Execution Copy
- ------------------------------------------------------------------------------
Stock Purchase Agreement
dated as of August 5, 1997
between
Aetna Insurance Company of Connecticut
and
Magellan Health Services, Inc.
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Table of Contents
Page
Introduction...................................................................1
ARTICLE I
Definitions
1.1. Definitions...............................................................1
1.2. Defined Terms.............................................................3
ARTICLE II
Closing Matters
2.1. Closing Payment...........................................................4
2.2. Closing...................................................................4
2.3. Closing Balance Sheet.....................................................5
2.4. Adjustment of Closing Payment.............................................6
ARTICLE III
Representations and Warranties of Seller
3.1. Corporate Existence and Power.............................................7
3.2. Corporate Authorization...................................................7
3.3. Governmental Authorization; Consents......................................7
3.4. Non-Contravention.........................................................8
3.5. Capitalization............................................................8
3.6. Subsidiaries..............................................................8
3.7. Financial Statements......................................................9
3.8. Properties................................................................9
3.9. No Undisclosed Material Liabilities......................................10
3.10. Litigation..............................................................10
3.11. Material Contracts......................................................10
3.12. Compliance with Laws....................................................12
3.13. Brokers' Fees...........................................................12
3.14. Intellectual Property...................................................12
3.15. Permits and Licenses....................................................12
3.16. Labor Matters...........................................................12
3.17. Insurance Policies......................................................13
3.18. Absence of Certain Commercial Practices.................................13
3.19. Assets..................................................................13
3.20. No Adverse Changes......................................................14
3.21. Disclosure..............................................................14
ARTICLE IV
Representations And Warranties Of Purchaser
4.1. Organization and Existence...............................................14
4.2. Corporate Authorization..................................................14
4.3. Governmental Authorization; Consents.....................................15
4.4. Non-Contravention........................................................15
4.5. Brokers' Fees............................................................15
4.6. Financing................................................................15
4.7. Purchase for Investment..................................................15
4.8. Litigation...............................................................15
4.9. Inspections..............................................................16
ARTICLE V
Covenants Of Seller
5.1. Conduct of the Company...................................................16
5.2. Access to Information; Disclosure Supplements............................18
5.3. Notices of Certain Events................................................19
5.4. Resignations.............................................................19
5.5. No Shop..................................................................19
5.6. Contributed Assets.......................................................19
ARTICLE VI
Covenants Of Purchaser
6.1. Confidentiality..........................................................20
6.2. Access...................................................................20
6.3. Insurance...............................................................20
6.4. Use of Names.............................................................20
6.5. Headquarters Lease.......................................................21
6.6. Retention Arrangements...................................................21
ARTICLE VII
Covenants Of Both Parties
7.1. Reasonable Efforts.......................................................21
7.2. Certain Filings..........................................................21
7.3. Public Announcements.....................................................21
7.4. Related Agreements.......................................................22
7.5. Home Office Lease........................................................22
7.6. Co-Located Space.........................................................22
7.7. Transition Services Standard.............................................22
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ARTICLE VIII
Tax Matters
8.1. Tax Definitions..........................................................22
8.2. Tax Representations......................................................23
8.3. Elections................................................................24
8.4. Termination of Existing Tax Sharing Agreements...........................25
8.5. Tax Returns..............................................................25
8.6. Other Tax Matters........................................................26
8.7. Cooperation on Tax Matters...............................................26
8.8. Certain Disputes.........................................................26
8.9. Tax Indemnification......................................................27
ARTICLE IX
Employee Benefits
9.1. Employee Benefits Definitions............................................29
9.2. ERISA Representations....................................................29
9.3. Employees................................................................31
9.4. Pension Plan.............................................................31
9.5. Individual Account Plan..................................................31
9.6. Other Employee Plans and Benefit Arrangements............................31
9.7. Plans Following the Closing..............................................32
9.8. Medical and Dental Insurance Coverage....................................33
9.9. Assumption of Liabilities................................................33
9.10. Third Party Beneficiaries...............................................34
ARTICLE X
Conditions To Closing
10.1. Conditions to Obligations of Each Party.................................34
10.2. Conditions to Obligation of Purchaser...................................34
10.3. Conditions to Obligation of Seller......................................36
ARTICLE XI
Survival; Indemnification
11.1. Survival................................................................37
11.2. Indemnification.........................................................37
11.3. Procedures; Exclusivity.................................................39
11.4. Investigation...........................................................39
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ARTICLE XII
Termination
12.1. Grounds for Termination.................................................39
12.2. Effect of Termination...................................................40
ARTICLE XIII
Miscellaneous
13.1. Notices.................................................................40
13.2. Amendments; No Waivers..................................................41
13.3. Expenses................................................................41
13.4. Successors and Assigns..................................................41
13.5. Governing Law...........................................................41
13.6. Submission to Jurisdiction..............................................41
13.7. Waiver of Jury Trial....................................................42
13.8. Specific Performance....................................................42
13.9. Counterparts; Effectiveness.............................................42
13.10. Entire Agreement.......................................................42
13.11. Severability...........................................................42
13.12. Captions; Construction.................................................42
13.13. Third Party Beneficiaries..............................................42
13.14. No Set-off.............................................................42
Exhibits
Exhibit A Form of Guaranty of Aetna U.S. Healthcare Inc.
Exhibit B Form of Master Agreement
Exhibit C Form of Transition Services Agreement
Exhibit D Form of Non-Competition Covenant
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Stock Purchase Agreement, dated as of August 5, 1997 (the
"Agreement"), between Aetna Insurance Company of Connecticut, a Connecticut
insurance corporation ("Seller"), and Magellan Health Services, Inc., a Delaware
corporation ("Purchaser").
Introduction
Seller is the owner of 10,000 shares (the "Shares") of common
stock, no par value (the "Common Stock"), of Human Affairs International,
Incorporated, a Utah corporation (the "Company"), constituting all of the issued
and outstanding capital stock of the Company;
Purchaser desires to purchase the Shares from Seller, and
Seller desires to sell the Shares to Purchaser, upon the terms and subject to
the conditions set forth in this Agreement;
In consideration of the foregoing and the representations,
warranties, covenants, agreements and conditions contained in this Agreement,
the parties agree as follows:
ARTICLE I
Definitions
1.1. Definitions. (a) The following terms, as used herein, have the following
meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person; provided that neither the Company nor any Subsidiary shall be considered
an Affiliate of Seller.
"Balance Sheet" means the consolidated balance sheet of the Company and its
consolidated Subsidiaries as of June 30, 1997 referred to in Section 3.7.
"Balance Sheet Date" means June 30, 1997.
"Base Stockholder's Equity" means $15,500,000.00.
"Closing Balance Sheet" means a consolidated balance sheet of the Company
and its consolidated Subsidiaries as at the close of business on the day
immediately preceding the Closing Date, together with the notes thereto.
"Closing Date" means the date of the Closing.
"Closing Stockholder's Equity" means the consolidated stockholder's equity
of the Company and its consolidated Subsidiaries as of the close of business on
the day immediately preceding the Closing Date as set forth on the Closing
Balance Sheet.
"Disclosure Schedule" means the disclosure schedule delivered by Seller to
Purchaser simultaneously with the execution of this Agreement.
"Final Stockholder's Equity" means Closing Stockholder's Equity (i) as
shown in Seller's
calculation delivered pursuant to Section 2.3(a) if no notice of disagreement
with respect thereto is duly delivered pursuant to Section 2.3(b) or (ii) if
such a notice of disagreement is duly delivered, (A) as agreed by the parties
pursuant to Section 2.3(c) or (B) in the absence of such agreement, as shown in
the independent accountant's calculation delivered pursuant to Section 2.3(c);
provided that Final Stockholder's Equity shall not in any event be more than
Seller's calculation of Closing Stockholder's Equity delivered pursuant to
Section 2.3(a) nor less than Purchaser's calculation of Closing Stockholder's
Equity delivered pursuant to Section 2.3(b).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Intellectual Property Right" means any trademark, service mark,
registration thereof or application for registration therefor, trade name,
invention, patent, patent application, trade secret, know-how, copyright,
copyright registration, application for copyright registration, or any other
similar type of proprietary intellectual property right.
"knowledge of Seller" means the actual knowledge, on the date of this
Agreement, if any, of any of the officers, directors or employees of Seller or
the Company set forth in Section 1.1 of the Disclosure Schedule.
"Lien" means, with respect to any asset (including the Shares), any
mortgage, lien, pledge, charge, security interest, option, restriction on
transfer or other encumbrance of any kind in respect of such asset.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Purchaser Disclosure Schedule" means the disclosure schedule delivered by
Purchaser to Seller simultaneously with the execution of this Agreement.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Accounting Referee 8.8
Benefit Arrangement 9.1
Closing 2.2
Closing Payment 2.1
Code 8.1
Combined State Tax 8.1
Common Stock Introduction
Company Introduction
Company Securities 3.5
Contracts 3.11
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Contributed Assets 3.19
Customer Contracts 3.11
Damages 11.2
De Minimis Claims 11.2
Direct Rollover 9.5
Employee Plans 9.2
ERISA 9.1
ERISA Affiliate 9.1
Federal Taxes 8.1
Guarantor 10.2(g)
Indemnified Party 11.2
Indemnifying Party 11.2
Individual Account Plan 9.1
Headquarters Lease 6.5
Licenses 3.15
Master Agreement 10.2(g)
Multiemployer Plan 9.1
PBGC 9.1
Pension Plan 9.1
Post-Closing Tax Period 8.1
Pre-Closing Tax Period 8.1
Purchaser Plan 9.5
Purchaser Indemnified Parties 11.2
Related Transaction Agreements 7.4
Retention Arrangements 6.6
Returns 8.2
Seller Indemnified Parties 11.2
Shares Introduction
Subsidiary Securities 3.6
Tax 8.1
Tax Indemnification Period 8.1
Tax Sharing Agreement 8.1
Title IV Plan 9.1
Transferred Employees 9.3
Transition Services Agreement 10.2(i)
1.2. Defined Terms. (a) All references in this Agreement to "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of this Agreement. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement and not to
any particular Article, Section or other subdivision.
(b) In this Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding".
(c) A reference to "including" in this Agreement shall mean including
without limitation.
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(d) A reference to a Person in this Agreement includes its successors and
permitted assigns (if any).
(e) A reference to any agreement or contract in this Agreement includes
permitted amendments and supplements.
(f) A reference to a law in this Agreement includes any amendment or
modification to such law and any rules or regulations issued thereunder.
ARTICLE II
Closing Matters
2.1 Closing Payment. Upon the terms and subject to the conditions of this
Agreement, Seller agrees to sell to Purchaser, and Purchaser agrees to purchase
from Seller, the Shares at the Closing free and clear of any and all Liens. The
consideration payable at Closing for the Shares (the "Closing Payment") is
$122,100,000 in cash, subject to adjustment as provided in Section 2.4.
2.2 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place five business days following the date
on which all conditions to Closing have been satisfied or waived at 10:00 a.m.,
at the offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New York,
New York, or at such other time or at such other place as Purchaser and Seller
may agree. At the Closing,
(a) Purchaser shall deliver to Seller:
(i) the Closing Payment, by wire transfer of immediately available funds to
such account as Seller may direct by written notice delivered to Purchaser by
Seller at least two business days prior to the Closing Date; and
(ii) such other documents and certificates duly executed as may be required
to be delivered by Purchaser pursuant to the terms of this Agreement (including
Section 10.3).
(b) Seller shall deliver to Purchaser:
(i) certificates for the Shares duly endorsed or accompanied by stock
powers duly endorsed in blank, with any required transfer stamps affixed
thereto; and
(ii) such other documents and certificates duly executed as may be required
to be delivered by Seller pursuant to the terms of this Agreement (including
Section 10.2).
2.3 Closing Balance Sheet. (a) (i) As promptly as practicable after the
Closing Date, Seller will cause the Closing Balance Sheet to be prepared and
will prepare a certificate based on such
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Closing Balance Sheet setting forth its calculation of Closing Stockholder's
Equity. As promptly as practicable, but no later than 90 days, after the Closing
Date, Seller will cause the Closing Balance Sheet together with its certificate
to be delivered to Purchaser. Except as otherwise provided in subsection (ii)
below, the Closing Balance Sheet shall (x) fairly present in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as at the close of business on the day immediately preceding the
Closing Date in accordance with generally accepted accounting principles applied
on a basis consistent with those used in the preparation of the Balance Sheet
(including those matters discussed in Section 3.7(b) of the Disclosure
Schedule), subject to normal, historically consistent year-end adjustments, none
of which will be material in nature, (y) include line items substantially
consistent with those in the Balance Sheet and (z) be prepared in accordance
with accounting policies and practices applied on a basis consistent with those
used in the preparation of the Balance Sheet.
(ii) Prior to the date of the Closing Balance Sheet, Seller shall (i)
determine the amount of all federal and state income taxes (or a reasonable
estimate thereof) which (but for the last sentence of this paragraph) would be
accrued as a current or deferred liability under generally accepted accounting
principles ("Closing Accrued Tax Liabilities") on the Closing Balance Sheet and
(ii) determine the amount (or reasonable estimate thereof) of all federal and
state current or deferred income tax assets ("Closing Accrued Tax Assets") which
would be recorded as an asset under generally accepted accounting principles on
the Closing Balance Sheet. Prior to the date of the Closing Balance Sheet,
Seller shall assume all the Closing Accrued Tax Liabilities and cause to be
transferred to Seller (by dividend or otherwise) the amount of all the Closing
Accrued Tax Assets; it being understood and agreed that the Closing Balance
Sheet shall not contain any balances relating to any state or federal income tax
current or deferred assets or liabilities.
