<PAGE>
As Filed With the Securities and Exchange Commission on June 7, 1999.
Registration No. 333-78431
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1 to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
Allscripts, Inc.
(Exact name of registrant as specified in its charter)
----------------
Delaware 5122 36-3444974
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
2401 Commerce Drive
Libertyville, Illinois 60048
(847) 680-3515
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
----------------
Glen E. Tullman
Chairman and Chief Executive Officer
2401 Commerce Drive
Libertyville, Illinois 60048
(847) 680-3515
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Joseph H. Greenberg Mitchell L. Hollins
Gardner, Carton & Douglas Sonnenschein Nath & Rosenthal
321 North Clark Street, Suite 2900 8000 Sears Tower
Chicago, Illinois 60610 Chicago, Illinois 60606
(312) 644-3000 (312) 876-8000
----------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXPLANATORY NOTE
This Amendment No. 1 to the Registration Statement is being filed solely
for the purpose of filing exhibits to the Registration Statement, and no
changes or additions are being made hereby to the preliminary Prospectus that
forms a part of the Registration Statement. Accordingly, the preliminary
Prospectus has been omitted from this filing.
<PAGE>
PART II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution
We will bear the expenses relating to the registration of common stock.
Except for the Securities and Exchange Commission registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee, the following expenses are estimates:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $25,020
National Association of Securities Dealers, Inc. filing fee...... 9,500
Nasdaq National Market listing fee............................... 50,000
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Accountants' fees................................................ *
Printing fees.................................................... *
Transfer agent fees.............................................. *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
* To be supplied by amendment
Item 14. Indemnification of Directors and Officers
Our Certificate of Incorporation and By-laws provide that we shall, subject
to certain limitations, indemnify our directors and officers against expenses
(including attorneys' fees, judgments, fines and certain settlements) actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to a criminal action or proceeding, so long as
they had no reasonable cause to believe their conduct to have been unlawful.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. The enabling
statute provides, however, that liability for breaches of the duty of loyalty,
acts or omissions not in good faith or involving intentional misconduct, or
knowing violation of the law, and the unlawful purchase or redemption of stock
or payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner. Our Certificate of
Incorporation includes a provision that eliminates, to the fullest extent
permitted, director liability for monetary damages for breaches of fiduciary
duty.
Pursuant to the Underwriting Agreement as set forth in Exhibit 1.1, our
directors and officers are indemnified against certain civil liabilities that
they may incur under the Securities Act in connection with this registration
statement and the related prospectus.
We have purchased directors and officers liability insurance, which
provides coverage against certain liabilities.
In addition, some of our directors are indemnified against liabilities that
they may incur in their capacities as directors by third parties with which
they are affiliated.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement, we
sold the following securities (adjusted to give effect to a one-for-six reverse
stock split) that were not registered under the Securities Act:
II-1
<PAGE>
On April 30, 1996, we issued $10,000,000 principal amount of our 8.0%
Convertible Subordinated Debentures due 2001 to a group of accredited investors
for an aggregate consideration of $10,000,000. Exemption from registration is
claimed pursuant to Section 4(2) of the Securities Act, no public sale having
been involved.
On April 30, 1996, we issued a warrant to purchase 279,181 common shares at
a per share exercise price of $4.2024 to Allstate Insurance Company in
consideration of Allstate's guaranty of $4,692,932 of our indebtedness.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act, no public sale having been involved.
On July 17, 1997, we issued 519,530 common shares to HBO & Company in
exchange for all of HBO & Company's right, title and interest in and to the
TouchScript system. Exemption from registration is claimed pursuant to Section
4(2) of the Securities Act, no public sale having been involved.
On April 16, 1998, we issued warrants to purchase 916,657 common shares
with a per share exercise price of $0.06 and shares of Series H redeemable
preferred stock with modified redemption terms to the holders of Series H
preferred stock in exchange for their shares of Series H preferred stock.
Exemption from registration is claimed pursuant to Sections 3(a)(9) and 4(2) of
the Securities Act.
On April 16, 1998, we issued 1,339,241 shares of Series I redeemable
preferred stock and 4,597,070 common shares to a group of accredited investors
including members of management for an aggregate consideration of $8,930,000.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act, no public sale having been involved.
On April 16, 1998, we issued 1,803,838 shares of Series J redeemable
preferred stock and warrants to purchase 1,326,661 common shares with a per
share exercise price of $0.06 to the holders of the Debentures in exchange for
the Debentures and accrued interest thereon. Exemption from registration is
claimed pursuant to Sections 3(a)(9) and 4(2) of the Securities Act.
On May 12, 1999, we issued an aggregate 117,500 common shares to the
stockholders of TeleMed Corp. in exchange for all of the outstanding capital
stock of TeleMed Corp. Exemption from registration is claimed pursuant to
Section 4(2) of the Securities Act, no public sale having been involved.
In the three years preceding the filing of this registration statement, we
have issued an aggregate of common shares to current and former
employees upon exercise of options for an aggregate exercise price of $ .
Exemption from registration is claimed pursuant to Rule 701 under the
Securities Act.
Upon the closing of this offering, Allscripts, Inc., an Illinois
corporation, will merge with and into its wholly owned subsidiary, ,
a Delaware corporation. In connection with the merger, will issue
shares of common stock to the holders of common stock of Allscripts, in
exchange for such holders' shares of common stock of Allscripts. Exemption from
registration is claimed pursuant to Section 3(a)(9) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits--See Index to Exhibits.
(b) Financial Statement Schedules
Report of Independent Accountants
Schedule II--Valuation and Qualifying Accounts
II-2
<PAGE>
Item 17. Undertakings
The undersigned hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Libertyville and State of Illinois on the 7th day of June, 1999.
Allscripts, Inc.
/s/ Glen E. Tullman
----------------------------------------
Glen E. Tullman
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of June, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Glen E. Tullman Chairman and Chief Executive Officer
_________________________________________ (Principal Executive Officer)
Glen E. Tullman
/s/ David B. Mullen President, Chief Financial Officer and
___________________________________________ Director (Principal Financial Officer)
David B. Mullen
* Senior Vice President, Finance, Treasurer
___________________________________________ and Secretary (Principal Accounting
John G. Cull Officer)
* Director
___________________________________________
Philip D. Green
* Director
___________________________________________
M. Fazle Husain
* Director
___________________________________________
Michael J. Kluger
* Director
___________________________________________
L. Ben Lytle
* Director
___________________________________________
Gary M. Stein
*/s/ David B. Mullen
___________________________________________
David B. Mullen, as attorney-in-fact
pursuant to power of attorney granted in
Registration Statement No. 333-78431
filed on May 14, 1999
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
1.1** Form of Underwriting Agreement
2.1* Form of Plan of Merger between the Registrant and Allscripts,
Inc., an Illinois corporation
3.1* Form of Certificate of Incorporation
3.2* Form of By-laws
4.1* Specimen Common Stock Certificate
5.1* Opinion of Gardner, Carton & Douglas
10.1* Amended and Restated 1993 Stock Incentive Plan
10.2 Asset Purchase Agreement, dated as of March 19, 1999, by and
among the Registrant, PharmaCare Management Services, Inc.,
PharmaCare Direct, Inc. and ProCare Pharmacy, Inc.
10.3* Twelfth Restated Registration Agreement dated as of
, 1999, by and among the Registrant, those Holders of the
Registrant's Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series F Preferred and Series G
Preferred listed in Schedule I attached thereto, the Holders
of the Extension Guaranty Warrants listed in Schedule II
thereto, the Holders of the 1996 Extension Guaranty Warrants
listed in Schedule II thereto, those Holders of Common listed
in Schedule III thereto, the Holders of Series H Warrants and
H Unit Common listed in Schedule IV thereto, the Holders of
Extension Series H Warrants listed in Schedule IV thereto, the
Holders of I Unit Common listed in Schedule V thereto and the
Holders of Debenture Warrants listed in Schedule VI thereto.
10.4** Industrial Building Lease dated April 30, 1997 between G2
Limited Partnership and the Registrant.
10.5** Lease Agreement between American National Bank and Trust
Company of Chicago, as Trustee, and the Registrant dated
September 1996.
10.6** Employment Agreement effective August 1, 1997 between the
Registrant and Glen E. Tullman.
10.7** Employment Agreement effective August 1, 1997 between the
Registrant and David B. Mullen.
10.8** Employment Agreement effective September 2, 1997 between the
Registrant and Steven M. Katz.
10.9** Agreement dated May 1, 1995 between the Registrant and John G.
Cull.
10.10** Form of TouchScript Master License Agreement
10.11* Agreement between the Registrant and Merck-Medco Managed Care
10.12++ Supply Agreement dated August 27, 1998 between McKesson U.S.
Health Care and the Registrant.
10.13** Form of Series H Warrant
10.14** Form of Extension Guaranty Warrant
10.15** Form of 1996 Extension Guaranty Warrant
10.16** Form of Debenture Warrant
10.17** Form of Series H Extension Warrant
23.1** Consent of PricewaterhouseCoopers LLP
23.2* Consent of Gardner, Carton & Douglas (included in Exhibit 5.1)
24.1** Powers of Attorney (included on signature page)
27.1** Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Filed on May 14, 1999 as part of this Registration Statement.
++Confidential treatment requested as to a portion of this exhibit.
E-1
<PAGE>
EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
BY AND AMONG
ALLSCRIPTS, INC.
AND
PHARMACARE MANAGEMENT SERVICES, INC.,
PHARMACARE DIRECT, INC.,
AND
PROCARE PHARMACY, INC.
DATED AS OF MARCH 19, 1999
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of March 19, 1999, by
and among ALLSCRIPTS, INC., an Illinois corporation ("Seller"), and PHARMACARE
MANAGEMENT SERVICES, INC., a Delaware corporation ("PharmaCare"), PHARMACARE
DIRECT, INC., a Delaware corporation ("PharmaCare Direct"), and PROCARE
PHARMACY, INC., a Rhode Island corporation ("CVS ProCare") (each a "Buyer" and
collectively "Buyers"). The Buyers and the Seller are referred to collectively
herein as the "Parties".
RECITALS
--------
A. Seller owns certain assets used in the conduct of the business of
its Pharmacy Benefit Management Division.
B. Buyers desire to purchase from Seller, and Seller desires to sell
to Buyers, substantially all of such assets of the Pharmacy Benefit Management
Division (excluding Accounts Receivable) upon the terms and subject to the
conditions of this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants,
representations and premises contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.1. CERTAIN DEFINED TERMS. As used herein, the terms below shall
---------------------
have the following meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the reference.
"ACCOUNT RECEIVABLE" shall mean any account or note receivable,
whether billed or unbilled (but with respect to such unbilled receivables, only
to the extent billed within ninety (90) days after Closing), whether current or
noncurrent, arising out of the sale of goods or provision of services and other
benefits by the Division on or before the Closing Date.
"AFFILIATE" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"ASSETS" shall mean all of Seller's right, title and interest in and
to the properties, assets and rights of any kind, whether tangible or
intangible, real or personal, that are used or held for use in the business of
the Division, including without limitation, all of Seller's right, title and
interest in the following:
(a) all rights under all Contracts and Leases, including goodwill
associated therewith, other than (i) Contracts pursuant to which Seller has
rights that are utilized by Seller to any significant degree
<PAGE>
other than in the operation of the Division (such excluded Contracts being
referred to herein as "Company-Wide Contracts"), and (ii) Affiliate Contracts;
(b) all leasehold improvements of the Division;
(c) all Fixtures and Equipment;
(d) Inventory, to the extent purchased by Buyers pursuant to Section
2.3(b);
(e) all Books and Records;
(f) all Proprietary Rights, including goodwill associated therewith,
other than Proprietary Rights utilized by Seller to any significant degree other
than in the operation of the Division (such excluded Proprietary Rights being
referred to herein as "Company-Wide Proprietary Rights"), and all know-how of
the Division;
(g) all Permits to the extent transferable;
(h) the computer hardware, software and databases of the Division
that are identified on Schedule A;
----------
(i) deposits of customers of the Division that have been made to pre-
fund payments to pharmacies; and
(j) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind, against any person or entity, except
to the extent they relate to Excluded Assets or Excluded Liabilities;
but excluding therefrom the Excluded Assets.
"ASSUMED LIABILITIES" shall mean:
(a) all obligations of the Division under the Contracts, Leases and
other arrangements included in the definition of Assets either (i) to furnish
goods, services, and other benefits to another party after the Closing or (ii)
to pay for goods, services, and other benefits that another party will furnish
to it after the Closing;
(b) all liabilities for vacation entitlements through the Closing
Date of Rehired Employees (as defined in Section 7.6(a) hereof);
(c) any obligation of Seller to Teachers Insurance and Annuity
Association for the difference between the holdover rent and the regular rent
for Seller's Columbus, Ohio facility from February 1, 1999 through the Closing
Date; and
(d) obligations of the Division, if any, to repay advance co-payments
made by customers of the Division for prescription orders which the Division has
not filled as of the Closing;
provided, however, that the Assumed Liabilities shall not include any
- -------- -------
liabilities other than those enumerated above including, without limitation, any
liability of Seller (i) for unpaid Taxes (with respect
-2-
<PAGE>
to the Division or otherwise) for periods ending on or prior to the Closing or
for Taxes arising in connection with the consummation of the transactions
contemplated by this Agreement, (ii) for costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, (iii)
under any Employee Benefit Plans (as defined in Section 4.16 hereof), except for
those described in (b) above, (iv) for borrowed money, (v) for rebates to
customers arising out of the sale of products for the period ending on or prior
to the Closing Date, or (vi) under this Agreement.
"BALANCE SHEET" shall mean the unaudited balance sheet of the Division
as of December 31, 1998.
"BOOKS AND RECORDS" shall mean (a) all records and lists of the
Division pertaining to the Assets, including customer lists and records, (b) all
product, business and marketing plans of the Division, and (c) all books,
ledgers, files, reports, plans, drawings and operating records of every kind
maintained by the Division, but excluding the Excluded Books and Records.
"CLOSING DATE" shall mean the first day that is (i) either the 15th
day of a calendar month or the last day of a calendar month, and (ii) falls
after the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself), or such other date as the Parties may mutually determine.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
"CONTRACT" shall mean any written agreement, contract, purchase order,
license or commitment (other than commitments evidencing indebtedness) of the
Division, excluding all Leases.
"DISCLOSURE SCHEDULE" shall mean the schedules executed and delivered
by Seller to Buyers which set forth the exceptions to the representations and
warranties contained in Article IV hereof and certain other information called
for by this Agreement. Unless otherwise specified, each reference in this
Agreement to any schedule designated by a letter or number is a reference to the
schedule designated by such letter or number which is included in the Disclosure
Schedule.
"DIVISION" means the Seller with respect to its Pharmacy Benefit
Management Division.
"ENCUMBRANCE" shall mean any claim, lien, option, pledge, charge,
mortgage, security interest, right of first refusal or offer or other
restriction on use, transfer, receipt of income, or exercise of any other
attribute of ownership.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCLUDED ASSETS," notwithstanding any other provision of this
Agreement, shall mean the following assets of Seller which are not to be
acquired by Buyers hereunder:
(a) all cash and cash equivalents;
(b) all Accounts Receivable of the Division, and all rights to
rebates arising in connection with sales of products made on or before the
Closing Date, refunds, deposits (other than those customer
-3-
<PAGE>
deposits expressly included in the definition of Assets), prepayments or prepaid
expenses of the Division;
(c) this Agreement and all rights of Seller hereunder;
(d) the Excluded Books and Records;
(e) the Company-Wide Proprietary Rights;
(f) rights under Company-Wide Contracts;
(g) all claims, causes of action, choses in action, rights of
recovery, refunds and rights of set-off of any kind against any person or entity
arising out of or relating to (i) the Excluded Liabilities or (ii) the Excluded
Assets described in (a), (b), (c), (d), (e), (f) and (h) hereof; and
(h) the additional Excluded Assets listed on Schedule B attached
----------
hereto.
