EXHIBIT 2.2
EARN-OUT AGREEMENT
THIS EARN-OUT AGREEMENT (this "Agreement") dated the 5th day of September,
2003, is by and between American Healthways, Inc., a Delaware corporation
("American Healthways") and Xxxxxxx Xxxxxxxx, as agent (the "Stockholder
Representative") for all of the former stockholders of StatusOne Health Systems,
Inc., a Delaware corporation ("StatusOne"), identified on Schedule 2.4 of the
Merger Agreement (as defined below) (collectively, the "Former Stockholders").
Reference is made to that certain Agreement and Plan of Merger by and among
American Healthways, AH Mergersub, Inc., a Delaware corporation and wholly owned
subsidiary of American Healthways ("AH Mergersub"), StatusOne and certain of the
Former Stockholders dated September 5, 2003 (the "Merger Agreement").
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Merger Agreement.
WHEREAS, the Former Stockholders, StatusOne, AH Mergersub and American
Healthways have entered into the Merger Agreement which provides as a condition
to Closing that the parties hereto enter into this Agreement;
NOW, THEREFORE, in consideration of the premises hereof, and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Base Earnout Consideration. Subsequent to the Closing of the Merger,
the Trust, for the benefit of former holders of the Class C Common Stock of
StatusOne (the "Class C Stockholders") shall be entitled to receive up to Twelve
Million Five Hundred Thousand Dollars ($12,500,000) (the "Base Earnout Amount"),
which shall be distributed in accordance with the schedule of beneficial
ownership attached to the Trust and attached hereto as Exhibit A, if the Revenue
(as defined below) for the twelve (12) month period ending August 31, 2004 (the
"Earnout Period") exceeds $35,922,864 (the "Target Revenue"), such Base Earnout
Amount to be earned in accordance with the Earnout Schedule set forth in Section
3 below.
2. Contingent Earnout Consideration. In the event that (a) the entire Base
Earnout Amount of $12,500,000 has been earned during the Earnout Period and (b)
any of the Escrow Amount is at any time paid to American Healthways solely as a
result of a Revenue Shortfall (the "Escrow Payout"), the holders of the Class A
Common Stock and Class B Common Stock of StatusOne (the "Class A/B Holders"),
shall, as a group, be entitled to receive an amount up to the Escrow Payout (the
"Contingent Earnout Amount") if and to the extent the Earnout Consideration, as
determined below, exceeds $12,500,000. Such Contingent Earnout Amount shall be
earned and payable also in accordance with the Earnout Schedule set forth in
Section 3 below.
3. Earnout Schedule. The Former Stockholders shall be eligible to receive
an amount equal to the Base Earnout Amount and the Contingent Earnout Amount
corresponding with the Revenue ranges set forth below (the Base Earnout Amount
and the Contingent Earnout Amount to be referred to as the "Earnout
Consideration"). Notwithstanding anything contained herein to the contrary, in
no event shall the aggregate amount of Earnout Consideration exceed $17,500,000
(the "Maximum Earnout Amount"). If the Revenue for the Earnout Period exceeds
the Target Revenue, the Former Stockholders shall receive:
REVENUE FOR THE EARNOUT PERIOD EARNOUT CONSIDERATION
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less than $35,922,864 $0
between $35,922,864 and $1 for every $1 in Revenue (as
$37,000,000 defined below) in excess of the
Target Revenue
between $37,000,001 and the greater of:
$40,922,864
a) $1 for every $1 in Revenue
in excess of the Target
Revenue, or
b) $1 for every $1 of
Run-Rate Revenue (as defined
below) in excess of
$46,749,298
$40,922,865 or greater
$1 for every $1 in Revenue in
excess of the Target Revenue, up
to the Maximum Earnout Amount
For purposes of the calculating the Earnout Consideration, "Revenue" shall
mean all revenue recognized by American Healthways during the Earnout Period
that is (a) generated from, and attributable to, the programs and services
provided by StatusOne (the "StatusOne Programs") to customers of either
StatusOne or American Healthways, and (b) generated from, and attributable to,
the programs provided by American Healthways (other than the StatusOne Programs)
to the customers and prospective customers of StatusOne set forth on Exhibit B
hereto. Revenues shall be calculated in accordance with accounting principles
generally accepted in the United States of America as consistently applied by
American Healthways, as determined by the firm of independent certified public
accountants engaged by American Healthways for purposes of its own audit. By way
of clarification, the parties agree that the amount of the Earnout Consideration
shall be calculated by reference only to the highest of the Revenue Range
categories set forth above which is satisfied by actual revenue generated during
the Earnout Period, and a marginal rate calculation shall not apply.
