<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
MCKESSON CORPORATION
(NAME OF SUBJECT COMPANY)
ECO ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
ELI LILLY AND COMPANY
(BIDDERS)
COMMON STOCK, $2.00 PAR VALUE PER SHARE
(INCLUDING THE ASSOCIATED 581556 10 7
RIGHTS)
- -------------------------------------- ----------------------------------------
(TITLE OF CLASS OF SECURITIES) (CUSIP NUMBER OF CLASS OF SECURITIES)
J. B. KING, ESQ. VICE PRESIDENT AND GENERAL COUNSEL
ELI LILLY AND COMPANY
LILLY CORPORATE CENTER
INDIANAPOLIS, INDIANA 46285
(317) 276-2000
----------------------------------------------------------
(NAMES, ADDRESSES AND TELEPHONE NUMBERS OF PERSONS AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
WITH A COPY TO:
BERNARD E. KURY, ESQ.
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 259-7400
CALCULATION OF FILING FEE
<TABLE>
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<CAPTION>
TRANSACTION VALUATION AMOUNT OF FILING FEE
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<S> <C>
$3,421,900,000.00 $684,380.00
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</TABLE>
[_]Check box if any part of the fee is offset by Rule O-11(a)(2) and identify
the filing with which the offsetting fee was previously paid. Identify the
previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
Amount Previously Paid:______________________
Form or Registration No.:____________________
Filing Party:________________________________
Date Filed:__________________________________
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<PAGE>
OMB APPROVED
OMB 3235-0102
EXPIRES
CUSIP NO. 581556 10 7 14D-1 PAGE OF PAGES
<TABLE>
<CAPTION>
<C> <S>
1 NAME OF REPORTING PERSON: ECO ACQUISITION CORPORATION
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: Applied for
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
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3 SEC USE ONLY
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4 SOURCES OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(e) or 2(f)
[_]
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6 CITIZENSHIP OR PLACE OR ORGANIZATION
Delaware
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7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
None
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8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_]
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9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
N/A
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10 TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
OMB APPROVED
OMB 3235-0102
EXPIRES
CUSIP NO. 581556 10 7 14D-1 PAGE OF PAGES
<TABLE>
<CAPTION>
<C> <S>
1 NAME OF REPORTING PERSON: ELI LILLY AND COMPANY
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 35-0470950
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCES OF FUNDS
WC, BK, OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(e) or 2(f)
[_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OR ORGANIZATION
Indiana
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
None
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
N/A
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10 TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
This Statement relates to a tender offer by ECO Acquisition Corporation (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Eli Lilly
and Company, an Indiana corporation ("Parent"), to purchase all outstanding
shares of common stock, par value $2.00 per share and the associated Rights (as
defined in the Offer to Purchase) (collectively, the "Shares") of McKesson
Corporation, a Delaware corporation (the "Company"), at a purchase price of
$76.00 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated July
15, 1994 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"), copies of which are filed as Exhibits
(a)(1) and (a)(2) hereto, respectively, and which are incorporated herein by
reference.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is McKesson Corporation. The address of
the principal executive offices of the Company is set forth in Section 7
("Certain Information Concerning the Company") of the Offer to Purchase.
(b) The exact title of the class of equity securities being sought in the
Offer is the common stock, par value $2.00 per share, of the Company and the
associated preferred stock purchase rights issued pursuant to the Rights
Agreement, dated as of May 7, 1986, between the Company and Shareholder
Services Trust Company (presently First Chicago Trust Company of New York), as
amended and restated. The information set forth in the Introduction of the
Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) through (d), (g) The information set forth in Section 8 ("Certain
Information Concerning the Purchaser and Parent") of the Offer to Purchase, and
in Schedule I thereto, is incorporated herein by reference.
(e) and (f) None of the Purchaser or Parent, nor, to the best of their
knowledge, any of the persons listed in Schedule I of the Offer to Purchase,
has during the last five years (i) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) and (b) The information set forth in the Introduction and Section 10
("Background of the Offer; the Merger Agreement; the Spin-Off; the Rights
Agreement") and Section 8 ("Certain Information Concerning the Purchaser and
Parent") of the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (b) The information set forth in Section 9 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF BIDDER.
(a) through (e) The information set forth in the Introduction and Section 11
("Purpose of the Offer, the Merger and the Spin-Off; Plans for the Company") of
the Offer to Purchase is incorporated herein by reference.
1
<PAGE>
(f) and (g) The information set forth in Section 12 ("Effect of the Offer on
the Market for the Shares; Stock Exchange Listing; Registration Under the
Exchange Act; Redemption of Cumulative Preferred Shares") of the Offer to
Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in Section 8 ("Certain Information
Concerning the Purchaser and Parent") and Schedule I of the Offer to Purchase
is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction, Section 8 ("Certain
Information Concerning the Purchaser and Parent") and Section 10 ("Background
of the Offer; The Merger Agreement; the Spin-Off; the Rights Agreement") of the
Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and in Section 17 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information Concerning the
Purchaser and Parent") of the Offer to Purchase is incorporated herein by
reference.
The incorporation by reference herein of the above-mentioned financial
information does not constitute an admission that such information is material
to a decision by a security holder of the Company whether to sell, tender or
hold securities being sought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b) and (c) The information set forth in Section 16 ("Certain Legal Matters;
Regulatory Approvals") of the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth in Section 12 ("Effect of the Offer on the
Market for the Shares; Stock Exchange Listing; Registration under the Exchange
Act; Redemption of Cumulative Preferred Shares") and Section 16 ("Certain Legal
Matters; Regulatory Approvals") of the Offer to Purchase is incorporated herein
by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference in its entirety.
2
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
<C> <C> <S>
(a)(1) -- Offer to Purchase, dated July 15, 1994
(a)(2) -- Form of Letter of Transmittal
(a)(3) -- Form of Letter from Lehman Brothers, as Dealer Manager, to
Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees
(a)(4) -- Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees to Clients
(a)(5) -- Notice of Guaranteed Delivery
(a)(6) -- Guidelines for Certification of Taxpayer Identification Num-
ber on Substitute Form W-9
(a)(7) -- Form of tombstone advertisement, dated July 15, 1994
(a)(8) -- Form of press release issued by Parent on July 11, 1994
(a)(9) -- Agreement and Plan of Merger, dated as of July 10, 1994, by
and among Parent, Purchaser and the Company (incorporated
herein by reference from Exhibit A to the Offer to Purchase
filed as Exhibit (a)(1) hereto)
(a)(10) -- Reorganization and Distribution Agreement, dated as of July
10, 1994, by and among the Company, McKesson Corporation,
Clinical Pharmaceuticals, Inc., PCS Health Systems, Inc. and
SP Ventures, Inc.
(a)(11) -- Tax Sharing Agreement, dated as of July 10, 1994, among the
Company, SP Ventures, Inc., Parent and the Purchaser
(a)(12) -- HDS Services Agreement, dated as of July 10, 1994, among Par-
ent, PCS Health Systems, Inc. and Healthcare Delivery Sys-
tems, Inc.
(a)(13) -- McKesson Services Agreement, dated as of July 10, 1994, be-
tween PCS Health Systems, Inc. and SP Ventures, Inc.
(a)(14) -- Memorandum of Understanding, dated as of July 10, 1994, be-
tween Parent and SP Ventures, Inc.
(a)(15) -- Non-Competition Agreement, dated as of July 10, 1994, between
the Company, SP Ventures, Inc., the Purchaser and Parent
(a)(16) -- Confidentiality Agreement, dated June 8, 1994, between the
Company and Parent
</TABLE>
3
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Eli Lilly and Company
/s/ James M. Cornelius
By: _________________________________
NAME: JAMES M. CORNELIUS
TITLE: VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
ECO Acquisition Corporation
/s/ Charles E. Schalliol
By:__________________________________
NAME: CHARLES E. SCHALLIOL
TITLE: PRESIDENT
Dated: July 15, 1994
4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
<C> <C> <S> <C>
(a)(1) -- Offer to Purchase, dated July 15, 1994..................
(a)(2) -- Form of Letter of Transmittal...........................
(a)(3) -- Form of Letter from Lehman Brothers, as Dealer Manager,
to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees......................................
(a)(4) -- Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees to Clients...........
(a)(5) -- Notice of Guaranteed Delivery...........................
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9...........................
(a)(7) -- Form of tombstone advertisement, dated July 15, 1994....
(a)(8) -- Form of press release issued by Parent on July 11, 1994.
(a)(9) -- Agreement and Plan of Merger, dated as of July 10, 1994,
by and among Parent, Purchaser and the Company (incorpo-
rated herein by reference from Exhibit A to the Offer to
Purchase filed as Exhibit (a)(1) hereto)................
(a)(10) -- Reorganization and Distribution Agreement, dated as of
July 10, 1994, by and among the Company, McKesson Corpo-
ration, Clinical Pharmaceuticals, Inc., PCS Health Sys-
tems, Inc. and SP Ventures, Inc.........................
(a)(11) -- Tax Sharing Agreement, dated as of July 10, 1994, among
the Company, SP Ventures, Inc., Parent and the Purchas-
er......................................................
(a)(12) -- HDS Services Agreement, dated as of July 10, 1994, among
Parent, PCS Health Systems, Inc. and Healthcare Delivery
Systems, Inc............................................
(a)(13) -- McKesson Services Agreement, dated as of July 10, 1994,
between PCS Health Systems, Inc. and SP Ventures, Inc...
(a)(14) -- Memorandum of Understanding, dated as of July 10, 1994,
between Parent and SP Ventures, Inc.....................
(a)(15) -- Non-Competition Agreement, dated as of July 10, 1994,
between the Company, SP Ventures, Inc., the Purchaser
and Parent..............................................
(a)(16) -- Confidentiality Agreement, dated June 8, 1994, between
the Company and Parent..................................
</TABLE>
5
<PAGE>
EXHIBIT 99.1
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
MCKESSON CORPORATION
at
$76.00 NET PER SHARE
by
ECO ACQUISITION CORPORATION
a wholly owned subsidiary of
ELI LILLY AND COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, AUGUST 11, 1994, UNLESS THE OFFER IS EXTENDED. ECO
ACQUISITION CORPORATION HAS AGREED TO EXTEND THE OFFER TO THE FIRST BUSINESS
DAY FOLLOWING THE SPIN-OFF RECORD DATE (AS DEFINED BELOW).
THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE
EXPECTED TO RESULT IN (I) THE DISTRIBUTION TO THE STOCKHOLDERS OF MCKESSON
CORPORATION (THE "COMPANY") OF SHARES OF STOCK IN A NEW ENTITY THAT WILL OWN
ALL THE BUSINESSES OF THE COMPANY OTHER THAN ITS PHARMACEUTICAL BENEFITS
MANAGEMENT BUSINESS (THE "SPIN-OFF") AND (II) THE ACQUISITION OF THE COMPANY'S
PHARMACEUTICAL BENEFITS MANAGEMENT BUSINESS BY ELI LILLY AND COMPANY
("PARENT") PURSUANT TO THE OFFER AND MERGER DESCRIBED HEREIN.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE SPIN-OFF, DETERMINED THAT THE OFFER, THE MERGER AND THE
SPIN-OFF ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS ACCEPTANCE OF THE
OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF
THE COMPANY.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES OF
COMMON STOCK, PAR VALUE $2.00 PER SHARE (INCLUDING THE ASSOCIATED RIGHTS)
(COLLECTIVELY, THE "SHARES"), OF THE COMPANY WHICH, WHEN ADDED TO THE NUMBER
OF SHARES THEN BENEFICIALLY OWNED BY PARENT AND ITS AFFILIATES, REPRESENTS AT
LEAST A MAJORITY OF THE TOTAL NUMBER OF SHARES OUTSTANDING AND A MAJORITY OF
THE VOTING POWER OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS.
---------------
IMPORTANT
Any stockholder desiring to tender Shares should either (1) complete and
sign the Letter of Transmittal (or facsimile thereof) in accordance with the
instructions in the Letter of Transmittal and deliver it to the Depositary
with the certificate(s) representing tendered Shares and all other required
documents or tender such Shares pursuant to the procedures for book-entry
transfer set forth in Section 3 or (2) request his or her broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
him or her. A stockholder having Shares registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such
person if he or she desires to tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply
with the procedures for book-entry transfer on a timely basis may tender such
Shares pursuant to the guaranteed delivery procedure set forth in Section 3.
Questions and requests for assistance or additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional
copies of this Offer to Purchase, the Letter of Transmittal and the other
tender offer materials may also be obtained from the Information Agent, the
Dealer Manager or from brokers, dealers, commercial banks or trust companies.
---------------
The Dealer Manager for the Offer is:
LEHMAN BROTHERS
July 15, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
1. Terms of the Offer; Expiration Date.............................. 3
2. Acceptance for Payment and Payment............................... 3
3. Procedure for Tendering Shares................................... 4
4. Withdrawal Rights................................................ 6
5. Certain Tax Considerations....................................... 7
6. Price Range of Shares; Dividends................................. 9
7. Certain Information Concerning the Company....................... 9
8. Certain Information Concerning the Purchaser and Parent.......... 12
9. Source and Amounts of Funds...................................... 13
10. Background of the Offer; the Merger Agreement; the Spin-Off; the
Rights Agreement................................................ 14
11. Purpose of the Offer, the Merger and the Spin-Off; Plans for the
Company......................................................... 26
12. Effect of the Offer on the Market for the Shares; Stock Exchange
Listing; Registration under the Exchange Act; Redemption of
Cumulative Preferred Shares..................................... 26
13. Dividends and Distributions...................................... 27
14. Extension of Tender Period; Amendment; Termination............... 28
15. Certain Conditions to the Offer.................................. 29
16. Certain Legal Matters; Regulatory Approvals...................... 30
17. Fees and Expenses................................................ 32
18. Miscellaneous.................................................... 32
</TABLE>
Schedule I--Directors and Executive Officers of Parent and the Purchaser
Exhibit A--Agreement and Plan of Merger
i
<PAGE>
To the Holders of Common Stock of McKESSON CORPORATION
INTRODUCTION
ECO Acquisition Corporation (the "Purchaser"), a Delaware corporation and a
wholly owned subsidiary of Eli Lilly and Company, an Indiana corporation
("Parent"), hereby offers to purchase all outstanding shares of common stock
(the "Common Stock"), par value $2.00 per share, of McKesson Corporation, a
Delaware corporation (the "Company"), and the associated preferred stock
purchase rights (the "Rights"; and together with the Common Stock, the
"Shares") at $76.00 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which together constitute the "Offer"). The
Rights were issued pursuant to a Rights Agreement, dated as of May 7, 1986,
between the Company and Shareholder Services Trust Company (presently First
Chicago Trust Company of New York), as amended and restated (the "Rights
Agreement"), and are currently evidenced by and trade with certificates
evidencing the Common Stock. See Section 10 for a brief description of the
Rights Agreement and its application to the Offer and the Merger (as
hereinafter defined). Tendering stockholders will not be obligated to pay
brokerage fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares by the
Purchaser pursuant to the Offer. The Purchaser will pay all charges and
expenses of Lehman Brothers Inc. ("Lehman Brothers"), which is acting as Dealer
Manager for the Offer (in such capacity, the "Dealer Manager"), Citibank, N.A.
(the "Depositary") and D.F. King & Co., Inc. (the "Information Agent") incurred
in connection with the Offer. See Section 17.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) A
NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN BENEFICIALLY
OWNED BY PARENT AND ITS AFFILIATES, REPRESENTS AT LEAST A MAJORITY OF THE TOTAL
NUMBER OF SHARES OUTSTANDING AND A MAJORITY OF THE VOTING POWER OF THE SHARES
OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"). SEE SECTION 15.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS" OR THE
"BOARD") HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE SPIN-OFF,
DETERMINED THAT THE OFFER, THE MERGER AND THE SPIN-OFF ARE FAIR TO THE
STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS
OF THE COMPANY, AND RECOMMENDS ACCEPTANCE OF THE OFFER AND APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF THE COMPANY.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of July 10, 1994 (the "Merger Agreement"), among Parent, the Purchaser and the
Company. The Merger Agreement provides, among other things, that upon the terms
and subject to the conditions therein, as soon as practicable after the
consummation of the Offer and the approval and adoption of the Merger Agreement
by the stockholders of the Company, if required by applicable law, the
Purchaser will be merged with and into the Company (the "Merger"), with the
Company being the corporation surviving the Merger (the "Surviving
Corporation"). Each outstanding Share (other than Dissenting Shares (as
hereinafter defined)) not owned by Parent, the Purchaser, the Company or any of
their subsidiaries will be converted into and represent the right to receive
$76.00 in cash or any higher price that may be paid per Share in the Offer,
without interest (the "Merger Price"). See Section 10.
Promptly following the consummation of the Offer, the Company will distribute
(the "Spin-Off") common stock (the "New McKesson Shares") of SP Ventures, Inc.,
a newly formed Delaware corporation and a wholly owned subsidiary of the
Company ("New McKesson"), to the holders of Shares on a record date to be
determined by the Board of Directors of the Company (the "Spin-Off Record
Date"), pursuant to a
<PAGE>
Reorganization and Distribution Agreement, dated as of July 10, 1994, among the
Company, New McKesson and various other subsidiaries of the Company (the
"Distribution Agreement"). Because the Purchaser will not accept Shares for
payment pursuant to the Offer until the Spin-Off Record Date has occurred, a
record holder of Shares who tenders Shares pursuant to the Offer (and who does
not subsequently withdraw and sell such Shares) will be the record holder
thereof on the Spin-Off Record Date. Accordingly, in the event that Shares are
accepted for payment pursuant to the Offer, such record holders will be
entitled to receive, in respect of each Share tendered, $76.00 net in cash from
the Purchaser and one New McKesson Share from the Company. As a result of the
Spin-Off, New McKesson will own and operate all the businesses of the Company
and its subsidiaries, other than the pharmaceutical benefits management
business as conducted by the Company's PCS Health Systems, Inc. ("PCS") and
Clinical Pharmaceuticals, Inc. ("CPA") subsidiaries (the "Retained Business").
After the Spin-Off, the Company will continue to own only the Retained
Business. Accordingly, upon consummation of the Offer and the Merger, Parent
will have acquired only the Retained Business. Pursuant to the Merger
Agreement, simultaneously with the consummation of the Offer, the Purchaser
will make a cash contribution to the Company of approximately $600 million,
subject to adjustment, that will be included in the assets contributed to New
McKesson by the Company in connection with the Spin-Off. Consummation of the
Offer is conditioned upon, among other things, the Spin-Off Record Date having
been set (the "Spin-Off Condition"). The Spin-Off Record Date is not expected
to occur before the end of August. The Merger is conditioned upon, among other
things, the Spin-Off having been consummated in all material respects. The
distribution of the New McKesson Shares pursuant to the Spin-Off is conditioned
upon the Purchaser having accepted for payment Shares tendered pursuant to the
Offer. In the Merger Agreement, the Purchaser has agreed to extend the Offer to
the first business day following the Spin-Off Record Date. The Company has
advised Parent and the Purchaser that, prior to the time notice of the Spin-Off
Record Date is given and at least ten days prior to the Expiration Date (as
defined below), it expects to distribute to holders of Shares an information
statement with respect to the business, operations and management of New
McKesson (the "Information Statement"). See Section 10.
The offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Cumulative Preferred Stock, Series A (Convertible), par
value $35.00 per share, of the Company (the "Cumulative Preferred Shares") or
Series B ESOP Convertible Preferred Stock, par value $1.00 per share, of the
Company (the "Series Preferred Shares", and together with the Cumulative
Preferred Shares, the "Company Preferred Shares"). The Company has agreed to
call for redemption prior to the Spin-Off Record Date all outstanding
Cumulative Preferred Shares. Holders of Company Preferred Shares who desire to
participate in the Offer must convert their Company Preferred Shares in time to
permit the Shares received upon such conversion to be validly tendered pursuant
to the Offer prior to the Expiration Date. See Section 1.
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), financial advisor to
the Company, has delivered to the Board of Directors of the Company its written
opinion that, taken together, as of the date of such opinion, the Spin-Off and
the consideration to be received by the holders of Shares in the Offer and the
Merger are fair from a financial point of view to such holders. A copy of such
opinion is included with the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders
concurrently herewith, and stockholders are urged to read the opinion in its
entirety for a description of the assumptions made, factors considered and
procedures followed by Morgan Stanley.
According to the Company, as of July 1, 1994, there were 40,716,310 Shares
outstanding and approximately 4,308,690 Shares that may be issued prior to the
Expiration Date upon the conversion of the Company Preferred Shares and upon
the exercise of stock options issued under the Company's stock option plans. As
a result, the Purchaser believes that the Minimum Condition would be satisfied
if at least 22,512,501 Shares are validly tendered and not withdrawn prior to
the Expiration Date.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
2
<PAGE>
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer, the Purchaser will accept for payment and pay for all
Shares that have been validly tendered prior to the Expiration Date and not
withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00
Midnight, New York City time, on Thursday August 11, 1994, unless and until the
Purchaser, as provided below, shall have extended the period of time for which
the Offer is open, in which event the term "Expiration Date" means the latest
time and date at which the Offer, as so extended by the Purchaser, shall
expire. Pursuant to the Merger Agreement, the Purchaser will extend the period
of time during which the Offer is open if the Offer would otherwise expire
prior to the first business day following the Spin-Off Record Date. The
Purchaser will not otherwise extend the period of time during which the Offer
is open without the prior written consent of the Company, unless any of the
conditions described in Section 15 shall not have been satisfied, or unless
Parent reasonably determines, with the approval of the Company (such approval
not to be unreasonably withheld or delayed), that such extension is necessary
to comply with any legal or regulatory requirements relating to the Offer.
The Offer is subject to certain conditions set forth in Section 15, including
satisfaction of the Minimum Condition, the Spin-Off Condition and the
expiration or termination of the waiting period applicable to the Purchaser's
acquisition of Shares pursuant to the Offer under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). If any such
condition is not satisfied, the Purchaser may, subject to the terms of the
Merger Agreement, (i) terminate the Offer and return all tendered Shares to
tendering stockholders, (ii) extend the Offer and, subject to withdrawal rights
as set forth in Section 4, retain all such Shares until the expiration of the
Offer as so extended, (iii) other than as described in Section 15, waive such
condition and, subject to any requirement to extend the period of time during
which the Offer is open, purchase all Shares validly tendered and not withdrawn
by the Expiration Date or (iv) delay acceptance for payment of or payment for
Shares, subject to applicable law, until satisfaction or waiver of the
conditions to the Offer. In the Merger Agreement, the Purchaser has agreed,
subject to the conditions in Section 15 and its rights under the Offer, to
accept for payment Shares as promptly as practicable following the Spin-Off
Record Date. For a description of the Purchaser's right to extend the period of
time during which the Offer is open, and to amend, delay or terminate the
Offer, see Section 14.
The Company has provided or will provide the Purchaser with the Company's
stockholder list and security position listings for the purpose of
disseminating the Offer to holders of Shares. This Offer to Purchase and the
related Letter of Transmittal will be mailed to record holders of Shares and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT. Upon the terms and subject to the
conditions of the Offer, the Purchaser will accept for payment and pay for all
Shares validly tendered and not properly withdrawn by the Expiration Date as
soon as practicable after the later of (i) the Expiration Date and (ii) the
satisfaction or waiver of the conditions set forth in Section 15. For a
description of the Purchaser's right to terminate the Offer and not accept for
payment or pay for Shares or to delay acceptance for payment or payment for
Shares, see Section 14.
For purposes of the Offer, the Purchaser shall be deemed to have accepted for
payment tendered Shares when, as and if the Purchaser gives oral or written
notice to the Depositary of its acceptance of the tenders of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made by
deposit of the purchase price with the Depositary, which will act as agent for
the tendering stockholders for the purpose of receiving payments from the
Purchaser and transmitting such payments to tendering stockholders. In all
cases, payment for Shares accepted for payment pursuant to the Offer will be
made only after timely receipt by the Depositary of certificates for such
Shares (or of a confirmation of a book-entry transfer of such Shares
3
<PAGE>
into the Depositary's account at one of the Book-Entry Transfer Facilities (as
defined in Section 3)), a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other required documents. For a
description of the procedure for tendering Shares pursuant to the Offer, see
Section 3. Accordingly, payment may be made to tendering stockholders at
different times if delivery of the Shares and other required documents occur at
different times. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER
ON THE CONSIDERATION PAID FOR SHARES PURSUANT TO THE OFFER, REGARDLESS OF ANY
DELAY IN MAKING SUCH PAYMENT.
If the Purchaser increases the consideration to be paid for Shares pursuant
to the Offer, the Purchaser will pay such increased consideration for all
Shares purchased pursuant to the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates the right to purchase Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve the Purchaser of its obligations under the Offer or prejudice the
rights of tendering stockholders to receive payment for Shares validly tendered
and accepted for payment.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted for more Shares than are tendered,
certificates for such unpurchased or untendered Shares will be returned (or, in
the case of Shares tendered by book-entry transfer, such Shares will be
credited to an account maintained at one of the Book-Entry Transfer
Facilities), without expense to the tendering stockholder, as promptly as
practicable following the expiration or termination of the Offer.
3. PROCEDURE FOR TENDERING SHARES. To tender Shares pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of
Transmittal must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase and either (i) certificates
for the Shares to be tendered must be received by the Depositary at one of such
addresses or (ii) such Shares must be delivered pursuant to the procedures for
book-entry transfer described below (and a confirmation of such delivery
received by the Depositary including an Agent's Message (as defined below) if
the tendering stockholder has not delivered a Letter of Transmittal), in each
case prior to the Expiration Date, or (b) the guaranteed delivery procedure
described below must be complied with. The term "Agent's Message" means a
message transmitted by a Book-Entry Transfer Facility to and received by the
Depositary and forming a part of a book-entry confirmation, which states that
such Book-Entry Transfer Facility has received an express acknowledgement from
the participant in such Book-Entry Transfer Facility tendering the Shares which
are the subject of such book-entry confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant.
The Depositary will establish an account with respect to the Shares at each
of The Depository Trust Company, Midwest Securities Trust Company and
Philadelphia Depository Trust Company (collectively referred to as the "Book-
Entry Transfer Facilities") for purposes of the Offer within two business days
after the date of this Offer to Purchase, and any financial institution that is
a participant in the system of any Book-Entry Transfer Facility may make
delivery of Shares by causing such Book-Entry Transfer Facility to transfer
such Shares into the Depositary's account in accordance with the procedures of
such Book-Entry Transfer Facility. However, although delivery of Shares may be
effected through book-entry transfer, the Letter of Transmittal (or facsimile
thereof) properly completed and duly executed together with any required
signature guarantees or an Agent's Message and any other required documents
must, in any case, be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the guaranteed delivery procedure described below must be complied with.
Delivery of the Letter of Transmittal and any other required documents to a
Book-Entry Transfer Facility does not constitute delivery to the Depositary.
Except as otherwise provided below, all signatures on a Letter of Transmittal
must be guaranteed by a firm which is a member of a registered national
securities exchange or the National Association of Securities
4
<PAGE>
Dealers, Inc., or by a commercial bank or trust company having an office or
correspondent in the United States (each, an "Eligible Institution").
Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter
of Transmittal is signed by the registered holder of the Shares tendered
therewith and such holder has not completed the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. See Instructions 1 and 5 of the
Letter of Transmittal.
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates evidencing such Shares are not immediately available
or such stockholder cannot deliver such Shares and all other required documents
to the Depositary by the Expiration Date, or such stockholder cannot complete
the procedure for delivery by book-entry transfer on a timely basis, such
Shares may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Purchaser is received by the
Depositary (as provided below) by the Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the Book-
Entry Transfer Facilities), together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantee or an Agent's Message and any other documents required
by the Letter of Transmittal, are received by the Depositary within five
New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING THROUGH BOOK-ENTRY TRANSFER FACILITIES, IS AT THE OPTION
AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED.
Under the federal income tax laws, the Depositary will be required to
withhold 31% of the amount of any payments made to certain stockholders
pursuant to the Offer. In order to avoid such backup withholding, each
tendering stockholder must provide the Depositary with such stockholder's
correct taxpayer identification number and certify that such stockholder is not
subject to such backup withholding by completing the Substitute Form W-9
included in the Letter of Transmittal (see Instruction 10 of the Letter of
Transmittal) or by filing a Form W-9 with the Depositary prior to any such
payments. If the stockholder is a nonresident alien or foreign entity not
subject to back-up withholding, the stockholder must give the Depositary a
completed Form W-8 Certificate of Foreign Status prior to receipt of any
payments.
By executing a Letter of Transmittal, a tendering stockholder irrevocably
appoints designees of the Purchaser as such stockholder's proxies in the manner
set forth in the Letter of Transmittal to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by the Purchaser (and any and all other Shares or other securities
issued or issuable in respect of such Shares on or after July 1, 1994, other
than any New McKesson Shares distributed in respect of the Shares in connection
with the Spin-Off). All such proxies shall be irrevocable and coupled with an
interest in the tendered Shares. Such appointment is effective only upon the
acceptance for payment of such Shares by the Purchaser. Upon such acceptance
for payment, all prior proxies and consents granted by such stockholder with
respect to such Shares and other securities will, without further action, be
revoked, and no subsequent
5
<PAGE>
proxies may be given nor subsequent written consents executed by such
stockholder (and, if given or executed, will be deemed ineffective). Such
designees of the Purchaser will be empowered to exercise all voting and other
rights of such stockholder as they, in their sole discretion, may deem proper
at any annual, special or adjourned meeting of the Company's stockholders, by
written consent or otherwise. The Purchaser reserves the right to require that,
in order for Shares to be validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser is able to exercise full
voting rights with respect to such Shares and other securities (including
voting at any meeting of stockholders then scheduled or acting by written
consent without a meeting).
The Company has advised Parent and the Purchaser that it expects that
commencing on and after the Spin-Off Record Date and up to the date New
McKesson Shares are distributed pursuant to the Spin-Off, the Shares will trade
on the NYSE with due bills attached. These due bills will entitle a purchaser
of a Share to receive one New McKesson Share upon the distribution thereof.
Stockholders of the Company need not tender their due bills in order for their
Shares to be accepted for exchange and the Purchaser will not accept any due
bills pursuant to the Offer.
A tender of Shares pursuant to any one of the procedures described above will
constitute the tendering stockholder's acceptance of the terms and conditions
of the Offer, as well as the tendering stockholder's representation and
warranty that such stockholder has the full power and authority to tender and
assign the Shares tendered, as specified in the Letter of Transmittal. The
Purchaser's acceptance for payment of Shares tendered pursuant to the Offer
will constitute a binding agreement between the tendering stockholder and the
Purchaser upon the terms and subject to the conditions of the Offer.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Purchaser, in its sole discretion, which
determination shall be final and binding. The Purchaser reserves the absolute
right to reject any or all tenders of Shares determined by it not to be in
proper form or the acceptance for payment of or payment for which may, in the
opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any defect or irregularity in any tender of Shares.
No tender of Shares will be deemed to have been properly made until all defects
and irregularities relating thereto have been cured or waived. The Purchaser's
interpretation of the terms and conditions of the Offer in this regard will be
final and binding. None of the Purchaser, Parent, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defect or irregularity in tenders or incur any
liability for failure to give any such notification.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders
are irrevocable, except that they may be withdrawn after September 12, 1994
unless theretofore accepted for payment as provided in this Offer to Purchase.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must
specify the name of the person who tendered the Shares to be withdrawn and the
number of Shares to be withdrawn and the name of the registered holder of the
Shares, if different from that of the person who tendered such Shares. If the
Shares to be withdrawn have been delivered to the Depositary, a signed notice
of withdrawal with (except in the case of Shares tendered by an Eligible
Institution) signatures guaranteed by an Eligible Institution must be submitted
prior to the release of such Shares. In addition, such notice must specify, in
the case of Shares tendered by delivery of certificates, the name of the
registered holder (if different from that of the tendering stockholder) and the
serial numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at one of the Book-Entry Transfer Facilities to be
credited with the withdrawn Shares. Withdrawals may not be rescinded, and
Shares withdrawn will thereafter be deemed not validly tendered for purposes of
the Offer. However, withdrawn Shares may be retendered by again following one
of the procedures described in Section 3 at any time prior to the Expiration
Date.
6
<PAGE>
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. None of the
Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defect or
irregularity in any notice of withdrawal or incur any liability for failure to
give any such notification.
5. CERTAIN TAX CONSIDERATIONS. The following summary addresses the material
federal income tax consequences to holders of Shares who sell their Shares in
the Offer. The summary does not address all aspects of federal income taxation
that may be relevant to particular holders of Shares and thus, for example, may
not be applicable to holders of Shares who are not citizens or residents of the
United States or holders of Shares who are employees and who acquired their
Shares pursuant to the exercise of incentive stock options; nor does this
summary address the effect of any applicable foreign, state, local or other tax
laws. The discussion assumes that each holder of Shares holds such Shares as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE PRECISE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF THE PROPOSED TRANSACTIONS.
Tax Consequences of Receipt of Cash and New McKesson Shares. Assuming that
the Purchaser accepts Shares pursuant to the Offer and the Spin-Off and the
Merger are consummated, stockholders who hold their Shares of record on the
Spin-Off Record Date, and who also tender their Shares in the Offer or have
such Shares exchanged for the Merger Price upon consummation of the Merger,
will receive for each such Share consideration consisting of (i) one New
McKesson Share and (ii) $76 in cash. Stockholders who hold their Shares of
record on the Spin-Off Record Date, and who sell such Shares after the date as
of which the Spin-Off shall be effected (the "Distribution Date") other than
pursuant to the Offer or the Merger, will receive consideration consisting of
(i) one New McKesson Share and (ii) the proceeds from the sale of their Shares.
In each of the above-mentioned cases, the receipt of such consideration will be
a taxable transaction for federal income tax purposes, and may also be a
taxable transaction under applicable state, local, foreign and other tax laws.
The foregoing transactions should be treated as a single integrated transaction
in which a holder of Shares receives such consideration in exchange for such
holder's Shares. In such case, a holder of Shares will recognize gain or loss
equal to the difference between (i) the sum of the amount of cash plus the fair
market value of the New McKesson Shares received (which fair market value
likely will equal the average trading value per New McKesson Share on the
Distribution Date) and (ii) such holder's adjusted tax basis for such holder's
Shares. Such gain or loss will be capital gain or loss.
This gain (or loss) will be long-term capital gain (or loss) if, on the date
of the exchange, the stockholder has held his Shares for more than one year. If
a holder of Shares owns more than one block of stock, the consideration
received must be allocated ratably among the blocks in the proportion that the
number of Shares in a particular block bears to the total number of Shares held
by the holder.
It is possible that the Internal Revenue Service might successfully contend
that only the cash was received as payment for the outstanding Shares, and that
the receipt of New McKesson Shares instead should be taxable to the recipient
as a distribution from the Company under Section 301 of the Code. In that case,
the cash received by a holder of Shares would still be treated as received in
exchange for such holder's Shares.
If the receipt of New McKesson Shares were treated as a distribution, the
amount of such distribution would be the fair market value of the New McKesson
Shares on the Distribution Date (which likely will equal the average trading
value per New McKesson Share on the Distribution Date). Under Section 301 of
the Code, the receipt of the New McKesson Shares would be a distribution
taxable as a dividend to the holders of Shares for federal income tax purposes
to the extent of the Company's current and accumulated earnings and profits.
The amount of the distribution that exceeded such earnings and profits would
first be treated as a non-taxable return of capital to the extent of each
stockholder's tax basis in such stockholder's Shares, and such stockholder's
tax basis in such stock would be reduced accordingly (but not below zero), and
thereafter as a capital gain from the sale or exchange of Shares. The
determination of a corporation's
7
<PAGE>
earnings and profits requires complex factual and legal analyses; moreover, the
amount of a corporation's current earnings and profits cannot be determined
until the close of its taxable year. Nonetheless, the Company has informed the
Purchaser that the Company believes, based upon present estimates of its
current and accumulated earnings and profits, that the Company's earnings and
profits would not be sufficient to cover the amount of any such dividend.
With respect to corporate stockholders, to the extent, if any, that the
receipt of New McKesson Shares was treated as a dividend under the foregoing
rules, such dividend generally should be eligible for the 70% "dividends
received deduction." A corporate stockholder's ability to use the dividends
received deduction, however, is subject to a number of limitations, including
those relating to "debt financed portfolio stock" under Section 246A of the
Code and the 46-day holding period requirement of Section 246(c). Moreover,
even if the dividends received deduction were fully available, any such
dividend might constitute an "extraordinary dividend" subject to the provisions
of Section 1059 of the Code, which generally requires a corporation stockholder
which has not held stock for a period of two years prior to the dividend
announcement date to reduce its basis for (thereby increasing its gain on a
subsequent or contemporaneous sale of) such stock by the portion of the
dividend which is untaxed by reason of the dividends received deduction.
Regardless of whether the receipt of the New McKesson Shares is treated as a
taxable exchange or a distribution under Section 301 of the Code, a holder's
tax basis in the New McKesson Shares will be equal to the fair market value of
the New McKesson Shares on the date received.
Dissenters. The Company believes that a holder of Shares who does not sell
such holder's Shares in the Offer or the Merger and perfects such holder's
dissenters' rights probably would recognize capital gain or loss at the
Effective Time equal to the difference between the amount realized by such
holder and such holder's basis in such holder's Shares.
Withholding. Unless a stockholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Code (and regulations promulgated thereunder), such stockholder may be
subject to a "backup" withholding tax of 31% with respect to the amount
received in the Offer, the Merger or as a result of the exercise of the
holder's dissenters rights. Stockholders should contact their brokers to ensure
compliance with such procedures. Foreign stockholders should consult with their
tax advisors regarding withholding taxes in general.
THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED HEREIN
FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH HOLDER OF SHARES IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER, THE MERGER AND THE
SPIN-OFF.
8
<PAGE>
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and traded on The
New York Stock Exchange, Inc. (the "NYSE") and the Pacific Stock Exchange (the
"PSE") under the Symbol "MCK". The following table sets forth, for the periods
indicated, the reported high and low sales prices and dividends paid per share
for the Shares on the NYSE as published in financial sources.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
----- ---- --------
<S> <C> <C> <C>
Year Ended March 31, 1993:
Second Quarter.......... $ 40 $31 1/4 $0.40
Third Quarter........... $ 44 1/4 $36 1/2 $0.40
Fourth Quarter.......... $ 47 1/8 $40 1/2 $0.40
Year Ended March 31, 1994:
First Quarter........... $ 46 3/8 $38 5/8 $0.40
Second Quarter.......... $ 52 3/4 $41 7/8 $0.40
Third Quarter........... $ 57 1/4 $50 1/2 $0.42
Fourth Quarter.......... $ 68 1/2 $52 1/2 $0.42
Year Ending March 31,
1995:
First Quarter........... $ 87 $58 1/2 $0.42
Second Quarter (through
July 14)............... $ 100 $70 3/4 $0.42
</TABLE>
The Merger Agreement prohibits the Company from declaring or paying any
dividend or distribution on the Shares (other than the Spin-Off), except that
the Company may declare and pay to holders of Shares regular quarterly
dividends of not more than $0.42 per Share on the dividend and payment dates
normally applicable to the Shares.
The closing sales price of the Shares as reported by the NYSE was $73 1/4 per
share on July 8, 1994, the last full day of trading prior to the first public
announcement of the Offer.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Delaware
corporation and its principal executive offices are located at McKesson Plaza,
One Post Street, San Francisco, California 94104. The Company principally
operates through its wholly owned Maryland subsidiary of the same name. The
Company conducts its operations through three business segments--Health Care
Services, Water Products and Armor All. The Company's Health Care Services
segment includes the Company's distribution services operation and PCS. Within
the United States and Canada, the distribution services operation is the
largest wholesale distributor of ethical and proprietary drugs and health and
beauty care products. Its products are distributed to chain and independent
drug stores, hospitals, food stores and mass merchandisers throughout the
United States and Canada. PCS provides managed care prescription benefit
services and related prescription drug claims processing to health plan
sponsors. In fiscal 1994, the Health Care Services segment generated 97% of the
Company's total revenues and 76% of its operating profit. The Company's Water
Products segment engages in the processing, sale and delivery of bottled
drinking water and the sale of packaged water to retail stores. The Armor All
segment is the majority-owned Armor All Products Corporation subsidiary, which
is engaged in the development and marketing of branded appearance enhancement
and protection products primarily in the automotive aftermarket.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file
reports and other information with the Securities and Exchange Commission (the
"Commission") relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, options granted to them, the principal holders of
the Company's securities and any material interest of such persons in
transactions with the Company is required to be described in periodic
statements distributed to the Company's stockholders and filed with the
Commission. These reports, proxy statements and other
9
<PAGE>
information, including the Company's Annual Report on Form 10-K for the year
ended March 31, 1994 (the "Company 10-K") and the Schedule 14D-9, should be
available for inspection and copying at the Commission's office at 450 Fifth
Street, N.W., Washington D.C. 20549, and at the regional offices of the
Commission located at 75 Park Place, New York, New York 10007 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of this material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549.
The above information concerning the Company and the information contained
herein regarding the Spin-Off have been taken from or based upon the Company
10-K and other publicly available documents on file with the Commission, other
publicly available information and information provided by the Company.
Although neither the Purchaser nor Parent has any knowledge that would indicate
that such information is untrue, neither the Purchaser nor Parent takes any
responsibility for, or makes any representation with respect to, the accuracy
or completeness of such information or for any failure by the Company to
disclose events that may have occurred and may affect the significance or
accuracy of any such information but which are unknown to the Purchaser or
Parent.
The summary unaudited data for the Retained Business (the "Retained Business
Financial Data") in the following table has been provided to Parent and the
Purchaser by the Company. The Company has advised Parent and the Purchaser that
the Retained Business Financial Data has been derived from the consolidated
financial statements of the Company. This financial data is presented in
considerably less detail than complete financial statements and does not
include all of the disclosures required by generally accepted accounting
principles. Neither Parent nor the Purchaser assumes any responsibility for the
accuracy of the Retained Business Financial Statements.
RETAINED BUSINESS
SUMMARY FINANCIAL INFORMATION--(NOTE 1)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues...................................... $173,495 $111,457 $102,463
Costs and Expenses............................ 128,569 79,370 71,906
-------- -------- --------
Operating Income.............................. 44,926 32,087 30,557
Interest Expense-Net
(Unrelated Parties)-(Note 2)................. 68 73 2,424
-------- -------- --------
Income Before Taxes........................... 44,858 32,014 28,133
Net Income.................................... $ 25,606 $ 18,636 $ 15,748
======== ======== ========
<CAPTION>
MARCH 31
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current Assets................................ $306,467 $140,426 $112,588
Noncurrent Assets............................. 170,679 115,565 107,031
Current Liabilities........................... 346,730 195,321 175,510
Noncurrent Liabilities........................ 9,378 6,301 5,277
-------- -------- --------
Investment and Advances
by the Company-(Note 3)...................... $121,038 $ 54,369 $ 38,832
======== ======== ========
</TABLE>
1.Basis of Presentation
The accompanying consolidated summary financial information includes the
combined financial information of PCS and its consolidated subsidiaries,
and CPA and the Company's investment in Integrated Medical Systems.
10
<PAGE>
2.Cash Management
The Retained Business participates daily in the cash management program
administered by the Company for substantially all cash transactions, except
for transactions related to the Retained Business's contract with the
Federal Employees Program. Under the arrangement with the Company, the
Retained Business remits all cash receipts to the Company and the Company
makes cash available to the Retained Business for all cash disbursements.
As a result, all cash balances in excess of average daily working capital
requirements have been permanently remitted to the Company and there is no
net intercompany interest income or expense reflected in this "Summary
Financial Information."
3.Investment and Advances by the Company
Includes intercompany advances by the Company to the Retained Business to
fund daily working capital requirements under the Company cash management
program described in Note 2.
In the course of the discussions between representatives of Parent and the
Company (see Section 10), the Company provided Parent with projected financial
data for the current fiscal year ending March 31, 1995. This data was not
prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections, and was not
prepared with the assistance of, or reviewed by, independent accountants, and
is included in this Offer to Purchase only because it was provided to Parent.
Neither Parent, the Purchaser nor the Company, nor either of their financial
advisors nor the Dealer Manager assumes any responsibility for the validity,
reasonableness, accuracy or completeness of this projected data. While
presented with numerical specificity, this projected data is based upon a
variety of assumptions relating to the businesses of the Company which may not
be realized and is subject to significant uncertainties and contingencies, many
of which are beyond the control of the Company and, therefore, this projected
data is inherently imprecise, and there can be no assurance that projected
financial results or any valuation assumed therein will be realized. It is
expected that there will be a difference between actual and estimated or
projected results and actual results may vary materially from those shown. The
Company does not intend to update or otherwise revise this projected data prior
to the consummation of the Merger. The projected data set forth below should be
read together with the Retained Business Financial Data included above.
RETAINED BUSINESSPROJECTED FINANCIAL INFORMATION
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR
ENDING
MARCH
31, 1995
--------
<S> <C>
Revenues........................................................ $263,679
Costs and Expenses.............................................. 189,953
--------
Operating Income................................................ 73,726
Interest Expense--Net
(Unrelated Parties)............................................ (391)
--------
Income Before Taxes............................................. 73,335
Taxes on Income................................................. 30,994
--------
Net Income...................................................... $ 42,341
========
</TABLE>
11
<PAGE>
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT. The Purchaser is
a newly formed Delaware corporation and a wholly owned subsidiary of Parent. To
date, Purchaser has not conducted any business other than in connection with
the Offer. Until immediately prior to the time the Purchaser purchases Shares
pursuant to the Offer, it is not anticipated that the Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer. Because the Purchaser is a newly formed corporation and has
minimal assets and capitalization, no meaningful financial information
regarding the Purchaser is available.
Parent is a global, research-based pharmaceutical corporation headquartered
in Indianapolis, Indiana that is engaged in the discovery, development,
manufacture and sale of products to diagnose and treat diseases in human beings
and animals and to increase the efficiency of animal food production. Parent
markets its products in 120 countries. The principal executive offices of
Parent and the Purchaser are located at Lilly Corporate Center, Indianapolis,
Indiana 46285, and their telephone number at that location is (317) 276-2000.
The name, citizenship, business address, principal occupation or employment
and five year employment history of each of the directors and executive
officers of the Purchaser and Parent are set forth in Schedule I hereto.
Set forth below is a summary of certain consolidated financial information
with respect to Parent and its consolidated subsidiaries excerpted or derived
from the information contained in or incorporated by reference into Parent's
Annual Report on Form 10-K for the year ended December 31, 1993 (the "Parent
10-K") and Parent's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994. More comprehensive financial information is included in or
incorporated by reference into the Parent 10-K and other documents filed by
Parent with the Commission, and the financial information summary set forth
below is qualified in its entirety by reference to the Parent 10-K and such
other documents and all the financial information and related notes contained
therein.
ELI LILLY AND COMPANY
SELECTED SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
----------------------- --------------------------
1994 1993 1993 1992 1991
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income Statement Information
Net Sales................. $1,637.0 $1,560.0 $6,452.4 $6,167.3 $5,725.7
Income Before Income Taxes
and Cumulative Effect of
Change in Accounting
Principle................ 482.7 529.8 701.9 1,182.3 1,879.2
Net Income................ 330.7 362.6 480.2 708.7 1,314.7
Earnings per share........ $ 1.14 $ 1.23 $ 1.63 $ 2.41 $ 4.50
Balance Sheet (at end of pe-
riod)
Working Capital........... $1,119.0 $1,169.5 $ 769.1 $ 607.4 $ 667.3
Total Assets.............. 9,809.0 9,055.1 9,623.6 8,672.8 8,298.6
Long-Term Debt............ 854.7 779.7 835.2 582.3 395.5
Stockholders' Equity...... 4,940.9 5,221.1 4,568.8 4,892.1 4,966.1
</TABLE>
Parent is subject to the informational filing requirements of the Exchange
Act and is required to file reports and other information with the Commission
relating to its business, financial condition and other
12
<PAGE>
matters. Information, as of particular dates, concerning Parent's directors and
executive officers, their remuneration, the principal holders of Parent's
securities and any material interest of such persons in transactions with
Parent is required to be described in periodic statements delivered to Parent's
stockholders and filed with the Commission. Such reports and other information,
including the Parent 10-K, may be inspected and copies may be obtained from the
offices of the Commission in the same manner as set forth in Section 7.
In the ordinary course of business, the Company has acted for Parent as a
wholesale distributor of its pharmaceutical products. From April 1, 1991
through June 30, 1994, Parent's net sales to the Company totalled approximately
$1.89 billion. In addition, Parent has entered into an agreement with CPA,
which does business as Clinical Pharmacy Advantage, under which the Parent will
pay rebates to CPA based on reimbursements by CPA with respect to certain of
Parent's drugs. In return, CPA has made these drugs available to patients for
whom it manages a prescription drug benefit. As of June 30, 1994, no payments
had been made by Parent under this agreement. Parent's Lilly Health Plan, a
self-funded employee medical plan, has contracted with PCS for prescription
claims administration services. Since the inception of this arrangement in
January 1994 through June 30, 1994, claims of approximately $5.8 million have
been processed, and administration fees have totalled approximately $187,000.
Finally, since 1992, Parent has contracted with Technology Assessment Group
("TAG"), a partnership in which the Company has a minority ownership interest,
for consulting services in the area of health economics. Total payments to TAG
under those arrangements through June 30, 1994 have been approximately
$260,000.
Except as set forth in this Offer to Purchase, none of Parent, the Purchaser
or any of their affiliates (collectively the "Purchaser Entities"), or, to the
best knowledge of any of the Purchaser Entities, any of the persons listed on
Schedule I, has any contract, arrangement, understanding or relationship with
any other person with respect to any securities of the Company, including, but
not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any securities of the Company, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies. Except as set
forth in this Offer to Purchase, none of the Purchaser Entities, or, to the
best knowledge of any of the Purchaser Entities, any of the persons listed on
Schedule I, has had, since April 1, 1991, any business relationships or
transactions with the Company or any of its executive officers, directors or
affiliates that would require reporting under the rules of the Commission.
Except as set forth in this Offer to Purchase, since April 1, 1991, there have
been no contacts, negotiations or transactions between the Purchaser Entities,
or their respective subsidiaries or, to the best knowledge of any of the
Purchaser Entities, any of the persons listed on Schedule I, and the Company or
its affiliates, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors or a sale or other
transfer of a material amount of assets. None of the Purchaser Entities or, to
the best knowledge of any of the Purchaser Entities, any of the persons listed
on Schedule I, beneficially owns any Shares or has effected any transactions in
the Shares in the past 60 days.
9. SOURCE AND AMOUNTS OF FUNDS. The total amount of funds required by the
Purchaser to acquire all outstanding Shares pursuant to the Offer and the
Merger, to consummate the transactions contemplated by the Merger Agreement,
and to pay fees and expenses related to the Offer and the Merger is estimated
to be approximately $4.1 billion. These funds are expected to be provided to
the Purchaser in the form of equity contributions or borrowings from Parent.
Parent intends to obtain the necessary funds from its general corporate funds
and from borrowings of approximately $4.0 billion. Parent intends to borrow
these funds through the private sale of commercial paper to institutional
investors or from banks pursuant to new credit facilities. Parent anticipates
that such indebtedness will be repaid from a variety of sources, which may
include, but may not be limited to, funds generated internally by Parent and
its affiliates, proceeds from the divestiture of Parent's Medical Devices and
Diagnostics Division businesses, proceeds from the sale of other assets of
Parent, bank refinancing, and the public or private sale of debt securities.
Decisions concerning the method of repayment will be made based on Parent's
review from time to time of the advisability of particular actions and on
prevailing interest rates and market conditions. The Offer is not conditioned
upon obtaining the financing described herein.
13
<PAGE>
10. BACKGROUND OF THE OFFER; THE MERGER AGREEMENT; THE SPIN-OFF; THE RIGHTS
AGREEMENT.
BACKGROUND OF THE OFFER
In October 1993, Parent contacted the Company to determine if the Company
wished to discuss possible alliances in broad terms, including the possibility
of Parent's taking a minority equity position in the Company or the Retained
Business. At that time, the Company indicated that it would not be an
appropriate time for the Company to engage in such discussions.
In early May, Parent contacted the Company to express an interest in a
strategic alliance between Parent and the Company, and proposed purchasing a
minority equity interest in the Retained Business to be followed by additional
equity investments based upon the performance of the Retained Business. The
Company advised Parent that it was not interested in pursuing such proposal and
that the Company would not pursue further discussions at that time.
At a meeting on May 23, 1994, Parent's board of directors authorized the
sending of a letter to the Company setting forth a proposal for exploring a
possible acquisition of the Retained Business. After that meeting, Randall L.
Tobias, Chairman and Chief Executive Officer of Parent, sent such a letter to
Alan Seelenfreund, Chairman and Chief Executive Officer of the Company.
Following delivery of the May 23 letter, the Company and Parent, and their
respective advisors, had a number of discussions, primarily to clarify Parent's
position concerning the terms of a possible transaction.
On May 31, 1994, the Company contacted Parent to express an interest in
exploring the possible sale of the Retained Business to Parent.
The Company and Parent entered into a Confidentiality Agreement on June 8,
1994 pursuant to which Parent agreed to keep certain information furnished to
Parent by the Company confidential and for a period of three years to abide by
certain "standstill" provisions. Parent subsequently obtained various financial
and other information regarding the Retained Business.
At a meeting on June 20, 1994, members of senior management updated Parent's
board of directors with respect to the discussions with the Company. Parent's
board authorized continued negotiations, subject to future board approval of
the definitive terms of a transaction.
Following Parent's review of certain financial and other information
regarding the Retained Business and other due diligence, and various
discussions between the Company and Parent and their respective financial and
legal advisors, on June 21, 1994, Mr. Tobias and James M. Cornelius, Vice
President--Finance and Chief Financial Officer of Parent, met with Mr.
Seelenfreund and David L. Mahoney, Vice President--Strategic Planning of the
Company, to discuss the terms of a possible acquisition of the Retained
Business by Parent. Following such meeting, the parties agreed to instruct
their management and advisors to seek to negotiate a mutually acceptable
agreement concerning a sale of the Retained Business.
Throughout the remainder of June and early July 1994, Parent and the Company
and their respective legal and financial advisors negotiated the terms of a
possible transaction.
On July 8, 1994, the board of directors of Parent held a meeting and, after a
review of the transaction with senior management, Lehman Brothers and Parent's
legal advisors, approved the Merger Agreement, the Ancillary Agreements (as
defined below) and the transactions contemplated thereby. At a meeting on July
10, 1994, the board of directors of the Company approved the Merger Agreement,
the Ancillary Agreements and the transactions contemplated thereby. Later that
day, the parties thereto executed and delivered the Merger Agreement and the
Ancillary Agreements.
14
<PAGE>
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement. A
copy of the Merger Agreement (with certain Exhibits omitted) is attached hereto
as Exhibit A and is incorporated herein by reference. Such summary is qualified
in its entirety by reference to the Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer by the
Purchaser. The Purchaser has agreed to accept for payment and pay for all
Shares tendered pursuant to the Offer as soon as practicable following the
Spin-Off Record Date and to extend the Offer until the first business day
following the Spin-Off Record Date. The Spin-Off Record Date is not expected to
occur before the end of August. The obligation of Purchaser to accept for
payment and pay for Shares tendered pursuant to the Offer is subject to the
satisfaction of the Spin-Off Condition, the Minimum Condition and certain other
conditions that are described in Section 15. The Purchaser has agreed that,
without the written consent of the Company, no amendment to the Offer may be
made which changes the form of consideration to be paid or decreases the price
per Share or the number of Shares sought in the Offer or which imposes
conditions to the Offer in addition to the Spin-Off Condition, the Minimum
Condition and the other conditions described in Section 15 or broadens the
scope of such conditions, and no other amendment may be made in the terms or
conditions of the Offer which is adverse to holders of Shares.
The Merger. The Merger Agreement provides that, following the purchase of
Shares pursuant to the Offer, and the satisfaction or waiver of the other
conditions to the Merger, the Purchaser will be merged with and into the
Company. The Merger will become effective at such time as a certificate of
merger or, if applicable, a certificate of merger and ownership, is filed with
the Secretary of State of the State of Delaware (the "Effective Time").
At the Effective Time, (i) except as provided in (ii) below, each Share
issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive $76.00 in cash, or any higher price paid
per Share in the Offer, without interest (the "Merger Price"); (ii) (a) each
Share held in the treasury of the Company or held by any subsidiary of the
Company (other than a subsidiary that will be owned directly or indirectly by
the Company following the Spin-Off (the "Retained Subsidiaries")) and each
Share held by Parent or any subsidiary of Parent immediately prior to the
Effective Time will be cancelled and retired and cease to exist; (b) each Share
held by any Retained Subsidiary will be converted into and exchanged for a
number of fully paid and nonassessable shares of common stock of the Surviving
Corporation equal to the same percentage of the total number of issued and
outstanding shares of Surviving Corporation common stock immediately following
the Effective Time as the Shares owned by such Retained Subsidiary bore to the
total number of issued and outstanding Shares immediately prior to the
Effective Time; (c) each Share held by any holder who has not voted in favor of
the Merger, has delivered a written demand for appraisal of such Shares and
perfected such appraisal rights, all in accordance with Section 262 of the
General Corporation Law of the State of Delaware (the "GCL") will not be
converted into or be exchangeable for the right to receive the Merger Price
(the "Dissenting Shares"); and (iii) each share of common stock of the
Purchaser issued and outstanding immediately prior to the Effective Date will
be converted into and exchangeable for one share of common stock of the
Surviving Corporation.
In addition, at the Effective Time, (i) all options to acquire Shares ("Stock
Options") which are outstanding and exercisable immediately prior to the
Effective Time and which are held by any employee or former employee or
director or former director of the Company or any of its subsidiaries will be
cancelled and the holder thereof will be entitled to receive from the Company
for each Share subject to such Stock Option, an amount in cash equal to the
difference between the Merger Price and the exercise price per share of such
Stock Option, less all applicable withholding taxes and (ii) all Stock Options
which are outstanding but not exercisable immediately prior to the Effective
Time and which are held by any Retained Employee (as hereinafter defined) will
be cancelled in exchange for the issuance by Parent, within ten days after the
Effective Time, to such Retained Employee of that number of shares of common
stock of Parent ("Parent Common Stock"), rounded up or down to the nearest
whole share, equal to the quotient obtained by dividing
15
<PAGE>
(a) the product of (1) the difference between the Merger Price and the exercise
price per share of such Stock Options held by such Retained Employee and (2)
the number of Shares subject to such Stock Options, by (B) the average of the
high and low prices per share of Parent Common Stock on the NYSE (the "Parent
Stock Price") on the date of the consummation of the Merger. The shares of
Parent Common Stock so issued will be subject to certain restrictions on
transfer. If on the date that such restrictions lapse with respect to any
shares of Parent Common Stock issued to a Retained Employee in the Merger, the
Parent Stock Price is less than the Parent Stock Price on the date of
consummation of the Merger, Parent will pay or will cause the Surviving
Corporation to pay to such Retained Employee (or to such Retained Employee's
estate or beneficiary, if applicable), within ten days after such restrictions
lapse, in cash or, at Parent's option, in additional shares of Parent Common
Stock (valued based on the Parent Stock Price on the date such restrictions
lapse), an additional amount, less all applicable withholding taxes, such that
the sum of (A) the value (as of such date) of the shares of Parent Common Stock
the restrictions on which lapse on such date plus (B) the value (as of such
date) of the payment made as described in this sentence will be equal to the
product of (1) the number of shares of Parent Common Stock the restrictions on
which lapse on such date and (2) the Parent Stock Price on the date of
consummation of the Merger. Under certain circumstances such restricted shares
will be forfeited if such Retained Employee voluntarily terminates his or her
employment with the Surviving Corporation or Parent (or any affiliate thereof)
other than for "good reason" (as such term is used in certain severance
agreements). The Distribution Agreement contains certain provisions with
respect to Stock Options held by persons other than Retained Employees, which
provisions are described in the Schedule 14D-9.
