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Exhibit 10.14  

 
 

SECOND AMENDMENT TO THIRD
  AMENDED AND RESTATED CREDIT AGREEMENT    
    

        THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT ("Second Amendment") is made and entered into as of the 12th day of November,
2003, by and among MTR GAMING GROUP, INC., a Delaware corporation ("MTRI"), MOUNTAINEER PARK, INC., a West Virginia corporation ("MPI"), SPEAKEASY GAMING OF LAS VEGAS, INC., a
Nevada corporation ("SGLVI"), SPEAKEASY GAMING OF RENO, INC., a Nevada corporation ("SGRI"), PRESQUE ISLE DOWNS, INC., a Pennsylvania corporation ("PIDI") and RACING
ACQUISITION, INC., an Ohio corporation ("RAI" and together with MTRI, MPI, SGLVI, SGRI and PIDI, collectively referred to as the "Borrowers"), WELLS FARGO BANK, National Association, NATIONAL
CITY BANK OF PENNSYLVANIA and BRANCH BANKING AND TRUST COMPANY (each individually a "Lender" and collectively the "Lenders"), WELLS FARGO BANK, National Association, as the swingline lender (herein in
such capacity, together with its successors and assigns, the "Swingline Lender"), WELLS FARGO BANK, National Association, as the issuer of letters of credit (in such capacity, together with it
successors and assigns, the "L/C Issuer"), and WELLS FARGO BANK, National Association, as administrative and collateral agent for the Lenders, Swingline Lender and L/C Issuer (herein, in such
capacity, called the "Agent Bank" and, together with the Lenders, Swingline Lender and L/C Issuer collectively referred to as the "Banks"). 

R  E  C  I  T  A  L  S:  

        WHEREAS: 

        A.
Borrower and Banks entered into a Third Amended and Restated Credit Agreement dated as of March 28, 2003, as amended by First Amendment to Amended and Restated Credit Agreement
dated as of June 18, 2003 (collectively, the "Existing Credit Agreement") for the purpose of establishing a revolving line of credit in the principal amount of Fifty Million Dollars
($50,000,000.00), including subfacilities for the funding of swingline advances and issuance of Letters of Credit. 

        B.
Borrowers and Banks desire to amend the Existing Credit Agreement for the purposes of: (i) modifying the Minimum Tangible Net Worth Covenant set forth in Section 6.03
for the purpose of taking into account Intangibles attributable to the Scioto Merger, and (ii) clarifying that the secured financing in favor of National City Bank which was permitted to
continue following the Scioto Merger Effective Date pursuant to Section 5.29(c) constitutes allowed Indebtedness under Section 6.04, all effective retroactively to September 30,
2003. 

        NOW,
THEREFORE, in consideration of the foregoing and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to
the amendments and modifications to the Existing Credit Agreement as specifically hereinafter provided as follows: 

        1.    Definitions.    Effective as of September 30, 2003, Section 1.01 of
the Existing Credit Agreement entitled "Definitions" shall be and is hereby amended to include the following definitions. Those terms which are currently defined by Section 1.01 of the Existing
Credit Agreement and which are also defined below shall be superseded and restated by the applicable definition set forth below: 

        "Compliance
Certificate" shall mean a compliance certificate as described in Section 5.08(e), the form of which is more particularly described on "Exhibit D", affixed to the
Second Amendment and by this reference incorporated herein and made a part hereof, which revised Exhibit D shall fully supersede and restate Exhibit D attached to the Existing Credit
Agreement. 

        "Credit
Agreement" shall mean the Existing Credit Agreement as amended by the Second Amendment, together with all Schedules, Exhibits and other attachments thereto, as it may be further
amended, modified, extended, renewed or restated from time to time. 

 

        "Existing
Credit Agreement" shall have the meaning set forth in Recital Paragraph A of the Second Amendment. 

        "Second
Amendment" shall mean the Second Amendment to Third Amended and Restated Credit Agreement dated as of November 12, 2003. 

        "Second
Amendment Effective Date" shall mean September 30, 2003, subject to the execution and delivery of this Second Amendment by Borrowers and Requisite Lenders. 

        2.    Restatement of Section 6.03.    As of the Second Amendment Effective Date,
Section 6.03 of the Existing Credit Agreement entitled "Minimum Tangible Net Worth" shall be and is hereby deleted in its entirety and the following is substituted as a full restatement
thereof: 

        "Section 6.03.    Minimum
Tangible Net Worth.    The Borrower Consolidation shall maintain as of the last day of each Fiscal
Quarter a Tangible Net Worth equal to or greater than the sum of (a) ninety percent (90%) of the Tangible Net Worth of the Borrower Consolidation calculated as of September 30, 2003,
plus (b) eighty-five percent (85.0%) of Net Income after taxes realized by the Borrower Consolidation as of each Fiscal Quarter end occurring on and after December 31, 2003,
without deduction for any net losses, plus (c) ninety percent (90.0%) of the Net Proceeds received by the Borrower Consolidation from all Equity Offerings made subsequent to
September 30, 2003." 

        3.    Restatement of Limitation on Indebtedness Subsection.    As of the Second Amendment
Effective Date, Subsection 6.04(f) shall be and is hereby fully amended and restated in its entirety as follows: 

"f.
Indebtedness evidenced by (i) the Woodview Loan Documents, and (ii) the secured financing in favor of National City Bank in the approximate amount of Two Million Five Hundred
Thousand Dollars ($2,500,000.00) and/or lease financing obligations existing prior to the Scioto Merger Effective Date permitted to continue following the Scioto Merger Effective Date in accordance
with the provisions set forth in Section 5.29(c)." 

        4.    Representations of Borrowers.    Borrowers hereby represent to the Banks, which
representations shall survive the Second Amendment Effective Date and be deemed incorporated into Article IV of the Credit Agreement, that: 

        a.     the
representations and warranties contained in Article IV of the Existing Credit Agreement and contained in each of the other Loan Documents (other than
representations and warranties which expressly speak only as of a different date, which shall be true and correct in all material respects as of such date) are true and correct on and as of the Second
Amendment Effective Date in all material respects as though such representations and warranties had been made on and as of the Second Amendment Effective Date, except to the extent that such
representations and warranties are not true and correct as a result of a change which is permitted by the Credit Agreement or by any other Loan Document or which has been otherwise consented to by
Agent Bank or, where applicable, the Requisite Lenders; 

        b.     since
the date of the most recent financial statements referred to in Section 5.08 of the Existing Credit Agreement, no Material Adverse Change has occurred and no
event or circumstance which could reasonably be expected to result in a Material Adverse Change has occurred; 

        c.     after
giving effect to the Second Amendment, no event has occurred and is continuing which constitutes a Default or Event of Default under the terms of the Credit
Agreement; and 

        d.     the
execution, delivery and performance of this Second Amendment has been duly authorized by all necessary action of Borrowers and this Second Amendment constitutes the
valid, binding and enforceable obligation of Borrowers. 

2

 

        5.     Incorporation
by Reference. This Second Amendment shall be and is hereby incorporated in and forms a part of the Existing Credit Agreement. 

        6.     Governing
Law. This Second Amendment to Credit Agreement shall be governed by the internal laws of the State of Nevada without reference to
conflicts of laws principles. 

        7.     Counterparts.
This Second Amendment may be executed in any number of separate counterparts with the same effect as if the signatures hereto
and hereby were upon the same instrument. All such counterparts shall together constitute one and the same document. 

        8.     Continuance
of Terms and Provisions. All of the terms and provisions of the Credit Agreement shall remain unchanged except as specifically
modified herein. 

        9.     Replacement
Exhibit Attached. The following replacement exhibit is attached hereto and incorporated herein and made a part of the Credit
Agreement as follows: 

        Exhibit D—Compliance
Certificate (First Restated)—Form 

3

 

        IN
WITNESS WHEREOF, Borrowers and the Agent Bank (acting at the direction of the Requisite Lenders pursuant to Section 10.11 of the Credit Agreement) have executed this Second
Amendment as of the day and year first above written. 

	 	 	BORROWERS:
	

 	
 	

MTR GAMING GROUP, INC.,

a Delaware corporation
	

 	
 	

By	

/s/  EDSON R. ARNEAULT      
 Edson R. Arneault,

President
	

 	
 	

MOUNTAINEER PARK, INC.,

a West Virginia corporation
	

 	
 	

By	

/s/  EDSON R. ARNEAULT      
 Edson R. Arneault,

President
	

 	
 	

SPEAKEASY GAMING OF LAS VEGAS, INC.,

a Nevada corporation
	

 	
 	

By	

/s/  EDSON R. ARNEAULT      
 Edson R. Arneault,

President
	

 	
 	

SPEAKEASY GAMING OF RENO, INC.,

a Nevada corporation
	

 	
 	

By	

/s/  EDSON R. ARNEAULT      
 Edson R. Arneault,

President
	

 	
 	

PRESQUE ISLE DOWNS, INC.,

a Pennsylvania corporation
	

 	
 	

By	

/s/  EDSON R. ARNEAULT      
 Edson R. Arneault,

President
	

 	
 	

RACING ACQUISITION, INC.,

an Ohio corporation
	

 	
 	

By	

/s/  EDSON R. ARNEAULT      
 Edson R. Arneault,

President
	 	 	 	 

4

 

	

 	
 	
AGENT BANK:
	

 	
 	

WELLS FARGO BANK,

National Association,

Agent Bank, on behalf of the Lenders,

Swingline Lender and L/C Issuer
	

 	
 	

By	

/s/  SUE FULLER      
 Sue Fuller,

Vice President

5

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Exhibit 10.1  

        STOCK PURCHASE AGREEMENT  

 BY AND BETWEEN  

 HEALTH NET, INC.  

 AND  

 FIRST HEALTH GROUP CORP.  

 DATED AS OF SEPTEMBER 2, 2003  

  

 
 

Table of Contents    
    

	 
	 	 
	 	Page

	ARTICLE I SALE AND PURCHASE	 	1
	 	

1.1	
 	

Sale and Purchase of the Shares; Purchase Price.	
 	

1
	 	1.2	 	Closing.	 	1
	

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER	
 	

2
	 	

2.1	
 	

Corporate Matters.	
 	

2
	 	2.2	 	Consents and Approvals.	 	2
	 	2.3	 	Corporate Matters relating to the Company Group.	 	2
	 	2.4	 	Capitalization.	 	3
	 	2.5	 	Title to Shares.	 	3
	 	2.6	 	Financial Statements.	 	3
	 	2.7	 	Absence of Undisclosed Liabilities.	 	4
	 	2.8	 	Accounts Receivable.	 	4
	 	2.9	 	Absence of Changes.	 	4
	 	2.10	 	Legal Compliance.	 	5
	 	2.11	 	Litigation.	 	6
	 	2.12	 	Real Property.	 	6
	 	2.13	 	Title to Assets; Sufficiency of Assets.	 	6
	 	2.14	 	Contracts.	 	7
	 	2.15	 	Intellectual Property.	 	8
	 	2.16	 	Taxes.	 	9
	 	2.17	 	Employment and Benefits.	 	10
	 	2.18	 	Insurance.	 	11
	 	2.19	 	Environmental Matters.	 	11
	 	2.20	 	Affiliate Transactions.	 	12
	 	2.21	 	Guarantees.	 	12
	 	2.22	 	Bank Accounts.	 	12
	 	2.23	 	Brokers and Finders.	 	12
	 	2.24	 	Corporate Records.	 	13
	 	2.25	 	Labor Matters.	 	13
	 	2.26	 	Employees.	 	13
	 	2.27	 	Customers and Suppliers.	 	14
	 	2.28	 	Group Health Business Assets.	 	14
	

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER	
 	

14
	 	

3.1	
 	

Corporate Status and Authority.	
 	

14
	 	3.2	 	Consents and Approvals.	 	15
	 	3.3	 	Financial Ability to Perform.	 	15
	 	3.4	 	Litigation.	 	15
	 	3.5	 	Purchase for Investment.	 	15
	 	3.6	 	Insurance.	 	15
	 	3.7	 	Brokers and Finders.	 	15
	 	3.8	 	No Other Representations.	 	16
	

ARTICLE IV CERTAIN COVENANTS	
 	

16
	 	

4.1	
 	

Conduct of Business.	
 	

16
	 	4.2	 	No Solicitation.	 	17
	 	 	 	 	 

i

 

	 	4.3	 	Access and Information.	 	18
	 	4.4	 	Non-Compete Agreement; Non-Solicitation of Employees.	 	18
	 	4.5	 	Public Announcements.	 	18
	 	4.6	 	Further Actions.	 	19
	 	4.7	 	Tax Obligations.	 	20
	 	4.8	 	Cooperation and Indemnification for Tax Matters; Exclusivity.	 	22
	 	4.9	 	Transfer Taxes; Tax Sharing Agreements.	 	24
	 	4.10	 	Employees.	 	24
	 	4.11	 	Updates to Schedules.	 	25
	 	4.12	 	Contact with Customers and Suppliers.	 	26
	 	4.13	 	Use of Name and Marks and Affiliation Statement.	 	26
	 	4.14	 	Section 338(h)(10) Election.	 	26
	 	4.15	 	Purchaser's Access to Seller's Network.	 	27
	 	4.16	 	License Agreement.	 	27
	 	4.17	 	Transition Services Agreement.	 	27
	 	4.18	 	PPO Services Agreement.	 	27
	 	4.19	 	Confidentiality.	 	27
	 	4.20	 	Divestiture of Group Health Business.	 	28
	 	4.21	 	Divestiture of HN Services.	 	28
	 	4.22	 	Cancellation of Intercompany Accounts.	 	28
	

ARTICLE V CONDITIONS PRECEDENT	
 	

28
	 	

5.1	
 	

Conditions to Obligations of Each Party.	
 	

28
	 	5.2	 	Conditions to Obligations of the Seller.	 	29
	 	5.3	 	Conditions to Obligations of the Purchaser.	 	29
	

ARTICLE VI INDEMNIFICATION	
 	

30
	 	

6.1	
 	

By the Seller.	
 	

30
	 	6.2	 	By the Purchaser.	 	32
	 	6.3	 	Indemnification Procedures.	 	32
	 	6.4	 	Treatment of Indemnity Payment.	 	34
	 	6.5	 	Mitigation of Loss.	 	34
	 	6.6	 	Exclusivity of Indemnification Provision.	 	34
	 	6.7	 	Survival of Representations and Warranties.	 	34
	

ARTICLE VII DEFINITIONS AND INTERPRETATION	
 	

34
	 	

7.1	
 	

Definitions.	
 	

34
	 	7.2	 	Interpretation.	 	40
	 	7.3	 	Schedules.	 	40
	

ARTICLE VIII GENERAL PROVISIONS.	
 	

40
	 	8.1	 	Modification; Waiver.	 	40
	 	8.2	 	Entire Agreement.	 	40
	 	8.3	 	Relationship Between the Parties.	 	40
	 	8.4	 	Termination.	 	41
	 	8.5	 	Expenses.	 	41
	 	8.6	 	Further Assurances.	 	41
	 	8.7	 	Notices.	 	41
	 	8.8	 	Assignment.	 	42
	 	8.9	 	No Third-Party Beneficiaries.	 	43
	 	8.10	 	Counterparts.	 	43
	 	8.11	 	Governing Law.	 	43
	 	8.12	 	Waiver of Punitive and Other Losses and Jury Trial.	 	43

ii

  

 
 

STOCK PURCHASE AGREEMENT    
    

        STOCK PURCHASE AGREEMENT, dated as of September 2, 2003, by and between HEALTH NET, INC., a Delaware corporation (the
"Seller"), and FIRST HEALTH GROUP CORP., a Delaware corporation (the "Purchaser"). 

 
 

W I T N E S S E T H:    
    

        WHEREAS, the Seller owns 1,000 shares of common stock, no par value, of Health Net Employer Services, Inc., a California corporation (the
"Company"), being all of the issued and outstanding shares of the capital stock of the Company (the
"Shares"); 

        WHEREAS,
the Seller wishes to sell the Shares to the Purchaser, and the Purchaser wishes to purchase the Shares from the Seller, on the terms and conditions and for the consideration
described in this Agreement (defined terms having the meanings indicated in Article VII); and 

        WHEREAS,
the Seller and Purchaser desire that Health Net Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("HN
Services"), and the Company Group's Group Health Business, as defined herein, be excluded from the purchase and sale transaction contemplated by this Agreement. 

        NOW,
THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived herefrom, the parties hereto agree
as follows: 

 
 

ARTICLE I
  SALE AND PURCHASE    
    

        1.1    Sale and Purchase of the Shares; Purchase Price.    

        (a)   Shares. Subject to the terms and conditions of this Agreement, at the Closing, the Seller will sell, assign, transfer and
deliver to the Purchaser, and the Purchaser will purchase, all of the Shares for the consideration set forth in Section 1.1(b). 

        (b)   Purchase Price. The consideration to be paid by the Purchaser at the Closing for the Shares shall be an amount equal to
$80,000,000 (the "Purchase Price"), payable in the manner set forth in Section 1.2. Prior to the Closing Date, the Purchaser and the Seller shall
agree to an allocation of the Purchase Price as between the Shares, the Workers' Compensation Network Access Agreement and the Non-Compete Agreement. 

