In a fact-specific case with potential ramifications for future mergers under Delaware law, Cigna Health and Life Insurance Co., a preferred stockholder of Audax Health Solutions Inc., whose shares were extinguished by a merger that closed in February 2014, secured a declaration permitting it to tender its shares and receive merger consideration without adopting conditions imposed by the buyer.
The merger consideration payable to Cigna was withheld pending Cigna’s agreement to indemnify the buyer for breaches of representations and warranties given by Audax in the Merger Agreement, appoint the stockholder representative identified in the Merger Agreement, and release claims against the buyer and its affiliates, which the parties to the merger considered prerequisite to receipt of payment of the merger consideration.
Siding with Cigna, the Delaware Court of Chancery held that the release was invalid and that substantial components of the indemnification obligation violated Section 251 of the Delaware General Corporation Law. The challenge as to the validity of the stockholder representative obligation is still pending.
Argued by Michael P. Kelly, with help on the brief from Gregory Hindy, Daniel M. Silver, and Benjamin A. Smyth, the case is Cigna Health and Life Insurance Co. v. Audax Health Solutions Inc. et al., Delaware Court of Chancery, No. 9405-VCP.