Also at the Effective Time, (i) pursuant to the equitable adjustment
provisions of the Company's 1988 Restricted Stock Plan, as amended (the "1988
Plan"), cash otherwise payable under the Merger Agreement in respect of Shares
granted to a New McKesson Employee (as defined in the Distribution Agreement)
under the 1988 Plan, with respect to which the restrictions have not lapsed as
of the Effective Time will be transferred by the Company to, and retained by,
New McKesson and will be payable to such New McKesson Employee, subject to the
conditions otherwise applicable with respect to the lapsing of restrictions on
such Shares, at such time or times when such restrictions would otherwise have
lapsed, together with interest thereon from the Effective Time through the date
of payment at the rate in effect from time to time under the Company's Deferred
Compensation Administration Plan II (DCAP II) (or any successor plan thereto);
provided, however, that each such New McKesson Employee will have the right to
elect to defer receipt of any amount otherwise payable after December 31, 1995,
under such terms and conditions as New McKesson may provide and (ii) pursuant
to the equitable adjustment provisions of the 1988 Plan, Shares granted to
Retained Employees under the 1988 Plan with respect to which the restrictions
have not lapsed as of the date on which the Purchaser accepts for payment and
pays for the Shares tendered pursuant to the Offer (the "Offer Purchase Date")
will be returned to the Company on the day following the Offer Purchase Date,
and restricted shares of New McKesson issued to Retained Employees in the Spin-
Off under the Spinco Stock Plan (as defined in the Distribution Agreement) in
respect of such Shares will be returned to New McKesson on such day.
In consideration of the actions described in clause (ii) of the preceding
paragraph, Parent will issue to each such Retained Employee, within ten days
after the Effective Time, a number of shares of Parent Common Stock, rounded up
or down to the nearest whole share, equal to the quotient obtained by dividing
(A) the sum of (1) the amount of cash which would have been payable to such
Retained Employee under the Merger Agreement in respect of such Shares had such
Shares been outstanding immediately prior to the Effective Time (the "Cash
Consideration") plus (2) the product of (x) the number of shares of New McKesson
Shares issued to such Retained Employee in the Spin-Off in respect of such
Shares (the "New McKesson Restricted Shares") and (y) the New McKesson Value (as
defined in the Distribution Agreement), by (B) the Parent Stock Price on the
date of consummation of the Merger. Notwithstanding the foregoing, in the case
of any Retained Employee who is, with respect to the Company, subject to the
reporting requirements of Section 16 of the Exchange Act, the New McKesson
Restricted Shares described herein will not be returned to New McKesson on the
day following the Offer Purchase Date (but will remain outstanding for a period
of six months and a day thereafter (the "Post-Offer Period"), at which time such
New McKesson Restricted
16
<PAGE>
Shares will be returned to New McKesson), and Parent will issue to each such
Retained Employee (A) within ten days after the Effective Time, a number of
whole shares of Parent Common Stock, rounded up or down to the nearest whole
share, equal to the quotient obtained by dividing (1) the Cash Consideration by
(2) the Parent Stock Price on the date of consummation of the Merger, and (B)
within ten days after the end of the Post-Offer Period, a number of whole
shares of Parent Common Stock, rounded up or down to the nearest whole share,
equal to the quotient obtained by dividing (3) the product of (x) the New
McKesson Restricted Shares of such Retained Employee and (y) the average of the
high and low prices of New McKesson Shares on the last day of the Post-Offer
Period, by (4) the Parent Stock Price on the last day of the Post-Offer Period.
The shares of Parent Common Stock issued as described in the preceding two
sentences will be subject to the same terms and conditions as the shares of
Parent Common Stock issued to Retained Employees as described in clause (ii) of
the third paragraph under the heading "The Merger" above.
The Series Preferred Shares issued and outstanding immediately prior to the
Effective Time will be converted at the Effective Time into the right to
receive the amount of cash that would have been receivable by a holder of the
aggregate number of Shares into which such shares of Series Preferred Shares
could have been converted immediately prior to the Effective Time (taking into
account for this purpose the adjustment to the conversion price of such Series
Preferred Shares required to reflect the Spin-Off). The Company has agreed to
use its best efforts to enter into an agreement with the trustee of the
Company's Profit Sharing and Investment Plan, as amended (the "PSIP"), pursuant
to which the trustee would cause all Series Preferred Shares held by the PSIP
to convert into Shares on or prior to the Spin-Off Record Date; provided that
in using such best efforts, the Company shall not be obligated to take any
actions which would be adverse to the Company or pay any amounts in connection
with seeking such agreement.
The Company has agreed to redeem the Cumulative Preferred Shares prior to the
Spin-Off Record Date in accordance with the Company's Restated Certificate of
Incorporation.
The Merger Agreement provides that the certificate of incorporation and by-
laws of the Purchaser at the Effective Time will be the certificate of
incorporation and by-laws of the Surviving Corporation. The Merger Agreement
also provides that the directors of the Purchaser at the Effective Time will be
the directors of the Surviving Corporation and the officers of the Purchaser at
the Effective Time will be the officers of the Surviving Corporation.
Recommendation. In the Merger Agreement, the Company states that the Board of
Directors has (i) determined that the Offer, the Merger and the Spin-Off are
fair to and in the best interests of the stockholders of the Company and (ii)
resolved to recommend acceptance of the Offer and approval and adoption and of
the Merger Agreement by the Company's stockholders.
Interim Agreements of Parent, Purchaser and the Company. Pursuant to the
Merger Agreement, the Company has covenanted and agreed that, during the period
from the date of the Merger Agreement to the date directors designated by
Parent in accordance with the Merger Agreement constitute in their entirety a
majority of the Company's Board of Directors (the "Board Reorganization"), the
Company and its subsidiaries will each conduct the operations of the Retained
Business according to its ordinary course of business, consistent with past
practice, and will conduct the operations of all businesses other than the
Retained Business in such a manner that would not have a Material Adverse
Effect (as defined in the Merger Agreement) and, with respect to the Retained
Business, will use its commercially reasonable efforts to (i) preserve intact
its business organization, (ii) maintain its material rights and franchises,
(iii) keep available the services of its officers and key employees, and (iv)
keep in full force and effect insurance comparable in amount and scope of
coverage to that maintained as of the date of the Merger Agreement.
Without limiting the generality of and in addition to the foregoing, and
except as otherwise contemplated by the Merger Agreement, prior to the Board
Reorganization, neither the Company nor any of its subsidiaries will, without
the prior written consent of Parent: (a) except for New McKesson and its
subsidiaries, amend its charter or by-laws; (b) subject to certain exceptions,
authorize for issuance, issue, sell, deliver or agree or commit to issue, sell
or deliver (whether through the issuance or granting of options, warrants,
commitments,
17
<PAGE>
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or amend any of the terms of any such securities (subject to
certain exceptions); (c) other than with respect to any subsidiary which is not
a Retained Subsidiary split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock or redeem or otherwise acquire any of its securities or any securities of
its subsidiaries; provided that the Company may declare and pay to holders of
(i) Shares regular quarterly dividends of not more than $.42 per Share on the
dividend declaration and payment dates normally applicable to the Shares and
(ii) preferred stock of the Company any dividends required to be paid thereon
in accordance with the express provisions thereof; (d) except for New McKesson
or any of its subsidiaries (i) incur, assume or prepay any long-term debt or,
except in the ordinary course of business under existing lines of credit,
incur, assume, or prepay any material short-term debt; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for any material obligations of any other person
except wholly owned subsidiaries of the Company in the ordinary course of
business and consistent with past practices; (iii) make any material loans,
advances or capital contributions to, or investments in, any other person
(other than loans or advances to subsidiaries and customary loans or advances
to employees in accordance with past practices); (iv) change the Retained
Business' practices with respect to the timing of payments or collections; (v)
pledge or otherwise encumber shares of capital stock of the Company or any of
its subsidiaries that conduct the Retained Business (other than that of New
McKesson and its subsidiaries); or (vi) mortgage or pledge any of the assets,
tangible or intangible, of the Retained Business, or create or permit to exist
any material lien thereon, other than in the ordinary course of business
consistent with past practices; (e) except as disclosed in the Merger Agreement
and except for arrangements with new or existing Retained Employees entered
into in the ordinary course of business consistent with past practices, enter
into, adopt or materially amend any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans,
funds or other arrangements of or for the benefit or welfare of any Retained
Employee (or any other person for whom the Retained Business will have
liability), or (except for normal increases in the ordinary course of business
that are consistent with past practices) increase in any manner the
compensation or fringe benefits of any Retained Employee (or any other person
for whom the Retained Business will have liability) or pay any benefit not
required by any existing plan and arrangement (including, without limitation,
the granting of stock options, stock appreciation rights, shares of restricted
stock or performance units) or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing; (f) transfer, sell, lease, license
or dispose of any assets relating to the Retained Business outside the ordinary
course of business or any assets which are material, in the aggregate, to the
Retained Business or enter into any material commitment or transaction with
respect to the Retained Business outside the ordinary course of business; (g)
acquire or agree to acquire, by merging or consolidating with, by purchasing an
equity interest in or a portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets of any other person (other than the purchase of assets in the ordinary
course of business and consistent with past practice), in each case where such
action would, individually, be material to the Retained Business; (h) except as
may be required by law, take any action to terminate or materially amend any of
its employee benefit plans with respect to or for the benefit of Retained
Employees or any other person for whom the Retained Business will have
liability; (i) materially modify, amend or terminate (except pursuant to the
terms thereof) any of the material contracts of the Retained Business or waive
any material rights or claims of the Retained Business, except in the ordinary
course of business; (j) effect any material change in any of its methods of
accounting in effect as of March 31, 1994, except as may be required by law or
generally accepted accounting principles; (k) enter into any material
arrangement, agreement or contract with any third party (other than customers
in the ordinary course of business consistent with past practices) which
provides for an exclusive arrangement with that third party; and (l) take, or
agree in writing or otherwise to take, any of the foregoing actions.
Notwithstanding any of the foregoing and in addition to any other rights of
the Company and its subsidiaries, the Company and its subsidiaries shall have
the right to take any of the actions prohibited as
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described in clauses (a) and (d) through (1) of the preceding paragraph if such
actions would not, either individually or in the aggregate, adversely impact
the Retained Business or the consummation of any of the material transactions
contemplated pursuant to the Merger Agreement.
Other Agreements of Parent, the Purchaser and the Company. In the Merger
Agreement, the Company has agreed that the Company and its officers, directors,
employees, representatives and agents will immediately cease any existing
discussions or negotiations with any parties conducted prior to the date of the
Merger Agreement with respect to any Acquisition Proposal. The Company and its
subsidiaries may not, and will use their best efforts to cause their respective
officers, directors, employees and investment bankers, attorneys, accountants
or other agents retained by the Company or any of its subsidiaries not to, (i)
initiate or solicit, directly or indirectly, any inquiries or the making of any
Acquisition Proposal, or (ii) except as permitted below, engage in negotiations
or discussions with, or furnish any information or data to any third party
relating to an Acquisition Proposal. Notwithstanding anything to the contrary
contained in the Merger Agreement, the Company and the Board of Directors of
the Company (i) may furnish information to, and participate in discussions or
negotiations (including, as a part thereof, making any counterproposal) with,
any third party which submits a written Acquisition Proposal to the Company if
the Company's Board of Directors determines in good faith, based upon the
advice of counsel, that the failure to furnish such information or participate
in such discussions or negotiations may reasonably constitute a breach of the
Board's fiduciary duties under applicable law, and (ii) may (A) take and
disclose to the Company's stockholders a position with respect to the Offer,
the Merger or the Spin-Off or another tender or exchange offer by a third
party, or amend or withdraw such position, pursuant to Rules 14d-9 and 14e-2
under the Exchange Act or (B) make disclosure to the Company's stockholders, in
each case either with respect to or as a result of an Acquisition Proposal, or
if the Company's Board of Directors determines in good faith, based upon the
advice of counsel, that the failure to take such action may reasonably
constitute a breach of the Board's fiduciary duties under, or otherwise
violate, applicable law; provided that the Company may not enter into any
acquisition agreement with respect to any Acquisition Proposal except
concurrently with or after the termination of the Merger Agreement and may not
enter into any other agreements with respect to an Acquisition Proposal except
concurrently with or after such termination unless, and only to the extent
that, such other agreements would facilitate the process of providing
information to, or conducting discussions or negotiations with, the party
submitting such an Acquisition Proposal, such as confidentiality and standstill
agreements. The Company will promptly provide Parent with a copy of any written
Acquisition Proposal received and inform Parent on a reasonable basis of the
status and content of any discussions with such a third party (provided that
the Company shall not be obligated to so provide such information or advise
Parent if the Board determines in good faith, based upon the advice of counsel,
that such action may reasonably constitute a breach of its fiduciary duties
under applicable law). In no event will the Company provide non-public
information regarding the Retained Business to any third party making an
Acquisition Proposal unless such party enters into a confidentiality agreement
containing provisions designed to reasonably protect the confidentiality of
such information. In the event that following the date of the Merger Agreement
the Company enters into a confidentiality agreement with any third party which
does not include terms and conditions which are substantially similar to the
"standstill" provisions of the confidentiality agreement between the Company
and Parent, then Parent and its affiliates will be released from their
obligations under such standstill provisions to the same extent as such third
party.
"Acquisition Proposal" means any bona fide proposal made by a third party to
acquire (i) beneficial ownership (as defined in Rule 13(d) under the Exchange
Act) of a majority equity interest in either the Company or the Retained
Business pursuant to a merger, consolidation or other business combination,
sale of shares of capital stock, tender offer or exchange offer or similar
transaction involving either the Company or the Retained Business, including,
without limitation, any single or multi-step transaction or series of related
transactions which is structured in good faith to permit such third party to
acquire beneficial ownership of a majority or greater equity interest in either
the Company or the Retained Business or (ii) all or substantially all of the
business or assets of either the Company or of the Retained Business (other
than the transactions contemplated by the Merger Agreement); provided, however,
that the term "Acquisition
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Proposal" does not include any transactions which relate solely to the
businesses to be owned by New McKesson and its subsidiaries following the Spin-
Off and which do not have a material adverse effect on the consummation of the
Offer, the Merger, the Spin-Off or the transactions contemplated thereby.
Between the date of the Merger Agreement and the Effective Time, the Company
has agreed to give Parent and its authorized representatives reasonable access
to all offices and other facilities and to all books and records of the Company
and its subsidiaries relating to the Retained Business, will permit Parent to
make such inspections as it may reasonably require and will cause the Company's
officers and those of its subsidiaries to furnish Parent and Purchaser with
such financial and operating data and other information with respect to the
Retained Business as Parent or Purchaser may from time to time reasonably
request or any other financial and operating data which materially impacts the
Retained Business.
Pursuant to the Merger Agreement, the Company has agreed to amend the Rights
Agreement as necessary (i) to prevent the transactions contemplated hereby
(including, without limitation, the announcement of the Offer, the consummation
of the Offer and the Merger) from resulting in the occurrence of a Distribution
Date (as defined in the Rights Agreement) or being deemed to be a Triggering
Event or Section 13 Event (each as defined in the Rights Agreement) and (ii) to
provide that neither Parent nor the Purchaser shall be deemed to be an
Acquiring Person (as defined in the Rights Agreement) or be declared an Adverse
Person (as defined in the Rights Agreement) by reason of such transactions.
The Merger Agreement provides that upon the Purchaser acquiring at least a
majority of the Shares outstanding on a fully diluted basis, Parent will be
entitled to designate for appointment or election to the Company's Board of
Directors, such number of persons so that such designees constitute a majority
of the Company's Board of Directors, and the Company will use its best efforts
to take such actions as may be necessary so as to cause to be appointed or
elected such designees, including, without limitation, increasing the number of
directors and seeking the resignation of incumbent directors.
Pursuant to the Merger Agreement, if required under applicable law in order
to consummate the Merger, the Company will duly call and hold a meeting of its
stockholders for the purposes of voting on the approval of the Merger
Agreement, use its best efforts to obtain the necessary approvals of the Merger
Agreement by its stockholders and, subject to its fiduciary duties, include in
the proxy statement related to such meeting its recommendation to approve the
Merger Agreement. Parent will provide the Company with the information
concerning Parent and the Purchaser required to be included in the proxy
materials to be distributed, if necessary, to the Company's stockholders in
connection with the Merger and will vote, or cause to be voted, all Shares
owned by it or its subsidiaries in favor of approval and adoption of the Merger
Agreement.
In accordance with the Merger Agreement, simultaneously with the execution of
the Merger Agreement, the Company and certain of its subsidiaries entered into
the Distribution Agreement and certain other Ancillary Agreements (see "Spin-
Off" below). In addition, pursuant to the Merger Agreement, the Company has
agreed to use its best efforts to consummate the Spin-Off and distribute the
New McKesson Shares to the holders of Shares as promptly as practicable.
Parent has also agreed in the Merger Agreement to cause the Purchaser to
contribute to the Company simultaneously with the consummation of the Offer, a
cash amount in immediately available funds equal to $600 million, that will be
included in the assets contributed to New McKesson by the Company in connection
with the Spin-Off. Such amount shall be subject to adjustment to reflect the
exercise of certain Company employee options and the conversion or redemption
of certain of the Company Preferred Shares.
The Merger Agreement provides that, prior to the Spin-Off, the Company will
use its best efforts to, and will use its best efforts to cause its
subsidiaries to, assign to New McKesson or its subsidiaries or terminate all
employment agreements and severance agreements with officers of the Company who
are not Retained Employees.
The Merger Agreement provides that for a period of three years following the
Effective Time, Parent will cause the Surviving Corporation and its successors
to provide the employees of the Company and its
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subsidiaries remaining with the Company and the Retained Subsidiaries following
the Spin-Off and former employees of the Retained Business (collectively, the
"Retained Employees") with employee benefits, programs, policies and
arrangements which in the aggregate are no less favorable than those provided
by the Company to such Retained Employees immediately prior to the date of the
Merger Agreement. With respect to such benefits, programs, policies and
arrangements, service accrued by such Retained Employees during employment with
the Company and its subsidiaries prior to the Effective Time will be preserved
and maintained for all purposes except to the extent that benefits may be
duplicated. As soon as practicable following the Effective Time, New McKesson
will take all action necessary and appropriate to cause the assets and
liabilities of the Company Retirement Plan (the "Retirement Plan") attributable
to Retained Employees (other than former employees of the Retained Business) to
be transferred, in compliance with Section 414(1) of the Code and the Treasury
Regulations applicable thereto and on terms reasonably satisfactory to Parent
and the Surviving Corporation, to a comparable defined benefit pension plan
sponsored by Parent, the Purchaser or the Surviving Corporation in which such
employees are eligible to participate. The Company and New McKesson will take
all action necessary and appropriate to cause the PSIP, to be assumed by New
McKesson, effective as of the Effective Time. In connection with the actions
contemplated by the preceding sentence, all of the indebtedness of the Company
(and guarantees made by the Company of indebtedness of the trust established
under the PSIP) relating to the unallocated Shares and unallocated Series
Preferred Shares held by the PSIP will be assumed by New McKesson, effective as
of the Effective Time. As soon as practicable after the Effective Time, New
McKesson will take all action necessary and appropriate to cause the account
balances under the PSIP of Retained Employees (other than former employees of
the Retained Business) to be transferred to a defined contribution plan
sponsored by Parent, the Purchaser or the Surviving Corporation in which such
Retained Employees are eligible to participate.
The Merger Agreement provides that the Company, the Purchaser and Parent will
each use its best efforts to consummate the transactions contemplated by the
Merger Agreement and the Ancillary Agreements (as defined below), including,
without limitation, making filings, responding to requests and resolving
objections related to the HSR Act filings. Notwithstanding the foregoing, (i)
neither Parent nor any of its subsidiaries or affiliates will be required to
agree to divest (A) any of their respective businesses, product lines or
assets, if the fair market value of any such businesses, product lines or
assets is, as of the date in question, in excess of $10 million or (B)
following the consummation of the Offer or the Effective Time, any of the
businesses, product lines or assets of the Company or any of the Retained
Subsidiaries and (ii) neither Parent nor any of its subsidiaries or affiliates
will be required to take or agree to take any action or agree to any limitation
which would materially impair Parent's ability to exercise control over or
manage the business and affairs of the Retained Business or materially impair
Parent's ability to obtain the other benefits provided by the Merger Agreement
in order to obtain termination of the waiting period under the HSR Act.
Representations and Warranties. The Merger Agreement contains certain
representations and warranties of the parties including, without limitation,
representations by the Company as to certain changes concerning its business,
undisclosed liabilities, litigation and compliance with law, employee benefit
plans, intellectual property, computer software, certain contracts and
arrangements, and taxes.
Conditions to the Merger. Pursuant to the Merger Agreement, the obligations
of each of Parent, the Purchaser and the Company to effect the Merger are
subject to the satisfaction of certain conditions, including: (a) if required
by applicable law, the Merger Agreement shall have been adopted by the
affirmative vote of the stockholders of the Company by the requisite vote in
accordance with applicable law; (b) no statute, rule, regulation, order,
decree, or injunction shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits or restricts the
consummation of the Merger, (c) any waiting period applicable to the Merger
under the HSR Act shall have terminated or expired; (d) the Spin-Off shall have
been consummated in all material respects; and (e) the Offer shall not have
been terminated in accordance with its terms prior to the purchase of any
Shares.
The obligation of the Company to effect the Merger is further subject to the
satisfaction at or prior to the Effective Time of the following conditions: (a)
the representations and warranties of Parent and the
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Purchaser contained in the Merger Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at and as of such
time; and (b) each of Parent and the Purchaser shall have performed in all
material respects its obligations under the Merger Agreement required to be
performed by it at or prior to the Effective Time pursuant to the terms
thereof.
Except if the Purchaser shall have accepted for payment and paid for Shares
validly tendered pursuant to the Offer or fails to accept for payment any
Shares pursuant to the Offer in violation of the terms thereof, the obligations
of Parent and the Purchaser to effect the Merger are further subject to the
satisfaction at or prior to the Effective Time of the following conditions: (a)
the representations and warranties of the Company contained in the Merger
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as such time; and (b) the Company shall have
performed in all material respects each of its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time
pursuant to the terms thereof.
Termination. The Merger Agreement may be terminated: (a) by mutual written
consent of Parent, the Purchaser and the Company; (b) by either Parent, on the
one hand, or the Company, on the other hand, if the Offer shall expire or have
been terminated in accordance with its terms without any Shares being purchased
thereunder, or the Purchaser shall not have accepted for payment or paid for
Shares validly tendered pursuant to the Offer prior to December 31, 1994; (c)
by Parent, on the one hand, or the Company, on the other hand, if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; (d)
by the Company if, prior to the purchase of Shares pursuant to the Offer,
either (i) a third party shall have made an Acquisition Proposal and the Board
of Directors of the Company determines in good faith, based upon the advice of
counsel, that the failure to pursue such Acquisition Proposal may reasonably
constitute a breach of its fiduciary duties under applicable law, or (ii) other
than in response to an Acquisition Proposal, the Board of Directors of the
Company determines in good faith, based upon the advice of counsel, that the
failure to so terminate the Merger Agreement would present a substantial
likelihood of a breach of its fiduciary duties under applicable law and the
Company notifies Parent of such determination of its Board of Directors at
least 30 days prior to the date of any termination; or (e) by Parent prior to
the purchase of Shares pursuant to the Offer, if the Company or its Board of
Directors shall have (i) withdrawn (including by amendment of the Schedule 14D-
9) its recommendation to the Company's stockholders of the Offer, the Merger
Agreement or the Merger or shall have recommended to the Company's stockholders
that they accept the terms of a Third Party Acquisition (as defined below), or
(ii) a Third Party Acquisition shall have occurred.
Termination Fee. Pursuant to the Merger Agreement, (a) if the Company
terminates the Merger Agreement as described in clause (d)(i) of the preceding
paragraph, the Company will, simultaneously with such termination, pay to
Parent a fee, in cash, of $100 million; (b) if Parent terminates the Merger
Agreement as described in clause (e) of the preceding paragraph and, prior to
such termination or within nine months thereafter, a Third Party Acquisition is
consummated involving any entity or group (other than Parent and the Purchaser
or any affiliate thereof) which is a Higher Offer (as defined below), then the
Company will, on the date of such termination or consummation, pay to Parent a
fee, in cash, of $100 million; (c) if the Company or Parent terminates the
Merger Agreement for any reason other than the bases for terminating the Merger
Agreement as described in clauses (a), (d)(i) or (e) of the preceding paragraph
(unless Parent or the Purchaser shall at the time of such termination be in
material breach, other than a breach which is curable and which Parent and the
Purchaser are using their best efforts to cure), and prior to or within nine
months after the date of such termination a Third Party Acquisition is
consummated involving any entity or group (other than Parent and the Purchaser
or any affiliate thereof) which is a Higher Offer, then the Company will, on
the date of such termination or consummation, pay to Parent a fee, in cash, of
$100 million; (d) if the Company terminates the Merger Agreement as described
in clause (d)(ii) of the preceding paragraph (unless Parent or the Purchaser
shall at the time of such termination be in material breach, other than a
breach which is curable and which Parent and the Purchaser are using their best
efforts to cure), the Company will, simultaneously with such termination, pay
to Parent a fee, in cash, of $40 million.
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"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Exchange Act) or entity other than Parent, the Purchaser or any affiliate
thereof (a "Third Party"); (ii) the acquisition by a Third Party of more than
50% of the total assets of the Company and its subsidiaries, taken as a whole,
or of 50% or more of the total assets of the Retained Business; or (iii) the
acquisition by a Third Party of 50% or more of the outstanding Shares, or 50%
or more of the equity interest in, or the voting power with respect to the
election of directors of, the Retained Business.
"Higher Offer" means any Third Party Acquisition which reflects a higher
value for the Retained Business than the value being provided by Parent
pursuant to the Offer, the Merger and the Additional Agreements (as defined in
the Merger Agreement). In valuing such a Third Party Acquisition, due regard
shall be given to the value to the Company or its stockholders of any
additional arrangements involved in such Third Party Acquisition.
Pursuant to the Merger Agreement, in the event of the termination and
abandonment of the Merger Agreement, the Merger Agreement will become void and
have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than certain provisions of the
Merger Agreement, including the provisions relating to the termination fee and
confidentiality of information, provided, that a party will not be relieved
from liability for any willful breach of the Merger Agreement. Notwithstanding
anything to the contrary contained in the Merger Agreement, upon payment by the
Company of the fees and expenses referred to in Section 8.3 of the Merger
Agreement, the Company will be released from all liability thereunder,
including any liability for any claims by Parent, the Purchaser or any of their
affiliates based upon or arising out of any breach of the Merger Agreement or
any Ancillary Agreement. In no event will the Company be required to pay more
than one fee pursuant to Section 8.3 of the Merger Agreement, provided that if
the Company will have paid the $40 million fee contemplated by Section 8.3(d)
of the Merger Agreement and a $100 million fee will otherwise become payable
pursuant to Section 8.3 of the Merger Agreement, the Company will pay Parent at
that time $60 million.
Costs and Expenses. Except as discussed above, the Merger Agreement provides
that each party will bear its own costs and expenses incurred in connection
with the transactions contemplated by the Merger Agreement.
THE SPIN-OFF
The Merger Agreement contemplates that, prior to the Effective Time pursuant
to the Distribution Agreement, the Company will distribute one New McKesson
Share in respect of each Share outstanding on the Spin-Off Record Date. The
Offer is conditioned upon, among other things, the satisfaction of the Spin-Off
Condition and the Merger is conditioned upon, among other things, the Spin-Off
having been consummated in all material respects. The Spin-Off is conditioned
upon Shares having been accepted for payment pursuant to the Offer. In the
Merger Agreement, the Company has agreed, subject to the provisions of the
Distribution Agreement, to use its best efforts to effect the Spin-Off as soon
as reasonably practicable. Neither Parent nor the Purchaser will acquire New
McKesson Shares with respect to any Shares acquired pursuant to the Offer. The
Company has advised Parent and the Purchaser that, at the time notice of the
Spin-Off Record Date is given, it expects to distribute to holders of Shares
and Company Preferred Shares the Information Statement with respect to the
business, operations and management of New McKesson. In the Distribution
Agreement, the Company and New McKesson have agreed to prepare, and New
McKesson agreed to file and seek to make effective, an application to permit
the listing of the New McKesson Shares either on the NYSE or any other national
securities exchange as selected by New McKesson in its sole discretion.
While neither Parent nor the Purchaser is a party to the Distribution
Agreement, the parties thereto have agreed not to amend the Distribution
Agreement or any of the other agreements entered into in connection with the
Distribution Agreement if such amendment would adversely affect the Retained
Business or New McKesson's performance of its obligations under such agreement
without the prior written consent of Parent. Pursuant to the Distribution
Agreement, New McKesson has agreed, among other things, to
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indemnify the Company, the Purchaser and Parent and each of their respective
directors, officers, employees, representatives, advisors, agents and
affiliates from and after the Purchaser's purchase of Shares pursuant to the
Offer against losses resulting from any breach of any representation or
warranty made by the Company in the Merger Agreement, any breach by the Company
of the covenants and agreements set forth in the Merger Agreement and all
liabilities and obligations of the Company other than those of the Retained
Business. No indemnification for breaches of representations or warranties will
be made by New McKesson unless the aggregate amount of such losses exceeds $10
million and then only to the extent that the aggregate amount exceeds $10
million. In no event will New McKesson's aggregate obligation to indemnify
Parent for breaches of representations, warranties, covenants, or agreements
exceed $200 million, but such limitation shall not apply to willful breach of
covenants and agreements or to failures to pay and discharge liabilities and
obligations of the Company other than those of the Retained Business. Parent's
claims for indemnification for breaches of representations, warranties and
covenants made in the Merger Agreement must be asserted within nine months of
the Offer Purchase Date.
In connection with the Merger Agreement, the parties entered into a Tax
Sharing Agreement, an HDS Services Agreement, a McKesson Services Agreement, a
Memorandum of Understanding and a Non-Competition Agreement (together with the
Distribution Agreement, the "Ancillary Agreements"). The Tax Sharing Agreement
provides, among other things, for the allocation of payment of certain tax
liabilities and entitlement to certain refunds among Parent, the Purchaser, New
McKesson and the Company. Pursuant to the HDS Services Agreement, Healthcare
Delivery Systems, Inc., a Delaware corporation ("HDS"), has agreed to provide,
upon the request of Parent or PCS, certain services relating to drug sampling
and other promotional programs, financial assistance programs for patients,
reimbursement support and patient advocacy programs, clinical trial support
services, and product hot-line programs, to Parent or PCS on terms that are as
favorable as the best terms offered by HDS for comparable services to other HDS
customers. PCS has agreed, among other things, to provide HDS with certain data
processing and transmission services made available to PCS customers as well as
customer support services. Pursuant to the McKesson Services Agreement, PCS has
agreed, among other things, to allow certain New McKesson-affiliated retail
stores to participate in its Restricted and Unrestricted Networks (as defined
in the McKesson Services Agreement) so long as such stores otherwise meet the
requirements for the networks, and to consider in good faith providing New
McKesson with PCS data regarding pharmacies. New McKesson has agreed that if it
contracts with customers to provide managed pharmacy benefits, it will only
provide such benefits through PCS. The Memorandum of Understanding describes a
number of business opportunities that the parties intend to discuss in
developing their business relationship. The areas to be considered include
generics cooperation, managed care support, pharmacy marketing, compliance
programs and wholesale distribution issues. The Non-Competition Agreement
provides that, for a period of five years from the Expiration Date, New
McKesson will not engage anywhere in the world (except Mexico) in any activity
in competition in any material respect with the businesses acquired by Parent
pursuant to the Offer and the Merger, subject to specified exceptions.
The foregoing summary of the Ancillary Agreements does not purport to be
complete and is qualified in its entirety by reference to the text of the
Ancillary Agreements, a copy of each of which is filed as an Exhibit to the
Tender Offer Statement on Schedule 14D-1 filed by Parent and the Purchaser with
the Commission (the "Schedule 14D-1") and is incorporated herein by reference.
The Schedule 14D-1 may be inspected and copies may be obtained from the offices
of the Commission in the same manner as set forth in Section 7.
THE RIGHTS AGREEMENT
Pursuant to the Rights Agreement, on May 7, 1986 the Board of Directors of
McKesson Corporation, a Maryland corporation ("McKesson--Maryland"), declared a
dividend distribution of one Original Right for each share of its common stock
outstanding at the close of business on May 29, 1986. On October 1, 1986, a
two-for-one split of the common stock of McKesson--Maryland became effective
and the Original Rights thereafter outstanding were automatically
proportionately adjusted so that each share of split common stock was
accompanied by one-half of an Original Right. Pursuant to a Plan and Agreement
of Reorganization
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dated as of June 15, 1987 between McKesson Acquisition Company, McKesson--
Maryland and the Company and an Agreement of Merger dated as of June 15, 1987
each share of then outstanding split common stock was converted into one share
of Common Stock. Each Right issued pursuant to the amended Rights Agreement
entitles the registered holder to purchase from the Company one one-hundredth
of a share of Series A Junior Preferred Stock at a price of $175.00, subject to
adjustment.
Until the earliest to occur of (i) ten business days following the date (the
"Stock Acquisition Date") of public announcement that a person or group of
affiliated or associated persons acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of the Common
Stock (an "Acquiring Person"), (ii) ten business days following the
commencement or first public announcement of the intent of any person to
commence a tender offer or exchange offer if, upon consummation thereof, such
person would have beneficial ownership of 20% or more of the shares of Common
Stock then outstanding or (iii) ten business days following a determination by
the Board of Directors that (x) a person or group of affiliated or associated
persons (such person or group, being called an "Adverse Person") has, at any
time after May 7, 1986, become the beneficial owner of an amount of Common
Stock that the Board of Directors determines is substantial and (y) such
beneficial ownership is causing or is reasonably likely to cause a material
adverse impact on the business or prospects of the Company or is intended to
cause the Company to take action which the Board of Directors determines is not
in the best long-term interests of the Company and its stockholders (the
earliest of such dates being called the "Distribution Date"), the Rights are
evidenced by the certificates evidencing the Common Stock. Until the
Distribution Date, the Rights will be transferred with and only with the
Shares. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of Shares as of the close of business on the Distribution
Date and such separate Right Certificates alone will evidence the Rights. Right
Certificates shall represent only whole numbers of Rights and cash will be paid
in lieu of any fractional Rights. The Rights are not exercisable until the
Distribution Date. The Rights will expire at the close of business on May 29,
1996 unless earlier redeemed by the Company as described below.
In the event that (i) a person becomes the beneficial owner of 20% or more of
the then outstanding shares of Common Stock (except pursuant to an offer for
all outstanding shares of Common Stock that the independent directors determine
to be fair to and otherwise in the best interests of the Company and its
stockholders) or (ii) the Board of Directors determines that a person is an
Adverse Person, each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company having a value equal to two times
the exercise price of the Right). Any Rights beneficially owned by an Acquiring
Person or an Adverse Person shall be null and void. Rights are not exercisable
following the occurrence of either of the events set forth above until such
time as the Rights are no longer redeemable by the Company as set forth below.
In the event that, at any time following the Stock Acquisition Date, (i) the
Company consolidates with, or merges with or into, any other person, with some
exceptions in the case of consolidation or merger with a subsidiary of the
Company, and the Company is not the surviving corporation of such consolidation
or merger, (ii) any person, with some exception in the case of a subsidiary of
the Company, consolidates with, or merges with or into, the Company, and the
Company is the surviving corporation and, in connection with such consolidation
or merger, all or part of the outstanding shares of Common Stock are changed or
converted into or exchanged for stock or other securities of any other Person
or cash or any other property or (iii) more than 50% of the Company's assets,
cash flow or earning power is sold or transferred, each holder of a Right
(except Rights which previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right. The events set forth in this paragraph and in the preceding paragraph
are referred to as the "Triggering Events."
At any time prior to the earlier of (i) the close of business on the tenth
day following the Stock Acquisition Date and (ii) May 29, 1996, the Company may
redeem the Rights in whole, but not in part, at a price of $.05 per Right (the
"Redemption Price").
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Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
Other than those provisions relating to the Redemption Price, the Final
Expiration Date, the Purchase Price or the number of one one-hundredths of a
share of Preferred Stock for which a Right is exercisable, any of the
provisions of the Rights Agreement may be amended by the Board of Directors of
the Company prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Board in order to cure
any ambiguity, defect or inconsistency, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person or Adverse Person), or, with certain limitations, to shorten
or lengthen any time period under the Rights Agreement.
Because (i) the Offer is an offer to purchase all of the outstanding Shares
and the Board has unanimously determined that the Offer described herein is
fair to and in the best interests of the Company's stockholders and (ii) on
July 10, 1994, the Board of Directors approved amending the Rights Agreement in
accordance with the terms of the Merger Agreement, the acquisition of Shares
pursuant to the Offer or the consummation of the Merger will not (a) cause any
person to become an Acquiring Person or an Adverse Person, (b) cause the
Distribution Date to occur or (c) give rise to a Triggering Event.
11. PURPOSE OF THE OFFER, THE MERGER AND THE SPIN-OFF; PLANS FOR THE COMPANY.
Purpose of the Offer. The purpose of the Offer, the Merger and the Spin-Off
is for the Purchaser to acquire control of the entire equity interest of the
Retained Business. Consummation of the Offer will provide the Purchaser with at
least a majority equity interest in the Company. As described above, as a
result of the Spin-Off, the Company will continue to own only the Retained
Business. The Merger will allow the Purchaser to acquire all outstanding Shares
not tendered and purchased pursuant to the Offer. The acquisition of the entire
equity interest in the Retained Business has been structured as a cash tender
offer followed by the Spin-Off and a cash merger in order to provide a prompt
and orderly transfer of ownership of the Retained Business from the public
stockholders to Parent and to provide stockholders with cash and New McKesson
Shares for all their Shares. The purchase of Shares pursuant to the Offer will
increase the likelihood that the Merger will be effected. Parent expects that
after completion of the Offer, Parent will consider entering into possible
arrangements with others regarding participation in the ownership of the
Retained Business or regarding the inclusion of the Retained Business in
possible marketing alliances. There can be no assurance that any such
arrangements will occur.
Except as noted in this Offer to Purchase, neither Parent nor the Purchaser
has any present plans or proposals that would result in an extraordinary
corporate transaction, such as a merger, reorganization, liquidation,
relocation of operations, or sale or transfer of assets, involving the Company
or any of its subsidiaries, or any material changes in the Company's corporate
structure or business or the composition of its management or personnel.
12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK EXCHANGE LISTING;
REGISTRATION UNDER THE EXCHANGE ACT; REDEMPTION OF CUMULATIVE PREFERRED
SHARES. The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and may reduce the number of holders
of Shares, which could adversely affect the liquidity and market value of the
remaining Shares held by stockholders other than the Purchaser. The Purchaser
cannot predict whether the reduction in the number of Shares that might
otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause
future market prices to be greater or less than the Offer price.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE and the PSE for
continued listing and may, therefore, be delisted from such exchanges.
According to the NYSE's published guidelines, the NYSE could consider delisting
the Shares if, among other things, the number of publicly held Shares
(excluding Shares held by officers, directors, their immediate families and
other concentrated holdings of 10% or more) were less than 600,000, there were
less
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than 1,200 holders of at least 100 shares or the aggregate market value of the
publicly held Shares were less than $5 million. According to the PSE's
published guidelines, the PSE could consider delisting the Shares if, among
other things, there were fewer than 100,000 publicly held Shares exclusive of
management and other concentrated holdings, there were fewer than 500 record
holders, there were fewer than 200 holders of record of at least 100 Shares or
the aggregate market value of publicly held Shares (exclusive of management and
other concentrated holdings) should fall below $500,000 for a six month period.
If, as a result of the purchase of Shares pursuant to the Offer, the Shares no
longer meet the requirements of the NYSE or the PSE for continued listing and
the listing of Shares on such exchanges is discontinued, the market for the
Shares could be adversely affected.
If the NYSE and the PSE were to delist the Shares, it is possible that the
Shares would trade on another securities exchange or in the over-the-counter
market and that price quotations for the Shares would be reported by such
exchange or through NASDAQ or other sources. The extent of the public market
for the Shares and availability of such quotations would, however, depend upon
such factors as the number of holders and/or the aggregate market value of the
publicly held Shares at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act and other factors.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, the Shares might no
longer constitute "margin securities" for the purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as
collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such registration
may be terminated if the Shares are not listed on a national securities
exchange and there are fewer than 300 holders of record. Termination of the
registration of the Shares under the Exchange Act would substantially reduce
the information required to be furnished by the Company to holders of Shares
and to the Commission and would make certain of the provisions of the Exchange
Act, such as the short-swing profit recovery provisions of Section 16 (b), the
requirement of furnishing a proxy or information statement in connection with
stockholder action and the related requirement of an annual report to
stockholders and the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions, no longer applicable to the Shares.
Furthermore, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of the ability to dispose of such
securities pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"). If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be "margin securities"
or eligible for listing on a securities exchange or NASDAQ reporting. It is the
current intention of Parent to deregister the Shares and the Company Preferred
Shares after consummation of the Offer if the requirements for termination of
registration are met.
The Company has agreed to redeem all outstanding Cumulative Preferred Shares
prior to the Spin-Off Record Date in accordance with the terms of the
instruments governing the Cumulative Preferred Shares. Upon the completion of
such redemption, Cumulative Preferred Shares will cease to be registered under
the Exchange Act and such deregistration will have the same effect on the
Cumulative Preferred Shares as the effect on the Shares of deregistration under
the Exchange Act described above.
13. DIVIDENDS AND DISTRIBUTIONS. If, on or after the date of the Merger
Agreement, the Company should (i) split, combine or otherwise change the Shares
or its capitalization, (ii) issue or sell any additional securities of the
Company or otherwise cause an increase in the number of outstanding securities
of the Company (except for Shares issuable upon the exercise of employee stock
options outstanding on the date of the Merger Agreement) or (iii) acquire
currently outstanding Shares or otherwise cause a reduction in the number of
outstanding Shares, then, without prejudice to the Purchaser's rights under
Sections 1 and 15, the Purchaser, in its sole discretion, subject to the terms
of the Merger Agreement, may make such adjustments as it deems appropriate in
the purchase price and other terms of the Offer.
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If, on or after the date of the Merger Agreement, the Company should declare
or pay any dividend on the Shares or make any distribution (including, without
limitation, cash dividends, the issuance of additional Shares pursuant to a
stock dividend or stock split, the issuance of other securities or the issuance
of rights for the purchase of any securities, but excluding any regular
quarterly dividend on the Shares of not more than $0.42 per share on the
dividend and payment dates normally applicable to the Shares) with respect to
the Shares, other than New McKesson Shares payable or distributable in respect
of the Shares in connection with the Spin-Off, that is payable or distributable
to stockholders of record on a date prior to the transfer to the name of the
Purchaser or its nominee or transferee on the Company's stock transfer records
of the Shares purchased pursuant to the Offer, then, without prejudice to the
Purchaser's rights under Sections 1 and 15, any such dividend, distribution or
right to be received by the tendering stockholders will be received and held by
the tendering stockholders for the account of the Purchaser and will be
required to be promptly remitted and transferred by each tendering stockholder
to the Depositary for the account of the Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, the Purchaser will be entitled to all rights and privileges as owner of
any such dividend, distribution or right and may withhold the entire purchase
price or deduct from the purchase price the amount or value thereof, as
determined by the Purchaser in its sole discretion.
14. EXTENSION OF TENDER PERIOD; AMENDMENT; TERMINATION. The Purchaser
expressly reserves the right, in its sole discretion, at any time or from time
to time, regardless of whether or not any of the events set forth in Section 15
shall have occurred or shall have been determined by the Purchaser to have
occurred, subject to the terms of the Merger Agreement and applicable rules of
the Commission, (i) to extend the period of time during which the Offer is open
and thereby delay acceptance for payment of, and the payment for, any Shares,
by giving oral or notice of such extension to the Depositary and (ii) to amend
the Offer in any respect by giving oral or written notice of such amendment to
the Depositary. In the Merger Agreement, Parent and the Purchaser have agreed
not to extend the Expiration Date beyond the first business day following the
Record Date without the prior written consent of the Company unless one or more
of the conditions set forth in Section 15 shall not be satisfied or unless
Parent reasonably determines, with the prior approval of the Company (such
approval not to be unreasonably withheld or delayed) that such extension is
necessary to comply with any legal or regulatory requirements relating to the
Offer. In addition, the Purchaser has agreed in the Merger Agreement not to
amend the terms or conditions of the Offer to change the form of consideration
to be paid or decrease the price per Share or the number of Shares sought in
the Offer or to impose conditions to the Offer in addition to those set forth
in Section 15 or broaden the scope of such conditions or to otherwise amend the
terms and conditions of the Offer in a manner adverse to the holders of Shares.
The rights reserved by the Purchaser in this paragraph are in addition to the
Purchaser's rights to terminate the Offer pursuant to Section 15. Any
extension, amendment or termination will be followed as promptly as practicable
by public announcement thereof, the announcement in the case of an extension to
be issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date in accordance with the public
announcement requirements of Rules 14d-4(c) and 14e-1(d) under the Exchange
Act. Any reduction in the purchase price pursuant to the Merger Agreement will
be considered an amendment to the Offer, and will be followed by the
appropriate announcement. Without limiting the obligation of the Purchaser
under such Rules or the manner in which the Purchaser may choose to make any
public announcement, the Purchaser currently intends to make announcements by
issuing a release to the Dow Jones News Service or the Reuters News Service.
The Purchaser also reserves the right, in its sole discretion, subject to the
terms of the Merger Agreement, in the event any of the conditions specified in
Section 15 shall not have been satisfied and so long as Shares have not
theretofore been accepted for payment, to delay (except as otherwise required
by applicable law) acceptance for payment of or payment for Shares or to
terminate the Offer and not accept for payment or pay for Shares.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the
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Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer, the Depositary may retain tendered shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described in Section 4.
However, the ability of the Purchaser to delay the payment for Shares which the
Purchaser has accepted for payment is limited by Rule 14e-1 (c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including the Minimum Condition), the Purchaser will disseminate additional
tender offer materials and extend the Offer to the extent required by Rules
14d-4(c) and 14d-6 (d) under the Exchange Act. The minimum period during which
the Offer must remain open following material changes in the terms of the Offer
or information concerning the Offer, other than a change in price or a change
in percentage of securities sought, will depend upon the facts and
circumstances, including the relative materiality of the terms or information.
With respect to a change in price or a change in percentage of securities
sought, a minimum ten business day period is generally required to allow for
adequate dissemination to stockholders and investor response. If prior to the
Expiration Date, the Purchaser should decide to increase the price per Share
being offered in the Offer, such increase will be applicable to all
stockholders whose Shares are accepted for payment pursuant to the Offer. As
used in this Offer to Purchase, "business day" means any day other than
Saturday, Sunday or a federal holiday and consists of the time period from
12:01 A.M. through 12:00 Midnight, New York City time as computed in accordance
with Rule 14d-l under the Exchange Act.
15. CERTAIN CONDITIONS TO THE OFFER. Notwithstanding any other provision of
the Offer, the Purchaser shall not be required to purchase any Shares tendered,
and may terminate the Offer, if (i) immediately prior to the expiration of the
Offer (as extended in accordance with the terms of the Offer), (A) any
applicable waiting period under the HSR Act shall not have expired or been
terminated, (B) the Spin-Off Condition shall not have been satisfied or (C) the
Minimum Condition shall not have been satisfied, or (ii) on or after July 10,
1994 and prior to the acceptance for payment of Shares, any of the following
events shall occur:
(a) any of the representations or warranties of the Company contained in
the Merger Agreement shall not have been true and correct at the date when
made or (except for those representations and warranties made as of a
particular date which need only be true and correct as of such date) shall
cease to be true and correct at any time prior to consummation of the
Offer, except where the failure to be so true and correct would not,
individually or in the aggregate, have a material adverse effect on the
business, results of operations or financial condition of the Retained
Business (a "Material Adverse Effect"); provided that, if any such failure
to be so true and correct is curable by the Company through the exercise of
its best efforts and for so long as the Company continues to use such best
efforts, the Purchaser may not terminate the Offer under this clause (a);
or
(b) the Company shall have breached any of its covenants or agreements
contained in the Merger Agreement, except for any such breaches that,
individually or in the aggregate, would not have a Material Adverse Effect;
provided that, if any such breach is curable by the Company through the
exercise of its best efforts and for so long as the Company continues to
use such best efforts, the Purchaser may not terminate the Offer under this
clause (b); or
(c) there shall be any statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered, or enforced or any legal or
administrative proceeding initiated by any United States federal or state
government, governmental authority or court, which would (i) prohibit the
Purchaser from consummating the Offer, the Merger or the Spin-Off, (ii)
impose any material adverse limitation on the ability of Parent to exercise
full rights of ownership of the Shares or to control the Retained Business
or (iii) have a Material Adverse Effect (provided that the provisions of
this clause (iii) shall only apply in the event of any statute, rule,
regulation, decree, order or injunction (A) which is enacted or entered
into following the date of the Merger Agreement and (B) the substantive
provisions of which were initially proposed for enactment following the
date of the Merger Agreement ; or
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(d) there shall have been any damage, destruction or loss affecting the
facilities or properties (tangible or intangible) owned or used by the
Retained Business, which would result in a Material Adverse Effect;
provided that, if any such damage, destruction or loss is curable by the
Company through the exercise of its best efforts and for so long as the
Company continues to use such best efforts, the Purchaser may not terminate
the Offer under this clause (d); or
(e) there shall have occurred (i) any general suspension of trading in
securities on the NYSE, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, or (iii) a
commencement of a war or armed hostilities involving the United States,
which in the case of any of the foregoing clauses (i), (ii) or (iii) would
have a Material Adverse Effect; or
(f) any person, entity or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) has become the beneficial owner (as that term
is defined in Rule 13d-3 under the Exchange Act) of more than thirty
percent (30%) of the Shares outstanding on a fully diluted basis, or has
been granted any option or right, condition or otherwise, to acquire or
vote more than thirty percent (30%) of the Shares; or
(g) the Merger Agreement shall have been terminated in accordance with
its terms.
The foregoing conditions are for the sole benefit of the Purchaser and may be
asserted by the Purchaser regardless of the circumstances giving rise to such
conditions, or may be waived by the Purchaser in whole or in part at any time
and from time to time in its sole discretion; provided that the conditions set
forth in clauses (i)(A), (B) and (C) or (ii)(g) above may be waived only by
mutual consent of the Purchaser and the Company.
16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS. Except as described in this
Section 16, based on a review of publicly available filings by the Company with
the Commission and other publicly available information concerning the Company,
neither Parent nor the Purchaser is aware of any license or regulatory permit
that appears to be material to the business of the Company and its
subsidiaries, taken as a whole, that might be adversely affected by the
acquisition of Shares by the Purchaser or Parent pursuant to the Offer, the
Merger or otherwise or of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required prior to the acquisition of Shares by the Purchaser or Parent
pursuant to the Offer, the Merger or otherwise. Should any such approval or
other action be required, Parent and the Purchaser currently contemplate that
it will be sought. While the Purchaser does not currently intend to delay the
acceptance for payment of Shares tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that adverse consequences might not result to the
business of the Company or the Purchaser Entities or that certain parts of the
business of the Company or the Purchaser Entities might not have to be disposed
of in the event that such approvals were not obtained or any other actions were
not taken. The Purchaser's obligation under the Offer to accept for payment and
pay for Shares is subject to certain conditions, including conditions relating
to the legal matters discussed in this Section 16. See Section 15.
State Takeover Statutes. The Company is incorporated under the laws of the
State of Delaware. Section 203 of the GCL limits the ability of a Delaware
corporation to engage in business combinations with "interested stockholders"
(defined as any beneficial owner of 15% or more of the outstanding voting stock
of the corporation) unless, among other things, the corporation's board of
directors has given its prior approval to either the business combination or
the transaction which resulted in the stockholder becoming an "interested
stockholder." The Company has represented in the Merger Agreement that it
properly elected that Section 203 of the GCL be inapplicable to the Company. At
a meeting on July 10, 1994, the Board of Directors approved the Merger
Agreement, the Merger, the Offer and the Purchaser's purchase of Shares
pursuant to the Offer. Accordingly, the provisions of Section 203 of the GCL
have been satisfied with respect to the Offer and the Merger and such
provisions will not delay the consummation of the Merger.
A number of other states adopted "takeover" statutes that purport to apply to
attempts to acquire corporations that are incorporated in such states, or whose
business operations have substantial economic
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effects in such states, or which have substantial assets, security holders,
employees, principal executive offices or places of business in such states.
In Edgar v. MITE Corporation, the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Act,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. However, in CTS Corp. v. Dynamics
Corp. of America, the Supreme Court held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquirer from voting on the affairs of
a target corporation without prior approval of the remaining stockholders,
provided that such laws were applicable under certain conditions, in
particular, that the corporation has a substantial number of stockholders in
the state and is incorporated there.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted "takeover"
statutes. The Purchaser does not know whether any of these statutes will, by
their terms, apply to the Offer, and has not complied with any such statutes
other than those adopted by the State of Delaware. To the extent that certain
provisions of these statutes purport to apply to the Offer, the Purchaser
believes that there are reasonable bases for contesting such statutes. If any
person should seek to apply any state takeover statute, the Purchaser would
take such action as then appears desirable, which action may include
challenging the validity or applicability of any such statute in appropriate
court proceedings. If it is asserted that one or more takeover statutes apply
to the Offer, and it is not determined by an appropriate court that such
statute or statutes do not apply or are invalid as applied to the Offer, the
Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities, and the Purchaser might be
unable to purchase or pay for Shares tendered pursuant to the Offer, or be
delayed in continuing or consummating the Offer. In such case, the Purchaser
may not be obligated to accept for payment or pay for Shares tendered. See
Section 15.
Antitrust. Under the HSR Act, certain acquisitions may not be consummated
unless information has been furnished to the Federal Trade Commission and the
Antitrust Division of the Department of Justice and certain waiting period
requirements have been satisfied. The Offer and the acquisition of Shares
pursuant to the Merger Agreement are subject to the HSR Act, which provides
that certain acquisition transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission ("FTC")
and certain waiting period requirements have been satisfied. On July 11, 1994
Parent filed a Notification and Report Form with respect to the Offer.
Under the provisions of the HSR Act applicable to the Offer, the purchase of
Shares under the Offer may not be consummated until the expiration of a 15-
calendar day waiting period following the filing by Parent. Accordingly, the
waiting period with respect to the Offer will expire at 11:59 p.m., New York
City time, on July 26, 1994, unless Parent receives a request for additional
information or documentary material, or the Antitrust Division and the FTC
terminate the waiting period prior thereto. If, within such 15-day waiting
period, either the Antitrust Division or the FTC requests additional
information or material from Parent concerning the Offer, the waiting period
will be extended and would expire at 11:59 p.m., New York City time, on the
tenth calendar day after the date of substantial compliance by Parent with
such request. Only one extension of the waiting period pursuant to a request
for additional information is authorized by the HSR Act. Thereafter, such
waiting period may be extended only by court order or with the consent of
Parent. The Purchaser will not accept for payment Shares tendered pursuant to
the Offer unless and until the waiting period requirements imposed by the HSR
Act with respect to the Offer have been satisfied. See Section 15.
No separate HSR Act waiting period requirements with respect to the Merger
Agreement will apply, so long as the 15-day waiting period expires or is
terminated. Thus, all Shares may be acquired pursuant to the Offer at the
close of the 15-day waiting period or on the tenth calendar day after the date
of substantial compliance with a request for additional information.
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The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of
Shares pursuant to the Offer and the Merger Agreement. At any time before or
after the Purchaser's acquisition of Shares, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the acquisition
of Shares pursuant to the Offer or otherwise or seeking divestiture of Shares
acquired by the Purchaser or divestiture of substantial assets of Parent or its
subsidiaries. Private parties and state attorneys general may also bring legal
action under the antitrust laws under certain circumstances. Based upon an
examination of publicly available information relating to the businesses in
which Parent and the Company are engaged, Parent and the Purchaser believe that
the acquisition of Shares by the Purchaser will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Shares by the Purchaser on antitrust grounds will not be made
or, if such a challenge is made, of the result. See Section 15 for certain
conditions to the Offer, including conditions with respect to litigation and
certain governmental actions.
Commission Approval of Information Statement. The Company intends to file the
Information Statement with the Commission as part of a registration statement
of the New McKesson Shares under the Exchange Act. The Company may not
distribute the Information Statement or the New McKesson Shares until the
Commission has reviewed such registration statement and declared it effective.
Margin Rules. The Purchaser and Parent believe that the requirements of the
margin regulations promulgated by the Federal Reserve Board are not applicable
to the financing of the Offer and the Merger.
Short-Form Merger. Section 253 of the GCL would permit the Merger to occur
without a vote of the Company's stockholders (a "short-form merger") if the
holders of all of the outstanding Series Preferred Shares were to convert their
Series Preferred Shares into Shares prior to the Expiration Date and the
Purchaser were to acquire at least 90% of all of the outstanding Shares in the
Offer. If all such holders convert their Series Preferred Shares and the
Purchase acquires 90% or more of the outstanding Shares in the Offer, the
Purchaser intends to cause the Merger to occur as a short-form merger.
17. FEES AND EXPENSES. Parent and the Purchaser have engaged Lehman Brothers
to act as financial advisor to Parent and as Dealer Manager in connection with
the Offer. Parent has agreed to pay Lehman Brothers $1 million as compensation
for its services as Dealer Manager and additional amounts for its services as
financial advisor, which additional amounts are in part contingent upon the
consummation of the Offer. The Purchaser also has agreed to reimburse Lehman
Brothers for its expenses, including reasonable counsel fees, and to indemnify
it against certain liabilities and expenses, including certain liabilities
under the federal securities laws.
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent and Citibank, N.A. to act as the Depositary in connection with the Offer.
The Information Agent may contact holders of Shares by mail, telephone, telex,
facsimile, telegraph and personal interview and may request brokers, dealers,
commercial banks, trust companies and other nominees to forward the Offer
material to beneficial owners. The Information Agent and Depositary each will
receive reasonable and customary compensation for their services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under the federal securities laws. The Depositary
has not been retained to make solicitations or recommendations in connection
with the Offer.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or other persons for soliciting tenders of Shares pursuant to
the Offer (other than the fees of the Dealer Manager and the Information
Agent). Brokers, dealers, commercial banks and trust companies will be
reimbursed by the Purchaser for reasonable expenses incurred by them in
forwarding material to their customers.
18. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction in which
the making of the Offer is not in compliance with applicable law. If the
Purchaser becomes aware of any jurisdiction in which the
32
<PAGE>
making of the Offer would not be in compliance with applicable law, the
Purchaser will make a good faith effort to comply with any such law. If, after
good faith effort, the Purchaser cannot comply with any such law, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
holders of Shares residing in such jurisdiction. In those jurisdictions where
securities or blue sky laws require the Offer to be made by a licensed broker
or dealer, the Offer is being made on behalf of the Purchaser by the Dealer
Manager or one or more registered brokers or dealers which are licensed under
the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR PARENT NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-l
and any amendments thereto, including exhibits, may be inspected and copies may
be obtained at the same places and in the same manner as set forth in Section 7
(except they will not be available at the regional offices of the Commission).
ECO ACQUISITION CORPORATION
July 15, 1994
33
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of Parent
and certain other information are set forth below. Unless otherwise indicated
below, the address of each director and officer is c/o Eli Lilly and Company,
Lilly Corporate Center, Indianapolis, Indiana 46285. No information is provided
in the right-hand column where the individual has occupied the position
indicated in the middle column for the past five years and holds no outside
directorships. Unless otherwise indicated, each occupation set forth opposite
an individual's name refers to employment with Parent. All directors and
officers listed below are citizens of the United States except Sidney Taurel,
who is a citizen of Spain. Parenthetical years indicate the year the individual
was elected or appointed to the position or office or his or her tenure
therein. Directors are identified by a single asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE
NAME POSITIONS AND OFFICES (PAST FIVE YEARS);
(AGE AT 3/14/94) HELD WITH PARENT OUTSIDE DIRECTORSHIPS
---------------- --------------------- ------------------------
<S> <C> <C>
Steven C. Beering, M.D.* Director (1983) President, Purdue University c/o
(61) Office of the President, Purdue
University, 1031 Hovde Hall, West
Lafayette, Indiana 47907-1031
(1983); Director of American United
Life Insurance Company; Arvin
Industries Inc., and NIPSCO
Industries, Inc.