        1.2    Closing.    

        The
closing of the sale and purchase of the Shares (the "Closing") will take place at the offices of Latham & Watkins, LLP, 233
South Wacker Drive, Suite 5800, Chicago, Illinois 60606 at 10:00 A.M., local time, on the last day of the month in which the last of the conditions described in Article V are satisfied
or waived or at such other date and time as the parties may agree to in writing (the "Closing Date"). At the Closing: 

        (a)   the
Seller will deliver to the Purchaser, free and clear of any Liens, the certificates representing the Shares duly endorsed in blank or accompanied by stock or other
appropriate transfer powers duly executed in blank, and accompanied by all requisite stock transfer stamps; 

        (b)   the
Purchaser will pay the Purchase Price to the Seller by wire transfer of immediately available funds to previously designated accounts of the Seller 

1

 

 
 

ARTICLE II
  REPRESENTATIONS AND WARRANTIES OF THE SELLER    
    

        Except as otherwise disclosed on any of the Schedules to this Agreement, the Seller represents and warrants to the Purchaser as follows in Sections 2.1 through
2.28. For purposes of the representations and warranties of the Seller contained herein, disclosure in any Schedule delivered pursuant to this Agreement shall be deemed to qualify all representations
or warranties by the Seller calling for disclosure of such information so long as it is reasonably apparent from a reading of such Schedule that it applies to other representations and warranties
contained herein. 

        2.1    Corporate Matters.    

        The
Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own,
lease and operate its assets and to carry out its business as now conducted. The Seller has all requisite corporate power and authority to execute and deliver this Agreement and the other Transaction
Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the other Transaction Documents to
which it is a party have been duly and validly authorized by all necessary action of the Seller and no additional authorization on the part of the Seller is necessary in connection with the execution,
delivery and performance of this Agreement and such other Transaction Documents. This Agreement constitutes, and such other Transaction Documents upon execution will constitute, the legal, valid and
binding obligations of the Seller, enforceable against it in accordance with their respective terms, except as limited by laws affecting the enforcement of creditors' rights generally or by general
equitable principles. Except as set forth on Schedule 2.1, the execution, delivery and performance by the Seller of this Agreement and such other Transaction Documents does not and will not
conflict with, contravene, result in a violation or breach of or default, or give rise to any right of termination, cancellation or acceleration (with or without the giving of notice or the lapse of
time or both), or result in the creation of any Lien upon any of the assets of the Seller, in each case under (i) any Law applicable to the Seller or
the Company, (ii) any material contract or agreement to which the Seller is a party or any Contract, or
(iii) the organizational documents of the Seller or the Company, except, in the case of clauses (i) and (ii), for conflicts, violations, breaches
and defaults that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect. 

        2.2    Consents and Approvals.    

        Except
as set forth on Schedule 2.2, no Governmental Action nor any consent, approval, waiver, permit, agreement, license, filing with or notice to any other Person is required on
the part of the Seller or any Company Group member in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement and the other
Transaction Documents to which the Seller is a party, except (i) filings, consents or approvals required under the HSR Act,
(ii) the regulatory or other approvals or filings, consents, approvals, waivers, permits,
agreements, licenses and notices set forth on Schedule 2.2, and (iii) others that, if not made or obtained, would not reasonably be likely to have, individually or in the aggregate, a
Material Adverse Effect. 

        2.3    Corporate Matters relating to the Company Group.    

        (a)   Each
Company Group member is duly organized, validly existing and in good standing under the laws of the jurisdictions of its organization, and has all requisite
corporate power and authority to own, lease and operate its assets and to carry out its businesses as now conducted. Each Company Group member is duly qualified and licensed to do business and is in
good standing in each jurisdiction in which the nature of its businesses or the properties owned or leased by them make such qualification or licensing necessary, which jurisdictions are listed on
Schedule 2.3, except where the failure to be so 

2

 

qualified
or licensed and in good standing, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect. 

        (b)   The
Subsidiaries set forth on Schedule 2.3(b) are the only Subsidiaries of the Company. None of the Subsidiaries set forth on Schedule 2.3(b) has any
Subsidiaries and there is no Person in which the Subsidiaries set forth on Schedule 2.3(b) directly or indirectly owns any equity or other investing interest. 

        2.4    Capitalization.    

        The
authorized capital stock, par value and the number of issued and outstanding shares of the capital stock of the Company Group members are set forth on Schedule 2.4. There are
no outstanding shares of capital stock of the Company other than the Shares. All of the issued and outstanding shares of capital stock of each Company Group member, including the Shares, are duly
authorized and validly issued, fully paid and non-assessable and none of them has been issued in violation of preemptive or similar rights. There are no declared or accrued but unpaid
dividends or distributions with regard to any issued and outstanding shares of the capital stock of any Company Group member. Except for this Agreement, there are no options, warrants,
pre-emptive rights, subscription rights, conversion rights, exchange rights, calls, repurchase or redemption arrangements or commitments of any kind, contingent or otherwise, related to
the issuance, sale, redemption or registration of, or to acquire, sell, redeem or transfer, any shares of the capital stock of any Company Group member (including any security convertible into or
exchangeable for any such shares of capital stock), and there are no voting trusts, proxies or other agreements or understandings with respect to the voting of any shares of the capital stock of the
Company Group. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company Group. 

        2.5    Title to Shares.    

        Seller
has good and marketable title to, and is the record and beneficial owner of, the Shares, and the delivery at the Closing of the certificates representing the Shares in the manner
provided in Section 1.2 will transfer to the Purchaser good and marketable title to the Shares, free and clear of any Liens, other than Liens created by the Purchaser and subject to
restrictions on transferability imposed by applicable federal and state securities laws. 

        2.6    Financial Statements.    

        Attached
as Schedule 2.6 are or, prior to the Closing, will be (a) the Year -End Balance Sheet and unaudited consolidated statements of income, changes in
owners' equity, and cash flow for the Company as of and for the fiscal year ended December 31, 2002 and the notes and schedules related thereto, together with the report on said
Year-End Balance Sheet of the independent auditors for the Company Group, and (b) unaudited consolidated balance sheets and statements of income, changes in owners' equity, and cash
flow for the Company as of and for the quarters ended March 31 and June 30, 2003 (the balance sheets and statements referred to in (a) and (b) shall be called the
"Financial Statements"). The Financial Statements as of and for the quarters ended March 31 and June 30, 2003 are referred to as the
"Interim Financial Statements". The Financial Statements (including the notes thereto) have been (or, when delivered, will be) prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby, are (or, when delivered, will be) consistent with the books and records of the Company, and fairly present in all
material respects the consolidated financial condition of the Company as of such dates and the results of operations, changes in owners' equity and cash flows of the Company as of the dates and for
the periods indicated, subject, in the case of the Interim Financial Statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate,
be material) and the absence of notes and schedules and other presentation items. 

3

 

        2.7    Absence of Undisclosed Liabilities.    

        The
Company Group has no debts, commitments, liabilities or obligations of any nature, whether known, unknown, matured, unmatured, absolute, accrued, contingent or otherwise and whether
due or to become due ("Liabilities"), that would be required by GAAP to be set forth on a consolidated balance sheet of the Company or in the notes
thereto, except (i) as disclosed or reserved against in the Financial Statements, including the notes thereto or
(ii) for liabilities or obligations that were incurred since June 30, 2003 in the ordinary course of business consistent in nature and amount
with past practice. To the Knowledge of the Seller, there is no reasonable basis for the assertion against the
Company Group of any Liability (other than Liabilities referred to in the preceding sentence) not fully reflected or reserved against in the Financial Statements. 

        2.8    Accounts Receivable.    

        Schedule 2.8
contains a schedule of the accounts receivable of the Company Group as of July 31, 2003 and a good faith estimate of the reserve for doubtful accounts which
are reflected on the Financial Statements as of July 31, 2003. The accounts receivable of the Company Group represent valid obligations from sales made or services rendered in the ordinary
course of business. To the Knowledge of the Seller, the face amounts shown on the schedule of accounts receivable set forth on Schedule 2.8 represent amounts owed to the Company Group, subject
only to adjustments and reserves made in the ordinary course of business. 

        2.9    Absence of Changes.    

        Since
December 31, 2002, the Company Group has carried on its respective businesses and conducted its operations and affairs in the ordinary course consistent with past practice
and there has not been any event, condition or contingency that has resulted in or, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect and, except as
disclosed on Schedule 2.9, the Company Group has not: 

          (i)  incurred
any indebtedness, liabilities or other obligations, except indebtedness, liabilities and obligations incurred in the ordinary course of business consistent
with past practice; 

         (ii)  mortgaged,
pledged or subjected to any Lien any of its properties or assets, except for Permitted Liens; 

        (iii)  suffered
any material damage, destruction or loss to its property (whether or not covered by insurance); 

        (iv)  changed
its accounting practices or policies, except as required by GAAP or applicable Law; 

         (v)  sold,
transferred or otherwise disposed of or agreed to sell, transfer or otherwise dispose of any properties or assets, except in the ordinary course of business; 

4

  

        (vi)  amended,
terminated, cancelled or forgiven any material debts or claims or waived any other rights of substantial value; 

       (vii)  declared
or paid any dividend or other distribution to its shareholders with respect to its capital stock to, or redeemed or repurchased any of its capital stock from,
any Person other than the Company Group members except Seller's customary sweeping of all excess cash from the Company Group and posting it as an intercompany receivable or reducing outstanding
intercompany payables on the financial statements of the Company; 

      (viii)  granted
any increase, or announced any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by the Company Group
members to any of its employees, including, without limitation, any increase or change pursuant to any benefit plan, or established or increased or promised to increase any benefits under any benefit
plan, in either case except as required by law or involving normal and customary salary increases consistent with the past practices of the Company Group (any such increases not to exceed 5% of the
Company Group's aggregate payroll costs as of December 31, 2002); 

        (ix)  made
any capital expenditures or commitments for capital expenditures in excess of $25,000 individually or $100,000 in the aggregate; 

         (x)  made
any loans or advances to, or guaranteed any obligation or otherwise incurred any indebtedness on behalf of any Persons; 

        (xi)  made
any change (or authorized any change) in its certificate of incorporation or by-laws or other organizational documents; 

       (xii)  issued
or sold any capital stock, notes, bonds or other securities, or any option, warrant or other right to acquire the same, of any Company Group member; 

      (xiii)  purchased
an equity interest in, or substantially all of the assets of, any business or any corporation, partnership, association or other business organization or
division thereof; 

      (xiv)  settled
any claim or assessment for Taxes on a basis that would increase the Tax liability of any Company Group member for a Post-Closing Tax Period or
surrendered any right to claim a refund of Taxes or otherwise offset any Tax liability; 

       (xv)  made
any material election with respect to Taxes of the Company or its Subsidiaries; or 

      (xvi)  agreed,
nor has Seller agreed, whether in writing or otherwise, to take, with respect to any Company Group member, any of the actions specified in this Section or
granted any options to purchase, rights of first refusal, rights of first offer or any other similar rights or commitments with respect to any of the actions specified in this Section. 

        2.10    Legal Compliance.    

        (a)   Except
for matters that are the subject of Section 2.16 (Taxes), Section 2.17 (Employment and Benefits) and Section 2.19 (Environmental Matters),
(i) each Company Group member has complied with all Laws applicable to the conduct of its businesses as now being conducted and (ii) neither the Seller nor any Company Group member has
received any written or, to the Knowledge of Seller, other notice of such failure to comply, except in the case of clauses (i) and (ii) where the failure to so comply, as the case may
be, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect. 

        (b)   Each
Company Group member has filed all material reports, statements, documents, registrations, filings or submissions required to be filed with any Governmental
Authority in connection with the conduct of its businesses. All such reports, statements, documents, registrations, filings and submissions were in compliance with applicable Law when filed or as
amended or supplemented, except 

5

 

where
such failure to be in compliance, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect, and no deficiencies have been asserted in writing or, to the
Knowledge of the Seller, otherwise by any such Governmental Authority with respect to such reports, statements, documents, registrations, filings or submissions that have not been remedied, except for
any deficiencies that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect. Each Company Group member has all licenses, permits, approvals,
authorizations or qualifications required under any Law necessary to conduct its business as now conducted, and such licenses, permits, approvals, authorizations or qualifications are valid and in
full force and effect, except where the failure to have such license, permit, approval, authorization or qualification could not, individually or in the aggregate, reasonably be likely to have a
Material Adverse Effect. 

        2.11    Litigation.    

        Schedule 2.11
sets forth all pending or, to the Knowledge of the Seller, threatened, actions, claims, lawsuits, complaints, litigation, arbitrations, administrative actions,
proceedings or Governmental Actions, and to the Knowledge of the Seller, all pending or threatened investigations (collectively, "Litigation"), in each
case against any Company Group member or any of its properties or businesses, or which in any manner challenges or seeks to prevent, alter or materially delay the transactions contemplated hereby.
There are no suspensions or debarments, judgments or outstanding orders, stipulations, decrees, awards or judgments issued by any Governmental Authority against, or to the Knowledge of the Seller,
materially affecting, any individual Company Group member or the Company Group taken as a whole or any of a Company Group member's properties or businesses, individually or in the aggregate. 

        2.12    Real Property.    

        (a)   No
Company Group member owns any real property. Schedule 2.12(a) lists all real property leased or subleased by any Company Group member (the
"Leased Real Property"). The Leased Real Property, together with any and all easements appurtenant to such real property granted to the Company Group,
if any, include all of the real property used or held for use in connection with or otherwise required to carry on the business of the Company Group as now conducted. 

        (b)   Except
as described in Schedule 2.12(b), with respect to each parcel of Leased Real Property, any building or improvements are in all material respects in good
condition and working order (reasonable wear and tear excepted) and suitable for the operation of the Company Group business as now conducted. 

        2.13    Title to Assets; Sufficiency of Assets.    

        The
applicable members of the Company Group have good and marketable title to the assets reflected as owned in its books and records, including those shown on the Interim Balance Sheet
or acquired after the date thereof, free and clear of all Liens other than Permitted Liens, except for assets which were disposed of in the ordinary course of business since the date of the Interim
Balance Sheet, and such assets have been properly maintained and are in good operating condition and repair for the uses to which they are now being put, subject only to ordinary wear and tear. Except
as set forth on Schedule 2.13, on the Closing Date immediately following the Closing, the assets, properties and rights owned or leased by or licensed to the Company Group, excluding those
assets set forth on Schedule 4.20 and the stock of HN Services, will be sufficient for the continued conduct of the respective businesses of the Company Group after the Closing in substantially
the same manner as now conducted. 

6

 

        2.14    Contracts.    

        (a)   Schedule 2.14(a)
contains a true, complete and correct list of all agreements, contracts and commitments of the following types to which any Company Group member
is a party or by which any of the assets of the Company Group members are bound or affected (collectively, the "Contracts"): 

          (i)  any
note, mortgage, indenture or other obligation or agreement or other instrument for indebtedness for borrowed money, or any capitalized lease obligations, or any
guarantee of third-party obligations, of more than $25,000 individually, or under which the Seller or any Company Group member has imposed a Lien on the Company Group's assets, tangible or intangible,
other than Permitted Liens; 

         (ii)  joint
venture or partnership agreements or any other agreements or arrangements including a sharing of profit or loss or that are treated as partnerships for Tax
purposes; 

        (iii)  contracts
(excluding individual purchase orders not involving amounts in excess of $25,000) for the purchase by any Company Group member of materials, supplies,
products or services, and contracts (excluding individual purchase orders not involving amounts in excess of $25,000) for the sale or provision by any Company Group member of materials, supplies,
products or services (including, without limitation, distribution and marketing agreements), in each case, (x) not terminable by the Company Group
member on notice of 60 days or less without penalty, and (y) under which the amount that would reasonably be expected to be paid or received by a
Company Group member exceeds $25,000 per annum or $100,000 in the aggregate during the entire term of such contract; 

        (iv)  contracts
prohibiting, restricting or otherwise limiting the ability of any Company Group member to compete with any Person, engage in any business or operate in any
geographical area; 

         (v)  stock
purchase agreements, asset purchase agreements and other acquisition or divestiture agreements relating to the acquisition, lease or disposition by the Company
Group of material assets and properties or any capital stock or other equity interest of the Company Group, in each case (x) which was entered into by
any Company Group member after January 1, 2000, or (y) under which any Company Group member has any continuing indemnification obligations; 

        (vi)  any
contract entered into other than in the ordinary course of business involving aggregate payments reasonably expected to be in excess of $25,000 to be made by or to
any Company Group member after the date of this Agreement; 

       (vii)  contracts
that involve making capital expenditures in excess of $25,000; 

      (viii)  employment,
consulting, severance, retention, change of control or termination agreements, or any agreements with an officer, director or stockholder; 

        (ix)  stock
option, share purchase, profit sharing, pension, retirement, deferred compensation, bonus or other incentive compensation contracts, plans or arrangements
available to the Company Employees or otherwise relating to the respective businesses of the Company Group members; 

         (x)  collective
bargaining agreements with any labor unions or associations representing employees of any Company Group member; 

        (xi)  leases
with respect to Leased Real Property or leases of personal property with an annual base rental obligation of more than $25,000 or a total remaining rental
obligation of more than $50,000; 

       (xii)  IP
License Agreements; and 

7

 

      (xiii)  agreements
between any member of the Company Group and Seller or any Affiliate of Seller (other than another Company Group member), except for those agreements
related to inconsequential matters. 

        (b)   The
Seller has furnished or made available to the Purchaser true, complete and correct copies of the written Contracts (or, where applicable, representative forms
thereof) and a description of each oral Contract, as in effect on the date of this Agreement. 