If the Closing Accrued Tax Liabilities exceed the Closing Accrued Tax
Assets, the difference shall be referred to as the "Net Accrued Tax Liability";
if the Closing Accrued Tax Assets exceed the Closing Accrued Tax Liabilities,
the difference shall be referred to as the "Net Accrued Tax Assets." In the
event the above determination results in Net Accrued Tax Liability, the Seller
shall be entitled to cause the Company, prior to the date of the Closing Balance
Sheet, to dividend cash to the Seller (or transfer to the Seller by adjustment
of intercompany accounts) in the amount of Net Accrued Tax Liability. In the
event the above determination results in Net Accrued Tax Assets, the Seller
shall contribute to the Company, prior to the date of the Closing Balance Sheet,
cash (or transfer to the Company by adjusting intercompany accounts) in the
amount of Net Accrued Tax Assets.
(b) If Purchaser disagrees with Seller's calculation of Closing
Stockholder's Equity delivered pursuant to Section 2.3(a), Purchaser may, within
30 days after delivery of the documents referred to in Section 2.3(a), deliver a
notice to Seller disagreeing with such calculation and setting forth Purchaser's
calculation of such amount. Any such notice of disagreement shall specify those
items or amounts as to which Purchaser disagrees, and Purchaser shall be deemed
to have agreed with all other items and amounts contained in the Closing Balance
Sheet and the calculation of Closing Stockholder's Equity delivered pursuant to
Section 2.3(a).
(c) If a notice of disagreement shall be duly delivered pursuant to Section
2.3(b), the parties shall, during the 15 days following such delivery, use their
best efforts to reach agreement on the disputed items or amounts in order to
determine, as may be required, the amount of Closing Stockholder's Equity, which
amount shall not be more than the amount thereof shown in Seller's
5
calculation delivered pursuant to Section 2.3(a) nor less than the amount
thereof shown in Purchaser's calculation delivered pursuant to Section 2.3(b).
If, during such period, the parties are unable to reach such agreement, they
shall promptly thereafter cause an independent accounting firm of nationally
recognized standing reasonably satisfactory to Seller and Purchaser (who shall
not have any material relationship with Seller or Purchaser), promptly to review
this Agreement and the disputed items or amounts for the purpose of calculating
Closing Stockholder's Equity. In making such calculation, such independent
accountants shall consider only those items or amounts in the Closing Balance
Sheet or Seller's calculation of Closing Stockholder's Equity as to which
Purchaser has disagreed. Such independent accountants shall deliver to Seller
and Purchaser, as promptly as practicable, a report setting forth such
calculation. Such report shall be final and binding upon the parties hereto. The
cost of such review and report shall be borne (i) by Seller if the difference
between Final Stockholder's Equity and Closing Stockholder's Equity as set forth
in Seller's calculation of Closing Stockholder's Equity delivered pursuant to
Section 2.3(a) is greater than the difference between Final Stockholder's Equity
and Closing Stockholder's Equity as set forth in Purchaser's calculation of
Closing Stockholder's Equity delivered pursuant to Section 2.3(b), (ii) by
Purchaser if the first such difference is less than the second such difference
and (iii) otherwise equally by Seller and Purchaser.
(d)The parties hereto agree that they will, and agree to cause their
respective independent accountants and the Company to, cooperate and assist in
the preparation of the Closing Balance Sheet and the calculation of Closing
Stockholder's Equity and in the conduct of the review referred to in Section
2.3(c), including without limitation the making available to the extent
necessary of books, records, work papers and personnel.
2.4 Adjustment of Closing Payment. (a) If Base Stockholder's Equity exceeds
Final Stockholder's Equity by at least $500,000, Seller shall pay to Purchaser,
as an adjustment to the Closing Payment, in the manner and with interest as
provided in Section 2.4(b), the amount by which Base Stockholder's Equity
exceeds Final Stockholder's Equity. If Final Stockholder's Equity exceeds Base
Stockholder's Equity by at least $500,000, Purchaser shall pay to Seller, in the
manner and with interest as provided in Section 2.4(b), the amount by which
Final Stockholder's Equity exceeds Base Stockholder's Equity. Any such payment
pursuant to this Section 2.4(a) shall be made at a mutually convenient time and
place (i) within 40 days after Seller's delivery of the documents referred to in
Section 2.3(a) if no notice of disagreement with respect to Closing
Stockholder's Equity is duly delivered pursuant to Section 2.3(b) or (ii) if a
notice of disagreement with respect to Closing Stockholder's Equity is duly
delivered pursuant to Section 2.3(b) then within 10 days after the earlier of
(A) agreement between the parties pursuant to Section 2.3(c) with respect to
Closing Stockholder's Equity and (B) delivery of the calculation of Closing
Stockholder's Equity referred to in Section 2.3(c).
(b) Method of Payment. Any payments pursuant to this Section 2.4 shall be
made by wire transfer of immediately available funds to such account as the
payee may direct by written notice delivered to the payor by the payee at least
two business days prior to the date of such payment. The amount of any payment
to be made pursuant to this Section 2.4 shall bear interest from and including
the Closing Date to but excluding the date of payment at a rate per annum equal
to the rate publicly announced from time to time by The Chase Manhattan Bank in
New York City as its prime rate in effect from time to time during the period
from the Closing Date to the date of payment. Such interest shall be payable at
the same time as the payment to which it relates and shall be calculated daily
on the
6
basis of a year of 365 days and the actual number of days for which due.
ARTICLE III
Representations and Warranties of Seller
Seller hereby represents and warrants to Purchaser that:
3.1 Corporate Existence and Power. Each of Seller and the Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities make such qualification necessary. Seller has
heretofore delivered to Purchaser true and complete copies of the certificate of
incorporation and bylaws of Seller and the Company as currently in effect.
3.2 Corporate Authorization. The execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby are within Seller's corporate powers and have been duly
authorized by all necessary corporate action on the part of Seller and the
shareholder of Seller. This Agreement constitutes a valid and binding obligation
of Seller, enforceable against Seller in accordance with its terms, subject to
(i) bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
other similar laws affecting creditors' rights generally and the rights of
creditors of insurance companies generally and (ii) general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
3.3 Governmental Authorization; Consents. (a) Except as set forth in
Section 3.3(a) of the Disclosure Schedule and except for applicable requirements
of the HSR Act, neither the execution and delivery of this Agreement by Seller,
nor the consummation by Seller of the transactions contemplated hereby will
require any action by or in respect of, or filing with, any governmental body,
agency, official or authority (other than actions or filings that are immaterial
to Purchaser, the Company and the Subsidiaries, and the consummation of the
transactions contemplated hereby).
(b) Except as set forth in Section 3.3(b) of the Disclosure Schedule, no
consent, approval, waiver or other action by any Person (other than any
governmental body, agency, official or authority referred to in (a) above) under
any contract, agreement, indenture, lease, instrument or other document listed
in Section 3.11(a) of the Disclosure Schedule is required or necessary for the
execution, delivery and performance of this Agreement by Seller or the
consummation of the transactions contemplated hereby.
3.4 Non-Contravention. Except as set forth in Section 3.4 of the Disclosure
Schedule, the execution, delivery and performance by Seller of this Agreement do
not and will not (i) contravene or conflict with the certificate of
incorporation or bylaws of Seller, the Company or any Subsidiary, (ii) assuming
compliance with the matters referred to in Section 3.3(a), contravene or
conflict in any material respect with or constitute a violation in any material
respect of any provision of any law, regulation, judgment, injunction, order or
decree binding upon or applicable to Seller, the Company or
7
any Subsidiary; (iii) constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Seller,
the Company or any Subsidiary under, or to a loss of any benefit to which
Seller, the Company or any Subsidiary is entitled under, any provision of any
material agreement, contract or other material instrument binding upon Seller,
the Company or any Subsidiary or any material license, franchise, permit or
other similar material authorization held by Seller, the Company or any
Subsidiary or (iv) result in the creation or imposition of any Lien on any
material asset of Seller, the Company or any Subsidiary.
3.5 Capitalization. The authorized capital stock of the Company consists of
50,000 shares of Common Stock. As of the date hereof, there are outstanding
10,000 shares of Common Stock. All outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and non-assessable.
Except as set forth in this Section, there are no outstanding (i) shares of
capital stock or other voting securities of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company or (iii) options or other rights to acquire from the
Company, and there is no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company or any Subsidiary to issue or deliver or
to repurchase, redeem or otherwise acquire any Company Securities. Seller is and
will be at the Closing the record and beneficial owner of the Shares, free and
clear of any Lien whatsoever, and will transfer and deliver to Purchaser at the
Closing valid title to the Shares free and clear of any Lien. There are no
stockholder agreements, voting agreements, voting trusts, proxies or other
agreements in effect with respect to the voting or transfer of the Common Stock.
3.6 Subsidiaries. (a) Each Subsidiary is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to carry on its
business as now conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities make such
qualification necessary. All Subsidiaries and their respective jurisdictions of
incorporation are identified in Section 3.6(a) of the Disclosure Schedule.
Seller has heretofore delivered to Purchaser true and complete copies of the
certificate of incorporation and bylaws of each Subsidiary as currently in
effect.
(b) Except as set forth in Section 3.6(b) of the Disclosure Schedule, all
of the outstanding capital stock of, or other ownership interests in, each
Subsidiary, is owned, of record and beneficially, by the Company or another
Subsidiary, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding (i) securities of the Company or any Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or ownership
interests in any Subsidiary or (ii) options or other rights to acquire from the
Company or any Subsidiary, and there is no obligation of the Company or any
Subsidiary, to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for any capital
stock, voting securities or ownership interests in, any Subsidiary (the items in
clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding
8
Subsidiary Securities.
(c) Other than the Subsidiaries identified in Section 3.6(a) of the
Disclosure Schedule, there are no other corporations, partnerships, limited
liability companies, joint ventures or other entities in which the Company or
any Subsidiary owns, of record or beneficially, any direct or indirect equity
interest or any right (contingent or otherwise) to acquire the same. There are
no stockholder agreements, voting agreements, voting trusts, proxies or other
agreements in effect with respect to the voting or transfer of the capital stock
of any Subsidiary.
3.7 Financial Statements. The audited consolidated balance sheets of the
Company as of December 31, 1995 and 1996 and the related consolidated statements
of income, stockholder's equity and cash flows for each of the years then ended,
and the unaudited consolidated balance sheet of the Company as of June 30, 1997
and the related consolidated statements of income and stockholder's equity for
the six month period then ended, respectively, attached hereto as Section 3.7(a)
of the Disclosure Schedule, fairly present in all material respects, in
conformity with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto or as set forth on
Section 3.7(b) of the Disclosure Schedule), the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and, in the case of the audited
financial statements, cash flows for the periods then ended (subject to normal,
historically consistent year-end adjustments in the case of the unaudited
interim financial statements).
3.8 Properties. (a) Neither the Company nor any Subsidiary owns any real
property. The Company and the Subsidiaries have good and marketable title to, or
in the case of leased property have valid leasehold interests in, all assets
reflected on the Balance Sheet or acquired after the Balance Sheet Date, except
for assets sold, or leaseholds terminated, since the Balance Sheet Date in the
ordinary course of business consistent with past practices. None of such assets
is subject to any Liens, except: (i) Liens disclosed on the Balance Sheet; (ii)
Liens for taxes not yet due or being contested in good faith (and for which
adequate accruals or reserves have been established on the Balance Sheet); (iii)
Liens which do not materially detract from the value of such property or assets
as now used, or materially interfere with any present or intended use of such
property or assets; (iv) Liens attaching by operation of law, incurred in the
ordinary course of business consistent with past practices and securing payments
not past due; or (v) Liens with respect to which deposits or pledges have been
made to obtain the release of any such Liens described in clause (iv) above.
(b) The accounts receivable reflected on the Balance Sheet and all accounts
receivable arising between the Balance Sheet Date and the date of this Agreement
arose from bona fide transactions in the ordinary course of business and are not
subject to offset or deduction, and the goods and/or services involved have been
sold, delivered and/or fully-performed. Management of the Company believes that
adequate provision has been made for contractual discounts and adjustments to
all such accounts receivable from third-party payors.
3.9 No Undisclosed Material Liabilities. To the knowledge of the Company
(after reasonable inquiry), there are no liabilities of the Company or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than (i) liabilities disclosed or
provided for in the Balance Sheet or in the notes to the balance sheet as of
December 31,
9
1996 referred to in Section 3.7, (ii) liabilities arising out of items disclosed
in Section 3.10 of the Disclosure Schedule, (iii) liabilities that the Company
is retaining, or the Purchaser is assuming, pursuant to Article IX, and (iv)
current liabilities accruing in the ordinary course of business that are
immaterial to the Company and the Subsidiaries taken as a whole.