James M. Cornelius* (50) Vice President and Chief Director of CompuServe Incorporated
Financial Officer
(1983); Director (1986)
James W. Cozad* (67) Director (1989) Retired Chairman of the Board and
Chief Executive Officer, Whitman
Corporation (1990-1992); Vice
Chairman of the Board of Amoco
Corporation (1983-1990); Director of
GATX Corporation; Inland Steel
Industries, Inc.; Sears, Roebuck &
Co. and Whitman Corporation
Mitchell E. Daniels, Jr. President, North Vice President, Corporate Affairs
(44) American Pharmaceutical Division (1990); President and Chief
Operations, Executive Officer of the Hudson
Pharmaceutical Division Institute and of counsel to Baker
(1993) and Daniels (1987-1990); Director of
Acordia, Inc., IPALCO Enterprises,
Inc., Indianapolis Power and Light
Company, and NBD Bank, N.A.
Ronald W. Dollens (47) President, Medical Vice President, Medical Devices and
Devices and Diagnostics Diagnostics Division (1990);
Division (1991) President and Chief Executive
Officer of Advanced Cardiovascular
Systems, Inc., a subsidiary of
Parent (1988)
Michael L. Eagle (46) Vice President, Vice President, Pharmaceutical
Manufacturing (1994) Manufacturing Operations Division
(1993); Vice President, Medical
Devices and Diagnostics Division
(1991); President and Chief
Executive Officer of IVAC
Corporation, a subsidiary of Parent
(1988)
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE
NAME POSITIONS AND OFFICES (PAST FIVE YEARS);
(AGE AT 3/14/94) HELD WITH PARENT OUTSIDE DIRECTORSHIPS
---------------- --------------------- ------------------------
<S> <C> <C>
Brendan P. Fox (50) President, Elanco Animal Vice President, Elanco Animal Health
Health Division (1991) Division (1989); Executive Director,
International Animal Health
Marketing (1987)
Pedro P. Granadillo (46) Vice President, Human Vice President, Pharmaceutical
Resources (1993) Manufacturing Division (1992);
Executive Director, Production
Operations and Manufacturing
Strategy Development (1989);
Director of Manufacturing Strategy
Development (1987)
Karen N. Horn, Ph.D.* Director (1987) Chairman of the Board and Chief
(50) Executive Officer, Bank One,
Cleveland, N.A. c/o Bank One,
Cleveland, N.A., 1255 Euclid Avenue,
Cleveland, Ohio 44115 (1987);
Director of The British Petroleum
Company p.l.c., Rubbermaid
Incorporated and TRW, Inc.
J.B. King (64) Vice President and Director of Indianapolis Water
General Counsel (1987) Company and Bank One, Indianapolis,
N.A.
J. Clayburn La Force, Director (1981) Dean Emeritus, John E. Anderson
Jr., Ph.D.* (65) Graduate School of Management,
University of California at Los
Angeles c/o John E. Anderson
Graduate School of Management,
University of California at Los
Angeles, 405 Hilgard Avenue, Los
Angeles, California 90024 (1978-
1993); Director of Blackrock Funds;
Imperial Credit Industries, Inc.,
Jacobs Engineering Group, Inc.;
Payden and Rygel Fund; Provident
Investment Counsel Funds; Rockwell
International Corporation; Pacific
Corinthian Variable Fund, and The
Timken Company
Kenneth L. Lay, Ph.D.* Director (1993) Chairman of the Board and Chief
(51) Executive Officer, Enron Corporation
c/o Enron Corporation, 1400 Smith
Street, Houston, Texas 77002-7369
(1986 and 1985, respectively);
Director of Compaq Computer
Corporation and Trust Company of the
West
Ben F. Love* (69) Director (1989) Retired Chairman of the Board and
Chief Executive Officer, Texas
Commerce Bancshares, Inc. (1972-
1989); Director of Burlington
Northern Inc., Cox Enterprises,
Inc., El Paso Natural Gas Company,
Mitchell Energy & Development Corp.
and Texas Commerce Bancshares, Inc.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE
NAME POSITIONS AND OFFICES (PAST FIVE YEARS);
(AGE AT 3/14/94) HELD WITH PARENT OUTSIDE DIRECTORSHIPS
---------------- --------------------- ------------------------
<C> <C> <S>
Stephen A. Stitle* (48) Vice President, Vice President, Human Resources
Corporate Affairs (1988-1993); Director of National
(1993); Director (1991) City Corporation and National City
Bank, Indiana
Sidney Taurel* (45) Executive Vice President Executive Vice President,
and President, Pharmaceutical Division (1991-1993);
Pharmaceutical Division President, Eli Lilly International
(1993); Director (1991) Corporation (1986-1991)
W. Leigh Thompson, Chief Scientific Officer Executive Vice President, Lilly
Ph.D., M.D. (55) (1993) Research Laboratories (1992); Group
Vice President, Lilly Research
Laboratories (1988)
Randall L. Tobias* (51) Chairman of the Board Vice Chairman of the Board of
and Chief Executive American Telephone and Telegraph
Officer (1993); Director (AT&T) Company (1986-1993); Chairman
(1986) and Chief Executive Officer of AT&T
International (an AT&T subsidiary)
(1991-1993); Director of Kimberly-
Clark Corporation, Knight-Ridder,
Inc. and Phillips Petroleum Company
August M. Watanabe, Vice President and Vice President of Lilly Research
M.D.* (52) President, Lilly Laboratories and Group Vice
Research Laboratories President of Lilly Research
(1994); Director (1994) Laboratories (1990-1994); faculty
member of the Indiana School of
Medicine (1972-1990); Chairman of
the Department of Medicine (1983-
1990)
Alva O. Way* (64) Director (1980) Chairman of the Board, IBJ Schroder
Bank & Trust Company c/o IBJ
Schroder Bank & Trust Company, One
State Street Plaza, New York, New
York 10004 (1986); Director of and
consultant to Schroder plc, London,
and related companies; Director of
Gould, Inc., McGraw-Hill, Inc.,
Ryder System, Inc.
Richard D. Wood* (67) Retired Chairman of the Chairman of the Board (April 1973-
Board, President and June 1993); Chief Executive Officer
Chief Executive Officer; (April 1973-October 1991); Director
Director (1971) of Amoco Corporation, Chemical
Banking Corporation, The Chubb
Corporation, and Dow Jones &
Company, Inc.
</TABLE>
S-3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
OF THE PURCHASER
The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of
Purchaser and certain other information are set forth below. Unless otherwise
indicated below, the address of each director and officer is c/o Eli Lilly and
Company, Lilly Corporate Center, Indianapolis, Indiana 46285. Unless otherwise
indicated, each occupation set forth opposite an individual's name refers to
employment with Parent. Parenthetical years indicate the year the individual
was elected or appointed to the position or office. All directors and officers
listed below are citizens of the United States.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATION AND
NAME HELD WITH THE PURCHASER** BUSINESS EXPERIENCE
(AGE AT 3/14/94) (YEAR ELECTED) (PAST FIVE YEARS)
---------------- ------------------------- ------------------------
<S> <C> <C>
Charles E. Schalliol President, Director (1994) Executive Director, Corporate
(46) Business Development (1994),
Director of Corporate Business
Development (1992), Director of
Tax Planning (1988)
Edwin W. Miller (48) Vice President, Treasurer Vice President and Treasurer
and Assistant Secretary, (1993), Executive Director of
Director (1994) Finance (1992), Controller of
Financial Operations and Chief
Accounting Officer (1991),
Director of Business Development,
Medical Device and Diagnostics
Division (1988)
Daniel P. Carmichael Vice President, Secretary Secretary and Deputy General
(52) and Assistant Treasurer, Counsel (1989), Deputy General
Director (1994) Counsel (1985)
</TABLE>
S-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 10, 1994
BY AND AMONG
MCKESSON CORPORATION,
ELI LILLY AND COMPANY
AND
ECO ACQUISITION CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE OFFER...................................................... 1
Section 1.1. The Offer.............................................. 1
Section 1.2. Company Actions........................................ 2
Section 1.3. Stockholder Lists...................................... 3
Section 1.4. Composition of the Board of Directors.................. 3
ARTICLE II THE MERGER.................................................... 3
Section 2.1. The Merger............................................. 3
Section 2.2. Effective Time......................................... 3
Section 2.3. Effects of the Merger.................................. 3
Section 2.4. Certificate of Incorporation and By-Laws............... 3
Section 2.5. Directors.............................................. 3
Section 2.6. Officers............................................... 4
Section 2.7. Conversion of Shares................................... 4
Section 2.8. Convertible Securities................................. 4
Section 2.9. Conversion of the Purchaser's Common Stock............. 5
Section 2.10. Stock Options and Stock Awards......................... 5
Section 2.11. Stockholders' Meeting.................................. 6
Section 2.12. Filing of Certificate of Merger........................ 7
Section 2.13. Spinco Cash Payment.................................... 7
ARTICLE III DISSENTING SHARES; EXCHANGE OF SHARES........................ 7
Section 3.1. Dissenting Shares...................................... 7
Section 3.2. Exchange of Shares..................................... 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 8
Section 4.1. Organization........................................... 8
Section 4.2. Capitalization......................................... 9
Section 4.3. Authority Relative to this Agreement................... 9
Section 4.4. Consents and Approvals; No Violations.................. 10
Section 4.5. Absence of Certain Changes............................. 11
Section 4.6. No Undisclosed Liabilities............................. 11
Section 4.7. Reports................................................ 11
Section 4.8. Schedule 14D-9; Offer Documents; Form 10; Information
Statement............................................. 12
Section 4.9. No Default............................................. 12
Section 4.10. Litigation; Compliance with Law........................ 12
Section 4.11. Employee Benefit Plans; ERISA.......................... 13
Section 4.12. Assets; Title to Real Property......................... 14
Section 4.13. Intellectual Property.................................. 15
Section 4.14. Computer Software...................................... 15
Section 4.15. Certain Contracts and Arrangements..................... 15
Section 4.16. Taxes.................................................. 15
Section 4.17. Certain Fees........................................... 16
Section 4.18. No Additional Approvals Necessary...................... 16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
THE PURCHASER................................................. 16
Section 5.1. Organization........................................... 16
Section 5.2. Authority Relative to this Agreement................... 16
Section 5.3. Consents and Approvals; No Violations.................. 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 5.4. Schedule 14D-9; Offer Documents; Proxy Statement; Form
10;
Information Statement................................. 17
Section 5.5. Sufficient Funds....................................... 17
Section 5.6. Beneficial Ownership of Shares......................... 18
ARTICLE VI COVENANTS..................................................... 18
Section 6.1. Conduct of Business of the Company..................... 18
Section 6.2. Acquisition Proposals.................................. 19
Section 6.3. Access to Information.................................. 21
Section 6.4. Best Efforts........................................... 21
Section 6.5. Consents............................................... 21
Section 6.6. HSR Filings............................................ 21
Section 6.7. Public Announcements................................... 23
Section 6.8. Employee Agreements.................................... 23
Section 6.9. Employee Benefits...................................... 23
Section 6.10. Ancillary Agreements; Spin-Off......................... 24
Section 6.11. Retained Business Financial Statements................. 24
Section 6.12. Pre-Closing Consultation............................... 25
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER..................... 25
Section 7.1. Conditions to Each Party's Obligation to Effect the
Merger................................................ 25
Section 7.2. Conditions to the Obligation of the Company to Effect
the Merger............................................ 25
Section 7.3. Conditions to Obligations of Parent and the Purchaser
to Effect the Merger.................................. 25
Section 7.4. Exception.............................................. 26
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER.............................. 26
Section 8.1. Termination............................................ 26
Section 8.2. Effect of Termination.................................. 26
Section 8.3. Fees and Expenses...................................... 27
Section 8.4. Amendment.............................................. 28
Section 8.5. Extension; Waiver...................................... 28
ARTICLE IX MISCELLANEOUS................................................. 29
Section 9.1. Survival............................................... 29
Section 9.2. Entire Agreement....................................... 29
Section 9.3. Governing Law.......................................... 29
Section 9.4. Notices................................................ 29
Section 9.5. Successors and Assigns; No Third Party Beneficiaries... 30
Section 9.6. Counterparts........................................... 30
Section 9.7. Interpretation......................................... 30
Section 9.8. Schedules.............................................. 30
Section 9.9. Legal Enforceability................................... 30
Section 9.10. Specific Performance................................... 30
Section 9.11. Brokerage Fees and Commissions......................... 30
</TABLE>
<TABLE>
<C> <S> <C>
Exhibit A Form of Tax Sharing Agreement--omitted
Exhibit B Form of HDS Services Agreement--omitted
Exhibit C Form of McKesson Services Agreement--omitted
Exhibit D Form of Memorandum of Understanding--omitted
Exhibit E Form of Non-Competition Agreement--omitted
Exhibit F Conditions of the Offer......................................... F-1
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 10, 1994, among McKesson
Corporation, a Delaware corporation (the "Company"), Eli Lilly and Company, an
Indiana corporation ("Parent"), and ECO Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent (the "Purchaser").
WHEREAS, the Boards of Directors of the Company, Parent and the Purchaser
deem it advisable and in the best interests of their respective stockholders
that Parent acquire certain businesses of the Company pursuant to the terms and
conditions set forth in this Agreement;
WHEREAS, as provided herein, and in the Distribution Agreement (as defined
below), the Company will transfer certain businesses to SP Ventures, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("Spinco"),
and distribute to the Company's stockholders (the "Spin-Off") all of the issued
and outstanding shares of common stock, par value $.01 per share, of Spinco;
and
WHEREAS, as set forth in Section 6.10 hereof, as a condition to and in
consideration of the transactions contemplated hereby, the Company, Spinco and
certain other parties are entering or will enter into (a) a Reorganization and
Distribution Agreement dated as of the date hereof (the "Distribution
Agreement"), (b) a Tax Sharing Agreement in the form attached hereto as Exhibit
A (the "Tax Sharing Agreement"), and (c) a HDS Services Agreement, among
Parent, PCS Health Systems, Inc., a Delaware corporation ("PCS"), and
Healthcare Delivery Systems, Inc., a Delaware corporation ("HDS"), in the form
attached hereto as Exhibit B, a McKesson Services Agreement, between PCS and
Spinco, in the form attached hereto as Exhibit C, a Memorandum of Understanding
between Parent and Spinco, in the form attached hereto as Exhibit D (the
"Memorandum of Understanding"), and a Non-Competition Agreement between Parent
and Spinco, in the form attached hereto as Exhibit E (the agreements referred
to in this paragraph (c), hereafter collectively referred to as the "Additional
Agreements" and, together with the Distribution Agreement and the Tax Sharing
Agreement, hereafter collectively referred to as the "Ancillary Agreements");
NOW, THEREFORE, in consideration of the foregoing and the Ancillary
Agreements and the respective representations, warranties, covenants and
agreements set forth herein and therein, the parties hereto agree as follows:
ARTICLE I
THE OFFER
Section 1.1. The Offer. (a) Subject to this Agreement not having been
terminated in accordance with the provisions of Section 8.1 hereof, the
Purchaser shall, and Parent shall cause Purchaser to, as promptly as
practicable, but in no event later than five business days from the date of the
public announcement of the terms of this Agreement, commence an offer to
purchase for cash (the "Offer") any and all of the Company's outstanding shares
of common stock, par value $2.00 per share (the "Shares"), and all preferred
stock purchase rights associated therewith, subject to the conditions set forth
in Exhibit F attached hereto, at a price of not less than $76.00 per Share, net
to the seller in cash. The Purchaser shall, and Parent shall cause the
Purchaser to, (i) subject only to the conditions set forth in Exhibit F hereto,
accept for payment and pay for all Shares tendered pursuant to the terms of the
Offer as promptly as practicable following the record date (the "Record Date")
of the Spin-Off, and (ii) subject only to the conditions set forth in
paragraphs (ii)(a) through (g) of Exhibit F hereto, extend the period of time
the Offer is open until the first business day following the Record Date.
Subject to the provisions set forth herein and in Article III of the
Distribution Agreement, including, without limitation, Section 3.2 thereof, the
Company's Board of Directors shall establish such Record Date and the
Distribution Date (as defined in the Distribution Agreement) at the earliest
reasonably practicable dates. Parent will not, nor will it permit any of its
affiliates to, tender into the Offer any Shares beneficially owned by it, nor,
subject to the preceding sentence of this Section 1.1, will Parent
1
<PAGE>
or Purchaser extend the expiration date of the Offer beyond the twentieth
business day following commencement thereof without the prior written consent
of the Company unless one or more of the conditions set forth in Exhibit F
hereto shall not be satisfied or unless Parent reasonably determines, with the
prior approval of the Company (such approval not to be unreasonably withheld or
delayed) that such extension is necessary to comply with any legal or
regulatory requirements relating to the Offer. The Purchaser expressly reserves
the right to amend the terms or conditions of the Offer, provided that no
amendment may be made which changes the form of consideration to be paid or
decreases the price per Share or the number of Shares sought in the Offer or
which imposes conditions to the Offer in addition to those set forth in Exhibit
F hereto or broadens the scope of such conditions, and no other amendment may
be made in the terms or conditions of the Offer which is adverse to the holders
of Shares. The Company agrees that no Shares held by the Company or any
subsidiary of the Company will be tendered pursuant to the Offer.
Notwithstanding anything to the contrary contained in this Agreement, Parent
and the Purchaser shall not be required to commence the Offer in any foreign
country where the commencement of the Offer, in Parent's reasonable opinion,
would violate the applicable law of such jurisdiction.
(b) On the date of the commencement of the Offer, the Purchaser shall file
with the Securities and Exchange Commission (the "SEC") a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer which will contain an
offer to purchase and form of the related letter of transmittal (together with
any supplements or amendments thereto, the "Offer Documents"). The Company and
its counsel shall be given a reasonable opportunity to review and comment on
the Offer Documents prior to the filing of such Offer Documents with the SEC.
The Purchaser agrees to provide the Company and its counsel in writing with any
comments the Purchaser and its counsel may receive from the SEC or its staff
with respect to the Offer Documents promptly after the receipt thereof.
Section 1.2. Company Actions. (a) The Company hereby consents to the Offer
and represents that its Board of Directors (at a meeting duly called and held)
has unanimously (i) determined as of the date hereof that the Offer, the Merger
(as hereafter defined) and the Spin-Off are fair to the stockholders of the
Company and are in the best interests of the stockholders of the Company and
(ii) resolved to recommend acceptance of the Offer and approval and adoption of
this Agreement by the stockholders of the Company. The Company further
represents that Morgan Stanley & Co. Incorporated has delivered to the Board of
Directors of the Company its opinion that, taken together, the Spin-Off and the
consideration to be received by the holders of Shares in the Offer and the
Merger are fair from a financial point of view to such holders. The Company
hereby agrees to file a Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") containing such recommendations with the SEC (and the
information required by Section 14(f) of the Exchange Act if Parent shall have
furnished such information to the Company in a timely manner) and to mail such
Schedule 14D-9 to the stockholders of the Company no later than 10 business
days following the commencement of the Offer. The Company agrees to provide
Parent and its counsel in writing with any comments the Company may receive
from the SEC or its staff with respect to such Schedule 14D-9 promptly after
receipt thereof.
(b) The Company will, within ten days following announcement of the Offer,
amend the Rights Agreement, dated as of May 7, 1986 (the "Rights Agreement"),
between the Company and Shareholder Services Trust Company (presently First
Chicago Trust Company of New York), as amended and restated, as necessary (i)
to prevent this Agreement or the consummation of any of the transactions
contemplated hereby or by the Distribution Agreement, including without
limitation, the publication or other announcement of the Offer and the
consummation of the Offer and the Merger, from resulting in the distribution of
separate rights certificates or the occurrence of a Distribution Date (as
defined therein) or being deemed to be a Triggering Event (as defined therein)
or a Section 13 Event (as defined therein) and (ii) to provide that neither
Parent nor the Purchaser shall be deemed to be an Acquiring Person (as defined
in the Rights Agreement) or be declared an Adverse Person (as defined in the
Rights Agreement) by reason of the transactions expressly provided for in this
Agreement.
2
<PAGE>
Section 1.3. Stockholder Lists. In connection with the Offer, the Company
will promptly furnish the Purchaser with mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date and shall
furnish the Purchaser with such information and assistance as the Purchaser or
its agents may reasonably request in communicating the Offer to the record and
beneficial holders of Shares.
Section 1.4. Composition of the Board of Directors. In the event that the
Purchaser acquires at least a majority of the Shares outstanding on a fully
diluted basis pursuant to the Offer, Parent shall be entitled to designate for
appointment or election to the Company's Board of Directors, upon written
notice to the Company, such number of persons so that the designees of the
Parent constitute a majority of the Company's Board of Directors. Prior to
consummation of the Offer, the Board of Directors of the Company will either
adopt an amendment to the Company's By-Laws to provide in effect that upon the
request of Parent following the acquisition by the Purchaser of a majority of
the Shares outstanding on a fully diluted basis pursuant to the Offer, the
number of members of the Company's Board of Directors shall be increased to the
extent necessary to provide the persons designated by Parent pursuant to this
Section 1.4 with a majority of the positions on the Board of Directors, or will
obtain the resignation of such number of directors as is necessary to enable
such number of Parent designees to be so elected. In connection therewith, the
Company will mail to the stockholders of the Company the information required
by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder unless such
information has previously been provided to such stockholders in the Schedule
14D-9. Parent and the Purchaser will provide to the Company in writing, and be
solely responsible for, any information with respect to such companies and
their nominees, officers, directors and affiliates required by such Section and
Rule. Notwithstanding the provisions of this Section 1.4, the parties hereto
shall use their respective best efforts to ensure that at least three of the
members of the Company's Board of Directors shall, at all times prior to the
Effective Time (as defined in Section 2.2 hereof) be, Continuing Directors (as
defined in Section 8.4 hereof).
ARTICLE II
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the Delaware General Corporation Law (the "DGCL"), the
Purchaser shall be merged (the "Merger") with and into the Company as soon as
practicable following the satisfaction or waiver of the conditions set forth in
Article VII hereof or on such other date as the parties hereto may agree (such
agreement to require the approval of a majority of the Continuing Directors if
at the time there shall be any Continuing Directors). Following the Merger the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of the Purchaser shall
cease.
Section 2.2. Effective Time. The Merger shall be consummated by filing with
the Delaware Secretary of State a certificate of merger or, if applicable, a
certificate of ownership and merger, executed in accordance with the relevant
provisions of the DGCL (the time the Merger becomes effective being the
"Effective Time").
Section 2.3. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. As of the Effective Time the Company shall be a wholly-owned
subsidiary of Parent.
Section 2.4. Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and By-Laws of the Purchaser as in effect at the Effective Time
shall be the Certificate of Incorporation and By-Laws of the Surviving
Corporation, provided that Article First of the Certificate of Incorporation of
the Surviving Corporation shall be amended to read in its entirety as follows:
"FIRST: The name of the Corporation is PCS Holding Corporation."
Section 2.5. Directors. The directors of the Purchaser at the Effective Time
shall be the initial directors of the Surviving Corporation and will hold
office from the Effective Time until their respective
3
<PAGE>
successors are duly elected or appointed and qualify in the manner provided in
the Certificate of Incorporation and By-Laws of the Surviving Corporation, or
as otherwise provided by law.
Section 2.6. Officers. The officers of the Purchaser at the Effective Time
shall be the initial officers of the Surviving Corporation and will hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise
provided by law.
Section 2.7. Conversion of Shares. (a) At the Effective Time:
(i) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held by Parent or any subsidiary of Parent, Shares
held in the treasury of the Company or held by any subsidiary of the
Company (other than a Retained Subsidiary), and other than Dissenting
Shares (as hereafter defined)), including, without limitation, shares of
restricted stock issued to employees and former employees of the Company
and its subsidiaries (such restricted stock held by employees who, in
connection with the Spin-Off, become employees of Spinco shall remain
outstanding until converted pursuant to this Section 2.7), shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive $76.00 in cash, or any higher price
paid per Share in the Offer (the "Merger Price"), payable to the holder
thereof, without interest thereon, upon the surrender of the certificate
formerly representing such Share (except as provided in Section 2.10(c)
hereof).
(ii) Each Share held in the treasury of the Company or held by any
subsidiary of the Company (other than a Retained Subsidiary) and each Share
held by Parent or any subsidiary of Parent immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be cancelled and retired and cease to exist.
(b) Each Share held by any Retained Subsidiary shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
exchangeable for a number of fully paid and nonassessable shares of common
stock of the Surviving Corporation equal to the same percentage of the total
number of issued and outstanding shares of Surviving Corporation common stock
immediately following the Effective Time as the Shares owned by such Retained
Subsidiary bore to the total number of issued and outstanding Shares
immediately prior to the Effective Time.
Section 2.8. Convertible Securities.
(a) The Company shall give notice to all holders of the Series A Convertible
Preferred Stock (as defined in Section 4.2 hereof) that, on a date, as
designated by the Company, prior to the Effective Time (the "Redemption Date"),
all shares of Series A Convertible Preferred Stock will be called for
redemption, in accordance with Article Four, I. 4 of the Company's Restated
Certificate of Incorporation, at the price provided for therein.
(b) The shares of Series B ESOP Preferred Stock (as defined in Section 4.2
hereof) issued and outstanding immediately prior to the Effective Time shall,
pursuant to the Certificate of Designation, Preferences and Rights of such
Series B ESOP Preferred Stock (the "Certificate"), by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive the amount of cash that would have been receivable by a holder
of the aggregate number of Shares into which such shares of Series B ESOP
Preferred Stock could have been converted immediately prior to the Effective
Time (taking into account for this purpose the adjustment to the conversion
price of such shares of Series B ESOP Preferred Stock required by the
Certificate to reflect the Spin-Off). The Company shall use its best efforts to
enter into an agreement with the trustee (the "Trustee") of the PSIP (as
defined in Section 6.9(c) hereof) pursuant to which the Trustee would cause all
shares of Series B ESOP Preferred Stock held by the PSIP to convert into Shares
on or prior to the Record Date (as such term is defined in the Distribution
Agreement); provided that in using such best efforts, the Company shall not be
obligated to take any actions which would be adverse to the Company or pay any
amounts in connection with seeking such agreement.
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Section 2.9. Conversion of the Purchaser's Common Stock. Each share of common
stock, par value $.01 per share, of the Purchaser issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for one share of common stock of the Surviving Corporation.
Section 2.10. Stock Options and Stock Awards. (a) (i) Exercisable
Options. All options to acquire Shares ("Stock Options") which are outstanding
and exercisable immediately prior to the Effective Time and which are held by
any employee or former employee or director or former director of the Company
or any of its subsidiaries, after taking into account the adjustments and
conversions to such Stock Options and the other matters set forth in Section
8.2(c) of the Distribution Agreement, shall be cancelled as of the Effective
Time and the holder thereof shall be entitled to receive from the Company at
the Effective Time, for each Share subject to such Stock Option, an amount in
cash equal to the difference between the Merger Price and the exercise price
per share of such Stock Option, less all applicable withholding taxes.
(ii) Non-Exercisable Options. All Stock Options which are outstanding but
not exercisable immediately prior to the Effective Time and which are held
by any Retained Employee (as defined in Section 6.9 hereof), after taking
into account the adjustments and conversions to such Stock Options and the
other matters set forth in Section 8.2(c) of the Distribution Agreement,
shall, pursuant to the equitable adjustment provisions of the applicable
Company stock option plan under which such Stock Options were granted, be
cancelled as of the Effective Time in exchange for the issuance by Parent,
within ten days after the Effective Time, to such Retained Employee of that
number of shares of common stock of Parent ("Parent Common Stock"), rounded
up or down to the nearest whole share, equal to the quotient obtained by
dividing (A) the product of (1) the difference between the Merger Price and
the exercise price per share of such Stock Options held by such Retained
Employee and (2) the number of Shares subject to such Stock Options, by (B)
the average of the high and low prices per share of Parent Common Stock on
the New York Stock Exchange (the "Parent Stock Price") on the date of
consummation of the Merger. The shares of Parent Common Stock so issued
shall be subject to restrictions on transfer during the restricted period
set forth below, and any shares of Parent Common Stock then subject to such
restrictions shall be forfeited in the event such Retained Employee
voluntarily terminates his or her employment with the Surviving Corporation
or the Parent (or any affiliate thereof) during such restricted period,
other than any termination on the basis of "good reason" (as used in the
various executive severance agreements currently in effect with executives
of the Company). The restricted period shall commence as of the Effective
Time and shall terminate on the third anniversary thereof; provided, that
restrictions on one-third of the shares of Parent Common Stock so issued
shall lapse on each of the first and second anniversaries of the Effective
Time (unless the Company and any holder of such shares otherwise mutually
agree); and further provided, that all such restrictions shall lapse in the
event of the Retained Employee's death, disability, retirement, involuntary
termination of employment or voluntary termination of employment for good
reason (as defined above) during the restricted period. During the
restricted period, each such Retained Employee shall otherwise be entitled
to all of the rights of a shareholder of Parent, including the right to
vote such shares of Parent Common Stock and the right to receive dividends
thereon. If on the date that the restrictions lapse on any shares of Parent
Common Stock issued to a Retained Employee hereunder, the Parent Stock
Price is less than the Parent Stock Price on the date of consummation of
the Merger, Parent shall pay or shall cause the Surviving Corporation to
pay to such Retained Employee (or to such Retained Employee's estate or
beneficiary, if applicable), within ten days after such restrictions lapse,
in cash or, at Parent's option, in additional shares of Parent Common Stock
(valued based on the Parent Stock Price on the date such restrictions
lapse), an additional amount, less all applicable withholding taxes, such
that the sum of (A) the value (as of such date) of the shares of Parent
Common Stock the restrictions on which lapse on such date plus (B) the
value (as of such date) of the payment made pursuant to this sentence shall
be equal to the product of (1) the number of shares of Parent Common Stock
the restrictions on which lapse on such date and (2) the Parent Stock Price
on the date of consummation of the Merger.
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(b) The Company shall use its best efforts to ensure that neither the Company
nor any of its subsidiaries is or will be bound by any options, warrants,
rights or agreements which would entitle any person, other than Parent, the
Company or their subsidiaries, to beneficially own, or receive any payments in
respect of, any capital stock of the Company or the Surviving Corporation
(other than as provided in this Agreement or in the Ancillary Agreements).
(c)(i) Pursuant to the equitable adjustment provisions of the Company's 1988
Restricted Stock Plan, as amended (the "1988 Plan"), cash otherwise payable
hereunder in respect of Shares granted to a Spinco Employee (as defined in the
Distribution Agreement) under the 1988 Plan, with respect to which the
restrictions have not lapsed as of the Effective Time shall be transferred by
the Company to, and retained by, Spinco and shall be payable to such Spinco
Employee, subject to the conditions otherwise applicable with respect to the
lapsing of restrictions on such Shares, at such time or times when such
restrictions would otherwise have lapsed, together with interest thereon from
the Effective Time through the date of payment at the rate in effect from time
to time under the Company's Deferred Compensation Administration Plan II (DCAP
II) (or any successor plan thereto); provided, however, that each such Spinco
Employee shall have the right to elect to defer receipt of any amount otherwise
payable after December 31, 1995, under such terms and conditions as Spinco may
provide.
(ii) Pursuant to the equitable adjustment provisions of the 1988 Plan, Shares
granted to Retained Employees under the 1988 Plan with respect to which the
restrictions have not lapsed as of the Offer Purchase Date (as defined in the
Distribution Agreement) shall be returned to the Company on the day following
the Offer Purchase Date, and restricted shares of Spinco Common Stock (as
defined in the Distribution Agreement) issued to Retained Employees in the
Spin-Off under the Spinco Stock Plan (as defined in the Distribution Agreement)
in respect of such Shares shall be returned to Spinco on such day. In
consideration of the actions described in the preceding sentence, Parent shall
issue to each such Retained Employee, within ten days after the Effective Time,
a number of shares of Parent Common Stock, rounded up or down to the nearest
whole share, equal to the quotient obtained by dividing (A) the sum of (1) the
amount of cash which would have been payable to such Retained Employee
hereunder in respect of such Shares had such Shares been outstanding
immediately prior to the Effective Time (the "Cash Consideration") plus (2) the
product of (x) the number of shares of Spinco Common Stock issued to such
Retained Employee in the Spin-Off in respect of such Shares (the "Spinco
Restricted Shares") and (y) the Spinco Value (as defined in the Distribution
Agreement), by (B) the Parent Stock Price on the date of consummation of the
Merger. Notwithstanding the foregoing, in the case of any Retained Employee who
is, with respect to the Company, subject to the reporting requirements of
Section 16 of the Exchange Act, the Spinco Restricted Shares described herein
shall not be returned to Spinco on the day following the Offer Purchase Date
(but shall remain outstanding for a period of six months and a day thereafter
(the "Post-Offer Period"), at which time such Spinco Restricted Shares shall be
returned to Spinco), and Parent shall issue to each such Retained Employee (A)
within ten days after the Effective Time, a number of whole shares of Parent
Common Stock, rounded up or down to the nearest whole share, equal to the
quotient obtained by dividing (1) the Cash Consideration by (2) the Parent
Stock Price on the date of consummation of the Merger, and (B) within ten days
after the end of the Post-Offer Period, a number of whole shares of Parent
Common Stock, rounded up or down to the nearest whole share, equal to the
quotient obtained by dividing (3) the product of (x) the Spinco Restricted
Shares of such Retained Employee and (y) the average of the high and low prices
of Spinco Common Stock on the last day of the Post-Offer Period, by (4) the
Parent Stock Price on the last day of the Post-Offer Period. The shares of
Parent Common Stock issued hereunder shall be subject to the same terms and
conditions as the shares of Parent Common Stock issued to Retained Employees
pursuant to Section 2.10(a)(ii) hereof.
Section 2.11. Stockholders' Meeting. If required by applicable law in order
to consummate the Merger, the Company, acting through its Board of Directors,
shall, in accordance with applicable law, its Restated Certificate of
Incorporation and By-Laws and the rules and regulations of the New York Stock
Exchange:
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(a) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following the consummation of the Offer
for the purpose of considering and taking action upon this Agreement;
(b) subject to its fiduciary duties under applicable laws as advised by
counsel, include in the Proxy Statement (as defined in Section 5.4 hereof)
the recommendation of its Board of Directors referred to in Section 1.2
hereof; and
(c) use its best efforts to (i) obtain and furnish the information
required to be included by it in the Proxy Statement, and, after
consultation with Parent, respond promptly to any comments made by the SEC
with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its stockholders following the
consummation of the Offer and (ii) obtain the necessary approvals of this
Agreement by its stockholders.
Parent will provide the Company with the information concerning Parent and
the Purchaser required to be included in the Proxy Statement and will vote, or
cause to be voted, all Shares owned by it or its subsidiaries in favor of
approval and adoption of this Agreement.
Section 2.12. Filing of Certificate of Merger. Upon the terms and subject to
the conditions hereof, as soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VII hereof, the Company shall
execute and file a certificate of merger or, if applicable, a certificate of
ownership and merger, in the manner required by the DGCL and the parties hereto
shall take all such other and further actions as may be required by law to make
the Merger effective. Prior to the filings referred to in this Section 2.12, a
closing will be held at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York (or such other place as the parties may
agree), for the purpose of confirming all of the foregoing.
Section 2.13. Spinco Cash Payment. The Purchaser shall, and Parent shall
cause the Purchaser to, contribute to the Company, simultaneously with the
consummation of the Offer (except that the amount referred to in paragraph
(a)(ii) below shall be contributed by the Purchaser to the Company immediately
prior to the Effective Time and immediately transferred to Spinco by the
Company as an adjustment to the Company Assets being transferred to Spinco), a
cash amount (the "Spinco Cash Amount") in immediately available funds equal to
(a) the sum of (i) $4,000,000,000, plus (ii) an amount equal to the aggregate
exercise price received by the Company by reason of the exercise of any
outstanding Stock Options following the consummation of the Offer but prior to
the Effective Time, plus (iii) the amount of cash, if any, paid to the Company
from the sale by the Company of the capital stock of Spinco pursuant to Section
2.5 of the Distribution Agreement and not otherwise transferred to Spinco
pursuant to Article II of the Distribution Agreement (provided that in no event
shall the amount referred to in this clause (iii) exceed $10,000,000), minus
(b) the sum of (i) the amount paid or payable in the Offer and the Merger with
respect to the Shares and the shares of Series B ESOP Preferred Stock (as
defined in Section 4.2 hereof), (ii) the amount paid or payable with respect to
Section 2.10(a)(i) hereof and (iii) in the event that the Series A Convertible
Preferred Stock is not redeemed on or prior to the Offer Purchase Date, the
amount payable by the Company with respect to the redemption thereof. In the
event that any cash amount with respect to the matter set forth in clause
(a)(iii) above is received by the Company after the consummation of the Offer,
the Company shall transfer to Spinco such amount promptly following receipt
thereof. Such Spinco Cash Amount shall constitute part of the Company Assets to
be transferred to Spinco pursuant to the Distribution Agreement.
ARTICLE III
DISSENTING SHARES; EXCHANGE OF SHARES
Section 3.1. Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Shares which are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders who have not voted such
Shares in favor of the Merger and shall have delivered a written demand for
appraisal of such Shares in the manner provided in the DGCL (the "Dissenting
Shares") shall not be
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converted into or be exchangeable for the right to receive the consideration
provided in Section 2.7 of this Agreement, unless and until such holder shall
have failed to perfect or shall have effectively withdrawn or lost such
holder's right to appraisal and payment under the DGCL. If such holder shall
have so failed to perfect or shall have effectively withdrawn or lost such
right, such holder's Shares shall thereupon be deemed to have been converted
into and to have become exchangeable for, at the Effective Time, the right to
receive the consideration provided for in Section 2.7(a) of this Agreement,
without any interest thereon.
Section 3.2. Exchange of Shares. (a) Prior to the Effective Time, Parent
shall designate a bank or trust company to act as exchange agent in the Merger
(the "Exchange Agent"). Immediately prior to the Effective Time, Parent will
take all steps necessary to enable and cause the Company to deposit with the
Exchange Agent the funds necessary to make the payments contemplated by Section
2.7 on a timely basis.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
for payment therefor. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed, and any other required
documents, the holder of such Certificate shall be entitled to receive in
exchange therefor the consideration set forth in Section 2.7(a) hereof, and
such Certificate shall forthwith be cancelled. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates. If payment
is to be made to a person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
3.2, each Certificate (other than Certificates representing Shares held by
Parent or any subsidiary of Parent, Shares held in the treasury of the Company
or held by any subsidiary of the Company and Dissenting Shares) shall represent
for all purposes only the right to receive the consideration set forth in
Section 2.7(a) hereof, without any interest thereon.
(c) After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the consideration provided in Article II hereof in
accordance with the procedures set forth in this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser as follows:
Section 4.1. Organization. Each of the Company and its subsidiaries that will
be owned, directly or indirectly, by the Company following the Spin-Off (the
"Retained Subsidiaries") is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except in the
case of subsidiaries which are not Retained Subsidiaries where the failure to
be so existing and in good standing or to have such power and authority would
not in the aggregate have a Material Adverse Effect (as defined below). For
purposes of this Agreement, (a) the term "Material Adverse Effect" shall mean a
material adverse effect on the business, results of operations or financial
condition of the businesses that will be retained by the Company and the
Retained Subsidiaries
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following the Spin-Off taken as a whole, and (b) the term "Retained Business"
shall mean such businesses to be retained by the Company and the Retained
Subsidiaries following the Spin-Off. Each of the Company and the Retained
Subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not in the aggregate have
a Material Adverse Effect. The Company has heretofore delivered or made
available to Parent accurate and complete copies of the Certificate of
Incorporation and By-Laws (or other similar organizational documents in the
event of any entity other than a corporation), as currently in effect of the
Company and each of the Retained Subsidiaries.
Section 4.2. Capitalization. As of July 1, 1994, the authorized capital stock
of the Company consisted of (a) 120,000,000 Shares, of which 40,716,310 Shares
were issued and outstanding, (b) 6,000,000 shares of Cumulative Preferred
Stock, par value $35.00 per share ("Cumulative Preferred Stock"), of which
244,034 shares were designated as Cumulative Preferred Stock, Series A
(Convertible) ("Series A Convertible Preferred Stock"), of which 128,575 shares
were issued and outstanding, and (c) 10,000,000 shares of Series Preferred
Stock, par value $1.00 per share ("Series Preferred Stock"), of which (i)
600,000 shares were designated as Series A Junior Participating Preferred Stock
of which no shares were issued and outstanding, and (ii) 3,000,000 shares were
designated as Series B ESOP Convertible Preferred Stock ("Series B ESOP
Preferred Stock"), of which 2,737,633 were issued and outstanding. All of the
issued and outstanding Shares, Cumulative Preferred Stock and Series Preferred
Stock are validly issued, fully paid and non-assessable and free of preemptive
rights. As of July 1, 1994, 3,111,751 Shares were issuable upon the exercise of
outstanding vested and non-vested Employee Options. Since July 1, 1994, the
Company has not issued any shares of its capital stock except upon exercise of
Employee Options or the conversion of Series A Convertible Preferred Stock or
Series B ESOP Preferred Stock. Except as set forth above and as otherwise
provided for in this Agreement, there are not now, and at the Effective Time
there will not be, any shares of capital stock of the Company issued or
outstanding or any subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating the
Company to issue, transfer or sell any of its securities other than Shares
issuable upon conversion of the Series A Convertible Cumulative Preferred Stock
or the Series B ESOP Preferred Stock and other than the Rights (as defined in
the Rights Agreement). Except as permitted by this Agreement, following the
Merger, the Company will have no obligation to issue, transfer or sell any
shares of its capital stock pursuant to any employee benefit plan or otherwise.
All of the outstanding shares of capital stock of each of the Retained
Subsidiaries have been validly issued and are fully paid and non-assessable and
are owned by either the Company or another of the Retained Subsidiaries free
and clear of all liens, charges, claims or encumbrances. There are not now, and
at the Effective Time there will not be, any outstanding subscriptions,
options, warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock
or other securities of any of the Retained Subsidiaries, or otherwise
obligating the Company or any such subsidiary to issue, transfer or sell any
such securities. There are not now, and at the Effective Time there will not
be, any voting trusts or other agreements or understandings to which the
Company or any of the Retained Subsidiaries is a party or is bound with respect
to the voting of the capital stock of the Company or any of the Retained
Subsidiaries.
Section 4.3. Authority Relative to this Agreement. Each of the Company and
each Company subsidiary which is a party to any of the Ancillary Agreements
(each such subsidiary, a "Contracting Subsidiary") has full corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements
and to consummate the transactions contemplated hereby and thereby (but only to
the extent it is a party thereto). The execution and delivery of this Agreement
by the Company and of the Ancillary Agreements by the Company and each
Contracting Subsidiary (to the extent it is a party thereto) and the
consummation of the transactions contemplated hereby and thereby have been, or
with respect to Contracting Subsidiaries will be prior to the Record Date, duly
and validly authorized by the Boards of Directors of the Company and each
Contracting Subsidiary (to the extent it is a party thereto) and no other
corporate proceedings on the part of the Company or each Contracting Subsidiary
(to the extent it is a party thereto),
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including, without limitation, any approval by the stockholders of the Company,
are, or with respect to Contracting Subsidiaries will be prior to the Record
Date, necessary to authorize this Agreement or the Ancillary Agreements or to
consummate the transactions contemplated hereby or thereby (other than (a) with
respect to the Merger, the approval and adoption of this Agreement by the
holders, including Parent and its affiliates, of the requisite number of the
outstanding Shares, (b) actions with respect to increasing the size of the
Company's Board of Directors to enable designees of Parent to be elected or
appointed as provided in Section 1.4 hereof and (c) actions to be taken by the
Boards of Directors of the Company and certain Contracting Subsidiaries
specified therein in connection with the matters contemplated by the
Distribution Agreement, which actions described in clause (c) above will be
(subject to Section 3.2 of the Distribution Agreement) duly and validly taken
prior to any purchase of Shares pursuant to the Offer). This Agreement has
been, and each of the Ancillary Agreements have been or will prior to the
Record Date be, duly and validly executed and delivered by the Company and each
Contracting Subsidiary (to the extent it is a party thereto) and (except for
the Memorandum of Understanding) constitute or (to the extent such agreement is
not being entered into as of the date hereof) will constitute a valid and
binding agreement of the Company and each Contracting Subsidiary (to the extent
it is a party thereto), enforceable against the Company and each Contracting
Subsidiary (to the extent it is a party thereto) in accordance with its terms,
except to the extent that enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws, now or hereafter in effect, relating to creditors' rights generally and
(b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The affirmative vote of the
holders of a majority of the Shares is the only vote of the holders of any
class or series of Company capital stock necessary to approve the Merger.
Neither the Offer, the Merger or the Spin-Off, individually or taken together,
is a transaction that constitutes a change in control under any of the
Company's stock option or restricted stock plans or any other benefit plan in
which any Retained Employee participates.
Section 4.4. Consents and Approvals; No Violations. Except for any applicable
requirements of the Securities Exchange Act of 1934, as amended, and all rules
and regulations thereunder (the "Exchange Act"), the Securities Act of 1933 and
all rules and regulations thereunder (the "Securities Act"), and the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
the filing and recordation of a certificate of merger, or a certificate of
ownership and merger, as required by the DGCL, such filings and approvals as
may be required under the "takeover" or "blue sky" laws of various states, and
as disclosed in Section 4.4 of the disclosure schedule delivered by the Company
to Parent on or prior to the date hereof (the "Disclosure Schedule") or as
contemplated by this Agreement and the Ancillary Agreements, neither the
execution and delivery of this Agreement or the Ancillary Agreements by the
Company or any Contracting Subsidiary (to the extent it is a party thereto) nor
the consummation by the Company or any Contracting Subsidiary (to the extent it
is a party thereto) of the transactions contemplated hereby or thereby will (i)
conflict with or result in any breach of any provision of the certificate of
incorporation or By-Laws of the Company or any Contracting Subsidiary, (ii)
require on the part of the Company or any Contracting Subsidiary any filing
with, or the obtaining of any permit, authorization, consent or approval of,
any governmental or regulatory authority or any third party, (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation, acceleration or payment, or to the creation of a lien or
encumbrance) under any of the terms, conditions or provisions of any note,
mortgage, indenture, other evidence of indebtedness, guarantee, license,
agreement or other contract, instrument or obligation to which the Company, any
Contracting Subsidiary or any of their respective subsidiaries is a party or by
which any of them or any of their properties or assets may be bound or (iv) as
of the date hereof, violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Company or any Contracting Subsidiary, any of
their respective subsidiaries or any of their properties or assets, except for
such requirements, defaults, rights or violations under clauses (ii), (iii) and
(iv) above (x) which would not in the aggregate have a Material Adverse Effect
and would not have a material adverse effect on the ability of the Company or
any Contracting Subsidiary to consummate the transactions contemplated by this
Agreement, or (y) which become applicable as a result of the business or
activities in which Parent or the Purchaser is or proposes to be engaged (other
than the
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business or activities of the Retained Business to be acquired by the
Purchaser, considered independently of the ownership thereof by Parent and the
Purchaser) or as a result of other facts or circumstances specific to Parent or
the Purchaser.
Section 4.5. Absence of Certain Changes. Except (a) as set forth in Section
4.5 of the Disclosure Schedule, (b) as set forth in the Company's Annual Report
on Form 10-K for the year ended March 31, 1994 (the "Form 10-K") or any other
document filed prior to the date hereof pursuant to Section 13(a) or 15(d) of
the Exchange Act, or (c) as contemplated by this Agreement or any of the
Ancillary Agreements, from April 1, 1994 until the date hereof, neither the
Company nor any of its subsidiaries has taken any of the prohibited actions set
forth in Section 6.1 hereof or suffered any changes that, either individually
or in the aggregate, would result in a Material Adverse Effect or conducted its
business or operations in any material respect other than in the ordinary and
usual course of business, consistent with past practices.
Section 4.6. No Undisclosed Liabilities. Except (a) for liabilities and
obligations incurred in the ordinary and usual course of business consistent
with past practice since April 1, 1994, (b) for liabilities and obligations
incurred in connection with the Offer, the Merger and the Spin-Off and (c) as
set forth in Section 4.6 of the Disclosure Schedule, from April 1, 1994 until
the date hereof neither the Company nor any of its subsidiaries has incurred
any liabilities or obligations that, individually or in the aggregate, would
have a Material Adverse Effect and that would be required to be reflected or
reserved against in a consolidated balance sheet of the Company and its
subsidiaries prepared in accordance with generally accepted accounting
principles as applied in preparing the consolidated balance sheet of the
Company and its subsidiaries as of March 31, 1994 contained in the Form 10-K.
Section 4.7. Reports. (a) The Company has filed all reports, forms,
statements and other documents required to be filed with the SEC pursuant to
the Exchange Act since April 1, 1991 (collectively, the "Company SEC
Documents"). With respect to the Retained Business, none of the Company SEC
Documents, as of their respective filing dates, contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except where any such statement or omission would not have a
Material Adverse Effect. Each of the consolidated balance sheets (including the
related notes) included in the Company SEC Documents filed prior to or after
the date of this Agreement (but prior to the date on which the Offer is
consummated, and excluding the Company SEC Documents described in Section 4.8
hereof) fairly presents or will fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries as of the
respective dates thereof, and the other related statements (including the
related notes) included therein fairly present or will fairly present in all
material respects the results of operations and the cash flows of the Company
and its subsidiaries for the respective periods or as of the respective dates
set forth therein, except in the case of any such balance sheets (including the
related notes) or related statements (including the related notes) where the
failure to so fairly present such financial position, results of operations or
cash flows would not have a Material Adverse Effect. Each of the financial
statements (including the related notes) included in the Company SEC Documents
filed prior to or after the date of this Agreement (but prior to the date on
which the Offer is consummated, and excluding the Company SEC Documents
described in Section 4.8 hereof) has been prepared or will be prepared in all
material respects in accordance with generally accepted accounting principles
consistently applied during the periods involved, except (a) as otherwise noted
therein or (b) to the extent required by changes in generally accepted
accounting principles.
(b) Except as and to the extent set forth in Section 4.7(b) of the Disclosure
Schedule, (i) each of the consolidated balance sheets (including the related
notes) included in the financial statements of the Retained Business attached
as Exhibit A to Section 4.7(b) of the Disclosure Schedule (the "Prescription
Financial Statements") fairly presents in all material respects the
consolidated financial position of the Retained Business as of the respective
dates thereof, and (ii) the other related statements (including the related
notes) included therein fairly present in all material respects the results of
operations and the cash flows of the Retained Business for the respective
periods or as of the respective dates set forth therein. The Prescription
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Financial Statements have been prepared in all material respects in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except as otherwise disclosed therein or in the notes
thereto.
Section 4.8. Schedule 14D-9; Offer Documents; Form 10; Information
Statement. None of the information included in the Schedule 14D-9 or the Form
10 or the Information Statement (as those terms are defined in the Distribution
Agreement), or supplied by the Company for inclusion in the Offer Documents,
including any amendments thereto, will be false or misleading with respect to
any material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Except for information
supplied by Parent in writing for inclusion therein, the Schedule 14D-9, the
Form 10 and the Information Statement, including any amendments thereto, will
comply in all material respects with the Exchange Act.
Section 4.9. No Default. Except as set forth in Section 4.9 of the Disclosure
Schedule, neither the Company nor any of its subsidiaries is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any term, condition or
provision of (i) its charter or its by-laws, (ii) any note, mortgage,
indenture, other evidence of indebtedness, guarantee, license, agreement or
other contract, instrument or contractual obligation to which the Company or
any of its subsidiaries is now a party or by which they or any of their
properties or assets may be bound, or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or any of its
subsidiaries, except for defaults or violations under clauses (i) (with respect
to Company subsidiaries other than the Retained Subsidiaries), (ii) and (iii)
above (x) which in the aggregate would not have a Material Adverse Effect and
would not have a material adverse effect on the ability of the Company or
Spinco to consummate the transactions contemplated by this Agreement or (y)
which become applicable as a result of the business or activities in which
Parent or the Purchaser is or proposes to be engaged (other than the business
or activities of the Retained Business to be acquired by the Purchaser,
considered independently of the ownership thereof by Parent and the Purchaser)
or as a result of any other facts or circumstances specific to Parent or the
Purchaser.
Section 4.10. Litigation; Compliance with Law. (a) Except as set forth in
Section 4.10 of the Disclosure Schedule or as disclosed in the Company SEC
Documents, as of the date hereof (except as provided in the following
sentence), there are no actions, suits, proceedings or, to the best knowledge
of the Company, investigations, pending or, to the best knowledge of the
Company, threatened, involving the Company or any of its subsidiaries, by or
before any court, governmental or regulatory authority or by any third party
which, either individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect. For purposes of indemnification for breach of
this Section 4.10 under Section 5.2 of the Distribution Agreement, but not for
determining whether or not the conditions to the Offer or the Merger have been
satisfied, the Company represents and warrants that the foregoing
representation and warranty shall be true and correct following the date hereof
with respect to actions, suits, proceedings and investigations unrelated to and
not arising from this Agreement or the Ancillary Agreements or the transactions
contemplated hereby or thereby, including, without limitation, the Offer, the
Merger and the Spin-Off, or the public disclosure of any of the foregoing.
(b) Except for those matters which in the aggregate would not have a Material
Adverse Effect and those matters set forth in Section 4.10 of the Disclosure
Schedule, (i) the Retained Business is not being, and has not in the last three
years been, conducted in violation of any applicable law, ordinance, rule,
regulation, decree or order of any court or governmental entity (including,
without limitation, (A) laws regarding the provision of insurance, third party
administration and primary health care services, (B) the Prescription Drug
Marketing Act, the Federal Controlled Substances Act of 1970, the Food, Drug
and Cosmetic Act and any state Pharmacy Practice Acts, Controlled Substance
Acts, Dangerous Drugs Acts and Food, Drug and Cosmetic Acts, (C) Environmental
Laws (as defined below), (D) the Foreign Corrupt Practices Act of 1977 and any
other laws regarding use of funds for political activity or commercial bribery,
and (E) ERISA and Labor Laws (as defined below)); (ii) the Retained Business
has not made, caused or contributed to any
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material release of any hazardous or toxic waste, substance or constituent,
into the environment, and, to the Company's knowledge (such limitation of this
representation to the Company's knowledge to be considered for purposes of
determining whether or not the conditions to the Offer or the Merger have been
satisfied, but not for purposes of indemnification for breach of this Section
4.10 under Section 5.2 of the Distribution Agreement), there are no hazardous
wastes or toxic substances in, on, over or under the real property owned by the
Retained Business; and (iii) the Retained Business is not subject to any
compliance agreement or settlement agreement from an alleged violation of any
Environmental Laws. Except for those matters which in the aggregate would not
have a Material Adverse Effect, (i) the Retained Business is not engaged in any
unfair labor practice, (ii) there is no labor strike or stoppage pending
against or affecting the Retained Business, and (iii) the Company has not
received notice of any pending petition for certification before the National
Labor Relations Board with respect to any Retained Employees (as defined in
Section 6.9 hereof) who are not currently organized. Except as set forth in
Section 4.10 of the Disclosure Schedule, as of the date hereof, neither the
Company nor any of its subsidiaries is subject to any continuing order of,
consent decree, settlement agreement or other similar agreement with, or, to
the knowledge of the Company, continuing investigation by, any governmental
entity, or any judgment, order, writ, injunction, decree or award of any
governmental entity or arbitrator, including, without limitation, cease-and-
desist or other orders, except as disclosed in the Company SEC Documents filed
prior to the date of this Agreement and except for any such order, consent
decree, settlement agreement or other similar agreement, or investigation,
judgment, order, writ, injunction, decree or award, which in the aggregate
would not have a Material Adverse Effect. Except as set forth in Section 4.10
of the Disclosure Schedule, the Retained Business is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own,
lease and operate its properties and to carry on its business as it is being
conducted as of the date hereof (collectively, the "Company Permits"), and, to
the knowledge of the Company, there is no action, proceeding or investigation
pending or threatened regarding suspension or cancellation of any of the
Company Permits, except in each case where the failure to possess, or the
suspension or cancellation of, such Company Permits would not constitute a
Material Adverse Effect. For purposes of this Agreement, "Environmental Laws"
means all applicable laws, rules and regulations relating to pollution or the
protection of the environment, including, without limitation, the Resource
Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Toxic Substances Control Act and the Comprehensive
Environmental Response, Compensation and Liability Act); and "Labor Laws" mean
all applicable laws respecting employment practices, terms and conditions of
employment and wages and hours.
Section 4.11. Employee Benefit Plans; ERISA. (a) Section 4.11(a) of the
Disclosure Schedule lists each "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and all other material employee benefit, bonus, incentive, stock
option (or other equity-based), severance, change in control and fringe benefit
plans (other than any employment or personnel policy, practice or procedure not
subject to ERISA) maintained for the benefit of, or contributed to by the
Company or its subsidiaries or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that would be deemed a "single employer"
within the meaning of Section 4001 of ERISA, for the benefit of any employee or
former employee of the Company or any of its subsidiaries (the "Plans"). The
Company has made available to the Purchaser copies of each of the Plans,
including all amendments to date.
(b) Except for those matters which, either individually or in the aggregate,
would not result in a Material Adverse Effect and except for those matters set
forth in Section 4.11(b) of the Disclosure Schedule, (i) each of the Plans is,
and has been, operated in accordance with its terms and in substantial
compliance (including the making of governmental filings) with all applicable
laws, including, without limitation, ERISA and the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), (ii) each of the Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the Internal Revenue Service (the "IRS") to be so qualified
and is not under audit by the IRS or the Department of Labor and the Company
knows of no fact or set of circumstances that would adversely affect such
qualification prior to the Effective Time, (iii) none of the Plans is subject
to Title IV of ERISA, (iv) no
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"reportable event", as such term is defined in Section 4043(b) of ERISA (for
which the 30-day notice requirement to the PBGC has not been waived), has
occurred with respect to any Plan, and (v) there are no pending or, to the best
knowledge of Company, threatened claims (other than routine claims for
benefits) by, on behalf of or against any of the Plans or any trusts related
thereto.
(c) Except as set forth in Section 4.11(c) of the Disclosure Schedule, no
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to any employees of the Company or any
of its subsidiaries beyond their retirement or other termination of service
(other than (i) coverage mandated by applicable law, or (ii) benefits the full
cost of which is borne by the current or former employee (or his or her
beneficiary)), and none of the Company or its subsidiaries is contractually
obligated to provide any person with such benefits upon retirement or
termination of employment.
(d) Except as set forth in Section 4.11(d) of the Disclosure Schedule, and
except for those matters which, either individually or in the aggregate, would
not result in a Material Adverse Effect, (i) no Plan has incurred an
"Accumulated Funding Deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, (ii) the Company has not incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC"), except for
required premium payments, which payments have been made when due, (iii) the
Company has not ceased operations at any facility or withdrawn from any Plan in
a manner which could subject it to liability under Section 4062, 4063 or 4064
of ERISA, and, to the best of the Company's knowledge, no events have occurred
which might give rise to any liability of the Company to the PBGC under Title
IV of ERISA or which could reasonably be anticipated to result in any claims
being made against Buyer by the PBGC, and (iv) the Company has not incurred any
withdrawal liability (including any contingent or secondary withdrawal
liability) within the meaning of Section 4201 and 4204 of ERISA to any
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(e) The Company has made available to Parent (i) copies of all employment
agreements with officers and key employees of the Retained Business; (ii)
copies of all severance agreements, programs and policies of the Retained
Business with or relating to its officers and key employees; and (iii) copies
of all plans, programs, agreements and other arrangements of the Retained
Business with or relating to its officers and key employees which contain
change in control provisions. Except as set forth on Section 4.11(e) of the
Disclosure Schedule, no officer or key employee of the Retained Business has
executed a non-competition agreement with the Retained Business.
Section 4.12. Assets; Title to Real Property. (a) Except as set forth in
Section 4.12(a) of the Disclosure Schedule and except for those services to be
provided pursuant to the Ancillary Agreements, upon consummation of the Spin-
Off, the Company and the Retained Subsidiaries will have all assets, rights and
contracts necessary to permit the Company and the Retained Subsidiaries to
conduct the Retained Business as it is currently being conducted, except where
the failure to have such assets, rights and contracts would not have a Material
Adverse Effect.
