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ASSET PURCHASE AGREEMENT

between

ASSOCIATED HOSPITAL SERVICE OF MAINE

and

ANTHEM INSURANCE COMPANIES, INC.

Dated as of July 13, 1999

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

ARTICLE II

TRANSACTION

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF SELLER

Changes, Events and Conditions 25

Matters 29

Attorney 42

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF PURCHASER

ARTICLE V

ADDITIONAL AGREEMENTS

ARTICLE VI

EMPLOYEE MATTERS

ARTICLE VII

TAX MATTERS

ARTICLE VIII

CONDITIONS TO CLOSING

ARTICLE IX

INDEMNIFICATION

ARTICLE X

TERMINATION AND WAIVER

ARTICLE XI

GENERAL PROVISIONS

EXHIBITS

ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT, dated as of July 13, 1999, by and between ASSOCIATED HOSPITAL SERVICE OF MAINE, a Maine non-profit corporation, d/b/a Blue Cross and Blue Shield of Maine ("Seller"), and ANTHEM INSURANCE COMPANIES, INC., an Indiana mutual insurance company, or its wholly-owned nominee Subsidiary (the "Purchaser").

W I T N E S S E T H:

WHEREAS, Seller and its Subsidiaries (collectively or individually referred to herein as "BCBS-ME" and specifically excluding Blue Alliance) are engaged in the Business; and

WHEREAS, with the intention of perpetuating the high quality of services provided by the Business to the citizens of Maine, Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the Business, including, without limitation, all right, title and interest of Seller in and to the property and assets of the Business, and in connection therewith Purchaser is willing to assume certain liabilities of Seller relating thereto, all upon the terms and subject to the conditions set forth herein; and

NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, Purchaser and Seller hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

"Acceptable ME Representative" means a candidate designated by Seller's Board of Directors and who is acceptable to Purchaser's Board of Directors.

"Acquisition Documents" means this Agreement, the Ancillary Agreements, Financial Statements, Final Closing Balance Sheet and any other document required to be delivered pursuant to Article VIII.

"Action" means any written claim, formal action, suit, arbitration or proceeding by or before any Governmental Authority.

"Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. Notwithstanding the foregoing, Northern General Services of Massachusetts, Inc. and Northern General Services of New Hampshire, LLC shall be considered Affiliates of BCBS-ME for purposes of this Agreement.

"Agreement" or "this Agreement" means this Asset Purchase Agreement, dated as of July 13, 1999, between Seller and Purchaser (including the Exhibits hereto and the Disclosure Schedule) and all amendments hereto made in accordance with the provisions of Section 11.09.

"Ancillary Agreements" means the Quitclaim Deeds, the Assignment and Assumption Agreements, and the Escrow Agreement.

"Assets" has the meaning specified in Section 2.01(a).

"Assumed Liabilities" has the meaning specified in Section 2.02(a).

"Assumed Plans" has the meaning specified in Section 6.02.

"Assignment and Assumption Agreements" means a Bulk Reinsurance Agreement pursuant to Section 3484 of the Maine Insurance Code, and other instruments of transfer, assignment and assumption that are usual and customary for transactions similar to those contemplated by this Agreement, to be executed by Purchaser and Seller on the Closing Date.

"BCBSA" means the Blue Cross Blue Shield Association.

"BCBS-ME" has the meaning specified in the recitals to this Agreement.

"BCBS-ME's Tax-Related Assets" means all attributes (including, but not limited to, amount, character and availability), rights and claims of any kind relating to Taxes, of, relating to, or made by or for the benefit of Seller's Affiliates (which, for these purposes, excludes Seller), whenever arising, whether choate or inchoate, and whether or not asserted, including, but not limited to, Tax reserves, deposits, payments, estimated payments, credits, allowances, carryover and carryback amounts (including, among other things, losses, credits, deductions and similar items), refunds, claims and all rights with respect to any of the foregoing, including any interest thereon, together with any other Tax-related items which may be reflected in or may otherwise affect or be affected by the computation of any of the foregoing or by the computation of the amount of the liability for any Taxes of Seller's Affiliates.

"Benchmark Book Value" means the projected consolidated net worth (as defined under U.S. GAAP) of the Business (excluding the Excluded Assets and the Excluded Liabilities) as of the Closing Date, as shown in the Financial Projections.

"Benchmark Earnings" means the annualized pre-tax income of the Business based on the period between start date of the Financial Projections and the Closing Date as shown in the Financial Projections.

"Blue Alliance" means Patriot Mutual Insurance Company, d/b/a Blue Alliance Mutual Insurance Company and its Subsidiaries, including, without limitation, Patriot Life Insurance Company.

"Blue Alliance Service Agreements" has the meaning specified in Section 5.06.

"Book Value Shortfall" has the meaning specified in Section 2.07(c).

"Break-Up Fee" has the meaning specified in Section 5.08.

"Burdensome Condition" means any term, condition or restriction which is either

  1. imposed by a Governmental Authority as a condition or limitation on any licenses, approvals or consents required for the consummation of the transactions contemplated hereby, or
  2. made, after the date hereof, uniquely applicable to Purchaser's operations (or any of the operations of Seller or the Subsidiaries or Affiliates of Seller acquired or to be acquired by Purchaser pursuant to this Agreement) in Maine through any Law, rule, regulation or administrative interpretation whether or not purporting to have general applicability to others, and that, in either case,
    1. would be reasonably likely to have a material adverse effect on the economic or business benefits to Purchaser of the transactions contemplated by this Agreement,
    2. subject Purchaser's operations (or the operations of any of the Subsidiaries of Seller acquired by Purchaser pursuant to this Agreement) in Maine following the Closing to legal requirements currently applicable only to Blue Cross Blue Shield plans or non-profit corporations, or
    3. impose on Purchaser any restriction, limitation, condition or obligation that differs materially and adversely from those imposed on companies holding similar insurance licenses (or certificates of authority) engaged in a business in Maine like the Business.

"Business" means BCBS-ME's business (as conducted as of a time determined by the context in which the term is used), including the provision of indemnity and managed health insurance products and services, including, without limitation, health maintenance organization, point-of-service, preferred provider organization, Medicare risk and supplemental Medicare insurance, Medicare administrator/intermediary services, third-party administrative services and integrated health plan services, and other products and services within Maine and other states, including the provision of such products and services in Maine by Seller under the Blue Cross and Blue Shield trademarks and service marks pursuant to a license from BCBSA.

"Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in Portland, Maine.

"Closing" has the meaning specified in Section 2.04.

"Closing Balance Sheet" means a consolidated balance sheet of the Business (excluding the Excluded Assets and the Excluded Liabilities) as of the close of business on the Closing Date prepared in accordance with U.S. GAAP by Purchaser.

"Closing Book Value" means the net worth (as defined under U.S. GAAP) of the Business (excluding the Excluded Assets and the Excluded Liabilities), as shown on the Final Closing Date Balance Sheet.

"Closing Date" has the meaning specified in Section 2.04.

"Closing Earnings" means the pre-tax income of the Business based on the period between January 1, 1999 and the Closing Date, as shown on the Closing Income Statement; provided that Y2k Expenses of up to an additional $6,500,000 beyond that estimated in the Financial Projections and that have actually been incurred as of the Closing Date shall be excluded for purposes of calculating the Closing Earnings.

"Closing Income Statement" means an income statement of the Business for the period between the Reference Balance Sheet Date and the Closing Date, prepared in accordance with U.S. GAAP by Purchaser.

"Closing Tax Reserve" has the meaning specified in Section 7.06.

"Code" means the Internal Revenue Code of 1986, as amended through the date hereof.

"Confidentiality Agreement" means the Confidentiality Agreement between Seller and Purchaser attached hereto as Exhibit 5.02.

"Control" (including the terms "controlled by" and "under common control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

"Disclosure Schedule" means the Disclosure Schedule attached hereto, dated as of the date hereof, and forming a part of this Agreement.

"Earnings Shortfall" has the meaning specified in Section 2.07(d).

"Encumbrance" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance, adverse claim or preferential arrangement of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

"Environmental Laws" means any Law (excluding rules of common law), including any judicial or administrative order, interpretation, consent decree, judgment, written guidance or written policy relating to the environment, health, safety or Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 6901 et seq.; the Clean Water Act, 33 U.S.C. § 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 300f et seq.; the Atomic Energy Act, 42 U.S.C. § 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.; and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 301 et seq., in each case as amended through the date hereof, and similar laws adopted by states with jurisdiction over the Assets.

"Environmental Permits" means all permits, approvals, identification numbers, licenses and other authorizations required under any applicable Environmental Law.

"ERISA" has the meaning specified in Section 3.20(a).

"Escrow Agent" means State Street Bank and Trust Company.

"Escrow Agreement" has the meaning specified in Section 2.08(a).

"Escrow Amount" means Seventeen Million Five Hundred Thousand Dollars ($17,500,000.00).

"Excluded Assets" has the meaning specified in Section 2.01(b).

"Excluded Liabilities" has the meaning specified in Section 2.02(b).

"Extraordinary Business Combination" means an acquisition or purchase of fifty percent (50%) or more of the assets of or equity interests in any of Seller or its Subsidiaries (except in the ordinary course of the Business consistent with past practices) or any merger, consolidation, business combination, joint venture, recapitalization, liquidation, dissolution or similar transaction that would be reasonably likely to result in the transfer of control of Seller and/or its Subsidiaries.

"Final Closing Financial Statements" has the meaning specified in Section 2.07(b)(iii).

"Final Taxable Period" means, for each kind of Tax, the taxable period in which the Closing Date occurs or is included in a Return filed or required to be filed with respect to such taxable period.

"Finally Determined" or "Final Determination" means the expiration of the ninety-day period immediately following the later of

  1. the expiration of all statutes of limitations applicable to each and every Applicable Return (as hereinafter defined) and, in the event an appeal is taken from a determination of a Governmental Authority and, as part of such appeal an adjustment could be made to an Applicable Return,
  2. the expiration of the period for seeking review of any final decision with regard to such appeal or any further appeal timely filed by or on behalf of Seller or Purchaser and/or any of their respective Affiliates. For purposes of this definition, an "Applicable Return" means a Return on which is or may be reported or otherwise taken into account (whether originally or by means of any timely amendment, claim or appeal with respect thereto), any item of income, loss, credit or deduction, or any other item (including, but not limited to, any item comprising or otherwise affecting any of BCBS-ME's Tax-Related Assets or Purchaser's Tax-Related Assets, as the case may be) that was, is or may be included or otherwise may affect, directly or indirectly, the existence, amount, character or availability of any of BCBS-ME's Tax-Related Assets or Purchaser's Tax-Related Assets, as the case may be with respect to any Return, or the calculation or amount of Seller's Aggregate Tax Liability.

"Financial Projections" means the financial projections attached hereto as Exhibit 3.06.

"Financial Statements" has the meaning specified in Section 3.06(a).

"First Superior Proposal" has the meaning specified in Section 10.01(c).

"Foundation" means an independent charitable foundation to be established or chosen after the date of this Agreement, with oversight by the Maine Attorney General's Office, to receive some or all of Total Consideration at the direction of the applicable Governmental Authority; provided, however, that in the event the Foundation shall not have been duly established prior to the Closing Date, references to the Foundation in this Agreement shall mean

  1. until such time as the Foundation has been duly established, the Treasurer of Maine as escrow agent for the Foundation (or such other Person(s) as may be designated in writing by the applicable Governmental Authority to act on behalf of the Foundation), and
  2. thereafter, the Foundation. After the Closing (assuming the designated Foundation is in existence), the Foundation shall represent the interests of Seller pursuant to this Agreement.

"Government Contract" has the meaning specified in Section 3.32.

"Governmental Authority" means any United States federal, state or local or any foreign government, governmental, regulatory, administrative or taxing authority, agency or commission or any court, tribunal or judicial or arbitral body.

"Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

"Hazardous Materials" means

  1. petroleum and petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain polychlorinated biphenyls, and radon gas,
  2. any other chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar import, under any applicable Environmental Law, and
  3. any other chemical, material or substance, provided that in all such cases the use, release, transportation, disposal or exposure of or to such matter is subject to regulation under an Environmental Law.

"Health Benefit Permits" means those governmental licenses, franchises, permits, certificates, accreditations, provider numbers, consents, rights, privileges and other authorizations issued by Governmental Authorities which are necessary under applicable Law to the conduct of the Business, including, without limitation, licensure by state departments of insurance as a health maintenance organization, federal qualification under the Federal HMO Act of 1973 and approval by the Office of Prepaid Health Care of the United States Department of Health and Human Services.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended through the date hereof, and the rules and regulations promulgated thereunder.

"Indebtedness" means, with respect to any Person,

  1.  all indebtedness of such Person, whether or not contingent, for borrowed money,
  2.  all obligations of such Person for the deferred purchase price of property or services,
  3.  all obligations of such Person evidenced by notes (including surplus notes), bonds, debentures or other similar instruments,
  4. all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the lender under such agreement in the event of default are limited to repossession or sale of such property),
  5. all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases,
  6. all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities,
  7. all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends,
  8. all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or otherwise to assure a creditor against loss, and
  9. all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

"Independent Accounting Firm" has the meaning specified in Section 2.07(b)(i).

"Insurance Contracts" means all policies, binders, slips, certificates, and other agreements of insurance and service agreements for the administration of health benefit plans, whether HMO, PPO, health care or health benefit service contract, health insurance or other product and whether individual or group, in effect on or after the Closing Date (including all supplements, endorsements, riders and ancillary agreements in connection therewith) which are issued by BCBS-ME in connection with the Business.

"Intellectual Property" means

  1. inventions, whether or not patentable, whether or not reduced to practice or whether or not yet made the subject of a pending patent application or applications,
  2. ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and whether or not yet made the subject of a pending patent application or applications,
  3. national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations) and all rights therein provided by multinational treaties or conventions and all improvements to the inventions disclosed in each such registration, patent or application,
  4. trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, including all common law rights, and registrations and applications for registration thereof, including, but not limited to, all marks registered in the United States Patent and Trademark Office, the Trademark Offices of the States and Territories of the United States of America, and the Trademark Offices of other nations throughout the world, and all rights therein provided by multinational treaties or conventions,
  5. copyrights (registered or otherwise) and registrations and applications for registration thereof, and all rights therein provided by multinational treaties or conventions,
  6. computer software, including, without limitation, source code, operating systems and specifications, data, data bases, files, documentation and other materials related thereto,
  7. trade secrets and confidential, technical or business information (including ideas, formulas, compositions, inventions, and conceptions of inventions whether patentable or unpatentable and whether or not reduced to practice),
  8. whether or not confidential, technology (including know-how and show-how), research and development information, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information,
  9. copies and tangible embodiments of all the foregoing, in whatever form or medium,
  10. all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, and
  11. all rights to sue and recover and retain damages and costs and attorneys' fees for present and past infringement of any of the Intellectual Property rights hereinabove set out.

"IRS" means the Internal Revenue Service of the United States.

"Knowledge of Purchaser" or "Purchaser's Knowledge" means that one or more of the senior corporate officers of Purchaser has received notice or otherwise has actual knowledge of a matter after reasonable inquiry.

"Knowledge of Seller" or "Seller's Knowledge" means that one or more of the following officers of Seller (including their successors in office) has received notice or otherwise has actual knowledge of a matter after reasonable inquiry: Keith Vangeison, President and Chief Executive Officer; Francis G. McGinty, Senior Vice President and Treasurer; Elizabeth O. Shorr, Senior Vice President, Corporate Affairs and Secretary; Edward J. Kane, Senior Vice President, Legal and Federal Affairs; Lawrence D. Baker, MD, Senior Vice President, Medical Affairs; Cheryl A. Lombard, Senior Vice President, Operations; Karen E. Foster, Senior Vice President, Business Development; Donald W. Sirois, Vice President, Internal Audit and Compliance; Martin J Robles, Vice President, Legal Services; and Harry E. Page, Jr., Vice President, Financial Services and Assistant Treasurer.

"Law" means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order, requirement or rule of common law.

"Leased Real Property" means the real property leased by BCBS-ME as tenant, together with, to the extent leased by BCBS-ME, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of BCBS-ME attached or appurtenant thereto, and all easements, licenses, rights and appurtenances relating to the foregoing.

"Liabilities" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking.

"Licensed Intellectual Property" means all Intellectual Property used in the Business and licensed or sublicensed by BCBS-ME from a third party.

"Local Advisory Board" has the meaning specified in Section 5.11(b).

"Machigonne, Inc." means that entity which is owned by Seller and Blue Alliance in the following proportions: fifty-seven percent (57%) and forty-three percent (43%), respectively.

"Material Adverse Effect" means any circumstance relating to, change in, or effect on, the Business or BCBS-ME that, individually or in the aggregate with any other circumstances relating to, changes in, or effects on, BCBS-ME or the Business is, or reasonably would be expected to be, materially adverse to the business, assets or financial condition of BCBS-ME taken as a whole.

"Material Contracts" means and includes

  1. each of the contracts and agreements listed in Section 3.13(a) of the Disclosure Schedule,
  2. all contracts, agreements, leases and subleases concerning the management or operation of any Real Property (including, without limitation, brokerage contracts) listed or otherwise disclosed in Section 3.15(a) or 3.15(b) of the Disclosure Schedule,
  3. all agreements relating to Intellectual Property set forth in Section 3.14 of the Disclosure Schedule,
  4. all Insurance Contracts set forth in Section 3.18 the Disclosure Schedule, and (v) all agreements relating to suppliers set forth in Section 3.19 of the Disclosure Schedule.

"MN Employees" has the meaning specified in Section 5.12.

"Owned Intellectual Property" means all Intellectual Property used in the Business and in which BCBS-ME has right, title and interest.

"Owned Real Property" means the real property owned by BCBS-ME, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of BCBS-ME attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing.

"Patriot Life Note" means the Surplus Note issued by BCBS-ME to Patriot Life Insurance Company, dated December 31, 1998, in the original principal amount of $1,500,000, including any amended, replacement or substitute note, through refinancing or otherwise.

"Patriot Mutual Note" means the Surplus Note issued by BCBS-ME to Patriot Mutual Insurance Company, dated March 1, 1999, in the original principal amount of $4,000,000, including any amended, replacement or substitute note, through refinancing or otherwise.

"Patriot Notes" means and refers to the Patriot Mutual Note and the Patriot Life Note.

"Permits" has the meaning specified in Section 3.12(d).

"Permitted Encumbrances" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced:

  1. liens for Taxes, assessments and governmental charges or levies not yet due and payable;
  2. Encumbrances imposed by Law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar liens arising in the ordinary course of business securing obligations that
    1. are not overdue for a period of more than thirty (30) days and
    2. are not in excess of $50,000 in the case of a single property;
  3. pledges or deposits to secure obligations under workers' compensation or similar Laws to secure public or statutory obligations;
  4. minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that
    1. do not render title to the property encumbered thereby unmarketable and
    2. do not, individually or in the aggregate, materially adversely affect the value of or the use of such property for its present purposes; and
  5. any lien, levy or assessment contested in good faith by BCBS-ME for which it establishes adequate reserves on its books.

"Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

"Plans" has the meaning specified in Section 3.20(a).

"Preliminary Closing Financial Statements" has the meaning specified in Section 2.07(a).

"Purchaser" has the meaning specified in the recitals to this Agreement.

"Purchaser's Accountants" means Ernst & Young, LLP, the independent certified public accountants of Purchaser.

"Purchaser Financial Statements" has the meaning specified in Section 4.06.

"Purchaser Material Adverse Effect" means any circumstance relating to, change in, or effect on, Purchaser or its business that, individually or in the aggregate with any other circumstances relating to, changes in, or effects on, Purchaser or its business is, or reasonably would be expected to be, materially adverse to the business, assets or financial condition of Purchaser, taken as a whole.

