PURCHASE AGREEMENT

 

 

TABLE OF CONTENTS

 

		Page
ARTICLE 1 DEFINED TERMS		1
1.1	Definitions	1
1.2	Terms Defined Elsewhere	12
1.3	Interpretation	14
ARTICLE 2 PURCHASE AND SALE OF ASSETS AND STOCK		15
2.1	Sale of Assets	15
2.2	Excluded Assets	15
2.3	Sale of Stock and Interests	15
2.4	Purchase Price	16
ARTICLE 3 WORKING CAPITAL ADJUSTMENT		16
3.1	Estimated Working Capital Adjustment	16
3.2	Post-Closing Working Capital Adjustments	16
3.3	Methodology for Working Capital Calculations	19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLERS		20
4.1	Organization, Etc.	20
4.2	Corporate Authority; No Violation, Etc.	20
4.3	Ownership of Interests and Stock; Subsidiaries	21
4.4	Title to, Condition and Sufficiency of Assets	22
4.5	Financial Statements	22
4.6	Absence of Certain Changes or Events	23
4.7	Litigation; No Undisclosed Liabilities	24
4.8	Compliance with Laws	24
4.9	Environmental Matters	24
4.10	Tax Matters	25
4.11	ERISA and Employee Plans	27
4.12	Labor and Employment Matters	28
4.13	Intellectual Property	29
4.14	Material Contracts	32

 

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TABLE OF CONTENTS

 

		Page
4.15	Insurance	34
4.16	Payments to Employees	34
4.17	Permits	35
4.18	Brokers or Finders	35
4.19	Related Party Transactions	35
4.20	Banks; Power of Attorney	36
4.21	Certain Payments	36
4.22	Health Care Regulatory Compliance	36
4.23	Customers and Suppliers	38
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER		38
5.1	Organization	38
5.2	Corporate Authority; No Violation, Etc.	38
5.3	Actions; Litigation	39
5.4	Solvency	39
5.5	Financing	39
5.6	Purchase for Own Account; Accredited Investor	40
5.7	[Reserved]	40
5.8	Brokers or Finders	40
ARTICLE 6 COVENANTS		40
6.1	Conduct of the Business in the Ordinary Course Pending the Closing	40
6.2	Access to Information Pre-Closing	44
6.3	Access to Information Post-Closing	45
6.4	Notification of Certain Matters	45
6.5	Governmental Consents	46
6.6	Consents and Third Party Notices	47
6.7	Reasonable Efforts; Further Assurances	47
6.8	Investigation and Agreement; No Other Representations or Warranties	48
6.9	Indebtedness	48

 

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TABLE OF CONTENTS

 

		Page
6.10	Release of Guarantees and Letters of Credit	48
6.11	Termination of Intercompany Agreements	49
6.12	Post-closing Indemnification of Directors and Officers	49
6.13	Audited Financial Statements	49
6.14	Transaction Agreements	50
ARTICLE 7 ADDITIONAL AGREEMENTS		50
7.1	WARN	50
7.2	Employee Matters and Employee Benefits	50
7.3	Covenants Not to Compete	52
7.4	[Reserved]	53
7.5	[Reserved]	53
7.6	Confidential Nature of Information	53
7.7	Acquisition Proposals	54
7.8	Release for Pre-closing Intercompany Liabilities	54
7.9	Securities	54
ARTICLE 8 TAX MATTERS		54
8.1	Tax Indemnification	54
8.2	Transfer Taxes and Property Taxes on Acquired Assets	57
8.3	Tax Claims; Cooperation on Tax Matters	58
8.4	Termination of Tax Sharing Agreements	59
8.5	Election	59
8.6	Tax Treatment of Payments	59
8.7	Exclusivity; Survival	59
ARTICLE 9 CLOSING		60
9.1	Time and Place of Closing	60
9.2	Deliveries by Sellers at Closing	60
9.3	Deliveries by Buyer at Closing	61
ARTICLE 10 CONDITIONS PRECEDENT		61
10.1	Conditions to Each Party’s Obligation	61

 

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TABLE OF CONTENTS

 

		Page
10.2	Conditions to Obligation of Buyer	62
10.3	Conditions to Obligations of Sellers	64
10.4	Frustration of Closing Conditions	64
ARTICLE 11 TERMINATION, AMENDMENT AND WAIVER		64
11.1	Termination	64
11.2	Effect of Termination	66
ARTICLE 12 INDEMNIFICATION		66
12.1	Survival	66
12.2	Indemnification by the Parties	67
12.3	Limits on Indemnification	68
12.4	Matters Involving Third Parties	70
12.5	Indemnification Notices	71
12.6	Releases	72
ARTICLE 13 MISCELLANEOUS		72
13.1	Public Announcement	72
13.2	Payment of Costs and Expenses	73
13.3	Non-Assignment; Successors and Assigns	73
13.4	Entire Agreement	73
13.5	Severability; Enforceability	73
13.6	Counterparts	73
13.7	Notices	73
13.8	Waiver	75
13.9	Third Parties	75
13.10	Rules of Construction	75
13.11	Governing Law	76
13.12	Non-Recourse	76
13.13	Specific Performance	76

 

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“ Acquire ” shall mean as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination or sales of assets or any combination of the foregoing transactions, more than a majority of the combined voting power of the then outstanding securities of Coventry or any successor corporation or entity entitled to vote generally in the election of the directors of Coventry or such other corporation or entity after such transactions is held in the aggregate by the holders of Coventry’s securities entitled to vote generally in the election of directors of Coventry immediately prior to such transaction.

 

“ Acquired Assets ” shall mean those assets of CMS relating to the Business set forth on Section 1.1(a) of the Seller Disclosure Letter and, without limiting anything set forth on Section 1.1(a) of the Seller Disclosure Letter, shall include:  (A) to the extent such assets are not owned by any Acquired Entity, all tangible personal property, including any Furniture and Equipment, that is located, or in the ordinary course of conduct of the Business would be located, on the premises relating to the Leased Real Property and (B) all data relating to business with customers or suppliers of the Business in the possession or control of CMS.  The Parties acknowledge and agree that Section 1.1(a) of the Seller Disclosure Letter has been prepared as of June 4, 2009, and that Coventry shall update such schedule periodically (but in no event later than five (5) days prior to the Closing Date) to reflect any changes in the scheduled Acquired Assets made in the operation of the Business after June 4, 2009, provided that any such changes are made in compliance with Section 6.1 and do not violate Section 4.4(e).

 

“ Acquired Entities ” shall mean, collectively, FHS, Provider Synergies, FHC, FHS of Florida and FHS of Montana.

 

“ Action ” shall mean any action, claim, proceeding, audit, hearing (including counterclaim), arbitration, mediation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought or heard by or before any Governmental Authority, arbitrator or mediator (public or private).

 

“ Affiliate ” shall mean, with respect to any specified Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such specified Person.  For purposes of this definition, “ control ” (including, with correlative meanings, the terms “ controlled by ” and “ under common control with ”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

 

“ Agreement ” shall mean this Purchase Agreement, together with all exhibits attached hereto and the Disclosure Letters.

 

“ Antitrust Division ” shall mean the Antitrust Division of the United States Department of Justice.

 

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“ Antitrust Laws ” shall mean, collectively, (a) the HSR Act, (b) the Sherman Antitrust Act of 1890, as amended, (c) the Clayton Act of 1914, as amended, (d) the Federal Trade Commission Act of 1914, as amended and (e) any other Law designed to prohibit, restrict or regulate actions for the purpose or effect of monopolization or restraint of trade.

 

“ Business ” shall mean the business and operations of the Acquired Entities as currently conducted.

 

“ Business Day ” shall mean any day other than a Saturday, a Sunday or a day on which banks in New York, New York are authorized or obligated by law or executive order to not open or remain closed.

 

“ Business IP ” means all Intellectual Property owned by any of the Acquired Entities.

 

“ Business Technology ” means all Technology owned by any of the Acquired Entities.

 

“ Buyer Disclosure Letter ” shall mean the Disclosure Letter prepared and delivered by Buyer to Sellers prior to the execution of this Agreement.

 

“ Buyer Indemnifiable Losses ” shall mean Losses Buyer Indemnitees may suffer, sustain or become subject to and be entitled to indemnity against, pursuant to Article VIII or Article XII.

 

“ Buyer Material Adverse Effect ” means any event, occurrence, fact, condition, change, development or effect that materially and adversely affects Buyer’s ability to consummate the transactions contemplated by this Agreement and the other Transaction Agreements.

 

“ Buyer’s Knowledge ” shall mean the actual knowledge after due inquiry of the individuals listed in Section 1.1 of the Buyer Disclosure Letter.