        (c)   Each
Contract is in full force and effect and is a legal, valid, binding and enforceable obligation of the Company Group member that is a party thereto and, to the
Knowledge of the Seller, each other party thereto. No Company Group member, nor, to the Knowledge of the Seller, any other party to such Contract, is in material breach of or in default under, and, to
the Knowledge of Seller, no event has occurred which with notice or lapse of time, or both, would become a material breach of or a default under such Contract or permit the termination, modification
or acceleration of any material obligations under any Contract. Except as set forth on Schedule 2.14(c), no Company Group member or, to the Knowledge of the Seller, no other party has
repudiated any terms of any Contract, and there are no negotiations of, or attempts to renegotiate, or rights to renegotiate any amounts paid or payable by or to a Company Group member in progress,
and no party has made any demand for such renegotiation. Except as set forth on Schedule 2.14(c), no Contract contains any provision providing that the other party may terminate such Contract
as a result of the consummation of the transactions contemplated by this Agreement. 

        2.15    Intellectual Property.    

        (a)   Schedule 2.15(a)
sets forth a complete list of Patents, registered Copyrights, and registered Trademarks and pending applications therefor owned or used by the
Company Group (whether individually or jointly), in each case specifying whether such Intellectual Property is owned or licensed, the jurisdiction in which any such Patent, Copyright or Trademark
registration or pending Trademark application has been filed, whether the appropriate Company Group member has exclusive or non-exclusive use of the Intellectual Property, and, where
applicable, the patent, registration or application number therefor and the jurisdiction in which such patent, registration or pending application has been filed. 

        (b)   Except
as set forth on Schedule 2.15(b) or as would not reasonably be likely, individually or in the aggregate, to have a Material Adverse Effect: 

          (i)  each
Company Group member owns or possesses adequate licenses or other legal rights to use any and all Intellectual Property necessary for the conduct of, or used
immediately prior to Closing in, the business of such Company Group member as presently conducted, free and clear of all Liens, except for Permitted Liens; 

         (ii)  the
Company Group has taken commercially reasonable steps to maintain the material registered Copyrights, Trademarks and Patents owned any Company Group member; and 

        (iii)  there
are no pending or, to the Knowledge of the Seller, threatened claims by any third party against any Company Group member related to the use of such third party's
Intellectual Property rights in the respective businesses of the Company Group members as now conducted or challenging or questioning the validity or effectiveness of any IP License Agreement, and, to
the Knowledge of Seller, the use of the Intellectual Property in the conduct of the respective businesses of the Company Group members as presently conducted does not infringe, misappropriate or
violate any valid and asserted intellectual property rights of any third party. 

        (c)   To
the Knowledge of the Seller, no third party has infringed, misappropriated or violated any rights of any Company Group member in or to any Intellectual Property. 

8

 

        2.16    Taxes.    

        (a)   All
material Tax Returns required to be filed by or with respect to the Company Group on or before the Closing Date have been timely filed (or will have been timely
filed prior to the Closing Date), and each such Tax Return is complete and accurate in all material respects. 

        (b)   Except
for Taxes for which an adequate reserve (other than reserves for deferred Taxes established to reflect timing differences between book and Tax income) has been
provided for in the Interim Balance Sheet, all Taxes due and payable by the Company Group prior to the Closing Date have (or by the Closing Date will have) been duly paid. 

        (c)   All
Taxes required to be withheld, collected or paid prior to the Closing Date have (or by the Closing Date will have) been duly paid to the proper Governmental
Authority or properly set aside in accounts for such purpose. The Company Group members have properly requested, received and retained all necessary exemption certificates and other documentation
supporting any claimed exemption or waiver of Taxes on sales or other transactions as to which the Company Group members would have been otherwise obligated to collect or withhold Taxes. 

        (d)   There
are currently no deficiencies for Taxes that have been claimed, proposed or assessed by any Tax Authority against any Company Group member. Except as set forth in
Schedule 2.16(d), there are no current, pending or, to the Seller's knowledge, threatened audits, investigations or claims for or relating to any liability in respect of Taxes of the Company
Group, and there are no matters under discussion with any Tax Authority with respect to Taxes of the any Company Group member. Schedule 2.16(d) sets forth for the Company Group the Tax Returns
which have been audited within the last six years by the relevant Tax Authorities for each period set forth on Schedule 2.16(d). Except as set forth in Schedule 2.16(d), no power of
attorney has been executed by or on behalf of any Company Group member with respect to any matters relating to Taxes that is currently in force. Except as set forth in Schedule 2.16(d), no
extension or waiver of a statute of limitations relating to Taxes is in effect with respect to the Company Group. Set forth in Schedule 2.16(d) for the Company Group are the jurisdictions in
which each Company Group member has filed Tax Returns within the last three tax years. No Company Group member has received a written claim within the last three years by a Tax Authority in a
jurisdiction where such Company Group member does not file Tax Returns that such Company Group member may be subject to taxation in that jurisdiction. 

        (e)   The
Purchaser will not be required to deduct and withhold any amount pursuant to Section 1445(a) of the Code upon the transfer of the Shares to the Purchaser
under this Agreement. 

        (f)    All
Tax Sharing Agreements in force to which any Company Group member is a party are listed on Schedule 2.16(f). True and correct copies of such Tax Sharing
Agreements have been provided to Purchaser. 

        (g)   There
are no liens for Taxes (other than for current Taxes not yet due and payable) upon any assets of the Company Group, and none of the assets of the Company Group is
property that is required to be treated for Tax purposes as being owned by any other Person. 

        (h)   No
Company Group member will be required to recognize for Tax purposes in a Post-Closing Tax Period any income or gain which would otherwise have been
required to be recognized in a Pre-Closing Tax Period as a result of Seller or the Company Group making a change in method of accounting or otherwise deferring the recognition of income or
gain to a Post-Closing Tax Period. 

        (i)    No
Company Group member has made an election, and is required, to treat any of its assets as tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code or under any comparable provision of foreign, state or local Tax law or has filed a consent pursuant to the collapsible corporation
provisions of former Section 341(f) of the Code (or any corresponding provision of state or local law) or agreed to have former Section 341(f)(2) of the Code 

9

 

(or
any corresponding provision of state or local law) apply to any disposition of any asset of the Company Group. 

        (j)    Neither
Seller nor any Company Group member has requested or received any ruling from any Tax Authority, or signed any binding agreement with any Tax Authority
(including, without limitation, any advance pricing agreement), that would impact the amount of Tax liability of Company Group after the Closing Date. 

        (k)   Except
as set forth on Schedule 2.16(k), no Company Group member has ever been a member of any affiliated group of corporations which has filed a combined,
consolidated, or unitary return for federal, state, local, or foreign tax purposes, other than the Selling Group. 

        (l)    No
Company Group member owns any debt obligation or any shares issued by Purchaser or any of its Affiliates. 

        (m)  Seller
is eligible to make an election under Section 338(h)(10) of the Code and the rules and regulations thereunder (and any comparable election under any
relevant state or local law) with respect to the sale of the Shares pursuant to this Agreement. 

        2.17    Employment and Benefits.    

        (a)   Schedule 2.17(a)
lists each material "employee benefit plan," as such term is defined in Section 3(3) of ERISA, and each bonus, incentive or deferred
compensation, severance, termination, retention, change of control, equity-based, performance or other employee or retiree benefit or compensation plan in which employees of any Company Group member
participate (each such plan, a "Plan" and, collectively, the "Plans"). Except as identified in
Schedule 2.17(a), no Company Group member has adopted, maintained, sponsored or participated in any pension, welfare, bonus, incentive or deferred compensation, severance, termination,
retention, retirement, 401(k), change of control, equity-based, performance or other employee or retiree benefit or compensation plan, or any group term life insurance, group health insurance or group
dental plans. With respect to each Plan, the Seller has provided or made available to the Purchaser complete and correct copies of (i) such Plan (or a
description of such Plan if not written) and (ii) upon request by the Purchaser, and to the extent applicable to such Plan, all trust agreements,
insurance contracts or other funding agreements or arrangements, the most recent actuarial and trust reports, the most recent Form 5500 required to have been filed with the IRS and all
Schedules thereto, the most recent IRS determination letter, all current summary plan descriptions, and any and all amendments to any such document. 

        (b)   Each
Plan intended to be qualified under Section 401(a) of the Code, and the trust (if any) forming a part thereof, has received a favorable determination letter
from the IRS as to its qualification under the Code and to the effect that each such trust is exempt from taxation under Section 501(a) of the Code, and nothing has occurred since the date of
such determination letter that would be reasonably likely to adversely affect such qualification or tax-exempt status in form or operation. 

        (c)   Each
of the Plans has been operated and administered in all material respects in compliance with its terms and all applicable Laws, except where failure to so comply,
individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect. There are no material pending or, to the Knowledge of the Seller, threatened claims by or on behalf
of any employee or beneficiary under any Plan, or otherwise involving any such Plan or the assets of any Plan (other than routine claims for benefits or claims that, individually or in the aggregate,
would not reasonably be likely to have a Material Adverse Effect). 

        (d)   Except
as set forth in Schedule 2.17(d), the consummation of the transactions contemplated by this Agreement will not result in an increase in the amount of
compensation or benefits or the acceleration of the vesting or timing of payment of any compensation or benefits payable to or in 

10

 

respect
of or accrued on behalf of any current or former director, officer or employee of any Company Group member or entitle any such director, officer or employee to any severance or similar
compensation or benefits. 

        (e)   No
Company Group member has incurred any liability and no liability could reasonably be imposed upon any Company Group member under Title IV of ERISA. 

        (f)    No
amount that could be received (whether in cash or property or the vesting of property) as a result of the consummation of the transactions contemplated by this
Agreement by any employee, officer or director of any Company Group member who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any employment, severance or termination agreement, other compensation arrangement or Plan currently in effect could be characterized as an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code). 

        (g)   In
connection with the transactions contemplated by this Agreement, the Purchaser shall not assume any of the Seller Plans listed in Schedule 2.17(a) and shall
not assume or have any obligations under any of the Seller Plans. 

        2.18    Insurance.    

        Schedule 2.18
sets forth a complete and correct list, as of the date of this Agreement, of the existing policies of insurance maintained by the Company Group, the Seller or an
Affiliate of the Seller for the benefit of the Company Group or the business or properties of the Company Group. Each policy listed on Schedule 2.18 is in full force and effect and provides
coverage as may be required by applicable Laws and, except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, by any Contracts to which any
Company Group member is a party. Except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, no Company Group member is in default under any policy
listed on Schedule 2.17 nor has such Company failed to give notice or present any claim under any such policy in a due and timely fashion. No written notice of cancellation or
non-renewal of any such policy has been received. All premiums due and payable on such policies prior to the Closing have been or will be (on or prior to the Closing Date) paid up to and
through the Closing. 

        2.19    Environmental Matters.    

        (a)   To
the Knowledge of the Seller, each Company Group member and all of the Leased Real Property is, and has been, in compliance with all applicable Environmental Laws and
Environmental Permits. All past non-compliance with Environmental Laws or Environmental Permits has been resolved without any pending, on-going or future obligation, cost or
liability. 

        (b)   To
the Knowledge of the Seller, there are no underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, swamps or lagoons, solid waste
management units or any other areas in which Hazardous Materials are being or have been treated, stored or disposed on any Leased Real Property, and neither Seller nor any Company Group member has
received any notice of the existence of any Hazardous Material on any property formerly owned, leased or occupied by, or on behalf of, any Company Group member. 

        (c)   Seller
has received no written notice that Hazardous Materials have been discharged, dispersed, disposed of, released, placed, or allowed to escape on, under or from any
of the Leased Real Property or on any property formerly owned, leased or occupied by, or on behalf of, any Company Group member, and no Company Group member has received any written or, to the
Knowledge of Seller, oral, notice that such events have occurred or are occurring. 

        (d)   To
the Knowledge of the Seller, each Company Group member has obtained, and each such Company Group member and all of the Leased Real Property are in compliance with,
all permits and authorizations required under applicable Environmental Laws. 

11

 

        (e)   To
the Knowledge of the Seller, no Company Group member has received from any Governmental Authority or any Person (i) any written notice of a violation, alleged
violation, non-compliance, inquiry, investigation, liability or potential liability regarding compliance with applicable Environmental Laws, or (ii) any written demand or claim
seeking payment, contribution, indemnification, remedial action or removal action or alleging any environmental damage or injury to person, property or natural resources concerning any Leased Real
Property, other than matters that have been resolved or that are no longer outstanding. 

        (f)    No
Litigation or Environmental Claims are pending or, to the Knowledge of the Seller, threatened under any applicable Environmental Law with respect to any Owned Real
Property or Leased Real Property or pursuant to which any Company Group member has been named as a party. 

        (g)   No
Company Group member has entered into any agreement with any Governmental Authority pursuant to which any Company Group member has assumed responsibility for the
remediation of any condition resulting from the release or threatened release of Hazardous Substances. 

        (h)   There
are no circumstances or conditions present at or arising out of Leased Real Property or any property formerly owned, leased or occupied by, or on behalf of, any
Company Group member, or arising out of the operations or business of the Company Group, with respect to off-site storage, transportation or disposal of Hazardous Materials that reasonably
could be expected to give rise to an Environmental Claim or violate any Environmental Law. 

        (i)    There
are no past or present events, conditions or circumstances related to environmental or health or safety matters that would be reasonably likely to violate any
Environmental Law or Environmental Permit. 

        2.20    Affiliate Transactions.    

        Schedule 2.20
lists all agreements, arrangements and understandings (or types of arrangements and understandings), other than with respect to inconsequential matters, between any
Company Group member, on the one hand, and the Seller or any Affiliate of the Seller, on the other hand. Except as set forth on Schedule 2.20, all such agreements, arrangements and
understandings are terminable by such Company Group member at any time and without payment of material penalty or premium. 

        2.21    Guarantees.    

        (a)   There
are no guarantees, obligations under comfort letters or other agreements under which the Seller or any Affiliate of the Seller (other than a Company Group member)
has an obligation to pay amounts due, or take any other action whatsoever, if a Company Group member fails to pay such amount when due or take such other action. 

        (b)   There
are no guarantees, obligations under comfort letters or other agreements under which any Company Group member has an obligation to pay amounts due, or take any
other action whatsoever if the Seller or any Affiliate of the Seller (other than a Company Group member) fails to pay such amount when due or take such other action. 

        2.22    Bank Accounts.    

        Schedule 2.22
sets forth a list of (a) each bank or similar financial institution with which each Company Group member has an
account or safe deposit box and the numbers of such accounts or safe deposit boxes maintained by that member, and (b) the names of all Persons
authorized to draw on each such account or to have access to each such safe deposit box. 

        2.23    Brokers and Finders.    

        Except
for Torsiello Capital Partners, LLC, whose fees will be paid by the Seller or an Affiliate of the Seller (other than a member of the Company Group), no Person has acted, directly
or indirectly, as 

12

 

a
broker, finder or financial advisor for the Seller or the Company Group in connection with this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby and
no Person is entitled to any fee or commission or like payment in respect thereof. 

        2.24    Corporate Records.    

        The
books and records of the Company Group are complete and correct in all material respects. Seller has provided Purchaser with full and complete copies of each Company Group member's
certificate of incorporation, bylaws, stock record books and the corporate minutes and all amendments thereto as currently in effect. The minute books of each Company Group member contain accurate and
complete records of all meetings held of, and corporate action taken by, the stockholders, the board of directors, and committees of the board of directors of such Company Group member. The stock
record books of each Company Group member contain complete and accurate records of the stock ownership of such Company Group member and the transfer of shares of its capital stock. 

        2.25    Labor Matters.    

        No
Company Group member is a party to, or is bound by, any collective bargaining agreement, contract or other labor agreement or understanding with a labor union or labor organization
concerning a labor arrangement, nor is any Company Group member the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations
Act) or seeking to compel it to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it pending or, to the Knowledge of
the Seller, threatened, nor is Seller aware of any activity involving the employees or Company Group member seeking to certify a collective bargaining unit or engaging in other organizational
activity. 

        2.26    Employees.    

        (a)   Attached
hereto as Schedule 2.26(a) is a list of employees who, immediately prior to the date of this Agreement, were either employees of the Company Group or
individuals not employed by the Company Group (excluding independent contractors other than those employed by or affiliated with the Seller or any of its Affiliates and acting as independent
contractors to the Company Group) but that are principally used, as defined below, to service the operations of the Company Group (such employees, the "Company
Employees"), and a true and correct schedule of the current salary and wages of each such employee previously has been delivered to Purchaser. For purposes of this
Section 2.26, "principally used" shall mean, with respect to any employee, if more than fifty percent (50%) of his or her time is devoted to servicing the operations of the any Company Group
member. 

        (b)   Schedule 2.26(b)
lists all complaints, charges, claims and litigation in connection with any Company Employees brought since January 1, 2000 or that is
otherwise active. Seller previously has delivered to Purchaser true, correct and complete copies of the employee handbooks, policy manuals, affirmative action plans and other written employment
practices of each Company Group member. 

        (c)   No
Company Group member is delinquent in payments (excluding immaterial time delays) to any of its employees or any Company Employee for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for it or amounts required to be reimbursed to such employees. 

