of or contractor to the Company or the Subsidiaries
maintain professional liability insurance and neither the Company nor FOHP-NJ
has any reason to believe that such individuals and entities generally do not
comply with such policy of the Company and each of the Subsidiaries.
2.21 Labor Issues. There is no collective bargaining or other labor union
contract to which the Company or any of the Subsidiaries is a party and which is
applicable to persons employed by the Company or any of the Subsidiaries. To
the knowledge of the Company or FOHP-NJ, there are no union organization
attempts underway with respect to the employees of the Company or any of the
Subsidiaries. There is no pending or, to the knowledge of the Company or
FOHP-NJ, threatened labor dispute, strike or work stoppage against the Company
or any of the Subsidiaries which may have a Material Adverse Effect. Neither
the Company nor any of the Subsidiaries, nor, to the knowledge of the Company or
FOHP-NJ, their respective representatives or employees, has committed any unfair
labor practices in connection with the operation of the respective businesses of
the Company or the Subsidiaries, and there is no pending or, to the knowledge of
the Company or FOHP-NJ, threatened charge or complaint against the Company or
the Subsidiaries by the National Labor Relations Board or any comparable state
agency.
2.22 Employment/Severance Matters. Schedule 2.22 sets forth a list of all
written or, to the knowledge of the Company or FOHP-NJ, material oral employment
agreements, employment contracts or understandings (other than understandings
with respect to "at will" employment) relating to employment to which the
Company or any of the Subsidiaries is a party. Schedule 2.22 sets forth all
severance and change of control payments that may become payable either as a
result of the transactions contemplated hereby, any future termination of
employment of employees party to such agreements, or both. To the knowledge of
the Company or FOHP-NJ, no executive officer of the Company or any of the
Subsidiaries is subject to any secrecy or noncompetition agreement or any
agreement or restriction of any kind with any third party that would impede in
any material way the ability of such executive officer to carry out fully all
activities of such executive officer in furtherance of the business of the
Company or any of the Subsidiaries. The Company and the Subsidiaries currently
have, and have had in the past, good relationship with their respective
employees.
2.23 Absence of Undisclosed Liabilities. Except as described in Sections
2.4 and 2.7 hereof and Schedules 2.4(b) and 2.7 hereto, to the best of the
knowledge of the Company or FOHP-NJ, neither the Company nor the Subsidiaries
taken as a whole, nor any of their respective assets or properties, are subject
to any liabilities, claims or obligations (whether known or unknown, accrued,
absolute, contingent or otherwise) of any nature.
2.24 Intellectual Property.
(a) The Company and the Subsidiaries do not own any patents,
registered trademarks or registered copyrights. The Company and the
Subsidiaries have not been advised, nor have the Company or FOHP-NJ any reason
to believe, that the Company or any Subsidiary is infringing a patent,
trademark, trade name or copyright held by another person.
(b) The Company and the Subsidiaries own or have in their possession
certain information of the sort typically considered as trade secrets in the
health care industry (the "Trade Secrets"). The Company and the Subsidiaries
have taken commercially reasonable precautions to maintain Trade Secrets in
confidence and to prevent their disclosure to unauthorized persons. To the
knowledge of the Company or FOHP-NJ, the Company and the Subsidiaries have good
title and an absolute (though not necessarily exclusive) right to use all Trade
Secrets and the use of the Trade Secrets does not infringe the rights of any
third party.
(c) To the best of the knowledge of the Company or FOHP-NJ, none of
the names (including, without limitation, the name "First Option Health Plan"),
processes or know-how used by the Company or any Subsidiary infringes any
patent, trademark, trade name or copyright of any third party. To the best of
the knowledge of the Company or FOHP-NJ, there is no intellectual property, in
any form, necessary for the operation of the Company and the Subsidiaries'
business as currently conducted which the Company or any Subsidiary does not
currently own or license on commercially reasonable terms.
2.25 Employee Benefit Plans. Neither the Company nor FOHP-NJ, in
connection with its business, is a party to any agreement requiring it to
continue to employ any of its present employees or any group of its present
employees, or continue to cover any present or former employees or any group of
present or former employees under any benefit plan. Schedule 2.25 lists each
currently effective employment, bonus, profit sharing, compensation,
termination, stock option, stock purchase, stock appreciation right, restricted
stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit plan or agreement, trust fund or
other arrangement and any union, guild or collective bargaining agreement
maintained or contributed to or required to be contributed to by the Company or
any of the Subsidiaries (such plans and arrangements being referred to herein as
the "Company Benefit Plans"). Full and complete copies of each of the Company
Benefit Plans have been delivered to Purchaser. Each of the Company Benefit
Plans is in material compliance with all applicable laws including the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code except where
noncompliance would not have a Material Adverse Effect. No condition exists
that is reasonably likely to subject the Company or any of the Subsidiaries to a
civil penalty under section 502(i) of ERISA or liability under section 4069 of
ERISA or section 4975, 4976, or 4980B of the Code or the loss of a Federal tax
deduction under section 280G of the Code or other liability with respect to the
Company Benefit Plans that would have a Material Adverse Effect and that is not
reflected on such balance sheet. None of the Company Benefit Plans is subject
to Title IV of ERISA. There are no pending or, to the knowledge of the Company
or FOHP-NJ, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Company Benefit Plans or any
trusts related thereto.
2.26 Brokerage and Other Fees. Except for PaineWebber Incorporated, no
broker, finder, agent, consultant or similar intermediary has acted on behalf of
the Company or FOHP-NJ in connection with the transactions contemplated by this
Amended Agreement and, except for fees payable to PaineWebber Incorporated,
there are no brokerage commissions, finder's fees or similar items of
compensation payable in connection therewith based on any agreement made by or
on behalf of the Company or FOHP-NJ. The Company and FOHP-NJ will, jointly and
severally, indemnify and hold the Purchaser harmless from and against any
liability or expense arising out of any such claim.
2.27 Accuracy of Information. None of the representations, warranties or
statements of the Company or FOHP-NJ contained in this Amended Agreement or in
the schedules and exhibits hereto contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make any of such
representations, warranties or statements, in light of the circumstances under
which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company and FOHP-NJ as
follows:
3.1 Organization and Good Standing.
(a) The Purchaser is a corporation, duly organized, validly existing
and in good standing under the laws of the state of Delaware, and has all
requisite corporate power and authority to carry on its business as now
conducted.
(b) Each of the Purchaser and its subsidiaries, to the extent
conducting business as an HMO, managed care organization, insurance company,
third party administrator or other entity requiring any form of governmental
licensure, qualification or authorization, is duly licensed, qualified or
authorized and in good standing under the applicable laws and regulations,
respectively, of each state or territory in which the conduct of such business
so requires, except where failure would not have a material adverse effect on
the Purchaser and its subsidiaries, taken as a whole. The conduct of the
respective businesses of the Purchaser and its subsidiaries is in conformity
with all applicable foreign, federal, state or territorial, local and other
governmental and regulatory requirements and the forms, procedures and practices
of the Purchaser and its subsidiaries in the conduct of their respective
businesses are also in compliance with all such requirements, to the extent
applicable, except where nonconformity or noncompliance would not constitute a
material adverse effect on the business of the Purchaser and its subsidiaries,
taken as a whole.
3.2 Authorization; Power. The execution, delivery and performance of this
Amended Agreement has been duly authorized by all necessary action of the
Purchaser. The Purchaser has the full right, power and authority to enter into
this Amended Agreement and to perform fully its obligations hereunder. This
Amended Agreement has been duly and validly executed and delivered by, and
constitutes the valid and binding obligation of, the Purchaser, enforceable in
accordance with its terms. The execution, delivery and performance of this
Amended Agreement and the purchase of the Debentures will not (a) conflict with,
or result in a material breach of any of the terms of, or constitute a material
default under, the Certificate of Incorporation or By-laws of the Purchaser or
(b) violate any laws, regulations, rules, judgments or orders to which the
Purchaser is subject, except for any such violation as would not have a material
adverse effect on the business, conditions, properties, results of operations or
prospects of the Purchaser and its subsidiaries, taken as a whole.
3.3 Purchase for Investment. The Purchaser is purchasing Debentures for
its own account or for the account of one or more of its subsidiaries, for
investment purposes and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act.
3.4 Unregistered Securities; Legend. The Purchaser understands that the
securities to be issued pursuant to this Amended Agreement have not been
registered under the Securities Act and will be issued in reliance upon an
exemption from the registration requirements thereof. The Purchaser
acknowledges that the certificates representing the Debentures and the Common
Stock issuable upon conversion thereof shall each bear a restrictive legend
substantially as follows:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 or any
applicable state securities laws and may not be offered for
sale, sold, transferred or conveyed without registration or
an opinion of counsel in form and substance reasonably
satisfactory to the Company to the effect that such
registration is not required."
3.5 Access to Data; Experience; Investment Decision.
(a) The Purchaser has had an opportunity to discuss the business and
financial affairs of the Company and the Subsidiaries with the management of the
Company, and to ask questions of officers of the Company. The Purchaser is an
"accredited investor" as the term is defined in Rule 501 of Regulation D under
the Securities Act.
(b) The Purchaser acknowledges that it has had an opportunity to
evaluate all information regarding the Company and the Subsidiaries as it has
deemed necessary or desirable in connection with the transactions contemplated
by this Amended Agreement and has independently evaluated the transactions
contemplated by this Amended Agreement and reached its own decision to enter
into this Amended Agreement; provided, however, that such acknowledgement shall
in no way be deemed to mitigate the effect of the representations and warranties
of the Company and FOHP-NJ set forth in Article II hereof (as such
representations and warranties may have been amended in accordance with
Section 11(a)(ii) of this Amended Agreement) or to imply that the Purchaser is
not, in entering into this Amended Agreement, relying on such representations
and warranties; and, provided, further, that such acknowledgement in no way
affects the rights and remedies of the Purchaser hereunder in connection with
any breach of such representations and warranties or otherwise. The Purchaser
acknowledges that it is relying solely upon the Company to disclose any and all
information material to the Purchaser's decision to enter into this Amended
Agreement and is not relying upon any statements made by PaineWebber
Incorporated regarding the Company or the transactions contemplated by this
Amended Agreement.
3.6 Brokerage and Other Fees. No broker, finder, agent, consultant or
similar intermediary has acted on the Purchaser's behalf in connection with the
transactions contemplated by this Amended Agreement other than Shattuck Hammond
Partners Inc., and there are no brokerage commissions, finder's fees or similar
compensation based on any arrangement or agreement made by or on behalf of the
Purchaser other than that payable to Shattuck Hammond Partners Inc. The
Purchaser will indemnify and hold the Company harmless against any liability or
expense arising out of any such claim.
3.7 No Financing Required. The Purchaser has unrestricted funds available
to pay the Purchase Price of the Debentures.
3.8 Litigation. There is no litigation, arbitration or governmental
proceeding or investigation pending or, to the knowledge of the Purchaser,
threatened in writing against the Purchaser which conflicts with the rights of
the Company hereunder or the performance of the Purchaser's obligations
hereunder or in any other agreement contemplated hereby. The Purchaser is not a
party to any litigation, arbitration, proceeding or investigation pending, or to
the knowledge of the Purchaser threatened, involving any federal, state or local
government or agency which would conflict with, or in any way impact, the
Purchaser's ability to perform its duties hereunder or in any other agreement
contemplated hereby.
3.9 Claims Processing System. The Purchaser's medical management systems
and techniques, claims processing system and related systems and procedures and
other information systems are sufficient to satisfactorily operate the Company's
business and such systems conform to industry standards.
3.10 Securities Exchange Act Reports Supplied to the Company. Each report,
schedule, registration statement and definitive proxy statement filed by the
Purchaser with the SEC on or after January 1, 1995, which are all the forms,
reports and documents required to be filed by the Purchaser with the SEC since
January 1, 1995 (a) complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, at and as of the
times they were filed (or, if amended or superseded by a filing prior to the
date of this Amended Agreement, then on the date of such filing) and (b) did not
at and as of the time they were filed (or, if amended or superseded by a filing
prior to the date of this Amended Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except, in each case, as would not have a material adverse effect on
the Purchaser's ability to consummate the transactions contemplated hereunder
and perform its obligations hereunder and under the Management Agreements and
would not involve facts indicative of the substantial elimination of earnings of
the Purchaser and its subsidiaries on a consolidated basis.
ARTICLE IV
PRE-CLOSING COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that between the date
hereof and the Initial Closing:
4.1 Fulfillment of Obligations. The Company shall observe and comply
fully with all of the terms, conditions and covenants of this Amended Agreement.
4.2 Access. The Company shall permit the Purchaser and its authorized
representatives, at all reasonable times and as often as reasonably requested,
to visit and inspect, at the expense of the Purchaser, any of the properties of
the Company and the Subsidiaries, to inspect and make copies of all documents,
records and information with respect to the affairs of the Company and the
Subsidiaries as the Purchaser and its representatives may reasonably request,
and shall make available to the Purchaser and its authorized representatives the
officers and other personnel of the Company and the Subsidiaries to discuss the
affairs, finances and accounts of the Company and the Subsidiaries, provided
that the Purchaser shall maintain the confidentiality of any material nonpublic
or proprietary information of the Company or the Subsidiaries thereby obtained
and provided, further, that the Purchaser shall conduct all such inspections and
discussions in a manner that is not unreasonably disruptive to the employees or
operations of the Company and the Subsidiaries.
4.3 Conduct of Businesses.
(a) Unless the Purchaser shall have consented in writing thereto and
except as otherwise provided for in this Amended Agreement, each of the Company
and FOHP-NJ:
(i) shall promptly notify the Purchaser of any Material Adverse
Effect or any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), affecting, as the case may be, the Company or any of the
Subsidiaries;
(ii) shall promptly deliver to the Purchaser true and correct
copies of any press release, and any report, statement or schedule filed with
the SEC subsequent to the date of this Amended Agreement;
(iii) shall not, and shall cause each of the Subsidiaries to
not, take any action that would cause the representations and warranties
contained in Article II hereof to be untrue in any material respect; provided,
however, that any such action which is the subject of an update notice from the
Company to the Purchaser not rejected by the Purchaser in accordance with the
termination provisions hereof shall not be deemed to be a breach hereof;
(b) In addition to the foregoing (and in no way limiting the
generality of the foregoing), between the date hereof and the Initial Closing,
unless the Purchaser shall have consented in writing thereto and except as
otherwise provided for in this Amended Agreement, each of the Company and FOHP-
NJ agrees that the Company, FOHP-NJ and each of the other Subsidiaries:
(i) shall confer on a regular basis with one or more
representatives of the Purchaser to report operational matters of materiality
and any proposals to engage in material transactions (except that such
obligation to confer is not applicable to Subsidiaries of the Company that are
not operating Subsidiaries);
(ii) shall not, except as otherwise specifically disclosed
herein, fail to comply with any laws and regulations applicable to it or to the
conduct of its business, the noncompliance with which would, individually or in
the aggregate, have a Material Adverse Effect;
(iii) shall not authorize for issuance, issue or deliver any
additional shares of any stock of any class or securities convertible into
shares of stock or issue or grant any right, option, warrant or other commitment
for the issuance of shares of stock or such securities, or any stock
appreciation rights, other than under the terms of this Amended Agreement;
(iv) shall not amend its certificate or incorporation or by-laws,
except as provided for in this Amended Agreement;
(v) shall not split, combine or reclassify any shares of its
capital stock or declare, set aside or pay any dividend (whether in cash, stock
or property) in respect of its capital stock (other than dividends paid to the
Company) or redeem or otherwise acquire any of its capital stock;
(vi) shall not sell marketable securities owned by it, if any, or
purchase marketable securities, except in the ordinary course of business;
(vii) shall not prepay its expenses or obligations except in
accordance with the terms of applicable contracts, commitments and arrangements
and in the ordinary course of business (and in any case, not to exceed $50,000);
(viii) shall not increase compensation or benefits for, or pay
any bonuses to, or enter into any severance or change of control arrangements
with, any of its directors, officers, employees, consultants or agents outside
of the ordinary course of business;
(ix) shall not offer employment to or employ any person not
currently employed by it other than on the basis of employment-at-will in the
ordinary course of business or enter into any written employment contract or any
collective bargaining agreement;
(x) shall not create, amend, extend, renew, assume, incur or
guarantee any indebtedness either involving amounts in excess of $50,000
individually or in excess of $100,000 in the aggregate, or not in the ordinary
course of its business;
(xi) shall not, except as otherwise permitted herein, enter into
or amend any contract, commitment or arrangement or engage in any transaction
which is not in the ordinary course of its business;
(xii) shall not create any stock option or other stock-based
incentive plan or grant any stock option, phantom stock, stock appreciation
right or other similar security or instrument;
(xiii) shall not acquire any other business or interest
therein;
(xiv) shall not enter into any contract, commitment or
arrangement or engage in any transaction with any of its affiliates,
shareholders, directors, officers or employees which is not in the ordinary
course of business and consistent with past practice;
(xv) shall not enter into any amendment or modification of any of
its agreements with providers, other than amendments or modifications expressly
contemplated hereby or with respect to which the Purchaser shall have provided
its prior written consent;
(xvi) shall not make any contractual commitment (including by
way of renewal) with respect to any single account involving projected annual
premium revenues or health care costs in excess of $1,000,000;
(xvii) shall use all reasonable, good-faith efforts to conduct
its operations only according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(xviii) shall use all reasonable, good-faith efforts to
preserve intact its business organization and goodwill, keep available the
services of its officers and employees and maintain satisfactory relationships
with those persons having business relationships with it;
(xix) shall not make any change in its accounting practices
other than as required by the Financial Accounting Standards Board (in which
event such change shall be reported promptly to Purchaser in writing); and
(xx) shall not enter into any contract, commitment or arrangement
to do any of the things described in clauses (iii) through (xvi) and clause
(xix) above.
4.4 No Solicitation of Other Offers. Neither the Company nor any of the
Subsidiaries shall, directly or indirectly, through any of their respective
officers, directors, employees, agents or otherwise (i) solicit, initiate or
encourage submission of any inquiry, proposal or offer from any person or entity
(other than the Purchaser) relating to any acquisition, purchase or sale of all
or a material amount of the respective assets of, or any securities of, or any
merger, consolidation or business combination, liquidation, reorganization or
similar transaction with, the Company or any of the Subsidiaries (an
"Alternative Transaction"), or (ii) subject to fiduciary obligations under
applicable law as advised by counsel, participate in any discussion or
negotiations regarding, or furnish to any other person any information with
respect to, any effort or attempt by any other person to do or seek any of the
foregoing. Subject to fiduciary obligations under applicable law as advised by
counsel, neither the Company nor any of the Subsidiaries shall furnish or cause
to be furnished any confidential information concerning its business, properties
or assets to any person or entity that is interested in any Alternative
Transaction. The Company shall promptly notify Purchaser if any such inquiry,
proposal or offer with respect to an Alternative Transaction, or any inquiry or
contact with any person or entity with respect thereto, is made, and shall, in
any such notice, include a description of the terms of any proposal or offer, or
the nature of any such inquiry or contact, that is made, and the identity of the
person or entity making such inquiry, proposal or offer or other communication.
4.5 Interim Financial Statements. Within 30 days after the end of each
calendar month that ends after the date of this Amended Agreement and before the
Initial Closing, the Company will deliver to the Purchaser unaudited
consolidated balance sheets and summaries of earnings for such calendar month
and the year to date. All such financial statements shall accurately present
the financial position and results of operations of the Company and the
Subsidiaries on a consolidated basis.
4.6 Updated Disclosure; Breaches. From and after the date of this Amended
Agreement until the Initial Closing, the Company shall promptly notify the
Purchaser hereto by written update of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
condition to the obligations of any party to effect the transactions
contemplated by this Amended Agreement not to be satisfied, (ii) the failure of
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it pursuant to this Amended Agreement which would
be likely to result in any condition to the obligations of any party to effect
the transactions contemplated by this Amended Agreement not be satisfied or
(iii) any representation, warranty or information set forth in this Amended
Agreement or its schedules regarding the Company becoming incorrect or
incomplete in any material respect; provided, however, that the delivery of any
notice pursuant to this Section 4.6 shall not cure any breach of any
representation or warranty requiring disclosure prior to the date, or in
connection with the execution and delivery, of this Amended Agreement or
otherwise limit or affect the remedies available to the Purchaser (other than
with respect to Material Contracts described in Section 2.10 hereof and entered
into in the ordinary course of business subsequent to the date hereof and any
changes in representations and warranties of the Company relating to regulatory
compliance resulting from regulatory action occurring after the date hereof).
4.7 Consummation of Amended Agreement. The Company shall use all
reasonable efforts to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions.
4.8 Approvals of Third Parties. The Company shall use all reasonable
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties, including, without limitation, the New
Jersey Department of
Banking and Insurance and the New Jersey Department of Health and Senior
Services, to the consummation of the transactions contemplated hereby.
