Cigna Health and Life Insurance Company v. Audax Health Solutions, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CIGNA HEALTH AND LIFE :
INSURANCE COMPANY, a Connecticut :
corporation, :
:
Plaintiff, :
:
v. : C.A. No. 9405-VCP
AUDAX HEALTH SOLUTIONS, INC., a :
Delaware corporation, AUDAX :
HOLDINGS INC., a Delaware corporation, :
OPTUM SERVICES, INC., a Delaware :
corporation, and SHAREHOLDER :
REPRESENTATIVE SERVICES, LLC, a :
Colorado limited liability company, :
:
Defendants. :
:
OPINION
Submitted: July 29, 2014
Decided: November 26, 2014
Michael P. Kelly, Esq., Daniel M. Silver, Esq., Benjamin A. Smyth, Esq., McCARTER
& ENGLISH, LLP, Wilmington, Delaware; Gregory J. Hindy, Esq., McCARTER &
ENGLISH, LLP, Newark, New Jersey; Attorneys for Plaintiff Cigna Health and Life
Insurance Co.
R. Judson Scaggs, Jr., Esq., Kevin M. Coen, Esq., Frank R. Martin, Esq., Lindsay M.
Kwoka, Esq., MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware;
Attorneys for Defendants Audax Health Solutions, Inc., Audax Holdings, Inc., Optum Services,
Inc., and Shareholder Representative Services, LLC.
PARSONS, Vice Chancellor.
In this declaratory judgment action, the plaintiff has moved for judgment on the
pleadings, arguing that certain provisions of a merger agreement are contrary to the
Delaware General Corporation Law (―DGCL‖). Those provisions relate to a release of
claims against the acquirer, an indemnification requirement, and the appointment of a
stockholder representative. The questions presented are purely legal.
For the reasons that follow, I conclude that the release lacks any force because the
buyer attempted to impose that obligation in a contract lacking consideration. I also
conclude that the indemnification obligation, which is structured in a manner with few, if
any, parallels in the precedent of this Court, violates 8 Del. C. § 251. As to the
stockholder representative issue, however, I find that the plaintiff failed to brief that issue
sufficiently to support its request for judgment as a matter of law.
Accordingly, the plaintiff‘s motion for judgment on the pleadings is granted in
part and denied in part.
I. BACKGROUND1
A. The Parties
All the parties in this case are involved in the healthcare industry. Plaintiff, Cigna
Health and Life Insurance Co. (―Cigna‖), a Connecticut corporation, offers group health
1
Unless otherwise noted, the facts recited herein are drawn from the well-pled
allegations of the Verified First Amended Complaint for Declaratory and
Equitable Relief (the ―Complaint‖), together with its attached exhibits. For all
purposes relevant to this motion, the factual record is undisputed.
1
benefits to corporations and their employees. Cigna is part of the Cigna family of
companies.
Defendant Optum Services, Inc. (―Optum‖), a Delaware corporation, offers group
health benefits to corporations and their employees. Optum is part of the UnitedHealth
Group family of companies, which directly compete with the Cigna companies.
Defendant Audax Health Solutions, Inc. (―Audax‖ or the ―Company‖), a Delaware
corporation, develops digital health improvement products. Defendant Audax Holdings,
Inc. (―Holdings‖ and, together with Optum, ―United‖) is a Delaware corporation that was
formed as an acquisition vehicle. The dispute in this case involves Optum‘s acquisition
by merger—via Holdings—of Audax. Before the merger, Cigna owned 23,105,430
shares of Audax‘s Series B Preferred Stock.
Defendant Shareholder Representative Services, LLC (―SRS‖), a Colorado limited
liability company, specializes in distributing merger proceeds and administering escrow
accounts. Under the terms of the merger, SRS was designated as the stockholders‘
representative.
Together, Optum, Audax, Holdings, and SRS comprise the ―Defendants‖ in this
case.
B. The Merger Agreement
A majority of the Audax board of directors approved the merger with Optum on
February 10, 2014 (the ―Merger‖). On or around February 14, 2014, the Merger was
approved by written consent of 66.9% of Audax stockholders entitled to vote. Cigna did
2
not vote in favor of the Merger. Defendants consummated the Merger on February 14
pursuant to 8 Del. C. § 251.
The written consents were given in the form of Support Agreements.2 Cigna did
not execute a Support Agreement. The Support Agreements included: (1) a release of
any claims against United (the ―Release Obligation‖);3 (2) an agreement to be bound by
the terms of the Merger Agreement, specifically including the provisions indemnifying
United for any breaches of the representations and warranties (the ―Indemnification
Obligation‖);4 and (3) an appointment of SRS as the Stockholder Representative (the
―Stockholder Representative Obligation‖).5 The Release Obligation, the Indemnification
Obligation, and the Stockholder Representative Obligation (together, the ―Obligations‖)
form the crux of this dispute and are described in greater detail infra.
Despite the consummation of the Merger, Defendants have refused to pay Cigna
its merger consideration. Cigna claims that it is owed slightly more than $46 million.6
2
Unless otherwise specified, defined terms have the same meaning as in the merger
agreement, which is attached to the Complaint as Exhibit A [hereinafter ―Merger
Agreement‖].
3
Compl. Ex. C § 7.
4
Id. § 11(b).
5
Id. § 11(c).
6
Audax‘s Certificate of Incorporation, Compl. Ex. B [hereinafter ―Certificate of
Incorporation‖], sets forth the conditions for redemption of Audax‘s preferred
stock. Upon the happening of a Deemed Liquidation Event, such as the Merger,
the preferred stockholders are entitled to receive the greater of: (1) the Preferred
Liquidation Amounts, meaning the issue price of the preferred stock plus declared
but unpaid dividends; or (2) the pro rata merger consideration paid to the common
3
The terms of the Merger Agreement condition receipt of the merger consideration on (1)
surrender of shares and (2) execution of a Letter of Transmittal.7 The Letter of
Transmittal8 is defined in the relevant part of the Merger Agreement as ―a letter of
transmittal in form and substance reasonably acceptable to Buyer, pursuant to which,
among other things, the Effective Time Holders shall make standard representations and
warranties [and] agree with the provisions hereof (including the indemnification
provisions set forth in Article VII).‖9 The Letter of Transmittal requires that the Audax
stockholder surrendering its shares agree to the Obligations.10 Cigna‘s Complaint
maintains that the Obligations violate the DGCL and, accordingly, Cigna has refused to
execute the Letter of Transmittal. In response, Defendants have refused to pay Cigna its
merger consideration.