 

“ Buyer ” shall have the meaning assigned to such term in the Preamble hereto.

 

“ Capital Lease Indebtedness ” shall mean all obligations of any of the Acquired Entities to pay rent or other payment amounts under a lease of real or personal property which, if outstanding on December 31, 2008, would be classified in accordance with GAAP as a capital lease or a liability on the face of a balance sheet for such Acquired Entity or CMS.

 

“ Cash ” shall mean, with respect to any Person, all cash and cash equivalents (including stocks, bonds, debt securities, certificates of deposit and similar investments that are marketable securities and short term investments) of such Person.

 

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“ Change in Control ” shall mean as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination or sales of assets or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of Coventry or any successor corporation or entity entitled to vote generally in the election of the directors of Coventry or such other corporation or entity after such transactions is held in the aggregate by the holders of Coventry’s securities entitled to vote generally in the election of directors of Coventry immediately prior to such transaction.

 

“ CMS Group ” shall mean CMS (solely with respect to the Acquired Assets) and the Acquired Entities.

 

“ Code ” shall mean the Internal Revenue Code of 1986, as amended, and as the context requires, the Treasury Regulations promulgated thereunder.

 

“ Commitments ” shall mean any subscriptions, options, rights, warrants, convertible securities or other agreements or commitments.

 

“ Confidentiality Agreement ” shall mean the Confidentiality Agreement, dated October 12, 2007, as amended on March 23, 2009, and further amended on April 2, 2009, by and between Coventry and Buyer.

 

“ Consent ” shall mean any approval, consent, license, permit, ratification, waiver or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Authority or pursuant to any applicable Law.

 

“ Consolidated Group ” means an affiliated, consolidated, combined or unitary group with respect to any Taxes.

 

“ Contract ” shall mean any loan or credit agreement, note, bond, debenture, indenture, mortgage, guarantee, deed of trust, lease, franchise, permit, authorization, license, contract, instrument, employee benefit plan or practice or other binding agreement, obligation, arrangement, understanding or commitment.

 

“ Coventry Group ” shall mean Coventry and its Affiliates, excluding however, CMS (solely with respect to the Acquired Assets) and the Acquired Entities.

 

“ Coventry Name ” shall mean the name “Coventry,” “First Health,” and “First Health Services,” including all derivations thereof, and any and all Intellectual Property rights relating to the foregoing and shall include, without limitation, any uniform resource locators (or “ URLs ”) containing the name “Coventry,” or any derivation thereof.

 

“ Designated Area ” shall mean anywhere in the United States.

 

“ Disclosure Letters ” shall mean, collectively, the Seller Disclosure Letter and the Buyer Disclosure Letter.

 

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“ Eligible Employee ” shall mean any individual who is an active employee, consultant, contingent worker, leased employee or independent contractor of the CMS Group as of the date hereof, together with such individual who is hired by the CMS Group after the date hereof, and identified on Section 1.1(b) of the Seller Disclosure Letter.  The Parties acknowledge and agree Section 1.1(b) of the Seller Disclosure Letter has been prepared as of June 4, 2009 and that Coventry shall update such schedule periodically, but in no event later than five (5) days prior to the Closing Date, to reflect any changes made in the operation of the Business after June 4, 2009, provided , that any such change was made in compliance with Section 6.1

 

“ Employee Plan ” shall mean any “employee benefit plan” within the meaning of section 3(3) of ERISA and all other employee benefit arrangements or payroll practices, including, without limitation, any employment agreement, consulting agreement, bonus, incentive compensation, deferred compensation, stock ownership, stock option, stock appreciation right, restricted stock, phantom stock, equity, premium conversion, medical, hospitalization, vision, dental, health, life, disability, severance, change of control, vacation, death benefit, educational, adoption, dependent care assistance or other employee benefit plan, policy, arrangement, or agreement, whether or not subject to ERISA, that any of the Sellers, any of the Acquired Entities, or any their respective ERISA Affiliates, sponsors, maintains or contributes to for the benefit of current or former employees, consultants, or directors of any of the Sellers or ERISA Affiliates.

 

“ Environmental Laws ” shall mean any Law now or hereinafter in effect, relating to pollution or the protection, cleanup or restoration of the environment and natural resources, and health and safety (as it relates to exposure to Hazardous Materials) including the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act, the Federal Comprehensive Environmental Response, Compensation, and Liability Act, the Federal Toxic Substances Control Act, the Federal Occupational Safety and Health Act (as it relates to exposure to Hazardous Materials) and the Hazardous Materials Transportation Act.

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“ ERISA Affiliate ” shall mean any trade or business, affiliate or subsidiary of any of the Sellers, that is or has been under common control or that is or has ever been treated as a single employer with any of them under sections 414(b), (c), (m) or (o) of the Code.

 

“ FHS of Florida ” shall mean First Health Services of Florida, Inc.

 

“ FHS of Montana ” shall mean First Health Services of Montana, Inc.

 

“ FHS Outstanding Indebtedness ” shall mean, as of any particular time, the unpaid principal amount, accrued interest, prepayment and redemption premiums or penalties (if any), unpaid fees and expenses or other monetary obligations in respect of all

 

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indebtedness of the Acquired Entities for borrowed money, but specifically excluding all Capital Lease Indebtedness of the Acquired Entities.

 

“ FHS Target Working Capital ” shall mean $15,000,000.

 

“ FHS Working Capital ” shall be in the amount by which the current assets of the Acquired Entities (provided, that, current assets shall not include FHS Intercompany Receivables) exceeds the current liabilities of the Acquired Entities (provided, that, current liabilities shall not include (i) Intercompany Payables and (ii) any FHS Outstanding Indebtedness).  For purposes of Article III, FHS Working Capital shall be determined as of immediately prior to the Closing and shall not be calculated to include any changes in assets or liabilities as a result of purchase accounting adjustments or other changes arising from or resulting as a consequence of the Transactions.

 

“ FTC ” shall mean the United States Federal Trade Commission.

 

“ Furniture and Equipment ” means all furniture, fixtures, furnishings, equipment, vehicles, leasehold improvements, and other tangible personal property owned or used by the Acquired Entities in the conduct of the Business, including all desks, chairs, tables, hardware, copiers, telephone equipment and lines, telecopy machines and other telecommunication equipment, networks, hubs and switches, cubicles and miscellaneous office furnishings and supplies.

 

“ GAAP ” shall mean United States generally accepted accounting principles as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board.

 

“ Governmental Authority ” shall mean any foreign, federal, provincial, state or local government court, administrative or regulatory agency, board, bureau or commission or other governmental department or authority or instrumentality thereof.

 

“ Governmental Program ” shall mean ‘federal health care programs’ as defined in 42 U.S.C. § 1320a-7b(f).

 

“ Guarantees ” shall mean shall mean all guarantees, endorsements, performance bonds, surety bonds, bid bonds or other similar agreements relating to the Business.

 

“ Handling ” shall mean the production, use, generation, storage, treatment, transportation, recycling, or other management of any Hazardous Material.

 

“ Hazardous Material ” shall mean any substance, material or waste that is regulated, classified, or otherwise characterized under or pursuant to any Environmental Law as “ hazardous ,” “ toxic ,” “ pollutant ,” “ contaminant ,” or “ radioactive ,” including petroleum and its by-products, asbestos, polychlorinated biphenyls and radon.

 

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“ Healthcare Laws ” means any Law relating to the provision, administration, and/or payment for healthcare or healthcare-related products or services, including, without limitation, to the extent applicable:  (i) rules and regulations governing the operation and administration of Medicare, Medicaid, or other federal and state health care programs; (ii) 42 U.S.C. § 1320a-7b(b), commonly referred to as the “Federal Anti-Kickback Statute,” (iii) 31 U.S.C. §§ 3729 et seq., commonly referred to as the “False Claims Act,” (iv) 31 U.S.C. § 3801 et seq., commonly referred to as the Program Fraud Civil Penalties Act, (v) the rules and regulations of the U.S. Food and Drug Administration, and (vi) rules and regulations of the state boards of pharmacy.