        (d)   To
the Knowledge of the Seller, each Company Group Member is in material compliance with all applicable Laws respecting labor, employment, fair employment practices,
terms and conditions of employment, workers' compensation, occupational safety, plant closings and wages and hours. 

        (e)   To
the Knowledge of Seller, there are no controversies pending or threatened between a Company Group Member and any of its current or former employees or otherwise with
respect to any Company Employee which would reasonably be likely to result in an action, suit, proceeding, claim, arbitration or investigation before a Governmental Authority. 

13

 

        (f)    Schedule 2.26(f)
identifies and Seller has delivered to Purchaser true and complete copies of (i) all severance agreements with Company Employees;
(ii) all severance programs and policies applicable to Company Employees; (iii) all plans, programs, agreements and other arrangements with or relating to, Company Employees which
contain change in control provisions; (iv) any employment or other agreement of any Company Employee. 

        2.27    Customers and Suppliers.    

        Schedule 2.27
lists the names of the largest twenty customers of the Company Group as measured by aggregate gross revenues received during the period commencing January 1,
2001 and ending June 30, 2003 and the aggregate revenues attributable to each in each such year (or portion thereof), and of the twenty suppliers and vendors from whom the Company Group
purchased the highest invoiced amounts of products or services during such period and the aggregate expenditures attributable to each in each such year (or portion thereof). To the Knowledge of
Seller, none of the customers or suppliers listed on the Schedule 2.27 intends to discontinue or materially reduce its relationship with the Company Group. 

        2.28    Group Health Business Assets.    

        The
assets and liabilities identified on Schedule 4.20 relate solely to the Group Health Business. 

 
 

ARTICLE III
  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER    
    

        The Purchaser represents and warrants to the Seller as follows: 

        3.1    Corporate Status and Authority.    

        The
Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws the State of Delaware and has all requisite corporate power and authority to own,
lease and operate its assets and to carry out its business as now conducted. The Purchaser has all requisite corporate power and authority to execute and deliver this Agreement and the other
Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the other Transaction
Documents have been duly and validly authorized by all necessary action of the Purchaser and no additional authorization on the part of the Purchaser is necessary in connection with the execution,
delivery and performance of this Agreement and such other Transaction Documents. This Agreement constitutes and such other Transaction Documents upon execution will constitute the legal, valid and
binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, except as limited by laws affecting the enforcement of creditors' rights generally or
by general equitable principles. The execution, delivery and performance by the Purchaser of this Agreement and such other Transaction Documents does not and will not conflict with, contravene, result
in a violation or breach of or default, or give rise to any right of termination, cancellation or acceleration (with or without the giving of notice or the lapse of time or both), or result in the
creation of any Lien upon any of the assets of Purchaser, in each case under (i) any Law applicable to the Purchaser,
(ii) any material contract or agreement to which the Purchaser is a party, or (iii) the organizational
documents of the Purchaser, except, in the case of clauses (i) and (ii), for conflicts, violations, breaches and defaults that, individually or in the aggregate, would not reasonably be likely
to have a material adverse effect on the
financial condition, results of operation or business of the Purchaser, or to materially impair the ability of the Purchaser to perform its obligations hereunder or thereunder. 

14

  

        3.2    Consents and Approvals.    

        No
Governmental Action nor any consent, approval, waiver, permit, agreement, license, filing with or notice to any other Person is required on the part of the Purchaser in connection
with the execution and delivery of this Agreement and the other Transaction Documents to which it is a party or the consummation of the transactions contemplated by this Agreement and the other
Transaction Documents to which it is a party, except (i) filings, consents or approvals required under the HSR Act,
(ii) the regulatory or other approvals or filings, consents, approvals, waivers, permits, agreements, licenses and notices set forth on
Schedule 3.2, and (iii) others that if not made or obtained, would not, individually or in the aggregate, reasonably be expected to materially
impair the ability of the Purchaser to perform its obligations under this Agreement or the other Transaction Documents to which it is a party. 

        3.3    Financial Ability to Perform.    

        The
Purchaser has, and will have at the Closing, available cash on hand or existing borrowing facilities that together are sufficient to enable it to consummate the transactions
contemplated by this Agreement and the other Transaction Documents to which it is a party. 

        3.4    Litigation.    

        There
is no pending or, to the knowledge of the Purchaser, threatened, Litigation against the Purchaser, except for Litigation that, individually or in the aggregate, would not
reasonably be likely to materially impair the ability of the Purchaser to perform its obligations under this Agreement or the other Transaction Documents to which it is a party. 

        3.5    Purchase for Investment.    

        Purchaser
has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Shares. Purchaser has been
given the opportunity to examine all documents provided by, conduct due diligence and ask questions of, and to receive answers from, Seller, the Company Group members and their respective
representatives
concerning the risks related to an investment in the Shares. Purchaser is purchasing the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11)
of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser acknowledges that the offering and sale of the Shares as contemplated by
this Agreement are intended to be exempt from registration under the Securities Act and may not be resold by Purchaser except pursuant to an effective registration statement under the Securities Act
or an exemption from registration thereunder and pursuant to registration or qualification (or exemption therefrom) under applicable state securities laws. 

        3.6    Insurance.    

        The
Purchaser acknowledges that as of the Closing Date, the Company will cease to be entitled to the benefit of insurance arrangements that, prior to the Closing Date, were maintained in
the name of the Seller and extended to it as a Company Group member, except with respect to any existing "occurrence" policies covering periods prior to the Closing Date. 

        3.7    Brokers and Finders.    

        Except
for UBS Securities LLC, whose fees will be paid by the Purchaser, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for the Purchaser in
connection with this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby and no Person is entitled to any fee or commission or like payment in respect
thereof. 

15

 

        3.8    No Other Representations.    

        Purchaser
acknowledges that, in making the determination to proceed with the transactions contemplated by this Agreement, it has relied solely on the results of its own independent
investigation and the representations and warranties set forth in Article II, including the related Schedules and contained in the other agreements to be executed and delivered pursuant to this
Agreement. Such representations and warranties constitute the sole and exclusive representations and warranties of the Seller to Purchaser in connection with the transactions contemplated hereby, and
Purchaser acknowledges and agrees that the Seller is not making any representation or warranty whatsoever, express or implied, beyond those expressly given in this Agreement and the other agreements
to be executed and delivered pursuant to this Agreement, including any implied warranty as to condition, merchantability, or suitability as to any of the assets of the Company Group or which could be
deemed to arise from any projections, forecasts, budgets or other forward-looking information concerning the Company Group. 

 
 

ARTICLE IV
  CERTAIN COVENANTS    
    

        4.1    Conduct of Business.    

        During
the period from the date of this Agreement to the Closing, except as otherwise contemplated by this Agreement (including the Schedules) or as the Purchaser shall otherwise consent
in writing, the Seller shall cause each Company Group member to (i) conduct its respective businesses and operations in the ordinary and usual course in a manner consistent with past practice,
(ii) use commercially reasonable efforts to preserve intact its present business organizations and to preserve the good will and relationships with current customers, suppliers and others
having significant business dealings with any Company Group member and to keep available the services of their officers and key management employees, (iii) pay and discharge its Liabilities as
they become due, (iv) maintain its facilities and assets which, individually or in the aggregate, are material to the financial position or results of operations of the Company Group member in
the same state of repair, order and condition as they were on the date hereof in all material respects, reasonable wear and tear excepted, (v) maintain its books and records in accordance with
GAAP consistent with past practice, and (vi) use reasonable best efforts to maintain in full force and effect the insurance policies listed on Schedule 2.18 on terms and conditions at
least as favorable to the Company Group member as the terms on the date hereof. Without limiting the foregoing, during the period from the date of this Agreement to the Closing or termination of this
Agreement, except as otherwise provided for in this Agreement or with the prior written consent of the Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed), the Seller
shall cause each Company Group member not to: 

        (a)   amend
its certificate of incorporation, by-laws or similar organizational documents; 

        (b)   split,
combine or reclassify any outstanding shares of its capital stock; 

        (c)   declare
or pay any dividend or other distribution in respect of its capital stock or acquire, redeem or repurchase any shares of its capital stock except for the
Seller's customary sweeping of all excess cash from the Company Group and posting it as an intercompany receivable or reducing outstanding intercompany payables on the financial statements of the
Company; 

        (d)   issue,
sell, pledge or dispose of any shares of, or securities convertible or exchangeable for, or any options, warrants or rights of any kind to acquire any shares of,
its capital stock of any class; 

        (e)   enter
into any agreement, contract or commitment that, if entered into prior to the date of this Agreement, would have been required to be included on
Schedule 2.14(a), other than in the ordinary course of business, or Schedule 2.15(a) or addressed by Section 2.16; 

16

 

        (f)    amend
or modify in any respect any Contract that would adversely affect the use and enjoyment thereof by Purchaser, or terminate any of the Contracts (except with
respect to termination of Contracts caused by the termination or default of any other party thereto) or default in the performance of any material covenant or obligation thereunder; 

        (g)   commence
or enter into arrangements for any capital expenditure or commitment for any capital expenditure in excess of $25,000 individually or $100,000 in the aggregate; 

        (h)   other
than in the ordinary course of business, dispose of any capital assets if the greater of the book value or the fair market value, individually or in the aggregate,
of such assets exceeds $25,000, or incur, permit, create or assume any Lien on any assets, other than Permitted Liens; 

        (i)    acquire
all or a substantial portion (by merger, consolidation or acquisition of stock or assets) of any corporation, partnership or other business organization or
division thereof; 

        (j)    incur
any indebtedness for borrowed money in excess of $25,000 individually or $100,000 in the aggregate, or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others, in each case other than in the ordinary course of business; 

        (k)   except
as required by Law or the terms of any Contract, and except for normal salary increases in the ordinary course of business, promote any Company Employee or any
other employee of any Company Group member, increase the salary, wage, rate of compensation, commission, bonus or other direct or indirect remuneration payable to, or other compensation of, any
Company Employee or any other employee of any Company Group member, or enter into any contract or other binding commitment in respect of any such increase, nor amend, adopt, or terminate any Plan
covering Company Employees that would materially increase the liability of the Company Group or enter into any negotiation in respect of or enter into any collective bargaining agreement covering
Company Employees; 

        (l)    take
any action to institute any new employment, severance, retention, change of control or termination pay practices with respect to any of its directors, officers or
employees or to increase the benefits payable under its existing pay practices; 

        (m)  amend,
terminate, cancel or compromise any material claim of or against any Company Group member; 

        (n)   hire
any employee except in the ordinary course of business or transfer the employment of any Company Employee to any entity outside of the Company Group, except as
permitted by Section 4.10 and Section 4.20 hereof; 

        (o)   cancel,
modify or amend any of the existing leases relating to Leased Real Property; and 

        (p)   agree
or otherwise commit to take any of the foregoing actions. 

        4.2    No Solicitation.    

        From
the date of this Agreement to the earlier of the Closing Date or the termination of this Agreement, neither Seller nor any of its Affiliates, nor any Person acting on its or their
behalf shall directly or indirectly (i) initiate, encourage or solicit the submission of, entertain inquiries, proposals or offers from, or enter into
any agreement or negotiate with any person or entity (other than Purchaser) for the acquisition of the Company (whether by merger, consolidation, sale of assets, sale of stock or otherwise) or other
disposition of assets or technology related to the Company Group other than in the ordinary course of business, or (ii) furnish or cause to be furnished
any information concerning any Company Group member to any Person (other than the Purchaser and its representatives, Seller's representatives or the Company Group) in connection with any such
inquiries or proposals. Seller shall notify Purchaser immediately if any Person makes any proposal or other inquiry or contact with respect to the foregoing. 

17

 

        4.3    Access and Information.    

        From
the date of this Agreement to the Closing Date: 

        (a)   the
Seller shall, upon reasonable prior notice, and shall cause the Company Group to, give to the Purchaser and its employees, agents, accounting, legal and other
authorized representatives reasonable access during normal business hours to the offices, properties, books and records, contracts, commitments, reports and records relating to the Company Group and
shall upon reasonable prior notice furnish them or provide them with reasonable access to all such documents, financial data, records and information with respect to the properties and businesses of
the Company Group, in each case, as the Purchaser shall from time to time reasonably request; and 

        (b)   the
Seller shall, upon reasonable prior notice, and shall cause the Company Group to, to the extent permitted by applicable Law, permit the Purchaser and its
representatives reasonable access to the directors, officers and key personnel of the Company Group during normal business hours as may be reasonably requested by the Purchaser for its review of the
properties of the Company Group, the business affairs, finances and accounts of the Company Group, and the above-mentioned documents and records. 

        4.4    Non-Compete Agreement; Non-Solicitation of Employees.    

        (a)   At
Closing, Seller and Purchaser shall enter into a non-compete agreement (the "Non-Compete
Agreement"), substantially in the form attached hereto as Exhibit A. 

        (b)   For
the period beginning on the Closing Date and ending eighteen (18) months thereafter (the "Restriction
Period"), the Seller shall not, and shall cause its Affiliates not to, solicit or hire or retain or offer employment to any Company Employee, unless such person's employment
with Purchaser or an Affiliate of Purchaser has been terminated by Purchaser or such Affiliate or if such employment is as a result of (i) general
public circulation materials used in the ordinary course of the Seller's business and not directed at such Company Employees; or (ii) third party
recruiters hired by the Seller or its Affiliates, provided such recruiters are not directed to contact Company Employees. 

        (c)   For
the period beginning on the Closing Date and ending twelve (12) months thereafter, the Seller shall not, and shall cause its Affiliates not to, without
Purchaser's written consent, employ, hire or retain any of the Company Employees listed on Schedule 4.4(c), unless such person's employment with
Purchaser or an Affiliate of Purchaser has been terminated by Purchaser or such Affiliate. 

        (d)   During
the Restriction Period, the Purchaser shall not, and shall cause its Affiliates not to, directly or indirectly, solicit or offer employment to any Person who was
employed by the Seller or any of its Affiliates in the one year period immediately preceding the Closing Date, excluding Company Employees ("Seller
Employees"); provided, that the foregoing provision shall not prevent the Purchaser or any of its Affiliates from employing or
retaining during the Restriction Period any Seller Employee if such person's employment has been terminated by Seller or such Affiliate or if such employment is as a result of
(i) general public circulation materials used in the ordinary course of the Purchaser's business and not directed at such Seller Employees; or
(ii) third party recruiters hired by the Purchaser or its Affiliates, provided such recruiters are not directed to contact Seller Employees. 

        4.5    Public Announcements.    

        From
the date of this Agreement to the Closing Date, except as required by applicable Law (including, without limitation, any determination that may be made by Seller or Purchaser in
respect of obligations under the federal securities Laws and the rules and regulations of the Securities and Exchange Commission) or stock exchange listing requirements, each party shall not, and
shall cause their respective Affiliates or representatives not to, make any public announcement in respect of this Agreement or the other Transaction Documents or the transactions contemplated hereby
or thereby 

18

 

without
the prior written consent of the other party (such approval not to be unreasonably withheld or delayed). If any such public announcement is required by applicable Law or a stock exchange
listing requirement, the party making such public announcement shall notify the other party in writing sufficiently in advance of the required public announcement to permit the other party to review
the nature of such applicable Law or stock exchange listing requirements and to review and comment on the disclosure prior to such public announcement being made. 

        4.6    Further Actions.    

        (a)   Each
party shall cooperate and use 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 conditions to the performance of the parties hereto that are within such party's control to be satisfied and to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and the other Transaction Documents. 

        (b)   Each
of the parties shall, as promptly as practicable, file or supply, or cause to be filed or supplied, all applications, notifications and information, including but
not limited to filings pursuant to the HSR Act (which filings shall be made no later than ten (10) business days after the date of this Agreement) and the applicable filings set forth on
Schedule 2.2 or 3.2, required to be filed or supplied by or on behalf of it or its Affiliates pursuant to applicable Law in connection with the execution and delivery of this Agreement and the
other Transaction Documents and the consummation of the transactions contemplated hereby and thereby. The Seller shall, at its own expense, use commercially reasonable efforts to obtain, or cause to
be obtained, all other consents, filings or waivers thereof set forth on Schedule 2.2 in order to consummate the transactions contemplated by this Agreement and the Transaction Documents. 

        (c)   In
furtherance and not in limitation of Section 4.6(b), the parties hereto shall cooperate and use their commercially reasonable efforts to, as promptly as
practicable, resolve such objections, if any, as may be asserted with respect to the transactions contemplated hereby under any antitrust or trade regulatory Laws of any Governmental Authority,
including, without limitation, to resist any effort by any Governmental Authority to obtain an injunction restraining, enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby; provided, that nothing in this Agreement shall require Purchaser or any Company Group member or Affiliates thereof to sell, hold
separate or otherwise dispose of or conduct its business in a specified manner, or agree to sell, hold separate or otherwise dispose of or conduct its business in a specified manner, or permit the
sale, holding separate or other disposition of, any businesses, assets or contracts of Purchaser, any Company Group member or any of their respective Subsidiaries or Affiliates, whether as a condition
to obtaining any approval from a Governmental Authority or any other Person or for any other reason. Purchaser and Seller agree, and shall cause their respective Subsidiaries and Affiliates, not to
unreasonably extend or delay the start of any waiting period under the HSR Act with respect to this Agreement (including by failing to comply as practically possible with any request for additional
information and documentary material from any Governmental Authority). 

