Agreement and Plan of Merger
Exhibit 2.1
EXECUTION COPY
Agreement and Plan of Merger
This Agreement and Plan of Merger (this “Agreement”) is made and entered into as of
August 26, 2010 by and among HealthSpring, Inc., a Delaware corporation (“Acquiror”), BHI
Acquisition Corporation, a Delaware corporation and an indirect wholly owned subsidiary of Acquiror
(“Merger Sub”), Bravo Health, Inc., a Delaware corporation (“Target”), and Shareholder
Representative Services, LLC, a Colorado limited liability company (the “Stakeholders’ Agent”).
Recitals
A. The Boards of Directors of Target, Acquiror and Merger Sub believe it is in the best
interests of their respective companies and the stockholders of their respective companies for
Target and Merger Sub to combine into a single company through the statutory merger of Merger Sub
with and into Target (the “Merger”) and have approved this Agreement and approved the Merger.
B. In connection with the Merger, the outstanding shares of Target’s capital stock will be
converted into the right to receive the cash amounts described in this Agreement, and the vesting
of all outstanding options, warrants and other rights to acquire Target capital stock will be
accelerated and converted into the right to receive the cash amounts described in this Agreement or
will be cancelled.
C. Acquiror will place a portion of the cash amounts payable to Target’s stockholders into
escrow, the release of which will be contingent upon the occurrence of certain events and the
satisfaction or waiver of certain conditions as set forth in this Agreement and in the Escrow
Agreement to be executed and delivered in accordance with Section 2.8(e) (the “Escrow Agreement”).
D. Promptly following the execution and delivery of this Agreement, Acquiror and Merger Sub
will receive from Target Stock Voting Agreements in the form attached hereto as Exhibit A (the
“Voting Agreement”) from certain of the securityholders of Target.
E. Target, Acquiror and Merger Sub desire to make certain representations and warranties and
enter into certain covenants in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, representations and warranties set forth in
this Agreement, and for other good and valuable consideration, the Parties, intending to be legally
bound, agree as follows:
1. Definitions.
1.1 Certain Defined Terms. As used in this Agreement, the following terms will have
the following meanings:
“Acquiror” has the meaning set forth in the introductory paragraph.
“Acquiror Material Adverse Effect” has the meaning set forth in Section 4.3(b).
“Acquisition Inquiry” will mean an inquiry, indication of interest or request for nonpublic
information (other than an inquiry, indication of interest or request for nonpublic information
made or submitted by Acquiror) relating to a potential Acquisition Proposal.
“Acquisition Proposal” will mean any offer or proposal (other than an offer or proposal made
or submitted by Acquiror) contemplating or otherwise relating to any Acquisition Transaction.
“Acquisition Transaction” with respect to an entity will mean any transaction or series of
transactions (other than the Merger) involving:
(a) any merger, exchange, consolidation, business combination, issuance of securities,
acquisition of securities, reorganization, recapitalization, takeover offer, tender offer, exchange
offer or other similar transaction: (i) in which such entity or any of its Subsidiaries is a
constituent corporation and which would result in a third party beneficially owning 20% or more of
any class of equity or voting securities of such entity or any of its Subsidiaries; (ii) in which a
person or “group” (as defined in the Securities Exchange Act of 1934, as amended, and the rules
promulgated under such act) would directly or indirectly acquire beneficial or record ownership of
securities representing more than 20% of the outstanding securities of any class of equity or
voting securities of such entity or any of its Subsidiaries; or (iii) in which such entity or any
of its Subsidiaries issues securities representing more than 20% of the outstanding securities of
any class of voting securities of such entity or any of its Subsidiaries;
(b) any sale, lease, exchange, transfer, license, acquisition or disposition of more than 20%
of the assets or rights of such entity or any of its Subsidiaries; or
(c) any liquidation or dissolution of such entity or any of its Subsidiaries.
“Action” means any order, claim, suit, litigation proceeding, labor dispute, arbitration
action, governmental audit or investigation (collectively, “Actions”) in which Target is a party or
subject to which any of its properties or assets is subject.
“Adjusted Consolidated Current Assets” means an amount equal to (i) the aggregate dollar
amount of all assets properly classified as current assets of Target and its Subsidiaries under the
Specified Accounting Principles as of the Closing Date reflected on the Consolidated Balance Sheet
(excluding any deferred taxes to the extent included in (i)), plus (ii) the aggregate dollar amount
of long term investments of Target (excluding any investments in Subsidiaries) as of the Closing
Date reflected on the Parent Balance Sheet, plus (iii) the aggregate dollar amount of restricted
cash and investments and long term investments of the Regulated Subsidiaries as of the Closing Date
determined based upon the Statutory Balance Sheet (to the extent not included in (ii)), minus (iv)
the aggregate dollar amount of all assets of the Regulated Subsidiaries included in (i) or (iii)
above that are classified as “non-admitted assets” in accordance with Statutory Accounting
Principles and based upon the Statutory Balance Sheet; provided, however,
that in no event will any accounting adjustments made by Acquiror resulting from the Merger,
including Acquiror’s fair-value determination of Target’s and its Subsidiaries’ assets and
liabilities at Closing, be included for purposes of this calculation.
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“Aggregate Closing Merger Consideration” means (A) the Base Merger Consideration, plus (B) the
aggregate Exercise Prices of all Unexercised Options, minus (C) any Indebtedness, minus (D) the
Specified Transactional Expenses.
“Agreement” has the meaning set forth in the introductory paragraph.
“Base Merger Consideration” means Five Hundred Forty Five Million Dollars ($545,000,000).
“BHCA” means Bravo Health California, Inc., an inactive company domiciled in the State of
California.
“BHIC” means Bravo Health Insurance Company, an insurance company domiciled in the State of
Delaware.
“BHMA” means Bravo Health Mid-Atlantic, Inc., a health maintenance organization domiciled in
the State of Maryland.
“BHPA” means Bravo Health Pennsylvania, Inc., a health maintenance organization domiciled in
the Commonwealth of Pennsylvania.
“BHTX” means Bravo Health Texas, Inc., a health maintenance organization domiciled in the
State of Texas.
“Business Day” means any day other than a Saturday, Sunday or day on which banks are permitted
to close in the State of New York.
“Capital Lease” means, with respect to any person, any lease of any property (whether real,
personal or mixed) by such person as lessee that is classified and accounted for as a capital lease
on a balance sheet of such person.
“Capital Lease Obligation” means, with respect to any Capital Lease of any person, the amount
of the obligation of the lessee thereunder that appears on a balance sheet of such lessee in
respect of such Capital Lease.
“Certificate” has the meaning set forth in Section 2.8(a).
“Claim” means any claim for indemnification or to be held harmless by an Indemnitee pursuant
to Section 9.
“Claim Notice” has the meaning set forth in Section 9.2(a).
“Closing” has the meaning set forth in Section 2.2.
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“Closing Adjustment” means the positive or negative amount, as applicable, equal to the
difference between (i) Adjusted Consolidated Current Assets and (ii) the sum of (A) Minimum
Statutory Capital, plus (B) Target Current Liabilities, plus (C) Target Statutory Liabilities plus
(D) Two Million Dollars ($2,000,000).
“Closing Date” has the meaning set forth in Section 2.2.
“CMS” means the Centers for Medicare and Medicaid Services.
“COBRA” has the meaning set forth in Section 3.16(f).
“Code” has the meaning set forth in Section 2.10(a).
“Commitment Letter” means that certain commitment letter, dated August 26, 2010, between
Acquiror and the financing sources named therein, together with the “Fee Letters” as defined
therein.
“Common Equivalent Proceeds Amount” means the sum of (i) the Participation Proceeds Amount
plus (ii) the aggregate gross amount of all Transaction Bonuses payable to the Former Stakeholders.
“Confidentiality Agreement” has the meaning set forth in Section 6.2.
“Consolidated Balance Sheet” means the balance sheet of Target and its Subsidiaries as of and
for the period ending on the Closing Date prepared in accordance with the Specified Accounting
Principles.
“Copyrights” has the meaning set forth in Section 3.10(a)(ii).
“Covered Matters” shall mean (i) those matters identified, or resulting from those matters
identified, by asterisk on Schedules 3.8, 3.17 and 3.25 of the Target Disclosure Schedule and (ii)
Target’s failure to cause all warrants to purchase shares of Target Capital Stock disclosed on the
Target Disclosure Schedule to be exercised or canceled prior to the Closing Date or the assertion
of any rights to acquire shares of Target Common Stock by the persons purporting to hold such
warrants.
“Damages” has the meaning set forth in Section 9.2(b).
“Designated Accounting Firm” has the meaning set forth in Section 2.13(b)(iii).
“DGCL” has the meaning set forth in Section 2.1.
“Dispute Notice” has the meaning set forth in Section 2.13(b)(i).
“Dissenting Shares” has the meaning set forth in Section 2.11(a).
“Effective Time” has the meaning set forth in Section 2.2.
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“Encumbrances” means any lien, pledge, hypothecation, charge, mortgage, security interest,
encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right or
restriction of any nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any asset).
“ERISA” has the meaning set forth in Section 3.16(a).
“ERISA Affiliate” has the meaning set forth in Section 3.16(a).
“Escrow Agent” has the meaning set forth in Section 2.8(e).
“Escrow Agreement” has the meaning set forth in Recital C.
“Escrow Fund” has the meaning set forth in Section 9.1(a).
“Exchange Agent” has the meaning set forth in Section 2.8(b).
“Exchange Agent Agreement” has the meaning set forth in Section 2.8(b).
“Exercise Price” means, in respect of any Target Option, the per share exercise or strike
price payable by the holder thereof to exercise the Target Option.
“Expert Calculations” has the meaning set forth in Section 2.13(b)(iii).
“Final Claim Termination Date” has the meaning set forth in Section 9.2(a).
“Financing” has the meaning set forth in Section 6.7(a).
“Former Stakeholder” means each person who held shares of Target Capital Stock immediately
prior to the Effective Time, each person who held Target Options immediately prior to the Effective
Time and elected (or is deemed to have elected) net exercise as the manner of exercising such
Target Options, each person who held warrants issued by Target immediately prior to the Effective
Time, and each person who will receive a bonus, change of control or other similar payment from
Target in connection with the transactions contemplated by this Agreement (other than severance) as
set forth on Schedule 1.1(d) of the Target Disclosure Schedule.
“GAAP” means United States generally accepted accounting principles.
“Governmental Entity” has the meaning set forth in Section 3.2.
“Governmental Order” means any administrative decision or award, decree, injunction, judgment,
order, quasi-judicial decision or award, ruling, or writ of any Governmental Entity, or any binding
determination pursuant to arbitration or other similar alternative dispute resolution forum. For
the purposes of this Agreement, a Government Order will include any voluntary agreement entered
into with a Governmental Entity such as a corporate integrity agreement.
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“Health Care Laws” means all Laws relating to: (i) the licensure, certification, qualification
or authority to transact business in connection with the provision of, payment for, or arrangement
of, health benefits or health insurance, including Laws that regulate managed care, third party
payors and persons bearing the financial risk for the provision or arrangement of health care
services and, without limiting the generality of the foregoing, the Medicare Program Laws and Laws
relating to Medicaid programs; (ii) the operations of facilities such as pharmacies, laboratories,
radiology or imaging centers or the operation of professional medical practices or other medical or
health facilities; (iii) the solicitation or acceptance of improper incentives involving persons
operating in the health care industry, including, without limitation, Laws prohibiting or
regulating fraud and abuse, patient referrals or Provider incentives generally or under the
following statutes: the Federal anti-kickback law (42 U.S.C. § 1320a-7b) and the regulations
promulgated thereunder, the Xxxxx laws (42 U.S.C. § 1395nn) and the regulations promulgated
thereunder, the Federal False Claims Act (31 U.S.C. §§ 3729, et seq.), the Federal
Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), the Federal Program Fraud Civil Remedies Act
(31 U.S.C. § 3801 et seq.); (iv) the administration of health care claims or
benefits or processing or payment for health care services, treatment or supplies furnished by
Providers, including third party administrators, utilization review agents and persons performing
quality assurance, credentialing or coordination of benefits; (v) xxxxxxxx to insurance companies,
health maintenance organizations and other managed care plans or otherwise related to insurance
fraud; (vi) the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, (vii) HIPAA;
(viii) any Laws governing the privacy, security, integrity, accuracy, transmission, storage or
other protection of information about or belonging to actual or prospective Members; (ix) any state
insurance, health maintenance organization or managed care Laws (including Laws relating to
Medicaid programs) pursuant to which any of the Regulated Subsidiaries is required to be licensed
or authorized to transact business; (x) the Medicare Program Laws; and (xi) the Patient Protection
and Affordable Care Act (Pub. L. 111-148) as amended by the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152) and the regulations promulgated thereunder.
“HIPAA” has the meaning set forth in Section 3.16(f).
“HSR” has the meaning set forth in Section 3.2.
“Indebtedness” means, without duplication, (a) any outstanding liability of Target and its
Subsidiaries created or assumed by Target or such Subsidiary (i) for borrowed money or for the
deferred purchase price of property other than ordinary course trade credit, (ii) for reimbursement
and other obligations with respect to letters of credit, bankers’ acceptances and surety bonds,
whether or not matured, (iii) evidenced by a note, bond, debenture or similar instrument, and (iv)
for any Capital Lease Obligation; (b) any outstanding liability or indebtedness of any other person
described in the preceding clause (a) guaranteed as to payment of principal or interest by Target
or such Subsidiary or in effect guaranteed by Target through an agreement, contingent or otherwise,
to purchase, repurchase or pay the related indebtedness or to acquire the security therefor; (c)
all outstanding indebtedness or obligations referred to above secured by (or for which the holder
of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien
upon or in property or other assets (including accounts and contract rights) owned by Target or
such Subsidiary, even though such person has not assumed
or become liable for the payment of such indebtedness, and (d) any charges or expenses
relating to the cancellation or termination of Target’s interest rate cap and interest rate swap
agreements on the Closing Date.
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“Indemnification Cap” has the meaning set forth in Section 9.2(c)(ii).
“Indemnification Threshold” has the meaning set forth in Section 9.2(c).
“Indemnified Parties” has the meaning set forth in Section 6.9(a).
“Indemnitee” has the meaning set forth in Section 9.2(d)(i).
“Indemnitor” has the meaning set forth in Section 9.2(d)(i).
“Indemnity Escrow Amount” has the meaning set forth in Section 9.1(a).
“Initial Claim Termination Date” has the meaning set forth in Section 9.2(a).
“IP Rights” has the meaning set forth in Section 3.10(a)(i).
“IPA” means an Independent Practice Association.
“Knowledge” has the meaning set forth in Section 10.2(b).
“Law” means any U.S. federal, state or local law (including principles of common law),
statute, rule, regulation, constitution, treaty, ordinance or other provisions having the force or
effect of law, including Health Care Laws.
“Lease” has the meaning set forth in Section 3.14(a).
“Lenders” has the meaning set forth in Section 6.7(a).
“Letter of Transmittal” has the meaning set forth in Section 2.8(c).
“Licenses” means any licenses, permits, certificates of authority, certificates, approvals,
registrations, authorizations or any accreditation requirements of any Governmental Entity or the
NCQA and, also with respect to the Practice Entity or its practitioners, any license to practice
medicine and any provider number or certification required for participation in, or to receive
payment from, any of the Programs.
“Lien” means any claim, mortgage, pledge, hypothecation, security interest, encumbrance, lien
or charge of any kind, or any rights of others, however evidenced, created or arising (including
any agreement to give any of the foregoing, any conditional sale or other title retention
agreement, or any lease having a similar effect or result).
“Liquidation Preference Amount” means the Series A Preferred Liquidation Preference Amount,
plus the Series B Preferred Liquidation Preference Amount, plus the Series C Preferred Liquidation
Preference Amount, plus the Series D Preferred Liquidation Preference Amount,
plus the Series E Preferred Liquidation Preference Amount, plus the Series F Preferred
Liquidation Preference Amount, plus the Series G Preferred Liquidation Preference Amount, plus the
Series H Preferred Liquidation Preference Amount.
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“Loss Reserve” means amounts accrued or reserved by Target and its Subsidiaries for liability
for medical claims and liabilities incurred but not reported, and incurred but pending or otherwise
unpaid.
“MA Plans” means the Medicare Advantage Prescription Drug Plans or stand-alone Prescription
Drug Plans offered by the Regulated Subsidiaries.
“Management Sub” means Managed Care Services, LLC, a Delaware limited liability company.
“Material Contract” has the meaning set forth in Section 3.12(c).
“Material Producers” has the meaning set forth in Section 3.25(d).
“Material Health Care Providers” has the meaning set forth in Section 3.25(e).
“Material Target IP Rights” has the meaning set forth in Section 3.10(a)(iii).
“Medicare Program Laws” means the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 and the Medicare Improvements for Patients and Providers Act of 2008, as each has been
amended, modified, revised or replaced as well as any final rules and final regulations adopted
pursuant to such Acts and any written directives, instructions, guidelines, bulletins, manuals,
requirements, policies and standards issued by CMS.
“Member(s)” means any individual who is properly enrolled in a MA Plan offered by Regulated
Subsidiaries.
“Merger” has the meaning set forth in Recital A.
“Merger Sub” has the meaning set forth in the introductory paragraph.
“Minimum Statutory Capital” means 150% of the aggregate “company action level” (based on the
formulas required by the National Association of Insurance Commissioners (“NAIC”) as in effect as
of the date of this Agreement) with respect to the risk based capital requirements of the Regulated
Subsidiaries estimated and determined as of the Closing Date, determined in accordance with
Statutory Accounting Principles and based upon the Statutory Balance Sheet.
“NCQA” means the National Committee for Quality Assurance.
“Order” means any award, decision, injunction, judgment, order, writ, decree, ruling, subpoena
or verdict entered, issued, made or rendered by any court or other Governmental Entity or by any
arbitrator.
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“Parent Balance Sheet” means the balance sheet of Target, excluding any Subsidiaries, as of
and for the period ending on the Closing Date prepared in accordance with GAAP.
“Participation Proceeds Amount” means the sum of (i) the Aggregate Closing Merger
Consideration, minus (ii) the Liquidation Preference Amount.
“Per Share Pro Rata Portion” means, with respect to each share of Target Capital Stock held,
or issuable upon exercise of Unexercised Options held, by a Former Stakeholder, the fraction having
a numerator equal to the sum of (i) the gross proceeds payable from the Aggregate Closing Merger
Consideration with respect to such share of Target Capital Stock or Unexercised Options (as
applicable), plus (ii) the Exercise Price associated with any Unexercised Option for such share as
of the Effective Time (if applicable), minus (iii) the portion of the Liquidation Preference
Amount, if any, payable to such Former Stakeholder with respect to such share of Target Capital
Stock (if applicable), and having a denominator equal to the Participation Proceeds Amount.
“Per Share Pro Rata Escrow Amount” means, with respect to each share of Target Capital Stock
held, or issuable upon exercise of Unexercised Options held, by a Former Stakeholder, an amount
equal to the product of (i) the Per Share Pro Rata Portion attributable to such share and (ii) an
amount equal to the Escrow Fund, minus the Transaction Bonus Escrow Amount.
“Party” means Target, on the one hand, and Acquiror and Merger Sub, on the other hand (each
individually a “Party”).
“Patent Rights” has the meaning set forth in Section 3.10(a)(iv).
“Per Common Share Consideration” means (i) the sum of (A) the Aggregate Closing Merger
Consideration, minus (B) the Liquidation Preference Amount, divided by (ii) the sum of (A) the
aggregate number of shares of Target Capital Stock outstanding immediately prior to the Effective
Time on an as converted basis, plus (B) the aggregate number of shares of Target Capital Stock
subject to Unexercised Options.
“Per Common Share Price” has the meaning set forth in Section 2.6(a).
“Per Preferred Share Price” means the Per Series A Preferred Share Price, Per Series B
Preferred Share Price, Per Series C Preferred Share Price, Per Series D Preferred Share Price, Per
Series E Preferred Share Price, Per Series F Preferred Share Price, Per Series G Preferred Share
Price, or Per Series H Preferred Share Price, as applicable.
“Per Series A Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series A Preferred Convertible
Preferred Stock can then be converted, plus (ii) the Per Series A Preferred Share Liquidation
Preference Amount.
“Per Series A Preferred Share Liquidation Preference Amount” means $0.363685.
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“Per Series A Preferred Share Price” has the meaning set forth in Section 2.6(b).
“Per Series B Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series B Preferred Convertible
Preferred Stock can then be converted, plus (ii) the Per Series B Preferred Share Liquidation
Preference Amount.
“Per Series B Preferred Share Liquidation Preference Amount” means $1.043331.
“Per Series B Preferred Share Price” has the meaning set forth in Section 2.6(c).
“Per Series C Preferred Share Consideration” means the Per Series C Preferred Share
Liquidation Preference Amount.
“Per Series C Preferred Share Liquidation Preference Amount” means $2.55.
“Per Series C Preferred Share Price” has the meaning set forth in Section 2.6(d).
“Per Series D Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series D Preferred Convertible
Preferred Stock can then be converted, plus (ii) the Per Series D Preferred Share Liquidation
Preference Amount.
“Per Series D Preferred Share Liquidation Preference Amount” means $6.06.
“Per Series D Preferred Share Price” has the meaning set forth in Section 2.6(e).
“Per Series E Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series E Preferred Convertible
Preferred Stock can then be converted, plus (ii) the Per Series E Preferred Share Liquidation
Preference Amount.
“Per Series E Preferred Share Liquidation Preference Amount” means $1.744407.
“Per Series E Preferred Share Price” has the meaning set forth in Section 2.6(f).
“Per Series F Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series F Preferred Convertible
Preferred Stock can then be converted, plus (ii) the Per Series F Preferred Share Liquidation
Preference Amount.
“Per Series F Preferred Share Liquidation Preference Amount” means $0.897029.
“Per Series F Preferred Share Price” has the meaning set forth in Section 2.6(g).
“Per Series G Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series G
Preferred Convertible Preferred Stock can then be converted, plus (ii) the Per Series G
Preferred Share Liquidation Preference Amount.
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“Per Series G Preferred Share Liquidation Preference Amount” means $1.107074.
“Per Series G Preferred Share Price” has the meaning set forth in Section 2.6(h).
“Per Series H Preferred Share Consideration” means (i) the Per Common Share Consideration
times the number of shares of Common Stock into which one share of Series H Preferred Convertible
Preferred Stock can then be converted, plus (ii) the Per Series H Preferred Share Liquidation
Preference Amount.
“Per Series H Preferred Share Liquidation Preference Amount” means $1.65.
“Per Series H Preferred Share Price” has the meaning set forth in Section 2.6(i).
“Per Share Price” means the Per Common Share Price or the Per Preferred Share Price, as
applicable.
“Permitted Defense Assumption Refusal” has the meaning set forth in Section 9.2(d)(i).
“Permitted Encumbrances” has the meaning set forth in Section 3.13.
“person” has the meaning set forth in Section 10.2(d).
“PPO” means a Preferred Provider Organization.
“Practice Entity” means Bravo Health Advanced Care Center, P.C., a Pennsylvania professional
corporation owned by Xxxx Xxxxxxx, M.D., a Pennsylvania licensed physician and Bravo Health
Advanced Care Center, P.C. a Maryland professional corporation owned by Xxxx Xxxxxxx, M.D., a
Maryland licensed physician.
“Pre-Closing Period” has the meaning set forth in Section 5.1.
“Pro Rata Portion” means, with respect to any Former Stakeholder, the fraction having a
numerator equal to the sum of (i) the gross proceeds payable from the Aggregate Closing Merger
Consideration with respect to all shares of Target Capital Stock held by such Former Stakeholder or
issuable upon exercise of Target Options held by such Former Stakeholder, plus (ii) the aggregate
Exercise Price associated with any Unexercised Options held by such Former Stakeholder as of the
Effective Time, plus (iii) the amount of any Transaction Bonus payable to such Former Stakeholder,
minus (iv) the portion of the Liquidation Preference Amount, if any, payable to such Former
Stakeholder, and having a denominator equal to the sum of (i) the Aggregate Closing Merger
Consideration, plus (ii) the aggregate amount of all Transaction Bonuses payable to the Former
Stakeholders, minus (iii) the Liquidation Preference Amount.
“Producer” means any sales agent, consultant, solicitor, producer or agency thereof who or
which arranges, on behalf of Regulated Subsidiaries, for the sales of or enrollment into MA Plans
offered by Regulated Subsidiaries.