"EXCLUDED BOOKS AND RECORDS" shall mean Seller's minute books, stock
books and tax returns, other documents relating to the organization, maintenance
and existence of Seller as a corporation, and other such items to the extent
they relate to Excluded Assets or Excluded Liabilities.
"FINANCIAL STATEMENTS" shall mean (i) the unaudited Balance Sheet and
the related statement of operations for the twelve months ended December 31,
1998, and (ii) the unaudited balance sheet of the Division as of December 31,
1997 and the related statement of operations for the twelve months ended
December 31, 1997.
"FIXTURES AND EQUIPMENT" shall mean all of the furniture, fixtures,
furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment
and other tangible personal property of the Division.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"INVENTORY" shall mean all drug inventory of the Division held for
resale and all of the Division's raw materials, work in process, finished
products, wrapping, supply and packaging items and similar items, in each case
wherever the same may be located, but excluding discontinued and out-of-date
items.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean any
effect or change in the condition (financial or otherwise), business, results of
operations, assets, liabilities or operations of the Division that is materially
adverse to the condition (financial or otherwise), business, results of
operations, assets, liabilities or operations of the Division or to the ability
of Seller to consummate the transactions contemplated hereby.
"PERMITTED ENCUMBRANCES" shall mean (i) materialmen's, mechanics',
carriers', workmen's, repairmen's or other like liens arising in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings, provided that Seller shall remain liable for
any liability or obligation secured by any such lien to the extent incurred on
or prior to the Closing, (ii) liens for current taxes or special assessments not
yet due or any taxes being contested in good faith by appropriate proceedings,
provided that Seller shall remain liable for all such Taxes and
-4-
<PAGE>
special assessments for all periods ending on or prior to the Closing or which
arise in connection with the transactions contemplated hereby, (iii) liens that
are immaterial in character, amount and extent, and which do not detract from
the marketability or value or interfere with the present or proposed use of the
properties they affect and which have not arisen in connection with the
borrowing of money, (iv) easements, rights of way, encroachments, restrictions
or similar conditions affecting or burdening the Assets which individually or in
the aggregate do not detract materially from the marketability, use or value of
the Assets, and (v) purchase money liens and liens securing rental payments
under capital lease arrangements assumed hereunder.
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, certificates, registrations, consents or orders of, or filings
with, any governmental authority, whether foreign, federal, state or local, or
any other person, used or held for use in the operation of the Division and all
other rights and privileges necessary to allow the Division to own and operate
its business without any violation of law.
"TAX" shall mean any federal, state, local, foreign or other tax,
including without limitation income, capital gains, estimated income, business,
occupation, gross receipts, franchise, property, payroll, personal property,
sales, transfer, use, employment, commercial rent, occupancy, franchise or
withholding taxes, and any premium, including without limitation interest,
penalties and additions in connection therewith (whether payable directly or by
withholding and whether or not requiring the filing of a Tax return), and shall
include any liability for such amounts as a result of either being a member of a
combined, consolidated, unitary or affiliated group or having a contractual
obligation to indemnify any person or other entity.
1.2. OTHER DEFINED TERMS. The following terms shall have the
-------------------
meanings defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
"ACCELERATION CONTRACTS" 2.4(d)
"ACCELERATION PAYMENTS" 2.4(d)
"ACTIONS" 4.10
"ACTUAL VOLUME" 2.4(a)
"AFFILIATE CONTRACTS" 4.26
"ANNIVERSARY DATE" 2.4(a)
"APPRAISER" 2.3(b)
"BASE PURCHASE PRICE" 2.3(a)
"BUYERS" Preamble
"CLAIM" 10.2(c)
"CLAIM NOTICE" 10.2(c)
"CLOSING" 3.1
"CLOSING INVENTORY" 2.3(b)
"CLOSING STATEMENT" 2.4(a)
"COMPANY-WIDE CONTRACTS" 1.1
"COMPANY-WIDE PROPRIETARY RIGHTS" 1.1
"CONTINGENT PURCHASE PRICE" 2.3(a)
"CVS PROCARE" Preamble
"DAMAGES" 10.2(a)
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C>
"DIVISION EMPLOYEES" 4.15
"DRW" 4.24
"EMPLOYEE BENEFIT PLANS" 4.16(a)
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" 4.18(a)
"EXCLUDED LIABILITIES" 2.2
"HAZARDOUS SUBSTANCES" 4.18(b)
"INDEMNIFIED PARTY" 10.2(c)
"INDEMNIFYING PARTY" 10.2(c)
"LEASES" 4.4
"MARK(S)" 7.8
"MATERIAL CONTRACTS" 4.5
"NON-COMPETE PERIOD" 7.3
"NON- TRANSFERABLE ASSETS" 6.3
"PARENT" 2.7
"PARENT GUARANTEE" 2.7
"PARTIES" Preamble
"PHARMACARE" Preamble
"PHARMACARE DIRECT" Preamble
"PRESCRIPTION FILLINGS" 2.4(a)
"PROPRIETARY RIGHTS" 4.14(a)
"REHIRED EMPLOYEES" 7.6(a)
"RELATED PARTIES" 10.2(a)
"SELLER" Preamble
"TAKEOVER PROPOSAL" 6.1(d)
"TRANSITION SERVICES AGREEMENT" 8.7(a)
"YEAR 2000 PROBLEM" 4.23
</TABLE>
ARTICLE II.
PURCHASE AND SALE OF ASSETS
---------------------------
2.1. TRANSFER OF ASSETS. Upon the terms and subject to the
------------------
conditions contained herein, at the Closing, Seller will sell, convey, transfer,
assign and deliver to Buyers, and Buyers will acquire from Seller, the Assets,
free and clear of all Encumbrances other than Permitted Encumbrances and
Encumbrances securing Assumed Liabilities.
2.2. ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
-------------------------
conditions contained herein, at the Closing, Buyers shall assume the Assumed
Liabilities. Buyers will not assume or have any responsibility, however, with
respect to any other obligation or liability of Seller (the "Excluded
Liabilities") not included within the definition of Assumed Liabilities. Buyers
hereby acknowledge that they are assuming the Assumed Liabilities and Buyers
agree to pay, discharge and perform all such liabilities and obligations
promptly when due. Seller hereby acknowledges that it is retaining the Excluded
Liabilities and Seller agrees to pay, discharge and perform all such liabilities
and obligations promptly when due.
-6-
<PAGE>
2.3. PURCHASE PRICE.
--------------
(a) Base Purchase Price. The purchase price for the Assets and the
-------------------
other obligations of Seller hereunder (including the covenant-not-to-compete in
Section 7.3) shall consist of the "Base Purchase Price" and the "Contingent
Purchase Price." The Base Purchase Price for the Assets shall be Seven Million
Dollars ($7,000,000), plus the value of the Closing Inventory purchased by
Buyers and as determined pursuant to Section 2.3(b). At the Closing, upon the
terms and subject to the conditions set forth herein, Buyers shall pay and
deliver to Seller the Base Purchase Price by wire transfer of immediately
available funds.
(b) Closing Inventory. On the day before the Closing Date, a
-----------------
physical count of the items of Inventory as of the Closing Date (the "Closing
Inventory") shall be conducted by a third party mutually agreeable to the
Parties (the "Appraiser"). Each Party shall have the right to observe the
physical count of the Closing Inventory. The Appraiser shall value the Closing
Inventory on the basis of Seller's net cost (including applicable discounts) of
the Closing Inventory. Buyers shall be obligated to purchase at the Closing all
of the Closing Inventory up to a maximum of $500,000 in value as determined by
the Appraiser. Buyers shall have the option to purchase the Closing Inventory at
the Closing to the extent it exceeds $500,000 in value.
(c) Seller and Buyers acknowledge that they will negotiate in good
faith regarding the allocation of the Purchase Price and that such allocation
will be consistent with the requirements of Section 1060 of the Code and the
regulations thereunder. Seller and Buyers agree to jointly complete and
separately file Internal Revenue Service Form 8594 with their respective federal
income tax returns for the tax year in which the Closing Date occurs. Seller
and Buyers further agree to jointly complete and separately file any amended
Internal Revenue Service Form 8594 to the extent required after the payment of
any amounts required to be paid as part of the Contingent Purchase Price.
Seller's Employer Identification Number is 36-3444974. The Employer
Identification Numbers of each of PharmaCare, PharmaCare Direct and CVS ProCare
are 05-0479173, 05-0496114 and 06-1474598, respectively.
2.4. CONTINGENT PURCHASE PRICE.
-------------------------
(a) Preparation of Closing Statement. Within ten (10) business days
--------------------------------
after the first anniversary of the Closing Date (the "Anniversary Date"),
PharmaCare, on behalf of itself and the other Buyers, shall prepare and deliver
to Seller a statement (the "Closing Statement") showing the volume of
prescription fillings (including original filling and subsequent refills)
("Prescription Fillings") during the one-year period following the Closing Date
attributable to each line of business comprising the Division, i.e., traditional
mail order, specialty mail order and retail pharmacy, in each case from (i) each
client of Seller listed on Schedule 2.4(a)(i) that on the Anniversary Date
------------------
remains under contract to, and, within the ninety (90) days prior to the
Anniversary Date, had any claim activity or submitted a current eligibility list
or update to, a Buyer or any subsequent assignee of, or successor to, the assets
comprising the business currently operated as the Division and has not submitted
a written notice of termination of such contract (or oral notice of termination
in the case of a contractual relationship that is not in writing), (ii) any
party that becomes a client of a Buyer due to Seller's relationship with any of
the brokers, agents or third-party administrators listed on Schedule 2.4(a)(ii)
-------------------
that on the Anniversary Date is under contract to, and, within the ninety (90)
days prior to the Anniversary Date, had any claim activity or submitted a
current eligibility list or update to, a Buyer or any subsequent assignee of, or
successor to, the assets comprising the business currently operated as the
Division and that has not submitted a written notice of termination of such
contract (or oral notice of termination in the case of a contractual
relationship that is
-7-
<PAGE>
not in writing), and (iii) each party identified on Schedule 2.4(a)(iii) that on
--------------------
the Anniversary Date is under contract to, and, within the ninety (90) days
prior to the Anniversary Date, had any claim activity or submitted a current
eligibility list or update to, a Buyer or any subsequent assignee of, or
successor to, the assets comprising the business currently operated as the
Division and has not submitted a written notice of termination of such contract
(or oral notice of termination in the case of a contractual relationship that is
not in writing). The Prescription Fillings volume during the one-year period
following the Closing Date from parties described in (i), (ii) and (iii) above
is referred to herein as the "Actual Volume." PharmaCare shall deliver to Seller
simultaneously with its delivery of the Closing Statement copies of all working
papers relevant to the determination of Actual Volume and access to all books
and records relevant to the determination of Actual Volume. PharmaCare shall
also deliver to Seller within ten (10) business days after the end of each
calendar quarter after the Closing Date until the Anniversary Date, a statement
showing the Actual Volume for such calendar quarter and the Actual Volume from
the Closing Date through the end of such calendar quarter.
(b) Contingent Purchase Price. The Contingent Purchase Price shall
-------------------------
equal the sum of (i) the number of Prescription Fillings included in Actual
Volume attributable to the traditional mail order business divided by 216,267
and multiplied by $5,000,000, up to a maximum of $5,000,000, such maximum to
include any Acceleration Payment made in respect of Acceleration Contracts (1)
or (2) below, (ii) the number of Prescription Fillings included in Actual Volume
attributable to the specialty mail order business divided by 60,000 and
multiplied by $700,000, up to a maximum of $700,000, such maximum to include any
Acceleration Payments made in respect of Acceleration Contracts (4), (5) or (6)
below, and (iii) the number of Prescription Fillings included in Actual Volume
attributable to the retail pharmacy business divided by 602,972 and multiplied
by $2,700,000, up to a maximum of $2,700,000, such maximum to include any
Acceleration Payment made in respect of Acceleration Contract (3) below.
(c) Payment of Contingent Purchase Price. In the event PharmaCare
------------------------------------
does not receive notice from Seller disputing the calculation of Actual Volume
within the time period specified in Section 2.5(a), Seller shall be deemed to
have agreed with such calculation and within two (2) business days following the
expiration of such time period, Buyers shall pay Seller the Contingent Purchase
Price by wire transfer of immediately available funds.
(d) Acceleration of Payments on Execution of Certain Contracts. In
----------------------------------------------------------
the event contracts meeting (or exceeding) the following criteria and otherwise
containing terms and conditions not materially less favorable than Seller's past
practice ("Acceleration Contracts") are signed by customers prior to the
Anniversary Date, then within two (2) business days of a Buyer's receipt of a
signed Acceleration Contract, Buyers shall pay Seller the amounts ("Acceleration
Payments") set forth below, which amounts shall be part of the Contingent
Purchase Price:
<TABLE>
<CAPTION>
CUSTOMER SUBJECT MATTER MINIMUMTERM OF CONTRACT ACCELERATIONPAYMENT
<S> <C> <C> <C> <C>
(1) BankOne Retirees-Trad. Mail Three Years $1,000,000
(2) BankOne New-Including Trad. Mail Three Years $ 700,000
(3) BankOne New-Including Retail Three Years $ 700,000
(4) State of Ohio ADAP-Specialty One Year $ 200,000
(5) State of Indiana ADAP-Specialty One Year $ 100,000
(6) State of Arkansas ADAP-Specialty One Year $ 100,000
</TABLE>
-8-
<PAGE>
(e) Tax Holdback. Notwithstanding any provision of this Section 2.4
------------
to the contrary, no payment of the first $100,000 of the Contingent Purchase
Price due to Seller will be made by Buyers prior to (i) the delivery by Seller
of a certificate from the tax commissioner of the State of Ohio indicating that
all sales and use taxes, interest and penalties have been paid by Seller
pursuant to Sections 5739.14 and 5741.14 of the Ohio Revised Code, or (ii)
Seller's demonstration to Buyers' reasonable satisfaction that such Sections of
the Ohio Revised Code are inapplicable to the transactions contemplated hereby.
2.5. DISPUTES REGARDING CONTINGENT PURCHASE PRICE.
-----------------------------------------------
(a) Disputed Amount. If Seller disagrees with the Closing Statement
---------------
used to calculate the Contingent Purchase Price, it shall notify PharmaCare of
such disagreement in writing specifying in detail the particulars of such
disagreement within thirty (30) calendar days after Seller's receipt of the
Closing Statement.
(b) Resolution of Disputed Amount. PharmaCare and Seller shall use
-----------------------------
reasonable efforts for a period of fifteen (15) calendar days after Seller's
delivery of the notice specified in Section 2.5(a) (or such longer period as
PharmaCare and Seller agree upon) to resolve any disagreements raised by Seller
with respect to the Closing Statement used to calculate the Contingent Purchase
Price. If, at the end of such period, PharmaCare and Seller do not resolve such
disagreements, PharmaCare and Seller shall jointly select an independent
accounting firm of recognized national standing to review the Closing Statement
used to calculate the Contingent Purchase Price and resolve any remaining
disagreements. In the event PharmaCare and Seller cannot agree upon an
accounting firm, they shall choose an accounting firm by lot from those "Big 5"
accounting firms having no material relationship to any Buyer or Seller and
having offices in locations suitable to conduct such review. The determination
by such independent accounting firm shall be final, binding and conclusive on
the Parties. PharmaCare and Seller shall use reasonable efforts to cause such
independent accounting firm to make its determination within thirty (30)
calendar days of accepting its selection. The fees and expenses of such
independent accounting firm shall be borne by the non-prevailing party;
provided, however, that if neither party is clearly the prevailing party, such
fees and expenses shall be borne equally by Buyers, on one hand, and Seller, on
the other.