C. The Obligations
The Indemnification Obligation makes the former Audax stockholders liable to
United, up to the pro rata amount of merger consideration they received, for breaches of
stockholders. Here, the merger consideration appears to exceed the Preferred
Liquidation Amounts, so the parties have proceeded on the assumption that
Cigna‘s shares are to be exchanged as if they were converted to common stock
immediately before the Merger.
7
Merger Agreement § 2.14.
8
Compl. Ex. D [hereinafter ―Letter of Transmittal‖].
9
Merger Agreement § 1.1. The Effective Time Holders include Cigna.
10
Letter of Transmittal 3-4.
4
certain of the Company‘s representations and warranties.11 The representations and
warranties survive the Closing of the Merger and most of them terminate eighteen
months after the Closing Date. Certain of the representations and warranties, however,
survive longer: the Select IP Matters remain in effect for thirty-six months after the
Closing and, more importantly for purposes of Cigna‘s motion, the Seller Fundamental
Representations and Warranties,12 along with the Indemnification Obligation, survive
indefinitely.13
The Stockholder Representative Obligation requires the appointment of SRS to act
as the stockholders‘ representative after the consummation of the Merger.14 In that
capacity, SRS‘s actions are binding upon the former stockholders. SRS is empowered to
take all actions specified or contemplated by the Merger Agreement including, as
pertinent here, defending and settling any indemnity claims brought by United.15
According to Cigna, this condition improperly deprives it of the ability to defend against
any indemnity claims.
11
Merger Agreement §§ 7.2, 7.4.
12
These include representations and warranties relating to: corporate organization
and good standing, capitalization, authorization to effect the Merger and
transactions contemplated thereby, taxes, environmental matters, certain
intellectual property items, and brokerage fees. Id. §§ 3.1(a), 3.2(a)-(c), 3.3, 3.9,
3.10, 3.13(a) & (f)-(i), 3.18.
13
Id. § 7.1.
14
Id. § 9.18.
15
Id. § 9.18(a)(i)-(ii).
5
Unlike the foregoing obligations, the Release Obligation does not appear in the
Merger Agreement. In the case of Cigna, the Release Obligation appears only in the
Letter of Transmittal and broadly requires Cigna to release any claims against United, as
well as its affiliates, employees, and agents. Subject to a few exceptions, such as
liabilities specifically contemplated by the Merger Agreement or unrelated contracts the
releasing party may have with United, any stockholder signing the Letter of Transmittal
―irrevocably and unconditionally releases, acquits and forever discharges‖ the Releasees
from:
any and all Losses, debts or rights, whether fixed or
contingent, known or unknown, matured or unmatured,
arising out of, relating to, or in any manner connected with
any facts, events or circumstances, or any actions taken, at or
prior to the consummation of the transactions contemplated
by the Merger Agreement that any Releasor ever had or now
has against the Releasees, including any right, title and
interest in and to the Shares.16
D. Procedural History
Cigna filed its initial complaint on February 28, 2014, together with a motion to
expedite and a motion for a status quo order. On March 19, the Court granted a
stipulated order that gave Cigna ten days following resolution of this action to withdraw
its appraisal demand and instead accept the merger consideration. Cigna filed the
currently operative Complaint on April 1, 2014. Defendants answered on April 24 and
Cigna promptly moved for judgment on the pleadings. Briefing on Cigna‘s motion
16
Letter of Transmittal 4.
6
concluded July 14.17 After hearing argument on that motion on July 29 (the
―Argument‖), I stayed discovery pending its resolution.18
E. Parties’ Contentions
Cigna challenges the Obligations on several grounds. First, Cigna asserts that the
Obligations run afoul of 8 Del. C. § 251, which Cigna interprets as requiring the merger
consideration be paid upon consummation of the Merger and cancellation of shares. The
additional Obligations, Cigna contends, are barred by the language of Section 251. Cigna
further contends that the Indemnification Obligation violates 8 Del. C. § 102(b)(6) and
Audax‘s Certificate of Incorporation. Absent unusual circumstances—such as a piercing
of the corporate veil—or a special provision in Audax‘s Certificate of Incorporation,
Audax‘s stockholders are not liable for the debts of the corporation. Cigna argues,
therefore, that the Indemnification Obligation is an impermissible attempt to make
Audax‘s stockholders personally liable for the Company‘s debts. Finally, Cigna avers
that the Obligations are inequitable and contrary to precedent.
In response, Defendants argue that the Indemnification Obligation is the economic
equivalent of an escrow provision and that there is no basis for a suggestion that placing a
portion of the merger consideration into escrow would be prohibited. The
Indemnification Obligation, according to Defendants, is a permissible post-closing price
17
Briefing on the motion for judgment on the pleadings consisted of Plaintiff‘s
Opening Brief (―Pl.‘s Opening Br.‖), Defendants‘ Opposition Brief (―Defs.‘
Opp‘n Br.‖), and Plaintiff‘s Reply Brief (―Pl.‘s Reply Br.‖).
18
Arg. Tr. 69.
7
adjustment, as authorized by Section 251 and Delaware precedent. Defendants
characterize the merger consideration as a bundle of rights that consists of more than just
the cash payment to the stockholders. Because they allege that acceptance of the
Obligations affected the price the buyer was willing to pay for Audax, Defendants assert
that the Obligations are part of the total mix of consideration. As to Section 102(b)(6) of
the DGCL, Defendants state that the Indemnification Provision is not a debt of the
corporation, but rather a price adjustment permitted by the more specific statutory
provisions in Section 251. Generally, Defendants describe the Obligations as merely
variations on common provisions in private-company mergers and suggest that an
opinion invalidating the Obligations would produce a negative outcome for stockholders
generally and needlessly restrict the freedom of deal architects to craft provisions most
suited to the specifics of a given situation.
II. STANDARD OF REVIEW
Court of Chancery Rule 12(c) provides: ―After the pleadings are closed but within
such time as not to delay the trial, any party may move for judgment on the pleadings.‖
Well-pled facts are accepted as true and construed in the light most favorable to the non-
moving party.19 A party is entitled to judgment on the pleadings when ―‗there is no
19
Fiat of N. Am. LLC v. UAW Retiree Med. Benefits Trust, 2013 WL 3963684, at *7
(Del. Ch. July 30, 2013).
