SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 27, 1995
Diagnostek, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-11508 85-0312837
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
4500 Alexander Boulevard, N.E.
Albuquerque, New Mexico 87107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 345-1000
Former name or former address,
if changed since last report
<PAGE>
Item 5. Other Events.
On March 27, 1995, Diagnostek, Inc. (the "Registrant") entered into a
definitive Agreement and Plan of Merger, dated as of March 27, 1995, among Value
Health, Inc. ("VHI"), VHI Merger-Sub. Corp., a wholly-owned subsidiary of VHI
("VHI Sub"), and the Registrant (the "Merger Agreement"), pursuant to which VHI
Sub will merge (the "Merger") with and into the Registrant, with the Registrant
being the surviving corporation in the Merger. It is intended that the Merger
will qualify as a "pooling of interests" for accounting purposes and that the
Merger will constitute a tax-free reorganization for federal income tax
purposes.
Pursuant to the terms and conditions of the Merger Agreement, at the
effective time of the Merger, each share of common stock, par value $.01 per
share, of the Registrant (the "Registrant Common Stock") will be converted into
the right to receive .55 shares (the "Exchange Ratio") of the common stock, no
par value, of VHI.
Consummation of the Merger is subject to satisfaction of certain
conditions, including approval by the Registrant's stockholders of the Merger
Agreement, receipt of regulatory approvals, treatment of the Merger as a
"pooling of interest" for accounting purposes and the accuracy of each party's
representations and warranties as of the effective time of the Merger. In the
event of termination under specified conditions, VHI may be entitled to receive
a fee of $15 million from the Registrant. A copy of the Merger Agreement is
attached as Exhibit 10.1 and is hereby incorporated by reference.
In connection with the Merger Agreement, Nunzio P. DeSantis, the
Registrant's Chairman of the Board and Chief Executive Officer, has entered into
a five year Consulting Agreement and a ten year Agreement Not to Compete with
VHI and the Registrant, effective only upon the consummation of the Merger. A
copy of each of the Consulting Agreement and Agreement Not to Compete are
attached as Exhibits 10.2 and 10.3, respectively, and are hereby incorporated by
reference.
A copy of the joint press release of the Registrant and VHI, dated
March 27, 1995, is attached as Exhibit 10.4 and is hereby incorporated by
reference.
As a result of the announcement of the execution of the Merger Agreement, a
number of shareholder suits have been filed in the Court of Chancery in the
State of Delaware against the Registrant, its directors and VHI seeking, among
other things, to enjoin the Merger and compel the directors to reconsider the
Exchange Ratio.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
(c) Exhibits
10.1 Agreement and Plan of Merger, dated
as of March 27, 1995, by and among
VHI, VHI Sub and the Registrant.
10.2 Consulting Agreement, dated as of
March 27, 1995, between VHI, the
Registrant and Nunzio P. DeSantis.
10.3 Agreement Not to Compete, dated
as of March 27, 1995, between VHI,
the Registrant and Nunzio P. DeSantis.
10.4 Press Release, dated March 27, 1995.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 31, 1995 DIAGNOSTEK, INC.
By: /s/ William A. Barron
Name: William A. Barron
Title: President
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document Page
10.1 Agreement and Plan of Merger,
dated as of March 27, 1995,
by and among VHI, VHI Sub and
the Registrant.
10.2 Consulting Agreement, dated as of
March 27, 1995, between VHI, the
Registrant and Nunzio P. DeSantis.
10.3 Agreement Not to Compete, dated
as of March 27, 1995, between VHI,
the Registrant and Nunzio P.
DeSantis.
10.4 Press Release, dated March 27, 1995.
EXHIBIT 10.1
AGREEMENT
AND
PLAN OF MERGER
dated as of
March 27, 1995
among
VALUE HEALTH, INC.
VHI MERGER-SUB. CORP.