2.6. CLOSING COSTS; TRANSFER TAXES AND FEES. Notwithstanding any
--------------------------------------
other provision herein, any documentary and transfer taxes and any sales, use or
other taxes imposed by reason of the transfers of Assets provided hereunder and
any deficiency, interest or penalty asserted with respect thereto shall be borne
by the party legally required to pay such taxes. The fees and costs of recording
or filing all applicable conveyancing instruments, if any, described in Section
3.2(a) shall be borne equally by Buyers, on one hand, and Seller, on the other.
2.7. PARENT GUARANTEE. The Parties hereby acknowledge that CVS
----------------
Corporation, a Delaware corporation and the ultimate parent of each of the
Buyers ("Parent"), is concurrently with the execution and delivery of this
Agreement, executing and delivering to Seller a Guarantee in the form attached
hereto as Schedule 2.7 (the "Parent Guarantee"), whereby Parent will guarantee
------------
to Seller all obligations of each of the Buyers. The Parties hereby acknowledge
that Seller would not enter into this Agreement without the benefit of the
Parent Guarantee.
-9-
<PAGE>
ARTICLE III.
CLOSING
-------
3.1. CLOSING. The closing of the transactions contemplated herein
-------
(the "Closing") shall be at 10:00 a.m. local time on the Closing Date at the
offices of Gardner, Carton & Douglas, 321 N. Clark Street, Suite 3400, Chicago,
Illinois 60610, or such other time or place as the Parties hereto may mutually
determine, and shall be effective as of the close of business on the Closing
Date.
3.2. DELIVERIES AND ACTIONS TAKEN AT CLOSING.
---------------------------------------
(a) Deliveries by Seller. To effect the sale and transfer referred
--------------------
to in Section 2.1 hereof, Seller will, at the Closing, deliver to Buyers one or
more of the following:
(i) good and sufficient bills of sale, assignments and other
instruments of transfer to convey to Buyers good and
merchantable title to the Assets, free and clear of all
Encumbrances of any kind, except the Permitted
Encumbrances and Encumbrances securing Assumed
Liabilities;
(ii) instruments evidencing the release of all Encumbrances
on the Assets securing Excluded Liabilities, other than
Permitted Encumbrances;
(iii) a copy of Seller's Amended and Restated Articles of
Incorporation certified by the Secretary of State of
Illinois, together with a good standing certificates
issued by the Secretary of State of Illinois and the
Secretary of State of Ohio, in each case as of a date
not more than ten (10) business days prior to the
Closing Date;
(iv) a copy of Seller's corporate bylaws certified by the
secretary of Seller as of the Closing Date;
(v) copies of the resolutions and other requisite corporate
actions of Seller, authorizing the execution and
delivery of this Agreement and the other documents and
instruments to be executed and delivered pursuant to
this Agreement, and the consummation by Seller of the
transactions contemplated hereby and thereby, which
copies have been certified by the secretary of Seller as
of the Closing Date;
(vi) a certificate of the secretary of Seller dated as of the
Closing Date certifying as to the genuineness of the
signatures of officers of Seller executing any
certificate, document, instrument or agreement to be
delivered pursuant to this Agreement, which incumbency
certificate shall include the true signatures of such
officers;
(vii) a statement signed by an officer of Seller under the
penalty of perjury in the form attached hereto as
Schedule 3.2(a)(vii); and
(viii) such other documents and instruments, including the
certificate referred to in Section 9.1, as Buyers or
their counsel reasonably shall deem necessary to
consummate the transactions contemplated hereby.
-10-
<PAGE>
(b) Deliveries by Buyers. To effect the sale and transfer referred
--------------------
to in Section 2.1 hereof, Buyers will, at the Closing, deliver to Seller:
(i) a wire transfer of immediately available funds in the
amount of the Base Purchase Price;
(ii) a copy of each Buyer's Certificate or Articles of
Incorporation certified by the Secretary of State of
Delaware or Rhode Island, as appropriate, together with
a good standing certificate issued by such Secretary, in
each case, as of a date not more than ten (10) business
days prior to the Closing Date;
(iii) a copy of each Buyer's corporate by-laws certified by
the secretary of such Buyer as of the Closing Date;
(iv) copies of the resolutions and other requisite corporate
actions of each Buyer authorizing the execution and
delivery of this Agreement and the other documents and
instruments to be executed and delivered pursuant to
this Agreement, and the consummation by such Buyer of
the transactions contemplated hereby and thereby, which
copies have been certified by the secretary of such
Buyer as of the Closing Date;
(v) instruments of assumption of the Assumed Liabilities;
(vi) a certificate of the secretary of each Buyer dated as of
the Closing Date certifying as to the genuineness of the
signatures of officers of such Buyer executing any
certificate, document, instrument or agreement to be
delivered pursuant to this Agreement, which incumbency
certificate shall include the true signatures of such
officers; and
(vii) such other documents and instruments, including the
certificate referred to in Section 8.1 hereof, as Seller
or its counsel reasonably shall deem necessary to
consummate the transactions contemplated hereby.
(c) Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Buyers and Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyers as follows:
4.1. ORGANIZATION AND QUALIFICATION OF SELLER. Seller is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois. Seller has all requisite corporate power and
authority to own and operate the Division as it is presently being operated and
Seller is qualified to do business as a foreign corporation and is in good
standing in Ohio and in all other jurisdictions where failure to be so qualified
or in good standing is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect.
-11-
<PAGE>
4.2. AUTHORIZATION. Seller has all requisite corporate power and
-------------
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Seller and is the legal, valid and binding obligation of Seller,
enforceable against it in accordance with its terms, subject to general
principles of equity and except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws of general application relating to creditors' rights generally.
4.3. ASSETS. Except as set forth in Schedule 4.3 attached hereto,
------ ------------
Seller has good and marketable title to, or a valid leasehold interest in, all
of the Assets, subject to no Encumbrance, except for Permitted Encumbrances.
Except as set forth in Schedule 4.3 the Fixtures and Equipment are in all
------------
material respects in good working order and condition, ordinary wear and tear
excepted. The Assets, the Excluded Assets and the Non-Transferable Assets (as
defined in Section 6.3) (if any) constitute all the assets necessary for the
conduct of the business of the Division as presently conducted. No assets,
other than the Assets, the Excluded Assets and the Non-Transferable Assets (if
any), are used or held for use by Seller or any other person or entity in the
conduct of the business of the Division as presently conducted.
4.4. FACILITIES; LEASES. Schedule 4.4 contains a complete list of
------------------ ------------
all leases pursuant to which the Seller leases any real property or personal
property (the "Leases") used or held for use by the Division. All such Leases
are valid obligations of Seller and, to Seller's knowledge, of the other parties
thereto, and are in full force and effect. No event of default has occurred
which (whether with or without notice, lapse of time or both or the happening or
occurrence of any other event) would constitute a material default under any
such Lease on the part of Seller. Seller does not have any knowledge of the
occurrence of any event which (whether with or without notice, lapse of time or
both or the happening or occurrence of any other event) would constitute a
material default under any such Lease by any other party thereto. Seller enjoys
peaceful and undisturbed possession of all the leased real property covered by
such Leases, and Seller has in all material respects performed all the
obligations with respect thereto required through the date hereof to be
performed by it. To Seller's knowledge, all of the leased real property,
improvements and fixtures thereto are structurally sound and have no material
defects and are capable of being used in the conduct of the business of the
Division after the Closing in substantially the same manner as conducted before
the Closing. Seller owns no real property used or held for use by the Division.
4.5. CONTRACTS AND COMMITMENTS. (a) Schedule 4.5(a) lists the
------------------------- ---------------
following Contracts (excluding Company-Wide Contracts) to which Seller is a
party with respect to the Division (the "Material Contracts"):
(i) any distributor, dealer, manufacturer's representative,
sales agency or broker agreement;
(ii) any sales agreement (including oral agreements) with any
customer;
(iii) any agreement with any labor union;
(iv) any agreement with any supplier containing any provision
permitting any party other than Seller to renegotiate
the price or other terms, or containing any pay-back,
retroactive adjustment or other similar
-12-
<PAGE>
provision, upon the occurrence of a failure by the
Division to meet its obligations under the agreement
when due or the occurrence of any other event;
(v) any agreement or commitment for the future purchase of
fixed assets or the maintenance thereof or for the
future purchase of materials, supplies or equipment in
excess of the Division's normal operating requirements;
(vi) any agreement for the employment of any employee or for
the retention of consulting services of any other person
(whether of a legally binding nature or in the nature of
informal understandings) which is not terminable on
notice without cost or other liability to the Division,
except normal severance arrangements and accrued
vacation pay;
(vii) any bonus, incentive pay, deferred compensation,
severance, stay or change of control, pension, profit-
sharing, retirement, hospitalization, insurance, stock
purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to
any employee of the Division (other than group insurance
plans which are not self-insured and are applicable to
employees generally);
(viii) any agreement relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a
lien or security interest on, any asset of the Division,
including but not limited to, indebtedness by way of
lease or installment purchase arrangement, guarantee,
reimbursement obligations pertaining to letters of
credit, and all mortgages, pledges, conditional sales
contracts, chattel and purchase money mortgages and
other security arrangements;
(ix) any guaranty of any obligation for borrowed money or
otherwise or any agreement to indemnify not in the
ordinary course of business;
(x) any agreement, or group of related agreements with the
same party or any group of affiliated parties, under
which the Division has advanced or agreed to advance
money;
(xi) any assignment, license or other agreement with respect
to any form of intangible property including with
respect to any invention or know-how used in or related
to the business of the Division (other than license
agreements with respect to "off-the-shelf" software);
(xii) any agreement under which the Division has limited or
restricted its right to compete with any person in any
respect or use or disclose any information in its
possession (other than supplier and customer
confidentiality agreements entered into the ordinary
course of business);
(xiii) all agreements relating to joint ventures or agreements
involving a sharing of profits;
-13-
<PAGE>
(xiv) any contract relating to cleanup, abatement or other
actions in connection with environmental liabilities;
and
(xv) any other agreement, or group of related agreements with
the same party or any group of affiliated parties,
involving payments on an annual basis of more than
$50,000 or continuing over a period of more than six
months from the date or dates thereof (including
renewals or extensions optional with another party),
which agreement or group of agreements is not terminable
by the Division without penalty upon notice of thirty
(30) days or less; or
(xvi) any other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be
filed with the Securities and Exchange Commission as an
exhibit to a registration statement on Form S-1 if the
Division were registering securities under the
Securities Act of 1933, as amended.
All of the Material Contracts are valid obligations of Seller and, to
Seller's knowledge, of the other parties thereto, and are in full force and
effect. Seller has duly performed in all material respects all of its
obligations under the Material Contracts to the extent those obligations to
perform have accrued, and no material violation of, or material default or
breach under, any Material Contracts by Seller or, to Seller's best knowledge,
any other party thereto has occurred and neither Seller nor, to Seller's best
knowledge, any other party has repudiated any provisions thereof. There is no
litigation pending nor, to Seller's best knowledge, threatened by any party with
respect to any Material Contract. Except as set forth on Schedule 4.5(a),
---------------
consummation of the transactions contemplated hereby will not violate any
Material Contract and will not give any person a right to terminate or modify
any rights of, or accelerate or augment any obligations of, or demand payment
by, Seller pursuant to any Material Contract. Except as set forth on Schedule
--------
4.5(a), Seller has not received written notice (or oral notice, in the case of a
- ------
contract that is not in writing) of termination or non-renewal of any Material
Contract and has no knowledge that the other party thereto has a current
intention to terminate or fail to renew a Material Contract. The consummation
of the transactions contemplated hereby will not result in any payment becoming
due from Seller under any Material Contract, nor accelerate the timing of future
payments or increase the amount of any such future payments.
(b) Schedule 4.5(b) contains a list of all Company-Wide Contracts.
---------------
(c) Schedule 4.5(c) is a true, correct and complete list of the
---------------
Division's customers, and accurately summarizes the provisions of Seller's
written and oral contracts with such customers that it purports to summarize.
4.6. PERMITS. The Division has all material Permits required to
-------
conduct its business as now being conducted. All such Permits of the Division
are valid and in full force and effect and are listed on Schedule 4.6. There is
------------
not now pending nor, to the best knowledge of Seller, threatened, any action by
any person or by or before any governmental or regulatory authority to revoke,
cancel, rescind, modify, or refuse to renew any of such Permits.
4.7. NO CONFLICT OR VIOLATION. Except as set forth on Schedule 4.7,
------------------------ ------------
none of Seller's execution, delivery or performance of this Agreement,
consummation of the transactions contemplated
-14-
<PAGE>
hereby, or compliance with any of the provisions hereof, will (a) violate or
conflict with any provision of the Articles of Incorporation or Bylaws of
Seller, (b) violate, conflict with, or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or increase the amount payable by Seller under, or result in
the creation of any Encumbrance upon any of the Assets under, any of the terms,
conditions or provisions of any Contract, Lease or Permit (i) to which the
Division is a party or (ii) by which the Assets are bound, or (c) violate any
statute, rule, regulation, ordinance, code, order, judgment, ruling, writ,
injunction, decree or award.
4.8. FINANCIAL STATEMENTS. Seller has heretofore delivered to Buyers
--------------------
the Financial Statements, all as attached hereto as Schedule 4.8. The Financial
------------
Statements (a) were prepared in accordance with the books and records of Seller,
(b) have been prepared in accordance with GAAP consistently applied throughout
the periods covered thereby and (c) fairly present in all material respects the
assets, liabilities (including all reserves) and financial position of the
Division as of the respective dates thereof and the results of operations for
the periods covered thereby, subject to the lack of footnote disclosure and
other presentation items.
4.9. ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 4.9
-------------------------- ------------
attached hereto, since the date of the Balance Sheet, there has not been: (a)
any Material Adverse Change; (b) any material damage, destruction or loss
(whether or not covered by insurance) adversely affecting the properties,
Assets, liabilities, financial condition or results of operations of the
Division; (c) any increase in the compensation, commissions or perquisites
payable or to become payable by the Division to any employee of the Division, or
any payment of any bonus, profit sharing or other extraordinary compensation to
any employee of the Division (other than any such increase or payment paid or to
become payable not exceeding 4% over amounts paid during the year ended December
31, 1998); (d) any cancellation of any material debts owed to or claims held by
the Division or waiver of any material rights held by the Division; (e) any
sale, lease, abandonment or other disposition by the Division of any real
property, or, other than in the ordinary course of business and not exceeding
$50,000 in the aggregate based on the book value thereof, of any machinery,
equipment or other operating properties, or of any intangible assets; (f) any
change in the amount, aging or collectibility of the Accounts Receivable or
other debts due to Seller with respect to the Division or the allowances with
respect thereto or accounts payable from that reflected on the Financial
Statements which could reasonably be expected to have a Material Adverse Effect;
or (g) any action taken by Seller which, if taken subsequent to the execution of
this Agreement and on or prior to the Closing Date, would constitute a breach of
Seller's agreements set forth in Section 6.1(a), (b), (e), (f), (g) or (h) of
this Agreement.