(b) Section 4.12 of the Disclosure Schedule identifies all real property
owned by the Company or its subsidiaries and used primarily by the Retained
Business. The Company has, either directly or through its subsidiaries, (x)
good and valid title to, free and clear of all mortgages, pledges, security
interests, liens, charges, options, easements, rights-of-way or other
encumbrances of any nature whatsoever (collectively, "Liens") other than
Permitted Liens (as defined below), or (y) rights by lease or other agreement
to use, all real property used by the Retained Business, except where the
failure to have such title or rights would not have a Material Adverse Effect.
The term "Permitted Liens" shall mean (i) Liens for water, sewage and similar
charges and current taxes not yet due and payable or being contested in good
faith, (ii) mechanics', carriers', workers', repairers', materialmen's,
warehousemen's and other similar Liens arising or incurred in the ordinary
course of business, (iii) such other Liens as would not in the aggregate have a
Material Adverse Effect and (iv) Liens arising or resulting from any action
taken by Parent or the Purchaser. All real property leases of property used in
the Retained Business, under which the Company or any subsidiary is a lessee or
lessor, are valid, binding and enforceable in all material respects in
accordance with their terms and, to the best knowledge of the Company, there
are no existing material defaults thereunder.
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Section 4.13. Intellectual Property. Except as set forth in Section 4.13 of
the Disclosure Schedule or as disclosed in the Company SEC Documents, there are
no pending or threatened claims of which the Company or its subsidiaries have
been given written notice, by any person against their use of any material
trademarks, trade names, service marks, service names, mark registrations,
logos, assumed names and copyright registrations, patents and all applications
therefor which are owned by the Company or its subsidiaries and used in the
operation of the Retained Business as currently conducted (collectively, the
"Intellectual Property"). The Company and the Retained Subsidiaries have, or
prior to the Spin-Off will have, such ownership of or such rights by license,
lease or other agreement to the Intellectual Property as are necessary to
permit them to conduct the Retained Business as currently conducted, except as
set forth in Section 4.13 of the Disclosure Schedule or otherwise where the
failure to have such ownership or rights would not, either individually or in
the aggregate, result in a Material Adverse Effect. No Intellectual Property,
and no services or products sold by the Retained Business, conflict with or
infringe upon, in any material respect, any proprietary rights of others. To
the Company's knowledge, no person is infringing on or violating, in any
material respect, any of the rights of the Company and its subsidiaries to any
of the Intellectual Property.
Section 4.14. Computer Software. The Company and the Retained Subsidiaries
have, or prior to the Spin-Off will have, such title or such rights by license,
lease or other agreement to the computer software programs (other than off-the-
shelf software) which are owned, licensed, leased or otherwise used by the
Company and the Retained Subsidiaries and which are material to the conduct of
the Retained Business as currently conducted, as are necessary to permit the
conduct of the Retained Business as currently conducted, except where the
failure to have such title or rights would not, either individually or in the
aggregate, result in a Material Adverse Effect.
Section 4.15. Certain Contracts and Arrangements. Except as set forth in
Section 4.15 of the Disclosure Schedule, all agreements to which the Company or
its subsidiaries are parties relating to the Retained Business are valid,
binding and enforceable in all respects in accordance with their terms and
neither the Company nor any of its subsidiaries is in default under any of such
agreements, other than such failures to be valid, binding and enforceable or
such defaults, if any, which would not have a Material Adverse Effect. Except
as set forth in Section 4.15 of the Disclosure Schedule, during the twelve
months immediately prior to the date hereof, no Significant Customer has
cancelled or otherwise terminated its business relationships with the Retained
Business. For purposes hereof, the term "Significant Customer" shall mean any
customer of the Company's pharmaceutical management business which accounted
for 50,000 or more members (determined on a consistent basis with the past
practices of the Retained Business) during the year ended March 31, 1994. The
Company has made available to Parent all material non-competition agreements or
material agreements that restrict the geographic area in which the Retained
Business may conduct business.
Section 4.16. Taxes. Except as otherwise disclosed in Section 4.16 of the
Disclosure Schedule and except for those matters which, either individually or
in the aggregate, would not result in a Material Adverse Effect:
(a) The Company and each of its subsidiaries have filed (or have had filed
on their behalf) or will file or cause to be filed, all income Tax Returns
required by applicable law to be filed by any of them prior to the
consummation of the Offer, and all such Tax Returns and amendments thereto
are or will be true, complete and correct.
(b) The Company and each of its subsidiaries have paid (or have had paid
on their behalf), or where payment is not yet due, have established (or
have had established on their behalf and for their sole benefit and
recourse), or will establish or cause to be established before the
consummation of the Offer, an adequate accrual for the payment of all Taxes
due with respect to any period ending prior to or as of the expiration of
the Offer.
(c) There are no Liens for any Taxes upon the assets of the Company or any
of its subsidiaries used primarily in the Retained Business.
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(d) No Audit is pending with respect to any Taxes due from the Company or any
subsidiary. There are no outstanding waivers extending the statutory period of
limitation relating to the payment of Taxes due from the Company or any
subsidiary for any taxable period ending prior to the expiration of the Offer
which are expected to be outstanding as of the expiration of the Offer.
(e) Neither the Company nor any subsidiary is a party to, is bound by, or has
any obligation under, a tax sharing contract, other than the Tax Sharing
Agreement.
(f) Neither the Company nor any of its subsidiaries has made an election
under Section 341(f) of the Code.
(g) For purposes of this Section 4.16, capitalized terms have the following
meaning:
(i) "Audit" shall mean any audit, assessment of Taxes, other examination
by the Internal Revenue Service or any other domestic or foreign
governmental authority responsible for the administration of any Taxes,
proceeding or appeal of such proceeding relating to Taxes.
(ii) "Taxes" shall mean all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto.
(iii) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax Return relating to Taxes.
Section 4.17. Certain Fees. Except as set forth in Section 4.17 of the
Disclosure Schedule, neither the Company nor any subsidiary has employed any
financial advisor or finder or incurred any liability for any financial
advisory or finders' fees in connection with this Agreement or the Ancillary
Agreements or the transactions contemplated hereby or thereby.
Section 4.18. No Additional Approvals Necessary. Assuming the accuracy of the
representation and warranty set forth in Section 5.6 hereof, the Board of
Directors of the Company has taken all actions necessary under the Company's
Restated Certificate of Incorporation and the DGCL, including approving the
transactions contemplated in this Agreement, to ensure that neither Section 203
of the DGCL nor the provisions of Article Eight of the Company's Restated
Certificate of Incorporation will, prior to any termination of this Agreement,
apply to this Agreement, the Offer, the Merger or the transactions contemplated
hereby. As of the date hereof, neither Parent nor the Purchaser is a "Non-
Approved Person", as such term is defined and used in Article Seven of the
Company's Restated Certificate of Incorporation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as follows:
Section 5.1. Organization. Each of Parent and the Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. Each of Parent and the Purchaser has heretofore delivered to
the Company an accurate and complete copy of its charter and by-laws, as
currently in effect. Since the date of its incorporation, the Purchaser has not
engaged in any activities other than in connection with or as contemplated by
this Agreement or in connection with arranging any financing required to
consummate the transactions contemplated hereby.
Section 5.2. Authority Relative to this Agreement. Each of Parent and the
Purchaser has full corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements (to the extent it is
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a party thereto) and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Agreements (to the extent it is a party thereto) and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Boards of Directors of the Purchaser and Parent and by Parent
as the sole stockholder of the Purchaser and no other corporate or other
proceedings on the part of Parent, the Purchaser or any of their affiliates are
necessary to authorize this Agreement or the Ancillary Agreements (to the
extent it is a party thereto) or to consummate the transactions so
contemplated. This Agreement has been, and each of the Ancillary Agreements
have been, or will prior to the Record Date be, duly and validly executed and
delivered by each of Parent and the Purchaser (to the extent it is a party
thereto) and (except for the Memorandum of Understanding) constitute or (to the
extent such agreement is not being entered into as of the date hereof) will
constitute valid and binding agreements of each of Parent and the Purchaser,
enforceable against each of Parent and the Purchaser in accordance with their
respective terms, except to the extent that enforcement thereof may be limited
by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws, now or hereafter in effect, relating to
creditors' rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
Section 5.3. Consents and Approvals; No Violations. Except for applicable
requirements of the Exchange Act, the HSR Act, the filing and recordation of a
certificate of merger, or a certificate of ownership and merger, as required by
the DGCL, such filings and approvals as may be required under the "takeover" or
"blue sky" laws of various states, and as contemplated by this Agreement and
the Ancillary Agreements, neither the execution and delivery of this Agreement
or the Ancillary Agreements by Parent or the Purchaser (to the extent it is a
party thereto) nor the consummation by Parent or the Purchaser of the
transactions contemplated hereby or thereby will (i) conflict with or result in
any breach of any provision of the charter or by-laws of Parent or the
Purchaser, (ii) require on the part of Parent or the Purchaser any filing with,
or the obtaining of any permit, authorization, consent or approval of, any
governmental or regulatory authority or any third party, (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation, acceleration or payment, or to the creation of a lien or
encumbrance) under any of the terms, conditions or provisions of any note,
mortgage, indenture, other evidence of indebtedness, guarantee, license,
agreement or other contract, instrument or contractual obligation to which
Parent, the Purchaser or any of their respective subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, the Purchaser, any of their subsidiaries or any of their
properties or assets, except for such requirements, defaults, rights or
violations under clauses (ii), (iii) and (iv) above which would not in the
aggregate have a material adverse effect on the business, results of operations
or financial condition of Parent and its subsidiaries taken as a whole and
would not have a material adverse effect on the ability of Parent or the
Purchaser to consummate the transactions contemplated by this Agreement.
Section 5.4. Schedule 14D-9; Offer Documents; Proxy Statement; Form 10;
Information Statement. None of the information included in the Offer Documents
and none of the information (other than information supplied by Spinco in
writing for inclusion therein) included in the proxy materials to be
distributed, if necessary, to the Company's stockholders in connection with the
Merger (the "Proxy Statement"), or supplied by Parent or the Purchaser for
inclusion in the Schedule 14D-9, the Form 10 or the Information Statement,
including any amendments thereto, will be false or misleading with respect to
any material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Except for information
supplied by the Company in writing for inclusion in the Offer Documents and
except for information supplied by Spinco in writing for inclusion in any Proxy
Statement, the Offer Documents and the Proxy Statement, if any, will comply in
all material respects with the Exchange Act.
Section 5.5. Sufficient Funds. Parent and the Purchaser have, or will have
prior to the satisfaction of the conditions to the Offer set forth in Exhibit F
hereto, sufficient funds available to purchase all Shares on a
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fully diluted basis at the Offer Price and the Merger Price and to perform the
obligations set forth in Section 2.13 hereof.
Section 5.6. Beneficial Ownership of Shares. None of Parent, the Purchaser or
any of their respective "affiliates" or "associates" (as those terms are
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act) "beneficially owns" (as that term is defined in Rule 13d-3(a) under the
Exchange Act) more than 1% of the outstanding Shares or any securities
convertible into or exchangeable for Shares.
ARTICLE VI
COVENANTS
Section 6.1. Conduct of Business of the Company. Except as contemplated by
this Agreement or the Ancillary Agreements, during the period from the date of
this Agreement to the consummation of the Offer and, if Parent has made a
prompt request therefor pursuant to Section 1.4 hereof, until its Designated
Directors (as defined in Section 8.4 hereof) shall constitute in their entirety
a majority of the Company's Board of Directors, the Company and its
subsidiaries will each conduct the operations of the Retained Business
according to its ordinary course of business, consistent with past practice,
and will conduct the operations of all businesses other than the Retained
Business in such a manner that would not have a Material Adverse Effect and,
with respect to the Retained Business, will use its commercially reasonable
efforts to (i) preserve intact its business organization, (ii) maintain its
material rights and franchises, (iii) keep available the services of its
officers and key employees, and (iv) keep in full force and effect insurance
comparable in amount and scope of coverage to that maintained as of the date
hereof. Without limiting the generality of and in addition to the foregoing,
and except as otherwise contemplated by this Agreement or the Ancillary
Agreements, prior to the time specified in the preceding sentence, neither the
Company nor any of its subsidiaries will, without the prior written consent of
Parent:
(a) except for Spinco and its subsidiaries, amend its charter or by-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of any
class or any other securities (except (i) by the Company in connection with
employee options or upon the conversion of the Series A Convertible Preferred
Stock or Series B ESOP Preferred Stock in accordance with their respective
terms as in effect on the date of this Agreement, (ii) by Armor All Products
Corporation upon conversion of the Company's 4 1/2% Exchangeable Subordinated
Debentures Due 2004, in accordance with the terms of the Indenture, dated as of
March 14, 1994, between the Company and The First National Bank of Chicago, as
Trustee (iii) by Spinco and its subsidiaries as contemplated by the
Distribution Agreement or (iv) by any subsidiary other than any of the Retained
Subsidiaries) or amend any of the terms of any such securities or agreements
(other than such securities or agreements of any subsidiary other than any of
the Retained Subsidiaries, or amendments of the Distribution Agreement as
permitted thereunder) outstanding on the date hereof;
(c) other than with respect to any subsidiary which is not a Retained
Subsidiary, split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
or redeem or otherwise acquire any of its securities or any securities of its
subsidiaries; provided that the Company may declare and pay to holders of (i)
Shares regular quarterly dividends of not more than $.42 per Share on the
dividend declaration and payment dates normally applicable to the Shares and
(ii) preferred stock of the Company any dividends required to be paid thereon
in accordance with the express provisions thereof;
(d) except for Spinco or any of its subsidiaries (i) incur, assume or prepay
any long-term debt or, except in the ordinary course of business under existing
lines of credit, incur, assume, or prepay any material short-term debt; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any material obligations of any other
person except wholly owned subsidiaries
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of the Company in the ordinary course of business and consistent with past
practices; (iii) make any material loans, advances or capital contributions to,
or investments in, any other person (other than loans or advances to
subsidiaries and customary loans or advances to employees in accordance with
past practices); (iv) change the Retained Business' practices with respect to
the timing of payments or collections; (v) pledge or otherwise encumber shares
of capital stock of the Company or any of its subsidiaries (other than that of
Spinco and its subsidiaries); or (vi) mortgage or pledge any of the assets,
tangible or intangible, of the Retained Business, or create or permit to exist
any material Lien thereupon, other than in the ordinary course of business
consistent with past practices;
(e) except as disclosed herein and except for arrangements with new or
existing Retained Employees entered into in the ordinary course of business
consistent with past practices, enter into, adopt or materially amend any
bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreements, trusts, plans, funds or other arrangements of or for the
benefit or welfare of any Retained Employee (as hereafter defined) (or any
other person for whom the Retained Business will have liability), or (except
for normal increases in the ordinary course of business that are consistent
with past practices) increase in any manner the compensation or fringe benefits
of any Retained Employee (or any other person for whom the Retained Business
will have liability) or pay any benefit not required by any existing plan and
arrangement (including, without limitation, the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units) or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing;
(f) transfer, sell, lease, license or dispose of any assets relating to the
Retained Business outside the ordinary course of business or any assets which
are material, in the aggregate, to the Retained Business or enter into any
material commitment or transaction with respect to the Retained Business
outside the ordinary course of business;
(g) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than the purchase of assets in
the ordinary course of business and consistent with past practice), in each
case where such action would, individually be material to the Retained
Business;
(h) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for the
benefit of Retained Employees or any other person for whom the Retained
Business will have liability;
(i) materially modify, amend or terminate (except pursuant to the terms
thereof) any of the material contracts of the Retained Business or waive any
material rights or claims of the Retained Business, except in the ordinary
course of business;
(j) effect any material change in any of its methods of accounting in effect
as of March 31, 1994, except as may be required by law or generally accepted
accounting principles;
(k) enter into any material arrangement, agreement or contract with any third
party (other than customers in the ordinary course of business consistent with
past practices) which provides for an exclusive arrangement with that third
party; and
(l) take, or agree in writing or otherwise to take, any of the foregoing
actions.
Notwithstanding any of the foregoing and in addition to any other rights of the
Company and its subsidiaries, the Company and its subsidiaries shall have the
right to take any of the actions prohibited under clauses (a) and (d)--(l) of
this Section 6.1 if such actions would not, either individually or in the
aggregate, adversely impact the Retained Business or the consummation of any of
the material transactions contemplated pursuant to this Agreement.
Section 6.2. Acquisition Proposals. (a) The Company and its officers,
directors, employees, representatives and agents shall immediately cease any
existing discussions or negotiations with any parties
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conducted heretofore with respect to any Acquisition Proposal (as hereafter
defined). The Company and its subsidiaries will not, and will use their best
efforts to cause their respective officers, directors, employees and investment
bankers, attorneys, accountants or other agents retained by the Company or any
of its subsidiaries not to, (i) initiate or solicit, directly or indirectly,
any inquiries or the making of any Acquisition Proposal, or (ii) except as
permitted below, engage in negotiations or discussions with, or furnish any
information or data to any third party relating to an Acquisition Proposal
(other than the transactions contemplated hereby and by the Ancillary
Agreements). Notwithstanding anything to the contrary contained in this Section
6.2 or in any other provision of this Agreement, the Company and the Board of
Directors of the Company (i) may furnish information to, and participate in
discussions or negotiations (including, as a part thereof, making any
counterproposal) with, any third party which submits a written Acquisition
Proposal to the Company if the Company's Board of Directors determines in good
faith, based upon the advice of counsel, that the failure to furnish such
information or participate in such discussions or negotiations may reasonably
constitute a breach of the Board's fiduciary duties under applicable law, and
(ii) shall be permitted to (A) take and disclose to the Company's stockholders
a position with respect to the Offer, the Merger or the Spin-Off or another
tender or exchange offer by a third party, or amend or withdraw such position,
pursuant to Rules 14d-9 and 14e-2 of the Exchange Act or (B) make disclosure to
the Company's stockholders, in each case either with respect to or as a result
of an Acquisition Proposal, or if the Company's Board of Directors determines
in good faith, based upon the advice of counsel, that the failure to take such
action may reasonably constitute a breach of the Board's fiduciary duties
under, or otherwise violate, applicable law; provided that the Company shall
not enter into any acquisition agreement with respect to any Acquisition
Proposal except concurrently with or after the termination of this Agreement
and shall not enter into any other agreements with respect to an Acquisition
Proposal except concurrently with or after such termination unless, and only to
the extent that, such other agreements would facilitate the process of
providing information to, or conducting discussions or negotiations with, the
party submitting such an Acquisition Proposal, such as confidentiality and
standstill agreements. The Company shall promptly provide Parent with a copy of
any written Acquisition Proposal received and inform Parent on a reasonable
basis of the status and content of any discussions with such a third party
(provided that the Company shall not be obligated to so provide such
information or advise Parent if the Company's Board of Directors determines in
good faith, based upon the advice of counsel, that such action may reasonably
constitute a breach of its fiduciary duties under applicable law). In no event
shall the Company provide non-public information regarding the Retained
Business to any third party making an Acquisition Proposal unless such party
enters into a confidentiality agreement containing provisions designed to
reasonably protect the confidentiality of such information. In the event that
following the date hereof the Company enters into a confidentiality agreement
with any third party which does not include terms and conditions which are
substantially similar to the provisions of Section 7 (the "Standstill
Provisions") of the letter agreement, dated as of June 8, 1994, between the
Company and Parent (the "Confidentiality Agreement"), then Parent and its
affiliates shall be released from their obligations under such Standstill
Provisions to the same extent as such third party.
(b) For purposes of this Agreement, the term "Acquisition Proposal" shall
mean any bona fide proposal made by a third party to acquire (i) beneficial
ownership (as defined under Rule 13(d) of the Exchange Act) of a majority
equity interest in either the Company or the Retained Business pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, tender offer or exchange offer or similar transaction involving either
the Company or the Retained Business, including, without limitation, any single
or multi-step transaction or series of related transactions which is structured
in good faith to permit such third party to acquire beneficial ownership of a
majority or greater equity interest in either the Company or the Retained
Business or (ii) all or substantially all of the business or assets of either
the Company or of the Retained Business (other than the transactions
contemplated by this Agreement and the Ancillary Agreements); provided,
however, that the term "Acquisition Proposal" shall not include any
transactions which relate solely to the businesses to be owned by Spinco and
its subsidiaries following the Spin-Off and which do not have a material
adverse effect on the consummation of the Offer, the Merger, the Spin-Off or
the transactions contemplated hereby.
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Section 6.3. Access to Information.
(a) Between the date of this Agreement and the Effective Time, during normal
business hours, the Company will give Parent and its authorized representatives
reasonable access to all offices and other facilities and to all books and
records of it and its subsidiaries relating to the Retained Business, will
permit Parent to make such inspections as it may reasonably require and will
cause its officers and those of its subsidiaries to furnish Parent with (i)
such financial and operating data and other information with respect to the
Retained Business as Parent may from time to time reasonably request, or (ii)
any other financial and operating data which materially impacts the Retained
Business. Parent and its authorized representatives will conduct all such
inspections in a manner which will minimize any disruptions of the business and
operations of the Company and its subsidiaries.
(b) Parent, the Purchaser and the Company agree that the provisions of the
Confidentiality Agreement shall remain binding and in full force and effect
(subject, however, to the provisions of Section 6.2(a) hereof) and that the
terms of the Confidentiality Agreement are incorporated herein by reference.
Section 6.4. Best Efforts. Subject to the terms and conditions herein
provided and without limitation to the provisions of Section 6.6 hereof, each
of the parties hereto agrees to use its best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Ancillary
Agreements (including, without limitation, cooperating in the preparation and
filing of the Offer Documents, the Schedule 14D-9, the Proxy Statement, the
Form 10 and the Information Statement and any amendments to any thereof, and
executing any additional instruments necessary to consummate the transactions
contemplated hereby). In case at any time after the Effective Time any further
action is necessary to carry out the purposes of this Agreement, the proper
officers and directors of each party hereto shall use their best efforts to
take all such necessary action.
Section 6.5. Consents. Each of the Company, Parent and the Purchaser shall
cooperate, and use their respective best efforts, in as timely a manner as is
reasonably practicable, to make all filings and obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties necessary to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements. Each of the
parties hereto will furnish to the other party such necessary information and
reasonable assistance as such other persons may reasonably request in
connection with the foregoing and will provide the other party with copies of
all filings made by such party with any governmental entity or any other
information supplied by such party to a governmental entity in connection with
this Agreement and the transactions contemplated hereby.
Section 6.6. HSR Filings. (a) In addition to and without limiting the
agreements of Parent and the Purchaser contained in Section 6.5 hereof, Parent,
the Purchaser and the Company will (i) take promptly all actions necessary to
make the filings required of Parent, the Purchaser or any of their affiliates
under the HSR Act, (ii) comply at the earliest practicable date with any
request for additional information or documentary material received by Parent,
the Purchaser or any of their affiliates from the Federal Trade Commission or
the Antitrust Division of the Department of Justice pursuant to the HSR Act and
(iii) cooperate with the Company in connection with any filing of the Company
under the HSR Act and in connection with resolving any investigation or other
inquiry concerning the transactions contemplated by this Agreement or the
Ancillary Agreements commenced by either the Federal Trade Commission or the
Antitrust Division of the Department of Justice or state attorneys general.
(b) In furtherance and not in limitation of the covenants of Parent and the
Purchaser contained in Sections 6.5 and Section 6.6(a) hereof, Parent, the
Purchaser and the Company shall each use their best efforts to resolve such
objections, if any, as may be asserted with respect to the Offer, the Spin-Off,
the Merger or any other transactions contemplated by this Agreement or the
Ancillary Agreements under any Antitrust Law (as hereafter defined). If any
administrative, judicial or legislative action or proceeding is instituted (or
threatened to be instituted) challenging the Offer, the Spin-Off, the Merger or
any other transactions
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contemplated by this Agreement or the Ancillary Agreements as violative of any
Antitrust Law, Parent, the Purchaser and the Company shall each cooperate and
use its best efforts vigorously to contest and resist any such action or
proceeding, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (any such decree, judgment, injunction or other order is hereafter
referred to as an "Order") that is in effect and that restricts, prevents or
prohibits consummation of the Offer, the Spin-Off, the Merger or any other
transactions contemplated by this Agreement or the Ancillary Agreements,
including, without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative actions.
Parent and the Purchaser shall each also use its best efforts to take such
action, including, without limitation (but subject to the provisions of
paragraph (c) below), agreeing to hold separate or to divest any of the
businesses, product lines, or assets of Parent or the Purchaser or any of their
affiliates or, following the consummation of the Offer or the Effective Time,
of the Company or any of the Retained Subsidiaries, as may be required (a) by
the applicable governmental or regulatory authority (including without
limitation the Federal Trade Commission, the Antitrust Division of the
Department of Justice or any state attorney general) in order to resolve such
objections as such governmental or regulatory authority may have to such
transactions under such Antitrust Law, or (b) by any domestic or foreign court
or other tribunal, in any action or proceeding brought by a private party or
governmental or regulatory authority challenging such transactions as violative
of any Antitrust Law, in order to avoid the entry of, or to effect the
dissolution, vacating, lifting or reversal of, any Order that has the effect of
restricting, preventing or prohibiting the consummation of any such
transactions. The entry by a court or other tribunal, in any action or
proceeding brought by a private party or governmental or regulatory authority
challenging the transactions contemplated hereby as violative of any Antitrust
Law, of an Order permitting such transactions, but requiring that any of the
businesses, product lines or assets of any of Parent, the Purchaser or any of
their affiliates or, following the consummation of the Offer or the Effective
Time, of the Company or any of the Retained Subsidiaries be divested or held
separate by Parent and the Purchaser, or that would otherwise limit Parent's
and the Purchaser's freedom of action with respect to, or their ability to
retain, the Company, any Retained Subsidiary or any businesses, product lines
or assets thereof or any of Parent's or the Purchaser's or their respective
affiliates' other businesses, product lines or assets, shall not be deemed a
failure to satisfy any of the conditions specified in Article VII hereof
(subject however to the provisions of paragraph (c) below). Notwithstanding the
foregoing, the Company shall not be required to divest or hold separate or
otherwise take or commit to take any action that, prior to the Effective Time,
limits its freedom of action with respect to, or its ability to retain, its
subsidiaries or any of their respective businesses, product lines or assets.
(c) Notwithstanding anything to the contrary contained in this Section 6.6 or
in Sections 6.4 or 6.5 hereof, (i) neither Parent nor any of its subsidiaries
or affiliates shall be required to agree to divest (A) any of their respective
businesses, product lines or assets, if the fair market value of any such
businesses, product lines or assets is, as of the date in question, in excess
of $10 million (after taking into account the present and future prospects
thereof) or (B) following the consummation of the Offer or the Effective Time,
any of the businesses, product lines or assets of the Company or any of the
Retained Subsidiaries; and (ii) neither Parent nor any of its subsidiaries or
affiliates shall be required to take or agree to take any action or agree to
any limitation which would materially impair Parent's ability to exercise
control over or manage the business and affairs of the Retained Business or
materially impair Parent's ability to obtain the other benefits provided by
this Agreement in order to obtain termination of the waiting period under the
HSR Act.
(d) Each of the Company, Parent and the Purchaser shall promptly inform the
other party of any material communication received by such party from the
Federal Trade Commission, the Antitrust Division of the Department of Justice
or any other governmental or regulatory authority regarding any of the
transactions contemplated hereby. Parent and the Purchaser will advise the
Company promptly in respect of any understandings, undertakings or agreements
(oral or written) which Parent or the Purchaser proposes to make or enter into
with the Federal Trade Commission, the Antitrust Division of the Department of
Justice or any other governmental or regulatory authority in connection with
the transactions contemplated hereby.
(e) "Antitrust Law" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign statutes, rules,
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regulations, orders, decrees, administrative and judicial doctrines, and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade.
Section 6.7. Public Announcements. Parent, the Purchaser and the Company will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the Offer or the Merger and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or by obligations pursuant to
any listing agreement with any securities exchange.
Section 6.8. Employee Agreements. Prior to the Spin-Off, the Company shall
use its best efforts to, and shall use its best efforts to cause its
subsidiaries to, assign to Spinco or its subsidiaries or terminate all
employment agreements with officers of the Company who are not Retained
Employees (the "Employment Agreements") and all severance agreements with
officers of the Company who are not Retained Employees (the "Severance
Agreements"). The parties hereto acknowledge and agree that, whether or not
such Employment Agreements and Severance Agreements are so assigned or
terminated, all liabilities and obligations under or arising from such
Employment Agreements and Severance Agreements shall be deemed to be "Company
Liabilities", as such term is defined in the Distribution Agreement, with
respect to which Spinco shall indemnify the Company and Parent as provided
therein. Parent acknowledges and agrees that the employment agreements and
severance agreements with the Retained Employees (as defined in Section 6.9
below) set forth in Section 6.8 of the Disclosure Schedule will be binding and
enforceable obligations of the Surviving Corporation, except as the parties
thereto may otherwise agree. The parties hereto acknowledge and agree that all
liabilities and obligations under or arising from such agreements with the
Retained Employees from and after the consummation of the Offer shall be deemed
to be "Prescription Liabilities" as such term is defined in the Distribution
Agreement, with respect to which the Company shall indemnify Spinco as provided
therein.
Section 6.9. Employee Benefits. Parent hereby agrees as follows:
(a) For a period of three years following the Effective Time, Parent shall
cause the Surviving Corporation and its successors to provide the employees of
the Company and its subsidiaries remaining with the Company and the Retained
Subsidiaries following the Spin-Off and former employees of the Retained
Business (collectively, the "Retained Employees") with employee benefits,
programs, policies and arrangements which in the aggregate are no less
favorable than those provided by the Company to such Retained Employees
immediately prior to the date hereof. With respect to such benefits, programs,
policies and arrangements, service accrued by such Retained Employees during
employment with the Company and its subsidiaries prior to the Effective Time
shall be preserved and maintained for all purposes except to the extent that
benefits may be duplicated.
(b) As soon as practicable following the Effective Time, Spinco shall take
all action necessary and appropriate to cause the assets and liabilities of the
Company Retirement Plan (the "Retirement Plan") attributable to Retained
Employees (other than former employees of the Retained Business) to be
transferred, in compliance with Section 414(l) of the Code and the Treasury
Regulations applicable thereto and on terms reasonably satisfactory to Parent
and the Surviving Corporation, to a comparable defined benefit pension plan
sponsored by Parent, the Purchaser or the Surviving Corporation (the "Parent DB
Plan") in which such employees are eligible to participate. Following such
transfer, Parent, the Purchaser, the Surviving Corporation and the Parent DB
Plan (or any successor thereto) shall be solely responsible for all liabilities
under the Retirement Plan relating to such Retained Employees.
(c) The Company and Spinco shall take all action necessary and appropriate to
cause the Profit Sharing and Investment Plan, as amended (the "PSIP"), to be
assumed by Spinco, effective as of the Effective Time. In connection therewith,
all of the indebtedness of the Company (and guarantees made by the Company of
indebtedness of the trust established under the PSIP) relating to the
unallocated Shares and unallocated shares of Series B ESOP Preferred Stock held
by the PSIP shall be assumed by Spinco, effective as of the Effective Time. As
soon as practicable after the Effective Time, Spinco shall take all action
necessary and
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appropriate to cause the account balances under the PSIP of Retained Employees
(other than former employees of the Retained Business) to be transferred to a
defined contribution plan sponsored by Parent, the Purchaser or the Surviving
Corporation (the "Parent DC Plan") in which such Retained Employees are
eligible to participate. Following such transfer, Parent, the Purchaser, the
Surviving Corporation and the Parent DC Plan (or any successor thereto) shall
be solely responsible for all liabilities under the PSIP relating to such
Retained Employees.
Section 6.10. Ancillary Agreements; Spin-Off. (a) Simultaneously with the
execution hereof, the Company and certain of its subsidiaries are entering into
the Distribution Agreement and each of the Additional Agreements. Immediately
prior to the Record Date, the Company, Spinco and certain other parties will
enter into the Tax Sharing Agreement. The parties thereto may hereafter amend
any of the Ancillary Agreements, provided that no such amendment to the
Distribution Agreement or any of the Additional Agreements may be made which
adversely affects the Retained Business or Spinco's performance of its
obligations under such Agreement without the prior written consent of Parent.
Subject to Section 3.2 of the Distribution Agreement, the Company shall use its
best efforts to consummate as promptly as reasonably practicable the
transactions provided for in the Distribution Agreement, including, without
limitation, the Spin-Off.
(b) From and after the Effective Time, Parent shall cause the Surviving
Corporation to perform any and all agreements and obligations of the Company
set forth in the Ancillary Agreements and in the other agreements contemplated
thereby.
(c) Parent and the Purchaser accept and agree that the form of certificate of
incorporation and by-laws of Spinco adopted in contemplation of the Spin-Off
shall be as agreed to by the Company and Spinco in their sole discretion,
provided that nothing in the charter and by-laws (to the extent such charter
and by-laws differ materially from the provisions of the Restated Certificate
of Incorporation and By-Laws of the Company as in effect as of the date hereof)
shall adversely affect Spinco's performance of its obligations under the
Ancillary Agreements.
(d) If, for any reason, any shares of common stock of Spinco distributed in
the Spin-Off are received by Parent or the Purchaser or any of their
subsidiaries with respect to Shares acquired by the Purchaser in the Offer or
otherwise, then Parent or the Purchaser shall convey, on behalf of the Company,
such shares of Spinco to the stockholders of the Company who would have
otherwise received such shares of Spinco pursuant to the Distribution
Agreement.
(e) If the Company reasonably determines that the Spin-Off may not be
effected without registering the shares of common stock of Spinco to be
distributed in the Spin-Off pursuant to the Securities Act, the Company, Parent
and the Purchaser, as promptly as practicable, shall use their respective best
efforts to cause the shares of Spinco to be registered pursuant to the
Securities Act and thereafter effect the Spin-Off in accordance with the terms
of the Distribution Agreement including, without limitation, by preparing and
filing on an appropriate form a registration statement under the Securities Act
covering the shares of Spinco and using their respective best efforts to cause
such registration statement to be declared effective and preparing and making
such other filings as may be required under applicable state securities laws.
(f) Parent shall, and shall cause the Surviving Corporation to, treat the
Spin-Off for purposes of all federal and state taxes as an integrated
transaction with the Offer and the Merger and thus report the Spin-Off as a
constructive redemption of a number of Shares equal in value to the value of
Spinco at the time of the Spin-Off.
Section 6.11. Retained Business Financial Statements. The parties hereto
acknowledge that Deloitte & Touche is currently auditing a balance sheet,
income statement and statement of cash flows of the Retained Business as of and
for each of the three fiscal years ended March 31, 1992, March 31, 1993 and
March 31, 1994 (the "Retained Business Financial Statements"). The Company
hereby agrees to use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable to assist and otherwise cause Deloitte & Touche to complete the audit
of the Retained Business Financial Statements as promptly as reasonably
practicable. The Company will pay Deloitte & Touche's fees and
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expenses for auditing the Retained Business Financial Statements. The Company
also agrees to provide to Parent as promptly as reasonably practicable such
quarterly unaudited financial information relating to the Retained Business and
covering periods following the date hereof as may be prepared by the Company in
the ordinary course.
Section 6.12. Pre-Closing Consultation. Following the date hereof and prior
to the Effective Time, the Company shall designate a senior officer of the
Company (the "Company Representative") to consult with an officer of Parent
designated by Parent (the "Parent Representative") with respect to major
business decisions to be made concerning the operation of the Retained
Business. Such consultation shall be made on as frequent a basis as may be
reasonably requested by Parent. The parties hereto acknowledge and agree that
the agreements set forth in this Section 6.12 shall be subject to any
restrictions or limitations under applicable law.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) This Agreement shall have been adopted by the affirmative vote of the
stockholders of the Company by the requisite vote in accordance with applicable
law, if required by applicable law;
(b) No statute, rule, regulation, order, decree, or injunction shall have
been enacted, entered, promulgated or enforced by any court or governmental
authority which prohibits or restricts the consummation of the Merger;
(c) Any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired;
(d) The Spin-Off shall have been consummated in all material respects; and
(e) The Offer shall not have been terminated in accordance with its terms
prior to the purchase of any Shares.
Section 7.2. Conditions to the Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger is further subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) The representations and warranties of Parent and the Purchaser contained
in this Agreement shall be true and correct in all material respects at and as
of the Effective Time as if made at and as of such time; and
(b) Each of Parent and the Purchaser shall have performed in all material
respects its obligations under this Agreement required to be performed by it at
or prior to the Effective Time pursuant to the terms hereof.
Parent and the Purchaser will furnish the Company with such certificates and
other documents to evidence the fulfillment of the conditions set forth in this
Section 7.2 as the Company may reasonably request.
Section 7.3. Conditions to Obligations of Parent and the Purchaser to Effect
the Merger. The obligations of Parent and the Purchaser to effect the Merger
are further subject to the satisfaction at or prior to the Effective Time of
the following conditions:
(a) The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as such time; and
(b) The Company shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time pursuant to the terms hereof.
25
<PAGE>
The Company will furnish Parent and the Purchaser with such certificates and
other documents to evidence the fulfillment of the conditions set forth in this
Section 7.3 as Parent or the Purchaser may reasonably request.
Section 7.4. Exception. The conditions set forth in Section 7.3 hereof shall
cease to be conditions to the obligations of the parties if the Purchaser shall
have accepted for payment and paid for Shares validly tendered pursuant to the
Offer, provided that the terms of this exception will be deemed satisfied if
the Purchaser fails to accept for payment any Shares pursuant to the Offer in
violation of the terms thereof.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of Parent, the Purchaser and the Company;
(b) by either Parent, on the one hand, or the Company, on the other hand, if
the Offer shall expire or have been terminated in accordance with its terms
without any Shares being purchased thereunder, or the Purchaser shall not have
accepted for payment or paid for Shares validly tendered pursuant to the Offer
prior to December 31, 1994;
(c) by Parent, on the one hand, or the Company, on the other hand, if any
court of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable;
(d) by the Company if, prior to the purchase of Shares pursuant to the Offer,
(i) a third party shall have made an Acquisition Proposal and the Board of
Directors of the Company determines in good faith, based upon the advice of
counsel, that the failure to pursue such Acquisition Proposal may reasonably
constitute a breach of its fiduciary duties under applicable law (provided that
such termination under this Section 8.1(d) shall not be effective until payment
of the fee required by Section 8.3(a) hereof), or (ii)(A) other than in
response to an Acquisition Proposal, the Board of Directors of the Company
determines in good faith, based upon the advice of counsel, that the failure to
so terminate this Agreement would present a substantial likelihood of a breach
of its fiduciary duties under applicable law and (B) the Company notifies
Parent of such determination of its Board of Directors at least 30 days prior
to the date of any such termination (provided that such termination shall not
be effective until payment of the fee referred to in Section 8.3(d) hereof); or
(e) by Parent prior to the purchase of Shares pursuant to the Offer, if the
Company or its Board of Directors shall have (i) withdrawn (including by
amendment of the Schedule 14D-9) its recommendation to the Company's
stockholders of the Offer, this Agreement or the Merger or shall have
recommended to the Company's stockholders that they accept the terms of a Third
Party Acquisition (as defined below), or (ii) a Third Party Acquisition shall
have occurred (provided that any termination under clauses (i) or (ii) of this
Section 8.1(e) shall not relieve the Company of its fee obligations under
Section 8.3(b) hereof).
Notwithstanding anything to the contrary contained in this Section 8.1, in the
event that the Designated Directors (as defined in Section 8.4 hereof)
constitute in their entirety a majority of the Company's Board of Directors,
the Company shall not be permitted to terminate, or consent to the termination
of, this Agreement without the approval of a majority of the Continuing
Directors (as defined in Section 8.4 hereof) if at the time thereof there shall
be any Continuing Directors.
Section 8.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement
shall forthwith become void and have no effect,
26
<PAGE>
without any liability on the part of any party or its directors, officers or
shareholders, other than the provisions of Sections 6.3(b), 8.3, 9.3 and 9.11
hereof. Nothing contained in this Section 8.2 shall relieve any party from
liability for any willful breach of this Agreement.
Section 8.3. Fees and Expenses. (a) If the Company terminates this Agreement
pursuant to Section 8.1(d)(i) hereof, the Company shall, simultaneously with
such termination, pay to Parent a fee, in cash, of $100 million.
(b) If Parent terminates this Agreement pursuant to Section 8.1(e) hereof and
prior to such termination or within nine months thereafter, a Third Party
Acquisition is consummated involving any entity or group (other than Parent and
the Purchaser or any affiliate thereof) which is a Higher Offer (as defined
below), then the Company shall, on the date of such termination or consummation
(whichever is later) or, if later, the date of the determination contemplated
pursuant to Section 8.3(e) hereof, pay to Parent a fee, in cash, of $100
million.
(c) If the Company or Parent terminates this Agreement for any reason other
than the bases for terminating this Agreement under Sections 8.1(a), (d)(i) or
(e) hereof (unless Parent or the Purchaser shall at the time of such
termination be in material breach, other than a breach which is curable, and
which Parent and the Purchaser are using their best efforts to cure) and prior
to or within nine months after the date of such termination a Third Party
Acquisition is consummated involving any entity or group (other than Parent and
the Purchaser or any affiliate thereof) which is a Higher Offer, then the
Company shall, on the date of such termination or consummation (whichever is
later) or, if later, the date of the determination contemplated pursuant to
Section 8.3(e) hereof, pay to Parent a fee, in cash, of $100 million (subject
to the proviso in the last sentence of Section 8.3(g)).
(d) If the Company terminates this Agreement pursuant to Section 8.1(d)(ii)
hereof (unless Parent or the Purchaser shall at the time of such termination be
in material breach, other than a breach which is curable, and which Parent and
the Purchaser are using their best efforts to cure) the Company shall,
simultaneously with such termination, pay to Parent a fee, in cash, of $40
million.
(e) As used herein, the term "Third Party Acquisition" means the occurrence
of any of the following events (i) the acquisition of the Company by merger or
otherwise by any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) or entity other than Parent, the
Purchaser or any affiliate thereof (a "Third Party"); (ii) the acquisition by a
Third Party of more than 50% of the total assets of the Company and its
subsidiaries, taken as a whole, or of 50% or more of the total assets of the
Retained Business; or (iii) the acquisition by a Third Party of 50% or more of
the outstanding Shares, or 50% or more of the equity interest in, or the voting
power with respect to the election of directors of, the Retained Business. As
used herein, the term "Higher Offer" means any Third Party Acquisition which
reflects a higher value for the Retained Business than the value being provided
by Parent pursuant to the Offer, the Merger and the Additional Agreements. In
valuing such a Third Party Acquisition, due regard shall be given to the value
to the Company or its stockholders of any additional arrangements involved in
such Third Party Acquisition. In the first instance, such determination shall
be made by the Company's Board of Directors prior to consummation of such Third
Party Acquisition, and written notice of such determination shall be provided
promptly to Parent. In the event that Parent objects to the Company's
determination as to whether a Third Party Acquisition is a Higher Offer, Parent
shall so notify the Company in writing within 20 days of receipt of such
notice. If the parties are unable to resolve such dispute within 20 days of the
Company's receipt of such notice from Parent, the financial advisors of each of
the Company and Parent shall jointly select a third, independent and
nationally-recognized investment banking firm (the "IB"). The IB shall
thereupon determine as promptly as practicable whether or not the Third Party
Acquisition constitutes a Higher Offer, taking into account all relevant facts
and circumstances. The parties hereto agree to cooperate with the IB
(including, without limitation, providing the IB with full access to all such
information which the IB deems relevant and which the IB agrees to keep
confidential) to the extent reasonably requested by the IB. The fees and
expenses incurred by the IB shall be shared equally by the Company and Parent.
The determination of the IB shall be final and binding upon the parties hereto.
In the event that the IB determines that the Third
27
<PAGE>
Party Acquisition constitutes a Higher Offer, the Company shall pay to Parent
the $100 million cash fee referred to above within five business days following
the date of such determination.
(f) Except as specifically provided in this Section 8.3 and except as
otherwise specifically provided in the Distribution Agreement, each party shall
bear its own costs and expenses in connection with this Agreement and the
transactions contemplated hereby.
(g) Notwithstanding anything to the contrary contained in this Agreement,
upon payment by the Company of the fees and expenses referred to in this
Section 8.3, the Company shall be released from all liability hereunder,
including any liability for any claims by Parent, the Purchaser or any of their
affiliates based upon or arising out of any breach of this Agreement or any
Ancillary Agreement. In no event shall the Company be required to pay more than
one fee pursuant to this Section 8.3, provided that if the Company shall have
paid the $40 million fee contemplated by Section 8.3(d) hereof and a $100
million fee shall otherwise become payable pursuant to this Section 8.3, the
Company shall pay Parent at that time $60 million.
Section 8.4. Amendment. This Agreement may be amended by action taken by the
Company, Parent and the Purchaser at any time before or after adoption of the
Merger by the stockholders of the Company, if any; provided that (x) in the
event that any persons designated by Parent pursuant to Section 1.4 hereof
(such directors are hereinafter referred to as the "Designated Directors")
constitute in their entirety a majority of the Company's Board of Directors, no
amendment shall be made which decreases the cash price per Share or which
adversely affects the rights of the Company's stockholders hereunder without
the approval of a majority of the Continuing Directors (as hereafter defined)
if at the time there shall be any Continuing Directors and (b) after the date
of adoption of the Merger by the stockholders of the Company, no amendment
shall be made which decreases the cash price per Share or which adversely
affects the rights of the Company's stockholders hereunder without the approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of the parties. For purposes hereof, the term
"Continuing Director" shall mean (a) any member of the Board of Directors of
the Company as of the date hereof, (b) any member of the Board of Directors of
the Company who is unaffiliated with, and not a Designated Director or other
nominee of, Parent or the Purchaser or their respective subsidiaries, and (c)
any successor of a Continuing Director who is (i) unaffiliated with, and not a
Designated Director or other nominee of, Parent or the Purchaser or their
respective subsidiaries and (ii) recommended to succeed a Continuing Director
by a majority of the Continuing Directors then on the Board of Directors.
Section 8.5. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein; provided that (x) in the event that any Designated Directors
constitute in their entirety a majority of the Company's Board of Directors, no
extensions or waivers shall be made which adversely affect the rights of the
Company's stockholders hereunder without the approval of a majority of the
Continuing Directors if at the time there shall be any Continuing Directors and
(y) after the date of adoption of the Merger by the stockholders of the
Company, no extensions or waivers shall be made which adversely affect the
rights of the Company's stockholders hereunder without the approval of such
stockholders. Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
28
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1. Survival. Except as otherwise expressly set forth in the
Distribution Agreement, the representations, warranties, covenants and
agreements made herein shall not survive beyond the Effective Time; provided
that the covenants and agreements contained in Sections 2.7, 2.8, 2.10, 3.1,
3.2, 6.3(b), 6.4, 6.5, 6.6, 6.8, 6.9, 6.10, 8.2, 8.3, 8.4, 8.5, 9.3, 9.5 and
9.11 hereof shall survive beyond the Effective Time without limitation.
Section 9.2. Entire Agreement. Except for the provisions of the
Confidentiality Agreement which shall continue in full force and effect, this
Agreement (including the schedules and exhibits and the agreements and other
documents referred to herein, including, without limitation, the Ancillary
Agreements) constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all other prior negotiations,
commitments, agreements and understandings, both written and oral, between the
parties or any of them with respect to the subject matter hereof.
Section 9.3. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (regardless of the laws
that might otherwise govern under applicable principles of conflicts law) as to
all matters, including, without limitation, matters of validity, construction,
effect, performance and remedies.
Section 9.4. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to the Company, to:
McKesson Corporation
One Post Street
San Francisco, California 94104
Telephone: (415) 983-8300
Telecopy No.: (415) 983-8826
Attention: Ivan D. Meyerson, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy No.: (212) 735-2001
Attention: Peter Allan Atkins, Esq.
(b) If to Parent or the Purchaser, to:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Telephone: (317) 276-2000
Telecopy No.: (317) 276-9152
Attention: General Counsel
29
<PAGE>
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Telephone: (212) 259-8000
Telecopy No.: (212) 259-6333
Attention: Bernard E. Kury, Esq.
Section 9.5. Successors and Assigns; No Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party (whether by operation
of law or otherwise) without the prior written consent of the other party;
provided that Parent may assign its rights and obligations or those of the
Purchaser to Parent or any subsidiary of Parent, but no such assignment shall
relieve Parent or the Purchaser, as the case may be, of its obligations
hereunder. This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and except for Sections 2.7, 2.8, 2.10, 6.8 and 6.10
hereof nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 9.6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
Section 9.7. Interpretation. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. As used in this Agreement, the
term "person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
Section 9.8. Schedules. The Disclosure Schedule shall be construed with and
as an integral part of this Agreement to the same extent as if the same had
been set forth verbatim herein.
Section 9.9. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
affecting the validity or enforceability of the remaining provisions hereof.
Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 9.10. Specific Performance. Each of the parties hereto acknowledges
and agrees that in the event of any breach of this Agreement, each non-
breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties
hereto (a) will waive, in any action for specific performance, the defense of
adequacy of a remedy at law and (b) shall be entitled, in addition to any other
remedy to which they may be entitled at law or in equity, to compel specific
performance of this Agreement in any action instituted in any state or federal
court sitting in Wilmington, Delaware. The parties hereto consent to personal
jurisdiction in any such action brought in any state or federal court sitting
in Wilmington, Delaware and to service of process upon it in the manner set
forth in Section 9.4 hereof.
Section 9.11. Brokerage Fees and Commissions. Except as previously disclosed
in writing, the Company hereby represents and warrants to Parent with respect
to the Company, and Parent hereby represents and warrants to the Company with
respect to Parent and the Purchaser, that no person or entity is entitled to
receive from the Company or Parent and the Purchaser, respectively, any
investment banking, brokerage or finder's fee or fees for financial consulting
or advisory services in connection with this Agreement or any of the
transactions contemplated hereby.
30
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
MCKESSON CORPORATION
/s/ Garret Scholz
By:
--------------------------
Name: Garret Scholz
Title: Vice President-Finance
Attest:
/s/ Arthur Chong
- -------------------------
ELI LILLY AND COMPANY
/s/ Randall L. Tobias
By:
--------------------------
Name: Randall L. Tobias
Title: Chairman and Chief
Executive Officer
Attest:
/s/ Daniel P. Carmichael
- -------------------------
ECO ACQUISITION CORPORATION
/s/ Charles E. Schalliol
By:
--------------------------
Name: Charles E. Schalliol
Title: President
Attest:
/s/ Daniel P. Carmichael
- -------------------------
31
<PAGE>
EXHIBIT F
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Purchaser shall not be
required to purchase any Shares tendered, and may terminate the Offer, if (i)
immediately prior to the expiration of the Offer (as extended in accordance
with the terms of the Offer), (A) any applicable waiting period under the HSR
Act shall not have expired or been terminated, (B) the record date for the
distribution of shares of Spinco Common Stock to stockholders of the Company
pursuant to the Distribution Agreement shall not have been set by the Company's
Board of Directors, or (C) the number of Shares validly tendered and not
withdrawn which, when added to the Shares then beneficially owned by the Parent
and its affiliates, does not constitute a majority of the Shares outstanding
and representing a majority of the voting power of the Shares outstanding on a
fully diluted basis on the date of purchase, or (ii) on or after July 10, 1994
and prior to the acceptance for payment of Shares, any of the following events
shall occur:
(a) any of the representations or warranties of the Company contained in
the Merger Agreement shall not have been true and correct at the date when
made or (except for those representations and warranties made as of a
particular date which need only be true and correct as of such date) shall
cease to be true and correct at any time prior to consummation of the
Offer, except where the failure to be so true and correct would not,
individually or in the aggregate, have a Material Adverse Effect; provided
that, if any such failure to be so true and correct is curable by the
Company through the exercise of its best efforts and for so long as the
Company continues to use such best efforts, the Purchaser may not terminate
the Offer under this subsection (a); or
(b) the Company shall have breached any of its covenants or agreements
contained in the Merger Agreement, except for any such breaches that,
individually or in the aggregate, would not have a Material Adverse Effect;
provided that, if any such breach is curable by the Company through the
exercise of its best efforts and for so long as the Company continues to
use such best efforts, the Purchaser may not terminate the Offer under this
subsection (b); or
(c) there shall be any statute, rule regulation, decree, order or
injunction promulgated, enacted, entered or enforced, or any legal or
administrative proceeding initiated by any United States federal or state
government, governmental authority or court which would (i) prohibit the
Purchaser from consummating the Offer, the Merger or the Spin-Off, (ii)
impose any material adverse limitation on the ability of Parent to exercise
full rights of ownership of the Shares or to control the Retained Business,
or (iii) have a Material Adverse Effect (provided that the provisions of
this clause (iii) shall only apply in the event of any statute, rule,
regulation, decree, order or injunction (A) which is enacted or entered
into following the date of the Merger Agreement and (B) the substantive
provisions of which were initially proposed for enactment following the
date of the Merger Agreement); or
(d) there shall have been any damage or destruction affecting the
facilities or properties (tangible or intangible) owned or used by the
Retained Business, which would result in a Material Adverse Effect;
provided that, if any such damage or destruction is curable by the Company
through the exercise of its best efforts and for so long as the Company
continues to use such best efforts, the Purchaser may not terminate the
Offer under this subsection (d); or
(e) there shall have occurred (i) any general suspension of trading in
securities on the New York Stock Exchange, Inc., (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, or (iii) a commencement of a war or armed hostilities
involving the United States, which in the case of any of the foregoing
clauses (i), (ii) or (iii) would have a Material Adverse Effect; or
(f) any person, entity or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) has become the beneficial owner (as that term
is defined in Rule 13d-3 promulgated under the Exchange Act) of more than
thirty percent (30%) of the Shares outstanding on a fully diluted basis, or
has been
F-1
<PAGE>
granted any option or right, conditional or otherwise, to acquire or vote
more than thirty percent (30%) of the Shares; or
(g) the Merger Agreement shall have been terminated in accordance with
its terms.
The foregoing conditions are for the sole benefit of the Purchaser and may be
asserted by the Purchaser regardless of the circumstances giving rise to such
conditions, or may be waived by the Purchaser in whole or in part at any time
and from time to time in its sole discretion; provided that the conditions set
forth in clauses (i)(A), (B) and (C) or (ii)(g) above may be waived or modified
only by mutual consent of the Purchaser and the Company.
F-2
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each
stockholder of the Company or his or her broker, dealer, commercial bank or
other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
CITIBANK, N.A.
By Mail:
By Facsimile Transmission:
By Overnight Courier:
Citibank, N.A. (For Eligible Institutions Only) Citibank, N.A.
c/o Citicorp Data (201) 262-3240 c/o Citicorp Data
Distribution, Inc. Distribution, Inc.
P.O. Box 7072 404 Sette Drive
Paramus, New Jersey 07653 Paramus, New Jersey 07652
By Telex:
Confirm By Telephone:
By Hand:
(710) 990-4964 (201) 262-4743 (Call Collect) Citibank, N.A.
Answer Back: CDDI PARA Corporate Trust Window
111 Wall Street, 5th
Floor
New York, New York
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal and the other tender offer materials may
be directed to the Information Agent or the Dealer Manager at their respective
telephone numbers and locations listed below. You may also contact your broker,
dealer, commercial bank or trust company or nominee for assistance concerning
the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (collect)
OR
CALL TOLL FREE (800) 755-3105
The Dealer Manager for the Offer is:
LEHMAN BROTHERS
3 World Financial Center
New York, New York 10285
(212) 526-2843 or (212) 526-3252
(Call Collect)
<PAGE>
EXHIBIT 99.2
Letter Of Transmittal
To Tender Shares of Common Stock
(Including the Associated Rights)
of
MCKESSON CORPORATION
Pursuant to the Offer to Purchase
Dated July 15, 1994
by
ECO ACQUISITION CORPORATION
a wholly owned subsidiary of
ELI LILLY AND COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, AUGUST 11, 1994, UNLESS EXTENDED. ECO
ACQUISITION CORPORATION HAS AGREED TO EXTEND THE OFFER TO THE FIRST
BUSINESS DAY FOLLOWING THE SPIN-OFF RECORD DATE (AS DEFINED IN THE
OFFER TO PURCHASE).
The Depositary:
CITIBANK, N.A.
By Mail: By Facsimile Transmission: By Hand:
Citibank, N.A. (For Eligible Institutions Only) Citibank, N.A.
c/o Citicorp Data (201) 262-3240 Corporate Trust Window
Distribution, Inc. 111 Wall Street, 5th
P.O. Box 7072 Floor
Paramus, New Jersey New York, New York
07653
By Overnight Courier: Confirm By Telephone: By Telex:
Citibank, N.A. (201) 262-4743 (Call Collect) (710) 990-4964
c/o Citicorp Data Answer Back: CDDI PARA
Distribution, Inc.
404 Sette Drive
Paramus, New Jersey
07652
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER, OTHER THAN AS SET FORTH ABOVE,
DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER
OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS
COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates are to be forwarded herewith or if delivery is to be made by book-
entry transfer to the Depositary's account at The Depository Trust Company
("DTC"), the Midwest Securities Trust Company ("MSTC") or the Philadelphia
Depository Trust Company ("PDTC"), which are hereinafter collectively referred
to as the "Book-Entry Transfer Facilities," pursuant to the procedures set
forth in Section 3 of the Offer to Purchase (as defined below). Stockholders
whose certificates are not immediately available or who cannot deliver their
certificates and all other documents required hereby to the Depositary prior to
the Expiration Date (as defined in Section 1 of the Offer to Purchase) or who
cannot comply with the book-entry transfer procedures on a timely basis must
tender their Shares (as defined below) according to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2.
Delivery of documents to a Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
<PAGE>
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH DTC, MSTC OR PDTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Check Box of Book-Entry Transfer Facility (check one):
[_] DTC [_] MSTC [_] PDTC
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s) _____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution that Guaranteed Delivery _______________________________
Check Box of Book-Entry Transfer Facility if Delivered by Book-Entry
Transfer (check one):
[_] DTC [_] MSTC [_] PDTC
Account Number (if delivered by Book-Entry Transfer) _______________________
Transaction Code Number ____________________________________________________
BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
HOLDER(S)
(PLEASE FILL
IN, IF BLANK,
EXACTLY AS
NAME(S)
APPEAR(S) ON CERTIFICATE(S) TENDERED
CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S)** TENDERED**
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL SHARES
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced
by any certificates delivered to the Depositary are being tendered. See
Instruction 4.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to ECO Acquisition Corporation (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Eli Lilly
and Company, an Indiana corporation ("Parent"), the above-described shares of
common stock (the "Common Stock"), par value $2.00 per share, of McKesson
Corporation, a Delaware corporation (the "Company"), and the associated
preferred stock purchase rights (the "Rights", and together with the Common
Stock, the "Shares") at $76.00 per Share, net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated July 15, 1994 (the "Offer to Purchase"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which, together with
the Offer to Purchase, constitute the "Offer"). The Rights were issued pursuant
to a Rights Agreement, dated as of May 7, 1986, between the Company and
Shareholder Services Trust Company (presently First Chicago Trust Company of
New York) as amended and restated and are currently evidenced by and trade with
certificates evidencing the Common Stock. The undersigned understands that
Purchaser reserves the right to transfer or assign, in whole or in part from
time to time or to one or more direct or indirect wholly owned subsidiaries of
Parent, the right to purchase Shares tendered pursuant to the Offer.
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Purchaser all right, title and interest in and to all of the
Shares that are being tendered hereby (and any and all other Shares or other
securities or property (other than regular quarterly cash dividends of not more
than $0.42 per Share) issued or issuable in respect thereof on or after July 1,
1994, other than the New McKesson Shares distributed in respect of the Shares
in connection with the Spin-Off (as such terms are defined in the Offer to
Purchase)) (such other Shares, securities or property other than the New
McKesson Shares being referred to herein as the "Other Securities") and
irrevocably appoints the Depositary the true and lawful agent and attorney-in-
fact of the undersigned with respect to such Shares (and any such Other
Securities) with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares (and any such Other Securities), or transfer
ownership of such Shares on the account books maintained by any of the Book-
Entry Transfer Facilities (and any such Other Securities), together in any such
case with all accompanying evidences of transfer and authenticity, to or upon
the order of the Purchaser, upon receipt by the Depositary, as the
undersigned's agent, of the purchase price (adjusted, if appropriate, as
provided in the Offer to Purchase), (b) present such Shares (and any such Other
Securities) for transfer on the books of the Company and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares (and any such Other Securities), all in accordance with the terms of the
Offer.