4.9 Restated Certificates and By-laws.
(a) Subject to receipt of necessary shareholder approval as
contemplated in Section 4.10 hereof, the Company shall (i)(A) use all reasonable
efforts to file an Amended and Restated Certificate of Incorporation in the form
attached hereto as Exhibit B-1 (the "Restated Certificate") with the Secretary
of State of the State of New Jersey prior to the Initial Closing and (B) adopt
by-laws in the form attached hereto as Exhibit B-2 and (ii) if requested by the
Purchaser, cause each of the Subsidiaries to file an amended and restated
certificate of incorporation in its jurisdiction of incorporation and to adopt
amended and restated by-laws, which amended and restated certificate of
incorporation and amended and restated by-laws shall in no way be breached,
violated or conflict with the transactions contemplated hereby.
(b) FOHP-NJ shall, prior to the Initial Closing (i) use all
reasonable efforts to file an amended and restated certificate of incorporation,
in the form attached hereto as Exhibit B-3, with the Secretary of the State of
the State of New Jersey and (ii) adopt by-laws in the form attached hereto as
Exhibit B-4.
4.10 Proxy Statement.
(a) Subject to the terms and conditions of this Amended Agreement, as
promptly as practicable after the date hereof, the Company shall prepare and
file with the SEC the proxy statement (the "Proxy Statement") of the Company for
a meeting of shareholders to be held in connection with the approval of this
Amended Agreement and the transactions contemplated hereunder (the "Meeting").
The Company shall provide the Purchaser with a draft of the Proxy Statement a
reasonable period of time prior to filing the Proxy Statement with the SEC. The
Purchaser shall have the right to consent to and approve (which consent and
approval shall not be unreasonably withheld) the information included in the
Proxy Statement in any manner relating to the Purchaser or its subsidiaries or
affiliates or to the transactions contemplated hereby. Subject to the terms and
conditions of this Amended Agreement, the Company shall use all reasonable
efforts to have the Proxy Statement cleared for mailing by the SEC. The Company
will (i) take appropriate action to call the Meeting to be held at the earliest
practicable date to consider and vote upon the transactions contemplated
hereunder, (ii) mail the Proxy Statement to the shareholders of the Company
entitled to receive it and otherwise comply in all material respects with all
applicable legal requirements in connection with the vote of shareholders at the
Meeting promptly after the SEC has cleared the Proxy Statement for distribution
to the shareholders of the Company, and (iii) submit this Amended Agreement to
its shareholders with a recommendation for approval by its Board of Directors,
subject to fiduciary obligations under applicable law as advised by counsel.
(b) The Company shall promptly furnish to the Purchaser all
information concerning the Company, the Subsidiaries and its shareholders as may
be required or reasonably requested in connection with any action contemplated
by this Section 4.10.
4.11 Provider Contracts.
(a) (i) The Company and FOHP-NJ shall use all reasonable efforts to
modify their provider contracts (A) with each physician provider so that (I) the
aggregate rate of reimbursement with respect to all FOHP-NJ commercial members
is reduced to an average of 115 percent of RBRVS and (II) the aggregate rate of
reimbursement with respect to all FOHP-NJ Medicare members is reduced to an
average of no more than 100 percent of RBRVS, and (III) the aggregate rate of
reimbursement with respect to all FOHP Medicaid members is reduced to an average
of no more than 65 percent of RBRVS and (B) with each hospital or acute care
institution provider so that (I) the rate of reimbursement applicable to in-
patient visits will be the lower of (x) the lowest rate of reimbursement
received by such provider from nongovernmental payors for each line of business,
or (y) the rate of reimbursement reflecting a reduction (compared to calendar
1996 rates) of five percent in in-patient costs (solely as a result of rate
reductions and not through utilization or medical management efforts) and (II)
the rate of reimbursement applicable to out-patient visits will be the lower of
(x) the lowest rate of reimbursement received by such provider from
nongovernmental payors for each line of business, or (y) the rate of
reimbursement reflecting a reduction (compared to calendar 1996 rates) of 10
percent in out-patient costs (solely as a result of rate reductions and not
through utilization or medical management efforts). The Company and FOHP-NJ
will also use all reasonable efforts to, in the case of any physician or
hospital or acute care institution providers with which the Company or FOHP-NJ,
as the case may be, has contracts containing terms not competitive with terms
offered by other providers in the same markets, pursue additional modifications
to such terms to make such terms so competitive.
(ii) The Company and FOHP-NJ shall use all reasonable efforts to
(A) enter into an agreement, in substantially the form attached hereto as
Exhibit C-1, with each hospital or acute care institution provider (referred to
herein as an "Exclusive Plan Hospital Provider") which currently offers to its
employees as its exclusive health benefits plan a FOHP-NJ health benefits plan
committing such Exclusive Plan Hospital Provider to continue to offer such FOHP-
NJ plan to its employees as its exclusive health benefits plan through the end
of 1999 or such other period as the parties thereto may mutually agree on the
same terms and conditions as currently in effect except that reimbursement rates
under such plan with respect to renewals commencing in the 1998 and 1999
calendar years shall be adjusted in accordance with the methodology set forth in
such form of agreement and (B) enter into an agreement, in substantially the
form attached hereto as Exhibit C-2, with each hospital or acute care
institution provider (referred to herein as a "Non-Exclusive Plan Hospital
Provider") which currently offers to its employees on a non-exclusive basis a
FOHP-NJ health benefits plan committing such Non-Exclusive Plan Hospital
Provider to continue to offer such FOHP-NJ plan to its employees through the end
of 1999 or such other renewal as the parties thereto may mutually agree on the
same terms and conditions as currently in effect except that reimbursement rates
under such plan with respect to the renewals commencing in 1998 and 1999
calendar years shall be adjusted in accordance with the methodology set forth in
such form of agreement.
(b) The Company agrees to allow the Purchaser to evaluate the
Company's current Managed Care Management Information Services Agreement (the
"HSII Agreement") between the Company and Health Systems Integration, Inc. and
further agrees to terminate such agreement at or subsequent to the Initial
Closing if (i) the Purchaser so requests and (ii) the Company is presented the
opportunity to enter into an agreement with the Purchaser or a third party
pursuant to which the Company would be provided services substantially similar
to those set forth in the HSII Agreement for a fee no higher than that set forth
in the HSII Agreement.
4.12 Letters of Credit; Guarantees. Neither the Company nor FOHP-NJ shall
draw any amounts under any letter of credit, or incur any obligations under any
other reimbursement or other agreement relating to credit support therefor,
unless so required by either the New Jersey Department of Banking and Insurance
or the New Jersey Department of Health and Senior Services to so draw such
amounts under such letter of credit or so incur such obligations under such
reimbursement or other agreement, in which event all amounts so drawn, or
received by the Company or FOHP-NJ in connection with such obligation
incurrence, shall be placed and maintained in a separate and segregated account
from which funds shall be used to satisfy in full all obligations relating to
such letter of credit or reimbursement or other agreement, as the case may be.
The Company or FOHP-NJ, as the case may be, shall immediately provide written
notice to HSI should they become required by the New Jersey Department of
Banking and Insurance or the New Jersey Department of Health and Senior Services
to draw any amounts under any letter of credit, or incur any obligations under
any other reimbursement or other agreement relating to credit support therefor.
4.13 Liability Insurance. The Company shall continue to keep in effect its
directors' and officers' liability insurance coverage policies with National
Union Fire Insurance Co., American Alliance and Executive Risk Indemnity Inc. as
are listed on Schedule 2.20 hereto.
ARTICLE V
COVENANTS OF THE PURCHASER
5.1 Consummation of Agreement. The Purchaser shall, between the date
hereof and the Initial Closing, use all reasonable efforts to cause the
consummation of the transactions contemplated hereby in accordance with their
terms and conditions.
5.2 Claims Processing System. The Purchaser shall, between the date
hereof and the Initial Closing, use all reasonable efforts to maintain its
medical management systems and techniques, claims processing system and related
systems and procedures and other information systems in conformance and
adherence to industry standards.
5.3 Updated Disclosure; Breaches. From and after the date of this Amended
Agreement until the Initial Closing Date, the Purchaser shall promptly notify
the Company hereto by written update of (a) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
condition to the obligations of the Company to effect the transactions
contemplated by this Amended Agreement not to be satisfied, or (b) the failure
of the Purchaser to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it pursuant to this Amended Agreement which
would be likely to result in any condition to the obligations of any party to
effect the transactions contemplated by this Amended Agreement not be satisfied
or (c) any representation, warranty or information set forth in this Amended
Agreement or its schedules regarding the Purchaser shall become incorrect or
incomplete in any material respect; provided, however, that the delivery of any
notice pursuant to this Section 5.3 shall not cure any breach of any
representation or warranty requiring disclosure prior to the date of this
Amended Agreement or otherwise limit or affect the remedies available to the
Company (other than as described in Section 11.1(a)(iii) hereof).
5.4 Standstill. Prior to December 31, 1998, the Purchaser shall not,
without the prior written consent of the Company, purchase or acquire any Common
Stock (other than in connection with the conversion of the Debentures into
Conversion Shares); provided, however, that the restriction on the Purchaser set
forth in this Section 5.4 shall not apply to (a) the transactions contemplated
herein, (b) any acquisition of Common Stock by the Purchaser pursuant to its
rights of first refusal or preemptive rights under, or as otherwise contemplated
in Article III - Section (E)(4)(a) of, the Restated Certificate or (c) any
purchase or acquisition of Common Stock effected in connection with a tender
offer made by the Purchaser to holders of Common Stock if such tender offer (i)
is accompanied by an irrevocable commitment of the Purchaser to make an Exchange
Offer or Cash Offer in accordance with Section 6.4 hereof in 1999, or (ii)
provides for the determination of consideration to be offered to be made in
accordance with the provisions of Section 6.4 hereof or (iii) is preceded by a
tender offer in which the determination of consideration to be offered is made
in accordance with clause (ii) of this Section 5.4(c) hereof.
ARTICLE VI
OTHER AGREEMENTS
6.1 Provider Contracts.
(a) From and after the Initial Closing, the Company and FOHP-NJ shall
continue to use all reasonable efforts to modify such remaining provider
contracts as were not modified prior to the Initial Closing in satisfaction of
the condition set forth in Section 7.1(h)(ii) hereof (i) with each physician
provider so that (A) the aggregate rate of reimbursement with respect to all
FOHP-NJ commercial members is reduced to an average of 115 percent of RBRVS,
(B) the aggregate rate of reimbursement with respect to all FOHP-NJ Medicare
members is reduced to an average of 100 percent of RBRVS, and (C) the aggregate
rate of reimbursement with respect to all FOHP Medicaid members is reduced to an
average of no more than 65 percent of RBRVS and (ii) with each hospital or acute
care institution provider so that (A) the rate of reimbursement applicable to
in-patient visits will be the lower of (I) the lowest rate of reimbursement
received by such provider from nongovernmental payors for each line of business,
or (II) the rate of reimbursement reflecting a reduction (compared to calendar
1996 rates) of five percent in in-patient costs (solely as a result of rate
reductions and not through utilization or medical management efforts) and (B)
the rate of reimbursement applicable to out-patient visits will be the lower of
(I) the lowest rate of reimbursement received by such providers from non-
governmental payors for each line of business, or (II) the rate of reimbursement
reflecting a reduction (compared to calendar 1996 rates) of 10 percent in out-
patient costs (solely as a result of rate reductions and not through utilization
or medical management efforts). The Company and FOHP-NJ will also continue to
use all reasonable efforts to, in the case of any physician or hospital
providers with which the Company or FOHP-NJ, as the case may be, has contracts
containing terms not competitive with terms offered by other providers in the
same markets, pursue additional modifications to such terms to make such terms
so competitive.
(b) From and after the Initial Closing, the Company and FOHP-NJ shall
continue to use all reasonable efforts to (i) enter into an agreement, in
substantially the form attached hereto as Exhibit C-1, with each remaining
Exclusive Plan Hospital Provider as did not enter into such an agreement prior
to the Initial Closing in satisfaction of the condition set forth in Section
7.1(h)(i) hereof, committing such Exclusive Plan Hospital Provider to continue
to offer such FOHP-NJ plan to its employees as its exclusive health benefits
plan through the end of 1999 or such other period as the parties thereto may
mutually agree on the same terms and conditions as currently in effect except
that reimbursement rates under such plan with respect to the renewals commencing
in 1998 and 1999 calendar years shall be adjusted in accordance with the
methodology set forth in such form of agreement and (ii) enter into an
agreement, in substantially the form attached hereto as Exhibit C-2, with each
remaining Non-Exclusive Plan Hospital Provider as did not enter into such an
agreement prior to the Initial Closing in satisfaction of the conditions set
forth in Section 4.11 hereof, committing such Non-Exclusive Plan Hospital
Provider to continue to offer such FOHP-NJ plan to its employees through the end
of 1999 or such other period as the parties thereto may mutually agree on the
same terms and conditions as currently in effect except that reimbursement rates
under such plan with respect to the renewals commencing in 1998 and 1999
calendar years shall be adjusted in accordance with the methodology set forth in
such form of agreement.
6.2 Capital Requirements. The parties hereto agree that, based on
reasonable projections, prepared by the Purchaser or the Company, of the
Company's net worth and statutory surplus in relation to the net worth
requirements applicable thereto, as are determined by the New Jersey Department
of Banking and Insurance and the New Jersey Department of Health and Senior
Services, from time to time after the date as of which the aggregate of all
Additional Debenture Advance Amounts and the Initial Debenture Advance Amount
shall equal the Debentures Commitment Amount, if it is determined that the
Company needs capital to satisfy such net worth requirements ("Net Capital
Shortfall"), then the Purchaser shall have the right to advance funds to the
Company so that the Company will satisfy the Net Capital Shortfall in exchange
for additional convertible debentures in form substantially similar to the
Debentures; provided that in the event any such Net Capital Shortfall is the
result of payments made to the Purchaser under the General Administrative
Services Management Agreement that would have qualified as Deferred Management
Fees under Section 5.1 of the Debentures had such payments not been made, the
principal amount and interest thereon of such additional convertible debentures
related to such payments shall only become convertible into Common Stock if such
principal amount and interest thereon related to such payments is not repaid to
the Purchaser on or before the end of the calendar quarter immediately following
such payments. If the Purchaser does not, within seven days of the receipt of
any such projections as were prepared by the Company, determine to so advance
funds to the Company, then the Board of Directors of the Company shall have the
right to initiate a pro rata offering of the Common Stock to all then-current
shareholders of the Company to raise capital to satisfy such Net Capital
Shortfall.
6.3 New York Subsidiary. The parties hereto agree to work cooperatively
and in good faith to pursue a mutually agreeable capitalization plan with
respect to FOHP-NY. In the event that no such capitalization plan is developed
and implemented prior to June 30, 1997, the Purchaser shall have the right to
effect a transaction with respect to FOHP-NY, at the fair market value thereof,
pursuant to which FOHP-NY would become a stand-alone company no longer
affiliated as a subsidiary of FOHP so long as there is presented to those
directors of the Company not affiliated with the Purchaser a valuation or
appraiser report or fairness opinion, delivered by an independent, nationally
recognized valuation firm, evidencing that such transaction is to be effected
for fair market value consideration or otherwise opining as to the fairness,
from a financial point of view, of such transaction to the Company.
6.4 Post-Closing Acquisition.
(a) Exchange/Cash Offer for Shares. (i) The Purchaser may at any
time during 1999, at its option, either make an offer (referred to herein as the
"Exchange Offer") to shareholders of the Company to exchange shares of the Class
A Common Stock of the Purchaser or the common stock of any successor corporation
of the Purchaser (in either case referred to herein as "HSI Common Stock"), or
make an offer (referred to herein as the "Cash Offer") to pay cash, for the
shares of the Common Stock of the Company held by such shareholders. Prior to
making the Exchange Offer or the Cash Offer, the Purchaser shall furnish the
Company with prior written notice of its intention to promptly make such
Exchange Offer or Cash Offer, as the case may be (such notification being
referred to herein as the "Offer Notice"). In the Exchange Offer, the Purchaser
would agree to exchange, for each share of Common Stock of the Company, such
number of shares of HSI Common Stock as shall have a Purchaser Stock Market
Value (as such term is defined in paragraph (ii) of this Section 6.4(a)) equal
to the Company Stock Value of such share of Common Stock of the Company. In the
Cash Offer, the Purchaser would agree to pay cash, for each share of Common
Stock of the Company, equal to the Company Stock Value (as such term is defined
in paragraph (iii) of this Section 6.4(a) hereof) of such share of Common Stock
of the Company.
(ii) For purposes hereof the term "Purchaser Stock Market Value"
shall mean the average closing sales price of the HSI Common Stock on the New
York Stock Exchange, Inc. (or, if such HSI Common Stock is not at such time
listed on the New York Stock Exchange, Inc., on such other national securities
exchange as the HSI Common Stock shall at such times be listed or quoted) for
the five consecutive trading days immediately preceding the date on which such
Exchange Offer is commenced by the Purchaser; provided, however, that, in the
event HSI Common Stock shall at such times not be listed or quoted on any
national securities exchange, "Purchaser Stock Market Value" shall be determined
in accordance with the procedures for the determination of Company Stock Value
set forth in paragraph (a)(iii) of this Section 6.4.
(iii) For purposes hereof, "Company Stock Value" shall
be determined as follows: Each of the Purchaser and the Company (through its
directors who are unaffiliated with the Purchaser) shall promptly (and in no
event later than 10 days after the Offer Notice) select an independent qualified
appraiser to appraise the Company Stock Value. Upon completion of such
appraisal by each of such appraisers within 10 business days of the selection
thereof, the two independent qualified appraisers shall exchange their
respective appraisals and submit such appraisals to the Company and the
Purchaser. If the two independent qualified appraisers agree on an appraisal
for the Company Stock Value, the Company Stock Value shall be the agreed-upon
amount. If only one of such appraisers so submits an appraisal within the 10-
business day period subsequent to the selection thereof, the Company Stock Value
shall be the amount set forth in such appraisal. If the two independent
qualified appraisers submit their appraisals within such 10-business day period
but do not promptly agree upon a Company Stock Value, the two independent
qualified appraisers shall select a third independent qualified appraiser to
appraise the Company Stock Value. The third independent qualified appraiser,
upon completion of its appraisal within 10 business days of the selection
thereof, shall submit such appraisal to the Company and the Purchaser. The
Company Stock Value shall be determined by taking the average of the two
appraisals which are closest to each other; provided, however, that, if the
appraisal amount which is less than the highest appraisal and greater than the
lowest appraisal is greater or less than the average amount of such other
appraisals by an amount representing no more than seven and one-half percent of
such average amount, then the average of all three appraisals will be the
Company Stock Value for the purposes of this Section 6.4. For example, if the
Purchaser's independent qualified appraiser valued the aggregate Company Stock
Value at $150 million, the Company's independent qualified appraiser valued the
aggregate Company Stock Value at $50 million and the third independent qualified
appraiser valued the aggregate Company Stock Value at $125 million, the
aggregate Company Stock Value for purposes of this Section 6.4 would be $137.5
million (the average of the two closest appraisals). If, however, the third
independent qualified appraiser appraised the Company Stock Value at $105
million (greater than $100 million by an amount less than seven and one-half
percent of $100 million), the aggregate Company Stock Value for purposes of this
Section 6.4 would be approximately $101.7 million (the average of all three).
For purposes of this Section 6.4, the term "independent qualified appraiser"
shall mean any appraiser which, for at least two years prior to the date of
appointment hereunder (A) is a nationally recognized investment banking firm or
has been in the business of appraising managed health care businesses with
revenues and membership comparable to that of FOHP-NJ and (B) is not affiliated
with either the Company or the Purchaser or otherwise unable to exercise
independent judgment as to the Company Stock Value determination.
(b) Post-Closing Merger. (i) The parties hereto agree that, at any
time after the consummation of the Exchange Offer or the Cash Offer, as the case
may be, or otherwise at any time during the 1999 calendar year, the Purchaser
may (after providing at least 30 days advance written notice thereof to the
Company and providing other legally required notices) effect a merger, business
combination or consolidation transaction (the "Merger Transaction") involving
the Company for the purpose of obtaining 100 percent of the then-outstanding
equity of the Company. The consideration to be paid or distributed in
connection with the Merger Transaction to the shareholders of the Company other
than the Purchaser in respect of each share of Common Stock of the Company held
thereby shall consist of (A) cash in an amount equal to the Company Stock Value
of such share of Common Stock of the Company or (B) such number of shares of HSI
Common Stock as shall have a Purchaser Stock Market Value equal to the Company
Stock Value of such share of Common Stock of the Company.
(c) The Board of Directors of the Company has approved the Merger
Transaction for purposes of Section 14A:10A-4 of the New Jersey Shareholders
Protection Act, and the Company agrees to separately provide to the Purchaser
evidence, satisfactory to the Purchaser, of such approval prior to the Initial
Closing. For purposes hereof, any such Merger Transaction must provide: (i) in
connection therewith, the shareholders of the Company, other than the Purchaser,
shall be afforded dissenters' rights in the same manner and under the same
conditions as are provided under Chapter 11 of the New Jersey Business
Corporation Act, regardless of whether such shareholders would otherwise have
been entitled to such rights under the New Jersey Business Corporation Act; (ii)
the Company, or any successor thereto, shall provide in its by-laws
indemnification provisions substantially similar to those currently contained in
the Company's by-laws for the period ending six years from the date of the
Merger Transaction, or, if earlier, for the period ending on the date on which
the statute of limitations has expired with respect to the Company's Board of
Directors' approval of this Amended Agreement and the Merger Transaction
contemplated hereby; and (iii) the Company, or any successor thereto, shall
maintain officers' and directors' liability insurance coverage policies with
terms and conditions contained in the officers' and directors' liability
insurance coverage policies currently maintained by the Company for the period
ending six years from the date of the Merger Transaction, or, if earlier, for
the period ending on the date on which the statute of limitations has expired
with respect to the Company's Board of Directors' approval of this Amended
Agreement and the Merger Transaction contemplated hereby, which insurance shall
provide coverage for former directors of the Company.