and
DIAGNOSTEK, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER................................................1
Section 1.1 The Merger...........................................1
Section 1.2 Effective Date of the Merger.........................1
ARTICLE II THE SURVIVING CORPORATION.................................2
Section 2.1 Certificate of Incorporation.........................2
Section 2.2 Bylaws...............................................2
Section 2.3 Board of Directors; Directors........................2
Section 2.4 Effects of Merger....................................2
ARTICLE III CONVERSION OF SHARES......................................2
Section 3.1 Exchange Ratio.......................................2
Section 3.2 Parent to Make Certificates Available................3
Section 3.3 Dividends; Transfer Taxes............................3
Section 3.4 No Fractional Shares.................................4
Section 3.5 Stock Options........................................4
Section 3.6 Shareholders' Meetings...............................5
Section 3.7 Closing of the Company's Transfer Books..............6
Section 3.8 Assistance in Consummation of the Merger.............6
Section 3.9 Closing..............................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT..................6
Section 4.1 Organization and Qualification.......................7
Section 4.2 Capitalization.......................................7
Section 4.3 Subsidiaries.........................................8
Section 4.4 Authority Relative to This Merger Agreement..........8
Section 4.5 Reports and Financial Statements.....................9
Section 4.6 Absence of Certain Changes or Events................10
Section 4.7 Litigation..........................................10
Section 4.8 Information in Disclosure Documents,
Registration Statements, etc.....................10
Section 4.9 Interested Stockholder..............................11
Section 4.10 Fairness Opinion....................................11
Section 4.11 Financial Advisor...................................11
Section 4.12 Compliance with Applicable Laws.....................11
Section 4.13 Liabilities.........................................12
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Section 4.14 Accounting Matters..................................12
Section 4.15 Environmental Liability.............................12
Section 4.16 Certain Relationships...............................13
Section 4.17 Certain Healthcare Regulatory Matters...............13
Section 4.18 Certain Agreements..................................14
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............14
Section 5.1 Organization and Qualification......................14
Section 5.2 Capitalization......................................14
Section 5.3 Subsidiaries........................................15
Section 5.4 Authority Relative to This Merger Agreement.........15
Section 5.5 Reports and Financial Statements....................16
Section 5.6 Absence of Certain Changes or Events................17
Section 5.7 Litigation..........................................17
Section 5.8 Information in Disclosure Documents.................17
Section 5.9 Employee Benefit Plans..............................18
Section 5.10 ERISA...............................................19
Section 5.11 Takeover Provisions Inapplicable....................19
Section 5.12 Fairness Opinion....................................20
Section 5.13 Financial Advisor...................................20
Section 5.14 Compliance with Applicable Laws.....................20
Section 5.15 Liabilities.........................................20
Section 5.16 Taxes...............................................21
Section 5.17 Certain Agreements..................................22
Section 5.18 Patents, Trademarks, etc............................22
Section 5.19 Accounting Matters..................................23
Section 5.20 Investment Company Act..............................23
Section 5.21 Properties, Liens...................................23
Section 5.22 Environmental Liability.............................23
Section 5.23 Certain Relationships...............................24
Section 5.24 Insurance...........................................24
Section 5.25 Certain Healthcare Regulatory Matters...............24
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB.............25
Section 6.1 Organization........................................25
Section 6.2 Capitalization......................................25
Section 6.3 Authority Relative to This Merger Agreement.........25
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGER...................26
Section 7.1 Conduct of Business by the Company
Pending the Merger...............................26
<PAGE>
Section 7.2 Conduct of Business by Parent Pending the Merger....28
Section 7.3 Conduct of Business of Sub..........................29
Section 7.4 Notice of Breach....................................29
ARTICLE VIII ADDITIONAL AGREEMENTS....................................29
Section 8.1 Access and Information..............................29
Section 8.2 Registration Statement/Proxy Statement..............29
Section 8.3 Compliance with the Securities Act..................30
Section 8.4 Stock Exchange Listing..............................30
Section 8.5 Employee Matters....................................31
Section 8.6 Registration of Securities..........................31
Section 8.7 Indemnification of Directors and Officers...........32
Section 8.8 HSR Act.............................................33
Section 8.9 Further Assurances..................................33
Section 8.10 No Solicitation.....................................33
ARTICLE IX CONDITIONS PRECEDENT.....................................34
Section 9.1 Conditions to Each Party's Obligation
to Effect the Merger.............................34
Section 9.2 Conditions to Obligation of the Company
to Effect the Merger.............................35
Section 9.3 Conditions to Obligations of Parent and Sub
to Effect the Merger.............................36
ARTICLE X TERMINATION, AMENDMENT AND WAIVER........................36
Section 10.1 Termination.........................................36
Section 10.2 Effect of Termination...............................38
Section 10.3 Amendment...........................................38
Section 10.4 Waiver..............................................38
ARTICLE XI GENERAL PROVISIONS.......................................38
Section 11.1 Effectiveness of Representations and Warranties.....38
Section 11.2 Notices.............................................39
Section 11.3 Fees and Expenses...................................40
Section 11.4 Publicity...........................................40
Section 11.5 Specific Performance................................40
Section 11.6 Interpretation......................................40
Section 11.7 Miscellaneous.......................................41
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), dated as
of March 27, 1995 by and among VALUE HEALTH, INC., a Delaware corporation
("Parent"), VHI MERGER-SUB. CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of Parent ("Sub"), and DIAGNOSTEK, INC., a Delaware
corporation (the "Company"):
WITNESSETH
WHEREAS, Parent and the Company desire to effect a business
combination by means of the merger of Sub with and into the Company;
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved the merger of Sub into the Company (the "Merger"), upon the terms and
subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling of interests;"
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, on the Effective Date (as defined in Section 1.2), Sub shall be merged
into the Company and the separate existence of Sub shall thereupon cease, and
the Company, as the surviving corporation in the Merger (the "Surviving
Corporation"), shall by virtue of the Merger continue its corporate existence
under the laws of the State of Delaware.
Section 1.2 Effective Date of the Merger. The Merger shall become effective
at the date and time (the "Effective Date") when a properly executed Certificate
of Merger is duly filed with the Secretary of State of the State of Delaware,
which filing shall be made as soon as practicable following fulfillment of the
conditions set forth in Article IX hereof, or at such time thereafter as is
provided in such Certificate.
<PAGE>
ARTICLE II
THE SURVIVING CORPORATION
Section 2. l Certificate of Incorporation. The Certificate of Incorporation
of the Company shall be the Certificate of Incorporation of the Surviving
Corporation after the Effective Date, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
Section 2.2 Bylaws. The Bylaws of the Company as in effect on the Effective
Date shall be the Bylaws of the Surviving Corporation.