"Purchaser's Tax-Related Assets" means all attributes (including, but not limited to, amount, character and availability), rights and claims of any kind relating to Taxes, of, relating to, or made by or for the benefit of Purchaser and/or its Affiliates, whenever arising, whether choate or inchoate, and whether or not asserted, including, but not limited to, Tax reserves, deposits, payments, estimated payments, credits, allowances, carryover and carryback amounts (including, among other things, losses, credits, deductions and similar items), refunds, claims and all rights with respect to any of the foregoing, including any interest thereon, together with any other Tax-related items which may be reflected in or may otherwise affect or be affected by the computation of any of the foregoing or by the computation of the amount of liability for any Taxes of Purchaser and/or its Affiliates.

"Quitclaim Deeds" means the quitclaim deeds to be executed by Seller on the Closing Date in order to convey to Purchaser each parcel of Owned Real Property, each of which quitclaim deeds is mutually acceptable to the parties and is customary for similar transactions in Portland, Maine.

"Real Property" means the Leased Real Property and the Owned Real Property.

"Receivables" means any and all accounts receivable, notes and other amounts receivable from third parties, including, without limitation, customers and employees, arising from the conduct of the Business before the Closing Date, whether or not in the ordinary course, together with any unpaid financing charges accrued thereon.

"Reference Balance Sheet" means the audited consolidated balance sheet (including related notes and schedules thereto, if any) of Seller, prepared in accordance with U.S. GAAP and dated as of December 31, 1998, a copy of which is set forth in Section 3.06(a)(i) of the Disclosure Schedule.

"Reference Balance Sheet Date" means December 31, 1998.

"Release" means releasing, disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like into or upon any land or water or air or otherwise entering into the Environment.

"Restricted Period" has the meaning specified in Section 5.10(a).

"Returns" has the meaning specified in Section 7.02(a).

"Secondary Payor Rules" has the meaning specified in Section 3.33.

"Seller" has the meaning specified in the recitals to this Agreement.

"Seller's Accountants" shall mean Deloitte & Touche, the independent certified public accountants of Seller.

"Seller's Aggregate Tax Liability" has the meaning specified in Section 7.01(a).

"Seller's Post-Closing Tax Liabilities" means any and all Liabilities for Taxes imposed upon or incurred by BCBS-ME relating to the income earned by, assets held by or the activities engaged in by Seller after the Closing Date (based upon the allocation principles set forth in Section 7.01(b)), even if reportable on or payable in connection with a Return for the Final Taxable Period of a Tax imposed upon or incurred by BCBS-ME and/or any of its Affiliates.

"Seller's Tax-Related Assets" all attributes (including, but not limited to, amount, character and availability), rights and claims of any kind relating to Taxes, of, relating to, or made by or for the benefit of Seller (exclusive of its Affiliates), whenever arising, whether choate or inchoate, and whether or not asserted, including, but not limited to, Tax reserves, deposits, payments, estimated payments, credits, allowances, carryover and carryback amounts (including, among other things, losses, credits, deductions and similar items), refunds, claims and all rights with respect to any of the foregoing, including any interest thereon, together with any other Tax-related items which may be reflected in or may otherwise affect or be affected by the computation of any of the foregoing or by the computation of the amount of liability for any Taxes of Seller (exclusive of its Affiliates).

"STAT" means statutory accounting practices prescribed or permitted by the Bureau of Insurance of the State of Maine applied on a consistent basis by Seller.

"Subsidiary" of any Person means any corporation, limited liability company, partnership, joint venture, trust or estate of which (or in which) fifty percent (50%) or more of

  1. the outstanding capital stock having power to elect a majority of the board of directors or other governing body of such entity,
  2. the interest in the capital or profits of such limited liability company, partnership or joint venture, or
  3. the beneficial interest of such trust or estate, is at the time directly or indirectly owned by such Person. Notwithstanding the foregoing but subject to Section 3.35 (relating to the application of representations and warranties to certain Subsidiaries), Northern General Services of Massachusetts, Inc. and Northern General Services of New Hampshire, LLC shall be considered Subsidiaries of BCBS-ME for purposes of this Agreement, and Blue Alliance shall not be considered a Subsidiary for purposes of this Agreement.

"Superior Proposal" means a proposal relating to an Extraordinary Business Combination that Seller's Board of Directors determines in its good faith reasonable judgment to be superior to the transactions contemplated hereby from a financial point of view and in such other respects as Seller's Board of Directors determines in its good faith (after consultation with its legal counsel) that it must consider in order to fulfill its fiduciary duties under Maine Law.

"Tangible Personal Property" has the meaning specified in Section 3.16(a).

"Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, premiums, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, conveyance, controlling interest transfer, value added, or gains taxes; license, registration and documentation fees or assessments and administrative expenses; and customs duties, tariffs, and similar charges.

"Tax Audit" means any Tax audit, investigation, inquiry or proposed assessment, adjustment or imposition of Taxes by any Governmental Authority.

"Tax Refunds" means any and all Tax refunds, or Tax credits arising therefrom, (calculated, in each case, without the carryback of any Tax attributes, rights or claims arising after the Closing Date), to which BCBS-ME is entitled arising

  1. out of taxable periods ending on or before the Closing Date or
  2. out of a Final Taxable Period that ends after the Closing Date to the extent such Tax refund or Tax credit, had it been a Tax liability, would have been allocated to Seller after applying the allocation principles set forth in Section 7.01(b).

"Total Consideration" has the meaning specified in Section 2.03(a).

"Total Shortfall" has the meaning specified in Section 2.07(e).

"Transferred Employees" has the meaning specified in Section 6.01.

"U.S. GAAP" means United States generally accepted accounting principles and practices in effect from time to time applied consistently throughout the periods involved.

"Year 2000 Compliant" has the meaning specified in Section 8.03(m).

"Y2k Expenses" means those expenses incurred by BCBS-ME between January 1, 1999 and the Closing Date in connection with making its operations Year 2000 Compliant, which expenses shall have been determined in a manner consistent with past practices and with the expenses set forth in the Estimated 1999 Y2k Variances and the 1999 Actual or Estimated Outside Services for 88-13 Year 2000 Project work sheets, which work sheets have been previously provided by Seller to Purchaser.

ARTICLE II

TRANSACTION

SECTION 2.01. Assets to Be Sold.

  1. On the terms and subject to the conditions of this Agreement, Seller shall, on the Closing Date, sell, assign, transfer, convey and deliver to Purchaser or cause to be sold, assigned, transferred, conveyed and delivered to Purchaser, and Purchaser shall purchase from Seller, on the Closing Date, all the assets, properties, goodwill and business of every kind and description and wherever located, whether tangible or intangible, real, personal or mixed, directly or indirectly owned by Seller, or to which it is directly or indirectly entitled, other than the Excluded Assets (the assets to be purchased by Purchaser being referred to as the "Assets"), including, without limitation, the following:
    1. the Business as a going concern;
    2. all Seller's right, title and interest in the Owned Real Property and the Leased Real Property;
    3. all furniture, fixtures, equipment, machinery and other tangible personal property used or held for use by Seller;
    4. all vehicles;
    5. all cash, cash equivalents and bank accounts owned by Seller at the Closing Date;
    6. all equity interests in other Persons (including without limitation equity interests in Affiliates and Subsidiaries) held by Seller;
    7. all Receivables;
    8. all books of account, general, financial, Tax and personnel records, invoices, shipping records, supplier lists, correspondence and other documents, records and files and all computer software and programs and any rights thereto owned, associated with or employed by BCBS-ME, including those used in, or relating to, the Business at the Closing Date, other than organization documents, minute books and the corporate seal of Seller;
    9. the goodwill of BCBS-ME relating to the Business;
    10. all Seller's right, title and interest in, to and under the Owned Intellectual Property and the Licensed Intellectual Property;
    11. all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind (including rights to insurance proceeds and rights under and pursuant to all warranties, representations and guarantees made by suppliers of products, materials or equipment, or components thereof), pertaining to, arising out of, and inuring to the benefit of Seller;
    12. all sales and promotional literature, customer lists and other sales-related materials owned, used, associated with or employed by Seller at the Closing Date;
    13. all rights of Seller under all contracts, licenses, sublicenses, agreements, leases, commitments, and sales and purchase orders, and under all commitments, bids and offers (to the extent such rights are transferable), including without limitation all provider contracts held by Seller;
    14. all municipal, state and federal franchises, permits, licenses, agreements, waivers and authorizations held or used by Seller in connection with, or required for, the Business, to the extent transferable;
    15. all Insurance Contracts in effect as of immediately prior to the Closing Date; and
    16. all Seller's right, title and interest on the Closing Date in, to and under all other assets, rights and claims of every kind and nature.
  2. Seller's rights under this Agreement and the Ancillary Agreements, and the Tax Refunds (to the extent provided in Section 7.07), are not included in the assets to be purchased from Seller by Purchaser (the "Excluded Assets").

SECTION 2.02. Assumption and Exclusion of Liabilities.

  1. On the terms and subject to the conditions of this Agreement, Purchaser shall, on the Closing Date, assume and shall pay, perform and discharge when due in accordance with their respective terms all Liabilities of Seller as at the Closing Date arising out of or relating to the Business, whether accrued or arising before or after the Closing, except for the Excluded Liabilities (the "Assumed Liabilities").
  2. Seller shall retain, and shall be responsible for paying, performing and discharging when due, and Purchaser shall not assume or have any responsibility for, the following Liabilities of Seller as of the Closing Date (the "Excluded Liabilities"):
    1. all Liabilities relating to or arising out of the Excluded Assets;
    2. all Liabilities relating to Blue Alliance;
    3. any Liabilities in the aggregate in excess of an amount equal to three percent (3%) of the Total Consideration (after all adjustments) with regard to services/actions of BCBS-ME under Medicare;
    4. other sums for which Seller is liable pursuant to this Agreement and the Ancillary Agreements, including without limitation, liability pursuant to Articles VII and IX of this Agreement; and
    5. Seller's Aggregate Tax Liability.

SECTION 2.03. Total Consideration; Allocation of Total Consideration.

  1. The total consideration payable by Purchaser in connection with the transactions contemplated hereby, including the purchase of the Assets, shall be $120,000,000 less the consideration paid by Purchaser to Blue Alliance in connection with Purchaser's acquisition of Blue Alliance's equity interest in Machigonne, Inc. (the "Total Consideration"), subject to the adjustments set forth in Section 2.07.
  2. $10,000,000 of the Total Consideration shall be allocated to the covenants contained in Section 5.10. After the Closing Date, Purchaser's Accountants shall prepare an allocation schedule, utilizing the principles outlined in Treasury Regulation §1.1060-1T (or any successor regulation), pursuant to which the balance of the sum of the Total Consideration and the Assumed Liabilities shall be allocated among the Assets (and any other relevant items of value received by Purchaser) as of the Closing Date; provided, however, that the parties acknowledge and agree that Purchaser shall be deemed to have received consideration for its assumption of any reinsurance obligations hereunder equal to or less than the Tax basis liabilities assumed in connection with its assumption of such reinsurance obligations. Any subsequent adjustments to the sum of the Total Consideration and Assumed Liabilities shall be reflected in the allocation hereunder by Purchaser's Accountants in a manner consistent with Treasury Regulation § 1.1060-1T(f) (or any successor regulation). For all Tax purposes, Purchaser and Seller agree to report the transactions contemplated in this Agreement in a manner consistent with the terms of this Agreement, including the allocation prepared by Purchaser's Accountants, and that neither of them will take any position inconsistent therewith in any Tax Return, in any refund claim, in any litigation, or otherwise, except to the extent an adjustment is required by the IRS subsequent to an IRS audit.

SECTION 2.04. Closing. Subject to the terms and conditions of this Agreement, the consummation of the transactions contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Verrill & Dana LLP at One Portland Square at 10:00 A.M. on the earliest practicable date after the conditions to the obligations of the parties set forth in Article VIII have been satisfied or waived (but not later than July 31, 2000), or at such other place or at such other time or on such other date as Seller and Purchaser may mutually agree upon in writing (the day on which the Closing takes place being the "Closing Date").

SECTION 2.05. Closing Deliveries by Seller. At the Closing, Seller shall deliver or cause to be delivered to Purchaser:

  1. the Assignment and Assumption Agreements duly executed by Seller and such other instruments, in form and substance reasonably satisfactory to Purchaser, as may be reasonably necessary to transfer the Assets to Purchaser or evidence such transfer on the public records, including without limitation a document assigning to Purchaser all of the registered Intellectual Property for filing with the United States Patent and Trademark Office;
  2. the Escrow Agreement;
  3. the Quitclaim Deeds; and
  4. the opinions, certificates and other documents required to be delivered pursuant to Section 8.03.

SECTION 2.06. Closing Deliveries by Purchaser.

  1. At the Closing, Purchaser shall deliver to Seller:
  2. At the Closing, Purchaser shall deliver to Seller the Total Consideration less
    1. the Escrow Amount,
    2. the Closing Tax Reserve, and
    3. the amount required to pay, in full, the Patriot Notes.
  3. At the Closing, Purchaser shall:
    1. deliver to the Escrow Agent, in accordance with the Escrow Agreement, the Escrow Amount by wire transfer in immediately available funds to the accounts designated therefor in the Escrow Agreement, and
    2. deliver by wire transfer in immediately available funds to Patriot Mutual Insurance Company and to Patriot Life Insurance Company the amounts required to pay in full the Patriot Mutual Note and the Patriot Life Note, respectively.
  4. As soon as practicable and in accordance with the instructions of the Maine Bureau of Insurance, after the Closing, Purchaser shall deliver to each policyholder of Seller an assumption certificate or an insurance policy or healthcare benefits contract from Purchaser for each health insurance policy or healthcare benefits contract issued by Seller, which shall provide the same medical and health benefits in effect immediately prior to the Closing under the same terms and conditions of the health insurance policy or healthcare benefits contract with Seller, in accordance with the terms of the Bulk Reinsurance Agreement to be entered into between the parties pursuant to Section 3484 of the Maine Insurance Code.

SECTION 2.07. Adjustments of Total Consideration. The Total Consideration shall be subject to adjustment after the Closing as specified in this Section 2.07:

  1. Preliminary Closing Financial Statements. As promptly as practicable, but in any event within one hundred twenty (120) calendar days following the Closing Date, the Foundation and Seller's Accountants shall deliver to Purchaser a Closing Balance Sheet and a Closing Income Statement (together, the "Preliminary Closing Financial Statements") setting forth the Closing Book Value and the Closing Earnings, respectively, together with the report thereon of Seller's Accountants, stating that the Preliminary Closing Financial Statements have been prepared and calculated in accordance with the requirements of this Agreement. Section 5.02(e) shall govern the post-closing information and access rights of the Foundation and Seller.
  2. Disputes.
    1. Purchaser may dispute amounts reflected on the Preliminary Closing Financial Statements; provided, however, that Purchaser shall have notified the Foundation and Seller's Accountants in writing of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within thirty (30) calendar days of delivery of the Preliminary Closing Financial Statements to Purchaser. In the event of such a dispute, Purchaser's Accountants and Seller's Accountants shall attempt to reconcile their differences, and any resolution by them as to any disputed amounts shall be final, binding and conclusive on the parties hereto. If Seller's Accountants and Purchaser's Accountants are unable to reach a resolution with such effect within twenty (20) Business Days after receipt by the Foundation and Seller's Accountants of Purchaser's written notice of dispute, Seller's Accountants and Purchaser's Accountants shall submit the items remaining in dispute for resolution to KPMG Peat Marwick (or, if such firm shall decline or is unable to act or is not, at the time of such submission, independent of Seller and Purchaser, to another independent certified public accounting firm of international reputation mutually acceptable to Purchaser and the Foundation) (either KPMG Peat Marwick or such other accounting firm being referred to herein as the "Independent Accounting Firm"), which shall, within thirty (30) Business Days after such submission, determine and report to Purchaser and the Foundation upon such remaining disputed items, and such report shall be final, binding and conclusive on the Foundation and Purchaser. The fees and disbursements of the Independent Accounting Firm shall be allocated between the Foundation and Purchaser in the same proportion that the aggregate amount of the remaining disputed items submitted to the Independent Accounting Firm that is unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed items so submitted.
    2. In acting under this Agreement, Purchaser's Accountants, Seller's Accountants and the Independent Accounting Firm shall be entitled to the privileges and immunities of arbitrators.
    3. The Preliminary Closing Financial Statements shall be final, binding and conclusive (the "Final Closing Financial Statements") on the parties herein upon the earliest of
      1. the failure of Purchaser to notify Seller of a dispute within thirty (30) calendar days of delivery of the Preliminary Closing Financial Statements to Purchaser,
      2. the resolution of all disputes, pursuant to Section 2.07(b)(i), by Purchaser's and Seller's Accountants, and
      3. the resolution of all disputes, pursuant to Section 2.07(b)(i), by the Independent Accounting Firm.
  3. Book Value Shortfall. In the event that the Closing Book Value reflected on the Final Closing Financial Statements is less than the Benchmark Book Value, then such shortfall shall be the "Book Value Shortfall."
  4. Earnings Shortfall. In the event that the Closing Earnings reflected on the Final Closing Financial Statements are less than the Benchmark Earnings, then an amount equal to Five Dollars ($5.00) for each One Dollar ($1.00) of annualized earnings shortfall shall be the "Earnings Shortfall."
  5. Total Consideration Adjustment. The Total Consideration shall be adjusted downward in an amount equal to the lesser of
    1. the Book Value Shortfall plus the Earnings Shortfall, or
    2. the Escrow Amount (the "Total Shortfall"). Upon resolution of the Final Closing Financial Statements, Purchaser shall deliver written notice to Seller specifying the amount of the Total Shortfall, and shall subsequently set off the Total Shortfall from the Escrow Amount. The adjustment to the Total Consideration for the Total Shortfall shall be the sole and final adjustment for the Book Value Shortfall and the Earnings Shortfall.

SECTION 2.08. Escrow.

  1. Prior to the Closing, Seller and Purchaser shall enter into an Escrow Agreement with the Escrow Agent substantially in the form of Exhibit 2.08 (the "Escrow Agreement"). Pursuant to the terms of the Escrow Agreement, Purchaser shall deposit the Escrow Amount into an account to be managed and paid out by the Escrow Agent in accordance with the terms of the Escrow Agreement.
  2. The Escrow Agent shall pay to Seller that portion of the Escrow Amount remaining after the distribution to Purchaser of the Book Value Shortfall and the Earnings Shortfall, if any.
  3. All interest earned on the Escrow Amount, after payment of the Escrow Agent's fees, shall be paid to Purchaser and Seller in proportion to the payments made to each of the principal Escrow Amount (without weighting to reflect the dates of the respective principal payments). The parties acknowledge and agree that the Escrow Agent will report to the IRS the income earned on the Escrow Amount, as and when earned, and that such income will be attributed to the party to whom such income is distributed for federal, state and local income tax purposes; provided that, if the Escrow Agent is required to report to the IRS the income earned on the Escrow Amount before such income is distributed, such income will be attributed to Seller for federal, state and local income tax purposes. If the actual distribution is different, the parties will correct such attribution upon the distribution of the income.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF SELLER

As an inducement to Purchaser to enter into this Agreement, Seller hereby represents and warrants to Purchaser that, as of the date of this Agreement:

SECTION 3.01. Organization and Authority.