        (d)   All
filing fees required in connection with any filings under the HSR Act or with any other Governmental Authority shall be divided equally between the Seller and the
Purchaser. All other fees, expenses and disbursements incurred in connection with the matters referred to in this Section 4.6 shall be borne by Purchaser if incurred by or on its behalf and by
the Seller if incurred by or on behalf of the Seller or any Company Group member. 

        (e)   Seller
shall have the right during normal business hours, upon reasonable notice to Purchaser, to inspect and make copies of any books and records relating to the
conduct of any Company Group's business prior to the Closing Date in order to prepare its financial statements, Tax returns and other documents and reports that Seller or its Affiliates are required
to file with any Governmental Authority or any stock exchange on which their securities may be listed, all at the sole cost and expense of Seller. 

19

 

        (f)    If
the Seller or the Company Group members have not obtained by Closing any of the consents listed on Schedule 2.2 (or a written waiver thereof), then  (i) this Agreement shall not constitute an
agreement to transfer or make available the rights under the contract or agreement requiring such consent if
an attempted transfer would constitute a breach of such contract or agreement or be unlawful and (ii) to the extent reasonably practicable (and without
commercially unreasonable cost or liability to the parties hereto), the parties shall use commercially reasonable efforts to enter into an alternative, lawful arrangement under which Purchaser or the
Company Group members shall have the benefit from and after Closing of such contract or agreement for which a consent listed on Schedule 2.2 (or a written waiver thereof) was not able to be
obtained prior to Closing. 

        4.7    Tax Obligations.    

        (a)   Filing of Tax Returns. Subject to Section 4.7(d), Seller shall prepare and timely file or cause to be filed all
Tax Returns that are required to be filed by or with respect to any Company Group member for Tax Periods ending on or before the Closing Date, and shall pay all Taxes due with respect to such Tax
Returns. Seller shall promptly provide Purchaser with copies of all such Tax Returns insofar as such Tax Returns relate to any Company Group member. Seller shall not file any Tax Return relating to a
Pre-Closing Tax Period without Purchaser's consent if the filing of such Tax Return may cause a net increase in the Tax liability of any of Company Group member for a
Post-Closing Tax Period. Purchaser shall prepare and timely file or cause to be filed all Straddle Period Tax Returns relating to the Company Group and shall pay all Taxes due with respect
to such Tax Returns; provided, however, that Seller shall pay Purchaser within 10 days of receiving written notice from Purchaser for any amount owed by Seller pursuant to
Section 4.8(b)(i) with respect to any such Tax Returns. Purchaser and Seller agree to cause the Company Group members to file all Tax Returns for the period including the Closing Date on
the basis that the relevant taxable period ended as of the close of business on the Closing Date, unless the relevant Tax Authority will not accept a Tax Return filed on that basis. Notwithstanding
the foregoing, no extraordinary item within the meaning of Treasury Regulation Section 1.1502-76(b)(2)(ii)(C) that occurs or results from a transaction that takes place after the
Closing shall be included on the Tax Returns filed by Seller. Purchaser shall timely prepare and file on behalf of the Companies all information returns for 2003, including, but not limited to, IRS
Form W-2 and IRS Form 1099. Seller shall provide to Purchaser all information it may have which is necessary for the preparation of such information returns, including all
IRS Form W-4's, not less than 60 days following the Closing. 

        (b)   Amending Tax Returns. None of Seller, Purchaser nor any Company Group member shall amend any Tax Return prepared by
Seller pursuant to Section 4.7(a) without the consent of Purchaser and Seller, which consent shall not be unreasonably withheld. 

20

  

        (c)   Refunds. The amount of any refunds or offsets of Taxes of the Company of its applicable Subsidiary for any Taxable Period
ending on or before the Closing Date shall be for the account of Seller, except to the extent that such refund or offset arises as a result of a Company carryback of a loss or other tax benefit
arising from a period beginning after the Closing Date as provided in Section 4.7(d). The amount of any refunds or offsets of Taxes of the Company Group members for any Taxable Period beginning
after the Closing Date shall be for the account of Purchaser. The amount or economic benefit of any refunds, credits or offsets of Taxes of the Company Group for any Straddle Period shall be equitably
apportioned in a manner consistent with Section 4.8(b)(iii). Provided that the non-requesting party, acting in good faith, determines that there is a reasonable basis for filing a
claim with the relevant Tax Authority, each party shall, if the other party so requests and at such other party's expense, cause the Company Group members to file for and obtain any refunds, credits
or offsets to Taxes to which the requesting party is entitled under this Section 4.7(c). Purchaser shall permit Seller to control the prosecution of any such claim relating solely to one or
more Taxable Periods ending on or before the Closing Date and, where deemed appropriate by Seller, shall cause the Company Group members to authorize by appropriate powers of attorney such persons as
Seller shall designate to represent the Company Group with respect to such refund claim. Each party shall forward, and shall cause its Affiliates to forward, the amount of such refund or offset to Tax
to the party entitled pursuant to this Section 4.7(c) to receive such amount, within ten (10) days after such refund is received or after such credit or offset is allowed or applied
against other Tax liability, as the case may be. Notwithstanding the foregoing, the control of the prosecution of a claim for refund of Taxes paid pursuant to a deficiency assessed subsequent to the
Closing Date as a result of an audit shall be governed by the provisions of Section 4.7(e). 

        (d)   Carrybacks. If a Company earns a credit or loss that is carried back to offset income for a period ending on or prior to
the Closing Date and if the Seller or its Affiliates realizes a reduction in Tax for such a period as a result of such carryback (either in the form of a refund or an offset), the Seller shall pay to
the Purchaser the amount of such reduction within 10 days after the receipt of the refund or the offset. The Seller shall, at the request of the Purchaser, cooperate in connection with the
filing of any necessary Tax Returns and other documents to effect such a carryback at Purchaser's expense, and Seller shall provide a basis for the computation of the amount paid to the Purchaser
pursuant to this Section 4.7(d) in reasonable detail. 

        (e)   Contests. 

          (i)  The
Seller shall have the right, at its own expense, to represent the interests of the Company Group in any Tax audit or administrative or court proceeding (a
"Tax Contest") relating to a Tax Period ending on or prior to the Closing Date. Seller and Purchaser shall jointly control all Tax Contests relating to
Straddle Periods. Purchaser shall have the right to represent, at its own expense, the interests of the Company in any Tax Contest relating to a Taxable Period beginning after the Closing Date. 

         (ii)  Each
party hereto shall provide the other with prompt notice of any Tax adjustment proposed in writing with respect to the business, assets, activities or capital stock
of any Company for any period ending on or before the Closing Date or which could otherwise give rise to a claim for indemnification hereunder; provided
that the failure to provide such notice shall not affect any right to indemnification hereunder except to the extent the party not receiving notice is materially prejudiced thereby. If the resolution
of any Tax Contest would be grounds for indemnification hereunder by the party (the "Non-Controlling Party") not in control of the conduct
of such Tax Contest or otherwise would adversely affect the Tax liability of the Non-Controlling Party, (A) the party (the
"Controlling Party") in control of such Tax Contest shall keep the Non-Controlling Party fully informed of any proceedings, events and
developments relating to or in connection with such Tax Contest; (B) the Non-Controlling Party shall be entitled to receive copies of all
correspondence and documents relating to such Tax Contest; and (C) at its own cost and expense, the 

21

 

Non-Controlling
Party shall have the right to participate in (but not control) the conduct of such Tax Contest. Notwithstanding any such control
(1) the Purchaser shall not, and shall not permit any Company to, enter into any settlement or admit any fault or liability with respect to any Tax
Contest that could give rise to a claim for indemnification hereunder without the Seller's express written prior consent and (2) the Seller shall not
enter into any settlement or admit any fault or liability that is or purports to be binding on any Company for any Tax period that could have any adverse effect on the liability of the Purchaser or
any Company for Taxes for any period beginning after the Closing Date without the Purchaser's express written prior consent, which consent (in either case) shall not be unreasonably withheld. 

        4.8    Cooperation and Indemnification for Tax Matters; Exclusivity.    

        (a)   Cooperation on Tax Matters. The Seller, the Company Group, and the Purchaser shall reasonably cooperate, and shall cause
their respective Affiliates, officers, employees, agents, auditors and representatives reasonably to cooperate, in preparing and filing all Tax Returns (including amended Tax Returns), handling any
Tax Contests and making any claims for Tax refunds with respect to the Company Group members, including (i) maintaining and making available to each other all information and records necessary
in connection with such Taxes and in resolving all disputes with respect to all such Tax Periods and (ii) making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder or to testify at any proceeding; provided that the foregoing shall be done in a manner so
as not to interfere unreasonably with the conduct of the business of the parties. The Purchaser and the Seller recognize that the Seller and the Purchaser and their respective Affiliates will need
access, from time to time after the Closing Date, to certain accounting and tax records and information relating to the Company Group members to the extent such records and information pertain to
events occurring prior to the Closing Date. Accordingly, the Purchaser and the Seller agree that, from and after the Closing Date, the Purchaser and the Seller shall and shall cause their respective
Affiliates and successors to, and the Purchaser shall cause the Company and its Affiliates and successors to, (i) retain and maintain such records for
the full period of the applicable statute of limitations with respect to such Taxes, including any extension thereof, and to abide by all record retention agreements entered into with any Tax
Authority, and (ii) allow the Purchaser and the Seller and their respective agents and representatives (and agents or representatives of any of their
respective Affiliates), to inspect, review and make copies of such records as such party may deem necessary or appropriate from time to time. 

        (b)   Tax Indemnification. 

          (i)  Indemnification by Seller. The Seller covenants and agrees from and after the Closing Date, to defend, indemnify and
hold harmless the Purchaser Indemnified Parties from and against, and pay or reimburse the Purchaser Indemnified Parties for, (i) all liability for Taxes of the Company Group members for all
Pre-Closing Tax Periods; (ii) any Losses arising in connection with the breach of any representation or warranty contained in Sections 2.9(xiv), 2.9(xv) or 2.16;
(iii) any Losses arising in connection with any failure on the part of Seller to fulfill any obligation pursuant to Sections 4.7, 4.8, 4.9 and 4.14; or (iv) all liability (as a result of
Treasury Regulation 1.1502-6(a) or otherwise) for Taxes of Seller or any other entity which is or has been a Non-Company Group Affiliate. The representations and
warranties contained in Sections 2.9(xiv), 2.9(xv) or 2.16 of this Agreement and any and all claims and causes of action for indemnification under this Section 4.8 with respect thereto
shall survive until 90 days following the expiration of the applicable statute or similar period of limitations; it being understood that in the event the Purchaser delivers notice of any claim
for indemnification within the applicable survival period and such notice describes such claims with reasonable specificity, the representations and warranties that are the subject of such
indemnification claim shall survive until such time as such claim is finally resolved. The Seller shall not have any liability under any provision of this Agreement for any such Taxes to the extent
that any such Taxes arise from actions taken after the Closing Date by 

22

 

the
Purchaser, any of its Affiliates, or the Company Group members, or from the failure after the Closing Date of any of them to take any required action. The Purchaser shall take and cause its
Affiliates, and the Company Group members to take all reasonable steps to mitigate any Taxes with respect to which the Seller could have an indemnification obligation under this
Section 4.8(b)(i) upon any of the Purchaser Indemnified Parties becoming aware of any event which would be reasonably likely to give rise thereto. 

         (ii)  Indemnification by Purchaser. The Purchaser covenants and agrees, from and after the Closing Date, to defend, indemnify
and hold harmless each of the Seller Indemnified Parties from and against, and pay or reimburse the Seller Indemnified Parties for, (i) any and all liability for Taxes of the Company Group for
all Post-Closing Tax Periods; (ii) any and all Losses arising in connection with any failure on the part of Purchaser to fulfill any obligation pursuant to Sections 4.7, 4.8, 4.9 or
4.14; and (iii) any and all Losses arising in connection with any failure to properly prepare and file in a timely manner any informational tax returns for the Companies for 2003; provided,
however, that indemnification for any Losses incurred under clause (iii) shall not be available if such Losses shall have been caused by Seller or any of its employees, representatives or
agents providing inaccurate data to Purchaser or by Seller's failure to provide the information required by Section 4.7(a) within the time period described therein. The Purchaser shall not have
any liability under any provision of this Agreement for any such Taxes to the extent that any such Taxes arise from actions taken on or before the Closing Date by the Seller or any of the
Non-Company Group Affiliates, or from the failure on or before the Closing Date of any of them to take any required action. The Seller shall take and cause its Affiliates to take all
reasonable steps to mitigate any Taxes with respect to which the Purchaser could have an indemnification obligation under this Section 4.8(b)(ii) upon any of the Seller Indemnified
Parties becoming aware of any event which would be reasonably likely to give rise thereto. 

        (iii)  In
the case of any Straddle Period: 

        (A)  real,
personal and intangible property Taxes ("Property Taxes") of the Company Group for a Pre-Closing Tax
Period shall be equal to the amount of such Property Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in
the Pre-Closing Tax Period and the denominator of which is the total number of days in the Straddle Period; and 

        (B)  the
Taxes of the Company Group (other than Property Taxes) for any Pre-Closing Tax Period shall be computed as if such Tax Period ended as of the close of
business on the Closing Date. 

        (iv)  Payment Procedures. The amount of any indemnification obligation pursuant to Sections 4.8(b)(i) or
(ii) shall be reduced by the amount of any Tax benefit to the Purchaser Indemnified Parties or Seller Indemnified Parties, as the case may be, attributable to the payment of Taxes giving rise
to such indemnification obligation. The parties shall satisfy their indemnity obligations pursuant to this Section 4.8(b) within 10 days after a final determination (within the meaning
of Section 1313(a) of the Code) of the relevant Tax is made. 

        (c)   Exclusivity. It is the intention of the parties that the provisions of Sections 4.7, 4.8, 4.9 and 4.14 shall exclusively
govern all matters relating to Taxes with respect to the Company Group members as between the Purchaser and its Affiliates (including the Company Group members following the Closing) and the Seller
and the Non-Company Group Affiliates, and without limitation that the provisions of this Section 4.8 shall exclusively govern the determination and administration of all claims
between them relating to such Tax matters, it being understood that, unless expressly provided otherwise in this Section 4.8, the obligations under Section 4.8 shall survive without
limitation. 

23

 

        4.9    Transfer Taxes; Tax Sharing Agreements.    

        (a)   Transfer Taxes. Notwithstanding any other provision of this Agreement to the contrary, the Seller shall pay, or cause to
be paid, all sales, use, transfer, stamp, duties, gains, recording and similar Taxes, if any, required to be paid in connection with the transactions contemplated by this Agreement. 

        (b)   Tax Sharing Agreements; Payments. Any and all existing agreements or arrangements, whether written or oral or established
pursuant to a course of conduct or dealing, relating to the allocation or sharing of Taxes (the "Tax Sharing Agreements") between any Company Group
member, on the one hand, and any member of the Selling Group, on the other hand, shall be terminated as of the Closing Date. Except as expressly provide herein, after the Closing Date, no Company
Group member nor any member of the Selling Group shall have any further rights or obligations under any such Tax Sharing Agreement. 

        4.10    Employees.    

        (a)   Not
less than fifteen (15) days prior to Closing, the Purchaser shall notify Seller of those Company Employees that it does not wish to be employed by any Company
Group member on and after Closing. Seller shall take appropriate actions with respect to each such Company Employee to either (i) transfer such Company Employee to an entity that immediately
after Closing will not be an Affiliate of the Company or (ii) terminate such Company Employee. If the Seller terminates any Company Employee prior to Closing pursuant to this
Section 4.10(a), then the Seller shall be solely responsible for any and all severance costs related to such termination up to a maximum of five hundred thousand dollars ($500,000) and all
costs in excess of said amount will be the sole responsibility of the Purchaser; provided, however, that any and all severance costs related to
Mr. Tom Ash, if any, shall be borne by Seller and shall not be included for purposes of calculating the maximum severance costs for which Seller shall be responsible under this
Section 4.10(a). As of the Closing, each Company Employee (other than those Company Employees whom Purchaser designates it does not desire to be so employed) shall be employed by a Company
Group Member. 

        (b)   From
and after the Closing Date, the Purchaser shall, or shall cause the Company Group to, treat all Company Employees who, immediately prior to the Closing Date, were
employees of any Company Group member generally the same as similarly-situated employees of Purchaser; provided, however, nothing contained herein shall alter the "at will" employment status of the
Company Employees. 

        (c)   Company
Employees shall not accrue benefits under any Seller Plans on and after the Closing Date. The Purchaser shall be liable for any severance or other costs related
to the termination of Company Employees whose employment is terminated after the Closing. 

        (d)   Except
to the extent necessary to avoid duplication of benefits, the Purchaser will, or will cause the Company to, (i)
give Company Employees full credit for such Company Employees' service with the Company Group to the same extent recognized by the Company Group immediately prior to the Closing for purposes of
eligibility and vesting under any employee benefit plans or arrangements maintained by the Purchaser or any Subsidiary of the Purchaser in which such Company Employees are eligible to participate, and
(ii) waive all limitations as to pre-existing conditions, exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Company Employees under any welfare plan that such employees may be eligible to participate in after the Closing, other than limitations or waiting periods that are
already in effect with respect to such Company Employees and that have not been satisfied as of the Closing under any welfare plan maintained for the Company Employees immediately prior to the
Closing. 