6.5 Additional HSR Act Filings. Each of the Company and the Purchaser
agrees that, in the event that any additional filings are required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), subsequent to the Initial Closing, with respect to consummation of any of
the transactions contemplated hereunder, it shall use all reasonable efforts to
file as soon as possible and to effect early termination of all applicable
waiting periods regarding such filing under the HSR Act (including, without
limitation, complying as promptly as practicable with all requests thereunder
for additional information). Each of the Company and the Purchaser shall pay to
the Federal Trade Commission (the "FTC") one-half of the appropriate filing fee
required to be paid under the rules of the FTC with respect to any such
additional filing.
6.6 Liability Insurance. The Company shall continue to keep in effect its
directors' liability insurance coverage policies with National Union Fire
Insurance Co., American Alliance and Executive Risk Indemnity Inc. as are listed
on Schedule 2.20 hereto through September 15, 1997 and shall renew such coverage
or substantially the same terms as are now in effect for at least six years from
and after the Initial Closing Date or for such shorter period as the Purchaser
may agree in writing.
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
7.1 Conditions Precedent to Initial Closing. The Purchaser's obligations
to purchase the Debentures and consummate the other transactions contemplated
hereby shall be subject to the satisfaction of the following conditions, any of
which may be waived in writing:
(a) Delivery of Debentures. The Company shall have delivered to the
Purchaser the Debentures.
(b) Representations and Warranties. The representations and
warranties contained in Article II hereof (as such representations and
warranties may have been amended in accordance with Section 11.1(a)(ii) hereof)
shall be true and correct in all material respects on and as of the Initial
Closing Date, with the same effect as though made on and as of the Initial
Closing Date.
(c) Corporate Proceedings. All corporate and other proceedings
required to be taken by the Company in connection with the transactions
contemplated hereby, including, without limitation, approval by the shareholders
of the Company hereunder, shall have been taken or obtained and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Purchaser. The Purchaser shall have received all such counterpart originals or
certified or other copies of such documents of the Company relating to all
corporate and other proceedings as it shall reasonably request.
(d) Amended and Restated Certificates and By-laws. The restated
certificates of incorporation of the Company and FOHP-NJ, in the forms of
Exhibits B-1 and B-3, respectively, attached hereto, shall have been filed with
the Secretary of State of the State of New Jersey and the terms thereof shall
have become effective and the amended and restated by-laws of the Company and
FOHP-NJ, in the forms of Exhibits B-2 and B-4, respectively, attached hereto
shall have been adopted.
(e) Good Standing Certificates. The Purchaser shall have received
(i) a copy of the Certificate certified as of a recent date by the Secretary of
State of the State of New Jersey and (ii) certificates as of a recent date of
the Secretary of State of each state in which the Company or any Subsidiary is
organized or qualified to do business as a foreign corporation, to the extent
that such corporation is in existence and otherwise is in good standing to
transact business in such state.
(f) Secretary's Certificate. The Purchaser shall have received
certificates of the Secretary of each of the Company and FOHP-NJ certifying that
(i) attached to the certificate is a true and complete copy of the By-Laws of
the Company, as in full force and effect at the Initial Closing Date, and
(ii) the names and true signatures of each officer of the Company and FOHP-NJ
who has been authorized to execute and deliver this Amended Agreement, the
Debentures and any other document to be delivered by the Company at the Initial
Closing.
(g) Management Agreements. The Company shall have entered into the
Management Agreements in the forms attached as Exhibit D-1 and D-2 hereto.
(h) Modified Provider Agreements. The Company shall have delivered
to the Purchaser evidence, satisfactory to the Purchaser in its sole discretion,
that (i) the Company and FOHP-NJ shall have modified, in a legally binding
manner, FOHP-NJ's provider contracts so that (A) at least 90 percent of
individual physician providers who contract directly with FOHP-NJ and at least
80 percent of the remaining individual physician providers (who contract with
FOHP-NJ through physician groups) are obligated to accept rates of reimbursement
which will result in aggregate payments of no more than (I) 115 percent of RBRVS
with respect to all commercial members, (II) 100 percent of RBRVS with respect
to all Medicare members and (III) 65 percent of RBRVS with respect to all
Medicaid members and (B) with respect to institutional providers, (I) the
aggregate rate of reimbursement among all FOHP-NJ institutional providers would
reflect a reduction (compared to calendar 1996 rates) of (x) five percent in in-
patient costs (solely as a result of rate reductions and not through utilization
or medical management efforts) and a reduction (compared to calendar 1996 rates)
of (y) 10 percent with respect to out-patient costs (solely as a result of rate
reductions and not through utilization or medical management efforts) and (II)
individual institutional providers representing at least 80 percent of FOHP-NJ's
health care costs (as measured with respect to the 1996 calendar year) shall
have modified their provider contracts with FOHP-NJ as described in Section
4.11(a)(i)(B) hereof and (ii) (A) the Exclusive Plan Hospital Providers shall
have delivered to the Company and FOHP-NJ legally binding commitments, in
substantially the form of Exhibit C-1 hereto, that all of their employees will
continue to be covered by a FOHP-NJ health benefits plan through the end of 1999
and that such employees will constitute an aggregate of at least 1,614,660
"member-months" over the terms of such respective commitments, including (I)(x)
at least 621,100 "member-months" for the 1997 calendar year, (y) at least
496,780 "member-months" for the 1998 calendar year and (z) at least 496,780
"member-months" for the 1999 calendar year and (B) the Non-Exclusive Plan
Hospital Providers shall have delivered to the Company and FOHP-NJ satisfactory
commitments, in substantially the form of Exhibit C-2 hereto, that (I) employees
representing a minimum of annualized 238,800 member-months will continue to be
covered by a FOHP-NJ health benefits plan through the end of the 1997 calendar
year and (II) employees representing a minimum of annualized 382,080 member-
months will be covered by a FOHP-NJ health benefits plan for the 1998 and 1999
calendar years.
(i) Investors Agreement. The Company shall have entered into the
Investors Agreement in the form attached hereto as Exhibit E.
(j) Opinions of Counsel. The Purchaser shall have received from
Shereff, Friedman, Hoffman & Goodman, LLP, Giordano, Halleran & Ciesla, P.C. and
the general counsel of the Company, opinions of counsel, dated the Initial
Closing Date, containing the opinions set forth in, and allocated as designated
in, the form attached as Exhibit F hereto.
(k) Approvals and Consents. All authorizations, approvals, consents
and waivers of any governmental authority necessary in the good faith judgment
of the Purchaser for the consummation of any or all of the transactions
contemplated hereby including, without limitation, the consent and approval of
the New Jersey Department of Banking and Insurance and the New Jersey Department
of Health and Senior Services with respect to the terms and provisions of this
Amended Agreement (including Section 4.13 hereof), shall have been obtained on
terms satisfactory to the Purchaser and shall be in full force and effect; and
consents or waivers from parties other than governmental bodies (including
shareholders of the Company) that are required in connection with the
consummation of any or all of the transactions contemplated hereby shall have
been obtained on terms satisfactory to the Purchaser and shall be in full force
and effect and signed copies thereof shall have been delivered to the Purchaser.
(l) Covenants. The Company shall have performed or complied in all
material respects with all obligations, agreements and covenants required to be
performed by it hereunder prior to or on the Initial Closing Date.
(m) Sierra Contract. The Agreement dated January 16, 1995, between
Sierra and FOHP-NJ shall have been terminated on terms without any residual
liability or obligations of the Company or FOHP-NJ and otherwise on terms
acceptable to the Purchaser.
(n) Letters of Credit; Guarantees. With the exception of the Letter
of Credit issued by CoreStates Bank and secured by John L. Adessa, none of the
Letters of Credit or guarantees set forth on Schedule 2.6 hereto shall have
expired or terminated.
(o) Injunction, Etc. No injunction or similar order shall be
effective which enjoins, prohibits or restrains the purchase and sale of the
Debentures or the transactions contemplated hereby.
(p) Action or Proceeding. There shall not be any action or
proceeding by or before any court or other governmental body that shall seek to
restrain, prohibit or invalidate the transactions contemplated by this Amended
Agreement, and there shall not be any action or proceeding seeking a material
amount of damages by reason of consummation of this Amended Agreement or any of
the transactions contemplated hereunder, the defense of any of which would
involve expense or lapse of time that would be materially adverse to the
interests of the Company.
7.2 Conditions Precedent to each Additional Debenture Advance Closing.
The Purchaser's obligation hereunder to loan and advance to the Company
Additional Debenture Advance Amounts at each Additional Debenture Advance
Closing shall be subject to the satisfaction of the following conditions, any of
which may be waived by the Purchaser in writing, subject to the further
conditions and elections set forth in Section 7.3 below:
(a) Representations and Warranties. The representations and
warranties contained in Article II hereof (as such representations and
warranties may have been amended in accordance with Section 11.1(a)(ii) hereof)
shall (i) have been true and correct in all material respects as of the Initial
Closing Date and (ii) with respect to all items set forth on a certificate of an
executive officer of the Company in substantially the form attached hereto as
Exhibit G, be true and correct in all material respects on and as of the
Additional Debenture Advance Closing Date, the Additional Debenture Advance
Amount being so advanced, with the same effect as being made on and as of such
Additional Debenture Advance Closing Date, and such certificate shall have been
delivered to the Purchaser.
(b) Good Standing Certificates. The Purchaser shall have received
(i) a copy of the Certificate certified as of a recent date by the Secretary of
State of the State of New Jersey and (ii) certificates as of a recent date of
the Secretary of State of each state in which the Company or Subsidiary is
organized or qualified to do business as a foreign corporation, to the extent
that such corporation is in existence and otherwise is in good standing to
transact business in such state.
(c) Secretary's Certificate. The Purchaser shall have received
certificates of the Secretary of each of the Company and FOHP-NJ certifying that
(i) attached to the certificate is a true and correct copy of its By-laws of the
Company, as in full force and effect at the Additional Debenture Advance Closing
Date with respect to the Additional Debenture Advance Amount being so advanced,
and (ii) the names and true signatures of each officer of the Company and FOHP-
NJ who has been authorized to execute and deliver any document to be delivered
by the Company at such Additional Debenture Advance Closing.
(d) Management Agreements. The General Administrative Services
Management Agreement, and the Management Information Systems and Claims
Processing Services Management Agreement, if effective, shall be in full force
and effect or shall have been terminated without cause by the Purchaser.
(e) Approvals and Consents. All authorizations, approvals, consents
and waivers of any government authority necessary in the good-faith judgment of
the Purchaser for the loan and advance by the Purchaser of such Additional
Debenture Advance Amount being so advanced shall have been obtained on terms
satisfactory to the Purchaser and shall be in full force and effect, and
consents or waivers from parties other than governmental bodies that are
required in connection with the loan and advance by the Purchaser of such
Additional Debenture Advance Amount shall have been obtained on terms
satisfactory to the Purchaser and shall be in full force and effect, and signed
copies thereof shall have been delivered to the Purchaser.
(f) Covenants. The Company shall have performed and complied in all
material respects with all obligations, agreements and covenants required to be
performed by it hereunder prior to or on the Additional Debenture Advance
Closing Date with respect to the Additional Debenture Advance Amount being so
advanced.
(g) Action or Proceeding. There shall not be any action or
proceeding by or before any court or other governmental body that shall seek to
restrict, prohibit or invalidate the loan and advance by the Purchaser of the
Additional Debenture Advance Amount being so advanced, and there shall not be
any action or proceeding seeking a material amount of damages by reason of the
advance by the Purchaser of such Additional Debenture Advance Amount the defense
of any of which would involve expending a length of time that would be
materially adverse to the interest of the Company or the Purchaser.
7.3 Additional Debenture Advance Elections and Adjustment.
(a) In the event all of the conditions set forth in Section 7.2 above
are not satisfied with respect to any given Additional Debenture Advance Amount,
then the Purchaser may, at its option:
(i) elect in writing to not advance such Additional Debenture
Advance Amount (the "No Additional Advance Option"); or
(ii) elect in writing to deduct from such Additional Debenture
Advance Amount an amount equal to the Additional Debenture Advance Adjustment
relating to the conditions set forth in Section 7.2 not so satisfied (the
"Advance Adjustment Option").
The Additional Debenture Advance Adjustment shall mean the amount of all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, attorneys' fees and expenses asserted against or incurred by the
Purchaser by reason of or resulting from the nonsatisfaction of the conditions
set forth in Section 7.2 relating to the Additional Debenture Advance Amount.
In calculating the amount of the downward adjustment to the Additional Debenture
Advance Amount in connection with the exercise of the Advance Adjustment Option,
the Purchaser shall in good faith promptly (and prior to the applicable
Additional Debenture Advance Closing) prepare a reasonable estimate of the
Additional Debenture Advance Adjustment in consultation with the directors of
the Company not affiliated with the Purchaser (the "Non-HSI Directors"). In the
event the Purchaser and the Non-HSI Directors disagree on the correct amount of
the Additional Debenture Advance Adjustment, the Purchaser's estimate of such
adjustment shall prevail for purposes of determining the Additional Debenture
Advance Amount for the applicable Additional Debenture Advance Closing, and the
procedures contained in Section 7.3 (b) shall be utilized to resolve any
proposed changes or inaccuracies of such estimate. In addition, it is further
agreed that any Additional Debenture Advance Adjustment shall not be considered
to be Damages of the Purchaser for the purposes of Article IX.
(b) In the event of any dispute, controversy, claim or difference
which arises out of or relates to the Purchaser's estimate of the amount of such
Additional Debenture Advance Adjustment, the Non-HSI Directors may give written
notice of an intention to submit such matter to binding arbitration unless the
matter is resolved within two weeks or such additional period of time as shall
be agreed upon by the parties hereto. If the matter cannot be resolved within
such period through correspondence and mutual consultation of the parties
hereto, it shall be finally settled by arbitration in accordance with the Rules
of Civil Arbitration of the American Arbitration Association ("AAA"). Each
party of the Company and FOHP-NJ, on the one hand, and HSI, on the other hand,
shall select an arbitrator with expertise in managed care organizations and such
arbitrators shall jointly select a third arbitrator or, if such arbitrators
cannot agree, the AAA shall select the third arbitrator; provided, however, that
such third arbitrator shall not have a residence or office in the State of New
Jersey. If either party fails to select an arbitrator within 20 days after
service of the notice of demand for arbitration, then the AAA shall select such
arbitrator. Arbitration proceedings shall be held in the State of New Jersey
unless otherwise agreed to by the parties in writing. The decision of a
majority of the arbitrators shall be final and binding upon the parties hereto,
shall not be subject to appeal and shall deal with the question of costs of the
arbitration and all matters related thereto. Judgment upon the award or
decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof, or application may be made to such court for a judicial
recognition of the arbitration award or an order of enforcement thereof, as the
case may be. The agreement to arbitrate set forth in this Section 7.3(b) shall
be specifically enforceable by the parties hereto, and such parties shall
acknowledge and agree that they intend that all disputes, controversies or
claims of any kind covered by this Section 7.3, including disputes over whether
and how to arbitrate, shall be arbitrated.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The Company's obligation to sell the Debentures to the Purchaser and to
consummate the other transactions contemplated hereby shall be subject to the
satisfaction of the following conditions, any of which may be waived in writing:
8.1 Receipt of Payment. The Company shall have received payment of the
Initial Debenture Purchase Price as provided in Section 1.2 hereof.
8.2 Representations and Warranties. The representations and warranties
contained in Article III hereof (as such representations and warranties may have
been amended in accordance with Section 11.1(a)(iii) hereof) shall be true and
correct in all material respects on and as of the Initial Closing Date, with the
same effect as though made on and as of the Initial Closing Date.
8.3 Proceedings and Documents. All corporate and other proceedings
required to be taken in connection with the transactions contemplated by this
Amended Agreement shall have been taken or obtained and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Company,
and the Company shall have received all such counterpart originals or certified
or other copies of such documents as the Company reasonably requests.
8.4 Covenants. The Purchaser shall have performed or complied in all
material respects with all obligations, agreements and covenants required to be
performed by it hereunder prior to or on the Initial Closing Date.
8.5 Injunction, Etc. No injunction or similar order shall be effective
which enjoins, prohibits or restrains the purchase and sale of the Debentures or
the transactions contemplated hereby.
8.6 Approvals. All authorizations, approvals, consents and waivers of
shareholders of the Company or any governmental authority or third party,
including, without limitation, the New Jersey Department of Health and Senior
Services, each as required to permit the consummation of the transactions
contemplated by this Amended Agreement, shall have been obtained and shall not
be terminated, suspended or withdrawn as of the Initial Closing Date.
8.7 Investors Agreement. The Purchaser shall have entered into the
Investors Agreement in the form attached hereto as Exhibit F.
8.8 Opinion of Counsel. The Company shall have received from McDermott,
Will & Emery, an opinion of counsel, substantially in the form attached as
Exhibit H hereto.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Company.
(a) Subject to the terms and conditions of this Article IX, the
Company and FOHP-NJ hereby agree, jointly and severally, to indemnify, defend
and hold Purchaser and its directors, officers, agents, and affiliates harmless
from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, attorneys' fees and expenses
(collectively, "Damages"), asserted against or incurred by such indemnitees by
reason of or resulting from a breach of any representation or warranty (as such
representations and warranties may have been amended in accordance with Section
11.1(a)(ii) hereof) or covenant of the Company or FOHP-NJ contained herein in
any exhibit, schedule, certificate or financial statement delivered hereunder or
in any other agreement or document executed in connection with the transactions
contemplated hereby.
(b) The Company and FOHP-NJ hereby agree, jointly and severally, to
pay the costs and expenses (including reasonable attorney's fees and expenses)
incurred by any other party in successfully (i) enforcing any of the terms of
this Article IX against the Company or (ii) proving that the Company breached
any of the terms of this Amended Agreement.
(c) Neither the Company nor FOHP-NJ shall have any obligation to
indemnify Purchaser and its directors, officers, agents and affiliates in
respect of any Damages resulting from circumstances described in clause (a)
above until the aggregate amount of such Damages exceeds $250,000 (the "Minimum
Threshold Requirement"), and then the Company and FOHP-NJ shall be liable only
to the extent the aggregate amount of such Damages exceeds $250,000.
(d) The amount of Damages for which the Company or FOHP-NJ shall have
an obligation to indemnify Purchaser and its directors, officers, agents and
affiliates resulting from a breach of any representation or warranty arising
more than 18 months after the Initial Closing Date (or the date that is 6 years
following such Initial Closing Date, as relates to the representations and
warranties set forth in Section 2.14 and Section 2.16 hereof) shall be limited
to the aggregate Additional Debenture Advance Amounts advanced to the Company by
the Purchaser within one year (or 66 months, as relates to Damages by reason of
or resulting from a breach of any representation or warranty set forth in
Section 2.14 or Section 2.16 hereof) of the date on which such claim for Damages
shall have arisen.
9.2 Indemnification by the Purchaser.
(a) Subject to the terms and conditions of this Article IX, the
Purchaser hereby agrees to indemnify, defend and hold the Company and FOHP-NJ
and their respective directors, officers, agents, and affiliates harmless from
and against all Damages asserted against or incurred by any of such indemnitees
by reason of or resulting from a breach of any representation or warranty (as
such representations and warranties may have been amended in accordance with
Section 11.1(a)(iii) hereof) or covenant of the Purchaser contained herein or in
any exhibit, schedule or certificate delivered hereunder, or in any agreement
executed in connection with the transactions contemplated hereby.
(b) The Purchaser agrees to pay the costs and expenses (including
reasonable attorney's fees and expenses) incurred by any other party in
successfully (i) enforcing any of the terms of this Article IX against the
Purchaser or (ii) proving that the Purchaser breached any of the terms of this
Amended Agreement.
(c) The Purchaser shall have no obligation to indemnify the Company
or FOHP-NJ and their respective directors, officers, agents and affiliates in
respect of any Damages resulting from circumstances described in clause (a) of
this Section 9.2 unless the aggregate amount of such Damages exceeds the Minimum
Threshold Requirement, in which case the Purchaser shall be liable only to the
extent the aggregate amount of such Damages exceeds $250,000.