  1. Seller is a corporation validly existing and in good standing under the laws of the State of Maine. Each of Seller's Subsidiaries is duly organized, validly existing and in good standing under the laws of the state in which it was organized. Subject to the necessary approvals by Governmental Authorities described in Section 3.05, Seller has all necessary power and authority to enter into this Agreement and the Ancillary Agreements, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements by Seller, the performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of Seller. This Agreement has been, and upon their execution the Ancillary Agreements will be, duly executed and delivered by Seller, and (assuming due authorization, execution and delivery by Purchaser) this Agreement constitutes, and upon their execution the Ancillary Agreements will constitute, legal, valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms, except that such enforcement may be subject to
    1. bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting or relating to the enforcement of creditors' rights generally,
    2. applicable insurance company delinquency, rehabilitation and liquidation laws and
    3. general equitable principles. Seller has received a fairness opinion relative to the transactions contemplated by this Agreement and the Ancillary Agreements from Salomon Smith Barney reasonably satisfactory in form and substance to the Board of Directors of Seller, dated as of the date that Seller's Board of Directors authorized the execution and delivery of this Agreement and the Ancillary Agreements by Seller.
  2. Except as set forth in Section 3.01(b) of the Disclosure Schedule, Seller and each of its Subsidiaries is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of the Business makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, Seller and each of its Subsidiaries has all material Health Benefit Permits necessary to own its assets and conduct its Business as such Business is now conducted, and all such Health Benefit Permits are in full force and effect and are listed in Section 3.01(b) of the Disclosure Schedule. Except as set forth on in Section 3.01(b) of the Disclosure Schedule, BCBS-ME has not engaged in any activity which would cause the loss, limitation, restriction, revocation or suspension of any of the material Health Benefit Permits, and no action, proceeding, written claim or notification with respect to any loss, limitation, restriction, revocation or suspension of any of the material Health Benefit Permits is pending or, to the Knowledge of Seller, threatened. Assuming the receipt of all consents and approvals listed in Article VIII, the execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not limit, restrict, revoke, suspend or terminate, or result in the limitation, loss, restriction, revocation, suspension or termination of, any of the Health Benefit Permits, except such as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
  3. BCBS-ME has previously made available to Purchaser true and complete copies of all material filings made by BCBS-ME within the past three (3) years to federal and state Governmental Authorities, including, without limitation, the Maine Bureau of Insurance and the report required by 42 U.S.C. Section 300e-17, to the extent such filings have been requested by Purchaser. As of their respective dates, such filings did not contain any untrue statement of a material fact except such as would not result in a violation of any Law which, individually or in the aggregate, would be reasonably expected to have a Material Adverse Effect.

SECTION 3.02. Ownership Interests.

  1. Section 3.02 of the Disclosure Schedule sets forth each corporation, partnership, joint venture, association or other entity in which Seller or any of its Subsidiaries owns, of record or beneficially, any direct or indirect equity or other ownership interest, or any right (contingent or otherwise) to acquire the same, together with a description of such ownership interest, except for the ownership of securities having no more than five percent (5%) of the outstanding voting power of any entity which are listed on any national securities exchange or traded actively in the national over-the-counter market. Except as described in Section 3.02 of the Disclosure Schedule, neither Seller nor any of its Subsidiaries is a member of (nor is any part of the Business conducted through) any partnership, nor is Seller or any of its Subsidiaries a participant in any joint venture or similar arrangement. Except as noted in Section 3.02 of the Disclosure Schedule, Seller's and its Subsidiaries' ownership interests in the entities set forth therein are owned free and clear of all Encumbrances other than Permitted Encumbrances. Seller and its Subsidiaries have full power, right and authority to vote all of such ownership interests. Except as set forth in Section 3.02 of the Disclosure Statement, neither Seller nor any of its Subsidiaries is a party to or bound by any voting trust, proxy, or other agreement affecting or relating to its right to transfer or vote the ownership interests set forth in Section 3.02 of the Disclosure Statement.
  2. Any business transacted by Seller with any of its Subsidiaries and Affiliates (including, without limitation, Blue Alliance, Machigonne, Inc., Maine Partners Health Plan, Inc. and Central Maine Partners Health Plan, Inc.) has been on an arms-length basis. No Actions have resulted from such transactions, and, to Seller's Knowledge, no fact or event exists that could give rise to any such Action.

SECTION 3.03. Books and Records. The minute books of BCBS-ME for the period since January 1, 1993 contain accurate records of all meetings and accurately reflect, in all material respects, all meetings and other actions taken by the Board of Directors, all committees of the Board of Directors, and members or stockholders (if any). Complete and accurate copies of all such minute books of BCBS-ME have been made available to Purchaser as requested.

SECTION 3.04. No Conflict. Assuming that all consents, approvals, authorizations and other actions described in Article VIII have been obtained, the execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller do not and cannot reasonably be expected to

  1. violate, conflict with or result in the breach of any provision of the charter or By-laws (or similar organizational documents) of BCBS-ME,
  2. conflict with or violate any Law or Governmental Order applicable to BCBS-ME or any of its assets, properties or businesses in a manner that would reasonably be expected to have a Material Adverse Effect, or
  3. except as set forth in Section 3.04(c) of the Disclosure Schedule, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of BCBS-ME pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other agreement to which BCBS-ME is a party or by which any of such assets or properties is bound or affected, except such as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

SECTION 3.05. Consents and Approvals of Governmental Authorities. Except for:

  1. the filing of appropriate documents to effect the transactions contemplated herein as required by the Laws of the State of Maine,
  2. the approval of the Maine Bureau of Insurance and the Indiana Insurance Department,
  3. the approval of the Attorney General of Maine, if applicable, and
  4. the filing of a Pre-Merger Notification pursuant to the HSR Act and the consents and approvals listed in Section 3.05 of the Disclosure Schedule, no consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be obtained or made by BCBS-ME in connection with the execution, delivery and performance of this Agreement and each Ancillary Agreement and the transactions contemplated herein and therein by BCBS-ME, except such as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

SECTION 3.06. Financial Information; Books and Records.

  1. True and complete copies of
    1. the audited U.S. GAAP balance sheets of Seller (prepared on a consolidated basis for all Subsidiaries and Affiliates) for each of the two (2) fiscal years ended as of December 31, 1997 and December 31, 1998, and the related audited statements of operations, changes in reserves for the protection of subscribers and policyholders, and cash flows, together with all related notes and schedules thereto, accompanied by the reports thereon of Seller's Accountants,
    2. the audited STAT financial statements of Seller (including all Subsidiaries and Affiliates, as applicable) for each of the two (2) fiscal years ended as of December 31, 1997 and December 31, 1998, and
    3. individual audited U.S. GAAP balance sheets for Seller and each Subsidiary (prepared on a consolidated basis for Machigonne, Inc.) and Affiliate for each of the two (2) fiscal years ended as of December 31, 1997 and December 31, 1998, and the related audited statements of operations, changes in stockholder equity, and cash flows, together with all related notes and schedules thereto, accompanied by the reports thereon of Seller's Accountants (collectively referred to herein as the "Financial Statements") have been delivered by Seller to Purchaser. The Financial Statements
      1. were prepared in accordance with the books of account and other financial records of BCBS-ME,
      2. present fairly, in all material respects, the financial condition and results of operations of BCBS-ME as of the dates thereof or for the periods covered thereby,
      3. have been prepared in accordance with U.S. GAAP or STAT, as applicable, applied on a basis consistent with past practices and throughout the periods involved, and
      4. will include all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of financial condition and results of the operations as of the dates thereof for the periods covered thereby. The Financial Projections were prepared so that the projected results and the handling of items of income and expense reflect the use of accounting principles and methodologies consistent with the past practices of BCBS-ME for such items.
  2. The books of account and other financial records of BCBS-ME have been maintained in accordance with U.S. GAAP and STAT, as applicable, in each case applied on a basis consistent with past practices and throughout the periods involved.
  3. The aggregate actuarial reserves and other actuarial amounts held in respect of Liabilities with respect to Seller as established or reflected on the Reference Balance Sheet:
    1. were
      1. determined in accordance with U.S. GAAP,
      2. fairly stated in accordance with sound actuarial principles, and
      3. based on sound actuarial assumptions;
    2. met the requirements of the applicable insurance Laws (including those applicable to health maintenance organizations) of the State of Maine or any other state having such jurisdiction, in all material respects; and
    3. were adequate (under generally accepted actuarial standards consistently applied) to cover the total amount of all the reasonably anticipated matured and unmatured Liabilities of BCBS-ME under all outstanding insurance policies and healthcare benefits contracts pursuant to which BCBS-ME has any liability.
  4. Seller currently holds the primary Blue Cross and Blue Shield service mark and trademark licenses for the State of Maine and will maintain such licenses in good standing through the Closing Date.

SECTION 3.07. No Undisclosed Liabilities. There are no Liabilities of BCBS-ME other than Liabilities

  1. reflected or reserved against on the Reference Balance Sheet,
  2. disclosed in Section 3.07 of the Disclosure Schedule (provided Seller shall not be required to disclose any individual Liability which is less than $10,000 that is not part of a group of related Liabilities which in the aggregate exceed $10,000), or
  3. incurred since the date of the Reference Balance Sheet in the ordinary course of business and consistent with past practice of BCBS-ME and which do not and would not reasonably be expected to have a Material Adverse Effect. Reserves that are reflected on the Reference Balance Sheet against Liabilities are in amounts that have been established on a basis consistent with the past practices of BCBS-ME and in accordance with U.S. GAAP.

SECTION 3.08. Receivables. Section 3.08 of the Disclosure Schedule is an aged list of the Receivables as of May 31, 1999 showing

  1. in the aggregate, the Receivables that as of such date had been outstanding
    1. for thirty (30) days or less,
    2. thirty-one (31) to sixty (60) days,
    3. sixty-one (61) to ninety (90) days, and
    4. more than ninety (90) days, and
  2. separately, those Receivables of $5,000 or more that as of such date had been outstanding for more than sixty (60) days. Except to the extent, if any, reserved for on the Reference Balance Sheet, all Receivables reflected on the Reference Balance Sheet arose from, and the Receivables existing on the Closing Date will have arisen from, the ordinary course of the Business consistent with past practice of BCBS-ME. Reserves on the Reference Balance Sheet for the non-collection of Receivables were reasonable on the Reference Balance Sheet Date based on past experience of BCBS-ME.

SECTION 3.09. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions. Since the Reference Balance Sheet Date, except as disclosed in Section 3.09 of the Disclosure Schedule, the Business has been conducted in the ordinary course and consistent with past practice. As amplification and not limitation of the foregoing, except as disclosed in Section 3.09 of the Disclosure Schedule or in the ordinary course and consistent with past practice, since the Reference Balance Sheet Date, BCBS-ME has not:

  1. permitted or allowed any of its material assets or properties (whether tangible or intangible) to be subjected to any material Encumbrance, other than Permitted Encumbrances and Encumbrances that will be released at or prior to the Closing;
  2. written down or written up (or failed to write down or write up other than in accordance with U.S. GAAP consistent with past practice), in any material way, the value of any Receivables or revalued any assets other than in the ordinary course of business consistent with past practice and in accordance with U.S. GAAP or STAT;
  3. made any material change in any method of accounting or accounting practice or policy other than such changes required or permitted by U.S. GAAP or STAT and disclosed in Section 3.09 of the Disclosure Schedule;
  4. amended, terminated, canceled or compromised any claims or waived any other rights of material value;
  5. sold, transferred, leased, subleased, licensed or otherwise disposed of any material properties or material assets, real, personal or mixed (including, without limitation, leasehold interests and intangible property);
  6. issued, sold or transferred any notes, bonds or other securities, or any option, warrant or other right to acquire the same;
  7. taken any action or omitted to take any action which could reasonably be expected to cause Seller to no longer meet the requirements of Section 833(c) of the Code;
  8. merged with, entered into a consolidation with or acquired an equity or other ownership interest of five percent (5%) or more in any Person or acquired a substantial portion of the assets or business of any Person or any division or line of business thereof, or otherwise acquired any assets;
  9. made any capital expenditure or commitment for any capital expenditure in excess of $50,000 individually or $100,000 in the aggregate;
  10. issued any sales orders or otherwise agreed to make any purchases involving exchanges in value in excess of $50,000 individually or $100,000 in the aggregate from any particular vendor or relating to a specific project;
  11. made any material changes in the Business's methods of operation, including, without limitation, material changes in practices and policies relating to purchasing, marketing, selling and pricing;
  12. made any material express or deemed election or settled or compromised any material liability with respect to Taxes;
  13. incurred any Indebtedness in excess of $100,000 individually or in the aggregate;
  14. made any loan to, guaranteed any Indebtedness of or otherwise incurred any Indebtedness on behalf of any Person;
  15. failed to pay any creditor any material amount owed to such creditor when due;
  16. granted any increase, or announced any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by it to any of its employees, including, without limitation, any increase or change pursuant to any Plan, or established or increased or promised to increase any benefits under any Plan, in either case except as required by Law or any collective bargaining agreement;
  17. entered into any agreement, arrangement or transaction with any of its directors, officers or employees (or with any spouse, lineal descendant or Affiliate of, any such Person);
  18. terminated, discontinued, closed or disposed of any facility or other business operation, or laid off any employees (other than layoffs of less than fifty (50) employees in any six (6) month period in the ordinary course of business consistent in all material respects with past practices) or implemented any early retirement, separation or severance program providing early retirement benefits or announced any such action or program for the future;
  19. disclosed any secret or confidential material Intellectual Property (except by way of issuance of a patent) or permitted to lapse or go abandoned any material Intellectual Property (or any registration or grant thereof or any application relating thereto) owned by it;
  20. allowed any material Permit or Environmental Permit that was issued to it to lapse or terminate or failed to renew any material insurance policy, Permit or Environmental Permit that is scheduled to terminate or expire within forty-five (45) calendar days of the date hereof;
  21. failed to maintain its property and equipment in good repair and operating condition, ordinary wear and tear excepted, except such as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
  22. suffered any casualty loss or damage with respect to any of the Assets which in the aggregate have a replacement cost of more than $100,000, whether or not such losses or damage shall have been covered by insurance;
  23. consented to any material modification or amendment to or the termination of any Material Contract or its rights thereunder;
  24. amended or restated its charter or By-laws (or other organizational documents);
  25. suffered any Material Adverse Effect;
  26. converted into a mutual or for-profit corporation or otherwise changed its form of entity; or
  27. agreed, whether in writing or otherwise, to take any of the actions specified in this Section 3.09 or granted any options to purchase, rights of first refusal, rights of first offer or any other similar rights with respect to any of the actions specified in this Section 3.09, except as expressly contemplated by this Agreement and the Ancillary Agreements.

SECTION 3.10. Litigation. Except as previously disclosed to Purchaser in writing (which, with respect to each Action disclosed, sets forth the parties, nature of the proceeding, date and method commenced, amount of damages or other relief sought and, if applicable, paid or granted), there are no Actions by or against BCBS-ME, or affecting any of the Assets or the Business, pending before any Governmental Authority (or, to the Knowledge of Seller, threatened to be brought by or before any Governmental Authority). None of the matters previously disclosed to Purchaser in writing would affect as of the date hereof the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby. Except as previously disclosed to Purchaser in writing, neither BCBS-ME nor any of its assets or properties, including, without limitation, the Assets, is subject to any Governmental Order (nor, to the Knowledge of Seller, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) which has had or would have a Material Adverse Effect.

SECTION 3.11. Compliance with Laws. Except as set forth in Section 3.11 of the Disclosure Schedule:

  1. BCBS-ME has conducted and continues to conduct the Business in accordance with all Laws, including, without limitation, the Social Security Act and the amendments thereto, including the so-called "Medicare/Medicaid Anti-Kickback Statute," "Stark I" and "Stark II," and Governmental Orders applicable to BCBS-ME or any of its properties or assets, except such as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and Seller is not aware of any facts or circumstances which would constitute or result in any such violation.
  2. BCBS-ME is not a party to any contract with or other undertaking to, or to Seller's Knowledge, is subject to any order by, or is a recipient of any supervisory letter or other written communication of any kind from, any Governmental Authority which currently has or would reasonably be expected to have a Material Adverse Effect, including, without limitation, on its investment, sales or trade practices and policies, its underwriting practices and policies, or its management. BCBS-ME has not been advised by a Governmental Authority that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any order, contract or other communication of the kind described above in this Section 3.11(b).
  3. To Seller's Knowledge, there are no current or pending audits with regard to any contract currently or formerly in existence between BCBS-ME and Medicare, FEHBP, CHAMPUS or Medicaid, and BCBS-ME has not been the subject of any such audit within the last three (3) years.

SECTION 3.12. Environmental and Other Permits and Licenses; Related Matters. Except as set forth in Section 3.12 of the Disclosure Schedule:

  1. There are no outstanding or, to Seller's Knowledge, threatened actions, claims, proceedings, determinations or judgments by any party, including but not limited to any Governmental Authority, against or involving BCBS-ME, or to Seller's Knowledge, involving BCBS-ME's predecessors in interest in any matter arising under any Environmental Law or common law requiring the remediation or removal of Hazardous Materials. There are no outstanding or threatened orders, determinations or written notices of violation issued by any Governmental Authority administering Environmental Laws in connection with ownership of or operation by BCBS-ME of the Business which have not been complied with or resolved to the satisfaction of such Governmental Authority.
  2. The Business is in compliance in all material respects with all applicable Environmental Laws governing BCBS-ME and the Business including, but not limited to, all discharges of Hazardous Materials into or onto the soil and/or the ground or surface water, emissions of Hazardous Materials into the ambient air, and generation, accumulation, labeling, transportation, removal, handling, treatment, storage and disposal of Hazardous Materials. BCBS-ME has complied in all material respects with all notice, record keeping and reporting requirements imposed by any Governmental Authority and any informational requests arising under any Environmental Laws.
  3. BCBS-ME has not Released any Hazardous Materials upon any of the Real Property or any of the real properties at which BCBS-ME has conducted the Business in violation in any material respect of applicable Environmental Laws. BCBS-ME has not, directly or indirectly, disposed of Hazardous Materials off-site in violation in any material respect of applicable Environmental Laws.
  4. Except for Health Benefit Permits which are covered in Section 3.01(b), BCBS-ME currently holds all the health and safety and other permits, licenses, authorizations, franchises, certificates, exemptions and approvals of Governmental Authorities (collectively, "Permits"), including, without limitation, Environmental Permits, necessary for the current use, occupancy and operation of each of its assets and properties, including, without limitation, the Assets, and the conduct of the Business, excluding those the absence of which would not or would not reasonably be expected to have a Material Adverse Effect, and no such Permits and Environmental Permits have expired or been terminated or suspended. Except as disclosed in Section 3.12 of the Disclosure Schedule, BCBS-ME is, in all material respects, in compliance with all material Permits and the requirements of all material Environmental Permits. Section 3.12 of the Disclosure Schedule identifies all Permits and Environmental Permits which BCBS-ME currently holds.

SECTION 3.13. Material Contracts. (a) Section 3.13(a) of the Disclosure Schedule lists each of the following material contracts and agreements (including, without limitation, oral contracts) of BCBS-ME:

  1. each contract, agreement, invoice, purchase order and other arrangement, for the purchase of personal property with any supplier or for the furnishing of services to BCBS-ME or otherwise related to the Business under the terms of which BCBS-ME is likely to pay or otherwise give consideration in the aggregate either during the calendar year ended December 31, 1999 or over the remaining term of such contract of more than $150,000 for medical services of a physician or physician group, $1,000,000 for medical and/or hospital services from a single hospital, or $50,000 with respect to any other supplier or service provider;
  2. all broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing consulting and advertising contracts and agreements;
  3. all management contracts and contracts with independent contractors or consultants (or similar arrangements) which are not cancelable without penalty or further payment and without more than thirty (30) days' notice;
  4. all contracts and agreements relating to Indebtedness, other than those regarding Indebtedness of less than $100,000 and which have been incurred in the ordinary course of business consistent with past practice;
  5. all contracts and agreements with any Governmental Authority other than Insurance Contracts;
  6. all contracts and agreements that limit the ability of BCBS-ME to compete in any line of business or with any Person or in any geographic area or during any period of time;
  7. all contracts and agreements between or among Seller and any Affiliate of Seller;
  8. all contracts and agreements for providing benefits under any Plan; and
  9. all other contracts and agreements, whether or not made in the ordinary course of the Business, which are material to BCBS-ME or the conduct of the Business, or the absence of which would have a Material Adverse Effect.