8
material fact in dispute and the moving party is entitled to judgment under the law.‘‖20
For purposes of this Opinion, the factual record is undisputed.21
III. ANALYSIS
A. The Effect of 8 Del. C. § 251
Section 251 of the DGCL governs mergers of Delaware corporations. Sections
251(b) and (c) establish a number of mandatory requirements that a merger agreement
must satisfy. Cigna contends, among other things, that the Obligations violate Section
251 because the Letter of Transmittal is a contract without consideration and, relatedly,
because the Obligations place stockholders in the inequitable position of being forced to
choose between uncertain merger consideration and appraisal. Defendants dispute both
of these positions.
1. Does the Release Lack Consideration?
―It is the blackest of black-letter law that an enforceable contract requires an offer,
acceptance, and consideration. . . . Consideration is ‗a benefit to a promisor or a detriment
20
In re Seneca Invs. LLC, 970 A.2d 259, 262 (Del. Ch. 2008) (quoting Warner
Commc’ns Inc. v. Chris-Craft Indus. Inc., 583 A.2d 962, 965 (Del. Ch.), aff’d, 567
A.2d 419 (Del. 1989)).
21
Defendants, in their Answer, raised several equitable defenses to Cigna‘s claims.
These defenses mainly relate to the conduct of Mark Boxer, Cigna‘s representative
on Audax‘s board of directors. As a general rule, however, equitable defenses will
not ―bar a claim based upon a violation of express law or public policy.‖ Wahl v.
City of Wilm., 1994 WL 13638, at *3 (Del. Ch. Jan 10, 1994); see also
Superwire.com, Inc. v. Hampton, 805 A.2d 904, 909 n.17 (Del. Ch. 2002) (noting
that equitable defenses will not allow the Court to give effect to void shares).
Because the rulings reflected in this Opinion are based on a holding that
Defendants‘ violated Section 251, I do not consider Defendants‘ equitable
defenses to be applicable, and do not address them further.
9
to a promisee pursuant to the promisor‘s request.‘‖22 Cigna argues that, under Section
251, United legally is obligated to pay Cigna its merger consideration, and that the Letter
of Transmittal, therefore, is not an enforceable contract because it lacks separate,
independent consideration. According to Cigna, payment of the merger consideration
was a pre-existing duty and cannot be the basis for a binding contract between the
parties.23 United counters that the Merger Agreement is a bundle of rights, that the
merger consideration includes more than just cash, and that the Obligations constitute
part of the overall consideration.
In relevant part, Section 251 requires that:
The [merger] agreement shall state . . . The manner, if any, of
converting the shares of each of the constituent corporations
into shares or other securities of the corporation surviving or
resulting from the merger or consolidation, or of cancelling
some or all of such shares, and, if any shares of any of the
constituent corporations are not to remain outstanding, to be
converted solely into shares or other securities of the
surviving or resulting corporation or to be cancelled, the cash,
property, rights or securities of any other corporation or
entity which the holders of such shares are to receive in
exchange for, or upon conversion of such shares and the
surrender of any certificates evidencing them, which cash,
property, rights or securities of any other corporation or entity
22
James J. Gorey Mech. Contracting, Inc. v. BPG Residential P’rs V, LLC, 2011
WL 6935279, at *2 (Del. Ch. Dec. 30, 2011) (quoting Cont’l Ins. Co. v. Rutledge
& Co., 750 A.2d 1219, 1232 (Del. Ch. 2000)).
23
Id. (―A commitment to honor a pre-existing obligation works neither benefit nor
detriment; therefore, ‗[a] promise to fulfill a pre-existing duty, such as a promise
to pay a debt owed, cannot support a binding contract‘ because consideration for
the promise is lacking.‖) (quoting First State Staffing Plus, Inc. v. Montgomery
Mut. Ins. Co., 2005 WL 2173993, at *9 (Del. Ch. Sept. 6, 2005)).
10
may be in addition to or in lieu of shares or other securities of
the surviving or resulting corporation.24
Focusing on the italicized language, Cigna argues that the stockholders‘ shares are
cancelled immediately upon the consummation of a merger and that the stockholders
must only surrender their cancelled certificates to receive the merger consideration. For
support, Cigna draws on Roam-Tel Partners v. AT&T Mobility Wireless Operations
Holdings Inc.25 In that case, then-Vice Chancellor (now Chief Justice) Strine analyzed
the issue of the availability of appraisal rights following a short-form merger under 8 Del.
C. § 253. A minority stockholder executed a letter of transmittal that expressly stated the
stockholder was waiving its appraisal rights. The stockholder, within the appropriate
statutory time period to seek appraisal, rescinded the letter of transmittal and demanded
appraisal. AT&T argued that the minority stockholder waived its appraisal rights by
executing the letter of transmittal. In short order, the Court rejected this argument,
finding that the letter of transmittal was not a binding contract because it lacked
consideration—i.e., the obligation to pay the merger consideration was a pre-existing
duty.26
24
8 Del. C. § 251(b)(5) (emphasis added).
25
2010 WL 5276991 (Del. Ch. Dec. 17, 2010).
26
Id. at *6 (―AT & T Mobility, having effected a short-form merger in which it
cashed out the minority stockholders, had the legal obligation to pay each minority
stockholder, in the event that such stockholder did not elect an appraisal, the
merger consideration as set forth in a board resolution necessary to effect the
short-form merger.‖).
11
According to Cigna, its right to the merger consideration vested as a matter of law
when United consummated the Merger and extinguished Cigna‘s shares. Thus, there is
no consideration that supports the Obligations in the Letter of Transmittal. Further,
Cigna contends it is irrelevant that two of the Obligations appear in the Merger
Agreement itself because the Obligations contravene Section 251. A detailed textual
analysis of Section 251, in Cigna‘s view, reveals that it requires a two-way exchange in
which stockholders lose their shares and receive benefits in response. Section 251(b)(5)
allows merger consideration to consist of ―cash, property, rights or securities of any other
corporation or entity.‖ In its Reply Brief, Cigna relies on the Black‘s Law Dictionary
definitions for each of these terms in arguing that the Obligations run contrary to Section
251 precisely because they are obligations, not benefits.