9.3 Conditions of Indemnification. The respective obligations and
liabilities of the Company and FOHP-NJ, on the one hand, and the Purchaser (the
"indemnifying party"), on the other hand, to the other party or parties, as the
case may be (the "party to be indemnified") under Section 9.1 and Section 9.2
hereof with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following terms and conditions:
(a) Promptly, but in no event later than 20 days (or such earlier
time as might be required to avoid prejudicing the indemnifying party's
position) after receipt of notice of commencement of any action evidenced by
service of process or other legal pleading, the party to be indemnified shall
give the indemnifying party written notice thereof together with a copy of such
claim, process or other legal pleading, and the indemnifying party shall have
the right to undertake the defense thereof by representatives of its own
choosing and at its own expense; provided that the party to be indemnified may
participate in the defense with counsel of its own choice, the fees and expenses
of which counsel shall be paid by the party to be indemnified unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party has failed to assume the defense of such action or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnifying party and the party to be indemnified and the party to be
indemnified has been advised by counsel in writing that there may be one or more
legal defenses available to it that are different from or additional to those
available to the indemnifying party (in which case, if the party to be
indemnified informs the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the party to be indemnified, it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys at any time for the
party to be indemnified, which firm shall be designated in writing by the party
to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the indemnifying party and at the indemnifying party's expense, subject to
the right of the indemnifying party to assume the defense of such claims at any
time prior to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
9.4 Remedies Not Exclusive. The remedies provided in this Article IX
shall not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
ARTICLE X
SURVIVAL OF REPRESENTATIONS
The representations and warranties made herein or in any certificates or
documents executed in connection herewith shall survive the execution and
delivery hereof and thereof and the issuance of the Debentures until the date
that is the earlier of (a) the date that is the later of (i) 18 months following
the Initial Closing Date (or the date that is six years following such Initial
Closing Date, as relates to the representations and warranties set forth in
Section 2.14 and Section 2.16 hereof) or (ii) with respect to representations
and warranties made by the Company or FOHP-NJ one year following the Additional
Debenture Advance Closing Date latest in time (or the date that is 66 months
following such Additional Debenture Advance Closing Date, as relates to the
representations and warranties set forth in Section 2.14 and Section 2.16
hereof) or (b) such time as at least 50 percent of such principal amount of the
Debentures as is equal to the Debentures Commitment Amount shall have been
converted into shares of Common Stock pursuant to the terms of the Debentures.
All statements contained in any certificate or other document delivered
hereunder or in connection herewith shall be deemed to constitute continuing
representations, warranties, covenants and agreements made herein by the Company
or the Purchaser, as the case may be. Notwithstanding the foregoing, the
parties hereto hereby agree that all rights and obligations of the parties
hereunder (other than those set forth in Section 5.4, Article VI and Article IX
hereof) shall immediately cease and terminate at such time as at least 50
percent of the Initial Principal Amount of the Debentures shall have been
converted into shares of Common Stock.
ARTICLE XI
TERMINATION
11.1 (a) Termination Events. This Amended Agreement may be terminated
prior to the Initial Closing:
(i) by the mutual written consent of the parties;
(ii) by the Purchaser, if any condition set forth in Article VII
hereof to be performed by the Company or FOHP-NJ has not been satisfied or
waived by the Purchaser on or before the Initial Closing or if there has been a
material breach on or before the Initial Closing of any of the representations
and warranties of the Company or FOHP-NJ (as such representations and warranties
may be amended by this Section 11.1(a)(ii)) or covenants contained in this
Amended Agreement, except that the execution and delivery of this Amended
Agreement (and the execution and delivery of all exhibits hereto) shall not be
deemed to constitute a breach of any such representation, warranty or covenant;
provided, however, that the Purchaser shall, during the 20-day period following
receipt of any written update furnished by the Company to the Purchaser pursuant
to Section 4.6 hereof, with respect to Material Contracts similar to those
described in Section 2.10 hereof and entered into in the ordinary course of
business subsequent to the date hereof, and any changes in representations and
warranties of the Company relating to regulatory compliance resulting from
regulatory action occurring after the date hereof, consider in good faith
whether it will ultimately in any case be willing to proceed with the
transactions contemplated by this Amended Agreement in light of the information
provided in such written update, in which case the Purchaser may inform the
Company in writing that such written update is not satisfactory. In the event
of written notice from the Purchaser that the written update is not satisfactory
and the failure by the Company to cure such written update to the Purchaser's
satisfaction within two business days after such delivery of written notice,
this Amended Agreement shall terminate. The failure of the Purchaser to notify
the Company within such 20-day period shall be deemed to constitute acceptance
by the Purchaser of a modification to this Amended Agreement;
(iii) by the Company if any condition set forth in
Article VIII hereof to be performed by the Purchaser has not been satisfied or
waived by the Company on or before the Initial Closing or if there has been a
material breach on or before the Initial Closing of any of the Purchaser's
representations or warranties (as such representations and warranties may have
been amended in accordance with Section 11.1(a)(iii) hereof) or covenants
contained in this Amended Agreement; provided, however, that the Company shall,
during the 20-day period following receipt of any written update furnished by
the Purchaser to the Company pursuant to Section 5.5 hereof, consider in good
faith whether it will ultimately in any case be willing to proceed with the
transactions contemplated by this Amended Agreement in light of the information
provided in such written update, in which case the Company shall inform the
Purchaser in writing that such written update is not satisfactory. In the event
of written notice from the Company that the written update is not satisfactory
and the failure by the Purchaser to cure such written update to the Company's
satisfaction within two business days after such delivery of written notice,
this Amended Agreement shall terminate. The failure of the Company to notify
the Purchaser within such 20-day period shall be deemed to constitute acceptance
by the Company of a modification to this Amended Agreement; or
(iv) by either party if the Initial Closing shall not have
occurred before July 31, 1997.
(b) Termination Fees.
(i) The Company agrees that if the Purchaser shall terminate
this Amended Agreement pursuant to Section 11.1(a)(ii) or Section 11.1(a)(iv)
hereof, or the Company shall terminate this Amended Agreement pursuant to
Section 11.1(a)(iv) hereof, and, in either case a Competing Transaction (as such
term is defined in paragraph (iv) of this Section 11.1(b)) shall exist at any
time within 12 months after the date of this Amended Agreement which is
subsequently consummated within 12 months of its commencement, then on the
Payment Date (as such term is hereinafter defined below), the Company shall be
liable to pay to the Purchaser an amount equal to the greater of (A) $2,500,000
or (B) the actual costs incurred by the Purchaser in connection within the
transactions contemplated hereunder prior to the termination hereof. For
purposes of this Section 11.1(b), the "Payment Date" is the date 10 days
following the consummation of such Competing Transaction.
(ii) Termination Fee as Liquidated Damages; Material Intentional
Breach. All parties agree that the payment provided for in paragraph (i) of
this Section 11.1(b) shall be the sole and exclusive remedy of the parties upon
any termination of this Amended Agreement, followed by the occurrence or
existence of a Competing Transaction, as described in paragraph (iv) of this
Section 11.1(b) and such remedies shall be limited to the sum stipulated in such
paragraph (i); provided, however, that with respect to any such termination of
this Amended Agreement followed by the occurrence or existence of a Competing
Transaction pursuant to Section 11.1(a)(ii) as a direct result of a material,
intentional breach by the Company of any of its representations, warranties,
covenants or agreements contained in this Amended Agreement, all remedies
available to the Purchaser either in law or equity shall be preserved and
survive the termination of this Amended Agreement.
(iii) Payment Method. Any payment required to be made
pursuant to paragraph (i) of this Section 11.1(b) shall be made to the Purchaser
not later than two business days after delivery to the Company of notice of
demand for payment, and shall be made by wire transfer of immediately available
funds to an account designated by the Purchaser in a notice of demand for
payment delivered in accordance with the procedures set forth in this Amended
Agreement.
(iv) Competing Transaction. For purposes of this Amended
Agreement, "Competing Transaction" shall mean any of the following, or any
agreement or widely disseminated public announcement or widely disseminated
communication by the Company or FOHP-NJ or any other person of a proposed plan
or intention to do any of the following (other than the transactions
contemplated by this Amended Agreement): (A) any merger, consolidation, share
exchange functionally equivalent to a merger, business combination or other
similar transaction; (B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 20 percent or more of the assets of the Company and its
subsidiaries, taken as a whole, in a single transaction or a series of related
transactions; (C) any tender offer or exchange offer for 20 percent or more of
the outstanding shares of capital stock of the Company, in the event the Board
of Directors of the Company shall have changed its recommendation to
shareholders of the Company under Section 4.10 hereof for approval of the
transactions contemplated hereunder, whether or not consummated; (D) the filing
of a registration statement under the Securities Act registering 20 percent or
more of the outstanding shares of capital stock of the Company, whether or not
consummated; or (E) any other transaction, in the event the Board of Directors
of the Company shall have changed its recommendation to shareholders of the
Company under Section 4.10 hereof for approval of the transactions contemplated
hereunder, by which any person or group becomes the beneficial owner of or has
the right to acquire 20 percent or more of the outstanding capital stock of the
Company and such person or group infuses cash or other capital into the Company
or any of the Subsidiaries (or provides guarantees) of at least $2,500,000.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement; Amendments and Waivers. This Amended Agreement
(including the Exhibits and Schedules) and the other agreements executed in
connection with the consummation of the transactions contemplated herein contain
the entire agreement among the parties with respect to the transactions
contemplated hereby, and supersede all prior agreements, written or oral, with
respect thereto (including the Original Agreement). Changes in or additions to
this Amended Agreement may be made only upon written consent of the Company,
FOHP-NJ and the Purchaser.
12.2 Governing Law. This Amended Agreement and the rights and obligations
of the parties hereunder are to be governed and construed in accordance with the
laws of the State of New Jersey, except for the conflicts of law principles
thereof.
12.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission, sent by certified, registered or
express mail, postage prepaid or sent by reputable overnight courier. Any such
notice shall be deemed given when so delivered personally, telegraphed, telexed
or sent by facsimile transmission or, if mailed, two days after the date of
deposit in the United States mail, or if sent by overnight courier, the next
business day following the date the notice is sent, as follows:
(i) if to the Purchaser, to:
Health Systems International, Inc.
225 North Main Street
Pueblo, Colorado 81003
Attention: Senior Vice President, General Counsel and Secretary
Fax: (719) 585-8175
(ii) if to the Company, to:
FOHP, Inc.
2 Bridge Avenue
Red Bank, New Jersey 07701
Attention: Senior Vice President, General Counsel and Secretary
Fax: (908) 842-5404
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Charles I. Weissman, Esq.
Fax: (212) 758-9526
and with an additional copy to:
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
Post Office Box 190
Middletown, New Jersey 07748
Attention: Paul T. Colella, Esq.
Fax: (908) 224-6599
(iii) if to FOHP-NJ, to:
First Option Health Plan of New Jersey, Inc.
2 Bridge Avenue
Red Bank, New Jersey 07701
Attention: Senior Vice President, General Counsel and Secretary
Fax: (908) 842-5404
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Charles I. Weissman, Esq.
Fax: (212) 758-9526
and with an additional copy to:
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
Post Office Box 190
Middletown, New Jersey 07748
Attention: Paul T. Colella, Esq.
Fax: (908) 224-6599
Any party may by notice given in accordance with this section to the other party
designate another address or person for receipt of notices hereunder.
12.4 Effect of Headings. The section and paragraph headings herein are for
convenience only and shall not affect the construction hereof.
12.5 Severability. This Amended Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Amended Agreement or of any other
term or provision hereof. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties hereto intend that there shall be
added as a part of this Amended Agreement a provision as similar in terms to
such invalid or unenforceable provision as may be possible and be valid and
enforceable.
12.6 Confidentiality; Publicity and Disclosures. Each party shall keep
this Amended Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Amended Agreement without the prior knowledge and consent
of the other party hereto; provided that the foregoing shall not prohibit any
disclosure made in good faith by press release, filing or otherwise that is
required by law (including, without limitation, federal securities laws),
regulation or court or administrative order or the New Jersey Department of
Banking and Insurance (in which case the disclosing party shall use best efforts
to advise the other party hereto and obtain such other party's consent and
approval, which consent and approval shall not be unreasonably withheld, prior
to making the disclosure).
12.7 Assignment. Neither this Amended Agreement nor any right or
obligation created hereby or in any agreement entered into in connection with
the transactions contemplated hereby shall be assignable by either party hereto.
12.8 Expenses. Each party hereto shall bear its own fees for counsel and
accountants and other expenses relating to this Amended Agreement and the
transactions contemplated hereby.
12.9 Counterparts. This Amended Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be an original,
but all of such counterparts shall together constitute one and the same
instrument.
12.10 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the terms of this Amended Agreement. In case at
any time any further action is necessary or desirable to carry out the purposes
of this Amended Agreement, the proper officers of each party to this Amended
Agreement are hereby directed and authorized to use their best efforts to
effectuate all such action.
12.11 Effectiveness of Amended Agreement.
(a) The parties hereto agree that this Amended Agreement shall not be
effective until, and shall be null and void unless, the following conditions
shall have been satisfied by the Company or waived by the Purchaser in its sole
discretion prior to or on February 21, 1997 (unless such date is extended at the
sole discretion of the Purchaser):
(i) Evidence shall have been delivered to the Purchaser by the
Company, satisfactory to the Purchaser in its sole discretion, that
(A) institutional providers representing at least 40 percent of FOHP-NJ's health
care costs (as measured with respect to the 1996 calendar year) incurred with
respect to all institutional providers in the FOHP-NJ provider network, shall
have modified their provider contracts with FOHP-NJ as described in Section
4.11(a)(i)(B) hereof, and (B) Exclusive Plan Hospital Providers and Non-
Exclusive Plan Hospital Providers shall have delivered to the Company and FOHP-
NJ legally binding commitments regarding coverage of all of their employees (in
the case of Exclusive Plan Hospital Providers) or a portion of their employees
(in the case of Non-Exclusive Hospital Plan Providers) so that FOHP-NJ health
benefits plan will cover employees constituting an aggregate of at least
1,117,770 "member-months" over the terms of such respective commitments,
including (I) at least 429,950 "member-months" for the 1997 calendar year,
(II) at least 343,910 "member-months" for the 1998 calendar year, and (III) at
least 343,910 "member-months" for the 1999 calendar year; and
(ii) The Purchaser shall have received evidence from the Company,
satisfactory to the Purchaser in its sole discretion, that the Company has
obtained from such institutional providers as are separately agreed to in
writing by the Company and the Purchaser the legally binding commitments,
contemplated in Section 7.1(h) hereof.
(b) In addition to the conditions to effectiveness set forth in
paragraph (a) of this Section 12.11, the parties hereto agree that this Amended
Agreement shall not be effective until, and shall be null and void unless, the
following conditions shall have been satisfied by the Company or waived by the
Purchaser in its sole discretion prior to or on March 7, 1997 (unless such date
is extended at the sole discretion of the Purchaser):
(i) Evidence shall be delivered to the Purchaser by the Company,
satisfactory to the Purchaser in its sole discretion, that the conditions set
forth in Section 7.1(h) hereof shall have been satisfied; and
(ii) Evidence shall have been delivered to the Purchaser by the
Company of insurance coverage, satisfactory to the Purchaser in its sole
discretion, relating to all potential losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, attorneys' fees and
expenses (collectively, "Insured Events") due to any actions or lawsuits brought
by any person or entity (including, without limitation, past or present
shareholders of the Company), relating to actions or events occurring prior to
the execution of, or relating to the transactions contemplated by, this Amended
Agreement which such insurance coverage shall (A) cover the Company and the past
and present directors and officers of the Company, (B) be in the amount of $20
million in coverage per Insured Event and (C) provide the Company with the
ability to purchase tail coverage to survive for either six years or the
expiration of any applicable statute of limitations (whichever period is
shorter), at rates representing no more than 75 percent of the current premiums
paid during the first year of such coverage.
(c) HSI acknowledges and agrees that the Phase-In Management Fee
Amount concept set forth herein has not, as of the date hereof, been approved by
the Board of Directors of the Company. The parties hereto agree that the
Amended Agreement shall not be effective until, and shall be null and void
unless (in addition to the conditions to effectiveness set forth in paragraph
(a) of this Section 12.11), (i) the Purchaser shall have received evidence from
the Company, satisfactory to the Purchaser in its sole discretion, that the
Board of Directors of the Company shall have approved the Phase-In Period
Management Fee Amount concept and provisions set forth herein, in the Debentures
and in the General Administrative Services Management Agreement, or (ii) the
Purchaser waives such condition to effectiveness in its sole discretion.
IN WITNESS WHEREOF, this Amended Agreement has been executed by the parties
hereto as of the date first set forth above.
FOHP, INC.
By:_______________________________________
Name:
Title:
FIRST OPTION HEALTH PLAN
OF NEW JERSEY, INC.
By:_______________________________________
Name:
Title:
HEALTH SYSTEMS INTERNATIONAL, INC.
By:_______________________________________
Name:
Title:
EXHIBIT C AMENDMENT TO
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
This Amendment to Amended and Restated Securities Purchase Agreement (this
"Amendment"), dated as of March 13, 1997, is executed by and among FOHP, Inc., a
New Jersey corporation (the "Company"), First Option Health Plan of New Jersey,
Inc., a New Jersey corporation ("FOHP-NJ"), and Health Systems International,
Inc., a Delaware corporation (the "Purchaser"), and amends the Amended and
Restated Securities Purchase Agreement (the "Amended Agreement"), dated
February 10, 1997, by and among the Company, FOHP-NJ and the Purchaser, and this
Amendment shall be effective as of the effective date of the Amended Agreement
(as described in Section 12.11 of the Amended Agreement).
W I T N E S S E T H:
WHEREAS, the Company, FOHP-NJ and the Purchaser are parties to the Amended
Agreement, pursuant to which, among other things, the Purchaser will purchase
from the Company approximately $50,000,000 in convertible debentures, and the
Company and FOHP-NJ will make certain amendments to their certificates of
incorporation and by-laws; and
WHEREAS, the Purchaser has requested certain amendments to the Amended
Agreement and the Certificate of Incorporation of the Company annexed as
Exhibit E to the Amended Agreement, and the Company and FOHP-NJ are willing to
amend the Amended Agreement and Exhibit E to the Amended Agreement in the manner
and on the terms and conditions provided for herein;
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the adequacy and receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Amendments.
(a) Section 6.3 of the Amended Agreement is hereby amended and
restated in its entirety as follows:
6.3 New York Subsidiary. The Purchaser shall have the
option, exercisable in its sole discretion at any time
within five years after the date of Closing, to cause FOHP
to transfer to the Purchaser or one of the Purchaser's
affiliates all or a portion of the capital stock or assets
of FOHP-NY, or to cause FOHP-NJ to merge with or into the
Purchaser or one of the Purchaser's affiliates, all for no
additional payment or consideration by the Purchaser or any
of the Purchaser's affiliates.
(b) Paragraph B. of Article V of the Certificate of Incorporation of
the Company annexed as Exhibit E to the Amended Agreement is hereby amended and
restated in its entirety as follows:
B. Corporation's Right to Repurchase. Notwithstanding
anything contained herein to the contrary, in the event that
either (i) an NJ Institutional Shareholder or its affiliated
NJ Acute Care Institution, if any, fails to perform its
obligations pursuant to Paragraph A. above, or (ii) during
the period ending December 31, 1999, an NJ Institutional
Shareholder or its affiliated NJ Acute Care Institution, if
any, should fail to provide reimbursement rates (a) for in-
patient visits at the lower of (1) the lowest rate of
reimbursement received by such provider from nongovernmental
payors for each line of business, or (2) the rate of
reimbursement reflecting a reduction (compared to calendar
1996 rates) of five (5%) percent in in-patient costs,
provided that such reduction is solely as a result of rate
reductions and not through utilization or medical management
efforts, and (b) for out-patient visits at the lower of
(1) the lowest rate of reimbursement received by such
providers from nongovernmental payors for each line of
business, or (2) the rate of reimbursement reflecting a
reduction (compared to calendar 1996 rates) of ten (10%)
percent in out-patient costs, provided that such reduction
is solely as a result of rate reductions and not through
utilization or medical management efforts, then the
Corporation shall have the right to purchase (but shall not
be obligated to purchase), and the NJ Institutional
Shareholder shall be obligated to sell to the Corporation at
the Corporation's option, all or a portion of the
Corporation's Common Stock held by the NJ Institutional
Shareholder at a purchase price equal to the lowest of
(i) the Book Value, (ii) the lowest shareholder equity
reflected on the Corporation's quarter-end balance sheets
during the period of noncompliance giving rise to the
repurchase right, excluding any convertible debentures
issued to HSI, prepared in accordance with generally
accepted accounting principles, divided by the number of
outstanding shares of the Corporation's Common Stock on a
fully diluted basis or (iii) the original purchase price
paid by such NJ Institutional Shareholder for such shares of
the Corporation's Common Stock. The Corporation shall have
full discretion with respect to its election to exercise or
not to exercise the foregoing rights of repurchase with
respect to any given shareholder, taking into account any
factors the Corporation deems appropriate relating to such
shareholder's relationships with the Corporation or the
Corporation's business or otherwise, and the Corporation's
election to make or not to make a repurchase from any other
shareholder. Any amounts payable pursuant to this
Paragraph B. shall be paid in cash within ninety (90) days
from the date of purchase or, in the discretion of the
Corporation, over a period of three (3) years in equal
annual installments commencing one (1) year from the date of
purchase with interest at the rate of seven (7%) percent per
annum, accrued and payable annually.