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“Program” means Medicare, Medicaid or any other state or federal health care programs.
“Providers” means any all physicians, physician or medical groups, IPAs, PPOs, exclusive
provider organizations, specialist physicians, dentists, optometrists, audiologists, pharmacies and
pharmacists, radiologists or radiology centers, laboratories, mental health professionals,
chiropractors, physical therapists, any hospitals, skilled nursing facilities, extended care
facilities, other health care or services facilities, durable medical equipment suppliers,
opticians, home health agencies, alcoholism or drug abuse centers and any other specialty,
ancillary or allied medical, health or wellness professional or facility.
“Real Estate” has the meaning set forth in Section 3.14(b).
“Regulated Subsidiar(y)ies” individually, means any of BHIC, BHMA, BHPA or BHTX and,
collectively, means two or more of BHIC, BHMA, BHPA or BHTX.
“Related Persons” has the meaning set forth in Section 8.3.
“Representatives” means, with respect to any person, such person’s directors, officers,
employees, agents and representatives, including any investment banker, financial advisor, lender,
attorney, accountant or other advisor, agent, representative or controlled affiliate.
“Required Stockholder Vote” has the meaning set forth in Section 3.2.
“Returns” has the meaning set forth in Section 3.15(b).
“Review Period” has the meaning set forth in Section 2.13(b)(i).
“Securities Act” means the United States Securities Act of 1933, as amended.
“Series A Preferred Liquidation Preference Amount” means (A) the Per Series A Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series A Convertible Preferred
Stock (excluding any Dissenting Shares of Series A Convertible Preferred Stock).
“Series B Preferred Liquidation Preference Amount” means (A) the Per Series B Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series B Convertible Preferred
Stock (excluding any Dissenting Shares of Series B Convertible Preferred Stock).
“Series C Preferred Liquidation Preference Amount” means (A) the Per Series C Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series C Redeemable Preferred
Stock (excluding any Dissenting Shares of Series C Redeemable Preferred Stock).
“Series D Preferred Liquidation Preference Amount” means (A) the Per Series D Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series D Convertible Preferred
Stock (excluding any Dissenting Shares of Series D Convertible Preferred Stock).
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“Series E Preferred Liquidation Preference Amount” means (A) the Per Series E Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series E Convertible Preferred
Stock (excluding any Dissenting Shares of Series E Convertible Preferred Stock).
“Series F Preferred Liquidation Preference Amount” means (A) the Per Series F Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series F Convertible Preferred
Stock (excluding any Dissenting Shares of Series F Convertible Preferred Stock).
“Series G Preferred Liquidation Preference Amount” means (A) the Per Series G Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series G Convertible Preferred
Stock (excluding any Dissenting Shares of Series G Convertible Preferred Stock).
“Series H Preferred Liquidation Preference Amount” means (A) the Per Series H Preferred Share
Liquidation Preference Amount multiplied by (B) the total number of Series H Convertible Preferred
Stock (excluding any Dissenting Shares of Series H Convertible Preferred Stock).
“Specified Accounting Principles” means GAAP applied on a basis consistent with the basis on
which the Target Financial Statements have been historically prepared.
“Specified Transactional Expenses” means the following expenses, to the extent incurred or
accrued but not paid by Target (whether or not Target has been invoiced for such expenses) at or
prior to the Closing in connection with the transactions contemplated hereby: (i) expenses payable
by Target to its outside professional legal, financial, accounting and other advisors (including
UBS) for services performed by them with respect to the Merger and the negotiation of this
Agreement, but expressly excluding expenses payable for any services rendered in connection with
the fulfillment of the Stakeholders’ Agent’s obligations under this Agreement, (ii) the Transaction
Bonuses (whether paid by Target, Acquiror or otherwise), and (iii) any severance or termination
payments payable by Target to employees of Target who are terminated in connection with the
consummation of the transactions contemplated by this Agreement, as described in Section 5.3 of
this Agreement, provided that the aggregate amount of severance and termination payments as
described in subsection (iii) above that are included in the calculation of the Specified
Transactional Expenses shall not exceed Five Million Dollars ($5,000,000).
“Stakeholders’ Agent” has the meaning set forth in the introductory paragraph.
“Stakeholders’ Agent Escrow Amount” has the meaning set forth in Section 9.1(a).
“Statutory Accounting Principles” means Codified National Association of Insurance
Commissioners’ Statements of Statutory Accounting Principles (NAIC SAP), subject to any deviations
prescribed or permitted by the applicable state insurance commissioner.
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“Statutory Balance Sheet” means the consolidated balance sheet of the Regulated Subsidiaries
as of and for the period ending on the Closing Date prepared in accordance with Statutory
Accounting Principles.
“Statutory Financial Statements” has the meaning set forth in Section 3.4(b).
“Subsidiary” has the meaning set forth in Section 10.2(c).
“Surviving Corporation” has the meaning set forth in Section 2.1.
“Target” has the meaning set forth in the introductory paragraph.
“Target 401(k) Plan” has the meaning set forth in section 6.11.
“Target Balance Sheet” has the meaning set forth in Section 3.4(a).
“Target Business” has the meaning set forth in Section 3.1.
“Target Capital Stock” means all Target Preferred Stock and Target Common Stock.
“Target Closing Certificate” has the meaning set forth in Section 7.2(c).
“Target Common Stock” means Target’s common stock (par value $0.01 per share).
“Target Current Liabilities” means an amount equal to the sum of (i) the aggregate dollar
amount of all liabilities properly characterized as current liabilities of Target (not including
its Subsidiaries) as of the Closing Date (including any bonus payments accrued as of the Closing
Date to employees of Target in accordance with Target’s existing bonus plan(s)) as reflected on the
Parent Balance Sheet, minus (ii) any such liabilities that also constitute Indebtedness or
Specified Transactional Expenses as defined in this Agreement to the extent included in (i) and,
minus (iii) any deferred taxes to the extent included in (i); provided, however, that in no event
will any accounting adjustments made by Acquiror resulting from the Merger, including Acquiror’s
fair-value determination of Target’s and its Subsidiaries’ assets and liabilities at Closing, be
included for purposes of this calculation.
“Target Disclosure Schedule” has the meaning set forth in Section 3.
“Target Employee Plans” has the meaning set forth in Section 3.16(a).
“Target Financial Statements” has the meaning set forth in Section 3.4(a).
“Target IP Rights” has the meaning set forth in Section 3.10(a)(v).
“Target Material Adverse Effect” has the meaning set forth in Section 10.2(a).
“Target Option Consideration” has the meaning set forth in Section 2.7(a).
“Target Option Plans” has the meaning set forth in Section 2.7(a).
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“Target Option” has the meaning set forth in Section 2.7(a).
“Target Preferred Stock” means all outstanding shares of Target’s Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Redeemable Preferred Stock, Series
D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series F Convertible Preferred
Stock, Series G Convertible Preferred Stock, and Series H Convertible Preferred Stock (each with
par value $0.01 per share).
“Target Statutory Liabilities” means an amount equal to the aggregate dollar amount of all
liabilities of the Regulated Subsidiaries as of the Closing Date and based upon the Statutory
Balance Sheet; provided, however, that in no event will any accounting adjustments made by Acquiror
resulting from the Merger, including Acquiror’s fair-value determination of Target’s and its
Subsidiaries’ assets and liabilities at Closing, be included for purposes of this calculation.
“Taxes” has the meaning set forth in Section 3.15(a).
“Termination Fee” has the meaning set forth in Section 8.3.
“Three Year Escrow Amount” has the meaning set forth in Section 9.1(b).
“Trademark Rights” has the meaning set forth in Section 3.10(a)(vi).
“Transaction Bonus Escrow Amount” means the product of (i) the aggregate amount of all
Transaction Bonuses payable to the Former Stakeholders divided by the Common Equivalent Proceeds
Amount and (ii) the Escrow Fund.
“Transaction Bonus Pro Rata Escrow Amount” for a Former Stakeholder who is a recipient of a
Transaction Bonus means the product of (i) the gross amount of the Transaction Bonus payable to
such Former Stakeholder divided by the aggregate gross amount of all Transaction Bonuses payable to
the Former Stakeholders and (ii) the Transaction Bonus Escrow Amount.
“Transaction Bonuses” has the meaning set forth in Section 6.12.
“UBS” has the meaning set forth in Section 3.20.
“Unexercised Option” has the meaning set forth in Section 2.7(a).
“Voting Agreement” has the meaning set forth in Recital D.
2. The Merger.
2.1 The Merger. At the Effective Time and upon the terms and subject to the
conditions set forth in this Agreement, in the Certificate of Merger filed pursuant to Section 2.2
and in the applicable provisions of the Delaware General Corporation Law (the “DGCL”), Merger Sub
will be merged with and into Target, the separate corporate existence of Merger Sub will cease, and
Target will continue as the surviving corporation in the Merger (the “Surviving Corporation”).
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2.2 Closing; Effective Time. The consummation of the Merger (the “Closing”) will take
place on the last business day of the first calendar month in which all of the conditions set forth
in Section 7 have been satisfied (other than those conditions that by their nature are to be
satisfied at the Closing), or at such other time as the Parties to this Agreement agree (the actual
date on which the Closing takes place, the “Closing Date”). The Parties shall use their
commercially reasonable efforts to consummate the Merger on or before December 31, 2010, including
without limitation the prompt taking of all actions referred to in Section 6.3. The Closing will
take place at the offices of Bass, Xxxxx & Xxxx PLC, 000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxxxx,
Xxxxxxxxx 00000, or at such other location as the Parties to this Agreement agree. In connection
with the Closing, Target will cause the Merger to be made effective by filing a Certificate of
Merger with the Secretary of State of the State of Delaware in accordance with the relevant
provisions of the DGCL (the time of such filing or such later time which Acquiror and Target will
have agreed upon and designated in such filing in accordance with applicable Law being the
“Effective Time”). In the event the Closing Date as determined pursuant to this Section 2.2 would
be December 31, 2010, Target may, by written notice to Acquiror not later than December 10, 2010,
elect to consummate the Merger on December 30, 2010 rather than December 31, 2010 (a “Closing
Election”). In the event Target makes a Closing Election, the Parties shall use their commercially
reasonable efforts to consummate the Merger on December 30, 2010 (subject to the satisfaction or
waiver of the conditions set forth in Section 7) provided that Target shall pay and reimburse
Acquiror for all additional fees, costs, expenses and liabilities incurred by Acquiror (including,
without limitation, additional interest expense and other fees and expenses payable in connection
with the Financing) as a result of consummating the Merger on December 30, 2010 rather than
December 31, 2010.
2.3 Effect of the Merger. At the Effective Time, the effect of the Merger will be as
provided in this Agreement, the Certificate of Merger filed pursuant to Section 2.2 and the
applicable provisions of the DGCL.
2.4 Certificate of Incorporation; Bylaws. Unless otherwise agreed to by Acquiror and
Target prior to the Closing, at the Effective Time:
(a) the certificate of incorporation of Target will be amended such that the certificate of
incorporation of Merger Sub, as in effect immediately prior to the Effective Time, will be the
certificate of incorporation of the Surviving Corporation, until thereafter amended as provided by
the DGCL and such certificate of incorporation; provided, however, that Article I of the
certificate of incorporation of the Surviving Corporation will be changed to read as follows: “The
name of the corporation is Bravo Health, Inc.”; and
(b) the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, will be
the bylaws of the Surviving Corporation until thereafter amended as provided by the DGCL, the
certificate of incorporation of the Surviving Corporation or such bylaws.
2.5 Directors and Officers. At the Effective Time, the directors and officers of
Merger Sub immediately prior to the Effective Time will be the directors and officers of the
Surviving Corporation, to serve until their respective successors are duly elected or appointed and
qualified.
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2.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and
without any further action on the part of Acquiror, Merger Sub, Target or the holders of any of the
following securities:
(a) each share of Target Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive (without interest) an amount of cash
(the “Per Common Share Price”) equal to the Per Common Share Consideration;
(b) each share of Target’s Series A Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series A Preferred Share Price”) equal to the Per Series A
Preferred Share Consideration;
(c) each share of Target’s Series B Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series B Preferred Share Price”) equal to the Per Series B
Preferred Share Consideration;
(d) each share of Target’s Series C Redeemable Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series C Preferred Share Price”) equal to the Per Series C
Preferred Share Consideration;
(e) each share of Target’s Series D Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series D Preferred Share Price”) equal to the Per Series D
Preferred Share Consideration;
(f) each share of Target’s Series E Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series E Preferred Share Price”) equal to the Per Series E
Preferred Share Consideration;
(g) each share of Target’s Series F Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series F Preferred Share Price”) equal to the Per Series F
Preferred Share Consideration;
(h) each share of Target’s Series G Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive (without
interest) an amount of cash (the “Per Series G Preferred Share Price”) equal to the Per Series G
Preferred Share Consideration;
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(i) each share of Target’s Series H Convertible Preferred Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive (without interest) an amount of cash (the “Per Series H Preferred Share Price”) equal
to the Per Series H Preferred Share Consideration; and
(j) each share of common stock of Merger Sub issued and outstanding immediately prior to the
Effective Time will be converted into one share of common stock of the Surviving Corporation.
2.7 Target Stock Options.
(a) At least five (5) days prior to the Effective Time and subject to the Merger becoming
effective, Target will give each person with a right to exercise an outstanding option to purchase
shares of Common Stock (a “Target Option”) granted under Target’s 1995 Stock Option Plan or
Target’s Amended and Restated 2004 Stock Incentive Plan (the “Target Option Plans”) a notice of the
Merger, and will permit the Target Options that are vested (including any vesting that is
accelerated conditional upon the Closing) to be exercised contingent upon Closing. Immediately
prior to the Effective Time, and by operation of the provisions of this Agreement, each outstanding
Target Option or any portion thereof that remains outstanding and for which Target has not received
a duly executed notice of exercise and tender of the exercise or strike price therefor (whether or
not conditioned on the Closing) on or prior to the date that is two (2) Business Days prior to the
Closing, will be canceled, extinguished and converted into the right to receive in exchange for
each share of Target Common Stock issuable upon exercise of such Target Option, at the Effective
Time, on behalf of the named holder of such Target Option (each such Target Option being a
“Unexercised Option” and such amount in respect of a Target Option being the “Target Option
Consideration”):
(i) an amount in cash equal to the Per Common Share Consideration, without interest; minus
(ii) the Exercise Price.
Thereafter, without impairing the rights of the former Target Option holder to receive payments of
the Per Common Share Consideration to the extent set forth herein, such former Target Option holder
will, as of the Effective Time, cease to have any further right or entitlement to acquire any
Target Common Stock or any shares of Target Capital Stock or the Surviving Corporation under the
cancelled Target Option.
(b) Except as provided in this Agreement or as otherwise agreed by Acquiror and Target, the
Target Option Plans and any other plan, program or arrangement providing for the issuance or grant
of any other interest in respect of the capital stock of Target will terminate as of the Effective
Time.
(c) The Board of Directors (or, if appropriate, the committee administering the Target Option
Plans) of Target has adopted such resolutions and taken such actions as are necessary to carry out
the terms of this Section 2.7.
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2.8 Surrender of Certificates.
(a) No Further Rights as Target Stockholders. At the Effective Time, all shares of
Target Capital Stock outstanding immediately prior to the Effective Time (other than Dissenting
Shares) will automatically be cancelled and retired and will cease to exist, and no holder of
record of a certificate that immediately prior to the Effective Time represented outstanding shares
of Target Capital Stock (a “Certificate”) will have any rights as a stockholder of Target.
(b) Exchange Agent. At or prior to the Closing, Acquiror will enter into an Exchange
Agent Agreement in substantially the form attached hereto as Exhibit B with such further revisions
as may be reasonably necessary to conform such agreement to this Agreement (the “Exchange Agent
Agreement”) with a mutually acceptable exchange agent (“Exchange Agent”), which will provide that
Acquiror will deliver on the Closing Date to the Exchange Agent cash in the amount equal to (i) the
Aggregate Closing Merger Consideration, minus (ii) the aggregate Exercise Prices of all Unexercised
Options, minus (iii) the Stakeholders’ Agent Escrow Amount, minus (iv) the Indemnity Escrow Amount.
On or prior to the Closing Date, Acquiror will deliver such amount to the Exchange Agent.
(c) Exchange Procedures. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a letter of transmittal in the form attached to this Agreement as
Exhibit C with such further revisions as may be reasonably necessary to conform such agreement to
this Agreement (the “Letter of Transmittal”), duly completed and validly executed in accordance
with the instructions to the Letter of Transmittal, (i) the holder of such Certificate will be
entitled to receive in exchange therefor a cash amount equal to the product of (A) the applicable
Per Share Price minus the applicable Per Share Pro Rata Escrow Amount and (B) the number of shares
of Target Capital Stock represented by such Certificate, and (ii) the Certificate so surrendered
will forthwith be canceled. Exchange Agent will, pursuant to the terms of the Exchange Agent
Agreement, cause the payment described in the preceding sentence to be made to the holder of such
Certificate by check or wire transfer (as indicated in the Exchange Agent Agreement) of immediately
available funds to the account designated by such holder in the Letter of Transmittal delivered
with such Certificate. Until so surrendered, each outstanding Certificate that prior to the
Effective Time represented shares of Target Common Stock (other than Dissenting Shares) will be
deemed from and after the Effective Time, for all purposes, to evidence the right to receive the
Per Share Price for each of such shares (subject to the provisions of this Agreement relating to
the Escrow Fund). If, after the Effective Time, any Certificate is presented to Exchange Agent, it
will be cancelled and exchanged as provided in this Section 2.8. Notwithstanding the foregoing, if
any Certificate will not have been issued with respect to any Target Option exercised after the
date of this Agreement and prior to the Effective Time, the former holder of such Target Option
will not be required to deliver a Certificate with respect to such shares, provided he or she has
submitted a Letter of Transmittal to the Exchange Agent.
(d) Transfers of Ownership. At the Effective Time, the stock transfer books of Target
will be closed, and there will thereafter be no further registration of transfers of shares of
Target Capital Stock outstanding immediately prior to the Effective Time on the records of Target.
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(e) Escrow Agent. At or prior to the Closing, Acquiror and Stakeholders’ Agent will
enter into the Escrow Agreement in substantially the form attached hereto as Exhibit D with U.S.
Bank National Association (“Escrow Agent”), which will provide that Acquiror will deliver on the
Closing Date to the Escrow Agent cash in the amount equal to (i) the Stakeholders’ Agent Escrow
Amount, plus (ii) the Indemnity Escrow Amount. On the Closing Date, Acquiror will deliver such
amount to the Escrow Agent.
(f) Indebtedness. On the Closing Date, Acquiror will deliver to the holders of any
Indebtedness of Target specified by Target cash in an amount equal to the amounts of Indebtedness
outstanding to each such party as reflected in a payoff letter in customary form provided by such
party.
2.9 Lost, Stolen or Destroyed Certificates. In the event any Certificate will have
been lost, stolen or destroyed, Exchange Agent will pay to the record holder of such Certificate
the consideration into which the shares of Target Common Stock formerly represented by such
Certificate have been converted pursuant to Section 2.6, upon the making of an affidavit of that
fact by such record holder and the delivery by such record holder of an agreement to indemnify the
Exchange Agent, Acquiror and the Surviving Corporation against any claim that may be made with
respect to such Certificate.
2.10 Withholding Rights.
(a) Exchange Agent shall deduct and withhold from the consideration otherwise payable pursuant
to Section 2.6 or 2.7(a) to any Former Stakeholder such amounts, if any, as Exchange Agent (or the
Surviving Corporation or Acquiror) is required to deduct and withhold with respect to the payment
of such consideration under the Internal Revenue Code of 1986, as amended (the “Code”), and the
rules and regulations promulgated thereunder, or under any provision of any other Tax Law. For
administrative convenience, Exchange Agent may tender payment with respect to any Target Common
Stock or Target Stock Options to Target’s payroll provider to be paid to the applicable holder net
of any applicable withholding.
(b) To the extent that amounts are properly withheld from the consideration otherwise payable
pursuant to Section 2.6 of 2.7(a) to any Former Stakeholder as provided in this Section 2.10, such
withheld amounts will be treated for all purposes of this Agreement as having been paid to such
Former Stakeholder.
2.11 Appraisal Rights.
(a) As soon as practicable following the execution of this Agreement, Target shall take all
steps necessary to comply with Section 262 of the DGCL. All notices delivered to the shareholders
of Target relating to Section 262 of the DGCL shall be subject to the prior review and approval of
Acquiror, which approval shall not be unreasonably delayed. Notwithstanding anything to the
contrary contained in this Agreement, any share of Target Common Stock or Target Preferred Stock
that, as of the Effective Time, is held by a holder who has, as of the Effective Time, preserved
appraisal rights under Section 262 of the DGCL with respect to such share (“Dissenting Shares”)
will not be converted into or represent the right to receive Merger consideration, and the holder
of such share will be entitled only to such rights as
may be granted to such holder pursuant to Section 262 of the DGCL; provided, however, that if
such appraisal rights will not be perfected or the holder of such share will otherwise lose such
holder’s appraisal rights with respect to such share, then, as of the later of the Effective Time
or the time of the failure to perfect such status or the loss of such rights, such share will cease
to constitute Dissenting Shares and will automatically be converted into and will represent only
the right to receive (upon the surrender of the certificate or certificates representing such
shares or the completion of the process described in Section 2.9) the Merger consideration, without
interest.
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(b) Target will give Acquiror (i) prompt notice of any written demand received by Target prior
to the Effective Time to require Target to purchase shares of Target Common Stock or Target
Preferred Stock pursuant to Section 262 of the DGCL and of any other demand, notice or instrument
delivered to Target prior to the Effective Time pursuant to the DGCL, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such demand, notice or
instrument. Target will not make any payment or settlement offer prior to the Effective Time with
respect to any such demand unless Acquiror will have consented in writing to such payment or
settlement offer, which consent will not be unreasonably withheld, conditioned or delayed.
2.12 Taking of Further Action. If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Target and Merger Sub, from and after the Effective Time
Acquiror and the Surviving Corporation are fully authorized in their respective names to take, and
will take, all such lawful and necessary or desirable action, so long as such action is not
inconsistent with this Agreement.
2.13 Closing Adjustment.
(a) Following the Closing and on or before May 15, 2011, Acquiror shall cause to be prepared
(i) audited consolidated financial statements of Target and its Subsidiaries as of December 31,
2010 in accordance with GAAP (the “Audited GAAP Financial Statements”) and (ii) audited statutory
financial statements of the Regulated Subsidiaries as of December 31, 2010, in accordance with
Statutory Accounting Principles (the “Audited Statutory Financial Statements”). Ernst & Young
shall audit the Audited GAAP Financial Statements and the Audited Statutory Financial Statements.
Within 15 days following the receipt by Acquiror of the final Statutory Financial Statements,
Acquiror shall deliver to the Stakeholders’ Agent (i) the Audited GAAP Financial Statements, (ii)
the Audited Statutory Financial Statements, (iii) the Consolidated Balance Sheet, (iv) the Parent
Balance Sheet, (v) the Statutory Balance Sheet, and (vi) Acquiror’s determination of (A) the
Adjusted Consolidated Current Assets, (B) the Minimum Statutory Capital, (C) the Target Current
Liabilities, (D) the Target Statutory Liabilities and (E) the Closing Adjustment. In the event
that the Final Closing Adjustment (as defined below) is a positive number, Acquiror shall pay the
amount of the Closing Adjustment to the Stakeholders’ Agent (or as directed by the Stakeholders’
Agent) in cash via wire transfer of immediately available funds within five (5) Business Days of
the final determination of the Closing Adjustment; provided, that in no event shall any positive
Closing Adjustment be greater than Ten Million Dollars ($10,000,000). In the event the Final
Closing
Adjustment is a negative number, then Acquiror will be entitled to withdraw such amount from
the Escrow Fund in accordance with the provisions of the Escrow Agreement.
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(b) Access; Review; Disputes.
(i) If the Stakeholders’ Agent disputes Acquiror’s determination of the Closing Adjustment,
then, during the 60-day period commencing upon delivery to the Stakeholders’ Agent of Acquiror’s
determination of the Closing Adjustment (the “Review Period”), the Stakeholders’ Agent will deliver
a written notice setting forth the bases for the Stakeholders’ Agent’ dispute of such calculation
(a “Dispute Notice”) to Acquiror and the Escrow Agent.