3.10 Litigation. Except as set forth in Section 3.10 of the Disclosure
Schedule, there is no material action, suit, investigation, proceeding or claim
made in writing (other than claims made under benefit plans pursuant to which
the Company provides behavioral health services) (whether insured or uninsured)
pending, or to the knowledge of Seller threatened, against the Company or any
Subsidiary or any of their respective properties before any court or arbitrator
or any governmental body, agency, official or authority. There is no action,
suit, investigation or proceeding pending, or to the knowledge of Seller
threatened, against Seller, the Company or any Subsidiary seeking to prohibit,
prevent or materially alter or delay the consummation of the transactions
contemplated hereby.
3.11 Material Contracts. (a) Section 3.11(a) of the Disclosure Schedule
sets forth the following agreements, contracts, plans, leases, arrangements or
commitments (each, a "Contract" and, collectively, the "Contracts"):
(i) any agreement providing for the delivery by the Company or any
Subsidiary of behavioral healthcare services for non-Aetna employee
assistance program and managed behavioral health business providing for
projected annualized premiums (based upon June 30, 1997 business in force)
to the Company or any Subsidiary of $200,000 or more ("Customer
Contracts");
(ii) any provider contract between the Company or any Subsidiary and a
third party behavioral healthcare service provider (x) pursuant to which
subcapitation or other alternative payment arrangements are utilized, and
(y) in each of the nine regions served by the Company and the Subsidiaries,
the largest (measured by volume of services provided) provider contract
with respect to (1) in-patient services, (2) partial in-patient services,
(3) intensive out-patient services and (4) out-patient services (the
"Provider Contracts");
(iii) any agreement, other than Customer Contracts, Provider Contracts
and License Contracts (as defined below), for the purchase or sale of
goods, services, equipment or other assets providing for annual payments by
or to the Company or any Subsidiary of $150,000 or more, other than any
such agreements that are terminable by the Company or such Subsidiary at
will on thirty or fewer days' notice without any premium, penalty or other
similar payment in excess of $10,000 becoming payable by the Company or
such Subsidiary by virtue of such termination;
(iv) any lease for real or personal property in which the amount of
payments which the Company is required to make on an annual basis exceeds
$50,000;
10
(v) any partnership, joint venture or other similar contract,
arrangement or agreement;
(vi) any contract relating to indebtedness for borrowed money or
guarantee or the deferred purchase price of property (whether incurred,
assumed, guaranteed or secured by any asset) in an amount exceeding
$100,000;
(vii) any contract or cost allocation arrangement relating to
outstanding indebtedness, liabilities or obligations for amounts owing to,
or notes or accounts receivable from, or leases, contracts or other
commitments or arrangements with or for the benefit of, Seller or any of
its Affiliates, other than any such unwritten contracts, leases,
commitments or arrangements which will be terminated on or prior to the
Closing Date without giving rise to any further obligations on the part of
the Company or such Subsidiary;
(viii) any contract relating to the acquisition or disposition of any
asset or business (whether by merger, sale of stock, sale of assets or
otherwise) material to the Company and the Subsidiaries taken as a whole,
where the transactions contemplated thereby have not been consummated as of
the date hereof;
(ix) any contract or other agreement that by its terms limits the
right of the Company or any Subsidiary to compete (x) in any line of
business, (y) with any Person or (z) in any geographic area or which would
so limit the right of the Company or any Subsidiary after the Closing Date;
(x) any contract or other agreement relating to any Intellectual
Property Rights used by the Company or any Subsidiary, which contract or
other agreement provides for annual license payments in excess of $100,000
("License Contracts"); and
(xi) any other contract or commitment not made in the ordinary course
of business that is material to the Company and the Subsidiaries taken as a
whole.
(b)Except as set forth in Section 3.11(b) of the Disclosure Schedule, each
Contract is a valid and binding agreement of the Company or a Subsidiary
enforceable in accordance with its terms, subject to (i) bankruptcy, insolvency,
fraudulent transfer, moratorium, reorganization and other similar laws affecting
creditors' rights generally and the rights of creditors of insurance companies
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity), and as of the date of this
Agreement is in full force and effect, and neither the Company, any Subsidiary
nor, to the knowledge of Seller, any other party thereto is in default in any
material respect under the terms of any such Contract. Seller has made available
to Purchaser a true and correct copy of each Contract.
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(c)Except as set forth in Section 3.11(c) of the Disclosure Schedule, to
the knowledge of Seller as of the date of this Agreement, no third party to any
of the Contracts intends to (i) terminate or amend the terms thereof or (ii)
refuse to renew same upon expiration of its current term.
3.12 Compliance with Laws. Neither the Company nor any Subsidiary has
violated or is in violation in any material respect of any applicable provisions
of any laws, statutes, ordinances, licenses, permits, authorizations, rules or
other regulations. Neither the Company nor any Subsidiary is in default in any
material respect under, and no condition exists that with notice or lapse of
time or both would constitute a default in any material respect under, any
order, injunction or material judgment of any court, arbitrator or governmental
body, agency, official or authority.
3.13 Brokers' Fees. Except for Merrill Lynch & Co., whose fees will be paid
by Seller, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of Seller, the
Company or any Subsidiary who might be entitled to any fee or commission from
Purchaser, the Company or any of their respective Affiliates upon consummation
of the transactions contemplated by this Agreement.
3.14 Intellectual Property. (a) Except as set forth in Section 3.14 of the
Disclosure Schedule, each of the Company and its Subsidiaries owns or otherwise
has rights to use all Intellectual Property Rights used in the conduct of the
Company's and such Subsidiaries' businesses as presently conducted.
(b)(i) Neither the Company nor any Subsidiary is being sued or charged in
writing with or is a defendant in any claim, suit, action or proceeding relating
to its assets or business that involves a claim of infringement of any material
Intellectual Property Rights and (ii) to the knowledge of Seller, there is no
other claim of such infringement by the Company or any Subsidiary. To the
knowledge of Seller, there is no continuing infringement by any other Person of
any of the material Intellectual Property Rights of the Company or any
Subsidiary.
3.15 Permits and Licenses. Except as set forth in Section 3.15 of the
Disclosure Schedule, each of the Company and its Subsidiaries possesses all
permits, licenses and other authorizations (the "Licenses") of, and has made all
registrations with, all governmental or accreditation entities necessary to
conduct the Company's and such Subsidiaries' businesses as presently conducted
(other than, in the case of Licenses and registrations for the Company, Human
Affairs Alaska, Inc. or Human Affairs International of California, respectively,
such Licenses and registrations that are immaterial to such Person, and, in the
case of Licenses and registrations for the other Subsidiaries, such Licenses and
registrations that are immaterial to the Company and the Subsidiaries taken as a
whole). Except as set forth in Section 3.15 of the Disclosure Schedule, no
notice from any governmental or accreditation entities with respect to
(including an investigation) the revocation, termination, suspension,
restriction, modification or limitation of any material License or the failure
to have any material License has been issued, or given, to Seller, the Company
or any Subsidiary, nor, to the knowledge of Seller, is the issuance of any such
notice or the commencement of any such investigation proposed, pending or
threatened. A list of the material Licenses is set forth in Section 3.15 of the
Disclosure Schedule.
3.16 Labor Matters. There is no collective bargaining agreement in effect
or, to the knowledge of Seller, other union organizational effort occurring with
respect to the employees of the
12
Company. There is no labor strike, dispute, stoppage or lockout pending,
affecting, or to the knowledge of Seller, threatened against the Company and
during the past two years there has not been any such action. Except as set
forth in Section 3.16 of the Disclosure Schedule, there are no charges,
administrative proceedings or formal complaints or, to the knowledge of the
Seller, investigations of discrimination (including discrimination based upon
sex, age, marital status, race, national origin, sexual preference, disability
or veteran status) pending before the Equal Employment Opportunity Commission or
any other governmental entities against the Company or any Subsidiary.
3.17 Insurance Policies. Section 3.17 of the Disclosure Schedule sets forth
(i) a true and complete list of all insurance policies and other surety
arrangements of any kind whatsoever which relate to the assets or businesses of
the Company or any Subsidiary (the "Policies") and (ii) a summary description of
each pending claim asserting liability to the Company or any Subsidiary equal to
or greater than $500,000 under each of the Policies. All of the Policies are in
full force and effect. During the three-year period ending on the date hereof,
no such insurance policies or other surety arrangements have been canceled by an
insurer and no application for any such insurance policies or other surety
arrangements has been rejected by an insurer.
3.18 Absence of Certain Commercial Practices. To the knowledge of Seller,
none of Seller, the Company, any Subsidiary, or any of their respective
directors, officers or employees has:
(a) given, proposed to give, or agreed to give any material gift or similar
material benefit to any customer, supplier or any other person (other than as
described in subsection (b) of this Section 3.18), for the purpose of furthering
the business of the Company or any Subsidiary;
(b) in connection with the business of the Company or any Subsidiary, used
any corporate or other funds for contributions, payments, gifts, or
entertainment, or made any expenditures relating to political activities to
government employees, officials or others in violation of any applicable law or
established or maintained any unlawful or unrecorded funds; or
(c) offered, paid, solicited or received any remuneration (as such term has
been interpreted under 42 U.S.C. ss. 1320a-7b(b)) to induce or in return for any
referral of healthcare business or ordering of healthcare items or services in
violation of any federal or state civil or criminal law.
To the knowledge of Seller, none of Seller, the Company, any Subsidiary, or any
of their respective directors, officers, or employees has accepted or received
any unlawful contributions, payments or gifts in connection with the businesses
of the Company and the Subsidiaries.
3.19 Assets. Except as disclosed on Section 3.19(a) of the Disclosure
Schedule, the assets and properties owned or leased by the Company are all of
the assets and properties necessary to conduct the business and operations of
the Company as currently conducted by the Company. Except as set forth on
Section 3.19(b) of the Disclosure Schedule, Seller covenants and agrees to
contribute or cause to be contributed or transferred to the Company for no
additional consideration, good and marketable title, free and clear of all
Liens, to those assets and properties (exclusive of Intellectual Property and
real property) ("Contributed Assets") set forth on Section 3.19(b) of the
Disclosure Schedule that are owned or leased by Seller or an Affiliate of Seller
and used exclusively or principally in the business and operations of the
Company or its Subsidiaries. The contribution or transfer of the
13
Contributed Assets shall not be taken into consideration for purposes of
calculating the Closing Stockholder's Equity. The only assets and properties
(exclusive of Intellectual Property and real property) within the categories of
assets and properties set forth on Section 3.19(a) of the Disclosure Schedule
which will not be Contributed Assets are those assets and properties which the
Company will have the right to utilize pursuant to the Transition Services
Agreement. Section 3.19(c) of the Disclosure Schedule also sets forth a list of
the general categories of services that have been historically provided to the
Company and the Subsidiaries by Seller or its Affiliates.
3.20 No Adverse Changes. Except as set forth in Section 3.20 of the
Disclosure Schedule, since the Balance Sheet Date, the Company and the
Subsidiaries have conducted their respective businesses only in the ordinary
course of business, and none of them has: (i) through the date of this
Agreement, suffered any material adverse change in its business, properties or
financial condition, including any material damage, destruction or loss
affecting its assets, (ii) made any material increase in compensation payable or
to become payable to any of its employees or made or promised to make any
material bonus payment to any of its employees, or made any material change in
personnel policies, insurance benefits or other compensation arrangements
affecting any of its employees (other than increases, promises or changes in the
ordinary course consistent with past practices or pursuant to Benefit Plans,
Benefit Arrangements and practices in effect as of the Balance Sheet Date);
(iii) sold, transferred, leased to others or otherwise disposed of any of its
material assets (except for (x) inventory sold or used in the ordinary course of
business consistent with past practices or (y) assets sold or disposed of and
replaced by other similar assets), canceled or compromised any debts owed to, or
claims relating to, its assets, business or operations which are of material
value or waived, compromised or released any rights which are of material value
or (iv) through the date of this Agreement, suffered any termination of any
Contract to which it is or was a party representing $500,000 or more of revenues
to the Company and the Subsidiaries for the 12-month period ending on the date
of this Agreement.
3.21 Disclosure. To the knowledge of Seller, as of the date of this
Agreement, no representation or warranty of the Seller (as modified by the
Disclosure Schedule) contained in this Agreement, and no statement contained in
any certificate, document or other instrument furnished to the Purchaser by or
on behalf of Seller pursuant to this Agreement, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE IV
Representations And Warranties Of Purchaser
Purchaser hereby represents and warrants to Seller that:
4.1 Organization and Existence. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to carry on its business as now conducted.
4.2 Corporate Authorization. The execution, delivery and performance by
Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby are within Purchaser's corporate powers and
have been duly authorized by all necessary corporate action
14
on the part of Purchaser. This Agreement constitutes a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, subject to (i) bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
4.3 Governmental Authorization; Consents. (a) Except as set forth in
Section 4.3(a) of the Purchaser Disclosure Schedule and except for applicable
requirements of the HSR Act, neither the execution and delivery of this
Agreement by Purchaser, nor the consummation by Purchaser of the transactions
contemplated hereby will require any action by or in respect of, or filing with,
any governmental body, agency, official or authority (other than actions or
filings that are immaterial to Seller, the Company, the Subsidiaries and the
consummation of the transactions contemplated hereby).