Section 2.3 Board of Directors, Officers. The directors of Sub immediately
prior to the Effective Date shall be the directors of the Surviving Corporation
and the officers of the Company immediately prior to the Effective Date shall be
the officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set forth
in Section 259 of the Delaware General Corporation Law (the "DGCL").
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Exchange Ratio. On the Effective Date, by virtue of the Merger
and without any action on the part of any holder of any common stock, $0.01 par
value, of the Company ("Company Common Stock"):
(a) All shares of Company Common Stock which are held by the Company
or any subsidiary of the Company, and any shares of Company Common Stock owned
by Parent, Sub or any other subsidiary of Parent, shall be canceled.
(b) Subject to Section 3.4, each remaining outstanding share of
Company Common Stock shall be converted into the right to receive .55 (the
"Exchange Ratio") fully paid and nonassessable shares of the no par value common
stock of Parent ("Parent Common Stock").
(c) In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or rights
issued in respect of, Parent Common Stock after the date hereof, the Exchange
Ratio shall be adjusted accordingly.
(d) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully paid and nonassessable share of Common
Stock, $0.01 par value, of the Surviving Corporation.
<PAGE>
Section 3.2 Parent to Make Certificates Available.
(a) Prior to the Closing, Parent shall select Mellon Securities
Transfer Services or such other person or persons reasonably satisfactory to the
Company to act as Exchange Agent for the Merger (the "Exchange Agent"). As soon
as practicable after the Effective Date, Parent shall make available, and each
holder of Company Common Stock will be entitled to receive, upon surrender to
the Exchange Agent of one or more certificates ("Certificates") representing
such stock for cancellation, certificates representing the number of shares of
Parent Common Stock into which such shares are converted in the Merger and cash
in consideration of fractional shares as provided in Section 3.4. Parent Common
Stock into which Company Common Stock shall be converted in the Merger shall be
deemed to have been issued on the Effective Date (the "Share Consideration").
(b) Any holder of shares of Company Common Stock who has not exchanged
his shares for Parent Common Stock in accordance with subsection (a) within six
months after the Effective Time shall have no further claim upon the Exchange
Agent and shall thereafter look only to Parent and the Surviving Corporation for
payment in respect of his shares of Company Common Stock. Until so surrendered,
certificates representing Company Common Stock shall represent solely the right
to receive the Share Consideration (and cash in lieu of any fractional shares
pursuant to Section 3.4 hereof). If any certificates representing shares of
Company Common Stock entitled to payment pursuant to Section 3.l shall not have
been surrendered for such payment prior to such date on which any payment in
respect thereof would otherwise escheat to or become the property of any
governmental agency or other governmental entity, such shares of Company Common
Stock shall, to the extent permitted by applicable law, be deemed to be canceled
and no money or other property will be due to the holder thereof.
Section 3.3 Dividends; Transfer Taxes. No dividends or other distributions
that are declared or made on Parent Common Stock will be paid to persons
entitled to receive certificates representing Parent Common Stock pursuant to
this Merger Agreement until such persons surrender their Certificates
representing Company Common Stock. Upon such surrender, there shall be paid to
the person in whose name the certificates representing such Parent Common Stock
shall be issued any dividends or other distributions which shall have become
payable with respect to such Parent Common Stock in respect of a record date
after the Effective Date. In no event shall the person entitled to receive such
dividends be entitled to receive interest on such dividends. In the event that
any certificates for any shares of Parent Common Stock are to be issued in a
name other than that in which the Certificates representing shares of Company
Common Stock surrendered in exchange therefor are registered, it shall be a
condition of such exchange that the certificate or certificates so surrendered
shall be properly endorsed or be otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such
shares of Parent Common Stock in a name other than that of the registered holder
of the Certificate surrendered, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not
<PAGE>
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock for
any shares of Parent Common Stock or dividends thereon delivered to a public
official pursuant to any applicable escheat laws.
Section 3.4 No Fractional Shares. No certificates or scrip representing
less than one share of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates representing Company Common Stock pursuant to
Section 3.1(b). In lieu of any such fractional share, each holder of Company
Common Stock who would otherwise have been entitled to a fraction of a share of
Parent Common Stock upon surrender of Certificates for exchange pursuant to
Section 3.l(b) shall be paid upon such surrender cash (without interest) in an
amount equal to such holder's proportionate interest in the net proceeds from
the sale or sales in the open market by the Exchange Agent, on behalf of all
such holders, of the aggregate fractional Parent Common Stock issued pursuant to
this Section 3.4. As soon as practicable following the Effective Date, the
Exchange Agent shall determine the excess of (a) the number of full shares of
Parent Common Stock delivered to the Exchange Agent by Parent over (b) the
aggregate number of full shares of Parent Common Stock to be distributed to
holders of Company Common Stock (such excess being herein called the "Excess
Shares"), and the Exchange Agent, as agent for the former holders of Company
Common Stock, shall sell the Excess Shares at the prevailing prices on the New
York Stock Exchange ("NYSE"). The sale of the Excess Shares by the Exchange
Agent shall be executed on the NYSE through one or more member firms of the NYSE
and shall be executed in round lots to the extent practicable. The Exchange
Agent shall deduct from the proceeds of the sale of the Excess Shares all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
such sale of Excess Shares. Until the net proceeds of such sale have been
distributed to the former stockholders of the Company, the Exchange Agent will
hold such proceeds in trust for such former stockholders (the "Fractional
Securities Fund"). As soon as practicable after the determination of the amount
of cash to be paid to former stockholders of the Company in lieu of any
fractional interests, the Exchange Agent shall make available in accordance with
this Agreement such amounts to such former stockholders.