4.10. LITIGATION. Except as disclosed in Schedule 4.10 attached
---------- -------------
hereto, there is no action, order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, proceeding, labor dispute,
arbitration action, governmental audit or investigation (collectively,
"Actions") (a) pending, or to the best of Seller's knowledge, threatened against
the Division or the Assets, or (b) to the best of Seller's knowledge, pending or
threatened that seeks to delay, limit or enjoin the transactions contemplated by
this Agreement. The Division is not in default with respect to, or subject to,
any judgment, order, writ, injunction or decree of any court or governmental
agency, and there are no unsatisfied judgments against the Division or the
Assets.
4.11. UNDISCLOSED LIABILITIES. To Seller's knowledge, the Division
-----------------------
has no material liabilities, obligations or commitments of any nature (whether
absolute, accrued, contingent or otherwise and
-15-
<PAGE>
whether matured or unmatured), including without limitation Tax liabilities due
or to become due, except (a) liabilities which are reflected and reserved
against on the Balance Sheet which have not been paid or discharged since the
date thereof, (b) accounts payable and accrued expenses incurred in the ordinary
course of the Division's operations which have not caused the level of the
Division's accounts payable or accrued expenses to increase materially from the
amounts reflected on the Balance Sheet, (c) liabilities arising in the ordinary
course of business under Contracts, Leases, letters of credit, purchase orders,
licenses, Permits, purchase agreements and other agreements, business
arrangements and commitments described in the Disclosure Schedule and (d) as set
forth on Schedule 4.11.
-------------
4.12. COMPLIANCE WITH LAW. (a) The Division has not violated and is
-------------------
in compliance with all laws, statutes, ordinances, regulations, rules and orders
of any foreign, federal, state or local government and any other governmental
department or agency, and any judgment, decision, decree or order of any court
or governmental agency, department or authority, including without limitation,
Environmental Laws, except where such violation or lack of compliance is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. Since January 1, 1996, Seller has not received any notice to the effect
that, or otherwise been advised that, the Division is not in such compliance
with any such statutes, regulations, rules, judgments, decrees, orders,
ordinances or other laws, and Seller has no knowledge that any existing
circumstances are likely to result in such violations of any of the foregoing.
(b) Neither the Division nor any of its stockholders, officers,
directors, employees and persons who provide professional services under
agreements with the Division, has engaged in any activities which are prohibited
under the federal Medicare and Medicaid statutes, 42 U.S.C. (S)1320a-7b, 42
U.S.C. (S)1395nn or 31 U.S.C. 3729, or the regulations promulgated pursuant to
such statutes or related federal, state or local statutes or regulations or
which are prohibited by rules of professional conduct, including without
limitation: (i) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (a)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare, Medicaid or other applicable governmental
third party payor, or (b) in return for purchasing, leasing, ordering or
arranging for or recommending the purchasing, leasing or ordering of any good,
facility, service, or item for which payment may be paid in whole or in part by
Medicare, Medicaid or other applicable governmental third party payor; (ii)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment.
(c) None of the Permits contains any material term, provision,
condition or limitation materially more adverse than those generally applicable
to entities engaged in the same businesses as the Division. The Division has,
to the extent applicable, (i) obtained all required material approvals for the
acquisition, construction, expansion of, investment in or operation of its
business as currently operated, (ii) obtained and maintained accreditation from
all generally recognized accrediting bodies for the Division's business as
required or otherwise customary in the industry in which the Division is
engaged, (iii) obtained and maintained in good standing its Medicare and
Medicaid Provider Agreements and other material governmental third party payor
agreements, and (iv) obtained and maintained all required material professional
licenses from all appropriate agencies and boards for the administration,
pharmacy, medical, nursing and allied health professional staffs of the
Division's facilities and programs, and all other required licenses,
certifications, approvals and authorizations from the state, the U.S. Department
of Health and Human Services, Health Care Financing Administration or any other
supervisory, regulatory or accrediting body having or claiming jurisdiction.
-16-
<PAGE>
4.13. THIRD PARTY PAYORS. The Division is in compliance with the
------------------
terms, conditions and provisions of participation in, and acting as a provider
or supplier to, the Medicare and Medicaid programs, except where such lack of
compliance is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect. There is not pending nor, to Seller's knowledge,
threatened any proceeding or investigation under the Medicare or Medicaid
programs involving the Division.
4.14. PROPRIETARY RIGHTS. (a) Schedule 4.14(a) lists all of Seller's
------------------ ----------------
(i) domestic and foreign trademarks and servicemarks, trade names, brand names,
fictitious names and assumed names, and all registrations and pending
applications for registrations therefor, (ii) patents and copyrights and all
pending applications therefor, and (iii) other material licenses and other
proprietary rights (other than licenses with respect to "off-the-shelf"
software), in each case that are used in the operation of the Division
(collectively, "Proprietary Rights"). Except as set forth on Schedule 4.14(a),
----------------
all Proprietary Rights are either (i) owned by Seller and Seller has the sole
and exclusive power and authority to use, sell, transfer, assign and license
such Proprietary Rights, and has not entered into any licenses, sub-licenses or
agreements related to the use by any other person of such Proprietary Rights, or
(ii) subject to a valid transferable license to use such Proprietary Rights.
The Division has not interfered with, infringed upon, misappropriated, or
violated any material intellectual property rights of third parties in any
material respect and, to Seller's knowledge, no third party has interfered with,
infringed upon, misappropriated or violated any of the Proprietary Rights in any
material respect. The operation of the Division requires no intellectual
property rights other than the Proprietary Rights and the Company-Wide
Proprietary Rights.
(b) Schedule 4.14(b) lists all Company-Wide Proprietary Rights.
----------------
4.15. EMPLOYEES. Schedule 4.15 attached hereto lists all persons
--------- -------------
currently employed primarily by the Division (the "Division Employees") and all
persons providing services to the Division as independent contractors. Schedule
--------
4.15 states, with respect to such persons, their hourly rates of compensation,
- ----
base salaries or other basis for and amount of compensation, their total 1998
compensation, the commencement date of their employment, and their vacation
entitlements as of the date hereof. Except as set forth on Schedule 4.15 or
-------------
Schedule 4.16, there are no employment or severance or termination agreements,
- -------------
policies, plans, commitments or understandings, whether written or oral,
accruing to the benefit of any employee or independent contractor of the
Division. Other than financial and information systems support, no employee
other than Division Employees are necessary for the operation of the Division as
currently operated.
4.16. EMPLOYEE BENEFIT PLANS.
----------------------
(a) Except as set forth on Schedule 4.16, the Division does not
-------------
maintain or contribute (or have an obligation to contribute) to (i) any
"employee benefit plan" (as defined in Section 3(3) of ERISA), whether a single
employer, a multiple employer or a multiemployer plan, for the benefit of
employees or former employees of the Division, or (ii) any other plan, policy,
program, practice or arrangement providing compensation or benefits under which
the Division has any obligation or liability to any employee or former employee
of the Division (or any dependent or other beneficiary thereof) including,
without limitation, incentive, bonus, deferred compensation, vacation, holiday,
medical, severance, disability, death, stock option, stock purchase or other
similar benefit, whether written or unwritten (individually, an "Employee
Benefit Plan" and collectively, the "Employee Benefit Plans").
-17-
<PAGE>
(b) Each Employee Benefit Plan (and each related trust, custodial
account or insurance contract) has complied in form and in operation in all
material respects with its terms and all applicable governmental requirements,
including ERISA and the Code, and all contributions due under each such plan
have been or will be made by the date such contribution is or was required to be
made under the terms of the Plan or applicable law. Each Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code has been so
qualified and no event has occurred since the date of such determination that
would adversely affect such qualification; each trust created under any such
Employee Benefit Plan is exempt from tax under Section 501(a) of the Code and
has been so exempt during the period from creation to date. Seller has provided
Buyers with access to the most recent determination letters from the Internal
Revenue Service relating to such Employee Benefit Plans and such determination
letter includes any new or modified requirements under the Tax Reform Act of
1986 and subsequent legislation enacted thereafter to the extent the remedial
amendment period with respect to such legislation has expired.
(c) No charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand with respect to the administration or investment
of the assets of any Employee Benefit Plan (other than routine claims for
benefits) is pending or, to Seller's best knowledge, threatened, and to the best
knowledge of Seller, no facts exist that could form the basis for any such
charge, complaint action, suit, proceeding, hearing, investigation, claim or
demand.
(d) The Division (i) has never contributed to, or been under any
obligation to contribute to, any multiemployer plan (as defined in Section 3(37)
of ERISA) and (ii) is not liable, directly or indirectly, with respect to any
such plan for a complete or partial withdrawal (within the meaning of Title IV
of ERISA) or due to the termination or reorganization of such a plan or an
employee benefit plan subject to the minimum funding requirements of the Code
and ERISA.
(e) The Division has never maintained or contributed, or had an
obligation to contribute, to a defined benefit plan subject to Title IV of ERISA
or an employee benefit plan subject to the minimum funding requirements of the
Code and ERISA.
(f) All employee benefits required to be paid or provided pursuant
to any Employee Benefit Plan now or formerly in effect with respect to employees
or former employees of the Division have been paid or provided (or adequate
provision has been made to pay or provide the same, and the same will be paid or
provided in full when due).
(g) Except as set forth on Schedule 4.16, no employee of the
-------------
Division is entitled to claim or receive severance pay or severance benefits.
The Division has fewer than 100 employees, and on that basis is not an
"employer", as defined in 29 U.S.C. Section 2101(a)(1), or otherwise subject to
the Worker Adjustment and Retraining Notification Act, as amended.
4.17. LABOR RELATIONS. The Division has complied in all material
---------------
respects with all applicable governmental requirements pertaining to the
employment of labor, including those relating to wages, hours, collective
bargaining, employment discrimination, sexual harassment, worker's compensation,
and the payment of or withholding of taxes, and there are no actions, suits,
charges, complaints, proceedings, investigations or audits pending or, to
Seller's knowledge, threatened against the Division in connection therewith.
There are no collective bargaining agreements relating to the Division's
relationship with any employee. The Division has not recognized any labor
organization, nor has any such organization been certified, as the exclusive
bargaining agent of any employees of the Division. There has been no demand on
behalf of any labor organization to represent any employees of the Division and
Seller has no knowledge of any present efforts of any labor organization for
authorization to represent any employees of the Division.
-18-
<PAGE>
There are no strikes, work stoppages or labor disputes pending or, to Seller's
knowledge, threatened, against the Division.
4.18. ENVIRONMENTAL, HEALTH, AND SAFETY.
---------------------------------
(a) At all times prior to the Closing, the Division has complied
and at Closing will be in compliance, in all material respects, with all
Environmental and Safety Requirements, and Seller has not received any notice,
report, or information (including information that litigation, investigation or
administrative or other proceedings of any kind are pending or threatened)
regarding any liabilities (whether accrued, absolute, contingent, unliquidated,
or otherwise), or any corrective, investigatory, or remedial obligations,
arising under Environmental and Safety Requirements relating to the Division or
the occupation or use of any of the Assets. For the purposes of this Agreement,
"Environmental and Safety Requirements" means all present governmental
requirements relating to the discharge or release of air pollutants, water
pollutants, process waste water, petroleum products or hazardous substances,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Federal Water Pollution Control Act, as
amended, the Federal Resource Conservation and Recovery Act, as amended, the
Federal Clean Water Act, as amended, the Toxic Substances Control Act, as
amended, the Federal Clean Air Act, as amended, the Superfund Amendments and
Reauthorization Act, as amended, and any and all other comparable state or local
laws relating to public health and safety or work health and safety.
(b) No Hazardous Substances have been, or are currently, located
at, in, or under or emanating from either the Assets or any other property
currently or previously owned or operated by the Division in a manner which: (i)
violates any applicable Environmental and Safety Requirements, or (ii) requires
response, remedial, corrective action or cleanup of any kind under any
applicable Environmental and Safety Requirements. For purposes of this
Agreement, "Hazardous Substances" has the meaning set forth in Section 101(14)
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, in the Federal Resource Conservation and Recovery Act, as
amended, and applicable state law and regulation, and shall also expressly
include petroleum, crude oil and any fraction thereof.
4.19. TAX MATTERS.
-----------
(a) Filing of Tax Returns. Seller has timely filed with the
---------------------
appropriate taxing authorities all returns relating to the Division (including
without limitation information returns and other material information) in
respect of Taxes required to be filed through the date hereof (or timely
extensions to file such returns) and will timely file any such returns (or
extensions) required to be filed on or prior to the Closing Date. The returns
and other information filed are complete and accurate in all material respects.
No claim has ever been made by an authority in a jurisdiction where Seller does
not file tax returns that Seller, with respect to the Division, is, or may be,
subject to taxation in that jurisdiction.
(b) Payment of Taxes. With respect to the Division, all Taxes
----------------
payable by Seller, in respect of periods beginning before the Closing Date, have
been timely paid, or will be timely paid by Seller, or an adequate reserve has
been established by Seller therefor, as set forth in the Financial Statements,
and Seller has no material liability for such Taxes in excess of the amounts so
paid or reserves so established.
-19-
<PAGE>
Seller has withheld and paid all such Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(c) Audits, Investigations or Claims. There are no pending or, to
--------------------------------
Seller's best knowledge, threatened, audits, investigations or claims for or
relating to any material additional liability of Seller in respect of Taxes with
respect to the Division, and there are no matters under discussion between
Seller and any governmental authorities with respect thereto. Seller has not
waived any statute of limitations in respect to Taxes or agreed to any extension
of time with respect to a tax assessment or deficiency.
(d) Tax Liens. There are no tax liens on any of the Assets, except
---------
for liens for current taxes not yet due and payable.
4.20. INSURANCE. Schedule 4.20 contains a complete and accurate list
--------- -------------
of all policies or binders of fire, liability, worker's compensation, product
liability and other forms of insurance maintained by Seller on the Division or
the Assets. Such insurance provides coverage to the extent and in the manner as
may be required by law and by any and all Material Contracts to which the
Division is a party.
4.21. INVENTORY. Schedule 4.21 hereto contains a complete and
--------- -------------
accurate list of all of the addresses at which all Inventory is located. The
Inventory consists only of items that are good and merchantable, of quality and
quantity commercially usable and salable in the ordinary course of business, and
are valued at cost, including any appropriate discounts, and the present
quantities of all Inventory are reasonable and appropriate to conduct the
operations of the Division after the Closing in the manner heretofore conducted.
4.22. GOVERNMENTAL AND OTHER THIRD-PARTY CONSENTS.
-------------------------------------------
(a) no consent or approval of, notice to, waiver by or registration
or filing with any governmental authority is required to be made by Seller to
permit Seller to sell the Assets to Buyers, other than those set forth on
Schedule 4.22(a); and
- ----------------
(b) no consent of or notice to, or waiver by, any person or entity
is required for the assignment of any Permit, Material Contract or Lease to
Buyers, other than those set forth on Schedule 4.22(b).
----------------
4.23. YEAR 2000 COMPLIANCE. No facts have come to Seller's attention
--------------------
that would reasonably lead it to believe that the Year 2000 Problem (as defined
below) is reasonably likely to have a Material Adverse Effect. As used in this
Section, "Year 2000 Problem" means the risk that a computer application used by
the Division may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31, 1999,
taking into account leap years, including the year 2000.
4.24. BROKERS. Except for Dain Rauscher Wessels ("DRW"), no person
-------
will be entitled to any brokerage commissions, finder's fees or similar
compensation arising out of or due to any act of Seller in connection with the
transactions contemplated by this Agreement. Seller shall be solely responsible
for any and all fees of DRW.