(b) Except as set forth in Section 4.3(b) of the Purchaser Disclosure
Schedule, no consent, approval, waiver or other action by any Person (other than
any governmental body, agency, official or authority referred to in (a) above)
under any material contract, agreement, indenture, lease, instrument or other
document to which Purchaser is a party or by which it is bound is required or
necessary for the execution, delivery and performance of this Agreement by
Purchaser or the consummation of the transactions contemplated hereby.
4.4 Non-Contravention. The execution, delivery and performance by Purchaser
of this Agreement do not and will not (i) contravene or conflict with the
certificate of incorporation or bylaws of Purchaser, (ii) assuming compliance
with the matters referred to in Section 4.3(a), contravene or conflict in any
material respect with or constitute a violation in any material respect of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon Purchaser, (iii) constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of
Purchaser under, or to a loss of any benefit to which Purchaser is entitled
under, any provision of any material agreement, contract or other material
instrument binding upon Purchaser or any material license, franchise, permit or
other similar material authorization held by Purchaser or (iv) result in the
creation or imposition of any Lien on any material asset of Purchaser.
4.5 Brokers' Fees. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Purchaser who might be entitled to any fee or commission from Seller or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
4.6 Financing. Purchaser has, and at all times until the Closing will have,
funds sufficient to consummate the transactions contemplated hereby, which funds
are not, and shall not, be subject to any contingencies or consents by any
Person in order to consummate such transactions.
4.7 Purchase for Investment. Purchaser is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof.
4.8 Litigation. There is no action, suit, investigation or proceeding
(whether insured or uninsured) pending against, or to the knowledge of Purchaser
threatened against or affecting, Purchaser before any court or arbitrator or any
governmental body, agency or official which in any
15
manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated hereby.
4.9 Inspections. Purchaser is an informed and sophisticated purchaser, is
familiar with the business of the Company, and has engaged expert advisors,
experienced in the evaluation and purchase of companies such as the Company.
Purchaser has undertaken such investigation and has been provided with and has
evaluated such documents and information as it has deemed necessary to enable it
to make an informed and intelligent decision with respect to the execution,
delivery and performance of this Agreement. Purchaser acknowledges that Seller
has made no representation or warranty as to the Shares or the prospects,
financial or otherwise, of the Company or the Subsidiaries, except as expressly
set forth herein.
ARTICLE V
Covenants Of Seller
Seller agrees that:
5.1 Conduct of the Company. From the date hereof until the Closing Date,
Seller shall cause the Company and the Subsidiaries to conduct their businesses
in the ordinary course consistent with past practices.
(a) Except as otherwise provided in this Agreement or Section 5.1(a) of the
Disclosure Schedule, from the date of this Agreement until the Closing Date,
without the prior written consent of the Purchaser, Seller will not permit the
Company or any Subsidiary to:
(i) adopt or propose any change in its certificate of incorporation or
bylaws;
(ii) merge or consolidate with any other Person or acquire or lease a
material amount of assets of any other Person, except for those assets which are
owned by Seller or Affiliates of Seller and identified in Section 3.19(b) of the
Disclosure Schedule which will be contributed or transferred to the Company for
no consideration;
(iii) declare, set aside or pay any dividend or other distribution with
respect to any shares of capital stock of the Company, or repurchase, redeem or
otherwise acquire any outstanding shares of capital stock, or other ownership
interests in, the Company or any Subsidiary;
(iv) incur, assume or guarantee any indebtedness for borrowed money other
than, in each case, (x) in a principal amount not exceeding $100,000 or (y) in
the ordinary course of business and in amounts and on terms consistent with past
practices;
(v) create or assume any Lien on any material asset other than
16
in the ordinary course of business consistent with past practices;
(vi) make any loan, advance or capital contributions to or investment in
any Person, other than loans, advances or capital contributions to or
investments made (x) that are immaterial to the Company and the Subsidiaries
taken as a whole, (y) pursuant to existing contracts or commitments or (z) in
the ordinary course of business consistent with past practices;
(vii) sell, lease, license or otherwise dispose of any material assets or
property except (x) pursuant to existing contracts or commitments (which
contracts or commitments are described in Section 5.1(a)(vii) of the Disclosure
Schedule) or (y) in the ordinary course consistent with past practices;
(viii) change any method of accounting or investment, tax or accounting
practice, except for any such change required by reason of a concurrent change
in generally accepted accounting principles or law;
(ix) enter into or consummate any joint venture, partnership or other
similar arrangement or, except as otherwise permitted or required pursuant to
this Agreement, form any other new arrangement for the conduct of its business;
(x) terminate, renew, amend or otherwise alter any of the material Customer
Contracts or other Contracts, except in the ordinary course of business
consistent with past practices;
(xi) except as otherwise permitted or required pursuant to this Agreement,
enter into any written contract or other agreement with Seller, any Affiliate of
Seller or any Affiliate of the Company (other than written contracts or other
agreements between or among the Company and the Subsidiaries);
(xii) increase or otherwise change the rate or nature of the compensation
(including wages, salaries and bonuses) which is paid or payable to any employee
or independent contractor of the Company or any Subsidiary, except in the
ordinary course of business consistent with past practices or pursuant to
existing Employee Plans, Benefit Arrangements, and practices with have been
disclosed to Purchaser;
(xiii) adopt or commit to adopt any employee plan or benefit arrangement
other than an Employee Plan or Benefit Arrangement or make material amendments
to any such Employee Plan or Benefit Arrangement except to the extent required
by law or necessary to preserve the nature of the benefits provided under such
plan or arrangement;
17
(xiv) issue or commit to issue any additional shares of capital stock or
option or warrant of the Company or any Subsidiary;
(xv) enter into any transaction, contract or agreement material to the
Company and the Subsidiaries taken as a whole, other than transactions and
commitments in the ordinary course of business consistent with past practices
and other than those contemplated by this Agreement;
(xvi) alter in any material respect the consideration paid or received by
the Company for those services set forth on Section 3.19(c) of the Disclosure
Schedule; or
(xvii)agree or commit to do any of the foregoing.
Seller will not, and will not permit the Company or any Subsidiary to (i) take
or agree or commit to take any action that would make any representation and
warranty of Seller hereunder inaccurate in any material respect at, or as of any
time prior to, the Closing Date or (ii) omit or agree or commit to omit to take
any action necessary to prevent any such representation or warranty from being
inaccurate in any material respect at any such time.
(b)Except as otherwise provided in this Agreement or Section 5.1(b) of the
Disclosure Schedule, from the date of this Agreement until the Closing Date,
Seller will cause the Company and the Subsidiaries to:
(i) maintain their books and records in the usual, regular and ordinary
manner consistent with past practices;
(ii) preserve their businesses and maintain all of their material Licenses;
(iii) preserve generally the goodwill of the businesses of the Company and
the Subsidiaries; and
(iv) continue to perform in the ordinary course their respective
obligations under the Contracts.
5.2 Access to Information. (a) From the date hereof until the Closing Date,
Seller will give, and will cause the Company and each Subsidiary to give,
Purchaser, its counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, books and records
of the Company and the Subsidiaries; provided that all such access shall be
arranged solely by prior request made by Purchaser to the persons designated by
Seller as the contact people for such purposes. Purchaser agrees not to, and
shall cause its counsel, financial advisors, auditors and other authorized
representatives not to, directly contact the Company, any Subsidiary, or any of
their respective officers, directors or employees unless such designated contact
persons have approved such contact.
18
(b) From the date hereof until the Closing Date, Seller will furnish, and
will cause the Company and each Subsidiary to furnish, to Purchaser, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Company and
the Subsidiaries as such Persons may reasonably request.
(c) From the date hereof until the Closing Date, notwithstanding the
foregoing, Purchaser shall not have access to personnel records of the Company
or any Subsidiary relating to medical histories or other sensitive personnel
information the disclosure of which could subject Seller to risk of liability.
5.3 Notices of Certain Events. Seller shall promptly notify Purchaser of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened, against Seller, the Company or
any Subsidiary that, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 3.10.
5.4 Resignations. Seller will deliver to Purchaser at or prior to the
Closing Date the resignations of all officers and directors of the Company and
each Subsidiary who will be officers, directors or employees of Seller or any of
its Affiliates after the Closing Date from their positions with the Company and
each Subsidiary.
5.5 No Shop. Purchaser contemplates the expenditure of substantial sums of
time and money in connection with legal, accounting, financial, and due
diligence work to be performed in conjunction with the purchase of the shares as
contemplated herein (the "Transaction") and may forego other business
opportunities prior to the Closing. Accordingly, Seller acknowledges and agrees
that, from the date hereof through the Closing Date (or the termination of this
Agreement) (the "Restricted Period"), neither Seller nor the Company, directly
or indirectly, without Purchaser's prior written consent, shall initiate or hold
discussions with any Person (other than Purchaser and its representatives)
concerning any transaction substantially similar to the Transaction or
inconsistent with the Transaction, directly or indirectly, whether by sale of
outstanding stock, issuance of additional securities, merger, consolidation,
sale or lease of assets, affiliation, joint venture, or other transaction.
During the Restricted Period, Seller will promptly notify Purchaser by telephone
and thereafter confirm in writing via telecopy if any such discussions or
negotiations are sought in writing to be initiated with, or any such proposal or
possible proposal is received in writing, directly or indirectly, by Seller or
the Company and any such notice will include any terms and conditions of any
such proposal.
5.6 Contributed Assets. Seller has previously delivered to the Purchaser
lists of the
19
Contributed Assets. Seller has informed the Purchaser that the lists it has
delivered may need to be updated or revised. Seller agrees that, as soon as
reasonably practicable after the date hereof, it will retain a business firm
reasonably satisfactory to Purchaser for the purposes of taking an inventory and
valuation of the Contributed Assets and compiling a comprehensive list of all of
the Contributed Assets (the "Inventory List"). Purchaser shall have the right to
consult with the business firm and observe the inventory count and valuation.
The fees and expenses of the business firm and the other costs of taking the
inventory shall be borne equally by Seller and Purchaser and the fees and
expenses of the business firm with respect to, and the other costs of, the
valuation shall be borne by Purchaser. At the Closing, Seller shall deliver an
officer's certificate to the Purchaser stating that the Inventory List is
complete and accurate in all material respects.
ARTICLE VI
Covenants Of Purchaser
Purchaser agrees that:
6.1 Confidentiality. All information and documents furnished to Purchaser
or any of the Persons referred to in Section 5.2 for any purpose under this
Agreement will be treated as "Evaluation Material" under the Confidentiality
Agreement dated March 10, 1997 between AHP Holdings, Inc. and Purchaser. Seller
and Purchaser hereby agree that such Confidentiality Agreement shall terminate
and be of no further force and effect as of the Closing Date.
6.2 Access. Purchaser will cause the Company and the Subsidiaries, on and
after the Closing Date for a period of seven years thereafter (or such longer
period as may be necessary for income tax audit purposes or compliance with laws
purposes), to afford promptly to Seller and its agents, upon reasonable notice
to the persons designated by Purchaser as the contact people for such purposes,
reasonable access during normal business hours to their properties, books,
records, employees and auditors to the extent necessary to permit Seller to
determine any matter relating to its rights and obligations hereunder or to any
period ending on or before the Closing Date. Seller will hold, and will cause
its officers, directors, employees, accountants, counsel, consultants, advisors
and agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning the Company and the Subsidiaries provided
to it pursuant to this Section 6.2. All access afforded Seller pursuant to this
Section 6.2 shall be without interference with the conduct of the businesses of
the Company and the Subsidiaries and shall be arranged solely by prior request
made by Seller to the persons designated by Purchaser as the contact people for
such purposes.
6.3 Insurance. On or prior to the Closing, Seller shall purchase, or cause
to be purchased, "tail" insurance coverage (including professional liability
insurance coverage), with limitations on liability of no less than $1,000,000
per claim and $7,000,000 in the aggregate and no more than $5,000,000 per claim
and $20,000,000 in the aggregate, covering any and all claims that may be made
during the period beginning on the Closing Date and ending on the seventh
anniversary of the Closing Date in respect of any acts or omissions occurring
before the Closing Date by the Company, any Subsidiary or any of their
respective employees, contracted providers of behavioral healthcare services,
subcontractors or agents. The parties shall negotiate in good faith and agree,
prior to Closing, within
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the range specified above, on the appropriate per claim and aggregate
limitations on liability for such tail insurance.
6.4 Use of Names. After the Closing, Purchaser shall not use the names
"Aetna U.S. Healthcare", "Aetna", "U.S. Healthcare", or any combination or
derivation of the same in connection with the Company, any Subsidiary or any of
their respective operations, or any other entity or operations associated with
Purchaser. After the Closing, except as set forth in the Master Agreement,
Seller and its Affiliates shall not use the name "Human Affairs International"
or any combination or derivation of the same in connection with Seller or its
Affiliates or any of their respective operations, or any other entity or
operations associated with Seller.
6.5 Headquarters Lease. With respect to the lease (the "Headquarters
Lease") of real property constituting the Company's headquarters facilities in
Sandy, Utah (the "Headquarters Property"), at the Closing, Seller shall cause
Aetna Life Insurance Company ("Aetna Life"), as lessee under the Headquarters
Lease, to sublet to the Company the Headquarters Property on substantially the
same terms and conditions as Aetna Life leases the Headquarters Property, which
sublet shall be pursuant to a customary sublease agreement to be negotiated by
the parties prior to the Closing in good faith (provided that the Company shall
not have any option to renew or extend the original term of the sublease).