 

“ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“ Intellectual Property ” shall mean all U.S., foreign and state issuances, registrations and applications for, and all rights (common law, statutory or otherwise) throughout the world in, intellectual property, including all (a) trademarks, service marks, trade names, logos, common law trademarks and service marks, domain names and any applications, renewals and extensions therefor, (b) patents, provisional patents and utility models and applications therefor, all reissues, divisions, re-examinations, renewals, extensions, substitutions, continuations and continuations in part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries, including invention disclosures, invention certificates, and the like (“ Patents ”), (c) trade secrets and other rights in privacy, data, know-how and confidential or proprietary information, (d) copyrights, database rights, mask work rights, works of authorship and other rights corresponding thereto, and all registrations, applications, renewals, extensions and reversions thereof, (e) unregistered design rights and registered industrial designs and any registrations, applications, renewals and extensions therefor, (f) Moral Rights, (g) computer programs, algorithms, routines, source code and executable code, whether embodied in firmware, software or otherwise, documentation, designs, files, records and data (“ Software ”), (h) the content of websites and Software related thereto; (i) inventions (whether or not patentable and whether or not reduced to practice), research and development, discoveries, improvements and technology, (j) proprietary and confidential information, including technical data, customer and supplier lists and data, trade secrets, know-how and techniques, (k) databases, data compilations and collections and technical data, tools, methods, processes, devices, prototypes, schematics, bread boards, net lists, mask works, test methodologies and hardware and Software development tools and (l) any similar, corresponding or equivalent rights to any of the foregoing.

 

“ Intercompany Agreements ” shall mean the Contracts between one or more members of the Coventry Group, on the one hand, and one or more members of the CMS Group, on the other hand, that are set forth on Section 1.1(c) of the Seller Disclosure Letter.

 

“ Intercompany Payables ” shall mean all payables and notes payable of any one or more members of the CMS Group owing to any one or more members of the Coventry

 

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Group, whether or not billed or accrued or recorded or unrecorded, together with any unpaid interest or fees accrued thereon or other amounts due with respect thereto.

 

“ Intercompany Receivables ” shall mean all accounts, accounts receivable and notes receivable held by any one or more members of the CMS Group that are owed by any one or more members of the Coventry Group, whether or not billed or accrued or recorded or unrecorded, together with any unpaid interest or fees accrued thereon or other amounts due with respect thereto.

 

“ IRS ” shall mean the United States Internal Revenue Service.

 

“ Law ” means any foreign, federal, state or local law, statute, code, ordinance, rule, regulation or Ruling.

 

“ Leased Real Property ” shall mean all real property leased, subleased or licensed to the Acquired Entities.

 

“ Letters of Credit ” shall mean the letters of credit, bankers’ acceptances and similar facilities issued by or on behalf of any one or more members of the Coventry Group in connection with the Business.

 

“ Lien ” shall mean any lien, pledge (including any negative pledge), purchase option, easement, restrictive covenant, security interest, deed of trust, mortgage, conditional sales agreement, right of first refusal, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, registration rights with respect to securities, encumbrance or other right of third parties voluntarily incurred or arising by operation of Law, or any other restriction or limitation whatsoever, including any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof, including any lien resulting from the FHS Outstanding Indebtedness.

 

“ Losses ” means any and all claims, demands, suits, proceedings, judgments, losses, liabilities, damages, Taxes, interest, fines, penalties, assessments, awards and costs and expenses of every kind and nature (including reasonable attorneys’ and other professionals’ fees and court costs) incurred in responding to claims, demands, assessments, awards or investigations or defending suits or proceedings, whether or not involving a third party claim; provided , however , that in computing the amount of any Losses of an Indemnified Party, for purposes of determining the liability of the Indemnifying Party under Article VIII or Article XII, (a) the amount of any insurance proceeds or other recoveries actually received by the Indemnified Party shall be deducted from such Losses, (b) the amount of any Tax benefit actually used to reduce Taxes by any Indemnified Party arising from the incurrence or payment of any such Losses shall be deducted from such Losses, and (c) other than Losses resulting from Third Party Claims, the amount of any Losses in the form of exemplary or punitive Losses shall not be included in Losses for which an Indemnified Party may seek indemnification under Article VIII or Article XII.  In computing the amount of any such Tax benefit, the

 

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Indemnified Party shall be deemed to utilize all Tax items arising from the incurrence or payments of any Losses after all other Tax items of such Person have been accounted for and utilized.

 

“ Material Adverse Effect on the Business ” means any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate with all other events, occurrences, facts, conditions, changes, developments or effects, is, or would reasonably be expected to be, materially adverse to the business, assets, liabilities, results of operations or condition (financial or otherwise) of the Business, taken as a whole, except to the extent that such event, occurrence, fact, condition, change, development or effect results from: (a) any generally applicable change in GAAP or interpretation thereof, (b) any adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal of any Law after the date hereof, (c) (i) the announcement of this Agreement, or (ii) the pendency of the consummation of the transactions contemplated hereby, (d) actions or inactions taken by CMS, or the Acquired Entities as expressly required by this Agreement, (e) economic, political or financial market conditions generally affecting the industries in which CMS or the Acquired Entities conduct the Business, or the U.S. economy as a whole or the capital markets in general, and (f) any outbreak or escalation of hostilities (including, without limitation, any declaration of war by the U.S. Congress) or acts of terrorism, provided , in the case of clauses (a), (e) and (f), that such events, occurrences, facts, conditions, changes, developments or effects do not disproportionately affect the Business relative to others in the industries in which the Acquired Entities operate.

 

“ Moral Rights ” shall mean any right to claim authorship to or to object to any distortion, mutilation or other modification or other derogatory action in relation to a work of authorship, whether or not such claim or objection would be prejudicial to the author’s reputation, and any similar right existing under common or statutory law of any country in the world or under any treaty, regardless of whether or not such right is denominated or generally referred to as a “moral right.”

 

“ Off-the-Shelf Software ” shall mean Software that is not customized for any of the Acquired Entities or CMS or that is generally available on reasonable terms through commercial distributors or in retail stores.

 

“ ordinary course of business ” shall mean the ordinary and usual course of normal day-to-day operations of the Business as conducted by Sellers, through the date hereof, consistent with past practice.

 

“ Patents ” shall have the meaning specified in the definition of “Intellectual Property.”

 

“ Permits ” shall mean any licenses, franchises, certificates, approvals, permits, consents, waivers and other authorizations issued, granted, given or otherwise made available by or under the authority of any Governmental Authority.

 

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“ Permitted Liens ” shall mean all (i) Liens consisting of zoning or planning regulations, easements, permits and other restrictions or limitations on the use of real property or irregularities in title thereto that do not materially detract from the value of, or impair the use of, property as it is presently used in connection with the Business, provided that such regulations have not been violated, (ii) Liens for current Taxes, assessments or governmental charges or levies on property not yet due or that are being contested in good faith and for which appropriate reserves have been created, (iii) mechanic’s, materialmen’s and similar Liens arising in the ordinary course of business or by operation of Law for sums not yet due or that are being contested in good faith that are not material to the Business and that are not resulting from a breach, default or violation by Sellers or any of the Subsidiaries of any Contract or Law; (iv) Liens securing all or any portion of the FHS Outstanding Indebtedness that are released at Closing, (v) Liens on Leased Real Property arising from the provisions of such leases, (vi) mortgages, deeds of trust and other security instruments, and ground leases or underlying leases covering the title, interest or estate of landlords with respect to the Leased Real Property and to which the leases with respect to the Leased Real Property are subordinate, (vii) Liens for Capital Lease Indebtedness, (viii) Liens set forth on Section 1.1(d) of the Seller Disclosure Letter that are to be released at or prior to the Closing in accordance with Section 9.2(d), and (ix) Liens for Guarantees or Letters of Credit (in each case, to the extent they have not been extinguished or released prior to or at Closing).

 

“ Person ” shall mean a natural person, corporation, limited liability company, partnership, limited partnership or other entity, including a Governmental Authority.

 

“ Pre-Closing Tax Period ” shall mean any Taxable period that ends on or prior to the Closing Date.

 

“ Release ” or “ Released ” shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, migrating or disposing (including abandoning or discarding).

 

“ Ruling ” means any award, decision, injunction, decree, stipulation, determination, writ, judgment, order, ruling, assessment or arbitration award, subpoena or verdict entered, issued, made or rendered (whether temporary, preliminary or permanent) by any court, administrative agency or other Governmental Authority or arbitrator.

 

“ SEC ” shall mean the U.S. Securities and Exchange Commission.

 

“ Securities Act ” shall mean the Securities Act of 1933, as amended, together with the rules and regulations of the SEC promulgated thereunder.

 

“ Seller Disclosure Letter ” shall mean the Disclosure Letter prepared and delivered by Coventry to Buyer prior to the execution of this Agreement.

 

“ Sellers’ Knowledge ” shall mean the actual knowledge after due inquiry of the individuals listed in Section 1.1(e) of the Seller Disclosure Letter.