2. Continuing Effect of the Amended Agreement. This Amendment shall not
constitute an amendment or waiver of any provision of the Amended Agreement not
expressly referred to herein. Except as expressly amended or modified hereby,
the provisions of the Amended Agreement are and shall remain in full force and
effect and are hereby ratified and confirmed.
3. Applicable Law. This Amendment and the rights and obligations of the
parties hereunder are to be governed and construed in accordance with the laws
of the State of New Jersey, except for the conflicts of law principles thereof.
4. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall constitute a
single agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be bound hereby, have
executed this Amendment to Amended and Restated Securities Purchase Agreement as
of the date first above written.
FOHP, INC.
By:
Donald Parisi
Acting President and Chief Executive
Officer
FIRST OPTION HEALTH PLAN OF
NEW JERSEY, INC.
By:
Donald Parisi
Acting President and Chief Executive
Officer
HEALTH SYSTEMS INTERNATIONAL,
INC.
By:
Michael E. Jansen, Esq.
Vice President
EXHIBIT D BY-LAWS
OF
FOHP, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of FOHP, Inc. (the
"Corporation") shall be located at 2 Bridge Avenue, Building 6, Red Bank, New
Jersey 07701-1106 or at such other place as is determined by the Corporation's
Board of Directors (the "Board" or "Board of Directors").
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of New Jersey, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders for the
election of directors and for any other purpose may be held at such time and
place, within or without the State of New Jersey, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETING. Annual meetings of shareholders shall be held
in the month of April or May on such day as the Board of Directors shall
designate at which the shareholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting.
SECTION 3. NOTICE OF ANNUAL MEETING. Notice of the annual meeting shall
be given by mailing, not more than sixty (60) days nor less than ten (10) days
prior to the date of the annual meeting, a written notice stating the date, time
and place thereof, directed to each shareholder of record entitled to vote at
the meeting at his, her or its address as the same appears upon the records of
the Corporation.
SECTION 4. LIST OF SHAREHOLDERS. Prior to each annual or special meeting
of the shareholders, the officer who has charge of the stock ledger of the
Corporation shall prepare and make a complete list of the shareholders entitled
to vote at said meeting, which shall be arranged in alphabetical order and
include the address of and the number of shares registered in the name of each
shareholder. The list shall be produced and kept at the place of the meeting
during the whole time thereof and may be inspected by any shareholder who may be
present.
SECTION 5. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Certificate of Incorporation (the "Certificate of Incorporation"),
may be called by the President, and shall be called by the President or
Secretary at the request in writing of a majority of the directors then in
office. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 6. NOTICE OF SPECIAL MEETING. Written or telegraphic notice of a
special meeting of shareholders, stating the date, time, place and purpose
thereof, shall be given to each shareholder entitled to vote thereat, not more
than sixty (60) days nor less than ten (10) days before the date fixed for the
meeting.
SECTION 7. BUSINESS TRANSACTED AT A SPECIAL MEETING. Business transacted
at any special meeting of shareholders shall be limited to the purpose or
purposes stated in the notice.
SECTION 8. QUORUM. Except as otherwise provided in the Certificate of
Incorporation, the holders of issued and outstanding shares of Corporation
capital stock entitled to cast a majority of the votes at a meeting of
shareholders, present in person or by proxy, shall constitute a quorum for the
transaction of business at any meeting of the shareholders; provided, that when
a specified matter is required to be voted on by a class or series of capital
stock, voting as a separate class, the holders of issued and outstanding shares
of such series or class entitled to cast a majority of the votes at a meeting of
the holders of shares of such series or class, present in person or by proxy,
shall constitute a quorum for the transaction of business with respect to such
matter.
SECTION 9. METHOD OF VOTING. Except as otherwise provided in the
Certificate of Incorporation, each shareholder shall, at every meeting of the
shareholders, be entitled to one vote for each share of capital stock held by
such shareholder.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent without a meeting may authorize another person or persons to act
for him, her or it by proxy. Every proxy shall be executed in writing by the
shareholder or his, her or its agent, except that a proxy may be given by a
shareholder or his, her or its agent by telegram or cable or its equivalent. No
proxy shall be valid for more than eleven (11) months, unless a longer time is
expressly provided therein. Unless it is coupled with an interest, a proxy
shall be revocable at will. A proxy shall not be revoked by the death or
incapacity of a shareholder but such proxy shall continue in force until revoked
by the personal representative or guardian of the shareholder. The presence at
any meeting of any shareholder who has given a proxy shall not revoke such proxy
unless the shareholder shall file written notice of such revocation with the
secretary of the meeting prior to the voting of such proxy.
A person named in a proxy as the attorney or agent of a shareholder may, if
the proxy so provides, substitute another person to act in his, her or its
place, including any other person named as an attorney or agent in the same
proxy. The substitution shall not be effective until an instrument effecting it
is filed with the Secretary of the Corporation.
SECTION 10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Whenever the vote
of shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of the New Jersey Business
Corporation Act or provision of the Certificate of Incorporation, the meeting
and the vote of shareholders may be dispensed with if all the shareholders who
would have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken, and in the case of any
action to be taken pursuant to Chapter 10 of Title 14A of the Revised Statutes
of the State of New Jersey, the Corporation provides to all other shareholders
the advance notification required by N.J.S.A. 14A:5-6(2)(b).
Subject to the provisions of N.J.S.A. 14A:5-6(2), whenever the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of the New Jersey Business
Corporation Act or provision of the Certificate of Incorporation, other than the
election of directors, the meeting and vote of shareholders may be dispensed
with and the action may be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
which would be necessary to authorize such action at a meeting at which all
shareholders entitled to vote thereon were present and voting; provided,
however, that for so long as FHS (as defined in Section 1 of Article III) owns
either shares of the Corporation's common stock or convertible debentures which
were issued by the Corporation and are convertible into shares of the
Corporation's common stock, the Corporation shall provide FHS notice of any
action to be approved by the shareholders by written consent at least ten (10)
days prior to delivering such written consents to the shareholders.
SECTION 11. CONDUCT AT MEETINGS. At each meeting of shareholders, the
Chairman of the Board of Directors or in his or her absence the President of the
Corporation or in his or her absence any Vice President of the Corporation or in
his or her absence a chairman chosen by the vote of a majority in interest of
the shareholders present in person or represented by proxy and entitled to vote
thereat, shall act as chairman. The Secretary or in his or her absence an
Assistant Secretary or in the absence of the Secretary and all Assistant
Secretaries a person whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep a record of the proceedings thereof. The
Board of Directors shall be entitled to make such rules or regulations for the
conduct of meetings of shareholders as it shall deem necessary, appropriate or
convenient. Subject to such rules and regulations, the chairman shall have the
authority to proscribe such rules, regulations and procedures and to do all such
acts as, in the judgement of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those present,
limitations on participation in such meeting to shareholders of record of the
Corporation and their duly authorized and constituted proxies, and such other
persons as the chairman shall permit, restrictions on entry at the meeting after
the time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulations with respect to the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. The chairman shall have absolute authority over matters of
procedure and there shall be no appeal from the ruling of the chairman. The
chairman may rule that a resolution, nomination or motion not be submitted to
the shareholders for a vote unless seconded by a shareholder or a proxy for a
shareholder. The chairman may require that any person who is neither a bona
fide shareholder nor a proxy for a bona fide shareholder leave the meeting, and
upon the refusal of a shareholder to comply with a procedural ruling of the
chairman which the chairman deems necessary for the proper conduct of the
meeting, may require that such shareholder leave the meeting. The chairman may,
on his or her own motion, summarily adjourn any meeting for any period he or she
deems necessary if he or she rules that orderly procedures cannot be maintained
at the meeting. Unless, and to the extent, determined by the Board of Directors
or the chairman of the meeting, meetings of shareholders shall not be required
to be held in accordance with rules of parliamentary procedure.
SECTION 12. PROCEDURE NECESSARY TO BRING BUSINESS BEFORE AN ANNUAL
MEETING. To be properly brought before an annual meeting of shareholders,
business must be either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board, or (c)
properly brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not less than one hundred twenty
(120) days in advance of the date of the Corporation's proxy statement released
to shareholders in connection with the previous year's annual meeting of share-
holders; provided, however, that if the Corporation did not release a proxy
statement in connection with the previous year's annual meeting then the
shareholder must give such notice not later than one hundred twenty (120) days
prior to the anniversary date of the immediately preceding annual meeting. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the shareholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
Notwithstanding anything in the By-laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 12 of Article II and any other applicable requirements;
provided, however, that nothing in this Section 12 of Article II shall be deemed
to preclude discussion by any shareholder of any business properly brought
before the annual meeting.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 12 of Article II or
any other applicable requirements, which determination shall be conclusive, and,
as a result, any such business shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The number of directors
which shall constitute the entire Board shall be not less than six (6) nor more
than fifty (50) directors. The exact number of directors which shall constitute
the whole Board prior to the election to the Board of any person designated by
Foundation Health Systems, Inc., a Delaware corporation formerly known as Health
Systems International, Inc. ("FHS"), shall be ten (10) directors. The number of
directors which shall constitute the whole Board shall be increased to
accommodate the number of designations to which FHS is so entitled. After the
Board includes any FHS designees, the number of directors which shall constitute
the whole Board may be increased or decreased for whatever reason by a
resolution of the Board; provided, that such increase or decrease is approved by
the FHS designee or designees to the Board. The directors shall be elected at
the annual meeting of shareholders, or at a special meeting of shareholders
called for such purpose, and each director elected shall hold office until his
or her successor is elected and qualified.
For so long as FHS shall hold shares of the Corporation's common stock, FHS
shall have the right to designate such number of directors on the Board as
equals at least the same percentage of all directors on the Board as is
represented by the percentage ownership by FHS of all then outstanding shares of
common stock of the Corporation. In addition, for so long as FHS holds
convertible debentures issued by the Corporation, FHS shall be entitled to
designate not less than fifteen (15%) percent of the directors serving on the
Board. The Board shall, from time to time, immediately upon the receipt of a
request by FHS, increase the number of directors on the Board to accommodate the
number of designations to which FHS is so entitled. The directors serving on
the Board who are not FHS designees shall be constituted as follows: so long as
First Option Health Plan of New Jersey, Inc. ("FOHP-NJ") is a subsidiary of the
Corporation, at least two-thirds (2/3) of the directors serving on the Board who
are not FHS designees shall be NJ Practitioners (as defined below) and
representatives of NJ Acute Care Institutions (as defined below). In addition,
at all times, the number of NJ Practitioners serving on the Board and the number
of representatives of NJ Acute Care Institutions serving on the Board shall be
equal; provided, however that at no time shall the Board be comprised of (a) two
or more representatives of a single NJ Acute Care Institution or of an
affiliated group of NJ Acute Care Institutions, or (b) two or more NJ
Practitioners who are affiliated to the same NJ Acute Care Institution or the
same affiliated group of NJ Acute Care Institutions. Whether a person is
affiliated with either a NJ Practitioner or NJ Acute Care Institution or whether
two or more NJ Acute Care Institutions are affiliated for purposes of the
aforedescribed restrictions shall be determined by the Board, and any such
determination shall be binding on the shareholders of the Corporation. In the
event FOHP-NJ is no longer a subsidiary of the Corporation, the composition of
the Board shall not be subject to the aforedescribed restrictions.
Notwithstanding anything herein to the contrary, for so long as any shares
of the Corporation's common stock is held by any NJ Practitioner, NJ Acute Care
Institution, affiliate to an NJ Acute Care Institution, or other health care
provider to FOHP-NJ, the Board shall include as directors not less than three
(3) persons who are not FHS designees, one (1) of whom shall be a NJ
Practitioner and another a representative of a NJ Acute Care Institution.
For purposes of these By-laws: (a) "NJ Acute Care Institution" shall mean a
hospital or acute care institution, licensed by the New Jersey Department of
Health and Senior Services, or other health care entity, licensed, certificated
or authorized to operate in the State of New Jersey, which has entered into a
provider agreement with FOHP-NJ to provide health care related services to the
members of FOHP-NJ's health care benefits plans; and (b) "NJ Practitioner" shall
mean a member of the medical staff of a NJ Acute Care Institution, or a
physician designated by a NJ Acute Care Institution, who (i) is licensed to
practice medicine or osteopathy in the State of New Jersey, and (ii) has entered
into a provider agreement with FOHP-NJ to provide health care services to the
members of FOHP-NJ's health care benefits plans.
SECTION 2. NOMINATIONS.
(a) GENERAL. Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by a
shareholder entitled to vote in the election of directors generally; provided,
however, that for so long as any of the shares of the Corporation's common stock
is held by any NJ Practitioner, NJ Acute Care Institution, affiliate to an NJ
Acute Care Institution, or other health care provider to FOHP-NJ, any nominating
committee shall include not less than three (3) persons who are not FHS
designees, one (1) of whom shall be a NJ Practitioner and another a
representative of a NJ Acute Care Institution.
(b) SHAREHOLDER NOMINATIONS. Any shareholder entitled to vote in the
election of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not less than (i) with respect to an election to be-held at an annual meeting of
shareholders, one hundred twenty (120) days in advance of the date of the
Corporation's proxy statement released to shareholders in connection with the
previous year's annual meeting of shareholders; provided, however, that if the
Corporation did not release a proxy statement in connection with the previous
year's annual meeting then the shareholder must give such notice not later than
one hundred twenty (120) days prior to the anniversary date of the immediately
preceding annual meeting; and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the tenth day following the date on which notice of such meeting is
first given to shareholders. Each such notice shall set forth: (A) the name and
address of the shareholder who intends to make the nomination and of the person
or persons to be nominated; (B) a representation that the shareholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (C) a description of all arrangements
or understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (D) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (E) the signed consent of each nominee
to serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee or shareholder proposing a nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation or to properly complete any proxy or information statements used for
the solicitation of proxies in connection with the meeting at which directors
are to be elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
(c) REQUIRED NOMINEES. The nominees for directors designated by the Board
or a committee appointed by the Board shall include such number of designees of
FHS as FHS shall have the right to designate under Section 1 of this Article
III, and if practicable, (i) one NJ Practitioner who practices in the southern
part of New Jersey, one NJ Practitioner who practices in the central part of New
Jersey, and one NJ Practitioner who practices in the northern part of New
Jersey; and (ii) one representative of a NJ Acute Care Institution which is
located in the southern part of New Jersey, one representative of a NJ Acute
Care Institution which is located in the central part of New Jersey, and one
representative of a NJ Acute Care Institution located in the northern part of
New Jersey. In addition, the members of the Board or the nominating committee
who were not designated by FHS shall select, by majority vote, the non-FHS
nominees to the Board.
SECTION 3. VACANCIES; NEWLY CREATED DIRECTORSHIP. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, or by a
sole remaining director, and the directors so chosen shall hold office until
their successors are duly elected and shall qualify, unless sooner displaced.
If there are no directors in office, then an election of directors may be held
in the manner provided by statute. In filling any vacancy in the Board, the
Board must ensure that (a) so long as FHS holds any convertible debentures
issued by the Corporation, at least fifteen (15%) percent of the directors
serving on the Board shall be designees of FHS, (b) in the event FHS holds
shares of common stock of the Corporation exceeding fifteen (15%) percent of all
the then outstanding shares of the common stock of the Corporation, FHS
designees to the Board shall constitute not less than such number of directors
on the Board as equals at least the same percentage of all directors on the
Board as is represented by the percentage ownership by FHS of all then
outstanding shares of common stock of the Corporation, and (c) so long as FOHP-
NJ is a subsidiary of the Corporation, two-thirds (2/3) of the directors serving
on the Board who were not designated by FHS shall be NJ Practitioners and
representatives of NJ Acute Care Institutions, provided that the number of NJ
Practitioners and the number of representatives of NJ Acute Care Institutions
Serving on the Board remains equal.
SECTION 4. GOVERNANCE.
(a) GENERAL BUSINESS. The business of the corporation shall be governed
by the Board. The Board of directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation directed or required to be exercised or done by
the shareholders.
(b) BOARD APPROVAL REQUIREMENTS.
(i) Actions Requiring Super-Majority Board Approval. The Board may
not approve any of the following corporate transactions or actions without the
approval of at least eighty (80%) percent of the directors on the Board;
provided, however, that subsequent to the conversion of all the convertible
debentures issued by the Corporation to FHS pursuant to the Amended and Restated
Securities Purchase Agreement dated February 10, 1997, among the Corporation,
FHS and FOHP-NJ, as amended by the amendment thereto dated as of March 13, 1997
(referred to herein, as so amended, as the "Purchase Agreement"), the corporate
transactions and actions set forth in subparagraphs B, G, H, J, K and L will no
longer require the approval of at least eighty (80%) percent of the directors on
the Board.
A. any amendment to the Certificate of Incorporation or these
By-laws;
B. any capital expenditures by the Corporation which, together
with capital expenditures of its subsidiaries, exceed, in
the aggregate, $1,000,000 during any calendar year;
C. any material change in the scope of the business of the
Corporation;
D. any merger, consolidation or sale, mortgage, lease, transfer
or other disposition of all or substantially all of the
assets of the Corporation, provided, however, that the Board
approval requirement in this Section 4(b)(i)D of these By-
laws shall not apply to any merger of the Corporation with
FHS as is contemplated in Section 6.4 of the Purchase
Agreement;
E. any filing for receivership, dissolution or bankruptcy by
the Corporation;
F. the declaration or payment of any dividend or other
distribution to shareholders of the Corporation on a non-
ratable basis;
G. the issuance or sale of any shares of capital stock, or
warrants, convertible instruments or other rights to acquire
authorized and unissued shares of capital stock of the
Corporation, other than the issuance of the options and
debentures contemplated in the Purchase Agreement (as
defined below) and the shares of capital stock issuable upon
the exercise of such options and conversion of such
debentures;
H. the borrowing by the Corporation, other than borrowing in
the ordinary course of business, of amounts which, together
with amounts borrowed by subsidiaries of the Corporation,
exceed, in the aggregate, $1,000,000 during any calendar
year;
I. the creation of any security interest or lien on all or
substantially all of the assets of the Corporation;
J. any acquisition by the Corporation of equity securities
(other than pursuant to a buyback or repurchase of equity
securities issued by the Corporation) or assets of any
person or entity involving amounts which, together with
amounts involved in acquisitions of equity by subsidiaries
of the Corporation, exceed, in the aggregate, $1,000,000
during any calendar year, except for the transactions
contemplated by the Purchase Agreement;
K. a decision to file a registration statement for the public
sale of securities of the Corporation under the Securities
Act of 1933, as amended;
L. any loan of money to, or guarantee of any obligation of, any
officer, director or employee of the Corporation or any
subsidiary thereof; or
M. entering into, assuming or becoming bound by any agreement
to do any of the foregoing or otherwise attempt to do any of
the foregoing.
(ii) Non-FHS Directors. In addition to the
approval requirements set forth in paragraph (i) of this Section 4(b), the
Board may not approve any of the following corporate transactions or actions
without the approval of a majority of the directors not designated by or
affiliated with FHS:
A. any transaction by the Corporation involving a contractual
or other arrangement with FHS or any subsidiary or affiliate
thereof or successor thereto, or any subsidiary or affiliate
of any successor to FHS, which is new or modified from the
then-existing contractual arrangements between the
Corporation and FHS;
B. the issuance to FHS or any subsidiary or affiliate thereof
or successor thereto, or any subsidiary or affiliate of any
successor to FHS, of any additional shares of the
Corporation's capital stock, or options, stock appreciation
rights, warrants or other rights to acquire the capital
stock of the Corporation; or
C. any intentional act by FHS to cause the transfer of the
members of the health plans offered by FOHP-NJ or any other
subsidiary of the Corporation, to FHS or any subsidiary or
affiliate thereof or successor thereto, or any subsidiary or
affiliate of any successor to FHS;
provided, however, that no such approval shall be required in the case of any of
clause A., clause B. or clause C. of this Section 4(b)(ii) with respect to any
transaction contemplated by the Purchase Agreement or any of the agreements
entered into in connection with the Purchase Agreement (including the exhibits
to the Purchase Agreement), including (1) any issuance of securities by the
Corporation to FHS contemplated therein, and (2) the business transactions
contemplated in Section 6.4 of the Purchase Agreement.
SECTION 5. REMOVAL. Any director or directors may be removed from office
either with or without cause by the shareholders pursuant to Section 14A:6-6 of
the New Jersey Business Corporation Act.
SECTION 6. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of New
Jersey. The first meeting of each newly elected Board of Directors shall be
held at such time and place as shall be fixed by the vote of the shareholders at
the annual meeting, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the shareholders to fix
the time or place of such first meeting of the newly elected Board of Directors,
or in the event such meeting is not held at the time and place so fixed by the
shareholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors, or upon the conclusion of the shareholders' meeting at which
time they were elected, without further notice. At such meeting the Board of
Directors shall elect from their own number a Chairman of the Board for the
ensuing year and until his or her successor is elected and qualifies, and
transact such other business as may come before the meeting.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board may be held on
five (5) days written notice, at such time as shall be from time to time
determined by the Board. Written notice for any such meeting shall state the
place, date and time of the meeting and shall be delivered either personally or
by first class mail, facsimile or overnight courier service.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President, and shall be called
by the President or Secretary at the request in writing of at least one-third
(1/3) of the directors then in office. Written notice of any special meeting
shall be given, either personally or by first class mail, facsimile or overnight
courier service, to each director at least two (2) days prior to the date
thereof.