Section 3.13

  1. of the Disclosure Schedule also indicates whether consent is necessary to transfer to Purchaser each such Material Contract without penalty or other adverse consequence. For purposes of this Section 3.13 and Sections 3.15, 3.16 and 3.17, the term "lease" shall include any and all leases, subleases, sale/leaseback agreements or similar arrangements.
  2. Except as disclosed in Section 3.13(b) of the Disclosure Schedule, each Material Contract:
    1. is valid and binding on the respective parties thereto and, to Seller's Knowledge, is in full force and effect,
    2. is freely and fully assignable to Purchaser without penalty or other material adverse consequences, and
    3. upon consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, except to the extent that any consents set forth in Section 3.04 of the Disclosure Schedule are not obtained, shall continue in full force and effect without penalty or other adverse consequence. BCBS-ME is not in material breach of, or default under, any Material Contract.
  3. Except as disclosed in Section 3.13(c) of the Disclosure Schedule, to Seller's Knowledge, no other party to any Material Contract is in breach thereof or default thereunder.
  4. Except as disclosed in Section 3.13(d) of the Disclosure Schedule, there is no contract, agreement or other arrangement granting any Person any preferential right to purchase, other than in the ordinary course of the Business consistent with past practice, any of the properties or assets of BCBS-ME, including, without limitation, the Assets.

SECTION 3.14. Intellectual Property.

  1. Section 3.14(a)
    1. of the Disclosure Schedule sets forth a true and complete list of all material Owned Intellectual Property. Section 3.14
    2. of the Disclosure Schedule sets forth a true and complete list of all material Licensed Intellectual Property, with the exception of "off-the-shelf" software. Except as disclosed in Section 3.14
    3. of the Disclosure Schedule, the rights of BCBS-ME in or to such Owned Intellectual Property or Licensed Intellectual Property do not, to the Knowledge of Seller, conflict with or infringe on the rights of any other Person, excluding any conflicts or infringements that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and BCBS-ME has not received any written notice from any Person to such effect.
  2. Except to the extent any of the following would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect:
    1. all the Owned Intellectual Property is owned by BCBS-ME, free and clear of any Encumbrance and
    2. no Actions have been made or asserted in writing or are pending (nor, to the Knowledge of Seller, has any such Action been threatened) against BCBS-ME either
      1. based upon or challenging or seeking to deny or restrict the use by BCBS-ME of any of the Owned Intellectual Property, or
      2. alleging that any services provided, or products manufactured or sold by BCBS-ME are being provided, manufactured or sold in violation of any patents or trademarks, or any other rights of any Person. To the Knowledge of Seller, no Person is using any patents, copyrights, trademarks, service marks, trade names, trade secrets or similar property that are confusingly similar to the Owned Intellectual Property or that infringe upon the Owned Intellectual Property or upon the rights of BCBS-ME therein. Except as disclosed in Section 3.14(b) of the Disclosure Schedule, BCBS-ME has not granted any license or other right to any other Person with respect to the Owned Intellectual Property. The consummation of the transactions contemplated by this Agreement will not result in the termination or impairment of any of the material Owned Intellectual Property.
  3. Seller has, or has caused to be, delivered to Purchaser correct and complete copies of all licenses and sublicenses for material Licensed Intellectual Property set forth in Section 3.14(a)(ii) of the Disclosure Schedule and any and all ancillary documents pertaining thereto (including, but not limited to, all amendments, consents and evidence of commencement dates and expiration dates). No Actions are pending (nor, to the Knowledge of Seller, has any such Action been threatened) against BCBS-ME either
    1. based upon or challenging or seeking to deny or restrict the use by BCBS-ME of any of the Licensed Intellectual Property or
    2. alleging that any Licensed Intellectual Property is being licensed, sublicensed or used in violation of any patents or trademarks, or any other rights of any Person. To the Knowledge of Seller, no Person is using any patents, copyrights, trademarks, service marks, trade names, trade secrets or similar property that are confusingly similar to the Licensed Intellectual Property or that infringe upon the Licensed Intellectual Property or upon the rights of BCBS-ME therein.
  4. As a result of the transactions contemplated hereby, upon the Closing, Purchaser shall own or possess, or own or possess adequate and enforceable licenses, sublicenses or other rights to use, without payment of any fee other than fees pursuant to the terms of those licenses, sublicenses or other grants of rights which are listed on Section 3.14(a)(ii) of the Disclosure Schedule, all the Owned Intellectual Property and Licensed Intellectual Property material to the operation of the Business.
  5. The Owned Intellectual Property and Licensed Intellectual Property set forth in Sections 3.14(a)(i) and (ii) of the Disclosure Schedule constitute all the material Intellectual Property used or held or intended to be used by BCBS-ME in, and necessary in the conduct of, the Business and there are no other items of Intellectual Property that are material to BCBS-ME or the Business.

SECTION 3.15. Real Property.

  1. Section 3.15(a) of the Disclosure Schedule lists:
    1. the street address of each parcel of Owned Real Property,
    2. the date on which each parcel of Owned Real Property was acquired,
    3. the current owner of each such parcel of Owned Real Property, and
    4. the current use of each such parcel of Owned Real Property.
  2. Section 3.15(b) of the Disclosure Schedule lists:
    1. the street address of each parcel of Leased Real Property,
    2. the identity of the lessor, lessee and current occupant (if different from lessee) of each such parcel of Leased Real Property,
    3. the term (referencing applicable renewal periods and all applicable notice of renewal or non-renewal deadlines) and rental payment terms of the leases (and any subleases) pertaining to each such parcel of Leased Real Property, and
    4. the current use of each such parcel of Leased Real Property.
  3. Except as described in Sections 3.15(c) or 3.11 of the Disclosure Schedule, there is no violation of any Law (including, without limitation, any building, planning or zoning Law) relating to any of the Owned Real Property or, to the Knowledge of Seller, the Leased Real Property, except for such violations as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 3.15(c) of the Disclosure Schedule, BCBS-ME has not leased or subleased any parcel or any portion of any parcel of Real Property to any other Person, nor has BCBS-ME assigned its interest under any lease or sublease listed in Section 3.15(b) of the Disclosure Schedule to any third party.
  4. There are no condemnation proceedings or eminent domain proceedings of any kind pending or, to the Knowledge of Seller, threatened against any of the Owned Real Property or, to the Knowledge of Seller, the Leased Real Property.
  5. Except as described in Section 3.15(e) of the Disclosure Schedule, no improvements on the Owned Real Property or, to the Knowledge of Seller, the Leased Real Property and none of the current uses and conditions thereof violate in any material respect any applicable deed restrictions or other applicable covenants, restrictions, agreements, existing site plan approvals, zoning or subdivision regulations or urban redevelopment plans as modified by any duly issued variances, and no Permits, licenses or certificates pertaining to the ownership or operation of all improvements on the Owned Real Property, or, to the Knowledge of Seller, the Leased Real Property, other than those which are transferable with the Real Property, are required by any Governmental Authority having jurisdiction over the Real Property.
  6. Except as described in Section 3.15(f) of the Disclosure Schedule, no improvements on any Owned Real Property or, to the Knowledge of Seller, Leased Real Property encroach on any adjoining premises, and there are no encroachments on any Owned Real Property or, to the Knowledge of Seller, Leased Real Property by any improvements located on any adjoining premises.
  7. Except as described in Section 3.15(g) of the Disclosure Schedule, BCBS-ME has, and upon the Closing Purchaser will have, the full right to exercise any renewal options contained in the leases and subleases pertaining to the Leased Real Property on the terms and conditions contained therein and upon due exercise would be entitled to enjoy the use of each Leased Real Property for the full term of such renewal options.

SECTION 3.16. Tangible Personal Property.

  1. Section 3.16 of the Disclosure Schedule lists each item or distinct group of machinery, equipment, tools, supplies, furniture, fixtures, personalty, vehicles, rolling stock and other tangible personal property used in the Business or owned or leased by BCBS-ME with a book value in excess of $100,000 (the "Tangible Personal Property").
  2. Seller has, or has caused to be, delivered to Purchaser correct and complete copies of all leases and subleases for Tangible Personal Property and any and all material ancillary documents pertaining thereto (including, but not limited to, all amendments, consents and evidence of commencement dates and expiration dates). With respect to each of such leases and subleases:
    1. such lease or sublease, together with all ancillary documents delivered pursuant to the first sentence of this Section 3.16(b), is legal, valid, binding, enforceable (except that such enforcement may be subject to
      1. bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting or relating to the enforcement of creditors' rights generally,
      2. applicable insurance company delinquency, rehabilitation and liquidation laws, and
      3. general equitable principles), and in full force and effect and represents the entire agreement between the respective lessor and lessee with respect to such property;
    2. except as set forth in Section 3.16(b) of the Disclosure Schedule, such lease or sublease will not cease to be legal, valid, binding, enforceable and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such lease or sublease or otherwise give the lessor a right to terminate such lease or sublease;
    3. except as otherwise disclosed in Section 3.16(b) of the Disclosure Schedule, with respect to each such lease or sublease: (A) BCBS-ME has not received any notice of cancellation or termination under such lease or sublease and no lessor has any right of termination or cancellation under such lease or sublease except in connection with the default of BCBS-ME thereunder, (B) BCBS-ME has not received any notice of a breach or default under such lease or sublease, which breach or default has not been cured, and (C) BCBS-ME has not granted to any other Person any rights, adverse or otherwise, under such lease or sublease; and
    4. neither BCBS-ME, nor, to the Knowledge of Seller, any other party to such lease or sublease, is in breach or default in any material respect, and, to the Knowledge of Seller, no event has occurred that, with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration under such lease or sublease.
  3. BCBS-ME has the full right to exercise any renewal options contained in the leases and subleases pertaining to the Tangible Personal Property on the terms and conditions therein and upon due exercise would be entitled to enjoy the use of each item of leased Tangible Personal Property for the full term of such renewal options.

SECTION 3.17. Assets. Except as disclosed in Section 3.17 of the Disclosure Schedule, BCBS-ME owns, leases or has the legal right to use all the properties and assets, including, without limitation, the Owned Intellectual Property, the Licensed Intellectual Property, the Real Property and the Tangible Personal Property, used in the conduct of the Business or otherwise owned, leased or used by BCBS-ME and, with respect to contract rights, is a party to and enjoys the right to the benefits of all contracts, agreements and other arrangements used by, intended to be used by or necessary to BCBS-ME in or relating to the conduct of the Business, free and clear of all Encumbrances except

  1. as disclosed in Sections 3.14, 3.15, 3.16 or 3.17 of the Disclosure Schedule and
  2. Permitted Encumbrances, all of which properties, assets and rights are conveyed to Purchaser hereunder (directly or indirectly) except for the Excluded Assets. BCBS-ME has title to or, in the case of leased or subleased Assets, valid and subsisting leasehold interests in, all the Assets. Except as set forth in Section 3.17 of the Disclosure Schedule, BCBS-ME has good and marketable (subject in certain cases to the consent of third parties) title to all the Owned Real Property.

SECTION 3.18. Significant Agreements. Listed in Section 3.18 of the Disclosure Schedule are the names of all employers, multiple employers associations, trusts and other health benefits plans with which BCBS-ME has Insurance Contracts for the provision or administration of health benefits (including government sponsored plans such as Medicaid and Medicare) to more than 100 subscribers (enrolled employees, not counting dependents). Except as disclosed in Section 3.18 of the Disclosure Schedule, Seller has not received any written notice and has no reason to believe, based on Seller's Knowledge, that

  1. any significant Insurance Contract of BCBS-ME has terminated or will not be renewed at its normal expiration date, or
  2. BCBS-ME's provision of services pursuant to any such Insurance Contract has been reduced or will be substantially reduced.

SECTION 3.19. Suppliers. Listed in Section 3.19 of the Disclosure Schedule are the names of suppliers and other providers of goods or services (other than physicians, hospitals or other Persons furnishing health care services) which invoiced BCBS-ME for amounts in excess of $50,000 in each case during the twelve-month period ended December 31, 1998, and the amount for which each such supplier invoiced BCBS-ME during such period. Except as disclosed in Section 3.19 of the Disclosure Schedule, Seller has not received any notice and has no reason to believe that any such supplier will not sell supplies, merchandise and other goods to Purchaser at any time after the Closing Date on terms and conditions similar to those imposed on current sales to the Business, subject to general and customary price increases.

SECTION 3.20. Employee Benefit Matters.

  1. Plans and Material Documents. Section 3.20(a) of the Disclosure Schedule lists
    1. all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, whether legally enforceable or not, and whether funded or not, to which BCBS-ME is a party, with respect to which BCBS-ME has any obligation or which are maintained, contributed to or sponsored by BCBS-ME for the benefit of any current or former employee, officer or director of BCBS-ME, including frozen or terminated plans as to which BCBS-ME may still have liability,
    2. each employee benefit plan for which BCBS-ME could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated,
    3. any plan in respect of which BCBS-ME could incur liability under Section 4212(c) of ERISA,
    4. any contracts, arrangements or understandings between BCBS-ME and any employee of BCBS-ME including, without limitation, any contracts, arrangements or understandings (A) relating to a sale of BCBS-ME, (B) relating to the payment of severance benefits, or (C) relating to the payment of benefits as a result of a change of control,
    5. all cafeteria plans established pursuant to Section 125 of the Code, and
    6. all rabbi trusts, secular trusts or other funding vehicles for any benefit plan or arrangement listed in Section 3.20 of the Disclosure Schedule, other than trusts established pursuant to Section 401(a) of the Code for a benefit plan or arrangement listed in Section 3.20 of the Disclosure Schedule (all of the above, collectively, the "Plans"). Except as disclosed on Section 3.20 of the Disclosure Schedule, there are no other employee benefit plans, programs, arrangements or agreements, whether formal or informal, whether in writing or not, with respect to which BCBS-ME has any obligation or which are maintained, contributed to or sponsored by BCBS-ME for the benefit of any current or former employee, officer or director.
  2. Absence of Certain Types of Plans. Except as set forth on Section 3.20(b) of the Disclosure Schedule, none of the Plans is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) or a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which BCBS-ME could incur liability under Section 4063 or 4064 of ERISA. Except as set forth in Section 3.20 of the Disclosure Schedule, none of the Plans (i) provides for the payment of separation, severance, termination or similar-type benefits to any Person or obligates BCBS-ME to pay separation, severance, termination or similar-type benefits solely as a result of any transaction contemplated by this Agreement or as a result of a "change in control" within the meaning of such term under Section 280G of the Code, or (ii) provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of BCBS-ME. Each of the Plans is subject only to the laws of the United States or a political subdivision thereof.
  3. Compliance with Applicable Law. Except as disclosed on Section 3.20(c) of the Disclosure Schedule, and except for such matters as would not reasonably be expected to have a Material Adverse Effect, each Plan is now and, to Seller's Knowledge, always has been operated and administered in accordance with the requirements of all applicable Law, BCBS-ME has performed all obligations required to be performed by it under, and is not in default under, any Plan, and no legal Action pending or, to the Knowledge of Seller, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and, to the Knowledge of Seller, no fact or event exists that could give rise to any such Action.
  4. Qualification of Certain Plans. Each Plan intended to be "qualified" within the meaning of Section 401(a) of the Code and the trusts maintained thereunder that are intended to be exempt from taxation under Section 501(a) of the Code have received or are the subject of a favorable determination or other letter from the IRS indicating that they are so qualified, and, to the Knowledge of Seller, no event has occurred since the date of said letter(s) that could be reasonably expected to adversely effect such qualified status.
  5. Absence of Certain Liabilities and Events. Neither BCBS-ME nor, to the Knowledge of Seller, any other party in interest (within the meaning of Section 3(14) of ERISA) or disqualified person (within the meaning of Section 4975 of the Code) has engaged in a prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. BCBS-ME has not incurred any material liability for any excise tax arising under Sections 4971, 4972, 4980 or 4980B of the Code and, to the Knowledge of Seller, no fact or event exists which could reasonably be expected to give rise to any such liability. BCBS-ME has not incurred any liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course). No complete or partial termination has occurred within the five (5) years preceding the date hereof with respect to any Plan. No reportable event (within the meaning of Section 4043 of ERISA) has occurred or, to Seller's Knowledge, is reasonably expected to occur with respect to any Plan subject to Title IV of ERISA. No Plan had an accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of the most recently ended plan year of such Plan. None of the assets of BCBS-ME is the subject of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code; BCBS-ME has not been required to post any security under Section 307 of ERISA or Section 401(a)(29) of the Code; and no fact or event exists which could reasonably be expected to give rise to any such lien or requirement to post any such security.
  6. Plan Contributions and Funding. All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions, for years for which Returns have been filed, have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any government entity and no fact or event exists which could give rise to any such challenge or disallowance. Except as set forth in Section 3.20(f) of the Disclosure Schedule, as of the Closing Date, no Plan which is subject to Title IV of ERISA will have an "unfunded benefit liability" (within the meaning of Section 4001(a)(18) of ERISA).

SECTION 3.21. Labor Matters.

    1. BCBS-ME is not a party to any collective bargaining agreement or other labor union contract applicable to persons employed by BCBS-ME or in the Business, and, to Seller's Knowledge, currently there are no organizational campaigns, petitions or other unionization activities seeking recognition of a collective bargaining unit involving BCBS-ME employees;
    2. there are no strikes, slowdowns or work stoppages pending or, to Seller's Knowledge, threatened between BCBS-ME and any of its employees, and BCBS-ME has not experienced any such strike, slowdown or work stoppage within the past three (3) years;
    3. to Seller's Knowledge, BCBS-ME has paid in full to all its respective employees, or adequately accrued for in accordance with U.S. GAAP consistently applied, all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees; and
    4. BCBS-ME is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices.
  2. Except as set forth in Section 3.21 of the Disclosure Schedule, BCBS-ME is not a party to any contract with any of its employees, agents, consultants, officers, salespeople, sales representatives, distributors, or dealers that is not cancelable by BCBS-ME without penalty or premium on not more than thirty (30) days' notice. Except as set forth in Section 3.21 of the Disclosure Schedule, BCBS-ME has not promulgated any policy or entered into any agreement relating to the payment of severance pay to employees whose employment is terminated or suspended, voluntarily or otherwise.

SECTION 3.22. Key Employees.

  1. Seller has made available to Purchaser all material information concerning the name, place of employment, the current annual salary rates, bonuses, deferred or contingent compensation, pension, accrued vacation, "golden parachute," "change of control," non-competition and other like benefits paid or payable (in cash or otherwise) in the last four (4) years, the date of employment and a description of position and job function of each current salaried employee, officer, director, consultant or agent of BCBS-ME whose annual compensation exceeded (or, in 1999, is expected to exceed) $100,000. Except as set forth in Section 3.22 of the Disclosure Schedule, to the Knowledge of Seller none of the senior management of BCBS-ME has resigned or threatened to resign since the Reference Balance Sheet Date.
  2. All directors, officers, management employees, and technical and professional employees of BCBS-ME have been notified of their obligation to BCBS-ME to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment.

SECTION 3.23. Certain Interests.

  1. Except as disclosed in Section 3.23(a) of the Disclosure Schedule, no officer or director of BCBS-ME, or his or her spouse or lineal descendants:
    1. has any direct or indirect financial interest in any competitor, supplier or customer of BCBS-ME, provided, however, that the ownership of securities representing no more than five percent (5%) of the outstanding voting power of any competitor, supplier or customer, and which are also listed on any national securities exchange or traded actively in the national over-the-counter market, shall not be deemed to be a "financial interest" so long as the Person owning such securities has no other connection or relationship with such competitor, supplier or customer;
    2. owns, directly or indirectly, in whole or in part, or has any other interest in any tangible or intangible property which BCBS-ME uses or has used in the conduct of the Business or otherwise; or
    3. has outstanding any Indebtedness to BCBS-ME.
  2. Except as disclosed in Section 3.23(b) of the Disclosure Schedule, BCBS-ME has no Liability or any other obligation of any nature whatsoever to, any officer or director of BCBS-ME, or to his or her spouse or lineal descendants.