-20-
<PAGE>
4.25. CUSTOMERS. Schedule 4.25 sets forth (a) the names of all
--------- -------------
current customers of the Division that ordered goods and services from the
Division which accounted for over 1% of the total net sales of the Division for
the twelve-month period ended December 31, 1998 and (b) the amount of sales
generated for each such customer during such period. Except as set forth on
Schedule 4.25, Seller has not received any written notice (or oral notice, if
- -------------
the contractual relationship at issue is not in writing) that any such customer
of the Division (i) has ceased, or intends to cease, to use the products, goods
or services of the Division or (ii) has substantially reduced or intends to
substantially reduce, the use of products, goods or services of the Division,
including in each case after the consummation of the transactions contemplated
hereby, and has no knowledge of any current intention on the part of any such
customer to cease or substantially reduce the use of products, goods or services
of the Division.
4.26. AFFILIATE TRANSACTIONS. Schedule 4.26 describes all contracts,
---------------------- -------------
agreements, arrangements or transactions between the Division and any other
division of Seller or any of Seller's Affiliates, including any entity that is
under common control with Seller ("Affiliate Contracts"), setting forth the
terms thereof.
4.27. OPINION OF FINANCIAL ADVISOR. The Board of Directors of Seller
----------------------------
has received the opinion of DRW addressed to such Board, dated the date hereof,
to the effect that, as of such date, the Purchase Price is fair to Seller.
4.28. INDEBTEDNESS TO AND FROM SELLER, AFFILIATES, OFFICERS,
------------------------------------------------------
DIRECTORS AND EMPLOYEES. Seller is not indebted to any employee of the
- -----------------------
Division, except for amounts due as normal salaries, wages, benefits or
reimbursement of ordinary business expenses. The Division is not indebted to
any other division of Seller or any Affiliate of Seller. No director, officer
or employee of the Division is now, or on the Closing Date will be, indebted to
Seller except for ordinary business expense advances due from employees of the
Division.
4.29. ACCURACY OF WARRANTIES. No representation or warranty by
----------------------
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
not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYERS
----------------------------------------
Buyers hereby, jointly and severally, represent and warrant to Seller
as follows:
5.1. ORGANIZATION AND QUALIFICATION. Each of PharmaCare, PharmaCare
------------------------------
Direct and Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. CVS ProCare is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Rhode Island
5.2. AUTHORIZATION. Each Buyer has all requisite corporate power and
-------------
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by each Buyer and is the legal, valid and binding obligation of each
Buyer, enforceable against each Buyer in accordance with its terms, subject to
general principles of equity and except as enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general application relating to creditors'
rights
-21-
<PAGE>
generally. Parent has all requisite corporate power and authority, and
has taken all corporate action necessary, to execute and deliver the Parent
Guarantee, to consummate the transactions contemplated thereby and to perform
its obligations thereunder. The Parent Guarantee has been duly executed and
delivered by Parent and is the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, subject to general
principles of equity and except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws of general application relating to creditors' rights generally.
5.3. NO CONFLICT OR VIOLATION. None of any Buyer's execution,
------------------------
delivery or performance of this Agreement, consummation of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (a)
violate or conflict with any provision of the Certificate or Articles of
Incorporation or Bylaws of such Buyer, (b) violate, conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
encumbrance upon any of the assets of such Buyer under, any of the terms,
conditions or provisions of any contract, indebtedness, note, bond, indenture,
security or pledge agreement, commitment, license, lease, franchise, permit,
agreement, or other instrument or obligation (i) to which such Buyer is a party
or (ii) by which such Buyer's assets are bound or (c) violate any statute, rule,
regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree
or award, except in the case of (b) and (c), for such violations, conflicts,
breaches, defaults, terminations, accelerations or encumbrances as are not
reasonably likely to have a material adverse effect on such Buyer's ability to
consummate the transactions contemplated hereby.
5.4. GOVERNMENTAL CONSENTS. Except as set forth on Schedule 5.4, no
--------------------- ------------
consent or approval of, notice to, or filing with any governmental authority is
required to be made by any Buyer in order to permit such Buyer to purchase the
Assets from Seller.
5.5. BROKERS. There are no claims for brokerage commissions,
-------
finder's fees or similar compensation arising out of due to any act of Buyers in
connection with the transactions contemplated by this Agreement.
5.6. FINANCING. On the Closing Date, Buyers will have sufficient
---------
cash resources available to finance the transactions contemplated hereby.
5.7. LITIGATION. To each Buyer's best knowledge, there is no Action
----------
pending or threatened that seeks to delay, limit or enjoin the transactions
contemplated by this Agreement.
ARTICLE VI.
PRE-CLOSING COVENANTS OF SELLER AND BUYERS
------------------------------------------
The Parties agree as follows:
6.1. CONDUCT OF BUSINESS. From the date hereof through the Closing
-------------------
Date, Seller shall operate the Division in the ordinary course of business and
in accordance with past practice and Seller will not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, the Division shall not, except
as specifically contemplated by this Agreement or consented to in writing by
PharmaCare, which consent shall not be unreasonably withheld:
-22-
<PAGE>
(a) enter into, extend, materially modify, terminate, waive any
material right under or renew any Material Contract or Lease, except in the
ordinary course of business;
(b) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets (other than the sale of
Inventory in the ordinary course of business), or any interests therein, except
for sales or dispositions in the ordinary course of business that do not exceed
$25,000 in the aggregate;
(c) fail to maintain or sell Inventory consistent with its past
practices;
(d) solicit or, unless the fiduciary duties of Seller's directors
and officers otherwise require, consider from any corporation, business or
person any inquiries, proposals or offers relating to the disposition of the
Assets or the merger or consolidation of Seller with any corporation (a
"Takeover Proposal"), or, unless the fiduciary duties of Seller's directors and
officers otherwise require, divulge or otherwise disclose to any corporation,
business or person information concerning any aspects of the terms of this
Agreement. Seller shall promptly notify PharmaCare orally, and confirm in
writing, all relevant details relating to inquiries or proposals which Seller
may receive relating to any of the matters referred to in this Section 6.1(d);
(e) cancel any of the Division's insurance policies;
(f) fail to pay its accounts payable, or fail to pay or discharge
when due any liabilities, in the ordinary course of business, other than in
connection with a dispute by the Division as to the validity of such liability;
(g) fail to maintain its assets in substantially their current
state of repair, excepting normal wear and tear;
(h) make any loans or advances to any partnership, firm or
corporation, or, except for expense reimbursements incurred by agents or
employees in the ordinary course of business, any individual;
(i) intentionally do any other act which would cause any
representation or warranty of Seller in this Agreement to be or become untrue in
any material respect; or
(j) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
6.2. ACCESS. Until the Closing or the earlier termination of this
------
Agreement, Seller shall afford to Buyers, and to their respective officers,
employees and authorized representatives, full access, during normal business
hours, to all properties, books, records and corporate documents pertaining to
the Division as may be reasonably requested. Until the Closing to the extent
such information pertains to the Division, and for a period of not less than
three (3) years from the date hereof to the extent such information does not
pertain to the Division, each Buyer shall hold all non-published and
confidential information obtained from Seller in strict confidence and shall not
disclose any such information to persons other than those of its officers,
directors, employees and representatives who have a need to know, or make any
commercial use thereof whatsoever. If this Agreement is terminated prior to
Closing
-23-
<PAGE>
for any reason, all such information and copies thereof shall be
returned to Seller within five (5) business days.
6.3. NOTICES AND CONSENTS. Seller will give the notices to third
--------------------
parties, and up to and after the Closing (to the extent not obtained at Closing)
will use its commercially reasonable efforts to obtain the third party consents
described on Schedule 4.22(b). Each of the Parties will give the notices to,
----------------
make the filings with, and use its commercially reasonable efforts to obtain the
authorizations, consents, and approvals of governments and governmental agencies
described on Schedule 4.22(a) and Schedule 5.4.
---------------- ------------
To the extent Seller is unable prior to Closing to obtain a consent
described on Schedule 4.22(b) necessary to transfer any Asset, such Asset shall
----------------
not be transferred at Closing (each a "Non-Transferable Asset"), and Seller
shall subcontract its interest in such Non-Transferable Asset to a Buyer and
take all such other actions as shall be necessary to provide to such Buyer the
economic benefit of such Non-Transferable Asset, including, without limitation,
at the request and expense of such Buyer, enforcement of any rights of Seller on
behalf and for the account of such Buyer. Seller further agrees to execute and
deliver to the appropriate Buyer at such time as any such consent to the
transfer of any such Non-Transferable Asset is obtained by Seller after the
Closing an assignment and assumption agreement satisfactory to such Buyer and
Seller and any such other documents or instruments as may be reasonably
necessary or advisable to transfer to such Buyer all of Seller's interest in and
title to such Non-Transferable Asset.
6.4. FURTHER ASSURANCES. Upon the terms and subject to the
------------------
conditions contained herein, each of the Parties hereto agrees (a) to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, (b) to execute
any further documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder, and (c) to cooperate with each other in connection with
the foregoing.
6.5. COLLECTION OF ACCOUNTS RECEIVABLE. At the Closing, Seller will
---------------------------------
retain hereunder, and subject to the limitations of this Section 6.5, shall have
the right and authority to bill (for a period of ninety (90) days after Closing
to the extent unbilled as of the Closing) and collect for its own account, all
Accounts Receivable and to take actions consistent with its past practices in
furtherance thereof. Seller shall, on a monthly basis, provide PharmaCare with
a trial balance of the Accounts Receivable on a customer-by-customer basis,
showing the aging thereof. Seller shall notify PharmaCare prior to taking any
collection actions with respect to the Accounts Receivable that are inconsistent
with its past practices; within thirty (30) days of such notice, PharmaCare and
Seller will agree on a proper course of action in collecting the Accounts
Receivable which reasonably accommodates both Seller's interests in collecting
the Accounts Receivable and the Buyers' interests in preserving customer
goodwill. Each Buyer shall within seventy-two (72) hours after receipt of any
payment in respect of any Account Receivable, properly endorse and deliver to
Seller any such payments received on account of any Account Receivable.
Payments received by a Buyer shall be applied to the invoice designated by the
payer of such payment, or, if no invoice is so designated by the payer, such
payment shall be applied to the outstanding invoices to such account debtor in
chronological order, beginning with the oldest invoice. Each Buyer shall within
seventy-two hours transfer or deliver to Seller any cash or other property that
such Buyer may receive in respect of any asset of Seller not constituting a part
of the Assets. As promptly as practicable after the Closing, the Parties shall
agree on the substance of, and shall send, a notice to the customers of the
Division indicating that Accounts Receivable should be paid to the order
-24-
<PAGE>
of Seller and that accounts receivable arising out of sales made by the Buyers
after the Closing Date should be paid to the order of the Buyers.
6.6. COOPERATION. Buyers will cooperate with Seller to obtain any
-----------
and all approvals and consents necessary to effect the transactions contemplated
by this Agreement.
6.7. NOTICE OF DEVELOPMENTS.
----------------------
(a) Seller will give prompt written notice to Buyers of any
development causing a breach of any of its representations and warranties in
Article IV (other than Sections 4.1, 4.2, 4.3 (as to title only), 4.5(c), 4.7,
4.22, 4.24 and 4.27, which are governed by Section 6.7(b) below)). Unless
Buyers have the right to terminate this Agreement pursuant to Section 11.1(ii)
by reason of the development and exercise that right within the period of twenty
(20) calendar days after notice thereof to Buyers, the written notice pursuant
to this Section 6.7(a) will be deemed to have amended the Disclosure Schedule,
to have qualified the representations and warranties contained in Article IV,
and to have cured any misrepresentation or breach of warranty that otherwise
might have existed hereunder by reason of the development.
(b) Each Party will give prompt written notice to the other Party
of any development causing a breach of any of its own representations and
warranties in Sections 4.1, 4.2, 4.3 (as to title only), 4.5(c), 4.7, 4.22, 4.24
or 4.27, in the case of Seller, and Article V, in the case of Buyers. No
disclosure by any Party pursuant to this Section 6.7(b), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation or breach of warranty.
6.8. CASUALTY LOSSES. In the event that there shall have been
---------------
suffered between the date hereof and the Closing any casualty loss relating to
the Assets that becomes known to Seller, Seller will promptly notify Buyers of
such event and, if a Closing occurs, shall assign to the appropriate Buyer
Seller's right to all insurance proceeds payable as a result of the occurrence
of the event resulting in such loss or damage.
ARTICLE VII.
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
The Parties agree as follows:
7.1. GENERAL. In case at any time after the Closing any further
-------
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article X
hereof).
7.2. LITIGATION SUPPORT. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Division, the other Party will
-25-
<PAGE>
cooperate with the contesting or defending Party and its counsel in the contest
or defense, make available its personnel at reasonable times and upon reasonable
notice, and provide such testimony and access to its books and records as shall
be necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article X hereof).
7.3. COVENANT NOT TO COMPETE. Seller agrees that for a period of
-----------------------
five (5) years (the "Non-Compete Period") from and after the Closing Date,
Seller will not engage directly or indirectly, whether as a stockholder,
partner, member, joint venturer, advisor, consultant or independent contractor,
in the traditional mail order pharmacy business, specialty mail order pharmacy
business, or retail pharmacy network business anywhere in the United States or
induce or attempt to induce any person or entity that is a customer or supplier
of any Buyer in any of such businesses or otherwise a contracting party with any
Buyer with respect to any of such businesses to terminate any written or oral
agreement or understanding with such Buyer with respect to such businesses or
otherwise modify its relationship with such Buyer with respect to such
businesses in a manner adverse to such Buyer; provided, however, that (i)
-------- -------
nothing contained in this Section 7.3 shall restrict the sale by Seller of
medication management products and/or services to physicians, patients, or
managed care providers or payors (other than the sale of traditional mail order
pharmacy services, specialty mail order pharmacy services or retail pharmacy
network services to third-party payors, which Seller shall be prohibited from
doing for the Non-Compete Period), including via the Internet, and (ii) no owner
of less than 1% of the outstanding stock of any publicly traded corporation
shall be deemed to engage solely by reason thereof in any of such corporation's
businesses. During the Noncompete Period, Seller shall not induce or attempt to
induce any Rehired Employee to leave their employ, or otherwise solicit the
employment of any Rehired Employee. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section 7.3
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
7.4. BULK TRANSFER LAWS. The Parties agree to waive compliance with
------------------
the requirements of any applicable bulk sales law provisions of the uniform
commercial codes of the states in which the Assets are situated or which may
otherwise be applicable to the transactions contemplated hereby, other than
those relating to Taxes.
7.5. TAX MATTERS.
-----------
(a) Seller will be responsible for the preparation and filing of
all Tax returns for all activities of the Division for all periods ending on or
before the Closing Date (including the consolidated, unitary, and combined Tax
returns for Seller which include the operations of the Division for any period
ending on or before the Closing Date). Seller will make all payments required
with respect to any such Tax return; provided, however, that Buyers will
-------- -------
reimburse Seller concurrently therewith to the extent any payment Seller is
making relates to the operations of the Division for any period beginning after
the Closing Date.
(b) Buyers will be responsible for the preparation and filing of
all Tax returns for all activities of the Division for all periods beginning
after the Closing Date (other than for Taxes with
-26-
<PAGE>
respect to periods for which the consolidated, unitary, and combined Tax returns
of Seller will include the operations of the Division). Buyers will make all
payments required with respect to any such Tax return; provided, however, that
-------- -------
Seller will reimburse Buyers concurrently therewith to the extent any payment
Buyers are making relates to the operations of the Division for any period
ending on or before the Closing Date.