For purposes of calculating the Earnout Consideration, "Run-Rate Revenue"
shall mean the product of (x) and (y), where (x) equals the Revenue for the
three-month period ending August 31, 2004, and (y) equals four (4).
Examples of calculations of the Earnout Consideration payments are set
forth on Exhibit C hereto.
4. Determination of Earnout Consideration. American Healthways shall
prepare and deliver to the Stockholder Representative within ninety (90) days
following the completion of the Earnout Period, a statement showing the Revenue
for the Earnout Period and the calculation of the amount of Earnout
Consideration payable, if any (the "AMHC Determination"). The Stockholder
Representative shall be entitled to receive and review, upon request, such
financial statements of American Healthways as are necessary to calculate the
Revenue and the amount of Earnout Consideration payable and a detailed
calculation of the Earnout Consideration. Within thirty (30) days after receipt
of the calculation, the Stockholder Representative shall advise American
Healthways if the Stockholder Representative disagrees with the calculation. In
the event of any such disagreement, American Healthways agrees to provide
reasonable access during normal business hours to its books and records to the
Stockholder Representative or his designee, as reasonably required to validate
the determination of the Earnout Consideration by the Stockholder
Representative.
Any disagreement or controversy between American Healthways and the
Stockholder Representative with respect to the calculation of the Earnout
Consideration which is not resolved by the parties shall be settled as follows:
If the parties are unable to resolve any such dispute within the ninety (90) day
period following delivery by American Healthways of the AMHC Determination, an
arbitrator mutually agreed upon by American Healthways and the Stockholder
Representative (the "Arbitrator") shall be engaged to resolve such dispute as
soon as practicable. In connection with the resolution of any such dispute, the
Arbitrator shall have access to all documents, records, work papers, facilities
and personnel necessary to perform its function as arbitrator. The Arbitrator's
function shall be to review
only those items which are in dispute and to resolve the dispute with respect to
such items. The Arbitrator's award with respect to any such dispute shall be
final and binding upon the parties hereto, and judgment may be entered on the
award.
The fees and expenses of the Arbitrator shall be allocated between the
Former Stockholders, on the one hand, and American Healthways, on the other
hand, so that the amount of fees and expenses paid by the disputing Former
Stockholders shall be equal to the product of (x) and (y), where (x) is the
aggregate amount of such fees and expenses, and where (y) is a fraction, the
numerator of which is the amount in dispute that is ultimately unsuccessfully
disputed by the Stockholder Representative (as determined by the Arbitrator),
and the denominator of which is the total value in dispute.
5. Payment of Earnout Consideration. In the event any Earnout
Consideration is payable, on or before one hundred and twenty (120) days
following the end of the Earnout Period (provided that (i) there is no dispute
with respect to Earnout Consideration and (ii) there is no claim for
indemnification made by American Healthways in excess of the amount remaining in
Escrow which has not been paid by the Principal Stockholders pursuant to Article
10 of the Merger Agreement), American Healthways shall pay such Earnout
Consideration to a paying agent for the Former Stockholders designated by the
Stockholder Representative, by wire transfer of immediately available funds if
American Healthways elects to pay any portion of the Earnout Consideration in
cash, and/or by delivery of shares of common stock, par value $.001 per share,
of American Healthways (the "Common Stock") if American Healthways elects to pay
any portion of the Earnout Consideration in Common Stock, provided that in the
event American Healthways elects to pay in portion of the Earnout Consideration
in Common Stock, it will only be obligated to pay those Former Stockholders who,
at the time the Earnout Consideration is payable, qualify as an "accredited
investor" as defined in Rule 501(a) of the Securities Act, as determined by
American Healthways in its sole discretion. Such Common Stock delivered to the
Stockholder Representative shall be registered for resale at the time the
Earnout Consideration is due and payable or American Healthways may deliver
unregistered shares, provided that American Healthways agrees to file an S-3
registration statement (provided that if American Healthways is not then
eligible to register for resale such shares on Form S-3, such registration shall
be on another appropriate form determined by American Healthways) (the
"Registration Statement") with the Securities and Exchange Commission not later
than thirty (30) days after the date on which the Earn-Out Consideration is
payable in accordance with the terms of the Earn-Out Agreement, which
Registration Statement shall cover the resale from time to time of the shares.