(ii) If Acquiror does not receive a Dispute Notice from the Stakeholders’ Agent prior to the
expiration of the Review Period, then the calculation of the Closing Adjustment determined by
Acquiror will be deemed final and binding on Acquiror, the Stakeholders’ Agent and the Former
Stakeholders for all purposes and will be deemed to be the “Final Closing Adjustment.”
(iii) If Acquiror receives a Dispute Notice from the Stakeholders’ Agent prior to the
expiration of the Review Period, then the Stakeholders’ Agent and Acquiror will use commercially
reasonable efforts to reach agreement on the Closing Adjustment. If the Stakeholders’ Agent and
Acquiror are unable to reach agreement on the Closing Adjustment within twenty (20) days after the
end of the Review Period, either Party will have the right to refer such dispute to the Bethesda,
Maryland, office of BDO (such firm, or any successor to such firm, the “Designated Accounting
Firm”). In connection with the resolution of any such dispute by the Designated Accounting Firm:
(i) each of Acquiror and the Stakeholders’ Agent will have a reasonable opportunity to meet with
the Designated Accounting Firm to provide its views as to any disputed issues with respect to the
calculation of the Closing Adjustment; (ii) the Designated Accounting Firm will determine the
Closing Adjustment within thirty (30) days of the referral of such dispute to the Designated
Accounting Firm; (iii) upon making its final determination of the Closing Adjustment, the
Designated Accounting Firm will deliver a copy of its calculations (the “Expert Calculations”) to
the Stakeholders’ Agent and Acquiror; and (iv) the determination of the Closing Adjustment made by
the Designated Accounting Firm will be final and binding on Acquiror, the Stakeholders’ Agent and
the Former Stakeholders for all purposes and will be deemed to be the Final Closing Adjustment.
The Expert Calculations will reflect and explain in detail the differences, if any, between the
Final Closing Adjustment reflected therein and the Closing Adjustment as initially determined by
Acquiror.
(iv) The fees and expenses of the Designated Accounting Firm will be borne equally by Acquiror
and the Former Stakeholders. All such fees and expenses payable by the Former Stakeholders
(including any portion of the fees and expenses of the Designated Accounting Firm borne by the
Stakeholders’ Agent on behalf of the Former Stakeholders) will be reimbursable to or payable by the
Stakeholders’ Agent (solely on behalf of the Former Stakeholders and in its capacity as the
Stakeholders’ Agent, not in its individual capacity) directly from the Stakeholders’ Agent Escrow
Amount of the Escrow Fund.
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(v) From and after the Effective Time, Acquiror will cause the Surviving Corporation (A) to
provide the Stakeholders’ Agent, and any accountants or advisors retained by the Stakeholders’
Agent, with reasonable access during normal business hours to the assets, books, records and work
papers of the Surviving Corporation relating to the determination of the Closing Adjustment and to
personnel of the Surviving Corporation and the Subsidiaries and (B) to reasonably cooperate (at
the Surviving Corporation’s expense), and cause the personnel and outside accountants of the
Surviving Corporation and the Subsidiaries to reasonably cooperate (at the Surviving Corporation’s
expense), with the Stakeholders’ Agent and any accountants or advisors retained by the
Stakeholders’ Agent, in connection with any proceedings involving the Designated Accounting Firm as
described in clause “(c)” above.
2.14 Specified Transactional Expenses. At least five (5) days prior to the Closing
Date, Target will deliver to Acquiror a notice setting forth the amount of each of the unpaid
Specified Transactional Expenses required to be paid by Target as of the Closing. Acquiror will be
entitled to reduce the Aggregate Closing Merger Consideration by the amount of unpaid Specified
Transactional Expenses set forth in such notice as described in Section 1.1 of this Agreement, and
such amounts will be paid at the Closing by Acquiror directly to the parties listed on such notice.
With respect to any such Specified Transactional Expense that is a Transaction Bonus, such amount
shall be paid net of the amounts that Target is required to withhold with respect to the payment of
such compensation under the Code and the rules and regulations promulgated thereunder, or under any
provision of any other Tax Law and shall be paid net of the Transaction Bonus Pro Rata Escrow
Amount applicable to such Transaction Bonus.
3. Representations and Warranties of Target. Target represents and warrants to Merger
Sub and Acquiror that, except as disclosed in a disclosure schedule dated as of this date delivered
by Target to Acquiror and complying with the provisions of Section 10.3 (the “Target Disclosure
Schedule”):
3.1 Organization, Standing and Power. Target and each of its Subsidiaries is a
corporation or limited liability company duly organized, validly existing and in good standing, if
applicable, under the Laws of the jurisdiction of its incorporation or formation. Target and its
Subsidiaries have the corporate or limited liability company power and authority to own or use
their properties and assets and to carry on their business (collectively, the “Target Business”).
Target and each of its Subsidiaries is duly qualified to do business, and is in good standing (if
such concept is applicable in the relevant jurisdiction), in each jurisdiction where the operation
of the Target Business by Target and/or such Subsidiaries requires such qualification. Target has
delivered, or made available for review in a data room, to Acquiror or its advisors true and
correct copies of the respective certificate of incorporation and bylaws or other equivalent
organizational documents, as applicable, of Target and each of its Subsidiaries, each as in effect
as of the date of this Agreement. Neither Target nor any of its Subsidiaries is in violation of
any of the provisions of its certificate of incorporation or bylaws or equivalent organizational
documents. Target has no Subsidiaries other than those listed on Section 3.1 of the Target
Disclosure Schedule and Target does not directly or indirectly own any equity or similar interest
in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest
in, any corporation, partnership, joint venture or other business association or entity.
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3.2 Authority. Target has all requisite corporate power and authority to enter into
this Agreement and each document required hereby to be executed and delivered by it at Closing, to
perform its obligations hereunder and thereunder, and to consummate the Merger and the other
transactions contemplated hereby. The affirmative vote or consent of the holders of a majority of
the voting shares of Target Common Stock and Target Preferred Stock, other than Series C Redeemable
Preferred Stock and Series D Convertible Preferred Stock, (voting together as a single class)
outstanding on the record date chosen for purposes of determining the stockholders of Target
entitled to vote on the approval of this Agreement is the only vote of the holders of any Target
Capital Stock necessary pursuant to the organizational documents of Target and its Subsidiaries and
any agreement among holders of Target Capital Stock to approve this Agreement and the transactions
contemplated hereunder (the “Required Stockholder Vote”). The Board of Directors of Target has
unanimously (a) adopted this Agreement and approved its execution and delivery and the consummation
of the Merger; and (b) determined and declared that the Merger is advisable and in the best
interests of the stockholders of Target and is on terms that are fair to such stockholders. This
Agreement has been duly executed and delivered by Target and, assuming this Agreement constitutes a
valid and binding obligation of the other Parties to this Agreement, this Agreement constitutes a
valid and binding obligation of Target, enforceable against Target in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar
Laws affecting or relating to creditors’ rights generally and general principles of equity,
regardless of whether asserted in a proceeding in equity or at Law. The execution and delivery of
this Agreement by Target does not constitute, and the consummation by Target and its Subsidiaries
of the transactions contemplated hereby will not result in, a termination, or breach or violation
by Target or Target’s stockholders, or a default by Target or Target’s stockholders under (with or
without notice or lapse of time, or both), (a) any provision of the certificate of incorporation or
bylaws of Target, as amended, (b) any Material Contract, or (c) any judgment, order, decree, or Law
applicable to Target and its Subsidiaries or any of its properties or assets, except in the case of
clauses (b) and (c) where such termination, breach, violation or default would not have a material
adverse effect on Acquiror or Target or such Subsidiary(ies), nor will such execution and delivery
by Target result in the imposition of any Encumbrance other than Permitted Encumbrances. No
material consent, approval, order or authorization of, or registration, declaration or filing with,
any court, administrative agency or commission or other governmental authority or instrumentality
(each, a “Governmental Entity”) is required to be obtained or made by Target or its Subsidiaries at
or prior to the Effective Time in order for Target to execute and deliver this Agreement or to
consummate the Merger and other transactions contemplated hereby, except for: (a) the filing of
Certificate of Merger as provided in Section 2.2; (b) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required to be obtained or made
by Target under applicable state securities Laws and the securities Laws of any foreign country and
as listed on Section 3.2 of the Target Disclosure Schedule; (c) such filings as may be required
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (“HSR”); and (d) such
filings as may be required under the applicable state or local insurance regulatory bodies in the
jurisdictions in which Target and its Subsidiaries conduct business.
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3.3 Governmental Authorizations. Target and its Subsidiaries have obtained each
federal, state, county, local or foreign governmental consent, license, permit, grant or other
authorization of a Governmental Entity that is required for the operation by Target and its
Subsidiaries of the Target Business, and all of such consents, licenses, permits, grants and
authorizations are in full force and effect, except to the extent any failure thereof would not
have a Target Material Adverse Effect. Notwithstanding the foregoing, the representations set
forth in this Section 3.3 will be deemed not to include any federal, state, county, local or
foreign governmental consent, license, permit, grant or other authorization of a Governmental
Entity that relates to any Regulatory Matter, which matters are the exclusive subject of Section
3.25.
3.4 Financial Statements; Internal Controls.
(a) Target has delivered to Acquiror or its advisors (a) the audited consolidated balance
sheets and statements of operations of Target as of and for the fiscal years ended December 31,
2008 and December 31, 2009, including in each case the notes thereto, and (b)(i) the unaudited
consolidated balance sheet of Target as of June 30, 2010 (the “Target Balance Sheet”) and (ii) the
unaudited consolidated statement of operations of Target for the six-month period ended June 30,
2010 ((a) and (b) collectively, the “Target Financial Statements”). The Target Financial
Statements have been prepared in accordance with GAAP (except as disclosed in the notes to the
Target Financial Statements and except that the unaudited Target Financial Statements do not
contain footnotes and are subject to normal recurring year-end audit adjustments (the effect of
which are not individually or in the aggregate expected to be material)) applied on a consistent
basis throughout the periods covered. The Target Financial Statements fairly present, in all
material respects and in accordance with GAAP, the consolidated financial condition of Target as of
the dates indicated in the Target Financial Statements and the consolidated operating results of
Target for the periods indicated in the Target Financial Statements, subject to normal recurring
year-end audit adjustments (the effect of which are not individually or in the aggregate expected
to be material) and the absence of footnotes in the case of the unaudited Target Financial
Statements.
(b) Target has also delivered to Acquiror copies of (i) the audited statutory financial
statements and schedules of each of the Regulated Subsidiaries as of December 31, 2008 and 2009 and
for the twelve-month periods then ended and (ii) the interim statutory financial statements of each
of the Regulated Subsidiaries as of June 30, 2010 and for the six-month period then ended (the
financial statements described in (i) and (ii) are collectively referred to herein as the
“Statutory Financial Statements”). Each of the Statutory Financial Statements has been prepared in
accordance with Statutory Accounting Principles, consistently applied without modification of the
accounting principles used in the preparation thereof throughout the periods presented except as
noted therein. No material deficiency has been asserted by any Governmental Entity with respect to
any of the Statutory Financial Statements filed by any of the Regulated Subsidiaries.
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(c) Target and its Subsidiaries have implemented and maintain a system of internal control
over financial reporting sufficient to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP, including,
without limitation, that (a) transactions are executed in accordance with management’s general or
specific authorizations, (b) transactions are recorded as necessary (1) to permit preparation of
financial statements in conformity with GAAP, and (2) to maintain accountability for assets, (c)
access to assets is permitted only in accordance with management’s general or specific
authorization, and (d) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with
respect to any significant differences. Since December 31, 2009, (I) there have not been any
changes in Target’s or its Subsidiaries’ internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, Target’s or any of its
Subsidiaries’ internal control over financial reporting; (II) any significant deficiencies and
material weaknesses in the design or operation of Target’s or any of its Subsidiaries’ internal
control over financial reporting which are reasonably likely to adversely affect Target’s or any of
its Subsidiaries’ ability to record, process, summarize and report financial information have been
disclosed to the outside auditors and the audit committee of Target, and (III) there has not been
any fraud, whether or not material, that involves management or other employees who have a
significant role in Target’s or any of its Subsidiaries’ internal control over financial reporting.
Target and its Subsidiaries have maintained financial books and records which are substantially
complete in all material respects and which reflect in all material respects the basis of their
respective financial condition and results of operations.
3.5 Capitalization; Shares and Stockholder Information.
(a) Capitalization. The authorized capital stock of Target consists of (i)
186,500,000 shares of Target Common Stock, of which there were issued and outstanding as of the
date of this Agreement, 14,066,917 shares, and (ii) 149,580,572 shares of Target Preferred Stock,
of which as of that same date (A) 503,750 were designated Series A Convertible Preferred Stock; (B)
6,898,104 were designated Series B Convertible Preferred Stock; (C) 1,185,295 were designated
Series C Redeemable Preferred Stock; (D) 247,525 were designated Series D Convertible Preferred
Stock; (E) 4,919,183 were designated Series E Convertible Preferred Stock; (F) 32,904,409 were
designated Series F Convertible Preferred Stock; (G) 47,422,306 were designated Series G
Convertible Preferred Stock; and (H) 55,500,000 were designated Series H Convertible Preferred
Stock. As of June 30, 2010, there were issued and outstanding, (A) 503,750 shares of Series A
Convertible Preferred Stock; (B) 6,898,104 shares of Series B Convertible Preferred Stock; (C)
1,185,295 shares of Series C Redeemable Preferred Stock; (D) 247,525 shares of Series D Convertible
Preferred Stock; (E) 4,919,183 shares of Series E Convertible Preferred Stock; (F) 32,904,409
shares of Series F Convertible Preferred Stock; (G) 47,422,306 shares of Series G Convertible
Preferred Stock; and (H) 29,973,992 shares of Series H Convertible Preferred Stock, each
convertible into the same number of shares of Common Stock (except that shares of Series C
Preferred Stock are not convertible into shares of Target Common Stock and each share of Series F
Convertible Preferred Stock is convertible into 1.051 shares of Target Common Stock). All
outstanding shares of Target Common Stock and Target Preferred Stock (i) are duly authorized,
validly issued, fully paid and non-assessable, (ii) are free of any liens or encumbrances created
by Target, and (iii) were not issued in violation of any preemptive rights or rights of first
refusal created by statute, the certificate of incorporation or bylaws of Target or any agreement
to which Target is a party or by which it is bound. As of June 30, 2010, there were 32,978,600
shares of Target Common Stock reserved for issuance under the Target Option Plans, of which
18,499,712 shares of Target Common Stock were subject to outstanding options, 12,140,851 shares of
Target Common Stock were issued pursuant to stock grants, restricted stock grants and the exercise
of previously granted options and 2,338,037 shares of Target Common Stock were reserved for future
option or stock grants. Target has
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delivered to Acquiror or its advisors (or made available in a
data room for review by
Acquiror or its advisors) true and complete copies of each unpersonalized form of agreement
and each Target Option Plan evidencing each Target Option. Except for the rights created pursuant
to this Agreement, the options and other rights disclosed in the preceding sentences and as set
forth on Section 3.5(a) of the Target Disclosure Schedule, there are no options, warrants, calls,
rights, commitments or agreements that are outstanding to which Target is a party or by which it is
bound, obligating Target to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Target Capital Stock or obligating Target
to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into
any option, warrant, call, right, commitment or agreement regarding shares of Target Capital Stock.
All shares of Target Common Stock issuable upon conversion of the outstanding shares of Target
Preferred Stock or upon exercise of the options described in this Section 3.5 will be, when issued
pursuant to the respective terms of such Target Preferred Stock or options, duly authorized,
validly issued, fully paid and nonassessable. All shares of outstanding Target Capital Stock were
issued in compliance with all applicable federal and state securities Laws.
(b) Section 3.5(b) of the Target Disclosure Schedule sets forth a true and complete list of
each Subsidiary of Target, listing for each Subsidiary its name, the name of Target or Subsidiary
of Target holding an ownership interest in such Subsidiary, the percentage of stock or other equity
interest of such Subsidiary owned by Target or a Subsidiary of Target and, for each Subsidiary that
is a corporation, the number of authorized and issued and outstanding shares of each class of
capital stock of such Subsidiary (including treasury shares). The capital stock or other equity
interests of each Subsidiary of Target has not been issued in violation of, and is not subject to,
any preemptive rights or rights of first refusal. No Subsidiary of Target has violated the
Securities Act or other Law in connection with the offer, sale or issuance of its equity
securities. All of the shares of each Subsidiary of Target that is a corporation are validly
issued, fully paid and nonassessable. Target and/or its Subsidiaries are the record and beneficial
owner of all of the outstanding shares or other equity interests of each Subsidiary of Target, free
and clear of any Encumbrances.
(c) Shares and Stockholder Information. Section 3.5(c) of the Target Disclosure
Schedule sets forth as of the date of this Agreement (i) the number of shares of Target Capital
Stock that each current stockholder of Target holds of record, (ii) the number of shares of Target
Common Stock issuable upon the exercise of Target Options held by each current Target Option
holder, and the date and Exercise Price thereof and (iii) the number of warrants held by each
warrant holder and the date and Exercise Price thereof.
3.6 Absence of Certain Changes. Since December 31, 2009 and except as set forth on
Section 3.6 of the Target Disclosure Schedule, Target and its Subsidiaries have conducted the
Target Business only in the ordinary course consistent with past practice and there has not
occurred:
(a) any acquisition, sale or transfer of any material asset of Target or its Subsidiaries
other than in the ordinary course of business;
(b) any amendment to the certificate of incorporation or bylaws or equivalent organizational
documents of Target or its Subsidiaries;
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(c) any material increase in or material modification of the compensation or benefits payable
by Target or its Subsidiaries to any of their respective directors or employees, other than in the
ordinary course of business;
(d) (i) any issuance, sale, repurchase, redemption or acquisition of any shares of capital
stock or other equity interests, or entrance into any agreement granting any rights, warrants,
options, agreements or commitments with respect to the issuance of such capital stock or such
equity interests; (ii) declaration, setting aside or payment of any dividend or other distribution
(whether in cash, securities or property or other combination thereof) in respect of any shares of
capital stock or other equity interest of such entity other than cash dividends paid by a
Subsidiary to Target or any other Subsidiary in accordance with applicable Law, or (iii)
adjustment, split combination, subdivision or reclassification of any shares of capital stock or
other equity interest of such entity;
(e) any Encumbrance on the assets of Target or its Subsidiaries other than a Permitted
Encumbrance;
(f) any loss, damage or destruction to, or any material interruption in the use of, any of the
assets of Target or its Subsidiaries (whether or not covered by insurance) that has had or could
reasonably be expected to have a Target Material Adverse Effect; and
(g) any material change in the accounting or tax methods of Target or its Subsidiaries.
3.7 Absence of Undisclosed Liabilities. Except as set forth on Section 3.7 of the
Target Disclosure Schedule, neither Target nor any of its Subsidiaries has any obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than: (a) those set
forth or adequately provided for in the Target Balance Sheet; (b) those incurred in the ordinary
course of business and consistent with past practice since the date of the Target Balance Sheet;
and (c) those incurred pursuant to or in connection with the execution, delivery or performance of
this Agreement.
3.8 Litigation.
(a) Except as set forth on Section 3.8 of the Target Disclosure Schedule, there is no private
or governmental action, suit, proceeding, arbitration or investigation, pending before any
Governmental Entity (or, to the knowledge of Target, being threatened) (i) against Target or its
Subsidiaries or any of their respective properties or against any of their respective officers or
directors (in their capacities as such) or (ii) that challenge, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the transactions
contemplated hereby.
(b) There is no judgment, decree or order against Target or its Subsidiaries or against any of
their respective directors or officers (in their capacities as such), that specifically names
Target or its Subsidiaries or such directors or officers and would reasonably be expected to have a
Target Material Adverse Effect.
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3.9 Restrictions on Business Activities. Except as set forth on Section 3.9 of the
Target Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding
upon Target or its Subsidiaries that has, or would reasonably be expected to have, the effect of
prohibiting or materially impairing (i) the conduct of the Target Business by Target or its
Subsidiaries, or (ii) the ability of Target or its Subsidiaries to transact business in any
material market, field or geographical area or with any person.
3.10 Intellectual Property.
(a) For purposes of this Agreement, the following terms will be defined as follows:
(i) “IP Rights” means any and all of the following in any country: (A) Copyrights, Patent
Rights, Trademark Rights, Trade Secrets Rights, and any other intellectual property or proprietary
rights; and (B) the right (whether at Law, in equity, by contract or otherwise) to use or otherwise
exploit any of the foregoing.
(ii) “Copyrights” means all copyrights, including all works of authorship, use, publication,
reproduction, distribution, performance, transformation, and rights of ownership of copyrightable
works and all rights to register and obtain renewals and extensions of registrations, together with
all other interests accruing by reason of international copyright.
(iii) “Material Target IP Rights” means all Target IP Rights other than those, individually or
in the aggregate, are not material to the conduct of the Target Business.
(iv) “Patent Rights” means all issued patents and pending patent applications (which for
purposes of this Agreement will include utility models, design patents, certificates of invention
and applications for certificates of invention and priority rights) in any country, including all
provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals,
reissues, re-examinations and extensions of such patents or applications.
(v) “Target IP Rights” means all IP Rights (i) owned solely, co-owned or exclusively licensed
to Target or its Subsidiaries, or (ii) in which Target or its Subsidiaries has any right, title or
interest, including without limitation the IP Licenses.
(vi) “Trademark Rights” means all trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks, applications for registration
of service marks, trade names, registered trade names and applications for registration of trade
names.
(vii) “Trade Secrets Rights” means all trade secrets and other confidential information
(including without limitation, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know how, drawings, specifications, designs,
plans, proposals, technical data, copyrightable works, financial and marketing plans, and customer
and supplier lists and information).
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(b) Section 3.10(b) of the Target Disclosure Schedule lists all registered and
applied-for-Target IP Rights and unregistered Material Target IP Rights owned solely by or
exclusively licensed to Target or any of its Subsidiaries, setting forth in each case the
jurisdictions in which patents have been issued, patent applications have been filed, trademarks
have been registered and trademark applications have been filed. Section 3.10(b) of the Target
Disclosure Schedule lists, as of the date of this Agreement, all of the Patent Rights, Copyrights,
and all registered and material unregistered Trademark Rights (including Trademark Rights for which
applications for registration have been filed) in which Target or its Subsidiaries has any
co-ownership interest, other than those owned solely by Target or its Subsidiaries, setting forth
in each case the jurisdictions in which patents have been issued, patent applications have been
filed, trademarks have been registered and trademark applications have been filed dates of
issuance, registration and application numbers, current owner(s) and status in each jurisdiction.
Except as set forth on Section 3.10(b) of the Target Disclosure Schedule, all registered Material
Target IP Rights (i) have been duly maintained in all material respects; ,(ii) are valid and
enforceable and have not lapsed, expired or been abandoned; and (iii) are not the subject to any
opposition, interference, cancellation or other proceeding before any Governmental Authority.
(c) The Target IP Rights constitute all the IP Rights used in the conduct of the Target
Business as it currently is conducted. Except as set forth on Section 3.10(c) of the Target
Disclosure Schedule, neither Target nor its Subsidiaries jointly own any Target IP Rights with any
person other than Target or its Subsidiaries.
(d) Target and each of its Subsidiaries has taken commercially reasonable efforts to (i)
protect and maintain all Material IP Rights, and (ii) protect the confidentiality, integrity and
security of its software, systems, networks, equipment, hardware, internet sites and all
information stored or contained therein or transmitted thereby from any unauthorized use, access,
interruption or modification by third parties. All information technology equipment and systems,
software, networks, equipment, and hardware and internet sites used in and necessary to the conduct
of Target Business operate and perform in all material respects as reasonably required for the
conduct of the Target Business as it currently is conducted.
(e) Section 3.10(e) of the Target Disclosure Schedule lists all written contracts, agreements
and licenses under which Target or its Subsidiaries has any right, title or interest in, under or
to any Material Target IP Rights, other than nonexclusive “shrink-wrap” or “click-wrap” licenses
that are available to the public generally (the “IP Licenses”). Neither the Target not any of its
Subsidiaries is in material default, and has received no written notice of material default, under
any IP License.