(c) In the case of any real or personal property or other ad
valorem Tax imposed on the Assets for a Tax period that includes, but does not
end on, the Closing Date, the portion of such Tax related to the portion of such
Tax period ending on the Closing Date shall be deemed to be the amount of such
Tax for the entire Tax period multiplied by a fraction, the numerator of which
is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period. Seller
shall be responsible for any such Tax relating to the portion of such Tax period
ending on the Closing Date, and Buyers shall be responsible for any such tax
relating to the portion of such Tax period beginning after the Closing Date.
7.6. EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
------------------------------------
(a) Each Buyer shall extend offers of employment to those Division
Employees whom it desires to hire in its sole discretion (such employees who
accept such offers of employment are hereinafter referred to as "Rehired
Employees"), which offers shall be on terms and conditions comparable to the
terms and conditions offered by such Buyer to its current employees of like
position; provided, however, that any such offer of employment shall not be
-------- -------
construed to limit the ability of such Buyer to terminate any such employee
following the Closing Date for any reason. Seller shall terminate the
employment of all Rehired Employees immediately prior to the Closing and any
cost, expense or liability resulting from, or incurred in connection with, such
terminations, other than vacation entitlements, accrued on or prior to the
Closing Date shall be the sole responsibility of Seller. The appropriate Buyer
shall assume responsibility and all liabilities and obligations for vacation
entitlements through the Closing Date of Rehired Employees.
(b) Buyers agree that each Rehired Employee shall receive full
credit for service with Seller for purposes of determining such employee's
eligibility for and determining the amount of benefit entitlement for holidays,
sick days, vacations, and also for purposes of determining eligibility
(including, without limitation, waiting periods under group health plans),
vesting and benefits provided under any other employee benefit plan, program,
policy or other arrangement covering such employee established, continued or
otherwise sponsored by a Buyer or an Affiliate of a Buyer after the Closing
Date; provided, however, that such crediting of service shall not operate to
-------- -------
duplicate any benefit or the funding of any such benefit for any such period of
service and shall be permitted under the applicable plan of a Buyer or its
Affiliate.
7.7. POST-CLOSING CONDUCT OF BUSINESS. Buyers agree to use their
--------------------------------
commercially reasonable efforts to maximize Actual Volume from the Closing Date
through the Anniversary Date; provided that nothing contained herein shall
impose upon any Buyer an obligation to exceed the efforts of Seller to maximize
Actual Volume as utilized for periods prior to the Closing.
7.8. RIGHT TO USE SELLER'S TRADEMARKS. Buyers acknowledge, without
--------------------------------
limitation, that the "Allscripts" trademark, tradename and related tradedress,
(the "Mark(s)"), is a Company-Wide Proprietary Right; however, effective on the
Closing Date, Seller hereby grants to Buyers the limited, non-exclusive,
royalty-free right to use the Marks for the sole purpose of (i) selling the
Closing Inventory
-27-
<PAGE>
branded with the Marks, (ii) allowing customers to use pharmacy cards that are
branded with the Marks, to the extent that such cards were previously issued in
conjunction with Seller's operation of the Division and are in effect on the
Closing Date, and (iii) printing and distributing prescription labels, receipts,
packaging and other printed materials necessary to do business as a mail order
pharmacy, provided, however, that any such printed materials shall be provided
-------- -------
to Seller for its prior approval, which approval shall not be unreasonably
withheld. Each of such rights shall separately expire upon (i) with regard to
the Closing Inventory, the earlier to occur of the date such Closing Inventory
is depleted or the Anniversary Date, (ii) with regard to the pharmacy cards, for
so long as such cards are in effect, but in no event later than the Anniversary
Date, and (iii) with regard to the printed materials, the date falling 180 days
after the Closing Date. Notwithstanding the foregoing, nothing herein shall be
deemed to permit Buyers to use the Marks in any manner to advertise, promote or
otherwise exploit the Marks. Other than as specifically provided herein, Seller
reserves and retains any and all rights in and to the Marks.
7.9. USE OF PERMITS. The Parties acknowledge that the Permits are
--------------
not transferable by Seller to the Buyers. Buyers hereby agree to use their best
efforts to secure appropriate replacement licenses and permits for the Permits
as promptly as practicable after the date hereof. Seller hereby agrees to, to
the extent permitted by applicable law, (i) allow Buyers to use the Permits, and
(ii) execute powers of attorney and such other documents as may be required to
allow Buyers to operate such aspects of the business of the Division requiring
pharmacy or drug permits and/or licenses that Buyers cannot obtain prior to the
Closing, in each case for a period ending on the first to occur of (i) the 180th
day after Closing, and (ii) the obtaining by Buyers of the relevant replacement
permit; provided, however, that any power of attorney executed by Seller with
-------- -------
respect to its DEA license shall be effective for no more than sixty (60) days.
ARTICLE VIII.
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived in writing by Seller:
8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
-----------------------------------------
and warranties of Buyers contained in this Agreement shall be true and correct
in all material respects (except those representations and warranties which are
qualified by materiality, which shall be true and correct in all respects) at
and as of the date of this Agreement and at and as of the Closing Date, and each
Buyer shall have performed and satisfied all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date. Each Buyer shall
have delivered to Seller a certificate dated the Closing Date to such effect.
8.2. NO PROCEEDINGS. No Action by any governmental authority or
--------------
other person shall have been instituted which prevents the consummation of the
transactions contemplated hereby.
8.3. GOVERNMENTAL APPROVALS. Seller and Buyers shall have received
----------------------
all other material authorizations, consents, and approvals of governments and
governmental agencies described on Schedule 8.3.
------------
8.4. FAIRNESS OPINION. The fairness opinion of DRW referred to in
----------------
Section 4.27 hereof shall not have been withdrawn or materially modified.
-28-
<PAGE>
8.5. CLOSING DOCUMENTS. Buyers shall have made the deliveries to
-----------------
Seller described in Section 3.2(b).
8.6. OPINION OF COUNSEL FOR BUYERS. Seller shall have received the
-----------------------------
opinion, dated the Closing Date, of Edwards & Angell, LLP, counsel for Buyers,
the substance of which is substantially as set forth on Schedule 8.6.
------------
8.7. ADDITIONAL AGREEMENTS. (a) PharmaCare shall have executed a
---------------------
Transition Services Agreement (the "Transition Services Agreement")
substantially in the form of Schedule 8.7(a).
---------------
(b) PharmaCare shall have executed a Participating Pharmacy
Agreement with Seller, which shall be substantially in the form of Schedule
--------
8.7(b) hereto.
- -------------
8.8. ACCEPTANCE OF EMPLOYMENT. Each of Amy Andres and John Glaza
------------------------
shall have accepted CVS ProCare's offer of employment, which offer shall be on
terms not materially less favorable than those currently enjoyed by such persons
with Seller.
ARTICLE IX.
CONDITIONS TO BUYERS' OBLIGATIONS
---------------------------------
The obligations of Buyers to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived in writing by Buyers:
9.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
-----------------------------------------
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects (except those representations and warranties which are
qualified by materiality, which shall be true and correct in all respects) at
and as of the date of this Agreement and at and as of the Closing Date, and
Seller shall have performed and satisfied all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date. Seller shall have
delivered to Buyers a certificate dated the Closing Date to such effect.
9.2. NO PROCEEDINGS OR LITIGATION. No Action by any governmental
----------------------------
authority or other person shall have been instituted which prevents the
consummation of the transactions contemplated hereby.
9.3. GOVERNMENTAL APPROVALS. Seller and Buyers shall have received
----------------------
all other material authorizations, consents, and approvals of governments and
governmental agencies described on Schedule 8.3.
------------
9.4. CLOSING DOCUMENTS. Seller shall have made the deliveries to
-----------------
Buyers described in Section 3.2(a).
9.5. OPINION OF COUNSEL FOR SELLER. Buyers shall have received the
-----------------------------
opinion, dated the Closing Date, of Gardner, Carton & Douglas, counsel for
Seller, the substance of which is substantially as set forth on Schedule 9.5.
------------
9.6. ADDITIONAL AGREEMENTS. Seller shall have executed the
---------------------
Transition Services Agreement.
-29-
<PAGE>
9.7. ACCEPTANCE OF EMPLOYMENT. Each of Amy Andres and John Glaza
------------------------
shall have accepted CVS ProCare's offer of employment, which offer shall be on
terms not materially less favorable than those currently enjoyed by such persons
with Seller.
ARTICLE X.
INDEMNIFICATION
---------------
10.1. SURVIVAL OF REPRESENTATIONS. The representations and
---------------------------
warranties of Seller contained in Sections 4.3 (other than as to title), 4.4,
4.5, 4.6, 4.8 through 4.11, 4.13, 4.14, 4.15, 4.17, 4.20, 4.21, 4.23, 4.25,
4.26, 4.28 and 4.29 herein shall survive the consummation of the transactions
contemplated hereby for the period ending one (1) year after the Closing Date.
All of the other representations and warranties of the Parties contained herein
shall survive the Closing and continue in full force and effect forever
thereafter (subject to any applicable statutes of limitations). No claim for
breaches of representations and warranties may be made after the applicable
survival period expires; provided, however, that any claim made during the
--------- -------
applicable survival period not resolved during such period shall survive the
expiration of such survival period and the terms of this Article shall apply to
such claim as if such survival period had not expired.
10.2. INDEMNIFICATIONS.
----------------
(a) By the Seller. Seller shall indemnify, save and hold harmless
-------------
Buyers and their respective shareholders, officers, directors, employees,
subsidiaries, representatives, agents and Affiliates (collectively "Related
Parties"), from and against any and all costs, losses, Taxes, liabilities,
obligations, damages, lawsuits, claims, demands, and expenses (whether or not
arising out of third-party claims), including without limitation reasonable
attorneys' fees and all amounts reasonably paid in investigation, defense or
settlement of any of the foregoing (herein, "Damages"), suffered by any Buyer or
its Related Parties and caused by (i) any breach of any representation or
warranty made by Seller in this Agreement (each representation and warranty
being read for this purpose without regard to any "materiality"; "Material
Adverse Effect", "in any material respect" or similar exception or qualifier
contained in any such representation or warranty); (ii) any breach of any
covenant or agreement made by Seller in this Agreement; or (iii) any Excluded
Liability (including without limitation any liability imposed upon any Buyer as
a result of the parties' failure to comply with any bulk sales or similar law);
provided, however, that there will be an aggregate ceiling equal to 30% of the
- -------- -------
Purchase Price on the obligations of Seller to indemnify, save and hold harmless
Buyers and their respective Related Parties from and against Damages pursuant to
Section 10.2(a)(i) and (ii) (and no ceiling on the obligations of Seller under
Section 10.2(a)(iii)). Seller will not have any liability (for indemnification
or otherwise) under Section 10.2(a)(i) or (ii) until the total of all Damages
with respect to such matters exceeds One Hundred Fifty Thousand Dollars
($150,000) in the aggregate, and then only to the extent of such excess (and no
such threshold with respect to matters covered by Section 10.2(a)(iii)). For
purposes of this Section 10.2(a), to the extent any claim for indemnification
may be properly made pursuant to Section 10.2(a)(iii) and either Section
10.2(a)(i) or (ii), then such claim for indemnification to such extent shall be
deemed to be made pursuant only to Section 10.2(a)(iii) and not pursuant to
Section 10.2(a)(i) or (ii).
(b) By Buyers. Buyers, on a joint and several basis, shall
---------
indemnify and save and hold harmless Seller and its Related Parties from and
against any and all Damages suffered by Seller or its Related Parties and caused
by (i) any breach of any representation or warranty made by any Buyer in this
Agreement; (ii) any breach of any covenant or agreement made by any Buyer in
this Agreement (except as provided in (iv) below); (iii) any Buyer's use of any
Permit, Non-Transferable Asset or Mark, but only
-30-
<PAGE>
to the extent such Damages arise out of such Buyer's actions after the Closing;
(iv) any breach by any Buyer of its covenants or agreements set forth in
Sections 2.3, 2.4, 2.5, the last paragraph of Section 6.3 and Sections 6.5 and
7.7 hereof; or (v) any Assumed Liability; provided, however, that there will be
-------- -------
an aggregate ceiling equal to 30% of the Purchase Price on the obligations of
Buyers to indemnify, save and hold harmless Seller and its Related Parties from
and against Damages pursuant to Section 10.2(b)(i) and (ii) (and no ceiling on
the obligations of Buyers under Sections 10.2(b)(iii), (iv) or (v)). Buyers will
not have any liability (for indemnification or otherwise) under Section
10.2(b)(i) or (ii) until the total of all Damages with respect to such matters
exceeds One Hundred Fifty Thousand Dollars ($150,000) in the aggregate, and then
only to the extent of such excess (and no such threshold with respect to matters
covered by Section 10.2(b)(iii), (iv) or (v)). For purposes of this Section
10.2(b), to the extent any claim for indemnification may be properly made
pursuant to Section 10.2(b)(iii), (iv) or (v) and either Section 10.2(b)(i) or
(ii), then such claim for indemnification to such extent shall be deemed to be
made pursuant to Section 10.2(b)(iii), (iv) or (v) and not pursuant to Section
10.2(b)(i) or (ii).
(c) Defense of Claims. If a claim for Damages (a "Claim") is to be
-----------------
made by a Party entitled to indemnification hereunder (the "Indemnified Party")
against the other Party (the "Indemnifying Party"), the Indemnified Party shall
give written notice (a "Claim Notice") to the Indemnifying Party as soon as
practicable after the Indemnified Party becomes aware of any fact, condition or
event which may give rise to Damages for which indemnification may be sought
under this Section 10.2. If any lawsuit or enforcement action is filed against
an Indemnified Party, written notice thereof shall be given to the Indemnifying
Party as promptly as practicable (and in any event within fifteen (15) calendar
days after the service of the citation or summons). The failure of any
Indemnified Party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the Indemnifying Party
demonstrates actual damage caused by such failure. After such notice, if the
Indemnifying Party shall acknowledge in writing to the Indemnified Party that
the Indemnifying Party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the Indemnifying Party
shall be entitled, if it so elects, (i) to take control of the defense and
investigation of such lawsuit or action, (ii) to employ and engage attorneys of
its own choice to handle and defend the same (unless the named parties to such
action or proceeding include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party has been advised in writing by counsel that
there may be one or more legal defenses available to such Indemnified Party that
are different from or additional to those available to the Indemnifying Party,
in which event the Indemnified Party shall be entitled at the Indemnifying
Party's cost, risk and expense, to separate counsel of its own choosing) and
(iii) to compromise or settle such claim, which compromise or settlement shall
be made only with the written consent of the Indemnified Party (such consent not
to be unreasonably withheld) unless the proposed settlement involves only the
payment of money damages by the Indemnifying Party. If the Indemnifying Party
fails to assume the defense of such claim within thirty (30) calendar days after
receipt of the Claim Notice, the Indemnified Party against which such claim has
been asserted will (upon delivering notice to such effect to the Indemnifying
Party) have the right to undertake, at the Indemnifying Party's cost and
expense, the defense, compromise or settlement of such claim on behalf of and
for the account and risk of the Indemnifying Party; provided, however, that such
-------- -------
Claim shall not be compromised or settled without the written consent of the
Indemnifying Party, (such consent not to be unreasonably withheld), unless the
proposed settlement involves only the payment of money damages by the
Indemnifying Party. In the event the Indemnified Party assumes the defense of
the claim, the Indemnified Party will keep the Indemnifying Party reasonably
informed of the progress of any such defense, compromise or settlement.