SECTION 9. PLACE OF MEETING; WAIVER OF NOTICE. Meetings of the Board of
Directors shall be held at such place as shall be designated in the notice of
meeting if notice is required. Notice of any meeting, if required, need not be
given to any director who signs a waiver of notice before or after the meeting.
The attendance of any director at any meeting without the director protesting
prior to the conclusion of such meeting the lack of notice thereof shall
constitute a waiver of notice by such director.
SECTION 10. ADJOURNMENT. Any meeting of the Board of Directors shall be
adjourned upon the request of a majority of the directors on the Board
designated by FHS who are present at the meeting, for a period of not more than
ten (10) days. Also, any meeting of a committee of the Board or any other
committee established by the Corporation shall be adjourned upon the request of
a majority of the persons on the committee designated by FHS who are present at
the meeting, for a period of not more than ten (10) days.
SECTION 11. QUORUM. Except as otherwise provided in the Certificate of
Incorporation, a majority of the directors then in office shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors.
SECTION 12. MANNER OF ACTING. Except as otherwise provided in the
Certificate of Incorporation or herein, the act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors or by a committee thereof may be taken
without a meeting if, prior to such action, all of the members of the Board or
committee consent in writing to a resolution authorizing the action. Such
written consents may be executed in counterparts, and shall be filed with the
minutes of the Corporation.
SECTION 14. TELEPHONIC ATTENDANCE AT MEETING. Any or all directors may
participate in a meeting of the Board of Directors or a committee of the Board
by means of conference telephone or any means of communication by which all
persons participating in the meeting are able to hear each other.
SECTION 15. COMMITTEES ESTABLISHED PURSUANT TO THE BY-LAWS.
(a) AUDIT COMMITTEE. The Corporation shall have an audit committee
(the "Audit Committee"). The Audit Committee shall be comprised solely of
directors. In addition, the composition of the Audit Committee shall meet the
requirements of any governmental department or agency which has the authority to
regulate the business of the Corporation or its subsidiaries. The Audit
Committee shall, among other things, identify, interview and recommend to the
Board of Directors the auditors to be engaged as the Corporation's independent
certified public accountants, review the proposed plan and scope for the annual
audit and the results of such audit when completed, review the services rendered
by the auditors and the fees charged for such services, determine the effect, if
any, on the independent certified public accountants' independence in the
performance of any non-audit services, and review the plan, scope and results of
the Corporation's internal audit operations.
(b) OTHER COMMITTEES. The Board of Directors may, by one or more
resolutions passed by a majority of the directors then in office, establish such
other committees as it shall determine necessary for the operations of the
Corporation; provided, however, FHS shall have the right to designate to any
committee, other than the Audit Committee, that number of committee members as
is commensurate with its representation on the Board. Such committee or
committees shall have such name or names as may be determined from time to time
by a resolution adopted by the Board. Moreover, upon a resolution passed by a
majority of the directors then in office, the Board may designate one or more
committees, comprised solely of directors of the Corporation, to exercise the
power of the Board in the management of the business and affairs of the
Corporation; provided, however, that for so long as any shares of the
Corporation's common stock is held by any NJ Practitioner, NJ Acute Care
Institution, affiliates to a NJ Acute Care Institution, or other health care
provider to FOHP-NJ any such committee of the Board shall include as members not
less than three (3) persons who are not FHS designees to the Board, one (1) of
whom shall be a NJ Practitioner and another a representative of a NJ Acute Care
Institution. Only committees whose membership is exclusively reserved for
directors may be vested with the powers of the Board. All other committees
shall have and may exercise such authority as the Board establishes by
resolution or these By-laws permit, subject to any limitation imposed by law.
The filling of vacancies in a committee, the abolishing of a committee and the
removal of persons serving on a committee shall be as set forth in a resolution
adopted by the Board unless otherwise set forth in the provisions of these By-
laws applicable to such committee. Each committee shall keep regular minutes of
its meetings and report same to the Board of Directors when required. Except as
may otherwise be provided in a resolution adopted by the Board, committee
members and chairpersons shall serve one (1) year terms.
(c) RESTRICTIONS ON COMMITTEE MEMBERS. Members of any committee of the
Corporation who are affiliated with or represent an entity, including its
officers, directors, employees and agents, that provides health care services on
behalf of the Corporation or any subsidiary or affiliate thereof pursuant to an
agreement with the Corporation or any subsidiary or affiliate thereof are
prohibited from using their participation as a committee member of the
Corporation to obtain or exchange competitive information pertaining to other
providers that provide similar health care services on behalf of the Corporation
or any subsidiary or affiliate thereof pursuant to an agreement with the
Corporation or any subsidiary or affiliate thereof. Competitive information
includes, but is not limited to, information related to an individual provider's
rates, discounts, costs, prices, salaries, terms of participation in other
health plans, or strategic or marketing plans.
(d) QUORUM. A majority of the members of a committee or subcommittee
shall constitute a quorum for the transaction of business at any meeting of such
committee or subcommittee.
(e) REQUIRED VOTE. The act of a majority of the members present at a
meeting at which a quorum is present shall be the act of the committee or
subcommittee.
SECTION 16. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, relating to their attendance at meetings of the Board of
Directors, and directors who are not full-time employees of the Corporation may
be paid a fixed sum for attendance at meetings of the Board of Directors or a
stated salary as a director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board, a President, one or
more Vice-Presidents, a Treasurer and a Secretary. The Board of Directors may
also choose one or more Assistant Secretaries or Assistant Treasurers, and may
designate one or more vice-presidents to be executive or senior vice-
presidents. One person may hold two (2) or more offices, but the person
serving as President may not serve simultaneously as Secretary.
SECTION 2. TERM; REMOVAL. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed or suspended at any time by
the affirmative vote of a majority of the directors at any meeting of the Board
at which there is a quorum, without the necessity of specifying any cause
therefor and without any prior notice of such action to the officer so removed
or suspended. All officers, employees and agents, other than officers elected
or appointed by the Board of Directors, may be suspended or removed by the
committee of the Board of Directors or officer appointing them.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the shareholders and the Board of Directors. He or she
shall, in the absence or the disability of the President, perform the duties and
exercise the powers of the President, and shall perform such other duties as may
be delegated to him or her by the Board of Directors.
SECTION 4. PRESIDENT. The President, who shall be the Chief Executive
Officer of the Corporation, shall in general, subject to the control of the
Board of Directors, supervise and control all of the business and affairs of the
Corporation. All other officers shall be subject to the authority and
supervision of the President. The President may enter into and execute in the
name of the Corporation contracts or other instruments in the regular course of
business or contracts or other instruments not in the regular course of business
which are authorized, either generally or specifically, by the Board of
Directors. The President shall have the general powers and duties of management
usually vested in the office of president of a corporation.
SECTION 5. VICE PRESIDENTS. The Board of Directors may appoint one or
more Vice Presidents who shall perform such duties and possess such powers as
shall be assigned him or her by the President or the Board.
SECTION 6. TREASURER AND ASSISTANT TREASURER. The Treasurer shall have
charge and custody of, and be responsible for, all funds and securities of the
Corporation, shall keep or cause to be kept regular books of account for the
Corporation and shall perform such other duties and possess such other powers as
are incident to the office of treasurer or as shall be assigned to the Treasurer
by the President or the Board. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers, in the order determined by the Board,
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer set forth herein and as the President or
the Board from time to time may prescribe.
SECTION 7. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall cause
notices of all meetings to be served as prescribed in these By-laws or by
statute, shall keep or cause to be kept the minutes of all meetings of the
shareholders and of the Board of Directors, shall have charge of the corporate
records and seal of the Corporation and shall keep a register of the post office
address of each shareholder which shall be furnished to the Secretary by such
shareholder. The Secretary shall perform such other duties and possess such
other powers as are incident to the office of the secretary or as are assigned
by the President or the Board. The Assistant Secretary, or if there shall be
more than one, the Assistant Secretaries, in the order determined by the Board,
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary set forth herein and as the President or
the Board from time to time may prescribe.
SECTION 8. SUBORDINATE OFFICERS AND AGENTS. The Board may appoint such
other officers and agents as it shall deem necessary or desirable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the President or the
Board.
ARTICLE V
EXECUTION OF DOCUMENTS
SECTION 1. COMMERCIAL PAPER AND CONTRACTS. All checks, notes, drafts and
other commercial paper of the Corporation shall be signed by the President or
the Treasurer of the Corporation or by such other person or persons as the Board
of Directors may from time to time designate.
SECTION 2. OTHER INSTRUMENTS. All contracts, deeds, mortgages and other
instruments shall be executed by the President or any Vice President, and, if
necessary or required by law, by the Secretary or any Assistant Secretary, or
such other person or persons as the Board of Directors may from time to time
designate.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE VII
CERTIFICATES REPRESENTING SHARES
Certificates representing shares of capital stock of the Corporation shall
be in such form as shall be determined by the Board of Directors and shall be
executed by the President or any Vice President and by the Secretary or the
Treasurer, unless the Board of Directors shall direct otherwise.
ARTICLE VIII
RECORD DATE
For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without any meeting or for the purpose
of determining shareholders entitled to receive payment of any dividend or
allotment of any right, or in order to make a determination of shareholders for
any other purpose, the Board of Directors shall fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than sixty (60) days nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action or event to
which it relates. When a determination of shareholders of record for a
shareholders' meeting has been made as provided in this Article VIII, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends or make other distributions on its outstanding shares of
capital stock in the manner and upon the terms and conditions provided by the
Certificate of Incorporation and by statute.
ARTICLE X
AMENDMENT
These By-laws may be altered, amended or repealed, or new by-laws may be
adopted by the Board of Directors, at any regular meeting of the Board of
Directors or of any special meeting of the Board of Directors in accordance with
the vote required in Article III hereof; provided, however, that (i) any
alteration, amendment or repeal of Sections 1, 2(a) and (c), 3, 4(b)(ii) and/or
15(b) of Article III of these By-laws must be approved by the shareholders of
the Corporation, excluding FHS or any subsidiary or affiliate thereof or
successor thereto, for so long as any shares of the Corporation's common stock
are held by any NJ Practitioner, NJ Acute Care Institution, affiliate to a NJ
Acute Care Institution or other health care provider to FOHP-NJ, and (ii) any
new by-laws which may be adopted by the Board, without shareholder approval,
must contain the provisions found in Sections 1, 2(a) and (c), 3, 4(b)(ii) and
15(b) of Article III of these By-laws for so long as any shares of the
Corporation's common stock are held by any NJ Practitioner, NJ Acute Care
Institution, affiliate to a NJ Acute Care Institution or other health care
provider to FOHP-NJ. These By-laws, or any new by-laws adopted by the Board,
may also be altered, amended or repealed, or new by-laws may be adopted, by the
shareholders, at any annual or special meeting of shareholders if notice of such
alteration, amendment, repeal or adoption of new by-laws is contained in the
notice of such meeting; provided, however, that (i) any alteration, amendment or
repeal of Section 1, 2(a) and (c), 3, 4(b)(ii) and/or 15(b) of Article III of
these By-laws must be approved by the shareholders of the Corporation, excluding
FHS or any subsidiary or affiliate thereof or successor thereto, for so long as
any shares of the Corporation's common stock are held by any NJ Practitioner, NJ
Acute Care Institution, affiliate to a NJ Acute Care Institution or other health
care provider to FOHP-NJ, and (ii) any new by-laws which may be adopted by the
shareholders must contain the provisions found in Section 1, 2(a) and (c), 3,
4(b)(ii) and 15(b) of Article III of these By-laws-for so long as any shares of
the Corporation's common stock are held by any NJ Practitioner, NJ Acute Care
Institution, affiliate to a NJ Acute Care Institution or other health care
provider to FOHP-NJ.
ARTICLE XI
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify a Corporate Agent (as defined
in Section 8 of this Article) against his or her expenses and liabilities
actually and reasonably incurred in connection with the defense of any
proceeding involving the Corporate Agent by reason of his or her being or having
been such a Corporate Agent, other than a proceeding by or in the right of the
Corporation, if (a) such Corporate Agent acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation and (b) with respect to any criminal proceeding, such Corporate
Agent had no reasonable cause to believe his or her conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that such Corporate Agent did not meet the applicable standards of
conduct set forth in subparagraphs (a) and (b) herein.
SECTION 2. The Corporation shall indemnify a Corporate Agent against his
or her liabilities and expenses, actually or reasonably incurred by him or her
in connection with the defense, in any proceeding, by or in the right of the
Corporation to procure a judgment in its favor which involves the Corporate
Agent by reason of his or her being or having been such Corporate Agent, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation. However, in such
proceeding no indemnification shall be provided in respect of any claim, issue
or matter as to which such Corporate Agent shall have been adjudged liable to
the Corporation unless and only to the extent that the New Jersey Superior Court
or the court in which such proceeding was brought shall determine upon
application that despite the adjudication of liability, but in view of all
circumstances of the case, such Corporate Agent is fairly and reasonably
entitled to indemnity for such expenses or liabilities as the New Jersey
Superior Court or such other court shall deem proper.
SECTION 3. The Corporation shall indemnify a Corporate Agent against
expenses (including attorneys fees) to the extent that such Corporate Agent has
been successful on the merits or otherwise in any proceeding referred to in
Section 1 and 2 of this Article or in defense of any claim, issue or matter
therein.
SECTION 4. Any indemnification under Section 1 of this Article and, unless
ordered by a court, under Section 2 of this Article, may be made by the
Corporation only as authorized in a specific case upon a determination that
indemnification is proper in the circumstances because the Corporate Agent met
the applicable standard of conduct set forth in Sections 1 or 2 of this
Article. Such determination shall be made: (a) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to
or otherwise involved in the proceeding; (b) if such a quorum is not
obtainable, or, even if obtainable and such quorum of the Board of Directors
by a majority vote of the disinterested directors so directs, by independent
legal counsel in a written opinion, such counsel to be designated by the
Board of Directors; or (c) by the shareholders.
SECTION 5. Expenses incurred by a Corporate Agent in connection with a
proceeding may be paid by the Corporation in advance of the final disposition of
the proceeding, as authorized by the Board of Directors, upon receipt of an
undertaking by or on behalf of the Corporate Agent to repay such amount unless
it shall ultimately be determined that he or she is entitled to be indemnified
as provided in this Article XI.
SECTION 6. The indemnification and advancement of expenses provided by or
granted pursuant to the other sections of this Article shall not exclude any
other rights to which a Corporate Agent may be entitled under the Corporation's
Certificate of Incorporation, a By-law, agreement, vote of shareholders, or
otherwise; provided, that no indemnification shall be made to or on behalf of a
Corporate Agent if a judgment or other final adjudication adverse to the
Corporate Agent establishes that his or her acts or omissions (a) were in breach
of his or her duty of loyalty to the Corporation or its shareholders, (b) were
not in good faith or involved a knowing violation of law, or (c) resulted in
receipt by the Corporate Agent of an improper personal benefit.
SECTION 7. The Corporation shall have the power to purchase and maintain
insurance on behalf of any Corporate Agent against any expenses incurred in any
proceeding and any liabilities asserted against him or her by reason of his or
her being or having been a Corporate Agent, whether or not the Corporation would
have the power to indemnify him or her against such expenses and liabilities
under the provisions of this section. The Corporation may purchase such
insurance from, or such insurance may be reinsured in whole or in part by, an
insurer owned by or otherwise affiliated with the Corporation, whether or not
such insurer does business with other insureds.
SECTION 8. For purposes of this Article XI the following definitions, as
well as all other definitions set forth in N.J.S.A. 14A:3-5 shall apply:
(a) "Corporate Agent" shall mean any person who is or was a director,
officer, employee or agent of the indemnifying corporation or of any constituent
corporation absorbed by the indemnifying corporation in consolidation or merger
and any person who is or was a director, officer, trustee, employee or agent of
any Other Enterprise, serving as such at the request of the indemnifying
corporation, or of any such constituent corporation, or the legal representative
of any such director, officer, trustee, employee or agent. Furthermore, any
Corporate Agent also serving as a "fiduciary" of an employee benefit plan
governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 197411 (ERISA) as amended from time to time, shall serve in such capacity
as a Corporate Agent, if the corporation shall have requested any such person to
serve. Additionally, the corporation shall be deemed to have requested such
person to serve as a fiduciary of an employee benefit plan, only where the
performance by such person of his or her duties to the corporation also imposes
duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan.
(b) "Other Enterprise" shall mean any domestic or foreign corporation
other than the indemnifying corporation, and any partnership, joint venture,
sole proprietorship, trust or other enterprise (including employee benefit plans
governed by ERISA), whether or not for profit, served by a Corporate Agent.
ARTICLE XII
INCONSISTENCY WITH CERTIFICATE OF INCORPORATION
In the event that any of the provisions of these By-laws is inconsistent
with any provision of the Corporation's Certificate of Incorporation, the
provision of the Certificate of Incorporation shall apply.
As Amended and Restated: April 16, 1997.
EXHIBIT E EXECUTION COPY
GENERAL ADMINISTRATIVE SERVICES MANAGEMENT AGREEMENT
This General Administrative Services Management Agreement (this
"Agreement") is entered into this 30th day of April, 1997, by and between FOHP,
Inc., a New Jersey corporation ("FOHP"), and Foundation Health Systems, Inc., a
Delaware corporation formerly known as "Health Systems International, Inc."
("FHS").
RECITALS
A. FOHP is a New Jersey corporation which, together with its subsidiaries
(FOHP and such subsidiaries being referred to herein, collectively, as the "FOHP
Health Plans"), provides managed health care services in the Northeastern United
States.
B. FHS has entered into the Amended and Restated Securities Purchase
Agreement, dated February 10, 1997 as amended by an Amendment dated as of March
13, 1997 (referred to herein, as so amended, as the "Purchase Agreement"), with
FOHP and First Option Health Plan of New Jersey, Inc. (a New Jersey corporation
and wholly-owned subsidiary of FOHP) pursuant to which FHS has committed to
purchase (on specified terms and conditions) convertible subordinated surplus
debentures of FOHP (the "Debentures") in the aggregate principal amount of the
sum of (1) $50 million (subject to adjustment as set forth therein) and (2) the
Phase-in Period Management Fee Amount (as such term is defined in Section 4.2(a)
hereof).
C. FHS owns, operates and manages various managed care entities
throughout the United States. By entering into this Agreement, the FOHP Health
Plans desire to secure from FHS certain administrative, consulting and other
support services which are intended to enhance the organizational capacity of
the FOHP Health Plans. The FOHP Health Plans will maintain ultimate
organizational capacity required in order to carry out their operations.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
AGREEMENT
SECTION 1. AUTHORITY OF THE PARTIES.
(a) The respective Boards of Directors of the FOHP Health Plans shall
retain the ultimate legal responsibility and authority over the assets and
operations of the FOHP Health Plans. FHS shall perform the services to be
performed by it hereunder in accordance, in all material respects, with
applicable health maintenance organization acts and other applicable laws,
rules and regulations (collectively, the "Applicable Laws"). It is the
intent of the parties hereto that this Agreement and the services to be
performed by FHS hereunder shall at no time serve to interfere with the
ability of the Boards of Directors of the FOHP Health Plans to carry out
their respective duties and responsibilities under the Applicable Laws.
FHS shall have the authority and responsibility described in this Agreement
and otherwise as mutually agreed upon by the parties hereto from time to
time. FOHP agrees that, during the time hereof, the FOHP Health Plans
shall provide employee staffing sufficient to perform the functions and
conduct the business and operations of the FOHP Health Plans in a manner
consistent with the current functions and conduct of the business and
operations of the FOHP Health Plans (other than the corporate,
administrative and consultative services to be performed hereunder by
FHS). FHS' services in connection with the activities shall be
strictly limited to those specifically provided for herein.
(b) FHS shall have the right to designate and employ the business
executives in charge of FOHP and the other FOHP Health Plans and each
executive in charge of a principal business division, unit or function
(including, without limitation, finance, legal, operations, sales and
marketing, information systems, medical management, and provider
contracting and relations), all of which executives would report to FHS'
senior management. All such executives shall be appointed by the FOHP
Board of Directors to the offices requested by FHS; provided, however, that
such Board of Directors may reject any proposed appointee it reasonably
finds to be of insufficient ethical character for such office; and
provided, further, that such Board of Directors may, after due consultation
with FHS, based on a reasonable determination of intentional and material
unethical behavior or insubordination or willful misconduct or gross
negligence, remove any such executives.
(c) FHS acknowledges that FOHP will continue to employ an internal
auditor who will report directly to the Board of Directors of FOHP and who
will perform functions consistent with those performed thereby prior to the
Initial Closing Date (as such term is defined in the Purchase Agreement).