In response, Defendants emphasize the ―wide latitude afforded by Section 251,‖27
but that argument is less than compelling. The flexibility given corporate planners under
Section 251 is not unlimited. United could have proceeded with the acquisition through a
stock purchase agreement in which it contractually imposed the Obligations on the selling
stockholders. Instead, United chose to proceed with a statutory merger under Section
251. That decision has legal significance.28 Section 251, while allowing for a broad
range of merger variations, still requires compliance with its provisions.
27
Defs.‘ Opp‘n Br. 19.
28
See, e.g., Orzeck v. Englehart, 195 A.2d 375, 378 (Del. 1963) (―[T]he general
theory of the Delaware Corporation Law is that action taken under one section of
that law is legally independent, and its validity is not dependent upon, nor to be
12
Under the Merger Agreement, the stockholders‘ shares were converted into the
―right to receive the Applicable Per Share Merger Agreement Consideration in
accordance with this agreement.‖29 Defendants advance a ―bundle of rights‖ theory of
consideration and seize upon the use of the term ―rights‖ in DGCL § 251 as the apparent
textual hook for this theory. Under this view, the ―right‖ to receive cash for any
cancelled shares is subject to the other provisions of the Merger Agreement. Not
implausibly, Defendants contend that the Obligations affected the price United was
willing to pay for Audax. Without the Obligations, the price likely would have been
lower. Consistent with their bundle of rights theory, Defendants distinguish Roam-Tel on
the grounds that the Obligations here were included in the Merger Agreement, which also
referenced the Letter of Transmittal. According to Defendants, therefore, the Letter of
Transmittal is not a new undertaking by the stockholders, but instead is part of the overall
scheme of the Merger.
Textually, Defendants are on shaky ground. The term ‗rights‘ simply could refer
to consideration that takes the form of rights authorized by Section 157 of the DGCL.
This reading applies the principle of ―in pari materia‖30 and recognizes that ‗rights‘
tested by the requirements of other unrelated sections under which the same final
result might be attained by different means.‖).
29
Merger Agreement § 2.6(b)(iii).
30
See, e.g., Richardson v. Bd. of Cosmetology & Barbering, 69 A.3d 353, 357 (Del.
2013) (―The doctrine of in pari materia is another well-settled rule of statutory
construction. Under this rule, related statutes must be read together rather than in
13
appears in a list with terms like cash, property, and securities. Assuming rights has a
broader meaning, Black‘s Law Dictionary provides seven definitions of the term ―right,‖
of which six plausibly may be relevant here.31 All of those six definitions, however,
imply a positive benefit, not the undertaking of an obligation or a burden. None of the
definitions provide obvious or implicit support for the idea that merger consideration can
be made contingent on further undertakings by the stockholders.
Pragmatically, Defendants‘ bundle of rights argument raises serious concerns.
Wholesale adoption of this position seemingly would allow buyers to impose any range
of provisions on stockholders as conditions precedent to payment of the merger
consideration. One need not look far for a hypothetical, however, because the facts of
this case demonstrate the problems with Defendants‘ argument. The Release Obligation
is not mentioned in the Merger Agreement. Rather, the Merger Agreement requires the
isolation, particularly when there is an express reference in one statute to another
statute.‖) (internal citations omitted).
31
BLACK‘S LAW DICTIONARY 1436 (9th ed. 2009). Those six definitions are:
2. Something that is due to a person by just claim, legal
guarantee, or moral principle. . . . 3. A power, privilege, or
immunity secured to a person by law. . . . 4. A legally
enforceable claim that another will do or will not do a given
act; a recognized and protected interest the violation of which
is a wrong. . . . 5. (often pl.) The interest, claim, or ownership
that one has in tangible or intangible property. . . . 6. The
privilege of corporate shareholders to purchase newly issued
securities in amounts proportionate to their holdings. 7. The
negotiable certificate granting such a privilege to a corporate
shareholder. Id.
14
Letter of Transmittal to be ―in form and substance reasonably acceptable to Buyer‖ and
requires agreement to the indemnification provisions ―among other things.‖32 Defendants
assert that the Release Obligation is ―part and parcel of the overall consideration.‖33 The
Merger Agreement, however, provided no indication to stockholders that they might have
to agree to a release, let alone the sweeping release called for in the Letter of Transmittal.
If the quoted language above is sufficient to allow inclusion of the Release Obligation,
then buyers could impose almost any post-closing condition or obligation on the target
company‘s stockholders after the fact by including it as a requirement in the letter of
transmittal. This possibility is particularly troubling in light of the provisions in Audax‘s
Certificate of Incorporation that mandate payment to the preferred stockholders, such as
Cigna, in the event of a merger.
Because the Release Obligation is a new obligation Defendants seek to impose on
Cigna post-closing, and because nothing new is being provided to Cigna beyond the
merger consideration to which it became entitled when the Merger was consummated and
its shares were canceled, I find that there is no consideration for the Release Obligation in
the Letter of Transmittal. In accordance with Roam-Tel, therefore, I hold that the Release
Obligation is unenforceable. The Indemnification Obligation and the Stockholder
Representative Obligation, however, were included in the Merger Agreement. Roam-
32
Merger Agreement § 1.1.
33
Defs.‘ Opp‘n Br. 32.
15
Tel‘s application to these two obligations is less clear. Because the parties‘ briefing
focused primarily on the Indemnification Obligation, I turn next to that issue.
2. Does the Indemnification Obligation violate Section 251?
Defendants portray the Indemnification Obligation as a variant on a common
element of private company mergers whereby the buyer can seek relief for breaches of
representations and warranties. It is true that escrow provisions appear quite often in
private-company mergers.34 The DGCL, however, does not provide alternative rules for
private-company mergers and public-company mergers. There is only one DGCL and all
mergers must comply with its terms.
Defendants repeatedly highlight the purported similarities between the
Indemnification Obligation and an escrow arrangement, implying that a decision striking
down the former would endanger the latter. Economically, there are many similarities
between an escrow provision and an indemnification provision. An escrow mechanism
grants the selling stockholders some amount of money (x) and potentially more money
depending on whether the buyer succeeds in making any claims (z) against the escrow
fund (y), such that the total merger consideration (C) paid to the stockholder is equal to
(x) + ((y) – (z)). An indemnification obligation works by paying all of the money to the
34
See, e.g., In re OPENLANE, Inc., 2011 WL 4599662, at *8 (Del. Ch. Sept. 30,
2011) (―Escrows are relatively common in deals for ‗private‘ companies. They are
rare in deals for ‗public‘ companies, probably because of the difficulty and
expense of multiple stages of payment and perhaps because of shareholder
expectations. The Escrow Agreement does not necessarily violate any mandatory
standard.‖).