 

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among Buyer and certain Subsidiaries of Sellers named therein and dated the date hereof (the “ Master Radiology Services Agreement ”), the Management Services Agreement for Medical Pharmaceuticals entered into simultaneously herewith by and between Buyer and certain Subsidiaries of Sellers named therein and dated the date hereof (the “ Medical Pharmaceuticals Agreement ”), the radiology benefits management agreements to be entered into between National Imaging Associates Inc. and Coventry and/or its Subsidiaries as provided by the Master Radiology Services Agreement and any other agreements that any Seller or any of its Subsidiaries and Buyer or any of its Subsidiaries agree to enter into in connection with this Agreement or the Closing.

 

“ Transactions ” shall mean the transactions contemplated by this Agreement and the other Transaction Agreements.

 

“ Transition Services Agreement ” shall mean the Transition Services Agreement entered into simultaneously herewith between CMS and Buyer dated as of the date hereof.

 

“ Treasury Regulations ” shall mean the regulations promulgated by the Treasury pursuant to and in respect of provisions of the Code. All references in this Agreement to sections of the Treasury Regulations shall include any corresponding provisions of succeeding, similar, substitute proposed or final Treasury Regulations.

 

“ Treasury ” shall mean the United States Department of Treasury.

 

“ WARN Act ” shall mean the Worker Adjustment and Retraining Notification Act, as amended and other similar Laws.

 

1.2                                  Terms Defined Elsewhere .  The following is a list of additional terms used in this Agreement and a reference to the Section hereof in which such term is defined:

 

	Term		Section
	Acquisition Proposal		Section 7.7(a)
	ARRA		Section 4.11(g)
	Audited Financial Statements		Section 6.13
	Auditor’s Consent		Section 6.13
	Bankruptcy and Equity Exception		Section 4.2(a)
	Buyer		Preamble
	Business Software		Section 4.13(i)
	Buyer Indemnitees		Section 12.2(a)
	Cap		Section 12.3(c)(i)
	Calculation Notice		Section 3.2(b)
	Change In Control Customer Contracts		Section 4.14(d)
	Closing		Section 9.1
	Closing Date		Section 9.1
	Closing Date Interest Rate		Section 3.2(d)

 

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	Term		Section
	CMS		Preamble
	CMS Group Charter Documents		Section 4.1(b)
	CMS Group Release		Section 7.8
	COBRA		Section 4.11(g)
	Coventry		Preamble
	Cure Period		Section 11.1(b)
	Deductible		Section 12.3(a)
	Disputed Items		Section 3.2(b)
	D&O Obligations		Section 6.12
	D&O Released Parties		Section 12.6
	Excluded Assets		Section 2.2(a)
	FHC		Recitals
	FHC Stock		Recitals
	FHS		Recitals
	FHS Closing Date Balance Sheet		Section 3.2(a)
	FHS Closing Date Payment		Section 2.4(a)
	FHS Estimated Working Capital		Section 3.1(a)
	FHS Financial Statements		Section 4.5(a)
	FHS Initial Calculation		Section 3.2(a)
	FHS Interim Financial Statements		Section 4.5(a)
	FHS Material Permits		Section 4.17
	FHS Negative Estimated Working Capital Adjustment		Section 3.1(a)
	FHS Positive Estimated Working Capital Adjustment		Section 3.1(a)
	FHS Restricted Business		Section 7.3(a)
	FHS Stock		Recitals
	FHS Working Capital Adjustment Amount		Section 3.2(d)
	FHS Year End Financial Statements		Section 4.5(a)
	Final FHS Working Capital		Section 3.2(d)
	FIRPTA Affidavit		Section 9.2(l)
	First Health Group		Preamble
	Foreign Plans		Section 4.11(h)
	Fundamental Representations		Section 12.1(a)
	Governmental Damages		Section 10.2(e)
	Governmental Investigation		Section 10.2(e)
	HIPAA		Section 4.11(g)
	Hired Employees		Section 7.2(b)(i)
	HSR Filing		Section 6.5(b)
	Indemnifiable Losses		Section 12.2(b)
	Indemnification Notice		Section 12.5(a)
	Indemnified Party		Section 12.2(c)
	Infringes		Section 4.13(b)

 

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	Term		Section
	Injunctions		Section 10.1(b)
	Labor Union		Section 4.12(a)
	Legal Actions		Section 10.1(c)
	Loss of Profits		Section 12.3(f)
	Material Contract		Section 4.14(b)
	Party or Parties		Preamble
	Policies		Section 4.15
	Property Taxes		Section 8.2(b)(i)
	Provider Synergies		Recitals
	Provider Synergies Interests		Recitals
	Purchase Price		Section 2.4(a)
	Re-Calculated FHS Working Capital		Section 3.2(e)
	Re-Calculated FHS Working Capital Adjustment Amount		Section 3.2(e)
	Registered IP		Section 4.13(a)
	Related Persons		Section 4.19
	Releasing Parties		Section 12.6
	Restraints		Section 10.1(c)
	Seller Indemnifiable Losses		Section 12.2(b)
	Seller Indemnitees		Section 12.2(b)
	Settlement Firm		Section 3.2(c)
	Shares		Recitals
	Tax Claim		Section 8.3(a)
	Tax Return Notice		Section 8.1(b)(i)
	Tax Settlement Firm		Section 8.1(b)(i)
	Termination Date		Section 11.1(e)(i)
	Third Party Claim		Section 12.4(a)
	Transfer Taxes		Section 8.2(a)
	Unsold Securities		Section 7.9

 

1.3                                  Interpretation .  In this Agreement, unless otherwise specified or where the context otherwise requires:

 

(a)                                   the headings of particular provisions of this Agreement are inserted for convenience only and will not be construed as a part of this Agreement or serve as a limitation or expansion on the scope of any term or provision of this Agreement;

 

(b)                                  words importing any gender shall include other genders;

 

(c)                                   words importing the singular only shall include the plural and vice versa;

 

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(d)                                  the words “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”;

 

(e)                                   the words “hereof,” “hereto,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

(f)                                     references to “Articles,” “Exhibits”, “Sections” and other subdivisions shall be to Articles, Exhibits, Sections and other subdivisions of or to this Agreement; and

 

(g)                                  references to any Person include the successors and permitted assigns of such Person.

 

ARTICLE 2

PURCHASE AND SALE OF ASSETS AND STOCK

 

2.1                                  Sale of Assets .  Upon the terms and conditions set forth herein,

 

(a)                                   Buyer agrees to purchase from CMS, and CMS agrees to sell, transfer, assign, convey and deliver to Buyer, all of CMS’ right, title and interest in, to and under the Acquired Assets, free and clear of all Liens, other than Permitted Liens.

 

2.2                                  Excluded Assets .

 

(a)                                   Excluded Assets .  Notwithstanding Section 2.1 of this Agreement, CMS is not selling, and Buyer is not purchasing, pursuant to this Agreement, any assets, properties, rights, licenses, Contracts, real property, causes of action or businesses of any kind or description, wherever located, real, personal or mixed, tangible or intangible, owned by, leased by, granted to or in the possession of CMS, that is not an Acquired Asset, all of which shall be retained by CMS; provided further that Sellers are not selling and Buyer is not purchasing any right, title or interest to the Coventry Name (collectively, the “ Excluded Assets ”).

 

2.3                                  Sale of Stock and Interests .  Upon the terms and conditions set forth herein, at the Closing:

 

(a)                                   Buyer agrees to purchase from First Health Group, and First Health Group agrees to sell, transfer, assign, convey and deliver to Buyer, all of the FHS Stock and FHC Stock, free and clear of all Liens; and

 

(b)                                  Buyer agrees to purchase from Coventry, and Coventry agrees to sell, transfer, assign, convey and deliver to Buyer, all of the Provider Synergies Interests, free and clear of all Liens.

 

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2.4                                  Purchase Price .

 

(a)                                   Subject to Article XII, the aggregate cash purchase price payable by Buyer in consideration of the sale and transfer of the Acquired Assets, FHS Stock, FHC Stock and Provider Synergies Interests (the “ Purchase Price ”) shall be an amount in cash equal to the sum of the FHS Closing Date Payment plus, if applicable, any adjustments made pursuant to Section 3.2.  The “ FHS Closing Date Payment ” shall be an amount equal to the sum of (a) $110,000,000, plus, if applicable, (b) the FHS Positive Estimated Working Capital Adjustment and minus, if applicable, (c) the FHS Negative Estimated Working Capital Adjustment.

 

(b)                                  In calculating the various respective adjustments to the Purchase Price under this Agreement, no single item shall be given duplicative effect.

 

ARTICLE 3

 

WORKING CAPITAL ADJUSTMENT

 

3.1                                  Estimated Working Capital Adjustment .

 

(a)                                   No later than two Business Days prior to the Closing Date, Coventry shall deliver to Buyer a statement showing the calculation of an estimate of the FHS Working Capital as of immediately prior to the Closing (the “ FHS Estimated Working Capital ”).  The amount, if any, by which the FHS Estimated Working Capital exceeds the FHS Target Working Capital is referred to herein as the “ FHS Positive Estimated Working Capital Adjustment ”, and the amount, if any, by which the FHS Target Working Capital exceeds the FHS Estimated Working Capital is referred to herein as the “ FHS Negative Estimated Working Capital Adjustment .”