The undersigned hereby irrevocably appoints James M. Cornelius and J. B.
King, and each of them or any other designees of the Purchaser, the attorneys
and proxies of the undersigned, each with full power of substitution, to
exercise such voting and other rights as each such attorney and proxy or his
substitute shall, in his sole discretion, deem proper, and otherwise act
(including pursuant to written consent) with respect to all of the Shares
tendered hereby which have been accepted for payment by the Purchaser prior to
the time of such vote or action (and any and all Other Securities issued or
issuable in respect thereof on or after July 1, 1994), which the undersigned is
entitled to vote at any meeting of stockholders of the Company (whether annual
or special and whether or not an adjourned meeting), or written consent in lieu
of such meeting, or otherwise. This proxy is coupled with an interest in the
Shares tendered hereby and is irrevocable and is granted in consideration of,
and is effective upon, the acceptance for payment of such Shares by the
Purchaser in accordance with the terms of the Offer. Such acceptance for
payment shall revoke all prior proxies granted by the undersigned with respect
to such Shares (and any such Other Securities) and no subsequent proxies may be
given (and if given will be deemed not to be effective) with respect thereto by
the undersigned. The Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser is able to exercise full
voting and other rights of a record holder or beneficial holder, including
rights in respect of acting by written consent, with respect to such Shares and
Other Securities.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any and all Other Securities issued or issuable in respect thereof
on or after July 1, 1994, and that when the same are accepted for payment by
the Purchaser, the Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances, and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any signature guarantees or
additional documents deemed by the Depositary or the Purchaser to be necessary
or desirable to complete the sale, assignment and transfer of the Shares
tendered hereby (and any and all such Other Securities). In addition, the
undersigned shall promptly remit and transfer to the Depositary for the account
of the Purchaser any such Other Securities issued to the undersigned on or
after July 1, 1994, in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and pending such remittance or
appropriate assurance thereof, the Purchaser shall be entitled to all rights
and privileges as owner of any such Other Securities and may withhold the
entire purchase price or deduct from the purchase price the amount or value
thereof, as determined by the Purchaser in its sole discretion.
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated
in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer.
The undersigned recognizes that under certain circumstances set forth in the
Offer to Purchase, the Purchaser may not be required to accept for payment any
of the Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificates
for Shares not tendered or not accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing under
"Description of Shares Tendered." In the event that both the Special Delivery
Instructions and the Special Payment Instructions are completed, please issue
the check for the purchase price and/or return any certificates for Shares not
purchased (together with accompanying documents as appropriate) in the name(s)
of, and deliver said check and/or return such certificates to, the person or
persons so indicated. Stockholders tendering Shares by book-entry transfer may
request that any Shares not accepted for payment be returned by crediting such
account maintained at DTC, MSTC or PDTC as such stockholder may designate by
making an appropriate entry under "Special Payment Instructions." The
undersigned recognizes that the Purchaser has no obligation pursuant to the
Special Payment Instructions to transfer any Shares from the name of the
registered holder(s) thereof if the Purchaser does not accept for payment any
of the Shares so tendered.
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS
INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certifi- To be completed ONLY if certifi-
cates for Shares not tendered or cates for Shares not tendered or
not purchased and/or the check not purchased and/or the check
for the purchase price of Shares for the purchase price of Shares
purchased are to be issued in the purchased are to be sent to some-
name of someone other than the one other than the undersigned or
undersigned, or if Shares ten- to the undersigned at an address
dered by book-entry transfer other than that appearing under
which are not purchased are to be "Description of Shares Tendered."
returned by credit to an account
at one of the Book-Entry Transfer
Facilities.
Issue: [_] Check Mail: [_] Check
[_] Certificate(s) to: [_] Certificate(s) to:
Name _____________________________ Name _____________________________
(PLEASE PRINT)
Address __________________________ (PLEASE PRINT)
----------------------------------
(INCLUDE ZIP CODE)
---------------------------------- Address __________________________
----------------------------------
(TAX IDENTIFICATION OR SOCIAL SE- (INCLUDE ZIP CODE)
CURITY NUMBER) ----------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 INCLUDED
HEREIN)
(SEE SUBSTITUTE FORM W-9 INCLUDED
[_] Credit unpurchased Shares HEREIN)
tendered by book-entry transfer
to the account set forth below:
Credit Appropriate Box:
[_] DTC [_] MSTC [_] PDTC
----------------------------------
(ACCOUNT NUMBER)
<PAGE>
STOCKHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
................................................................
................................................................
(SIGNATURE(S) OF OWNER(S))
(Must be signed by registered holder(s) exactly as name(s)
appear(s) on stock certificate(s) or on a security position
listing or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith.
If signature is by trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or any other
person acting in a fiduciary or representative capacity, please
provide the following information. See Instruction 5.)
Dated....................................................., 1994
Name(s).........................................................
................................................................
(PLEASE PRINT)
Capacity (full title)...........................................
Address.........................................................
................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number..................................
Tax Identification or
Social Security Number..........................................
................................................................
(SEE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature............................................
Name............................................................
(PLEASE PRINT)
Name of Firm....................................................
Address.........................................................
................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number..................................
Dated....................................................., 1994
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on all Letters of Transmittal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., or by a commercial bank
or trust company having an office or correspondent in the United States (each
of the foregoing being referred to as an "Eligible Institution"), unless (i)
this Letter of Transmittal is signed by the registered holder(s) of Shares
(which term, for the purposes of this document, shall include any participant
in a Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Shares) and such holder(s) has (have) not completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on this Letter of Transmittal or (ii) such
shares are tendered for the account of an Eligible Institution. See Instruction
5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by stockholders
either if certificates for Shares are to be forwarded herewith or if a tender
of Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in Section 3 of the Offer to Purchase. Certificates for all
physically tendered Shares, or confirmation ("Book-Entry Confirmation") of any
book-entry transfer into the Depositary's account at DTC, MSTC or PDTC of
Shares delivered by book-entry transfer as well as a properly completed and
duly executed Letter of Transmittal, must be received by the Depositary, at one
of the addresses set forth herein prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase). Stockholders whose certificates are not
immediately available or who cannot deliver their certificates and all other
required documents to the Depositary prior to the Expiration Date or who cannot
comply with the book-entry transfer procedures on a timely basis may tender
their Shares by properly completing and duly executing a Notice of Guaranteed
Delivery pursuant to the guaranteed delivery procedure set forth in Section 3
of the Offer to Purchase. Pursuant to such procedure, (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
the Purchaser, must be received by the Depositary (as provided in (iii) below)
prior to the Expiration Date and (iii) the certificates for all physically
tendered Shares (or Book-Entry Confirmation with respect to such Shares), as
well as a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within five New York Stock Exchange, Inc. trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in
Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR SHARES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS
BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution
of this Letter of Transmittal (or facsimile thereof), waive any right to
receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry
transfer.) If fewer than all the Shares evidenced by any certificate submitted
are to be tendered, fill in the number of Shares which are to be tendered in
the box entitled "Number of Shares Tendered." In such case, new certificate(s)
for the remainder of the Shares that were evidenced by the old certificate(s)
will be sent to the registered holder, unless otherwise provided in the
appropriate box on this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or
any change whatsoever. If any of the Shares tendered hereby are held of record
by two or more persons, all such persons must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any certificates or stock powers are signed
by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or any person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by certificates listed and transmitted hereby, no endorsements
of certificates or separate stock powers are required unless payment is to be
made to or certificates for Shares not tendered or purchased are to be issued
in the name of a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
<PAGE>
If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Shares, evidenced by certificates listed and transmitted
hereby, the certificates must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name or names of the registered
holder or holders appear on the certificates. Signatures on such certificates
or stock powers must be guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or if certificates for
Shares not tendered or purchased are to be registered in the name of, any
person other than the registered holder(s), or if certificates for tendered
shares are registered in the name of any person other than the person(s)
signing this letter of transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder(s) or such other person) payable on
account of the transfer to such person will be deducted from the purchase price
unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER
OF TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check is to be issued in
the name of and/or certificates for Shares not tendered or not purchased are to
be returned to a person other than the signer of this Letter of Transmittal or
if a check is to be sent and/or such certificates are to be returned to someone
other than the signer above, the appropriate boxes on this Letter of
Transmittal should be completed. Stockholders tendering Shares by book-entry
transfer may request that Shares not purchased be credited to such account
maintained at any of the Book-Entry Transfer Facilities as such stockholder may
designate under "Special Delivery Instructions". If no such instructions are
given, any such Share not purchased will be returned by crediting the account
at the Book-Entry Transfer Facilities designated above.
8. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may
be directed to, or additional copies of the Offer to Purchase and this Letter
of Transmittal may be obtained from, the Information Agent or Dealer Manager at
the telephone numbers and addresses set forth below. Stockholders may also
contact their broker, dealer, commercial bank or trust company.
9. WAIVER OF CONDITIONS. Except as otherwise provided in the Offer to
Purchase, the Purchaser reserves the right in its sole discretion to waive in
whole or in part at any time or from time to time any of the specified
conditions of the Offer or any defect or irregularity in tender with regard to
any Shares tendered.
10. SUBSTITUTE FORM W-9. The tendering stockholder is required to provide the
Depositary with a correct Taxpayer Identification Number ("TIN"), generally the
stockholder's social security or employer identification number, on Substitute
Form W-9, which is provided under "Important Tax Information" below, and to
certify whether he or she is subject to backup withholding of federal income
tax. If a tendering stockholder is subject to backup withholding, he or she
must cross out item (2) of the Certification Box on Substitute Form W-9.
Failure to provide the information on Substitute Form W-9 may subject the
tendering stockholder to 31% federal income tax withholding on the payment of
the purchase price. If the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future,
he or she should write "Applied For" in the space provided for the TIN in Part
I, sign and date the Substitute Form W-9 and sign and date the Certificate of
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I
and the Depositary is not provided with a TIN within 60 days, the Depositary
will withhold 31% of payments for surrendered Shares thereafter until a TIN is
provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF) TOGETHER WITH
CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR
PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under federal tax law, a stockholder whose tendered Shares are accepted for
payment is required to provide the Depositary (as payer) with such
stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is
an individual, the TIN is his Social Security Number. If the Depositary is not
provided with the correct TIN, the stockholder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
<PAGE>
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his correct TIN by completing the Substitute Form
W-9 contained herein certifying that the TIN provided on the Substitute Form W-
9 is correct (or that such stockholder is awaiting a TIN) and that (1) the
stockholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of failure to report all interest or
dividends, or (2) the Internal Revenue Service has notified the stockholder
that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security number
or employer identification number of the record owner of the Shares. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to
report. If the tendering stockholder has not been issued a TIN and has applied
for a number or intends to apply for a number in the near future, he or she
should write "Applied For" in the space provided for the TIN in Part I, sign
and date the Substitute Form W-9 and sign and date the Certificate of Awaiting
Taxpayer Identification Number. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% of all payments of the purchase price until a TIN is provided to
the Depositary.
PAYER'S NAME: CITIBANK, N.A.
PART I--PLEASE PROVIDE YOUR ---------------------
SUBSTITUTE TIN IN THE BOX AT RIGHT AND Social Security Number
FORM W-9 CERTIFY BY SIGNING AND OR __________________
DEPARTMENT OF DATING BELOW: Employer Iden. No.
THE TREASURY
INTERNAL (If Awaiting TIN write
REVENUE "Applied for")
SERVICE
-------------------------------------------------------
PAYER'S REQUEST PART II--For Payees NOT subject to backup
FOR TAXPAYER withholding, see the enclosed Guidelines for
IDENTIFICATION Certification of Taxpayer Identification Number on
NUMBER (TIN) Substitute Form W-9 and complete as instructed
therein.
- --------------------------------------------------------------------------------
CERTIFICATION--Under the penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because either I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer
subject to backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines.)
- --------------------------------------------------------------------------------
Signature ___________________________ Date , 1994
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUM-
BER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOUWROTE "APPLIED FOR" IN PART I
OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under the penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Officer, or (b) I intend to mail or deliver an application
in the near future. I understand that if I do not provide a taxpayer
identification number within sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
------------------------------------ ------------------------------------
Signature(s) Date
<PAGE>
(DO NOT WRITE IN SPACES BELOW)
Date Received ........ Accepted By .......... Checked By ...........
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SHARES SHARES SHARES CHECK AMOUNT SHARES CERTIFICATE
SURRENDERED TENDERED ACCEPTED NUMBER OF CHECK RETURNED NUMBER
</TABLE>
- --------------------------------------------------------------------------------
Delivery Prepared By Checked By ........... Date .................
......................
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(212) 269-5550 (collect)
or
Call Toll Free (800) 755-3105
The Dealer Manager for the Offer is:
LEHMAN BROTHERS
3 World Financial Center
New York, New York 10285
(212) 526-2843 or (212) 526-3252
(Call Collect)
<PAGE>
EXHIBIT 99.3
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
MCKESSON CORPORATION
at
$76.00 NET PER SHARE
by
ECO ACQUISITION CORPORATION
a wholly owned subsidiary of
ELI LILLY AND COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, AUGUST 11, 1994, UNLESS THE OFFER IS EXTENDED. ECO
ACQUISITION CORPORATION HAS AGREED TO EXTEND THE OFFER TO THE FIRST
BUSINESS DAY FOLLOWING THE SPIN-OFF RECORD DATE (AS DEFINED IN THE OFFER TO
PURCHASE).
July 15, 1994
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated July 15,
1994 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") and other materials relating to the Offer by
ECO Acquisition Corporation (the "Purchaser"), a Delaware corporation and a
wholly owned subsidiary of Eli Lilly and Company, an Indiana corporation (the
"Parent"), to purchase all outstanding shares of common stock, par value $2.00
per share (including the associated Rights (as defined in the Offer to
Purchase)) (collectively, the "Shares"), of McKesson Corporation, a Delaware
corporation (the "Company"), at $76.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer. This material is being sent to you as the beneficial owner of Shares
held by us for your account but not registered in your name. A TENDER OF SUCH
SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS LETTER IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES
HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender any or all
of the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender price is $76.00 per Share, net to the seller in cash, without
interest.
2. The Offer and withdrawal rights will expire at 12:00 Midnight, New York
City time, on Thursday, August 11, 1994, unless the Offer is extended.
ECO Acquisition Corporation has agreed to extend the Offer until the
first business day following the Spin-Off Record Date (as defined in the
Offer to Purchase).
3. The Offer is being made as part of a series of transactions that are
expected to result in (i) the distribution to the stockholders of the
Company of shares of stock in a new corporation that will own all the
businesses of the Company other than its pharmaceutical benefits
management business (the "Spin-Off") and (ii) the acquisition of the
Company's pharmaceutical benefits management business by the Parent
pursuant to the Offer and the Merger (as defined in the Offer to
Purchase).
<PAGE>
4. The Board of Directors of the Company has unanimously approved the
Offer, the Merger and the Spin-Off, determined that the Offer, the
Merger and the Spin-Off are fair to the stockholders of the Company and
are in the best interests of the stockholders of the Company, and
recommends acceptance of the Offer and approval and adoption of the
Merger Agreement by the stockholders of the Company.
5. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in
the Offer to Purchase) a number of Shares which, when added to the
number of shares then beneficially owned by Parent and its affiliates,
represents at least a majority of the total number of Shares outstanding
and a majority of the voting power of the Shares outstanding on a fully
diluted basis.
6. Any stock transfer taxes applicable to the sale of Shares to the
Purchaser pursuant to the Offer will be paid by the Purchaser, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
The Company has advised the Purchaser that, prior to the time notice of the
Spin-Off Record Date is given and at least ten days prior to the Expiration
Date, it expects to distribute to holders of Shares and holders of other equity
securities of the Company an information statement with respect to the Spin-Off
(as defined in the Offer to Purchase).
The Offer is being made to all holders of Shares. The Offer is not being made
to, nor will tenders be accepted from or on behalf of, holders of Shares in any
jurisdiction in which the making of the Offer or acceptance thereof would not
be in compliance with the laws of such jurisdiction. In any jurisdiction where
the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
the Purchaser by Lehman Brothers or one or more registered brokers or dealers
licensed under the laws of such jurisdictions.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us the
instruction form set forth below. Please forward your instructions to us in
ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer. If you authorize the tender of your Shares, all such
Shares will be tendered unless otherwise specified on the instruction form set
forth below.
2
<PAGE>
Instructions with Respect to
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
MCKESSON CORPORATION
by
ECO ACQUISITION CORPORATION
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated July 15, 1994, and the related Letter of Transmittal, in
connection with the offer by ECO Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Eli Lilly and Company, an Indiana
corporation, to purchase for cash all outstanding shares of common stock, par
value $2.00 per share (including the associated Rights (as defined in the Offer
to Purchase)) (collectively, the "Shares"), of McKesson Corporation, a Delaware
corporation.
This will instruct you to tender the number of Shares indicated below (or if
no number is indicated below, all Shares) that are held by you for the account
of the undersigned, upon the terms and subject to the conditions set forth in
the Offer.
Dated: , 1994
NUMBER OF SHARES TO BE TENDERED:
_______ SHARES*
-------------------------------------
-------------------------------------
Signature(s)
-------------------------------------
Please Print Name(s)
-------------------------------------
-------------------------------------
Please Print Address(es)
-------------------------------------
Area Code and Telephone Number(s)
-------------------------------------
Tax, Identification, or Social Security Number(s)
- ---------------------
* I (We) understand that if I (we) sign this instruction form without
indicating a lesser number of Shares in the space above, all Shares held by
you for my (our) account will be tendered.
3
<PAGE>
EXHIBIT 99.4
LEHMAN BROTHERS 3 World Financial Center New York, New York 10285
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
MCKESSON CORPORATION
at
$76.00 NET PER SHARE
by
ECO ACQUISITION CORPORATION
a wholly owned subsidiary of
ELI LILLY AND COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, AUGUST 11, 1994, UNLESS THE OFFER IS EXTENDED.
ECO ACQUISITION CORPORATION HAS AGREED TO EXTEND THE OFFER TO THE FIRST
BUSINESS DAY FOLLOWING THE SPIN-OFF RECORD DATE (AS DEFINED IN THE
OFFER TO PURCHASE).
To Brokers, Dealers, Commercial Banks, July 15, 1994
Trust Companies and Other Nominees:
We have been appointed by ECO Acquisition Corporation (the "Purchaser"), a
Delaware corporation and a wholly owned subsidiary of Eli Lilly and Company, an
Indiana corporation, to act as Dealer Manager in connection with its offer to
purchase all outstanding shares of common stock, par value $2.00 per share
(including the associated Rights (as defined in the Offer to Purchase referred
to below)) (collectively, the "Shares"), of McKesson Corporation, a Delaware
corporation (the "Company"), at $76.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Purchaser's Offer to Purchase, dated July 15, 1994, and the related Letter of
Transmittal (which together constitute the "Offer").
For your information and for forwarding to your clients for whose accounts
you hold Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase, dated July 15, 1994;
2. Letter of Transmittal for your use and for the information of your
clients, together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Offer to Purchase);
4. A form of letter which may be sent to your clients for whose accounts
you hold Shares registered in your name or in the name of your nominee,
with space provided for obtaining such clients' instructions with regard
to the Offer;
5. Solicitation/Recommendation Statement on Schedule 14D-9 issued by the
Company; and
6. Return envelope addressed to Citibank, N.A., the Depositary.
<PAGE>
The Company has advised the Purchaser that, prior to the time notice of the
Spin-Off Record Date is given and at least ten days prior to the Expiration
Date, it expects to distribute to holders of Shares and holders of other equity
securities of the Company an information statement with respect to the Spin-Off
(as defined in the Offer to Purchase).
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will be deemed to have accepted for payment, and will
pay for, all Shares validly tendered and not properly withdrawn prior to the
Expiration Date (as defined in the Offer to Purchase) when, as and if the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. Payment for Shares
purchased pursuant to the Offer will be made only after timely receipt by the
Depositary of certificates for such Shares (or confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the Book-Entry
Transfer Facilities (as defined in the Offer to Purchase)), a properly
completed and duly executed Letter of Transmittal (or facsimile thereof)
(unless, in the case of a book-entry transfer, an Agent's Message (as defined
in the Offer to Purchase) is utilized) and any other documents required by the
Letter of Transmittal.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal, with any required signature guarantees and any
other required documents, should be sent to the Depositary, and certificates
representing the tendered Shares should be delivered, all in accordance with
the instructions set forth in the Letter of Transmittal and the Offer to
Purchase.
If holders of Shares wish to tender their Shares, but it is impracticable for
them to deliver their certificates on or prior to the Expiration Date or to
comply with the book-entry transfer procedures on a timely basis, a tender may
be effected by following the guaranteed delivery procedures specified in
Section 3 of the Offer to Purchase.
The Purchaser will not pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Manager or the Information Agent as
described in the Offer to Purchase) for soliciting tenders of Shares pursuant
to the Offer. The Purchaser will, however, upon request, reimburse brokers,
dealers, commercial banks and trust companies for reasonable and necessary
costs and expenses incurred by them in forwarding materials to their customers.
The Purchaser will pay all stock transfer taxes applicable to its purchase of
Shares pursuant to the Offer, subject to Instruction 6 of the Letter of
Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 11, 1994, UNLESS THE OFFER IS
EXTENDED. ECO ACQUISITION CORPORATION HAS AGREED TO EXTEND THE OFFER UNTIL THE
FIRST BUSINESS DAY FOLLOWING THE SPIN-OFF RECORD DATE (AS DEFINED IN THE OFFER
TO PURCHASE).
Any inquiries you may have with respect to the Offer should be addressed to,
and additional copies of the enclosed materials may be obtained from, the
Information Agent or the undersigned at the addresses and telephone numbers set
forth on the back cover of the Offer to Purchase.
Very truly yours,
Lehman Brothers
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY PERSON AS AN AGENT OF THE PURCHASER, THE COMPANY, ANY AFFILIATE
OF THE COMPANY, ELI LILLY AND COMPANY, THE DEALER MANAGER, THE INFORMATION
AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY
DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH
THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
2
<PAGE>
EXHIBIT 99.5
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
(Including the Associated Rights)
of
MCKESSON CORPORATION
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if the certificates representing shares of
common stock, par value $2.00 per share, of McKesson Corporation and the
associated preferred stock purchase rights (collectively, the "Shares") are not
immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or if time will not permit all required documents
to reach the Depositary at or prior to the expiration of the Offer. Such form
may be delivered by hand or transmitted by telegram, facsimile transmission,
telex or mail to the Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
CITIBANK, N.A.
By Mail: By Facsimile By Hand:
Citibank, N.A. Transmission: Citibank, N.A.
c/o Citicorp Data (For Eligible Corporate Trust Window
Distribution, Inc. Institutions) 111 Wall Street, 5th
P.O. Box 7072 (201) 262-3240 Floor
Paramus, New Jersey New York, New York
07653
Confirm by Telephone:
(201) 262-4743 By Telex:
By Overnight Courier: (Call Collect) (710) 990-4964
Citibank, N.A. Answer Back: CDDI PARA
c/o Citicorp Data
Distribution, Inc.
404 Sette Drive
Paramus, New Jersey
07652
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures.
If a signature on a Letter of Transmittal is required to be guaranteed by an
"Eligible Institution" under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the Letter
of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to ECO Acquisition Corporation (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Eli Lilly
and Company, an Indiana corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated July 15, 1994 (the "Offer
to Purchase"), and the related Letter of Transmittal (which together constitute
the "Offer"), receipt of which is hereby acknowledged, the number of Shares
indicated below pursuant to the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase.
Number of Shares: _________________ Name(s) of Record Holder(s):
Share Certificate Numbers (if -----------------------------------
available):
-----------------------------------
----------------------------------- Please Type or Print
----------------------------------- Address(es) _______________________
If Shares will be delivered by -----------------------------------
book-entry transfer, check one Zip Code
box: Area Code and Telephone Number:
[_]The Depository Trust Company -----------------------------------
[_]Midwest Securities Trust -----------------------------------
Company
-----------------------------------
[_]Philadelphia Depository Trust
Company
-----------------------------------
Signature(s)
Account Number ____________________
Dated: , 1994
Dated: , 1994
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange,
a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), hereby guarantees that either
the certificates representing the Shares tendered hereby in proper form for
transfer, or timely confirmation of a book-entry transfer of such Shares into
the Depositary's account at The Depository Trust Company, the Midwest
Securities Trust Company or the Philadelphia Depository Trust Company (pursuant
to guaranteed delivery procedures set forth in Section 3 of the Offer to
Purchase), together with a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) with any required signature
guarantee and any other required documents, will be received by the Depositary
at one of its addresses set forth above within five (5) New York Stock
Exchange, Inc. trading days after the date of execution hereof.
2
<PAGE>
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
Name of Firm: _______________________ -------------------------------------
Authorized Signature
Address: ____________________________
Name: _______________________________
Please Type or Print
-------------------------------
Zip Code Title: ______________________________
Area Code and Telephone Number: _____ Dated:_________________________, 1994
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF
TRANSMITTAL.
3
<PAGE>
EXHIBIT 99.6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
Purpose of Form.--A person who is required to file an information return with
the IRS must obtain your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an IRA. Use Form W-9 to furnish
your correct TIN to the requester (the person asking you to furnish your TIN)
and, when applicable, (1) to certify that the TIN you are furnishing is correct
(or that you are waiting for a number to be issued), (2) to certify that you
are not subject to backup withholding, and (3) to claim exemption from backup
withholding if you are an exempt payee. Furnishing your correct TIN and making
the appropriate certifications will prevent certain payments from being subject
to backup withholding.
Note: If a requester gives you a form other than W-9 to request your TIN, you
must use the requester's form.
How To Obtain a TIN.--If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Card (for individuals),
from your local office of the Social Security Administration, or Form SS-4,
Application for Employer Identification Number (for businesses and all other
entities), from your local IRS office.
To complete Form W-9 if you do not have a TIN, write "Applied for" in the
space for the TIN in Part I, sign and date the form, and give it to the
requester. Generally, you will then have 60 days to obtain a TIN and furnish it
to the requester. If the requester does not receive your TIN within 60 days,
backup withholding, if applicable, will begin and continue until you furnish
your TIN to the requester. For reportable interest or dividend payments, the
payer must exercise one of the following options concerning backup withholding
during this 60-day period. Under option (1), a payer must backup withhold on
any withdrawals you make from your account after 7 business days after the
requester receives this form back from you. Under option (2), the payer must
backup withhold on any reportable interest or dividend payments made to your
account, regardless of whether you make any withdrawals. The backup withholding
under option (2) must begin no later than 7 business days after the requester
receives this form back. Under option (2), the payer is required to refund the
amounts withheld if your certified TIN is received within the 60-day period and
you were not subject to backup withholding during that period.
Note: Writing "Applied for" on the form means that you have already applied
for a TIN OR that you intend to apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.
What Is Backup Withholding?--persons making certain payments to you after
1992 are required to withhold and pay to the IRS 31% of such payments under
certain conditions. This is called "backup withholding". Payments that could be
subject to backup withholding include interest, dividends, broker and barter
exchange transactions, rents, royalties, nonemployee compensation, and certain
payments from fishing boat operators, but do not include real estate
transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN, or
3. You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax
return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts
opened after 1983 only), or
<PAGE>
5. You do not certify your TIN. This applies only to reportable interest,
dividend, broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
Except as explained in 5 above, other reportable payments are subject to
backup withholding only if 1 or 2 above applies. Certain payees and payments
are exempt from backup withholding and information reporting. See Payees and
Payments Exempt From Backup Withholding, below, and Example Payees and Payments
under Specific Instructions, below, if you are an exempt payee.
Payees and Payments Exempt From Backup Withholding.--The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13) and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except a corporation that provides medical
and health care services or bills and collects payments for such services is
not exempt from backup withholding or information reporting. Only payees
described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
(1) A corporation. (2) An organization exempt from tax under section 501(a),
or an IRA, or a custodial account under section 403(b)(7). (3) The United
States or any of its agencies or instrumentalities. (4) A state, the District
of Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities. (5) A foreign government or any of its
political subdivisions, agencies, or instrumentalities. (6) An international
organization or any of its agencies or instrumentalities. (7) A foreign central
bank or issue. (8) A dealer in securities or commodities required to register
in the United States or a possession of the United States. (9) A futures
commission merchant registered with the Commodity Futures Trading Commission.
(10) A real estate investment trust. (11) An entity registered at all times
during the tax year under the Investment Company Act of 1940. (12) A common
trust fund operated by a bank under section 584(a). (13) A financial
institution. (14) A middleman known in the investment community as a nominee or
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664
or described in section 4947.
Payments of dividend and patronage dividends generally not subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct TIN to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N, and their regulations.
2
<PAGE>
PENALTIES
Failure To Furnish TIN.--If you fail to furnish your correct TIN to a
requester, your are subject to a penalty of $50 for each such failure unless
your failure is due to reasonable cause and not to willful neglect.
Civil Penalty for False Information With Respect to Withholding.--If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
Misuse of TINs.--If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
Name.--If you are an individual, you must generally provide the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either your SSN or EIN. You may also enter your business name or "doing
business as" name on the business name line. Enter your name(s) as shown on
your social security card and/or as it was used to apply for your EIN on Form
SS-4.
SIGNING THE CERTIFICATION.
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and
Broker Accounts Considered Active During 1983. You are required to furnish your
correct TIN, but you are not required to sign the certification.
2. Interest, Dividend, Broker, and Barter Exchange Accounts Opened After 1983
and Broker Accounts Considered Inactive During 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may cross
out item 2 of the certification.
4. Other Payments. You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
5. Mortgage Interest Paid by You, Acquisition or Abandonment of Secured
Property, or IRA Contributions. You are required to furnish your correct TIN,
but you are not required to sign the certification.
6. Exempt Payees and Payments. If you are exempt from backup withholding, you
should complete this form to avoid possible erroneous backup withholding. Enter
your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a complete Form W-8, Certificate of
Foreign Status.
7. TIN "Applied for." Follow the instructions under How To Obtain a TIN, on
page 1, and sign and date this form.
Signature.--For a joint account, only the person whose TIN is shown in Part I
should sign.
Privacy Act Notice.--Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid,
the acquisition or abandonment of secured property, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or
not you are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a TIN to a payer. Certain penalties may also apply.
3
<PAGE>
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<CAPTION>
For this type of account: Give name and SSN of:
<C> <S> <C>
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of the
account or, if combined
funds, the first
individual on the account
(1)
3. Custodian account of a minor (Uniform Gift to The minor (2)
Minors Act)
4.a. The usual revocable savings trust (grantor is The grantor-trustee(1)
also trustee)
b. So-called trust account that is not a legal The actual owner(1)
or valid trust under state law
5. Sole proprietorship The owner(3)
For this type of account: Give name and EIN of:
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or pension trust Legal entity(4)
8. Corporate The corporation
9. Association, club, religious, charitable, The organization
educational, or other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a state
or local government, school district or
prison)
that receives agriculture program payments
</TABLE>
- --------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) Show your individual name. Your may also enter your business name. You may
use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or trustee
unless the legal entity itself is not designated in the account title).
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
4
<PAGE>
EXHIBIT 99.7
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase, dated July
15, 1994, and the related Letter of Transmittal and is not being made to, nor
will tenders be accepted from or on behalf of, holders of Shares in any
jurisdiction in which the making of the Offer or acceptance thereof
would not be in compliance with the laws of such jurisdiction. In
those jurisdictions where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the
Purchaser by Lehman Brothers or one or more
registered brokers or dealers licensed
under the laws of such jurisdictions.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
McKesson Corporation
at
$76.00 Net Per Share
by
ECO Acquisition Corporation
a wholly owned subsidiary of
Eli Lilly and Company
ECO Acquisition Corporation, a Delaware corporation (the "Purchaser") and a
wholly owned subsidiary of Eli Lilly and Company, an Indiana corporation
("Parent"), is offering to purchase all outstanding shares of common stock, par
value $2.00 per share (including the associated Rights (as defined in the Offer
to Purchase)) (collectively, the "Shares"), of McKesson Corporation, a Delaware
corporation (the "Company"), at $76.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated July 15, 1994 (the "Offer to Purchase") and in the
related Letter of Transmittal (which together constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, AUGUST 11, 1994, UNLESS THE OFFER IS EXTENDED. THE PURCHASER
HAS AGREED TO EXTEND THE OFFER TO THE FIRST BUSINESS DAY FOLLOWING THE SPIN-OFF
RECORD DATE (AS DEFINED BELOW).
THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE EXPECTED
TO RESULT IN (I) THE DISTRIBUTION TO THE COMPANY'S STOCKHOLDERS OF SHARES OF
STOCK IN A NEW ENTITY THAT WILL OWN ALL THE BUSINESSES OF THE COMPANY OTHER THAN
ITS PHARMACEUTICAL BENEFITS MANAGEMENT BUSINESS (THE "SPIN-OFF") AND (II) THE
ACQUISITION OF THE COMPANY'S PHARMACEUTICAL BENEFITS MANAGEMENT BUSINESS BY
PARENT PURSUANT TO THE OFFER AND MERGER DESCRIBED HEREIN.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of July 10, 1994 ( the "Merger Agreement"), among Parent, the Purchaser and the
Company. The Merger Agreement provides that, among other things, the Purchaser
will make the Offer and that following the purchase of Shares pursuant to the
Offer and the satisfaction of the other conditions set forth in the Merger
Agreement and in accordance with relevant provisions of the Delaware General
Corporation Law, the Purchaser will be merged with and into the Company (the
"Merger"). Following consummation of the Merger, the Company will continue as
the surviving corporation and will be a wholly owned subsidiary of Parent. At
the effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held by
the Company as treasury stock or by any subsidiary of the Company or by Parent,
the Purchaser or any other subsidiary of Parent and other than Shares held by a
holder who has not voted in favor of the Merger or consented thereto in writing
and who has demanded appraisal for such Shares in accordance with Section 262 of
the Delaware General Corporation Law) will be converted into the right to
receive cash without interest in an amount equal to
<PAGE>
the price per Share paid pursuant to the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE
MERGER AND THE SPIN-OFF, DETERMINED THAT THE OFFER, THE MERGER AND THE SPIN-OFF
ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF THE COMPANY AND RECOMMENDS ACCEPTANCE OF THE OFFER AND APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF THE COMPANY.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the Offer
to Purchase) a number of Shares which, when added to the number of Shares then
beneficially owned by Parent and its affiliates, represents at least a majority
of the total number of Shares outstanding and a majority of the voting power of
the Shares outstanding on a fully diluted basis (the "Minimum Condition").
Promptly following consummation of the Offer, the Company will distribute
shares of common stock (the "Spinco Shares") of SP Ventures, Inc., a newly
formed Delaware corporation and a wholly owned subsidiary of the Company
("Spinco"), to the record holders of Shares on a date to be determined by the
Board of Directors of the Company (the "Spin-Off Record Date") pursuant to a
Reorganization and Distribution Agreement, dated as of July 10, 1994, among the
Company, Spinco and various other subsidiaries of the Company. Because the
Purchaser has agreed in the Merger Agreement not to accept for payment Shares
pursuant to the Offer until the Spin-Off Record Date has occurred, a record
holder of Shares who tenders Shares pursuant to the Offer (and who does not
subsequently withdraw and sell such Shares) will be the record holder thereof on
the Spin-Off Record Date. Accordingly, in the event that Shares are accepted for
payment pursuant to the Offer, such record holders will be entitled to receive,
in respect of each Share tendered, $76.00 net in cash from the Purchaser and one
Spinco Share from the Company. As a result of the Spin-Off, Spinco will own and
operate all of the businesses of the Company and its subsidiaries, other than
the pharmaceutical benefits management business as conducted by the Company's
PCS Health Systems, Inc. and Clinical Pharmaceuticals, Inc. subsidiaries (the
"Retained Business"). After the Spin-Off, the Company will continue to own only
the Retained Business. Pursuant to the Merger Agreement, simultaneously with the
consummation of the Offer, the Purchaser will make a cash payment to the Company
of approximately $600 million, subject to adjustment, that will be included in
the assets contributed to Spinco by the Company in connection with the Spin-Off.
The Offer is subject to certain conditions set forth in the Offer to Purchase.
If any such condition is not satisfied, the Purchaser may (i) terminate the
Offer and return all tendered Shares to tendering stockholders, (ii) subject to
the terms of the Merger Agreement, extend the Offer and, subject to withdrawal
rights as set forth below, retain all such Shares until the expiration of the
Offer as so extended, (iii) subject to the terms of the Merger Agreement, waive
such condition and, subject to any requirement to extend the time during which
the Offer is open, purchase all Shares validly tendered and not withdrawn prior
to the Expiration Date or (iv) delay acceptance for payment of or payment for
Shares, subject to applicable law, until satisfaction or waiver of the
conditions to the Offer.
The Purchaser reserves the right, at any time or from time to time in
accordance with the terms of the Merger Agreement, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to Citibank, N.A. (the "Depositary"). Any such extension will be
followed as promptly as practicable by public announcement thereof no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled date on which the Offer was to expire. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the right of a tendering stockholder to withdraw such stockholder's
Shares.
For purposes of the Offer, the Purchaser shall be deemed to have accepted for
payment tendered Shares when, as and if the Purchaser gives oral or written
notice to the Depositary of its acceptance of the tenders of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made
<PAGE>
only after timely receipt by the Depositary of certificates for such Shares (or
a confirmation of a book-entry transfer of such Shares into the Depositary's
account at one of the Book-Entry Transfer Facilities (as defined in the Offer to
Purchase)), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of
Transmittal.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn at any time after September 12, 1994 unless
theretofore accepted for payment as provided in the Offer to Purchase. To be
effective, a written, telegraphic, telex or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses set
forth in the Offer to Purchase and must specify the name of the person who
tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If
the Shares to be withdrawn have been delivered to the Depositary, a signed
notice of withdrawal with (except in the case of Shares tendered by an Eligible
Institution (as defined in the Offer to Purchase)) signatures guaranteed by an
Eligible Institution must be submitted prior to the release of such Shares. In
addition, such notice must specify, in the case of Shares tendered by delivery
of certificates, the name of the registered holder (if different from that of
the tendering stockholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn, or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at one of
the Book-Entry Transfer Facilities to be credited with the withdrawn Shares.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule
14d-6 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, is contained in the Offer to Purchase and is incorporated
herein by reference.
The Company has agreed to provide the Purchaser with the Company's stockholder
list and security position listings for the purpose of disseminating the Offer
to holders of Shares. The Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Requests for copies of the Offer to Purchase, the related Letter of
Transmittal and other tender offer materials may be directed to the Information
Agent or the Dealer Manager as set forth below, and copies will be furnished
promptly at the Purchaser's expense. The Purchaser will not pay any fees or
commissions to any broker or dealer or any other person (other than the Dealer
Manager and the Information Agent) for soliciting tenders of Shares pursuant to
the Offer.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(212) 269-5550 (Collect)
or
(800) 755-3105 (Toll Free)
The Dealer Manager for the Offer is:
Lehman Brothers
3 World Financial Center, 17th Floor
New York, New York 10285
(212) 526-2843 or (212) 526-3252
(Call Collect)
July 15, 1994
<PAGE>
EXHIBIT 99.8
09:05 LILLY TO PURCHASE PCS HEALTH SYSTEMS FROM MCKESSON FOR $4 BILLION
INDIANAPOLIS--(BUSINESS WIRE) --Eli Lilly and Company announced today that
it has entered into a definitive agreement with McKesson Corp. for Lilly to
purchase McKesson's subsidiary PCS Health Systems, Inc., the largest pharmacy
benefit manager (PBM) in the United States.
"This action is another step in the implementation of our overall strategy
of becoming the global leader in providing customers with clinically and
economically optimized outcomes to help solve urgent health care problems," said
Randall L. Tobias, Lilly chairman and chief executive officer. "We believe the
combined resources of Lilly and PCS can contribute to the lowering of overall
health care costs in this country and improve the quality of health care at the
same time. This can be achieved through improved patient and doctor
communication, cost-effective formulary design and administration, and the
application of information technology. This acquisition, by far the largest in
our company's history, will allow us to build upon our already strong base as a
research-intensive pharmaceutical company and become a broader organization,
more capable of meeting our customers' expectations."
As of June 1, 1994, PCS programs and services covered approximately 50
million people and more than 1,300 health plan sponsors. These numbers are
double those for the same period one year ago, making PCS the largest and
fastest growing PBM in the country. Currently, PCS has approximately 30 million
people under its proprietary Clinical Formulary and Prescribing Guidelines,
another key measure of size.
"We project that PCS will administer more than $9 billion of drug
expenditures, or some 320 million prescriptions, in our current fiscal
<PAGE>
year, which ends in March 1995, and our enrollment will be nearly 60 million
members," said Steve Geringer, president of PCS. He added that PCS administered
more than 213 million prescriptions during its 1994 fiscal year, representing an
estimated drug expenditure of $6.4 billion.
TERMS OF THE AGREEMENT
McKesson's board of directors has approved a plan for Lilly to purchase
McKesson's PCS Health Systems, Inc., subsidiary in a transaction with a total
cash value of $4 billion. McKesson's shareholders will receive approximately
$3.4 billion through a cash tender offer of $76 per share. A new McKesson
company will include all current operations except PCS. Shares of the new
company will be distributed to McKesson's shareholders. The new company will
receive the balance of the proceeds to pay taxes and transaction costs and to
use for general corporate purposes. In addition, McKesson and Lilly have agreed
to develop a series of value-added strategic alliances with the remaining
McKesson pharmaceutical distribution businesses.
Alan Seelenfreud, chairman and chief executive officer of McKesson, said,
"Following discussions with several pharmaceutical companies, we chose Lilly
because the Lilly-PCS combination results in an ideal approach to the managed-
care marketplace. Lilly, as one of the premier pharmaceutical companies in the
world, is actively implementing a strategy that provides a more effective
delivery of products and services to patients and customers. Lilly's ownership
of PCS adds significantly to these global capabilities. The value to our
shareholders is clearly maximized by this decision."
Geringer commented, "We are elated to be a part of Lilly, a pharmaceutical
company that shares the same broad vision of pharmaceutical-
2
<PAGE>
based disease management that we have. We concluded that Lilly would be the
best pharmaceutical partner through which PCS can expand its services to the
fast-growing managed-care segment of the U.S. health care market. Lilly has the
disease-management and outcomes-research capabilities, combined with an
outstanding new product pipeline, that will help us meet our customers' needs
and expectations."
Tobias added, "While our principal engine of growth will be global
leadership in discovering and developing new, innovative pharmaceuticals, this
key investment will allow us to offer those new products, as well as the
products of other pharmaceutical companies, as part of a comprehensive health
care plan. We will be able to demonstrate that overall health care costs can be
reduced, sometimes dramatically so, through such plans. We also believe that
major international markets will embrace the PBM concept as they move to
disease-management techniques to more effectively manage total health care
costs. This acquisition, combined with our global presence and strong
commitment to research, will be a tremendous advantage to us as this trend
develops."
The acquisition is subject to federal regulatory clearance, acceptance of
the tender offer by a majority of McKesson's shareholders, and certain other
conditions. Lilly plans to finance the acquisition by issuing commercial paper
and intermediate-term debt. McKesson is advised by Morgan Stanley and Company,
Inc., and Lilly is represented by Lehman Brothers, Inc., in the transaction.
Lilly is a global research-based pharmaceutical corporation headquartered
in Indianapolis, Indiana, that is working with its customers worldwide to help
ensure that diseases are prevented, managed, and cured with maximum benefit and
minimum cost to patients and society.
3
<PAGE>
McKesson, headquartered in San Francisco, is the world's largest
distributor of pharmaceuticals and related health care products, with operations
in the U.S., Canada, and Mexico.
CONTACT: Eli Lilly and Company, Indianapolis
Edward A. West, 317/276-3655
ADDENDUM 1
Major Events of the Last 12 Months Illustrate Lilly Vision
Acquisition of PCS Health Systems Latest Move in Implementation of
Corporate Strategy
Eli Lilly and Company's acquisition of PCS Health Systems, Inc., represents
the latest and boldest move in a corporate strategy that has been developing for
the past year.
In July 1993, less than a month after being elected chairman and chief
executive officer of Lilly, Randall L. Tobias told the New York Society of
Security Analysts that the company would embrace change to address its top
priority: customer focus leading to increased shareholder value. He emphasized
that change is critical to meeting the challenges that the pharmaceutical
industry and Lilly are facing, including downward pressure on prices and the
increasing cost of research and development.
Now, 12 months later, Tobias' vision for the company is rapidly becoming
reality. Among the strategic initiatives that Lilly has undertaken in the past
year, and the key dates when they occurred, are:
AUGUST 30, 1993
Lilly acquires G.D. Searle & Co.'s European Development Centre, a
technologically sophisticated facility in Belgium that will help bring new
medicines to global markets.
4
<PAGE>
SEPTEMBER 7, 1993
Lilly launches its newest antibiotic, dirithromycin, in Spain. This once-
a-day macrolide medication allows the company to participate more fully in the
fastest growing antibiotic market in Europe.
OCTOBER 11, 1993
The company announces several streamlining initiatives, including a
voluntary early-retirement program, to reduce the work force related to the
Lilly global pharmaceutical business by 2,000 positions by mid-1994. In
addition, it is announced that, over the next several years, the company plans
to eliminate an additional 2,000 positions by restricting its use of temporary
and contract workers and consultants and through ongoing attrition and strict
hiring practices.
DECEMBER 15, 1993
Lilly reports that it is well ahead of its goal of reducing its work force,
with more than 2,600 positions being eliminated. The majority of reductions are
the result of the voluntary early-retirement program.
JANUARY 8, 1994
Lilly announces that it will divest itself of its medical devices and
diagnostics businesses, signaling a change of strategic direction that will
allow the company to focus on its core business-pharmaceuticals. Tobias says
that the pharmaceutical business "will provide the engine that will drive the
corporation into the future." He added, "Although our MDD (Medical Devices and
Diagnostics) division is an outstanding business that supports high quality,
cost-effective health care, it's in the best interest of our shareholders to
focus our resources on our global pharmaceutical operations."
5
<PAGE>
FEBRUARY 24, 1994
In the company's 1993 annual report to shareholders, Tobias outlines his
vision of the company's future. He also discusses the company's three-pronged
strategy to fulfill that vision: concentrating on the critical capabilities of
scientific innovation, disease prevention and management, cost competitiveness,
biotechnology expertise, and preeminent organizational effectiveness; increasing
global presence; and seeking breakthrough advances in five targeted disease
categories-central-nervous-system and related diseases, endocrine diseases
(including diabetes and osteoporosis), infectious diseases, cancer, and
cardiovascular diseases.
MARCH 1, 1994
The U.S. Food and Drug Administration grants Lilly permission to market
Prozac(R) (fluoxetine hyrochloride, Dista) for the treatment of obsessive-
compulsive disorder (OCD). Prozac, the world's largest selling antidepressant,
is now the only product that may be marketed in the United States for both
clinical depression and OCD.
APRIL 4, 1994
Lilly subsidiary Eli Lilly Nederland B.V. and Dionysios S. Filiotis, of
Athens, Greece, announce the establishment of a joint venture company to
manufacture and distribute pharmaceutical and health care products in Greece.
This move represents another effort to increase the company's focus on expanding
its global presence.
APRIL 18, 1994
At his first annual meeting of Lilly shareholders as chairman and chief
executive officer, Tobias discusses the company's first collaboration with a
generic manufacturer, Mylan Pharmaceuticals, Inc. Earlier in the day, a
strategic alliance was announced between Lilly and Mylan whereby the
6
<PAGE>
two companies agreed to co-promote Mylan's cimetidine, an antiulcer drug, to
managed-care customers.
APRIL 29, 1994
End of stories requested
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LOG ON: 09 35 LOG OFF: 09 38 EASTERN TIME JULY 11, 1994
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<PAGE>
EXHIBIT 99.10
REORGANIZATION AND
DISTRIBUTION AGREEMENT
dated as of July 10, 1994
by and among
MCKESSON CORPORATION,
MCKESSON CORPORATION,
CLINICAL PHARMACEUTICALS, INC.,
PCS HEALTH SYSTEMS, INC.,
and
SP VENTURES, INC.,
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS....................................... 3
Section 1.1. General...................................... 3
Section 1.2. References to Time........................... 15
ARTICLE II THE REORGANIZATION AND RELATED TRANSACTIONS....... 16
Section 2.1. Transfers of Assets.......................... 16
Section 2.2. Method of Transfer........................... 19
Section 2.3. Issuance of Spinco Stock to the Company...... 20
Section 2.4. Transfer of Company Indebtedness to Spinco... 21
Section 2.5. Preferred Stock Purchase Agreement........... 26
ARTICLE III THE DISTRIBUTION.................................. 27
Section 3.1. Cooperation Prior to the Distribution........ 27
Section 3.2. The Distribution............................. 29
Section 3.3. Company Approval of Certain Spinco Actions... 31
Section 3.4. Termination of Certain Claims................ 32
ARTICLE IV INTERCOMPANY BUSINESS RELATIONSHIPS............... 32
Section 4.1. Settlement of Intercompany Accounts;
Net Working Capital Adjustment............... 32
Section 4.2. Ongoing or Transition Services............... 40
Section 4.3. Shared Assets................................ 41
Section 4.4. Other Intercompany Arrangements.............. 42
Section 4.5. Settlements for Cash Collections and
Disbursements................................ 43
ARTICLE V SURVIVAL AND INDEMNIFICATION...................... 44
Section 5.1. Survival of Agreements....................... 44
Section 5.2. Spinco's Agreement to Indemnify.............. 46
Section 5.3. The Company's Agreement to Indemnify......... 49
Section 5.4. Procedure for Indemnification................ 53
Section 5.5. Pending Litigation........................... 57
Section 5.6. Construction of Agreements................... 58
ARTICLE VI CERTAIN ADDITIONAL MATTERS........................ 59
Section 6.1. No Representations or Warranties;
Exceptions................................... 59
Section 6.2. Further Assurances; Subsequent Transfers..... 62
i
<PAGE>
Page
----
Section 6.3. The Spinco Board............................. 66
Section 6.4. Liability Insurance.......................... 66
Section 6.5. Use of Names................................. 67
ARTICLE VII ACCESS TO INFORMATION AND SERVICES................ 68
Section 7.1. Provision of Corporate Records............... 68
Section 7.2. Access to Information........................ 69
Section 7.3. Production of Witnesses...................... 70
Section 7.4. Retention of Records......................... 70
Section 7.5. Confidentiality.............................. 71
ARTICLE VIII EMPLOYEE BENEFITS; LABOR MATTERS.................. 72
Section 8.1. Officers and Employees....................... 72
Section 8.2. Employee Benefits............................ 73
Section 8.3. Other Liabilities and Obligations............ 81
Section 8.4. Preservation of Rights to Amend or
Terminate Plans.............................. 81
Section 8.5. Reimbursement; Indemnification............... 82
ARTICLE IX INSURANCE......................................... 83
Section 9.1. General...................................... 83
Section 9.2. Certain Insured Claims....................... 83
ARTICLE X CONDITIONS; TERMINATION; AMENDMENTS; WAIVERS...... 84
Section 10.1. Condition to Obligations..................... 84
Section 10.2. Termination.................................. 85
Section 10.3. Amendments; Waivers.......................... 85
ARTICLE XI MISCELLANEOUS..................................... 86
Section 11.1. Survival..................................... 86
Section 11.2. Entire Agreement............................. 87
Section 11.3. Fees and Expenses............................ 88
Section 11.4. Governing Law................................ 89
Section 11.5. Notices...................................... 90
Section 11.6. Successors and Assigns; No Third Party
Beneficiaries................................ 91
Section 11.7. Counterparts................................. 92
Section 11.8. Interpretation............................... 92
Section 11.9. Schedules.................................... 93
Section 11.10. Legal Enforceability......................... 93
Section 11.11. Specific Performance......................... 93
ii
<PAGE>
REORGANIZATION AND
DISTRIBUTION AGREEMENT
----------------------
REORGANIZATION AND DISTRIBUTION AGREEMENT, dated as of July 10, 1994, by
and among McKesson Corporation, a Delaware corporation (the "Company"), McKesson
Corporation, a Maryland corporation and a wholly-owned subsidiary of the Company
("Maryland"), Clinical Pharmaceuticals, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("CPA"), PCS Health Systems, Inc., a
Delaware corporation and a wholly-owned subsidiary of Maryland ("Prescription"),
and SP Ventures, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Company ("Spinco").
WHEREAS, the Board of Directors of the Company has determined to cause the
transfer to Spinco of all of the Company Business (as hereafter defined), the
assumption by Spinco of the Company Liabilities (as hereafter defined), and the
issuance to the Company of shares of Spinco Common Stock (as hereafter defined);
WHEREAS, Spinco is willing to accept such transfer of the Company Business,
issue such shares of Spinco Common Stock to the Company and assume such Company
Liabilities;
<PAGE>
WHEREAS, prior to the transfer by the Company to Spinco of the Company
Business and the Company Liabilities, Maryland intends to distribute all of its
assets and liabilities constituting part of the Company Business and part of the
Company Liabilities, respectively, to the Company;
WHEREAS, the Company intends to cause the distribution of all of its shares
of Spinco Common Stock to the holders of the Company Common Stock (as hereafter
defined) on the Record Date (as hereafter defined);
WHEREAS, the Company and Spinco have determined that it is desirable to set
forth the principal corporate transactions required to effect such transfer and
distribution and to set forth other agreements that will govern certain other
matters prior to or following such distribution;
WHEREAS, the Company has entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), with Eli Lilly and
Company, an Indiana corporation ("Parent"), and ECO Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent (the "Purchaser"),
providing for the Offer and the Merger (each as hereafter defined), as a result
of which the Company, as the corporation surviving the
2
<PAGE>
Merger, will become a wholly-owned subsidiary of Parent; and
WHEREAS, in order to induce the parties to enter into this Agreement and in
consideration of the Company's willingness to enter into the Merger Agreement,
the parties hereto and certain other parties are entering or will enter into the
Tax Sharing Agreement and the Services Agreements (as hereafter defined)
providing for certain ongoing relationships among the parties;
NOW, THEREFORE, in consideration of the foregoing and the agreements,
provisions and covenants contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. General. As used in this Agreement, the following terms
-------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Action" means any action, claim, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
3
<PAGE>
"Affiliate" shall have the same meaning as specified in Rule 12b-2 of the
---------
General Rules and Regulations under the Exchange Act; provided that the Company
--------
and Spinco and their respective subsidiaries (after giving effect to the
Reorganization) shall not be deemed to be Affiliates of each other for purposes
of this Agreement.
"Agent" means the distribution agent appointed by the Company to distribute
-----
shares of the Spinco Common Stock pursuant to the Distribution.
"Armor All Indenture" means the Indenture dated as of March 14, 1994
-------------------
between the Company and The First National Bank of Chicago, as trustee, as
amended or supplemented from time to time.
"Asset" means, with respect to any party, except as otherwise provided
-----
herein, any and all of such party's and its subsidiaries' right, title and
interest in and to all of the rights, properties, assets, claims, contracts and
businesses of every kind, character and description, whether real, personal
or mixed, whether accrued, contingent or otherwise, and wherever located, owned
or used primarily by such party and its subsidiaries, including, without
limitation, the following: (i) all cash, cash equivalents, notes and accounts
receivable
4
<PAGE>
(whether current or non-current); (ii) all certificates of deposit, banker's
acceptances and other investment securities; (iii) all registered and
unregistered trademarks, service marks, service names, trade styles and trade
names (including, without limitation, trade dress and other names, marks and
slogans) and all associated goodwill; all statutory, common law and registered
copyrights; all patents; all applications for any of the foregoing together with
all rights to use all of the foregoing and all other rights in, to, and under
the foregoing; all know-how, inventions, discoveries, improvements, processes,
formulae (secret or otherwise), specifications, trade secrets, whether
patentable or not, licenses and other similar agreements, confidential
information, and all drawings, records, books or other indicia, however
evidenced, of the foregoing; (iv) all rights existing under leases, contracts,
licenses, distribution arrangements, sales and purchase agreements, other
agreements and business arrangements; (v) all real estate and all plants,
buildings and other improvements thereon; (vi) all leasehold improvements and
all machinery, equipment (including all transportation and office equipment),
fixtures, trade fixtures and furniture; (vii) all office supplies, production
supplies, spare parts,
5
<PAGE>
other miscellaneous supplies and other tangible property of any kind; (viii) all
raw materials, work-in-process, finished goods, consigned goods and other
inventories; (ix) all computer hardware, software, computer programs and systems
and documentation relating thereto; all databases and reference and resource
materials; (x) all prepayments or prepaid expenses; (xi) all claims, causes of
action, choices in action, rights of recovery and rights of set-off of any kind;
(xii) the right to receive mail, accounts receivable payments and other
communications; (xiii) all customer lists and records pertaining to customers
and accounts, personnel records, all lists and records pertaining to suppliers
and agents, and all books, ledgers, files and business records of every kind;
(xiv) all advertising materials and all other printed or written materials; (xv)
all permits, licenses, approvals and authorizations of governmental authorities
or third parties relating to the ownership, possession or operation of the
Assets; (xvi) all capital stock, partnership interests and other equity or
ownership interests or rights, directly or indirectly, in any subsidiary or
other entity; (xvii) all goodwill as a going concern and all other intangible
properties; and (xviii) all employee contracts, including, without limitation,
the right
6
<PAGE>
thereunder to restrict the employee from competing in certain respects.
"Casualty Program" means collectively, the series of programs pursuant to
----------------
which various insurance carriers provide insurance coverage to the Company and
its subsidiaries in respect of claims or occurrences relating to workers'
compensation liability, general liability, products liability, automobile
liability and employer's liability for all periods up to the Distribution Date.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company Assets" shall have the same meaning as defined in Section 2.1(a).
--------------
"Company Business" means all present businesses of the Company and its
----------------
subsidiaries other than the Prescription Business, including, without
limitation, the pharmaceutical and health care products distribution business,
the water products business and the Armor All business, as conducted by the
Company and its subsidiaries as of the Offer Purchase Date and all former
businesses of the Company and its subsidiaries.
"Company Common Stock" means the common stock of the Company, par value
--------------------
$2.00 per share.
7
<PAGE>
"Company Liabilities" means all of the Liabilities of the Company and all
-------------------
of its subsidiaries, other than the Prescription Liabilities.
"Company Indebtedness" shall have the same meaning as defined in Section
--------------------
2.4(c) hereof.
"Disclosure Schedule" means the disclosure schedule dated as of the date
-------------------
hereof and attached hereto.
"Distribution" means the distribution of the shares of Spinco Common Stock
------------
owned by the Company to holders of Company Common Stock.
"Distribution Date" means the date as of which the Distribution shall be
-----------------
effected as determined by the Board of Directors of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Form 10" means the registration statement on Form 10 to be filed by Spinco
-------
with the SEC to effect the registration of the Spinco Common Stock pursuant to
the Exchange Act.
"IMS" means Integrated Medical Systems, Inc., a Colorado corporation.
---
"Indemnifiable Losses" means, with respect to any claim by an Indemnitee
--------------------
for indemnification pursuant to Article V, VI, VIII or IX hereof, any and all
losses,
8
<PAGE>
Liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable attorneys' fees and expenses in connection therewith) suffered by
such Indemnitee with respect to such claim.
"Indemnifying Party" means any party who is required to indemnify any other
------------------
person pursuant to Article V, VI, VIII or IX hereof.
"Indemnitee" means any party who is entitled to receive indemnification
----------
from an Indemnifying Person pursuant to Article V, VI, VIII or IX hereof.
"Indemnity Payment" means the amount an Indemnifying Party is required to
-----------------
pay an Indemnitee pursuant to Article V, VI, VIII or IX hereof.
"Information Statement" means the information statement to be sent to the
---------------------
holders of the Company's equity securities in connection with the Distribution.
"Liabilities" means, with respect to any party, except as otherwise
-----------
provided herein, any and all liabilities and obligations of such party, whether
accrued, contingent or reflected on a balance sheet (or in the notes thereto),
including, without limitation, those
9
<PAGE>
arising under any law, rule, regulation, Action, order or consent decree of any
governmental entity or any judgment of any court of any kind or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
"Lien" means any mortgage, pledge, lien, encumbrance, charge, adverse claim
----
(whether pending or, to the knowledge of the person against whom the adverse
claim is being asserted, threatened) or restriction of any kind affecting title
or resulting in an encumbrance against property, real or personal, tangible or
intangible, or a security interest of any kind, including, without limitation,
any conditional sale or other title retention agreement, any third party option
or other agreement to sell and any filing of or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statute) of any
jurisdiction (other than a financing statement which is filed or given solely to
protect the interest of a lessor).
"Merger" shall have the meaning set forth in the Merger Agreement.
------
"Merger Agreement" shall have the meaning set forth in the introductory
----------------
section of this Agreement.
"NYSE" means the New York Stock Exchange, Inc.
----
10
<PAGE>
"Offer" shall have the meaning set forth in the Merger Agreement.
-----
"Offer Purchase Date" means the date on which the Purchaser accepts for
-------------------
payment and pays for Shares tendered pursuant to the Offer.
"Prescription Assets" means (a) all of the capital stock of Maryland,
-------------------
Prescription, CPA and IMS, and (b) except as provided in the following sentence,
the Assets owned by Prescription and CPA, including, without limitation (i) the
Assets reflected on the Prescription Balance Sheet, except for Assets disposed
of since the date of the Prescription Balance Sheet, (ii) the TAG Retainer
Agreement, (iii) the Prescription Names and Prescription Proprietary Name
Rights, (iv) the Prescription Actions (to the extent such actions constitute
Assets), (v) any Assets set forth on Section 1.1.1 of the Disclosure Schedule
and (vi) to the extent not sold by the Company prior to the Offer Purchase Date,
any shares of Spinco Preferred Stock to be sold by the Company pursuant to
Section 2.5 hereof. The Prescription Assets shall not include the Assets set
forth in Section 1.1.2 of the Disclosure Schedule.
"Prescription Balance Sheet" means the consolidated balance sheet
--------------------------
(including the related notes) of the
11
<PAGE>
Prescription Business as of March 31, 1994 included in the financial statements
attached to Section 4.7(b) of the Disclosure Schedule to the Merger Agreement.
"Prescription Business" means the pharmaceutical benefits management
---------------------
business as conducted by Prescription and CPA as of the Offer Purchase Date.
"Prescription Employees" means the employees of Prescription and CPA as of
----------------------
the Offer Purchase Date. In the event any person shall have been employed by
Prescription or CPA as well as by the Company or any of its other subsidiaries,
such person shall be considered a Prescription Employee if at the Offer Purchase
Date such person's primary employment shall be with Prescription or CPA.
"Prescription Liabilities" means (a) all of the Liabilities of Prescription
------------------------
and CPA to parties other than the Company and its subsidiaries relating to or
arising out of the Prescription Assets and the conduct of the Prescription
Business, including, without limitation, those reflected or reserved against in
the Prescription Balance Sheet and those arising after the date thereof; (b) the
Liabilities of Prescription and CPA to the Company and its subsidiaries
reflected on Schedule 1.1.3 hereto; (c) the Liabilities of the Company and its
subsid-
12
<PAGE>
iaries, including, without limitation, Prescription and CPA, in respect of
Prescription Employees (but not in respect of retirees or other persons who, as
of the Offer Purchase Date, were no longer employees of Prescription or CPA);
and (d) the Prescription Actions (to the extent such actions constitute
Liabilities).
"Private Indebtedness" shall have the same meaning as defined in Section
--------------------
2.4(a) hereof.
"Public Indebtedness" shall have the same meaning as defined in Section
-------------------
2.4(c) hereof.
"Public Indentures" shall mean the Armor All Indenture and the
------------------
Unlimited Indenture.
"Record Date" means the date determined by the Board of Directors of the
-----------
Company as the record date for the Distribution.
"Reorganization" means collectively, the transactions contemplated pursuant
--------------
to the provisions of Article II hereof.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Services Agreements" means the HDS Services Agreement, the McKesson
-------------------
Services Agreement and the Memo-
13
<PAGE>
randum of Understanding, each dated as of the date hereof, among Parent, the
Company, Spinco and Healthcare Delivery Systems, Inc.
"Spinco Common Stock" means the common stock, par value $0.01 per share, of
-------------------
Spinco, together with the associated preferred stock purchase rights to be
issued pursuant to a rights agreement to be entered into between Spinco and a
rights agent to be selected by Spinco
"Spinco Employees" shall mean those employees of the Company or its
----------------
subsidiaries who are employed in the Company Business immediately prior to the
Offer Purchase Date and all former employees of the Company or its subsidiaries
who, immediately prior to the termination of their employment, were employed in
the Company Business.
"Spinco Preferred Stock" means the series of shares of Preferred Stock, par
----------------------
value $.01 per share, of Spinco which may be authorized and issued by Spinco as
contemplated hereby, having such powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications or
restrictions, as are agreed to by Spinco and the Company.
"Spinco PSIP" means the Profit Sharing Investment Plan of Spinco.
-----------
14
<PAGE>
"TAG Retainer Agreement" shall mean the Retainer Agreement, dated as of
----------------------
December 30, 1993 and effective as of January 3, 1994, by and among the Company,
Technology Assessment Group, a California general partnership, Sheila Fifer and
Peter Mazonson.
"Tax Sharing Agreement" means the Tax Sharing Agreement, in the form of
---------------------
Exhibit A to the Merger Agreement, pursuant to which the Company and Spinco have
provided for certain tax matters, including, without limitation,
indemnification, allocation of tax benefits and filing of tax returns.
"Third Party Claim" shall have the same meaning as specified in Section
-----------------
5.3(a).
"Unlimited Indenture" means the Indenture dated as of September 1, 1990
-------------------
between the Company and Chemical Bank, as trustee, as amended or supplemented
from time to time.
Section 1.2. References to Time. All references in this Agreement to
------------------
times of the day shall be to New York City time.
15
<PAGE>
ARTICLE II
THE REORGANIZATION AND RELATED TRANSACTIONS
-------------------------------------------
Section 2.1. Transfers of Assets.
-------------------
(a) Subject to the terms and conditions of this Agreement, prior to
the Distribution Date:
(i) Maryland shall distribute by dividend to the Company (or, at
the election of Maryland and the Company, Maryland shall otherwise transfer
and deliver to the Company), all of its right, title and interest in and to
all of its Assets other than the Prescription Assets; and the Company shall
assume, pay, perform and discharge, or cause to be assumed, paid, performed
and discharged, in due course, all of Maryland's Company Liabilities; and
(ii) the Company shall contribute to Spinco all of its right,
title and interest in and to all of its Assets (including, without
limitation, the Assets previously transferred to the Company from Maryland
pursuant to clause (i) above) other than (A) the Prescription Assets, (B)
the capital stock of Spinco, and (C) the rights of the Company under this
Agreement (all such Assets to be so contributed to Spinco are hereinafter
collectively re-
16
<PAGE>
ferred to as the "Company Assets"); and Spinco shall assume, pay, perform
and discharge, or cause to be assumed, paid, performed and discharged, in
due course, all of the Company Liabilities (including, without limitation,
the Company Liabilities of Maryland previously assumed by the Company
pursuant to clause (i) above). "Company Assets" shall include, without
limitation (A) all shares of capital stock, partnership interests and other
equity or ownership interests or ownership rights in all subsidiaries and
other entities owned directly or indirectly by the Company or Maryland
(including, without limitation, the general partnership interest in
Technology Assessment Group, a California general partnership, held by
McKesson Outcomes Research Corporation, a Delaware corporation, but
excluding all shares of capital stock of Maryland, Prescription, CPA,
Spinco and IMS), and all rights to Assets held by such subsidiaries and
entities, (B) except as provided in Section 4.1 hereof, all cash and cash
equivalents held by the Company or any of its subsidiaries, including,
without limitation, the Spinco Cash Amount (as defined in the Merger
Agreement), (C) any shares of Spinco Common Stock distributed in
17
<PAGE>
the Spin-Off in respect of Shares owned by the Company or its subsidiaries;
(D) the Company Names and Company Proprietary Names, and (E) the Company
Actions (to the extent such actions constitute Assets). Subject to the
terms and conditions set forth in this Agreement, the Company shall, or
shall cause Prescription or CPA to, assume, pay, perform and discharge in
due course all Prescription Liabilities.
(b) Subject to the provisions of Section 6.2 hereof and except with
respect to the Company Indebtedness as provided in Section 2.4 hereof, to the
extent that any such contributions and transfers shall not have been so
consummated prior to the Offer Purchase Date, the parties shall cooperate to
effect such consummation as promptly thereafter as shall be practicable, and as
between the Company and Spinco, as of the Offer Purchase Date, the Company shall
be deemed to have contributed to Spinco, and Spinco shall have and be deemed to
have obtained, complete and sole beneficial ownership over all of the Company
Assets, together with all of the Company's rights, powers and privileges
incident thereto, and Spinco shall be deemed to have assumed in accordance with
the terms of this Agreement all of the Company Liabili-
18
<PAGE>
ties and all of the Company's duties, obligations and responsibilities incident
thereto, whether or not all instruments of transfer and assumption shall have
been executed and delivered.
Section 2.2. Method of Transfer. The parties hereto agree that (a)
------------------
the contribution and transfer of the Company Assets contemplated pursuant to
Section 2.1 hereof shall be effected by delivery by Maryland to the Company, and
by the Company to Spinco, as the case may be, of (i) with respect to those
Company Assets which are evidenced by capital stock certificates or similar
instruments, certificates duly endorsed in blank or accompanied by stock powers
or other instruments of assignment executed in blank and (ii) with respect to
all other Company Assets, such good and sufficient instruments of contribution,
transfer and delivery, in form and substance reasonably satisfactory to the
Company, Maryland, Parent and Spinco, as shall be necessary to vest in Spinco
all of the right, title and interest of the Company and Maryland in and to such
Company Assets, and (b) the assumption of the Company Liabilities contemplated
pursuant to Section 2.1 hereof shall be effected by delivery by the Company to
Maryland, and by Spinco to the Company, as the case may be, of such good and
sufficient
19
<PAGE>
instruments of assumption, in form and substance reasonably satisfactory to the
Company, Maryland, Parent and Spinco, as shall be necessary for the assumption
by Spinco of the Company Liabilities.
Section 2.3. Issuance of Spinco Stock to the Company. Spinco agrees
---------------------------------------
to issue to the Company, contemporaneously with the transfer of Company Assets
and assumption of Company Liabilities contemplated herein, the number of shares
of Spinco Common Stock equal to the number of shares of Company Common Stock
outstanding on the Record Date (excluding shares of Company Common Stock held by
the Company in its treasury or, subject to applicable law, held by any
subsidiary of the Company). In addition, Spinco agrees to issue to the Company
on or prior to the Record Date such additional shares of Spinco Common Stock as
may be required in order for the Company to fulfill its obligations pursuant to
Section 3.2 hereof. Spinco further agrees that if, prior to the Record Date,
the Company elects to enter into the Preferred Stock Purchase Agreement (as
defined herein), Spinco shall authorize and issue to the Company,
contemporaneously with the transfer of Company Assets and assumption of Company
Liabilities contemplated herein, 1,000 shares of Spinco Preferred Stock.
20
<PAGE>
Section 2.4. Transfer of Company Indebtedness to Spinco.
------------------------------------------
(a) On or prior to the Offer Purchase Date, Spinco shall assume and
agree to pay, perform and discharge, pursuant to the terms of, and shall perform
and abide by all other obligations, covenants and agreements applicable to the
Company under (but, as set forth in Section 2.4(b) hereof, in each case subject
to the obtaining of any required consents or approvals), each of the debt
obligations of the Company and its subsidiaries set forth in Section 2.4(a) of
the Disclosure Schedule (the "Private Indebtedness").
(b) Each of the parties hereto shall use its best efforts to obtain
any consent or approval required from the holders of the Private Indebtedness or
otherwise to cause the assumption by Spinco of all Private Indebtedness pursuant
to paragraph (a) above and the release of the Company or Maryland (as the case
may be) from all obligations and liabilities thereunder. In the event that, on
or prior to the Offer Purchase Date, the parties are unable to obtain any
required consent or approval in connection with such assumption of Private
Indebtedness, the Company shall, on or prior to the Offer
21
<PAGE>
Purchase Date, prepay, redeem, purchase or defease in full all such Private
Indebtedness.
(c) On or prior to the Offer Purchase Date, Spinco shall execute a
supplemental indenture or other document satisfactory in form to any applicable
trustee pursuant to which it shall expressly assume the due and punctual
payment, performance and observance, pursuant to the terms thereof, jointly and
severally with the Company, of all of the obligations, covenants, conditions and
agreements contained in each of the debt obligations of the Company set forth in
Section 2.4(c) of the Disclosure Schedule and the related indentures and other
ancillary agreements related thereto (the "Public Indebtedness" and,
collectively with the Private Indebtedness, the "Company Indebtedness").
Notwithstanding the assumption by Spinco of such Public Indebtedness, the
Company will not be released from, and will remain a party to, and will be
jointly and severally liable with Spinco under, such Public Indebtedness, until
such time as any consent required to effect such release shall have been
obtained. As between Spinco and the Company, (i) Spinco shall (A) pay to the
holders of such Public Indebtedness, in accordance with the terms thereof, all
principal, interest and other amounts owing to the holders of such
22
<PAGE>
Public Indebtedness, (B) deposit with the Exchange Agent (as such term is
defined in the Armor All Indenture) from time to time additional Exchange
Property as required under Section 15.5 of the Armor All Indenture, and (C) pay,
reimburse and indemnify the trustee for its reasonable services, expenses,
disbursements, advances, losses, liabilities or expenses as provided in Section
8.6 of the Armor All Indenture and Section 6.6 of the Unlimited Indenture, and
(ii) each of Spinco and the Company shall perform and abide by all other
obligations, covenants, conditions and agreements applicable to it thereunder
and under the Public Indentures. With respect to such Public Indebtedness,
neither the Company nor Spinco shall seek or agree to any amendments, consents
or waivers or execute any supplemental indentures with respect thereto, without
the prior written consent of the other party (which consent shall not be
unreasonably withheld). The Company and Spinco shall take such action and
execute such agreements, documents or instruments, as the other party may
reasonably request, in connection with the fulfillment of any such party's
obligations under the Public Indebtedness. Promptly upon receipt by the Company
or Spinco or any of their representatives of any notices, demands or other
communications from or on
23
<PAGE>
behalf of the holders of the Public Indebtedness (or any trustee thereunder),
such party shall deliver copies of such communications to the other party.
(d) Spinco agrees to indemnify, defend and hold harmless the Company
and each of its directors, officers, employees, representatives, advisors,
agents, and Affiliates, in accordance with the indemnification provisions of
Article V hereof, from and against any and all Indemnifiable Losses of the
Company or any of such other parties arising out of or resulting from any
failure by Spinco to pay when due any principal, interest or other amounts owing
under the Public Indebtedness or any failure by Spinco to perform and abide by
all other obligations, covenants, conditions and agreements applicable to it
under such Public Indebtedness. The Company agrees to indemnify, defend and
hold harmless Spinco and each of its directors, officers, employees,
representatives, advisors, agents and Affiliates, in accordance with the
indemnification provisions of Article V hereof, from and against any and all
Indemnifiable Losses of Spinco or any of such other parties arising out of or
resulting from any failure by the Company to perform and abide by all
obligations, covenants, conditions and agreements applicable to it under the
Public Indebtedness
24
<PAGE>
(other than the obligations to pay when due any principal, interest or other
amounts owing thereunder or under the Public Indentures).
(e) The Company and Spinco agree, promptly following consummation of
the Merger (unless required to do so prior to the Offer Purchase Date, in which
case the following actions shall be taken prior to the Offer Purchase Date), to
use their respective best efforts to take or cause to be taken all actions, and
to do or cause to be done all things, necessary, proper or advisable under the
terms of the agreements governing the Public Indebtedness and the provisions of
applicable law (including, without limitation, preparing and filing with the SEC
any required registration statements, consent solicitation or exchange offer
documentation and other relevant materials, mailing to the holders of the Public
Indebtedness all relevant consent and other materials, entering into any
required supplemental indentures and, on the part of Spinco, offering to pay and
paying any reasonable fees to the holders of such Public Indebtedness in
connection with such solicitation or offer), which may be appropriate or
required in order to effect the release of the Company from all obligations and
liabilities under the Public Indebtedness. Spinco shall
25
<PAGE>
bear all costs incurred in connection with seeking to effect such release of the
Company from such obligations and liabilities, including, without limitation,
the reasonable, documented out-of-pocket expenses of the Company relating
thereto and to complying with its public filing requirements applicable to the
Public Indebtedness prior to any such release.
Section 2.5. Preferred Stock Purchase Agreement. Prior to the Offer
----------------------------------
Purchase Date, the Company may, in its sole discretion, enter into a Preferred
Stock Purchase Agreement with the Spinco PSIP or another third party (provided
that such other party shall be reasonably satisfactory to Parent) (the
"Preferred Stock Purchase Agreement"), pursuant to which, as contemplated by
Section 2.13 of the Merger Agreement, the Spinco PSIP or such other person will
acquire and pay for, prior to the Effective Time, and the Company will sell,
upon the terms and subject to the conditions of the Preferred Stock Purchase
Agreement, all of the shares of Spinco Preferred Stock held by the Company.
26
<PAGE>
ARTICLE III
THE DISTRIBUTION
----------------
Section 3.1. Cooperation Prior to the Distribution. As promptly as
-------------------------------------
practicable after the date hereof and prior to the Distribution Date:
(a) The Company and Spinco shall prepare, and the Company shall file
with the SEC and mail to the holders of the equity securities of the Company,
the Information Statement, which shall set forth appropriate disclosure
concerning Spinco and its subsidiaries, the Company Business, the Distribution
and certain other matters. The Company and Spinco shall also prepare, and
Spinco shall file with the SEC, the Form 10 which shall include or incorporate
by reference the Information Statement. The Company and Spinco shall use
reasonable efforts to cause the Form 10 to be declared effective under the
Exchange Act or, if the Company reasonably determines that the Distribution may
not be effected without registering the Spinco Common Stock pursuant to the
Securities Act, the Company shall use its best efforts to cause the Spinco
Common Stock to be registered pursuant to the Securities Act and thereafter
effect the Distribution in accordance with the terms of this Agreement,
including, without limitation, by preparing and
27
<PAGE>
filing on an appropriate form a registration statement under the Securities Act
covering the Spinco Common Stock and using its best efforts to cause such
registration statement to be declared effective.
(b) The Company and Spinco shall cooperate in preparing, filing with
the SEC and causing to become effective any registration statements or
amendments thereto which are appropriate to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by this
Agreement.
(c) The Company and Spinco shall take all such action as may be
necessary or appropriate under state securities or "Blue Sky" laws in connection
with the transactions contemplated by this Agreement.
(d) The Company and Spinco shall prepare, and Spinco shall file and
seek to make effective, an application to permit listing of the Spinco Common
Stock either on the NYSE or any other national securities exchange as selected
by Spinco in its sole discretion.
(e) In addition to the actions specifically provided for elsewhere in
this Agreement, each of the parties hereto shall use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advis-
28
<PAGE>
able under applicable laws, regulations and agreements to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using its best efforts to obtain the consents and approvals, to
enter into any amendatory agreements and to make the filings and applications
necessary or desirable to have been obtained, entered into or made in order to
consummate the transactions contemplated by this Agreement.
Section 3.2. The Distribution.
----------------
(a) The Company's Board of Directors (or any duly appointed committee
thereof) shall in its sole discretion establish the Record Date and the
Distribution Date and any appropriate procedures in connection with the
Distribution (subject in each case to the provisions of applicable law);
provided that in no event shall the Distribution occur prior to such time as (i)
- --------
the Purchaser shall have purchased shares of Company Common Stock pursuant to
the terms and conditions of the Offer as set forth in the Merger Agreement, (ii)
the Form 10 (or the registration statement referred to in Section 3.1(a) hereof)
shall have been declared effective by the SEC and (iii) the Spinco Common Stock
shall have been accepted
29
<PAGE>
for listing or quotation in accordance with Section 3.1(d) hereof.
(b) Subject to Section 10.1 hereof, following the Record Date and the
consummation of the Offer but prior to the Distribution Date, the Company shall
deliver to the Agent one or more share certificates representing all of the
outstanding shares of Spinco Common Stock to be distributed in the Distribution
and shall instruct the Agent, subject to Section 8.2(d) hereof, to distribute on
the Distribution Date, one share of Spinco Common Stock for each share of
Company Common Stock held to holders of record of Company Common Stock on the
Record Date. Spinco agrees to provide all share certificates that the Agent
shall require in order to effect the Distribution. All shares of Spinco Common
Stock issued in the Distribution shall be duly authorized, validly issued, fully
paid, non-assessable and free of preemptive rights.
(c) Immediately upon consummation of the Distribution, the Company
shall not hold or beneficially own directly or indirectly any shares of Spinco
Common Stock.
30
<PAGE>
Section 3.3. Company Approval of Certain Spinco Actions. Unless
------------------------------------------
otherwise provided in this Agreement, the Company and Maryland shall cooperate
with Spinco and its subsidiaries in effecting, and if so requested by Spinco the
Company shall, as the sole stockholder of Spinco, ratify any actions that are
reasonably necessary or desirable to be taken by Spinco to effectuate the
transactions contemplated by this Agreement in a manner consistent with the
terms of this Agreement, including, without limitation, the following: (a) the
preparation and approval of the Certificate of Incorporation and By-laws of
Spinco to be in effect at the Distribution Date; (b) the election or appointment
of directors and officers of Spinco to serve in such capacities following the
Distribution Date; (c) the adoption, preparation and implementation of
appropriate plans, agreements and arrangements for Spinco Employees and Spinco
non-employee directors (including, without limitation, plans, agreements or
arrangements pursuant to which securities of Spinco would be acquired by Spinco
Employees and plans required to implement the matters referred to in Section 8.2
hereof); (d) the registration under applicable securities laws of any securities
of Spinco issued or distributed pursuant to Section 3.2 hereof; and (e) the
31
<PAGE>
adoption of a shareholder rights plan pursuant to which holders of Spinco Common
Stock would receive as a dividend a right entitling certain such holders, under
certain circumstances, to purchase additional Spinco Common Stock or stock in an
entity which acquires Spinco.
Section 3.4. Termination of Certain Claims. Following the Offer
-----------------------------
Purchase Date, Spinco shall have no claims against the Company based on any
breach by the Company or its Affiliates of any obligations under this Agreement
that occurred prior to the Offer Purchase Date, all of such claims being hereby
irrevocably waived and terminated as of the Offer Purchase Date; provided that
the foregoing shall not limit the Company's liability for any breach by the
Company or its Affiliates of any obligations under this Agreement that occurs
following the Offer Purchase Date, including, without limitation, the Company's
obligation to indemnify Spinco as set forth herein.
ARTICLE IV
INTERCOMPANY BUSINESS RELATIONSHIPS
-----------------------------------
Section 4.1. Settlement of Intercompany Accounts; Net Working Capital
--------------------------------------------------------
Adjustment.
- ----------
(a) Except as expressly provided for in this Article IV, all
intercompany receivables, payables,
32
<PAGE>
loans, cash overdrafts and other accounts in existence as of the Offer Purchase
Date between Prescription, CPA and their subsidiaries, on the one hand, and the
Company and its subsidiaries (other than Prescription, CPA and their
subsidiaries), on the other hand, under the Company's cash management program or
otherwise (other than accounts, if any, relating to intercompany contractual or
other obligations which are contemplated to survive the Distribution pursuant to
Section 4.2 or 4.4 hereof), shall be cancelled and settled in full pursuant to
the provisions of this Section 4.1. Following the date hereof, all such
intercompany transactions shall be conducted in a manner consistent with past
practice.
(b) In the event that the Negative Net Working Capital (as defined in
paragraph (e) below) as of the close of business on the Offer Purchase Date (i)
is greater than $70,000,000, then Spinco shall pay the Company a cash amount
equal to the amount by which the Negative Net Working Capital is greater than
$70,000,000 or (ii) is less than $70,000,000, then the Company shall pay Spinco
a cash amount equal to the amount by which the Negative Net Working Capital is
less than $70,000,000. Such payment shall be made within ten business days
after delivery of the Final Statement (as defined in paragraph
33
<PAGE>
(d) below) by wire transfer in immediately available funds of the amount of such
difference as determined pursuant to the preceding sentence, together with
interest thereon from the Offer Purchase Date to the date of payment calculated
based on the thirty-day AA composite commercial paper rate (as last published by
the Federal Reserve prior to the Offer Purchase Date).
(c) Within 60 days after the Offer Purchase Date, Spinco shall prepare
and deliver to the Company a statement (the "Working Capital Statement") setting
forth the Negative Net Working Capital as of the Offer Purchase Date, which
Working Capital Statement shall, except as otherwise set forth herein, be
prepared on a basis consistent with the prior practices and methods employed by
the Prescription Business in the preparation of the Prescription Financial
Statements (as defined in Section 4.7(b) of the Merger Agreement). Following
the Offer Purchase Date, each of the Company and Spinco shall give the other
party and any independent auditors of such other party full access at all
reasonable times to the properties, books, records and personnel of the
Prescription Business relating to periods prior to the Offer Purchase Date for
purposes of preparing and reviewing the Working Capital Statement and
determining the
34
<PAGE>
amount of Negative Net Working Capital. The Company shall have 30 days
following delivery to the Company of the Working Capital Statement during which
to notify Spinco of any dispute of any item contained in the Working Capital
Statement, which notice shall set forth in reasonable detail the basis for such
dispute. If the Company fails to notify Spinco of any such dispute within such
30-day period, the Working Capital Statement shall be deemed to be the "Final
Statement". In the event that the Company shall so notify Spinco of any
dispute, the Company and Spinco shall cooperate in good faith to resolve such
dispute as promptly as practicable.
(d) If the Company and Spinco are unable to resolve any such dispute
within 30 days of the Company's delivery of such notice, such dispute shall be
resolved by a "big six" independent accounting firm, jointly selected by the
parties. If Spinco and the Company cannot agree on such accounting firm to be
retained, Spinco and the Company shall each submit the name of a "big six"
independent accounting firm that does not at the time and has not in the prior
two years provided services to Spinco, the Company, the Purchaser or Parent, and
the firm shall be selected by lot from these two firms. The independent
accounting firm so retained (the
35
<PAGE>
"Independent Accounting Firm") shall make its determination as promptly as
practicable and such determination shall be final and binding on the parties and
shall be deemed a final arbitration award that is enforceable pursuant to all
terms of the Federal Arbitration Act, 9 U.S.C. (S)(S) 1 et seq. The expenses
-- ---
relating to the engagement of the Independent Accounting Firm shall be shared
equally by the Company and Spinco. The Working Capital Statement, as may be
modified by resolution of any disputes by the Company and Spinco or by the
Independent Accounting Firm pursuant hereto, shall be the "Final Statement".
(e) For purposes of this Section 4.1, (i) the term "Negative Net
Working Capital" shall mean the sum of (x) the aggregate amount of the Adjusted
Current Liabilities, minus (y) the aggregate amount of the Adjusted Current
Assets (as such amounts are set forth in the Final Statement); (ii) the term
"Adjusted Current Assets" shall mean the receivables of the Prescription
Business as of the Offer Purchase Date (as reduced to reflect all allowances or
reserves for doubtful accounts set forth on the Prescription Financial
Statements); and (iii) the term "Adjusted Current Liabilities" shall mean the
following current liabilities of the Prescription
36
<PAGE>
Business as of the Offer Purchase Date: (A) all drafts payable, (B) all claims
payable and (C) all deposits placed by third parties with the Prescription
Business (except for credit deposits, which shall be separately provided for in
the Credit Deposit Receivable (as defined in paragraph (g) below)). The parties
agree that no claim for indemnification under this Agreement may be made by any
party hereto with respect to any matters or categories of items relating to or
reflected in the Negative Net Working Capital adjustment covered by this Section
4.1.
(f) For illustrative purposes, set forth below is an example of the
calculations described in Section 4.1 (b) hereof, which sets forth how such
amounts would be calculated if March 31, 1994 were the applicable Offer Purchase
Date:
<TABLE>
<CAPTION>
March 31, 1994 Sample Working Capital Statement
-----------------------------------------------
(numbers in thousands)
Adjusted Current Liabilities
- ----------------------------
<S> <C>
Drafts payable $ 48,918
Claims payable 250,390
Deposits (ex credit deposits) 16,385
--------
Subtotal $315,693
Adjusted Current Assets
- --------------------------------
Receivables (on a net basis) $292,192
Negative Net Working Capital
- --------------------------------
Total $ 23,501
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
Amount Due Spinco (Parent)
- --------------------------------
Amount per (S)4.1(b) 70,000
Negative Net Working Capital 23,501
--------
Amount Due Spinco (Parent) $ 46,499
</TABLE>
(g) The parties hereto acknowledge and agree that the Prescription
Business shall have reflected on its books as of the Offer Purchase Date a
receivable owing from Spinco (the "Employee Benefit Receivable"), which shall be
equal to the sum of (i) the Present Value (as defined below) of the aggregate
fair market value as of the Record Date of all Stock Options (as defined in the
Merger Agreement) (net of any exercise price thereof) which are (a) outstanding
on the date hereof, (b) not exercisable immediately prior to the Record Date and
(c) held by any Retained Employee (as defined in Section 6.9 of the Merger
Agreement); (ii) the Present Value of the aggregate fair market value (the
"Restricted Share Value") as of the Record Date of all Shares (as defined in the
Merger Agreement) granted under the 1988 Plan (as defined in the Merger
Agreement) (a) which are outstanding on the date hereof, (b) the restrictions on
which have not lapsed on or prior to the Offer Purchase Date and (c) which are
held by any Retained Employee; and (iii) the Present Value of the 1.45% tax on
Medicare
38
<PAGE>
hospital insurance imposed by FICA with respect to the Stock Options referred to
in clause (i) above and the Restricted Share Value; provided that the amounts
--------
set forth in clauses (i), (ii) and (iii) above shall be reduced by the Present
Value of the tax benefits to be realized by the Company following the Offer
Purchase Date with respect to the amounts set forth in clauses (i), (ii) and
(iii) above; provided further that all determinations of fair market value
-------- -------
pursuant to this Section 4.1(g) shall be reasonably made by the Company's Board
of Directors based on consultation with its financial advisor; provided further
-------- -------
that in calculating any amount with respect to the Stock Options referred to in
clause (i) above, such calculation shall assume the exercise of one-third of
such options at the end of each year of the three-year period immediately
following the Offer Purchase Date. For purposes hereof, the term "Present
Value" shall refer to the present value of a particular item, calculated on the
basis of an annual discount rate of 6.00%. The parties hereto acknowledge and
agree that the Prescription Business shall also have reflected on its books as
of the Offer Purchase Date a receivable owing from Spinco (the "Credit Deposit
Receivable"), which shall be equal to all credit deposits of the Prescription
Business as of
39
<PAGE>
the last business day of the month ending immediately prior to the Offer
Purchase Date. Spinco shall pay to the Company immediately following the
Distribution Date a cash amount equal to the aggregate amount of the Employee
Benefit Receivable and the Credit Deposit Receivable.0
Section 4.2. Ongoing or Transition Services. Following the Offer
------------------------------
Purchase Date, Spinco will continue to provide to the Company and its
Subsidiaries any or all data processing, financial, tax, accounting, legal,
insurance, banking, cash management (including the Company's cash management
program), personnel, employee benefits, communications and similar staff and
services (collectively, "Services") currently being provided by the Company and
its subsidiaries (other than Spinco and its subsidiaries), on the one hand, to
the Prescription Business, as the Company shall request, except that the Company
shall have the right to not accept or to terminate any Services at any time upon
30 days prior written notice to Spinco. Such Services shall be provided at cost
bases consistent with those costs included in the fiscal 1994 income statement
included in Section 4.7(b) of the Disclosure Schedule to the Merger Agreement.
Spinco will provide the Services for a period of up to one year following the
Offer Purchase Date (subject to
40
<PAGE>
the Company's right to terminate any Services at any time upon 30 days prior
written notice to Spinco). At the request of Spinco, the Company will enter
into an agreement satisfactory to Spinco, the Company and Parent with respect to
the provision of any Services that the Company may request.
Section 4.3. Shared Assets. Subject to the provisions of the
-------------
Services Agreements, any Assets, operations or personnel which are being used in
both the regular course of the Company Business and the Prescription Business
shall be shared as set forth herein but shall be deemed Company Assets and
transferred in accordance with this Agreement. Subject to the provisions of the
Services Agreements, Spinco shall continue to provide such Assets, operations or
personnel to the Company or its subsidiaries for use in its business to
substantially the same extent as used therein prior to the Offer Purchase Date
and at the same cost charged prior to the Offer Purchase Date; to the extent
that the use of any such Assets, operations or personnel is discontinued after
the Offer Purchase Date, the charges therefor shall also be discontinued. Each
of the Company and Spinco will use its best efforts, and will cooperate fully
with the other, to reduce the need for dual use of such As-
41
<PAGE>
sets, operations or personnel and in no event will either party be required to
provide the same to the other after the first anniversary of the Offer Purchase
Date. To the extent that Spinco transfers to a third party any of the Assets,
operations or personnel shared with the Company or its subsidiaries pursuant to
the provisions hereof, Spinco will cause the transferee of such Assets,
operations or personnel to specifically assume its obligations under this
Section 4.3 with respect to such Assets, operations or personnel and will use
its best efforts to cause such transferee to fulfill such obligations, but no
such assumption shall relieve Spinco of any such obligations. The Company
agrees that such transferee may exercise all of Spinco's rights hereunder with
respect to such Assets, operations or personnel.
Section 4.4. Other Intercompany Arrangements. In addition to the
-------------------------------
Services Agreements, to the extent that the Company Business and the
Prescription Business are now providing or selling to the other any services or
products in the ordinary course of business, pursuant to any agreement or
understanding whatsoever, then, except as set forth in Section 4.4 of the
Disclosure Schedule, such agreement or understanding shall not be deemed
altered, amended or terminated as a result of this Agree-
42
<PAGE>
ment or the consummation of the transactions contemplated hereby.
Section 4.5. Settlements for Cash Collections and
------------------------------------
Disbursements.
- -------------
(a) For each calendar month commencing with the month in which the
Offer Purchase Date occurs and, unless sooner terminated by agreement of the
parties, continuing for a period of one year thereafter, (i) the Company shall
prepare, and Spinco shall fully cooperate in preparing, a statement of
transactions which shall reflect a complete analysis of any cash collections and
cash disbursements by the Company and its subsidiaries on behalf of Spinco and
its subsidiaries (including those relating to the Company Business) during the
relevant month (provided that, with respect to the first such monthly period
such statement shall not reflect any cash collections or disbursements occurring
prior to the Offer Purchase Date) and (ii) Spinco shall prepare, and the Company
shall fully cooperate in preparing, a statement of transactions which shall
reflect a complete analysis of any cash collections and cash disbursements by
Spinco and its subsidiaries on behalf of the Company and its subsidiaries during
the relevant month (including those relating to the Prescription Business).
43
<PAGE>
(b) Not later than twenty business days following delivery of such
statements, Spinco shall pay to the Company or the Company shall pay to Spinco,
as the case may be, in cash an amount necessary to eliminate the account balance
as reflected in each such statement. Payments made pursuant to this Section 4.4
shall not, for any purposes of this Agreement, constitute Indemnifiable Losses
or be set off against any other payments to be made, Liabilities asserted or
claims made pursuant to this Agreement, including but not limited to Section 5.4
hereof, unless the Company and Spinco otherwise agree in writing.
ARTICLE V
SURVIVAL AND INDEMNIFICATION
----------------------------
Section 5.1. Survival of Agreements. The obligations under this
----------------------
Article V of each of Spinco and its subsidiaries, on the one hand, and the
Company and its subsidiaries, on the other hand, shall survive the sale or other
transfer by it of any Assets or businesses or the assignment by it of any
Liabilities. To the extent that the Company or its subsidiaries transfers
directly or indirectly to any other person all or substantially all of the
Prescription Assets or the Prescription Business or assigns any of the
Prescription
44
<PAGE>
Liabilities (except for such amounts of the Prescription Liabilities which are
not material individually or in the aggregate), the Company will cause the
transferee of such Prescription Assets or Prescription Business to assume
specifically its obligations under this Agreement with respect thereto and will
cause such transferee to fulfill its obligations related to such Prescription
Liabilities. Such assumption will not relieve the Company of its obligations in
respect thereof. To the extent that Spinco or its subsidiaries transfers
directly or indirectly to any other person all or substantially all of the
Company Assets or the Company Business or assigns any of the Company Liabilities
(except for such amounts of the Company Liabilities which are not material
individually or in the aggregate), Spinco will cause the transferee of such
Company Assets or Company Business to assume specifically its obligations under
this Agreement with respect thereto and will cause such transferee to fulfill
its obligations related to such Company Liabilities. Such assumption will not
relieve Spinco of its obligations in respect thereof. Spinco, on the one hand,
and the Company, on the other hand, agree that such transferee may exercise all
of Spinco's or the Company's
45
<PAGE>
rights hereunder, as the case may be, with respect to such Assets or businesses.
Section 5.2. Spinco's Agreement to Indemnify.
-------------------------------
(a) In addition to any indemnification required by Sections 6.2 or
8.5 hereof, subject to the terms and conditions set forth herein, from and after
the Offer Purchase Date, Spinco shall indemnify, defend and hold harmless the
Company, the Purchaser and Parent and each of their respective directors,
officers, employees, representatives, advisors, agents and Affiliates
(collectively, the "Parent Indemnities") from and against any and all
Indemnifiable Losses of the Parent Indemnities arising out of or resulting from,
directly or indirectly (i) any breach of any representation or warranty
contained in Article IV or in Section 9.11 of the Merger Agreement (without
giving effect to any materiality qualifications set forth therein), (ii) any
breach by the Company of the covenants and agreements set forth in the Merger
Agreement, and (iii) all Company Liabilities.
(b) Spinco's obligations to indemnify Parent Indemnities pursuant to
Section 5.2(a) hereof are subject to the following limitations:
46
<PAGE>
(i) No indemnification shall be made by Spinco pursuant to
Section 5.2(a)(i) hereof unless the aggregate amount of Indemnifiable
Losses incurred by the Parent Indemnities exceeds $10,000,000, and, in such
event, indemnification pursuant to Section 5.2(a)(i) shall be made by
Spinco only to the extent that the aggregate amount of such Indemnifiable
Losses exceeds $10,000,000;
(ii) In no event shall Spinco's aggregate obligation to indemnify
the Parent Indemnities pursuant to Sections 5.2(a)(i) and (ii) exceed
$200,000,000 (except that the foregoing limitation shall not apply to any
Indemnifiable Losses arising out of any willful breach of the covenants and
agreements set forth in the Merger Agreement);
(iii) Spinco shall be obligated to indemnify the Parent
Indemnities only for those Indemnifiable Losses under clauses (i) or (ii)
of Section 5.2(a) hereof as to which the Parent Indemnities have given
Spinco written notice thereof on or prior to nine months after the Offer
Purchase Date. Any written notice delivered by a Parent Indemnitee to
Spinco with respect to Indemnifiable Losses shall set forth with as much
specificity as
47
<PAGE>
is reasonably practicable the basis of the claim and, to the extent
reasonably practicable, a reasonable estimate of the amount thereof.
(iv) The amount of any Indemnifiable Losses shall be reduced by
any amount received by a Parent Indemnitee with respect thereto under any
insurance coverage (net of any costs of such coverage incurred by such
Parent Indemnitee) or from any other party alleged to be responsible
therefor. The Parent Indemnitee shall use reasonable efforts to collect
any amounts available under such insurance coverage and from such other
party alleged to have responsibility (the expenses of such efforts to be
deemed to be Indemnifiable Losses). If a Parent Indemnitee receives an
amount under insurance coverage or from such other party with respect to
Indemnifiable Losses at any time subsequent to any indemnification provided
pursuant to this Article V, then such Parent Indemnitee shall promptly
reimburse Spinco for any payment made or expense incurred by it in
connection with providing such indemnification up to such amount received
by the Parent Indemnitee (net of any costs of such coverage or of obtaining
48
<PAGE>
such amount from another party incurred by such Parent Indemnitee);
(v) A Parent Indemnitee shall pay to Spinco the amount of any
tax benefit relating to any Indemnifiable Losses hereunder promptly after
such tax benefit is actually realized; provided that in the event that such
--------
tax benefit of the Parent Indemnitee is subsequently disallowed, Spinco
shall pay to such Parent Indemnitee the amounts that were paid to it
originally as a result of such tax matter.
Section 5.3. The Company's Agreement to Indemnify.
------------------------------------
(a) In addition to any indemnification required by Sections 6.2 or
8.5 hereof, subject to the terms and conditions set forth herein, from and after
the Offer Purchase Date, the Company shall indemnify, defend and hold harmless
Spinco and each of its directors, officers, employees, representatives,
advisors, agents and Affiliates (collectively, the "Spinco Indemnities") from
and against any and all Indemnifiable Losses of the Spinco Indemnities arising
out of or resulting from, directly or indirectly (i) any breach by Parent or the
Purchaser of any representation or warranty contained in Article V of the Merger
Agreement (without giving effect
49
<PAGE>
to any materiality qualifications set forth therein), (ii) any breach by Parent
or the Purchaser of the covenants and agreements set forth in the Merger
Agreement, and (iii) all Prescription Liabilities. Notwithstanding the
foregoing and anything to the contrary in this Agreement or any other agreement
to be entered into pursuant to this Agreement, the Company shall not be required
to indemnify, defend and hold harmless any person specified in this Section
5.3(a) from and against any Indemnifiable Loss resulting from any claims that
the statements included in the Information Statement, the Form 10 or in any
registration statement filed pursuant to Section 3.1 or Section 3.3 hereof (in
each case other than statements or omissions made in reliance upon and in
conformity with information furnished in writing by Parent, the Purchaser or
their Affiliates, representatives or advisors expressly for use therein) are
false or misleading with respect to any material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The Company's obligations to indemnify Spinco Indemnities pursuant
to Section 5.3(a) hereof are subject to the following limitations:
50
<PAGE>
(i) No indemnification shall be made by the Company pursuant to
Section 5.3(a)(i) hereof unless the aggregate amount of Indemnifiable
Losses incurred by the Spinco Indemnities exceeds $10,000,000, and, in such
event, indemnification pursuant to Section 5.3(a)(i) hereof shall be made
by the Company only to the extent that the aggregate amount of such
Indemnifiable Losses exceeds $10,000,000;
(ii) In no event shall the Company's aggregate obligation to
indemnify the Spinco Indemnities pursuant to Sections 5.3(a)(i) and (ii)
hereof exceed $200,000,000 (except that the foregoing limitation shall not
apply to any Indemnifiable Losses arising out of any willful breach of such
covenants and agreements set forth in the Merger Agreement);
(iii) The Company shall be obligated to indemnify the Spinco
Indemnities only for those Indemnifiable Losses under clauses (i) or (ii)
of Section 5.3(a) hereof as to which the Spinco Indemnities have given the
Company written notice thereof on or prior to nine months after the Offer
Purchase Date. Any written notice delivered by a Spinco
51
<PAGE>
Indemnitee to the Company with respect to Indemnifiable Losses shall set
forth with as much specificity as is reasonably practicable the basis of
the claim and, to the extent reasonably practicable, a reasonable estimate
of the amount thereof.
(iv) The amount of any Indemnifiable Losses shall be reduced by
any amount received by a Spinco Indemnitee with respect thereto under any
insurance coverage (net of any costs of such coverage incurred by such
Spinco Indemnitee) or from any other party alleged to be responsible
therefor. The Spinco Indemnitee shall use reasonable efforts to collect
any amounts available under such insurance coverage and from such other
party alleged to have responsibility (the expense of such efforts to be
deemed to be Indemnifiable Losses). If a Spinco Indemnitee receives an
amount under insurance coverage or from such other party with respect to
Indemnifiable Losses at any time subsequent to any indemnification provided
by the Company pursuant to this Article V, then such Spinco Indemnitee
shall promptly reimburse the Company for any payment made or expense
incurred by it in connection with providing such indemnification up to such
amount received
52
<PAGE>
by the Spinco Indemnitee (net of any costs of such coverage or of obtaining
such amount from another party incurred by such Spinco Indemnitee);
(v) A Spinco Indemnitee shall pay to the Company the amount of
any tax benefit relating to any Indemnifiable Losses hereunder promptly
after such tax benefit is actually realized; provided that in the event
--------
that such tax benefit of the Spinco Indemnitee is subsequently disallowed,
the Company shall pay to such Spinco Indemnitee the amounts that were paid
to it originally as a result of such tax matters.
Section 5.4. Procedure for Indemnification.
-----------------------------
(a) If a Parent Indemnitee or a Spinco Indemnitee (either, an
"Indemnitee") shall receive notice of the assertion by a person who is not a
party to this Agreement of any claim or of the commencement by any such person
of any Action (a "Third Party Claim") with respect to which Spinco or the
Company, as the case may be, is obligated to provide indemnification (an
"Indemnifying Party"), such Indemnitee shall give such Indemnifying Party prompt
notice thereof after becoming aware of such Third Party Claim; provided that the
--------
failure of any Indemnitee to give notice as provided in this Section 5.4
53
<PAGE>
shall not relieve the related Indemnifying Party of its obligations under this
Article V, except to the extent that such Indemnifying Party is actually
prejudiced by such failure to give notice. Such notice shall describe the Third
Party Claim in reasonable detail, and, if practicable, shall indicate the
estimated amount of the Indemnifiable Loss that has been or may be sustained by
such Indemnitee.
(b) An Indemnifying Party may elect to defend, compromise and settle,
at such Indemnifying Party's own expense and by such Indemnifying Party's own
counsel, any Third Party Claim. If an Indemnifying Party elects to defend a
Third Party Claim, it shall, within 15 days of notice of such Third Party Claim
(or sooner, if the nature of such Third Party Claim so requires), notify the
related Indemnitee of its intent to do so, and such Indemnitee shall cooperate
in the defense of such Third Party Claim. Such Indemnifying Party shall pay
such Indemnitee's actual reasonable out-of-pocket expenses incurred in
connection with such cooperation. After notice from an Indemnifying Party to an
Indemnitee of its election to assume the defense of a Third Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this Article V
for any legal or other
54
<PAGE>
expenses subsequently incurred by such Indemnitee in connection with the defense
thereof; provided that (i) if, under applicable standards of professional
--------
conduct (as advised by counsel to the Indemnifying Party), a conflict on any
significant issue between such Indemnitee and such Indemnifying Party or between
any two or more Indemnities exists in respect of such claim, in that event the
Indemnifying Party shall pay the reasonable fees and expenses of one such
additional counsel as may be required to be retained in order to resolve such
conflict. If an Indemnifying Party elects not to defend against a Third Party
Claim, or fails to notify an Indemnitee of its election as provided in this
Section 5.4, such Indemnitee may defend, compromise and settle such Third Party
Claim. Notwithstanding the foregoing, (i) neither an Indemnifying Party nor an
Indemnitee, as the party controlling the defense of a Third Party Claim, may
compromise or settle any claim or consent to the entry of any judgment for other
than monetary damages without the prior written consent of the other; provided
--------
that (upon reasonable notice thereof) consent to compromise or settlement or the
entry of a judgment shall not be unreasonably withheld or delayed, and (ii) no
Indemnifying Party shall consent to the entry of any judgment or enter
55
<PAGE>
into any compromise or settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnitee and all
other Spinco Indemnities or Parent Indemnities, as the case may be, subject to
such Third Party Claim of a full and final release from all liability in respect
to such claim or litigation.
(c) Any claim on account of an Indemnifiable Loss which does not
result from a Third Party Claim shall be asserted by written notice given by the
related Indemnitee to the related Indemnifying Party. Such Indemnifying Party
shall have a period of 30 days within which to respond thereto. If such
Indemnifying Party does not respond within such 30 days' period, such
Indemnifying Party shall be deemed to have accepted responsibility to make
payment, subject to the provisions of this Section 5.4, and shall have no
further right to contest the validity of such claim. If such Indemnifying Party
does respond within such 30 days' period and rejects such claim in whole or in
part, such Indemnitee shall be free to pursue such remedies as may be available
to such party under applicable law.
56
<PAGE>
Section 5.5. Pending Litigation. Following the Offer Purchase Date,
------------------
(a) the Company shall have exclusive authority and control over the
investigation, prosecution, defense and appeal of all pending Actions relating
primarily to the Prescription Business, the Prescription Assets or the
Prescription Liabilities (each, a "Prescription Action"), and may settle or
compromise, or consent to the entry of any judgment with respect to, any such
Action without the consent of Spinco, and (b) Spinco shall have exclusive
authority and control over the investigation, prosecution, defense and appeal of
all pending Actions relating primarily to the Company Business, the Company
Assets or the Company Liabilities (each, a "Company Action"), and may settle or
compromise, or consent to the entry of any judgment with respect to, any such
Action without the consent of the Company; provided that neither the Company nor
--------
Spinco (nor any of their respective subsidiaries) may settle or compromise, or
consent to the entry of any judgment with respect to, any such Action without
the prior written consent of the other party if such settlement, compromise or
consent to such judgment (i) includes any form of injunctive relief binding upon
such other party or (ii) does not include as an unconditional term thereof the
giving by the claimant
57
<PAGE>
or plaintiff to such other party (and any related party of such other party
subject to such Action) of a full and final release from all liability in
respect to such claim or litigation. Each of the Company and Spinco shall
indemnify, defend and hold harmless the other party, and Spinco shall indemnify
and hold harmless Parent and Purchaser, in the manner provided in this Article
V, and each of such Indemnitee's directors, officers, employees,
representatives, advisors, agents and Affiliates from and against all
Indemnifiable Losses arising out of or resulting from each such Action over
which such indemnifying party has authority and control.
Section 5.6. Construction of Agreements. Notwithstanding any other
--------------------------
provision in this Agreement to the contrary, in the event and to the extent that
there shall be a conflict between the provisions of this Article V and the
provisions of any other part of this Agreement or any exhibit or schedule hereto
(other than the Tax Sharing Agreement), the provisions of this Article V shall
control, and in the event and to the extent that there shall be a conflict
between the provisions of this Agreement and the provisions of the Tax Sharing
Agreement, the provisions of the Tax Sharing Agreement shall control.
58
<PAGE>
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
--------------------------
Section 6.1. No Representations or Warranties; Exceptions.
--------------------------------------------
(a) It is the explicit intent of each party hereto and of Parent and
the Purchaser that no party to this Agreement or to the Merger Agreement is
making any representation or warranty whatsoever, express or implied, in this
Agreement, the Merger Agreement or the Ancillary Agreements (as defined in the
Merger Agreement) or in any other agreement contemplated hereby or thereby,
except those representations and warranties expressly set forth in Articles IV
and V of the Merger Agreement and in this Section 6.1. Parent, the Purchaser,
the Company and Spinco agree, to the fullest extent permitted by law, that none
of them or any of their directors, officers, employees, affiliates, controlling
persons, agents or representatives shall have any liability or responsibility
whatsoever to any such other entity or such other entity's directors, officers,
employees, affiliates, controlling persons, agents or representatives on any
basis (including, without limitation, in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or made
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available, or statements made, to any such other entity or such other entity's
directors, officers, employees, affiliates, controlling persons, agents or
representatives (or any omissions therefrom), including, without limitation, in
respect of the specific representations and warranties set forth in this
Agreement and the Merger Agreement and the covenants and agreements set forth in
the Merger Agreement, except (i) as and only to the extent expressly set forth
herein and in the Merger Agreement with respect to such representations and
warranties, and as set forth herein or in the Merger Agreement with respect to
such covenants and agreements, and rights to indemnification and subject to the
limitations and restrictions contained herein and therein, and (ii) with respect
to breaches of the covenants and agreements set forth in this Agreement.
(b) Without limiting the generality of the foregoing, it is
understood and agreed (a) that neither the Company nor any of its subsidiaries
is, in this Agreement or in any other agreement or document contemplated by this
Agreement, representing or warranting in any way as to the value or freedom from
encumbrance of, or any other matter concerning, any Company Assets, (b) that the
Company Assets are being transferred "as is,
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where is" and (c) that, subject to the obligations of the Company set forth in
Sections 2.1(b) and 6.2 hereof, Spinco shall bear the risk that any conveyances
of Company Assets might be insufficient or that Spinco's or any of its
subsidiaries' title to any Company Assets shall be other than good and
marketable and free from encumbrances. Similarly, it is understood and agreed
that neither the Company nor any of its subsidiaries is, in this Agreement or in
any other agreement or document contemplated by this Agreement, representing or
warranting to Spinco in any way that the obtaining of the consents and
approvals, the execution and delivery of any amendatory agreements and the
making of the filings and applications contemplated by this Agreement shall
satisfy the provisions of all applicable agreements or the requirements of all
applicable laws or judgments.
(c) Spinco represents and warrants to the Company that, except as set
forth in Section 6.1(c) of the Disclosure Schedule, neither the Company nor any
of its subsidiaries (other than Spinco and its subsidiaries) is, or will on the
Offer Purchase Date be, liable directly or indirectly, as borrower, surety,
guarantor or otherwise, with respect to (and that none of the Prescription
Assets shall be bound by or subject to) any
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indebtedness for borrowed money or capitalized lease obligation other than the
Private Indebtedness and the Public Indebtedness.
Section 6.2. Further Assurances; Subsequent
------------------------------
Transfers.
- ---------
(a) To the extent that any of the transfers, distributions and
deliveries required to be made pursuant to Article II shall not have been so
consummated prior to the Distribution Date, the parties shall cooperate and use
their best efforts at Spinco's reasonable expense to effect such consummation as
promptly thereafter as reasonably practicable. Each of the parties hereto will
execute and deliver such further instruments of transfer and distribution and
will take such other actions as Spinco or any of its subsidiaries may reasonably
request in order to effectuate the purposes of this Agreement and to carry out
the terms hereof. Without limiting the generality of the foregoing, at any time
and from time to time after the Distribution Date, at the request and reasonable
expense of Spinco or any of its subsidiaries, the Company and its subsidiaries
will execute and deliver such other instruments of transfer and distribution,
and take such action as Spinco or any of its subsidiaries may reasonably deem
necessary or
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desirable in order to more effectively transfer, convey and assign to Spinco or
any of its subsidiaries and to confirm Spinco's or any of its subsidiaries, as
the case may be, right, title to or interest in, all of the Company Assets
transferred pursuant to this Agreement, to put Spinco and its subsidiaries in
actual possession and operating control thereof and to permit Spinco and its
subsidiaries to exercise all rights with respect thereto (including, without
limitation, rights under contracts and other arrangements as to which the
consent of any third party to the transfer thereof shall not have previously
been obtained) and to properly assume and discharge the related Company
Liabilities.
(b) Except to the extent otherwise expressly provided for in Section
2.4 hereof, each of the Company and its subsidiaries will use its best efforts,
at Spinco's expense, to obtain any consents required to transfer and assign to
Spinco all agreements, leases, licenses and other rights of any nature
whatsoever relating to the Company Assets. In the event and to the extent that
the Company or any of its subsidiaries is unable to obtain any such required
consents, (i) such entity (or any subsidiary that is a party thereto, as the
case may be) shall continue to be bound thereby and (ii) Spinco
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shall pay, perform and discharge fully all the obligations of such entity (or
any subsidiary that is a party thereto, as the case may be) thereunder from and
after the Distribution Date and indemnify such entity (or any subsidiary that is
a party thereto, as the case may be) for all Indemnifiable Losses arising out of
such performance by Spinco. The Company or such subsidiary, as the case may be,
shall, without further consideration therefor, pay, assign and remit to Spinco
promptly all monies, rights and other consideration received in respect of such
performance. The Company or such subsidiary shall exercise or exploit its
rights and options under all such agreements, leases, licenses and other rights
and commitments referred to in this Section 6.2(b) only as reasonably directed
by Spinco and at Spinco's expense. If and when any such consent shall be
obtained or such agreement, lease, license or other right shall otherwise become
assignable, the Company or such subsidiary, as the case may be, shall promptly
assign all its rights and obligations thereunder to Spinco without payment of
further consideration and Spinco shall, without the payment of any further
consideration therefor, assume such rights and obligations.
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(c) In the event that, subsequent to the Offer Purchase Date, the
Company or its subsidiaries shall either (i) receive written notice from Spinco
or any of its subsidiaries that certain specified Assets of the Company or its
subsidiaries which properly constitute Company Assets were not transferred to
Spinco on or prior to the Offer Purchase Date or (ii) determine that certain
Assets of the Company or its subsidiaries which constitute Company Assets were
not transferred to Spinco on or prior to the Distribution Date, then as promptly
as practicable thereafter, the Company shall, and shall cause its subsidiaries
to, take all steps reasonably necessary to transfer and deliver any and all of
such Assets to Spinco or its subsidiaries at Spinco's reasonable expense but
without the payment by Spinco of any consideration therefor. In the event that,
subsequent to the Offer Purchase Date, Spinco or its subsidiaries shall either
(i) receive written notice from the Company or any of its subsidiaries that
certain specified Assets were transferred to Spinco or its subsidiaries which
properly constitute Prescription Assets, or (ii) determine that certain Assets
of Spinco or its subsidiaries which constitute Prescription Assets were
transferred to Spinco, then as promptly as practicable thereafter, Spinco shall,
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and shall cause its subsidiaries to, take all steps reasonably necessary to
transfer and deliver any and all of such Assets to the Company or its
subsidiaries at Spinco's reasonable expense without the payment by the Company
of any consideration therefor.
Section 6.3. The Spinco Board. Spinco and the Company shall take all
----------------
actions which may be required to elect or otherwise appoint, on or prior to the
Distribution Date, those individuals that the Board of Directors of the Company
(as in effect prior to the consummation of the Offer) may designate as directors
of Spinco.
Section 6.4. Liability Insurance. Prior to the Offer Purchase Date,
-------------------
Spinco shall use its best efforts, and the Company shall cooperate with Spinco,
to obtain, at Spinco's expense, directors' and officers' liability insurance, in
amounts and upon terms reasonably satisfactory to Spinco, in respect of the
service of directors, officers, employees and agents of the Company and its
subsidiaries with the Company and its subsidiaries prior to the Distribution.
In the event that such insurance cannot be obtained by Spinco on commercially
reasonable terms, then the Company shall, at Spinco's request and expense, use
its best efforts to maintain or obtain such insurance, in such amounts and
having such
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terms as Spinco may reasonably direct, and Spinco shall reimburse the Company
for all out-of-pocket costs incurred by the Company in connection with obtaining
and maintaining such insurance on behalf of Spinco's directors and officers.
Section 6.5. Use of Names. Following the Offer Purchase Date, the
------------
Company and its subsidiaries shall have the sole and exclusive ownership of and
right to use, as between the Company and its subsidiaries, on the one hand, and
Spinco and its subsidiaries, on the other hand, each of the names used in the
Prescription Business and set forth on Section 6.5 of the Disclosure Schedule
(the "Prescription Names"), and each of the trade marks, trade names, service
marks and other proprietary rights related to such Prescription Names as set
forth on Section 6.5 of the Disclosure Schedule (the "Prescription Proprietary
Name Rights"). Following the Offer Purchase Date, Spinco and its subsidiaries
shall have the sole and exclusive ownership of and right to use, as between
Spinco and its subsidiaries, on the one hand, and the Company and its
subsidiaries, on the other hand, all names used by the Company and its
subsidiaries as of such date other than the Prescription Names (the "Company
Names"), and all other trade marks, trade names,
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service marks and other proprietary rights owned or used by the Company and its
subsidiaries as of such date other than the Prescription Proprietary Name Rights
(the "Company Proprietary Name Rights"). Following the Offer Purchase Date, the
Company shall, and shall cause its subsidiaries and other Affiliates to, take
all action necessary to cease using, and change as promptly as practicable
(including by amending any charter documents), any corporate or other names
which are the same as or confusingly similar to any of the Company Names or any
of the Company Proprietary Name Rights.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
----------------------------------
Section 7.1. Provision of Corporate Records. Except as provided in
------------------------------
the following sentence, on the Offer Purchase Date, the Company shall deliver to
Spinco all corporate books and records which are corporate records of the
Company, Spinco or their subsidiaries which relate primarily to the Company
Assets, the Company Business or the Company Liabilities, including, without
limitation, original corporate minute books, stock ledgers and certificates and
corporate seals of each corporation the capital stock of which is included in
the
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Company Assets, and all active agreements, active litigation files and
government filings. Notwithstanding the foregoing, the Company shall have the
right to retain the original corporate minute books, stock ledgers and
certificates and corporate seals of each of the Company, Maryland, Prescription
and CPA, provided that it provides Spinco with copies of, and reasonable access
to, such materials after the Offer Purchase Date. Also on the Offer Purchase
Date, the Company shall provide to Spinco lists of trademarks, patents,
copyrights and other intellectual property set forth in clause (iii) of the
definition of "Assets" herein included in the Company Assets.