6.6 Retention Arrangements. From and after the Closing Date, Purchaser
agrees that it shall, and shall cause the Company to, assume responsibility for
and comply with the terms and conditions of the retention agreements and other
arrangements set forth in Section 6.6 of the Disclosure Schedule (the "Retention
Arrangements"); provided that Seller shall be responsible for any amounts in
excess of target bonus amounts in the aggregate payable pursuant to the
Retention Arrangements.
ARTICLE VII
Covenants Of Both Parties
The parties hereto agree that:
7.1 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each party will use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement, including, without limitation, the preparation
and filing as promptly as practicable after the date of this Agreement of (i)
all applicable forms under the HSR Act and (ii) all applicable forms necessary
in order to obtain any other required government approvals. Seller and Purchaser
each agree, and Seller, prior to the Closing, and Purchaser, after the Closing,
agree to cause the Company, to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement. Seller will use all reasonable
efforts, in cooperation with Purchaser, to obtain those consents from third
parties with respect to the agreements described in Items 1, 2 and 5 of Section
3.4 of the Disclosure Schedule.
7.2 Certain Filings. Seller and Purchaser shall cooperate with one another
(a) in
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determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (b) in taking such actions or making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such actions, consents, approvals or waivers.
7.3 Public Announcements. Each party agrees to obtain the approval of the
other party before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby, except for
such press releases or public statements as may be required by applicable law or
any listing agreement with any national securities exchange.
7.4 Related Agreements. Each party acknowledges that the Master Agreement,
the Transition Services Agreement and the HMO and non-HMO Health Care Agreements
(collectively, the "Related Transaction Agreements") are an integral part of the
transactions contemplated by this Agreement. Both parties agree to comply (or
cause their Affiliates to comply) with the Related Transaction Agreements.
7.5 Home Office Lease. Certain of the Company's employees currently occupy
space in Seller's home office (the "Home Office"). Prior to Closing, the parties
will discuss the necessity of maintaining this arrangement. At the request of
the Company, Seller or one of its Affiliates will enter into a lease with the
Company with respect to the Company-occupied space in the Home Office on terms
that are reasonably satisfactory to the parties, provided that the term of such
lease shall be no longer than two years following the Closing Date and the rent
due thereunder shall be at the same rate charged to other Aetna business units.
7.6 Co-Located Space. The Company currently shares office space with Seller
or its Affiliates in a number of locations identified on Section 3.11(a)(iv) of
the Disclosure Schedule. Unless prohibited under any applicable primary lease,
prior to the Closing, Seller and the Company will enter into sublease agreements
with respect to these shared locations on terms that are reasonably satisfactory
to Seller and the Company. The rent charged to the Company pursuant to such
sublease agreements shall be determined in accordance with historical
methodologies. Seller may increase the rent at any time to reflect increases in
its actual costs under the applicable primary leases. The term of the subleases
shall be mutually agreed upon prior to the Closing, but shall not exceed the
shorter of (i) two years from the Closing Date and (ii) the remaining term of
the primary lease; provided that, in connection with Seller terminating the
primary lease or subletting the entire leased premises, the sublease may be
terminated by Seller upon at least 180 days' prior written notice.
7.7 Transition Services Standards. Each party agrees to use good faith
efforts to prepare a joint description of the standards of quality and
timeliness that the services to be performed under the Transition Services
Agreement will be performed, which description will be attached thereto as
Schedule C.
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ARTICLE VIII
Tax Matters
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8.1 Tax Definitions. The following terms, as used herein, have the
following meanings:
"Code" means the Internal Revenue Code of 1986.
"Federal Taxes" means United States Federal income, environmental and
alternative or add-on minimum taxes.
"Final Determination" shall mean, with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including but not limited to the expiration of
a statute of limitations or a period for the filing of claims for refunds,
amended returns or appeals from adverse determinations.
"Post-Closing Tax Period" means any Tax period ending after the Closing
Date.
"Pre-Closing Tax Period" means any Tax period ending on or before the close
of business on the Closing Date.
"Tax" means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, franchise, profits,
license, withholding on amounts paid to or by the Company or any Subsidiary,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental authority (a "Taxing Authority") responsible for the imposition of
any such tax (domestic or foreign), (ii) liability of the Company or any
Subsidiary for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any period during the Tax Indemnification Period and (iii) liability
of the Company or any Subsidiary for the payment of any amounts of the type
described in (i) as a result of any express or implied obligation to indemnify
any other Person.
"Tax Indemnification Period" means (i) any Pre-Closing Tax Period of the
Company or any Subsidiary, (ii) with respect to any Tax described in clause (ii)
of the definition of "Tax", any Pre-Closing Tax Period of the Company or any
Subsidiary and the taxable year of any member of a group described in such
clause (ii) which includes (but does not end on) the Closing Date, and (iii)
with respect to any Tax described in clause (iii) of the definition of "Tax",
the survival period of the indemnification obligation under the applicable
contract.
"Tax Sharing Agreement" means the Amended and Restated Tax Sharing
Agreement executed by the Company on September 14, 1995.
8.2 Tax Representations. Except as set forth in Section 8.2 of the
Disclosure
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Schedule, (i) all Tax returns, statements, reports and forms (including
estimated tax returns and reports) required to be filed with any Taxing
Authority with respect to any Pre-Closing Tax Period by or on behalf of the
Company or any Subsidiary (collectively, the "Returns"), have been filed when
due in accordance with all applicable laws; (ii) the Returns are correct and
complete in all material respects; (iii) the Company and the Subsidiaries have
timely paid, withheld or made provision for all Taxes shown as due and payable
on the Returns that have been filed; (iv) the Company and the Subsidiaries have
made or will on or before the Closing Date make provision for all Taxes payable
by the Company and the Subsidiaries for any Pre-Closing Tax Periods for which no
Return has yet been filed, excluding Taxes to the extent that Seller is required
under this Article VIII to pay, reimburse or indemnify Purchaser therefor; (v)
the charges, accruals and reserves for Taxes with respect to the Company and its
Subsidiaries for any Pre-Closing Tax Period (excluding any provision for
deferred income taxes and excluding Taxes to the extent that Seller is required
under this Article VIII to pay, reimburse or indemnify Purchaser therefor)
reflected on the books of the Company and the Subsidiaries are adequate to cover
such Taxes; (vi) all Returns filed with respect to taxable years of the Company
and the Subsidiaries through the taxable year ended December 31, 1987 have been
examined and closed or are Returns with-respect to which the applicable period
for assessment under applicable law, after giving effect to extensions or
waivers, has expired; (vii) neither the Company nor any Subsidiary is delinquent
in the payment of any Tax or has requested any extension of time within which to
file or send any Return, which Return has not since been filed or sent; (viii)
there are no requests for rulings in respect of any Tax pending between the
Company or any Subsidiary and any Taxing Authority; (ix) there are no liens for
Taxes upon the assets of the Company or any Subsidiary except liens for current
Taxes not yet due; (x) Seller is not subject to withholding under Section 1445
of the Code with respect to any transaction contemplated hereby; (xi) since June
9, 1988, neither the Company nor any Subsidiary has been a member of an
affiliated group other than one of which either Aetna Inc. or Aetna Services,
Inc. (formerly Aetna Life and Casualty Company) was the common parent, or filed
or been included in a combined, consolidated or unitary Return other than one
filed by Aetna, Inc. or Aetna Services, Inc. (formerly Aetna Life and Casualty
Company); (xii) neither the Company nor any Subsidiary is currently under any
contractual obligation to indemnify any other Person with respect to Taxes or is
a party to any agreement, other than the Tax Sharing Agreement, providing for
payments with respect to taxable income or Taxes; (xiii) no issues have been
raised in writing (and are currently pending) by any taxing authority in
connection with any of the Tax Returns referred to in clause (i), and all
deficiencies asserted or assessments made as a result of any examination by a
taxing authority of such Tax Returns have been paid in full; and (xiv) the
information provided by Seller to Purchaser regarding (x) Seller's tax basis in
the stock of the Company and the Subsidiaries, (y) the tax basis of the assets
of the Company and the Subsidiaries, and (z) the state tax position of Seller,
the Company and the Subsidiaries, is true and accurate as of the date hereof or
as of the relevant date specified therein in all material respects.
8.3 Elections. (i) Each of Seller and Purchaser shall make timely and
irrevocable elections under Section 338(h)(10) of the Code and, if permissible,
similar elections under any applicable state or local income tax laws with
respect to the Company and each Subsidiary. Seller will not, and will not permit
the Company or any Subsidiary to take, cause or permit to be taken any
25
action that would disqualify this transaction as a deemed asset sale under
Section 338(h)(10) of the Code. Each of Seller and Purchaser shall report the
transaction consistent with such elections under Section 338(h)(10) or any
similar state or local tax provision (the "Elections") and shall take no
position contrary thereto unless and to the extent required to do so pursuant to
a Final Determination. Seller and Purchaser agree that as a result of the
Elections, the deemed asset sales resulting from the Elections must be included
in the final Return of the Company for the Pre-Closing Tax period to be filed
with any Taxing Authority of a jurisdiction for which the Elections are
applicable.
(ii) Each of Seller and Purchaser shall execute at the Closing any and all
forms necessary to effectuate the Elections (including, without limitation,
Internal Revenue Service Form 8023-A and any similar forms under applicable
state and local income tax laws (the "Section 338 Forms")). Each of the Seller
and the Purchaser shall cause the Section 338 Forms to be duly executed by an
authorized person and shall duly and timely file the Section 338 Forms in
accordance with applicable Tax laws and the terms of this Agreement.
(iii) Each of Seller and Purchaser agree that in making the Elections it
shall report the Aggregate Deemed Sale Price (as defined under applicable
Treasury Regulations) of the assets of the Company (the "ADSP") as calculated
(x) by using only the Closing Payment, as adjusted pursuant to Section 2.4
hereof, as the purchase price of the Shares and (y) by not taking into account
as an assumed liability any liability for Taxes to the extent that Seller is
required under this Article VIII to pay, reimburse or indemnify Purchaser
therefor. Each of Seller and Purchaser agrees to allocate such ADSP as set forth
in Section 8.3 of the Disclosure Schedule, which shall be prepared by the
parties prior to the Closing Date and which shall reflect an allocation agreed
to by the parties. Each of Seller and Purchaser will reflect such allocation in
all applicable tax returns filed by any of them, including but not limited to
the Section 338 Forms. Each of Seller and Purchaser shall not take a position
before any Taxing Authority or otherwise (including in any Return) inconsistent
with such allocation unless and to the extent required to do so pursuant to a
Final Determination.
8.4 Termination of Existing Tax Sharing Agreements. Any and all existing
tax sharing agreements or arrangements binding the Company or any of its
Subsidiaries (including, without limitation, the Tax Sharing Agreement) and any
other agreement, express or implied, relating to taxable income shall be
terminated as of the Closing Date.
8.5 Tax Returns. (a) Seller shall timely prepare all Tax Returns of the
Company and the Subsidiaries for all Pre-Closing Tax Periods. Such Tax Returns
shall be prepared in an manner consistent with past practice and, on such Tax
Returns, no positions shall be taken, elections made, or method adopted that is
inconsistent with positions taken, elections made, or methods used in preparing
similar Tax Returns in prior periods without the consent of Purchaser which
consent shall not be unreasonably withheld.
(b) Seller shall file or cause to be filed when due all Tax Returns of the
Company and the Subsidiaries for all Pre-Closing Tax Periods that are filed on a
consolidated, combined, or unitary basis by the Seller or the parent of Seller
(including all federal income Tax Returns), and
26
Seller shall be responsible for the contents of such Tax Returns and for the
payment of all Taxes shown to be due thereon; provided, however, that Seller
shall furnish Purchaser and the Company with copies of such Tax Returns of the
Company and the Subsidiaries, on a separate company basis, within 30 days
following the filing date. Seller shall prepare and send to the Company as
promptly as practicable but at least five business days prior to the due date
all other Tax Returns that are required to be filed by the Company and the
Subsidiaries for all Pre-Closing Tax Periods, and Seller or, after the Closing
Date, Purchaser shall file or cause to be filed when due such other Tax Returns.
At least five business days prior to the date on which the Taxes shown on such
other Tax Returns are required to be paid, Seller shall provide Purchaser with
the funds for the payment of all Taxes unpaid as of the Closing Date shown to be
due on such other Tax Returns and Purchaser shall be responsible for the payment
of all Taxes unpaid as of the Closing Date shown to be due on such other Tax
Returns, provided that Purchaser's obligation to pay such Taxes shall not limit
Purchaser's indemnification rights against Seller pursuant to Section 8.9. If
any such Tax Return shows an overpayment of Taxes due, Seller may credit (upon
written notice to Purchaser to that effect) the amount of such overpayment
against any payment otherwise due from Seller to Purchaser under this Agreement
and any amount of the overpayment not so credited shall be reimbursed by
Purchaser to Seller no later than five business days after the later of receipt
by Purchaser of Seller's written request for reimbursement and the earlier of
Purchaser's receipt of a refund on account of such overpayment and the
application of such overpayment to offset a Tax liability of Purchaser or an
Affiliate of Purchaser otherwise due.