(f) No third party is challenging, or has threatened in a communication with Target to
challenge, the rights, title or interests of Target or any of its Subsidiaries in, to or under the
Target IP Rights, or the validity, enforceability or claim construction of any Patent Rights owned
or co-owned by Target or any of its Subsidiaries included in the Target IP Rights. Except as set
forth on Section 3.10(f) of the Target Disclosure Schedule, no third party has asserted or
threatened to make a claim against Target or any of its Subsidiaries or their respective
affiliates, nor, to the knowledge of Target is any such claim being
asserted or being threatened against any such person, which would materially and adversely
affect the ownership rights of Target or any of its Subsidiaries to or under any of the Material
Target IP Rights.
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(g) The Material Target IP and the conduct of the Target Business has not and does not
infringe, constitute contributory infringement, inducement to infringe, misappropriation or
unlawful use of IP Rights of any other person and neither Target nor its Subsidiaries has received
any written notice or other written communication asserting any of the foregoing.
(h) Target and/or its Subsidiaries owns the entire right, title and interest in and to, or has
a valid and enforceable license to use, all Target IP Rights free and clear of all Liens. All
persons who have contributed in a material manner to the creation or development of any Target IP
Right have executed and delivered to Target or its Subsidiaries an agreement regarding the
protection of proprietary information and the assignment to Target or its Subsidiaries of any IP
Rights arising from services performed for Target or its Subsidiaries by such persons, the current
form of which has been made available in a data room for review by Acquirer or its advisors.
(i) Except as set forth on Section 3.10(i) of the Target Disclosure Schedule, the consummation
of the transactions contemplated by this Agreement will not result in the material loss or
impairment of, or payment of any material additional or accelerated amounts with respect to, the
Target or its Subsidiaries’ rights to own and/or use the Target IP Rights.
3.11 Interested Party Transactions. Other than as set forth on Section 3.11 of the
Target Disclosure Schedule, there are no existing, and there have been no, contracts, transactions,
indebtedness, arrangements or any related series thereof, between Target or its Subsidiaries, on
the one hand, any of the directors, officers, employees, consultants, stockholders or other
affiliates of Target or such Subsidiary, or any of their respective affiliates or family members,
on the other hand. Other than as set forth on Section 3.11 of the Target Disclosure Schedule,
neither Target nor its Subsidiaries are indebted to any director, officer or employee of Target or
its Subsidiaries (except for amounts due as salaries and bonuses under employment contracts or
employee benefit plans and amounts payable in reimbursement of ordinary expenses), and no such
director or officer is indebted to Target or its Subsidiaries.
3.12 Material Contracts.
(a) Section 3.12 of the Target Disclosure Schedule lists all of the Material Contracts (other
than Material Contracts with Producers and Providers) in effect as of the date of this Agreement.
Target has delivered to Acquiror, or made available to Acquiror or its advisors in a data room, a
complete and accurate copy of each such Material Contract and all amendments or modifications to
such Material Contracts.
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(b) With respect to each Material Contract listed on Section 3.12 of the Target Disclosure
Schedule: (i) such Material Contract is in full force and effect and, with respect to each party to
such Material Contracts other than Target or any of its Subsidiaries, is
binding and enforceable against such party, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar Laws affecting or relating to creditors’ rights
generally and general principles of equity, regardless of whether asserted in a proceeding in
equity or at Law; and (ii) to Target’s knowledge, (A) no party to such Material Contract is in
material breach or material default of such Material Contract, and (B) no event has occurred that
with notice or lapse of time would constitute a material breach or material default thereunder by
Target or any Subsidiary that is a party to such Material Contract, or would permit the
modification or premature termination of such Material Contract by any other party to such Material
Contract.
(c) “Material Contract” means any oral or written legally binding, executory contract,
agreement or commitment (each a “Contract”) to which Target or its Subsidiaries is a party
(i) under which expected receipts or expenditures exceed $100,000 in the current or any future
calendar year; (ii) requiring Target or its Subsidiaries to indemnify any person on terms that are
not customary; (iii) evidencing indebtedness for borrowed or loaned money of $100,000 or more,
including guarantees of such indebtedness by Target; (iv) creating or relating to any partnership
or joint venture or any sharing of profits or losses by Target or its Subsidiaries with any third
party; (v) with any Governmental Entity; or (vi) that if terminated, would reasonably be expected
to have a Target Material Adverse Effect.
3.13 Title to Property. Target and its Subsidiaries have (a) good and valid title to
all of their owned properties, real and personal and (b) with respect to leased properties, valid
leasehold interests, sufficient to conduct their respective businesses as currently conducted and
free and clear of all mortgages, liens, pledges, charges or other encumbrances of any kind or
character, except for the following and as set forth on Section 3.13 of the Target Disclosure
Schedule (collectively, “Permitted Encumbrances”): (i) liens for current taxes not yet due and
payable or that are being contested in good faith by appropriate proceedings or that are otherwise
not material; (ii) encumbrances that do not materially impair the ownership or use of the assets to
which they relate; (iii) statutory or common law liens to secure obligations to landlords, lessors
or renters under leases or rental agreements; (iv) deposits or pledges made in connection with, or
to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by
applicable Law; and (v) statutory or common law liens in favor of carriers, warehousemen, mechanics
and materialmen, to secure claims for labor, materials or supplies, and other like liens. The
plants, property and equipment of Target and its Subsidiaries that are used in the operations of
the Target Business are in all material respects in good operating condition and repair, subject to
normal wear and tear.
3.14 Real Estate.
(a) All leases for real property (each a “Lease” and collectively, “Leases”) to which Target
or its Subsidiaries is a party are in full force and effect and are binding and enforceable against
the lessors, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar Laws affecting or relating to creditors’ rights generally and general principles of
equity, regardless of whether asserted in a proceeding in equity or at Law. True and correct
copies of all such Leases, as amended or modified, have been delivered to Acquiror or its advisors
(or have been made available in a data room for review
by Acquiror or its advisors). Except as set forth on Section 3.14 of the Target Disclosure
Schedule, neither Target nor its Subsidiaries own any real property.
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(b) To the knowledge of Target, (i) Target and its Subsidiaries are entitled to and have
exclusive possession of the real estate subject to the Leases (the “Real Estate”), (ii) the Real
Estate is not subject to any other legally binding lease, tenancy or license or any legally binding
agreement to grant any such lease, tenancy or license that materially interferes with Target’s use
of the Real Estate, (iii) there is no person in possession or occupation of, or who has any current
right to possession or occupation of, the Real Estate other than Target and its Subsidiaries, and
(iv) there are no easements of any kind in respect of the Real Estate materially and adversely
affecting the rights of Target or its Subsidiaries to use the Real Estate for the conduct of the
Target Business.
(c) With respect to the Real Estate:
(i) Target and its Subsidiaries are not in material default under the terms of the Leases;
(ii) to the knowledge of Target, the lessor is not in material default under any of the terms
of the Leases;
(iii) to the knowledge of Target, (A) there is no condemnation, zoning or other land use
regulation proceeding, either instituted, or planned to be instituted, that would materially affect
the use and operation of the Real Estate as currently being used and operated by Target, and (B)
there are no special assessment proceedings affecting the Real Estate;
(iv) to the knowledge of Target, none of the Real Estate is located in (A) any special flood
hazard area or zone on any official flood hazard map published by the United States Department of
Housing and Urban Development (except as may pertain to possible 100-year flood plain status) or
(B) any wetland area on any official wetland inventory map published by the United States
Department of the Interior or any applicable state agency; and
(v) to the knowledge of Target, all existing water, drainage, sewage and utility facilities
relating to the Real Estate are adequate for Target’s existing use and operation of the Real Estate
and all such facilities enter the Real Estate directly from public rights-of-way or other public
facilities.
(d) To the knowledge of Target, the Real Estate is zoned for the purposes for which it is
being used by Target and its Subsidiaries.
3.15 Taxes.
(a) As used in this Agreement, the terms “Tax” and “Taxes” mean all federal, state and local
taxes of any country, assessments and other governmental charges, duties, impositions and
liabilities in the nature of Taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, stamp
transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to such amounts and any
obligations under any legally binding agreements or arrangements with any other person with respect
to such amounts and including any liability for the aforementioned taxes of a predecessor entity.
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(b) Target and each of its Subsidiaries has prepared and timely filed all returns, estimates,
information statements and reports (“Returns”) for which the deadline (including extensions) has
passed relating to any Taxes concerning or attributable to Target or its Subsidiaries or their
operations, and such Returns have been completed in accordance with applicable Law. All Taxes due
from and owing by Target and its Subsidiaries have been paid when due.
(c) Target and each of its Subsidiaries have (i) properly and timely withheld all Taxes
required to be withheld, and (ii) properly remitted to the proper taxing authority all Taxes
required to be remitted for which the remittance deadline has passed, with respect to amounts paid
or owed to any employee, independent contractor, stockholder or other third party.
(d) With respect to any period for which the applicable statutes of limitations have not
expired, neither Target nor its Subsidiaries is delinquent in the payment of any Tax. Neither
Target nor its Subsidiaries has executed any agreements or waivers extending any statute of
limitations on, or extending the period for the assessment or collection of, any Tax.
(e) Neither Target nor its Subsidiaries have any material liabilities for unpaid Taxes that
have not been accrued for or reserved on the Target Balance Sheet to the extent required by GAAP,
whether asserted or unasserted, contingent or otherwise, and Target has no knowledge of any basis
for the assertion of any such liability for unpaid Taxes that have not been accrued for or reserved
on the Target Balance Sheet.
(f) Neither Target nor its Subsidiaries are a party to any tax-sharing agreement or similar
arrangement with any other party, and neither Target nor its Subsidiaries have assumed any
obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other
person or agreed to indemnify any other person with respect to any Tax.
(g) Neither Target nor its Subsidiaries’ Returns have ever been audited by a government or
taxing authority, nor is any audit in process or pending, and neither Target nor its Subsidiaries
have been notified of any request for such an audit or other examination nor is any audit,
investigation, action or proceeding regarding Taxes in process or pending, or, to the knowledge of
Target, threatened.
(h) Neither Target nor its Subsidiaries have ever been a member of an affiliated group of
corporations (within the meaning of Code Section 1504(a)) filing a consolidated federal income tax
return other than a group the common parent of which was Target.
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(i) Target and each of its Subsidiaries have made available in a data room for review by
Acquiror or its advisors copies of all Returns filed for all periods for the last four tax years.
(j) Neither Target nor its Subsidiaries have ever been a United States Real Property Holding
Corporation within the meaning of Section 897(c)(2) of the Code.
(k) Neither Target nor any of its Subsidiaries has constituted either a “distributing
corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement or
(ii) in a distribution which could otherwise constitute part of a “plan” or “series of related
transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Closing.
(l) Neither Target nor any of its Subsidiaries has agreed to make, nor is required to make,
any adjustment under Section 481 of the Code or any corresponding provision of state, local or
foreign Law by reason of any change in accounting method.
(m) Neither Target nor its Subsidiaries have ever been a party to any joint venture,
partnership or other agreement that should be treated as a partnership for Tax purposes but which
is not being treated as a partnership for Tax purposes.
(n) There are (and at the Closing there will be) no liens or encumbrances on the assets of
Target or any of its Subsidiaries relating to or attributable to Taxes, other than liens for Taxes
not yet due and payable or that are otherwise not material.
(o) Neither Target nor any of its Subsidiaries has requested or received any private letter
ruling from the Internal Revenue Service or comparable rulings from any other government or taxing
agency (domestic or foreign) other than with respect to Target Employee Plans.
(p) No power of attorney with respect to Taxes has been granted with respect to Target or any
of its Subsidiaries other than with respect to Target Employee Plans.
(q) Target has not distributed any cash to any stockholder for any reason, including as a
dividend, repurchase, or redemption (other than pursuant to repurchases of restricted stock from
employees of Target or its Subsidiaries whose employment has been terminated).
(r) Except as set forth in Section 3.15(r) of the Target Disclosure Schedules, there is no
pending, or, to the knowledge of Target, threatened claim by any taxing authority (domestic or
foreign) in a jurisdiction where Target and its Subsidiaries do not file Returns to the effect that
Target or its Subsidiaries is subject to Tax by that jurisdiction.
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(s) Neither Target nor any of its Subsidiaries will be required to include any item of income
in, or exclude any item of deduction from, taxable income for any taxable period (or portion of
such taxable period) ending after the Closing Date as a result of any
change in accounting method or “closing agreement” as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or foreign income Tax Law), has executed
any agreement with, or obtained any consents or clearances from, any taxing authority, or been
subject to any ruling guidance specific to Target or its Subsidiaries, any of which would be
binding on Acquiror for any taxable period (or portion thereof) ending after the Closing Date.
(t) Neither Target nor any Subsidiary will be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Effective Time as a result of any:
(i) Intercompany transaction or excess loss account described in Treasury Regulations
promulgated under Code Section 1502 (or any corresponding or similar provision of state, local or
foreign income tax Law);
(ii) Installment sale or open transaction disposition made on or prior to the Effective Time;
(iii) Prepaid amount received on or prior to the Effective Time; or
(iv) Election pursuant to Code Section 108(i) made effective on or prior to the Effective
Time.
(u) Section 3.15(u) of the Target Disclosure Schedule sets forth each entity classification
election that has been made pursuant to U.S. Treasury Regulation Section 301.7701-3 with respect to
Target and each Subsidiary, and with respect to each such election, the effective date thereof and
the particular election made pursuant thereto.
3.16 Employee Benefit Plans.
(a) Section 3.16(a) of the Target Disclosure Schedule sets forth a complete and accurate list
of each plan, program, policy, practice, contract, agreement or other arrangement providing for
employment, compensation (but excluding the payment of regular wages or salary and other payroll
practices in the ordinary course of business), retirement, deferred compensation, loans, severance,
separation, relocation, repatriation, expatriation, visas, work permits, termination pay,
performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock,
stock appreciation right, supplemental retirement, fringe benefits, cafeteria benefits or other
benefits, whether written or unwritten, including each “employee benefit plan” within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which
is sponsored, maintained, contributed to, or required to be contributed to by Target or its
Subsidiaries and, with respect to any such plans which are subject to Code Section 401(a), any
trade or business (whether or not incorporated) that is or at any relevant time was treated as a
single employer with Target within the meaning of Section 414(b), (c), (m) or (o) of the Code (an
“ERISA Affiliate”), for the benefit of any person who performs or who has performed services for
Target or its Subsidiaries and with respect to which Target, its Subsidiaries or any ERISA
Affiliate has, or is reasonably likely to have,
individually or in the aggregate, any material liability or obligation (collectively, the
“Target Employee Plans”).
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(b) Documents. Target has delivered to Acquiror or its advisors (or made available in
a data room for review by Acquiror or its advisors) true and complete copies to each of the Target
Employee Plans and related plan documents, including trust documents, group annuity contracts, plan
amendments, insurance policies or contracts, material participant agreements, employee booklets,
administrative service agreements, summary plan descriptions, compliance and nondiscrimination
tests for the last three plan years, standard COBRA forms and related notices, registration
statements and prospectuses and, to the extent still in its possession, any material employee
communications relating to each Target Employee Plan concerning the benefits offered thereunder.
With respect to each Target Employee Plan that is subject to ERISA reporting requirements, Target
has made available in a data room for review by Acquiror or its advisors copies of the Form 5500
reports filed for the last three plan years. Target has made available in a data room for review
by Acquiror or its advisors the most recent Internal Revenue Service determination or opinion
letter issued with respect to each such Target Employee Plan, and to Target’s knowledge, nothing
has occurred since the issuance of each such letter that would reasonably be expected to cause the
loss of the tax-qualified status of any Target Employee Plan subject to Code Section 401(a).
(c) Compliance. Each Target Employee Plan is being, and has been, administered in
accordance with its terms and in material compliance with the requirements prescribed by any and
all Laws (including ERISA and the Code). Target and each ERISA Affiliate are not in material
default under or material violation of, and have no knowledge of any material default or material
violation by any other party to, any of the Target Employee Plans. Any Target Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained from the Internal
Revenue Service a favorable determination letter as to its qualified status under the Code,
including all currently effective amendments to the Code, or has time remaining to apply under
applicable Treasury Regulations or Internal Revenue Service pronouncements for a determination or
opinion letter or to make any amendments necessary to obtain a favorable determination or opinion
letter. None of the Target Employee Plans promises or provides retiree medical or other retiree
welfare benefits to any person other than the provision of severance or termination pay or the
continuation of benefits through the end of the month of termination of employment or as otherwise
required by Law. Target has not engaged in, or participated in, any transaction which would be
considered a non-exempt “prohibited transaction,” as such term is defined in Section 406 of ERISA
or Section 4975 of the Code, and to Target’s knowledge, no other third-party fiduciary and/or
party-in-interest has engaged in any such “prohibited transaction” with respect to any Target
Employee Plan. Neither Target nor any ERISA Affiliate is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Target Employee
Plan. All contributions required to be made by Target or any ERISA Affiliate to any Target
Employee Plan have been paid or accrued. With respect to each Target Employee Plan, no “reportable
event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) has
occurred, nor has any event described in Section 4062, 4063 or 4041 or ERISA occurred. Each Target
Employee Plan subject to ERISA has prepared in good faith and timely filed all requisite
governmental reports, which were true and correct in all material respects as of the date
filed, and, has properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such Target Employee
Plan. No suit, administrative proceeding or action has been brought, or to the knowledge of Target
is threatened in communications with Target, against or with respect to any such Target Employee
Plan, including any audit or inquiry by the Internal Revenue Service or the United States
Department of Labor and other than routine claims for benefits thereunder. There has been no
amendment to, or written interpretation or announcement by Target or any ERISA Affiliate regarding
any Target Employee Plan that would materially increase the expense of maintaining such Target
Employee Plan above the level of expense incurred with respect to that Plan for the fiscal year
ended December 31, 2009.
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(d) No Title IV or Multiemployer Plan. Neither Target nor any ERISA Affiliate has
ever maintained, established, sponsored, participated in or contributed to, or is obligated to
materially contribute to, or otherwise incurred any obligation or liability (including any
contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any
“pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of
the Code. Neither Target nor any ERISA Affiliate has any actual or potential withdrawal liability
(including any contingent liability) for any complete or partial withdrawal (as defined in
Sections 4203 and 4205 of ERISA) from any multiemployer plan.
(e) No Self-Insured Plans. Neither Target nor any ERISA Affiliate has ever
maintained, established, sponsored, participated in or contributed to any self-insured plan that is
governed by ERISA and that provides benefits to employees (including any such plan pursuant to
which a stop-loss policy or contract applies), other than a health care reimbursement plan or a
severance or termination pay arrangement.
(f) COBRA, FMLA, HIPAA, Cancer Rights. With respect to each Target Employee Plan,
Target is in material compliance with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the
regulations thereunder or any Law governing health care coverage extension or continuation to its
current or former employees; (ii) the applicable requirements of the Family and Medical Leave Act
of 1993 and the regulations thereunder; (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996, as may be amended, modified, revised or replaced or
interpreted by any Governmental Entity or court as well as the rules and regulations adopted
pursuant to such statute and any Law coordinating provisions (“HIPAA”); and (iv) the applicable
requirements of the Cancer Rights Act of 1998. Target has no material unsatisfied obligations to
any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA or any Law
governing health care coverage extension or continuation.
(g) Effect of Transaction. Except as provided in Section 3.16(g) of the Target
Disclosure Schedule, or as set forth in this Agreement, the consummation of the Merger will not
(i) entitle any current or former employee or other service provider of Target or any ERISA
Affiliate to severance benefits or any other payment (including unemployment compensation, golden
parachute, bonus or benefits under any Target Employee Plan), except as expressly provided in this
Agreement; or (ii) accelerate the time of payment or vesting of any
such benefits or increase the amount of compensation due any such employee or service
provider. No benefit payable or that may become payable by Target pursuant to any Target Employee
Plan as a result of or arising under this Agreement will constitute an “excess parachute payment”
(as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under
Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G
of the Code. Each Target Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without material liability to Acquiror or Target
other than ordinary administration expenses typically incurred in a termination event.
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(h) Neither Target nor its Subsidiaries are a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement, covering any employee
or former employee of Target or its Subsidiaries that, individually or in the aggregate, would
reasonably be expected to give rise to the payment of any material amount that would be subject to
the deductibility limits of Section 404 of the Code.
(i) Each Target Employee Plan that is a “nonqualified deferred compensation plan” (within the
meaning of Section 409A(d)(1) of the Code) has been operated in material compliance with Section
409A of the Code, IRS Notice 2005-1, Treasury Regulations issued under Section 409A of the Code,
and any subsequent guidance relating thereto.
3.17 Employee Matters. Target and its Subsidiaries are in material compliance with
all currently applicable Laws respecting terms and conditions of employment, including applicant
and employee background checking, immigration Laws, discrimination Laws, verification of employment
eligibility, employee leave Laws, classification of workers as employees and independent
contractors, wage and hour Laws, and occupational safety and health Laws. There are no material
proceedings pending or, to Target’s knowledge, threatened against Target or its Subsidiaries, on
the one hand, by current or former employees, on the other hand, including any proceeding relating
to claims for actual or alleged harassment or discrimination based on race, national origin, age,
sex, sexual orientation, religion, disability, or similar tortious conduct, breach of contract,
wrongful termination, defamation, intentional or negligent infliction of emotional distress,
interference with contract or interference with actual or prospective economic disadvantage. There
are no formal claims pending or, to Target’s knowledge, threatened against Target or its
Subsidiaries under any workers’ compensation or long-term disability plan or policy. Neither
Target nor its Subsidiaries have any material unsatisfied obligations to any employees, former
employees, or qualified beneficiaries pursuant to COBRA, HIPAA, or any Law governing health care
coverage extension or continuation. Neither Target nor its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract, nor does Target know of any
activities or proceedings of any labor union to organize the employees of Target or its
Subsidiaries.
3.18 Insurance. Section 3.18 of the Target Disclosure Schedule lists all binders or
policies of insurance maintained by Target and its Subsidiaries as of the date of this Agreement.
As of the date of this Agreement, all such binders and policies are in full force and effect and
there is no material claim pending under any of Target’s insurance policies or fidelity bonds as to
which coverage has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums payable under all such binders and policies have been paid, and
Target and its Subsidiaries are in compliance in all material respects with the terms of such
binders, policies and bonds. Target has no knowledge as of the date of this Agreement of any
threatened termination of, or material premium increase with respect to, any of such binders,
policies or bonds.
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3.19 Compliance With Laws. Target and its Subsidiaries are in material compliance
with, and have not received any written or oral notices of any material non-compliance, default or
violation with respect to, any Law applicable to the conduct of the Target Business (including Laws
relating to escheatment and unclaimed property), except for violations that have been fully and
finally resolved without further liability to Target or its Subsidiaries (whether or not Target and
its Subsidiaries have received written notice confirming such resolution). Notwithstanding the
foregoing, the foregoing reference to any Law with respect to the conduct of the Target Business
will be deemed not to include any Health Care Law, which matters are the exclusive subject of
Section 3.25.
3.20 Brokers’ and Finders’ Fee. Except for UBS Securities LLC (“UBS”), no broker,
finder or investment banker is entitled to brokerage or finders’ fees or agents’ commissions or
investment bankers’ fees or any similar charges from Target or its Subsidiaries in connection with
the Merger, this Agreement or any transaction contemplated hereby. Target has provided Acquiror
with a complete and accurate copy of Target’s agreement with UBS.
3.21 Bank Accounts. Section 3.21 of the Target Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of Target at any bank or
other financial institution including the name of the bank or financial institution, the account
number and the names of all individuals authorized to draw on or make withdrawals from such
accounts.
3.22 Certain Payments. Neither Target nor its Subsidiaries or any director, officer,
agent or employee of Target or its Subsidiaries, nor any other person acting for or on behalf of
Target or its Subsidiaries, has directly or indirectly, on behalf of Target or its Subsidiaries
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to
any entity or person, private or public, regardless of form, whether in money, property or services
in material violation of any Law.
3.23 Minute Books. The minute books of Target have been made available in a data room
for review by Acquiror or its advisors and contain a materially complete and accurate summary of
all meetings of directors and stockholders at which actions were taken or actions taken by written
consent since the time of incorporation of Target through the date of this Agreement; provided,
however, that certain matters set forth therein that pertain to the discussions and actions
relating to the negotiation and terms of this Agreement have been redacted and minutes of meetings
that pertain solely to the discussions and actions relating to the negotiation and terms of this
Agreement have not been provided.