 

(b)                                  Coventry’s calculation of the FHS Estimated Working Capital as delivered to Buyer shall be accompanied by such schedules and data as may be necessary to support such calculation.

 

3.2                                  Post-Closing Working Capital Adjustments .

 

(a)                                   Buyer shall cause to be prepared and, as soon as practical, but in no event later than 180 days after the Closing Date, shall cause to be delivered to Coventry, the unaudited combined balance sheet of the Acquired Entities prepared as of immediately prior to the Closing (the “ FHS Closing Date Balance Sheet ”) and a statement showing the calculation of the FHS Working Capital as of immediately prior to the Closing (the “ FHS Initial Calculation ”).  The FHS Closing Date Balance Sheet and the FHS Initial Calculation shall be accompanied by such schedules and data with respect to the determination of the FHS Working Capital contained therein as may be appropriate to support such FHS Initial Calculation.

 

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(b)                                  Within 45 days after delivery to Coventry of the FHS Closing Date Balance Sheet and the FHS Initial Calculation by Buyer pursuant to Section 3.2(a), Coventry may deliver to Buyer a written notice (the “ Calculation Notice ”) either (A) advising Buyer that Coventry agrees with and accepts the FHS Initial Calculation (as the case may be) or (B) setting forth those particular line items (the “ Disputed Items ”) in the FHS Initial Calculation that Coventry disputes and a statement, with reasonable detail as to the Disputed Items, of what Coventry believes is the correct calculation of each Disputed Item and of the FHS Working Capital as of immediately prior to the Closing.  Coventry and the advisors engaged by Coventry shall be entitled to review Buyer’s working papers, trial balances and similar materials relating to its preparation of the FHS Closing Date Balance Sheet for purposes of reviewing the FHS Initial Calculation.  In addition, Buyer shall also provide Coventry and its accountants with (i) the reasonable assistance of personnel and (ii) timely and reasonable access, during normal business hours, to its personnel, properties, books and records, in each case at Buyer’s expense, but only to the extent related to review by Coventry of such FHS Initial Calculation.  If Coventry does not submit a Calculation Notice within the 45-day period provided herein, then the Initial Calculation shall become final, binding and conclusive on the Parties and shall not be subject to further review, challenge or adjustment.  To the extent that Coventry timely provides a Calculation Notice within the 45-day period, all items reflected therein that are not Disputed Items shall become final, binding and conclusive on the Parties and shall not be subject to further review, challenge or adjustment.

 

(c)                                   Buyer and Coventry shall use commercially reasonable efforts for a period of 30 days (or such longer period as they may mutually agree) after the date of Coventry’s objection to the Calculation Notice to resolve any Disputed Items.  During such 30-day period (or such longer period as they may mutually agree), Buyer and Coventry shall have access to the working papers, trial balances, schedules and calculations of the other used in the preparation of the FHS Initial Calculation, the Calculation Notice and the determination of the FHS Working Capital contained therein and the Disputed Items.  In the event that Buyer and Coventry are unable to resolve all Disputed Items within such 30-day period (or such longer period as they may mutually agree), then the remaining unresolved Disputed Items shall be referred to Deloitte and Touche LLP or such other nationally recognized accounting firm selected by mutual agreement of Buyer and Coventry (such selected firm, the “ Settlement Firm ”).  Buyer and Coventry will promptly, and in no event later than the time that Disputed Items are submitted to the Settlement Firm, enter into reasonable and customary arrangements for the services to be rendered by the Settlement Firm under this Section 3.2(c).  The Parties agree that the selection process for the Settlement Firm shall occur only once and that such Settlement Firm, once selected, shall resolve remaining unresolved Disputed Items.  The determination of the remaining unresolved Disputed Items by the Settlement Firm shall be final, binding and conclusive and shall constitute an arbitral award that is unappealable and not subject to further review, challenge or adjustment and upon which a judgment may be entered by a court having jurisdiction thereof.  Buyer and Coventry shall use commercially reasonable efforts to cause the Settlement Firm to reach a determination as promptly as practicable (and in any event within 30 days from the date

 

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that the Disputed Items are submitted to it).  Within 10 days after the Settlement Firm has been retained, Buyer and Coventry shall furnish, at their own expense, to the Settlement Firm and each other a written statement of their position with respect to each Disputed Item.  Within five Business Days after the expiration of such 10-day period, Buyer and Coventry may deliver to the Settlement Firm and to each other its response to the other’s position on each Disputed Item.  With each submission, Buyer and Coventry may also furnish to the Settlement Firm such information, workpapers and other documents as they deem relevant to the resolution of the Disputed Items, with appropriate copies or notification being given to the other.  In addition, Buyer and Coventry shall each furnish the Settlement Firm such workpapers and other documents and information relating to the Disputed Items, and shall provide interviews and answer questions, as such Settlement Firm may reasonably request.  The Settlement Firm may, at its discretion, conduct a conference concerning the disagreement with Buyer and Coventry, at which conference Buyer and Coventry shall each have the right to present additional documents, materials and other information and to have present its advisors, counsel and accountants. The fees, costs and expenses of the Settlement Firm shall be allocated to and borne by Coventry and Buyer based on the inverse of the percentage that the Settlement Firm’s determination (before such allocation) bears to the total amount of the Disputed Items as originally submitted to the Settlement Firm.  For example, should the items in dispute total in amount to $1,000 and the Settlement Firm awards $600 in favor of Coventry’s position, 60% of the costs of its review would be borne by Buyer and 40% of the costs would be borne by Coventry.

 

(d)                                  The “ FHS Working Capital Adjustment Amount ”, which may be a positive or negative amount, shall mean the amount equal to the FHS Working Capital, as finally determined in accordance with Sections 3.2(a), 3.2(b) and 3.2(c) (the “ Final FHS Working Capital ”), minus the FHS Estimated Working Capital.  If the FHS Working Capital Adjustment Amount is a positive amount, then Buyer shall promptly deliver, by wire transfer of immediately available funds to an account or accounts designated in writing by Coventry, an amount equal to the FHS Working Capital Adjustment Amount, together with interest thereon from the Closing Date to the date of payment at the rate equal to the weighted average of the LIBOR for a one month period (the “ Closing Date Interest Rate ”).  If the FHS Working Capital Adjustment Amount is a negative amount, then Coventry shall promptly deliver or cause an Affiliate to promptly deliver, by wire transfer of immediately available funds to an account designated in writing by Buyer, an amount equal to the FHS Working Capital Adjustment Amount, together with interest thereon from the Closing Date to the date of payment at the Closing Date Interest Rate.

 

(e)                                   As soon as practicable after the beginning of the thirteenth month after the Closing Date, the FHS Working Capital shall be re-calculated as of the Closing Date, taking into account only post-Closing events through and including the twelve months following the Closing Date as they relate to customer accounts receivable that existed on the Closing Date and the aggregate allowance for doubtful accounts with respect thereto (the “ Re-Calculated FHS Working Capital ”).  Coventry shall cooperate

 

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with Buyer in determining a mutually agreeable figure for the Re-Calculated FHS Working Capital.  In the event of a disagreement between Coventry and Buyer as to the FHS Working Capital as so re-calculated, the provisions of Section 3.2(c) relating to the use of the Settlement Firm shall apply.  The “ Re-Calculated FHS Working Capital Adjustment Amount ,” which may be a positive or negative amount, shall mean the amount equal to the Re-Calculated FHS Working Capital, as finally determined in accordance with Sections 3.2(c) and 3.2(e), minus the Final FHS Working Capital.  If the Re-Calculated FHS Working Capital Adjustment Amount is a positive amount, then Buyer shall promptly deliver, by wire transfer of immediately available funds to an account or accounts designated in writing by Coventry, an amount equal to the Re-Calculated FHS Working Capital Adjustment Amount, together with interest thereon from the Closing Date to the date of payment at the rate equal to Closing Date Interest Rate.  If the Re-Calculated FHS Working Capital Adjustment Amount is a negative amount, then Coventry shall promptly deliver or cause an Affiliate to promptly deliver, by wire transfer of immediately available funds to an account designated in writing by Buyer, an amount equal to the Re-Calculated FHS Working Capital Adjustment Amount, together with interest thereon from the Closing Date to the date of payment at the Closing Date Interest Rate.