(c) Purchaser shall prepare and file all Tax Returns of the Company and the
Subsidiaries for all Post-Closing Tax Periods. As promptly as practicable but at
least five business days before the due date, Purchaser shall furnish Seller
with copies of all Tax Returns of the Company and the Subsidiaries for any
Post-Closing Tax Period that includes the Closing Date. At least five business
days prior to the date on which the Taxes shown on such Tax Return are required
to be paid, Seller shall provide Purchaser with funds for the payment of all
Taxes shown to be due on such Tax Returns that are attributable to the
Pre-Closing Tax Period and Purchaser shall be responsible for the payment of all
Taxes shown to be due on such Tax Returns, provided that Purchaser's obligation
to pay such Taxes shall not limit Purchaser's indemnification rights against
Seller pursuant to Section 8.9.
8.6 Other Tax Matters. (a) All transfer, documentary, sales, use, stamp,
and registration Taxes and fees (including any penalties and interest) incurred
in connection with this Agreement, shall be paid one-half by Seller and one-half
by Buyer when due, and each party will, at its own expense, file all necessary
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other taxes and fees.
(b)Certification to the effect that Seller is not a "foreign person" as
defined in Section 1445 of the Code shall be signed by Seller and delivered to
Purchaser prior to the Closing.
8.7 Cooperation on Tax Matters. (a) Purchaser and Seller shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with any audit, litigation
27
or other proceeding with respect to Taxes and with the preparation of any
Returns. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Company and Seller agree (i)
to retain all books and records with respect to Tax matters pertinent to the
Company and its Subsidiaries relating to any Pre-Closing Tax Period, and to
abide by all record retention agreements entered into with any Taxing Authority,
and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, the Company or Seller, as the case may be, shall not
destroy or discard such books and records and shall allow the other party to
take possession of such books and records.
(b)Purchaser and Seller further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or customer of the Company or any Subsidiary or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
(c)Purchaser and Seller further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to section 6043 of the Code and all Treasury Regulations promulgated thereunder.
8.8 Certain Disputes. Disputes arising under this Article VIII and not
resolved by mutual agreement as stated herein shall be resolved by a nationally
recognized accounting firm with no affiliation or relationship whatsoever with
Purchaser, Seller or their Affiliates (the "Accounting Referee") chosen and
mutually acceptable to both Purchaser and Seller within five business days of
the date on which the need to choose the Accounting Referee arises. The
Accounting Referee shall resolve any disputed items within 30 days of having the
item referred to it pursuant to such procedures as it may require. The costs,
fees and expenses of the Accounting Referee shall be borne equally by Purchaser
and Seller.
8.9 Tax Indemnification. (a) The covenants, agreements, representations and
warranties of the parties hereto contained in this Article VIII or in any
certificate or other writing delivered pursuant to this Article VIII or in
connection herewith shall survive the Closing until February 28, 1999 or until
expiration of the applicable statutory period of limitation, if later.
(b) Seller hereby indemnifies the Purchaser Indemnified Parties against and
agrees to hold them harmless from (i) any (x) Tax of the Company or any
Subsidiary and (y) liabilities, costs, expenses (including, without limitation
reasonable expenses of investigation and attorneys' fees and expenses), losses,
damages, assessments, settlements or judgments arising out of or incident to the
imposition, assessment or assertion of any Tax, and any liability as transferee,
in each case related to the Tax Indemnification Period and in each case incurred
or suffered by Purchaser, any of its Affiliates or, effective upon the Closing,
the Company or any Subsidiary; and
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(ii) any and all Damages incurred or suffered by the Purchaser Indemnified
Parties arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Seller pursuant to this Article VIII. The
indemnification set forth in the preceding sentence shall not apply to or in
respect of Taxes of the Company or any Subsidiary to the extent that such Taxes
were funded by a payment by Seller to Purchaser pursuant to Sections 8.5(b) or
8.5(c). Purchaser hereby indemnifies the Seller Indemnified Parties against and
agrees to hold them harmless from any and all Damages incurred or suffered by
the Seller Indemnified Parties arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by Purchaser pursuant to
this Article VIII.
(c)For purposes of Section 8.5 and this Section 8.9, in the case of any
Taxes that are imposed on a periodic basis and are payable for a taxable period
that includes (but does not end on) the Closing Date, the portion of such Tax
related to the portion of such taxable period ending on the Closing Date shall
(x) in the case of any Taxes other than Taxes based upon or related to income,
be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period
ending on the Closing Date and the denominator of which is the number of days in
the entire taxable period, and (y) in the case of any Tax based upon or related
to income be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Closing Date. Any credits relating to a taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company and its
Subsidiaries.
(d)Purchaser agrees to give prompt notice to Seller of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder, which Purchaser deems to be within the ambit
of this Section 8.9 (specifying with particularity the basis therefor) and will
give Seller such information with respect thereto as Seller may request. Seller
may, at its own expense, (i) participate in and, (ii) upon notice to Purchaser,
assume the defense of any such suit, action or proceeding; provided that, (y)
Seller shall thereafter consult with Purchaser upon Purchaser's reasonable
request for such consultation from time to time with respect to such suit,
action or proceeding and (z) Seller shall not, without Purchaser's consent,
which consent shall not be unreasonably withheld, agree to any settlement with
respect to any Tax if such settlement could materially adversely affect the
past, present or future Tax liability of Purchaser, any of its Affiliates or,
upon the Closing, the Company or any Subsidiary. If Seller assumes such defense,
Purchaser shall have the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by Seller. Whether or not Seller chooses to defend or prosecute any
claim, all of the parties hereto shall cooperate in the defense or prosecution
thereof.
(e)Seller agrees to give prompt notice to Purchaser of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder which Seller deems to be within the ambit of
this Section 8.9 (specifying with
29
particularity the basis therefor) and will give Purchaser such information with
respect thereto as Purchaser may request. Purchaser may, at its own expense, (i)
participate in and, (ii) upon notice to Seller, assume the defense of any such
suit, action or proceeding; provided that, (y) Purchaser shall thereafter
consult with Seller upon Seller's reasonable request for such consultation from
time to time with respect to such suit, action or proceeding and (z) Purchaser
shall not, without Seller's consent, which consent shall not be unreasonably
withheld, agree to any settlement with respect to any Tax if such settlement
could materially adversely affect the past, present or future Tax liability of
Seller or any of its Affiliates. If Purchaser assumes such defense, Seller shall
have the right (but not the duty) to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel employed by
Purchaser. Whether or not Purchaser chooses to defend or prosecute any claim,
all of the parties hereto shall cooperate in the defense or prosecution thereof.
(f)Seller shall not be liable under this Section 8.9 with respect to any
Tax resulting from a claim or demand the defense of which it was not offered the
opportunity to assume as provided under Section 8.9(d) hereof to the extent
Seller's liability under Section 8.9(a) is adversely affected as a result
thereof. No investigation by Purchaser or any of its Affiliates at or prior to
the Closing Date shall relieve Seller of any liability hereunder.
(g) Purchaser shall not be liable under this Section 8.9 with respect to
any Tax resulting from a claim or demand the defense of which it was not offered
the opportunity to assume as provided under Section 8.9(e) hereof to the extent
Purchaser's liability under Section 8.9(a) is adversely affected as a result
thereof. No investigation by Seller or any of its Affiliates at or prior to the
Closing Date shall relieve Purchaser of any liability hereunder.
(h) Any amounts owed by any party to any other party under this Section 8.9
shall be paid within 10 business days of notice from such other party. Any
amounts which are not paid within such 10-day period shall accrue interest at
the monthly "Federal Short-Term Rate" under Section 1274(d)(1)(C) of the Code
applicable to any period for which such intent is payable.
(i) The indemnification provided for hereunder shall not be subject to the
provisions of Article XI and shall constitute a separate and distinct
indemnification obligation of the parties hereto.
ARTICLE IX
Employee Benefits
9.1 Employee Benefits Definitions. The following terms, as used herein,
have the following meanings:
"Benefit Arrangement" means any employment, severance or similar contract,
arrangement or policy, or any plan or arrangement providing for severance
benefits, insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, deferred compensation, profit-sharing,
30
bonuses, stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits that (i) is
not an Employee Plan and (ii) is entered into or maintained, as the case may be,
by the Seller or any of its ERISA Affiliates and (iii) covers any employee or
former employee of the Company or any Subsidiary of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"Individual Account Plan" means the Aetna Incentive Savings Plan and the
U.S. Healthcare Savings Plan.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means the Pension Plan for Employees of Aetna Services, Inc.
and the Pension Plan for Employees of U.S. Healthcare.
"Title IV Plan" means an Employee Plan, other than any Multiemployer Plan,
subject to Title IV of ERISA.
9.2. ERISA Representations. (a) Section 9.2(a) of the Disclosure Schedule
is an accurate and complete list of each "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Seller or any of its ERISA
Affiliates and (iii) covers any employee or former employee of the Company or
any Subsidiary. Such plans are hereinafter referred to as the "Employee Plans".
Seller has furnished or made available to Purchaser copies of such plans (and,
if applicable, related trust agreements) and all amendments thereto and written
interpretations thereof together with (i) the most recent annual report prepared
in connection with any such plan (Form 5500 including accompanying schedules)
and (ii) if applicable, the most recent actuarial valuation report prepared in
connection with any such plan. Section 9.2(a) of the Disclosure Schedule
identifies each Employee Plan that is a Title IV Plan.
(b) Neither the Seller nor any ERISA Affiliate of Seller has incurred any
liability under Title IV of ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA that could become a liability of the Purchaser or any of
its ERISA Affiliates after the Closing Date.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code and each amendment thereto, has been determined by the
Internal Revenue Service to be so qualified and no such determination has been
revoked and no plan amendment that is not the subject of a favorable
determination letter would affect the qualification of the plan or the validity
of the plan's favorable determination letter. Seller has provided Purchaser with
the most recent determination letters of the Internal Revenue Service relating
to each such Employee Plan. Each Employee Plan has been
31
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Code.
No Employee Plan is a Multiemployer Plan.
(d) Section 9.2(d) of the Disclosure Schedule is an accurate and complete
list of each Benefit Arrangement. Seller has furnished or made available to
Purchaser copies of each Benefit Arrangement. Each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations.
(e) Except as set forth in Section 9.2(e) of the Disclosure Schedule, there
is no contract, agreement, plan or arrangement with respect to which the Company
or any Subsidiary has any liability that provides for the payment to any
employee or former employee of the Company or any Subsidiary of more than
$75,000 in any calendar year.
(f) Except as set forth in Section 9.2(f) of the Disclosure Schedule, no
employee or former employee of the Company or any of its Subsidiaries will
become entitled to any bonus, retirement, severance, job security or similar
benefit solely as a result of the transactions contemplated hereby.
(g) Except as set forth in Section 9.2(g) of the Disclosure Schedule, to
the knowledge of Seller, there are no governmental inspections, investigations,
audits or examinations currently pending or threatened with respect to any
Employee Plan or Benefit Arrangement. There exists no material action, suit or
claim (other than routine claims for benefits) with respect to any Employee Plan
or Benefit Arrangement pending or to the knowledge of Seller threatened against
any of such plans or arrangements.
(h) Except as to matters described in Section 3.10 of the Disclosure
Schedule, to the knowledge of Seller, there are no facts or events, including
the consummation of the transaction contemplated by this Agreement, that could
lead to the imposition of any material liability on the Purchaser or any of its
ERISA Affiliates, of whatever nature including the provision of employee
benefits with respect to the employment of any employees of Seller or its
Subsidiaries who are not Transferred Employees.
(i) Except as provided in Section 9.6(a), all material benefits due and
payable to any of the Transferred Employees under the Employee Plans and Benefit
Arrangements as of the Closing Date will be paid thereto by or on behalf of the
Seller.
9.3. Employees. On or prior to the Closing Date, Seller will cause all
employees of the Seller or any of its Subsidiaries identified by Seller on
Section 9.3 of the Disclosure Schedule (by name and job title) as performing
substantially all of their services to the Company's business units to become
employees of the Company or one of its Subsidiaries. With respect to each
individual who, as of the Closing Date, is employed (including persons absent
from active service for any reason, including, but not limited to, illness,
disability, family and medical leave or other leave of absence, whether paid or
unpaid) by the Company or any of its Subsidiaries or is otherwise described in
Section 9.3 of the Disclosure Schedule ("Transferred Employees"), Purchaser or
one of its Affiliates shall continue the employment of each such Transferred
Employee, and provide each such Transferred Employee with at
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least the level of base salary per annum as in effect on the Closing Date for
such Transferred Employee, in each case for the longer of (i) three months after
the Closing Date and (ii) the remainder of the calendar year ending December 31,
1997. Nothing in this Section 9.3 is intended to, or shall, require such
employer to employ a Transferred Employee on a basis other than as an employee
at will.
9.4. Pension Plan. Seller and its Affiliates shall retain all liabilities
and obligations in respect of benefits accrued by both Transferred Employees and
former employees of the Company and its Subsidiaries under the Pension Plan. No
Pension Plan assets shall be transferred to Purchaser or any of its Affiliates
or to any plan of Purchaser or its Affiliates. It is understood that the
Transferred Employees will be fully vested in their accrued benefits under the
Pension Plan as of the Closing Date.