3.24 Accounts Receivable. Subject to any reserves set forth in the Target Balance
Sheet, the accounts receivable shown on the Target Balance Sheet are valid and genuine, and are not
subject to any prior assignment, lien or security interest, and are not subject to valid defenses,
set-offs or counter claims. The accounts receivable are, to Target’s knowledge,
collectible in accordance with their terms at their recorded amounts, subject only to the
reserve for doubtful accounts on the Target Financial Statements.
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3.25 Health Care Compliance. Except as set forth on Section 3.25 of the Target
Disclosure Schedule:
(a) Conduct of Business.
(i) Each of Target and its Subsidiaries is in compliance with and has conducted the Target
Business in compliance with those Health Care Laws which regulate its operations, activities or
services and any Governmental Orders to which it is a party or is subject. Neither Target nor any
of its Subsidiaries is in violation of any Health Care Law or Governmental Order, except in either
case, for such violation that would not have a materially adverse impact on the Target Business or
operations of Target or any of its Subsidiaries. Except for routine matters, neither Target nor
any of its Subsidiaries has received any notice, citation, suspension, revocation, limitation,
warning, or request for repayment or refund issued by a Governmental Entity which alleges or
asserts that Target or any of its Subsidiaries has violated any Health Care Laws or which requires,
seeks or calls attention to the necessity of any adjustment, modification or alteration in Target’s
or any its Subsidiary’s operations, activities, services or financial condition that has not been
fully and finally resolved to the Governmental Entity’s satisfaction without further liability to
Target and its Subsidiaries. There are no restrictions imposed by any Governmental Authority upon
the Target Business, activities or services of any of Target or any of its Subsidiaries. Each of
the Regulated Subsidiaries is in compliance with all deposit, reserve, capital, net worth and other
financial requirements, including statutory and risk-based capital requirements, applicable to such
Regulated Subsidiary.
(ii) The Management Sub is in compliance with those Health Care Laws applicable to the
management, administration and other services furnished by the Management Sub to the Practice
Entity. The Practice Entity is in compliance with those Health Care Laws applicable to the
Practice Entity’s medical practice and its usage of the premises in which the Practice Entity has
located its medical practice. The relationship between the Management Sub and the Practice Entity
does not violate any Law, including the corporate practice of medicine doctrine or prohibitions
against fee-splitting or referrals to the Practice Entity or its employed or
independently-contracted health care professionals, as applied in the State of Maryland or the
Commonwealth of Pennsylvania, as the case may be. To Target’s knowledge, there is no threatened
enforcement action by any Governmental Entity over the Practice Entity or its medical practice,
including, without limitation, any outstanding fines, injunctions, civil or criminal penalties,
investigations or suspensions involving the Practice Entity. Each health care professional
employed by or contracted with the Practice Entity who is required by applicable Health Care Laws
to possess a License to deliver health care services to patients of the Practice Entity (including
the performance of diagnostic services such as x-ray or lab services) possesses such License and is
performing only those services which are permitted by the scope of such License. The practitioners
of the Practice Entity are eligible for reimbursement under any Program and are not debarred or
excluded from any Program.
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(b) Licenses. Section 3.25(b) of the Target Disclosure Schedule sets forth a list and
summary description of the Licenses issued respectively to the Regulated
Subsidiaries, the Management Sub and the Practice Entity under the Health Care Laws. The
Licenses identified on Section 3.25(b) of the Target Disclosure Schedule are valid and in full
force and there are no pending or, to Target’s knowledge, threatened audits, investigations or
proceedings which reasonably would be expected to result in the termination or revocation or any
Licenses material to the operations of the person holding the License or result in any limitation,
restriction or impairment thereof. Neither Target, any of the Regulated Subsidiaries nor the
Practice Entity has received any communications from Governmental Entities indicating a reasonable
likelihood that any Licenses of any of the Regulated Subsidiaries, the Management Sub or the
Practice Entity will be revoked or suspended. The Licenses identified on Section 3.25(b) of the
Target Disclosure Schedule as belonging to the Regulated Subsidiaries, Management Sub or the
Practice Entity are sufficient for the Regulated Subsidiaries, Management Sub and the Practice
Entity, as the case may be, to lawfully conduct their respective businesses as currently conducted.
(c) Program Participation and Medicare Benefit Offerings. Each of the Regulated
Subsidiaries meets the requirements for participation in, and receipt of payment from, the Programs
in which each of the Regulated Subsidiaries currently participates and is a party to one or more
valid agreements with CMS authorizing its participation as a Medicare Advantage Program contractor.
None of the Regulated Subsidiaries has received any notice of any pending or threatened
investigations that reasonably would result in the termination of its contract(s) with CMS or its
exclusion or debarment from any Program and there is no civil, criminal, administrative or other
action, suit, demand, claim, hearing or notice of violation pending, received or threatened that
could reasonably be expected to result in a Regulated Subsidiary’s exclusion or debarment from
participation in any of the Programs in which it currently participates. The Practice Entity meets
in all material respects the requirements for participation in, and receipt of payment from, the
Programs in which the Practice Entity currently participates.
(d) Producers, Producer Contracts and Commissions. Each sales agent employed with a
Regulated Subsidiary is and each Producer contracted with the Regulated Subsidiaries is, properly
licensed and appointed to sell the MA Plans. The commissions payable by the Regulated Subsidiaries
to their employed and contracted Producers comply with applicable Health Care Laws. None of the
Producers has violated Laws applicable to the marketing or enrollment of the MA Plans. Section
3.25(d) of the Target Disclosure Schedule sets forth a list of each non-employee Producer which, in
calendar year 2009, was paid more than one percent (1%) of the total commissions paid by the
Regulated Subsidiaries to all non-employee Producers in 2009 (the “Material Producers”). Target
has delivered to Acquiror true and correct copies of all forms of contracts currently used by the
respective Regulated Subsidiaries with their non-employee Producers and copies of the Contracts
entered into by the respective Regulated Subsidiaries with their Material Producers. All of the
Contracts with Producers are in writing and signed, were entered into in the ordinary course of
business and constitute valid, binding and enforceable agreements of the parties thereto. Except
in the ordinary course of business, no past due amounts are owing by any of the Regulated
Subsidiaries under any Contracts with Producers and there are no outstanding written claims made by
a Producer that a Regulated Subsidiary has failed to perform a material monetary or nonmonetary
obligation arising under its Contract. All forms of the Contracts with Producers which are
currently in use by the Regulated Subsidiaries conform to the requirements of applicable Laws.
Except as set forth in Section 3.25(d) of the Target Disclosure Schedules, no consent or approval
is required to be obtained, and no notice required to be given, under any Contract with a Material
Producer in connection with the transactions contemplated by this Agreement. To Target’s
knowledge, there are no circumstances, including the consummation of the transactions contemplated
by this Agreement, which are likely to result in the termination, cancellation or nonrenewal of a
Contract with a Material Producer, or the cessation of business being transacted between a
Regulated Subsidiary and a Material Producer. Section 3.25(d) of the Target Disclosure Schedule
sets forth all pending written cancellation, termination or nonrenewal notices furnished to any of
the Regulated Subsidiaries by a Material Producer.
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(e) Providers and Provider Contracts. Section 3.25(e) of the Target Disclosure
Schedule sets forth a list of the following Providers (“Material Health Care Providers”): (i) the
top 20 hospitals, based on the total of all hospital payments made by the Regulated Subsidiaries in
calendar year 2009; (ii) the top 20 physician and physician groups, based on the total of all
physician payments made by the Regulated Subsidiaries in calendar year 2009, and any other primary
care physician or physician group who or which is assigned MA Plan Members that constitute greater
than one percent (1.0%) of the Regulated Subsidiaries’ total MA Plan Membership as of December 31,
2009; (iii) the top 20 ancillary or specialty Providers, based on the total of all ancillary and
specialty Provider payments made by the Regulated Subsidiaries in calendar year 2009; and (iv) the
top 20 pharmacies or pharmacy companies, based on the total of all payments made by the Regulated
Subsidiaries to pharmacies in calendar year 2009. Except in the ordinary course of business, no
past due amounts are owing by any of the Regulated Subsidiaries under any Contracts with Material
Health Care Providers and none of the Regulated Subsidiaries is aware of any outstanding written
claim made by a Material Health Care Provider that such Regulated Subsidiary has failed to perform
a material monetary or nonmonetary obligation arising under its contract. All of the contracts
with Material Health Care Providers are in writing and signed, were entered into in the ordinary
course of business and constitute valid, binding and enforceable agreements of the parties thereto.
All forms of the contracts with Providers which are currently in use by Regulated Subsidiaries
conform to the requirements of applicable Laws. Except as set forth in Section 3.25(e) of the
Target Disclosure Schedule, no consent or approval is required to be obtained, and no notice
required to be given, under any contract with a Material Health Care Provider in connection with
the transactions contemplated by this Agreement. To Target’s knowledge, there are no
circumstances, including the consummation of the transactions contemplated by this Agreement, which
are likely to result in the termination, cancellation or nonrenewal of a contract with a Material
Health Care Provider or the cessation of business being transacted between a Regulated Subsidiary
and a Material Health Care Provider. Section 3.25(e) of the Target Disclosure Schedule sets forth
all pending cancellation, termination or nonrenewal notices furnished to the Regulated Subsidiaries
by a Material Health Care Provider.
3.26 IBNR Report. The historical claims paid data contained in each of the categories
(including Medicaid and Medicare) of Target’s and/or its Subsidiaries’ lag models as of July 31,
2010, which have been provided to Acquiror, reflect substantially all claims paid by Target and/or
its Subsidiaries with respect to each such category as of the date(s) referenced
therein. Target’s Loss Reserves reflected in the Target Balance Sheet are adequate in all
material respects.
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4. Representations and Warranties of Acquiror and Merger Sub. Acquiror and Merger Sub
represent and warrant to Target that:
4.1 Organization, Standing and Power. Each of Acquiror and Merger Sub is a
corporation duly organized, validly existing and in good standing, if applicable, under the Laws of
the state in which it was incorporated. There is no pending or, to the knowledge of Acquiror or
Merger Sub, threatened, action for the dissolution, liquidation or insolvency of either Acquiror or
Merger Sub.
4.2 Authority. Acquiror and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the Merger. The execution and delivery by
Acquiror and Merger Sub of this Agreement and the consummation by Acquiror and Merger Sub of the
Merger have been duly authorized by all necessary corporate action on the part of Acquiror and
Merger Sub, and no other authorization or consent of Acquiror, Merger Sub or their respective
stockholders is necessary. This Agreement has been duly executed and delivered by Acquiror and
Merger Sub, and, assuming this Agreement constitutes the valid and binding obligation of Target,
this Agreement constitutes a valid and binding obligation of each of Acquiror and Merger Sub,
enforceable against each of Acquiror and Merger Sub in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting
or relating to creditors’ rights generally and general principles of equity, regardless of whether
asserted in a proceeding in equity or at Law. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or federal, state or local
regulatory authority is required to be obtained or made by Acquiror or Merger Sub at or prior to
the Effective Time in order for Acquiror or Merger Sub to execute and deliver this Agreement or to
consummate the Merger, except for such filings as may be required under HSR and as may be required
by any federal, state or local regulatory authority.
4.3 Noncontravention. Neither the execution and delivery by Acquiror and Merger Sub
of this Agreement, nor the consummation by Acquiror or Merger Sub of any of the transactions
contemplated hereby, will:
(a) conflict with or violate any provision of the certificate of incorporation or bylaws of
Acquiror or the certificate of incorporation or bylaws of Merger Sub;
(b) require on the part of Acquiror or Merger Sub any registration, declaration or filing
with, or any permit, order, authorization, consent or approval of, any Governmental Entity, except
for (i) compliance with the applicable requirements of HSR, (ii) the filing by Acquiror of such
reports and information with the SEC under the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder, as may be required in connection with this
Agreement, the Merger and the other transactions contemplated by this Agreement, and (iii) any
registration, declaration, filing, permit, order, authorization, consent or approval which if not
made or obtained would not reasonably be expected to have a material adverse effect on Acquiror’s
or Merger Sub’s ability to consummate
the Merger or any of the other transactions contemplated hereby (an “Acquiror Material Adverse
Effect”);
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(c) conflict with, result in a breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of obligations under, create in any party
any right to terminate or modify, or require any notice, consent or waiver under, any contract or
agreement to which Acquiror or Merger Sub is a party or by which Acquiror or Merger Sub is bound,
except for (i) any conflict, breach, default, acceleration or right to terminate or modify that
would not reasonably be expected to result in an Acquiror Material Adverse Effect or (ii) any
notice, consent or waiver the failure of which to make or obtain would not reasonably be expected
to result in an Acquiror Material Adverse Effect;
(d) violate any order, writ, injunction or decree applicable to Acquiror or Merger Sub or any
of their respective properties or assets, except for any violation that would not reasonably be
expected to have an Acquiror Material Adverse Effect;
(e) violate any Laws applicable to Acquiror or Merger Sub or any of their respective
properties or assets, except for any violation that would not reasonably be expected to result in
an Acquiror Material Adverse Effect; or
(f) render Acquiror insolvent or unable to pay its debts as they become due.
4.4 Litigation.
(a) There is no private or governmental action, suit, proceeding, claim, arbitration or, to
the knowledge of Acquiror, investigation, pending before any Governmental Entity or, to the
knowledge of Acquiror, threatened in writing against Acquiror or its Subsidiaries or any of their
respective properties or any of their respective officers or directors (in their capacities as
such) that would reasonably be expected to result in an Acquiror Material Adverse Effect.
(b) There is no judgment, decree or order against Acquiror or Merger Sub or, to the knowledge
of Acquiror and Merger Sub, against any of their respective directors or officers (in their
capacities as such) that specifically names Acquiror or its Subsidiaries or such directors or
officers and that would reasonably be expected to result in an Acquiror Material Adverse Effect.
4.5 Merger Sub. Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated by this Agreement.
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4.6 Adequacy of Funds. Acquiror has delivered to Target a true and complete copy of
the Commitment Letter (other than any Fee Letters relating solely to the payment of fees and that
do not affect the terms and conditions under which the financing that is the subject of the
Commitment Letter would be provided); provided, however, that the Parties acknowledge that the
Commitment Letter has been redacted with respect to confidential information contained
therein relating to fee amounts. As of the date of this Agreement, (i) the Commitment Letter
has not been amended or modified, and (ii) the commitments contained in the Commitment Letter have
not been withdrawn or rescinded in any respect. As of the date of this Agreement, no event or
circumstance has occurred or exists that would reasonably be expected to constitute a default or
breach or an incurable failure to satisfy a condition precedent under the terms and conditions of
the Commitment Letter. There are no conditions precedent or other contingencies, side agreements or
other arrangements or understandings (excluding the redacted portions of the Commitment Letter)
related to the funding of the Financing or the terms thereof, other than as set forth in the
Commitment Letter in the forms delivered to Target. Subject to the terms and conditions set forth
in the Commitment Letter, and subject to the terms and conditions set forth in this Agreement, the
aggregate proceeds contemplated by the Commitment Letter, together with the available cash on hand
of Acquiror, will be sufficient for Acquiror to consummate the transactions contemplated hereby
upon the terms contemplated by this Agreement. Acquiror has fully paid (or has caused to be fully
paid) any and all commitment fees that have been incurred and are due and payable in connection
with the Commitment Letter prior to the date of this Agreement and has otherwise satisfied (or
caused to be satisfied) all other terms and conditions required to be satisfied pursuant to the
terms of the Commitment Letter on or before the date hereof.
5. Conduct Prior to the Effective Time.
5.1 Conduct of Business of Target. During the period from the date of this Agreement
through the Effective Time (the “Pre-Closing Period”), except (i) as set forth on Section 5.1 of
the Target Disclosure Schedule, (ii) as contemplated by this Agreement, (iii) as reasonably
necessary to ensure that Target complies with applicable Law, or (iv) as consented to in writing by
Acquiror (which consent will not be unreasonably withheld, conditioned or delayed), (A) Target
shall, and shall cause each of its Subsidiaries to, use commercially reasonable efforts to (1)
carry on its business in the ordinary course consistent with past practices, (2) preserve intact
its present business organization, (3) preserve its relationships with providers, plan members,
suppliers, distributors, licensors, licensees, and others to whom it has material contractual
obligations or material business dealings or relations, (4) keep available the services of the
employees of Target and each Subsidiary of Target (without any obligation to increase the
compensation or benefits of any such employees or to promote any such employees), (5) continue in
full force and effect without material modification all existing policies or binders of insurance
currently maintained in respect of Target and each Subsidiary of Target, and (6) comply in all
material respects with all applicable Laws and all Material Contracts (which for the purpose of
this Section 5.1 shall include any contract that would be a Material Contract if existing on the
date of this Agreement); and (B) Target will not and will cause its Subsidiaries to not:
(a) Charter Documents. Amend its certificate of incorporation or bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of its capital stock
(other than cash dividends paid by a Subsidiary to Target or any other Subsidiary in accordance
with applicable Law), or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees, directors and consultants
in accordance with agreements providing for the repurchase of shares in connection with any
termination of service to it;
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(c) Issuance of Securities. Except as reasonably necessary to effectuate the
conversion of outstanding shares of Target Preferred Stock into Target Common Stock as provided in
Target’s certificate of incorporation, issue, sell or deliver any shares of Target Capital Stock or
securities convertible into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such shares or other
convertible securities other than the issuance of shares of Target Common Stock or Target Preferred
Stock pursuant to the exercise of Target Stock Options or Warrants outstanding as of the date of
this Agreement;
(d) Intellectual Property Rights. Enter into or amend any agreements pursuant to
which Target (i) transfers or licenses exclusively to any person any Target IP Right that is
material to the Target Business, or (ii) otherwise grants to any person exclusive rights in any
Target IP Right that is material to the Target Business;
(e) Dispositions. Sell, lease or license to any person, or permit the imposition of
any encumbrance (other than Permitted Encumbrances) on, any of its properties or assets that are
material, individually or in the aggregate, to the Target Business;
(f) Indebtedness. Incur, assume, guarantee or otherwise become liable or responsible
for any indebtedness for borrowed money, other than in the ordinary course of business, or
guarantee any such indebtedness, or issue or sell any debt securities or guarantee any debt
securities of others;
(g) Capital Expenditures. Make any capital expenditures, capital additions or capital
improvements, in excess of $500,000 in the aggregate other than as set forth in Target’s operating
plan;
(h) Insurance. Materially reduce the amount of any material insurance coverage
provided by existing insurance policies other than upon the expiration of any such policy;
(i) Waiver. Knowingly waive any material right under any Material Contract;
(j) Employee Benefit Plans; Pay Increases. Amend or adopt any Target Employee Plan,
pay any bonus or other compensation (except payments and benefits made pursuant to existing written
agreements that are disclosed on Section 3.16(a) of the Target Disclosure Schedule or that are
amended or adopted after the date of this Agreement and the cost of which constitutes a Specified
Transactional Expense), or increase the benefits, salaries or wage rates of its employees outside
the ordinary course of business;
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(k) Severance Arrangements. Grant or pay any severance or termination pay or
benefits to any director, officer or employee of Target, except for payments and benefits made
pursuant to existing agreements that are disclosed on Section 3.16(a) of the Target Disclosure
Schedule;
(l) Lawsuits. Commence a lawsuit other than (i) for the routine collection of bills,
(ii) in such cases where Target in good faith determines that failure to commence suit would result
in the material impairment of a valuable aspect of Target Business, provided that it consults with
Acquiror prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(m) Acquisitions. Acquire or agree to acquire by merging with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division of such entity or
otherwise acquire or agree to acquire any assets that are material individually or in the
aggregate, to its business, taken as a whole;
(n) Taxes. Make or change any material election in respect of Taxes, adopt or change
any accounting method in respect of Taxes, enter into any closing agreement, settle any material
claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation
period applicable to any material claim or assessment in respect of Taxes; or
(o) Other. Agree to take any of the actions described in Sections 5.1(a) through
5.1(n).
Notwithstanding the foregoing, Target and its Subsidiaries shall be permitted to sell any of
their long term investments prior to the Effective Time in their sole discretion.
5.2 No Solicitation.
(a) Target will not, directly or indirectly, and will cause its Subsidiaries, stockholders and
the respective officers, employees, agents, affiliates, directors, financial advisers, attorneys
and accountants of Target or its Subsidiaries to not, directly or indirectly:
(i) solicit, initiate, knowingly encourage or knowingly facilitate the making, submission or
announcement of any Acquisition Proposal with respect to Target or Acquisition Inquiry with respect
to Target;
(ii) furnish any information regarding Target to any person in connection with or in response
to an Acquisition Proposal with respect to Target or Acquisition Inquiry with respect to Target;
(iii) engage in discussions or negotiations with any person relating to any Acquisition
Proposal with respect to Target or Acquisition Inquiry with respect to Target;
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(iv) approve, endorse or recommend any Acquisition Proposal with respect to Target or
Acquisition Inquiry with respect to Target or any person or group becoming an “interested
stockholder” under Section 203 of the DGCL; or
(v) enter into any letter of intent or similar document or any contract (other than a
confidentiality agreement on the terms described below) contemplating or otherwise relating to any
Acquisition Transaction with respect to Target.
(b) Target will promptly (and in no event later than forty-eight (48) hours after receipt of
any Acquisition Proposal with respect to Target or Acquisition Inquiry with respect to Target)
advise Acquiror orally and in writing of any such Acquisition Proposal or Acquisition Inquiry
(including the identity of the person making or submitting such Acquisition Proposal or Acquisition
Inquiry and the terms of such Acquisition Proposal or Acquisition Inquiry and copies of all
correspondence and other written material sent or provided to such party in connection with such
Acquisition Proposal or Acquisition Inquiry) that is made or submitted by any person during the
Pre-Closing Period. Target will keep Acquiror reasonably informed with respect to: (i) the status
of any such Acquisition Proposal or Acquisition Inquiry; and (ii) the status and terms of any
material modification or proposed material modification to any Acquisition Proposal or Acquisition
Inquiry.
(c) Target will immediately cease and cause to be terminated any discussions existing as of
the date of this Agreement with any person that relate to any Acquisition Proposal or Acquisition
Inquiry.
(d) Target agrees not to release or permit the release of any person from, or to waive or
permit the waiver of any provision of, any confidentiality, non-solicitation, no hire, “standstill”
or similar contract to which any such party or any of its Subsidiaries is a party or under which
any such party or any of its Subsidiaries has any rights, and will use its commercially reasonable
efforts to cause each such agreement to be enforced in accordance with its terms at the request of
the other Party to this Agreement.
5.3 Employee Matters. Not less than fifteen (15) days prior to the Closing (or such
longer period as shall be required to comply with applicable Law), Acquiror shall provide written
notice to Target setting forth the names of the employees of Target and the Subsidiaries that
Acquiror intends Target and the Subsidiaries to terminate as of the Closing Date (the “Terminated
Employees”). Prior to the Closing, Target shall provide notice of termination effective
immediately prior to the Closing to all Terminated Employees in accordance with applicable Law.
All severance or other obligations of such Terminated Employees arising out of the termination of
their employment shall be paid by Target and the Subsidiaries and shall constitute Specified
Transactional Expenses to the extent set forth therein.
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6. Additional Agreements.
6.1 Access to Information. During the Pre-Closing Period, Target will afford Acquiror
and its Representatives reasonable access during normal business hours with reasonable prior notice
to (i) Target’s books, contracts, commitments, records, facilities, personnel, accountants,
counsel, providers and other Representatives, and (ii) other information
concerning the business, properties and personnel of Target as Acquiror may reasonably
request, for purposes of planning post-merger integration, consistent with Law; provided,
however, that in exercising access rights under this Section 6.1, (x) Acquiror will not be
permitted to unreasonably interfere with the conduct of the business of Target; and (y) Target may
require that any Representative(s) of Acquiror be accompanied by a Representative of Target in
connection with any meeting between Acquiror’s Representatives and employees of Target. Acquiror
and its Representatives will be bound by the provisions of the Confidentiality Agreement (as
defined below) with respect to all information obtained pursuant to this Section 6.1 and otherwise
in connection with this Agreement.