 

(f)                                     All amounts paid pursuant to this Section 3.2 shall be deemed an adjustment to the Purchase Price.  For purposes of this Section 3.2, all computations of interest shall be made on the basis of a year of 365 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable.  Any payments made by any Person pursuant to this Section 3.2 shall be made by wire transfer of immediately available funds within 10 Business Days after the date on which the FHS Working Capital determinations become final and binding on the Parties under this Section 3.2.

 

(g)                                  The FHS Working Capital, as finally determined pursuant to this Section 3.2, shall be the final FHS Working Capital for purposes of this Agreement.

 

3.3                                  Methodology for Working Capital Calculations .  Section 3.3 of the Seller Disclosure Letter sets forth certain agreed-upon exceptions to GAAP applicable to the determination of the FHS Working Capital under this Article III.  All FHS Working Capital determinations made pursuant to this Article III (estimated and actual), including each and every amount and calculation determined in accordance therewith, shall be determined and calculated in accordance with GAAP, as it exists on the date hereof, and as applied consistently with the preparation of the FHS Financial Statements, except as set forth on Section 3.3 of the Seller Disclosure Letter.  Section 3.3 of the Seller Disclosure Letter shall set forth a sample calculation of the FHS Working Capital calculated as of April 30, 2009.

 

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be limited by applicable Law (the “ Bankruptcy and Equity Exception ”).  As of the Closing, each other Transaction Agreement to which any of the Sellers is to be a party will have been duly executed and delivered by each such Person and will constitute a legal, valid and binding agreement of each such Person, enforceable against it in accordance with its terms, subject to the Bankruptcy and Equity Exception.

 

(b)            Except as set forth in Section 4.2(b) of the Seller Disclosure Letter, none of the execution and delivery by any of the Sellers or any of their Subsidiaries of this Agreement or any other Transaction Agreement to which it is or will be a party, the consummation by the Sellers or any of their Subsidiaries of the Transactions or compliance by the Sellers or any of their Subsidiaries with any of the provisions hereof or thereof (a) violates or conflicts with any provisions of the CMS Group Charter Documents, (b) requires any consent, approval, authorization or permit of, registration, declaration or filing with, or notification to, any Governmental Authority or any other Person (except for (i) filings required under any applicable Antitrust Laws, (ii) Permits as may be required under, and other applicable requirements of, state securities laws and (iii) consents, approvals or notifications required under Contracts that are not Material Contracts), (c) results in the creation of a Lien on any of the Shares or the Acquired Assets, or (d) violates or conflicts with any Rulings or Law applicable to the Business.

 

4.3            Ownership of Interests and Stock; Subsidiaries .

 

(a)            First Health Group owns (i) all of the FHS Stock free and clear of all Liens and there are no other outstanding shares of capital stock of FHS or Commitments to issue any additional shares of FHS capital stock, and (ii) all of the FHC Stock free and clear of all Liens and there are no other outstanding shares of capital stock of FHC or Commitments to issue any additional shares of FHC capital stock.  Both the FHS Stock and the FHC Stock are validly issued, fully paid and non-assessable.

 

(b)            Coventry owns all of the Provider Synergies Interests free and clear of all Liens and there are no other outstanding interests in Provider Synergies or Commitments to issue any additional equity interests in Provider Synergies.  The Provider Synergies Interests are validly issued, fully paid and non-assessable.

 

(c)            Section 4.3(c) of the Seller Disclosure Letter sets forth the name of each Subsidiary of FHS, FHC and Provider Synergies, and with respect to each Subsidiary, the jurisdiction in which it is incorporated or organized and the jurisdictions, if any, in which it is qualified to do business, the number of shares of its authorized capital stock, the number and class of shares thereof duly issued and outstanding, the names of all stockholders or other equity owners and the number of shares of stock owned by each stockholder or the amount of equity owned by each equity owner.  The outstanding shares of capital stock or equity interests of each Subsidiary are validly issued, fully paid and non-assessable.  All such shares or other equity interests represented as being owned by FHS, FHC or Provider Synergies, as applicable, are owned by them free and clear of any and all Liens.  There are no Commitments requiring the issuance of any shares of capital stock or other equity interests of any Subsidiary or

 

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other securities convertible into shares of capital stock or other equity interests of any Subsidiary.

 

4.4            Title to, Condition and Sufficiency of Assets .

 

(a)            None of the Acquired Entities owns any real property in fee.

 

(b)            Section 4.4(b) of the Seller Disclosure Letter sets forth a list of all real property leases relating to the Leased Real Property.  Each lease set forth on Section 4.4(b) of the Seller Disclosure Letter is a valid and binding obligation of an Acquired Entity.  Each Acquired Entity that is a party to a lease covering the Leased Real Property has good and valid title to the leasehold interest created by such lease, free and clear of all Liens, except Permitted Liens.  No event has occurred that, with the passage of time or the giving of notice or both, would constitute a default or breach in any respect by any of the Acquired Entities, or to the Knowledge of the Sellers, any other party thereto.

 

(c)            CMS has good title to, or holds pursuant to valid and enforceable leases, if any, all the properties and assets (excluding real property) included in the Acquired Assets, with only such exceptions as constitute Permitted Liens.

 

(d)            The Acquired Entities have good title to, or hold pursuant to valid and enforceable leases, all the properties and assets (excluding real property) of the Acquired Entities, with only such exceptions as constitute Permitted Liens.

 

(e)            Except for the matters set forth on Section 4.4(e) of the Seller Disclosure Letter, and after giving effect to the services to be provided pursuant to the Transition Services Agreement, the Acquired Entities and Acquired Assets are, and as of the Closing will be, sufficient for the conduct of the Business as currently conducted, it being understood that only services and certain Intellectual Property rights, but no physical assets, are to be provided to an Acquired Entity pursuant to the Transition Services Agreement.

 

4.5            Financial Statements .

 

(a)            Section 4.5(a) of the Seller Disclosure Letter sets forth true, complete and correct copies of the unaudited combined balance sheet of the Acquired Entities as of December 31, 2008, 2007 and 2006 and the related unaudited combined statements of income of the Acquired Entities for the years then ended (collectively, the “ FHS Year End Financial Statements ”), and (ii) the unaudited combined balance sheet of the Acquired Entities as of April 30, 2009 and the unaudited combined statements of income of the Acquired Entities for the four months ended April 30, 2009 (collectively, the “ FHS Interim Financial Statements ,” and together with the FHS Year End Financial Statements, the “ FHS Financial Statements ”).

 

(b)            Except as set forth on Section 4.5(b) of the Seller Disclosure Letter, the FHS Financial Statements are true and complete in all material respects, and,

 

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have been prepared in accordance with GAAP, consistent with past practices, without modification of the accounting principles used in the preparation thereof throughout the periods presented (except as noted therein), and fairly present the financial position, results of operations of the Acquired Entities as of the respective dates thereof (subject to appropriate note and year-end adjustments).

 

(c)            Coventry maintains systems of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the actual levels at reasonable intervals and appropriate action is taken with respect to any differences.

 

(d)            Coventry’s management has completed its assessment of the effectiveness of Coventry’s internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the year ended December 31, 2008, and such assessment concluded that such controls were effective. Coventry’s principal executive officer and its principal financial officer have identified, based on their evaluation made for purposes of SEC Rule 13a-14 as of and for the period ended March 31, 2009, (i) no significant deficiencies in the design or operation of Coventry’s internal control over financial reporting which could adversely affect the ability of an Acquired Entity to record, process, summarize and report financial data in the periodic reports Coventry is required to file under the Exchange Act and no material weaknesses in such internal control over financial reporting pertaining to an Acquired Entity and (ii) no fraud, whether or not material, that involves management or other employees of the Acquired Entities who have a significant role in Coventry’s internal control over financial reporting.

 

(e)            All books, records and accounts of each of the Acquired Entities are accurate and complete and are maintained in all material respects in accordance with good business practice and all applicable Laws.  Complete and accurate copies of all minute books of each of the Acquired Entities have been made available to Buyer.

 

4.6            Absence of Certain Changes or Events .  Except (i) as specifically contemplated or permitted by this Agreement or the other Transaction Agreements, or (ii) as set forth in Section 4.6 of the Seller Disclosure Letter, since December 31, 2008, the Business has been conducted in all material respects in the ordinary course, and there has not been any Material Adverse Effect on the Business.  Since December 31, 2008, none of the Acquired Entities has taken any action described in Section 6.1 hereof that if taken after the date hereof and prior to the Closing Date without the prior written consent of Buyer would violate such provision.  Without limiting the foregoing, since December 31, 2008 there has not occurred any damage, destruction or loss (whether or not covered by insurance) of any asset of the Acquired Entities which materially affects the use thereof.