(d) Certain Benefits. The amount of any indemnification payable
under this Article X shall be net of any net insurance proceeds actually paid to
the Indemnified Party under any policy or policies
-31-
<PAGE>
of insurance covering the loss giving rise to the claim. The Indemnified Party
will use reasonable efforts to collect any such insurance and will account to
the Indemnifying Party therefor. The Parties agree to respond within a
reasonable time to any inquiry by the other Party as to the status of any such
insurance payment. All indemnification payments pursuant to this Article X shall
be deemed adjustments to the Purchase Price.
(e) Buyers' Right of Offset. Buyers shall have the right to offset
-----------------------
any unpaid indemnification obligations of Seller hereunder against any amount
due to Seller as Contingent Purchase Price.
(f) Exclusive Remedy. The Parties acknowledge and agree that the
----------------
foregoing indemnification provisions in this Article X shall be the exclusive
remedy of Buyers and Seller and their respective Related Parties with respect to
the Division and the transactions contemplated by this Agreement.
ARTICLE XI.
TERMINATION; REMEDIES
---------------------
11.1. TERMINATION. At any time before the Closing, this Agreement
-----------
may be terminated (i) by mutual written consent of the Parties; (ii) by either
Buyers, on the one hand, or Seller, on the other hand, if there has been a
material misrepresentation, a material breach of warranty, any breach of any
representation or warranty qualified as to materiality, or a material breach of
covenant by the other; (iii) by either Buyers, on the one hand, or Seller, on
the other hand, if the Closing does not occur on or before April 30, 1999 (or
such later date as the Parties shall mutually agree), unless the failure of the
Closing to occur by such date shall be due to the action or failure to act of
the Party seeking to terminate this Agreement, which action or failure to act
constitutes a breach of this Agreement; or (iv) by Seller, in connection with
the acceptance of a Takeover Proposal, whereupon Seller shall promptly pay
Buyers the sum of $300,000 plus Buyers' reasonable out-of-pocket expenses
incurred through the date of termination in connection with the transaction
contemplated by this Agreement, including attorneys' fees and expenses (which
amounts are expressly acknowledged by the Parties to not be a penalty), by wire
transfer of immediately available funds.
11.2. EFFECT OF TERMINATION. In the event of the termination of this
---------------------
Agreement pursuant to Section 11.1, written notice thereof shall forthwith be
given to the other Party specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void and
of no further force or effect, and no Party hereto (or any of its Affiliates,
directors, officers, agents or representatives) shall have any liability or
obligation hereunder (except for any liability of any Party then in breach);
provided, however, that the provisions of Sections 6.2 (Access) and 12.6
- -------- -------
(Expenses) shall survive any such termination.
ARTICLE XII.
MISCELLANEOUS
-------------
12.1. ASSIGNMENT. Neither this Agreement nor any of the rights or
----------
obligations hereunder nor any of the assets comprising the business currently
operated as the Division may be assigned by any Party without the prior written
consent of the other Party; except that a Buyer may, without such consent,
transfer any of the assets comprising the business currently operated as the
Division (including by way of merger) and/or assign all such rights and
obligations, in each case, to one or more Affiliates of a Buyer
-32-
<PAGE>
or to a successor in interest to such Buyer that shall expressly assume all
obligations and liabilities of such Buyer under this Agreement. Such assumption
of the obligations and liabilities of a Buyer shall not relieve such Buyer of
its obligations and liabilities under this Agreement, including, without
limitation, such Buyer's obligations under Section 7.7 of this Agreement
(provided that the commercial reasonableness of such Buyer's efforts to maximize
Actual Volume under Section 7.7 shall be determined as if no such assignment by
such Buyer had occurred). Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and except as provided in Article X, no other
person shall have any right, benefit or obligation under this Agreement as a
third-party beneficiary or otherwise.
12.2. NOTICES. All notices, requests, demands and other
-------
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
If to Seller,
addressed to: Allscripts, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: J. Gregory Cull
Fax No.: 847-680-1384
With a copy to: Gardner, Carton & Douglas
321 North Clark Street
Suite 2900
Chicago, Illinois 60610
Attention: Joseph H. Greenberg
Fax No.: 312-644-3381
If to any Buyer,
addressed to: c/o CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Attention: Zenon P. Lankowsky
Fax No.: 401-765-7887
With a copy to: Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, RI 02903
Attention: Christopher D. Graham, Esq.
Fax No: 401-276-6611
or to such other place and with such other copies as either Party may designate
as to itself by written notice to the others.
-33-
<PAGE>
12.3. CHOICE OF LAW. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of Illinois (without reference to the choice of law provisions of Illinois
law), except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
12.4. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto and thereto (including the
Disclosure Schedule), constitutes the entire agreement between the Parties
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties. THE REPRESENTATIONS AND WARRANTIES BY SELLER IN THIS AGREEMENT AND ANY
EXHIBITS OR SCHEDULES HERETO, AND ANY OTHER AGREEMENTS OR DOCUMENTS TO BE
EXECUTED BY SELLER IN CONNECTION HEREWITH, CONSTITUTE THE SOLE AND EXCLUSIVE
REPRESENTATIONS AND WARRANTIES OF SELLER TO BUYERS IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY, AND BUYERS UNDERSTAND, ACKNOWLEDGE AND AGREE
THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESSED OR
IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING TO THE FUTURE OR HISTORICAL
FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OF THE
DIVISION) ARE SPECIFICALLY DISCLAIMED BY SELLER. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
Parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the Party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
12.5. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.6. EXPENSES. Except as otherwise specified in this Agreement, each
--------
Party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such Party in
preparation for carrying this Agreement into effect.
12.7. INVALIDITY. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8. PUBLICITY. No Party will issue any press release or make any
---------
other public statement relating to the transactions contemplated hereby unless
(i) mutually agreed to by the Parties, or (ii) required by law, regulation,
court order or the rules of any applicable stock exchange or the Nasdaq Stock
Market or of any applicable regulatory authority and any such release or
statement shall be subject to prior review by PharmaCare and Seller.
-34-
<PAGE>
12.9. KNOWLEDGE. The phrase "to the Seller's knowledge", or words of
---------
comparable import, shall mean facts or circumstances within the actual personal
knowledge, after reasonable inquiry, of any of Amy Andres, David Mullen, John
Cull, Glen Tullman and Michael Cahr.
12.10. JOINT DRAFTING. The Parties have participated jointly in the
--------------
negotiation and drafting of this Agreement and the other agreements and
documents to be executed by the Parties in connection herewith. In the event an
ambiguity or question of intent or interpretation arises, this Agreement and the
other agreements and documents to be executed by the Parties in connection
herewith shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement and the
other agreements and documents to be executed by the Parties in connection
herewith.
-35-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed and delivered on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
BUYERS:
PHARMACARE MANAGEMENT SERVICES, INC.
BY: /S/ GREG S. WEISHAR
--------------------------
NAME: GREG S. WEISHAR
------------------
ITS: PRESIDENT/COO
-------------------
PHARMACARE DIRECT, INC.
BY: /S/ GREG S. WEISHAR
--------------------------
NAME: GREG S. WEISHAR
--------------------
ITS: PRESIDENT/COO
-------------------
PROCARE PHARMACY, INC.
BY: /S/ DENNIS BURTON
------------------------
NAME: DENNIS BURTON
------------------
ITS: PRESIDENT
----------------
SELLER:
ALLSCRIPTS, INC.
BY: /S/ DAVID B. MULLEN
--------------------------
NAME: DAVID B. MULLEN
---------------------
ITS: PRESIDENT
---------------
-36-
<PAGE>
EXHIBIT 10.12
CONFIDENTIAL AND
SUPPLY AGREEMENT
----------------
This Supply Agreement dated this 27th day of August, 1998, between McKesson U.S.
Health Care, a division of McKesson Corporation ("McKesson") and Allscripts,
Inc. ("Allscripts") shall be to establish a [ ]* year program for the
supply of prescription drugs and other health and beauty care products by
McKesson to Allscripts' Mail Order Facility in Columbus, Ohio and Allscripts'
Repackaging Facility in Libertyville, Illinois (referred to herein collectively
as "Facilities" and individually as "Facility"). The parties hereto agree as
follows:
1. MERCHANDISE
For purposes hereof, "Merchandise" shall comprise all items normally
stocked or drop-shipped by McKesson Drug Distribution Centers servicing the
48 contiguous states, including prescription drugs, OTC drugs, health and
beauty aids and sundries. This Agreement does not apply to merchandise
sold to Allscripts by McKesson Corporation divisions or subsidiaries other
than McKesson Drug Company. The Allscripts' Facilities will be serviced by
McKesson's distribution centers in Carol Stream, Illinois and Washington
Courthouse, Ohio.
2. TERM
The term of this Agreement shall be for the [ ]* year period
commencing on October 1, 1998, and during such period Allscripts agrees to
designate McKesson as its primary supplier of Merchandise and to purchase
from McKesson in excess of [ ]*% of all of the requirements of its
Facilities for Merchandise and other items covered hereunder.
3. ORDERING AND DELIVERY
Prescription products will be delivered with an invoice to each of
Allscripts' Facilities up to [ ( )]* times per week. (Monday
through Friday) in Libertyville and [ ( )]* times per week in
Columbus. Orders transmitted by 8:00 p.m. local time Sunday through
Thursday will be delivered the next day by 7:00 a.m. at Allscripts'
Libertyville Facility and 7:30 a.m. at Allscripts' Columbus Facility.
Alternate source orders transmitted by 5:00 p.m. will be delivered next day
by noon. Afternoon deliveries transmitted by 2:00 p.m. will be delivered
same day by 7:00 p.m. Penalties for late shipments of $[ ]* per
hour for deliveries after 7:30 a.m. in Libertyville and 8:00 a.m. in
Columbus shall be imposed hereunder; provided, however, this payment shall
not apply during inclement weather conditions.
4. PAYMENT TERMS
A. The invoice payment terms for the Merchandise covered by this
Agreement are as follows:
* Confidential portions omitted and filed separately with the Commission.
1
<PAGE>
[ ( )]* Day Payment Terms: All invoices, (weighted average
----------------------------------
of [ ]* days from date of invoice) are due and payable [ ( )]*
days from the date of invoice via Electronic Funds Transfer
(currently Tuesday/Thursday).
Prepayment Incentives
---------------------
Prepayment Terms (30 day, 15 day and 7 day): The prepayment is a one-
time payment equivalent to thirty (30) or fifteen (15) or seven (7)
days worth of purchases (based on the most recent three-month purchase
history) which is held as a deposit by McKesson. The amount of the
required deposit will be adjusted quarterly, and may be adjusted as
often as monthly, to cover increases or decreases in purchase volume.
Following such one-time payment, all purchases are payable under the
[ ]* Day Payment Terms as described above.
Allscripts shall be entitled to a reduction in the markup set forth in
the cost of goods schedule for prepayment if Allscripts elects this
prepayment option. The prepay incentive shall be as follows:
Prepay Incentive Markup Reduction
---------------- ----------------
30 Days [ ]*%
15 Days [ ]*%
7 Days [ ]*%
B. Any payments made after the due date indicated herein shall result in
a [ ]* percent ([ ]*%) (or the maximum amount permissible
under applicable law, if lower) increase in the purchase price of
the Merchandise. A [ ]* percent ([ ]*%) service charge (or
the maximum amount permissible under applicable law, if lower) will be
imposed semi-monthly on all balances delinquent more than [ ( )]*
days.
C. This Agreement is conditioned upon Allscripts' maintaining a sound
financial condition throughout the term hereof and to that end,
Allscripts agrees to promptly substantiate in writing, at McKesson's
reasonable request, the existence of such condition with audited
financial statements and any other supporting information reasonably
required by McKesson.
D. Each customer of McKesson is required to negotiate its payment terms
and credit line with McKesson individually, based upon such customer's
individual financial and risk characteristics. Nothing in this
agreement is intended to be, nor shall it be construed as, a binding
obligation or continuing commitment by McKesson to extend credit or
payment terms options and all such terms and conditions shall be
subject to the review and approval of McKesson's Credit Department.
Allscripts retains the right to terminate the agreement upon change of
payment terms.
* Confidential portions omitted and filed separately with the Commission.
2
<PAGE>
E. McKesson reserves the right, in its sole discretion, to change a
payment term (including imposing the requirement of cash payment upon
delivery) or limit total credit, if (i) McKesson concludes there has
been an unsatisfactory payment performance; or (ii) Allscripts ceases
to meet McKesson's credit requirements or McKesson determines that
Allscripts is likely to cease meeting such requirements. McKesson
further shall be entitled to suspend or discontinue the shipment of
any additional orders, which have not already been paid for, to
Allscripts' Facilities if the above is not remedied, to McKesson's
satisfaction, within [ ( )]* days. In such event, McKesson,
in its sole discretion, may immediately terminate this Agreement upon
the expiration of said [ ]* day period. Allscripts retains the
right to terminate the agreement upon change of payment terms.
5. SERVICE LEVEL
A. In the event McKesson fails to maintain a Service Level (as defined
below) for pharmaceutical purchases hereunder equal to at least
[ ]*% with respect to each of Allscripts' Facilities (the "Minimum
Service Level"), McKesson will be obligated to issue credits to
Allscripts in accordance with Section 5.D. below, subject to the
following:
1. The Minimum Service Level shall not apply until sixty (60) days
after the later of (i) the date of this Agreement, or (ii) the
date on which Allscripts has furnished to McKesson reasonably
accurate estimates of its pharmaceutical products usage.
2. Items that (i) are new to the market or (ii) have not been
previously ordered by Allscripts shall require a one month start
up period.
3. McKesson shall have at least a six-week start up period for new
manufacturer contract transition.
B. "Service Level" shall mean a percentage amount calculated as follows:
A - B
----- x 100
A - C
where,
A = [ ]*
B = [ ]*
C = [ ]*
C. For any given order, a "Line" shall mean any stock-keeping unit of a
pharmaceutical product ordered by Allscripts, regardless of the
quantity ordered.
* Confidential portions omitted and filed separately with the Commission.
3
<PAGE>
D. In the event McKesson fails to maintain the required Service Level for
[ ]* consecutive months, McKesson will credit Allscripts, {based on
the following schedule};
below [ ]*% [ ]*%
[ ]*% [ ]*%
[ ]*% [ ]*%
of the aggregate net pharmaceutical purchases by Allscripts' affected
Facility for the [ ]* months of reduced service and each
subsequent month of reduced service. So long as McKesson is current
in the crediting of such amounts, such failure shall not in itself
constitute a default hereunder. If the service level for any [ ]*
month during the agreement falls below [ ]*%, Allscripts may elect
to immediately terminate the agreement.
E. In the event a distribution center is out of a particular product,
McKesson can ship shorted product(s) from another McKesson
distribution center and the product will be available to Allscripts
within [ ]* hours of transmitted order.
F. McKesson provides [ ]* hour, [ ]* days per week emergency
service. Emergency telephone numbers and pager numbers for primary
and secondary contacts at each distribution center will be provided
upon execution of this Agreement. When contacted in an emergency
situation, distribution center personnel will access distribution
center inventory and make arrangements for shipment of products to the
facility via air, taxi, truck or police.
G. Each McKesson distribution center has a plan in place in the event of
a natural disaster to guarantee alternate delivery, delivery of
emergency products direct from the manufacturer or from an alternate
McKesson distribution center. Operations personnel at each
distribution center work with the local McKesson Account Manager and
Allscripts to put together an emergency order that is retained at the
distribution center. In the event of a disaster, the emergency order
can be automatically shipped to Allscripts.
McKesson's National Computer Center has the ability to transmit or
receive information to or from any of McKesson's 35 distribution
centers. In the event of telephone line disruption, McKesson uses
satellite technology as back up. The National Computer Center is
completely redundant and self-contained, with a completely separate
water system, electrical system and a mainframe computer. McKesson
maintains a complete back-up system in another location that can be
used in the event of a disaster impacting the primary site.