6.2 Public Disclosure. Except as may be required by Law or by obligations pursuant to
any listing agreement with the New York Stock Exchange or any applicable national securities
exchange, during the Pre-Closing Period, (a) Acquiror and Target will consult with each other
before issuing any press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the
terms of this Agreement and the transactions contemplated hereby, and (b) without limiting
Acquiror’s obligations under that certain confidentiality agreement, dated March 19, 2010, between
Target and Acquiror (the “Confidentiality Agreement”), neither Acquiror, Target nor the
Stakeholders’ Agent will issue any such press release or make any such public statement or
disclosure without the prior approval of Target and/or Acquiror, as the case may be (which approval
will not be unreasonably withheld or delayed). Notwithstanding anything contained herein to the
contrary, following the Closing the Stakeholders’ Agent shall be permitted to publicly announce
that it has been engaged to serve as Stakeholders’ Agent in connection with the Merger as long as
such announcement does not disclose any of the terms of the Merger or the other transactions
contemplated herein.
6.3 Regulatory Approval; Further Assurances.
(a) California Regulatory Approval. Target shall cause BHIC to diligently seek the
approval of the California Department of Managed Healthcare to a sale of BHIC which results from
the Merger pursuant to California Health and Safety Code § 1352 and 28 California Code of
Regulations § 1300.52.(d)(iii) (the “California Regulatory Approval”). Target shall cause BHIC to
use its commercially reasonable efforts to obtain the California Regulatory Approval as promptly as
practicable. Acquiror shall promptly provide BHIC with the Acquiror’s full cooperation and
assistance in connection with the California Regulatory Approval. BHIC and the Acquiror
respectively agree to respond, as promptly as practicable, to any requests for information,
inquiries or comment letters issued by the California Department of Managed Healthcare.
Furthermore, BHIC and Acquiror respectively agree to respond, as promptly as practicable, to any
proposed undertakings or commitments sought by the California Department of Managed Healthcare from
the Acquiror, the Surviving Corporation, BHIC or Target in connection with the California
Regulatory Approval.
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(b) Form A Filings. The Acquiror shall diligently file a Form A Statement with the
Insurance Commissioners in the respective States of Delaware, Maryland, Pennsylvania and Texas
seeking approval of Acquiror’s acquisition of control of each of BHIC, BHMD, BHPA and BHTX which
results from the Merger under the insurance holding company system Laws of the applicable Regulated
Subsidiaries’ domicile State (the “Form A Filings”).
Acquiror shall use its commercially reasonable efforts to obtain approval of the Form A
Filings as promptly as practicable. Target and the Regulated Subsidiaries, as applicable, shall
promptly provide Acquiror with their full cooperation and assistance in connection with the Form A
Filings. Acquiror, on the one hand, and Target and the applicable Regulated Subsidiaries, on the
other hand, agree to respond, as promptly as practicable, to any requests for information,
inquiries or comment letters issued by the applicable Insurance Commissioners in connection with
the Form A Filings. Furthermore, Acquiror and the Regulated Subsidiaries respectively agree to
respond, as promptly as practicable, to any proposed undertakings or commitments sought by
Insurance Commissioners from the Acquiror, the Surviving Corporation, the Regulated Subsidiaries or
Target in connection with the Form A Filings.
(c) Form E Filings. If required, the Regulated Subsidiaries shall diligently and
timely file a pre-acquisition notification on Form E with the applicable Insurance Commissioners to
demonstrate that the Merger will not violate the competitive standard in the applicable State’s
insurance holding company system Laws (the “Form E Filings”). The Regulated Subsidiaries, if
applicable, shall use their commercially reasonable efforts to have the Form E Filings deemed
approved as promptly as practicable. Acquiror shall promptly provide the Regulated Subsidiaries
with its full cooperation and assistance in connection with the Form E Filings. The Regulated
Subsidiaries, on the one hand, and Acquiror, on the other hand, agree to respond, as promptly as
practicable, to any requests for information, inquiries or comment letters issued by the applicable
Insurance Commissioners. Furthermore, Acquiror and the Regulated Subsidiaries respectively agree
to respond, as promptly as practicable, to any proposed undertakings or commitments sought by
Insurance Commissioners from the Acquiror, the Surviving Corporation, the Regulated Subsidiaries or
Target in connection with the Form E Filings.
(d) In addition to the foregoing obligations of the Parties in this Section 6.3, Acquiror and
Target will use commercially reasonable efforts to effectuate the Merger and make effective the
other transactions contemplated by this Agreement. Without limiting the generality of the
foregoing, each Party to this Agreement will: (i) make any filings and give any notices required to
be made or given by such Party in connection with the Merger and the other transactions
contemplated by this Agreement; (ii) use commercially reasonable efforts to obtain any consent
required to be obtained (pursuant to any applicable legal requirement, contract or otherwise) by
such Party in connection with the Merger or any of the other transactions contemplated by this
Agreement, including accepting or entering into undertakings or commitments sought by Governmental
Entities that are usual, customary and reasonable for transactions of the type contemplated by this
Agreement; and (iii) use commercially reasonable efforts to lift any restraint, injunction or other
legal bar to the Merger. In no event, however, shall Acquiror be required to take or refrain from
taking any action pursuant to this Section 6.3 or otherwise that would reasonably be expected to
have a material adverse impact on Acquiror or materially impair the benefit Acquiror otherwise
would derive from the transactions contemplated by this Agreement. Each of Acquiror and Target
will promptly deliver to the other a copy of each such filing made, each such notice given and each
such consent obtained during the Pre-Closing Period.
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(e) Each Party will use commercially reasonable efforts to file, as promptly as practicable
after the date of this Agreement, all notices, reports and other documents required to be filed by
such Party with any Governmental Entity with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional information requested by any
such Governmental Entity, including the provision by the Regulated Subsidiaries of notices to the
CMS, with a separate notice to the CMS Medicare Drug Benefit Group and Central Office MA plan
manager no later than 60 days prior to the date of Closing. Without limiting the generality of the
foregoing, as soon as practicable after the date of this Agreement, but in no event later the ten
(10) Business Days after the date of this Agreement, Acquiror and Target will file or cause to be
filed all requisite documents and notifications required under HSR in connection with the Merger.
Acquiror and Target will respond as promptly as practicable to (i) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for additional information
or documentation and (ii) any inquiries or requests received from any state attorney general or
other Governmental Entity in connection with antitrust or related matters. Subject to such
confidentiality restrictions as may be reasonably requested, Acquiror and Target will coordinate
and cooperate with one another in exchanging such information and each will render such reasonable
assistance as the other may request in connection with the foregoing. The filing fee will be paid
by the Acquiror.
(f) Acquiror and Target will promptly inform the other of any communication from any
Governmental Entity regarding the Merger, and consult and cooperate with one another, and consider
in good faith the views of one another, in connection with any analysis, appearance, presentation,
memorandum, brief, argument, opinion or proposal made or submitted by either of them in connection
with any investigation by any Governmental Entity of the Merger or legal proceeding relating to the
Merger. In addition, except as may be prohibited by any Governmental Entity or by any applicable
law, in connection with any investigation or legal proceeding relating to the Merger to which
either Acquiror or Target is a party, each of Acquiror and Target will provide prompt notice of and
permit authorized Representatives of the other party to be present at each meeting or conference
relating to any such investigation or legal proceeding and to be consulted in connection with any
document, opinion or proposal made or submitted to any Governmental Entity in connection with any
such investigation or legal proceeding.
6.4 FIRPTA Matters. At the Closing, Target will deliver to Acquiror: (a) a statement
conforming to the requirements of Section 1.897 — 2(h)(1)(i) of the United States Treasury
Regulations; and (b) the notification to the Internal Revenue Service required under Xxxxxxx 0.000
— 0(x)(0) xx xxx Xxxxxx Xxxxxx Treasury Regulations.
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6.5 Notification of Certain Matters. During the Pre-Closing Period, Target or
Acquiror, as the case may be, shall promptly notify the other party in writing if such party
becomes aware of (i) any fact or condition that causes or constitutes a material breach of any of
the representations and warranties of such party made as of the date of this Agreement, or (ii) the
occurrence after the date of this Agreement of any fact or condition that would be reasonably
likely to cause or constitute a material breach of such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or such party’s discovery
of, such fact or condition. If any such fact or condition requires any change to the schedules
prepared by a party, such party shall promptly deliver to the other Party a supplement to such
schedules specifying such change. In addition, during the Pre-Closing Period, Target or Acquiror,
as the case may be, shall promptly notify the other party of the occurrence of any material breach
of any covenant by such party in this Section 6 or of the occurrence of any event that may make the
satisfaction of any conditions in Section 7 impossible or unlikely. No disclosure pursuant to this
Section 6.5 will prevent or cure any breach of any representation or warranty or covenant set forth
herein.
6.6 Financial Statements. Until the Closing Date, Target shall deliver to Acquiror
within twenty-five (25) days after the end of each month a copy of the unaudited monthly
consolidated financial statements of Target and its Subsidiaries as of the end of such month and
for the fiscal period then ended prepared in a manner and containing information consistent with
the past practice of Target.
6.7 Financing.
(a) The Target shall provide, and shall cause its Subsidiaries, and shall use commercially
reasonable efforts to cause each of its and their respective Representatives, to provide all
cooperation reasonably requested by Acquiror in connection with the financings contemplated by
Acquiror to finance the Merger and other transactions contemplated by this Agreement (the
“Financing”) (provided that such requested cooperation does not unreasonably interfere with the
ongoing operations of the Target and its Subsidiaries), including (i) timely providing information
relating to the Target and its Subsidiaries to the lenders contemplated by the Commitment Letter
and any underwriters or initial purchasers of debt securities issued as part of the Financing
(collectively, the “Lenders”) (including information to be used in the preparation of an
information package regarding the business, operations, financial projections and prospects of
Acquiror and the Target customary for such Financing or reasonably necessary for the completion of
the Financing by the Lenders) to the extent reasonably requested by Acquiror to assist in
preparation of customary offering or information documents to be used for the completion of the
Financing, (ii) participating in a reasonable number of meetings (including customary one-on-one
meetings with the parties acting as lead arrangers for the Financing and senior management and
Representatives, with appropriate seniority and expertise, of the Target), presentations, road
shows, drafting sessions, due diligence sessions (including accounting due diligence sessions) and
sessions with the rating agencies, (iii) providing any information reasonably available to it as is
reasonably requested in connection with the preparation of (A) any customary offering documents,
bank information memoranda, private placement memoranda, prospectuses and similar documents
(including historical and pro forma financial statements and information) for any of the
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Financing,
and (B) materials for rating agency
presentations, (iv) cooperating with the marketing efforts for the Financing (including
consenting to the use of the Target’s and its Subsidiaries’ logos; provided that such logos are
used solely in a manner that is not intended to or reasonably likely to harm or disparage the
Target or its Subsidiaries or the reputation or goodwill of the Target or any of its Subsidiaries),
(v) executing and delivering (or using commercially reasonable efforts to obtain from its
advisors), and causing its Subsidiaries to execute and deliver (or using commercially reasonable
efforts to obtain from its advisors), customary certificates (including a certificate of the
principal financial officer of the Target or any Subsidiary with respect to solvency matters),
accounting comfort letters (including consents of accountants for use of their reports in any
materials relating to the Financing), legal opinions or other documents and instruments relating to
guarantees and other matters ancillary to the Financing as may be reasonably requested by Acquiror
as necessary and customary in connection with the Financing, (vi) (A) assisting in the preparation
of and entering into one or more credit agreements, currency or interest hedging agreements, or
other agreements and (B) causing the termination of the Target’s existing credit facilities and, if
required by Acquiror, the amendment of any of the Target’s or its Subsidiaries’ currency or
interest hedging agreements, or other agreements, in each case, on terms satisfactory to Acquiror
and that are reasonably requested by Acquiror in connection with the Financing, provided that no
obligation of the Target or any of its Subsidiaries under any such amended agreements or amendments
shall be effective until the Effective Time, (vii) as promptly as practicable, furnishing Acquiror
and the Lenders with all financial and other information regarding the Target and its Subsidiaries
as may be reasonably requested by Acquiror to assist in preparation of customary offering or
information documents to be used for the completion of the Financing, (viii) using commercially
reasonable efforts, as appropriate, to have its independent accountants provide their reasonable
cooperation and assistance, (ix) using commercially reasonable efforts to permit any cash and
marketable securities of the Target and its Subsidiaries to be made available to the Acquiror
and/or Merger Sub at the Closing, (x) providing authorization letters to the Lenders authorizing
the distribution of information to prospective lenders and containing a representation to the
Lenders that the public side versions of such documents, if any, do not include material non-public
information about the Target or its Affiliates or securities, (xi) providing audited consolidated
financial statements of the Target covering the three (3) fiscal years immediately preceding the
Closing for which audited consolidated financial statements are currently available, unaudited
financial statements (excluding footnotes) for any interim period or periods of the Target ended
after the date of the most recent audited financial statements and at least 45 days prior to the
Closing Date and (xii) cooperating reasonably with Acquiror’s financing sources’ due diligence, to
the extent customary and reasonable.
(b) Acquiror shall use its commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and
consummate the Financing on the terms and conditions described in the Commitment Letter, including
using its commercially reasonable efforts (i) to negotiate definitive agreements with respect
thereto on the terms and conditions contained in the Commitment Letter (the “Definitive Financing
Agreements”), (ii) to satisfy on a timely basis all conditions applicable to Acquiror in the
Definitive Financing Agreements, (iii) to comply with its obligations under the Commitment Letter
and the Definitive Financing Agreements and (iv) to preserve and maintain and, if necessary, take
reasonable and appropriate actions to enforce, its rights under the Commitment Letter and
Definitive Financing
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Agreements. Acquiror shall give
Target prompt notice upon becoming aware of any material breach by any party of the Commitment
Letter or Definitive Financing Agreements or any termination of the Commitment Letter or Definitive
Financing Agreements. Acquiror shall keep Target informed on a timely basis and in reasonable
detail of the status of its efforts to arrange the Financing and shall not permit any waiver of any
material provision or remedy under the Commitment Letter or Definitive Financing Agreements if such
waivers, taken as a whole, reduces the aggregate amount of the Financing, materially and adversely
amends the conditions to the drawdown of the Financing or is materially adverse to the interests of
Target in any other material respect, including without limitation the likelihood of the
satisfaction of the condition set forth in Section 7.2(k). In the event that Acquiror becomes aware
of any event or circumstance that makes procurement of any portion of the Financing unlikely to
occur in the manner or from the sources contemplated in the Commitment Letter, Acquiror shall
promptly notify Target and shall use its commercially reasonable efforts to arrange any such
portion from alternative sources as promptly as practicable with terms and conditions not
materially less favorable, from the standpoint of Acquiror than the terms and conditions relating
to the portion of the Financing being replaced.
6.8 Meeting of Stockholders.
(a) Following the date of this Agreement, Target will take all action necessary in accordance
with applicable Law and its organizational documents to convene a meeting of its stockholders, or
solicit written consents, as promptly as practicable to consider and vote upon the approval of this
Agreement and the Merger. Following the date of this Agreement, Target will use its commercially
reasonable efforts to cause each Former Stakeholder to ratify the appointment of the Stakeholders’
Agent pursuant to Section 9.3 hereof, and to provide evidence of the same to Acquiror.
(b) Prior to the Closing, Target will use its commercially reasonable efforts to take all
action necessary in accordance with applicable Law and its organizational documents to (i) conduct
a separate vote of its stockholders and perform such other reasonable acts as are within its power
to satisfy all of the requirements of Section 280G(b)(5)(B) of the Code and the regulations
thereunder for exemption of any compensation or other payment payable under any contract,
agreement, plan or arrangement covering any disqualified individual (as such term is defined in
Section 280G(c) of the Code) that would give rise to any excess parachute payment as that term is
defined in Section 280G(b) of the Code, and (ii) obtain the consent of each such disqualified
individual to conditionally waive the smallest portion necessary under Section 280G(b)(5)(B) of the
Code and the regulations thereunder of any such payments that are not so approved, such that after
giving effect to such vote and all related waivers and other agreements, if the requisite number of
affirmative votes are obtained, such payments, awards and benefits will qualify for the exemption
provided under Section 280G(b)(5)(A)(ii) of the Code and will not be subject to any excise tax
pursuant to Section 4999 of the Code.
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6.9 Indemnification of Officers and Directors of Target and its Subsidiaries.
(a) From and after the Effective Time, Acquiror will cause the Surviving Corporation and its
Subsidiaries to fulfill and honor in all respects the obligations of Target and its Subsidiaries
pursuant to any indemnification provisions under the certificate of
incorporation and bylaws of Target and the equivalent organization documents of its
Subsidiaries as each is in effect on the date of this Agreement (the persons entitled to be
indemnified pursuant to such provisions, and all other current and former directors and officers of
Target and its Subsidiaries, collectively, the “Indemnified Parties”). Acquiror will cause the
certificate of incorporation and bylaws of Merger Sub and the Surviving Corporation to contain
provisions not less favorable with respect to indemnification and exculpation from liability as set
forth in Target’s certificate of incorporation and bylaws on the date of this Agreement, which
provisions will not be amended, repealed or otherwise modified after the Effective Time in any
manner that would adversely affect the rights of any Indemnified Party under such certificate of
incorporation or bylaws.
(b) During the period ending on the sixth anniversary of the Effective Time, Acquiror will
cause the Surviving Corporation and its Subsidiaries to indemnify and hold harmless each
Indemnified Party against and from any costs or expenses (including reasonable attorneys’ fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection
with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative
or investigative, to the extent such claim, action, suit, proceeding or investigation arises out of
or pertains to (i) any action or omission or alleged action or omission in such Indemnified Party’s
capacity as a director, officer or employee of Target or any of its Subsidiaries (regardless of
whether such action or omission, or alleged action or omission, occurred prior to, on or after the
Closing Date) or (ii) any of the transactions contemplated by this Agreement; provided, however,
that if, at any time prior to the sixth anniversary of the Effective Time, any Indemnified Party
delivers to the Surviving Corporation or any Subsidiary a written notice asserting a claim for
indemnification under this Section 6.9(b), then the claim asserted in such notice will survive the
sixth anniversary of the Effective Time until the earlier of (i) such time as such claim is fully
and finally resolved or (ii) a reasonable person familiar with such matters would determine that
such claim has been fully and finally abandoned or waived by the Third Party asserting the claim.
In the event of any such claim, action, suit, proceeding or investigation, (i) the Surviving
Corporation or the Subsidiary, as applicable, will have the right to control the defense of such
matter after the Effective Time (it being understood that, by electing to control the defense, the
Surviving Corporation or the Subsidiary, as applicable, will be deemed to have waived any right to
object to the Indemnified Parties’ entitlement to indemnification under this Agreement with respect
to such matter), (ii) if the Surviving Corporation or the Subsidiary, as applicable, does not elect
to assume the defense of the matter, any counsel retained by the Indemnified Parties with respect
to the defense of such matter for any period after the Effective Time must be reasonably
satisfactory to Acquiror, and (iii) if the Surviving Corporation or the Subsidiary does not elect
to assume the defense of the matter, after the Effective Time, the Surviving Corporation or the
Subsidiary, as applicable, will pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received (provided that the Surviving Corporation or the Subsidiary
shall not be required to pay the fees and expenses of such counsel in the event of a final
non-appealable judicial determination that any Indemnified Party is not entitled to indemnification
under this Agreement or the certificate of incorporation or bylaws of the Surviving Corporation and
the equivalent organization documents of the Subsidiaries, and any amounts advanced on his or her
behalf will be remitted to the Surviving Corporation); provided, however, that neither Acquiror,
the Surviving Corporation nor any Subsidiary, nor any Indemnified Party, will be liable for any
settlement
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effected without
its, his or her express written consent, which consent will not be unreasonably withheld,
conditioned or delayed. The Indemnified Parties as a group may retain only one law firm at the
Surviving Corporation’s expense (in addition to local counsel) to represent them with respect to
any single action unless counsel for any Indemnified Party determines in good faith that, under
applicable standards of professional conduct, a conflict exists or is reasonably likely to arise on
any material issue between the positions of any two or more Indemnified Parties. Notwithstanding
anything to the contrary contained in this Section 6.9(b) or elsewhere in this Agreement, the
Surviving Corporation or the Subsidiary, as applicable, will not settle or compromise or consent to
the entry of any judgment or otherwise seek termination with respect to any claim, action, suit,
proceeding or investigation for which indemnification may be sought under this Section 6.9 unless
such settlement, compromise, consent or termination includes an unconditional release of all
Indemnified Parties from all liability arising out of such claim, action, suit, proceeding or
investigation.
(c) This Section 6.9 will survive the consummation of the Merger and the Effective Time, is
intended to benefit and may be enforced by the Indemnified Parties, and will be binding on all
successors and assigns of Acquiror and the Surviving Corporation.
6.10 Directors’ and Officers’ Insurance. After the Effective Time and for a period of
six years after the Effective Time, Acquiror will cause the Surviving Corporation to maintain in
effect the primary directors’ and officers’ liability insurance “tail” policy purchased by Target
in connection with and prior to the Merger.
6.11 Target 401(k) Plan. Target shall take all action necessary in accordance with
applicable Law to terminate the Target 401(k) plan (the “Target 401(k) Plan”) effective no later
than the day immediately prior to the Closing Date and in connection therewith Target shall fully
vest all accounts of all participants in the Target 401(k) Plan and provide for the distribution of
all such accounts pursuant to applicable Law. Target shall deliver to Acquiror at Closing duly
executed resolutions of the Board of Directors of Target reflecting the termination of the Target
401(k) Plan.
6.12 List of Stakeholders. Prior to Closing, Target shall deliver to Acquiror and the
Stakeholders’ Agent a correct and complete schedule that sets forth as of the Effective Time (i)
the number of shares of Target Capital Stock that each current stockholder of Target holds of
record, (ii) the number of shares of Target Common Stock issuable upon exercise of the Unexercised
Options and the name of each Target Option holder and Exercise Price of each Unexercised Option,
and (iii) the name of each person who will receive a bonus, change of control or other similar
payment from Target in connection with the transactions contemplated by this Agreement and the
gross amount to be paid by Target to each such person (such bonuses and payments are referred to as
the “Transaction Bonuses”).
6.13 Cancellation of Target Warrants. Target shall use its commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to cause all warrants to purchase shares of Target Capital Stock to
be exercised or canceled prior to the Closing Date. Target shall keep Acquiror informed on a
timely basis and in reasonable detail of the status of its efforts to cause such warrants to be
exercised or canceled. Target shall give Acquiror prompt notice if it becomes aware of any
event or circumstance that makes it reasonably unlikely that such warrants will be exercised
or canceled prior to the Closing Date.
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7. Conditions to the Merger.
7.1 Conditions to Obligation of Each Party to Effect the Merger. The respective
obligations of Acquiror and Merger Sub, on the one hand, and Target, on the other hand, to effect
the Merger and otherwise to consummate the transactions contemplated by this Agreement will be
subject to the satisfaction or waiver at or prior to the Closing of each of the following
conditions (it being understood that (i) any one or more of the following conditions may be waived
by the written agreement of Acquiror and Target and (ii) by proceeding with the Closing, Acquiror,
Merger Sub and Target will be deemed to have waived any of such conditions that remain
unsatisfied):
(a) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any U.S. federal or state court of
competent jurisdiction will have been issued and remain in effect, nor will there be any Law
enacted or deemed applicable to the Merger that prevents or prohibits consummation of the Merger or
makes the consummation of the Merger illegal.
(b) HSR. The waiting period applicable to the consummation of the Merger under HSR
will have expired or been terminated.
(c) Regulatory Approvals. All material notices and filings shall have been submitted,
and all approvals, consents, orders and waivers or expirations of waiting periods shall have been
obtained or occurred, as applicable, in connection with the California Regulatory Approval, the
Form A Filings, the Form E Filings and CMS such that (i) the Merger would not be rendered illegal
under any applicable Laws and (ii) the change of control of the Regulated Subsidiaries resulting
from the Merger shall have been approved or deemed approved by the applicable Governmental Entities
in each of California, Delaware, Maryland, Pennsylvania and Texas, to the extent required by Law.
The matters described in clause (ii) of the preceding sentence shall be referred to as the
“Required Regulatory Approvals”.
(d) No Governmental Litigation. There shall not be pending before any court of
competent jurisdiction any legal proceeding commenced by a Governmental Entity that may result in a
judgment in favor of such Governmental Entity for rescission of the Merger.