SECTION 3.24. Taxes.

  1. Except as disclosed with reasonable specificity on Section 3.24 of the Disclosure Schedule,
    1. all Returns in respect of Taxes required to be filed on or before the Closing Date with respect to BCBS-ME, the Business and/or the Assets have been or will be timely filed;
    2. all Taxes required to be shown on such Returns or otherwise due with respect to BCBS-ME, the Business and/or the Assets have been or will be timely paid;
    3. all such Returns that have been filed are, and all other such Returns (when filed) will be, true, correct and complete in all material respects;
    4. no adjustment relating to such Returns has been proposed in writing by any Governmental Authority and, to the Knowledge of Seller, no basis exists for any such adjustment;
    5. there are no pending or, to the Knowledge of Seller, threatened actions or proceedings for the assessment or collection of Taxes against BCBS-ME or (insofar as either relates to the activities, income or assets of BCBS-ME or the Business or could result in liability of BCBS-ME on the basis of joint and/or several liability) any corporation that was includible in the filing of a return with BCBS-ME on a consolidated or combined basis;
    6. no consent under Section 341(f) of the Code has been filed with respect to BCBS-ME;
    7. other than Permitted Encumbrances, there are and will be as of the Closing Date no Tax liens on any assets or income of BCBS-ME or of the Business;
    8. all amounts of Taxes that are required to be collected or withheld on or before the Closing Date by BCBS-ME or in connection with the Business have been or will be duly and timely collected or withheld, and have been or will be duly and timely remitted or deposited in accordance with law or, if not required to be remitted or deposited on or before the Closing Date, reflected in the Closing Tax Reserve;
    9. all payments of estimated Taxes required to be made by BCBS-ME prior to the Closing Date have been or will be timely made;
    10. no Governmental Authority has in writing raised any issue with respect to the liability of BCBS-ME for any Tax that is likely to result in the issuance of a notice of deficiency or similar notice of intention to assess Taxes by any Governmental Authority;
    11. no Subsidiary of BCBS-ME was acquired in a "qualified stock purchase" under Section 338(d)(3) of the Code, and no election under Section 338(g) of the Code, protective carryover basis election, or offset prohibition election is applicable to BCBS-ME;
    12. there is no payment which has, will or may, pursuant to any agreement, including this Agreement, be made by BCBS-ME which constitutes an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code;
    13. BCBS-ME is not currently, and will not be with respect to any period on or before the Closing Date, required to include in income any adjustment pursuant to Section 481(a) of the Code (or any similar provision of federal, state or local Law or regulations) by reason of a change in accounting method, nor, to the Knowledge of Seller, is any Governmental Authority considering any such adjustment;
    14. none of the Tax Returns filed by BCBS-ME contains a disclosure statement under Section 6662 of the Code or any similar Law; and
    15. Seller has delivered to Purchaser copies of any written Tax sharing agreements or arrangements, or description of any such agreement or arrangement not reduced to writing, between BCBS-ME and any Affiliate or any third party, together with a written statement setting forth the amount owed by or to BCBS-ME with respect to each such agreement or arrangement.
  2. Except as disclosed with reasonable specificity in Section 3.24 of the Disclosure Schedule:
    1. there are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which BCBS-ME or the Business may be subject;
    2. there are no written requests for information from a Governmental Authority currently outstanding that could affect the Taxes of BCBS-ME or the Business;
    3. there are no written proposed reassessments of any property owned by BCBS-ME or other proposals that could increase the amount of any Tax to which BCBS-ME or the Business would be subject;
    4. no power of attorney has been granted by BCBS-ME, and is currently in force, with respect to any matter relating to Taxes; and
    5. there is no outstanding request for any extension of time within which to pay any Taxes or file any Returns.
  3. For purposes of determining whether the conditions to Closing have been satisfied (but not for purposes of the indemnity contained in Section 7.01 or the setting of the Closing Tax Reserve pursuant to Section 7.06), the representations in Section 3.24(a) shall apply only with respect to items which could have a Material Adverse Effect on Purchaser or the Business. For purposes of the indemnity contained in Section 7.01 or the setting of the Closing Tax Reserve pursuant to Section 7.06, the representations in Section 3.24(a) shall be deemed to have been made with no exception for items disclosed in Section 3.24 of the Disclosure Schedule or otherwise.
  4. BCBS-ME has been, currently is, and will be prior to the Closing Date an "existing Blue Cross and Blue Shield organization" as defined in §833(c)(2) of the Code, and has filed its federal income tax returns for all periods after the effective date of §833 of the Code consistent with the treatment described in §833 of the Code.

SECTION 3.25. Insurance.

  1. Section 3.25(a) of the Disclosure Schedule sets forth the following information with respect to each material insurance policy (including policies providing property, casualty, liability, workers' compensation, and bond and surety arrangements) under which BCBS-ME has been an insured, a named insured or otherwise the principal beneficiary of coverage, which policy covers occurrences or claims made as of or during the two (2) years preceding the date hereof:
    1. the name of the insurer and the names of the principal insured and each named insured;
    2. the policy number and the period of coverage; and
    3. the type, scope (including an indication of whether the coverage was on a claims made, occurrence or other basis) and amount of coverage.
  2. With respect to each such insurance policy: (i) to the Knowledge of Seller, the policy is legal, valid, binding and enforceable in accordance with its terms in all material respects (except that such enforcement may be subject to
    1. bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting or relating to the enforcement of creditors' rights generally,
    2. applicable insurance company delinquency, rehabilitation and liquidation laws and
    3. general equitable principles) and, except for policies that have expired under their terms in the ordinary course, is in full force and effect; and (ii) BCBS-ME is not in breach or default in any material respect (including any breach or default with respect to the payment of premiums or the giving of notice), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default or permit termination or modification under the policy.
  3. Section 3.25(c) of the Disclosure Schedule sets forth all material risks against which BCBS-ME is self-insured or which are covered under any risk retention program in which BCBS-ME participates and details for the last five (5) years of BCBS-ME's loss experience with respect to such risks.
  4. Except as described in Section 3.25(d) of the Disclosure Schedule, at no time subsequent to January 1, 1995 has BCBS-ME
    1. been denied any insurance or indemnity bond coverage which it has requested,
    2. failed to have its material assets and risks covered by valid insurance policies issued by responsible insurance companies in types and amounts of coverage that are commercially reasonable for companies engaged in businesses similar to the Business,
    3. made any material reduction in the scope or amount of its insurance coverage,
    4. been notified in writing that any existing material insurance coverage will not be available in the future substantially on the same terms as are now in effect, or
    5. suffered any extraordinary increase in premium for renewed coverage. Except as described in Section 3.25(d) of the Disclosure Schedule, since January 1, 1995, no insurance carrier has canceled, failed to renew or reduced any insurance coverage for BCBS-ME or given any notice or other indication of its intention to cancel, not renew or reduce any such coverage.
  5. At the time of the Closing, all material insurance policies currently in effect will be outstanding and duly in force.

SECTION 3.26. Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney. Section 3.26 of the Disclosure Schedule is a true and complete list of

  1. the names of each bank, savings and loan association, securities or commodities broker or other financial institution in which BCBS-ME has an account, including cash contribution accounts, and the names of all persons authorized to draw thereon or have access thereto,
  2. the location of all lockboxes and safe deposit boxes of BCBS-ME and the names of all Persons authorized to draw thereon or have access thereto, and
  3. the names of all Persons, if any, holding powers of attorney from BCBS-ME relating to the Business or BCBS-ME.

SECTION 3.27. Brokers. Except for Salomon Smith Barney, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement or the Ancillary Agreements based upon arrangements made by or on behalf of BCBS-ME. Seller is solely responsible for the fees and expenses of Salomon Smith Barney.

SECTION 3.28. No Pecuniary Interests. No director, officer, agent or employee of BCBS-ME, or any member of the family of such director, officer, agent or employee, has directly or indirectly received, or will directly or indirectly receive, any fee, commission, compensation or other valuable consideration whatsoever for in any manner aiding, promoting or assisting in the fulfillment of this Agreement, except as may be disclosed in certificates or affidavits to be filed with the Maine Bureau of Insurance.

SECTION 3.29. Computer Systems. Except as set forth in Section 3.29 of the Disclosure Schedule, BCBS-ME's business critical computer systems are presently serving BCBS-ME adequately. All of the Intellectual Property consisting of, or reasonably necessary to the operation of, business critical computer software (including, without limitation, source code, operating systems, firmware, and specifications, data, data bases, files, documentation and other materials related thereto) and all microprocessors used or embedded in tangible personal property and fixtures for control or operation will, on or prior to November 30, 1999 (except for items noted in such Section 3.29 the continued proper operation of which, individually or in the aggregate, are not material to the operation of the Business), be capable of accurately processing, providing and/or receiving date data from, into, and between the twentieth and twenty-first centuries, including the years 1999 and 2000, and leap year calculations, provided that Seller does not warrant such performance to the extent the failure is caused by products and systems used by third parties which exchange date data with such Intellectual Property but are not capable of exchanging such date data using either standard four digit year date code or other date data format adopted by Seller, and with correct identification of leap year information.

SECTION 3.30. Arrangements for Reinsurance and Stop-Loss Insurance. Except as set forth in Section 3.30 of the Disclosure Schedule, to the Knowledge of Seller, BCBS-ME has no liability under any stop-loss or reinsurance arrangements for the benefit of any self-funded employer accounts, except as to defined retentions.

SECTION 3.31. Brokers and Agents. To Seller's Knowledge, no broker/agent through which BCBS-ME places or sells products who is among the top fifty (50) brokers/agents, based on annual commission volume, has indicated any unwillingness to participate with Purchaser in connection with the Business. BCBS-ME has no financial obligations to any person with respect to existing or future business, except as recorded as a liability on the Reference Balance Sheet and as described in Section 3.31 of the Disclosure Schedule. Except as indicated in Section 3.31 of the Disclosure Schedule, BCBS-ME is not a party to any fronting, quota-sharing or similar agreement to place or sell insurance for the full or partial benefit of any other insurance company.

SECTION 3.32. Government Contracts. Except as set forth in Section 3.32 of the Disclosure Schedule, BCBS-ME is and has operated in compliance in all material respects with all contractual, statutory, regulatory and other requirements applicable to BCBS-ME as a provider of insurance or administrator, processor or service provider relating to health care or other employee benefits to employees of the federal, state and local governments and subdivisions and to beneficiaries under programs sponsored or administered by any such governments or subdivisions thereof (collectively "Government Contracts") and is subject to no claim for a penalty, fine, return of premium, repayment of costs charged, renegotiation of charges or fees, change in claims or billings as a result of audit, adjustment, charge, retroactive restatements of costs or charges, or other liability in respect of any Government Contract, which claim, if successful, would reasonably be expected to have a Material Adverse Effect.

SECTION 3.33. Medicare Secondary Payor Rules. Except as set forth in Section 3.33 of the Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect, without in any way limiting the generality of other representations and warranties made herein by Seller, all actions taken or failed to have been taken by BCBS-ME or its agents in connection with the insuring or administration of healthcare plans maintained for BCBS-ME's employer clients or other clients have been taken or omitted in compliance in all material respects with the so-called "Medicare Secondary Payor Rules," and all applicable federal laws, as supplemented by the regulations of the Department of Health and Human Services concerning Medicare Secondary Payor liability ("Secondary Payor Rules"), and no healthcare plan administered or insured by BCBS-ME has any liability of any nature (including, but not limited to, any liability under the Code, ERISA, the Social Security Act and Age Discrimination in Employment Act) to the United States of America or to any other Person with respect to the Secondary Payor Rules. Neither BCBS-ME nor its agents have incurred any liability with respect to acts taken or omitted prior to Closing under existing or prior contracts with its employer clients or other clients for any excise tax liability under Section 5000 of the Code, except as would not reasonably be expected to have a Material Adverse Effect.

SECTION 3.34. Full Disclosure. To Seller's Knowledge, no representation or warranty of Seller in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

SECTION 3.35. Application to Certain Subsidiaries of the Representations and Warranties. Notwithstanding anything contained herein to the contrary, the terms "BCBS-ME," "Business," and "Subsidiary" shall not include Northern General Services, LLC, Northern General Services of New Hampshire, LLC and Northern General Services of Massachusetts, LLC solely for the purpose of applying the representations and warranties contained in the following Sections 3.08, 3.13, 3.14, 3.16 and 3.18.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF PURCHASER

As an inducement to Seller to enter into this Agreement, Purchaser hereby represents and warrants to Seller that, as of the date of this Agreement:

SECTION 4.01. Organization and Authority of Purchaser. Purchaser is a mutual insurance company, validly existing and in good standing under the laws of the State of Indiana. Subject to the necessary approvals by Governmental Authorities described in Article VIII, Purchaser has or will have all necessary corporate power and authority to enter into this Agreement and the Ancillary Agreements, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and upon their execution the Ancillary Agreements will be, duly executed and delivered by Purchaser, and (assuming due authorization, execution and delivery by Seller) this Agreement constitutes, and upon their execution the Ancillary Agreements will constitute, legal, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their respective terms except that such enforcement may be subject to

  1. bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally,
  2. applicable insurance company delinquency, rehabilitation and liquidation laws, and
  3. general equitable principles.

SECTION 4.02. No Conflict. Assuming that all consents, approvals, authorizations and other actions described in Article VIII have been obtained, the execution, delivery and performance of this Agreement and the Ancillary Agreements by Purchaser do not and cannot reasonably be expected to

  1. violate, conflict with or result in the breach of any provision of the charter or By-laws (or similar organizational documents) of Purchaser,
  2. conflict with or violate any Law or Governmental Order applicable to Purchaser or any of its assets, properties or businesses in a manner that would reasonably be expected to have a Material Adverse Effect, or
  3. conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Purchaser pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other agreement to which Purchaser is a party or by which any of such assets or properties is bound or affected, except such as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Purchaser to consummate the transactions contemplated by this Agreement or by the Ancillary Agreements.

SECTION 4.03. Brokers. Except for Goldman Sachs & Co., no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser. Purchaser is solely responsible for payment of the fees and expenses of Goldman Sachs & Co.

SECTION 4.04. No Pecuniary Interests. No director, officer, agent or employee of Purchaser, or any member of the family of such director, officer, agent or employee, has directly or indirectly received, or will directly or indirectly receive, any fee, commission, compensation or other valuable consideration whatsoever for in any manner aiding, promoting or assisting in the fulfillment of this Agreement, except as may be disclosed in certificates or affidavits to be filed with the Indiana Insurance Department and the Maine Bureau of Insurance.

SECTION 4.05. Consents and Approvals of Governmental Authorities. Except for:

  1. the filing of appropriate documents to effect the transactions contemplated herein as required by the laws of the State of Maine,
  2. the approval of the Maine Bureau of Insurance and the Indiana Insurance Department,
  3. the approval of the Attorney General of Maine, if applicable, and
  4. the filing of a Pre-Merger Notification pursuant to the HSR Act and the consents and approvals listed in Section 4.05 of the Disclosure Schedule, no consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be obtained or made by Purchaser in connection with the execution, delivery and performance of this Agreement and each Ancillary Agreement and the transactions contemplated herein and therein by Purchaser, except such as would not, individually or in the aggregate, reasonably be expected to be material.

SECTION 4.06. Financial Statements; No Material Adverse Change. True and complete copies of the audited balance sheets of Purchaser (prepared on a consolidated basis for all Subsidiaries) for each of the two (2) fiscal years ended as of December 31, 1997 and December 31, 1998, and the related audited statements of income, retained earnings, and changes in financial position, together with all related notes and schedules thereto, accompanied by the reports thereon of Purchaser's Accountants (collectively referred to herein as the "Purchaser Financial Statements") have been delivered by Purchaser to Seller. The Purchaser Financial Statements

  1. present fairly the financial condition and results of operations of Purchaser as of the dates thereof or for the periods covered thereby, and
  2. have been prepared in accordance with U.S. GAAP, applied on a basis consistent with past practices and throughout the periods involved. Since December 31, 1997, no event has occurred that would constitute a material adverse effect with respect to Purchaser.

SECTION 4.07. Financing. Purchaser has sufficient funds available to it or has received binding written commitments from responsible financial institutions to provide sufficient funds on the Closing Date to make the payments required to be made by it hereunder at the Closing.

SECTION 4.08. Computer Systems. Purchaser's business critical computer systems that Purchaser presently intends to link to or have interact with computer systems of BCBS-ME after the Closing Date are presently serving Purchaser adequately. All of the Intellectual Property consisting of, or reasonably necessary to the operation of, all such business critical computer systems (including, without limitation, source code, operating systems, firmware, and specifications, data, data bases, files, documentation and other materials related thereto) will, on or prior to November 30, 1999, be capable of accurately processing, providing and/or receiving date data from, into, and between the twentieth and twenty-first centuries, including the years 1999 and 2000, and leap year calculations, provided that Purchaser does not warrant such performance to the extent the failure is caused by products and systems used by third parties (including BCBS-ME) which exchange date data with such Intellectual Property but are not capable of exchanging such date data using either standard four digit year date code or other date data format adopted by Purchaser, and with correct identification of leap year information.

SECTION 4.09. Compliance with Laws. Except as previously disclosed to Seller in writing, Purchaser has conducted and continues to conduct its business in accordance with all Laws and Governmental Orders applicable to Purchaser or any of its properties or assets, except such as would not, individually or in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect, and, to Purchaser's Knowledge, there are no facts or circumstances which would constitute or result in any such violation.

SECTION 4.10. Full Disclosure. To Purchaser's knowledge, no representation or warranty of Purchaser in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

ARTICLE V

ADDITIONAL AGREEMENTS

SECTION 5.01. Conduct of Business Prior to the Closing.

  1. Except as provided in Section 5.01(a) of the Disclosure Schedule, Seller covenants and agrees that, except with the prior approval of Purchaser, between the date hereof and the Closing, Seller shall conduct the Business only in the ordinary course and consistent with Seller's prior practice. Without limiting the generality of the foregoing, and without Purchaser's consultation and approval, Seller shall use commercially reasonable efforts to:
    1. continue its advertising and promotional activities in accordance with past practice;
    2. not shorten or lengthen the customary payment cycles for any of its payables;
      1. preserve intact its business organization and the business organization of the Business,
      2. keep available to Purchaser the services of the employees of BCBS-ME,
      3. continue in full force and effect without material modification all existing policies or binders of insurance currently maintained in respect of BCBS-ME and the Business, and
      4. preserve its current relationships with its customers, suppliers and other persons with which it has significant business relationships;
    4. exercise, but only after notice to Purchaser and receipt of Purchaser's prior written approval, any rights of renewal pursuant to the terms of any of the leases or subleases set forth in Section 3.15(b) of the Disclosure Schedule which by their terms would otherwise expire; and
    5. not engage in any practice, take any action, fail to take any action or enter into any transaction which would reasonably be expected to cause any representation or warranty of Seller to be untrue at any time prior to the Closing Date, or result in a breach of any covenant made by Seller in this Agreement.
  2. Except in the ordinary course and consistent with past practice, Seller covenants and agrees that, prior to the Closing, without the prior written consent of Purchaser, Seller will not do any of the things enumerated in the second sentence of Section 3.09 (including, without limitation, clauses (i) through (xxvii) thereof except as set forth on Section 5.01(b) of the Disclosure Schedule).
  3. Promptly following execution of this Agreement, Seller will co-operate with Purchaser in planning for the combination and integration of the businesses. Seller shall advise Purchaser when requested (but no more frequently than monthly) of the status of achieving Seller's then current Business Plan (as has been presented to Purchaser), including all of the material components thereof, such as sales, enrollment, revenues, investment income, quarterly claim trends, medical loss ratio, administrative expenses, net income, reserves and statutory capital. Seller will also keep Purchaser informed and consult with Purchaser about its general rating, rate formulations, pricing, product forms, product offerings and purchasing policies, as well as the applicable trends and retention experience arising from Seller's business planning and underwriting process.

