NOTE E—Acquisitions

Acquisition of 4D Pharmacy Management Systems, Inc.

Pursuant to the March 17, 2015 Purchase Agreement (the "4D Agreement") with 4D Pharmacy Management Systems, Inc. ("4D"), on April 1, 2015 the Company acquired (the "4D Acquisition") all of the outstanding equity interests of 4D. 4D is a privately held, full-service PBM serving managed care organizations, employers and government-sponsored benefit programs, such as Medicare Part D plans.

As consideration for the 4D Acquisition, the Company paid $55 million in cash, subject to working capital adjustments. There are additional potential contingent payments up to an aggregate amount of $30 million. The contingent payment provisions provide for (i) cash payments of up to $10 million based on the achievement of certain growth targets in the underlying dual eligible membership served by 4D during calendar year 2015 and (ii) cash payments of up to $20 million for retention of certain business through 2018. The Company funded the 4D Acquisition with cash on hand.

The Company reports the results of operations of 4D within its Pharmacy Management segment.

The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of acquisition. A portion of the excess purchase price over tangible net assets acquired has been allocated to identified intangible assets totaling $24.6 million, consisting of customer contracts in the amount of $21.1 million, which is being amortized over 10 years, non-compete agreements in the amount of $2.2 million, which is being amortized over 5 years and tradename in the amount of $1.3 million, which is being amortized over 18 months. The entire excess purchase price over tangible net assets acquired is amortizable for tax purposes, although the Company's effective rate will not be impacted by the tax amortization.

The estimated fair values of 4D assets acquired and liabilities assumed at the date of acquisition are summarized as follows (in thousands):

Assets acquired:
Current assets (includes $14,178 of cash and $21,417 of accounts receivable)	$	35,638
Property and equipment, net		238
Other identified intangible assets		24,600
Goodwill		49,136

Total assets acquired		109,612

Liabilities assumed:
Current liabilities		33,882
Contingent consideration		19,291

Total liabilities assumed		53,173

Net assets acquired	$	56,439

As of September 30, 2015, the Company established a working capital payable of $0.2 million that was reflected as an increase to goodwill.

The fair value of contingent consideration is determined based on probabilities of payment, projected payment dates, discount rates, projected membership, and projected client base. The projected membership and client base are derived from the Company's latest internal operational forecasts and assumptions. The Company used a probability weighted discounted cash flow method to arrive at the fair value of the contingent consideration. Changes in the operational forecasts, probabilities of payment, discount rates, or projected payment dates may result in change in the fair value measurement. Any changes in the fair value measurement are reflected as income or expense in the consolidated statements of income (loss). The Company estimated undiscounted future contingent payments of $20.6 million and $16.4 million as of the acquisition date and September 30, 2015, respectively. The net $4.2 million decrease was due to payments of $6.0 million, partially offset by a net increase of $1.8 million, mainly due to changes in probabilities of payment. As of September 30, 2015, the fair value of the contingent consideration for 4D was $16.0 million, which is entirely short term and is included in accrued liabilities in the consolidated balance sheet.

The Company's estimated fair values of 4D assets acquired and liabilities assumed at the date of acquisition are determined based on certain valuations and analyses that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed are subject to adjustment once the analyses are completed. The Company will make appropriate adjustments to the purchase price allocation prior to the completion of the measurement period as required.

As of September 30, 2015, the Company incurred cumulative acquisition related costs of $0.7 million in connection with the 4D acquisition. For the nine months ended September 30, 2015, the Company incurred $0.2 million of acquisition related costs, which are included within direct service costs and other operating expenses in the accompanying statements of income.

Pro Forma disclosures related to the 4D acquisition have been excluded as immaterial.

Acquisition of AlphaCare Holdings, Inc.

Pursuant to the August 13, 2013 stock purchase agreement (the "AlphaCare Agreement"), on December 31, 2013 the Company acquired a 65% equity interest in AlphaCare Holdings, the holding company for AlphaCare, a Health Maintenance Organization ("HMO") in New York that operates a New York Managed Long- Term Care Plan in Bronx, New York, Queens, Kings and Westchester Counties, and Medicare Plans in Bronx, New York, Queens and Kings Counties.

During the nine months ended September 30, 2015, the Company purchased an additional $23.6 million in shares of Series B Participating Preferred Stock and Series C Participating Preferred Stock. As of September 30, 2015, the Company held an 82% interest and the remaining shareholders held an 18% interest in AlphaCare Holdings.

Based on the Company's 82% equity interest in AlphaCare Holdings, the Company has included the results of operations in its consolidated financial statements. The Company reports the results of operations of AlphaCare Holdings within the Healthcare segment.

Acquisition of CDMI, LLC

Pursuant to the March 31, 2014 purchase agreement (the "CDMI Agreement") with CDMI, on April 30, 2014 the Company acquired all of the outstanding equity interests of CDMI. CDMI provides a range of clinical consulting programs and negotiates and administers drug rebates for managed care organizations and other customers. As consideration for the transaction, the Company paid a base price of $201.0 million, including net receipts of $4.0 million for working capital adjustments. In addition to the base purchase price, the CDMI Agreement provides for potential contingent payments up to a maximum aggregate amount of $165.0 million. The potential future payments are contingent upon CDMI meeting certain client retention, client conversion, and gross profit milestones through December 31, 2016.

Other Acquisitions

Pursuant to the January 15, 2015 purchase agreement (the "HSM Agreement") with HSM Physical Health, Inc. ("HSM") and HSM Companies Inc., on January 31, 2015 the Company acquired all of the outstanding equity interests of HSM. HSM provides cost containment and utilization management services focused on physical and musculoskeletal health specialties. As consideration for the transaction, the Company paid a base price of $13.5 million in cash, subject to working capital adjustments. The Company reports the results of operations of HSM within its Healthcare segment. The Company's estimated fair values of HSM's assets acquired and liabilities assumed at the date of acquisition are determined based on certain valuations and analyses that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed are subject to adjustment once the analyses are completed. The Company will make appropriate adjustments to the purchase price allocations prior to the completion of the measurement period as required.