7.2 Additional Conditions to the Obligations of Acquiror and Merger Sub. The
obligations of Acquiror and Merger Sub to effect the Merger and otherwise to consummate the
transactions contemplated by this Agreement will be subject to the satisfaction or waiver at or
prior to the Closing of each of the following conditions (it being understood that (i) any one or
more of the following conditions may be waived in writing by Acquiror and (ii) by proceeding with
the Closing, Acquiror and Merger Sub will be deemed to have waived any of such conditions that
remain unsatisfied):
(a) Representations and Warranties. The representations and warranties of Target in
Section 3 shall be accurate in all material respects as of the date of this
Agreement and as of the Closing Date (except for representations or warranties limited by
materiality or the existence of a Target Material Adverse Effect, which shall be accurate in all
respects).
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(b) Performance of Covenants. Target will have complied with and performed in all
material respects all covenants and agreements under this Agreement required to be complied with or
performed by Target at or prior to the Closing.
(c) Certificate of Officer. Acquiror and Merger Sub will have received a certificate
executed on behalf of Target by an officer of Target (the “Target Closing Certificate”)
representing and warranting that the conditions set forth in Sections 7.2(a) and 7.2(b) have been
satisfied.
(d) No U.S. Governmental Litigation. There will not be pending before any court of
competent jurisdiction any legal proceeding commenced by a U.S. federal or state Governmental
Entity that is reasonably likely to result in a judgment in favor of such Governmental Entity and
that: (i) challenges the Surviving Corporation’s ownership of the Target Business; (ii) relates to
the transactions contemplated by this Agreement and seeks to obtain from Acquiror or Target any
damages or other relief that, if awarded, would have a material adverse effect on Acquiror and its
Subsidiaries (including the Surviving Corporation), taken as a whole; (iii) seeks to prohibit or
limit in any material respect Acquiror’s ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the Surviving Corporation; or
(iv) seeks to suspend, revoke or terminate those Licenses which would materially and adversely
affect the continued operations of the Target Business, in some substantial respect.
(e) Escrow Agreement. Escrow Agent and the Stakeholders’ Agent will have entered into
the Escrow Agreement.
(f) Resignation of Directors and Officers. All directors and officers of Target
and/or its Subsidiaries that Acquiror has requested to resign shall have resigned as of the Closing
Date.
(g) Certified Articles of Incorporation and Certificates of Good Standing. Target
shall have delivered to Acquiror articles of incorporation or articles of organization (or similar
organizational documents) of Target and each of its Subsidiaries (certified by the Secretary of
State of the applicable jurisdiction of incorporation or formation) and a certificate of good
standing from the applicable jurisdiction of incorporation and each other jurisdiction in which
Target and its Subsidiaries are qualified to do business for Target, each dated within ten (10)
Business Days prior to the Closing Date.
(h) Secretary’s Certificate. Acquiror shall have received a certificate of the
Secretary of Target certifying and attaching copies of the bylaws of Target, certifying and
attaching copies of all requisite resolutions duly adopted by Target’s board of directors and
stockholders authorizing the execution, delivery and performance of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, and certifying to the incumbency of the officers of Target executing this
Agreement and any other document relating to the transaction contemplated hereby or thereby.
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(i) Target Credit Facilities. Target’s credit facilities shall have been terminated
at or prior to Closing, and Acquiror shall have received pay-off letters from its lenders in form
and substance acceptable to Acquiror providing for, among other things, at Closing, the termination
of all security interests granted by Target and its Subsidiaries under or in connection with
Target’s credit facilities with respect to the assets of Target and its Subsidiaries (including the
authorization of the filing of all necessary UCC-3 termination statements and other necessary
documentation in connection with the termination of such security interests), executed by Target’s
lenders, in each case subject only to the repayment in full of such facilities at the Closing.
(j) Release of Encumbrances. All Encumbrances (other than Permitted Encumbrances and
other than those described in Section 7.2(i) above) on the assets of Target and its Subsidiaries
shall have been released.
(k) Financing. Acquiror shall have obtained the Financing on terms substantially
consistent with the Commitment Letter or otherwise on terms and conditions not materially less
favorable, from the standpoint of Acquiror, than the terms and conditions set forth in the
Commitment Letter.
(l) Dissenting Shares. The Dissenting Shares shall constitute no more than five
percent (5%) of the total amount of issued and outstanding shares of Target Capital Stock, and
Target shall have complied with all applicable provisions of Section 262 of the DGCL with respect
to the Dissenting Shares.
(m) No Target Material Adverse Effect. There shall not have been any Target Material
Adverse Effect and no event shall have occurred or circumstance exist that would reasonably be
expected to result in a Target Material Adverse Effect.
(n) Cancellation of Warrants. All warrants to purchase shares of Target Capital Stock
shall have been exercised or canceled.
7.3 Additional Conditions to Obligation of Target. The obligation of Target to effect
the Merger and to otherwise consummate the transactions contemplated by this Agreement will be
subject to the satisfaction or waiver at or prior to the Closing of each of the following
conditions (it being understood that (i) any one or more of the following conditions may be waived
by Target and (ii) by proceeding with the Closing, Target will be deemed to have waived any of such
conditions that remain unsatisfied):
(a) Representations and Warranties. The representations and warranties of Acquiror
and Merger Sub in Section 4 shall be accurate in all material respects as of date of this Agreement
and as of the Closing Date (except for representations or warranties limited by materiality or the
existence of an Acquiror Material Adverse Effect, which shall be accurate in all respects).
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(b) Performance of Covenants. Acquiror and Merger Sub will have each complied with
and performed in all material respects all of their respective material covenants and agreements
under this Agreement required to be complied with or performed by either of them at or prior to the
Closing.
(c) Certificate of Officers. Target will have received a certificate executed on
behalf of each of Acquiror and Merger Sub by an officer of Acquiror and Merger Sub, respectively,
representing and warranting that the conditions set forth in Sections 7.3(a) and 7.3(b) have been
satisfied.
(d) Escrow Agreement. Acquiror, Escrow Agent and the Stakeholders’ Agent will have
entered into the Escrow Agreement.
(e) Exchange Agent Agreement. Exchange Agent, Target, and Acquiror will have entered
into the Exchange Agent Agreement.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior to the Closing
(with respect to Sections 8.1(b) through 8.1(e), by notice from the terminating Party to the other
Party setting forth a brief description of the basis for termination):
(a) by the mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target if the Merger will not have been consummated by January 31,
2011; provided, however, that such date may be extended unilaterally by either Party to April 30,
2011 if all conditions to closing have been satisfied other than the condition set forth in Section
7.1(b) or 7.1(c) and other than those conditions that by their nature are to be satisfied at the
Closing (the later of January 31, 2011 or April 30, 2011, if applicable, being referred to as the
“Termination Date”); provided, further, that the right to terminate this Agreement under this
Section 8.1(b) will not be available to any Party whose failure to comply with or perform in any
material respect any obligation under this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date;
(c) by either Acquiror or Target if a court of competent jurisdiction or other Governmental
Entity will have issued a nonappealable final order, decree, injunction or other action having the
effect of preventing or prohibiting the Merger;
(d) without limiting the right of either Acquiror or Target to terminate this Agreement
pursuant to Section 8.1(b), by Target if (i) there is an inaccuracy in any of the representations
or warranties of Acquiror or Merger Sub in this Agreement such that the condition set forth in
Section 7.3(a) would not be satisfied, or there has been a breach by Acquiror or Merger Sub of any
of their respective covenants in this Agreement such that the condition set forth in Section 7.3(b)
would not be satisfied, (ii) Target will have delivered to Acquiror a written notice of such
inaccuracy or breach, and (iii) at least thirty (30) days will have elapsed since the delivery of
such notice without such inaccuracy or breach having been cured;
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(e) without limiting the right of either Acquiror or Target to terminate this Agreement
pursuant to Section 8.1(b), by Acquiror if (i) there is an inaccuracy in any of the representations
or warranties of Target in this Agreement such that the condition set forth in Section 7.2(a) would
not be satisfied, or there has been a breach by Target of any of its covenants in this Agreement
such that the condition set forth in Section 7.2(b) would not be satisfied, (ii) Acquiror will have
delivered to Target a written notice of such inaccuracy or breach, and (iii) at least thirty (30)
days will have elapsed since the delivery of such notice without such inaccuracy or breach having
been cured; or
(f) by either Acquiror or Target in the event that a Governmental Entity has unappealably and
finally denied or refused to furnish a Required Regulatory Approval or issued an order seeking to
enjoin the Merger or the change of control of one or more of the Regulated Subsidiaries or
requiring one or more of the Regulated Subsidiaries to cease and desist doing business such that,
in any case, the condition set forth in Section 7.1(c) shall become incapable of being satisfied.
8.2 Effect of Termination. In the event of termination of this Agreement as provided
in Section 8.1, except as set forth in Section 8.3 below, this Agreement will be of no further
force or effect, and there will be no liability on the part of Acquiror, Target, Merger Sub or
their respective officers, directors or stockholders, except to the extent that such liability
results from the willful material breach by a Party of any of its covenants set forth in this
Agreement; provided, however, that the provisions of Section 10 (and the Confidentiality Agreement)
will remain in full force and effect and survive any termination of this Agreement.
8.3 Termination By Target Because of Failure of Financing. In the event that all of
the other conditions to Closing described in Sections 7.1, 7.2 and 7.3 (other than conditions that
will be satisfied at the Closing) are satisfied, the Closing cannot occur on the Termination Date
solely as a result of Acquiror’s failure satisfy the condition in Section 7.2(k) and Target
terminates this Agreement pursuant to Section 8.1(b), Acquiror shall deliver by wire transfer to
Target within five (5) Business Days following Acquiror’s receipt of Target’s notice of the
termination of this Agreement Ten Million Dollars ($10,000,000) in cash (the “Termination Fee”).
The Parties acknowledge and agree that it would be impracticable or extremely difficult for any
Party to determine the actual damages resulting from any such breach or failure to perform by
Acquiror hereunder and, therefore, the Parties have agreed upon the foregoing remedy as liquidated
damages which shall not be deemed to be in the nature of a penalty. In the event Target terminates
this Agreement and Acquiror pays the Termination Fee to Target as described in this Section 8.3,
Target shall retain the Termination Fee as liquidated damages and all further rights and
obligations of the Parties under this Agreement will terminate except with respect to the
provisions of Section 10 (and the Confidentiality Agreement), which will remain in full force and
effect; provided, that if the condition to Closing in Section 7.2(k) is not satisfied because
Acquiror has willfully breached its covenants contained in Section 6.7(b), then Target shall be
entitled to pursue any available remedy for such breach and pursue damages in excess of the
Termination Fee. Except in a circumstance where Acquiror is found to have willfully breached its
covenants contained in Section 6.7(b), Target’s right to receive payment of the Termination Fee
from Acquiror shall be the sole and exclusive remedy of Target against Acquiror, the Lenders,
Merger Sub or any of their respective former, current or future directors,
officers, employees, agents, stockholders, representatives, affiliates or assignees or any
former, current or future director, officer, employee, agent, general or limited partner, manager,
member, stockholder, representative, affiliate or assignee of any of the foregoing (collectively,
the “Related Persons”) for any loss or damage suffered as a result of the failure of the Merger to
be consummated or for a breach or failure to perform under this Agreement or otherwise.
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9. Escrow and Indemnification
9.1 Escrow Fund.
(a) At the Closing, Acquiror will deposit with the Escrow Agent an amount equal to the sum of
(a) Three Million Dollars ($3,000,000) (the “Stakeholders’ Agent Escrow Amount”), plus (b) Fifty
Five Million Dollars ($55,000,000) (the “Indemnity Escrow Amount” and collectively with the
Stakeholders’ Agent Escrow Amount, the “Escrow Fund”). The Escrow Fund will be governed by the
terms set forth in the Escrow Agreement. The Indemnity Escrow Amount will be available (i) to
indemnify Acquiror pursuant to the indemnification provisions set forth in this Section 9, and (ii)
to make any payment on behalf of the Former Stakeholders to Acquiror pursuant to Section 2.13.
The Stakeholders’ Agent Escrow Amount will be available, without the requirement of any consent or
approval by Acquiror, to indemnify and hold the Stakeholders’ Agent harmless against any liability,
loss, damage, penalty, fine, cost or expense incurred by the Stakeholders’ Agent without gross
negligence or willful misconduct on the part of the Stakeholders’ Agent and arising out of or in
connection with the acceptance or administration of its duties under this Agreement and the Escrow
Agreement, and in no event will any of such liabilities, losses, damages, penalties, fines, costs
or expenses payable to the Stakeholders’ Agent be paid from the Indemnity Escrow Amount.
(b) On the first Business Day following the Initial Claim Termination Date, Acquiror and the
Stakeholders’ Agent will be obligated to instruct the Escrow Agent to pay to each Former
Stakeholder, in immediately available funds from the Indemnity Escrow Amount of the Escrow Fund, a
dollar amount equal to each such Former Stakeholder’s Pro Rata Portion of the difference between
(i) the aggregate amount then held in the Indemnity Escrow Amount of the Escrow Fund and (ii) the
sum of (A) Twenty Three Million Dollars ($23,000,000) (the “Three Year Escrow Amount”) and (B) a
reserve amount equal to the estimate of Damages set forth in the Claims Notices relating to all
pending and unresolved Claims. On the first Business Day following the Final Claim Termination
Date, Acquiror and the Stakeholders’ Agent will be obligated to instruct the Escrow Agent to pay to
each Former Stakeholder, in immediately available funds from the Indemnity Escrow Amount of the
Escrow Fund, a dollar amount equal to each such Former Stakeholders’ Pro Rata Portion of the
difference between (i) the aggregate amount then held in the Indemnity Escrow Amount of the Escrow
Fund and (ii) a reserve amount equal to the estimate of Damages set forth in the Claims Notices
relating to all pending and unresolved Claims. Any reserve amounts held in the Indemnity Escrow
Amount of the Escrow Fund following the Final Claim Termination Date that are not expended in
resolving a Claim shall be disbursed to the Former Stakeholders upon final resolution of the Claim
to which it relates or if a reasonable person familiar with such matters would determine that such
claim has been fully and finally abandoned or waived by the Third Party asserting the claim.
Following the resolution of all Claims, the Stakeholders’ Agent Amount shall be disbursed to the
Former Stakeholders as set forth in the Escrow Agreement.
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9.2 Indemnification.
(a) Expiration of Representations, Warranties and Covenants. Acquiror’s right to
indemnification pursuant to Section 9.2 will expire on the date eighteen (18) months after the
Closing Date (the “Initial Claim Termination Date”); provided, however, that Acquiror’s right to
indemnification pursuant to Sections 9.2(b)(iii) and 9.2(b)(v) will expire on the third anniversary
of the Closing Date (the “Final Claim Termination Date”) (except with respect to any Claims pending
on that date); and provided, further, that if at any time prior to the Initial Claim Termination
Date or the Final Claim Termination Date, as applicable, Acquiror delivers to the Stakeholders’
Agent a notice (a “Claim Notice”) stating (i) the existence of an inaccuracy in any of the
representations and warranties made by Target or a breach of a covenant made by Target (and setting
forth in reasonable detail the basis for Acquiror’s determination that such an inaccuracy or breach
exists and the amount of the Damages incurred or Acquiror’s good faith estimate of the Damages to
be incurred by Acquiror as a result of such inaccuracy or breach) or (ii) a set of facts that have
been alleged by a Third Party that is reasonably believed to be true and, if ultimately determined
to be true, would constitute an inaccuracy in any of the representations and warranties made by
Target or the breach of a covenant made by Target (and setting forth in reasonable detail
Acquiror’s good faith estimate of the Damages to be incurred by Acquiror as a result of such
inaccuracy or breach) and asserting a claim for recovery under this Section 9.2 based on such
inaccuracy or breach, then the claim asserted in such notice will survive the Initial Claim
Termination Date or the Final Claim Termination Date, as applicable, until the earlier of such time
as (i) such claim is fully and finally resolved or (ii) a reasonable person familiar with such
matters would determine that such claim has been fully and finally abandoned or waived by the Third
Party asserting the claim. All obligations of the Parties under the covenants contained in this
Agreement (including the covenants set forth in Sections 5 and 6) will expire at the Effective
Time, except to the extent that any such covenant expressly specifies that it is to be (or is
otherwise required by this Agreement to be) performed after the Effective Time; provided, further,
however, that notwithstanding the expiration of the Parties’ obligations under such covenants,
claims for breaches of any covenants of Target prior to their expiration, other than relating to
Section 9.2(b)(iii) and 9.2(b)(v) may be brought after the Effective Time and until the Initial
Claim Termination Date. The Parties acknowledge that the time periods set forth in this Section 9
and elsewhere in this Agreement for the assertion of claims and notices under this Agreement are
the result of arms’-length negotiation among the Parties and that they intend for the time periods
to be enforced as agreed by the Parties. The Parties further acknowledge that the time periods set
forth in this Section 9 and elsewhere in the Agreement may be shorter than otherwise provided by
Law.
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(b) Indemnification. Subject to the limitations set forth in Sections 9.2(a) and
9.2(c) and the other limitations set forth in this Agreement, from and after the Effective Time
Acquiror will be entitled to be indemnified, solely from the Indemnity Escrow Amount of the Escrow
Fund, against any Damages arising from or in connection with (i) any inaccuracy in any
representation or warranty of Target set forth in Section 3 or any Target Closing Certificate, (ii)
the breach of any covenant of Target in this Agreement, (iii) any amounts owed by Target or its
Subsidiaries to any Governmental Entity or third party arising out of overpayments to Target or its
Subsidiaries relating to periods of service prior to the Closing Date, whether such
overpayments
are determined as a result of any adjustment to premiums,
audit, investigation or other similar process, (iv) any penalties and interest owed by Target
or the Subsidiaries relating to Taxes arising out of or relating to adjustments to Target’s Loss
Reserve as of the Closing Date on the balance sheet of Target as of the day immediately following
the Effective Time, and (v) any Damages relating to any Covered Matter (notwithstanding the
disclosure of any Covered Matter prior to Closing) in excess of the accruals included in the Target
Current Liabilities or the Target Statutory Liabilities specifically relating to any Covered
Matter. For purposes of this Section 9, “Damages” will mean any liabilities, losses, damages,
penalties, fines, costs or expenses, including reasonable legal, expert and consultant fees and
expenses, but excluding any exemplary or punitive damages, other than awards of exemplary or
punitive damages paid or payable to a third party under a third party claim. In determining the
amount of Damages pursuant to this Section 9, Damages shall include only the amounts in excess of
reserves or accruals included in the Target Current Liabilities or the Target Statutory Liabilities
with respect to the specific claim from which the Damages result.
(c) Limitations of Liability.
(i) The right of Acquiror to be indemnified from the Indemnity Escrow Amount of the Escrow
Fund pursuant to this Section 9 will be the sole and exclusive remedy with respect to any
inaccuracy of any representation or warranty of Target contained in, or any other breach by Target
of this Agreement or otherwise in connection with the transactions contemplated hereby. Subject to
Section 9.2(c)(iii), no current or former stockholder, director, officer, employee, affiliate or
advisor of Target will have any personal or individual liability of any nature to Acquiror, the
Surviving Corporation or any affiliate of Acquiror or the Surviving Corporation with respect to any
inaccuracy of any representation or warranty contained in, or any other breach of, this Agreement
or otherwise in connection with the transactions contemplated hereby.
(ii) Without limiting the effect of any other limitation contained in this Section 9, the
indemnification provided for in Section 9.2(b)(i) or (ii) will not apply, and Acquiror will not be
entitled to exercise any indemnification rights under this Agreement, except to the extent that the
aggregate amount of the Damages against which Acquiror would otherwise be entitled to be
indemnified under Section 9.2(b)(i) or (ii) exceeds One Million Dollars $1,000,000 (the
“Indemnification Threshold”). If the aggregate amount of such Damages exceeds the Indemnification
Threshold, then Acquiror will, subject to the other limitations contained in this Agreement, be
entitled to be indemnified from the Indemnity Escrow Amount of the Escrow Fund only against the
portion of such Damages in excess of the Indemnification Threshold. The Indemnification Threshold
shall not apply to the indemnification provided for in Section 9.2(b)(iii), Section 9.2(b)(iv) or
Section 9.2(b)(v), and amounts indemnifiable pursuant to Section 9.2(b)(iii), Section 9.2(b)(iv) or
Section 9.2(b)(v) will not be counted toward the Indemnification Threshold. However, in no event
shall the aggregate indemnification payments to be made pursuant to this Section 9 exceed Fifty
Five Million Dollars ($55,000,000) (the “Indemnification Cap”).
(iii) Nothing in this Agreement will limit any remedy Acquiror may have against any person for
fraud in connection with this Agreement and the transactions contemplated hereby under applicable
Laws.
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(d) Defense of Third-Party Claims.
(i) Promptly after receipt by a Party purporting to be entitled to indemnification under
Section 9.2 (the “Indemnitee”) of notice of the commencement of any Action against it, such
Indemnitee will, if a Claim is to be made against a Party obligated to indemnify under such Section
(the “Indemnitor”), give notice to the Indemnitor (which, in the case of indemnification payable
from the Indemnity Escrow Amount of the Escrow Fund shall be the Stakeholders’ Agent) of the
commencement of such Action, but the failure to notify the Indemnitor will not relieve the
Indemnitor of any liability that it may have to any Indemnitee, except to the extent that (i) the
defense of such Action is materially prejudiced by the Indemnitee’s failure to give such notice or
(ii) the Indemnitee fails to notify the Indemnitor of the Action prior to the Initial Claim
Termination Date as described in Section 9.2(a). Each such notice shall specify in reasonable
detail the basis for Indemnitee’s Claim.
(ii) If any Action is brought against an Indemnitee and it gives notice to the Indemnitor of
the commencement of such Action, the Indemnitor will be entitled to participate in such Action and,
to the extent that it wishes (unless the Indemnitor is also a party to such Action and the
Indemnitee reasonably determines in good faith that joint representation of both parties by the
same counsel would be materially adverse to the Indemnitee or counsel for the Indemnitee determines
in good faith that, under applicable standards of professional conduct, a conflict exists or is
reasonably likely to arise on any material issue between the positions of Indemnitor and Indemnitee
(any refusal of such assumption by the Indemnitee is referred to herein as a “Permitted Defense
Assumption Refusal”)) to assume the defense of such Action with counsel reasonably satisfactory to
the Indemnitee and, after notice from the Indemnitor to the Indemnitee of its election to assume
the defense of such Action, the Indemnitor will not, as long as it diligently conducts such
defense, be liable to the Indemnitee under this Section 9 for any fees or expenses of any other
counsel or any other expenses with respect to the defense of such Action, in each case incurred by
or on behalf of the Indemnitee, including any such fees or expenses incurred prior to the
Indemnitor’s delivery of notice of assumption of the defense to the Indemnitee; provided, however,
that the Indemnitee may, prior to the date on which it receives such notice of assumption of the
defense, (I) retain counsel, whose reasonable fees and expenses shall (subject to the remainder of
this Section 9.2(d)(ii)) be at the expense of the Indemnitor, (II) file any motion, answer or other
pleading and (III) take such other action that it reasonably shall deem necessary to protect its
interests (without prejudicing the interests of the Indemnitor) or those of the Indemnitor until
the date on which the Indemnitee receives such notice from the Indemnitor. If the Indemnitor
assumes the defense of an Action, (A) it will be conclusively established for purposes of this
Agreement that the claims made in that Action are within the scope of and subject to
indemnification under this Agreement, and (B) the Indemnitor, so long as it diligently conducts
such defense, shall have full and exclusive control of the conduct of such defense and the
compromise and/or settlement of such Action; provided, however, that no compromise or settlement of
such Action may be effected by the Indemnitor without the Indemnitee’s consent (such consent not to
be unreasonably withheld, conditioned or delayed). If the Indemnitor assumes the defense of an
Action, or if the Indemnitor elects to assume such defense but Indemnitee effects a Permitted
Defense Assumption Refusal, then the Indemnitor will have no liability with respect to any
compromise or settlement of such Action effected without its consent (such consent not to be
unreasonably withheld, conditioned or delayed). If
notice is given to an Indemnitor of the commencement of any Action and the Indemnitor does
not, within ten Business Days after the Indemnitee’s notice is given, give notice to the Indemnitee
of its election to assume the defense of such Action, the Indemnitor will be bound by any
determination made in such Action or any compromise or settlement effected by the Indemnitee
(subject to the Indemnification Threshold and Indemnification Cap).