American Healthways will use its commercially reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof and will use its commercially
reasonable efforts to maintain the effectiveness of such Registration Statement
until the earlier of (i) the date on which the shares of Common Stock issued to
the Former Stockholders as Earnout Consideration included in the Registration
Statement have been sold or (ii) the date on which the shares of Common Stock
issued to the Former Stockholders as Earnout Consideration may be sold under
Rule 144(k) of the Securities Act. Anything to the contrary herein
notwithstanding, American Healthways may postpone for a reasonable period of
time (not to exceed one period of up to ninety (90) days in any twelve (12)
month period) the resale of shares pursuant to the Registration Statement if
American Healthways determines in the good faith judgment of its board of
directors that the resale of shares pursuant to the Registration Statement (a)
could reasonably be expected to have an adverse effect on any plan or proposal
by American Healthways or any of its subsidiaries with respect to any financing,
acquisition, recapitalization or reorganization which is material to American
Healthways or other transaction which is material to American Healthways or (b)
could require the disclosure of material non-public information, the disclosure
of which could reasonably be expected to be adverse to the best interests of
American Healthways and its stockholders. The amount of Common Stock to be
delivered shall be equal to the quotient of (x) divided by (y), where (x) is the
product of (A) the total Earnout Consideration payable and (B) the percentage of
Earnout Consideration that American Healthways elects to pay in Common Stock,
and where (y) is the fair market value of Common Stock, which shall equal the
average of the closing price of the Common Stock on the NASDAQ Stock Market over
the ten (10) trading day period ending two (2) trading days prior to the end of
the Earnout Period. If there is a dispute with respect to such Earnout
Consideration, the amount not in dispute shall be paid as
provided above and payment of the portion in dispute shall be deferred until
resolution of the dispute.
6. Operations of StatusOne. Both American Healthways and the Stockholder
Representative acknowledge that an increase in the Revenues of StatusOne will be
required in order for all or a portion of the Earnout Consideration to be
payable. The Stockholder Representative understands and acknowledges that
American Healthways is a publicly traded company, and as such, the Board of
Directors and senior management of American Healthways owe their fiduciary
duties to the stockholders of American Healthways. The Former Stockholders
understand and acknowledge that the Board of Directors and senior management of
American Healthways, in the exercise of their fiduciary duties to the
stockholders of American Healthways, may determine to undertake a range of
actions, some of which could have the ancillary effect of adversely affecting
amounts payable under this Agreement, to reflect the fiduciary duties owed to
the stockholders of American Healthways and to further accomplish the reasonable
business objectives of American Healthways as the owner of subsidiaries engaged
in the care enhancement and disease management industry. The parties intend that
StatusOne have a reasonable opportunity to achieve the Revenue and to be
compensated therefore pursuant to the terms of this Agreement, consistent,
however, with the ordinary course of business of StatusOne as currently
conducted and contemplated (including, but not limited to, its product mix and
terms and pricing strategy with respect to contracts, and provided that
StatusOne shall not be prohibited from introducing new products related to its
current business) and the fiduciary obligations of American Healthways as the
direct owner of StatusOne (provided that such fiduciary obligations shall not be
construed to require or permit American Healthways to take actions designed to
impair StatusOne's opportunity to achieve the Earnout Consideration otherwise
payable under this Agreement). Accordingly, and subject to such fiduciary
obligations, during the Earnout Period, American Healthways (i) shall facilitate
the maintenance of separate records of StatusOne, so as to render a
determination of the Revenue practicable, (ii) without the prior written consent
of the Stockholder Representative, will not cause, suffer or permit any actions
with respect to StatusOne so as to render a determination of the Revenue
impracticable, (iii) will permit Xxxx Xxxxxxxx, the current President of
StatusOne, for so long as he continues as such President of StatusOne, to
operate StatusOne in the ordinary course of business consistent with past
practice, except as may be modified by adherence to American Healthways'
practices and policies applicable to American Healthways' business units
generally and (iv) will not require StatusOne to move its principal places of
business in Westboro, Massachusetts and Aliseo Viejo, California more than
twenty (20) miles from their respective present locations without the consent of
the Stockholder Representative. In furtherance of the foregoing, American
Healthways may not make any decisions in bad faith and with the purpose of
adversely affecting the Revenue so that the amount of Earnout Consideration
payable pursuant to this Agreement, if any, is reduced.