16
stockholders up front and then making claims against the amount paid such that: (C) = (x)
– (z). The total amount paid to the selling stockholders under each scenario theoretically
should be the same.35 Because the stockholders get their money sooner under the
indemnification structure, they plausibly may prefer that alternative in that any loss from
the time value of money is borne by the buyer.
The case law of this Court contains no indication that an escrow of a portion of the
merger consideration, as a general matter, is invalid. Interpreting Section 251 in a
manner that would imperil escrow agreements, which are widely understood to be
permissible, would be unreasonable.36 Neither party, however, has supplied the Court
with a case construing a merger agreement that included an indemnification structure
which, as in this case, places potentially all of the merger consideration at risk for an
unlimited period of time. Pushing Defendants‘ economic equivalence argument to its
logical conclusion, the analogous escrow structure would be a 100% indefinite escrow
pursuant to which the merger consideration would be released only after the buyer
determined it would never make a claim under the Merger Agreement. Such a provision
35
The escrow formula, (C) = (x) + ((y) – (z)), is mathematically equivalent to the
indemnification formula, (C) = (x) – (z), because, under the indemnification
structure, (y) or the money held back in escrow, is zero.
36
Doroshow, Pasquale, Krawitz & Bhaya v. Nanticoke Mem. Hosp., Inc., 36 A.3d
336, 343 (Del. 2012) (―According to the golden rule of statutory interpretation,
‗unreasonableness of the result produced by one among alternative possible
interpretations of a statute is reason for rejecting that interpretation in favor of
another which would produce a reasonable result.‘‖) (quoting Coastal Barge Corp.
v. Coastal Zone Indus. Control Bd., 492 A.2d 1242, 1247 (Del. 1985)).
17
is hard to fathom. In any event, I find unpersuasive Defendants‘ effort to analogize the
Indemnification Obligation to an escrow agreement—along with their implication that a
ruling finding the Indemnification Obligation impermissible would imperil commonly
used escrow agreements.37
Rather than a bundle of rights, the merger consideration here more aptly can be
described as cash, subject to an open-ended post-closing price adjustment. Two
conceivable methods of adjusting the purchase price post-closing are escrow agreements
and indemnification agreements. Indemnification provisions that seek to collect or claw
back money already paid to the stockholders are unusual, perhaps because collecting that
money is substantially more difficult than drawing from an escrow fund. Indeed, very
few Court of Chancery cases even arguably have dealt with non-escrow price-adjustment
procedures.38
37
Additionally, Plaintiffs advance a colorable argument that there is independent
legal significance to the choice of an escrow versus an indemnification or
clawback approach. The two-way exchange concept of Section 251, which finds
support in Roam-Tel, leads to the conclusion that, having endured the burden of
having their shares cancelled, stockholders legally are entitled to the
corresponding benefits. From this vantage point, an escrow is acceptable because
it provides a benefit and the possibility of further benefits, but a clawback leaves
stockholders potentially liable for further obligations and, thus, arguably might be
impermissible. Because the facts of this case allow a narrower determination, I do
not reach the question of whether clawbacks are per se invalid under Section 251.
38
See Aveta Inc. v. Cavallieri, 23 A.3d 157, 178 (Del. Ch. 2010) (finding merger‘s
post-closing price-adjustment procedures—which included an earnout,
adjustments based on the company‘s financial statements, and a potential
clawback—permissible under 8 Del. C. § 251(b), though without substantive
comment on the clawback provision); Nash v. Dayton Superior Corp., 728 A.2d
59 (Del. Ch. 1998) (determining court‘s subject matter jurisdiction over dispute
18
Post-closing price adjustments are permissible if they satisfy the requirements of
DGCL § 251. As relevant here, Section 251(b) provides that:
Any of the terms of the agreement of merger or consolidation
may be made dependent upon facts ascertainable outside of
such agreement, provided that the manner in which such facts
shall operate upon the terms of the agreement is clearly and
expressly set forth in the agreement of merger or
consolidation. The term ―facts,‖ as used in the preceding
sentence, includes, but is not limited to, the occurrence of any
event, including a determination or action by any person or
body, including the corporation.39
This Court, in Aveta, interpreted the language of Section 251(b) at length and provided a
detailed, historical analysis of meaning of that provision, as amended over time, and an
analogous provision in 8 Del. C. § 151(a).40 That case involved multiple post-closing
price adjustments based on the target company‘s financial records and included a dispute-
resolution mechanism for disagreements between the parties, with a final calculation to
be made by an accounting firm.41 Ultimately, the Court held that the post-closing price-
adjustment procedures complied with Section 251(b).42
about post-closing price adjustment with arbitration procedure), abrogated by
Viacom Int’l Inc. v. Winshall, 72 A.3d 78 (Del. 2013).
39
8 Del. C. § 251(b).
40
Cavallieri, 23 A.3d at 171-78.
41
Id. at 164-65.
42
Both parties seem to interpret the Aveta merger agreement as requiring the former
stockholders to reimburse the buyer in certain circumstances. The dispute before
the Court, however, seems to have revolved around upward, post-closing price
adjustments, such as the earnout provisions, for which no clawback would be
involved. Nevertheless, language in Aveta and its predecessor opinion imply that
19
The Indemnification Obligation differs in significant ways from the procedures
approved in Aveta, even assuming, arguendo, that that case provides support for a
clawback provision in a merger agreement. First, the adjustments in Aveta were tied to
the corporation‘s financial statements, while the adjustments here depend on any
damages that United might suffer. Second, the Indemnification Obligation places
potentially all of the merger consideration at risk. Third, the Indemnification Obligation
continues indefinitely. Aveta did not involve terms comparable to either of these last two
characteristics. In this regard, I note that Cigna‘s primary challenge to the
Indemnification Obligation relates to the fact that certain aspects of it are not limited in
terms of (1) the amount of money that might be subject to a clawback and (2) time. This
Opinion focuses only on those aspects of the Indemnification Obligation.