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(iii) In addition to any rights of Acquiror with respect to Permitted Defense Assumption
Refusals described above, if any Action is brought against Acquiror, Target or the Subsidiaries by
any Governmental Entity, Acquiror shall have the right, by notice to the Stakeholders’ Agent, to
assume and control the conduct, compromise or settlement of the defense of such Action; provided,
however, that (a) Acquiror shall keep the Stakeholders’ Agent reasonably apprised of the status of
the defense of such Action, (b) the Stakeholders’ Agent shall have the right to participate in the
defense of such Action, (c) the Former Stakeholders shall have no liability with respect to any
compromise or settlement of such Action effected without the consent of the Stakeholders’ Agent
(which consent may not be unreasonably withheld, conditioned or delayed), and (d) all fees or
expenses of the Stakeholders’ Agent’s counsel or any other expenses with respect to the
Stakeholders’ Agent’s participation in the defense of such Action shall be paid exclusively out of
the Stakeholders’ Agent Escrow Amount or by the Former Stakeholders directly.
(iv) In connection with the defense of any Action as described in this Section 9, Target and
the Subsidiaries will afford Indemnitor and its Representatives reasonable access during normal
business hours with reasonable prior notice to Target’s and the Subsidiaries’ records and other
documents that are reasonably necessary for the defense of such Action by the Indemnitor, and shall
cooperate with Indemnitor and its Representatives in the defense of any such Action as reasonably
requested by Indemnitor. Prior to the disclosure of any of Target’s or the Subsidiaries’ records
or other documents, the Target and its Representatives shall enter into a confidentiality agreement
with Acquiror in a form reasonably acceptable to Acquiror.
(e) Subrogation. To the extent that Acquiror is entitled to indemnification pursuant
to this Section 9, the Stakeholders’ Agent will be entitled to exercise for the benefit of the
Former Stakeholders, and will be subrogated to, any rights and remedies (including rights of
indemnity, rights of contribution and other rights of recovery) that Acquiror or any of Acquiror’s
Subsidiaries or other affiliates may have against any other person with respect to any Damages,
circumstances or matter to which such indemnification is directly or indirectly related. Acquiror
will permit the Stakeholders’ Agent to use the name of Acquiror, the Surviving Corporation or their
respective affiliates in any transaction or in any proceeding or other matter involving any of such
rights or remedies, and Acquiror will take such actions as the Stakeholders’ Agent may reasonably
request for the purpose of enabling the Stakeholders’ Agent to perfect or exercise the right of
subrogation of the Stakeholders’ Agent under this Section 9.2(e).
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9.3 Stakeholders’ Agent.
(a) By virtue of the approval of this Agreement by Target’s stockholders, the consummation of
the Merger, and the Former Stakeholders’ participation in
and receipt of consideration in the Merger, and without further action of any Former
Stakeholder, each Former Stakeholder will be deemed to have irrevocably constituted and appointed
the Stakeholders’ Agent (and by execution of this Agreement it hereby accepts such appointment) as
agent and attorney-in-fact for and on behalf of the Former Stakeholders, with full power of
substitution, to act in the name, place and stead of each Former Stakeholder with respect to this
Section 9 and the Escrow Agreement and the taking by the Stakeholders’ Agent of any and all actions
and the making of any decisions required or permitted to be taken by the Stakeholders’ Agent under
this Agreement or the Escrow Agreement, including the exercise of the power to: (i) give and
receive notices and communications under this Section 9 or the Escrow Agreement; (ii) participate
on behalf of the Former Stakeholders in the resolution of any dispute relating to the Closing
Adjustment; (iii) authorize delivery to Acquiror of cash from the Indemnity Escrow Amount of the
Escrow Fund in satisfaction of claims for indemnification made by Acquiror under this Section 9;
(iv) object to claims for indemnification made by Acquiror under this Section 9; (v) agree to,
negotiate, enter into settlements and compromises of, and comply with orders of courts with respect
to claims for indemnification made by Acquiror under this Section 9; (vi) take all actions
necessary or appropriate in the good faith judgment of the Stakeholders’ Agent for the
accomplishment of the foregoing; and (vii) obtain reimbursement for all out-of-pocket expenses in
connection with its duties under this Agreement from the Stakeholders’ Agent Escrow Amount. The
power of attorney granted in this Section 9.3 is coupled with an interest and is irrevocable, may
be delegated by the Stakeholders’ Agent and will survive the dissolution, death or incapacity of
any Former Stakeholder. If the Stakeholders’ Agent shall be dissolved, die, be removed, become
disabled, resign or otherwise be unable to fulfill its responsibilities hereunder, the Former
Stakeholders shall (by consent of at least three of Salix Ventures, New Enterprise Associates,
Xxxxxxx Healthcare and Technology Ventures and CCP Equity Partners, within ten days after such
dissolution, death, removal, disability, resignation or inability, appoint a successor to the
Stakeholders’ Agent and immediately thereafter notify Acquiror of the identity of such successor.
Any such successor shall succeed the former Stakeholders’ Agent as the Stakeholders’ Agent
hereunder. If for any reason there is no Stakeholders’ Agent at any time, all references herein to
the Stakeholders’ Agent shall be deemed to refer to the Former Stakeholders. No bond will be
required of the Stakeholders’ Agent. Each Former Stakeholder hereby agrees to receive
correspondence from the Stakeholders’ Agent, including in electronic form.
(b) The Stakeholders’ Agent will not be liable for any liability, loss, damage, penalty, fine,
cost or expense incurred without gross negligence by the Stakeholders’ Agent while acting in good
faith and arising out of or in connection with the acceptance or administration of its duties under
this Agreement; it being understood that any act done or omitted pursuant to the advice of counsel
will be conclusive evidence of such good faith). The Former Stakeholders shall indemnify, defend
and hold harmless the Stakeholders’ Agent and its successors and assigns from and against any and
all claims, demands, suits, actions, causes of action, losses, damages, obligations, liabilities,
costs and expenses (including attorneys’ fees and court costs) arising as a result of or incurred
in connection with any actions taken or omitted to be taken by the Stakeholders’ Agent pursuant to
the terms of this Agreement, except to the extend it is finally adjudicated that the Stakeholders’
Agent was grossly negligent or engaged in willful misconduct. If not paid directly to the
Stakeholders’ Agent by the Former Stakeholders or from the
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Stakeholders’ Agent Escrow Amount, any
such losses, liabilities or expenses may be
recovered by the Stakeholders’ Agent from amounts to be disbursed to the Former Stakeholders
from the Indemnity Escrow Amount following the final release of the Escrow Fund pursuant to the
terms hereof; provided, that this does not relieve the Former Stakeholders from their obligation to
promptly pay such losses, liabilities or expenses, nor does it prevent the Stakeholders’ Agent from
seeking any remedies available to it at law or otherwise. The Stakeholders’ Agent will be entitled
to recover any out-of-pocket costs and expenses reasonably incurred by the Stakeholders’ Agent in
connection with actions taken by the Stakeholders’ Agent pursuant to the terms of this Agreement or
the Escrow Agreement (including the hiring of legal counsel and the incurring of legal fees and
costs) from the Stakeholders’ Agent Escrow Amount of the Escrow Fund, without the requirement of
any consent or approval by Acquiror, to the extent not reimbursable from the Indemnity Escrow
Amount.
(c) From and after the Effective Time, Acquiror will cause the Surviving Corporation to
provide the Stakeholders’ Agent with reasonable access to information about the Surviving
Corporation and the reasonable assistance of the officers and employees of Acquiror and the
Surviving Corporation for purposes of performing its duties and exercising its rights under this
Agreement, provided that the Stakeholders’ Agent will treat confidentially any nonpublic
information it receives from Acquiror regarding the Surviving Corporation (except in connection
with the performance by the Stakeholders’ Agent of its duties or the exercise of its rights under
this Agreement).
9.4 Actions of the Stakeholders’ Agent. From and after the Effective Time, a
decision, act, consent or instruction of the Stakeholders’ Agent will constitute a decision of all
Former Stakeholders and will be final, binding and conclusive upon each Former Stakeholder, and the
Escrow Agent and Acquiror may rely upon any decision, act, consent or instruction of the
Stakeholders’ Agent as being the decision, act, consent or instruction of each Former Stakeholder.
Acquiror and Surviving Corporation are hereby relieved from any liability to any person for any
acts done by Stakeholders’ Agent and any acts done by Acquiror or Surviving Corporation in
accordance with any such decision, act, consent or instruction of the Stakeholders’ Agent.
9.5 Tax Matters. The Parties agree that (i) any amounts released to Acquiror from the
Indemnity Escrow Amount of the Escrow Fund pursuant to this Agreement will be treated as a
reduction in the aggregate consideration paid in connection with the Merger for federal income tax
purposes; (ii) amounts paid to the holders of Target stock from the Escrow Fund or pursuant to
Section 2.13 hereof will be treated as an increase in the aggregate consideration paid in
connection with the Merger for federal income tax purposes; and (iii) amounts described in clause
(ii) will be reported on the installment method of tax reporting (unless a particular Target
stockholder elects otherwise). All interest and other income earned on the Escrow Fund (net of any
losses and expenses) will be retained by the Escrow Agent and added to and become part of the
Escrow Fund; provided, that on a quarterly basis the Escrow Agent shall, without the requirement of
any consent or approval by the Stakeholders’ Agent, pay to Acquiror an amount equal to 40% of the
interest and other income earned on the Escrow Fund during the preceding quarter. The Parties
hereto agree that all income, gain, loss and deductions derived from the investment of the Escrow
Fund will be taken into account for income tax purposes by the Acquiror. Acquiror will be
responsible for advising and assisting the Escrow
Agent with any Tax reporting required in connection with reporting taxable income earned from
investment of the Escrow Fund and disbursements from the Escrow Fund, subject to the prior review
and approval of the Stakeholders’ Agent.
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10. General Provisions.
10.1 Notices. All notices and other communications hereunder will be in writing and
will be deemed duly delivered (i) upon receipt if delivered personally, (ii) one (1) Business Day
after being sent by commercial overnight courier service, or (iii) upon transmission (if sent
during business hours), or at the opening of business on the next Business Day (if not sent during
business hours), if sent via facsimile or electronic mail (e-mail) with confirmation of receipt to
the Parties at the following addresses (or at such other address for a Party as will be specified
upon like notice):
(a) if to Acquiror or Merger Sub, to:
HealthSpring, Inc.
0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxx 00000
Attention: X. Xxxxxx Xxxxxx
Facsimile: (000) 000-0000
E-mail: xxxxxx.xxxxxx@xxxxxxxxxxxx.xxx
0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxx 00000
Attention: X. Xxxxxx Xxxxxx
Facsimile: (000) 000-0000
E-mail: xxxxxx.xxxxxx@xxxxxxxxxxxx.xxx
with a copy (which shall not constitute notice) to:
Bass, Xxxxx & Xxxx PLC
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: J. Xxxxx Xxxxxxx, Jr.
Facsimile: (000) 000-0000
E-mail: xxxxxxxx@xxxxxxxxx.xxx
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: J. Xxxxx Xxxxxxx, Jr.
Facsimile: (000) 000-0000
E-mail: xxxxxxxx@xxxxxxxxx.xxx
(b) if to Target, to:
Bravo Health, Inc.
0000 X’Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Facsimile: (000) 000-0000
E-mail: xxxxxxx.xxxxxxxx@xxxxxxxxxxx.xxx
0000 X’Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Facsimile: (000) 000-0000
E-mail: xxxxxxx.xxxxxxxx@xxxxxxxxxxx.xxx
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with a copy (which shall not constitute notice) prior
to the Effective Time to:
Xxxxxx LLP
000 0xx Xxxxxx, XX, Xxxxx 0000
Xxxxxxxxxx, XX 00000
000 0xx Xxxxxx, XX, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx
Attention: Xxxx Xxxxxxxx
Facsimile: (000) 000-0000
E-mail: xxxxxxxx@xxxxxx.xxx
E-mail: xxxxxxxxx@xxxxxx.xxx
Attention: Xxxx Xxxxxxxx
Facsimile: (000) 000-0000
E-mail: xxxxxxxx@xxxxxx.xxx
E-mail: xxxxxxxxx@xxxxxx.xxx
(c) if to the Stakeholders’ Agent, to:
Shareholder Representative Services, LLC
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Managing Director
Facsimile: (000) 000-0000
E-mail: xxxxx@xxxxxxxxxxxxxx.xxx
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Managing Director
Facsimile: (000) 000-0000
E-mail: xxxxx@xxxxxxxxxxxxxx.xxx
10.2 Additional Definitions.
(a) In this Agreement, any reference to a “Target Material Adverse Effect” means any effect
that is, or is likely to be, materially adverse to the Target Business taken as a whole; provided,
however, that none of the following will be deemed, either alone or in combination, to constitute,
and none of the following will be taken into account in determining whether there has been or will
be, a Target Material Adverse Effect:
(i) any failure by Target to meet internal or other financial estimates or forecasts of
revenue, net income or any other measure of financial performance, provided that the underlying
causes of such failure may be considered in determining whether there has been or could reasonably
be expected to be a Target Material Adverse Effect; or
(ii) any adverse effect (including any claim, litigation, reduction in revenues or income,
disruption of business relationships or loss of employees) arising from or attributable or relating
to (A) the announcement or pendency of any of the transactions contemplated by this Agreement,
(B) conditions affecting (1) the industry in which Target or any of its Subsidiaries operates or
participates or (2) the U.S. economy or financial markets (except that such conditions in clauses
“(1)” or “(2)” of this clause “(B)” will be taken into account to the extent they have adversely
affected the Target Business disproportionately as compared to other companies in the industry in
which Target and its Subsidiaries operate), (C) legal, accounting, investment banking or other fees
or expenses incurred in connection with the transactions contemplated by this Agreement, (D) the
payment of any amounts due to, or the provision of any other benefits to, any officers or employees
under employment contracts, non-competition agreements, employee benefit plans, severance
arrangements or other arrangements in existence as of the date of this Agreement and disclosed in
Section 3.16(a) of the Target Disclosure Schedule, (E) the taking of any action reasonably required
to cause compliance with the terms of, or the taking of any action required by, this Agreement, (F)
any breach by Acquiror of this Agreement or the Confidentiality Agreement, (G) the taking of any
action by Acquiror or any of Acquiror’s Subsidiaries, or the taking of any action approved or
consented to in writing by Acquiror, or (H) any change in accounting requirements or principles or
any change in applicable Laws or the interpretation of such Laws, provided such change does not
disproportionately affect Target and its Subsidiaries as compared to other companies in the
industry in which Target and its Subsidiaries operate.
- 71 -
(b) In this Agreement, (i) any reference in Section 3 to Target’s “knowledge” means the actual
knowledge of Xxxxxxx Xxxxxx, Xxxxx Xxxxxxx, Xxxxxxx Xxxxxxxx, Xxx Xxxxxx and Xxxxxx Xxxxxx after
good faith inquiry by one or more of them of the officers of the Target and the Subsidiaries who
are responsible for, or whose duties include, the matter(s) to which the subject representation or
warranty relates, and (ii) any reference in Section 4 to Acquiror’s “knowledge” means the actual
knowledge of Xxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxx Xxxxxx and Xxxxxxxx Xxxx after good faith inquiry by
one or more of them of the officers of Acquiror who are responsible for, or whose duties include,
the matter(s) to which the subject representation or warranty relates.
(c) In this Agreement, an entity will be deemed to be a “Subsidiary” of a party if such party
directly or indirectly owns, beneficially, at least fifty percent (50%) of the outstanding equity
or financial interests of such entity.
(d) In this Agreement, “person” means any individual or entity.
10.3 Target Disclosure Schedule. The Target Disclosure Schedule will be arranged to
correspond to the representations and warranties in Section 3 of this Agreement, and the disclosure
in any portion of the Target Disclosure Schedule will qualify the corresponding provision in
Section 3 and any other provision of Section 3 to which it is reasonably apparent on its face that
such disclosure relates.
10.4 Counterparts. This Agreement may be executed in one or more counterparts, all of
which will be considered one and the same agreement, and will become effective when one or more
counterparts have been signed by each of the Parties and delivered to the other Parties, it being
understood that all Parties need not sign the same counterpart.
10.5 Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the
documents and instruments delivered pursuant to this Agreement, including the exhibits to this
Agreement, the Target Disclosure Schedule and the other schedules to this Agreement: (a) together
constitute the entire agreement among the Parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both written and oral, among the
Parties with respect to the subject matter of this Agreement, except for the Confidentiality
Agreement, which will continue in full force and effect in accordance with its terms and will
survive any termination of this Agreement; (b) are not intended to confer upon any other person any
rights or remedies hereunder, except as provided in the last sentence of Section 8.3 (which is
intended to be enforceable by the persons specified therein to the extent applicable), the last
sentence of Section 10.8 (which is intended to be enforceable by the Lenders and their
Representatives) and the final sentence of this Section 10.5; and (c) will not be assigned by
Acquiror or Merger Sub, on the one hand, or by Target, on the other hand (by operation of law or
otherwise), without the written consent of each of the Parties to this Agreement, except that
Acquiror shall be entitled to freely assign its rights and obligations hereunder to one of its
affiliates (provided that such affiliate is of similar creditworthiness and such assignment does
not affect the Acquiror’s (or its assignee’s) ability to obtain the Financing on a less timely
basis.
Acquiror may collaterally assign its rights hereunder to any financial institution providing
financing in connection with the transactions contemplated by this Agreement, provided that no such
assignment or delegation will relieve Acquiror from any of its obligations hereunder.
Notwithstanding anything to the contrary contained in this Agreement (but without limiting any of
the rights of the Stakeholders’ Agent hereunder), if the Merger is consummated, (i) the Former
Stakeholders and the persons who held, immediately prior to the Effective Time, options to purchase
Target Capital Stock will be third party beneficiaries of the provisions set forth in Section 2,
(ii) the Former Stakeholders will be third party beneficiaries of the provisions set forth in
Section 9.1(b), and (iii) the Indemnified Parties will be third party beneficiaries of the
provisions set forth in Section 6.10.
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10.6 Severability. In the event that any provision of this Agreement, or the
application of any provision of this Agreement, becomes, or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement, and the
application of such provision to other persons or circumstances other than those as to which it is
determined to be illegal, void or unenforceable, will not be impaired or otherwise affected and
will continue in full force and effect and be enforceable to the fullest extent permitted by Law.
10.7 Remedies Cumulative. Except as otherwise provided in Section 9.2(c), Section 8.3
or elsewhere in this Agreement, any and all remedies in this Agreement expressly conferred upon a
Party will be deemed cumulative with, and not exclusive of, any other remedy conferred hereby, or
by Law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude
the exercise of any other remedy.
10.8 Governing Law. This Agreement will be governed by and construed in accordance
with the internal Laws of the State of Delaware applicable to parties residing in the State of
Delaware, without regard to applicable principles of conflicts of Law. Each of the Parties
irrevocably waives the right to trial by jury in connection with any matter based upon or arising
out of this Agreement or the transactions contemplated hereby. Notwithstanding anything in this
Agreement to the contrary, each of the Parties agrees that it will bring any action, cause of
action, claim, cross-claim or third-party claim of any kind or description, whether in law or in
equity, whether in contract or in tort or otherwise against any other Party or any of their
Representatives in any way relating to this Agreement or any of the transactions contemplated by
this Agreement solely in any Federal or state court having jurisdiction and located in a state
other than the States of Maryland or Tennessee. Notwithstanding anything in this Agreement to the
contrary, each of the Parties also agrees that it will not bring or support any action, cause of
action, claim, cross-claim or third-party claim of any kind or description, whether in law or in
equity, whether in contract or in tort or otherwise, against the Lenders or any of their
Representatives in any way relating to this Agreement or any of the transactions contemplated by
this Agreement, including but not limited to any dispute arising out of or relating in any way to
the Commitment Letter or the performance thereof, in any forum other than the Supreme Court of the
State of New York, County of New York, or, if under applicable law exclusive jurisdiction is vested
in the Federal courts, the United States District Court for the Southern District of New York (and
appellate courts thereof).
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10.9 Rules of Construction.
(a) The Parties to this Agreement agree that they have been represented by counsel during the
negotiation, preparation and execution of this Agreement and, therefore, waive the application of
any Law or rule of construction providing that ambiguities in an agreement or other document will
be construed against the Party drafting such agreement or document.
(b) For purposes of this Agreement, whenever the context requires: the singular number will
include the plural, and vice versa; the masculine gender will include the feminine and neuter
genders; the feminine gender will include the masculine and neuter genders; and the neuter gender
will include the masculine and feminine genders.
(c) As used in this Agreement, the words “include” and “including,” and variations of those
words, will not be deemed to be terms of limitation, but rather will be deemed to be followed by
the words “without limitation.”
(d) Except as otherwise indicated, all references in this Agreement to “Sections,” “Schedules”
and “Exhibits” are intended to refer to Sections of this Agreement and Schedules and Exhibits to
this Agreement.
10.10 Time is of the Essence; Enforcement. Time is of the essence of this Agreement.
Each of the Parties to this Agreement agrees that irreparable damage would occur and that the
Parties would not have any adequate remedy at Law in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the Parties will be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which they are entitled at Law or in
equity.
10.11 Amendment; Waiver. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the Parties to this Agreement. Any waiver of any of the terms
or conditions of this Agreement must be in writing and must be duly executed by or on behalf of the
Party to be charged with such waiver. Except as expressly set forth in this Agreement, the failure
of a Party to exercise any of its rights hereunder or to insist upon strict adherence to any term
or condition of this Agreement on any one occasion will not be construed as a waiver or deprive
that Party of the right thereafter to insist upon strict adherence to the terms and conditions of
this Agreement at a later date. Further, no waiver of any of the terms and conditions of this
Agreement will be deemed to or will constitute a waiver of any other term of condition of this
Agreement (whether or not similar).
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10.12 Attorney-Client Privileged Communications. Acquiror hereby irrevocably and
unconditionally acknowledges and agrees not to, solely in any post-closing dispute or Action
between the parties, (a) claim a waiver of the attorney-client privilege regarding any privileged
communications between Target and Xxxxxx, LLP to the extent relating to the negotiation,
preparation, execution, delivery and closing under, or any dispute or Action arising under or in
connection with, this Agreement, or any of the transactions contemplated hereby (collectively,
the “Transaction Representation”) based on the fact that Acquiror has succeeded to the
business of Target (or ownership of the Target and its Subsidiaries) or (b) claim ownership or
otherwise use any such privileged communications (i.e., those relating to the Transaction
Representation). The foregoing shall not (i) excuse a waiver of the attorney-client privilege on
any other grounds, including the inadvertent or other non-confidential disclosure of any such
communications, and (ii) in any event limit the Target’s ownership (and Acquiror’s indirect
ownership) of such information for any other purpose, including in respect of the defense or
investigation of any Action involving a third party for which the Stakeholders’ Agent has not
exercised its right (or for which Acquiror has expressly exercised its right) to assume the defense
of any such Action or are otherwise not eligible to assume the defense of any such Action, in each
case pursuant to the terms of Section 9.2.
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IN WITNESS WHEREOF, Target, Acquiror, Merger Sub and the Stakeholders’ Agent have caused this
Agreement to be executed and delivered by each of them or their respective officers thereunto duly
authorized, all as of the date first written above.
| TARGET: | ||||||
| BRAVO HEALTH, INC. | ||||||
| By: | /s/ Xxxxxxx X. Xxxxxx | |||||
| Name: | Xxxxxxx X. Xxxxxx | |||||
| Title: | Chief Executive Officer | |||||
| ACQUIROR: | ||||||
| HEALTHSPRING, INC. | ||||||
| By: | /s/ Xxxxxxx X. Xxxxxx | |||||
| Name: | Xxxxxxx X. Xxxxxx | |||||
| Title: | Chief Executive Officer | |||||
| MERGER SUB: | ||||||
| BHI ACQUISITION CORPORATION | ||||||
| By: | /s/ Xxxxxxx X. Xxxx | |||||
| Name: | Xxxxxxx X. Xxxx | |||||
| Title: | Chief Executive Officer and President | |||||
| STAKEHOLDERS’ AGENT: | ||||||
| SHAREHOLDER REPRESENTATIVE SERVICES, LLC, solely in its capacity as the Stakeholders’ Agent |
||||||
| By: | /s/ Xxxx Xxxxxx | |||||
| Name: | Xxxx Xxxxxx | |||||
| Title: | Manager | |||||
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