 

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4.7            Litigation; No Undisclosed Liabilities .  Except as described on Section 4.7 of the Seller Disclosure Letter:

 

(a)            No Action against CMS (with respect to the Acquired Assets), the Acquired Entities or the Business is pending or, to Sellers’ Knowledge, threatened.  To Sellers’ Knowledge, there are no investigations pending or threatened against CMS (with respect to the Acquired Assets), the Acquired Entities or the Business.

 

(b)            None of the Acquired Entities has any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) other than those (i) incurred in the ordinary course of business since December 31, 2008, or (ii) fully reflected on or reserved against in the FHS Financial Statements.

 

4.8            Compliance with Laws .  Except as set forth in Section 4.8 of the Seller Disclosure Letter, the Business is being conducted in all material respects in compliance with all applicable Laws.  None of the Acquired Entities has received any written notice of or been charged with the violation of any Laws.  To the Knowledge of Sellers, none of the Acquired Entities is under investigation with respect to the violation of any Laws.

 

4.9            Environmental Matters .  Except as set forth on Section 4.9 of the Seller Disclosure Letter:

 

(a)            each of the Acquired Entities has obtained all Permits required under Environmental Laws for the conduct and operation of the Business and is in material compliance with the terms and conditions contained therein;

 

(b)            each of the Acquired Entities is in compliance with all applicable Environmental Laws, except for such noncompliance as would not form the basis of a claim under or create a liability under applicable Environmental Laws that would be material to such Acquired Entity, and Sellers have made available to Buyers all environmental reports, assessments, surveys, audits, claims, and other documents that are in the possession and control of Sellers regarding environmental matters pertaining to the Acquired Entities and that are material to the operation of the Business;

 

(c)            to Sellers’ Knowledge, none of the Acquired Entities is subject to any contractual environmental indemnification obligation regarding the business or properties currently owned, leased or operated by any of the Acquired Entities;

 

(d)            there are no environmental Actions pending or threatened with respect to the Business;

 

(e)            there is no condition on, at or under any property (including the air, soil and ground water) currently or formerly owned, leased or used by any of the Acquired Entities (including off-site waste disposal facilities) or created by any of the Acquired Entities’ operations that would create liability with respect to the Business under applicable Environmental Laws; and

 

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(f)             there are no past or present actions, activities, circumstances, events or incidents (including the Release or Handling of any Hazardous Material) with respect to any of the Acquired Entities that would form the basis of a claim or create a liability under applicable Environmental Laws that is material to an Acquired Entity.

 

4.10          Tax Matters .  Except as set forth in Section 4.10 of the Seller Disclosure Letter:

 

(a)            (i) All income and other material Tax Returns required to be filed by the Acquired Entities or with respect to the Acquired Assets have been timely filed, (ii) all such Tax Returns are true, correct and complete in all material respects, (iii) all income and other material Taxes due have been timely paid, (iv) the Acquired Entities have duly and timely withheld all income and other material Taxes relating to the Business required to be withheld and such withheld Taxes have been either duly and timely paid to the proper Governmental Authority or properly set aside in accounts for such purpose and will be duly and timely paid to the proper Governmental Authority.

 

(b)            (i) No audits or other administrative proceedings or court proceedings are presently pending or threatened  in writing with regard to any income or other material Taxes or income or other material Tax Returns of any of the Acquired Entities or with respect to any of the Acquired Assets, (ii) no Taxing Authority is now asserting or has asserted any deficiency or claim for income and other material Taxes or any adjustment to income and other material Taxes with respect to which any of the Acquired Entities may be liable which have not been fully paid or finally settled, (iii) none of the Acquired Entities has granted (or is subject to) any waiver or extension that is currently in effect for the period of limitations for the assessment, collection or payment of any Tax or the filing of any Tax Return, and (iv) no claim has been made by a Taxing Authority in a jurisdiction where the Acquired Entities do not file Tax Returns such that the Acquired Entities are or may be subject to taxation by that jurisdiction.

 

(c)            Section 4.10(c) of the Seller Disclosure Letter lists any audit report issued within the last three years relating to any income and other material Taxes due from or with respect to each of the Acquired Entities or Acquired Assets.  All income and other material Tax Returns filed by or on behalf of each of the Acquired Entities and with respect to the Acquired Assets have been examined by the relevant Taxing Authority or the statute of limitations with respect to such Tax Returns has expired.

 

(d)            Neither the Acquired Entities nor any other Person on their behalf has (i) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of Law or has any Knowledge that any Taxing Authority has proposed any such adjustment, or has any application pending with any Taxing Authority requesting permission for any changes in accounting methods that relate to any of the Acquired Entities, (ii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision of Law with respect to any of the Acquired Entities affecting the Acquired Entities after the date hereof, (iii) granted to any Person any power of attorney that is currently in force with respect to any Tax matter, or

 

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(iv) executed or entered into any agreement with, or obtained any consents or clearances from, any Taxing Authority, or been subject to any ruling guidance specific to the Acquired Entities, any of which would be binding on Buyer for any taxable period (or portion thereof) ending after the Closing Date.

 

(e)            None of the Acquired Entities has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement or (B) 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 transactions contemplated by this Agreement.

 

(f)             There is no taxable income of any of the Acquired Entities or with respect to any of the Acquired Assets that will be required under applicable Tax Law to be reported by Buyer or any of its Affiliates, including the Acquired Entities, for a taxable period beginning after the Closing Date which taxable income was realized (and reflects economic income) arising prior to the Closing Date.

 

(g)            None of the Acquired Entities has, or has ever had, a permanent establishment in any country other than the United States, or has engaged in a trade or business in any country other than the United States that subjected it to Tax in such country.

 

(h)            Each of the Sellers is a United States Person within the meaning of Code Sections 897 and 1445.

 

(i)             Provider Synergies, at all times since its formation, (A) is and has been treated for U.S. federal income tax purposes (and in all states in which it files income Tax Returns) as a single member limited liability company disregarded for federal income Tax purposes, and (B) has not filed any election under Treasury Regulations Section 301.7701-3(c) (or similar provision of state, local or foreign Law) to be treated as an association taxable as corporation, and has not been classified as a corporation by any Taxing Authority.

 

(j)             None of the Acquired Entities (i) is a party to, bound by or has any obligation under any Tax allocation, sharing, indemnity or similar agreement or arrangement, other than with respect to the Consolidated Group for which Coventry is the common parent, (ii) has any obligation for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any predecessor or successor thereof or any analogous or similar provision of Law), other than with respect to the Consolidated Group for which Coventry is the common parent, or (iii) is or has ever been a member of a Consolidated Group, other than the Consolidated Group of which Coventry is the common parent.

 

(k)            None of the Acquired Assets and none of the properties or assets of any of the Acquired Entities are subject to any Tax lien (other than Permitted Liens).

 

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(l)             None of the Acquired Entities has consummated, has participated in or is currently participating in any transaction that was or is a “reportable transaction” as defined in Treasury Regulations Section 1.6011-4(b).

 

(m)           No Acquired Entity has an interest in an entity classified as a partnership for U.S. federal income tax purposes.

 

4.11          ERISA and Employee Plans .

 

(a)            Section 4.11(a) of the Seller Disclosure Letter lists each material Employee Plan.  Each of the Sellers has heretofore made available to Buyer true and complete copies of each Employee Plan and any amendments thereto, any related trust or other funding vehicle, the most recent annual reports or summaries, the most recent determination or opinion letter, the most recent actuarial valuations, the most recent summary plan descriptions and written descriptions of all non-written agreements relating to Employee Plans.

 

(b)            No Employee Plan sponsored, maintained or contributed to by any of the Sellers or any of their respective ERISA Affiliates, within the six (6) year period preceding the Closing Date, is or has been subject to Title IV of ERISA, or is or was a multiemployer plan as defined in Section 3(37) of ERISA.

 

(c)            Each Employee Plan has been operated and administered in all material respects in accordance with its terms and applicable Law, including, but not limited to, ERISA, the Code and the Laws of any applicable foreign jurisdiction.  There are no pending or, to Sellers’ Knowledge, threatened claims by, on behalf of or against any Employee Plan or any assets thereof, other than routine claims for benefits and no matter is pending (other than routine qualification determination filings, copies of which have been furnished to Buyer or will be promptly furnished to Buyer when made) with respect to any Employee Plan before the IRS or the United States Department of Labor.

 

(d)            Each Employee Plan intended to be “qualified” within the meaning of Section 401(a) of the Code has received a determination or opinion letter from the IRS stating that it and the trust maintained thereunder is exempt from taxation under Section 401(a) or Section 501(a) of the Code, respectively, and, to Sellers’ Knowledge, nothing has occurred with respect to the operation of any such plan which could cause the loss of such qualification or exemption or the imposition of any liability, penalty or Tax under ERISA or the Code.