Defendants argue that the Indemnification Obligation complies with Section
251(b), emphasizing that it defines ―facts‖ as including ―a determination or action by any
person or body.‖43 A judicial opinion in a case about a breach of representations or
warranties would seem to fall within that definition. Furthermore, the manner in which
such a ―fact‖ would operate on the rest of the agreement seems to be ―clearly and
a clawback provision existed in the merger. Aveta, Inc. v. Bengoa, 986 A.2d 1166,
1174 (Del. Ch. 2009) (―If the Statement of Actual IBNR was greater than the
Statement of IBNR . . . the Shareholders were required to make up the difference
via a cash payment to Aveta.‖). It is not clear that the issue litigated in Aveta
actually would have required the former stockholders to pay back any funds or
that the potential clawback provision was at issue in any motion presented to the
Court.
43
8 Del. C. § 251(b).
20
expressly‖ set forth in the Merger Agreement: Section VII describes the operation of the
Indemnification Obligation at length. In that regard, Cigna‘s contrary argument that the
―facts ascertainable‖ must turn on objective figures and formulas misstates this Court‘s
precedent and clashes with the clear language of the statute.44
Cigna‘s arguments, however, highlight that the previous cases involving ―facts
ascertainable,‖ whether in the context of DGCL § 251(b) or § 151(a), generally involved
reference to some numerical component. The real issue here is not that the
Indemnification Obligation is ―impermissibly vague‖ or ―constitute[s] an improper
abdication‖ of the board‘s duties to determine the merger consideration. 45 Instead, this
case raises the novel problem that, despite literally complying with the ―facts
ascertainable‖ provision of Section 251(b), the value of the merger consideration itself is
not, in fact, ascertainable, either precisely or within a reasonable range of values. For
that reason, the Indemnification Obligation violates Section 251(b)(5), requiring the
Merger Agreement to state ―the cash, property, rights or securities of any other
corporation or entity which the holders of such shares are to receive.‖
In the context of addressing the Release Obligation, I expressed unease with
Defendants‘ ―bundle of rights‖ theory of merger consideration and questioned its textual
44
Cf. HB Korenvaes Invs., L.P. v. Marriott Corp., 1993 WL 205040, at *7 (Del. Ch.
June 9, 1993) (interpreting 8 Del. C. § 151(a) to allow a determination by the
corporation‘s board of directors as to the fair market value of the company‘s
stock).
45
Cavallieri, 23 A.3d at 178.
21
basis in Section 251(b)(5). Here, the Indemnification Obligation complies textually with
Section 251(b)‘s ―facts ascertainable‖ provision, but leaves the stockholders unable to
determine what they are receiving as merger consideration. Nominally, the stockholders
received their pro rata share of the merger consideration. But, the value of that merger
consideration must be discounted based on the possibility that some, or even all, of it may
need to be returned to United. As such, the ultimate value of that consideration could
range from zero to the full amount of what the individual stockholder received.
Crucially, the stockholders may never know the exact value of the merger
consideration: there is no point at which the value of the merger consideration
definitively can be determined because the Indemnification Obligation continues
indefinitely. Presumably, as time goes on, United will be less likely to assert a claim.
Even then, however, the safety of the stockholders‘ money would remain uncertain.
Two, five, or ten years after the closing, even accounting for laches or statute of
limitations defenses, the stockholders largely remain in the same position as on the day of
the Closing: potentially liable to United for up to the entire amount of the merger
consideration they received. These issues render the true value of the merger
consideration unknowable.46
46
I also note in this context that Cigna limited its challenge to the Indemnification
Obligation and did not contest the post-closing price adjustment provisions in
Section 2.10 of the Merger Agreement. That provision is temporally limited and
tied to defined metrics in Audax‘s post-closing financial statements, such as the
Company‘s tangible net worth, taxes payable, and debt payoff.
22
This Court previously has expressed its concern over instances where stockholders
are placed in the unenviable position of being forced to choose between uncertain merger
consideration and pursuing the lengthy and potentially costly route of seeking appraisal
rights. In Nagy v. Bistricer,47 a case involving appraisal and breach of fiduciary duty
claims asserted by a minority stockholder against the controlling stockholders, then-Vice
Chancellor Strine condemned a merger effected by the controllers without the minority
stockholder‘s knowledge. The merger consideration consisted of the shares of another
corporation, also owned by the controllers, and the exchange ratio could be adjusted later
upon the advice of an investment bank chosen by the acquiring corporation.
Additionally, the minority stockholder was provided almost no information that would
allow him to place a value, with any degree of confidence, on the shares of the acquiring
corporation. The Court found that the delegation to the acquiring company of the
authority to select an investment bank was an impermissible abdication of the directors‘
duty to determine a fair price for the company.48
As relevant here, the Court also rejected the defendants‘ argument that they did
not breach their fiduciary duties, under the entire fairness standard, because the minority
stockholder had a choice between accepting the merger consideration and seeking
appraisal.49 The Court noted that it was ―not aware of any provision in the Delaware
47
770 A.2d 43 (Del. Ch. 2000).
48
Id. at 62.
49
Id. at 63.
23
General Corporation Law that provides a board with the ability to force a minority
stockholder to accept the ‗gift‘ of an appraisal remedy without another concrete option.
Rather,‖ the Court continued, ―the minority stockholder must also be given the alternative
of receiving firm merger consideration that, in the context of a § 251 merger, has been
determined to be fair by the corporation‘s board of directors.‖50
I do not rest my decision on the idea that United forced Cigna to make an
inequitably coercive decision. Instead, I read Nagy to suggest that Section 251 requires a
merger agreement to set forth determinable merger consideration. There is no point in
time at which the merger consideration in this case ever becomes firm or determinable.
The stockholders instead are left making expected value determinations—calculations
that presumably change over time—as to (a) whether a breach of the representations and
warranties exists or is likely to arise; (b) whether United will assert those claims; and (c)
the potential damages, including consequential damages, a court might award in the case
of any such breach. It is impossible for a stockholder to make these computations with
any reasonable degree of precision.
For the foregoing reasons, I conclude that the Indemnification Obligation violates
Section 251(b)(5), because it prevents the stockholders from determining the value of the
merger consideration. While individual stockholders may contract—such as in the form
of a Support Agreement—to accept the risk of having to reimburse the buyer over an
indefinite period of time for breaches of the Merger Agreement‘s representations and
50
Id. at 64 (emphasis added).
24
warranties, such a post-closing price adjustment cannot be foisted on non-consenting
stockholders. As such, United cannot condition the release of Cigna‘s merger
consideration on a requirement that Cigna agree to the Indemnification Obligation.