SECTION 2. CONDITION PRECEDENT.
This Agreement shall not become effective prior to the receipt of all
necessary government approvals; provided, however, that, so long as the Initial
Closing (as such term is defined in the Purchase Agreement), and the execution
and delivery of this Agreement occur prior to July 31, 1997, this Agreement
shall be deemed to be effective for the purposes of Section 4 hereof as of
January 1, 1997.
SECTION 3. ADMINISTRATIVE AND OTHER SERVICES.
FHS shall be responsible for the following administrative and consultative
services during the term of this Agreement, subject to the direction of the FOHP
Health Plans and consistent with the manner in which FHS provides such services
to its own subsidiaries, without disadvantage to FOHP or the FOHP Health Plans.
The parties hereto acknowledge that FHS has various subsidiaries operating as
health plans in the northeastern region of the United States. FHS agrees that
it will perform its obligations hereunder in a manner generally consistent with
the operation of such subsidiary health plans; FHS' subsidiary health plans
shall not be operated with the specific intention of causing harm to FOHP.
3.1 Information Operating Systems. FHS shall manage the diagnosis and
assessment of the information and operating systems of the FOHP Health Plans and
shall provide support for all necessary conversions, supplements and
enhancements to such systems.
3.2 Provider Matters. FHS shall manage the FOHP Health Plans in their
provider contracting efforts and provider relations matters (including the
establishment of appropriate provider reimbursement structures).
3.3 FOHP Health Plans Employees. FHS shall provide human resources and
employee benefit corporate management services to the FOHP Health Plans in
recruiting employees therefor and in implementing personnel policies and
procedures and employee benefit programs. To the extent practicable and legally
possible, FHS shall implement employee benefit programs for employees of the
FOHP Health Plans consistent with those in place at FHS' operating subsidiaries.
3.4 Legal and Governmental Relations. FHS shall provide consultation and
assistance to the FOHP Health Plans in connection with governmental relations
and legislative activities (including regulatory compliance matters) affecting
the FOHP Health Plans.
3.5 Strategic Plan/Product Offerings. FHS shall provide consultation and
assistance to the FOHP Health Plans in conducting analyses of the marketplace in
which the FOHP Health Plans operate and in developing an appropriate strategic
plan therefor. Based upon the results of such analyses, FHS may, from time to
time, assist the FOHP Health Plans with implementation of activities related to
(a) the products to be offered thereby, (b) the service areas in which the FOHP
Health Plans should operate or expand their activities and (c) the other
services which should be offered thereby.
3.6 Materials and Information Provided to Enrollees. FHS shall provide
consultation and assistance to the FOHP Health Plans in connection with the
development and dissemination of enrollment and disclosure materials for
(a) enrollees thereof ("Enrollees"), (b) employers and other groups contracting
with any of the FOHP Health Plans (referred to herein as "Subscriber Groups")
and (c) other third parties.
3.7 Utilization Review and Quality Assurance Programs. FHS shall provide
administrative support to the FOHP Health Plans in the formulation, review and
implementation of the utilization review and quality assurance programs thereof.
3.8 Confidentiality of Records. FHS shall provide consultation and
assistance to the FOHP Health Plans in connection with protecting the
confidentiality of and ensuring compliance with all applicable federal, state
and local laws and regulations relating to, the records thereof.
3.9 Contract Development. FHS shall consult with and assist the FOHP
Health Plans in support of the medical management policies and procedures
thereof, in preparing and negotiating contracts with participating providers,
Subscriber Groups, vendors and other third parties.
3.10 Annual Budget. FHS shall provide consultation and assistance to the
FOHP Health Plans in the preparation of the annual budget thereof, which will
set forth their major operating objectives, anticipated revenues, expenses, cash
flow and capital expenditures.
3.11 Accounting Records/Financial Analysis/Tax Returns. FHS shall provide
oversight management to the FOHP Health Plans in recording and analyzing the
financial condition thereof, including a financial review and analysis of health
care costs incurred thereby. FHS shall assist the FOHP Health Plans in the
preparation of appropriate federal, state and local tax returns and provide the
FOHP Health Plans with advice as to appropriate tax accruals.
3.12 Accounts Receivable Management. FHS shall provide consultation and
assistance to the FOHP Health Plans in the establishment, review and
modification of collection policies and programs designed to minimize the number
and amount of outstanding accounts receivable thereof.
3.13 Premium Development. FHS shall provide consultation and assistance to
the FOHP Health Plans in implementing the premium structures thereof, which
premium structures will take into account the financial obligations of the FOHP
Health Plans, the importance of providing quality health care at a reasonable
cost and the competition and service areas of the FOHP Health Plans.
3.14 Insurance. FHS shall give advice to the FOHP Health Plans concerning
the various business insurance programs thereof, including, without limitation,
professional liability insurance, directors' and officers' liability insurance,
reinsurance and workers' compensation insurance.
3.15 Sales and Marketing. FHS shall provide consultation and assistance to
the FOHP Health Plans in connection with the sales and marketing efforts
thereof, including assistance with respect to the selection of advertising
agencies, the conduct of surveys regarding the satisfaction of Subscriber Groups
and Enrollees of the FOHP Health Plans and the sales programs and techniques of
the FOHP Health Plans.
3.16 Actuarial and Underwriting. FHS shall provide to the FOHP Health
Plans actuarial and data analysis services and assistance in the development of
underwriting standards.
3.17 Planning. FHS shall assist the Board of Directors of the FOHP Health
Plans in reviewing the short-, medium- and long-range objectives thereof and in
formulating recommendations with respect thereto.
3.18 Other Services. FHS shall provide such other services, not
specifically set forth herein, as are mutually agreed upon between the parties
hereto.
SECTION 4. MANAGEMENT FEES.
4.1 Management Fee Amount. In consideration of the services provided by
FHS hereunder, FOHP shall pay to FHS a monthly management fee (the "Management
Fee") equal to the sum of (a) the product of (i) the total revenue of the FOHP
Health Plans for such month, multiplied by (ii) two percent, plus (b)
reimbursement for (i) direct expenses incurred to third parties in connection
with this Agreement and (ii) salaries and benefits of the executives employed by
FHS in accordance with Section 1(b) hereof; provided, however, that the
aggregate amount of payments to be made by FOHP to FHS with respect to clause
(a) of this Section 4.1 each calendar year during the term of this Agreement
(including, with respect to the 1997 calendar year for this purpose, any Phase-
In Management Fee Amount (as such term is defined in Section 4.2 hereof) paid to
FHS pursuant to Section 4.2 hereof) shall in no event be less than $5,000,000
(irrespective of the amounts calculated in such clause (a)).
4.2 Payment Procedure.
(a) At the time of the Initial Closing and simultaneously with the
execution and delivery of this Agreement, FOHP shall pay to FHS the amount
of $1,701,120.38 (the "Phase-in Period Management Fee Amount") which is
equal to the Management Fee for all months during the 1997 calendar year
ending prior to the date of such Initial Closing, as reflected in
statements provided prior to the Initial Closing by FHS to FOHP for such
months.
(b) At the end of each month during the term of this Agreement
subsequent to the Initial Closing, FHS shall provide FOHP with statements
setting forth FHS' Management Fee for such month. Such Management Fee for
any month shall become payable within 10 days after receipt by FOHP from
FHS of the statements for such month.
4.3 Centralized Services. In the event that FHS establishes a regional or
centralized multi-entity system relating to functions ordinarily and customarily
handled at the plan level and not described in Section 3 of this Agreement (such
as plan level accounting, membership services and, unless and until the
Management Information Systems and Claims Processing Services Agreement between
FHS and FOHP being entered into concurrently herewith shall have become
effective pursuant to the terms thereof, claims and data processing), FHS shall
have the right to transfer such functions performed by the FOHP Health Plans to
such regional system, in which case FOHP shall be obligated to pay to FHS the
share of such regional systems costs incurred by FHS with respect to such
function which is allocable to the FOHP Health Plans. In the event of any such
transfer of functions by FHS, the regionalization or centralization of functions
by FHS shall result, in the aggregate, in cost savings to FOHP; further, in the
event of such transfers of claims and data processing functions, the
regionalization or centralization by FHS shall result in such functions not
exceeding, in the aggregate, costs for such functions under the current Managed
Care Management Information Services Agreement between FOHP and Health Systems
Integration, Inc. (as amended).
4.4 Unpaid Management Fees. In the event any of the Management Fees due
and payable to FHS under this Agreement are not paid when due, such Management
Fees may, at FHS' option, be added to the principal amount evidenced by the
Debentures, except that Management Fees due and payable during the 1998 calendar
year may only be added to such principal amount to the extent permitted by
Section 5.1 of the Debentures. Any due and payable but unpaid Management Fees
shall bear interest until paid in their entirety or so added to such principal
amount evidenced by the Debentures. Such interest shall accrue at an annual
rate equal to the rate charged to FHS under its credit facility (the "BA
Facility") issued by a consortium of commercial banks led by Bank of America,
National Trust & Savings Association or such credit facility as is used to
refinance the BA Facility (the "Rate"), which Rate shall be subject to
adjustment at the beginning of each calendar quarter.
SECTION 5. COMPLIANCE WITH APPLICABLE LAWS.
Notwithstanding any other provision of this Agreement to the contrary:
5.1 Availability of Records. Upon request of any of the FOHP Health
Plans, FHS shall make its books and records pertaining to FHS' services
furnished under the terms of this Agreement available to the FOHP Health Plans.
FHS shall have access to any and all of FOHP Health Plan's books and records
reasonably necessary to render the services contemplated to be provided by FHS
under this Agreement.
5.2 Subcontracts. FHS shall ensure that each contract between FHS and any
subcontractor performing portions of FHS' obligations hereunder contain
provisions to the following effect:
(a) that such subcontractor shall make all applicable books and
records available for inspection, examination and copying by the FOHP
Health Plans; and
(b) that the subcontractor shall retain such books and records for a
reasonable period of time following the termination of such subcontract.
The subcontracting by FHS of any of its obligations to FOHP hereunder shall not
relieve FHS of any such obligations to FOHP.
5.3 Confidentiality. FHS shall maintain the confidentiality of any of the
FOHP Health Plans enrollment information and medical records of enrollees of any
of the FOHP Health Plans as required by the Applicable Laws and shall not
disclose such information to any person without FOHP's prior consent.
5.4 Grievance Procedures and Other Policies and Procedures. FHS shall
assist the FOHP Health Plans in complying with the grievance procedures and
other policies and procedures applicable to FOHP under the Applicable Laws.
5.5 Enrollee Responsibility for Obligations of FOHP. FHS shall under no
circumstances look to enrollees of any of the FOHP Health Plans for payment of
obligations of FOHP to FHS hereunder, regardless of the insolvency of FOHP or
the inability of FOHP to pay.
5.6 Books and Records of FOHP. FOHP and FHS shall not, and FOHP shall
cause the other FOHP Health Plans to not, remove any of the books or records of
any of the FOHP Health Plans from the relevant location thereof unless necessary
consents under the Applicable Laws are obtained and such Applicable Laws are
otherwise complied with.
5.7 State and Federal Regulator Access. FHS and FOHP shall, and FOHP
shall cause the other FOHP Health Plans to, provide governmental agencies access
to such records as such governmental agencies may reasonably request, pursuant
to the Applicable Laws.
SECTION 6. MISCELLANEOUS.
6.1 Term. The initial term of this Agreement will commence on the date
hereof or, if later, upon the receipt of all necessary regulatory approvals, and
shall continue until (a) the fifth anniversary of the date hereof, subject to
automatic one-year renewal terms on the same terms and conditions hereof unless
either party hereto provides written notice of non-renewal to the other party
hereto at least two years prior to the expiration of the then-current term of
this Agreement; (b) termination in accordance with the terms of this Section 6.1
by one of the parties hereto after the material breach of this Agreement by the
other party hereto; or (c) termination by one of the parties hereto after the
other party hereto (i) becomes insolvent, (ii) voluntarily seeks, consents to or
acquiesces in the benefit or benefits of any Debtor Relief Law (as hereinafter
defined) or (iii) becomes party to (or be made the subject of) any proceeding
provided by Debtor Relief Law, other than as a creditor or claimant (unless in
the event such proceeding is involuntary, the petition instituting the same is
dismissed within 45 days of filing the same). In the event of a material breach
by either party as described in clause (b) of this Section 6.1, the non-
defaulting party shall provide written notice upon the defaulting party (the
"Default Notice") specifying the nature of the breach. In the event such breach
is not cured within 15 days after service of the Default Notice, this Agreement
shall automatically terminate with the election of the non-defaulting party upon
the giving of a written notice of termination to the defaulting party, such
notice to occur not later than 45 days after service of the Default Notice;
provided, however, that if the nature of the breach is such that it cannot be
cured within 15 days, but is capable of being cured, then this Agreement cannot
be terminated by the non-defaulting party so long as the defaulting party is
taking or has taken reasonable steps within the 45 day period to cure the breach
and such steps are being diligently pursued to the reasonable satisfaction of
the non-breaching party. As used herein, "Debtor Relief Law" means the
Bankruptcy Code of the United States of America and all other applicable
insolvency and other similar laws from time to time in effect affecting the
rights of creditors generally.
6.2 Assignment.
(a) FHS shall not have the right to assign this Agreement or any
right or obligation hereunder (other than to a wholly-owned or majority-
owned subsidiary of FHS) without the prior written consent of FOHP. FOHP
may not assign this Agreement or any right or obligation hereunder without
FHS' prior written consent. A merger or business combination of FHS with
or into another party shall not be considered an assignment for purposes of
this Section 6.2.
(b) All of the terms of this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the heirs, personal
representatives, successors and permitted assigns of the parties hereto.
6.3 Notices. Any notice or other communication required or contemplated
to be delivered under this Agreement by either party hereto to the other party
hereto shall be in writing and shall be deemed effectively given on the date of
receipt thereof if personally delivered, telecopied or telexed to the party to
which such notice is directed, or on the third day after mailing, if mailed to
such party, by registered or certified mail, postage prepaid, addressed to the
following addresses:
(a) If to FHS: Foundation Health Systems, Inc.
225 North Main Street
Pueblo, Colorado 81003
Attn: Senior Vice President, General
Counsel and Secretary
Fax: (917) 585-8175
(b) If to FOHP: FOHP, Inc.
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn: Senior Vice President,
General Counsel and Secretary
Fax: (908) 842-5404
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
Attn: Charles I. Weissman, Esq.
Fax: (212) 758-9526
with an additional copy to:
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
P.O. Box 190
Middletown, New Jersey 07748
Attn: Paul T. Colella, Esq.
Fax: (908) 224-6599
or to such other address as either party hereto may designate in writing.
6.4 Amendments. This Agreement may not be amended other than by written
consent executed by both parties hereto.
6.5 Headings. The headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
6.6 No Waiver. Neither the failure by an aggrieved party hereunder to
insist upon strict performance of any covenant, agreement, term or condition of
this Agreement or to exercise any remedy upon a breach thereof, nor the
acceptance of full or partial performance during the continuance of any such
breach by the other party hereto, shall constitute a waiver of any such
covenant, agreement, term or condition or any such breach.
6.7 Further Instructions or Action. Each party hereto agrees that it will
execute and deliver such further instruments and will take such other actions as
may be reasonably necessary in order to effectively discharge, perform and carry
out its obligations and agreements hereunder.
6.8 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
6.9 Proprietary Information. It is understood that, during the term of
this Agreement, FHS will have access to certain confidential and proprietary
information concerning FOHP and the FOHP Health Plans, and FOHP shall have
access to certain confidential and proprietary information concerning FHS,
including management information system information and certain technology.
During the term of this Agreement and thereafter, FOHP shall, and FOHP shall
cause the FOHP Health Plans to, take all reasonable precautions to maintain the
confidentiality of any non-public information provided by FHS and shall not
disclose such information to any third party without FHS' prior written consent
or use such information for any purpose other than the purposes contemplated
hereby. During the term of this Agreement and thereafter, FHS shall take all
reasonable precautions to maintain the confidentiality of any non-public
information provided by FOHP and the FOHP Health Plans and shall not disclose
such information to any third party without the prior written consent of FOHP
and the FOHP Health Plans or use such information for any purpose other than the
purposes contemplated hereby. If this Agreement is terminated, both parties
shall forthwith destroy all such non-public written information supplied by the
other party hereto, together with all notes, summaries or other written material
derived from such information, and shall confirm to the other party hereto that
it has not kept copies of such information, notes, summaries or written
materials.
6.10 Relationship. It is mutually understood and agreed that, in
performing its duties and obligations under this Agreement, no relationship of
employment (other than the employment by FHS of executives of FOHP Health Plans
in accordance with Section 1(b) hereof), partnership or joint venture is created
by this Agreement.
6.11 Dispute Resolution. The parties hereto hereby waive all rights to a
trial by jury in any dispute relating to this Agreement. In the event of any
dispute, controversy, claim or difference which arises out of or relates to this
Agreement, including, without limitation, disputes about fees, services or
performance of services hereunder, either party hereto may give written notice
of an intention to submit such matter to binding arbitration unless the matter
is resolved within two weeks or such additional period of time as shall be
agreed upon by the parties hereto. If the matter cannot be resolved within such
period through correspondence and mutual consultation of the parties hereto, it
shall be finally settled by arbitration in accordance with the Rules of Civil
Arbitration of the American Arbitration Association ("AAA"). Each party shall
select an arbitrator with expertise in managed care organizations and such
arbitrators shall jointly select a third arbitrator or, if such arbitrators
cannot agree, the AAA shall select the third arbitrator; provided, however, that
such third arbitrator shall not have a residence or office in the State of New
Jersey. If either party fails to select an arbitrator within 20 days after
service of the notice of demand for arbitration, then the AAA shall select such
arbitrator. Arbitration proceedings shall be held in the State of New Jersey
unless otherwise agreed to by the parties in writing. The decision of a
majority of the arbitrators shall be final and binding upon the parties hereto,
shall not be subject to appeal and shall deal with the question of costs of the
arbitration and all matters related thereto. Judgment upon the award or
decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof, or application may be made to such court for a judicial
recognition of the arbitration award or an order of enforcement thereof, as the
case may be. The agreement to arbitrate set forth in this Section 6.11 shall be
specifically enforceable by the parties hereto, and such parties shall
acknowledge and agree that they intend that all disputes, controversies or
claims of any kind covered by this Section 6.11, including disputes over whether
and how to arbitrate, shall be arbitrated. This Section 6.11 shall survive
termination of this Agreement.
6.12 Indemnification.
(a) (i) FHS agrees to defend, indemnify and hold the FOHP Health
Plans and their respective officers, directors, shareholders, employees and
agents, and their respective heirs, executors, personal representatives,
successors and permitted assigns, harmless from and against any and all
claims, actions, damages, obligations, losses, liabilities, costs and
expenses (including attorneys' fees, other professional fees, costs of
collection and other costs of defense (collectively "Damages")) resulting
from FHS' gross negligence or willful misconduct.
(ii) FOHP agrees to defend, indemnify and hold FHS and its
officers, directors, shareholders, employees and agents, and their
respective heirs, executors, personal representatives, successors and
permitted assigns, harmless from and against any and all Damages resulting
from FHS' execution of this Agreement or performance of services hereunder,
provided that no such indemnification shall be provided to the extent that
such Damages result from FHS' gross negligence or willful misconduct.
(b) Any person or entity seeking indemnity under this Section 6.12
(an "Indemnified Party") shall provide to the party from which indemnity
may be sought (the "Indemnifying Party") written notice, specifying in
reasonable detail the basis of the claim, (i) within 60 days after the
Indemnified Party shall have become aware of facts constituting the basis
for such claim, or (ii) in the case of any action or proceeding by a third
party, within 15 days after the service of such action or proceeding upon
the Indemnified Party; provided, however, that any failure to provide such
timely notice shall only relieve the Indemnifying Party from liability with
respect to such claim to the extent, if any, the Indemnifying Party is
precluded from effectively defending an indemnified claim or otherwise
substantially prejudiced by such delay in providing notice.
(c) The provisions of this Section 6.12 shall survive the termination
of this Agreement.
6.13 Entire Agreement. This Agreement, along with the Management
Information Systems and Claims Processing Services Management Agreement, dated
the date hereof, between FOHP and FHS contain the entire agreement between the
parties hereto with respect to management services, and no prior oral or
written, and no contemporaneous oral, representations or agreements between the
parties with respect to the subject matter of this Agreement shall be of any
force or effect.
6.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be an original,
but all of such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
FOHP, INC.
By:________________________________
Name: Donald Parisi
Title: Acting President and Chief Executive Officer and General Counsel
FOUNDATION HEALTH SYSTEMS, INC.
By:________________________________
Name:
Title:
EXHIBIT F EXECUTION COPY
MANAGEMENT INFORMATION SYSTEMS AND CLAIMS PROCESSING SERVICES
MANAGEMENT AGREEMENT
This Management Information Systems and Claims Processing Services
Management Agreement (this "Agreement") is entered into this 30th day of April,
1997, by and between FOHP, Inc., a New Jersey corporation ("FOHP"), and
Foundation Health Systems, Inc., a Delaware corporation, formerly known as
"Health Systems International, Inc." ("FHS")
RECITALS
A. FOHP is a New Jersey corporation which, together with its subsidiaries
(FOHP and such subsidiaries being referred to herein, collectively, as the "FOHP
Health Plans"), provides managed health care services in the Northeastern United
States.