Section 3.5 Stock Options.
(a) At or prior to the Effective Date, the Company and Parent shall
take all action necessary to cause the assumption by Parent as of the Effective
Date of all of the following which remain outstanding as of the Effective Date:
(i) the options to purchase Company Common Stock listed in Section 5.2 of the
Company Disclosure Schedule (as defined below), whether vested or unvested,
issued under the Company's 1983 Non-qualified and Incentive Stock Option Plan
and 1991 Stock Option Plan (collectively, the "Stock Option Plans"), (ii)
options to purchase Company Common Stock listed in Section 5.2 of the Company
Disclosure Schedule pursuant to option agreements outside of the Stock Option
Plans, and (iii) the warrants to purchase Company Common Stock listed in Section
5.2 of the Company Disclosure Schedule issued pursuant to warrant agreements
(collectively, the
<PAGE>
"Outstanding Options"). To the extent permitted under applicable law and the
applicable agreements and Stock Option Plans, each of the Outstanding Options
shall be converted without any action on the part of the holder thereof into an
option to purchase shares of Parent Common Stock as of the Effective Date. The
number of shares of Parent Common Stock that the holder of an assumed
Outstanding Option shall be entitled to receive upon the exercise of such option
shall be a number of whole and fractional shares determined by multiplying the
number of shares of Company Common Stock subject to such option, determined
immediately before the Effective Date, by the Exchange Ratio. The exercise price
of each share of Parent Common Stock subject to an Outstanding Option shall be
the amount (rounded up to the nearest whole cent) obtained by dividing the
exercise price per share of Company Common Stock at which such option is
exercisable immediately before the Effective Date by the Exchange Ratio. Other
than as set forth in the Outstanding Options, the assumption and substitution of
options as provided herein shall not give the holders of such options additional
benefits or additional vesting rights which they did not have immediately prior
to the Effective Date or relieve the holders of any obligations or restrictions
applicable to their options or the shares obtainable upon exercise of the
options. Only whole shares of Parent Common Stock shall be issued upon exercise
of any Outstanding Option, and in lieu of receiving any fractional share of
Parent Common Stock, the holder of such option shall, upon exercise, receive in
cash the fair market value of the fractional share, net of the applicable
exercise price of the fractional share and applicable withholding taxes. Prior
to the Effective Date, the Company shall take such additional actions as are
necessary under applicable law and the applicable agreements and Stock Option
Plans to assure that each Outstanding Option shall, from and after the Effective
Date, represent only the right to urchase, upon exercise, whole shares of Parent
Common Stock and cash in lieu of any fractional share in accordance with the
provisions of this Section 3.5.
(b) After the Effective Date, the Stock Option Plans shall be
continued in effect by Parent subject to amendment, modification, suspension,
abandonment or termination as provided therein, and the Stock Option Plans as so
continued (i) shall relate solely to those Outstanding Options that are governed
by such Stock Option Plans immediately prior to the Effective Date, (ii)
thereafter shall relate only to the issuance of Parent Common Stock as provided
in this Section and (iii) shall continue to provide for equitable adjustment in
the terms of Outstanding Options in the event of certain corporate events which
alter the capital structure of Parent. Parent shall reserve for issuance the
number of shares of Parent Common Stock that will become issuable after the
Effective Date upon the exercise of the Outstanding Options pursuant to this
Section 3.5. After the Effective Date, Parent shall promptly notify the holders
of Outstanding Options of the assumption by Parent of such options pursuant to
this Merger Agreement.
Section 3.6 Shareholders' Meetings.
(a) The Company shall take all action necessary, in accordance with
applicable law and its Certificate of Incorporation and Bylaws, to convene a
special meeting of the holders of Company Common Stock (the "Company Meeting")
as promptly as practicable for
<PAGE>
the purpose of considering and taking action upon this Merger Agreement. Subject
to its fiduciary duties, as advised by outside counsel, the Board of Directors
of the Company will recommend that holders of Company Common Stock vote in favor
of and approve the Merger and the adoption of the Merger Agreement at the
Company Meeting. At the Company Meeting, all of the shares of Company Common
Stock then owned by Parent, Sub, or any other subsidiary of Parent, or with
respect to which Parent, Sub, or any other subsidiary of Parent holds the power
to direct the voting, will be voted in favor of approval of the Merger and
adoption of this Merger Agreement.
(b) Parent shall take all action necessary, in accordance with
applicable law and its Certificate of Incorporation and Bylaws, to convene a
special meeting of the holders of Parent Common Stock (the "Parent Meeting") as
promptly as practicable for the purpose of considering and taking action to
authorize the issuance of Parent Common Stock pursuant to the Merger under the
applicable guidelines of the NYSE (the "Parent Share Proposal"). Subject to its
fiduciary duties, as advised by outside counsel, the Board of Directors of
Parent will recommend that holders of Parent Common Stock vote in favor of and
approve the Parent Share Proposal at the Parent Meeting.