3. Cigna failed to address adequately the Stockholder Representative
Obligation.
Cigna only tangentially challenges the Stockholder Representative Obligation,
arguing that it is ―inextricably intertwined with the Indemnification Obligation.‖ 51 Given
my preceding determination as to the invalidity of the Indemnification Obligation,
Cigna‘s challenge would seem to fall away. The propriety of stockholder representatives
under the DGCL is the subject of active and ongoing debate. Any determination as to the
validity of the Stockholder Representative Obligation based on the current briefing would
be unwise. I conclude, therefore, that the issue of the enforceability of the Stockholder
Representative Obligation cannot be decided on the current factual and legal record.
Accordingly, I deny Cigna‘s motion for judgment on the pleadings to the extent it
challenges the Stockholder Representative Obligation.
B. Does the Indemnification Obligation Impermissibly Make the Stockholders
Liable for the “Debts” of Audax?
Cigna further argues that the Indemnification Obligation runs afoul of 8 Del. C.
§ 102(b)(6). Above, I concluded that the Indemnification Obligation does not comply
with Section 251. For the sake of completeness, I briefly address Cigna‘s 102(b)(6)
argument. The Indemnification Obligation raises questions under Section 102(b)(6),
51
Pl.‘s Opening Br. 18 n.16.
25
because, in the Merger Agreement, the Indemnification Obligation is structured like an
indemnification obligation and not like a post-closing price adjustment. Taking
Defendants‘ ―price adjustment‖ argument at face value, however, principles of statutory
interpretation lead me to conclude that, in the context of a merger, Section 251, as the
more specific provision, governs instead of Section 102(b)(6). Thus, in the end, the
challenge under Section 102(b)(6) simply leads back to the Section 251 analysis carried
out in the preceding section of this Opinion.
―The corporate form normally insulates shareholders, officers, and directors from
liability for corporate obligations.‖52 Indeed, limited personal liability is one of the core
benefits of creating a separate business entity. Only in unusual circumstances are the
stockholders of a corporation liable for the debts of the corporation. A Delaware
corporation can include in its Certificate of Incorporation a provision making its
stockholders liable for the corporation‘s debts. Absent such a provision, stockholders are
not liable for the debts of the corporation except by reason of their own actions. 53 Few
corporations choose to include such a provision and there is virtually no case law on
52
18 AM. JUR. 2d Corporations § 46 (West 2014); see also 18 C.J.S. Corporations
§ 1 (West 2014) (―A ‗corporation‘ is an incorporeal creature of the law whose
constituent members usually are able to take legal shelter under its protective
shield of limited liability.‖).
53
8 Del. C. 102(b)(6) (―[T]he certificate of incorporation may also contain . . . A
provision imposing personal liability for the debts of the corporation on its
stockholders to a specified extent and upon specified conditions; otherwise, the
stockholders of a corporation shall not be personally liable for the payment of the
corporation‘s debts except as they may be liable by reason of their own conduct or
acts.‖).
26
8 Del. C. § 102(b)(6). Any desire for increased stockholder liability appears confined to
academia.54
Audax‘s Certificate of Incorporation does not include the provision authorized by
Section 102(b)(6).55 Cigna argues that this very absence renders the Indemnification
Obligation illegal. This theory relies on the fundamental idea that Audax is a separate
legal entity from its stockholders.56 The Merger Agreement, though approved by
Audax‘s board of directors and Audax‘s stockholders, still remains a contract between
Audax and the acquiring company.57 Any breach of the representations and warranties in
the Merger Agreement, Cigna argues, is nothing more than a breach of contract by
Audax. If Audax breaches a contract, the counterparty to the contract has a claim against
Audax. Assuming a breach and a successful suit reduced to judgment, that judgment
would be a debt of Audax. The Indemnification Obligation, however, requires the
stockholders to indemnify United for any such breaches. To complete the argument,
while Audax could have made its stockholders liable for its debts under Section
54
See, e.g., Henry Hansmann & Reinier Kraakman, Toward Unlimited Shareholder
Liability for Corporate Torts, 100 YALE L.J. 1879 (1991).
55
See generally Certificate of Incorporation (in which such a provision is not found).
56
See, e.g., 8 Del. C. §§ 122, 314; see also supra note 52 and accompanying text.
57
See 8 Del. C. § 251(a) (―Any 2 or more corporations existing under the laws of
this State may merge into a single corporation, which may be any 1 of the
constituent corporations or may consolidate into a new corporation formed by the
consolidation, pursuant to an agreement of merger or consolidation, as the case
may be, complying and approved in accordance with this section.‖).
27
102(b)(6), it did not. As a result, Cigna contends, the Indemnification Obligation violates
both Audax‘s Certificate of Incorporation and Section 102(b)(6).
Neither party cited any relevant case law on this issue. The Court‘s own review of
the case law similarly confirms the absence of relevant precedent. Seemingly, this is a
novel argument and, at first glance, at least, has some appeal. The problem with Cigna‘s
argument is that Section 102(b)(6) does not exist in isolation. For instance, 8 Del. C.
§ 251 governs merger agreements and expressly allows the terms of a merger agreement
to be contingent on facts outside of the agreement.58 Section 251 also is the more
specific of the two provisions. As a general rule of interpretation, more specific
provisions trump more general ones.59 Section 102(b)(6), which allows any corporation
to insert a stockholder liability provision into its certificate of incorporation, is more
general than Section 251, which deals exclusively with mergers between corporations.
The Indemnification Obligation arose in the context of a Section 251 merger. That
provision therefore governs, not Section 102(b)(6).
58
8 Del. C. § 251(b) (―Any of the terms of the agreement of merger or consolidation
may be made dependent upon facts ascertainable outside of such agreement,
provided that the manner in which such facts shall operate upon the terms of the
agreement is clearly and expressly set forth in the agreement of merger or
consolidation.‖).
59
Oceanport Indus., Inc. v. Wilm. Stevedores, Inc., 636 A.2d 892, 901 (Del. 1994)
(noting the ―rule of statutory construction that specific provisions should prevail
over general provisions‖) (citing Mergenthaler v. State, 239 A.2d 635, 637 (Del.
1968)).