SECTION 5.02. Access to Information.

  1. From the date hereof until the Closing, upon reasonable notice, Seller shall, and shall cause each of BCBS-ME's officers, directors, employees, agents, accountants and counsel to:
    1. afford the officers, employees and authorized agents, accountants, counsel, financing sources and representatives of Purchaser reasonable access, during normal business hours, to the offices, properties, plants, other facilities, books and records of BCBS-ME and to those officers, directors, employees, agents, accountants and counsel of BCBS-ME who have any knowledge relating to BCBS-ME or the Business,
    2. furnish to the officers, employees and authorized agents, accountants, counsel, financing sources and representatives of Purchaser such additional financial and operating data and other information regarding the Business and the assets, properties and goodwill of BCBS-ME as Purchaser may from time to time reasonably request,
    3. cooperate with and assist Purchaser in planning and preparing for post-Closing operations, including, without limitation, matters relating to customer and employee retention, and
    4. provide Purchaser and its representatives with reasonable access to the Real Property to conduct environmental studies. The foregoing shall not require either party or its counsel to disclose to the other party or its representatives materials or advice, or to make any other disclosure or take any other action which would cause a waiver of the attorney-client privilege relating exclusively to this Agreement and the transactions contemplated hereby or which would cause them to breach any confidentiality agreements with third parties.
  2. In order to facilitate the resolution of any claims made against BCBS-ME which were incurred by BCBS-ME prior to the Closing, for a period of seven (7) years after the Closing, or for such longer period of time as may be required by applicable law, Purchaser shall retain the books and records of BCBS-ME which are transferred to Purchaser pursuant to this Agreement relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of BCBS-ME.
  3. As soon as they are compiled, Seller shall deliver to Purchaser each financial statement which is prepared for Seller or by Seller between the date of this Agreement and the Closing Date (whether interim or annual).
  4. Between the date of this Agreement and the Closing Date, Seller shall provide Purchaser with monthly reports regarding the progress of its Year 2000 compliance program.
  5. After the Closing Date, Purchaser shall make available to Seller, the Foundation, Seller's Accountants and any of their respective agents or representatives, such information and documentation regarding the Business and access to such Transferred Employees as may be reasonably necessary for Seller, the Foundation and Seller's Accountants and any of their agents or representatives to perform any post-closing functions which are to be performed by them.

SECTION 5.03. Confidentiality. The parties acknowledge that they have executed the Confidentiality Agreement with respect to the exchange of proprietary and confidential information preceding this Agreement and agree that the terms thereof shall continue to govern and apply with respect to information disclosed hereunder or pursuant to the process of completing the transactions contemplated herein. The Foundation shall be required to be bound by the Confidentiality Agreement to the extent any information covered by its provisions are disclosed or otherwise obtained by the Foundation.

SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents.

  1. Without limiting the generality or effect of any other provision hereof, each of the parties will use commercially reasonable efforts to take, or cause to be taken, all reasonable actions, and to do or cause to be done, and to assist and cooperate with the other party in doing, all things reasonable, necessary (or advisable), and proper to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including
    1. the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Authorities and the making of all necessary registrations and filings (including those referred to in Section 3.05), and the taking of all reasonable steps as may be necessary to obtain approval or waiver from, or to avoid an Action or proceeding by, any Governmental Authority,
    2. the obtaining of all necessary consents, approvals or waivers from third parties,
    3. the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated by this Agreement, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Authority vacated or reversed, and
    4. the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. Without limiting the generality of this paragraph (a), the parties agree to the allocation of principal responsibilities set forth in paragraphs (b) and (c) as follows:
  2. HSR. Each party hereto agrees to make an appropriate filing pursuant to the HSR Act with respect to the transactions contemplated by this Agreement within a mutually agreed time after the date hereof and to supply as promptly as practicable to the appropriate Governmental Authorities any additional information and documentary material that may be requested pursuant to the HSR Act.
  3. Third Party Consents. Seller shall give such notices to third parties and use its commercially reasonable efforts to obtain such third party consents and estoppel certificates as Purchaser may reasonably deem necessary or desirable in connection with the transactions contemplated by this Agreement, including, without limitation, all third party consents that are necessary or desirable in connection with the transfer of the Material Contracts. Purchaser shall cooperate and use commercially reasonable efforts to assist Seller in giving such notices and obtaining such consents and estoppel certificates; provided, however, that Purchaser shall have no obligation to give any guarantee or other consideration of any nature in connection with any such notice, consent or estoppel certificate or to consent to any change in the terms of any Material Contract which Purchaser in its reasonable discretion may deem adverse to the interests of Purchaser or the Business. If such consent, approval or authorization cannot be obtained, Seller will use commercially reasonable efforts to provide Purchaser with the rights and benefits of the affected lease, license, contract, commitment or other agreement or arrangement for the term of such lease, license, contract or other agreement or arrangement, provided that the cost thereof is paid or reimbursed by Purchaser, and, if Seller provides such rights and benefits, Purchaser shall assume the obligations and burdens thereunder.

SECTION 5.05. Notice of Developments. Prior to the Closing, Seller shall promptly notify Purchaser in writing of:

  1. all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement and known to Seller which would reasonably be expected to result in any breach of a representation or warranty or covenant of Seller in this Agreement or which would reasonably be expected to have the effect of making any representation or warranty of Seller in this Agreement untrue or incorrect in any material respect,
  2. any written notice or other written communication from or to any rating agency in connection with this Agreement or the transactions contemplated hereby, and from or to any Governmental Authority in connection with this Agreement or the transactions contemplated hereby, or otherwise, and
  3. all other adverse developments known to Seller affecting the assets, Liabilities, business, financial condition, operations, results of operations, customer or supplier relations or employee relations of BCBS-ME or the Business which are material when taken as a whole.

SECTION 5.06. Blue Alliance. Exhibit 5.06 sets forth a list of the existing agreements under which Seller provides various administrative and other services to Blue Alliance (the "Blue Alliance Service Agreements"). If requested by Blue Alliance in writing at or prior to the Closing Date, Purchaser agrees to continue to provide to Blue Alliance, for a period of up to two (2) years after the Closing Date, the management, administrative and other services covered by the Blue Alliance Service Agreements on the same terms and conditions as provided in the existing Blue Alliance Service Agreements.

SECTION 5.07. No Solicitation or Negotiation.

  1. Seller agrees that, between the date of this Agreement and the earlier of the Closing or the termination of this Agreement, neither BCBS-ME nor any of its Affiliates, officers, directors, representatives or agents will
    1. solicit, initiate or encourage any other proposals or offers from any Person relating to an Extraordinary Business Combination, or
    2. participate in any discussions or negotiations regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any other Person relating to, an Extraordinary Business Combination, except that Seller may state that it is bound by this Agreement. Seller immediately shall cease and cause to be terminated all existing discussions and negotiations with any Persons conducted heretofore with respect to an Extraordinary Business Combination. Seller agrees not to, without the prior written consent of Purchaser, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which Seller is a party. For purposes of this Section 5.07(a), an Extraordinary Business Combination shall be deemed to include the sale of any shares of stock of Machigonne, Inc. by BCBS-ME or any of its Affiliates.
  2. Nothing contained in this Section 5.07 or in any other provision of this Agreement shall prohibit Seller from
    1. making any disclosure of information required by law (provided Seller uses commercially reasonable efforts to obtain confidential treatment for such information),
    2. communicating any information to the Board of Directors of BCBS-ME to the extent necessary to comply with the fiduciary duties of the Board of Directors of BCBS-ME, or
    3. providing non-public information regarding BCBS-ME to, or negotiating with, any third party (provided such party is subject to an executed confidentiality agreement) that makes an unsolicited proposal for an Extraordinary Business Combination if the Board of Directors of BCBS-ME shall have determined in its good faith reasonable judgment, after consultation with its outside legal counsel and financial advisors, that its fiduciary duties require it to provide non-public information to and pursue negotiations with such third party to determine if the unsolicited proposal for an Extraordinary Business Combination is a Superior Proposal. Notwithstanding the foregoing provisions of this Section 5.07(b), neither Seller nor its Board of Directors may terminate this Agreement except in accordance with the terms of Article X.
  3. Seller shall notify Purchaser promptly (and in any event within forty-eight (48) hours) if any proposal or offer is made, and shall, in any such notice to Purchaser, indicate in reasonable detail the identity of the Person making such proposal or offer and the terms and conditions of such proposal or offer. Seller will keep Purchaser fully informed of the status and details (including amendments or proposed amendments) of any such proposal or offer.

SECTION 5.08. Break-Up Fee. In the event that this Agreement is terminated by Seller pursuant to Section 10.01(c), Seller will pay Purchaser, contemporaneously with such termination, a fee equal to $4,500,000 (the "Break-Up Fee"), payable by wire transfer of same day funds. Payment of the Break-Up Fee shall constitute the exclusive remedy of Purchaser for damages arising out of Seller's termination of this Agreement or any other claim of breach or default by Seller or other damage suffered by Purchaser hereunder, except that nothing herein shall limit Purchaser's remedies for a successful challenge of Seller's compliance with Section 10.01(c). Seller acknowledges that the agreements contained in this Section 5.08 are an integral part of the transactions contemplated by this Agreement and are not a penalty, and that, without these agreements, Purchaser would not enter into this Agreement.

SECTION 5.09. Use of Intellectual Property.

  1. From and after the Closing, Seller shall not use any of the Owned Intellectual Property or the Licensed Intellectual Property.
  2. Immediately after the Closing, Seller shall change its corporate name, and amend its charter accordingly, to one not using any trademark, service mark, trade dress, logo, trade name or corporate name contained in the Owned Intellectual Property or the Licensed Intellectual Property or any trademark, service mark, trade dress, logo, trade name or corporate name similar or related thereto. As promptly as practicable following the Closing, Seller shall remove or obliterate any Owned Intellectual Property or Licensed Intellectual Property from letterheads and other materials remaining in its possession or under its control, and Seller shall not use or put into use after the Closing any materials that bear any trademark, service mark, trade dress, logo, trade name or corporate name contained in the Owned Intellectual Property or the Licensed Intellectual Property or any trademark, service mark, trade dress, logo, trade name or corporate name similar or related thereto.

SECTION 5.10. Non-Competition.

  1. In partial consideration of the payment of the Total Consideration, as set forth in Section 2.03, Seller and Purchaser agree that, for a period of ten (10) years after the Closing (the "Restricted Period"), neither BCBS-ME nor the Foundation shall (i) engage, directly or indirectly, in any business anywhere in the world that supplies products or services of the kind supplied by the Business or BCBS-ME as of the Closing Date or, without the prior written consent of Purchaser, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to, or participate in or be connected with, as a partner, stockholder, consultant or otherwise, any Person that competes with Purchaser or the Business in supplying products or services of the kind supplied by the Business or BCBS-ME as of the Closing Date, provided, however, that, for the purposes of this Section 5.10, ownership of securities having no more than five percent (5%) of the outstanding voting power of any competitor which are listed on any national securities exchange or traded actively in the national over-the-counter market shall not be deemed to be in violation of this Section 5.10 so long as the Person owning such securities has no other connection or relationship with such competitor, or (ii) lend money, render financial or other assistance or make grants, donations and contributions for the purpose of competing with Purchaser or the Business in supplying products or services of the kind supplied by the Business or BCBS-ME as of the Closing Date.
  2. As a separate and independent covenant, Seller agrees with Purchaser that, for the Restricted Period, neither BCBS-ME nor the Foundation will in any way, directly or indirectly, for the purpose of conducting or engaging in any business that supplies products or services of the kind supplied by the Business or BCBS-ME:
    1. call upon, solicit, advise or otherwise do, or attempt to do, business with any customers of the Business or BCBS-ME with which the Business or BCBS-ME had any dealings prior to the Closing Date,
    2. take away or interfere or attempt to interfere with any custom, trade, business or patronage of Purchaser or the Business,
    3. request any present or future provider, employer, subscriber, or members of BCBS-ME or the Business to curtail or cancel their participation or business with Purchaser or its Affiliates,
    4. discuss with any such provider, subscriber or member any aspect of the arrangement between the provider, employer, subscriber or member and Purchaser or its Affiliates,
    5. interfere with or attempt to interfere with any officers, employees, representatives or agents of Purchaser or the Business, or hire, or induce or attempt to induce any of them to leave the employ of Purchaser or violate the terms of their contracts, or any employment arrangements, with Purchaser,
    6. solicit, canvas or accept any business for or on behalf of any third party engaged in a business which competes with any aspect of the Business, or
    7. be a party to any act which would divert, diminish, or prejudice the Business or the goodwill or business of Purchaser or its Affiliates.
  3. The Restricted Period shall be extended by the length of any period during which either BCBS-ME or the Foundation is in breach of the terms of this Section 5.10.
  4. Seller acknowledges that the covenants of Seller set forth in this Section 5.10 are an essential element of this Agreement and that, but for the agreement of Seller and the Foundation to comply with these covenants, Purchaser would not have entered into this Agreement. Seller acknowledges that this Section 5.10 constitutes an independent covenant and shall not be affected by performance or nonperformance of any other provision of this Agreement by Purchaser. Seller has independently consulted with its counsel and after such consultation agrees that the covenants set forth in this Section 5.10 are reasonable and proper.
  5. Notwithstanding the foregoing, this Section 5.10 shall not be interpreted to restrict the activities of the Foundation to the extent that such activities include the support of any program to fund insurance or otherwise provide healthcare to individuals or groups for whom access to commercial health insurance is problematic by reason of cost, availability, or other barriers (the "Exempt Programs"), provided that the provision of any third party administration, insurance or other similar service components of the Exempt Programs has not been awarded to another party without affording Purchaser an opportunity to bid competitively to provide the same

SECTION 5.11. Directors.

  1. Purchaser will use its reasonable best efforts to cause an Acceptable ME Representative to be elected or appointed to Purchaser's Board of Directors for a term of not less than two (2) years, as promptly as practicable after the Closing.
  2. Effective as promptly as practicable after the Closing, Purchaser will establish an advisory board of Maine residents initially consisting of not more than nine (9) members who are either
    1. members of the Board of Directors of Seller designated by Seller, and/or
    2. members designated by Seller's Board of Directors who are mutually acceptable to Purchaser and Seller (the "Local Advisory Board"). Members of the Local Advisory Board shall receive reasonable compensation determined by Purchaser in its discretion.
  3. In the event that Purchaser establishes a regional advisory or other board the responsibility of which includes Maine, Purchaser shall assure that the members thereof include Maine residents in approximate proportion to the number of Maine residents who are members of health plans maintained by Purchaser and its Subsidiaries as compared to the total number of members in health plans maintained by Purchaser and its Subsidiaries in the region represented by the regional advisory or other board (and in no event less than one such representative).

SECTION 5.12. Post-Closing Employment Levels. Purchaser hereby covenants to use commercially reasonable efforts to maintain substantial offices and other appropriate facilities in Maine and that, within three (3) years after the Closing Date, Purchaser will achieve the goal of maintaining substantially proportionate employment levels in Maine as compared to those in other geographic areas in which Purchaser operates, subject to such fluctuations as are required in Purchaser's reasonable business judgment to respond to business conditions in general or substantial changes in relevant Maine Laws or regulations. The employment of those persons (the "MN Employees") whose job responsibilities are primarily related to providing services to BCBSM, Inc. d/b/a Blue Cross and Blue Shield of Minnesota pursuant to the "Extension of Services Agreement; Commencement of Work" between Seller and BCBSM, Inc. d/b/a Blue Cross and Blue Shield of Minnesota, dated March 18, 1999 (the "MN Service Agreement") shall not be counted in evaluating proportionality under the preceding sentence so long as the MN Service Agreement continues in effect. Notwithstanding the foregoing, in the event that the MN Service Agreement terminates within the two (2) year period immediately following the Closing Date, Purchaser shall make reasonably comparable positions within the Business available to the MN Employees, either by

  1. filling existing vacancies created in the ordinary course of business and unrelated to the satisfaction of this provision, or
  2. creating additional positions, and for the balance of such two (2) year period, such former MN Employees shall continue not to be counted in evaluating proportionality. It is Purchaser's intention, subject to the assignability of the related contracts, to move the Medicare administrative/intermediary functions performed by BCBS-ME to Purchaser's Administar Subsidiary.

SECTION 5.13. Use of Proceeds. Seller shall liquidate and dissolve promptly after the Closing Date, and shall deliver the remaining amount of the Total Consideration to the Foundation in accordance with an appropriate order of a Governmental Authority relating to a distribution of Seller's assets.

SECTION 5.14. Director and Officer Liability. For six (6) years after the Closing Date, Purchaser agrees to indemnify and hold harmless the current (as of the Closing Date) and former directors and/or officers of BCBS-ME for acts or omissions occurring at or prior to the Closing Date in relation to their positions with BCBS-ME to the same extent as such persons are entitled to indemnification pursuant to BCBS-ME's charter or By-laws or any agreement disclosed in writing to Purchaser prior to the date hereof, but in no event in excess of the indemnification permitted by applicable Law. For six (6) years after the Closing Date, Purchaser shall maintain in effect directors' and officers' liability insurance policies with coverage for events occurring prior to the Closing Date for each such person currently covered by BCBS-ME's directors' and officers' liability insurance policies, on terms with respect to coverage and amount which are substantially equivalent to the policies maintained in effect by BCBS-ME on the date hereof; provided that if the aggregate annual premiums for such insurance within any one year during such six (6) year period shall exceed two hundred percent (200%) of the per annum rate of the aggregate premiums currently paid by BCBS-ME for such insurance on the date of this Agreement, then Purchaser shall provide the most advantageous coverage (as determined by Purchaser in its reasonable discretion) that shall then be available at an annual premium equal to two hundred percent (200%) of such current rate.

SECTION 5.15. Corporate Philanthropy. For two (2) years after the Closing Date, Purchaser shall make corporate civic contributions, at an annual level at least equivalent to the average of Seller's contributions over the preceding two (2) years (but not less than $500,000 per year), to worthy organizations chosen by Purchaser in its sole discretion.

SECTION 5.16. Further Action. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Laws, and execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and consummate and make effective the transactions contemplated by this Agreement.

SECTION 5.17. NCQA Accreditation. Purchaser shall use commercially reasonable efforts to maintain the level of NCQA accreditation achieved by Seller prior to the Closing for a period of at least two (2) years following the Closing Date.

ARTICLE VI

EMPLOYEE MATTERS

SECTION 6.01. Transferred Employees.

  1. Prior to or upon the Closing, Purchaser shall offer employment to all individuals employed prior to the Closing by Seller without substantive changes in the terms and conditions applicable to such employees, provided that the foregoing shall not be deemed to be an employment contract; moreover, no Transferred Employee, or other current or former employee of Seller or any affiliate (or any respective spouses or beneficiaries of such persons), or any other person not a named party to this Agreement, shall be entitled to assert any claim hereunder. This Agreement is not intended and shall not be construed for the benefit of any third party or any person not a signatory hereto and in no event shall this Agreement constitute a third party beneficiary contract. As used herein, "Transferred Employees" shall mean those employees of Seller who become employed by Purchaser at the Closing Date.
  2. Each Transferred Employee's years of service and dates of hire with or recognized by Seller shall be recognized or used for all employment, compensation and benefits purposes by Purchaser after the Closing.