        (e)   Except
as otherwise provided in this Section 4.10 as of the Closing Date, the Seller and the Company Group members shall take such action as is necessary such
that the Company Group members shall cease being "participating employers" and shall cease any co-sponsorship and 

24

 

participation
in each Plan that is jointly adopted, sponsored or maintained by the Seller and the Company Group members and in which any current, terminated or retired Company Employees participate
(each such Plan being a "Seller Plan"). The Company shall have no further liability and the Seller shall retain all liabilities for claims incurred
under any Seller Plans prior to the Closing Date, whether such claims are made prior to, on or after the Closing Date. For this purpose claims under any medical, dental, vision, or prescription drug
plan, generally will be deemed to be incurred on the date that the service giving rise to such claim is performed and not when such claim is made; provided, however, that with respect to claims
relating to hospitalization the claim will be deemed to be incurred on the first day of such hospitalization and not on the date that such services are performed. Claims for disability under any long
or short term disability plan shall be incurred on the date the employee or former employee is first absent from work because of the condition giving rise to such disability and not when the employee
or former employee is determined to be eligible for benefits under the applicable Seller Plan. Seller shall provide under the Seller Plans any continuation coverage required under Section 4980B
of the Code, Part 6 of Title I of ERISA or applicable state law ("COBRA") to each "qualified beneficiary" as that term is defined in COBRA whose
first "qualifying event" (as defined in COBRA) occurs on or prior to the Closing Date. 

        (f)    Seller
maintains a plan qualified under Section 125 of the Code ("Seller's 125 Plan") that includes flexible
spending accounts for medical care reimbursements and dependent care reimbursements ("Reimbursement Accounts"). Notwithstanding the provisions of
Section 4.10(e), as soon as reasonably practical following the Closing Date, Seller shall transfer cash equal to the aggregate value of the Reimbursement Accounts of the Company Employees to a
plan established by the Purchaser intended to qualify under Section 125 of the Code ("Purchaser's 125 Plan"). Purchaser's 125 Plan shall be no
less restrictive in its terms and conditions than Seller's 125 Plan. Upon receipt of such amount, the Purchaser and the Purchaser's 125 Plan assume all obligations and liabilities with respect to the
Reimbursement Accounts for the Company Employees. Purchaser shall recognize the elections of the Company Employees under Seller's 125 Plan for purposes of Purchaser's 125 Plan for calendar year 2003.
Purchaser shall indemnify and hold the Seller harmless for any loss, cost or expenses (including reasonable attorney's fees) incurred by Seller which arise because of Purchaser's failure to comply
with the provisions of this Section 4.10(f). Seller shall provide the Company with all information reasonably requested by Purchaser in order for the Company and the Purchaser's 125 Plan to
satisfy the obligations set forth in this Section 4.10(f). 

        4.11    Updates to Schedules.    

        From
the date hereof through the Closing, the Seller shall give notice to Purchaser of the occurrence, or failure to occur, after the date hereof of any event which occurrence or failure
has caused or would be likely to cause any representation or warranty contained in this Agreement or in any Schedule hereto to be untrue or inaccurate in any material respect. In such event, unless
such event would not reasonably be likely to cause the condition set forth in Section 5.3(g) not to be met or otherwise have a Material Adverse Effect (whether considered individually or in the
aggregate with the events described in other written notices previously received by Purchaser), such written notice (i) shall be deemed to have amended the applicable Schedule and to have
qualified the representations and warranties contained in Article II for the purposes of determining whether the condition specified in Section 5.3(a) has been satisfied, but
(ii) shall not be deemed to have amended any Schedule or modified any representation or warranty for purposes of determining the Purchaser's right to indemnification with respect thereto under
Section 6.1(a)(ii). Notwithstanding the forgoing, Seller shall not be permitted to update Schedule 4.20 without the prior consent of Purchaser, which consent shall not be unreasonably
withheld. In addition, from the date hereof through the Closing, the Seller shall give notice to Purchaser of any failure of the Seller, or of its representatives, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under this Agreement or any Schedule hereto in any material respect. 

25

 

        4.12    Contact with Customers and Suppliers.    

        Promptly
following the public announcement of this Agreement, the Seller will, or will cause the Company Group members to, arrange for Purchaser and its representatives to visit and/or
interview material customers, suppliers, licensors and vendors of the Company Group at times and under conditions mutually agreeable to Purchaser and such customer, supplier, licensor or vendor;  provided, that the Seller shall be entitled to have its representatives attend such visit or interview. 

        4.13    Use of Name and Marks and Affiliation Statement.    

        (a)   The
Purchaser may use the trademarks, service marks, brand names, domain names or trade, corporate or business names of the Seller ("Seller
Marks") for a period of nine (9) months after the Closing (the "Transition Period");  provided, that such use shall be
consistent with the use of the Seller Marks by the Company Group in the conduct of its businesses prior to the Closing.
In furtherance and not in limitation of the foregoing, during the Transition Period, the Purchaser shall be permitted to use the names of the Company Group members (and the Seller Marks related
thereto) on stationery, signage, invoices, receipts, forms, packaging, advertising and promotional materials, product, training and service literature and materials, computer programs, Internet
websites or like materials ("Marked Materials"). In addition, to the extent the Seller Marks are used by the Company Group members on Marked Materials
or appear on inventory at the Closing, the Purchaser may use such Marked Materials or sell such inventory after the Closing for a period of nine (9) months without altering or modifying such
Marked Materials or inventory, or removing such Seller Marks. Not later than nine (9) months following the Closing Date, the Purchaser will change the names of the Company Group members to
names that do not include a Seller Mark and make any necessary legal filings with the appropriate Governmental Authority to effect such change. 

        (b)   The
Purchaser shall refrain from using any printed materials and other means of communication which state, suggest or imply any affiliation with the Seller or any of its
Affiliates ("Affiliation Statement Materials"), other than the uses of Marked Materials and Seller Marks in accordance with Section 4.13(a),
following the Closing Date; provided that, so long as the Purchaser uses its reasonable best efforts to discontinue the use of the Affiliation Statement
Materials (except for the uses of Marked Materials and Seller Marks permitted by Section 4.13(a)), the Purchaser may continue to use the Affiliation Statement Materials existing at the Closing
Date, subject to applicable Law, for up to ninety (90) days after the Closing Date. 

        4.14    Section 338(h)(10) Election.    

        (a)   Seller
(and if necessary, its Affiliates) agrees, at Purchaser's request, to make the elections provided for in Section 338(h)(10) of the Code and, if
permissible, similar elections under state or local Tax laws (collectively, the "338 Elections"). Purchaser and Seller shall comply fully with all
filings and other requirements necessary to effectuate the 338 Elections on a timely basis and agree to cooperate in good faith with each other in the preparation and timely filing of all Tax Returns
required to be filed in connection with the making of the 338 Elections, including the exchange of information and the joint preparation and filing of IRS Forms 8023 and 8883 (including related
schedules) and any similar forms under applicable state and local Tax law. 

        (b)   As
soon as practicable after the Closing Date, Purchaser shall prepare an allocation of the deemed sale price of the assets of the Company Group members resulting from
the 338 Elections (as required pursuant to Section 338(h)(10) of the Code and the Regulations promulgated thereunder) among such assets (the "Section 338
Allocation"). Seller and Purchaser (and their Affiliates) shall then cooperate in good faith to revise and finalize the Section 338 Allocation. If Seller and Purchaser
are unable to agree on the Section 338 Allocation within one hundred twenty (120) days after the Closing Date, they shall request the Settlement Accountant to prepare the
Section 338 Allocation, the cost of which shall be shared equally by them. Purchaser and Seller shall (i) assist each other in the 

26

 

preparation
of the Section 338 Allocation; (ii) agree to act in accordance with the Section 338 Allocation in the preparation and filing of all Tax Returns and in the course of
any Tax Contest relating thereto; and (iii) each notify the other as soon as reasonably practicable of any audit adjustment or proposed audit adjustment by any Tax Authority that affects or may
affect the Section 338 Allocation. 

        4.15    Purchaser's Access to Seller's Network.    

        At
Closing, Seller and Purchaser shall enter into a workers' compensation network access agreement whereby customers of Purchaser, the Company Group and Affiliates thereof will be able
to access Seller's network of health care providers (the "Workers' Compensation Network Access Agreement"), substantially in the form attached hereto as
Exhibit B. 

        4.16    License Agreement.    

        At
Closing, the Seller and the appropriate members of the Company Group shall enter into a license agreement whereby the Company shall grant Seller a royalty-free, perpetual
license to use the software identified on Schedule 4.16 (the "Software License Agreement"), substantially in the form attached hereto as
Exhibit C. 

        4.17    Transition Services Agreement.    

        At
Closing, the Seller, the Purchaser and the Company shall enter into a transition services agreement, in form and substance reasonably satisfactory to the Seller and the Purchaser,
whereby the Seller shall agree to furnish the Purchaser and the Company Group and the Purchaser and the Company Group shall agree to furnish the Seller with certain services and for certain time
periods, in each case, as further described in the term sheet attached hereto as Exhibit D (the "Transition Services Agreement"). 

        4.18    PPO Services Agreement.    

        At
Closing, Seller and Purchaser shall enter into a preferred provider organization access agreement whereby Seller will access the PPO network owned and operated by Purchaser (the
"PPO Services Agreement"), substantially in the form attached hereto as Exhibit E. 

        4.19    Confidentiality.    

        (a)   The
disclosure of confidential or proprietary information furnished by the parties hereto to each other shall be governed by the terms and conditions of the
confidentiality and non-disclosure agreement, dated March 10, 2003 (the "Confidentiality Agreement"), between the Seller and the
Purchaser. 

        (b)   After
the Closing the Seller shall not, and shall cause its Affiliates not to, disclose or use any confidential information used or held for use in connection with the
business of the members of the Company Group, except to the extent that any such confidential information (i) is in or enters the public domain (other than as a result of a breach of this
Section 4.19) or (ii) is required to be disclosed under applicable Law. In addition, Seller shall, and shall cause its Affiliates to, (x) reasonably enforce the confidentiality
provisions of any confidentiality or other non-disclosure agreements it entered into with potential bidders in connection with the sale of the Company and (y) require that such
bidders return to the Company or destroy all confidential information or documents that were furnished to such bidders or the respective representatives thereof. 

        (c)   Notwithstanding
anything herein or in the Confidentiality Agreement to the contrary, and except as otherwise required by applicable securities laws, the parties to this
Agreement agree that the obligations of confidentiality contained herein and in the Confidentiality Agreement shall not apply to the "tax treatment" and "tax structure," within the meaning of Treasury
Regulation Section 1.6011-4, of the transaction contemplated by this Agreement (but no other details regarding matters covered by this Agreement) upon the earlier to occur of
(i) the date of the public announcement of discussions relating 

27

 

to
the transaction contemplated by this Agreement, (ii) the date of the public announcement of the transaction contemplated by this Agreement or (iii) the date of the execution of this
Agreement; provided however, that each party recognizes that the foregoing is not intended to affect either party's privilege to maintain, in its sole
discretion, the confidentiality of communications with its attorneys or with a federally authorized tax practitioner under Section 7525 of the Code. 

        4.20    Divestiture of Group Health Business.    

        Prior
to Closing, the Seller shall cause the Company Group to transfer to Seller or an Affiliate thereof all assets and liabilities related to the group health business of the Company
Group (the "Group Health Business"). Such assets and liabilities are identified on Schedule 4.20. Prior to Closing, the Seller shall cause the
Company Group to transfer those Company Employees identified on Schedule 4.20 to an entity that immediately after Closing will not be an Affiliate of the Company. 

        4.21    Divestiture of HN Services.    

        Prior
to Closing, the Seller shall cause the Company to transfer to Seller or an Affiliate thereof all of the issued and outstanding shares of the capital stock of HN Services. 

        4.22    Cancellation of Intercompany Accounts.    

        Immediately
prior to Closing, all Intercompany Accounts shall be canceled without payment of any kind, which cancellation shall be treated as a dividend, in the case of an account
receivable in favor of any Company Group member, or as a contribution to capital, in the case of an account payable by a Company Group member. 

 
 

ARTICLE V
  CONDITIONS PRECEDENT    
    

        5.1    Conditions to Obligations of Each Party.    The obligations of the Seller and the Purchaser to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction or waiver at or prior to the Closing of the following conditions: 

        (a)   HSR Act. Any waiting period applicable to the consummation of the transactions contemplated by this Agreement under the
HSR Act shall have expired or been terminated. 

        (b)   No Injunction. No order, statute, rule, regulation, executive order, injunction, stay, decree, directive, or restraining
order shall have been enacted, entered, promulgated or enforced by any court of
competent jurisdiction or Governmental Authority that makes the consummation of the transactions contemplated by this Agreement illegal. 

        (c)   Governmental Consents. All authorizations, consents and approvals of Governmental Authorities listed in Schedules 2.2 and
3.2 shall have been made or obtained. 

28

  

        5.2    Conditions to Obligations of the Seller.    

        The
obligation of the Seller to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver at or prior to the Closing, of the following
additional conditions: 

        (a)   Representations and Warranties and Obligations of the Purchaser. The representations and warranties in Article III
shall be true and correct in all material respects when made and at and as of the Closing with the same effect as though made at and as of such time, except that those representations and warranties
which are made as of a specific date shall be true and correct in all material respects only as of such date, and except that any representation or warranty that itself is already qualified by
materiality shall be true and correct in all respects when made at and as of the Closing. The Purchaser shall have performed and complied in all material respects with each covenant or agreement
contained in this Agreement required to be performed or complied with by it at or before the Closing. 

        (b)   Officer's Certificate. The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed
by a duly authorized officer, as to the fulfillment of the conditions set forth in Section 5.2(a). 

        (c)   Transaction Documents. The applicable Company Group member shall have entered into the Software License Agreement and the
Purchaser shall have entered into the Transition Services Agreement. 

        (d)   Corporate Proceedings. All corporate proceedings of the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents to which it is a party, and all documents and instruments incident thereto, shall be reasonably satisfactory in form and substance to the Seller, and
the Seller shall have received all such documents and instruments, or copies thereof, certified if requested, as may be reasonably requested. 

        5.3    Conditions to Obligations of the Purchaser.    

        The
obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver at or prior to the Closing Date of the
following additional conditions: 

        (a)   Representations and Warranties and Obligations of the Seller. The representations and warranties in Article II
shall be true and correct in all material respects when made and at and as of the Closing with the same effect as though made at and as of such time, except that those representations and warranties
which are made as of a specific date shall be true and correct in all material respects only as of such date, and except that any representation or warranty that itself is already qualified by a
materiality or Material Adverse Effect standard shall be true and correct in all respects when made at and as of the Closing. The Seller shall have performed and complied in all material respects with
each covenant or agreement contained in this Agreement required to be performed or complied with by it at or before the Closing. 

        (b)   Officer's Certificate. The Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed
by a duly authorized officer, as to the fulfillment of the conditions set forth in Section 5.3(a). 

        (c)   Resignations. The directors of the Company Group members specified in a notice delivered by the Purchaser to the Seller
at least five days prior to the Closing shall have submitted their resignations from the Boards of Directors of the Company Group members, effective as of the Closing Date. 

29

 

        (d)   FIRPTA Certificate. The Seller shall have duly executed and delivered to the Purchaser a certificate of
non-foreign status as to the sale of the Shares as provided in Treasury Regulation Section 1.1445-2(b). 

        (e)   Corporate Proceedings. All corporate proceedings of the Seller and the Company Group members in connection with the
transactions contemplated by this Agreement and the other Transaction Documents to which it is a party, and all documents and instruments incident thereto, shall be reasonably satisfactory in form and
substance to the Purchaser, and the Purchaser shall have received all such documents and instruments, or copies thereof, certified if requested, as may be reasonably requested. 

        (f)    Consents. Seller shall have delivered to Purchaser the consents, approvals and waivers of and copies of notices to any
Person as set forth on Schedule 2.2 (except for those and notices not required to be given or made prior to Closing). 

        (g)   Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any event which has had or would
reasonably be likely to have a material adverse effect on the financial condition, business, finances, prospects or operations of the Company Group taken as a whole. 

        (h)   Transaction Documents. The Seller shall have entered into the Non-Compete Agreement, the Workers'
Compensation Network Access Agreement, the PPO Services Agreement and the Transition Services Agreement. 

        (i)    Tristar Novation. All commitments, liabilities or obligations of any nature of any member of the Company Group, whether
contingent or otherwise, pursuant to that Stock Purchase Agreement dated July 23, 2002 by and among Tristar Insurance Group, Seller and the Company selling EOS Claims Services, Inc. to
Tristar Insurance Group and any other agreements contemplated thereby (other than the Exclusive Payor Services Agreement, dated as of July 23, 2002, by and between Tristar Insurance
Group, Inc., on its own behalf and on behalf of its subsidiaries, EOS Managed Care Services, Inc., and the Company) shall have been novated to Seller or an Affiliate of Seller (other
than a member of the Company Group). 