9.5. Individual Account Plan. Seller shall retain all liabilities and
obligations in respect of benefits accrued by Transferred Employees under the
Individual Account Plan. It is understood that the Transferred Employees are
fully vested (or will become fully vested) in their account balances under the
Individual Account Plan. On the Closing Date, Seller shall take such action as
may be necessary, if any, to permit each Transferred Employee to exercise his
rights under the Individual Account Plan to effect a distribution of such
Transferred Employee's vested account balances under the Individual Account Plan
or to effect a tax-free rollover of the taxable portion of the account balances
into an eligible retirement plan, if any, (within the meaning of Section
401(a)(31) of the Code, a "Direct Rollover") maintained by Purchaser or a
subsidiary of Purchaser (the "Purchaser Plan") or to an individual retirement
account. Seller and Purchaser shall work together in order to facilitate any
such distribution or rollover and to effect a Direct Rollover for those
participants who elect to roll over their account balances directly into the
Purchaser Plan in accordance with the terms and conditions of the Purchaser
Plan; provided that nothing contained herein shall obligate the Purchaser Plan
to accept a Direct Rollover in a form other than cash or obligate Purchaser to
establish or maintain a Purchaser Plan.
9.6. Other Employee Plans and Benefit Arrangements. (a) Purchaser shall
assume and be liable for, and, where appropriate, shall cause the Company and
its Subsidiaries to perform all obligations in respect of the Transferred
Employees under the employee agreements and arrangements described in Section
9.6(a) of the Disclosure Schedule (which by execution of this Agreement,
Purchaser or the Company, as applicable, expressly assumes as of the Closing
Date). Except to the extent specifically set forth herein and in Section 9.9, it
is understood that Purchaser shall not assume and shall not be liable for any
obligations, responsibilities or liabilities under the Employee Plans or Benefit
Arrangements of Seller.
(b) Subject to the provisions of Section 9.6(a), and except as provided in
Sections 9.4 and 9.5, Purchaser shall assume and be liable for all liabilities
(including legal costs and fees) involving any Transferred Employee relating to
any claim arising under any federal, state or local statute (including, without
limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of 1967, the Equal Pay Act, the
Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the
Family and Medical Leave Act, and all other statutes regulating the terms and
conditions of employment), regulation, executive order or ordinance, under the
common law or in equity (including any claims for wrongful discharge or
otherwise), or under any policy, agreement, understanding or promise, written or
oral, formal or informal, between the Company or any Subsidiary and such
Transferred Employee, including all such liabilities that relate to events
occurring on or prior to the Closing Date or which arise by reason of the
transactions contemplated by
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this Agreement. Nothing in the immediately preceding sentence shall affect the
indemnification rights that the parties would otherwise be entitled pursuant to
Article XI of this Agreement.
(c) For the calendar year in which the Closing Date falls, Transferred
Employees shall be eligible to accrue the number of vacation days calculated
under the Company's vacation policy in effect immediately prior to the Closing
Date, a copy of which is attached to this Agreement as Section 9.6(c) of the
Disclosure Schedule. Subject to Purchaser's policies and procedures respecting
vacation time, so long as a Transferred Employee is employed by the Company, a
Subsidiary or any Affiliate of Purchaser, such Transferred Employee shall accrue
at least as many vacation days as such person was scheduled to accrue under the
Company's vacation policy as of the beginning of such calendar year. Purchaser
will assume the vacation liability accrued by Transferred Employees as of the
Closing Date in a manner consistent with the Company's existing policy as of the
date hereof.
9.7. Plans Following the Closing. (a) For the period from the Closing Date
through the date 12 months after the Closing Date, Purchaser will cause the
Company to maintain employee benefit plans and arrangements for the benefit of
the Transferred Employees that are substantially comparable in the aggregate to
the Employee Plans. Notwithstanding the foregoing, Purchaser shall not be
obligated or required to establish or maintain a defined benefit plan (as
defined in ERISA Section 3(35) or Code Section 414(j)) for the benefit of any
Transferred Employee. Purchaser will cause the Company to give Transferred
Employees full credit for all purposes, including eligibility, vesting and
benefit accrual, under any such plans or arrangements maintained by the Company
pursuant to this Section 9.7 for such Transferred Employees' service recognized
for such purposes under the Employee Plans and Benefit Arrangements.
(b) Without limiting the generality of the foregoing, for the period from
the Closing Date through the date 12 months after the Closing Date, Purchaser
will maintain and make available to Transferred Employees (i) medical, dental,
and short-term disability plans that are substantially comparable to the Seller
plans identified in Section 9.7(b)(i) of the Disclosure Schedule without any
increase in required contributions by Transferred Employees for comparable
benefits in accordance with Section 9.8 and (ii) a severance package that is
identical to the Seller severance plan described in Section 9.7(b)(ii) of the
Disclosure Schedule.
(c) For the period beginning on the date 12 months after the Closing Date,
Purchaser shall provide benefit plans and programs that are at least as
favorable as such plans and programs that are available to other employees of
the Purchaser and its Affiliates generally and give Transferred Employees credit
for service with Seller and any of its affiliates as well as service with
Purchaser and any of its Affiliates for all purposes including eligibility,
vesting, and benefit accrual.
(d) Purchaser shall cause any Transferred Employee who is on short-term
disability on the Closing Date to receive without interruption on and after the
Closing Date short-term disability benefits provided by Purchaser substantially
identical to the short-term disability benefits provided by Seller for the
Transferred Employee. Seller shall have no liability to Purchaser with respect
to such benefits provided by Purchaser. If a Transferred Employee who was on
short-term disability on the Closing Date subsequently becomes eligible for
coverage and receives benefits under Seller's long-term disability plan,
Purchaser shall have no liability to Seller with respect to such long-term
disability coverage.
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9.8. Medical and Dental Insurance Coverage. (a) Purchaser shall cause all
employee health and dental plans in which Transferred Employees become
participants on or after the Closing Date to waive any and all pre-existing
condition exclusions and waiting period requirements and to recognize, to the
extent such participation commences other than at the beginning of a plan year,
expenses previously incurred for the period from the beginning of the calendar
year in which the Closing Date falls to the Closing Date for purposes of
applicable deductible rules to the extent such expenses are recognized under
Purchaser's plans in effect immediately prior to the Closing Date. In addition,
Purchaser will continue short-term disability benefits under the Company's sick
pay plan for any Transferred Employee receiving such benefits as of the Closing
Date for so long as such Transferred Employee remains eligible for such benefits
(not to exceed 26 weeks). Through the date 12 months after the Closing Date,
Transferred Employees shall not be required to make contributions toward the
cost of the applicable coverage under Purchaser's health and dental plans in
excess of the monthly amounts, if any, they would have been required to pay
under Seller's medical and dental insurance plans prior to the Closing Date.
(b) For the period from the Closing Date through the date 12 months after
the Closing Date, Purchaser agrees that in respect of any Transferred Employee
who as of the Closing Date is involved in a course of treatment covered under
Seller's medical plans, Purchaser shall take no action in connection with the
continuation of, or establishment of, coverage of such Transferred Employee
under Purchaser medical plans which will cause such Transferred Employee to have
to alter such course of treatment, including but not limited to, a change in
physician or location of covered treatment, in order for such course of
treatment to be covered under the applicable Purchaser medical plan.
9.9. Assumption of Liabilities. Except as otherwise provided in Section 9.4
or 9.5 or elsewhere herein, Purchaser agrees that, effective on and after the
Closing Date, the Company and its Subsidiaries shall have all liability and
responsibility with respect to the Transferred Employees and Seller shall not
retain any, and shall not be deemed to have retained any, of such liabilities
and responsibilities. With respect to Transferred Employees, and except to the
extent provided in Section 9.6(a), Seller shall retain those obligations and
liabilities relating to or arising under any Employee Plan or Benefit
Arrangement that are attributable to benefits accrued or otherwise payable on or
prior to the Closing Date and are not accrued as a liability on the Closing
Balance Sheet and that either (i) are with respect to an Employee Plan or
Benefit Arrangement set forth in Section 9.9 of the Disclosure Schedule or (ii)
arise from claims, including claims challenging the administration,
interpretation, or statutory or regulatory compliance of an Employee Plan or
Benefit Arrangement, that are not routine claims for benefits in the ordinary
course of operation of the Employee Plan or Benefit Arrangement. Except to the
extent provided in the preceding sentence or in Section 9.4 or 9.5, Purchaser
shall, as of the Closing Date, assume all obligations and liabilities of Seller
and any of its Affiliates in respect of Transferred Employees under each
Employee Plan and Benefit Arrangement; provided that, except as provided in
Section 9.6 or 9.7, nothing contained herein shall constitute a commitment or
obligation on the part of Purchaser to continue any such Employee Plan or
Benefit Arrangement after the Closing Date.
9.10 Third Party Beneficiaries. No provision of this Article IX shall create
any third party beneficiary rights in any employee or former employee of the
Company (including any beneficiary or dependent thereof) in respect of continued
employment or resumed employment, and no provision of this Article IX shall
create any rights in any such persons in respect of any benefits that may be
35
provided, directly or indirectly, under any Employee Plan or Benefit
Arrangement.
ARTICLE X
Conditions To Closing
10.1 Conditions to Obligations of Each Party. The obligations of Purchaser
and Seller to consummate the Closing are subject to the satisfaction of the
following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(b) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing,
and no proceeding challenging this Agreement or seeking to prohibit,
prevent or materially alter or delay, or materially impair the value of,
the transactions contemplated hereby shall have been instituted by any
governmental body, agency or authority having proper jurisdiction and shall
be pending.
(c) All actions by, authorizations, consents or approvals of, or
filings with any governmental body, agency, official or authority required
in order to permit the consummation of the Closing shall have occurred,
been filed or been obtained.
10.2 Conditions to Obligation of Purchaser. The obligation of Purchaser to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i)Seller shall have performed in all material respects all of its
obligations hereunder required to be performed by it on or prior to the
Closing Date, (ii) the representations and warranties of Seller contained
in this Agreement shall be true and correct as of the Closing Date with the
same effect as though such representations and warranties had been made on
and as of such time, other than representations and warranties that speak
as of a specific date or time (which need only be true and correct as of
such date or time); provided that the condition set forth in this clause
(ii) shall be deemed satisfied if the facts, events or circumstances
underlying any inaccuracies in any such representations and warranties as
of the Closing Date (without giving effect to any materiality
qualifications or materiality exceptions contained therein), individually
or in the aggregate, could not reasonably be expected to have a material
adverse effect on the business, properties or financial condition of the
Company and the Subsidiaries taken as a whole and (iii) Purchaser shall
have received a certificate duly executed by an authorized officer of
Seller to the foregoing effect.
36
(b) Purchaser shall have received the stock books, stock ledgers,
minute books and corporate seal of the Company and the Subsidiaries.
(c) Purchaser shall have received with respect to the Company and each
Subsidiary (i) a copy of its certificate or articles of incorporation,
including all amendments, certified by the Secretary of State or other
appropriate official of the jurisdiction of its incorporation and (ii)
certificates from the Secretary of State or other appropriate official of
the jurisdiction of its incorporation to the effect that such person is in
good standing or subsisting in such jurisdiction, listing all charter
documents of such person on file.
(d) Purchaser shall have received a certificate, dated the Closing
Date and executed by the Secretary or an Assistant Secretary of the
Company, in form and substance customary for transactions of this type.
(e) Purchaser shall have received (i) a copy of the certificate or
articles of incorporation, including all amendments, of Seller certified by
the Secretary of State or other appropriate official of the State of
Connecticut and (ii) certificates from the Secretary of State or other
appropriate official of the State of Connecticut to the effect that Seller
is in good standing or subsisting in such jurisdiction, listing all charter
documents of Seller on file.
(f) Purchaser shall have received a certificate, dated the Closing
Date and executed by the Secretary or an Assistant Secretary of Seller, in
form and substance customary for transactions of this type.
(g) Aetna U.S. Healthcare Inc., a Pennsylvania corporation
("Guarantor"), shall have executed and delivered to Purchaser the Guaranty,
substantially in the form attached as Exhibit A.
(h) Guarantor shall have executed and delivered to Purchaser the
Master Service Agreement, substantially in the form attached as Exhibit B
(the "Master Agreement").
(i) Guarantor shall have executed and delivered to Purchaser the
Transition Services Agreement, substantially in the form of Exhibit C (the
"Transition Services Agreement").
(j) Guarantor or one of its Affiliates shall have executed and
delivered to Purchaser the HMO and non-HMO health care agreements,
substantially in the form of the applicable Exhibit to the Master
Agreement.
(k) Guarantor shall have executed and delivered to Purchaser the
Non-Competition Covenant, substantially in the form of Exhibit D.
37
(l) Since the date of this Agreement, there has been no material
adverse change in the business, assets, condition (financial or otherwise)
or results of operations of the Company and the Subsidiaries taken as a
whole (other than as a result of changes (i) in general conditions,
including laws and regulations, applicable to the behavioral healthcare
industry or (ii) in general economic conditions).
(m) The essential software without which the business of the Company
and the Subsidiaries could not operate in the ordinary course listed on
Section 10.2(m) of the Disclosure Schedule (or its functional equivalent)
being available for license by Purchaser or the Company on commercially
reasonable terms.