SECTION 6.02. Assumption of Certain Retirement Plans; Contributions. On the Closing Date, Purchaser shall adopt all employee retirement or welfare benefit plans of Seller (together, the "Assumed Plans") and the related trusts, and Seller shall cause all right, title, interest, duties and authorities of Seller in, to and under the Assumed Plans and the related trusts to be transferred to Purchaser in accordance with applicable Law. At the Closing, the parties shall execute and deliver such documents and instruments as may be required to effect such an assumption and transfer and to reflect the parties' intent that the Assumed Plans not be or be deemed to be terminated, or partially terminated, as a result of this Agreement or the transactions contemplated herein and that all assets of the Assumed Plans, as the same exist immediately prior to the Closing Date, shall be transferred with the Assumed Plans as provided in this Section 6.02. Prior to the Closing Date, Seller shall cause each employer under the Assumed Plans to make a pro rata contribution to the Assumed Plans for the portion of the current plan year which will be completed as of the Closing Date, except to the extent that the obligations to make such payments are reflected on the Final Closing Balance Sheet.

SECTION 6.03. Treatment of Transferred Employees in Plans. For one year after the Closing (the "Benefits Protection Period"), Purchaser will maintain benefits for the Transferred Employees which are comparable in the aggregate to those in effect immediately prior to the Closing, provided, however, that nothing herein will prohibit Purchaser from:

  1. taking any action required by Law,
  2. amending or terminating any benefit plan in accordance with the terms thereof and applicable Law after expiration of the Benefits Protection Period,
  3. effecting such changes in employee benefits as the Board of Directors of Purchaser may determine, based upon the advice of a nationally recognized employee benefits consulting firm, so long as such changes do not result in a decrease in the value of such benefits to Transferred Employees, or (iv) no earlier than January 1st of the calendar year first following the Closing Date, transferring Transferred Employees to Purchaser's standardized employee benefit plans sponsored or maintained for the benefit of its similarly situated employees, subject to and in compliance with Section 411(d)(6) of the Code, as applicable. Purchaser will
    1. give credit to Transferred Employees for service with BCBS-ME in all of Purchaser's employee benefit plans, and, to the extent necessary, shall cause its plans to be amended to provide for recognition of such service credit, and
    2. Purchaser will or will cause any plan providing Welfare Benefits (as defined in Section 3(1) of ERISA) to
      1. waive all limitations as to preexisting conditions, exclusions and waiting periods and service requirements with respect to participation and coverage requirements applicable to the Transferred Employees under any such plan sponsored by Purchaser, except to the extent such preexisting condition, period, exclusions, service requirements, and waiting periods had not been satisfied by any such Transferred Employee as of such time under a Seller Plan, and
      2. provide each Transferred Employee with credit for any deductible, co-payment and out-of-pocket limits applicable to such employees under any such plan to the extent such amounts had already been paid by the Transferred Employee under a Seller Plan during that calendar or plan year.

SECTION 6.04. Non-Competition/Non-Solicitation Agreements. Seller will cooperate with Purchaser's efforts to obtain non-competition/non-solicitation agreements by those key employees of BCBS-ME who are identified by Purchaser.

ARTICLE VII

TAX MATTERS

SECTION 7.01. Indemnity.

  1. Seller shall indemnify, hold harmless and defend Purchaser from and against any loss (a "Tax Related Loss") arising out of, relating to, contesting or otherwise in connection with the following Taxes (the "Seller's Aggregate Tax Liability"):
    1. Taxes imposed on BCBS-ME or the Business with respect to taxable periods of such Person ending on or before the Closing Date;
    2. with respect to taxable periods beginning before the Closing Date and ending after the Closing Date, Taxes imposed on BCBS-ME or the Business which are allocable, pursuant to Section 7.01(b), to the portion of such period ending on and including the Closing Date;
    3. Taxes imposed with respect to or arising out of the consummation of the transactions contemplated by this Agreement, including without limitation, the Taxes set forth in Section 7.05;
    4. Taxes imposed on Purchaser as a result of any breach of a warranty or a misrepresentation under Section 3.24 of this Agreement; and
    5. Seller's Post-Closing Tax Liabilities. Seller shall be obligated to indemnify Purchaser for Seller's Aggregate Tax Liability whether or not the Tax Related Loss is incurred by Seller or Purchaser. A "Tax Related Loss" shall include, but shall not be limited to, any Taxes, any loss of BCBS-ME's Tax-Related Assets or Purchaser's Tax-Related Assets, and any other damage, Liabilities, interest, penalty, award, judgment or expense (including, but not limited to, reasonable fees for attorneys, accountants and other outside consultants, except to the extent such fees are incurred in connection with a Tax Audit that then is concurrently being controlled by Seller pursuant to Section 7.03(b) of this Agreement).
  2. In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on and including the Closing Date shall be:
    1. in the case of Taxes that are either (x) based upon or related to income or receipts, or (y) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) (other than conveyances pursuant to this Agreement, as provided under Section 7.05), deemed equal to the amount which would be payable if the taxable year ended with the Closing Date; and
    2. in the case of Taxes imposed on a periodic basis with respect to the assets of BCBS-ME, or otherwise measured by the level of any item other than income or receipts, deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period
  3. Payment by Seller of any amounts due to Purchaser under this Article VII shall be made:
    1. at least three (3) Business Days before the due date of any applicable estimated or final Return required to be filed by Purchaser that includes any Tax for which Seller is obligated to indemnify Purchaser under this Section VII, whether or not any Tax is required to be paid when the Return is filed;
    2. within three (3) Business Days following an agreement between Seller and Purchaser that an indemnity amount is payable, an assessment of a Tax by a taxing authority, or a "determination" as defined in Section 1313(a) of the Code; and
    3. if the amount for which Seller is obligated to indemnify Purchaser under this Article VII is in respect of costs or expenses other than Taxes, payment by Seller of any amounts due under this Article VII shall be made within five (5) Business Days after the date when Seller has been notified by Purchaser that Seller has a liability for a determinable amount under this Article VII and is provided with calculations or other materials supporting such liability.

      However, to the extent there is sufficient funds in the Closing Tax Reserve, any amounts due to Purchaser under this Article VII shall be paid from the Closing Tax Reserve on the above dates.

  4. Purchaser shall indemnify, hold harmless and defend Seller from and against any Taxes, loss of Seller's Tax-Related Assets, and any other damage, Liabilities, interest, penalty, award, judgment or expense (including, but not limited to, reasonable fees for attorneys, accountants and other outside consultants, except to the extent such fees are incurred in connection with a Tax Audit that then is concurrently being controlled by Purchaser pursuant to Section 7.03 of this Agreement) arising out of, relating to, or otherwise in connection with Taxes imposed on BCBS-ME or the Business, with respect to taxable periods beginning before the Closing Date and ending after the Closing Date, which are allocable, pursuant to Section 7.01(b), to the portion of such period commencing after the Closing Date (exclusive of Seller's Post-Closing Tax Liabilities). Payment by Purchaser of any amounts due to Seller under this section shall be made pursuant to a procedure similar to that set forth in Section 7.01(c) for indemnity payments from Seller to Purchaser.

SECTION 7.02. Returns and Payments.

  1. From the date of this Agreement through and after the Closing Date, Seller, at its expense, shall prepare and file or otherwise furnish in proper form to the appropriate Governmental Authority (or cause to be prepared and filed or so furnished) in a timely manner all Tax returns, reports and forms, including any requests for the refund of any Tax (the "Returns"), relating to BCBS-ME, the Business and/or the Assets for all Tax periods prior to and including the Final Taxable Period. The term "Return" shall include all filings relating to any Tax or exemption from Tax made or required to be made to any Governmental Authority.
  2. Seller shall prepare each Return in a manner consistent with prior practices of BCBS-ME, including, but not limited to, the timing of deductions, the recognition of income, the accounting methods employed, and the use of assumptions. Seller shall not unreasonably accelerate its recognition of items of loss, deduction or credit to periods before the Closing Date without the prior written consent of Purchaser, which consent will not be unreasonably withheld.
  3. With respect to any Return required to be filed by Seller hereunder, Seller shall provide Purchaser and its authorized representatives with a copy of such completed Return and a statement certifying the amount of Tax shown on such Return that is allocable to Purchaser (i.e., not allocable to Seller's Aggregate Tax Liability), together with appropriate supporting information and schedules, at least twenty (20) Business Days prior to the due date (including any extension thereof) for the filing of such Return, and Purchaser and its authorized representatives shall have the right to review and comment on such Return and statement prior to the filing of such Return, which comments shall, in good faith, be considered by Seller; provided, however, that Seller shall make any changes requested by Purchaser with respect to any Return to the extent it violates the terms of this Agreement or the Independent Accounting Firm renders an opinion that if the Return is not so changed, the Return cannot be prepared and filed without it more likely than not being subject to penalties if audited.
  4. With respect to any Return filed by Purchaser that includes any Tax shown on such Return that is allocable to Seller's Aggregate Tax Liability, Purchaser shall provide Seller or its authorized representative with a copy of such completed Return and a statement certifying the amount of Seller's Aggregate Tax Liability included on such Return, together with appropriate supporting information and schedules at least twenty (20) Business Days prior to the due date (including any extension thereof) for the filing of such Return, and Seller and its authorized representatives shall have the right to review and comment on such Return, which comments shall, in good faith, be considered by Purchaser. However, Purchaser shall not be required to make any change requested by Seller or its authorized representatives if the Independent Accounting Firm renders an opinion that if the Return is so changed the Return cannot be prepared and filed without it more likely than not being subject to penalties if audited.
  5. Seller shall timely pay all Taxes allocable to Seller's Aggregate Tax Liability shown as due on the Returns filed by it under this Section 7.02 from Seller's funds for Returns filed on or prior to the Closing Date. All Taxes allocable to Seller's Aggregate Tax Liability shown as due on the Returns filed by Seller after the Closing Date shall be paid out of the Closing Tax Reserve as set forth in Section 7.06, provided that Seller shall pay or cause to be paid when due and payable all Taxes allocable to Seller's Aggregate Tax Liability to the extent they exceed the funds in the Closing Tax Reserve.

SECTION 7.03. Contests.

  1. Both before and after the Closing, Purchaser and Seller shall each promptly notify the other in writing of any written notice of a proposed assessment or claim in a Tax Audit or administrative or judicial proceeding of Purchaser or BCBS-ME which, if determined adversely to the taxpayer, would be grounds for indemnification under this Article VII or could adversely effect the other party, its business or its assets; provided, however, that a failure to give such notice will not affect a party's right to indemnification under this Agreement except to the extent, if any, that but for such failure such party could have avoided all or a portion of the Tax liability in question.
  2. Seller shall have the right at its expense to participate in and control the conduct of any Tax Audit that relates solely to periods ending on or before the Closing Date, provided that Seller acknowledges in writing its liability under this Agreement to hold Purchaser harmless against the full amount of any adjustment to Seller's Aggregate Tax Liability which may be made as a result of such Tax Audit. However, Purchaser also may participate in any such Tax Audit, and if Seller does not assume the defense of any such Tax Audit, Purchaser may defend the same in such manner as it may deem appropriate, including, but not limited to, settling such Tax Audit after giving five (5) days' prior written notice to Seller setting forth the terms and conditions of settlement. In addition, if Seller does not assume the defense of any such Tax Audit, Seller shall execute and deliver to Purchaser, at Purchaser's request, appropriate powers of attorney, in blank or otherwise, granting Purchaser the right (x) to represent Seller and control such Tax Audit, (y) to defend and compromise any and all Actions, suits or proceedings in respect of any such Tax Audit, and (z) to do all such acts and things in relation to such Tax Audit as Purchaser shall deem desirable.
  3. With respect to any Tax Audit relating to Taxes for which both Seller (as evidenced by its acknowledgment under Section 7.03(b)) and Purchaser could be liable
    1. each party may participate in the Tax Audit, and
    2. Seller and Purchaser shall jointly control the Tax Audit. If Seller and Purchaser jointly control a Tax Audit, both parties shall work cooperatively and in good faith to resolve such Tax Audit.
  4. Neither Purchaser nor Seller shall enter into any compromise or agree to settle any claim pursuant to any Tax Audit which would adversely affect the other party for such taxable year or any other taxable year without the written consent of the other party, which consent may not be unreasonably withheld. Purchaser and Seller agree to cooperate in the defense against or compromise of any claim in any Tax Audit.

SECTION 7.04. Cooperation and Exchange of Information. On the Closing Date, Seller shall deliver to Purchaser all Tax-related records of Seller; provided, however, that Seller may retain copies of such records. Upon the terms set forth in Section 5.02, Seller and Purchaser will provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes, participating in or conducting any audit or other proceeding in respect of Taxes or making representations to or furnishing information to parties subsequently desiring to purchase all or a part of the Business from Purchaser. Such cooperation and information shall include providing copies of relevant Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities. Seller shall make its employees available on a basis mutually convenient to both parties to provide explanations of any documents or information provided hereunder. Purchaser shall retain all Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of Seller and the Business for each taxable period first ending after the Closing Date and for all prior taxable periods until the later of:

  1. the expiration of the statute of limitations of the taxable periods to which such Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods, or
  2. six (6) years following the due date (without extension) for such Returns. Any information obtained under this Section 7.04 shall be kept confidential except as may be otherwise necessary in connection with the filing of Returns or claims for refund, in conducting a Tax Audit or other proceeding, or the making of representations or the furnishing of information to parties subsequently desiring to purchase all or a part of the Business from Purchaser.

SECTION 7.05. Conveyance Taxes. Seller shall be liable for and shall timely pay pursuant to Section 7.01 or 7.02, as the case may be, any real property transfer or gains, sales, use, transfer, value added, stock transfer, and stamp taxes, any transfer, recording, registration, and other fees, and any similar Taxes which become payable in connection with the transactions contemplated by this Agreement. Seller, after the review and consent by Purchaser, shall file such applications and documents as shall permit any such Tax to be assessed and paid on or prior to the Closing Date in accordance with any available pre-sale filing procedure. Purchaser shall execute and deliver all instruments and certificates necessary to enable Seller to comply with the foregoing. Purchaser shall, if requested by Seller, execute a resale or other exemption certificate in a form provided by Seller and approved by Purchaser with respect to the inventory items sold hereunder, and shall provide Seller with a copy thereof. Notwithstanding the provision of such a certificate, Seller shall remain liable for any Taxes subsequently assessed with respect to such inventory items.

SECTION 7.06. Closing Tax Reserve.

  1. On the Closing Date, Seller shall establish and fund from the Total Consideration an interest-bearing bank account, a certificate of deposit or similar high quality short-term obligation, custody of which bank account is to be retained by Seller at Closing as security for and to be applied in payment of Seller's obligations hereunder, which bank account shall contain funds adequate to satisfy completely the reasonably expected Seller's Aggregate Tax Liability (inclusive of any such liabilities arising from any Tax Audits ongoing as of the Closing Date) (the "Closing Tax Reserve"). In the event that Seller cannot retain custody of the Closing Tax Reserve during its existence, custody shall be transferred to Seller's attorneys or Purchaser, but in no event to the Foundation.
  2. Seller and Purchaser acknowledge and agree that the amount of the Closing Tax Reserve shall be established by mutual agreement of the parties. On or before the forty-fifth day before the Closing Date, Seller shall deliver a notice to Purchaser containing Seller's proposal regarding the amount of funds to be deposited by Seller in the Closing Tax Reserve, together with a reasonably-detailed description of the calculation of such Closing Tax Reserve amount (including a breakdown of each Tax to be covered by the Closing Tax Reserve by amount and Tax period); the workpapers generated by Seller and its tax professionals in performing such calculation; and any material supporting authority, valuations or opinions upon which Seller and/or its tax professionals have relied, or which it has employed, in connection with performing such calculation. If, for any reason, the parties cannot agree as to the appropriate amount of the Closing Tax Reserve, any dispute regarding the same shall be submitted to the Independent Accounting Firm, for its decision in accordance with applicable Tax Law, and the final decision of the Independent Accounting Firm shall be conclusive and binding on the parties.
  3. The funds in the Closing Tax Reserve shall be used to pay all Taxes as set forth on the Returns, as described in Section 7.02, that are filed after the Closing Date and Seller's obligations under this Article VII as described in Section 7.01. Any proceeds remaining in the Closing Tax Reserve after Seller's Aggregate Tax Liability has been Finally Determined shall be paid to Seller.
  4. All interest earned on the Closing Tax Reserve shall be added to and become part of the Closing Tax Reserve and shall be attributed to Seller for federal, state and local income Tax purposes.

SECTION 7.07. Tax Refunds and Tax Benefits. Seller shall be entitled to any Tax Refund when and if paid to or utilized by Seller or Purchaser, net of any Tax Related Loss (for which Purchaser is entitled to be indemnified pursuant to Section 7.01) arising from or related to such Tax Refund.

SECTION 7.08. Miscellaneous.

  1. Seller and Purchaser agree to treat all payments made by either to or for the benefit of the other under this Article VII, under other indemnity provisions of this Agreement and for any misrepresentations or breach of warranties or covenants as adjustments to the Total Consideration or as capital contributions for Tax purposes and that such treatment shall govern for purposes hereof except to the extent that the laws of a particular jurisdiction provide otherwise, in which case such payments shall be made in an amount sufficient to indemnify the relevant party on an after-Tax basis.
  2. Notwithstanding any provision in this Agreement to the contrary, the obligations of Seller to indemnify and hold harmless Purchaser pursuant to this Article VII shall terminate at the close of business on the 120th day following the expiration of the applicable statute of limitations with respect to the Tax liabilities in question (giving effect to any waiver, mitigation or extension thereof) except as to any liability regarding which Seller has received from Purchaser a written notice containing sufficient detail to identify the nature and scope of such liability and which is received on or before such termination date by Seller.
  3. From and after the date of this Agreement, Seller shall not make, or cause or permit to be made, any Tax election or change in accounting method that would adversely affect Seller, the Business or Purchaser without Purchaser's prior written consent, which consent may not be unreasonably withheld.
  4. For purposes of this Article VII, other than Section 7.01(d), "Purchaser" and "Seller" shall include each member of the affiliated group of corporations of which it was, is or becomes a member; provided, however, that Seller's obligation to indemnify Purchaser pursuant to Section 7.01(a) shall not be, after the Closing, an obligation of those Affiliates of Seller which become Affiliates of Purchaser, and such former Affiliates of Seller shall be entitled to the benefit of such indemnity as Affiliates of Purchaser.
  5. Purchaser and Seller each shall be entitled to recover professional fees and related costs that it may reasonably incur to enforce the provisions of this Article VII.
  6. Seller shall use its reasonable best efforts to cause any "10% owner" (as defined in Section 1060(e) of the Code) to cooperate with Purchaser in complying with any reporting obligations under Section 1060(e) of the Code.
  7. Seller shall cause any and all Tax sharing agreements to which BCBS-ME is a member to be terminated, and all amounts due under each of such agreements to be paid in full, prior to the Closing.

SECTION 7.09. Section 338 Election. Seller agrees that, if Purchaser notifies Seller in writing with regard to its intention to make an election under Section 338 of the Code (and/or any similar election as may be available under applicable state or local laws) in connection with Purchaser's acquisition of equity interests in BCBS-ME and/or in Seller's Affiliates and Subsidiaries pursuant to the terms of this Agreement, and Purchaser agrees in writing to hold harmless Seller from any costs and liabilities (including, without limitation, any increases in Taxes) that are incurred by Seller solely as a result of such election(s), Seller shall join with Purchaser in making such election and in taking all steps necessary in order to effectuate the same.