 
 

ARTICLE VI
  INDEMNIFICATION    
    

        6.1    By the Seller.    

        (a)   From
and after the Closing, subject to Section 6.7, the Seller agrees to indemnify and hold harmless the Purchaser and its Affiliates (including the Company
Group), and each of their respective officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Purchaser Indemnified
Parties") from and against any Losses incurred or sustained by any of the Purchaser Indemnified Parties as a result of, arising out of or relating to: 

          (i)  any
inaccuracy or breach by the Seller of any covenant (other than the covenants contained in Sections 4.7, 4.8, 4.9 and 4.14, which are covered by Section 4.8)
set forth in this Agreement or in any Transaction Document to which it is a party; 

         (ii)  any
inaccuracy or breach by the Seller of any of its representations or warranties set forth in this Agreement (other than Sections 2.9(xiv), 2.9(xv) and 2.16
which are covered by Section 4.8), considered, for these purposes, without regard to any updates to the Schedules contemplated by Section 4.11,  provided, however, that Seller shall not have any liability to any Purchaser Indemnified Party as a
result of the breach of any representation or warranty to the extent Purchaser had knowledge, other than knowledge acquired pursuant to an update of a Schedule in accordance 

30

 

with
Section 4.11, that such representation or warranty was incorrect or untrue prior to the Closing Date; 

        (iii)  any
action, claim, suit, complaint, litigation, or arbitration, including any Litigation disclosed on Schedule 2.11, initiated or threatened in writing prior to
12 months following the Closing Date, related to the legitimacy, validity or enforceability of discounts applied or reductions taken on any medical provider bills prior to the Closing Date; 

        (iv)  the
Group Health Business, including the transfer of the Group Health Business pursuant to Section 4.20 hereof; 

         (v)  HN
Services, including the transfer of HN Services pursuant to Section 4.21 hereof; and 

        (vi)  any
commitments, liabilities or obligations of any nature of any member of the Company Group, whether contingent or otherwise, pursuant to the Asset Purchase and Sale
Agreement, dated March 15, 2001, by and among HIH America Insurance Services, Inc., Health Net CompAmerica, Inc. (then known as "Compensation America Network Acquisition Co.") and
Health Net Employer Services, Inc. (then known as "Employer & Occupational Services Group, Inc."). 

        Notwithstanding
the foregoing, there shall not be any duplicative payments or indemnities by the Seller. 

        (b)   The
rights of the Purchaser to indemnification under Section 6.1(a)(ii) shall be limited as follows: 

          (i)  The
amount of any Losses incurred by the Purchaser shall be reduced by the net amount of any Tax benefits actually realized by the Purchaser or any of its Affiliates by
reason of such Losses. 

         (ii)  The
amount of any Losses incurred by the Purchaser shall be reduced by the net amount the Purchaser or any of its Affiliates recovers (after deducting all reasonable
attorneys' fees, expenses and other costs of recovery) from any insurer or other party liable for such Losses, and Purchaser shall use reasonable best efforts to effect any such recovery unless
effecting such recovery would reasonably be likely to result in the cancellation or non-renewal, or result in a material increase in the cost, of the applicable insurance coverage. 

        (iii)  The
amount of any Losses incurred or sustained by the Purchaser shall be reduced to the extent such Losses shall have been caused, contributed to or exacerbated by any
action or omission of the Purchaser or any of its Affiliates or their respective employees, representatives or agents; provided, however, that operation
of the business in a manner substantially consistent with the operation of the business of the Company Group prior to the Closing (and actions or omissions pursuant thereto) shall not be deemed to
cause, contribute to or exacerbate such Losses. 

        (iv)  The
Purchaser shall not be entitled to indemnification under Section 6.1(a)(ii) unless the aggregate amount of indemnifiable Losses thereunder exceeds
3.5% of the Purchase Price (the "Threshold") provided, however, that if the aggregate amount of
indemnifiable Losses exceeds the Threshold, the Purchaser shall be entitled to indemnification for the amount of any and all of such Losses that exceeds the Threshold; and  provided, further, that the
Threshold shall not apply to Losses as a result of, arising out of or relating to breaches by the Seller of the
representations and warranties set forth in Sections 2.1, 2.3, 2.4, 2.5 and 2.23, which breaches shall be indemnified against in their entirety. 

         (v)  The
Purchaser shall not be entitled to indemnification under Section 6.1(a)(ii) to the extent that aggregate amount of Losses pursuant to
Section 6.1(a)(ii) exceeds the Purchase Price. 

31

 

        6.2    By the Purchaser.    

        (a)   From
and after the Closing, subject to Section 6.7, the Purchaser agrees to indemnify and hold harmless the Seller and the Non-Company Group
Affiliates, and each of their respective officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Seller Indemnified
Parties") from and against any Losses incurred or sustained by any of the Seller Indemnified Parties as a result of, based upon or relating to: 

          (i)  any
inaccuracy or breach by the Purchaser of any covenant or agreement (other than the covenants contained in Sections 4.7, 4.8, 4.9 and 4.14) set forth in this
Agreement or in any Transaction Document to which it is a party; 

         (ii)  any
inaccuracy or breach by the Purchaser of any of its representations or warranties set forth in this Agreement,  provided, however, that Purchaser shall not
have any liability to any Seller Indemnified Party as a
result of the breach of any representation or warranty to the extent Seller had knowledge, that such representation or warranty was incorrect or untrue prior to the Closing Date; or 

        (iii)  the
use of Seller Marks or Affiliation Statement Materials other than as permitted by Section 4.13. 

        Notwithstanding
the foregoing, that there shall not be any duplicative payments or indemnities by the Purchaser. 

        (b)   The
rights of the Seller to indemnification under Section 6.2(a)(ii) shall be limited as follows: 

          (i)  The
amount of any Losses incurred by the Seller shall be reduced by the net amount of any Tax benefits actually realized by the Seller or any of its Affiliates by
reason of such Losses. 

         (ii)  The
amount of any Losses incurred by the Seller shall be reduced by the net amount the Seller or any of its Affiliates recovers (after deducting all attorneys' fees,
expenses and other costs of recovery) from any insurer or other party liable for such Losses, and Seller shall use reasonable best efforts to effect any such recovery unless effecting such recovery
would reasonably be likely to result in the cancellation or non-renewal, or result in a material increase in the cost, of the applicable insurance coverage. 

        (iii)  The
amount of any Losses incurred or sustained by the Seller shall be reduced to the extent such Losses shall have been caused, contributed to or exacerbated by any
action or omission of the Seller or any of its Affiliates or their respective employees, representatives or agents. 

        (iv)  The
Seller shall not be entitled to indemnification under Section 6.2(a)(ii) unless the aggregate amount of indemnifiable Losses exceeds the Threshold;  provided, however, that if the aggregate
amount of indemnifiable Losses exceeds the Threshold, the Seller shall be entitled to indemnification for the
amount of any and all of such Losses that exceeds the Threshold; and provided, further, that the Threshold shall not apply to Losses as a result of,
arising out of or relating to breaches by the Purchaser of the representations and warranties set forth in Sections 3.1 and 3.7, which breaches shall be indemnified against in their entirety. 

         (v)  The
Seller shall not be entitled to indemnification under Section 6.2(a)(ii) to the extent that the aggregate amount of Losses pursuant to
Section 6.2(a)(ii) exceeds the Purchase Price. 

        6.3    Indemnification Procedures.    

        Any
Person entitled to indemnification hereunder shall herein be referred to as an "Indemnitee." Any Person obligated to indemnify an
Indemnitee hereunder shall herein be referred to as an "Indemnitor." 

32

 

        (a)   Third Party Claims. Promptly upon any Indemnitee's receipt of any notice of any third party claim or the commencement of
any action by any third party which such Indemnitee reasonably believes may give rise to a claim for indemnification from an Indemnitor hereunder, such Indemnitee shall, if a claim in respect thereof
is to be made against an Indemnitor under this Article VI, notify such Indemnitor in writing in reasonable detail of such claim or action and include with such notice copies of all notices and
documents (including court papers) served on or received by the Indemnitee from such third party. Failure to so notify the Indemnitor will not relieve the Indemnitor from any liability for Losses
under this Article VI except to the extent that such omission results in a failure of actual notice to the Indemnitor and the Indemnitor is materially damaged as a result thereof. The
Indemnitor will have the right to defend the Indemnitee against a claim with counsel of the Indemnitor's choice reasonably satisfactory to the Indemnitee so long as (a) the Indemnitor notifies
the Indemnitee in writing within thirty (30) days after the Indemnitee has given notice of the claim to the Indemnitor that the Indemnitor will indemnify the Indemnitee in accordance with this
Article VI, (b) the claim involves solely money damages and does not seek an injunction or other equitable relief and (c) the Indemnitor conducts the defense of the claim actively
and diligently. In such event, the Indemnitee shall have the right at its expense to employ counsel to participate in the defense of such claim. For the avoidance of doubt, it is agreed that Seller
shall continue to defend after the Closing any Litigation pending as of the Closing Date with respect to which the Purchaser Indemnified Parties are entitled to indemnification pursuant to
Section 6.1(a)(iii) hereof. If any of the conditions set forth in (a)-(c) above are not fulfilled, Indemnitee shall have the right to assume the defense of the claim, at the expense of
Indemnitor, in such manner as it deems appropriate. The Indemnitee shall have the right to employ counsel to represent it for any reason including if
(x) such claim or action involves remedies other than monetary damages or (y) the Indemnitee may have
available to it one or more defenses or counterclaims which are inconsistent with one or more defenses or counterclaims which may be alleged by the Indemnitor, and in any such event the fees and
expenses of such separate counsel shall be paid by the Indemnitor. If the Indemnitor shall control the defense of any such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee (which shall not be unreasonably withheld or delayed) before entering into any settlement of a claim or ceasing to defend such claim, if pursuant to or as a result of such settlement or
cessation, injunction or other equitable relief shall be imposed against the Indemnitee or if such settlement does not expressly and unconditionally release the Indemnitee from all liabilities and
obligations with respect to such claim and all matters that could have been asserted in connection with such claim, with prejudice. Unless it has been conclusively determined through a final judicial
determination (or settlement tantamount thereto) that the Indemnitor is not liable to the Indemnitee under this Section 6.3, the Indemnitee shall act reasonably with respect to such defense,
and shall not settle or compromise any such claim or action without the consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. The parties hereto agree to render to
each other such assistance as may reasonably be requested in order to insure the proper and adequate defense of any such claim or action, including making employees available on a mutually convenient
basis to provide additional information and explanation of any relevant materials or to testify at any proceedings relating to such claim or action, and any related costs thereof shall be paid by
Indemnitor. 

        (b)   Other Claims. As promptly as practicable after an Indemnitee sustains any Losses not involving a third party claim or
action which such Indemnitee reasonably believes may give rise to a claim for indemnification from an Indemnitor hereunder, such Indemnitee shall deliver notice of such claim to the Indemnitor,
specifying with reasonable detail the basis on which indemnification is being asserted and the amount of such Losses. If the Indemnitor does not notify the Indemnitee within 45 calendar days following
its receipt of such notice that the Indemnitor disputes its liability to the Indemnitee under this Article VI, such claim specified by the Indemnitee in such notice shall be conclusively deemed
a liability of the Indemnitor under this Article VI and the Indemnitor shall pay the amount of such claim to the Indemnitee on demand or, in the case of any notice in which the 

33

 

amount
of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) becomes finally determined. 

        6.4    Treatment of Indemnity Payment.    

        Each
of the Seller and the Purchaser agrees to treat any indemnity payment made pursuant to this Agreement as an adjustment to the Purchase Price for all Tax purposes. 

        6.5    Mitigation of Loss.    

        The
Indemnitee is obligated to use all commercially reasonable efforts to mitigate the amount of any Loss for which it is entitled to seek indemnification hereunder, and the Indemnitor
Party shall not be required to make any payment to an Indemnitee to the extent of any increase in such Loss caused by such Indemnitee's failure to comply with the foregoing obligation. 

        6.6    Exclusivity of Indemnification Provision.    

        Except
for (a) any equitable relief, including injunctive relief or specific performance, to which any party hereto may be entitled and (b) in the case of fraud or
intentional misrepresentation, from and after the Closing, the indemnification for Losses provided in this Article VI and in Section 4.8 shall be the sole and exclusive remedy of any
party hereto with respect to this Agreement. 

        6.7    Survival of Representations and Warranties.    

        The
representations and warranties contained in Articles II and III of this Agreement (excluding those contained in Sections 2.9(xiv), 2.9(xv) and 2.16, which are covered by
Section 4.8) shall survive the Closing for the applicable period set forth in this Section 6.7, and any and all claims and causes of action for indemnification under this
Article VI arising out of the inaccuracy or breach of any such representation or warranty must be made prior to the termination of the applicable survival period. All of the representations and
warranties contained in Articles II and III of this Agreement (excluding those contained in Sections 2.9(xiv), 2.9(xv) and 2.16, which are covered by Section 4.8) and any and all claims
and causes of action for indemnification under this Article VI with respect thereto shall terminate eighteen (18) months following the Closing Date;  provided that (a) the representations
and warranties of the Seller contained in Sections 2.1, 2.3, 2.4 and 2.5 shall survive indefinitely,
(b) the representations and warranties of Purchaser contained in Section 3.1 shall survive indefinitely and (c) the representations and warranties of Seller contained in Sections
2.17 and 2.19 shall survive until 90 days following the expiration of the applicable statute or similar period of limitations; it being understood that in the event an Indemnified Party
delivers notice of any claim for indemnification within the applicable survival period and such notice describes such claims with reasonable specificity, the representations and warranties that are
the subject of such indemnification claim shall survive until such time as such claim is finally resolved. 

 
 

ARTICLE VII
  DEFINITIONS AND INTERPRETATION    
    

        7.1    Definitions.    

        As
used in this Agreement, the following terms have the following meanings: 

        Affiliate:    of a Person means any other Person that directly or indirectly controls, is controlled by, or is under common
control with, the first Person. The term "control" (including the terms, "controlled by" and
"under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. 

        Affiliation Statement Materials:    as defined in Section 4.13(b). 

34

 

        Agreement:    this Stock Purchase Agreement, including the Schedules to this Stock Purchase Agreement. 

        Closing:    as defined in Section 1.2. 

        Closing Date:    as defined in Section 1.2. 

        COBRA:    as defined in Section 4.10(e). 

        Code:    the United States Internal Revenue Code of 1986, as amended. 

        Company:    as defined in the Recitals. 

        Company Employees:    as defined in Section 2.26(a). 

        Company Group:    the Company and all of its Subsidiaries other than HN Services. 

        Confidentiality Agreement:    as defined in Section 4.19(a). 

        Contracts:    as defined in Section 2.14(a). 

        Controlling Party:    as defined in Section 4.7(e)(ii). 

        Copyrights:    any copyrights, copyright applications and registrations. 

        Environment:    surface waters, groundwaters, surface water sediment, soil, subsurface strata, ambient air and other
environmental medium. 

        Environmental Claims:    any and all actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, notices of liability or potential liability, investigations, proceedings, consent orders or consent agreements relating in any way to any Environmental Law or
any Hazardous Material or arising from any alleged injury to threat of injury to health, safety or the Environment. 

        Environmental Law:    means any Law with respect to the preservation of the Environment, including but not limited to any Law
whatsoever relating to Hazardous Materials, drinking water, surface water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water
runoff, odors, air quality, air emissions, or waste emissions. Without limiting the generality of the foregoing, the term will encompass each of the following statutes and the regulations promulgated
thereunder, and any similar applicable state, or local Law, each as amended: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980; (b) the Solid Waste
Disposal Act; (c) the Hazardous Materials Transportation Act; (d) the Toxic Substance Control Act; (e) the Clean Water Act, (f) the Clean Air Act; (g) the Safe
Drinking Water Act; (h) the National Environmental Policy Act of 1969; (i) the Superfund Amendments and Reauthorization Act of 1986; (j) Title III of the Superfund Amendments and
Reauthorization Act; (k) the Federal Insecticide, Fungicide and Rodenticide Act; (l) the provisions of the Occupational Safety and Health Act of 1970 relating to the handling of and
exposure to Hazardous Materials and similar substances; and (m) the National Environmental Policy Act. 

        Environmental Permit:    any permit, approval, identification number, license, or other authorization required to operate the
business of any Company Group member brought under any applicable Environmental Law. 

        ERISA:    the United States Employee Retirement Income Security Act of 1974, as amended. 

        Financial Statements:    as defined in Section 2.6. 

        GAAP:    United States generally accepted accounting principles, consistently applied. 

35

  

        Governmental Action:    any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license,
certificate, exemption, order, decree, writ, ruling, settlement, award, judgment, injunction, registration, declaration, filing, report or notice of, with or to any Governmental Authority. 

        Governmental Authority:    any foreign or national government, any state or other political subdivision thereof, and any entity,
department, agency, commission, board or bureau exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to governmental or regulatory authority. 

        Group Health Business:    as defined in Section 4.20. 

        Hazardous Materials:    means each and every element, compound, chemical, contaminant, pollutant, material, waste or other
substance that is defined, determined or identified as hazardous, toxic or regulated under any Environmental Law or the release of which is prohibited under any Environmental Law. Without limiting the
generality of the foregoing, the term will include, without limitation: (a) "hazardous substance" as defined in the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, or Title III of the Superfund Amendments and Reauthorization Act and regulations promulgated thereunder, each as amended;
(b) "hazardous waste" as defined in the Solid Waste Disposal Act and regulations promulgated thereunder, each as amended: (c) "hazardous materials" as defined in the Hazardous Material
Transportation Act and the regulations promulgated thereunder, each as amended; (d) "chemical substance or mixture" as defined in the Toxic Substances Control Act and regulation promulgated
thereunder, each as amended; (e) petroleum products and by products; (f) asbestos; and (g) PCBs. 

        HN Services:    as defined in the Recitals. 

        HSR Act:    the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated under such statute. 