7. No Assignment. Without the prior written consent of American
Healthways, this Agreement and the rights hereunder shall not be assignable,
transferable or delegable by the Stockholder Representative or any of the Former
Stockholders, whether by pledge, creation of a security interest or otherwise,
and, in the event of any attempted assignment, transfer or delegation contrary
to this paragraph, American Healthways shall have no liability to pay to such
assignee, delegee or other transferee any amount so attempted to be assigned,
transferred or delegated. Notwithstanding the foregoing, American Healthways
acknowledges and agrees that the Stockholder Representative may resign or be
removed and a successor thereto be designated in accordance with the terms of
the Merger Agreement, and that any such replacement shall, by virtue of such
designation and with no further action on the part of such replacement or
American Healthways, become a party hereto and be treated as the "Stockholder
Representative" for all purposes under this Agreement thereafter.
8. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, without regard to
its conflict of laws rules.
9. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, with the same effect as if the signatories executing the
several counterparts had executed one counterpart, provided, however, that the
several executed counterparts shall together have been
signed by all parties hereto. All such executed counterparts shall together
constitute one and the same instrument.
10. Entire Agreement; Amendment. This Agreement and the Merger Agreement,
including the exhibits, schedules, lists and other documents referred to therein
or delivered pursuant thereto, which form a part thereof, contain the entire
understanding of the parties with respect to its subject matter. This Agreement
may be amended only by a written instrument duly executed by all parties or
their respective heirs, successors, permitted assigns, executors or legal
personal representatives.
11. Notices. Any notice required to be given hereunder shall be sufficient
if in writing, and given by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
If to American Healthways: American Healthways, Inc.
0000 Xxxxx Xxxxx Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxx Xxxxxx
Fax No. (615) 665 - 7697
with a copy to: Bass, Xxxxx & Xxxx PLC
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxx
Fax No. (000) 000-0000
If to the Stockholder
Representative: Xxxxxxx Xxxxxxxx
StatusOne Health Systems, Inc.
Xxx Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Fax No. (000) 000-0000
with a copy to: XxXxxxxxx, Will & Xxxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Attn: Xxxx X. Xxxxx, Esq.
Fax No. (000) 000-0000
12. Construction. The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
13. Successors and Assigns; Third Party Beneficiaries. This Agreement
shall be binding upon American Healthways and each of American Healthways'
successors and assigns, if any. Further, this Agreement shall be binding upon
the Stockholder Representative and the Former Stockholders and each of their
permitted assigns. Except as otherwise provided for herein, nothing expressed or
referred to in this Agreement will be construed to give any person other than
the parties hereto any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision of this Agreement, except such rights
as shall inure to a permitted assign.
(Next Page is Signature Page)
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
AMERICAN HEALTHWAYS, INC.
By: /s/ Xxx X. Xxxxxx, Xx.
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Title: Chief Executive Officer
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STOCKHOLDER REPRESENTATIVE:
/s/ Xxxxxxx Xxxxxxxx
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Xxxxxxx Xxxxxxxx