Section 3.7 Closing of the Company's Transfer Books. At the Effective Date,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall be made thereafter. In the event that,
after the Effective Date, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for full shares of Parent
Common Stock as provided in Section 3.1(b) and cash in lieu of fractional
shares, if any, as provided in Section 3.4.
Section 3.8 Assistance in Consummation of the Merger. Each of Parent, Sub
and the Company shall provide all reasonable assistance to, and shall cooperate
with, each other to bring about the consummation of the Merger as soon as
possible in accordance with the terms and conditions of this Merger Agreement.
Parent shall cause Sub to perform all of its obligations in connection with this
Merger Agreement.
Section 3.9 Closing. The closing of the transactions contemplated by this
Merger Agreement shall take place (a) at the offices of Gibson, Dunn & Crutcher,
200 Park Avenue, New York, New York 10166, at 9:00 A.M. local time on the day
which is at least one business day after the day on which the last of the
conditions set forth in Article IX is fulfilled or waived or (b) at such other
time and place as Parent and the Company shall agree in writing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in the schedule delivered to Company concurrently with
the execution hereof, which schedule shall identify exceptions and other
information by specific Section references and shall be initialed by Parent and
the Company for identification
<PAGE>
purposes (the "Parent Disclosure Schedule"), Parent represents and warrants to
the Company as follows:
Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted. Parent is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities make such qualification necessary, except where the
failure to be so qualified will not, individually or in the aggregate, have a
"Parent Material Adverse Effect" (as defined below). As used in this Agreement,
a "Parent Material Adverse Effect" shall mean any event, circumstance,
development or occurrence, individually or when taken together with all other
such events, circumstances, developments or occurrences, causing, resulting in
or having, or reasonably likely to cause, result in or have, a material adverse
effect on the condition (financial or otherwise), business, properties, business
relationships, prospects or results of operations of Parent and its subsidiaries
taken as a whole. Complete and correct copies of the Certificate of
Incorporation and Bylaws of Parent, as amended to the date hereof, have been
delivered to the Company as attachments to Section 4.1 of the Parent Disclosure
Schedule.
Section 4.2 Capitalization. The authorized capital stock of Parent consists
of 100,000,000 shares of Parent Common Stock, and l ,000,000 shares of preferred
stock, $0.01 par value. As of March 17, 1995, 40,587,272 shares of Parent Common
Stock were validly issued and outstanding, fully paid, and nonassessable, and no
shares of preferred stock were issued and outstanding, and, since that date
through the date of execution and delivery of this Merger Agreement, no
additional shares of capital stock of Parent have been issued except shares of
Parent Common Stock issued pursuant to the exercise of stock options or other
commitments set forth herein or in Section 4.2 of the Parent Disclosure
Schedule. As of the date hereof, there are no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which the Parent's
shareholders may vote issued or outstanding. As of March 17, 1995, except for
options to acquire 4,497,477 shares of Parent Common Stock, and except as
provided herein or in Section 4.2 of the Parent Disclosure Schedule, there are
no options, warrants, calls or other rights, agreements or commitments presently
outstanding obligating Parent to issue, deliver or sell shares of its capital
stock or any debt securities or other instruments or rights convertible into or
exchangeable for such capital stock, or obligating Parent to grant, extend or
enter into any such option, warrant, call or other such right, agreement or
commitment, or to issue any such convertible or exchangeable debt security,
instrument or right and, since that date through the date of execution and
delivery of this Merger Agreement, no such options, warrants, calls or other
rights, agreements or commitments, or such convertible or exchangeable debt
securities, instruments or other rights have been issued, granted or entered
into except for the grant of additional stock options pursuant to Parent's stock
plans. All of the shares of Parent Common Stock issuable in accordance with this
Merger Agreement in exchange for Company Common Stock at the Effective Date in
accordance with this Merger Agreement will be, when so issued, duly
<PAGE>
authorized, validly issued, fully paid and nonassessable and shall be delivered
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever, including any preemptive rights of any stockholder of Parent.
There are no obligations, contingent or otherwise, of Parent or any of its
Significant Subsidiaries (as defined below) to repurchase, redeem or otherwise
acquire any shares of capital stock of Parent or any Significant Subsidiary of
Parent.
Section 4.3 Subsidiaries. Section 4.3 of the Parent Disclosure Schedule
lists the only "Significant Subsidiaries" (as such term is defined in Rule 1-02
of Regulation S-X of the Securities and Exchange Commission (the "Commission"))
("Significant Subsidiaries") owned directly or indirectly by Parent. Each
Significant Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has the
corporate power to carry on its business as it is now being conducted or
currently proposed to be conducted. Each Significant Subsidiary is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary except
where the failure to be so qualified will not have a Parent Material Adverse
Effect. All the outstanding shares of capital stock of each Significant
Subsidiary are validly issued, fully paid and nonassessable and those owned by
Parent or by a Significant Subsidiary of Parent are owned free and clear of any
liens, claims or encumbrances. There are no existing options, warrants, calls or
other rights, agreements or commitments of any character relating to the issued
or unissued capital stock or other securities of any of the Significant
Subsidiaries of Parent. Parent has made available to the Company true and
complete copies of the charter and bylaws, in the case of a corporation, or
equivalent governing document, in the case of non-corporate entities, for each
corporation,. partnership, joint venture or other business association or entity
owned, directly or indirectly, by Parent that is material to Parent and its
subsidiaries taken as a whole.