28
Again, the parties dispute the holding of Aveta Inc. v. Cavallieri. That case
interpreted Section 251(b) to permit a post-closing price adjustment.60 Aveta might be
read to have approved a clawback under Section 251(b), but that issue received minimal
attention from the Court. Regardless, the absence of definitive precedent on whether
Section 251(b) allows a clawback from the stockholders simply means the question is
unsettled. It does not mean that the analysis should proceed instead under Section
102(b)(6). Having concluded for the reasons stated above that the Indemnification
Obligation violates Section 251, therefore, I consider it unnecessary to address Cigna‘s
remaining challenge under Section 102(b)(6).
C. Does the Indemnification Obligation Violate Audax’s Certificate of
Incorporation?
Cigna also argues that the Indemnification Obligation violates Cigna‘s rights as a
preferred stockholder under Audax‘s Certificate of Incorporation. The Certificate of
Incorporation prohibits Audax from effectuating a merger unless the preferred
stockholders are paid in accordance with the provisions of Section 2 of that document.61
Section 2.4 requires that the preferred stockholders receive the greater of the preferred
60
Cavallieri, 23 A.3d at 171-78 (interpreting Puerto Rico‘s version of Section 251,
which tracks Delaware‘s provision, and concluding that the post-closing price
adjustment was permissible).
61
Certificate of Incorporation § 2.5.2 (―The Corporation shall not have the power to,
and shall not, effect a [merger] . . . unless the agreement or plan of merger or
consolidation for such transaction . . . provides that the consideration payable to
the stockholders of the Corporation shall be allocated among the holders of capital
stock of the Corporation in accordance with Section 2.‖).
29
stock‘s liquidation preference or ―the amount of cash, securities or other property to
which such holder would be entitled to receive . . . with respect to such shares if such
shares had been converted to Common Stock.‖62
At the Argument, counsel for Defendants stated that, based on the facts of record,
it appears that the liquidation preference of Cigna‘s preferred stock is about $21
million.63 Cigna did not dispute that estimate or offer a contrary figure. Thus, Cigna
presumably would be due the value of its shares as if they had been converted to common
stock.
Cigna contends that Section 2.4 requires United to pay Cigna the cash received by
the common stockholders without the Obligations. Cigna further asserts that the
Indemnification Obligation must be stricken because otherwise the final payout to it
based on the value of its shares as converted might be less than the preferred liquidation
preference. The Certificate of Incorporation created a procedure whereby the preferred
stockholders received a minimum amount in the event of a merger, the preferred
liquidation preference, but would receive more money if the common stockholders‘
payout exceeded that liquidation preference.
Section 2.4 requires the preferred stockholders to receive the ―cash, securities or
other property to which such holder would be entitled to receive‖64 if the preferred shares
62
Id. § 2.4.
63
Arg. Tr. 52.
64
Id. (emphasis added).
30
were converted to common stock. The common stockholders, according to the Merger
Agreement, were entitled to receive the per-share merger consideration, subject to the
Indemnification Obligation. Assuming that the Obligations are valid, the ultimate merger
consideration could be less than what was paid at the closing. Having concluded,
however, that the Indemnification Obligation violates Section 251 because it makes
ascertaining the value of the merger consideration impossible and is therefore
unenforceable against Cigna, there is no longer any actual controversy between Cigna
and Defendants as to whether the merger consideration legally could fall below the
mandatory liquidation preference. Even if the Indemnification Obligation were valid,
Cigna would not have a ripe claim on this issue because no facts have been alleged that
suggest the merger consideration for Cigna is likely to fall beneath the liquidation
preference at any time in the near future, if ever.
Thus, I conclude that my holding that the Indemnification Obligation violated
8 Del. C. § 251 rendered moot the issue of whether it also violated the Certificate of
Incorporation. Moreover, even if the Indemnification Obligation were valid under the
DGCL, it is not clear that Cigna‘s challenge to that provision under Audax‘s Certificate
of Incorporation would be ripe.
D. Limits of This Opinion
Post-closing price adjustments that could require individual stockholders to repay
part of their merger consideration occupy an uncertain status under Delaware law.
Section 2.10 of the Merger Agreement provides a limited, unchallenged example of such
a provision. The Indemnification Obligation, however, places at risk potentially all of the
31
merger consideration a stockholder receives and does so indefinitely. As such, a
stockholder cannot know the real value of what she receives at the closing and a Merger
Agreement that establishes such a scheme does not satisfy the requirement of DGCL
§ 251(b)(5) that a merger agreement set forth ―the cash, property, rights or securities of
any other corporation or entity which the holders of such shares are to receive.‖ Read as
a whole, Section 251 requires that stockholders be able to ascertain the value, at or about
the time of the merger, of what they will receive as merger consideration. That
requirement is not met in this case.
This is a limited holding. This Opinion does not concern escrow agreements, nor
does it rule on the general validity of post-closing price adjustments requiring direct
repayment from the stockholders. This Opinion does not address whether such a price
adjustment that covers all of the merger consideration may be permissible if time-limited,
or whether an indefinite adjustment period as to some portion of the merger consideration
would be valid. I hold only that the combination of these factors present in this case—
indefinite length and the contingent nature of the entirety of the consideration—renders
the value of the merger consideration unknowable and, therefore, violates Section 251.
IV. CONCLUSION
For the foregoing reasons, Cigna‘s motion for judgment on the pleadings is
granted in part and denied in part. Specifically, I conclude and hereby declare that the
Release Obligation found in the Letter of Transmittal is unenforceable because it is not
supported by consideration. I also hold that the Indemnification Obligation, to the extent
32
it is not subject to any monetary cap or limit and is not limited in temporal duration,65
violates 8 Del. C. § 251 and is void and unenforceable against Cigna. Plaintiff‘s motion
is denied as to those aspects of the Indemnification Obligation that are limited in both
those respects. Accordingly, I hereby declare that Cigna is entitled to tender its shares of
Audax stock and receive merger consideration without accepting or being bound in any
way by the aspects of the Indemnification Obligation in Section VII of the Merger
Agreement that are not subject to a monetary cap and a time limit of 36 months or less.
As to Cigna‘s challenge to the validity of the Stockholder Representative
Obligation, Cigna failed to demonstrate that it was entitled, as a matter of law, to the
judgment on the pleadings it seeks. Therefore, that aspect of Cigna‘s motion is denied.
IT IS SO ORDERED.
65
The longest specified time period regarding any portion of the Indemnification
Obligation appears to be 36 months. This Opinion is without prejudice to any
argument either Cigna or Defendants might make in future proceedings as to
aspects of the Indemnification Obligation that are limited to 36 months or less.
33