 

(e)            All material contributions required to have been made under any of the Employee Plans by Law have been timely made and no accumulated funding deficiencies exist in any of the Employee Plans subject to Section 412 of the Code.

 

(f)             Except as set forth on Section 4.11(f) of the Seller Disclosure Letter and except as otherwise provided in or contemplated by this Agreement, any other Transaction Agreement, or otherwise required under applicable Law, the consummation

 

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of the Transactions shall not result, by itself or with the passage of time, in the payment or acceleration of any amount, the accrual or acceleration of any benefit or any increase in any vested interest or entitlement to any benefit or payment by any Eligible Employee.

 

(g)            Neither Sellers nor any of their ERISA Affiliates has any obligation to provide medical, surgical, hospitalization, death or similar benefits (whether or not insured) for any participant (or any of the participant’s dependents, spouse, or beneficiaries) for the period extending beyond their retirement or other termination of service, other than continuation coverage mandated by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) or the American Recovery Act of 2009 (“ ARRA ”) and at the expense of the participant or the participant’s beneficiary.  Each of the Sellers and any of the ERISA Affiliates which maintains a group health plan within the meaning of Section 5000(b)(1) of the Code has complied in good faith with any notice and continuation requirements of Section 4980B of the Code, as amended by ARRA, COBRA, Part 6 of Subtitle B of Title I of ERISA, as amended by ARRA and with the Health Insurance Portability and Accountability Act of 1996 (“ HIPAA ”), as amended by ARRA and the regulations thereunder.

 

(h)            With respect to each Employee Plan that is a maintained outside of the United States substantially for employees who are situated outside the United States (the “ Foreign Plans ”):  (i) each Foreign Plan is in compliance in all material respects with the applicable provisions of Law and regulations regarding employee benefits, mandatory contributions and retirement plans of each jurisdiction in which each such Foreign Plan is maintained, to the extent those Laws are applicable to such Foreign Plan; (ii) each Foreign Plan has been administered at all times and in all material respects in accordance with its terms; (iii) there are no pending investigations by any Governmental Authority involving any Foreign Plan, and no pending claims (except for claims for benefits payable in the normal operation of the Foreign Plans), suits or proceedings against any Foreign Plan or asserting any rights or claims to benefits under any Foreign Plan; (iv) the transactions contemplated by this Agreement, by themselves or in conjunction with any other transactions, will not create or otherwise result in any material liability, accelerated payment or any materially enhanced benefits with respect to any Foreign Plan; and (v) all liabilities with respect to each Foreign Plan have been funded to the extent required by the terms of such Foreign Plan and applicable Law or have been properly reflected in the financial statements of the Sellers.

 

(i)             Any individual who performs services for one or more members of the CMS Group (other than through a Contract with an organization other than such individual) and who is not treated as an employee for federal income or employment Tax purposes by one or more members of the CMS Group is not an employee for such purposes.

 

4.12          Labor and Employment Matters .

 

(a)            Neither the Sellers nor any of their respective Affiliates is a party to any collective bargaining or similar agreement with respect to any Eligible Employees

 

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with any labor union, group or association (“ Labor Union ”) and no such agreement is being negotiated.  No Labor Union represents or, to the Knowledge of Sellers, purports to represent any Eligible Employees.  To the Knowledge of Sellers, there are no, and have not been since January 1, 2004 any, activities or proceedings of any Labor Union to organize any such activity. There are no, and have not been since January 1, 2004 any, strikes, slowdowns, work stoppages, lockouts, labor grievances, unfair labor practice complaints or other labor dispute, or, to the Knowledge of Sellers, threats of such activities, by any Labor Union or any Eligible Employees.

 

(b)            Except as set forth on Section 4.12(b) of the Seller Disclosure Letter, there are no complaints, charges or claims against any of the Sellers pending or, to the Knowledge of Sellers, threatened that could be brought or filed, with any Governmental Authority or based on, arising out of, in connection with or otherwise relating to the employment or termination of employment or failure to employ by the Sellers, of any Eligible Employee.  Each of the Sellers is in compliance with all Laws relating to labor and employment, including all such Laws relating to wages, hours, overtime, “mass layoffs” or “plant closings”, collective bargaining, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding and/or social security taxes and any similar tax except for immaterial non-compliance.  Since January 1, 2004, there have not been any plant closings, mass layoffs or other similar terminations of Eligible Employees that would create any obligations upon or liability of any of Sellers or any of their respective Affiliates under the WARN Act requiring notice in connection with plant closings, mass layoffs or other similar terminations of employment.

 

4.13          Intellectual Property .

 

(a)            Section 4.13(a) of the Seller Disclosure Letter sets forth an accurate and complete list of all Intellectual Property that is the subject of an issuance or registration or an application for issuance or registration that is owned by any of the Acquired Entities (“ Registered IP ”).  For each such item of Registered IP, Section 4.13(a) of the Seller Disclosure Letter lists (i) the record owner of such item, (ii) the jurisdiction in which such item has been issued or registered or in which such application has been filed and (iii) the date and number of such issuance, registration or application.  Except as set forth on Section 4.13(a) of the Seller Disclosure Letter, to the Sellers’ Knowledge, (A) there are no overdue filings or unpaid filing, maintenance or renewal fees currently overdue with respect to any Registered IP and no filings or fees due to be submitted or paid with respect to any Registered IP within ninety (90) days after the date of this Agreement and (B) no material Registered IP has lapsed or been cancelled or expired other than in the reasonable business judgment of the Acquired Entities in the ordinary course of business.

 

(b)            Except as set forth on Section 4.13(b) of the Seller Disclosure Letter or as has not had and would not have a Material Adverse Effect, (i) the Acquired Entities exclusively own all right, title and interest in all Business IP and Business Technology, and otherwise control or have the right to use, practice and otherwise

 

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exploit, all other Intellectual Property and Technology as the same is used, practiced and otherwise exploited in the Business as currently conducted (including in connection with services provided by the Acquired Entities to third parties), free of all Liens, (ii) no Action or Ruling is pending or is threatened against any of the Acquired Entities or CMS by any Person in writing with respect to any Business IP or Business Technology (including the validity or enforceability thereof or the ownership or use thereof by any of the Acquired Entities) or that alleges that the conduct of the Business or any Business IP or Business Technology or any other Intellectual Property or Technology used by any of the Acquired Entities (or the use, practice or other exploitation thereof) infringes or misappropriates or violates (“ Infringes ”) the Intellectual Property rights of any Person, and none of the Acquired Entities is subject to any outstanding Ruling involving any Intellectual Property or Technology that relates to the Business, (iii) to Sellers’ Knowledge, all of the Registered IP (excluding any applications included in the Registered IP) is enforceable, and Sellers are not aware of any facts that would limit or impair the validity of any of the Registered IP,  (iv) to the Sellers’ Knowledge, neither the conduct of the Business nor the use, practice or other exploitation of any Business IP or Business Technology Infringes the Intellectual Property rights of any Person, (v) to Sellers’ Knowledge, none of the Business IP is being Infringed by any Person and (vi) no Action is pending or threatened in writing by any of the Acquired Entities against any Person alleging that any Person is Infringing any Business IP or Business Technology.

 

(c)            The Business IP and Business Technology owned by the Acquired Entities and any Intellectual Property or Technology licensed to any of the Acquired Entities pursuant to the Material Contracts, together with the Intellectual Property and Technology to be made available to Buyer or its Subsidiaries by CMS pursuant to the Transition Services Agreement, include all of the Intellectual Property and Technology that is used in, and is sufficient to enable, the conduct by the Acquired Entities of the Business as currently conducted.  To Sellers’ Knowledge, the only Intellectual Property and Technology to be made available to Buyer or its Subsidiaries by CMS pursuant to the Transition Services Agreement will be provided pursuant to licenses from third parties that are identified in a schedule to the Transition Services Agreement.

 

(d)            Each of the Acquired Entities has taken commercially reasonable measures to protect the confidentiality of all trade secrets, personal identifiable information and other confidential and proprietary information of the Acquired Entities or any Person to whom any of the Acquired Entities has a confidentiality obligation.  To the Sellers’ Knowledge, (i) to the extent that any Business IP or Business Technology has been developed or created by an employee, consultant, independent contractor or third party on behalf of or for the Acquired Entities, the Acquired Entities have obtained ownership of such Business IP or Business Technology created by such employee, consultant, independent contractor or third party; and (ii) no employee, consultant or independent contractor of any of the Acquired Entities is, as a result of or in the course of such employee’s, consultant’s or independent contractor’s engagement by such Acquired Entity, in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of invention agreement or similar agreement.

 

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