Section 4.4 Authority Relative to This Merger Agreement. Parent has the
corporate power to enter into this Merger Agreement and to carry out its
obligations hereunder. The execution and delivery of this Merger Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by Parent's Board of Directors. The Merger Agreement constitutes a
valid and binding obligation of Parent enforceable in accordance with its terms
except as enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought. Except for the approval of the holders of the Parent Common Stock
described in Section 3.6(b), no other corporate proceedings on the part of
Parent are necessary to authorize the Merger Agreement and the transactions
contemplated hereby. Except as disclosed in Section 4.4 of the Parent Disclosure
Schedule, Parent is not subject to or obligated under (a) any charter or bylaw
provision, or (b) any indenture or other loan document provision, other
contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation applicable to
Parent or any of its subsidiaries or their respective
<PAGE>
properties or assets, which would be breached or violated, or under which there
would be a default (with or without notice or lapse of time, or both), or under
which there would arise a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit, by its executing and carrying
out this Merger Agreement other than in the case of clause (b) only, (i) any
breaches, violations, defaults, terminations, cancellations, accelerations or
losses which, either singly or in the aggregate, will not have a Parent Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby and (ii) the laws and regulations referred to in the next sentence.
Except as disclosed in Section 4.4 of the Parent Disclosure Schedule and except
for compliance with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), DGCL and the securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any public body or authority is necessary
for the consummation by Parent of the Merger or the other transactions
contemplated by this Merger Agreement, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Parent Material Adverse Effect or prevent the consummation of
the transactions contemplated hereby.
Section 4.5 Reports and Financial Statements.
(a) Parent has previously furnished the Company with true and complete
copies of its (i) Annual Report on Form 10-K for the years ended December 31,
1992 and 1993 as filed with the Commission (and any amendments thereto), (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994, June 30,
1994 and September 30, 1994 as filed with the Commission (and any amendments
thereto), (iii) definitive proxy statement related to its 1994 Annual Meeting of
Shareholders (and any supplements thereto); and (iv) all other reports (and any
amendments thereto) filed with the Commission since the filing of its Form 10-K
for the year ended December 31, 1993 (other than preliminary material) that
Parent was required to file with the Commission pursuant to the Exchange Act and
the rules and regulations of the Commission thereunder since that date (the
documents referred to in clauses (i) through (iv) being referred to herein
collectively as the "Parent SEC Reports"). As of their respective dates, the
Parent SEC Reports complied in all material respects with the requirements of
the Exchange Act and the rules and regulations of the Commission thereunder
applicable to such Parent SEC Reports. As of their respective dates, the Parent
SEC Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Parent included in the Parent SEC Reports comply
in all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto. The
financial statements included in the Parent SEC Reports have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto); present
fairly, in all material respects, the financial position of Parent and
<PAGE>
its subsidiaries as at the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder; and are, in all material respects, in accordance with
the books of account and records of the Parent.
(b) Parent has previously furnished the Company with true and correct
copies of the audited consolidated financial statements of Parent for the fiscal
year ended December 31, 1994 (the "1994 Financial Statements"). The 1994
Financial Statements comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto. The 1994 Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto); present fairly, in
all material respects, the financial position of Parent and its subsidiaries as
at December 31, 1994 and the results of their operations and cash flow for the
fiscal year then ended; and are in all material respects, in accordance with the
books of account and records of Parent.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports or as disclosed in Section 4.6 of the Parent Disclosure
Schedule, since December 31, 1994, there has not been any Parent Material
Adverse Effect (other than as a result of changes in laws or regulations of
general applicability).
Section 4.7 Litigation. Except as disclosed in the Parent SEC Reports or as
disclosed in Section 4.7 of the Parent Disclosure Schedule, there is no suit,
action or proceeding pending or, to the knowledge of Parent, threatened against
Parent or any of its subsidiaries which, alone or in the aggregate, is likely,
insofar as Parent reasonably foresees, to have a Parent Material Adverse Effect,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding specifically against Parent or any of its subsidiaries having, or
which, insofar as Parent reasonably foresees, in the future could have, either
alone or in the aggregate, any such Parent Material Adverse Effect.
Section 4.8 Information in Disclosure Documents, Registration Statements,
etc.
(a) None of the information concerning Parent or Sub in (i) the
Registration Statement to be filed with the Commission by Parent on Form S-4
under the Securities Act for the purpose of registering the shares of Parent
Common Stock to be issued in the Merger (the "Registration Statement") and (ii)
the joint prospectus/proxy statement of the Company and Parent (the "Proxy
Statement") required to be mailed to the shareholders of the Company and Parent
in connection with the Merger will, in the case of the Proxy Statement or any
amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of the
Parent Meeting of shareholders to be held in connection with the Merger, or, in
the case of the Registration
<PAGE>
Statement, at the time it becomes effective and at the Effective Date, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder. The foregoing representations and warranties of
Parent contained in this Section 4.8 shall in no event apply to any statements
or omissions in the Registration Statement or the Proxy Statement based upon
information provided by the Company for use therein.