ARTICLE VIII

CONDITIONS TO CLOSING

SECTION 8.01. Conditions to Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

  1. HSR Act. Any waiting period (and any extension thereof) under the HSR Act applicable to the transactions contemplated hereby shall have expired or shall have been terminated;
  2. No Proceeding or Litigation. No Action by or before any Governmental Authority shall be pending against either Seller or Purchaser seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement or which is likely to render it impossible or unlawful to consummate the transactions contemplated by this Agreement or which is reasonably likely to have a Material Adverse Effect; provided, however, that the provisions of this Section 8.01(b) shall not apply to a party if such party has directly or indirectly solicited or encouraged any such Action;
  3. Consents and Approvals. Purchaser and Seller shall have received all approvals, licenses and certificates from Governmental Authorities set forth on Exhibit 8.01(c) without the existence of a Burdensome Condition, which approvals, licenses and certificates shall be in full force and effect;
  4. Ancillary Agreements. Each party shall have executed and delivered to the other party each of the Ancillary Agreements to which it is a party; and
  5. Assignment of Agreement. Purchaser shall have formed a domestic corporation in Maine, which corporation shall have the same corporate characteristics (including as regards governance, capitalization, and inter-company service arrangements) as other health insurance subsidiaries of Purchaser, to which Purchaser shall have assigned its rights and obligations under this Agreement.

SECTION 8.02. Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

  1. Representations, Warranties and Covenants. The representations and warranties of Purchaser contained in this Agreement shall have been true and correct in all material respects when made and, subject to updating of the Disclosure Schedule by Purchaser just prior to the Closing Date, shall be true and correct in all material respects as of the Closing (except, in both cases, such materiality limitation shall not apply to the extent that a representation or warranty is, by its express terms, already limited by a materiality standard) with the same force and effect as if made as of the Closing Date, other than such representations and warranties as are made as of another date, and the covenants and agreements contained in this Agreement to be complied with by Purchaser on or before the Closing shall have been complied with in all material respects, and Seller shall have received a certificate from Purchaser to such effect signed by a duly authorized officer thereof;
  2. Resolutions. Seller shall have received a true and complete copy, certified by the Secretary or an Assistant Secretary of Purchaser, of the resolutions duly and validly adopted by the Board of Directors of Purchaser evidencing its authorization of the execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby;
  3. Incumbency Certificate. Seller shall have received a certificate of the Secretary or an Assistant Secretary of Purchaser certifying the names and signatures of the officers of Purchaser authorized to sign this Agreement and the Ancillary Agreements and the other documents to be delivered hereunder and thereunder; and
  4. Legal Opinion. Seller shall have received from Purchaser's legal counsel an opinion, addressed to Seller and dated the Closing Date, substantially similar to that set forth in Exhibit 8.02(d).

SECTION 8.03. Conditions to Obligations of Purchaser. The obligations of Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

  1. Representations, Warranties and Covenants. The representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects when made and, subject to updating of the Disclosure Schedule by Seller just prior to the Closing Date, shall be true and correct in all material respects as of the Closing (except, in both cases, such materiality limitation shall not apply to the extent that a representation or warranty is, by its express terms, already limited by a materiality standard) with the same force and effect as if made as of the Closing, other than such representations and warranties as are made as of another date, and the covenants and agreements contained in this Agreement to be complied with by Seller on or before the Closing shall have been complied with in all material respects, and Purchaser shall have received a certificate of Seller to such effect signed by a duly authorized officer thereof;
  2. Resolutions of Seller. Purchaser shall have received a true and complete copy, certified by the Secretary or an Assistant Secretary of Seller, of the resolutions duly and validly adopted by the Board of Directors of Seller evidencing its authorization of the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby;
  3. Incumbency Certificate of Seller. Purchaser shall have received a certificate of the Secretary or an Assistant Secretary of Seller certifying the names and signatures of the officers of Seller authorized to sign this Agreement and the Ancillary Agreements and the other documents to be delivered hereunder and thereunder;
  4. Legal Opinion. Purchaser shall have received from Seller's legal counsel an opinion, addressed to Purchaser and dated the Closing Date, substantially similar to that set forth in Exhibit 8.03(d);
  5. Consents and Approvals. Purchaser and Seller shall have received (each in form and substance reasonably satisfactory to Purchaser) those third party consents listed on Exhibit 8.03(e) hereto, all without material conditions; provided that, in obtaining such consents, Purchaser shall not seek or require modification of the contracts or agreements to which the consents relate other than as necessary to reflect the assignment to Purchaser;
  6. No Material Adverse Effect. No circumstance, change in, or effect on the Business shall have occurred which has a Material Adverse Effect, and no change in circumstances, procedural status, known relevant facts, or applicable Law or judicial precedent shall have occurred since the date of this Agreement which has materially increased the probability that an item of litigation set forth in Section 3.10 of the Disclosure Schedule would reasonably be expected to result in a Material Adverse Effect; provided that, for purposes of this Section 8.03(f), the parties will disregard all matters that have a Material Adverse Effect that is reasonably capable of being quantified and that will be fully recoverable by Purchaser through an adjustment to the Total Consideration pursuant to Section 2.07 (the determination of whether a Material Adverse Effect will be fully recoverable shall be made by Purchaser in good faith, and shall include Purchaser's reasonable consideration of any current projection of Seller's Closing Book Value provided by Seller);
  7. BCBSA Licenses. BCBSA shall have consented to the transfer of Seller's rights to use the Blue Cross and Blue Shield names and marks to Purchaser, or shall have issued to Purchaser primary Blue Cross and Blue Shield licenses for the State of Maine;
  8. Resolution of Charitable Claims, Etc. The approvals of Governmental Authorities shall clearly discharge all charitable, cy pres or similar claims on Seller, including the Assets and Business, through the establishment and funding of the Foundation pursuant to Section 5.13 or as otherwise directed by the applicable Governmental Authority;
  9. Assumption by Foundation. In the event that the Governmental Authority having jurisdiction over such matters has authorized or directed the delivery of the Total Consideration to the Foundation by means of a liquidating distribution by Seller in accordance with Section 5.13 or otherwise, the Foundation shall have executed a written agreement to be bound by the terms of this Agreement applicable to it and as assignee of the rights and obligations of Seller hereunder, including, without limitation, the obligations of non-competition and non-solicitation imposed pursuant to this Agreement;
  10. Certificates of Existence and Good Standing. Seller shall have delivered to Purchaser Certificates of Existence and Good Standing from the Secretary of State for the State of Maine and the Bureau of Insurance, as applicable, regarding Seller and its Subsidiaries, and from such applicable Governmental Authorities in other jurisdictions in which Seller or its Subsidiaries are then conducting business;
  11. No Restrictive Agreements. Except as set forth in Section 8.03(k) of the Disclosure Schedule with respect to Maine Partners Health Plan, Inc. and Central Maine Partners Health Plan Inc., on the Closing Date, neither Seller nor any of its Subsidiaries or Affiliates shall be a party to any non-competition or other agreement which restricts or limits the ability of Seller or Purchaser to compete in any line of business or with any Person or in any geographic area or during any period of time, except for restrictions imposed by BCBSA in the ordinary course or the restrictions imposed by this Agreement;
  12. Labor Matters. Seller shall have provided any notice to affected employees before the Closing as may be required by WARN;
  13. Computer Systems. All of the Intellectual Property consisting of, or reasonably necessary to the operation of, business critical computer software (including, without limitation, source code, operating systems, firmware, and specifications, data, data bases, files, documentation and other materials related thereto) and all microprocessors used or embedded in tangible personal property and fixtures for control or operation shall be Year 2000 Compliant, or, if the Closing Date is before January 1, 2000, would reasonably be expected to be Year 2000 Compliant by December 31, 1999. For purposes of this Section 8.03(m), the term "Year 2000 Compliant" shall mean (except for items noted in Section 8.03(m) of the Disclosure Schedule the continued proper operation of which, individually or in the aggregate, are not material to the operation of the Business) that the referenced Intellectual Property (including, without limitation, source code, operating systems, firmware, and specifications, data, data bases, files, documentation and other materials related thereto) and all microprocessors used or embedded in tangible personal property and fixtures for control or operation systems, shall be capable of accurately processing, providing and/or receiving date data from, into, and between the twentieth and twenty-first centuries, including the year 1999 and 2000, and leap year calculations, provided that the failure to achieve such performance shall be disregarded to the extent the failure is caused by products and systems used by third parties which exchange date data with such Intellectual Property but are not capable of exchanging such date data using either standard four digit year date code or other date data format adopted by Seller, and with correct identification of leap year information; and
  14. Blue Alliance. Contemporaneously with the Closing, Purchaser shall have closed a transaction pursuant to which it acquires Blue Alliance's interest in Machigonne, Inc., such that, after the Closing, Machigonne, Inc. will be Purchaser's wholly-owned Subsidiary. The documentation of such acquisition shall be acceptable to Purchaser in its sole discretion, and shall contain non-solicitation and non-competition covenants pursuant to which Blue Alliance agrees not to compete with the Business (except for certain limited exceptions relating to Blue Alliance's dental and life businesses as they are conducted on the Closing Date). As of the Closing Date, if requested in writing by Blue Alliance on or before the Closing Date, Seller shall have assigned to Purchaser, and Purchaser shall have assumed, the Blue Alliance Service Agreements subject to Section 5.06; provided that if Blue Alliance has not requested in writing on or before the Closing Date that Purchaser continue to provide such services, BCBS-ME shall have terminated the Blue Alliance Service Agreements.

SECTION 8.04. Frustration of Closing Conditions. Neither party may rely on the failure of any condition set forth in Sections 8.01 through 8.03, as the case may be, to be satisfied if such failure was caused by such party's failure to use commercially reasonable efforts to assist in the satisfaction of such condition; provided, however, that this Section 8.04 shall not be construed to require a party to waive all or part of any condition to its obligations hereunder.

ARTICLE IX

INDEMNIFICATION

SECTION 9.01 Indemnification by Seller. Purchaser and its Affiliates, officers, directors, employees, agents, successors and assigns shall be indemnified and held harmless by Seller and the Foundation, jointly and severally, for any and all Liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, attorneys' and consultants' fees and expenses) actually suffered or incurred by them (including, without limitation, by reason of any Action brought or otherwise initiated by any of them), arising out of or resulting from (i) the Excluded Liabilities, or (ii) a material breach of any covenant of Seller hereunder to be performed by it after the Closing. To the extent that Seller's and the Foundation's undertakings set forth in this Section 9.01 may be unenforceable, Seller and the Foundation shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all losses incurred by Purchaser.

SECTION 9.02. Indemnification by Purchaser. Seller and the Foundation and their respective Affiliates, officers, directors, employees, agents, successors and assigns shall be indemnified and held harmless by Purchaser for any and all Liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, attorneys' and consultants' fees and expenses) actually suffered or incurred by them (including, without limitation, by reason of any Action brought or otherwise initiated by any of them), arising out of or resulting from

  1. the Assumed Liabilities,
  2. the conduct of the Business after the Closing Date, or
  3. a material breach of any covenant of Purchaser hereunder to be performed by it after the Closing. To the extent that Purchaser's undertakings set forth in this Section 9.02 may be unenforceable, Purchaser shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all losses incurred by Seller or the Foundation.

SECTION 9.03. Survival. The representations and warranties set forth in this Agreement shall not survive the Closing except those set forth in Section 3.24. The covenants set forth in this Agreement, including without limitation Seller's and the Foundation's covenants to indemnify Purchaser set forth in Section 9.01, Purchaser's covenants to indemnify Seller and the Foundation set forth in Section 9.02, and the parties' and Foundation's respective obligations set forth in Sections 2.03, 2.07, 2.08, 5.02, 5.03, 5.08, 5.09 and 5.10, Article VII and Article XI, shall survive the Closing according to their terms or until fully performed. The obligations to indemnify set forth in this Article IX are in addition to, and do not limit, all other indemnification obligations expressly imposed by other sections of this Agreement.

SECTION 9.04. Certain Acknowledgments. Each of the parties is a sophisticated legal entity that was advised by experienced counsel and, to the extent it deemed necessary, other advisors in connection with this Agreement and the Ancillary Agreements. Accordingly, each of the parties hereby acknowledges that

  1. there are no representations or warranties by or on behalf of any party hereto or any of its respective Affiliates or representatives other than those expressly set forth in this Agreement and the Ancillary Agreements, and
  2. the parties' respective rights and obligations with respect to this Agreement and the Ancillary Agreements and the events giving rise thereto will be solely and exclusively as set forth in this Agreement and the Ancillary Agreements.

ARTICLE X

TERMINATION AND WAIVER

SECTION 10.01. Termination. This Agreement may be terminated at any time prior to the Closing:

  1. by Purchaser, if:
    1. an event or condition occurs that has resulted in or that would reasonably be expected to result in a Material Adverse Effect, which event or condition cannot be or has not been cured within sixty (60) calendar days after Purchaser gives notice to Seller thereof and the Material Adverse Effect is either not reasonably capable of being quantified or is not, in the good faith judgment of Purchaser, reasonably expected to be fully recoverable through an adjustment to the Total Consideration pursuant to Section 2.07;
    2. Seller makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Seller seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency or reorganization, which proceeding has not been dismissed within ninety (90) days; or (iii) Seller shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement (provided that Purchaser shall not have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement);
  2. by Seller, if Purchaser shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement (provided that Seller shall not have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement);
  3. by Seller by action of its Board of Directors in order to enter into an agreement with respect to or to consummate a transaction constituting a Superior Proposal, provided that:
    1. Seller shall have given Purchaser twenty (20) Business Days' prior written notice of the Superior Proposal (the "First Superior Proposal"), specifying in reasonable detail the comparison it undertook and the advisors and authorities with which it consulted to determine that the First Superior Proposal is superior (within the meaning of the term "Superior Proposal") to the transactions contemplated hereby, including specification of the ways in which it judged the First Superior Proposal superior (again within the meaning of the term "Superior Proposal") to the transactions contemplated hereby,
    2. Purchaser shall not have submitted within such twenty (20) Business Day period a proposal determined by Seller's Board of Directors to match the First Superior Proposal or to be a Superior Proposal (as judged by Seller's Board of Directors against the First Superior Proposal within the meaning of the term "Superior Proposal"; provided that if Purchaser submits a timely responding proposal and Seller's Board of Directors believes that it does not match the First Superior Proposal or is not a "Superior Proposal," Seller will give Purchaser a reasonable opportunity to meet with Seller's Board of Directors to discuss the First Superior Proposal and Purchaser's proposal), and
    3. contemporaneous with such termination, Seller shall have paid Purchaser the Break-Up Fee;
  4. by means of a written statement of termination executed by the Chief Executive Officer of either Purchaser or Seller if the Closing shall not have occurred by July 31, 2000; provided that, if Seller intends to terminate pursuant to this Section 10.01(d), Seller's Board of Directors must approve the written statement of termination following a meeting at which Purchaser has been given a reasonable opportunity to make a presentation describing the benefits of the transactions contemplated by this Agreement;
  5. by either Purchaser or Seller in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or
  6. by the mutual written consent of Seller and Purchaser.

SECTION 10.02. Effect of Termination. In the event of termination of this Agreement as provided in Section 10.01, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except that

  1. Sections 5.03 (as to confidential information of the other party), 5.08, 10.02, 11.01, 11.10 and 11.13, and any other Section of this Agreement which, by its express provisions, survives the termination of this Agreement, or the survival of which is necessary to the fulfill the intended effect of any other Section which, by its express provisions, shall survive the termination of this Agreement, and
  2. nothing herein shall relieve either party from liability for any breach of this Agreement except as expressly provided in Section 5.08.

SECTION 10.03. Waiver. Either party to this Agreement may

  1. extend the time for the performance of any of the obligations or other acts of the other party,
  2. waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto, or
  3. waive compliance with conditions to such party's performance or with any of the agreements or covenants of the other party contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.

ARTICLE XI

GENERAL PROVISIONS

SECTION 11.01. Expenses. Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, brokers, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred. The parties shall bear equally the fees of any consultants, accountants, actuaries or attorneys retained by any Governmental Authority in connection with the transactions contemplated by this Agreement. The parties also shall bear equally the filing fee pursuant to the HSR Act. Such fees, costs and expenses which are the obligation of Seller, whenever incurred, shall be paid by Seller from the Total Consideration, and if otherwise paid by Seller prior to the Closing Date, Seller shall account to Purchaser and reimburse Purchaser for such costs and expenses on the Closing Date.

SECTION 11.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.02):

  1. if to Seller:
    Blue Cross and Blue Shield of Maine
    2 Gannett Drive
    South Portland, ME 04106
    Attention: Keith W. Vangeison
    Telecopy No.: (207) 822-7350

    with a copy to:

    Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
    One Financial Center
    Boston, MA 02111
    Telecopy No.: (616) 542-2241
    Attention: Douglas A. Zingale, Esq.
  2. if to Purchaser to:
    Anthem Insurance Companies, Inc.
    120 Monument Circle
    Indianapolis, IN 46204-4903
    Telecopy No.: (317) 488-6477
    Attention: Executive Vice President and Chief Legal and Administrative Officer

    with a copy to:
    Shipman & Goodwin LLP
    One American Row
    Hartford, CT 06103-2819
    Telecopy No.: (860) 251-5900
    Attention: John E. Kreitler, Esq.

Notwithstanding the foregoing, after the Closing Date, all notices under this Section 11.02 to be delivered to Seller shall also be delivered to the Foundation at an address to be provided at a later date to Purchaser.

SECTION 11.03. Public Announcements. No party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party, and the parties shall cooperate as to the timing and contents of any such press release or public announcement.

SECTION 11.04. Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.

SECTION 11.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

SECTION 11.06. Entire Agreement. Unless expressly stated elsewhere in this Agreement, the Acquisition Documents constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, between Seller and Purchaser with respect to the subject matter hereof.

SECTION 11.07. Assignment. This Agreement may not be assigned by operation of Law or otherwise without the express written consent of Seller and Purchaser (which consent may be granted or withheld in the sole discretion of Seller and Purchaser); provided, however, that Purchaser may assign this Agreement to an Affiliate of Purchaser without the consent of Seller.

SECTION 11.08. No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and, except as provided in Section 5.13, nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any union or any employee or former employee of Seller, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement.

SECTION 11.09. Amendment. This Agreement may not be amended or modified except

  1. by an instrument in writing signed by, or on behalf of, Seller and Purchaser, or
  2. by a waiver in accordance with Section 10.03.

SECTION 11.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maine, applicable to contracts executed in and to be performed entirely within that state.

SECTION 11.11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

SECTION 11.12. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at Law or equity, without the necessity of demonstrating the inadequacy of money damages.

SECTION 11.13. Arbitration. In the event the parties are unable to agree on any issue arising pursuant to this Agreement, they agree to submit the matter to binding arbitration under the Commercial Rules, but not under the administration, of the American Arbitration Association. The parties may agree upon a sole arbitrator, or if a sole arbitrator cannot be agreed upon, a panel of three arbitrators shall be named. Each arbitrator shall be an officer or a former officer of a licensee of BCBSA, but not an officer or employee of any party hereof. One arbitrator shall be selected by Seller and one shall be selected by Purchaser. A knowledgeable, disinterested and impartial arbitrator shall be selected by the two arbitrators so appointed by the parties. If the arbitrators previously appointed by the parties cannot agree upon the third arbitrator within ten (10) calendar days, then the parties may apply to any judge in any court sitting in Indiana for appointment of the third arbitrator. The decision of the arbitrator(s) shall be rendered within sixty (60) days after the date of the selection of the arbitrator(s) or within such period as the parties may otherwise agree. Each party shall be responsible for the expenses incurred by the arbitrator appointed by each party, and the expenses, fees and costs of the third arbitrator shall be borne fifty percent (50%) by Seller and fifty percent (50%) by Purchaser. In the event that a single arbitrator is selected, the expenses of that arbitrator will be borne fifty percent (50%) by Seller and fifty percent (50%) by Purchaser. The decision of the arbitrator(s) may not be appealed. Any party may apply to any court to enforce the decision of the arbitrator(s).

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IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

ASSOCIATED HOSPITAL SERVICE OF MAINE d/b/a BLUE CROSS & BLUE SHIELD OF MAINE

By

Name:

Title:

ANTHEM INSURANCE COMPANIES, INC.

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