B. FHS has entered into the Amended and Restated Securities Purchase
Agreement, dated February 10, 1997 as amended by an Amendment dated as of March
13, 1997 (referred to herein, as so amended, as the "Purchase Agreement"), with
FOHP and First Option Health Plan of New Jersey, Inc. (a New Jersey corporation
and a wholly-owned subsidiary of FOHP), pursuant to which FHS has committed to
purchase (on specified terms and conditions) convertible debentures of FOHP (the
"Debentures") in the aggregate principal amount of the sum of (1) $50 million
(subject to adjustment as set forth therein) and (2) the Phase-in Period
Management Fee Amount (as such term is defined in Section 4.2(a) of the General
Administrative Services Management Agreement, dated the date hereof, between FHS
and FOHP).
C. FHS owns, operates and manages various managed care entities
throughout the country. By entering into this Agreement, the FOHP Health Plans
desire to secure from FHS certain support services which are intended to enhance
the management information systems and claims processing capacity of the FOHP
Health Plans. The FOHP Health Plans will maintain ultimate organizational and
administrative capacity required in order to carry out its operations.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
AGREEMENT
SECTION 1. AUTHORITY OF THE PARTIES.
(a) The respective Boards of Directors of the FOHP Health Plans shall
retain the ultimate legal responsibility and authority over the assets and
operations of the FOHP Health Plans. FHS shall perform the services to be
performed by it hereunder in accordance, in all material respects, with
applicable health maintenance organization acts and other applicable laws,
rules and regulations (collectively, the "Applicable Laws"). It is the
intent of the parties hereto that this Agreement and the services to be
performed by FHS hereunder shall at no time serve to interfere with the
ability of the Boards of Directors of the FOHP Health Plans to carry out
their respective duties and responsibilities under the Applicable Laws.
FHS shall have the authority and responsibility described in this Agreement
and otherwise as mutually agreed upon by the parties hereto from time to
time. FOHP agrees that, during the term hereof, the FOHP Health Plans shall
provide employee staffing sufficient to perform the functions and conduct
the business and operations of the FOHP Health Plans in a manner consistent
with the current functions and conduct of the business and operations of
the FOHP Health Plans (other than the corporate, administrative and
consultative services to be performed hereunder by FHS). FHS' services in
connection with the activities shall be strictly limited to those
specifically provided for herein.
(b) FHS shall have the right to designate and employ the business
executives in charge of FOHP and the other FOHP Health Plans and each
executive in charge of a principal business division, unit or function
(including, without limitation, finance, legal, operations, sales and
marketing, information systems, medical management, and provider
contracting and relations), all of which executives would report to FHS'
senior management. All such executives shall be appointed by the FOHP
Board of Directors to the offices requested by FHS; provided, however, that
such Board of Directors may reject any proposed appointee it reasonably
finds to be of insufficient ethical character for such office; and
provided, further, that such Board of Directors may, after due consultation
with FHS, based on a reasonable determination of intentional and material
unethical behavior or insubordination or willful misconduct or gross
negligence, remove any such executives.
(c) FHS acknowledges that FOHP will continue to employ an internal
auditor who will report directly to the Board of Directors of FOHP and who
will perform functions consistent with those performed thereby prior to the
Initial Closing Date (as such term is defined in the Purchase Agreement).
SECTION 2. CONDITIONS PRECEDENT.
This Agreement shall not become effective until the later of (a) the
receipt of all necessary governmental approvals or (b) the receipt by FOHP from
FHS of notice of effectiveness of this Agreement.
SECTION 3. MANAGEMENT INFORMATION SYSTEMS AND CLAIMS PROCESSING SERVICES.
3.1 Claims Processing, Record Keeping and Data Processing Services. FHS
shall provide all claims processing, record keeping and data processing services
to the FOHP Health Plans that are currently provided by Health Systems
Integration, Inc. ("HSII") pursuant to the current Managed Care Management
Information Services Agreement, between FOHP and HSII (as amended), a copy of
which is attached hereto as Exhibit A (the "HSII Agreement"). Except as
specifically herein provided to the contrary, the FOHP Health Plans shall not
bear any cost or expense with respect to the facilities, services and personnel
to be provided by FHS hereunder. FHS shall perform its obligations under this
Agreement in accordance with the performance standards required of HSII under
the HSII Agreement; provided, however, that (i) FOHP shall use all reasonable
efforts to cause HSII to provide reasonable transition assistance, and
(ii) performance requirements shall commence 90 days following the effective
date of this Agreement to the extent HSII does not provide sufficient transition
assistance in the reasonable judgment of FHS.
3.2 Other Services. In addition to the services set forth in Section 3.1
hereof, FHS shall provide such other related services as are mutually agreed
upon between the parties.
SECTION 4. COMPENSATION.
4.1 Services Fees. In consideration of the services provided by FHS
hereunder, FOHP shall (a) pay FHS the fees and charges set forth on Schedule 1
hereto which shall be delivered by FHS to FOHP concurrently with the notice of
effectiveness to be delivered under Section 2 hereof, which fees and charges
shall be no greater than the compensation currently paid to HSII under the HSII
Agreement, and (b) reimburse FHS for such costs and expenses as to which HSII is
entitled to reimbursement under the HSII Agreement and documents related
thereto. Such compensation for any given month shall become payable within 10
days after the end of such month, without deferral.
SECTION 5. COMPLIANCE WITH APPLICABLE LAWS.
Notwithstanding any other provision of this Agreement to the contrary:
5.1 Availability of Records. Upon request of any of the FOHP Health
Plans, FHS shall make its books and records pertaining to FHS' services
furnished under the terms of this Agreement available to the FOHP Health Plans.
FHS shall have access to any and all of FOHP Health Plan's books and records
reasonably necessary to render the services contemplated to be provided by FHS
under this Agreement.
5.2 Subcontracts. FHS shall ensure that each contract between FHS and any
subcontractor performing portions of FHS' obligations hereunder contain
provisions to the following effect:
(a) that such subcontractor shall make all applicable books and
records available for inspection, examination and copying by the FOHP
Health Plans; and
(b) that the subcontractor shall retain such books and records for a
reasonable period of time following the termination of such subcontract.
The subcontracting by FHS of any of its obligations to FOHP hereunder shall not
relieve FHS of any such obligations to FOHP.
5.3 Confidentiality. FHS shall maintain the confidentiality of any of the
FOHP Health Plans enrollment information and medical records of enrollees of any
of the FOHP Health Plans as required by the Applicable Laws and shall not
disclose such information to any person without FOHP's prior consent.
5.4 Grievance Procedures and Other Policies and Procedures. FHS shall
assist the FOHP Health Plans in complying with the grievance procedures and
other policies and procedures applicable to FOHP under the Applicable Laws.
5.5 Enrollee Responsibility for Obligations of FOHP. FHS shall under no
circumstances look to enrollees of any of the FOHP Health Plans for payment of
obligations of FOHP to FHS hereunder, regardless of the insolvency of FOHP or
the inability of FOHP to pay.
5.6 Books and Records of FOHP. FOHP and FHS shall not, and FOHP shall
cause the other FOHP Health Plans to not, remove any of the books or records of
any of the FOHP Health Plans from the relevant location thereof unless necessary
consents under the Applicable Laws are obtained and such Applicable Laws are
otherwise complied with.
5.7 State and Federal Regulator Access. FHS and FOHP shall, and FOHP
shall cause the other FOHP Health Plans to, provide governmental agencies access
to such records as such governmental agencies may reasonably request, pursuant
to the Applicable Laws.
SECTION 6. MISCELLANEOUS.
6.1 Term. The initial term of this Agreement will commence on the date
hereof or, if later, upon the receipt of all necessary regulatory approvals, and
shall continue until (a) the fifth anniversary of the date hereof, subject to
automatic one-year renewal terms on the same terms and conditions hereof unless
either party hereto provides written notice of non-renewal to the other party
hereto at least two years prior to the expiration of the then-current term of
this Agreement; (b) termination in accordance with this Section 6.1 by one of
the parties hereto after the material breach of this Agreement by the other
party hereto; or (c) termination by one of the parties hereto after the other
party hereto (i) becomes insolvent, (ii) voluntarily seeks, consents to or
acquiesces in the benefit or benefits of any Debtor Relief Law (as hereinafter
defined) or (iii) becomes party to (or be made the subject of) any proceeding
provided by Debtor Relief Law, other than as a creditor or claimant (unless in
the event such proceeding is involuntary, the petition instituting the same is
dismissed within 45 days of filing the same). In the event of a material breach
by either party as described in clause (b) of this Section 6.1, the non-
defaulting party shall provide written notice upon the defaulting party (the
"Default Notice") specifying the nature of the breach. In the event such breach
is not cured within 15 days after service of the Default Notice, this Agreement
shall automatically terminate with the election of the non-defaulting party upon
the giving of a written notice of termination to the defaulting party, such
notice to occur not later than 45 days after service of the Default Notice;
provided, however, that if the nature of the breach is such that it cannot be
cured within 15 days, but is capable of being cured, then this Agreement cannot
be terminated by the non-defaulting party so long as the defaulting party is
taking or has taken reasonable steps within the 45-day period to cure the breach
and such steps are being diligently pursued to the reasonable satisfaction of
the non-breaching party. As used herein, "Debtor Relief Law" means the
Bankruptcy Code of the United States of America and all other applicable
insolvency and other similar laws from time to time in effect affecting the
rights of creditors generally.
6.2 Assignment.
(a) FHS shall not have the right to assign this Agreement or any
right or obligation hereunder (other than to a wholly-owned or majority-
owned subsidiary of FHS), without the prior written consent of FOHP. FOHP
may not assign this Agreement or any right or obligation hereunder without
FHS' prior written consent. A merger or business combination of FHS with
or into another party shall not be considered an assignment for purposes of
this Section 6.2.
(b) All of the terms of this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the heirs, personal
representatives, successors and permitted assigns of the parties hereto.
6.3 Notices. Any notice or other communication required or contemplated
to be delivered under this Agreement by either party hereto to the other party
hereto shall be in writing and shall be deemed effectively given on the date of
receipt thereof if personally delivered, telecopied or telexed to the party to
which such notice is directed, or on the third day after mailing, if mailed to
such party, by registered or certified mail, postage prepaid, addressed to the
following addresses:
(a) If to FHS: Foundation Health Systems, Inc.
225 North Main Street
Pueblo, Colorado 81003
Attn: Senior Vice President,
General Counsel and
Secretary
Fax: (719) 585-8175
(b) If to FOHP: FOHP, Inc.
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn: Senior Vice President,
General Counsel and
Secretary
Fax: (908) 842-5404
with a copy to:
Shereff, Friedman, Hoffman &
Goodman, LLP
919 Third Avenue
New York, NY 10022-9998
Attn: Charles I. Weissman, Esq.
Fax: (212) 758-9526
and an additional copy to:
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
P.O. Box 190
Middletown, New Jersey 07748
Attn: Paul T. Colella, Esq.
Fax: (908) 224-6599
or to such other address as either party hereto may designate in writing.
6.4 Amendments. This Agreement may not be amended other than by written
consent executed by both parties hereto.
6.5 Headings. The headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
6.6 No Waiver. Neither the failure by an aggrieved party hereunder to
insist upon strict performance of any covenant, agreement, term or condition of
this Agreement or to exercise any remedy upon a breach thereof, nor the
acceptance of full or partial performance during the continuance of any such
breach by the other party hereto, shall constitute a waiver of any such
covenant, agreement, term or condition or any such breach.
6.7 Further Instructions or Action. Each party hereto agrees that it will
execute and deliver such further instruments and will take such other actions as
may be reasonably necessary in order to effectively discharge, perform and carry
out its obligations and agreements hereunder.
6.8 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
6.9 Proprietary Information. It is understood that, during the term of
this Agreement, FHS will have access to certain confidential and proprietary
information concerning FOHP and the FOHP Health Plans, and FOHP shall have
access to certain confidential and proprietary information concerning FHS,
including management information system information and certain technology.
During the term of this Agreement and thereafter, FOHP shall, and FOHP shall
cause the FOHP Health Plans to, take all reasonable precautions to maintain the
confidentiality of any non-public information provided by FHS and shall not
disclose such information to any third party without FHS' prior written consent
or use such information for any purpose other than the purposes contemplated
hereby. During the term of this Agreement and thereafter, FHS shall take all
reasonable precautions to maintain the confidentiality of any non-public
information provided by FOHP and the FOHP Health Plans and shall not disclose
such information to any third party without the prior written consent of FOHP
and the FOHP Health Plans or use such information for any purpose other than the
purposes contemplated hereby. If this Agreement is terminated, both parties
shall forthwith destroy all such non-public written information supplied by the
other party hereto, together with all notes, summaries or other written material
derived from such information, and shall confirm to the other party hereto that
it has not kept copies of such information, notes, summaries or written
materials.
6.10 Relationship. It is mutually understood and agreed that, in
performing duties and obligations under this Agreement, no relationship of
employment (other than employment by FHS of executives of the FOHP Health Plans
in accordance with Section 1(b) hereof), partnership or joint venture is created
by this Agreement.
6.11 Dispute Resolution. The parties hereto hereby waive all rights to a
trial by jury in any dispute relating to this Agreement. In the event of any
dispute, controversy, claim or difference which arises out of or relates to this
Agreement, including, without limitation, disputes about fees, services or
performance of services hereunder, either party hereto may give written notice
of an intention to submit such matter to binding arbitration unless the matter
is resolved within two weeks or such additional period of time as shall be
agreed upon by the parties hereto. If the matter cannot be resolved within such
period through correspondence and mutual consultation of the parties hereto, it
shall be finally settled by arbitration in accordance with the Rules of Civil
Arbitration of the American Arbitration Association ("AAA"). Each party shall
select an arbitrator with expertise in managed care organizations and such
arbitrators shall jointly select a third arbitrator or, if such arbitrators
cannot agree, the AAA shall select the third arbitrator; provided, however, that
such third arbitrator shall not have a residence or office in the State of New
Jersey. If either party fails to select an arbitrator within 20 days after
service of the notice of demand for arbitration, then the AAA shall select such
arbitrator. Arbitration proceedings shall be held in the State of New Jersey
unless otherwise agreed to by the parties in writing. The decision of a
majority of the arbitrators shall be final and binding upon the parties hereto,
shall not be subject to appeal and shall deal with the question of costs of the
arbitration and all matters related thereto. Judgment upon the award or
decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof, or application may be made to such court for a judicial
recognition of the arbitration award or an order of enforcement thereof, as the
case may be. The agreement to arbitrate set forth in this Section 6.11 shall be
specifically enforceable by the parties hereto, and such parties shall
acknowledge and agree that they intend that all disputes, controversies or
claims of any kind covered by this Section 6.11, including disputes over whether
and how to arbitrate, shall be arbitrated. This Section 6.11 shall survive
termination of this Agreement.
6.12 Indemnification.
(a) (i) FHS agrees to defend, indemnify and hold the FOHP Health
Plans and their respective officers, directors, shareholders, employees and
agents, and their respective heirs, executors, personal representatives,
successors and permitted assigns harmless from and against any and all
claims, actions, damages, obligations, losses, liabilities, costs and
expenses (including attorneys' fees, other professional fees, costs of
collection and other costs of defense (collectively "Damages")) resulting
from FHS' gross negligence or willful misconduct.
(ii) FOHP agrees to defend, indemnify and hold FHS and its
officers, directors, shareholders, employees and agents, and their
respective heirs, executors, personal representatives, successors and
permitted assigns harmless from and against any and all Damages resulting
from FHS' execution of this Agreement or performance of services hereunder,
provided that no such indemnification shall be provided to the extent that
such Damages result from FHS' gross negligence or willful misconduct.
(b) Any person or entity seeking indemnity under this Section 6.12
(an "Indemnified Party") shall provide to the party from which indemnity
may be sought (the "Indemnifying Party") written notice, specifying in
reasonable detail the basis of the claim, (i) within 60 days after the
Indemnified Party shall have become aware of facts constituting the basis
for such claim, or (ii) in the case of any action or proceeding by a third
party, within 15 days after the service of such action or proceeding upon
the Indemnified Party; provided, however, that any failure to provide such
timely notice shall only relieve the Indemnifying Party from liability with
respect to such claim to the extent, if any, the Indemnifying Party is
precluded from effectively defending an indemnified claim or otherwise
substantially prejudiced by such delay in providing notice.
(c) The provisions of this Section 6.12 shall survive the termination
of this Agreement.
6.13 Entire Agreement. This Agreement, along with the General
Administrative Services Management Agreement, dated the date hereof, between
FOHP and FHS contain the entire agreement between the parties hereto with
respect to management services, and no prior oral or written, and no
contemporaneous oral, representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force or effect.
6.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be an original,
but all of such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
FOHP, INC.
By:________________________________
Name: Donald Parisi
Title: Acting President and Chief Executive Officer and General Counsel
FOUNDATION HEALTH SYSTEMS, INC.
By:________________________________
Name:
Title:
EXHIBIT G INVESTORS AGREEMENT
INVESTORS AGREEMENT (this "Agreement"), dated April 30, 1997, by and
between FOHP, Inc., a New Jersey corporation (the "Company"), and Foundation
Health Systems, Inc., a Delaware corporation formerly known as Health Systems
International, Inc. (the "Investor").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into the Amended and Restated
Securities Purchase Agreement, dated February 10, 1997, as amended by the
amendment thereto, dated as of March 13, 1997 (as so amended, the "Amended
Purchase Agreement"), pursuant to which, among other things, the Company will
issue and sell to the Investor convertible debentures in the aggregate principal
amount of approximately $50,000,000 (the "Debentures") which are convertible
into an aggregate of up to 71 % of the common stock of the Company, calculated
on a fully-diluted basis, subject to adjustment under certain circumstances; and
WHEREAS, the parties hereto desire to enter into this Agreement for
the purposes, among other things, of establishing the mechanism for nominating
and voting for members of the Board of Directors of the Company.
NOW, THEREFORE, in consideration of the premises and the mutually
dependent covenants and agreements herein contained, and of other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Designation of Investor Nominees. During the term of this
Agreement, the Investor shall have the right to designate such number of
nominees for election to the Board of Directors of the Company as is provided in
Section 6.1.6 of the Debentures and Article III of the Company's By-Laws (the
"Investor Nominees").
2. Acknowledgment of Non-Investor Nominees. The Investor hereby
acknowledges that Article III of the By-Laws of the Company currently requires,
and may require in the future, that the Board of Directors of the Company
include persons who are not designated by the Investor (the "Non-Investor
Nominees"). Except as otherwise contemplated by the By-laws of the Company, the
Investor acknowledges that all such Non-Investor Nominees shall be nominated by
a majority of the directors who are then Non-Investor Nominees (the "Independent
Designated Non-Investor Nominees"). During the term of this Agreement, the
Investor further agrees that it will not and will cause its designees to the
Company's Board of Directors (in their position as members of the full Board of
Directors or committees thereof) not to, take any action to nominate any Non-
Investor Nominees who are not Independent Designated Non-Investor Nominees.
3. Voting, Removal and Increase in Number of Directors. During the
term of this Agreement, the Investor shall not vote any of its shares of common
stock of the Company, or any other voting securities of the Company over which
the Investor has voting control, for any nominees to the Company's Board of
Directors other than the Investor Nominees and the Independent Designated Non-
Investor Nominees. The number of directors may be increased in accordance with
Article III of the Company's By-Laws.
4. Compliance with Agreement. After such time as the Investor may
become a controlling person of the Company, each of the Company and the Investor
shall take, or cause to be taken, and to do, or cause to be done, all things
necessary or advisable within such party's control to consummate and make
effective the intent of this Agreement, including without limitation to call all
special and annual meetings necessary to elect directors.
5. Term of Agreement. This Agreement shall terminate at the earlier
to occur of (i) such time as the Investor shall own no common stock of the
Company, and no securities of the Company exercisable or convertible into shares
of common stock of the Company and (ii) such time as Article III of the By-Laws
has been amended to delete the requirement that directors be elected to the
Company's Board of Directors who are not designees of the Investor. Nothing
contained in this Section shall affect or impair any rights or obligations
arising after the date hereof but prior to the time of the termination of this
Agreement, or which may arise as a result of an event causing the termination of
this Agreement.
6. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the Company and the Investor, and their respective
successors and assigns.
7. Complete Agreement. This Agreement, the Amended Purchase
Agreement, the Debentures and the Company's By-Laws contain the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior oral or written communications, negotiations, understandings
and agreements between the parties hereto. This Agreement may not be amended,
changed, waived or terminated, in whole or in part, without a written instrument
signed by the Company and the Investor.
8. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute the same agreement.
9. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
FOHP, INC.
By:___________________________
Donald Parisi
Acting President and Chief Executive
Officer and General Counsel
FOUNDATION HEALTH SYSTEMS, INC.
By:__________________________
Name:
Title:
