UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
MEDICINE SHOPPE INTERNATIONAL, INC.
(Name of Issuer)
COMMON STOCK, $0.01 PAR VALUE
(Title of Class of Securities)
584686109
(CUSIP Number)
1100 NORTH LINDBERGH BOULEVARD, ST. LOUIS, MISSOURI 63132
(314) 993-6000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
AUGUST 26, 1995
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the
statement /x/.
Page 1 of 11 Pages<PAGE>
CUSIP NO. 584686109
SCHEDULE 13D
1. NAME OF REPORTING PERSON
SS OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cardinal Health, Inc.
31-0958666
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
NUMBER OF 7. SOLE VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY 8. SHARED VOTING POWER
EACH 0
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER
WITH 0
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,300,000 shares of Common Stock.
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES / /
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 14.4%.
Based upon 7,721,737 shares of Common Stock outstanding at
August 24, 1995, as represented by Issuer, calculated
pursuant to Rule 13d-3(d)(1).
14. TYPE OF REPORTING PERSON
HC, CO
Page 2 of 11 Pages<PAGE>
CUSIP NO. 584686109
Item 1. Security and Issuer.
This Schedule 13D relates to the common stock, $0.01 par
value per share ("MSI Common Stock"), of Medicine Shoppe
International, Inc. ("MSI"), a Delaware corporation. The
principal executive offices of MSI are located at 1100 North
Lindbergh Boulevard, St. Louis, Missouri 63132.
Item 2. Identity and Background.
This Schedule 13D is filed by Cardinal Health, Inc.
("Cardinal"), an Ohio corporation. Cardinal is a national, full-
service wholesaler distributing a broad line of pharmaceuticals,
surgical and hospital supplies, therapeutic plasma and other
specialty pharmaceutical products, health and beauty care
products, and other items sold by hospitals, retail drug stores,
and other health care providers. Cardinal's principal executive
offices are located at 655 Metro Place South, Suite 925, Dublin,
Ohio 43017.
Each executive officer and each director of Cardinal is
a citizen of the United States. The name, business address and
present principal occupation of each executive officer and
director are set forth in Annex I to this Schedule 13D which is
incorporated herein by this reference.
During the last five years, to the best of Cardinal's
knowledge, neither Cardinal nor any of its executive officers or
directors has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or has been a party to
a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which Cardinal or such
person was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or
finding any violation with respect to such laws, and which
judgment, decree or final order was not subsequently vacated.
Item 3. Source and Amount of Funds or Other Consideration.
Pursuant to the Stock Option Agreement, dated August 26,
1995, between Cardinal and MSI (the "Stock Option Agreement"), MSI
granted Cardinal an irrevocable option (the "Option") to purchase,
under certain circumstances and subject to certain adjustments, up
to 1,300,000 authorized and unissued shares of MSI Common Stock,
at a price of $39.00 per share, payable in cash. The shares of
MSI Common Stock subject to the Option would equal 16.8% of the
outstanding MSI Common Stock before giving effect to the exercise
of the Option. Under certain circumstances, MSI may be permitted
to repurchase for cash the Option granted by it and any shares of
MSI Common Stock acquired pursuant to the exercise of the Option.
The Option was granted by MSI as a condition of and in
consideration for Cardinal entering into the Agreement and Plan of
Page 3 of 11 Pages<PAGE>
CUSIP NO. 584686109
Merger, dated August 26, 1995, among Cardinal, Arch Merger Corp.,
a Delaware corporation and a wholly owned direct subsidiary of
Cardinal ("Subcorp"), and MSI (the "Merger Agreement").
The exercise of the Option for the full number of shares
currently covered thereby would require aggregate funds of
$50,700,000. It is anticipated that, should the Option become
exercisable and should Cardinal determine to exercise the Option,
Cardinal would obtain the funds for purchase from working capital
or by borrowing from parties whose identity is not yet known.
A copy of the Stock Option Agreement is included as
Exhibit 2.2 to this Schedule 13D and is incorporated herein by
this reference. The foregoing description of the Stock Option
Agreement is qualified in its entirety by reference to such
exhibit.
Item 4. Purpose of Transaction.
In connection with the execution of the Stock Option
Agreement, Cardinal and MSI entered into the Merger Agreement,
pursuant to which, among other matters and subject to the terms
and conditions set forth in the Merger Agreement, Subcorp will
merge (the "Merger") with and into MSI. The Option was granted by
MSI as a condition of and in consideration for Cardinal entering
into the Merger Agreement. Consummation of the Merger is subject
to certain conditions, including: (i) receipt of the approval of
the Merger Agreement by the holders of a majority of the
outstanding shares of MSI Common Stock; (ii) expiration or
termination of all waiting periods applicable to the consummation
of the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended; (iii) registration of the shares of
Cardinal Common Stock to be issued in the Merger under the
Securities Act of 1933, as amended; (iv) receipt of an opinion of
counsel as to the tax-free nature of certain aspects of the
Merger; (v) receipt of an accountant's letter confirming that the
Merger will qualify as a pooling of interests transaction for
financial reporting purposes; and (vi) satisfaction of certain
other conditions. Pursuant to the Merger Agreement, (a) the
officers of the surviving corporation in the Merger will be the
officers of MSI, (b) the directors of the surviving corporation in
the Merger will be the directors of Subcorp, and (c) each share of
MSI Common Stock will be converted into the right to receive a
portion of a share of common stock, without par value, of Cardinal
depending upon the market price of Cardinal common stock
immediately prior to the closing date, plus cash in lieu of
fractional shares. Upon consummation of the Merger, the MSI
Common Stock will be delisted from the NASDAQ National Market
System.
A copy of the Merger Agreement is included as Exhibit
2.1 to this Schedule 13D and is incorporated herein by this
reference. The foregoing description of the Merger Agreement is
qualified in its entirety by reference to such exhibit.
Page 4 of 11 Pages<PAGE>
CUSIP NO. 584686109
Except as set forth herein, Cardinal does not have any
current plans or proposals that relate to or would result in (i)
the acquisition by any person of additional shares of MSI Common
Stock or the disposition of shares of MSI Common Stock; (ii) an
extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving MSI or any of its
subsidiaries; (iii) a sale or transfer of any material amount of
assets of MSI or any of its subsidiaries; (iv) any change in the
present board of directors or management of MSI, including any
plans or proposals to change the number or term of directors or to
fill any vacancies on the board; (v) any material change in the
present capitalization or dividend policy of MSI; (vi) any other
material change in MSI's business or corporate structure; (vii)
any change in MSI's charter or bylaws, or instruments
corresponding thereto, or other actions that may impede the
acquisition of control of MSI by any person; (viii) causing a
class of securities of MSI to be delisted from a national
securities exchange or to cease to be authorized to be quoted in
an inter-dealer quotation system of a registered national
securities association; (ix) a class of equity securities of MSI
becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Securities Exchange Act of 1934, as
amended; or (x) any action similar to any of those enumerated
above.
Item 5. Interest in Securities of Issuer.
Although the Option does not allow Cardinal to purchase
any shares of MSI Common Stock pursuant thereto unless the
conditions to exercise specified in the Stock Option Agreement
occur, assuming for purposes of this Item 5 that such conditions
are satisfied and Cardinal is entitled to purchase shares of MSI
Common Stock pursuant to the Option, Cardinal would be entitled to
purchase 1,300,000 shares of MSI Common Stock, or approximately
14.4% of the outstanding MSI Common Stock after giving effect to
the exercise of the Option.
Cardinal does not currently have the right to acquire
any shares of MSI Common Stock under the Option unless certain
events specified in the Stock Option Agreement occur.
Accordingly, Cardinal does not have sole or shared voting or
dispositive power with respect to any shares of MSI Common Stock,
and Cardinal disclaims beneficial ownership of MSI Common Stock
subject to the Option until such events occur. Assuming for
purposes of this Item 5 that events occurred that would enable
Cardinal to exercise the Option and Cardinal exercised the Option,
Cardinal would have sole voting power and sole dispositive power
with respect to the shares acquired pursuant to the Option,
subject to MSI's right to repurchase such shares as set forth in
the Stock Option Agreement.
The foregoing description of certain terms of the Stock
Option Agreement is qualified in its entirety by reference to the
Page 5 of 11 Pages<PAGE>
CUSIP NO. 584686109
Stock Option Agreement which is filed as Exhibit 2.2 hereto and
which is incorporated herein by this reference.
To the best of Cardinal's knowledge, no executive
officer or director of Cardinal beneficially owns any shares of
MSI Common Stock, nor (except for the issuance of the Option) have
any transactions in MSI Common Stock been effected during the past
60 days by Cardinal or, to the best knowledge of Cardinal, by any
executive officer or director of Cardinal. In addition, no other
person is known by Cardinal to have the right to receive or the
power to direct the receipt of dividends from, or the proceeds
from the sale of, the securities covered by this Schedule 13D.
Item 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer.
Each of the persons set forth in Annex II to this
Schedule 13D, which Annex II is incorporated herein by this
reference, has entered into an agreement with Cardinal pursuant to
which, among other matters, such person has agreed (i) to vote all
of the shares of MSI Common Stock beneficially owned by such
person or over which such person has voting power or control to
approve the Merger and the Merger Agreement, (ii) not to vote such
shares in favor of any other recapitalization, merger,
consolidation or other business combination involving MSI, or
acquisition of any capital stock or any material portion of the
assets (except for acquisitions of assets in the ordinary course
of business consistent with past practice) of MSI and (iii) not
to, and not to permit any company, trust or other entity
controlled by such person to, contract to sell, sell or otherwise
transfer or dispose of any of such shares or any voting rights
with respect thereto other than pursuant to the Merger without
Cardinal's consent. Such persons in the aggregate have voting
power over approximately 16.7% of the outstanding shares of MSI
Common Stock, based upon 7,721,737 shares of MSI Common Stock
outstanding as of August 24, 1995, as represented by MSI. A copy
of the form of Support/Voting Agreement, dated as of August 26,
1995, executed by such persons is included as Exhibit 99.1 to this
Schedule 13D and is incorporated herein by this reference. The
foregoing description of the Support/Voting Agreement is qualified
in its entirety by reference to such exhibit.
A copy of the Merger Agreement is included as Exhibit
2.1 to this Schedule 13D and is incorporated herein by this
reference. See Item 4.
A copy of the Stock Option Agreement is included as
Exhibit 2.2 to this Schedule 13D and is incorporated herein by
this reference. See Items 3 and 5.
Page 6 of 11 Pages<PAGE>
CUSIP NO. 584686109
Item 7. Material to be Filed as Exhibits.
The following exhibits are filed as part of this
Schedule 13D:
Exhibit 2.1 -- Merger Agreement.
Exhibit 2.2 -- Stock Option Agreement.
Exhibit 99.1 -- Form of Support/Voting Agreement.
Page 7 of 11 Pages<PAGE>
ANNEX I
Directors and Executive Officers
Set forth below are the name and present principal
occupation of each director and executive officer of Cardinal
Health, Inc. as of September 5, 1995. Unless otherwise indicated
below, the business address of each such director and executive
officer is c/o Cardinal Health, Inc., 655 Metro Place South, Suite
925, Dublin, Ohio 43017.
Name Principal Occupation Address
Directors
of Cardinal
Health, Inc.:
John F. Finn Chairman and Chief Executive
Officer of Gardner, Inc., an
outdoor power equipment dis-
tributor.
Robert L. Gerbig President and Chief
Executive Officer of
Gerbig, Snell/Weisheimer
& Associates, Inc., an
advertising agency.
John F. Havens Retired Chairman and Director
Emeritus of Banc One Corpora-
tion, a bank holding company.
Regina E. Herzlinger Professor, Harvard University
Graduate School of Business
Administration.
John C. Kane President and Chief Operating
Officer of Cardinal Health,
Inc.
George R. Manser Chairman of Uniglobe
Travel (Capital Cities)
Inc., a travel planning
services company.
John B. McCoy Chairman and Chief Executive
Officer of Banc One Corpora-
tion, a bank holding company.
Michael E. Moritz Partner of Baker & Hostetler,
a law firm.
Page 8 of 11 Pages<PAGE>
Jerry E. Robertson Retired Executive Vice
President of the Life Sciences
Sector and Corporate Services
of Minnesota Mining & Manu-
facturing Company, a manu-
facturer of industrial
commercial, health care and
consumer products.
L. Jack Van Fossen Retired President and Chief
Executive Officer of Red Roof
Inns, Inc., a lodging company.
Robert D. Walter Chairman and Chief Executive
Officer of Cardinal Health,
Inc.
Melburn G. Whitmire Vice Chairman of Cardinal
Health, Inc.
Executive Officers
of Cardinal Health, Inc.
(that are not directors):
David Bearman Executive Vice President and
Chief Financial Officer.
George H. Bennett, Jr. Executive Vice President and
General Counsel.
Anthony J. Campanaro Executive Vice President-
Central Group.
James E. Clare Executive Vice President- 103 WestPark
Southern Group. Drive, Suite E
Peachtree City,
GA 30269
Gary E. Close Executive Vice President- 81 Blue Ravine
Western Group. Drive, Folsom,
CA 95630
Daniel P. Finkelman Executive Vice President-
Marketing.
Phillip A. Greth Executive Vice President
and Chief Information
Officer.
James F. Millar Executive Vice President-
Northern Group.
Page 9 of 11 Pages<PAGE>
ANNEX II
Persons Executing Support/Voting Agreements
Aron Katzman
Jeanne Katzman
Donald P. Gallop
Sue E. Gallop
Judith F. Gall and Ira C. Gall, Trustees U/T/A 6/10/86, Ira C.
Gall, Grantor
Sanford S. Neuman, Trustee U/T/A 5/29/85, Gallop Family Trust
Mitchelle Yanow
Mitchelle Yanow, Personal Representative of the Estate of Elaine
Yanow
Page 10 of 11 Pages<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
CARDINAL HEALTH, INC.
By: /s/ George H. Bennett, Jr.
Name: George H. Bennett, Jr.
Title: Executive Vice President and
General Counsel
Dated: September 5, 1995
Page 11 of 11 Pages<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Description Page No.
2.1 Agreement and Plan of
Merger, dated August 26,
1995, among Cardinal Health, Inc.,
Arch Merger Corp. and Medicine
Shoppe International, Inc.
2.2 Stock Option Agreement, dated
August 26, 1995, between
Cardinal Health, Inc. and Medicine
Shoppe International, Inc.
99.1 Form of Support/Voting Agreement.
AGREEMENT AND PLAN OF MERGER
AMONG
CARDINAL HEALTH, INC.
("CARDINAL"),
ARCH MERGER CORP.
A WHOLLY OWNED DIRECT SUBSIDIARY OF CARDINAL
("SUBCORP"),
AND
MEDICINE SHOPPE INTERNATIONAL, INC.
("MSI")
August 26, 1995<PAGE>
TABLE OF CONTENTS
PAGE
AGREEMENT AND PLAN OF MERGER............................. 1
PRELIMINARY STATEMENTS................................... 1
AGREEMENT................................................ 1
ARTICLE I: THE MERGER................................... 2
1.1 The Merger................................... 2
1.2 Effective Time............................... 2
1.3 Effects of the Merger........................ 2
1.4 Certificate of Incorporation and Bylaws...... 2
1.5 Directors and Officers....................... 3
1.6 Additional Actions........................... 3
ARTICLE II: CONVERSION OF SECURITIES.................... 3
2.1 Conversion of Capital Stock.................. 3
2.2 Exchange of Certificates..................... 5
(a) Exchange Agent.......................... 5
(b) Exchange Procedures..................... 5
(c) Distributions with Respect to
Unexchanged Shares.................... 6
(d) No Further Ownership Rights in
MSI Common Stock...................... 6
(e) Termination of Exchange Fund............ 7
(f) No Liability............................ 7
(g) Investment of Exchange Fund............. 7
2.3 Treatment of Stock Options and
Restricted Stock........................... 8
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF
CARDINAL AND SUBCORP..................... 9
3.1 Organization and Standing.................... 9
3.2 Corporate Power and Authority................ 9
3.3 Capitalization of Cardinal................... 9
3.4 Conflicts, Consents and Approval............. 10
3.5 Brokerage and Finder's Fees.................. 11
3.6 Accounting Matters........................... 11
3.7 Cardinal SEC Documents....................... 11
3.8 Registration Statement....................... 12
3.9 Compliance with Law.......................... 13
3.10 Litigation................................... 13
3.11 State Takeover Laws.......................... 13
3.12 No Material Adverse Change................... 13
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF
MSI....................................... 14
4.1 Organization and Standing.................... 14
4.2 Subsidiaries................................. 14
-i-<PAGE>
PAGE
4.3 Corporate Power and Authority................ 15
4.4 Capitalization of MSI........................ 15
4.5 Conflicts; Consents and Approvals............ 16
4.6 No Material Adverse Change................... 17
4.7 MSI SEC Documents............................ 17
4.8 Taxes........................................ 17
4.9 Compliance with Law.......................... 18
4.10 Proprietary Rights........................... 18
4.11 Title to and Condition of Properties......... 19
4.12 Registration Statement....................... 19
4.13 Litigation................................... 20
4.14 Fees......................................... 20
4.15 Accounting Matters........................... 20
4.16 Employee Benefit Plans....................... 21
4.17 Contracts.................................... 24
4.18 Accounts Receivable and Inventories.......... 25
4.19 Officers and Employees....................... 26
4.20 Labor Relations.............................. 27
4.21 Undisclosed Liabilities...................... 27
4.22 Customer and Supplier Relationships.......... 27
4.23 No Recalls................................... 27
4.24 Operation of MSI's Business.................. 28
4.25 Permits; Compliance.......................... 28
4.26 Product Warranties and Liabilities........... 29
4.27 Environmental Matters........................ 29
4.28 OSHA Matters................................. 30
4.29 Insurance.................................... 30
4.30 Opinion of Financial Advisor................. 31
4.31 Board Recommendation......................... 31
4.32 DGCL Section 203 and Missouri Takeover
Laws....................................... 31
4.33 Franchise Agreements......................... 31
4.34 Employment Agreement......................... 32
4.35 Investment Company........................... 33
ARTICLE V: COVENANTS OF THE PARTIES..................... 33
5.1 Mutual Covenants............................. 33
(a) General................................. 33
(b) HSR Act................................. 33
(c) Other Governmental Matters.............. 33
(d) Pooling-of-Interests and Tax-Free
Treatment............................. 34
(e) Public Announcements.................... 34
(f) Access.................................. 34
5.2 Covenants of Cardinal........................ 34
(a) Preparation of Cardinal Registration
Statement............................. 34
(b) Conduct of Cardinal's Operations........ 35
(c) Directors' and Officers' Insurance...... 35
(d) Indemnification......................... 35
-ii-<PAGE>
PAGE
(e) Employee Benefits....................... 35
(f) Headquarters and Name................... 35
5.3 Covenants of MSI............................. 36
(a) MSI Shareholders Meeting................ 36
(b) Information for the Registration
Statement and Preparation of
MSI Proxy Statement................... 36
(c) Conduct of MSI's Operations............. 36
(d) No Solicitation......................... 39
(e) Affiliates of MSI....................... 41
(f) Notification of Certain Matters......... 41
ARTICLE VI: CONDITIONS.................................. 41
6.1 Mutual Conditions............................ 41
6.2 Conditions to Obligations of MSI............. 42
6.3 Conditions to Obligations of Cardinal and
Subcorp.................................... 43
ARTICLE VII: TERMINATION AND AMENDMENT.................. 44
7.1 Termination.................................. 44
7.2 Effect of Termination........................ 46
7.3 Amendment.................................... 46
7.4 Extension; Waiver............................ 47
ARTICLE VIII: MISCELLANEOUS............................. 47
8.1 Survival of Representations and
Warranties................................. 47
8.2 Notices...................................... 47
8.3 Interpretation............................... 48
8.4 Counterparts................................. 48
8.5 Entire Agreement............................. 49
8.6 Third Party Beneficiaries.................... 49
8.7 Governing Law................................ 49
8.8 Specific Performance......................... 49
8.9 Assignment................................... 49
8.10 Expenses..................................... 49
-iii-<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement")
is made and entered into as of the 26th day of August, 1995, by
and among Cardinal Health, Inc., an Ohio corporation ("Car-
dinal"), Arch Merger Corp., a Delaware corporation and a wholly
owned direct subsidiary of Cardinal ("Subcorp"), and Medicine
Shoppe International, Inc., a Delaware corporation ("MSI").
PRELIMINARY STATEMENTS
A. Cardinal desires to acquire the pharmacy fran-
chise business and other businesses operated by MSI through the
merger (the "Merger") of Subcorp with and into MSI, with MSI as
the surviving corporation, pursuant to which each share of MSI
Common Stock (as defined in Section 4.4) outstanding at the
Effective Time (as defined in Section 1.2) will be converted
into the right to receive Cardinal Common Shares (as defined in
Section 3.3) as more fully provided herein.
B. MSI desires to combine its pharmacy franchise and
other businesses with the wholesale drug distribution and re-
lated businesses operated by Cardinal and for the holders of
shares of MSI Common Stock ("MSI Shareholders") to have a con-
tinuing equity interest in the combined Cardinal/MSI busi-
nesses.
C. The parties intend that the Merger constitute a
tax-free "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), by reason of Section 368(a)(2)(E) thereof.
D. The parties intend that the Merger be accounted
for as a pooling-of-interests for financial reporting purposes.
E. The respective Boards of Directors of Cardinal,
Subcorp and MSI have determined the Merger in the manner con-
templated herein to be desirable and in the best interests of
their respective shareholders and, by resolutions duly adopted,
have approved and adopted this Agreement.
AGREEMENT
Now, therefore, in consideration of these premises
and the mutual and dependent promises hereinafter set forth,
the parties hereto agree as follows:<PAGE>
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the provisions of the
Delaware General Corporation Law (the "DGCL"), Subcorp shall be
merged with and into MSI as soon as practicable following the
satisfaction or waiver of the conditions set forth in Article
VI. Following the Merger, the separate corporate existence of
Subcorp shall cease and MSI shall continue its existence under
the laws of the State of Delaware. MSI, in its capacity as the
corporation surviving the Merger, is hereinafter sometimes re-
ferred to as the "Surviving Corporation."
1.2 Effective Time. The Merger shall be consummated
by filing with the Secretary of State of the State of Delaware
(the "Delaware Secretary of State") a certificate of merger
(the "Certificate of Merger") in such form as is required by
and executed in accordance with Section 251(c) of the DGCL.
The Merger shall become effective (the "Effective Time") when
the Certificate of Merger has been filed with the Delaware Sec-
retary of State or at such later time as shall be specified in
the Certificate of Merger. Prior to the filing referred to in
this Section 1.2, a closing (the "Closing") shall be held at
the offices of Cardinal, 655 Metro Place South, Suite 925, Dub-
lin, Ohio 43017, or such other place as the parties may agree
on the date (the "Closing Date") set by Cardinal, which date
shall be within ten business days following the later of (x)
the date of the meeting of MSI Shareholders at which the vote
to approve the Merger is obtained and (y) the date upon which
all conditions set forth in Article VI hereof have been satis-
fied or waived.
1.3 Effects of the Merger. The Merger shall have
the effects set forth in Section 259 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The
Certificate of Merger shall provide that at the Effective Time
(i) the Certificate of Incorporation of MSI as in effect im-
mediately prior to the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation, amended as of
the Effective Time so as to contain the provisions, and only
the provisions, contained immediately prior thereto in the Cer-
tificate of Incorporation of Subcorp, except for Article I
thereof, which shall continue to read "The name of the corpo-
ration (hereinafter called the `Corporation') is `Medicine
Shoppe International, Inc.'", and (ii) the Bylaws of MSI in
effect immediately prior to the Effective Time shall be the
-2-<PAGE>
Bylaws of the Surviving Corporation, amended as of the Effec-
tive Time so as to contain the provisions, and only the provi-
sions, contained in the Bylaws of Subcorp immediately prior
thereto; in each case until amended in accordance with ap-
plicable law.
1.5 Directors and Officers. From and after the Ef-
fective Time, the officers of MSI shall be the officers of the
Surviving Corporation and the directors of Subcorp shall be the
directors of the Surviving Corporation, in each case until
their respective successors are duly elected and qualified.
1.6 Additional Actions. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be
advised that any further deeds, assignments or assurances in
law or any other acts are necessary or desirable to (a) vest,
perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of
the rights, properties or assets of MSI, or (b) otherwise carry
out the provisions of this Agreement, MSI and its officers and
directors shall be deemed to have granted to the Surviving Cor-
poration an irrevocable power of attorney to execute and de-
liver all such deeds, assignments or assurances in law and to
take all acts necessary, proper or desirable to vest, perfect
or confirm title to and possession of such rights, properties
or assets in the Surviving Corporation and otherwise to carry
out the provisions of this Agreement, and the officers and di-
rectors of the Surviving Corporation are authorized in the name
of MSI or otherwise to take any and all such action.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the
part of Cardinal, Subcorp or MSI:
(a) Each share of common stock, $0.01 par value, of
Subcorp issued and outstanding immediately prior to the
Effective Time shall be converted into one share of common
stock, $0.01 par value, of the Surviving Corporation.
Such newly issued shares shall thereafter constitute all
of the issued and outstanding capital stock of the Surviv-
ing Corporation.
(b) Each share of MSI Common Stock issued and out-
standing immediately prior to the Effective Time shall be
converted into and represent a number of Cardinal Common
-3-<PAGE>
Shares (rounded to the nearest ten-thousandth of a share)
(the "Exchange Ratio") in an amount equal to the quotient
obtained by dividing (x) $45.00 (the "Base Share Price")
by (y) the average of the closing prices of Cardinal Com-
mon Shares as reported on the New York Stock Exchange
("NYSE") Composite Tape ("NYSE Composite Tape") on each of
the last fifteen trading days ending on the second trading
day prior to the Closing Date (the "Average Share Price");
provided, however, that (i) if the Average Share Price is
less than $51.58 and equal to or greater than $49.29, then
the Exchange Ratio shall be equal to 0.8724, (ii) if (x)
the Average Share Price is less than $49.29 and equal to
or greater than $46.27 and (y) Cardinal has made an Ad-
justment Election (as defined in Section 7.1(d)), then the
Base Share Price shall be equal to $43.00, (iii) if (x)
the Average Share Price is less than $49.29 and (y) Cardi-
nal has not made an Adjustment Election, then the Exchange
Ratio shall be equal to 0.8724, (iv) if (x) the Average
Share Price is less than $46.27 and (y) Cardinal has made
an Adjustment Election, then the Exchange Ratio shall be
equal to 0.9293, and (v) if the Average Share Price is
greater than $58.17, then the Exchange Ratio shall be
equal to 0.7736. No certificates for fractional Cardinal
Common Shares shall be issued as a result of the conver-
sion provided for in this Section 2.1(b). To the extent
that an outstanding share of MSI Common Stock would oth-
erwise have become a fractional Cardinal Common Share, the
holder thereof, upon presentation of such fractional in-
terest represented by an appropriate certificate for MSI
Common Stock to the Exchange Agent pursuant to Section
2.2, shall be entitled to receive a cash payment therefor
in an amount equal to the value (determined with reference
to the closing price of Cardinal Common Shares on the NYSE
Composite Tape on the last full trading day immediately
prior to the Effective Time) of such fractional interest.
Such payment with respect to fractional shares is merely
intended to provide a mechanical rounding off of, and is
not a separately bargained for, consideration. If more
than one certificate representing shares of MSI Common
Stock shall be surrendered for the account of the same
holder, the number of Cardinal Common Shares for which
certificates have been surrendered shall be computed on
the basis of the aggregate number of shares represented by
the certificates so surrendered.
(c) Each share of capital stock of MSI held in the
treasury of MSI shall be cancelled and retired and no pay-
ment shall be made in respect thereof.
-4-<PAGE>
(d) In the event that prior to the Effective Time
Cardinal shall declare a stock dividend or other distribu-
tion payable in Cardinal Common Shares or securities con-
vertible into Cardinal Common Shares, or effect a stock
split, reclassification, combination or other change with
respect to Cardinal Common Shares, the Average Share Price
and Exchange Ratio values set forth in clauses (i), (ii),
(iii), (iv) and (v) of Section 2.1(b) shall be adjusted to
reflect such dividend, distribution, stock split, reclas-
sification, combination or other change.
2.2 Exchange of Certificates.
(a) Exchange Agent. Promptly following the Effec-
tive Time, Cardinal shall deposit with Bank One, Indianapolis,
NA or such other exchange agent as may be designated by Cardi-
nal (the "Exchange Agent"), for the benefit of MSI Sharehold-
ers, for exchange in accordance with this Section 2.2, certifi-
cates representing Cardinal Common Shares issuable pursuant to
Section 2.1 in exchange for outstanding shares of MSI Common
Stock and shall from time-to-time deposit cash in an amount
reasonably expected to be paid pursuant to Section 2.1(b) (such
Cardinal Common Shares and cash, together with any dividends or
distributions with respect thereto, being hereinafter referred
to as the "Exchange Fund").
(b) Exchange Procedures. As soon as practicable
after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates (the "Cer-
tificates") which immediately prior to the Effective Time rep-
resented outstanding shares of MSI Common Stock whose shares
were converted into the right to receive Cardinal Common Shares
pursuant to Section 2.1(b) (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Cardinal may reasonably
specify) and (ii) instructions for effecting the surrender of
the Certificates in exchange for certificates representing Car-
dinal Common Shares. Upon surrender of a Certificate for can-
cellation to the Exchange Agent, together with a duly executed
letter of transmittal, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate rep-
resenting that number of Cardinal Common Shares which such
holder has the right to receive pursuant to Section 2.1 and (y)
a check representing the amount of cash in lieu of fractional
shares, if any, and unpaid dividends and distributions, if any,
which such holder has the right to receive pursuant to the pro-
visions of this Article II, after giving effect to any required
withholding tax, and the shares represented by the Certificate
-5-<PAGE>
so surrendered shall forthwith be cancelled. No interest will
be paid or accrued on the cash in lieu of fractional shares and
unpaid dividends and distributions, if any, payable to holders
of shares of MSI Common Stock. In the event of a transfer of
ownership of shares of MSI Common Stock which is not registered
on the transfer records of MSI, a certificate representing the
proper number of Cardinal Common Shares, together with a check
for the cash to be paid in lieu of fractional shares, if any,
and unpaid dividends and distributions, if any, may be issued
to such transferee if the Certificate representing such shares
of MSI Common Stock held by such transferee is presented to the
Exchange Agent, accompanied by all documents required to evi-
dence and effect such transfer and to evidence that any appli-
cable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only
the right to receive upon surrender a certificate representing
Cardinal Common Shares and cash in lieu of fractional shares,
if any, and unpaid dividends and distributions, if any, as pro-
vided in this Article II.
(c) Distributions with Respect to Unexchanged
Shares. Notwithstanding any other provisions of this Agree-
ment, no dividends or other distributions declared or made af-
ter the Effective Time with respect to Cardinal Common Shares
having a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate, and no cash pay-
ment in lieu of fractional shares shall be paid to any such
holder, until the holder shall surrender such Certificate as
provided in this Section 2.2. Subject to the effect of Appli-
cable Laws (as defined in Section 3.9), following surrender of
any such Certificate, there shall be paid to the holder of the
certificates representing whole Cardinal Common Shares issued
in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore payable with
respect to such whole Cardinal Common Shares and not paid, less
the amount of any withholding taxes which may be required
thereon, and (ii) at the appropriate payment date subsequent to
surrender, the amount of dividends or other distributions with
a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect
to such whole Cardinal Common Shares, less the amount of any
withholding taxes which may be required thereon.
(d) No Further Ownership Rights in MSI Common Stock.
All Cardinal Common Shares issued upon surrender of Certifi-
cates in accordance with the terms hereof (including any cash
paid pursuant to this Article II) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such
-6-<PAGE>
shares of MSI Common Stock represented thereby, and there shall
be no further registration of transfers on the stock transfer
books of MSI of shares of MSI Common Stock outstanding immedi-
ately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation
for any reason, they shall be cancelled and exchanged as pro-
vided in this Section 2.2. Certificates surrendered for ex-
change by any person constituting an "affiliate" of MSI for
purposes of Rule 145(c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until
Cardinal has received written undertakings from such person in
the form attached hereto as Exhibit A.
(e) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to MSI Sharehold-
ers for six months after the Effective Time shall be delivered
to Cardinal, upon demand thereby, and holders of shares of MSI
Common Stock who have not theretofore complied with this Sec-
tion 2.2 shall thereafter look only to Cardinal for payment of
any claim to Cardinal Common Shares, cash in lieu of fractional
shares thereof, or dividends or distributions, if any, in re-
spect thereof.
(f) No Liability. None of Cardinal, the Surviving
Corporation or the Exchange Agent shall be liable to any person
in respect of any shares of MSI Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certifi-
cates shall not have been surrendered prior to seven years af-
ter the Effective Time of the Merger (or immediately prior to
such earlier date on which any cash, any cash in lieu of frac-
tional shares or any dividends or distributions with respect to
whole shares of Cardinal Common Shares in respect of such Cer-
tificate would otherwise escheat to or become the property of
any Governmental Authority (as defined in Section 3.4)), any
such cash, dividends or distributions in respect of such Cer-
tificate shall, to the extent permitted by Applicable Law (as
defined in Section 3.9), become the property of Cardinal, free
and clear of all claims or interest of any person previously
entitled thereto.
(g) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as di-
rected by Cardinal, on a daily basis. Any interest and other
income resulting from such investments shall be paid to Cardi-
nal upon termination of the Exchange Fund pursuant to Section
2.2(e).
-7-<PAGE>
2.3 Treatment of Stock Options and Restricted Stock.
(a) Prior to the Effective Time, Cardinal and MSI
shall take all such actions as may be necessary to cause (i)
each unexpired and unexercised option under stock option plans
of MSI in effect on the date hereof which has been granted to
directors or current or former officers or employees of MSI by
MSI (each, an "MSI Option") to be automatically converted at
the Effective Time into an option (a "Cardinal Exchange
Option") to purchase that number of Cardinal Common Shares
equal to the number of shares of MSI Common Stock issuable
immediately prior to the Effective Time upon exercise of the
MSI Option (without regard to actual restrictions on
exercisability) multiplied by the Exchange Ratio, with an
exercise price equal to the exercise price which existed under
the corresponding MSI Option divided by the Exchange Ratio, and
with other terms and conditions, including the grant date for
vesting purposes, that are the same as the terms and conditions
of such MSI Option immediately before the Effective Time,
provided that with respect to any MSI Option that is an
"incentive stock option" within the meaning of the Code, the
foregoing conversion shall be carried out in a manner
satisfying the requirements of Section 424(a) of the Code; and
(ii) each outstanding award of unvested shares of restricted
stock which has been granted to current or former officers or
employees of MSI by MSI (each such share, a share of "MSI
Restricted Stock") to be automatically converted at the
Effective Time into a number of shares of restricted stock of
Cardinal ("Cardinal Exchange Restricted Stock") equal to the
number of such shares of MSI Restricted Stock comprising the
award, multiplied by the Exchange Ratio, with the same terms
and conditions as were applicable to such MSI Restricted Stock
award immediately before the Effective Time. In connection
with the issuance of Cardinal Exchange Options, Cardinal shall
(i) reserve for issuance the number of Cardinal Common Shares
that will become subject to Cardinal Exchange Options pursuant
to this Section 2.3 and (ii) from and after the Effective Time,
upon exercise of Cardinal Exchange Options, make available for
issuance all Cardinal Common Shares covered thereby, subject to
the terms and conditions applicable thereto.
(b) MSI agrees to issue treasury shares of MSI, to
the extent available, upon the exercise of MSI Options prior to
the Effective Time.
(c) Cardinal agrees to file with the Securities and
Exchange Commission (the "Commission") within one month after
the Closing Date a registration statement on Form S-8 or other
appropriate form under the Securities Act to register Cardinal
Common Shares issuable upon exercise of the Cardinal Exchange
-8-<PAGE>
Options and use its reasonable efforts to cause such registra-
tion statement to remain effective until the exercise or expi-
ration of such options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CARDINAL AND SUBCORP
In order to induce MSI to enter into this Agreement,
and in order to induce each of the MSI Shareholders entering
into a Support Agreement (as defined in Section 4.32) to enter
into such Support Agreement, Cardinal and Subcorp hereby repre-
sent and warrant to MSI that the statements contained in this
Article III are true, correct and complete.
3.1 Organization and Standing. Each of Cardinal and
Subcorp is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation
with full power and authority (corporate and other) to own,
lease, use and operate its properties and to conduct its busi-
ness as and where now owned, leased, used, operated and con-
ducted. Each of Cardinal and Subcorp is duly qualified to do
business and in good standing in each jurisdiction in which the
nature of the business conducted by it or the property it owns,
leases or operates, makes such qualification necessary, except
where the failure to be so qualified or in good standing in
such jurisdiction would not have a material adverse effect on
Cardinal. Neither Cardinal nor Subcorp is in default in the
performance, observance or fulfillment of any provision of its
Articles of Incorporation, as amended and restated (the "Cardi-
nal Articles"), or Code of Regulations or Certificate of Incor-
poration or Bylaws, respectively.
3.2 Corporate Power and Authority. Each of Cardinal
and Subcorp has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contem-
plated hereby have been duly authorized by all necessary corpo-
rate action on the part of each of Cardinal and Subcorp. This
Agreement has been duly executed and delivered by each of Car-
dinal and Subcorp, and constitutes the legal, valid and binding
obligation of each of Subcorp and Cardinal enforceable against
each of them in accordance with its terms.
3.3 Capitalization of Cardinal. As of July 31,
1995, Cardinal's authorized capital stock consisted solely of
(a) 60,000,000 common shares, without par value ("Cardinal Com-
mon Shares"), of which (i) 41,962,973 shares were issued and
-9-<PAGE>
outstanding, (ii) 193,292 shares were issued and held in trea-
sury (which does not include the shares reserved for issuance
as set forth in clause (a)(iii) below), and (iii) 1,930,979.38
shares were reserved for issuance upon the exercise or conver-
sion of options, warrants or convertible securities granted or
issuable by Cardinal, (b) 5,000,000 Class B common shares,
without par value ("Cardinal Class B Common Shares"), of which
(i) none was issued and outstanding, (ii) none were issued and
held in treasury (which does not include the shares reserved
for issuance set forth in clause (b)(iii) below) and (iii) none
was reserved for issuance upon exercise or conversion of op-
tions, warrants or convertible securities granted or issuable
by Cardinal, and (c) 500,000 Non-Voting Preferred Shares, with-
out par value, none of which was issued and outstanding or re-
served for issuance. Each outstanding share of Cardinal capi-
tal stock is, and all Cardinal Common Shares to be issued in
connection with the Merger will be, duly authorized and validly
issued, fully paid and nonassessable, and each outstanding
share of Cardinal capital stock has not been, and all Cardinal
Common Shares to be issued in connection with the Merger will
not be, issued in violation of any preemptive or similar
rights. Other than as set forth in the first sentence hereof
or in Section 3.3 to the disclosure schedule (the "Cardinal
Disclosure Schedule") delivered by Cardinal to MSI and dated
the date hereof, there are no outstanding subscriptions, op-
tions, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type relating to
the issuance, sale or transfer by Cardinal of any securities of
Cardinal, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital
stock of Cardinal.
3.4 Conflicts, Consents and Approval. Neither the
execution and delivery of this Agreement by Cardinal or Subcorp
nor the consummation of the transactions contemplated hereby
will:
(a) conflict with, or result in a breach of any pro-
vision of the Cardinal Articles or Code of Regulations of
Cardinal or the Certificate of Incorporation or Bylaws of
Subcorp;
(b) violate, or conflict with, or result in a breach
of any provision of, or constitute a default (or an event
which, with the giving of notice, the passage of time or
otherwise, would constitute a default) under, or entitle
any party (with the giving of notice, the passage of time
or otherwise) to terminate, accelerate or call a default
under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties
-10-<PAGE>
or assets of Cardinal or any of its subsidiaries under,
any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, con-
tract, undertaking, agreement, lease or other instrument
or obligation to which Cardinal or any of its subsidiaries
is a party;
(c) violate any order, writ, injunction, decree,
statute, rule or regulation, applicable to Cardinal or any
of its subsidiaries or their respective properties or as-
sets; or
(d) require any action or consent or approval of, or
review by, or registration or filing by Cardinal or any of
its affiliates with any third party or any court, arbitral
tribunal, administrative agency or commission or other
governmental or regulatory body, agency, instrumentality
or authority (a "Governmental Authority"), other than (i)
actions required by the Hart-Scott-Rodino Antitrust Im-
provements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"), and
(ii) registrations or other actions required under federal
and state securities laws as are contemplated by this
Agreement;
except in the case of (b), (c) and (d) for any of the foregoing
that would not have a material adverse effect on Cardinal.
3.5 Brokerage and Finder's Fees. Except for
Cardinal's obligation to Smith Barney Inc. ("Smith Barney"),
neither Cardinal nor any shareholder, director, officer or em-
ployee thereof, has incurred or will incur on behalf of Cardi-
nal, any brokerage, finder's or similar fee in connection with
the transactions contemplated by this Agreement.
3.6 Accounting Matters. To the best knowledge of
Cardinal, neither Cardinal nor any of its affiliates has taken
or agreed to take any action that (without giving effect to any
actions taken or agreed to be taken by MSI or any of its af-
filiates) would prevent Cardinal from accounting for the busi-
ness combination to be effected by the Merger as a pooling-of-
interests for financial reporting purposes.
3.7 Cardinal SEC Documents. Cardinal has timely
filed with the Commission and has heretofore made available to
MSI true, correct and complete copies of all forms, reports,
schedules, statements and other documents required to be filed
by it since June 30, 1992 under the Securities Exchange Act of
1934, as amended (together with the rules and regulations
thereunder, the "Exchange Act") or the Securities Act (such
-11-<PAGE>
documents, as amended since the time of filing, collectively,
the "Cardinal SEC Documents"). The Cardinal SEC Documents,
including, without limitation, any financial statements or
schedules included therein, at the time filed (and, in the case
of registration statements and proxy statements, on the dates
of effectiveness and the dates of mailing, respectively) (a)
did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or nec-
essary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
(b) complied in all material respects with the applicable re-
quirements of the Exchange Act and the Securities Act, as the
case may be. The financial statements of Cardinal included in
the Cardinal SEC Documents at the time filed (and, in the case
of registration statements and proxy statements, on the date of
effectiveness and the date of mailing, respectively) complied
as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of
the Commission with respect thereto, were prepared in ac-
cordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unau-
dited statements, as permitted by Form 10-Q of the Commission),
and fairly present (subject in the case of unaudited statements
to normal, recurring audit adjustments) the consolidated finan-
cial position of Cardinal and its consolidated subsidiaries as
at the dates thereof and the consolidated results of their op-
erations and cash flows for the periods then ended.
3.8 Registration Statement. None of the information
relating to Cardinal to be included in the registration state-
ment on Form S-4 to be filed with the Commission by Cardinal
under the Securities Act, including the prospectus (as amended,
supplemented or modified, the "Prospectus") relating to Cardi-
nal Common Shares to be issued in the Merger and the proxy
statement and form of proxy relating to the vote of MSI Share-
holders with respect to the Merger (collectively and as
amended, supplemented or modified, the "Proxy Statement") con-
tained therein (such registration statement as amended, supple-
mented or modified, the "Registration Statement"), at the time
the Registration Statement becomes effective or, in the case of
the Proxy Statement, at the date of mailing, will contain any
untrue statement of a material fact or omit to state any mate-
rial 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. The Registration
Statement, except for such portions thereof that relate only to
MSI, will comply in all material respects with the provisions
of the Securities Act.
-12-<PAGE>
3.9 Compliance with Law. Cardinal is in compliance
with all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or
orders entered by any Governmental Authority (collectively,
"Applicable Laws") relating to Cardinal or its business or
properties, except where the failure to be in compliance there-
with could not reasonably be expected to have a material ad-
verse effect on Cardinal.
3.10 Litigation. Except as set forth in Section
3.10 to the Cardinal Disclosure Schedule or as disclosed in the
Cardinal SEC Documents, there is no suit, claim, action, pro-
ceeding or investigation (an "Action") pending or, to the
knowledge of Cardinal, threatened against Cardinal which, indi-
vidually or in the aggregate, in so far as could be reasonably
foreseen, could reasonably be expected to have a material ad-
verse effect on Cardinal or a material adverse effect on the
ability of Cardinal to consummate the transactions contemplated
hereby. Cardinal is not subject to any outstanding order,
writ, injunction or decree which, individually or in the ag-
gregate insofar as can be reasonably foreseen, could have a
material adverse effect on Cardinal or a material adverse ef-
fect on the ability of Cardinal to consummate the transactions
contemplated hereby.
3.11 State Takeover Laws. Without regard to this
Agreement or to the Stock Option Agreement (as defined in Sec-
tion 4.32) or the Support Agreements (as defined in Section
4.32) or any other written agreement or understanding between
Cardinal (or a subsidiary of Cardinal) and MSI, Cardinal was
not at any time during the three years preceding the date of
this Agreement an "interested stockholder" (as such term is
defined in Section 203(c) of the DGCL) of MSI.
3.12 No Material Adverse Change. From March 31,
1995 through the date of this Agreement, there has been no ma-
terial adverse change in the assets, liabilities, results of
operations, prospects, business or financial condition of Car-
dinal and its subsidiaries, taken as a whole, or any event,
occurrence or development which may reasonably be expected to
result in such a change or to have a material adverse effect on
the ability of Cardinal or Subcorp to consummate the transac-
tions contemplated hereby.
-13-<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MSI
In order to induce Subcorp and Cardinal to enter into
this Agreement, MSI hereby represents and warrants to Cardinal
and Subcorp that the statements contained in this Article IV
are true, correct and complete.
4.1 Organization and Standing. MSI is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware with full power and authority
(corporate and other) to own, lease, use and operate its prop-
erties and to conduct its business as and where now owned,
leased, used, operated and conducted. MSI is duly qualified to
do business and in good standing in each jurisdiction listed in
Section 4.1 to the disclosure schedule (the "MSI Disclosure
Schedule") delivered by MSI to Cardinal and dated the date
hereof, is not qualified to do business in any other jurisdic-
tion and neither the nature of the business conducted by it nor
the property it owns, leases or operates requires it to qualify
to do business as a foreign corporation in any other jurisdic-
tion, except where the failure to be so qualified or in good
standing in such jurisdiction would not have a material adverse
effect on MSI. MSI is not in default in the performance, ob-
servance or fulfillment of any provision of its Certificate of
Incorporation, as amended, or Bylaws.
4.2 Subsidiaries. MSI does not own, directly or
indirectly, any equity or other ownership interest in any cor-
poration, partnership, joint venture or other entity or en-
terprise, except for the subsidiaries set forth in Section 4.2
to the MSI Disclosure Schedule. Except as set forth in Section
4.2 to the MSI Disclosure Schedule, MSI is not subject to any
obligation or requirement to provide funds to or make any in-
vestment (in the form of a loan, capital contribution or other-
wise) in any such entity. MSI owns directly or indirectly each
of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect
a majority of directors or others performing similar functions
with respect to such subsidiary) of each of MSI's subsidiaries.
Each of the outstanding shares of capital stock of each of
MSI's subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and is owned, directly or indirectly,
by MSI free and clear of all liens, pledges, security inter-
ests, claims or other encumbrances. The following information
for each subsidiary of MSI is set forth in Section 4.2 to the
MSI Disclosure Schedule, as applicable: (i) its name and ju-
risdiction of incorporation or organization; (ii) its autho-
rized capital stock or share capital; and (iii) the number of
-14-<PAGE>
issued and outstanding shares of capital stock or share capital
and the record owner(s) thereof. Other than as set forth in
Section 4.2 to the MSI Disclosure Schedule, there are no out-
standing subscriptions, options, warrants, puts, calls, agree-
ments, understandings, claims or other commitments or rights of
any type relating to the issuance, sale or transfer of any se-
curities of any subsidiary of MSI, nor are there outstanding
any securities which are convertible into or exchangeable for
any shares of capital stock of any subsidiary of MSI; and no
subsidiary of MSI has any obligation of any kind to issue any
additional securities or to pay for securities of any subsid-
iary of MSI or any predecessor thereof.
4.3 Corporate Power and Authority. MSI has all req-
uisite corporate power and authority to enter into this Agree-
ment and, subject to authorization of the Merger and the trans-
actions contemplated hereby by MSI Shareholders, to consummate
the transactions contemplated by this Agreement. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of MSI, subject to
authorization of the Merger and the transactions contemplated
hereby by MSI Shareholders. This Agreement has been duly ex-
ecuted and delivered by MSI and constitutes the legal, valid
and binding obligation of MSI enforceable against it in ac-
cordance with its terms.
4.4 Capitalization of MSI. As of the close of busi-
ness on August 24, 1995, MSI's authorized capital stock con-
sisted solely of 10,000,000 shares of common stock, $0.01 par
value per share ("MSI Common Stock"), of which (i) 7,721,737
shares were issued and outstanding, (ii) none were issued and
held in treasury (which does not include the shares reserved
for issuance set forth in clause (iii) below) and (iii) 315,995
shares were reserved for issuance upon the exercise or
conversion of options, warrants or convertible securities
granted or issued by MSI. Each outstanding share of MSI capi-
tal stock is duly authorized and validly issued, fully paid and
nonassessable, and has not been issued in violation of any pre-
emptive or similar rights. Other than as set forth in the
first sentence hereof or in Section 4.4 to the MSI Disclosure
Schedule, there are no outstanding subscriptions, options, war-
rants, puts, calls, agreements, understandings, claims or other
commitments or rights of any type relating to the issuance,
sale or transfer of any securities of MSI, nor are there out-
standing any securities which are convertible into or exchange-
able for any shares of capital stock of MSI; and MSI has no
obligation of any kind to issue any additional securities or to
pay for securities of MSI or any predecessor. The issuance and
sale by MSI of all of the shares of capital stock described in
-15-<PAGE>
this Section 4.4 have been in compliance with federal and state
securities laws. The MSI Disclosure Schedule accurately sets
forth the name of each holder of options or warrants to pur-
chase MSI capital stock and the number of shares of MSI's capi-
tal stock subject to such options or warrants held by each.
Except as set forth in Section 4.4 to the MSI Disclosure Sched-
ule, MSI has not agreed to register any securities under the
Securities Act or under any state securities law or granted
registration rights to any person or entity.
4.5 Conflicts; Consents and Approvals. Neither the
execution and delivery of this Agreement by MSI, nor the con-
summation of the transactions contemplated hereby will:
(a) conflict with, or result in a breach of any pro-
vision of the Certificate of Incorporation, as amended, or
Bylaws of MSI;
(b) violate, or conflict with, or result in a breach
of any provision of, or constitute a default (or an event
which, with the giving of notice, the passage of time or
otherwise, would constitute a default) under, or entitle
any party (with the giving of notice, the passage of time
or otherwise) to terminate, accelerate or call a default
under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties
or assets of MSI or any of its subsidiaries under, any of
the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, contract,
undertaking, agreement, lease or other instrument or obli-
gation to which MSI or any of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to MSI or any of
its subsidiaries or any of their respective properties or
assets; or
(d) require any action or consent or approval of, or
review by, or registration or filing by MSI or any of its
affiliates with any third party or any Governmental Au-
thority, other than (i) authorization of the Merger and
the transactions contemplated hereby by MSI Shareholders,
(ii) actions required by the HSR Act, (iii) registrations
or other actions required under federal and state securi-
ties laws as are contemplated by this Agreement, (iv) con-
sents or approvals of any Governmental Authority set forth
in Section 4.5 to the MSI Disclosure Schedule and (v)
modifications of franchise offering materials as set forth
in Section 4.5 to the MSI Disclosure Schedule;
-16-<PAGE>
except in the case of (b), (c) and (d) for any of the foregoing
that would not have a material adverse effect on MSI.
4.6 No Material Adverse Change. Since June 30,
1995, MSI has conducted its business in the ordinary course,
consistent with past practice, and there has been no material
adverse change in the assets, liabilities, results of opera-
tions, prospects, business or financial condition of MSI or any
event, occurrence or development which may reasonably be ex-
pected to result in such a change or to have a material adverse
effect on the ability of MSI to consummate the transactions
contemplated hereby.
4.7 MSI SEC Documents. MSI has timely filed with
the Commission and has heretofore made available to Cardinal
true, correct and complete copies of all forms, reports, sched-
ules, statements and other documents required to be filed by it
since June 30, 1992 under the Exchange Act or the Securities
Act (such documents, as amended since the time of filing, col-
lectively, the "MSI SEC Documents"). The MSI SEC Documents,
including, without limitation, any financial statements or
schedules included therein, at the time filed (and, in the case
of registration statements and proxy statements, on the dates
of effectiveness and the dates of mailing, respectively) (a)
did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or nec-
essary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
(b) complied in all material respects with the applicable re-
quirements of the Exchange Act and the Securities Act, as the
case may be. The financial statements of MSI included in the
MSI SEC Documents at the time filed (and, in the case of regis-
tration statements and proxy statements, on the date of ef-
fectiveness and the date of mailing, respectively) complied as
to form in all material respects with applicable accounting
requirements and with the published rules and regulations of
the Commission with respect thereto, were prepared in accor-
dance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may
be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission), and
fairly present (subject in the case of unaudited statements to
normal, recurring audit adjustments) the financial position of
MSI as at the dates thereof and the results of its operations
and cash flows for the periods then ended.
4.8 Taxes. MSI has duly filed all federal, and ma-
terial state, local and foreign income, franchise, excise, real
and personal property and other tax returns and reports (in-
cluding, but not limited to, those filed on a consolidated,
-17-<PAGE>
combined or unitary basis) required to have been filed by MSI
prior to the date hereof. All of the foregoing returns and
reports are true and correct in all material respects, and MSI
has paid or, prior to the Effective Time, will pay all taxes,
interest and penalties required to be paid in respect of the
periods covered by such returns or reports to any federal,
state, foreign, local or other taxing authority. MSI has paid
or made adequate provision in the financial statements of MSI
included in the MSI SEC Documents for all taxes payable in re-
spect of all periods ending on or prior to June 30, 1995. Nei-
ther MSI nor any of its subsidiaries will have any material
liability for any taxes in excess of the amounts so paid or
reserves so established and neither MSI nor any of its subsid-
iaries is delinquent in the payment of any material tax, as-
sessment or governmental charge and, except as set forth in
Section 4.8 to the MSI Disclosure Schedule, none of them has
requested any extension of time within which to file any re-
turns in respect of any fiscal year which have not since been
filed. No deficiencies for any tax, assessment or governmental
charge have been proposed in writing, asserted or assessed
(tentatively or definitely), in each case, by taxing authority,
against MSI or any of its subsidiaries for which there are not
adequate reserves. As of the date of this Agreement, there are
no pending requests for waivers of the time to assess any such
tax, other than those made in the ordinary course and for which
payment has been made or there are adequate reserves. The fed-
eral income tax returns of MSI and its subsidiaries have been
audited by the Internal Revenue Service through the fiscal year
ending September 30, 1991. For the purposes of this Agreement,
the term "tax" shall include all federal, state, local and for-
eign taxes including interest and penalties thereon. MSI has
not filed an election under Section 341(f) of the Code to be
treated as a consenting corporation.
4.9 Compliance with Law. MSI is in compliance with,
and at all times since June 30, 1992 has been in compliance
with, all Applicable Laws relating to MSI or its business or
properties, including, without limitation, laws regarding the
provision of insurance, third party administration and primary
health care services, the Prescription Drug Marketing Act, the
Federal Controlled Substances Act of 1970, the Food, Drug and
Cosmetic Act, any state Pharmacy Practice Acts, Controlled Sub-
stance Acts, Dangerous Drugs Acts and Food, Drug and Cosmetic
Acts and any federal, state or foreign franchise disclosure and
relationship laws, except for any such noncompliances which,
individually or in the aggregate, could not reasonably be ex-
pected to have a material adverse effect on MSI.
4.10 Proprietary Rights. None of the Proprietary
Rights (as defined below) of MSI infringe upon or violate the
-18-<PAGE>
rights of any person, firm, corporation, or other legal entity,
except for any such immaterial infringement or violation. For
purposes of this Agreement, the term "Proprietary Rights" shall
mean with respect to any person or entity: (a) all material
names, patents, inventions, trade secrets, proprietary rights,
computer software, trademarks, trade names, service marks,
logos, copyrights and franchises and all applications therefor,
registrations thereof and licenses, sublicenses or agreements
in respect thereof which such person or entity owns or has the
right to use or to which such person or entity is a party; and
(b) all filings, registrations or issuances of any of the fore-
going with or by any Governmental Authority. Other than the
Proprietary Rights set forth in Section 4.10 to the MSI Disclo-
sure Schedule, no material name, patent, invention, trade se-
cret, proprietary right, computer software, trademark, trade
name, service mark, logo, copyright, franchise, license, subli-
cense, or other such right is necessary for the operation of
the business of MSI in substantially the same manner as such
business is presently conducted. MSI owns all Proprietary
Rights necessary for the operation of the business of MSI as
currently conducted. The business of MSI has not been and is
not conducted in contravention of any Proprietary Right of any
third party except such contravention which could not reason-
ably be expected to have a material adverse effect on MSI. Ex-
cept as set forth in Section 4.10 to the MSI Disclosure Sched-
ule, (i) no person or entity has a right to receive from MSI a
royalty or similar payment in respect of any Proprietary Right,
whether or not pursuant to any contractual arrangement entered
into by MSI and (ii) MSI has not licensed any of its Propri-
etary Rights other than licenses of Proprietary Rights to fran-
chisees of MSI (or Master Franchisees) or designated vendors of
MSI listed in Section 4.17 to the MSI Disclosure Schedule,
which Proprietary Rights are in each case reasonably necessary
for the franchisees to operate in the ordinary course of busi-
ness, consistent with past practice.
4.11 Title to and Condition of Properties. MSI owns
or holds under valid leases all real property, plants, machin-
ery and equipment necessary for the conduct of the business of
MSI as presently conducted, except where the failure to own or
hold such property, plants, machinery and equipment would not
have a material adverse effect on MSI. Section 4.11 to the MSI
Disclosure Schedule lists, and MSI has furnished or made avail-
able to Cardinal, copies of all third party environmental or
other reports prepared by or for MSI with respect to the real
property owned, leased or used by MSI.
4.12 Registration Statement. None of the informa-
tion relating to MSI to be included in the Registration State-
ment at the time it becomes effective or, in the case of the
-19-<PAGE>
Proxy Statement, at the date of mailing, will contain any un-
true statement of a material fact or 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 un-
der which they were made, not misleading. The Proxy Statement,
except for such portions thereof that relate only to Cardinal
and its subsidiaries, will comply in all material respects with
the provisions of the Securities Act and the Exchange Act.
4.13 Litigation. There is no Action pending or, to
the knowledge of MSI, threatened against MSI which, individu-
ally or in the aggregate, in so far as could be reasonably
foreseen, could reasonably be expected to have a material ad-
verse effect on MSI or a material adverse effect on the ability
of MSI to consummate the transactions contemplated hereby. MSI
is not subject to any outstanding order, writ, injunction or
decree which, individually or in the aggregate, insofar as can
be reasonably foreseen, could have a material adverse effect on
MSI or a material adverse effect on the ability of MSI to con-
summate the transactions contemplated hereby. Except as set
forth in Section 4.13 to the MSI Disclosure Schedule, (i) no
Action is currently pending, nor to the knowledge of MSI, is
any material Action threatened, and since September 30, 1992,
no other material Action has been asserted, against MSI relat-
ing to MSI's method of doing business or its relationship with
past, existing or future franchisees, users, purchasers or lic-
ensees of any Proprietary Rights, goods or services of MSI, and
(ii) since September 30, 1992, MSI has not been subject to any
outstanding order, writ, injunction or decree relating to MSI's
method of doing business or its relationship with past,
existing or future franchisees, users, purchasers or licensees
of any Proprietary Rights, goods or services of MSI.
4.14 Fees. Except for MSI's obligations to Kemper
Securities Incorporated (a copy of the written agreement relat-
ing to such obligations having previously been provided to Car-
dinal), neither MSI nor any shareholder, director, officer or
employee thereof, has incurred or will incur on behalf of MSI,
any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement. Section 4.14 to
the MSI Disclosure Statement discloses a bona fide estimate as
of the date of this Agreement of the aggregate amount of all
fees and expenses expected to be paid by MSI to all attorneys,
accountants and investment bankers in connection with the
Merger ("Merger Fees").
4.15 Accounting Matters. To the best knowledge of
MSI, neither MSI nor any of its affiliates has taken or agreed
to take any action that (without giving effect to any actions
-20-<PAGE>
taken or agreed to be taken by Cardinal or any of its affili-
ates) would prevent Cardinal from accounting for the business
combination to be effected by the Merger as a pooling-of-inter-
ests for financial reporting purposes.
4.16 Employee Benefit Plans.
(a) For purposes of this Section 4.16, the following
terms have the definitions given below:
"Controlled Group Liability" means any and all
liabilities under (i) Title IV of ERISA, (ii) section
302 of ERISA, (iii) sections 412 and 4971 of the
Code, (iv) the continuation coverage requirements of
section 601 et seq. of ERISA and section 4980B of the
Code, and (v) corresponding or similar provisions of
foreign laws or regulations.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the regulations
thereunder.
"ERISA Affiliate" means, with respect to any
entity, trade or business, any other entity, trade or
business that is a member of a group described in
Section 414(b), (c), (m) or (o) of the Code or Sec-
tion 4001(b)(1) of ERISA that includes the first en-
tity, trade or business, or that is a member of the
same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.
"Plans" means all employee benefit plans, pro-
grams, policies, practices, and other arrangements
providing benefits to any employee or former employee
or beneficiary or dependent thereof, whether or not
written, and whether covering one person or more than
one person, sponsored or maintained by MSI or any of
its subsidiaries or to which MSI or any of its sub-
sidiaries contributes or is obligated to contribute.
Without limiting the generality of the foregoing, the
term "Plans" includes all employee welfare benefit
plans within the meaning of Section 3(1) of ERISA and
all employee pension benefit plans within the meaning
of Section 3(2) of ERISA.
(b) Section 4.16 to the MSI Disclosure Schedule
lists all Plans. With respect to each Plan, MSI has made
available to Cardinal a true, correct and complete copy of:
(i) each writing constituting a part of such Plan, including
without limitation all plan documents, benefit schedules, trust
-21-<PAGE>
agreements, and insurance contracts and other funding vehicles;
(ii) the most recent Annual Report (Form 5500 Series) and ac-
companying schedule, if any; (iii) the current summary plan
description, if any; (iv) the most recent annual financial re-
port, if any; and (v) the most recent determination letter from
the IRS, if any.
(c) The Internal Revenue Service has issued a favor-
able determination letter with respect to each Plan that is
intended to be a "qualified plan" within the meaning of Section
401(a) of the Code (a "Qualified Plan") and MSI has no knowl-
edge of any existing circumstances or any events that have oc-
curred that could adversely affect the qualified status of any
Qualified Plan or the related trust.
(d) All contributions required to be made to any
Plan by Applicable Laws or by any plan document or other con-
tractual undertaking, and all premiums due or payable with re-
spect to insurance policies funding any Plan, for any period
through the date hereof have been timely made or paid in full
and through the Closing Date will be timely made or paid in
full or, to the extent not required to be made or paid on or
before the date hereof or the Closing Date, as applicable, have
been or will be fully reflected if and as required in the fi-
nancial statements and notes thereto included in the MSI SEC
Documents filed or to be filed with the Commission.
(e) MSI and its subsidiaries have complied, and are
now in compliance, in all material respects, with all provi-
sions of ERISA, the Code and all laws and regulations ap-
plicable to the Plans. To the knowledge of MSI, there is not
now, and there are no existing circumstances that could give
rise to, any requirement for the posting of security with re-
spect to a Plan or the imposition of any lien on the assets of
MSI or any of its subsidiaries under ERISA or the Code.
(f) No Plan is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code. No Plan is a "multi-
employer plan" within the meaning of Section 4001(a)(3) of
ERISA (a "Multiemployer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under common
control, within the meaning of Section 4063 of ERISA (a "Mul-
tiple Employer Plan"), nor has MSI or any of its subsidiaries
or any of their respective ERISA Affiliates, at any time within
five years before the date hereof, contributed to or been obli-
gated to contribute to any Multiemployer Plan or Multiple Em-
ployer Plan.
(g) There does not now exist, and there are no ex-
isting circumstances that could result in, any Controlled Group
-22-<PAGE>
Liability that would be a liability of MSI or any of its sub-
sidiaries following the Closing. Without limiting the general-
ity of the foregoing, neither MSI nor any of its subsidiaries
nor any of their respective ERISA Affiliates has engaged in any
transaction described in Section 4069 or Section 4204 of ERISA.
(h) Except for health continuation coverage as re-
quired by Section 4980B of the Code or Part 6 of Title I of
ERISA, neither MSI nor any of its subsidiaries has any liabil-
ity for life, health, medical or other welfare benefits to
former employees or beneficiaries or dependents thereof.
(i) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will constitute a "Change in Control" for purposes of
the Company's Executive Choice Plan, 1990 Stock Option Plan,
Employee Stock Option Plan, or any other Plan, or otherwise
result in, cause the accelerated vesting or delivery of, or
increase the amount or value of, any payment or benefit to any
employee of MSI or any of its subsidiaries. Without limiting
the generality of the foregoing, no amount paid or payable by
MSI or any of its subsidiaries in connection with the transac-
tions contemplated hereby (either solely as a result thereof or
as a result of such transactions in conjunction with any other
events) will be an "excess parachute payment" within the mean-
ing of Section 280G of the Code.
(j) There are no pending or threatened claims (other
than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the
Employee Plans, any fiduciaries thereof with respect to their
duties to the Employee Plans or the assets of any of the trusts
under any of the Employee Plans which could reasonably be ex-
pected to result in any material liability of MSI or any of its
subsidiaries to the Pension Benefit Guaranty Corporation, the
Department of Treasury, the Department of Labor or any multiem-
ployer plan.
(k) The terms and conditions of all awards made to
date under the Company's Executive Choice Plan ("Awards") are
completely and accurately described in the prospectus filed
with the SEC in connection with that plan dated June 1, 1994,
and such terms include the following: restricted stock Awards
and deferred income benefit Awards vest at the rate of 20 per-
cent per year, beginning on June 1, 1995; stock option Awards
become exercisable at the rate of 20 percent per year, begin-
ning on June 1, 1995; and there are no performance goals as-
sociated with any Awards. Except as set forth in Section 4.16
to the MSI Disclosure Schedule, no Awards have been made since
the initial Awards (the "Initial Awards") were granted on June
-23-<PAGE>
1, 1994 (subject to shareholder approval), and it was MSI's
intention at the time the Executive Choice Plan was adopted and
the Initial Awards granted, and has remained MSI's intention at
all times since then, that no further Awards would be granted
to the grantees before June 1, 1999, and MSI has taken no ac-
tion and made no communication to any employee inconsistent
with such intention.
4.17 Contracts. Section 4.17 to the MSI Disclosure
Schedule lists all contracts, agreements, guarantees, leases
and executory commitments (each a "Contract") to which MSI is a
party and which fall within any of the following categories:
(a) material Contracts with suppliers of goods and services
which goods and services are provided by or on behalf of MSI to
franchisees and customers of MSI (including, without limita-
tion, any group purchasing agreements), (b) Contracts not en-
tered into in the ordinary course of MSI's business, (c) joint
venture, partnership and like agreements, (d) Contracts which
are service contracts (excluding contracts for delivery ser-
vices entered into in the ordinary course of business) or
equipment leases involving payments by MSI of more than
$200,000 per year, (e) Contracts containing covenants purport-
ing to limit the freedom of MSI to compete in any line of busi-
ness in any geographic area or to hire any individual or group
of individuals, (f) Contracts which after the Effective Time
would have the effect of limiting the freedom of Cardinal or
its subsidiaries (other than MSI and its subsidiaries) to com-
pete in Cardinal's wholesale pharmaceutical distribution busi-
ness (including Cardinal's PRxN program, the specialty distri-
bution of therapeutic plasma and oncology products, its market-
ing of pharmacy computer systems and repackaging of pharmaceu-
tical products) in any geographic area or to hire any indi-
vidual or group of individuals, (g) Contracts which contain
minimum purchase conditions or requirements or other terms that
restrict or limit the purchasing relationships of MSI or any
franchisee thereof, (h) Contracts relating to any outstanding
commitment for capital expenditures in excess of $200,000, (i)
Contracts relating to the lease or sublease of or sale or pur-
chase of real or personal property involving any annual expense
or price in excess of $200,000 and not cancellable by MSI
(without premium or penalty) within one month, (j) Contracts
with any labor organization, (k) indentures, mortgages, promis-
sory notes, loan agreements, guarantees, letters of credit or
other agreements or instruments of MSI or commitments for bor-
rowing, lending or guaranteeing by MSI from or to any franchi-
see, Master Franchisee, person or entity, amounts in excess of
$200,000 in the aggregate (and, in the case of a supplement to
Section 4.17(k) to the MSI Disclosure Schedule to be delivered
by MSI to Cardinal within 21 days after the date hereof, in
excess of $150,000) or providing for the creation of any
-24-<PAGE>
charge, security interest, encumbrance or lien upon any of the
assets of MSI, (l) Contracts involving annual revenues or ex-
penditures to the business of MSI in excess of .75% of MSI's
annual revenues (other than franchise agreements), and (m) Con-
tracts with or for the benefit of any affiliate of MSI (other
than subsidiaries of MSI) which, when aggregated with all other
Contracts (exclusive of normal fees paid to members of the MSI
Board of Directors for their duties as directors) with such
affiliate involve amounts in excess of $25,000. All such Con-
tracts are valid and binding obligations of MSI and, to the
knowledge of MSI, the valid and binding obligation of each
other party thereto except such Contracts which if not so valid
and binding would not, individually or in the aggregate, have a
material adverse effect on MSI. Neither MSI nor, to the knowl-
edge of MSI, any other party thereto is in violation of or in
default in respect of, nor has there occurred an event or con-
dition which with the passage of time or giving of notice (or
both) would constitute a default under, any such Contract ex-
cept such violations or defaults under such Contracts which,
individually or in the aggregate, would not have a material
adverse effect on MSI. Within 21 days after the date of this
Agreement, MSI may supplement or amend Sections 4.17(e),
4.17(f) and/or 4.17(g) to the MSI Disclosure Schedule. Cardi-
nal shall, within five business days after the date it receives
any such supplement or amendment, notify MSI if Cardinal has
reasonably concluded that the inclusion in such supplement or
amendment of any additional Contracts could reasonably be
deemed to adversely impact in any material respect the benefits
to be realized by Cardinal after consummation of the Merger.
MSI may at its option (subject to Section 5.1(a)) terminate or
amend, or take such other action with respect to, the objec-
tionable Contracts in such supplement to the extent reasonably
requested by Cardinal. To the extent such objectionable
Contracts have not been terminated, amended or otherwise dealt
with to Cardinal's reasonable satisfaction, the representation
in this Section 4.17 shall be deemed to be not true and correct
in all material respects.
4.18 Accounts Receivable and Inventories.
(a) All accounts and notes receivable (including
finance notes receivable) and accrued interest receivable of
MSI have arisen in the ordinary course of business and the ac-
counts receivable reserves reflected on the balance sheet as of
June 30, 1995 included in the MSI SEC Documents are as of such
date established in accordance with generally accepted account-
ing principles consistently applied and will be collectible in
an amount, in the aggregate, not materially less than the
amounts thereof carried on the balance sheet as of such date
-25-<PAGE>
included in the MSI SEC Documents, net of any reserves included
thereon, as applicable.
(b) The MSI assets which are inventories have a net
realizable value on June 30, 1995 that is, if not equal to or
greater than, then in all events not materially less than the
FIFO values at which such inventories are carried on the bal-
ance sheet of MSI as of June 30, 1995 included in the MSI SEC
Documents. The reserves for damaged or obsolete inventory re-
flected on the balance sheet of MSI as of June 30, 1995 in-
cluded in the MSI SEC Documents are, and the reserves for dam-
aged or obsolete inventory set forth on MSI's books and records
will be, adequate and have been or will be established in ac-
cordance with MSI's customary practice and generally accepted
accounting principles. Except to the extent of any reserves
for damaged or obsolete inventory reflected on the balance
sheet of MSI as of June 30, 1995 included in the MSI SEC Docu-
ments and except as set forth in Section 4.18 to the MSI Dis-
closure Schedule: (i) all of the inventories of MSI consist of
a quality and quantity usable and merchantable in the ordinary
and usual course of business, except for obsolete or damaged
items or items of below-standard quality, substantially all of
which have been written off or written down to fair market
value prior to June 30, 1995, or, to the extent there are obso-
lete or damaged items or items of below-standard quality which
have not been so written off or written down, there is a valid
and fully collectible claim by MSI against the manufacturer or
supplier thereof for an amount adequate to fully compensate MSI
therefor; (ii) all inventories not written off have been priced
at the lower of cost or market on a FIFO basis; and (iii) sub-
stantially all products in inventory have been purchased by MSI
directly from the manufacturer thereof or from any authorized
distributor of such products in accordance with Applicable Law.
4.19 Officers and Employees. Section 4.19 to the
MSI Disclosure Schedule sets forth the names of all directors
and officers of MSI, the total salary, bonus, fringe benefits
and perquisites each received in the fiscal year ended Septem-
ber 30, 1994, and any changes to the foregoing which have oc-
curred subsequent to September 30, 1994; Section 4.19 to the
MSI Disclosure Schedule also lists and describes the current
compensation of all other employees of MSI. Except as dis-
closed in Section 4.19 to the MSI Disclosure Schedule, there
are no other material forms of compensation paid to any such
director, officer or employee of MSI. Except as set forth in
Section 4.19 to the MSI Disclosure Schedule and except for nor-
mal fees paid to members of the MSI Board of Directors for
their duties as directors, no officer, director, or employee of
MSI or any other affiliate of MSI provided or caused to be pro-
vided to MSI in its most recently completed fiscal year or is
-26-<PAGE>
providing or causing to be provided to MSI in its current fis-
cal year any material assets, services or facilities and MSI
did not provide or cause to be provided in its most recently
completed fiscal year and is not providing or causing to be
provided in its current fiscal year to any such officer, direc-
tor, employee or affiliate any material assets, services or
facilities which in either case in the aggregate with respect
to each individual involved amounts in excess of $25,000 annu-
ally.
4.20 Labor Relations. There is no unfair labor
practice complaint against MSI pending before the NLRB and
there is no labor strike, dispute, slowdown or stoppage, or any
union organizing campaign, actually pending or, to the knowl-
edge of MSI, threatened against or involving MSI.
4.21 Undisclosed Liabilities. Except (i) as and to
the extent disclosed or reserved against on the balance sheet
of MSI as of June 30, 1995 included in the MSI SEC Documents,
(ii) as incurred after the date thereof in the ordinary course
of business consistent with past practice and not prohibited by
this Agreement or (iii) as and to the extent set forth in Sec-
tions 4.8 and 4.13 to the MSI Disclosure Schedule, MSI does not
have any liabilities or obligations of any nature, whether
known or unknown, absolute, accrued, contingent or otherwise
and whether due or to become due, that, individually or in the
aggregate, have or could have a material adverse effect on MSI.
The matters set forth or described in Sections 4.8 and 4.13 to
the MSI Disclosure Schedule have not, individually or in the
aggregate, as of the date of this Agreement, caused a material
adverse change in the assets, liabilities, results of opera-
tions, prospects, business or financial condition of MSI.
Nothing in this Agreement shall be construed to require the
conclusion that any one or more developments occurring subse-
quent to the date of this Agreement relating directly or indi-
rectly to any of the matters set forth or described in Sections
4.8 and 4.13 to the MSI Disclosure Schedule does not constitute
a change, event, occurrence or development of the type referred
to in Section 4.6 of this Agreement.
4.22 Customer and Supplier Relationships. The rela-
tionships of MSI with its customers and suppliers are generally
satisfactory.
4.23 No Recalls. Except as set forth in Section
4.23 to the MSI Disclosure Schedule, no product produced for
MSI by a third party and bearing an MSI trademark or other Pro-
prietary Right of MSI, has been recalled voluntarily or invol-
untarily since September 30, 1992, no such recall is being con-
sidered by MSI, and, to the knowledge of MSI, no such recall is
-27-<PAGE>
being considered by or has been requested or ordered by any
Governmental Authority or consumer group.
4.24 Operation of MSI's Business. Except as set
forth in Section 4.24 to the MSI Disclosure Schedule, since
June 30, 1995 through the date of this Agreement, MSI has not
engaged in any transaction which, if done after execution of
this Agreement, would violate Section 5.3(c) hereof except as
described or reflected in the MSI SEC Documents. Since Septem-
ber 30, 1994, no terminations, nonrenewals or amendments have
occurred with respect to any Contract with any franchisee or
licensee of Proprietary Rights of MSI that, individually or in
the aggregate, could reasonably be expected to have a material
adverse effect on MSI.
4.25 Permits; Compliance. MSI is in possession of
all material franchises, grants, authorizations, licenses, per-
mits, 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 now being con-
ducted (collectively, the "MSI Permits"), and, except as set
forth in Section 4.25 to the MSI Disclosure Schedule, there is
no Action pending or, to the knowledge of MSI, threatened re-
garding suspension or cancellation of any of the MSI Permits,
except for any such Action which, if determined adversely,
could not reasonably be expected, individually or in the ag-
gregate, to have a material adverse effect on MSI. Except as
set forth in Section 4.25 to the MSI Disclosure Schedule, MSI
is not in conflict with, or in default or violation of, (a) any
franchise disclosure or relationships law, (b) any other Ap-
plicable Law (including, without limitation, the Prescription
Drug Marketing Act, the Federal Controlled Substances Act of
1970, tit. II, 84 Stat. 1242, the Food, Drug and Cosmetic Act,
21 U.S.C. Sec. 301 et seq., and any state Pharmacy Practice
Acts, Controlled Substances Acts, Dangerous Drug Acts and Food,
Drug and Cosmetic Acts and all rules of professional conduct
applicable thereto and applicable to MSI or by which any of its
properties is bound or subject or (c) any of the MSI Permits,
except in the case of clauses (b) and (c) for any such con-
flicts, defaults or violations which, individually or in the
aggregate, could not reasonably be expected to have a material
adverse effect on MSI. During the period commencing on Septem-
ber 30, 1992 and ending on the date hereof, MSI has not re-
ceived any notification with respect to possible conflicts,
defaults or violations of (a) franchise disclosure or relation-
ships laws or (b) other Applicable Laws, except in the case of
clause (b) for notices relating to possible conflicts, defaults
or violations, which conflicts, defaults or violations could
not reasonably be expected to have a material adverse effect on
MSI.
-28-<PAGE>
4.26 Product Warranties and Liabilities. Except as
set forth in Section 4.26 to the MSI Disclosure Schedule, MSI
has no forms of warranties or guarantees of its products and
services that are in effect or proposed to be used by it. Sec-
tion 4.26 to the MSI Disclosure Schedule sets forth a descrip-
tion of each pending or, to the knowledge of MSI, threatened
material Action under any warranty or guaranty against MSI.
MSI has not incurred, nor does MSI know or have any reason to
believe there is any basis for alleging, any material li-
ability, damage, loss, cost or expense as a result of any de-
fect or other deficiency (whether of design, materials, work-
manship, labeling instructions or otherwise) ("Product Li-
ability") with respect to any product sold or services rendered
by or on behalf of MSI prior to the Effective Time, whether
such Product Liability is incurred by reason of any express
warranty (including, without limitation, any warranty of mer-
chantability or fitness), any doctrine of common law (tort,
contract or other), any statutory provision or otherwise and
irrespective of whether such Product Liability is covered by
insurance.
4.27 Environmental Matters.
(a) As used herein, the term "Environmental Laws"
means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (in-
cluding, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, con-
taminants, or industrial, toxic or hazardous substances or
wastes (collectively, "Hazardous Materials") into the environ-
ment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judg-
ments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
(b) To the knowledge of MSI, there are, with respect
to MSI, or its subsidiaries, no past or present material viola-
tions of Environmental Laws, releases of any Hazardous Material
into the environment, actions, activities, circumstances, con-
ditions, events, incidents, or contractual obligations which
may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Com-
pensation and Liability Act of 1980 or similar federal, state,
local or foreign laws and none of MSI and its subsidiaries has
received any notice with respect to any of the foregoing, nor
-29-<PAGE>
is any Action pending or threatened in connection with any of
the foregoing.
(c) To the knowledge of MSI, no Hazardous Materials
were or are contained on or about any real property owned or
leased by MSI or any of its subsidiaries, except as in the nor-
mal course of MSI's business.
(d) To the knowledge of MSI, there are no under-
ground storage tanks on or under any real property owned or
leased by MSI or any of its subsidiaries.
4.28 OSHA Matters. MSI is in compliance with the
requirements of the Occupational Safety and Health Act and the
regulations promulgated thereunder and any similar laws or reg-
ulations of any foreign, state or local jurisdiction ("OSHA"),
except for any non-compliance which could not reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on MSI. MSI has not received any citation from
the Occupational Safety and Health Administration or any other
Governmental Authority or any inspector setting forth any re-
spect in which the facilities or operations of MSI are not in
compliance with OSHA, or the regulations under such act, which
noncompliance has not been corrected or remedied to the satis-
faction of such Governmental Authority or inspector, except in
all such cases for any noncompliance that could not reasonably
be expected to have, individually or in the aggregate, a mate-
rial adverse effect on MSI. MSI has heretofore provided Cardi-
nal with copies of all citations heretofore issued to MSI under
OSHA and copies of all material correspondence from and to the
Occupational Safety and Health Administration, any other Gov-
ernmental Authority and any inspectors during the past three
(3) years.
4.29 Insurance. Section 4.29 to the MSI Disclosure
Schedule lists all material insurance policies and binders and
programs of self-insurance owned, held or maintained by MSI on
the date hereof and which afford coverage to MSI, its assets or
business. As of the date hereof, all such policies, binders
and programs are in full force and effect, and, as of the Ef-
fective Time, all such policies, binders and programs (or re-
newals or replacements thereof, as applicable) will be in full
force and effect. All premiums with respect thereto covering
all periods up to and including the date hereof have been paid
to the extent due, and, as of the Effective Time, all premiums
with respect thereto (or with respect to renewals or replace-
ments thereof, as applicable) will be paid to the extent due.
As of the date hereof, no notice of cancellation or termination
has been received with respect to any such policy or binder (or
the renewals or replacements thereof, as applicable) and, as of
-30-<PAGE>
the Effective Time, no notice of cancellation or termination
will have been received with respect to any such policy or
binder (or the renewals or replacements thereof, as applica-
ble).
4.30 Opinion of Financial Advisor. MSI has received
the oral opinion (and prior to the close of business on Septem-
ber 5, 1995 will have received, and delivered to Cardinal a
copy of a written opinion) of Kemper Securities Incorporated,
its financial advisor, to the effect that, as of August 26,
1995, the Exchange Ratio is fair to the MSI Shareholders from a
financial point of view.
4.31 Board Recommendation. Prior to the execution
of this Agreement, the Stock Option Agreement and any Support
Agreement, the Board of Directors of MSI, at a meeting duly
called and held, has by the required vote (i) determined that
this Agreement and the transactions contemplated hereby, in-
cluding the Merger, and the Stock Option Agreement and the
transactions contemplated thereby, taken together, are fair to
and in the best interests of the stockholders of MSI, and (ii)
resolved to recommend that the holders of the shares of MSI
Common Stock approve this Agreement and the transactions con-
templated herein, including the Merger.
4.32 DGCL Section 203 and Missouri Takeover Laws.
Assuming the accuracy of the representation contained in Sec-
tion 3.11, (x) the restrictions contained in Section 203 of the
DGCL will not and do not apply to, and (y) no provision of any
statute of the State of Missouri that purports to limit or re-
strict business combinations or the ability to acquire or vote
shares will apply to: (i) the execution of this Agreement, the
Stock Option Agreement dated as of August 26, 1995 between Car-
dinal and MSI (the "Stock Option Agreement"), the Support/
Voting Agreements dated as of August 26, 1995 between Cardinal
and certain MSI Shareholders (collectively, the "Support Agree-
ments"), (ii) the Merger and (iii) the transactions contem-
plated hereby and by the Stock Option Agreement and the Support
Agreements.
4.33 Franchise Agreements.
(a) Except as set forth in Section 4.33 to the MSI
Disclosure Schedule, there are no master franchisees ("Master
Franchisees") who have been granted the right to use, purchase
or license Proprietary Rights, goods or services from MSI and
-31-<PAGE>
to provide, resell or relicense same to other authorized fran-
chisees or third parties. The identity of each Master Franchi-
see is set forth in Section 4.33 to the MSI Disclosure Sched-
ule. A supplement to Section 4.33 to the MSI Disclosure Sched-
ule to be delivered by MSI to Cardinal within 21 days from the
date hereof will set forth a description of all franchisees and
third parties to whom Master Franchisees are entitled to pro-
vide, resell or relicense Proprietary Rights, goods and ser-
vices of MSI. There are no agreements between MSI and any Mas-
ter Franchisee other than those in writing that are set forth
in Section 4.33 to the MSI Disclosure Schedule.
(b) Except as set forth in Section 4.33 to the MSI
Disclosure Schedule, as of the date of this Agreement, neither
MSI nor, to the best knowledge of MSI, any franchisee or Master
Franchisee is in default under or is in material breach of any
terms, conditions, covenants or obligations of the relationship
between any of them which default or material breach is reason-
ably likely to lead to termination of any franchise agreement
between any of them.
(c) The relationships of MSI with its franchisees
are generally satisfactory. As of the Effective Time, the
Threshold Franchises (as defined in Section 4.33(c) to the MSI
Disclosure Schedule) shall not have ceased to be franchisees of
MSI, nor have threatened, nor have been threatened by MSI, in
writing to terminate such status since June 30, 1995.
(d) MSI has timely filed with the appropriate Gov-
ernmental Authorities and has heretofore made available to Car-
dinal true, correct and complete copies of all forms, reports,
schedules, statements and other documents required to be filed
by it since June 30, 1992 under any franchise disclosure or
relationships law, including, without limitation, the filing of
any Uniform Franchise Offering Circular as required by federal
regulations and state disclosure laws (such documents, as
amended since the time of filing, collectively, the "MSI Fran-
chise Documents"). The MSI Franchise Documents, including,
without limitation, any schedules included therein, at the time
filed, as of the date hereof and at the Effective Time (a) did
not, do not and will not contain any untrue statement of a ma-
terial fact or 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, and (b) complied, comply and will comply
in all material respects with the applicable requirements of
any franchise disclosure or relationships law.
4.34 Employment Agreement. The Employment Agree-
ment, dated the date hereof, between Cardinal and David A.
-32-<PAGE>
Abrahamson, (i) has been duly executed and delivered by Mr.
Abrahamson and (ii) as of the Effective Time, shall not have
been terminated since the date hereof.
4.35 Investment Company. MSI is not an "investment
company" within the meaning of the Investment Company Act of
1940, as amended.
ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to
the period from and after the execution of this Agreement.
5.1 Mutual Covenants.
(a) General. Each of the parties shall use its rea-
sonable efforts to take all action and to do all things neces-
sary, proper or advisable to consummate the Merger and the
transactions contemplated by this Agreement (including, without
limitation, using its reasonable efforts to cause the condi-
tions set forth in Article VI for which they are responsible to
be satisfied as soon as reasonably practicable and to prepare,
execute and deliver such further instruments and take or cause
to be taken such other and further action as any other party
hereto shall reasonably request).
(b) HSR Act. As soon as practicable, and in any
event no later than fifteen (15) business days after the date
hereof, each of the parties hereto will file any Notification
and Report Forms and related material required to be filed by
it with the Federal Trade Commission and the Antitrust Division
of the United States Department of Justice under the HSR Act
with respect to the Merger, will use its reasonable efforts to
obtain an early termination of the applicable waiting period,
and shall promptly make any further filings pursuant thereto
that may be necessary, proper or advisable; provided, however,
that neither Cardinal nor any of its subsidiaries shall be re-
quired hereunder to divest or hold separate any portion of
their business or assets.
(c) Other Governmental Matters. Each of the parties
shall use its reasonable efforts to take any additional action
that may be necessary, proper or advisable in connection with
any other notices to, filings with, and authorizations, con-
sents and approvals of any Governmental Authority that it may
be required to give, make or obtain.
-33-<PAGE>
(d) Pooling-of-Interests and Tax-Free Treatment.
Each of the parties shall use its reasonable efforts to cause
the Merger to (i) qualify for pooling-of-interest accounting
treatment for financial reporting purposes and (ii) constitute
a tax-free "reorganization" under Section 368(a)(2)(E) of the
Code and to permit Gallop, Johnson & Neuman, LC to issue its
opinion provided for in Section 6.1(e).
(e) Public Announcements. Unless otherwise required
by Applicable Laws or requirements of the National Association
of Securities Dealers or the NYSE (and in that event only if
time does not permit), at all times prior to the earlier of the
Effective Time or termination of this Agreement pursuant to
Section 7.1, Cardinal and MSI shall consult with each other
before issuing any press release with respect to the Merger and
shall not issue any such press release prior to such consulta-
tion.
(f) Access. From and after the date of this agree-
ment until the Effective Time (or the termination of this
Agreement), Cardinal and MSI shall permit representatives of
the other to have appropriate access at all reasonable times to
the other's premises, properties, books, records, contracts,
tax records, documents, customers and suppliers. Information
obtained by Cardinal and MSI pursuant to this Section 5.1(f)
shall be subject to the provisions of the confidentiality
agreement between them dated August 2, 1995 (the "Confidential-
ity Agreement"), which agreement remains in full force and ef-
fect.
5.2 Covenants of Cardinal.
(a) Preparation of Cardinal Registration Statement.
Cardinal shall prepare and file the Registration Statement with
the Commission as soon as is reasonably practicable following
clearance of the Proxy Statement by the Commission and shall
use all reasonable efforts to have the Registration Statement
relate to all Cardinal Common Shares to be issued to MSI Share-
holders as a result of the Merger (other than Cardinal Exchange
Restricted Stock and Cardinal Common Shares issuable upon exer-
cise of Cardinal Exchange Options) and to be declared effective
by the Commission as promptly as practicable and to maintain
the effectiveness of the Registration Statement through the
Effective Time. Cardinal also shall take such other action
(other than qualifying to do business in any jurisdiction in
which it is not so qualified) required to be taken under any
applicable state securities laws in connection with the issu-
ance of Cardinal Common Shares in the Merger.
-34-<PAGE>
(b) Conduct of Cardinal's Operations. During the
period from the date of this Agreement to the Effective Time,
Cardinal shall use its reasonable efforts to maintain and pre-
serve its business organization and to retain the services of
its officers and key employees and maintain relationships with
customers, suppliers and other third parties to the end that
their goodwill and ongoing business shall not be impaired in
any material respect.
(c) Directors' and Officers' Insurance. Cardinal
agrees to use its reasonable efforts to cause the Surviving
Corporation to maintain in effect for not less than three years
after the Effective Time the current policies of directors' and
officers' liability insurance maintained by MSI with respect to
matters occurring prior to the Effective Time; provided, how-
ever, that (i) the Surviving Corporation may substitute there-
for policies of at least the same coverage containing terms and
conditions which are no less advantageous to the covered offic-
ers and directors and (ii) the Surviving Corporation shall not
be required to pay an annual premium for such insurance in ex-
cess of two times the last annual premium paid prior to the
date hereof, but in such case shall purchase as much coverage
as possible for such amount.
(d) Indemnification. From and after the Effective
Time, Cardinal shall cause the Surviving Corporation (includ-
ing, providing adequate funding) to indemnify and hold harm-
less, pursuant to the procedures set forth in Exhibit D to this
Agreement, the present and former officers and directors of MSI
in respect of acts or omissions occurring prior to the Effec-
tive Time to the fullest extent provided under the MSI Cer-
tificate of Incorporation, as amended, and MSI Bylaws in effect
on the date hereof.
(e) Employee Benefits. Cardinal covenants and
agrees that, for a period of two years from and after the Ef-
fective Time, it will cause the Surviving Corporation to pro-
vide for the benefit of employees of the Surviving Corporation
benefits that are no less favorable, in the aggregate, as those
provided to employees of MSI immediately prior to the date of
this Agreement.
(f) Headquarters and Name. Cardinal intends to
cause the Surviving Corporation to (i) retain its corporate and
business headquarters in St. Louis County, Missouri and
(ii) continue to use the name "Medicine Shoppe International"
as its corporate and business name.
-35-<PAGE>
5.3 Covenants of MSI.
(a) MSI Shareholders Meeting. Subject to the provi-
sions of Section 5.3(d), MSI shall take all action in ac-
cordance with the federal securities laws, the DGCL and its
Certificate of Incorporation, as amended, and Bylaws necessary
to obtain the consent and approval of MSI Shareholders with
respect to the Merger, this Agreement and the transactions con-
templated hereby.
(b) Information for the Registration Statement and
Preparation of MSI Proxy Statement. MSI shall furnish Cardinal
with all information concerning it as may be required for in-
clusion in the Registration Statement. MSI shall cooperate
with Cardinal in the preparation of the Registration Statement
in a timely fashion and shall use all reasonable efforts to
have the Registration Statement declared effective by the Com-
mission as promptly as practicable. If at any time prior to
the Effective Time, any information pertaining to MSI contained
in or omitted from the Registration Statement makes such state-
ments contained in the Registration Statement false or mislead-
ing, MSI shall promptly so inform Cardinal and provide Cardinal
with the information necessary to make statements contained
therein not false and misleading. MSI shall, as soon as is
reasonably practicable, prepare and file the Proxy Statement
with the Commission on a confidential basis. MSI shall use all
reasonable efforts to mail at the earliest practicable date to
MSI Shareholders the Proxy Statement, which shall include all
information required under applicable law to be furnished to
MSI Shareholders in connection with the Merger and the transac-
tions contemplated thereby and shall include the recommendation
of MSI's Board of Directors in favor of the Merger unless the
Board of Directors of MSI determines in good faith upon advice
of its outside legal counsel, that it is obligated by prin-
ciples of fiduciary duty not to make such recommendation.
(c) Conduct of MSI's Operations. During the period
from the date of this Agreement to the Effective Time, MSI
shall conduct its operations in the ordinary course except as
expressly contemplated by this Agreement and the transactions
contemplated hereby and shall use its reasonable efforts to
maintain and preserve its business organization and its mate-
rial rights and franchises and to retain the services of its
officers and key employees and maintain relationships with cus-
tomers, suppliers, franchisees, Master Franchisees, licensees
and other third parties to the end that their goodwill and on-
going business shall not be impaired in any material respect.
Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time,
MSI shall not, except as otherwise expressly contemplated by
-36-<PAGE>
this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby or as set forth in Section
5.3(c) to the MSI Disclosure Schedule, without the prior writ-
ten consent of Cardinal:
(i) do or effect any of the following actions with
respect to its securities: (A) adjust, split, combine or
reclassify its capital stock, (B) make, declare or pay any
dividend or distribution on, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock,
except dividends on the MSI Common Stock, at a rate of not
more than $.14 per share per quarter, with a record and
payment date in accordance with recent practice, (C) grant
any person any right to acquire any shares of its capital
stock, (D) issue, deliver or sell or agree to issue, de-
liver or sell any additional shares of its capital stock
or any securities or obligations convertible into or ex-
changeable or exercisable for any shares of its capital
stock or such securities (except pursuant to the exercise
of outstanding options to purchase MSI Common Stock), or
(E) enter into any agreement, understanding or arrangement
with respect to the sale or voting of its capital stock;
(ii) sell, transfer, pledge, mortgage, encumber or
otherwise dispose of any of its property or assets other
than (A) sales of inventory, licensing of Proprietary
Rights or other actions made in the ordinary course of
business or (B) any such other dispositions as are not,
individually or in the aggregate, material to the busi-
ness, assets or properties of MSI and are, in each case,
consistent with past practice;
(iii) make or propose any changes in its Certificate
of Incorporation, as amended, or Bylaws;
(iv) merge or consolidate with any other person or
acquire a material amount of assets or capital stock of
any other person or enter into any confidentiality agree-
ment, other than in the ordinary course of business and
consistent with past practice, with any person (other than
as permitted by Section 5.3(d));
-37-<PAGE>
(v) incur, create, assume or otherwise become liable
for any indebtedness for borrowed money or assume, guaran-
tee, endorse or otherwise as an accommodation become re-
sponsible or liable for the obligations of any other indi-
vidual, corporation or other entity other than the financ-
ing of franchisees in the ordinary course of business con-
sistent with past practice;
(vi) create any subsidiaries;
(vii) enter into or modify any employment, severance,
termination or similar agreements or arrangements with, or
grant or provide any bonuses, salary increases, other com-
pensation, benefits, severance or termination pay to, any
officer, director, consultant or employee, other than sal-
ary increases and bonuses granted in the ordinary course
of business consistent with past practice, but in any
event, for any person not greater than 110% of the ag-
gregate of such person's previous year's salary and annual
bonus, or exercise any discretionary power to cause any
options to become exercisable or any restricted stock or
other compensation to become vested, except in each case
as may be required by Applicable Law or a binding written
contract in effect on the date of this Agreement;
(viii) change its method of doing business or change
any method or principle of accounting in a manner that is
inconsistent with past practice;
(ix) settle any Actions, whether now pending or here-
after made or brought involving an amount in excess of
$50,000;
(x) modify, amend or terminate, or waive, release or
assign any material rights or claims with respect to, any
Contract set forth in Section 4.17 to the MSI Disclosure
Schedule, any other material Contract to which MSI is a
party or any confidentiality agreement to which MSI is a
party;
(xi) incur or commit to any capital expenditures,
obligations or liabilities in respect thereof which in the
aggregate exceed or would exceed $200,000;
(xii) make any material changes or modifications to
any pricing policy (including franchise royalties and
fees) or investment policy or enter into any new franchise
or Master Franchise relationship on terms different from
those in effect in the ordinary and usual course of busi-
ness, consistent with past practice;
-38-<PAGE>
(xiii) except with respect to any Merger Fees directly
incurred in connection with a proposal relating to a Com-
peting Transaction, pay any Merger Fees materially in ex-
cess of the amount set forth in Section 4.14 to the MSI
Disclosure Schedule unless (A) MSI shall have given prior
notice of any such payment to the General Counsel of Car-
dinal and (B) the amount so paid shall be reasonable in
relation to the value of the services rendered, based on
general standards in the relevant industry;
(xiv) take any action to exempt or make inapplicable
under (x) Section 203 of the DGCL or (y) any other state
takeover law or state law that purports to limit or re-
strict business combinations or the ability to acquire or
vote shares, any person or entity (other than Cardinal or
its subsidiaries) or any action taken thereby, which per-
son, entity or action would have otherwise been subject to
the restrictive provisions thereof and not exempt there-
from;
(xv) enter into or carry out any other material
transaction other than in the ordinary and usual course of
business;
(xvi) permit or cause any subsidiary to do any of the
foregoing or agree or commit to do any of the foregoing;
or
(xvii) agree in writing or otherwise to take any of the
foregoing actions.
(d) No Solicitation. MSI agrees that, during the
term of this Agreement, it shall not, and shall not authorize
or permit any of its subsidiaries or any of its or its subsid-
iaries' directors, officers, employees, agents or representa-
tives, directly or indirectly, to solicit, initiate, encourage
or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal
with respect to any recapitalization, merger, consolidation or
other business combination involving MSI, or acquisition of any
capital stock or any material portion of the assets (except for
acquisition of assets in the ordinary course of business con-
sistent with past practice) of MSI, or any combination of the
foregoing (a "Competing Transaction"), or negotiate, explore or
otherwise engage in discussions with any person (other than
Cardinal, Subcorp or their respective directors, officers, em-
ployees, agents and representatives) with respect to any Com-
peting Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by
-39-<PAGE>
this Agreement; provided that in the event MSI receives any
written proposal from any third party relating to a Competing
Transaction that the Board of Directors of MSI determines in
good faith, upon advice of its outside legal counsel, it is
obligated by principles of fiduciary duty to consider, MSI,
without violating any provisions of this Agreement, may furnish
or disclose non-public information to, and may enter into dis-
cussions and negotiations with, such third party. If the Board
of Directors of MSI shall thereupon or thereafter determine in
good faith, after consultation with its financial and legal
advisors, that any such written proposal from a third party for
a Competing Transaction, as the same may have been refined and
revised in writing as a result of any such discussions and ne-
gotiations, is more favorable to the MSI Shareholders from a
financial point of view than the transactions contemplated by
this Agreement (including any adjustment to the terms and con-
ditions of such transaction proposed by Cardinal in response to
such Competing Transaction) and is in the best interest of the
MSI Shareholders, MSI may terminate this Agreement and enter
into an agreement with respect to such Competing Transaction
provided that, prior to any such termination, (i) MSI has pro-
vided Cardinal written notice that it intends to terminate this
Agreement pursuant to this Section 5.3(d), identifying the Com-
peting Transaction then determined to be more favorable, and
(ii) at least two full business days after MSI has provided the
notice referred to in clause (i) above, MSI delivers to Cardi-
nal (A) a written notice of termination of this Agreement pur-
suant to this Section 5.3(d), (B) a check in the amount of
Cardinal's Costs (as defined in Section 7.2) as provided in
Section 7.2 as the same may have been estimated by Cardinal in
good faith prior to the date of such delivery (subject to an
adjustment payment between the parties upon Cardinal's defini-
tive determination of such Costs), (C) a written acknowledgment
from MSI that (x) the termination of this Agreement and the
entry into the agreement for the Competing Transaction will be
a "Purchase Event" as defined in the Stock Option Agreement and
(y) the Stock Option Agreement shall be honored in accordance
with its terms and (D) a written acknowledgment from each other
party to such Competing Transaction that it is aware of the
substance of MSI's acknowledgment under clause (C) above and
waives any right it may have to contest the matters thus ac-
knowledged by MSI. During the term of this Agreement, MSI
shall immediately advise Cardinal in writing of the receipt,
directly or indirectly, of any inquiries or proposals relating
to a Competing Transaction and promptly furnish to Cardinal a
copy of any such inquiry or proposal (and any revisions or re-
finements thereof) in addition to (x) any non-confidential
written information received from or on behalf of any other
party to such Competing Transaction necessary to a full and
-40-<PAGE>
fair understanding of the proposal for the Competing Transac-
tion and (y) any information provided by MSI to any such other
party relating to such proposal.
(e) Affiliates of MSI. MSI shall use its best ef-
forts to cause each such person who may be at the Effective
Time or was on the date hereof an "affiliate" of MSI for pur-
poses of Rule 145 under the Securities Act, to execute and de-
liver to Cardinal as soon as practicable and in no event no
less than 35 days prior to the date of the meeting of MSI
Shareholders to approve the Merger, the written undertakings in
the form attached hereto as Exhibit A.
(f) Notification of Certain Matters. MSI shall give
prompt notice to Cardinal of (i) the occurrence or nonoccur-
rence of any event the occurrence or nonoccurrence of which
would cause any representation or warranty contained in this
Agreement to be untrue or inaccurate at or prior to the Effec-
tive Time and (ii) any material failure of MSI to comply with
or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.3(f) shall
not limit or otherwise affect the remedies available hereunder
to Cardinal.
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions. The obligations of the par-
ties hereto to consummate the Merger shall be subject to ful-
fillment of the following conditions:
(a) No temporary restraining order, preliminary or
permanent injunction or other order or decree which pre-
vents the consummation of the Merger shall have been is-
sued and remain in effect, and no statute, rule or regu-
lation shall have been enacted by any Governmental Author-
ity which prevents the consummation of the Merger.
(b) All waiting periods applicable to the consumma-
tion of the Merger under the HSR Act shall have expired or
been terminated.
(c) The Merger and the transactions contemplated
hereby shall have been approved by the MSI Shareholders in
the manner required by any Applicable Law.
-41-<PAGE>
(d) The Commission shall have declared the Cardinal
Registration Statement effective. On the Closing Date and
at the Effective Time, no stop order or similar restrain-
ing order shall have been threatened by the Commission or
entered by the Commission or any state securities admin-
istrator prohibiting the Merger.
(e) MSI shall have received an opinion of Gallop,
Johnson & Neuman, L.C. substantially to the effect that,
under applicable law, for Federal income tax purposes, the
Merger will constitute a reorganization under Section 368
of the Code.
(f) Cardinal shall have received a letter, in form
and substance reasonably satisfactory to Cardinal, from
Deloitte & Touche LLP dated the date of the Proxy State-
ment and confirmed in writing at the Effective Time stat-
ing that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles
Board.
(g) No Action shall be instituted (x) by any Govern-
mental Authority which seeks to prevent consummation of
the Merger or (y) which is reasonably likely to result in
material damages in connection with the transactions
contemplated hereby which, in each case, continues to be
outstanding.
6.2 Conditions to Obligations of MSI. The obliga-
tions of MSI to consummate the Merger and the transactions con-
templated hereby shall be subject to the fulfillment of the
following conditions unless waived by MSI:
(a) Each of the representations and warranties of
each of Cardinal and Subcorp set forth in Article III
shall be true and correct in all material respects on the
date hereof and on and as of the Closing Date as though
made on and as of the Closing Date (except for represen-
tations and warranties made as of a specified date, which
need be true and correct only as of the specified date).
(b) Each of Cardinal and Subcorp shall have per-
formed in all material respects each obligation and agree-
ment and shall have complied in all material respects with
each covenant to be performed and complied with by it
hereunder at or prior to the Effective Time.
(c) Each of Cardinal and Subcorp shall have fur-
nished MSI with a certificate dated the Closing Date
signed on behalf of it by the Chairman, President or any
-42-<PAGE>
Vice President to the effect that the conditions set forth
in Sections 6.2(a) and (b) have been satisfied.
(d) MSI shall have received the legal opinion, dated
the Closing Date, of Wachtell, Lipton, Rosen & Katz, spe-
cial counsel to Cardinal, in substantially the form at-
tached hereto as Exhibit B.
(e) The Cardinal Common Shares to be issued in the
Merger shall have been authorized for inclusion on the
NYSE, subject to official notice of issuance.
6.3 Conditions to Obligations of Cardinal and Sub-
corp. The obligations of Cardinal to consummate the Merger and
the other transactions contemplated hereby shall be subject to
the fulfillment of the following conditions unless waived by
each of Cardinal and Subcorp:
(a) Each of the representations and warranties of
MSI set forth in Article IV shall be true and correct in
all material respects on the date hereof and on and as of
the Closing Date as though made on and as of the Closing
Date (except for representations and warranties made as of
a specified date, which need be true and correct only as
of the specified date).
(b) MSI shall have performed in all material re-
spects each obligation and agreement and shall have com-
plied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to
the Effective Time.
(c) MSI shall have furnished Cardinal with a cer-
tificate dated the Closing Date signed on its behalf by
its Chairman, President or any Vice President to the ef-
fect that the conditions set forth in Sections 6.3(a) and
(b) have been satisfied.
(d) Cardinal shall have received the legal opinion,
dated the Closing Date, of Gallop, Johnson & Neuman, L.C.,
substantially in the form attached hereto as Exhibit C.
(e) The Employment Agreement, dated the date hereof,
between Cardinal and David A. Abrahamson shall be in full
force and effect and shall not have been terminated.
(f) Each person who may be at the Effective Time or
was on the date of this Agreement an "affiliate" of MSI
for purposes of Rule 145 under the Securities Act, shall
have executed and delivered to Cardinal at least 35 days
-43-<PAGE>
prior to the date of the meeting of MSI Shareholders to
approve the Merger the written undertakings in the form
attached hereto as Exhibit A.
(g) There shall not have been a breach of any obli-
gation by any stockholder which has entered into a Support
Agreement or by MSI of the Stock Option Agreement.
(h) All actions shall have been taken necessary to
exempt or make inapplicable under (x) Section 203 of the
DGCL and (y) any other state takeover law or state law
that purports to limit or restrict business combinations
or the ability to acquire or vote shares: (i) the execu-
tion of this Agreement, the Stock Option Agreement and the
Support Agreements, (ii) the Merger and (iii) the transac-
tions contemplated hereby and by the Stock Option Agree-
ment and the Support Agreements.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated
at any time prior to the Effective Time, whether before or af-
ter approval and adoption of this Agreement by MSI Sharehold-
ers:
(a) by mutual consent of Cardinal and MSI;
(b) by either Cardinal or MSI if any permanent in-
junction or other order of a court or other competent Gov-
ernmental Authority preventing the consummation of the
Merger shall have become final and nonappealable;
(c) by either Cardinal or MSI if the Merger shall
not have been consummated before February 15, 1996, unless
extended by the Boards of Directors of both Cardinal and
MSI; provided, however, that a party shall not have a
right to terminate this Agreement under this Section
7.1(c) if such party's failure or such party's affiliate's
failure to perform any material covenant or obligation
under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date
which failure constitutes a breach;
(d) by MSI, within two days following the meeting of
MSI Shareholders at which the vote to approve the Merger
occurs, if the Average Share Price (calculated pursuant to
Section 2.1(b) but assuming solely for purposes of such
-44-<PAGE>
calculation that the Closing Date is the date of such
meeting of MSI Shareholders) is less than $49.29, provided
that Cardinal shall not have given written notice to MSI
(an "Adjustment Election") no later than two days prior to
such meeting of MSI Shareholders that the Base Share Price
shall be adjusted pursuant to Section 2.1(b)(ii), if ap-
plicable;
(e) by either Cardinal or MSI, within two days fol-
lowing the meeting of MSI Shareholders at which the vote
to approve the Merger occurs, if the Average Share Price
(calculated pursuant to Section 2.1(b) but assuming solely
for purposes of such calculation that the Closing Date is
the date of such meeting of MSI Shareholders) is less than
$46.27;
(f) by Cardinal if the Board of Directors of MSI
shall withdraw, modify or change its recommendation of
this Agreement or the Merger in a manner adverse to Cardi-
nal, or if the Board of Directors of MSI shall have re-
fused to affirm such recommendation within two days of any
written request from Cardinal;
(g) by either Cardinal or MSI if at the meeting of
MSI Shareholders (including any adjournment or postpone-
ment thereof) the requisite vote of the MSI Shareholders
to approve the Merger and the transactions contemplated
hereby shall not have been obtained;
(h) by Cardinal if MSI shall have breached any of
its obligations under the Stock Option Agreement;
(i) by Cardinal if any MSI Shareholder who is party
to a Support Agreement shall have breached such Support
Agreement, provided that MSI Shareholders shall not have
approved the Merger and the transactions contemplated
hereby;
(j) by MSI pursuant to Section 5.3(d); or
(k) by either Cardinal or MSI in the event of a ma-
terial breach by the other party of any representation,
warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a
condition set forth in Sections 6.2(a) or 6.2(b) or Sec-
tions 6.3(a) or 6.3(b) and (B) has not been cured within
30 days after the giving of written notice to the breach-
ing party of such material breach; provided, however, that
a party shall not have a right to terminate this Agreement
-45-<PAGE>
under this Section 7.1(k) if such party is then in mate-
rial breach of any representation, warranty, covenant or
other agreement contained in this Agreement.
7.2 Effect of Termination. In the event of the ter-
mination of this Agreement pursuant to Section 7.1, this Agree-
ment, except for the provisions of the last sentence of Section
5.1(f) and Sections 7.2 and 8.10, shall become void and have no
effect, without any liability on the part of any party or its
directors, officers or stockholders. Notwithstanding the fore-
going, nothing in this Section 7.2 shall relieve any party to
this Agreement of liability for a material breach of any provi-
sion of this Agreement and provided, further, however, that if
it shall be judicially determined that termination of this
Agreement was caused by an intentional breach of this Agree-
ment, then, in addition to other remedies at law or equity for
breach of this Agreement, the party so found to have intention-
ally breached this Agreement shall indemnify and hold harmless
the other parties for their respective costs, fees and expenses
of their counsel, accountants, financial advisors and other
experts and advisors as well as fees and expense incident to
negotiation, preparation and execution of this Agreement and
related documentation and shareholders' meetings and consents
("Costs") without reference to the limitation in the next sen-
tence. If this Agreement (A) is terminated for any reason pur-
suant to Section 7.1 (other than (x) a termination pursuant to
Section 7.1(a), Section 7.1(b), Section 7.1(c), Section 7.1(d),
Section 7.1(e) or Section 7.1(g) or (y) a termination by MSI
pursuant to Section 7.1(k)), (B) is terminated after the
occurrence of a Prior Event (as defined in the Stock Option
Agreement) pursuant to Section 7.1(g) or Section 7.1(c) (other
than a termination by MSI pursuant to Section 7.1(c) if
Cardinal's or Cardinal's affiliate's failure to perform any ma-
terial covenant or obligation under this Agreement has been the
cause of or resulted in the failure of the merger to occur on
or before February 15, 1996, which failure constitutes a
breach) and a Purchase Event (as defined in the Stock Option
Agreement) shall have occurred within 12 months after such
termination or (C) is terminated subsequent to a Purchase
Event, MSI will promptly pay to Cardinal in reimbursement for
Cardinal's expenses an amount in cash equal to the aggregate
amount of Cardinal's Costs (which payment shall in no event
exceed $1 million) incurred in connection with pursuing the
transactions contemplated by this Agreement, including, without
limitation, legal, accounting and investment banking fees.
7.3 Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respec-
tive Boards of Directors, at any time before or after adoption
-46-<PAGE>
of this Agreement by MSI Shareholders, but after any such ap-
proval, no amendment shall be made which by law requires fur-
ther approval by the MSI Shareholders without such further ap-
proval. Notwithstanding the foregoing, this Agreement may not
be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the
Effective Time, Cardinal (with respect to MSI) and MSI (with
respect to Cardinal and Subcorp) by action taken or authorized
by their respective Boards of Directors or authorized officers,
may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of such
party, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursu-
ant hereto and (c) waive compliance with any of the agreements
or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of
such party.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The
representations and warranties made herein by the parties here-
to shall not survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties here-
to, which by its terms contemplates performance after the Ef-
fective Time or the termination of this Agreement.
8.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if de-
livered personally, telecopied (which is confirmed) or dis-
patched by a nationally recognized overnight courier service to
the parties at the following addresses (or at such other ad-
dress for a party as shall be specified by like notice):
(a) if to Cardinal or Subcorp:
Cardinal Health, Inc.
655 Metro Place South
Suite 925
Dublin, Ohio 43017
Attention: Robert D. Walter, Chairman
Telecopy No.: (614) 761-8919
-47-<PAGE>
with a copy to
David A. Katz
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
(b) if to MSI:
Medicine Shoppe International, Inc.
1100 N. Lindbergh
St. Louis, Missouri 63132
Attention: David A. Abrahamson
Telecopy No.: (314) 569-9780
with a copy to
Robert H. Wexler
Gallop, Johnson & Neuman, L.C.
Interco Corporate Tower
101 South Hanley
St. Louis, Missouri 63105
Telecopy No.: (314) 862-1219
8.3 Interpretation. When a reference is made in
this Agreement to an Article or Section, such reference shall
be to an Article or Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When a reference
is made in this Agreement to MSI, such reference shall be
deemed to include any and all subsidiaries of MSI, individually
and in the aggregate, except for Sections 4.1, 4.2, 4.3, 4.4,
4.5, 4.8, 4.16 and 4.27. For the purposes of any provision of
this agreement, a "material adverse effect" with respect to any
party shall be deemed to occur if the aggregate consequences of
all breaches and inaccuracies of covenants and representations
of such party under this Agreement, when read without any ex-
ception or qualification for a material adverse effect, are
reasonably likely to have a material adverse effect on the as-
sets, liabilities, results of operations or financial condition
of such party and its subsidiaries taken as a whole.
8.4 Counterparts. This Agreement may be executed in
counterparts, which together shall constitute one and the same
Agreement. The parties may execute more than one copy of the
Agreement, each of which shall constitute an original.
-48-<PAGE>
8.5 Entire Agreement. This Agreement (including the
documents and the instruments referred to herein), the Support
Agreements, the Stock Option Agreement and the Confidentiality
Agreement constitute the entire agreement among the parties and
supersede all prior agreements and understandings, agreements
or representations by or among the parties, written and oral,
with respect to the subject matter hereof and thereof.
8.6 Third Party Beneficiaries. Nothing in this
Agreement, express or implied, is intended or shall be con-
strued to create any third party beneficiaries other than Sec-
tions 2.3 and 5.2(c) and (d).
8.7 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Dela-
ware without regard to principles of conflicts of law.
8.8 Specific Performance. The transactions contem-
plated by this Agreement are unique. Accordingly, each of the
parties acknowledges and agrees that, in addition to all other
remedies to which it may be entitled, each of the parties here-
to is entitled to a decree of specific performance, provided
such party is not in material default hereunder.
8.9 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be as-
signed by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the
other parties. Subject to the preceding sentence, this Agree-
ment shall be binding upon, inure to the benefit of and be en-
forceable by the parties and their respective successors and
assigns.
8.10 Expenses. Subject to the provisions of Section
7.2 and of the Stock Option Agreement, Cardinal and MSI shall
pay their own costs and expenses associated with the transac-
tions contemplated by this Agreement.
-49-<PAGE>
IN WITNESS WHEREOF, Cardinal, Subcorp and MSI have
signed this Agreement as of the date first written above.
CARDINAL HEALTH, INC.
By: /s/ Robert D. Walter
ARCH MERGER CORP.
By: /s/ Robert D. Walter
MEDICINE SHOPPE INTERNATIONAL, INC.
By: /s/ David A. Abrahamson
-50-
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Option Agreement") dated
August 26, 1995, between CARDINAL HEALTH, INC. ("Cardinal"),
an Ohio corporation and MEDICINE SHOPPE INTERNATIONAL, INC.
("MSI"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Board of Directors of Cardinal and the
Board of Directors of MSI have approved an Agreement and Plan
of Merger dated as of even date herewith (the "Merger Agree-
ment") providing for the merger of a wholly owned subsidiary
of Cardinal with and into MSI;
WHEREAS, as a condition and inducement to Cardi-
nal's entering into the Merger Agreement, Cardinal has re-
quired that MSI agree, and MSI has agreed, to grant to Car-
dinal the option set forth herein to purchase authorized but
unissued shares of MSI Common Stock;
NOW, THEREFORE, in consideration of the premises
herein contained, the parties agree as follows:
1. Definitions.
Capitalized terms used but not defined herein shall
have the same meanings as in the Merger Agreement. <PAGE>
2. Grant of Option.
Subject to the terms and conditions set forth
herein, MSI hereby grants to Cardinal an option (the "Op-
tion") to purchase up to 1,300,000 authorized and unissued
shares of MSI Common Stock at a price of $39.00 per share
(the "Purchase Price") payable in cash as provided in Section
4 hereof.
3. Exercise of Option.
(a) Cardinal may exercise the Option, in whole or
in part, at any time or from time to time if a Purchase Event
(as defined below) shall have occurred; provided, however,
that, to the extent the Option shall not have been previously
exercised, it shall terminate and be of no further force and
effect upon the earliest to occur of (i) the Effective Time
of the Merger and (ii) the termination of the Merger Agree-
ment (A) in accordance with Sections 7.01(a), 7.01(b),
7.01(d) or 7.01(e) of the Merger Agreement, (B) by MSI pursu-
ant to Section 7.1(c) of the Merger Agreement if Cardinal's
or Cardinal's affiliate's failure to perform any material
covenant or obligation under the Merger Agreement has been
the cause of or resulted in the failure of the Merger to oc-
cur on or before February 15, 1996 which failure constitutes
a breach, (C) by MSI pursuant to Section 7.1(k) of the Merger
Agreement, or (D) pursuant to Section 7.1(c) or Section
-2-<PAGE>
7.1(g), in each case if no Prior Event (as defined below)
shall have occurred prior thereto; provided, however, if (x)
the Merger Agreement is terminated other than as provided in
clause (ii) above, or (y) the termination of the Merger
Agreement occurs after a Purchase Event, the Option shall not
terminate until the date that is 12 months following such
termination. Notwithstanding the foregoing, if the Option
cannot be exercised before its date of termination as a re-
sult of any injunction, order or similar restraint issued by
a court of competent jurisdiction, the Option shall expire on
the 20th business day after such injunction, order or re-
straint shall have been dissolved or when such injunction,
order or restraint shall have become permanent and no longer
subject to appeal, as the case may be.
(b) As used herein, a "Purchase Event" shall mean
any of the following events:
(i) MSI or any of its subsidiaries shall or shall
have entered into, authorized, recommended or publicly
announced its intention to enter into an agreement, ar-
rangement or understanding with any person (other than
Cardinal or any of its affiliates) to, (A) effect any
Competing Transaction, (B) sell, lease or otherwise dis-
pose of 15% or more of the assets of MSI or any of its
subsidiaries or (C) issue, sell or otherwise dispose of
-3-<PAGE>
(including by way of merger, consolidation, tender or
exchange offer or similar transaction) Beneficial Owner-
ship (as defined below) of securities representing 15%
or more of the voting power of MSI or any of its subsid-
iaries;
(ii) any person (other than Cardinal or any affili-
ate of Cardinal and other than as a result of execution
of the Support Agreements) shall have acquired Benefi-
cial Ownership or the right to acquire Beneficial Owner-
ship of 15% or more of the voting power of MSI;
(iii) the Board of Directors of MSI shall have with-
drawn or modified or changed its recommendation of the
Merger Agreement or the Merger in a manner adverse to
Cardinal, or shall have refused to affirm such recom-
mendation within two days of any written request from
Cardinal; or
(iv) the Merger Agreement shall have been termi-
nated by MSI pursuant to Section 7.1(j).
(c) As used herein, the terms "Beneficial Owner-
ship", "Beneficial Owner" and "Beneficially Own" shall have
the meanings ascribed to them in Rule 13d-3 under the Ex-
change Act. As used herein, a "Prior Event" shall be deemed
to have occurred if: (x) any person (other than Cardinal or
-4-<PAGE>
any of its affiliates) shall have "commenced" (as such term
is defined in Rule 14d-2 under the Exchange Act), or shall
have filed a registration statement under the Securities Act
with respect to, a tender offer or exchange offer to purchase
shares of MSI Common Stock such that, upon consummation of
such offer, such person would have Beneficial Ownership or
the right to acquire Beneficial Ownership of 15% or more of
the voting power of MSI or (y) any person (other than
Cardinal or any of its affiliates) shall have publicly
announced its willingness, or shall have publicly announced a
proposal, or publicly disclosed an intention to make a pro-
posal, (A) to make an offer described in clause (x) above or
(B) to engage in any transaction described in clause (i) in
the definition of Purchase Event.
(d) In the event Cardinal wishes to exercise the
Option, it shall deliver to MSI a written notice (the date of
which being herein referred to as the "Notice Date") specify-
ing (i) the total number of shares it intends to purchase
pursuant to such exercise and (ii) a place and date not ear-
lier than five business days nor later than 60 calendar days
from the Notice Date for the closing of such purchase (the
"Closing Date").
-5-<PAGE>
(e) Notwithstanding anything to the contrary in
this Option Agreement, Cardinal shall have no right to exer-
cise the Option while in material breach of the Merger Agree-
ment.
4. Payment and Delivery of Certificates.
(a) At the closing, referred to in Section 3
hereof, on the Closing Date, Cardinal shall (i) pay to MSI
the aggregate Purchase Price for those shares of MSI Common
Stock to be purchased as specified in the notice of exercise
in immediately available funds by wire transfer to a bank ac-
count designated not later than two business days prior to
the Closing Date by MSI, and (ii) surrender this Option
Agreement to MSI for cancellation.
(b) At such closing, simultaneously with the de-
livery of cash as provided in Section 4(a), MSI shall deliver
to Cardinal (i) a certificate or certificates representing
the number of shares of MSI Common Stock purchased by Cardi-
nal, registered in the name of Cardinal or a nominee desig-
nated in writing by Cardinal, and (ii) if the Option is exer-
cised in part only, a newly executed agreement with the same
terms as this Option Agreement evidencing the right to the
balance of the MSI Common Stock purchasable hereunder.
-6-<PAGE>
(c) If at the time of issuance of any MSI Common
Stock pursuant to any exercise of the Option, MSI shall have
issued any share purchase rights or similar securities to
holders of MSI Common Stock and such rights are then out-
standing, then each such share of MSI Common Stock issued
pursuant to such exercise shall also represent rights with
terms substantially the same as and at least as favorable to
Cardinal as those issued to other holders of MSI Common
Stock.
(d) Certificates for MSI Common Stock delivered at
any closing hereunder shall be endorsed with a restrictive
legend which shall read substantially as follows:
The shares represented by this certificate are sub-
ject to certain provisions of an agreement between
the registered holder hereof and Medicine Shoppe
International, Inc., a copy of which is on file at
the principal office of Medicine Shoppe Interna-
tional, Inc., and to resale restrictions arising
under the Securities Act of 1933 and any applicable
state securities laws. A copy of such agreement
will be provided to the holder hereof without
charge upon receipt by Medicine Shoppe Interna-
tional, Inc. of a written request therefor.
It is understood and agreed that the above legend shall be
removed by delivery of substitute certificate(s) without such
legend if Cardinal shall have delivered to MSI an opinion of
outside counsel reasonably satisfactory to MSI in form and
substance reasonably satisfactory to MSI to the effect that
-7-<PAGE>
such legend is not required for purposes of the Securities
Act and any applicable state securities laws.
5. Authorization, etc.
(a) MSI hereby represents and warrants to Cardinal
that:
(i) MSI has requisite corporate power and author-
ity to execute and deliver this Option Agreement and to
consummate the transactions contemplated hereby;
(ii) such execution, delivery and consummation have
been authorized by the Board of Directors of MSI, and no
other corporate proceedings are necessary therefor;
(ii) this Option Agreement has been duly and val-
idly executed and delivered and represents a valid and
legally binding obligation of MSI, enforceable against
MSI in accordance with its terms; and
(iii) MSI has taken all necessary corporate action
to authorize and reserve and permit it to issue and, at
all times from the date hereof through the date of the
exercise in full or the expiration or termination of the
Option, shall have reserved for issuance upon exercise
of the Option, 1,300,000 shares of MSI Common Stock, all
of which, upon issuance pursuant hereto, shall be duly
-8-<PAGE>
authorized, validly issued, fully paid and nonassess-
able, and shall be delivered free and clear of all
claims, liens, encumbrances, restrictions and security
interests and not subject to any preemptive rights.
(b) Cardinal hereby represents and warrants to MSI
that:
(i) Cardinal has full corporate authority to ex-
ecute and deliver this Option Agreement and to consum-
mate the transactions contemplated hereby;
(ii) such execution, delivery and consummation have
been authorized by all requisite corporate action by
Cardinal, and no other corporate proceedings are neces-
sary therefor;
(iii) this Option Agreement has been duly and val-
idly executed and delivered and represents a valid and
legally binding obligation of Cardinal, enforceable
against Cardinal in accordance with its terms; and
(iv) any MSI Common Stock or other securities ac-
quired by Cardinal upon exercise of the Option will not
be taken with a view to the public distribution thereof
and will not be transferred or otherwise disposed of ex-
cept in compliance with the Securities Act.
-9-<PAGE>
6. Adjustment upon Changes in Capitalization.
In the event of any change in MSI Common Stock by
reason of stock dividends, split-ups, recapitalizations or
the like, the type and number of shares subject to the Op-
tion, and the purchase price per share, as the case may be,
shall be adjusted appropriately. In the event that any addi-
tional shares of MSI Common Stock are issued after the date
of this Option Agreement (other than pursuant to an event de-
scribed in the preceding sentence or pursuant to this Option
Agreement), the number of shares of MSI Common Stock subject
to the Option shall be adjusted so that, after such issuance,
it equals 14.38% of the number of shares of MSI Common Stock
then issued and outstanding (including any shares subject to
or issued pursuant to the Option).
7. Repurchase at Option of MSI.
(a) MSI may at any time by written notice repur-
chase from Cardinal, and Cardinal shall sell to MSI, the Op-
tion and all (but not less than all) of the MSI Common Stock
acquired by Cardinal pursuant to the Option with respect to
which Cardinal has Beneficial Ownership at the time of such
repurchase at an aggregate purchase price equal to the sum of
(i) the difference between $47.8458 and the exercise price as
determined pursuant to Section 2 hereof (subject to adjust-
ment as provided in Section 6), multiplied by the number of
-10-<PAGE>
shares of MSI Common Stock with respect to which the Option
has not been exercised, and (ii) $47.8458 multiplied by the
number of shares of MSI Common Stock purchased pursuant to
the exercise of the Option with respect to which Cardinal
then has Beneficial Ownership.
(b) In the event that MSI wishes to exercise its
rights under this Section 7, MSI shall deliver to Cardinal a
written notice (the date of which being herein referred to as
the "Call Date") specifying a place and date not earlier than
three business days nor more than 60 calendar days from the
Call Date for the closing of such repurchase. At the clos-
ing, MSI shall pay the purchase price to Cardinal by wire
transfer of immediately available funds to an account desig-
nated by Cardinal not later than two business days prior to
the date of closing and Cardinal shall surrender to MSI the
Option and the certificates evidencing any and all shares of
MSI Common Stock purchased thereunder with respect to which
Cardinal then has Beneficial Ownership together with any and
all other instruments which MSI's transfer agent may require
to properly transfer ownership thereof to MSI.
8. Registration Rights.
At any time after a Purchase Event, MSI shall, if
requested by holders or Beneficial Owners of not less than
250,000 shares of MSI Common Stock issued upon exercise of
-11-<PAGE>
the Option (each a "Holder"), as expeditiously as possible
file a registration statement on an appropriate form under
the Securities Act if necessary in order to permit the sale
or other disposition of the shares of MSI Common Stock that
have been acquired upon exercise of the Option in accordance
with the intended method of sale or other disposition re-
quested by any such Holder. Each Holder shall provide all
information reasonably requested by MSI for inclusion in any
registration statement to be filed hereunder and shall pro-
vide MSI, any person controlling MSI, any underwriter and
each other Holder with customary representations, warranties,
covenants, indemnification and contribution in connection
with such registration. MSI shall use its best efforts to
cause such registration statement first to become effective
and then to remain effective for such period not in excess of
180 days from the day such registration statement first be-
comes effective as may be reasonably necessary to effect such
sales or other dispositions. The registration effected under
this Section 8 shall be at MSI's expense except for under-
writing commissions and the fees and disbursements of such
Holders' counsel attributable to the registration of such MSI
Common Stock. In no event shall MSI be required to effect
more than two registrations hereunder. The filing of any
registration statement required hereunder may be delayed for
such period of time (not to exceed 60 days) as may reasonably
-12-<PAGE>
be required to facilitate any public distribution by MSI of
MSI Common Stock or if a special audit of MSI would otherwise
be required in connection therewith. If requested by any
such Holder in connection with such registration, MSI shall
become a party to any underwriting agreement relating to the
sale of such shares on terms and including obligations and
indemnities which are customary for parties similarly situ-
ated. Upon receiving any request for registration under this
Section 8 from any Holder, MSI agrees to send a copy thereof
to any other person known to MSI to be entitled to registra-
tion rights under this Section 8, in each case by promptly
mailing the same, postage prepaid, to the address of record
of the persons entitled to receive such copies.
9. Severability.
Any term, provision, covenant or restriction con-
tained in this Option Agreement held by a court or other Gov-
ernmental Authority of competent jurisdiction to be invalid,
void or unenforceable, shall be ineffective to the extent of
such invalidity, voidness or unenforceability, but neither
the remaining terms, provisions, covenants or restrictions
contained in this Option Agreement nor the validity or en-
forceability thereof in any other jurisdiction shall be af-
fected or impaired thereby. Any term, provision, covenant or
restriction contained in this Option Agreement that is so
-13-<PAGE>
found to be so broad as to be unenforceable shall be inter-
preted to be as broad as is enforceable.
10. Miscellaneous.
(a) Expenses. Each of the parties hereto shall
pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, in-
cluding fees and expenses of its own financial consultants,
investment bankers, accountants and counsel, except as other-
wise provided herein.
(b) Entire Agreement. This Agreement, the Support
Agreements, the Merger Agreement (including the documents and
the instruments referred to therein) and the Confidentiality
Agreement constitute the entire agreement among the parties
and supersede all prior agreements and understandings, agree-
ments or representations by or among the parties, written and
oral, with respect to the subject matter hereof and thereof.
(c) Successors; No Third Party Beneficiaries. The
terms and conditions of this Option Agreement shall inure to
the benefit of and be binding upon the parties hereto and
their respective successors and permitted assigns. Nothing
in this Option Agreement, expressed or implied, is intended
to confer upon any party, other than the parties hereto, and
-14-<PAGE>
their respective successors and assigns, any rights, reme-
dies, obligations, or liabilities under or by reason of this
Option Agreement, except as expressly provided herein.
(d) Notices. All notices or other communications
which are required or permitted hereunder shall be in writing
and sufficient if delivered in accordance with Section 8.2 of
the Merger Agreement (which is incorporated herein by ref-
erence).
(e) Counterparts. This Option Agreement may be
executed in counterparts, and each such counterpart shall be
deemed to be an original instrument, but both such counter-
parts together shall constitute but one agreement.
(f) Specific Performance. The parties hereto
agree that if for any reason Cardinal or MSI shall have
failed to perform its obligations under this Option Agree-
ment, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled
to specific performance and injunctive and other equitable
relief, and the parties hereto further agree to waive any re-
quirement for the securing or posting of any bond in connec-
tion with the obtaining of any such injunctive or other equi-
table relief. This provision is without prejudice to any
other rights that either party hereto may have against the
-15-<PAGE>
other party hereto for any failure to perform its obligations
under this Option Agreement.
(g) Governing Law. This Option Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware applicable to agreements made and entirely
to be performed within such state. Nothing in this Option
Agreement shall be construed to require any party (or any
subsidiary or affiliate of any party) to take any action or
fail to take any action in violation of applicable law, rule
or regulation.
(h) Regulatory Approvals; Section 16(b). If, in
connection with the exercise of the Option under Section 3,
prior notification to or approval of any Governmental Author-
ity is required, then the required notice or application for
approval shall be promptly filed and/or expeditiously pro-
cessed by MSI and periods of time that otherwise would run
pursuant hereto (if any) shall run instead from the date on
which any such required notification period has expired or
been terminated or such approval has been obtained, and in
either event, any requisite waiting period shall have passed.
Periods of time that otherwise would run pursuant to Sections
3, 7 or 8 shall also be extended to the extent necessary to
avoid liability under Section 16(b) of the Exchange Act.
-16-<PAGE>
(i) Waiver and Amendment. Any provision of this
Agreement may be waived at any time by the party that is en-
titled to the benefits of such provision. This Option Agree-
ment may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement
executed by the parties hereto.
-17-<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has
executed this Option Agreement as of the date first written
above.
CARDINAL HEALTH, INC.
By: /s/ Robert D. Walter
Name: Robert D. Walter
Title: Chairman and Chief
Executive Officer
MEDICINE SHOPPE INTERNATIONAL, INC.
By: /s/ David A. Abrahamson
Name: David A. Abrahamson
Title: Chief Executive Officer
-18-
[Form of Support/Voting Agreement]
August 26, 1995
Cardinal Health, Inc.
655 Metro Place South
Suite 925
Dublin, Ohio 43017
Re: Support/Voting Agreement
Dear Sirs:
The undersigned understands that Cardinal Health,
Inc. ("Cardinal"), Arch Merger Corp., a wholly owned subsid-
iary of Cardinal ("Subcorp"), and Medicine Shoppe Interna-
tional, Inc. ("MSI") are entering into an Agreement and Plan
of Merger dated the date hereof (the "Agreement") providing
for, among other things, a merger between Subcorp and MSI
(the "Merger"), in which all of the outstanding shares of
capital stock of MSI will be exchanged for shares of common
stock, without par value, of Cardinal.
The undersigned is a stockholder of MSI (the
"Stockholder") and is entering into this letter agreement to
induce you to enter into the Agreement and to consummate the
transactions contemplated thereby.
The Stockholder confirms its agreement with you as
follows:
1. The Stockholder represents, warrants and agrees
that Schedule I annexed hereto sets forth the shares of the
capital stock of MSI of which the Stockholder is the record
or beneficial owner (the "Shares") and that the Stockholder
is on the date hereof the lawful owner of the number of
Shares set forth in Schedule I, free and clear of all liens,
charges, encumbrances, voting agreements and commitments of
every kind, except as disclosed in Schedule I. Except as set
forth in Schedule I, the Stockholder does not own or hold any
rights to acquire any additional shares of the capital stock
of MSI (by exercise of stock options or otherwise) or any in-
terest therein or any voting rights with respect to any ad-
ditional shares.
2. The Stockholder agrees that it will not, and
will not permit any company, trust or other entity controlled
by the Stockholder to, contract to sell, sell or otherwise
transfer or dispose of any of the Shares or any interest<PAGE>
therein or securities convertible thereinto or any voting
rights with respect thereto, other than (i) pursuant to the
Merger or (ii) with your prior written consent.
3. The Stockholder agrees to, and will cause any
company, trust or other entity controlled by the Stockholder
to, cooperate fully with you in connection with the Agreement
and the transactions contemplated thereby. The Stockholder
agrees that it will not, and will not permit any such com-
pany, trust or other entity to, directly or indirectly (in-
cluding through its officers, directors, employees or other
representatives) solicit, initiate, encourage or facilitate,
or furnish or disclose non-public information in furtherance
of, any inquiries or the making of any proposal with respect
to any recapitalization, merger, consolidation or other busi-
ness combination involving MSI, or acquisition of any capital
stock or any material portion of the assets (except for ac-
quisitions of assets in the ordinary course of business con-
sistent with past practice) of MSI, or any combination of the
foregoing (a "Competing Transaction"), or negotiate, explore
or otherwise engage in discussions with any person (other
than Cardinal, Subcorp or their respective directors, offic-
ers, employees, agents and representatives) with respect to
any Competing Transaction or enter into any agreement, ar-
rangement or understanding with respect to any Competing
Transaction or agree to or otherwise assist in the effectua-
tion of any Competing Transaction; provided, however, that
nothing herein shall prevent the Stockholder from taking any
action or omitting to take any action as a member of the
Board of Directors of MSI to the extent permitted by Section
5.3(d) of the Agreement.
4. The Stockholder agrees that all of the Shares
beneficially owned by the Stockholder, or over which the
Stockholder has voting power or control, directly or indi-
rectly (including any common shares of MSI acquired after the
date hereof), at the record date for any meeting of stock-
holders of MSI called to consider and vote to approve the
Merger and the Agreement and/or the transactions contemplated
thereby will be voted by the Stockholder in favor thereof and
that Stockholder will not vote such Shares in favor of any
Competing Transaction.
5. The Stockholder has all necessary power and
authority to enter into this letter agreement. This agree-
ment is the legal, valid and binding agreement of the Stock-
holder, and is enforceable against the Stockholder in ac-
cordance with its terms.
-2-<PAGE>
6. The Stockholder agrees that damages are an in-
adequate remedy for the breach by Stockholder of any term or
condition of this letter agreement and that you shall be en-
titled to a temporary restraining order and preliminary and
permanent injunctive relief in order to enforce our agree-
ments herein.
This letter agreement may be terminated at the op-
tion of any party at any time after the earlier of (i) ter-
mination of the Agreement and (ii) the Effective Time (as de-
fined in the Agreement). Please confirm that the foregoing
correctly states the understanding between us by signing and
returning to me a counterpart hereof.
Very truly yours,
By: _______________________
Stockholder
Confirmed on the date
first above written.
Cardinal Health, Inc.
By: ___________________________
-3-<PAGE>