Section 7.2. Access to Information. From and after the Offer
---------------------
Purchase Date (i) Spinco shall afford to the Company and its authorized
accountants, counsel and other designated representatives reasonable access
(including, without limitation, using reasonable efforts to give access to
persons or firms possessing Information (as defined below)) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within Spinco's possession relating to the Prescription Assets,
the Prescription Business and the Prescription Liabilities, insofar as
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<PAGE>
such access is reasonably required by the Company, and (ii) the Company shall
afford to Spinco and its authorized accountants, counsel and other designated
representatives reasonable access (including, without limitation, using
reasonable efforts to give access to persons or firms possessing Information)
and duplicating rights during normal business hours to all Information within
the Company's possession relating to the Company Assets, the Company Business
and the Company Liabilities. Information may be requested under this Article
VII for, without limitation, audit, accounting, claims, litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations.
Section 7.3. Production of Witnesses. From and after the Offer
-----------------------
Purchase Date, each party shall use reasonable efforts to make available to the
other party, upon written request, its officers, directors, employees and agents
as witnesses to the extent that any such person may reasonably be required in
connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
Section 7.4. Retention of Records. Except as otherwise required by
--------------------
law or agreed to in writing, Spinco and the Company shall each retain, for a
period of at
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least seven years following the Offer Purchase Date, all significant Information
relating to (i) in the case of the Company, the Prescription Business and (ii)
in the case of Spinco, the Company Business. Notwithstanding the foregoing,
either Spinco or the Company may destroy or otherwise dispose of any of such
Information at any time, provided that, prior to such destruction or disposal,
(a) Spinco or the Company, as the case may be, shall provide no less than 90 or
more than 120 days' prior written notice to the other party, specifying the
Information proposed to be destroyed or disposed of and (b) if the other party
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to the other party, Spinco or the Company, as the case may be, shall
promptly arrange for the delivery of such of the Information as was requested,
at the expense of the other party.
Section 7.5. Confidentiality. Each party shall hold, and shall cause
---------------
its officers, employees, agents, consultants and advisors to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, all non-public
Information
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<PAGE>
concerning the other party furnished it by such other party or its
representatives pursuant to this Agreement (except to the extent that such
Information can be shown to have been (a) available to such party on a non-
confidential basis prior to its disclosure by the other party, (b) in the public
domain through no fault of such party or (c) later lawfully acquired from other
sources by the party to which it was furnished), and each party shall not
release or disclose such Information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors who
agree to be bound by the provisions of this Section 7.5. Each party shall be
deemed to have satisfied its obligation to hold confidential Information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar confidential Information.
ARTICLE VIII
EMPLOYEE BENEFITS; LABOR MATTERS
--------------------------------
Section 8.1. Officers and Employees. The executive officers of the
----------------------
Company as of the date hereof shall be the executive officers of Spinco. Those
Spinco Employees of the Company who are employed in the Company
72
<PAGE>
Business immediately prior to the Offer Purchase Date shall become employees of
Spinco in the same capacities.
Section 8.2. Employee Benefits.
-----------------
(a) Except as provided in paragraph (b) of this Section 8.2,
effective as of the Offer Purchase Date, Spinco shall assume each of the
Company's funded "employee pension benefit plans" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and
each employment and severance agreement which the Company entered into, prior to
the Distribution, with Spinco Employees. The Company and Spinco shall at
Spinco's reasonable expense take all such action as may be necessary or
appropriate in order to establish Spinco as successor to the Company as to all
rights, duties, liabilities, and obligations under or with respect to each of
such plans, including, but not limited to, the Company's rights, duties,
liabilities and obligations under or with respect to any and all annuity or
insurance contracts which form a part of such plans, together with the assets
relating thereto; provided that the provisions of Section 6.9(b) of the Merger
--------
Agreement shall apply following the transfer described therein. Spinco shall
succeed the Company as the sponsor of all employee benefit plans not
specifically identified on
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Section 8.2 of the Disclosure Schedule and agrees to indemnify and hold the
Company harmless from and against all direct and indirect liabilities, claims,
damages, obligations, payments, costs and expenses assessed against, resulting
to, imposed upon or incurred by the Company, directly or indirectly, with
respect to such employee benefit plans (other than any such liabilities, claims,
damages, obligations, payments, costs and expenses relating to Prescription
Employees; such liabilities, claims, damages, obligations, payments, costs and
expenses shall be treated as Prescription Liabilities hereunder).
(b) Profit Sharing Investment Plan. Effective as of the Effective
------------------------------
Time (as defined in the Merger Agreement), Spinco shall assume the Company's
Profit Sharing Investment Plan, as amended (the "PSIP") in accordance with the
terms of Section 6.9(c) of the Merger Agreement. The Company and Spinco shall
at Spinco's expense take all such action as may be necessary or appropriate to
cause Spinco to assume sponsorship and to establish Spinco as successor to the
Company as to all rights, duties, liabilities, and obligations under or with
respect to the PSIP; provided that the provisions of Section 6.9(c) of the
--------
Merger Agreement shall apply fol-
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<PAGE>
lowing the transfer described therein. In connection with the aforementioned
assumption, all of the indebtedness of the Company (and guarantees made by the
Company of the indebtedness of the trust established under the PSIP) relating to
the unallocated shares of Company Common Stock and Company Convertible Preferred
Stock held by the PSIP shall be assumed by Spinco, effective as of the Effective
Time.
(c) Employee and Director Stock Options. Effective as of the Offer
-----------------------------------
Purchase Date, Spinco shall adopt (and the Company, as sole shareholder of
Spinco, shall approve) a stock option and restricted stock plan (the "Spinco
Stock Plan") for the benefit of employees of Spinco (including Spinco Employees)
and non-employee directors of Spinco (including those non-employee directors of
the Company who, following the Distribution, will become non-employee directors
of Spinco ("Non-Employee Directors")), which plan shall qualify under Rule 16b-3
promulgated under the Exchange Act. Options to acquire Company Common Stock
which have been granted to Spinco Employees, Non-Employee Directors and
employees and former employees of the Company (other than Spinco Employees)
pursuant to any stock option plan of the Company and which are outstanding
immediately prior to the Dis-
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tribution ("Company Options") shall, pursuant to the equitable adjustment
provisions of the applicable plan under which such options were granted and
effective as of the Distribution Date, be treated as follows:
(i) Exercisable Options of Spinco Employees; Non-Employee
--------------------------------------- ------------
Director Options. That portion of each Company Option held by a Spinco
----------------
Employee (the "Spinco Employee Option") which is exercisable immediately
prior to the Offer Purchase Date (the "Exercisable Option"), as well as all
such Company Options granted or awarded to Non-Employee Directors (the
"Director Options"), shall be converted into two separately exercisable
options: a Company Option for the number of shares of Company Common Stock
relating to the Exercisable Option or Director Option, as the case may be,
and an option under the Spinco Stock Plan to acquire shares of Spinco
Common Stock (a "Spinco Option") equal in number to the number of shares of
Company Common Stock relating to the Exercisable Option or Director Option,
as the case may be. The exercise price per share of the Exercisable
Options and Director Options which, after conversion, relates to Company
Common Stock shall be equal to the quotient obtained
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by dividing (w) the exercise price per share of the Exercisable Option and
Director Options prior to conversion (the "Pre-Conversion Exercise Price")
by (x) the Company Conversion Factor (as hereinafter defined), and the
exercise price per share of the Exercisable Option and Director Options
which, after conversion, relates to Spinco Common Stock shall be equal to
the quotient determined by dividing (y) the Pre-Conversion Exercise Price
by (z) the Spinco Conversion Factor (as hereinafter defined); in each case
the resulting exercise price per share shall be rounded up or down to the
nearest cent. The "Company Conversion Factor" shall mean an amount equal
to the quotient obtained by dividing (1) the sum of (A) the cash
consideration payable per share of Company Common Stock pursuant to the
Merger (the "Cash Consideration"), plus (B) the per share fair market value
of Spinco Common Stock, determined based on the average closing price of
Spinco Common Stock over the ten-consecutive-day trading period immediately
following the Distribution Date (such per share fair market value being
referred to as the "Spinco Value"), by (2) the Cash Consideration. The
"Spinco Conversion Factor" shall mean an amount
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equal to the quotient obtained by dividing (1) the sum of (A) the Cash
Consideration plus (B) the Spinco Value, by (2) the Spinco Value. Each
such Exercisable Option and Director Option (as so converted) shall
otherwise be subject to the same terms and conditions as such Exercisable
Option and Director Option (prior to such conversion), except that the
portion of any Exercisable Option or Director Option which, after
conversion, relates to Company Common Stock (other than any such portion
held by a person who is, with respect to the Company, subject to the
reporting requirements of Section 16 of the Exchange Act) shall not
terminate by reason of the failure of such Spinco Employee or Non-Employee
Director, as the case may be, to continue in the employ or as a director of
the Company following the Distribution Date.
(ii) Non-Exercisable Options of Spinco Employees. That portion
-------------------------------------------
of each Spinco Employee Option which is not exercisable immediately prior
to the Offer Purchase Date (the "Non-Exercisable Option") shall be
converted into a Spinco Option whereby (A) the number of shares of Spinco
Common Stock covered by the Spinco Option will be
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determined by multiplying (1) the number of shares of Company Common Stock
covered by the Non-Exercisable Option by (2) the Spinco Conversion Factor
(which product shall be rounded downward to the nearest whole share), and
(B) the exercise price of the Spinco Option shall be determined by dividing
(1) the exercise price per share of the Non-Exercisable Option prior to
conversion by (2) the Spinco Conversion Factor (which quotient shall be
rounded up or down to the nearest cent). Such Spinco Option shall become
vested and exercisable at the time when the Non-Exercisable Option was to
become vested and exercisable according to its terms and shall otherwise be
subject to the same terms and conditions as the Non-Exercisable Option
(prior to conversion).
(iii) Options of Other Employees. All Company Options granted
--------------------------
or awarded to employees or former employees of the Company (other than
Spinco Employees) shall be equitably adjusted as of the Distribution Date.
The number of shares of Company Common Stock relating to such Company
Options after such adjustment shall equal the product of (A) the number of
shares of Company Common Stock relating to such Company Options prior to
such
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adjustment and (B) the Company Conversion Factor, which product shall be
rounded downward to the nearest whole share, and the exercise price per
share of such Company Options shall equal the quotient obtained by dividing
(x) the exercise price per share of such Company Options prior to such
adjustment by (y) the Company Conversion Factor, which quotient shall be
rounded up or down to the nearest cent. All such Company Options (as so
adjusted) shall otherwise be subject to the same terms and conditions were
in effect with respect to such Company Options (prior to such adjustment).
(d) Restricted Stock. Pursuant to the equitable adjustment provisions
----------------
of the Company's 1988 Restricted Stock Plan, as amended (the "1988 Plan"), all
shares of Spinco Common Stock issuable in the Distribution in respect of shares
of Company Common Stock granted under the 1988 Plan, the restrictions on which
have not lapsed as of the Offer Purchase Date, shall be granted under the Spinco
Stock Plan and thereafter be subject to the same restrictions and other terms
and conditions as the shares of Company Common Stock in respect of which such
shares of Spinco Common Stock were distributed (including, but not limited to,
the date on
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which such restrictions shall lapse). Spinco shall be solely responsible for
satisfaction of the obligations referred to in Section 2.10(c)(1) of the Merger
Agreement and Parent and the Company shall each be responsible for satisfaction
of the obligations referred to in Section 2.10(c)(2) of the Merger Agreement.
Section 8.3. Other Liabilities and Obligations. As of the Offer
---------------------------------
Purchase Date, with respect to claims relating to any employee liability or
obligation not otherwise provided for in this Agreement, including, without
limitation, earned salary, wages or other compensation and accrued holiday,
vacation, health, dental or retirement benefits, (a) Spinco shall assume and be
solely responsible for all liabilities and obligations whatsoever of the Company
Business for such claims made by Spinco Employees and (b) the Company shall
assume and be solely responsible for all liabilities and obligations whatsoever
of the Prescription Business for claims made by all Prescription Employees.
Section 8.4. Preservation of Rights to Amend or Terminate Plans. No
--------------------------------------------------
provision of this Agreement, shall be construed as a limitation on the right of
the Company or Spinco to amend any plan or terminate its participation therein
which the Company or Spinco would
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otherwise have under the terms of such plan or otherwise, and no provision of
this Agreement shall be construed to create a right in any employee or
beneficiary of such employee under a plan that such employee or beneficiary
would not otherwise have under the terms of such plan itself.
Section 8.5. Reimbursement; Indemnification. Spinco and the Company
------------------------------
acknowledge that the Company, on the one hand, and Spinco, on the other hand,
may incur costs and expenses (including, without limitation, contributions to
plans and the payment of insurance premiums) pursuant to any of the employee
benefit or compensation plans, programs or arrangements which are, as set forth
in this Agreement, the responsibility of the other party. Accordingly, the
Company and Spinco agree to reimburse each other, as soon as practicable but in
any event within 30 days of receipt from the other party of appropriate
verification, for all such costs and expenses reduced by the amount of any tax
reduction or recovery of tax benefit realized by the Company or Spinco, as the
case may be, in respect of the corresponding payment made by it. All
Liabilities retained, assumed or indemnified by Spinco pursuant to this Article
VIII shall in each case be deemed to be Company Liabilities, and all Liabil-
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ities retained, assumed or indemnified by the Company pursuant to this Article
VIII shall in each case be deemed to be Prescription Liabilities, and, in each
case, shall be subject to the indemnification provisions set forth in Article V
hereof (other than the provisions of Sections 5.2(b) and 5.3(b) hereof).
ARTICLE IX
INSURANCE
---------
Section 9.1. General. Except as otherwise agreed in writing between
-------
the parties, the Company shall maintain until the Offer Purchase Date all
policies of liability, fire, extended coverage, fidelity, fiduciary, workers'
compensation and other forms of insurance in effect as of the date hereof
insuring the products, properties, Assets and operations contemplated to be
transferred to Spinco and its subsidiaries.
Section 9.2. Certain Insured Claims. The Company shall (a) use
----------------------
reasonable efforts, at Spinco's reasonable expense, to continue to maintain and
renew for the benefit of Spinco and its subsidiaries the insurance policies
under the Casualty Program with respect to claims having an occurrence date (as
the term "occurrence date" is customarily defined) prior to the Offer Purchase
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Date, relating to, or arising out of the conduct of, the Company Business, the
Company Assets or the Company Liabilities, and (b) use reasonable efforts and
cooperate with Spinco, at Spinco's reasonable expense, to obtain coverage,
recoveries and other benefits under such policies for the benefit of Spinco and
its subsidiaries, including, without limitation, by pursuing litigation to
obtain such coverage, recoveries and other benefits. The Company will reimburse
Spinco and its subsidiaries for any recovery obtained by it pursuant to such
claims. The Company shall make available to Spinco such of its employees as
Spinco may reasonably request as witnesses or deponents in connection with the
Spinco's defense of claims.
ARTICLE X
CONDITIONS; TERMINATION; AMENDMENTS; WAIVERS
-------------------------------------------------
Section 10.1. Condition to Obligations. With the exception of the
------------------------
transfer of Company Assets and Company Liabilities contemplated in Section 2.1
hereof, the respective obligations of each party hereto to consummate the
Distribution and to perform all other obligations set forth herein is subject to
the satisfaction of the condition that, following the Record Date, the Pur-
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chaser shall have purchased shares of Company Common Stock pursuant to the terms
and conditions of the Offer as set forth in the Merger Agreement.
Section 10.2. Termination. This Agreement may be terminated and the
-----------
Distribution abandoned at any time prior to the date the Distribution is
declared by the Board of Directors of the Company by and in the sole discretion
of the Company without the approval of Spinco or of the Company's stockholders.
In the event of such termination, no party shall have any liability of any kind
to any other party.
Section 10.3. Amendments; Waivers. This Agreement may be amended,
-------------------
modified or supplemented only by written agreement of the parties; provided that
--------
no such amendment, modification or supplement may be made which adversely
affects the Prescription Business or Spinco's or the Company's performance of
its obligations hereunder or under the Merger Agreement or the Ancillary
Agreements without the prior written consent of Parent.
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ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1. Survival. The representations and warranties made in
--------
Section 6.1 of this Agreement, the representations and warranties of the
Company, Parent and the Purchaser made in Articles IV and V and Section 9.11 of
the Merger Agreement, and their respective covenants and agreements in the
Merger Agreement that were to be performed prior to the Offer Purchase Date,
shall survive for a period of nine months from the Offer Purchase Date, but
shall not survive any termination of this Agreement. The parties intend to
shorten the statute of limitations and agree that no claims or causes of action
may be brought against the Company, Maryland, Spinco, Parent or the Purchaser or
any of their directors, officers, employees, affiliates, controlling persons,
agents or representatives based upon, directly or indirectly, any of the
representations and warranties contained in this Agreement or the Merger
Agreement or any of such covenants and agreements in the Merger Agreement after
nine months following the Offer Purchase Date (other than causes of actions
commenced after such nine month period to seek recourse for claims asserted
during such nine month period that are not resolved by the parties), and
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the parties agree that, except as provided below and for claims asserted
pursuant to Article V of this Agreement, the parties each waive and release all
other claims and causes of action, that may be asserted or brought against the
Company, Maryland, Spinco, Parent or the Purchaser or any of their directors,
officers, employees, affiliates, controlling persons, agents or representatives
directly or indirectly based upon or arising under this Agreement or the Merger
Agreement, or the transactions contemplated hereby or thereby. This Section
11.1 shall not limit any covenant or agreement of the parties in this Agreement,
the Merger Agreement or the Ancillary Agreements which contemplates performance
after the Distribution (including, without limitation, the covenants and
agreements set forth in Sections 2.1(b) and 6.2 hereof), except for the
covenants and agreements in the Merger Agreement to the extent of their
performance prior to the Offer Purchase Date.
Section 11.2. Entire Agreement. Except for the provisions of the
----------------
Confidentiality Agreement which shall continue in full force and effect, this
Agreement (including the schedules and exhibits and the agreements and other
documents referred to herein, including, without limitation, the Merger
Agreement, the Tax Sharing
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Agreement and the Additional Agreements, as each such term is defined in the
Merger Agreement) constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all other prior
negotiations, commitments, agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof.
Section 11.3. Fees and Expenses. Except as otherwise provided in
-----------------
this Agreement, the Merger Agreement or the other Ancillary Agreements, all
costs and expenses incurred by the Company and its subsidiaries and by Spinco in
connection with entering into this Agreement, the Merger Agreement and the other
Ancillary Agreements and consummating such party's obligations hereunder and
thereunder including, without limitation, investment banking, legal, accounting,
audit and printing costs and expenses, shall be paid by Spinco, upon the
submission to Spinco of appropriate documentation detailing such costs and
expenses, provided that all costs and expenses incurred by Parent and the
Purchaser in connection with the preparation, execution and delivery of this
Agreement, the Merger Agreement and the other Ancillary Agreements contemplated
hereby and the consummation of the Offer and the Merger, including, without
limitation, investment
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banking, legal, accounting, audit and printing costs and expenses shall not be
considered to be expenses of the Company and shall be paid by Parent or
Purchaser, as the case may be, incurring such cost. In the event of any Action
relating to this Agreement, the Merger Agreement or any of the other Ancillary
Agreements or the consummation of the transactions contemplated hereby or
thereby, Spinco shall bear the Company's expenses incurred in defending such
Action, and the cost of any settlement or compromise relating to such Action to
which it may agree; provided that Parent and the Purchaser shall pay any
--------
expenses incurred by them in defending such Action if named as parties thereto,
and shall pay that portion of any cost of any settlement or compromise which
Parent and the Purchaser agree is reasonably attributable to their wrongful
conduct.
Section 11.4. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware (regardless of
the laws that might otherwise govern under applicable principles of conflicts
law) as to all matters, including, without limitation, matters of validity,
construction, effect, performance and remedies.
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Section 11.5. Notices. Commencing as of the Offer Purchase Date, all
-------
notices and other communications hereunder shall be in writing and shall be
deemed given upon (a) transmitter's confirmation of a receipt of a facsimile
transmission, (b) confirmed delivery by a standard overnight carrier or when
delivered by hand or (c) the expiration of five business days after the day when
mailed by certified or registered mail, postage prepaid, addressed at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to the Company, Maryland,
Prescription or CPA, to:
PCS Health Systems, Inc.
9501 East Shea Boulevard
Scottsdale, Arizona 85260
Telephone: (602) 391-4600
Telecopy No.:
Attention: General Counsel
with a copy to:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Telephone: (317) 276-2000
Telecopy No.: (317) 276-3861
Attention: General Counsel
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(b) If to Spinco, to:
McKesson Corporation
One Post Street
San Francisco, California 94104
Telephone: (415) 983-8300
Telecopy No.: (415) 983-8826
Attention: Ivan D. Meyerson, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy No.: (212) 735-2000
Attention: Peter A. Atkins, Esq.
Section 11.6. Successors and Assigns; No Third Party Beneficiaries.
----------------------------------------------------
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party (whether by operation of
law or otherwise) without the prior written consent of the other party, except
that any party shall have the right, without the consent of any other party
hereto, to assign all or a portion of its rights, interests and obligations
hereunder to one or more direct or indirect subsidiaries, but no such assignment
of obligation shall relieve the
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assigning party from its responsibility therefor. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and, except
for 8.1, 8.2 and 8.3 hereof, nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement;
provided, however, that the Indemnities are intended to be third party
beneficiaries of the provisions of Article V hereof, and shall have the right to
enforce such provisions as if they were parties hereto.
Section 11.7. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11.8. Interpretation. The descriptive headings herein are
--------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement. As used in this
Agreement, the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
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Section 11.9. Schedules. The Disclosure Schedule shall be construed
---------
with and as an integral part of this Agreement to the same extent as if the same
had been set forth verbatim herein.
Section 11.10. Legal Enforceability. Any provision of this Agreement
--------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 11.11. Specific Performance. Each of the parties hereto
--------------------
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties
hereto (a) will waive, in any action for specific performance, the defense of
adequacy of a remedy at law and (b) shall be
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entitled, in addition to any other remedy to which they may be entitled at law
or in equity, to compel specific performance of this Agreement in any action
instituted in any state or federal court sitting in Wilmington, Delaware. The
parties hereto consent to personal jurisdiction in any such action brought in
any state or federal court sitting in Wilmington, Delaware and to service of
process upon it in the manner set forth in Section 11.5 hereof.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
MCKESSON CORPORATION
By: /s/ Garrett Scholz
______________________________
Name:
Title:
MCKESSON CORPORATION
By: /s/ Garret Scholz
______________________________
Name:
Title:
CLINICAL PHARMACEUTICALS, INC.
By: /s/ Nancy A. Miller
______________________________
Name:
Title:
PCS HEALTH SYSTEMS, INC.
By: /s/ Arthur Chong
______________________________
Name:
Title:
SP VENTURES, INC.
By: /s/ Arthur Chong
______________________________
Name:
Title:
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In consideration of the benefits conferred on the Company, Parent and
the Purchaser, pursuant to this Agreement, the Merger Agreement and the
Ancillary Agreements, Parent, effective only upon consummation of the Offer (a)
does hereby irrevocably and unconditionally guarantee, the performance by the
Company of its obligations (subject to the terms and conditions of such
obligations) with respect to all Prescription Liabilities and the obligations of
the Company under the Distribution Agreement, the Merger Agreement and the
Ancillary Agreement to be performed after the Offer Purchase Date, and (b)
agrees to be bound by and comply with the provisions of Sections 6.1 and 11.1 of
this Agreement, subject to the terms and conditions contained therein. The
foregoing agreements of Parent shall be null and void and of no force and effect
if the Offer expires without any Shares being purchased thereunder.
ELI LILLY AND COMPANY
By: /s/ Randall L. Tobias
---------------------
Name:
Title:
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EXHIBIT 99.11
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT ("the Agreement") dated as of July 10, 1994
among McKesson Corporation, a Delaware corporation (the "Company"), SP Ventures,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("NewCo"), Eli Lilly and Company, an Indiana corporation ("Buyer"), and ECO
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Buyer ("Mergersub").
WHEREAS, in connection with the restructuring of the Company, the
Company and certain subsidiaries of the Company have agreed to assign and
transfer (the "Transfer") to NewCo the Company Assets, as defined in the
Reorganization and Distribution Agreement dated as of July 10, 1994 (the
"Reorganization Agreement"), in the manner set forth in the Reorganization
Agreement, including, without limitation, all of the capital stock of the
subsidiaries of the Company and of the subsidiaries of its wholly-owned
subsidiary Maryland (as defined in the Reorganization Agreement) (the
"Transferred Subsidiaries"), other than Maryland, Prescription (as defined in
the Reorganization Agreement), CPA (as defined in the Reorganization Agreement)
and NewCo (collectively, the Transferred Subsidiaries shall constitute the
"NewCo Subsidiaries") (together with NewCo and any future subsidiaries of NewCo,
the "NewCo Group"), in exchange for (i) shares of common stock of NewCo (the
"NewCo Common Stock"), (ii) at the election of the Company, shares of preferred
stock of NewCo (the "NewCo Preferred Stock"), and (iii) the assumption of
certain liabilities of the Company by NewCo;
WHEREAS, the Company will agree to sell any NewCo Preferred Stock to a
NewCo employee stock ownership plan or to some other third party (the "Preferred
Stock Sale");
WHEREAS, the Company will retain its stock in all of its subsidiaries
other than the NewCo Subsidiaries (such retained subsidiaries, together with the
Company, the "Company Group") (the Company Group together with the NewCo Group
through the date on which the Old Company Group (as hereinafter defined)
terminates are collectively referred to as the "Old Company Group");
<PAGE>
WHEREAS, in accordance with the terms of an Agreement and Plan of
Merger dated as of July 10, 1994 (the "Merger Agreement"), Mergersub will
commence and consummate the Offer (as defined in the Merger Agreement) and the
Company will complete the Transfer;
WHEREAS, pursuant to the Merger Agreement, Mergersub will merge (the
"Merger") with and into the Company after certain conditions are satisfied (the
date when the Merger shall become effective the "Effective Date"), whereby each
share of common stock of the Company issued and outstanding immediately prior to
the Effective Date, other than 1 million Company shares held by Maryland (the
"Maryland Shares"), will be converted into the right to receive cash and, as a
result of such Merger, the Company, as the surviving corporation, will become
wholly owned by Buyer (the Company Group together with the Buyer and all other
subsidiaries of the Buyer, the "Buyer Group") except for the Company shares held
by Maryland;
WHEREAS, immediately after the consummation of the Offer, the Company
will distribute the shares of NewCo to the Company shareholders (the
"Distribution");
WHEREAS, prior to the Merger, the Company will issue new preferred
shares of the Company to Maryland in exchange for the Maryland Shares (the
"Recapitalization");
WHEREAS, upon the acquisition by Buyer of sufficient stock of the
Company (the "Affiliation Threshold") to satisfy the requirements of Section
1504(a)(2) of the Internal Revenue Code of 1986, as amended (the "Code") (the
"Group Termination Date"), the Old Company Group will terminate and the members
of the Company Group will become members of the Buyer Group;
WHEREAS, the parties hereto wish to provide for the payment of tax
liabilities and entitlement to refunds, allocate responsibility and provide for
cooperation in the filing of tax returns, provide for the realization and
payment of tax benefits arising out of the adjustments to the tax returns of the
parties and to provide for certain other matters;
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<PAGE>
1. Cooperation; Certain Definitions.
(a) Buyer and NewCo shall and shall cause the members of the Buyer
Group and the NewCo Group, respectively, to provide the requesting party with
such assistance and documents, without charge, as may be reasonably requested by
such party in connection with the preparation of any Tax Return (as hereinafter
defined) or any Information Return (as hereinafter defined), in connection with
the conduct of any audit or other examination, judicial or administrative
proceeding or determination relating to liability for or refunds or adjustments
with respect to Other Taxes (as defined in subsection (b) hereof) or Income
Taxes (as defined in subsection (b) hereof); any matter relating to Income
Taxes, Other Taxes or Information Returns of any member of the Old Company
Group, the Company Group, the NewCo Group or the Buyer Group; and any other
matter that is a subject of this Agreement. Such cooperation and assistance
shall be provided to the requesting party promptly upon its request. Such
cooperation and assistance shall include, without limitation the completion and
delivery to NewCo on or before 90 days after the close of the taxable year, of
any tax information request forms supplied by NewCo for any subsequent taxable
periods of the Old Company Group ending before or that include the Group
Termination Date, provided, however, that with respect to any Tax Returns for
estimated Income Taxes, such tax information request forms supplied by NewCo
will be completed and delivered to NewCo no later than five (5) business days
before such Tax Returns are due. The Buyer and the Company, on the one hand,
and NewCo, on the other hand, shall retain or cause to be retained all Tax
Returns, Information Returns, schedules and workpapers, and all material records
or other documents relating thereto, until the expiration of the statute of
limitations (including any waivers or extensions thereof) of the taxable years
to which such Tax Returns, Information Returns, and other documents relate or
until the expiration of any additional period that any party may reasonably
request in writing with respect to specifically designated material records or
documents. A party intending to destroy any material records or documents shall
provide the other party with advance notice and the opportunity to copy or take
possession of such records and documents. The parties hereto will notify each
other in writing of any
3
<PAGE>
waivers or extensions of the applicable statute of limitations that may affect
the period for which the foregoing records or other documents must be retained.
(b) For purposes of this Agreement: (i) the term "Income Taxes" shall
mean any and all taxes based upon or measured by net income, imposed by or
payable to the United States ("U.S."), or any state, county, local or foreign
government or any subdivision or agency thereof (including any U.S. possession),
and such term shall include any interest (whether paid or received), penalties
or additions to tax attributable thereto; (ii) the term "Other Taxes" shall mean
any and all taxes, levies or other like assessments, charges or fees, other than
Income Taxes, including, without limitation, any excise, real or personal
property, sales, use, license, real estate or personal property transfer, net
worth, stock transfer, payroll, and other governmental taxes and any withholding
obligation imposed by or payable to the U.S., or any state, county, local or
foreign government or subdivision or agency thereof, and any interest (whether
paid or received), penalties or additions to tax attributable thereto; (iii) the
term "Tax Return" shall mean any report, return, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction with respect to the liability of any member of the Old Company
Group, the Company Group, the NewCo Group or the Buyer Group for Income Taxes or
Other Taxes, including, without limitation, any documents with respect to or
accompanying payments of estimated Income Taxes or Other Taxes, or with respect
to or accompanying requests for the extension of time in which to file any such
report, return, declaration or other document; and (iv) the term "Information
Return" shall mean any report, return, declaration or other information or
filing (other than a Tax Return) required to be supplied to any taxing authority
or jurisdiction.
2. Timing of Group Termination Date; Certain State and Local Matters.
With respect to the timing of the Group Termination Date, i.e., when for federal
income tax purposes the existence of the Old Company Group shall cease and the
members of the Company Group shall become members of the Buyer Group, the
parties shall follow the rule of Proposed Treasury Regulation Section 1.1502-
76(b)(1). Accordingly, the parties hereby agree that the
4
<PAGE>
existence of the Old Company Group shall terminate as of the close of the date
that Buyer satisfies the Affiliation Threshold and that the income of the Old
Company Group for that day shall be reported in the consolidated federal income
tax return filed by the Old Company Group. To the extent permissible under
applicable law, similar principles shall apply in the case of any state, local
or other jurisdiction in which the Old Company Group (or any members thereof)
join in the filing of any unitary, combined or similar Tax Return, and all
references to the Old Company Group and the Group Termination Date shall, when
appropriate, include a reference to (i) any state, local or other unitary or
combined group that includes members of the Old Company Group or (ii) the last
day on which any such group shall exist, respectively. To the extent
permissible under applicable law, all taxable income attributable to the
Transfer, the Distribution and the Preferred Stock Sale and all deductions for
compensation related to the cash out or exercise of any Company options or
Company restricted stock (the "Compensation Deductions") shall be reported on
the Tax Returns of the Old Company Group for the period that ends on the Group
Termination Date, provided, however, that to the extent that the Compensation
-------- -------
Deductions are not properly reportable on such Tax Returns of the Old Company
Group, Buyer shall claim such Compensation Deductions on the Tax Returns of the
Buyer Group if, in the opinion of Buyer's counsel, which counsel shall be
reasonably acceptable to NewCo, there is a reasonable basis to claim the
Compensation Deductions.
3. Filing of Income Tax Returns; Payment of Income Taxes.
(a) Taxable Periods Ending on or Before the Group Termination Date.
To the extent not filed before the Group Termination Date, NewCo shall, on
behalf of the Old Company Group, prepare and file or cause to be prepared and
filed all Tax Returns with respect to Income Taxes for the Old Company Group (or
any member thereof) for any taxable period ending on or before the Group
Termination Date. To the extent permissible under applicable law, (i) all such
Tax Returns shall be prepared and filed consistently with past practice and (ii)
NewCo shall file Tax Returns with respect to Income Taxes on the basis that the
relevant taxable periods terminate on
5
<PAGE>
the Group Termination Date. NewCo shall pay or cause to be paid all Income
Taxes shown to be due and payable by any member of the Old Company Group on such
Tax Returns.
(b) Taxable Periods Including but not Ending on the Group Termination
Date. The Buyer shall prepare and file or cause to be prepared and filed all
Tax Returns with respect to Income Taxes for the Company Group (or any member
thereof) for any taxable period that includes but does not end on the Group
Termination Date (a "Group Termination Date Period"), and shall pay or cause to
be paid all Income Taxes shown to be due and payable by any member of the
Company Group on such Tax Returns. NewCo shall prepare and file or cause to be
prepared and filed all Tax Returns with respect to Income Taxes for the NewCo
Group (or any member thereof) for any Group Termination Date Period, and shall
pay or cause to be paid all Income Taxes shown to be due and payable for any
member of the NewCo Group on such Tax Returns.
(c) Taxable Periods Beginning after the Group Termination Date. The
Buyer shall prepare and file or shall cause to be prepared and filed Tax Returns
with respect to Income Taxes for the Company Group for taxable periods beginning
after the Group Termination Date, and shall pay or cause to be paid all Income
Taxes shown to be due and payable by any member of the Buyer Group on such Tax
Returns. NewCo shall prepare and file or cause to be prepared and filed Tax
Returns with respect to Income Taxes for the NewCo Group for taxable periods
beginning after the Group Termination Date, and shall pay or cause to be paid
all Income Taxes shown to be due and payable by any member of the NewCo Group on
such Tax Returns.
4. Filing of Other Tax Returns; Payment of Other Taxes. To the
extent not filed before the Group Termination Date, the Buyer shall prepare and
file or cause to be prepared and filed all Tax Returns with respect to Other
Taxes of the Company Group for all taxable periods and shall pay all Other Taxes
shown to be due and payable by any member of the Company Group on such Tax
Returns. NewCo shall prepare and file or cause to be prepared and filed all Tax
Returns with respect to Other Taxes for the NewCo Group for all taxable periods
and shall pay all Other Taxes shown to be due and payable by any member of the
NewCo Group on such Tax Returns.
6
<PAGE>
5. Filing of Information Returns. NewCo shall file all Information
Returns required to be filed by any member of the Old Company Group on or before
the Offer Consummation Date (as defined in Section 6(a)) and by any member of
the NewCo Group after the Offer Consummation Date, as well as any Information
Returns required to be filed by the Old Company Group (or any member thereof)
with respect to the information of the NewCo Group or the Merger. Except as
otherwise provided in the preceding sentence, the Buyer shall file all
Information Returns required to be filed by any member of the Company Group
after the Offer Consummation Date. Any party required to file any Information
Return pursuant to this Section 5 shall pay any fees or charges required in
connection with such filing and shall indemnify and hold the other party
harmless against any penalties, fees or other charges resulting from the failure
to pay such fees or charges or the failure to file such Information Returns in a
correct or timely fashion, unless such failure results from the failure of the
other party to provide correct information on a timely basis.
6. Indemnification for Taxes.
(a) Income Taxes. The NewCo Group shall pay, and shall indemnify and
hold the Buyer Group harmless against (i) all liabilities for Income Taxes
("Income Tax Liabilities") of any member of the Old Company Group for all
taxable periods or portions thereof of the Old Company Group ending on or before
the date on which the Offer is consummated (the "Offer Consummation Date"),
provided, however, that the NewCo Group shall not be required to indemnify the
Buyer Group for any Income Taxes that are incurred as a result of any action
taken by Buyer or the Buyer Group on or after the Offer Consummation Date; (ii)
all Income Tax Liabilities incurred, pursuant to Treas. Reg. (S) 1.1502-6, or
similar provisions, as a result of any member of the Old Company Group having
been a member of another group (other than the Buyer Group) filing a
consolidated federal (or other combined) income tax return; (iii) all Income Tax
Liabilities of any member of the Old Company Group arising from the Transfer,
the Distribution, the Recapitalization, and the Preferred Stock Sale regardless
of when recognized; and (iv) all Income Tax Liabilities of any member of the
NewCo Group. The Buyer Group shall pay, and shall indemnify and hold the NewCo
Group harmless against, all
7
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Income Tax Liabilities of (i) Buyer and its subsidiaries (other than the members
of the Company Group) for all taxable periods and (ii) subject to clauses (ii)
and (iii) of the preceding sentence, the Company Group (or any member thereof)
for all periods or portions thereof beginning after the Offer Consummation Date.
For purposes of this Agreement, Income Tax Liabilities for portions of taxable
periods ending on the Offer Consummation Date, or beginning after the Offer
Consummation Date, shall be the amount of Income Taxes that would have been
imposed on or with respect to the relevant group (or member(s) thereof) in the
relevant jurisdiction if the taxable year had ended on, or had begun after, as
the case may be, the Offer Consummation Date. Notwithstanding anything to the
contrary in this Agreement, to the extent that the Buyer Group realizes a Tax
Benefit (as defined in Section 12(d) hereof) attributable to the Compensation
Deductions, the Buyer Group shall pay the amount of such Tax Benefit to NewCo
promptly after such Tax Benefit is realized (as defined in Section 12(d)
hereof); provided, however, that in the event that such Tax Benefit is
subsequently disallowed, NewCo shall reimburse Buyer for the amount of the Tax
Benefit that was disallowed.
(b) Other Taxes. The Buyer Group shall pay, and shall indemnify and
hold the NewCo Group harmless against, all liabilities for all Other Taxes
attributable to the income, property or activities of any member of the Company
Group for all taxable periods or portions thereof beginning on or after the
Offer Consummation Date. The NewCo Group shall pay, and shall indemnify and
hold the Buyer Group harmless against (i) all liabilities for all Other Taxes
attributable to the income, property or activities of any member of the NewCo
Group for all taxable periods; (ii) all liabilities for all Other Taxes
attributable to the income, property or activities of any member of the Old
Company Group for any taxable period or portion thereof ending on or before the
Offer Consummation Date; (iii) payroll taxes related to the Compensation
Deductions; and (iv) all Other Taxes, if any, arising from the Transfer, the
Distribution, the Recapitalization, and the Preferred Stock Sale. For purposes
of this Section 6(b), the determination of the amount of Other Taxes for periods
or portions thereof that include the Offer Consummation Date shall be made, in
the case of Other Taxes other than property, ad valorem, and similar Other
-- -------
Taxes, based on the amount of
8
<PAGE>
Other Taxes that would be due if the relevant period had ended on the Offer
Consummation Date and, in the case of property, ad valorem, and similar Other
-- -------
Taxes by prorating (on a daily basis) the amount of Other Taxes due for the
entire period.
(c) To the extent that one party (the "Paying Party") owes money to
another party (the "Indemnified Party") pursuant to this Section 6, the Paying
Party shall pay the Indemnified Party, no later than 10 days prior to the due
date of the relevant Tax Return or estimated Tax Return or 10 days after the
Paying Party receives the Indemnified Party's calculations, whichever occurs
last, the amount for which the Paying Party is required to indemnify the
Indemnified Party under this Section 6. The Indemnified Party shall submit the
Indemnified Party's calculations of the amount required to be paid pursuant to
this Section 6, showing such calculations in sufficient detail so as to permit
the Paying Party to understand the calculations. The Paying Party shall have
the right to disagree with such calculations. Any dispute regarding such
calculations shall be resolved in accordance with Section 10 of this Agreement.
7. Section 338 Election. At the request of NewCo, Buyer shall cause
the Company, Maryland, and such subsidiaries as NewCo shall request to join in
the filing of an election under Section 338(h)(10) of the Code and any
comparable provision of state and local law on a timely basis in respect of the
acquisition by NewCo of the NewCo Subsidiaries.
8. Carryovers. In the event of the realization of any loss or credit
for tax purposes by a party for any taxable period beginning on or after the
Group Termination Date, the party realizing such loss or credit may, in its sole
discretion, to the extent permitted under applicable tax law, elect not to carry
back such loss or credit.
9. Refunds of Income Taxes or Other Taxes. The NewCo Group shall be
entitled to all refunds of Income Taxes and Other Taxes ("Refunds") attributable
to the NewCo Group, and the Buyer Group shall be entitled to all Refunds
attributable to the Buyer Group. The NewCo Group shall be entitled to all
Refunds attributable to the Old Company Group or any member thereof for any
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<PAGE>
taxable period for which it is required to indemnify the Buyer Group for such
Income Taxes and Other Taxes, respectively, pursuant to this Agreement (a "Pre-
Closing Tax Period"). Notwithstanding the foregoing the Buyer Group shall be
entitled to Refunds attributable to the Old Company Group which result from the
carryback of a tax attribute by the Buyer Group from a taxable period for which
the Buyer Group is obligated to indemnity the NewCo Group pursuant to this
Agreement (a "Post-Closing Tax Period"), and the NewCo Group shall be entitled
to Refunds attributable to the Old Company Group which result from the carryback
of a tax attribute by the NewCo Group from a Post-Closing Tax Period. Refunds
for any period that includes but does not end on the Offer Consummation Date
shall be equitably apportioned between the Buyer Group and the NewCo Group in
accordance with the provisions of this Agreement governing such periods. A
party receiving a Refund to which another party is entitled pursuant to this
Agreement shall pay the amount to which such other party is entitled within five
(5) days after the receipt of the refund.
10. Disputes. If the parties disagree as to the amount of any
payment to be made under, or any other matter arising out of, this Agreement,
the parties shall attempt in good faith to resolve such dispute, and any agreed-
upon amount shall be paid to the appropriate party. If such dispute is not
resolved within 15 days thereafter, the parties shall jointly retain a
nationally recognized independent accounting firm (other than any such
accounting firm generally retained by any member of either the NewCo Group or
the Buyer Group) (the "Independent Accountants") to resolve the dispute. If and
to the extent that the dispute presents legal issues, the Independent
Accountants shall have the authority to consult a nationally recognized
independent law firm (the "Independent Lawyers") (other than any such law firm
generally retained by any of the NewCo Group or the Buyer Group). The fees of
the Independent Accountants and the Independent Lawyers shall be borne equally
by the NewCo Group and the Buyer Group, and the decision of such Independent
Accountants and Independent Lawyers shall be final and binding on all parties.
Following the decision of the Independent Accountants and/or the Independent
Lawyers, the parties shall each take or cause to be taken any action that is
necessary or appropriate to implement such decision of the Independent
Accountants and the Indepen-
10
<PAGE>
dent Lawyers, including, without limitation, the prompt payment of underpayments
or overpayments, with interest calculated on such overpayments and underpayments
at the rate specified under Section 6621(a)(2) of the Code for underpayments of
tax (the "Underpayment Rate") from the date such payment was due through the
date such underpayment or overpayment is paid or refunded.
11. Control of Proceedings. In the case of any audit, examination or
other proceeding ("Proceeding") with respect to Income Taxes or Other Taxes of
the Company Group or the Old Company Group for any taxable period for which
NewCo is or may be liable for such Income Taxes or Other Taxes pursuant to this
Agreement or that affects the Compensation Deductions, the Buyer or NewCo, as
the case may be, shall promptly inform the other party, and the Buyer shall
execute or cause to be executed any powers of attorney or other documents
necessary to enable NewCo to take all actions desired by NewCo with respect to
such Proceeding to the extent such Proceeding may affect the amount of Income
Taxes or Other Taxes for which NewCo is liable pursuant to this Agreement;
NewCo shall have the right to control any such Proceedings, and to initiate any
claim for refund, file any amended return or take any other action which it
deems appropriate with respect to such taxable years, provided, however, that
NewCo shall consult with Buyer with respect to any Proceeding that may affect
the Buyer Group and NewCo shall not enter into any final settlement or closing
agreement that may affect the Buyer Group without the consent of the Buyer
Group, which consent may not unreasonably be withheld. Where the Buyer
withholds its consent to any final settlement or closing agreement, the Buyer
shall continue or initiate further proceedings, at its own expense, and the
liability of NewCo shall not exceed the liability that would have resulted from
the proposed closing agreement or final settlement (including interest,
additions to tax and penalties which have accrued at that time).
12. Timing Adjustment.
(a) If an audit or other examination of any Income Tax Return of the
Old Company Group for any period for which NewCo is responsible pursuant to this
Agreement shall result (by settlement or otherwise) in any adjustment which (A)
decreases deductions, losses or
11
<PAGE>
tax credits or increases income, gains or recapture of tax credits for such
period, and (B) will permit the Buyer Group to increase deductions, losses or
tax credits which would otherwise (but for such adjustment) have been taken or
reported with respect to the Buyer Group for one or more taxable periods, NewCo
will notify Buyer (NewCo and Buyer, for purposes of this Section 12(d), shall be
deemed to include, where appropriate, the affiliated, unitary, combined or other
group of which such party is a member) and provide it with adequate information
so that it can reflect on the Income Tax Returns of the Buyer Group such
increases in deductions, losses or tax credits or decreases in income, gains, or
recapture of tax credits. With respect to such increases or decreases on Income
Tax Returns, the Buyer shall and shall cause the Buyer Group to, pay NewCo the
amounts of any Tax Benefits (as defined in subsection (d) of this Section 12)
which result therefrom, within ten days of the date such Tax Benefits are
realized.
(b) No later than 30 days after the date on which Buyer receives
notice from NewCo that a Tax Benefit may be available to the Buyer Group, Buyer
shall, and Buyer shall cause the Buyer Group to, as promptly as practicable,
take such steps (including, without limitation, the filing of amended returns or
claims for refunds where the amount of the Tax Benefit for any company in the
aggregate exceeds $25,000) necessary or appropriate to obtain such Tax Benefit.
Thereafter, Buyer shall, and shall cause the Buyer Group to, file all Income Tax
Returns to obtain at the earliest possible time such Tax Benefits to the maximum
extent available. Notwithstanding anything to the contrary in this Section 12,
Buyer may, at its election, pay the amount of any Tax Benefit to NewCo rather
than filing amended returns or otherwise reflecting adjustments or taking
positions on its Tax Returns. If such an election is made by the Buyer, the
Buyer will be treated as having realized a Tax Benefit at the time Buyer would
have realized a Tax Benefit if Buyer had chosen to file amended returns or
otherwise to reflect adjustments or to take positions on its Tax Returns;
provided, however, that Buyer shall pay to NewCo, no later than twenty (20) days
after Buyer receives notice from NewCo that a Tax Benefit may be available to
the Buyer Group, the amount of Tax Benefit that Buyer would have obtained if
Buyer had filed an amended Tax Return. Notwithstanding the foregoing, Buyer
shall not
12
<PAGE>
be required to take steps to obtain such Tax Benefit or to pay NewCo, if, in the
opinion of Buyer's counsel, which counsel shall be reasonably acceptable to
NewCo, there is not substantial authority to seek such Tax Benefit.
(c) Principles similar to those set out in subsections (a) and (b) of
this Section 12 shall also apply to adjustments resulting from examinations of
Income Tax Returns of the Buyer Group that make available Tax Benefits to the
NewCo Group for taxable periods ending on or before the Offer Consummation Date.
(d) For purposes of this Agreement, the term "Tax Benefits" means in
the case of separate state, local or other Income Tax Returns, the sum of the
amount by which the tax liability (after giving effect to any alternative
minimum or similar tax) of a corporation to the appropriate taxing authority is
reduced (including, without limitation, by deduction, entitlement to refund,
credit or otherwise, whether available in the current taxable year, as an
adjustment to taxable income in any other taxable year or as a carryforward or
carryback, as applicable) plus any interest from such government or jurisdiction
relating to such tax liability, and in the case of a consolidated federal Income
Tax Return or similar state, local or other Income Tax Return, the sum of the
amount by which the tax liability of the affiliated group (within the meaning of
Section 1504(a) of the Code) or other relevant group of corporations to the
appropriate government or jurisdiction is reduced (including, without
limitation, by deduction, entitlement to refund, credit or otherwise, whether
available in the current taxable year, as an adjustment to taxable income in any
other taxable year or as a carryforward or carryback, as applicable) plus any
interest from such government or jurisdiction relating to such tax liability.
For purposes of this Agreement, a Tax Benefit shall be deemed to have been
realized at the time any refund of Taxes is received or applied against other
Taxes due, or at the time of filing of an Income Tax Return (including any
relating to estimated Taxes) on which a loss, deduction or credit is applied in
reduction of Taxes which would otherwise be payable; provided, however, that,
where a party has other losses, deductions, credits or similar items available
to it, deductions, credits or items for which the other party would be entitled
to a
13
<PAGE>
payment under this Agreement shall be treated as the last items utilized to
produce a Tax Benefit. In accordance with the provisions of this subsection
(d), NewCo and Buyer agree that where a Tax Benefit may be realized that may
result in a payment to, or reduce a payment by, the other party hereto, each
party will as promptly as practicable take or cause its affiliate to take such
reasonable or appropriate steps (including, without limitation, the filing of an
amended return or claim for refund) to obtain at the earliest possible time any
such reasonably available Tax Benefit. In the event that after payment of a Tax
Benefit under this subsection (d), such Tax Benefit is reduced or eliminated
because of a final decree or agreement of a taxing authority or the carryback of
losses or credits, then the party to whom the Tax Benefit was paid shall pay to
the other party the amount by which the Tax Benefit was reduced or eliminated
plus interest on the amount returned at the Underpayment Rate from the date of
payment to the date of repayment.
13. Payments.
(a) Any payment required by this Agreement which is not made on or
before the date provided hereunder shall bear interest after such date at the
Underpayment Rate. In the case of any payment required hereunder to be made
"promptly", such payment shall be considered late for purposes of this Agreement
if not made twenty (20) days after notice that such payment is due is provided.
All payments made pursuant to this Agreement shall be made in immediately
available funds.
(b) All payments made pursuant to this Agreement shall be treated as
adjustments to the purchase price paid by Buyer or NewCo, as the case may be,
and the parties shall not file any Tax Returns or Information Returns
inconsistently with this position.
14. Termination of Prior Tax Sharing Agreements. This Agreement
shall take effect on the Offer Consummation Date, and shall replace all other
agreements, whether or not written, in respect of any Income Taxes or Other
Taxes between or among any members of the Old Company Group, or their respective
predecessors or successors, other than any such agreements made exclusively
between or among any members of the NewCo Group. All such replaced agreements
shall be cancelled as of the
14
<PAGE>
Offer Consummation Date and any rights or obligations existing thereunder
thereby shall be fully and finally settled without any payment by any party
thereto.
15. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement will be made in the manner provided
in Section 9.5 of the Agreement and the Plan of Merger.
16. Entire Agreement; Amendments. This Agreement constitutes the
entire agreement of the parties concerning the subject matter hereof and
supersedes all prior agreements, whether or not written, concerning such subject
matter. This Agreement may not be amended except by an agreement in writing,
signed by the parties.
17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of law.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
19. Effective Date. This Agreement shall become effective only
upon the occurrence of the Offer Purchase Date (as defined in the Reorganization
and Distribution Agreement dated July 10, 1994, among SP Ventures, Inc. and
others), and shall terminate and be null and void and of no force and effect
upon any termination of the Merger Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MCKESSON CORPORATION
By: /s/ Garret Scholz
-------------------------
Name:
Title:
SP VENTURES, INC.
By: /s/ Arthur Chong
-------------------------
Name:
Title:
ELI LILLY AND COMPANY
By: /s/ Randall L. Tobias
-------------------------
Name:
Title:
ECO ACQUISITION CORPORATION
By: /s/ Charles E. Schalliol
-------------------------
Name:
Title:
16
<PAGE>
EXHIBIT 99.12
HDS SERVICES AGREEMENT
This Agreement, dated as of July 10, 1994, is among Eli Lilly and Company,
an Indiana corporation ("Lilly"), PCS Health Systems, Inc., a Delaware
corporation ("PCS"), and Healthcare Delivery Systems, Inc., a Delaware
corporation ("HDS").
Recitals
A. Lilly is acquiring certain operations of PCS pursuant to an Agreement and
Plan of Merger dated July 10, 1994 ("Merger Agreement").
B. Lilly, PCS and HDS desire to enter into an agreement pursuant to which PCS
will continue to provide certain services to HDS following closing of the
transaction contemplated by the Merger Agreement, and HDS will provide
certain services to Lilly or PCS.
NOW, THEREFORE, the parties agree as follows:
Section 1. Definitions.
-----------
1.1. "HDS Services" shall mean the following services offered
primarily to manufacturers:
(a) Drug sampling, coupon-for-drug, and other promotional programs
that employ both (i) electronic connectivity with retail pharmacies, mail order
providers or home infusion providers (collectively "Providers"); and (ii) drug
delivery by Providers.
(b) Financial assistance programs for patients, such as indigent
patient programs and assignment of benefits programs.
(c) Reimbursement support and patient advocacy programs.
(d) Phase IV (post marketing studies) programs employing Providers for
product delivery to study participants.
(e) Clinical trial support services, e.g., centralized data
- -
collection.
(f) Manufacturer-sponsored programs for managed delivery of biological
products, pharmaceutical products and medical devices requiring specialized
distribution ("Managed Delivery Programs").
<PAGE>
(g) Product hot-line programs and hot-line physician and patient
information programs.
(h) Monitoring of patient compliance in connection with Managed
Delivery Programs.
(i) Manufacturer-sponsored, drug-specific outcomes and
pharmacoeconomic research, case management and development of disease management
protocols.
1.2. "Specified Rates" shall mean PCS's best price for providing
comparable services (in terms of size and complexity) to any of PCS's customers
in effect from time to time. In the absence of such price, Specified Rates
shall mean the rates negotiated between PCS and HDS for the service, taking into
account PCS's historical profit margin and pricing methodologies for nonstandard
services. In no event shall PCS be obligated to provide a price that will
entitle MetLife or any other PCS customer to a price reduction. Pricing
arrangements and programs offered by PCS to its customers that involve the sale
of pharmaceutical products (e.g. mail order pharmacy) or are based upon the cost
of pharmaceutical products in whole or in part (e.g., disease state management
programs, capitation agreements, risk sharing and similar pricing arrangements)
shall not be subject to the best price requirement but shall be negotiated
individually.
1.3. "PCS Data Processing Capabilities" shall mean programming, data
processing and related auxiliary support for data processing existing at PCS
during the term of this Services Agreement.
1.4. "PCS Data Transmission Capabilities" shall mean switching, data
transmission and telecommunications capabilities of PCS, including without
limitation the RECAP(R) system, or its successors or derivatives, existing at
PCS during the term of this Services Agreement.
1.5. "PCS Capabilities" shall mean the PCS Data Processing
Capabilities, the PCS Data Transmission Capabilities, access to PCS Provider
Networks and other support services made available to PCS customers existing at
PCS during the term of this Services Agreement.
1.6. "PCS Provider Networks" shall mean the networks of pharmacies,
mail service providers, home infusion providers, and provider networks
associated with the Integrated Medical Systems, Inc., LabOne, Inc. and Health
Care Information Network transactions that have contracted with PCS for the
provision of PCS services and other provider networks that PCS may form during
the term of this Services Agreement.
2
<PAGE>
1.7. "Change of Control" shall mean any of the following enumerated
activities by an entity one of whose primary lines of business consists of the
sales of pharmaceutical products ("Pharmaceutical Company") or any part of whose
business consists of providing pharmacy benefit management services ("PBM") or
the parent corporation or a holding company or subsidiary of either a
Pharmaceutical Company or a PBM or by any person who has been employed as a
senior executive (other than senior executives of SP Ventures, Inc. to be
renamed as "McKesson Corporation"; hereinafter referred to as "McKesson") and
its subsidiaries) by a PBM or any entity controlled by such person (hereinafter
referred to as a "Covered Entity"):
(i) The acquisition by any Covered Entity or any group of persons
acting in concert, one of whose members is a Covered Entity of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) of thirty percent (30%) or more of either (i) the then
outstanding shares of common stock of McKesson or HDS (the "Outstanding Common
Stock") or (ii) the combined voting power of the then outstanding voting
securities of McKesson or HDS entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); provided, however, that for
-------- -------
purposes of this subsection (i), any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by McKesson or HDS or any corporation
controlled by McKesson or HDS shall not constitute a Change of Control; provided
--------
further, however, that for purposes of this subsection (i), any redemption or
- ------- -------
repurchase by McKesson or HDS shall not constitute a Change of Control; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of McKesson or HDS (the "Incumbent Board") cease to constitute at
least a majority of the Board of Directors of McKesson or HDS, as applicable as
a result of an actual or threatened election contest with election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Covered Entity (including a settlement of any such actual or
threatened contest) or as a result of any agreement with a Covered Entity; or
(iii) Any Covered Entity consolidates with, or merges with or into,
McKesson or HDS, or McKesson or HDS merges into any Covered Entity; provided,
--------
however, that such actions shall not constitute a Change of Control if McKesson
- -------
or HDS is the surviving or continuing corporation; and (a) the shareholders of
McKesson or HDS immediately before the transaction own, on a pro forma basis, in
the aggregate a majority of the outstanding voting shares of the resulting
entity immediately after the transaction or (b) no other event which would
constitute a Change of Control has occurred; or
3
<PAGE>
(iv) Any sale, transfer, exchange or other disposition of all, or
substantially all, of the assets of McKesson or HDS to a Covered Entity in one
or more transactions; or
(v) Any acquisition by McKesson or HDS which required McKesson or HDS
to issue or transfer any securities to a Covered Entity, if the securities to be
issued or transferred have or will have upon issuance or transfer, voting power
equal to, or in excess of, thirty percent (30%) of the voting power outstanding
before the issuance or transfer of such securities; or
(vi) The sale, transfer, exchange or other disposition by McKesson or
HDS of substantially all of its United States operations to a Covered Entity; or
(vii) Any agreement or understanding by McKesson or HDS to do any of
the foregoing.
In addition to the foregoing, the adoption by McKesson or HDS of a
plan of complete liquidation or dissolution shall also constitute a Change of
Control.
Section 2. Buyer Access to HDS Services.
----------------------------
2.1. Terms for Services. To the extent permitted by law and HDS'
------------------
contractual obligations, at Lilly's or PCS's request, HDS shall provide any or
all of the HDS Services to Lilly or PCS as requested by Lilly or PCS on prices
and other terms that are as favorable as the best terms offered by HDS for
comparable services to any other HDS customer. HDS shall not add restrictions
to its agreements with third parties, except to the extent requested by such
third party, for the purpose of limiting the services it is obligated to provide
under this Section.
2.2. Study. Lilly shall participate in the HDS electronic sampling
-----
services study with Coopers & Lybrand and agrees to provide its proportionate
share of the funding for such study and associated costs, but not to exceed
$150,000.
2.3. Strategic Relationship. Consistent with the parties' intention
----------------------
to form a strong strategic relationship, and recognizing Lilly's bias toward
using HDS as the preferred provider of the HDS Services, Lilly shall diligently
investigate the HDS Services and consider in good faith using HDS as the
provider of such services, when it is appropriate to do so in light of the
business needs and requirements of Lilly, and the relative costs of such
services.