10.3 Conditions to Obligation of Seller. The obligation of Seller to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i)Purchaser shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or prior to the
Closing Date, (ii) the representations and warranties of Purchaser
contained in this Agreement shall be true and correct as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such time, other than representations and warranties
that speak as of a specific date or time (which need only be true and
correct as of such date or time); provided that the condition set forth in
this clause (ii) shall be deemed satisfied if the facts, events or
circumstances underlying any inaccuracies in any such representations and
warranties as of the Closing Date (without giving effect to any materiality
qualifications or materiality exceptions contained therein), individually
or in the aggregate, could not reasonably be expected to have a material
adverse effect on the business, properties or financial condition of the
Purchaser and it subsidiaries taken as a whole and (iii) Seller shall have
received a certificate duly executed by an authorized officer of Purchaser
to the foregoing effect.
(b) Seller shall have received (i) a copy of the certificate or
articles of incorporation, including all amendments, of Purchaser certified
by the Secretary of State or other appropriate official of the jurisdiction
of Purchaser's incorporation and (ii) certificates from the Secretary of
State or other appropriate official of the jurisdiction of Purchaser's
incorporation to the effect that Purchaser is in good standing or
subsisting in such jurisdiction, listing all charter documents of Purchaser
on file.
(c) Seller shall have received a certificate, dated the Closing Date
and executed by the Secretary or an Assistant Secretary of Purchaser, in
form and substance customary for transactions of this type.
(d) The Company shall have executed and delivered to
38
Guarantor the Transition Services Agreement.
(e) Purchaser and the Company shall have executed and delivered to
Guarantor the Master Agreement.
(f) The Company or one of its Affiliates shall have executed and
delivered to Guarantor the HMO and non-HMO health care agreements,
substantially in the form of the applicable Exhibit to the Master
Agreement.
(g) Purchaser shall have executed and delivered to Seller the
Guaranty, substantially in the form of the applicable Exhibit to the Master
Agreement.
ARTICLE XI
Survival; Indemnification
11.1 Survival. The covenants, agreements, representations and warranties of
the parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Closing until the later of (x) the 12 month anniversary of the Closing Date and
(y) January 31, 1999 (the "Expiration Date") or (i) in the case of Sections 3.2,
3.5, 3.6(b) and (c), 3.13, 4.2, 4.5, 6.1, 6.3, 6.4, 6.5 and 6.6 indefinitely,
(ii) in case of Section 6.2, for the period set forth therein, (iii) in the case
of the covenants, agreements, representations and warranties contained in
Article VIII, as set forth in Section 8.9(a), (iv) in the case of covenants and
agreements contained in Article IX, for the periods specified therein, or if no
period is specified, then indefinitely. Notwithstanding the foregoing, the
covenants and agreements contained in this Article XI shall survive until the
Expiration Date, except (i) as to any claims for, or any claims that may result
in, Damages for which indemnity may be sought hereunder of which the
Indemnifying Party has received written notice (describing the claim in
reasonable detail) from the Indemnified Party on or before the Expiration Date
in which case the indemnity obligation for such claim shall survive the
Expiration Date or (ii) as to any representation, warranty or agreement
expressly surviving the Expiration Date as set forth in this Section 11.1.
11.2 Indemnification. (a) Seller hereby indemnifies Purchaser and,
effective at the Closing, without duplication, the Company and the Subsidiaries,
and their respective directors, officers, shareholders, employees and agents
(collectively, the "Purchaser Indemnified Parties") against and agrees to hold
them harmless from any and all damage, loss, liability and expense (including
without limitation reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding)
("Damages") incurred or suffered by the Purchaser Indemnified Parties arising
out of (x) any misrepresentation or breach of warranty, covenant or agreement
made or to be performed by Seller pursuant to this Agreement (other than
pursuant to Article VIII), (y) the litigation identified in Item 3 of Section
3.10 of the Disclosure Schedule or (z) the litigation identified in Item 21 of
Section 3.10 of the Disclosure Schedule; provided that (i) except as set forth
in Section 11.1, the Purchaser Indemnified Parties shall not have any right to
be indemnified under, nor shall they make any claim pursuant to, this Section
11.2(a) after the Expiration Date, (ii) the Purchaser Indemnified Parties shall
not have any right to be indemnified under, nor shall they make any
39
claim pursuant to, this Section 11.2(a) for any single claim for Damages of less
than $20,000 ("De Minimis Claims"), (iii) the Purchaser Indemnified Parties
shall not have any right to be indemnified under, nor shall they make any claim
pursuant to, this Section 11.2(a) unless the aggregate amount of all Damages to
the Purchaser Indemnified Parties (other than De Minimis Claims) exceeds
$5,000,000, in which case the Purchaser Indemnified Parties will be entitled to
indemnification only to the extent to which such Damages (other than De Minimis
Claims) exceed $5,000,000 and (iv) Seller's maximum liability under this Section
11.2(a) shall not exceed the Closing Payment, as adjusted pursuant to Section
2.4, together with all amounts paid to Seller pursuant to the Master Agreement.
Notwithstanding anything to the contrary set forth in the immediately preceding
sentence, (1) Seller's indemnification obligations pursuant to clause (y) of
such sentence shall not be subject to, and shall not count towards, the
$5,000,000 deductible described in clause (iii) of such sentence, and (2)
although Seller's indemnification obligations pursuant to clause (z) of such
sentence shall be subject to, and shall count towards, such $5,000,000
deductible, Seller shall be obligated to undertake the defense of such
litigation, through counsel of its own choosing (reasonably acceptable to
Purchaser) at its own expense, in accordance with the provisions of Section
11.3.
(b)Purchaser hereby indemnifies Seller and its directors, officers,
shareholders, employees and agents (collectively, the "Seller Indemnified
Parties") against and agrees to hold them harmless from any and all Damages
incurred or suffered by the Seller Indemnified Parties arising out of any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by Purchaser pursuant to this Agreement (other than pursuant to
Article VIII); provided that (i) except as set forth in Section 11.1, the Seller
Indemnified Parties shall not have any right to be indemnified under, nor shall
they make any claim pursuant to, this Section 11.2(b) after the Expiration Date,
(ii) the Seller Indemnified Parties shall not have any right to be indemnified
under, nor shall they make any claim pursuant to, this Section 11.2(b) for any
De Minimis Claims, (iii) the Seller Indemnified Parties shall not have any right
to be indemnified under, nor shall they make any claim pursuant to, this Section
11.2(b) unless the aggregate amount of all Damages to the Seller Indemnified
Parties (other than De Minimis Claims) exceeds $5,000,000, in which case the
Seller Indemnified Parties will be entitled to indemnification only to the
extent to which such Damages (other than De Minimis Claims) exceed $5,000,000
and (iv) Purchaser's maximum liability under this Section 11.2(b) shall not
exceed the Closing Payment, as adjusted pursuant to Section 2.4, together with
all amounts paid to Seller pursuant to the Master Agreement.
(c)The amount of any and all Damages for which indemnification is provided
pursuant to this Article XI shall be net of any amounts received by the
Indemnified Party under insurance policies with respect to such Damages (it
being understood that any proceeds obtainable from a captive insurance company
of the Indemnified Party or any amounts which the Indemnified Party self-
insures shall not be so taken into account). In the event that any claim for
indemnification asserted under this Article XI is, or may be, the subject of the
Company's or any party's hereto insurance coverages, the Indemnified Party
agrees to promptly notify the applicable insurance carrier of such claim and
tender defense thereof to such carrier. Each Indemnified Party shall pursue such
claims diligently and shall reasonably cooperate with each such insurance
carrier, and there shall be no payment obligation with respect to such claim for
indemnification under this Article XI for a period of one year after making a
claim for such insurance. If insurance coverage is denied (in whole or in part),
or if no resolution of an insurance claim shall have occurred within such one
year period, upon payment of the
40
relevant indemnification obligation, the Indemnifying Party shall be subrogated
to the rights of the Indemnified Party against such insurance carrier.
11.3 Procedures; Exclusivity. (a) The party seeking indemnification under
Section 11.2 (the "Indemnified Party") agrees to give prompt written notice to
the party against whom indemnity is sought (the "Indemnifying Party") setting
forth in reasonable detail the assertion of any claim, or the commencement of
any suit, action or proceeding, in respect of which indemnity may be sought
under such Section. The Indemnifying Party shall have 45 days after receipt of
such notice (or five days prior to such lesser time period as is permitted by
applicable law or administrative rule to contest such claim) to undertake,
through counsel of its own choosing and at its own expense, the settlement or
defense thereof, and the Indemnified Party shall cooperate with it in connection
therewith; provided, however, that the Indemnified Party may participate in such
settlement or defense through counsel chosen by such Indemnified Party, provided
that the fees and expenses of such counsel shall be borne by such Indemnified
Party. The Indemnified Party shall not pay or settle any claim which the
Indemnifying Party is contesting in good faith. Notwithstanding the foregoing,
the Indemnified Party shall have the right to pay or settle any such claim;
provided that the terms of such settlement are not materially prejudicial to the
Indemnifying Party, and that in such event the Indemnified Party shall be deemed
to have waived any right of indemnity therefor by the Indemnifying Party. If the
Indemnifying Party does not notify the Indemnified Party within 45 days after
the receipt of the Indemnified Party's notice of a claim of indemnity hereunder
(or five days prior to such lesser time period as is permitted by applicable law
or administrative rule to contest such claim) that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to contest, settle
or compromise the claim but shall not thereby waive any right to indemnity
therefor by the Indemnifying Party.
(b) After the Closing, Sections 8.9 and 11.2 will provide the exclusive
remedy by either party for any misrepresentation, breach of warranty, covenant
or other agreement or other claim arising out of this Agreement or the
transactions contemplated hereby.
11.4 Investigation. Any investigation made at any time by or on behalf of
any party hereto shall not diminish in any respect whatsoever such party's right
to rely on the representations and warranties made by any other party pursuant
to this Agreement.
ARTICLE XII
Termination
12.1 Grounds for Termination. This Agreement may be terminated at any time
prior to the Closing:
(i) by mutual written agreement of Seller and Purchaser; or
(ii) at any time after March 31, 1998, by Seller or Purchaser upon written
notification of the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party.
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12.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 12.1, such termination shall be without liability or
obligation of either party (or any shareholder, director, officer, employee,
agent, consultant or representative of such party) to the other party to this
Agreement; provided that if such termination shall result from the willful
failure of either party to fulfill a condition to the performance of the
obligations of the other party or to perform a covenant of this Agreement or
from a willful breach by either party to this Agreement, such party shall be
fully liable for any and all Damages incurred or suffered by the other party as
a result of such failure or breach. The provisions of Sections 3.13, 4.5, 6.1,
13.3, 13.5, 13.6 and 13.7 shall survive any termination hereof pursuant to
Section 12.1.
ARTICLE XIII
Miscellaneous
13.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt if delivered personally,
telecopied (which telecopy is confirmed) or mailed by registered or certified
mail (return receipt requested) or the next day if by overnight delivery service
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
if to Purchaser, to:
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30319
Attention: General Counsel
Telecopy: 404-814-5717
with a copy to:
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30319
Attention: Chief Financial Officer
Telecopy: 404-814-5793
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if to Seller, to:
Aetna Insurance Company of Connecticut
c/o Aetna U.S. Healthcare Inc.
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Chief Legal Officer
Telecopy: 860-273-8340
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention: John P. Gourary
Telecopy: 212-841-1010
13.2 Amendments; No Waivers. (a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Purchaser and Seller, or in the case of
a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law, except as otherwise provided in Section 11.3(b).
13.3 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
13.4 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided that neither party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party hereto. Any
purported assignment not permitted by this Section 13.4 shall be void.
13.5 Governing Law. This Agreement shall be construed in accordance with
and governed by the law of the State of New York, without regard to any
applicable principles of conflicts of law.
13.6 Submission to Jurisdiction. Each of the parties hereto hereby submits
to the exclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement or the
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transactions contemplated hereby. Each of the parties hereto irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any proceeding brought in such a
court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
13.7 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby.
13.8 Specific Performance. The parties acknowledge that money damages alone
would not a sufficient remedy for any breach of Section 6.1 of this Agreement,
and that the non- breaching party shall be entitled to equitable relief,
including injunction and specific performance, as a remedy for any such breach.
Such remedies shall be in addition to all other legal or equitable remedies
available to such party.
13.9 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.
13.10 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto.
13.11 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision of this Agreement shall
not affect the validity or enforceability of this Agreement or of any other term
hereof, which shall remain in full force and effect.
13.12 Captions; Construction. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. The parties acknowledge that this Agreement was initially
prepared by Seller, and that all parties have read and negotiated the language
used in this Agreement. The parties agree that, because all the parties
participated in negotiating and drafting this Agreement, no rule of construction
shall apply to this Agreement which construes ambiguous language in favor of or
against any party by reason of that party's role in drafting this Agreement.
13.13 Third Party Beneficiaries. None of the provisions of this Agreement
shall be for the benefit of, or enforceable by, any employee or creditor of any
party hereto.
13.14 No Set-off. The parties hereto expressly waive any rights to set-off
against any amount or payment due hereunder that any party may have under law or
equity.
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In witness whereof, the parties hereto here caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
Magellan Health Services, Inc.
By /s/ Mac Crawford
-------------------------------
Name: Mac Crawford
Title: Chairman, President and
Chief Executive Officer
Aetna Insurance Company of Connecticut
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President
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