(b) No representation or warranty made by Parent contained in this
Agreement and no statement contained in any certificate, list, exhibit or other
instrument specified in this Agreement, including without limitation the Parent
Disclosure Schedule, contains any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
Section 4.9 Interested Stockholder. Neither Parent nor any "affiliate" or
"associate" (as defined in Section 203 of the DGCL) of Parent is an "Interested
Stockholder" (as defined in Section 203 of the DGCL) of the Company.
Section 4.10 Fairness Opinion. Parent has received the written opinion of
Montgomery Securities, financial advisors to Parent, dated the date hereof, to
the effect that the Exchange Ratio is fair to the shareholders of Parent from a
financial point of view.
Section 4.11 Financial Advisor. Except as may be disclosed in Section 4.11
of the Parent Disclosure Schedule, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of Parent.
Section 4.12 Compliance with Applicable Laws. Parent and its Significant
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all courts, administrative agencies or commissions or other
governmental authorities or instrumentalities, domestic or foreign (each a
"Governmental Entity"), including, without limitation, applicable state
insurance and health commissions, except for such permits, licenses, variances,
exemptions, orders and approvals the failure of which to hold would not have a
Parent Material Adverse Effect (the "Parent Permits"). Parent and its
Significant Subsidiaries are in compliance with the terms of the Parent Permits,
except for such failures to comply, which singly or in the aggregate, would not
have a Parent Material Adverse Effect. Except as disclosed in the Parent SEC
Reports filed prior to the date of this Merger Agreement or in Section 4.12 of
the Parent Disclosure Schedule, the businesses of Parent and its Significant
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, including, without limitation, applicable
state
<PAGE>
insurance and health commissions, except for possible violations which
individually or in the aggregate do not and would not have a Parent Material
Adverse Effect. Except as disclosed in Section 4.12 of the Parent Disclosure
Schedule, no investigation or review by any Governmental Entity, including,
without limitation, applicable state insurance and health commissions, with
respect to Parent or any of its Significant Subsidiaries is pending, or, to the
knowledge of Parent, threatened, nor has any Governmental Entity, including,
without limitation, applicable state insurance and health commissions, indicated
an intention to conduct the same, other than those the outcome of which would
not have a Parent Material Adverse Effect.
Section 4.13 Liabilities. Except as disclosed in Section 4.13 of the Parent
Disclosure Schedule, neither Parent nor any of its Significant Subsidiaries has
any material liabilities or obligations (absolute, accrued, contingent or
otherwise) that would be required to be reflected on, or reserved against in, a
balance sheet of Parent, or disclosed in the notes thereto, prepared in
accordance with the published rules and regulations of the Commission regarding
Quarterly Statements on Form 10-Q and Annual Statements on Form 10-K and
generally accepted accounting principles, except (a) as otherwise reported in
the consolidated financial statements contained in Parent's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 or in the 1994 Financial
Statements or (b) for liabilities or obligations incurred in the ordinary course
of business since December 31, 1994, that would not have a Parent Material
Adverse Effect.
Section 4.14 Accounting Matters. Neither Parent nor, to its best knowledge,
any of its affiliates, has through the date hereof, taken or agreed to take any
action that would prevent the business combination to be effected by the Merger
from being accounted for as a "pooling of interests." Parent has received a
letter from Coopers & Lybrand L.L.P., a copy of which is attached to Section
4.14 of the Parent Disclosure Schedule, to the effect that the Merger will
qualify for "pooling of interests" accounting treatment if consummated in
accordance with this Merger Agreement and if the operations of Parent and the
Surviving Corporation are conducted in a manner that do not violate "pooling of
interests" accounting treatment.
Section 4.15 Environmental Liability.
(a) The businesses of Parent and its Significant Subsidiaries have
been and are operated in material compliance with all applicable statutory or
regulatory requirements of all Governmental Entities with jurisdiction over the
environment or over workplace health and safety, and neither Parent nor any of
its Significant Subsidiaries has caused or allowed the generation, treatment,
storage, release or disposal of hazardous substances except in accordance with
such statutes and regulations as they existed at the time of such generation,
treatment, storage, release or disposal.
(b) Neither Parent nor its Significant Subsidiaries has received any
written notice or, to the best knowledge of Parent, any other communication,
from any Governmental Entities alleging or concerning any violation by Parent or
any of its Significant Subsidiaries of,
<PAGE>
or responsibility or liability of Parent or any of its Significant Subsidiaries
under, any statute or regulation relating to the environment. There are no
pending or, to the best knowledge of Parent, threatened, claims, suits,
proceedings or investigations with respect to the businesses or operations of
Parent or any of its Significant Subsidiaries alleging or concerning any
violation of or responsibility or liability under any statutes or regulations
relating to the environment, nor does Parent have any knowledge of any fact or
condition which might reasonably be expected to give rise to such a claim, suit,
proceeding or investigation.
(c) Parent and its Significant Subsidiaries are in possession of all
material approvals, permits and licenses from all Governmental Entities under
statutes and regulations relating to the environment and to workplace health and
safety with respect to the operation of the businesses of Parent and its
Significant Subsidiaries; there are no pending or, to the best knowledge of
Parent, threatened, actions, proceedings or investigations seeking to revoke or
deny renewal of any of such approvals, permits and licenses; nor does Parent
have knowledge of any fact or condition which might reasonably be expected to
give rise to any action, proceeding or investigation to revoke or deny renewal
of such approvals, permits or licenses if such revocation or denial would
constitute a Parent Material Adverse Effect.