        Indemnitee:    as defined in Section 6.3. 

        Indemnitor:    as defined in Section 6.3. 

        Intellectual Property:    means any and all United States and foreign (i) Patents, (ii) Trademarks,
(iii) trade and corporate names, (iv) Copyrights, (v) Trade Secrets, (vi) internet domain names, (vii) all other proprietary intangible property, rights and
interests, (viii) all copies and tangible embodiments of the foregoing (in whatever form or medium) and (ix) all applications for any of the foregoing. 

        Intercompany Accounts:    all amounts that any Company Group member owes to the Seller and/or any of the Seller's Affiliates
(other than to other Company Group members) on the Closing Date, and all amounts that the Seller and/or any of the Seller's Affiliates (other than Company Group members) owe Company Group members on
the Closing Date, including, without limitation, those with the following general ledger account numbers: 124900, 126099, 230090, 232210 through 241210, 270000 and 270003. 

        Interim Balance Sheet:    the unaudited consolidated balance sheet of the Company as of June 30, 2003. 

        Interim Financial Statements:    as defined in Section 2.6. 

        IP License Agreements:    material agreements as of the date hereof (excluding shrinkwrap, clickwrap and commercially available
off the shelf software licenses having a value or purchase price of 

36

 

less
than $10,000) granting or obtaining any right to use any Intellectual Property to which any member of the Company Group is a party or is otherwise bound as licensee or licensor. 

        IRS:    the United States Internal Revenue Service. 

        Knowledge of the Seller:    the actual knowledge or knowledge and other facts and matters that a senior officer of the Seller or
an officer or director of any member of the Company Group should reasonably be expected to discover or otherwise become aware of in the course of their respective duties as senior officers or
employees of the Seller or directors, officers or employees of any Company Group member, as applicable, prior to the Closing Date, and the actual knowledge of Pamela Cody, Phil Davis, Hilda Gonzales
and Kevin Lane. 

        Law:    all (i) constitutions, treaties, statutes, laws (including common law),
codes, rules, regulations, ordinances or orders of any Governmental Authority, (ii) Governmental Actions,
(iii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any Governmental Authority, and (iv) rules and policies of any
self-regulatory body. 

        Leased Real Property:    as defined in Section 2.12(a). 

        Liabilities:    as defined in Section 2.7. 

        Lien:    any mortgage, pledge, deed of trust, hypothecation, claim, security interest, title defect, encumbrance, burden, charge
or other similar restriction, lease, sublease, claim, title retention agreement, option, easement, covenant, encroachment or other adverse claim. 

        Litigation:    as defined in Section 2.11. 

        Losses:    any and all claims, demands, liabilities, obligations, losses, Taxes, fines, costs, expenses, deficiencies or
damages, whether or not resulting from third party claims, including interest, additions and penalties with respect thereto and out-of-pocket expenses and reasonable attorneys'
and accountants' fees and expenses incurred in the investigation, defense or settlement of any of the same or in asserting, preserving or enforcing any rights under this Agreement, but excluding any
punitive damages. 

        Marked Material:    as defined in Section 4.13(a). 

        Material Adverse Effect:    a material adverse effect on the ability of the Seller to perform its obligations under or to
consummate the transactions described in this Agreement or the other Transaction Documents or a material adverse effect on the financial condition, assets, property, results of operations or business
of the Company Group taken as a whole, but excluding effects attributable to (i) the announcement by the Seller of its intention to sell the Company or
enter into this Agreement, (ii) the transactions contemplated by this Agreement or the other Transaction Documents,
(iii) changes in general economic or market conditions or prevailing interest rates, including, without limitation, changes affecting the industries in
which the Company Group operates, or (iv) changes in Laws or accounting standards, principles or interpretations. 

        Non-Company Group Affiliate:    any Affiliate of the Seller other than the Company Group members. 

        Non-Compete Agreement:    as defined in Section 4.4(a). 

        Non-Controlling Party:    as defined in Section 4.7(e)(ii). 

        Patents:    any patents, patent applications, and all divisions, reissues, continuations, extension, and
continuations-in-part thereof. 

37

 

        Permitted Liens:    (a) Liens reflected in the Financial Statements,
(b) Liens securing the payment of Taxes not yet due and payable or which are being contested in good faith by appropriate proceedings and as to which
any Company Group member has, to the extent required by GAAP, set aside on its books adequate reserves, and (c) Liens of warehousemen, mechanics and
materialmen and other similar statutory Liens incurred in the ordinary course of business and securing obligations which are not yet due and payable or which are being contested in good faith and as
to which any Company Group member has, to the extent required by GAAP, set aside adequate reserves. 

        Person:    any natural person, firm, limited liability company, general partnership, limited partnership, joint venture,
association, corporation, trust, Governmental Authority or other entity. 

        Plans:    as defined in Section 2.17(a). 

        Post-Closing Tax Period:    any Tax Period beginning after the Closing Date and that portion of any Straddle Period
beginning after the Closing Date. 

        PPO Services Agreement:    as defined in Section 4.18. 

        Pre-Closing Tax Period:    any Tax Period ending on or before the Closing Date and that portion of any Straddle
Period ending on the Closing Date. 

        Property Taxes:    as defined in Section 4.8(b)(iii)(A) 

        Purchase Price:    as defined in Section 1.1(b). 

        Purchaser:    as defined in the Recitals. 

        Purchaser Indemnified Parties:    as defined in Section 6.1(a). 

        Purchaser's 125 Plan:    as defined in Section 4.10(f). 

        Reimbursement Account:    as defined in Section 4.10(f). 

        Restriction Period:    as defined in Section 4.4(b). 

        Section 338 Allocation:    as defined in Section 4.14(b). 

        Securities Act:    as defined in Section 3.5. 

        Seller:    as defined in the Recitals. 

        Seller Employees:    as defined in Section 4.4(d). 

        Seller Indemnified Parties:    as defined in Section 6.2(a). 

        Seller Marks:    as defined in Section 4.13(a). 

        Seller Plan:    as defined in Section 4.10(e). 

        Seller's Network:    as defined in Section 4.15(a). 

        Seller's 125 Plan:    as defined in Section 4.10(f). 

        Selling Group:    the affiliated group of corporations of which Seller is the common parent. 

        Settlement Accountant:    a firm of independent certified public accountants of nationally recognized standing as may be
mutually agreed between the parties. 

        Shares:    as defined in the Recitals. 

38

 

        Software License Agreement:    as defined by Section 4.16. 

        Straddle Period:    any Tax Period that includes the Closing Date. 

        Subsidiary:    with respect to any Person (for the purposes of this definition, the "parent"), any other Person (other than a
natural person), whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or indirectly owned or controlled by the parent or by one or more of its respective Subsidiaries or by the parent and any
one or more of its respective Subsidiaries. 

        Tax:    with respect to any Person, all taxes, assessments, charges, duties, fees, levies, imposts or other governmental
charges, including, without limitation, all federal, state, provincial, local, foreign or other income, alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock,
net worth, capital, profits, windfall profits, gross receipts, sales, use, value added, transfer, registration, stamp, premium, excise, customs duties, severance, real property, personal property,  ad valorem, occupancy, license, occupation, business and occupation, employment, payroll, social security, disability, unemployment, workers'
compensation, health care, withholding, estimated or other tax of any kind, including all interest and penalties thereon and additions thereto whether disputed or not, for which such Person may be
liable (including any such Tax related to any other Person for which such Person is liable, by contact, as transferee or successor, or by Law (including as a result of application of Treasury
Regulation 1.1502-6 or otherwise). 

        Tax Authority:    any federal, state, provincial, local, foreign or other Governmental Authority or any quasi-governmental body
or private body responsible for the assessment, determination, collection or imposition of any Tax. 

        Tax Contest:    as defined in Section 4.7(e)(i). 

        Tax Period:    any period prescribed by any Tax Authority for which a Tax Return is required to be filed or a Tax is required to
be paid. 

        Tax Return:    any return, report, declaration, form, claim for refund or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment thereof. 

        Tax Sharing Agreements:    as defined in Section 4.9(b). 

        Threshold:    as defined in Section 6.1(b)(iv). 

        Trademarks:    any trademarks, service marks, trade dress, logos, trademark or service mark applications and registrations,
including all renewals thereof. 

        Trade Secrets:    any trade secrets, know-how, technology, computer software and software systems (including data
and related documentation), ideas, inventions, (whether or not patentable), designs, processes, business and marketing plans, customer and supplier lists, confidential information. 

        Transaction Documents:    this Agreement, the Non-Compete Agreement, the Transition Services Agreement, the Workers'
Compensation Network Access Agreement, the PPO Services Agreement and the Software License Agreement. 

        Transition Period:    as defined by Section 4.13(a). 

        Transition Services Agreement:    as defined by Section 4.17. 

        Workers' Compensation Network Access Agreement:    as defined in Section 4.15. 

39

 

        Year-End Balance Sheet:    the audited consolidated balance sheet of the Company as of December 31, 2002. 

        338 Elections:    as defined in Section 4.14(a). 

        7.2    Interpretation.    

        In
this Agreement, the following rules of interpretation apply: 

        (a)   references
to Sections, Schedules and parties are references to sections or sub-sections of, schedules and parties to this Agreement; 

        (b)   references
to any Law include references to such Law as modified, codified or re-enacted; 

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

        (d)   words
importing one gender include the other genders; 

        (e)   references
to the word "including" do not imply any limitation; and 

        (f)    references
to months are to calendar months. 

        7.3    Schedules.    

        The
parties acknowledge and agree that any exception to a representation and warranty contained in this Agreement that is disclosed in any of the Schedules under the caption referencing
such representation and warranty shall be deemed to also be an exception to each other representation and warranty contained in this Agreement to the extent that it is reasonably apparent that such
exception is applicable to such other representation and warranty. Certain information set forth in the Schedules is included solely for informational purposes and may not be required to be disclosed
pursuant to this Agreement, and the disclosure of any information shall not be deemed to constitute an acknowledgment that such information is required to be disclosed in connection with the
representations and warranties made by the Seller or the Purchaser, as the case may be, in this Agreement or that it is material, nor shall such information be deemed to establish a standard of
materiality. 

 
 

ARTICLE VIII
  GENERAL PROVISIONS.    
    

        8.1    Modification; Waiver.    This Agreement may be modified only by a written instrument executed by the parties.
Any of the terms and conditions of this Agreement may be waived in writing at any time on or prior to the Closing Date by the party entitled to their benefits. 

        8.2    Entire Agreement.    

        This
Agreement, including the Schedules (which are hereby incorporated by reference and made a part of this Agreement), the other Transaction Documents and the Confidentiality Agreement
contain the entire agreement of the parties with respect to the subject matter of this Agreement, the other Transaction Documents and the Confidentiality Agreement, and supersedes all other prior
agreements, understandings, statements, representations and warranties, oral or written, express or implied, between the parties and their respective Affiliates, representatives and agents in respect
of the subject matter of this Agreement. 

        8.3    Relationship Between the Parties.    

        The
parties agree that this is an arm's length transaction in which the parties' undertakings and obligations are limited to the performance of their obligations under this Agreement. 

40

 

        8.4    Termination.    

        (a)   This
Agreement may be terminated: 

          (i)  by
mutual consent of the Purchaser and the Seller; or 

         (ii)  by
the Purchaser or the Seller, if the Closing has not taken place on or before October 31, 2003, or such later date as the parties may have agreed to in
writing, provided that the non-occurrence of the Closing is not attributable to a breach of the terms of this Agreement by the party seeking
termination, and provided that this Agreement may be extended by written notice of either the Seller or the Purchaser to a date not later than
February 29, 2004 if the non-occurrence of the Closing is a direct result of the conditions contained in Sections 5.1(a) or 5.1(c) not having been satisfied by such date. 

        (b)   In
the event of termination by the Seller or the Purchaser under this Section 8.4, written notice of termination must forthwith be given to the other party, and
the transactions contemplated by this Agreement will be terminated without further action by either party. 

        (c)   If
the transactions contemplated by this Agreement are terminated as provided in this Section 8.4: 

          (i)  the
Purchaser will return to the Seller all documents and other materials received from the Seller, its Affiliates or its agents (including all copies of or materials
developed from any such documents or other materials) relating to the transactions contemplated by this Agreement, whether obtained before or after the execution of this Agreement; and 

         (ii)  all
confidential information received by the Purchaser with respect to the Seller and its Affiliates will be treated in accordance with the Confidentiality Agreement,
which will remain in full force and effect notwithstanding the termination of this Agreement. 

        (d)   If
this Agreement is terminated as provided in this Section 8.4, this Agreement will become null and void and of no further force or effect, except for
Section 4.5 (relating to public announcements), Section 4.19 (relating to confidentiality) and Section 8.5 (relating to certain expenses). Nothing in this Section 8.4 will
be deemed to release either party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of either party to compel specific performance by
the other party of its obligations under this Agreement. 

        8.5    Expenses.    

        Except
as expressly provided in this Agreement, whether or not the transactions contemplated in this Agreement are consummated, each party will be responsible for its own expenses
incident to the preparation and performance of this Agreement and each of the other Transaction Documents. 

        8.6    Further Assurances.    

        Each
party will execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or
implement the transactions contemplated by this Agreement and each of the other Transaction Documents. 

        8.7    Notices.    

        All
notices, requests, demands and other communications under this Agreement must be in writing and will be deemed to have been duly given or made as follows:
(a) if sent by registered or certified mail in the United States return receipt requested, upon receipt;
(b) if sent by reputable overnight air courier two business days after mailing; (c) if sent by facsimile
transmission, with a copy mailed on the same day in the manner provided in (a) or (b) above, when transmitted and receipt is confirmed by 

41

 

telephone;
or (d) if otherwise actually personally delivered, when delivered, and shall be delivered as follows: 

        if
to Seller: 

Health
Net, Inc.

2165 Oxnard Street

Woodland Hills, California 91367

Fax: 818-676-7503

Attention: B. Curtis Westen, Senior Vice President, Secretary and General Counsel 

        with
a copy to: 

Lord,
Bissell & Brook

115 South LaSalle Street

Chicago, Illinois 60603

Fax: 312-443-0336

Attention: John E. Hrebec 

        if
to the Purchaser: 

First
Health Group Corp.

3200 Highland Avenue

Downers Grove, IL 60515

Fax: 630-719-0093

Attention: Edward Wristen, Chief Executive Officer 

        with
a copy to: 

First
Health Group Corp.

3200 Highland Avenue

Downers Grove, IL 60515

Fax: 630-773-7518

Attention: General Counsel 

        and:

Latham &
Watkins LLP

233 South Wacker Drive

Suite 5800

Chicago, Illinois 60606

Fax: 312-993-9767

Attention: Stephen S. Bowen 

or
to such other address or to such other Person as either party may have last designated by notice to the other party. 

        8.8    Assignment.    

        This
Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but will not be assignable, by operation of law or
otherwise, by either party without the prior written consent of the other party and any purported assignment or other transfer without such consent will be void and unenforceable, except that either
party may assign this Agreement to any of its Affiliates without the consent of the other party; provided that no such assignment shall in any way
affect the obligations or liabilities of the assigning party under this Agreement which shall remain in effect notwithstanding such assignment. 

42

 

        8.9    No Third-Party Beneficiaries.    

        Except
as otherwise provided in this Agreement, nothing in this Agreement will confer any rights upon any Person that is not a party or a successor or permitted assignee of a party to
this Agreement. All the terms and provisions of Section 4.8(b)(i) and Section 6.1 will bind and inure to the benefit of and be enforceable by the Purchaser Indemnified Parties and
the Purchaser, respectively, and all the terms and provisions of Section 4.8(b)(ii) and Section 6.2 will bind and inure to the benefit of and be enforceable by the Seller
Indemnified Parties and the Seller, respectively. 

        8.10    Counterparts.    

        This
Agreement may be executed in counterparts, each of which will constitute one and the same instrument. 

        8.11    Governing Law.    

        This
Agreement will be construed, performed and enforced in accordance with the laws of the State of Delaware without giving effect to its principles or rules of conflict of laws thereof
to the extent such principles or rules would require or permit the application of the laws of another jurisdiction. 

        8.12    Waiver of Punitive and Other Losses and Jury Trial.    

        (a)   THE
PARTIES EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING
FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS. 

        (b)   EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS. 

        (c)   EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND
(iv) IT HAS BEEN INDUCED TO ENTER INTO ANY OF THE TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
8.12. 

[the
remainder of this page intentionally left blank] 

43

   
        IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. 

	 	 	HEALTH NET, INC.
	

 	
 	

By:	
 	

/s/  B. CURTIS WESTEN      
 Name: B. Curtis Westen

Title: Senior Vice President, General Counsel and

Secretary
	

 	
 	

FIRST HEALTH GROUP CORP.
	

 	
 	

By:	
 	

/s/  EDWARD L. WRISTEN      
 Name: Edward L. Wristen

Title: President and CEO
 [Signature Page to Stock Purchase Agreement]

44

QuickLinks

Table of Contents

STOCK PURCHASE AGREEMENT

W I T N E S S E T H

ARTICLE I SALE AND PURCHASE

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

ARTICLE IV CERTAIN COVENANTS

ARTICLE V CONDITIONS PRECEDENT

ARTICLE VI INDEMNIFICATION

ARTICLE VII DEFINITIONS AND INTERPRETATION

ARTICLE VIII GENERAL PROVISIONS.

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