Section 3. HDS Access to PCS Capabilities.
------------------------------
3.1. PCS Capabilities Available to HDS. HDS shall have access to the
---------------------------------
PCS Capabilities. PCS shall provide the PCS
4
<PAGE>
Capabilities on a service parity comparable to that provided to PCS's internal
business units. HDS shall pay the Specified Rates for the PCS Capabilities
provided.
3.1.1 Existing Agreements. PCS will use its best efforts (excluding
-------------------
payment of money) to assign to HDS all existing agreements entered into by PCS
relating to providing the HDS Services, including the "Existing Agreements" set
forth in Exhibit A. HDS represents that none of these agreements relate to the
"Retained Businesses" as this term is used in the Merger Agreement.
3.1.2 Data Processing and Transmission Capabilities. PCS will make
---------------------------------------------
available to HDS such PCS Data Processing Capabilities as HDS may reasonably
require in providing the HDS Services at the Specified Rates. To the extent
permitted by law and PCS's contractual obligations, PCS will provide HDS with
access to the PCS Data Transmission Capabilities for transmitting HDS messages,
edits or data.
3.1.3 Access to Provider Networks for HDS Services. To the extent
--------------------------------------------
permitted by law and PCS's contractual obligations, PCS will permit HDS to
distribute drug products distributed as part of the HDS Services through the PCS
Provider Networks so long as HDS meets the requirements, if any, for utilization
of those networks. To the extent permitted by law and applicable agreements, at
the Specified Rates PCS shall also provide HDS with access to, and the right to
use, PCS lists of participants in PCS Provider Networks and, at HDS's request,
with copies of forms of standard agreements with such participants.
3.1.4 Clinical Services. To the extent permitted by law and PCS's
-----------------
contractual obligations, PCS will provide HDS with access to clinical expertise
of PCS at the Specified Rates. Requests for such access shall be reasonable in
frequency and shall not be so extensive as to interrupt the business of PCS.
3.1.5 Contract Restrictions. PCS agrees that it will not add
---------------------
restrictions to its agreements with third parties, except as requested by such
third party, for the purpose of limiting the services it is obligated to provide
to HDS under this Section 3.
3.1.6 HDS Services Unit. PCS shall create and maintain a services
-----------------
unit whose primary responsibility is to service HDS as a customer. This unit
may be the same services unit as provided in the McKesson Services Agreement of
even date herewith between Buyer and McKesson, provided that such unit is
adequately staffed to satisfy the requirements of both McKesson and HDS.
Section 4. Limitations on PCS's and Buyer's Use of the PCS
-----------------------------------------------
Capabilities.
- ------------
5
<PAGE>
4.1. Except for the permitted uses set forth in Section 4.2, Lilly
and PCS, for a period of three (3) years from the date of this Services
Agreement, shall not use, and shall not permit any person or entity other than
HDS to use, the PCS Capabilities to provide any of the HDS Services.
4.2. Notwithstanding anything in Section 4.1 to the contrary, Lilly
and PCS may use the PCS Capabilities:
4.2.1 to provide the HDS Services on behalf of PCS'S third party
payor customers (e.g., HMO's, insurance companies, self-insured employers) where
the HDS Services provided are incidental to other services provided by PCS and
are not provided primarily to enable such customers to duplicate the nature and
extent of HDS's business by using the PCS Capabilities;
4.2.2 to provide the HDS Services set forth in Section 1.1(i);
4.2.3 to provide the HDS Services set forth in Sections
1.1(b),(c),(d),(e),(g) and (h), only to the extent that the provision of such
HDS Services is incidental to providing services related to (i) disease state
management programs, capitation agreements, risk sharing and similar
arrangements; (ii) intervention programs to control pharmaceutical product
utilization; and/or (iii) programs related to therapeutic outcomes as a result
of pharmaceutical use and control interventions;
4.2.4 to provide the HDS Services on behalf of Lilly's own products
and services, or to any entity controlling, controlled by, or under common
control with, Lilly in connection with the products and services of such entity.
4.2.5 to provide the HDS Services to the following entities:
(i) any equity investor in PCS;
(ii) any research and/or development collaborator with Lilly;
provided, however, that Lilly and PCS can provide the
-------- -------
relevant HDS Services hereunder only with respect to the
products which are the subject of the collaboration and
only if meaningful research or development efforts
independent of HDS Services are being undertaken;
(iii) any person or entity to or from which Lilly has granted or
received a license to research, develop, manufacture,
market or promote any of Lilly's products or products
6
<PAGE>
of such person or entity; provided, however, that Lilly
-------- -------
and PCS can provide the relevant HDS Services hereunder
only with respect to such products and only if such
licensor or licensee, as applicable, is providing
meaningful services other than the HDS Services in
connection with the research, development, manufacture,
marketing, promoting, co-marketing or co-promoting of such
products.
Section 5. Term. The term of this Services Agreement shall be five
----
(5) years. This Services Agreement will automatically renew for successive
twelve (12) month terms unless either party gives the other party written notice
of termination not less than ninety (90) days prior to the end of the term or
any renewal term. If either party is in material default under this Services
Agreement and fails to correct the default within thirty (30) days after receipt
of written notice of default from the non-defaulting party, the non-defaulting
party may terminate this Services Agreement by giving written notice to the
defaulting party. Lilly shall have the right to terminate this Services
Agreement upon thirty (30) days' written notice to HDS upon any Change of
Control of HDS or McKesson.
Section 6. Increased Costs. In the event the provision of any of the
---------------
PCS Capabilities or other services under this Services Agreement results in an
increase in costs to PCS for additional personnel, computer and peripherals
capacity, software licenses, equipment or similar items or an increase in
processing or operating expenses, HDS shall reimburse PCS for the entire amount
of such expenses if incurred entirely for the benefit of HDS under this Services
Agreement or, if such expenses only partially benefit HDS, HDS shall pay its
share of such expenses in proportion to the extent of use; provided, however,
-------- -------
HDS shall not be responsible for such reimbursement to the extent such increased
costs are reflected in Specified Rates payable by HDS.
Section 7. Discontinued Services. Nothing in this Services Agreement
---------------------
shall require PCS to continue any service or PCS Capability to be provided under
this Services Agreement if such service or PCS Capability is no longer required
for the business of PCS. If PCS plans to discontinue any service or PCS
Capability, it will notify HDS of the proposed action in writing as soon as
feasible in advance of discontinuing the service or PCS Capability but in no
event later than other PCS customers are notified. HDS shall have the right to
obtain the service to be discontinued from a third party or agree to reimburse
PCS fully for all expenses that will be incurred by PCS to continue the service
for the sole benefit of HDS. If HDS agrees to such
7
<PAGE>
reimbursement, PCS will continue the service solely for the benefit of HDS.
Section 8. Confidentiality of Data. PCS shall own all physical
-----------------------
property, technology and software utilized by PCS in its performance under this
Agreement. HDS (or HDS's clients, as determined solely by contractual
arrangement between HDS and such clients) shall own all data generated or
accumulated by PCS in connection with its obligations under this Agreement
("Data"). Ownership rights shall include, but are not limited to, all rights
associated with publication, trade secrets, copyrights, trademarks, patents and
confidentiality. The parties acknowledge that nothing in this Section 8 shall
prohibit PCS from providing access of a patient, payor, provider or prescriber
to data on transactions involving such patient, payor, provider or prescriber.
Section 9. Right of First Offer. If HDS or McKesson decides to sell
--------------------
all or part of HDS's business, HDS will so notify Lilly in writing and provide
Lilly with a term sheet setting forth the terms and conditions on which McKesson
or HDS is willing to sell all or part of its business ("Terms"). Lilly will
have thirty (30) days to accept or negotiate acceptable Terms in writing. If
Lilly does not accept the Terms within such period, HDS shall have one hundred
and eighty days to complete such sale to a third party on the same Terms. If
the sale cannot be completed on the Terms in such period, any subsequent
proposed sale shall be subject to the provisions of this Section 9.
If the sale of all or part of the business of HDS constitutes a Change
of Control, PCS shall have the right to terminate this Agreement as provided in
Section 5.
Section 10. Limitations.
-----------
PCS shall not be required to perform any services to the extent such
services would result in the breach of any software license or other applicable
contract in existence on the date hereof. If PCS believes it is unable to
provide any services pursuant to the foregoing, PCS shall promptly notify HDS.
If requested by HDS, PCS shall use reasonable efforts to obtain the rights
necessary to provide such services, including obtaining any appropriate consents
from third parties. HDS shall be responsible for all additional costs and
expenses incurred by PCS in order to allow PCS to provide such services.
11. Payment for Services.
--------------------
Each party shall submit, on a monthly basis, an invoice for services
performed under this Agreement in the preceding month. Each invoice shall be
payable net thirty (30) days after the date of the invoice; however, in the
event any party in good
8
<PAGE>
faith questions any invoiced item, payment of that item shall be made only after
the satisfactory resolution of those questions. An interest charge of 1% per
month will accrue on all overdue amounts.
Section 12. Confidentiality.
---------------
12.1. In the course of performance of this Agreement, any party
("Receiving Party") may acquire information that another party ("Disclosing
Party") deems confidential, including trade secrets and unpublished technical
information and data to which the Disclosing Party (or companies affiliated with
the Disclosing Party) has proprietary rights. A party may also receive
information of a third party which the Disclosing Party is under an obligation
to maintain in confidence. The Disclosing Party shall clearly mark all
confidential information. All such information, when clearly marked as
confidential, is referred to hereinafter as "Disclosed Information".
12.2. The Receiving Party shall retain Disclosed Information in
strict confidence and shall not communicate it to others without the Disclosing
Party's prior written agreement. Notwithstanding the foregoing, Buyer and PCS
shall be allowed to disclose Disclosed Information to third parties as necessary
to perform the services, provided such third parties have undertaken
confidentiality obligations substantially similar to those set forth in this
Section 12.
12.3. Nothing in this Agreement shall prevent the communication to
other's of any disclosed Information which the Receiving Party can show was
known to it or its representatives prior to its receipt hereunder, was lawfully
received by the Receiving Party and its representatives other than directly or
indirectly from the Disclosing Party, became public knowledge through no fault
of the Receiving Party, is required by law to be disclosed.
12.4. Each party shall provide the other, at the other party's
request, written confirmation of its compliance with the confidentiality
obligations of this Agreement.
12.5. The provisions of this Section 12 shall survive termination of
this Agreement for a period of 3 years.
Section 13. Miscellaneous.
-------------
13.1. Notices. All notices required or permitted to
-------
be given under this Agreement shall be in writing and shall be sent by facsimile
transmission or mailed by registered or certified mail addressed to the party to
whom such notice is required or permitted to be given. All notices shall be
deemed to have been given when transmitted if given by facsimile and
9
<PAGE>
confirmation of receipt is received or, if mailed, five days after mailed as
evidenced by the postmark at the point of mailing.
All notices to Lilly shall be addressed as follows:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Facsimile: 317-276-3861
All notices to PCS shall be addressed as follows:
PCS Health Systems Inc.
9501 East Shea Boulevard
Scottsdale, AZ 85260
Attention: President
Facsimile: 602-451-0964
All notices to HDS shall be addressed as follows:
Healthcare Delivery Systems, Inc.
One Post Street
San Francisco, CA 94104
Attention: David Mahoney
Facsimile: 415-983-8826
Any party may, by written notice to the other, designate a new address to which
notices to the party giving the notice shall thereafter be mailed.
13.2. Force Majeure. No party shall be liable for any delay or
-------------
failure of performance to the extent such delay or failure is caused by
circumstances beyond its reasonable control and that by the exercise of due
diligence it is unable to prevent, provided that the party claiming excuse uses
its best efforts to overcome the same.
13.3. Limitation of Liability. No party shall be liable to the other
-----------------------
party for indirect, consequential, incidental or special damages, including but
not limited to lost profits, arising from or relating to any breach of this
Agreement regardless of any notice of such damages.
13.4. Entirety of Agreement. This Agreement sets fort the entire
---------------------
agreement and understanding of the parties relating to the subject matter
contained herein and merges all prior discussions between them, and neither
party shall be bound by any representations other than as expressly stated in
this Agreement,
10
<PAGE>
or by a written amendment to this Agreement, signed by authorized
representatives of both parties.
13.5. Non-Waiver. The failure of any party in any one or more
----------
instances to insist upon strict performance of any of the terms and conditions
of this Agreement shall not be construed as a waiver or relinquishment, to any
extent, of the right to assert or rely upon any such terms or conditions on any
future occasion.
13.6. Disclaimer of Agency. This Agreement shall not constitute any
--------------------
party the legal representative or agent of another, nor shall any party have the
right or authority to assume, create, or incur any third party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of another party except as expressly set forth in this Agreement.
13.7. Severability. In the event any term of this Agreement is or
------------
becomes or is declared to be invalid or void by any court of competent
jurisdiction, such term or terms shall be null and void and shall be deemed
deleted from this Agreement, and all the remaining terms of the Agreement shall
remain in full force and effect.
13.8. Governing Law. The validity, performance and construction of
-------------
this Agreement shall be governed by the laws of the State-of Arizona.
13.9. Assignment. No party shall delegate duties of performance or
----------
assign, in whole or in part, rights or obligations under this Agreement without
the prior written consent of the other party, and any attempted delegation or
assignment without such written consent shall be of no force or effect. Subject
to the restrictions contained in the preceding sentence, this Agreement shall be
binding upon the successors and assigns of each of the parties.
13.10. Headings. The headings contained in this Agreement have been
--------
added for convenience only and shall not be construed as limiting.
13.11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
13.12. Effective Date. This Agreement shall become effective only
--------------
upon the occurrence of the Offer Purchase Date (as defined in the Reorganization
and Distribution Agreement dated July 10, 1994, among SP Ventures, Inc. and
others), and shall terminate and be null and void and of no force and effect
upon any termination of the Merger Agreement.
11
<PAGE>
This Agreement is executed by the parties as of the date indicated above.
ELI LILLY AND COMPANY
By: /s/ Randall L. Tobias
----------------------
Title:
-------------------
PCS HEALTH SYSTEMS, INC.
By: /s/ Garret Scholz
----------------------
Title:
-------------------
HEALTHCARE DELIVERY SYSTEMS,
INC.
By: /s/ Arthur Chong
----------------------
Title:
-------------------
12
<PAGE>
Exhibit A
---------
I. Pharmacy Agreements
-------------------
1. Professional Services Network Pharmacy Agreements between PCS and
various pharmacies, executed on various dates
II. Distribution System Agreements
------------------------------
1. Distribution System Agreement between PCS and Berlex
Laboratories, Inc. dated August 2, 1993
2. Merchant Services Agreement between PCS and Hurley State Bank dated
October 1, 1993
3. Network Services Agreement between PCS and SPS Payment Systems, Inc.
dated October 1, 1993
4. Teaming Agreement between PCS and Pharmaceutical Marketing Services,
Inc.*
5. Distribution System Agreement between PCS and Genentech, Inc. dated
March 14, 1994
III. Patient Assistance Program Agreements
-------------------------------------
1. Agreement between PCS and American Cyanamid*
2. Agreement between PCS and Bristol Myers Squibb*
3. Agreement between PCS and Burroughs Wellcome dated April 1, 1994
4. Agreement between PCS and Park-Davis*
5. Agreement between PCS and Sandoz dated 1992
6. Agreement between PCS and Searle*
7. Agreement between PCS and Upjohn*
IV. Clinical Trial Support
----------------------
1. Clinical Trial Program Agreement for Lamictal between PCS and
Burroughs Wellcome*
- ----------------------
* indicates agreements that have not yet been signed
13
<PAGE>
2. Clinical Trial Program Agreement for Neurontin between PCS and Parke
Davis*
3. Clinical Trial Program Agreement for Cognex between PCS and Parke
Davis*
4. Clinical Trial Program Agreement for Imdur between PCS and Schering*
V. Coupon Programs
---------------
1. Coupon Promotion Agreement for Accupril between PCS and Park Davis*
VI. Sampling Programs
-----------------
1. Sampling Program Agreement for Accupril between PCS and Parke Davis*
2. Sampling Program Agreement between HDS and Upjohn*
3. Sampling Program Agreement between HDS and Rhone-Poulanc*
4. Consulting Agreement between HDS and Coopers & Lybrand*
VII. Patient Programs
----------------
1. Mepron Agreement between PCS and Burroughs Wellcome*
2. Zovirax Agreement between PCS and Burroughs Wellcome*
- -----------------------
* indicates agreements that have not yet been signed
14
<PAGE>
EXHIBIT 99.13
McKESSON SERVICES AGREEMENT
This Agreement, dated as of July 10, 1994, is between PCS Health
Systems, Inc., a Delaware corporation ("PCS"), and SP Ventures,Inc., a Delaware
corporation to be renamed "McKesson Corporation" ("McKesson").
A. Eli Lilly and Company is acquiring certain operations of PCS pursuant to an
Agreement and Plan of Merger dated July 10, 1994 ("Merger Agreement").
B. PCS and McKesson desire to enter into an agreement pursuant to which PCS
will continue to provide certain services to McKesson following closing of
the transactions contemplated by the Merger Agreement, and McKesson will
provide certain services to PCS.
NOW, THEREFORE, the parties agree as follows:
Section 1. Definitions.
1.1 "Unrestricted Network" shall mean a pharmacy network which is
--------------------
available to all pharmacies which agree to meet the network's requirements.
1.2 "Restricted Network" shall mean a pharmacy network which is
------------------
available to a limited number or a percentage of pharmacies in a particular
geographic area.
1.3 "McKesson Stores" shall mean those pharmacies that participate in
---------------
McKesson's Value-Rite(R) program and selected additional pharmacies that
utilize McKesson as their distributor.
1.4 "Specified Rates" shall mean PCS's best price for providing
---------------
comparable services (in terms of size and complexity) to any of PCS's customers
in effect from time to time. In the absence of such price, Specified Rates
shall mean the rates negotiated between PCS and McKesson for the service, taking
into account PCS's historical profit margin and pricing methodologies for
nonstandard services. In no event shall PCS be obligated to provide a price
that will entitle MetLife or any other PCS customer to a price reduction.
Pricing arrangements and programs offered by PCS to its customers that involve
the sale of pharmaceutical products (e.g. mail order pharmacy) or are based upon
the cost of pharmaceutical products in whole or in part (e.g., disease state
management programs, capitation agreements, risk sharing and similar pricing
arrangements) shall not be subject to the best price requirement but shall be
negotiated individually.
<PAGE>
1.5 "PCS Data Processing Capabilities" shall mean programming, data
processing and related auxiliary support for data processing existing at PCS
during the term of this Services Agreement.
1.6 "PCS Data Transmission Capabilities" shall mean switching, data
transmission and telecommunications capabilities of PCS, including without
limitation the RECAP(R) system, or its successors or derivatives, existing at
PCS during the term of this Services Agreement.
1.7 "PCS Capabilities" shall mean the PCS Data Processing
Capabilities, the PCS Data Transmission Capabilities, and access to PCS Provider
Networks and other support services made available to PCS customers existing at
PCS during the term of this Services Agreement.
1.8 "PCS Provider Networks" shall mean the networks of pharmacies,
mail service providers, home infusion providers, and provider networks
associated with the Integrated Medical Systems, Inc., LabOne, Inc. and Health
Care Information Network transactions that have contracted with PCS for the
provision of PCS services and other provider networks that PCS may form during
the term of this Services Agreement.
1.9 "Change of Control" shall mean any of the following enumerated
-----------------
activities by an entity one of whose primary lines of business consists of the
sales of pharmaceutical products ("Pharmaceutical Company") or any part of whose
business consists of providing pharmacy benefit management services ("PBM") or
the parent corporation or a holding company or subsidiary of either a
Pharmaceutical Company or a PBM or by any person who has been employed as a
senior executive (other than senior executives of McKesson and its subsidiaries)
by a PBM or any entity controlled by such person (hereinafter referred to as a
"Covered Entity"):
(i) The acquisition by any Covered Entity or any group of persons
acting in concert, one of whose members is a Covered Entity, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) of thirty percent (30%) or more of either (i) the then
outstanding shares of common stock of McKesson (the "Outstanding Common Stock")
or (ii) the combined voting power of the then outstanding voting securities of
McKesson entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); provided, however, that for purposes of this
-------- -------
subsection (i), any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by McKesson or any corporation controlled by McKesson
shall not constitute a Change of Control; provided, further, however, that for
-------- ------- -------
purposes of this
2
<PAGE>
subsection (i), any redemption or repurchase by McKesson shall not constitute a
Change of Control; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of McKesson (the "Incumbent Board") cease to constitute at least a
majority of the Board of Directors of Mckesson as a result of an actual or
threatened election contest with election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Covered Entity (including a settlement of any such actual or threatened contest)
or as a result of any agreement with a Covered Entity; or
(iii) Any Covered Entity consolidates with, or merges with or into,
McKesson, or McKesson merges into any Covered Entity; provided, however, that
-------- -------
such actions shall not constitute a Change of Control if McKesson is the
surviving or continuing corporation; and (a) the shareholders of McKesson
immediately before the transaction own, on a pro forma basis, in the aggregate a
majority of the outstanding voting shares of the resulting entity immediately
after the transaction or (b) no other event which would constitute a Change of
Control has occurred; or
(iv) Any sale, transfer, exchange or other disposition of all, or
substantially all, of the assets of McKesson to a Covered Entity in one or more
transactions; or
(v) Any acquisition by McKesson which required McKesson to issue or
transfer any securities to a Covered Entity, if the securities to be issued or
transferred have or will have upon issuance or transfer, voting power equal to,
or in excess of, thirty percent (30%) of the voting power outstanding before the
issuance or transfer or such securities; or
(vi) The sale, transfer, exchange or other disposition by McKesson of
substantially all of its United States operations to a Covered Entity; or
(vii) Any agreement or understanding by McKesson to do any of
the foregoing.
In addition to the foregoing, the adoption by McKesson of a plan of
complete liquidation or dissolution shall also constitute a Change of Control.
Section 2. Network Access for McKesson Stores.
-----------------------------------
2.1 Unrestricted Networks. PCS shall notify McKesson as soon as
---------------------
reasonably possible but in no event later than when other pharmacy chains are
notified, when PCS develops an Unrestricted Network, and PCS will allow certain
McKesson Stores
3
<PAGE>
which are specified by McKesson in its sole discretion to participate in the
network as a group (chain) when the group meets the Unrestricted Network
requirements. PCS shall not be required to include any McKesson Store in an
Unrestricted Network to the extent that the PCS customer objects to any such
McKesson Store; provided, that PCS shall use reasonable good faith efforts to
have the PCS customer accept such McKesson Store. McKesson may change the
stores which comprise the McKesson Stores on a network by network basis,
provided that such change does not materially adversely affect PCS or its
customer. Nothing in this Services Agreement shall obligate PCS to require that
its customers use a PCS created pharmacy network.
2.2 Restricted Networks. PCS shall notify McKesson as soon as
-------------------
reasonably possible when PCS develops a Restricted Network but in no event later
than when other pharmacy chains are notified, and will use reasonable good faith
efforts to include certain McKesson Stores which are specified by McKesson in
its sole discretion as a group (chain) in such network when the group meets the
requirements necessary to be included in the Restricted Network. In adding
pharmacies to a Restricted Network to meet access requirements, PCS shall notify
McKesson of void areas (areas not adequately serviced by pharmacies admitted to
the Restricted Network), and to the extent permitted by law, include certain
McKesson Stores which are specified by McKesson in its sole discretion in
filling any void areas on a preferential basis. PCS shall not be required to
include any McKesson Store in a network to the extent that the PCS customer
objects to any such McKesson Store; provided, that PCS shall use reasonable good
faith efforts to have the PCS customer accept any McKesson Store.
2.3 McKesson Store Compliance. Subject to compliance with applicable
-------------------------
legal requirements, PCS shall provide McKesson prior written notice of any
disciplinary action (up to and including removal from any network) that PCS
proposes to take against any McKesson Store in connection with any failure of
such McKesson Store to satisfy its obligations to PCS. The parties shall
cooperate to cause the McKesson Store to comply with the applicable requirements
prior to taking any disciplinary action. If such McKesson Store is not in
compliance within thirty (30) days of such notice, disciplinary action may be
taken by PCS.
Section 3. Pharmacy Data.
-------------
3.1 All Pharmacy Data. Subject to applicable laws and contractual
-----------------
restrictions, PCS shall consider in good faith providing McKesson with PCS data
regarding pharmacies. PCS shall not be obligated to provide any such data if in
the sole discretion of PCS making such data available to McKesson would be
contrary to the business interests of PCS. If PCS determines to provide any
such data to McKesson, patient names and PCS customer identification shall not
be provided. McKesson shall maintain
4
<PAGE>
such data in confidence, use it only for its own purposes, shall not use such
information to disadvantage PCS in the marketplace, and not make such data
available to any third party. McKesson shall pay PCS at the Specified Rates for
such services.
3.2 McKesson Pharmacy Data. PCS shall maintain for and provide to
----------------------
McKesson a database of information relating to the participation by McKesson
Stores in PCS Provider Networks. Such information shall include lists and
directories of McKesson Stores and information generated through use of
GeoAccess or other GIS programs as long as such information can be obtained
utilizing the PCS Capabilities. Reports of such information shall be provided
to McKesson no more frequently than reports of similar information are generated
for PCS's own use. Subject to applicable laws and contractual restrictions
between PCS and its customers, there shall be no restriction on PCS's access to
such information. McKesson shall maintain such information in confidence, use
such information only for its own purposes and shall not use such information in
a manner likely to disadvantage PCS in the market place and shall not make such
data available to any third party except to McKesson Stores. McKesson shall pay
PCS at the Specified Rates for such services.
3.3 Service Limitations. PCS agrees that it will not add
-------------------
restrictions to its agreements with third parties, except to the extent
requested by such party, for the purpose of limiting the services it is
obligated to provide to McKesson under this Section(3).
Section 4. Managed Care Support.
--------------------
4.1 Mail Order. At McKesson's request, PCS shall provide to McKesson
----------
at the Specified Rates PCS's mail order pharmacy program for all maintenance
drug dispensing requirements associated with McKesson's managed care and
Healthcare Delivery Systems, Inc. programs.
4.2 McKesson Services Unit. PCS shall create and maintain a services
----------------------
unit whose primary responsibility is to service McKesson as a customer and which
would provide to McKesson the following services: (i) consulting, training, and
education concerning the managed care industry and PCS's products and services;
and (ii) advice regarding industry events and trends affecting pharmacies. The
unit shall consist initially of one or two persons expert in managed pharmacy
care with additional persons to be added if the growth of the McKesson's
business so requires. The unit would be available during specified normal
business hours. Such services would be compensated at the Specified Rates.
4.3 PCS Services. McKesson agrees that if it contracts with
------------
customers to provide managed pharmacy benefits,
5
<PAGE>
McKesson will only provide such benefits through PCS. PCS agrees to establish
and maintain arrangements, directly or through McKesson as a third party
administrator or through one or more third party administrators selected by
McKesson, to provide such managed pharmacy benefit to such customers regardless
of size. PCS shall provide those services at the Specified Rates for similar
offerings for customers of similar size. In addition to the Specified Rates,
where agreed, a reasonable commission payable to McKesson shall be charged.
Nothing in this Section 4.3 shall preclude McKesson from facilitating or
arranging for the admission of its retail pharmacy customers into pharmacy
benefit management networks; for purposes of certainty, such facilitating or
arranging shall not involve the provision of pharmacy benefit management
services by McKesson.
Section 5. Switching Services. To support McKesson's value added
------------------
transaction services to pharmacies by enabling McKesson to route claims to the
appropriate settlement point, PCS shall provide to McKesson PCS's Data
Processing Capabilities and related claims routing (switching) services to the
extent requested by McKesson. McKesson shall pay the Specified Rates for such
services.
Section 6. Term. The term of this Services Agreement shall be five (5)
----
years. The Services Agreement will automatically renew for successive twelve
(12) month terms unless either party gives the other party written notice of
termination not less than ninety (90) days prior to the end of the term or any
renewal term. If either party is in material default under this Services
Agreement and fails to correct the default within thirty (30) days after receipt
of written notice of default from the non-defaulting party, the non-defaulting
party may terminate this Services Agreement by written notice to the defaulting
party. In addition, PCS shall have the right to terminate this Services
Agreement upon thirty (30) days' written notice to McKesson upon any Change of
Control of McKesson.
Section 7. Increased Costs. In the event the provision of any of the
---------------
services under this Services Agreement results in an increase in costs to PCS
for additional personnel, computer and peripherals capacity, software licenses,
equipment or similar items or an increase in processing or operating expenses,
McKesson shall reimburse PCS for the entire amount of such expenses if incurred
entirely for the benefit of McKesson under this Services Agreement or, if such
expenses only partially benefit McKesson, McKesson shall pay its share of such
expenses in proportion to the extent of use; provided, however, McKesson shall
-------- -------
not be responsible for such reimbursement to the extent such increased costs are
reflected in Specified Rates payable by McKesson.
6
<PAGE>
Section 8. Discontinued Services. Nothing in this Services Agreement
---------------------
shall require PCS to continue any service to be provided under this Services
Agreement if such service is no longer required for the business of PCS. If PCS
plans to discontinue any service, it will notify McKesson in writing as soon as
feasible in advance of discontinuing such service but in no event later than
other PCS customers are notified. McKesson shall have the right to obtain the
service to be discontinued from a third party or can agree to reimburse PCS
fully for all expenses that will be incurred by PCS to continue the service for
the sole benefit of McKesson. If McKesson agrees to such reimbursement, PCS
will continue the service solely for the benefit of McKesson.
Section 9. Limitations.
-----------
PCS shall not be required to perform any services to the extent such
services would result in the breach of any software license or other applicable
contract in existence on the date hereof. If PCS believes it is unable to
provide any services pursuant to the foregoing, PCS shall promptly notify
McKesson. If requested by McKesson, PCS as the case may be shall use reasonable
efforts to obtain the rights necessary to provide such services, including
obtaining any appropriate consents from third parties. McKesson shall be
responsible for all additional costs and expenses incurred by PCS in order to
allow PCS to provide such services.
Section 10. Payment for Services.
--------------------
Each party shall submit, on a monthly basis, an invoice for services
performed under this Services Agreement in the preceding month. Each invoice
shall be payable net thirty (30) days after the date of the invoice; however, in
the event any party in good faith questions any invoiced item, payment of that
item shall be made only after the satisfactory resolution of those questions.
An interest charge of 1% per month will accrue on all overdue amounts.
Section 11. Confidentiality.
---------------
11.1 In the course of performance of this Services Agreement, any
party ("Receiving Party") may acquire information that another party
("Disclosing Party") deems confidential, including trade secrets and unpublished
technical information and data to which the Disclosing Party (or companies
affiliated with the Disclosing Party) has proprietary rights. A party may also
receive information of a third party which the Disclosing Party is under an
obligation to maintain in confidence. The Disclosing Party shall clearly mark
all confidential information. All such information, when clearly marked as
confidential, is referred to hereinafter as "Disclosed Information".
7
<PAGE>
11.2 The Receiving Party shall retain Disclosed Information in strict
confidence and shall not communicate it to others without the Disclosing Party's
prior written agreement. Notwithstanding the foregoing, PCS and PCS shall be
allowed to disclose Disclosed Information to third parties as necessary to
perform the services, provided such third parties have undertaken
confidentiality obligations substantially similar to those set forth in this
Section 12.
11.3 Nothing in this Agreement shall prevent the communication to
others of any Disclosed Information which the Receiving Party can show was known
to it or its representatives prior to its receipt hereunder, was lawfully
received by the Receiving Party and its representatives other than directly or
indirectly from the Disclosing Party, became public knowledge through no fault
of the Receiving Party, is required by law to be disclosed.
11.4 The provisions of this Section 11 shall survive termination of
this Agreement for a period of 3 years.
Section 12. Miscellaneous.
-------------
12.1 Notices. All notices required or permitted to be given under
-------
this Agreement shall be in writing and shall be sent by facsimile transmission
or mailed by registered or certified mail addressed to the party to whom such
notice is required or permitted to be given. All notices shall be deemed to
have been given when transmitted if given by facsimile and confirmation of
receipt is received or, if mailed, five days after mailed as evidenced by the
postmark at the point of mailing.
All notices to PCS shall be addressed as follows:
PCS Health Systems, Inc.
9501 East Shea Boulevard
Scottsdale, AZ 85260
Attention: President
Facsimile: 602-451-0964
All notices to McKesson shall be addressed as follows:
SP Ventures, Inc.
One Post Street
San Francisco, CA 94104
Attention: David Mahoney
Facsimile: 415-983-8826
Any party may, by written notice to the other, designate a new address to which
notices to the party giving the notice shall thereafter be mailed.
8
<PAGE>
12.2 Force Majeure. No party shall be liable for any delay or
-------------
failure of performance to the extent such delay or failure is caused by
circumstances beyond its reasonable control and that by the exercise of due
diligence it is unable to prevent, provided that the party claiming excuse uses
its best efforts to overcome the same.
12.3 Limitation of Liability. No party shall be liable to the other
-----------------------
party for indirect, consequential, incidental or special damages, including but
not limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of such damages.
12.4 Entirety of Agreement. This Agreement sets forth the entire
---------------------
agreement and understanding of the parties relating to the subject matter
contained herein and merges all prior discussions between them, and neither
party shall be bound by any representation other than as expressly stated in
this Agreement, or by a written amendment to this Agreement signed by authorized
representatives of both parties.
12.5 Non-Waiver. The failure of any party in any one or more
----------
instances to insist upon strict performance of any of the terms and conditions
of this Agreement shall not be construed as a waiver or relinquishment, to any
extent, of the right to assert or rely upon any such terms or conditions on any
future occasion.
12.6 Disclaimer of Agency. This Agreement shall not constitute any
--------------------
party the legal representative or agent of another, nor shall any party have the
right or authority to assume, create, or incur any third-party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of another party except as expressly set forth in this Agreement.
12.7 Severability. In the event any term of this Agreement is or
------------
becomes or is declared to be invalid or void by any court of competent
jurisdiction, such term or terms shall be null and void and shall be deemed
deleted from this Agreement, and all the remaining terms of the Agreement shall
remain in full force and effect.
12.8 Governing Law. The validity, performance and construction of
-------------
this Agreement shall be governed by the laws of the State of Arizona.
12.9 Assignment. No party shall delegate duties of performance or
----------
assign, in whole or in part, rights or obligations under this Agreement without
the prior written consent of the other party, and any attempted delegation or
assignment without such written consent shall be of no force or effect. Subject
to the restrictions contained in the preceding sentence, this
9
<PAGE>
Agreement shall be binding upon the successors and assigns of each of the
parties.
12.10 Headings. The headings contained in this Agreement have been
--------
added for convenience only and shall not be construed as limiting.
12.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
12.12 Effective Date. This Agreement shall become effective only
--------------
upon the occurrence of the Offer Purchase Date (as defined in the Reorganization
and Distribution Agreement, dated July 10, 1994, among McKesson and others), and
shall terminate and be null and void and of no force and effect upon any
termination of the Merger Agreement.
This Agreement is executed by the parties as of the date indicated above.
SP VENTURES, INC. PCS HEALTH SYSTEMS, INC.
By: /s/ Arthur Chong By: /s/ Garret Scholz
-------------------- --------------------
Title: Title:
----------------- -----------------
10
<PAGE>
EXHIBIT 99.14
MEMORANDUM OF UNDERSTANDING
---------------------------
This Memorandum of Understanding dated as of July 10, 1994 describes a
number of business opportunities that the parties intend to discuss in
developing their business relationship after the acquisition by Eli Lilly and
Company, an Indiana corporation ("Buyer"), of the pharmacy benefit management
business of McKesson Corporation, a Delaware corporation, conducted by PCS
Health Systems, Inc., a Delaware corporation ("PCS"). It is the parties'
intention to form a strong strategic relationship between Buyer and SP Ventures,
Inc., a Delaware corporation to be renamed "McKesson Corporation" following the
acquisition ("McKesson"), that is consistent with Buyer's bias toward using
McKesson as the preferred provider of services that McKesson has to offer to
Buyer. This Memorandum of Understanding does not set forth any binding
obligations of the parties but is intended to describe those areas into which
their business relationship could be extended in the future if the parties
determine that it is mutually advantageous to do so. The parties intend to
initiate such discussions after execution of the definitive agreement pursuant
to which Buyer will acquire certain operations of PCS.
A. Generics Cooperation. McKesson and Buyer intend to investigate
--------------------
the feasibility of developing and marketing a full line of generic products
under a controlled label. Subject to legal review and compliance, the parties
intend to discuss establishing a joint venture entity for such purpose to be
formed at the appropriate time. Such discussions will consider and be subject
to existing agreements and commitments of Buyer and McKesson with respect to
generic products. In developing any generic strategies, the parties will
consider the role of PCS in including such generic products in its services, and
will consider utilizing McKesson as the preferred wholesaler for distribution of
generic products in PCS's programs.
B. Managed Care Support, Pharmacy Marketing and Compliance Programs.
----------------------------------------------------------------
Buyer and McKesson intend to investigate developing programs pursuant to which
those pharmacies that participate in McKesson's Value-Rite(R) program and
selected additional pharmacies that utilize McKesson as their distributor
("McKesson Stores") will offer
<PAGE>
services (for example, patient education) relating to disease therapies (for
example, diabetes therapies) involving Buyer's programs and promote and monitor
patient compliance with the drug therapy component of Buyer's programs for
disease therapies.
C. Wholesaler Distribution Issues.
------------------------------
1. PCS/Wholesaler Alliance. Buyer will consider McKesson first as
-----------------------
PCS's preferred wholesaler to the extent consistent with law, if PCS determines
to forge PCS/wholesaler alliances or other business arrangements (but excluding
normal wholesaler warehousing and distribution arrangements) involving
distribution of products by a wholesaler. (E.g., product supply for consignment
----
inventory offerings and services agreements with retail buying groups and
GPO's.)
2. Distribution of Buyer's Products. The parties intend to
--------------------------------
investigate the possibility of closing certain of Buyer's distribution centers
and using McKesson (i) to handle physical distribution of Buyer's products to
wholesalers, and/or (ii) subject to legal review and where feasible from a
business standpoint to be the sole distributor of Buyer's products.
3. Specialty Distribution of Buyer's Products. The parties intend to
------------------------------------------
investigate the possibility of using McKesson's services (i) to more efficiently
process Buyer's returned goods, (ii) to handle Buyer's third-party shipments and
(iii) to distribute Buyer's potential disease management product packages to
point of use.
4. Hospital Incentive Program. In connection with Buyer's hospital
--------------------------
products, the parties intend to investigate developing an incentive program for
hospital customers that do not have product contracts with Buyer or hospitals
where Buyer has not been successful in establishing a business relationship.
McKesson would market Buyer's products to specified accounts on an incentive
basis. Programs would be considered that would compensate McKesson for its
efforts by sharing incremental product sales margins.
2
<PAGE>
5. Chargeback System. The parties intend to investigate working
-----------------
together to develop an improved process to handle chargebacks.
6. DDD Sales Information. The parties intend to investigate in good
---------------------
faith the possibility of McKesson's supplying DDD-type sales information to
Buyer for an agreed-upon fee.
7. Effective Date. This Memorandum of Understanding shall become
--------------
effective only upon the occurrence of the Offer Purchase Date (as defined in the
Reorganization and Distribution Agreement, dated July 10, 1994, among McKesson
and others), and shall terminate and be null and void and of no force and effect
upon any termination of the Agreement and Plan of Merger, dated July 10, 1994,
among Buyer, McKesson Corporation and ECO Acquisition Corporation.
SP VENTURES, INC.
By: /s/ Arthur Chong
-------------------
Name:
Title:
ELI LILLY AND COMPANY
By: /s/ Randall L. Tobias
----------------------
Name:
Title:
3
<PAGE>
EXHIBIT 99.15
Non-Competition Agreement
-------------------------
This Agreement dated July 10, 1994, between McKesson Corporation, a
Delaware corporation ("McKesson"), SP Ventures, Inc., a Delaware corporation
("Spinco"), ECO Acquisition Corporation, a Delaware corporation ("Buyer"), and
Eli Lilly and Company, an Indiana corporation ("Parent"), WITNESSES:
Concurrently with this Agreement, McKesson, Buyer and Parent are
executing an Agreement and Plan of Merger ("Merger Agreement"), and McKesson,
Spinco and others are executing a Reorganization and Distribution Agreement
pursuant to which certain assets of McKesson will be transferred to Spinco. In
consideration thereof, Spinco hereby covenants and agrees with Buyer and Parent
that from and after the Offer Purchase Date (as defined in the Reorganization
and Distribution Agreement) and until the fifth anniversary thereof, it will not
(nor will it permit any other entity in which it holds an interest giving it
effective control to) engage anywhere in the world (except in Mexico) in any
activity in competition in any material respect with (i) the Prescription
Business (as defined in the Reorganization and Distribution Agreement) as such
is conducted on the Offer Purchase Date, (ii) any of the current or proposed
activities described in Exhibit A hereto, or (iii) any of the current or
proposed activities that are not described in Exhibit A hereto but are described
in the "Core PCS Capabilities" section (pages 9-15) of the PCS Health Systems,
Inc. ("PCS") Confidential Information dated June 1994; provided, however, that
-------- -------
any development activities described in such "Core PCS Capabilities" section of
the Confidential Information shall be deemed to be included in the foregoing
clause (iii) only if PCS, as of June 1994, had devoted substantial management or
other resources to such activities or had commenced software programming for
such activities. Notwithstanding the foregoing, the parties hereto acknowledge
and agree that any business or activities of Spinco or Healthcare Delivery
Systems, Inc. ("HDS"), respectively, which may be engaged in by Spinco or HDS,
respectively, following the Distribution, consistent with the McKesson Services
Agreement between Spinco and PCS and the HDS Services Agreement among PCS,
Parent and HDS, respectively, shall not be deemed to be activities in
competition with the
<PAGE>
Prescription Business or otherwise subject to the restrictions of the preceding
sentence. To the extent HDS has access to services and capabilities of
Integrated Medical Systems, Inc., including the Prescription Benefit Management
Services (as defined in the Network Sponsorship and Participation Agreement
between McKesson and IMS), HDS shall not permit that access to be used by others
in activities that, if conducted by HDS, would violate any of the covenants set
forth in this Agreement.
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without affecting the validity or
enforceability of the remaining provisions hereof. Any such prohibition or
unenforceabilty in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
2
<PAGE>
This Agreement shall become effective only upon the occurrence of the
Offer Purchase Date, and shall terminate and be null and void and of no force
and effect upon any termination of the Merger Agreement.
Unless otherwise defined, capitalized terms used herein shall have the
meanings ascribed to them in the Merger Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of law) as to all matters, including, without limitation, matters
of validity, construction, effect, performance and remedies.
McKESSON CORPORATION
By /s/ Garret Scholz
-------------------------
SP VENTURES, INC.
By /s/ Arthur Chong
-------------------------
ECO ACQUISITION CORPORATION
By /s/ Charles E. Schalliol
-------------------------
ELI LILLY AND COMPANY
By /s/ Randall L. Tobias
-------------------------
3
<PAGE>
EXHIBIT A
NATIONAL ELECTRONIC INFORMATION CORPORATION - PCS was selected by the National
Electronic Information Corporation (NEIC), the largest consortium of leading
U.S. insurers, representing more than 80 million members, to operate its
Healthcare Information Network/SM /(HCIN), the first nationwide electronic data
interchange for health care. HCIN currently furnishes patient eligibility and
benefit coverage information to providers at the point of service in nine
states, and is moving to expand its service territory and add capabilities for
treatment authorizations, referrals, and claim inquiries;
INTEGRATED MEDICAL SYSTEMS - In January 1994, McKesson acquired a significant
minority interest in Integrated Medical Systems, Inc. (IMS), the nation's leader
in community medical information networks.
The IMS network currently links more than 10,000 physicians and other health
care providers including hospitals and laboratories with HMOs, PPOs and health
plan sponsors, more than any competitive system. IMS operates its networks in
36 communities, including 23 of the nation's 50 largest markets. Including
recently signed contracts, IMS now offers network services to more than 100
major hospitals that, combined with IMS's managed care and lab clients, have
relationships with more than 100,000 physicians.
Current development activity on the IMS/PCS network is focused on providing
physicians electronic access to clinical guidelines, formulary information, and
patient-specific information (e.g., compliance tracking), enabling the
consistent delivery of quality, cost-effective therapies. Targeting physicians
could increase the efficiency of the prescribing process, giving essential drug
information to physicians at the point of care and reducing the need for
inefficient intervention through physician telemarketing or pharmacy switches;
MANAGED INFUSION CARE (MIC) - With implementation of MIC, PCS will be able to
deliver a managed care system to its clients for their share of the rapidly-
growing $4 billion home infusion market. Managed Infusion Care will combine:
(1) PCS's historic expertise in managed prescription care program design and
management; (2) extensions
<PAGE>
of PCS's clinically-based pharmaceutical intervention (formularies and drug
utilization review); (3) implementation of on-line transaction processing
technology (RECAP(R)) in a new provider arena; and (4) leverage of PCS's network
development skills to create a cost-competitive network of managed infusion
providers.
MANAGED MAIL SERVICE - PCS has developed its own integrated managed prescription
mail service. This new program will create a PCS "private-label" mail service
for its customers incorporating comprehensive drug utilization review and
consistent formulary management across retail and mail settings. Orders will be
fulfilled by nationally recognized mail service companies, including Retired
Persons Service, Inc. (RPS), the administrator of the AARP Pharmacy Service, and
Express Pharmacy Services, a unit of Thrift Drug. This new capability went on-
line June 1 with initial clients being served by RPS; and
LABONE - In May 1994, PCS executed a joint marketing agreement with LabOne, Inc.
to develop the first nationwide electronically-linked system of laboratory
testing services. The managed lab program would offer PCS's clients substantial
savings for clinical laboratory testing services and provide the opportunity to
link appropriate drug therapy recommendations to specific test results using a
single point-of-service health "card."
2
<PAGE>
Exhibit 99.16
June 8, 1994
Eli Lilly & Company
Lilly Corporate Center
Indianapolis, Indiana 46285
CONFIDENTIALITY AGREEMENT
-------------------------
Dear Sirs:
We understand that Eli Lilly & Company desires to engage in certain discussions
with McKesson Corporation ("McKesson") and PCS Health Systems, Inc., a wholly
owned subsidiary of McKesson (the "Company"), in order to evaluate a possible
transaction (the "Transaction") involving you, McKesson and the Company. You
have requested that we furnish you with certain information relating to McKesson
and the Company which is non-public, confidential or proprietary in nature. All
such information (whether documentary, computerized or oral) furnished after the
date hereof by McKesson or the Company or their respective directors, officers,
employees, affiliates, representatives (including, without limitation, financial
advisors, attorneys and accountants) or agents (collectively, "our
Representatives") to you or your directors, officers, employees, affiliates,
representatives (including, without limitation, financial advisors, attorneys
and accountants) or agents (collectively, "your Representatives") and all
analyses, compilations, forecasts, studies, summaries, notes, data and other
documents and materials in whatever form maintained, whether prepared by you,
your Representatives or others, which contain or reflect, or are generated from,
any such information or which reflect your or your Representatives' review of,
or your interest in, the Transaction is hereinafter referred to as the
"Information." The term Information will not, however, include information
which (i) is known to you or is or becomes publicly available other than as a
result of a disclosure by you or your Representatives or (ii) is or becomes
available to you on a nonconfidential basis from a source (other than McKesson,
the Company or our Representatives) which, to the best of your knowledge after
due inquiry, is not prohibited from disclosing such information to you by a
legal, contractual, fiduciary or other obligation to McKesson or the Company.
As a condition to, and in consideration of McKesson and the Company engaging in
further discussions with you and providing you with Information, you acknowledge
and agree as follows:
<PAGE>
1. You and your Representatives (i) will keep the Information confidential and
will not (except as required by applicable law, regulation or legal
process, and only after compliance with paragraph 3 below), without our
prior written consent, disclose any Information in any manner whatsoever,
and (ii) will not use any Information other than in connection with your
consideration of the Transaction. You further agree to disclose the
Information only to your Representatives (a) who need to know the
Information for the purpose of evaluating the Transaction, (b) who are
informed by you of the confidential nature of the Information and (c) who
agree to be bound by the terms of this agreement. You agree to cause your
Representatives to observe the terms of this agreement and will be
responsible for any breach of this agreement by any of your
Representatives. You may also disclose the Information to other persons
provided that (a) you obtain our prior written consent, (b) such person
executes a counterpart of this agreement prior to any such disclosure, and
(c) such person further agrees to such additional conditions and
restrictions as may be appropriate to the extent such person does or may
compete with you.
2. Except as may be required by law or as otherwise permitted by this
agreement, without the prior written consent of McKesson, you and your
Representatives will not disclose to any person any information regarding a
possible Transaction or any information relating in any way to the
Information, including, without limitation (i) that any investigations,
discussions or negotiations are taking or have taken place concerning a
possible Transaction, including the status thereof or the termination of
discussions or negotiations with McKesson or the Company, (ii) any of the
terms, conditions or other facts with respect to any such possible
Transaction or of your consideration of a possible Transaction or (iii)
that this agreement exists, that Information exists or has been requested
or made available or any opinion or view with respect to McKesson, the
Company or the Information. In this regard, McKesson has advised you of its
concern regarding the potential for harm to McKesson, the Company and their
employees that could result from disclosure of the foregoing or of
Information. The term "person" as used herein will be interpreted broadly
to include, without limitation, any corporation, company, entity,
partnership, partner, group, individual, potential joint bidder or co-
bidder or source of financing. Except as may be required by law or as
otherwise permitted by this agreement, McKesson, the Company and their
Representatives agree not to disclose to any person your identity with
respect to any consideration of a possible Transaction.
3. In the event that you or any of your Representatives are requested or
required (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand, any informal or formal
investigation by any government or governmental agency or authority or
otherwise) to disclose any of the Information, you will notify McKesson
promptly in writing so that we may seek a protective order or other
appropriate remedy or, in our sole discretion, waive compliance with
2
<PAGE>
the terms of this agreement. You and your Representatives agree not to
oppose any action by McKesson to obtain a protective order or other
appropriate remedy. In the event that no such protective order or other
remedy is obtained, or that McKesson waives compliance with the terms of
this agreement, you and your Representatives will furnish only that portion
of the Information which you are advised by counsel is legally required and
will exercise your reasonable best efforts to obtain reliable assurance
that confidential treatment will be accorded the Information.
4. If you determine not to proceed with the Transaction, you will promptly
inform McKesson. You acknowledge and agree that McKesson and the Company
have made no decision to pursue any Transaction and you agree that McKesson
and the Company will have the right in their sole discretion, without
giving any reason therefor, at any time to terminate discussions with you
concerning a possible Transaction, to elect not to pursue any such
Transaction, or to pursue the Transaction without your involvement. You
and your Representatives agree, immediately upon a request from McKesson,
to return to McKesson all Information, and no copies, extracts or other
reproductions of the Information shall be retained by you or your
Representatives, except that one copy of such materials may be retained
(solely for the purposes of any subsequent dispute between the parties) in
the files of your outside attorneys, whose names will be provided to
McKesson and the Company. Any portion of the Information that consists
solely of analyses, compilations, forecasts, studies, summaries, notes,
data or other documents or materials prepared by you or your
Representatives, in lieu of being returned to McKesson, may be destroyed by
you, in which event one of your authorized officers shall provide
certification to McKesson that such materials have in fact been so
destroyed, except that one copy of such materials may be retained (solely
for the purposes of any subsequent dispute between the parties) in the
files of your outside attorneys, whose names will be provided to McKesson
and the Company. Any material retained by your outside attorneys pursuant
to this paragraph 4, and any oral Information, will continue to be subject
to the provisions of this agreement.
5. You and your Representatives acknowledge that none of McKesson, the
Company, nor their Representatives, nor any of their respective officers,
directors, employees, agents or controlling persons within the meaning of
Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), makes any express or implied representation or warranty as
to the accuracy or completeness of the Information. You and your
Representatives agree that no such person will have any liability to you or
any of your Representatives on any basis (including, without limitation, in
contract, tort, under federal or state securities laws or otherwise), and
neither you nor your Representatives will make any claims whatsoever
against such persons, with respect to or arising out of the Transaction,
whether as a result of this agreement, any other written or oral expression
with respect to the Transaction, your
3
<PAGE>
participation in evaluating the possible Transaction or the Procedures
therefor (as defined in paragraph 9 below), your review of the Company, the
use of the Information by you or your Representatives, any errors therein
or omissions from the Information, or otherwise. You and your
Representatives further agree that you are not entitled to rely on the
accuracy or completeness of the Information and that you will be entitled
to rely solely on such representations and warranties as may be included in
any definitive agreement with respect to the Transaction, subject to such
limitations and restrictions as may be contained therein.
6. You are aware, and you will advise your Representatives who are informed of
the matters that are the subject of this agreement, of the restrictions
imposed by the United States securities laws on the purchase or sale of
securities by any person who has received material, non-public information
from the issuer of such securities and on the communication of such
information to any other person.
7. You represent and warrant that as of the date hereof, neither you nor any
of your subsidiaries beneficially owns any securities of McKesson. You
agree that, for a period of three years from the date of this agreement,
whether or not McKesson shall continue to own any voting securities of the
Company, neither you nor any of your Representatives, on your behalf, will,
unless and until such shall hereafter have been specifically invited in
writing by McKesson: (i) acquire, offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any voting securities or
direct or indirect rights to acquire any voting securities of McKesson, the
Company or any subsidiary thereof or (other than in the ordinary course of
business) any assets of McKesson, the Company or any subsidiary or division
thereof, (ii) make, or in any way participate in, directly or indirectly,
any "solicitation" of "proxies" (as such terms are used in the rules of
the Securities and Exchange Commission) to vote, or seek to advise or
influence any person or entity with respect to the voting of, any voting
securities of McKesson or the Company, (iii) make any public announcement
with respect to, or submit a proposal for, or offer of (with or without
conditions) any merger, consolidation, business combination, tender or
exchange offer, restructuring, recapitalization or other extraordinary
transaction of or involving McKesson, the Company or any of their
subsidiaries or their securities or assets, (iv) form, join or in any way
participate in a "group" (as defined in Section 13(d)(3) of the Exchange
Act) in connection with any voting securities of McKesson or the Company,
(v) otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of Directors or policies of McKesson or the
Company, or (vi) have any discussions or enter into any arrangements,
understandings or agreements (whether written or oral) with, or advise,
assist or encourage, any other persons in connection with any of the
foregoing. You and your Representatives, on your behalf, also agree
during such period not to make any proposal, statement or inquiry, or
disclose any intention, plan or arrangement, whether written or oral,
inconsistent with the foregoing, or request
4
<PAGE>
McKesson or any of its Representatives, directly or indirectly, to amend,
waive or terminate any provision of this paragraph. You will promptly
advise McKesson of any inquiry or proposal made to you with respect to any
of the foregoing, including the details thereof. The representation and
restrictions contained in this paragraph do not apply to any securities of
McKesson that may be owned solely for investment purposes by any employee
benefit plan which is presently maintained on behalf of your employees,
provided that said ownership does not exceed 1% of the total number of
outstanding shares of any class of voting securities of McKesson. The
representation and restrictions contained in this paragraph also will not
prevent your financial advisor from engaging in trading or brokerage
transactions in the ordinary course of its business as presently conducted,
provided that neither said advisor nor its affiliates will acquire
beneficial ownership of more than 1% of the total number of outstanding
shares of any class of voting securities of McKesson. Notwithstanding
anything to the contrary in this paragraph 7, in the event that (x) you
enter into a definitive agreement with McKesson with respect to the
Transaction and (y) prior to any termination of such definitive agreement,
any person publicly makes an unsolicited bona fide offer to acquire a
majority of McKesson's voting securities, then you shall have the right to
make a competing offer provided you agree to be bound by and comply with
any procedures and guidelines for the submission of any such offers that
McKesson may establish.
8. You agree that, for a period of two years from the date of this agreement,
you will not, directly or indirectly, solicit for employment or hire any
employee of McKesson or the Company or any subsidiary thereof with whom you
have had contact or who became known to you in connection with your
consideration of the Transaction; provided, however, that the foregoing
-------- -------
provision will not prevent you from employing any such person, other than
any McKesson or Company officer, who contacts you on his or her own
initiative without any direct or indirect solicitation by or encouragement
from you.
9. You acknowledge that if McKesson determines to pursue a Transaction, it may
establish procedures and guidelines (the "Procedures") for the submission
of proposals with respect to any Transaction with or involving the Company.
You and your Representatives agree to act in accordance with the Procedures
and to be bound by the terms and conditions that may be established
pursuant to the Procedures, including adhering to any timing conditions
that may be established relating to when proposals for such a Transaction
may be submitted. You acknowledge and agree that (a) McKesson and its
Representatives are free to conduct the process leading up to a possible
Transaction as McKesson and its Representatives, in their sole discretion,
determine (including, without limitation, by negotiating with any third
party and entering into a preliminary or definitive agreement without prior
notice to you or any other person), and (b) McKesson reserves the right, in
its sole discretion, to change the Procedures relating to its consideration
of the Transaction at any time
5
<PAGE>
without prior notice to you or any other person, to reject any and all
proposals made by you or any of your Representatives with regard to the
Transaction, and to terminate discussions and negotiations with you at any
time and for any reason.
10. You and your Representatives agree not to initiate or maintain contact
(except for those contacts made in the ordinary course of business) with
any officer, director, employee or agent of the Company except with the
express prior permission of McKesson or Morgan Stanley & Co. Incorporated
("Morgan"). It is understood that Morgan will arrange for appropriate
contacts for due diligence purposes. It is further understood that all (a)
communications regarding a possible transaction, (b) requests for
additional information, (c) requests for facility tours or management
meetings and (d) discussions or questions regarding Procedures, will be
submitted only to Morgan or certain designated McKesson employees.
11. (a) You agree that McKesson and the Company would be irreparably injured
by a breach of this agreement by you or your Representatives, that
monetary remedies would be inadequate to protect us against any actual
or threatened breach of this agreement by you or by your
Representatives, and, without prejudice to any other rights and
remedies otherwise available to us, you agree to the granting of
equitable relief, including injunctive relief and specific
performance, in our favor without proof of actual damages. You agree
to reimburse McKesson for its costs and expenses (including, without
limitation, reasonable legal fees and expenses) incurred to remedy any
and all breaches of this agreement.
(b) This agreement shall inure to the benefit of and be binding upon each
of you and McKesson and the respective successors and persons in
control of you, McKesson and the Company (including, without
limitation, any entity owning a significant portion of the assets of
McKesson which is distributed to stockholders by dividend or
otherwise), notwithstanding any sale or disposition by McKesson of all
or any portion of its interest in the Company. It is further agreed
that no failure or delay in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any single or
partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege hereunder.
(c) This agreement will be governed by and construed in accordance with
the laws of the State of New York, without regard to the principles of
conflict of laws thereof.
(d) This agreement contains the entire agreement between you and us
concerning the subject matter hereof and supersedes all previous
agreements, written or oral, relating to the subject matter hereof.
No modifications of this
6
<PAGE>
agreement or waiver of the terms and conditions hereof will be binding
upon you or us, unless approved in writing by each of you and us.
(e) If any provision of this agreement shall, for any reason, be adjudged
by any court of competent jurisdiction to be invalid or unenforceable,
such judgment shall not affect, impair or invalidate the remainder of
this agreement but shall be confined in its operation to the provision
of this agreement directly involved in the controversy in which such
judgment shall have been rendered.
(f) This agreement may be executed in counterparts, each of which shall be
deemed to be an original, but both of which shall constitute the same
agreement. You warrant that the person who executes this agreement on
your behalf has full corporate authority to do so.
Please confirm your agreement with the foregoing by signing and returning to the
undersigned the duplicate copy of this letter enclosed herewith.
Very truly yours,
McKESSON CORPORATION
By: /s/ David L. Mahoney
-----------------------
Name: David L. Mahoney
Title: Vice President
Accepted and Agreed
as of the date first
written above:
Eli Lilly & Company
By: /s/ Sidney Taurel
-------------------------------
Name: Sidney Taurel
Title: Executive Vice President
7