* Confidential portions omitted and filed separately with the Commission.
4
<PAGE>
6. COST OF GOODS
A. In consideration for the Cost of Goods specified herein, Allscripts
expressly commits to purchase a total of $[ ]* million (net of
returns, allowances and rebates) in Direct Facility Delivery volume of
Merchandise from McKesson during the three year term of this Agreement
("Volume Purchase Commitment"). If after the first year of this
Agreement Allscripts has not achieved the appropriate pro rata
purchase volume based on its Volume Purchase Commitment, McKesson, in
addition to the other rights and remedies available to it hereunder,
reserves the right in its sole discretion to redetermine the Cost of
Goods pricing specified below. Allscripts also retains the right to
immediately terminate the agreement based on such adjustment.
B. Subject to the terms and conditions of this Section, the Cost of Goods
for Merchandise delivered to Allscripts shall be Cost plus the
applicable markup as specified below. Except in the case of contract
items as discussed below, "Cost" for the purposes of this Agreement
shall mean the manufacturer's published acquisition cost (exclusive of
cash discounts) on the date of McKesson's invoice to Allscripts,
adjusted for selected bonus goods, manufacturers' off-invoice
allowances, and manufacturers' deal prices to be made available to
Allscripts in accordance with McKesson's established policies. For
purchases of Merchandise with respect to which Allscripts has entered
into a vendor contract with a manufacturer ("Contract Products")
loaded with McKesson, "Cost" shall mean the "bid price" of the product
as set forth in the vendor contract.
C. Unless otherwise indicated herein, the Cost of Goods under this
Agreement shall be in accordance with the pricing schedule set forth
below. Allscripts hereby agrees to maintain a minimum company-wide
monthly average volume of $[ ]* million in prescription drug and
OTC product purchases (net of returns, allowances and rebates) from
McKesson throughout the term of this Agreement ("Monthly Volume
Commitment"). Unless otherwise indicated, Allscripts shall at the
time of implementation of service under this Agreement
("Implementation Date") be charged the applicable markup specified
below for such Volume Commitment.
Monthly Group-wide Volume Cost Markup %
(net of returns, allowances Rx/OTC
and rebates) ([ ]* Day Payment Terms)
--------------------------------- --------------------------------
$[ ]* - $[ ]* [ ]*%
$[ ]* - $[ ]* [ ]*%
$[ ]* - and above [ ]*%
Note: Pricing for the first year of the contract will be at the
[ ]*% tier. Monthly purchase volumes will be reviewed after the
first year.
Schedule II *Narcotics [ ]*
----------------------
Contract Products [ ]*
-----------------
* Confidential portions omitted and filed separately with the Commission.
5
<PAGE>
Net Billed Items: The purchase price for selected Merchandise,
----------------
including but not limited to the following product lines, will be net-
billed and not covered by the above-specified Cost of Goods pricing:
[ ]*
7. PHARMACEUTICAL PRODUCT ALLOCATIONS [ ]*
[ ]*
8. RETURNED GOODS
A. Credits for returned goods from McKesson are divided into four
categories, depending on the reason for the claim. Credits will be
issued for any of the following reasons:
1) Non-merchandise problems, such as shortages and pricing errors;
2) McKesson merchandise received in error;
3) Recalls; and
4) Outdated merchandise (defined as items with less than 1 year
dating).
B. The amount of credit allowed by McKesson will vary as follows:
1) 100% credit will be given for:
-----------
(a) Pricing errors, shipping errors and billing errors;
(b) Shortages (required to be phoned into the Distribution
Center within 48 hours of receipt of Merchandise);
(c) Ordering errors (must be returned within 30 days of
receipt);
(d) Manufacturer recalls;
(e) Items received by Allscripts with less than 1 year dating;
and
(f) Merchandise that had concealed damage.
Invoice number is required in each of the above-specified
instances, except recalls, for full credit.
2) 85% credit will be given for:
----------
Clean, salable merchandise with at least nine (9) months dating
returned more than 30 days after location receipt.
3) 75% credit will be given for:
----------
(a) Unsalable merchandise which can be returned to manufacturer;
(b) Outdated items (subject to the approved vendor list); and
(c) Salable merchandise with price tickets not removed.
---
(4) No credit will be given for:
---------
(a) Merchandise damaged in Allscripts' Facilities;
* Confidential portions omitted and filed separately with the Commission.
6
<PAGE>
(b) Merchandise from manufacturers not listed on the approved
vendor list; and
(c) Merchandise not purchased from McKesson.
These no credit items will be sent back to the facility which
initiated the return.
9. CONTRACT MANAGEMENT
A. McKesson agrees to service all manufacturers' contracts negotiated by
Allscripts, provided such manufacturers are approved suppliers of
McKesson. Such Contract Products will be supplied at Allscripts'
negotiated bid price as described above in the Cost of Goods section.
B. Allscripts' eligibility for participation under a vendor contract must
be authorized by the vendor and Allscripts' group purchasing
organization, if applicable, before the contract is loaded by McKesson
for Allscripts. Allscripts shall be liable for unpaid chargebacks
resulting from eligibility issues.
C. In the event a vendor in the case of an Allscripts negotiated
---------------------
contract, (i) makes an assignment for the benefit of the creditors,
--------
files a petition in bankruptcy, is adjudicated insolvent or bankrupt,
or if a receiver or trustee is appointed with respect to a substantial
part of the vendor's property or a proceeding is commenced against it
which will substantially impair its ability to pay on chargebacks or
(ii) otherwise defaults in the payment of chargebacks to McKesson,
Allscripts shall be invoiced and become liable for the unpaid
chargebacks allocable to its purchases from such vendor.
10. SYSTEM SERVICES AND EQUIPMENT
The following systems and services will be made available to Allscripts
by McKesson:
A. Telxon electronic order entry equipment (including shelf wand) [ ]*.
B. Item price stickers, [ ]*, with Allscripts custom pricing,
where required, and other features such as:
1) Department number
2) Invoice cost
3) Month and year ordered
4) Location name
5) AWP or retail pricing
(Note: Each feature is available for both Rx and OTC.)
C. Bar-coded shelf labels, [ ]*.
* Confidential portions omitted and filed separately with the Commission.
7
<PAGE>
D. Monthly report of all pharmaceuticals purchased from McKesson Drug for
each location, [ ]* (due by 15th of following month). In
addition, Quarterly and Yearly reports:
1) by Drug
2) by Dollar Volume
3) by Manufacturer
E. A complete catalog of items stocked by McKesson's Distribution
Centers, [ ]*.
F. [ ( )]* EconoLink systems and [ ( )]* chain host
system plus printer shall be provided to Allscripts [ ]*.
EconoLink shall be subject to a separate license agreement between the
parties governing use and maintenance.
11. TERMINATION
A. Failure to make any payment when due in accordance with the terms of
this Agreement shall constitute a default. Any other material breach
of this Agreement by either party shall constitute a default if not
cured within thirty (30) days after written notice of such breach is
given by the non-breaching party. Upon default by either party, the
other party may terminate this Agreement on five (5) days' written
notice.
B. Either party may, on ten (10) days notice, terminate this Agreement:
1) If the other party shall file any petition under any bankruptcy,
reorganization, insolvency or moratorium laws, or any other law
or laws for the relief of or in relation to the relief of
debtors; or
2) If the other party shall file any involuntary petition under any
bankruptcy statute or a receiver or trustee shall be appointed to
take possession of all or substantial part of the assets of the
party which has not been dismissed or terminated within sixty
(60) days of the date of such filing or appointment; or
3) If the other party shall make a general assignment for the benefit
of creditors or shall become unable or admit in writing its
inability to meet its obligations as they mature; or
4) If the other party shall institute any proceedings for liquidation
or the winding up of its business other than for purposes of
reorganization, consolidation or merger; or
5) If the other party's financial condition, in the reasonable belief
of the terminating party, shall become such as to endanger
completion of its performance in accordance with the terms and
conditions of this Agreement.
C. In the event of a termination hereunder the following continuing
obligations and liabilities shall survive termination and remain in
full force and effect:
* Confidential portions omitted and filed separately with the Commission.
8
<PAGE>
1) Liability for accounts receivable balances or any other payment
due hereunder to the other party at the date of or upon the
occurrence of such termination; and
2) Obligations imposed on each party under the Proprietary and
Confidentiality Information section set forth below.
3) Accept returns as described in Section 8 of this Agreement for a
period of [ ( )]* days following the effective date of
any such termination.
12. PROPRIETARY AND CONFIDENTIAL INFORMATION
A. Any and all accounts, records, books, files, and lists regarding any
transaction provided for or contemplated hereunder, shall be
confidential and proprietary to the party creating or generating such
information. This Agreement, and the terms and conditions hereof, are
confidential. The parties expressly agree to maintain such terms and
conditions in confidence, and shall take every precaution to disclose
the contents of this Agreement only to those employees of each of the
parties who have a reasonable need to know such information.
B. Allscripts and McKesson each acknowledge that, in connection with
their respective businesses, they have developed certain operating
manuals, symbols, trademarks, trade names, service marks, trade
secrets, Allscripts lists, procedures, formulas, and other patented,
copyrighted, or legally protected materials which are confidential and
proprietary to each of them.
C. Neither party may disclose the terms of this Agreement during the term
hereof and for an additional period of thirty-six (36) months
following the effective date of expiration or other termination of
this Agreement. Furthermore, except upon the prior written consent of
the other party, neither party may divulge, disclose, communicate, or
use any of the other party's confidential or proprietary information
generally described in Subsection A and B above, in any manner or for
any purpose, including, without limitation, use in advertising or for
promotional materials, except upon the prior written consent of the
other party. A party hereto may refuse consent to the use of its
confidential or proprietary information for any or no reason. In the
event that any such confidential or proprietary information is used
during the course of this Agreement it shall retain its confidential
and proprietary nature and shall be returned immediately to its owner
or destroyed upon termination of this Agreement. Notwithstanding
anything herein to the contrary, nothing in this subsection shall
require either party to maintain in confidence any information,
materials, or data which is in the public domain, enters the public
domain through no fault of such party, was in possession of the party
prior to being furnished to it by the other, was supplied to the party
by a third party or parties lawfully in possession thereof, or which
the party is required to divulge pursuant to process of any judicial
or governmental body of competent jurisdiction, provided that notice
of receipt of such process is given to the other.
* Confidential portions omitted and filed separately with the Commission.
9
<PAGE>
13. ALTERNATE SERVICE
If service from an McKesson distribution center to any Allscripts Facility
is interrupted or delayed because of strike, lockout, labor dispute, fire
or other casualty, or any other reasons beyond the reasonable control of
McKesson, McKesson will take such action as may be reasonably necessary,
without additional cost or expense to Allscripts, to maintain service as
mutually agreed upon the affected Facility from an alternate McKesson
distribution center.
14. SUPPORT/PARTNERSHIPS
McKesson agrees to participate in, and contribute towards, (sponsorship)
Allscripts annual national meetings. The funding provided by McKesson for
this will be equal to, or greater than the 1998 annual contribution.
15. NOTICES
All notices pertaining to this Agreement shall be delivered in person, sent
by certified mail, delivered by air courier, or transmitted by facsimile
and confirmed in writing (sent by air courier or certified mail) to a party
at the address or facsimile number shown in this Section, or such other
address or facsimile number as a party may notify the other party from time
to time. Notices delivered in person, and notices dispatched by facsimile
prior to 4:00 p.m. and confirmed, shall be deemed to be received on the day
sent. All other facsimiles and notices shall be deemed to have been
received on the business day following receipt; provided, however, if such
day falls on a weekend or legal holiday, receipt shall be deemed to occur
on the next business day. Notices may also be transmitted electronically
between the parties, provided that proper arrangements are made in advance
to facilitate such communications and provide for their security and
verification.
If to McKesson:
--------------
McKesson Corporation
520 E. North Ave.
Carol Stream, IL 60188
Attention: Pete Winkenbach
Vice President Sales
Fax: 630-462-6641
If to Allscripts:
----------------
Allscripts, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048-464
Attention: Chris T. Zirzow, R.Ph.
Vice President, Pharmaceutical Alliances
Fax: 847-680-3951
15. MISCELLANEOUS
A. This Agreement embodies the entire agreement between the parties with
regard to the subject matter hereof and supersedes all prior
agreements, understandings and representations with the exception of
any promissory note, security agreement or other
10
<PAGE>
credit or financial related document(s) executed by Allscripts or
between Allscripts and McKesson. This Agreement may not be modified,
supplemented or extended except by a writing signed by both parties.
B. This Agreement supersedes any and all prior McKesson agreements and
discount plans in which any Allscripts facility may currently be
participating.
C. Except as provided above in Section 13, neither party shall have any
obligation hereunder for failure or delay of performance due to fire,
shortage of materials or transportation, government acts, or any other
cause beyond its control.
D. Neither party shall have the right to assign this Agreement or any
interest therein without the prior written consent of the other party,
and any such attempted assignment shall be without effect, except that
either party may, without the consent of the other, upon the sale of
the assets of the business to which this Agreement pertains, assign
this Agreement to an affiliate of such party. This Agreement shall be
binding upon all permitted assigns.
E. This Agreement shall be construed in accordance with the State of
California without regard to the provisions of Section 1654 of the
California Civil Code or the rules regarding conflict of laws.
F. If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision
of this Agreement.
G. The failure of either party to enforce at any time or for any period
of time any one or more of the provisions thereof shall not be
construed to be a waiver of such provisions or of the right of such
party thereafter to enforce each such provision.
H. If any federal, state, or local tax currently or in the future is
levied upon McKesson in a jurisdiction where either McKesson or
Allscripts does business and such tax relates or applies to the
Merchandise or any transactions covered by this Agreement (excluding
taxes imposed on McKesson's net income), the Cost of Goods to those
Allscripts Facilities involved will be increased a corresponding
percentage amount.
I. Participation hereunder by any of Allscripts'/McKesson Facilities may
be terminated by McKesson/Allscripts if such Facility fails to comply
with the terms and conditions of this Agreement.
J. Allscripts understands and acknowledges that all product discounts and
rebates earned by or granted to its locations under McKesson's
programs may be subject to certain state and federal laws and
regulations regarding reporting and/or disclosure requirements and may
be required to be reflected in the costs claimed or charges made by
Allscripts' Facilities under Medicaid, Medicare or any other health
care reimbursement program or provider plan.
K. Whenever possible, each provision of this Agreement shall be
interpreted so as to be effective and valid under applicable law, but
if any provision of this Agreement should be prohibited or invalid
under applicable law, such provision shall be ineffective to the
11
<PAGE>
extent of such prohibition or invalidity without invalidating the
other of such provision or the remaining provisions of this Agreement.
L. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
M. This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed an original instrument, but
all such counterparts together shall constitute one agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date and year written below and the persons signing warrant that they
are duly authorized to sign for and on behalf of the respective parties. This
Agreement shall be deemed accepted by McKesson only upon execution by a duly
authorized representative of McKesson.
ALLSCRIPTS, INC. McKESSON U.S. HEALTH CARE,
a division of McKesson Corporation
By: /s/ John Cull By: /s/ Pete J. Winkenbach
----------------------- ---------------------------------------
Name: John Cull Name: Pete J. Winkenbach
----------------------- --------------------------------------
(Print or Type)
Title: Treasurer Title: Vice President Sales, Central Region
---------------------- --------------------------------------
Date: 8/31/98 Date: 8-28-98
---------------------- --------------------------------------
12