Section 4.16 Certain Relationships. All billings made to customers and
suppliers of Parent or any Significant Subsidiary have been properly computed
and billed in compliance with applicable laws, rules, regulations, agreements
and procedures, and no such customer has any right to any refund, price or fee
adjustments, offsets or similar right with respect to any such charges, except
where the failure to so comply or the amount of such right would not have a
Parent Material Adverse Effect.
Section 4.17 Certain Healthcare Regulatory Matters.
(a) To the best knowledge of Parent, Parent and its Significant
Subsidiaries have not engaged knowingly and willfully in any activities which
are prohibited under federal Medicare and Medicaid statutes, including, without
limitation, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn or related
state or local statutes or regulations or which otherwise constitutes fraud,
including, without limitation, the following: (i) knowingly and willfully making
or causing to be made a false statement or representation of a material fact in
any application for any benefit or payment; (ii) knowingly and willfully making
or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment; (iii) knowingly and
willfully failing to disclose knowledge of the occurrence of any event affecting
the initial or continued right to any benefit or payment on its behalf or on
behalf of another, with intent to secure such benefit or payment fraudulently;
(iv) knowingly and willfully soliciting or receiving any remuneration (including
any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay such remuneration (A) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid or (B) in return for purchasing, leasing, or
<PAGE>
ordering or arranging for or recommending purchasing, leasing or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
(b) Parent and its Significant Subsidiaries have complied and are in
compliance, in all material respects, with applicable state laws regulating
pharmacies.
Section 4.18 Certain Agreements. Section 4.18 of the Parent Disclosure
Schedule contains a list of each contract, agreement and understanding with any
customer or supplier of Parent or any Significant Subsidiary that is material to
the business of Parent and its subsidiaries taken as a whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the schedule delivered to Parent concurrently with
the execution hereof, which schedule shall identify exceptions and other
information by specific Section references and shall be initialed by Company and
the Parent for identification purposes (the "Company Disclosure Schedule"), the
Company represents and warrants to Parent and Sub as follows:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it is
now being conducted or currently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not have a "Company Material Adverse
Effect" (as defined below). As used in this Agreement, a "Company Material
Adverse Effect" shall mean any event, circumstance, development or occurrence,
individually or when taken together with all other such events, circumstances,
developments or occurrences, causing, resulting in or having, or reasonably
likely to cause, result in or have, a material adverse effect on the condition
(financial or otherwise), business, properties, business relationships,
prospects or results of operations of Company and its subsidiaries taken as a
whole. Complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company, Diagnostek Pharmacy Services, Inc. ("DPSI"), Health Care
Services, Inc. ("HCS") and HPI Health Care Services, Inc. ("HPI"), as amended to
the date hereof, have been delivered to Parent as attachments to Section 5.1 of
the Company Disclosure Schedule.
Section 5.2 Capitalization. The authorized capital stock of the Company
consists of 45,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, $0.01 par value. As of March 22, 1995, 24,238,246 shares of
Company Common Stock were validly issued and outstanding, fully paid and
nonassessable, 111,989 shares of Company Common Stock were held in treasury, and
no shares of preferred stock were outstanding, and, since that date, no
additional shares of capital stock of Company have been
<PAGE>
issued except shares of Company Common Stock issued pursuant to the exercise of
stock options or other commitments set forth in Section 5.2 of the Company
Disclosure Schedule. As of the date hereof, there are no bonds, debentures,
notes or other indebtedness having the right to vote on any matters on which the
Company's shareholders may vote issued or outstanding. Except as set forth in
Section 5.2 of the Company Disclosure Schedule, there are no options, warrants,
calls or other rights, agreements or commitments outstanding obligating the
Company to issue, deliver or sell shares of its capital stock or any debt
securities or other instruments or rights convertible into or exchangeable for
such capital stock, or obligating the Company to grant, extend or enter into any
such option, warrant, call or other such right, agreement or commitment, or to
issue any such convertible or exchangeable debt security, instrument or right.
There are no obligations, contingent or otherwise, of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or any subsidiary of the Company. The Company has delivered
to Parent complete and correct copies of (a) the 1983 Non-qualified and
Incentive Stock Option Plan and the 1991 Stock Option Plan, and all amendments
thereto, and (b) each form of stock option agreement and warrant agreement used
by the Company with respect to the Outstanding Options.
Section 5.3 Subsidiaries. Section 5.3 of the Company Disclosure Schedule
lists all subsidiaries of the Company. Each such subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power to carry on its
business as it is now being conducted or currently proposed to be conducted.
Each such subsidiary is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such
qualification necessary except where the failure to be so qualified will not
have a Company Material Adverse Effect. All the outstanding shares of capital
stock of each such subsidiary are validly issued, fully paid and nonassessable
and those owned by the Company or by a subsidiary of the Company are owned free
and clear of any liens, claims or encumbrances. There are no existing options,
warrants, calls or other rights, agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of any of
such subsidiaries. Except as disclosed in Section 5.3 of the Company Disclosure
Schedule and except for wholly owned subsidiaries the formation of which was
approved pursuant to Section 7.1(f) hereof, the Company does not directly or
indirectly own any interest in any other corporation, partnership, joint venture
or other business association or entity.
Section 5.4 Authority Relative to This Merger Agreement. The Company has
the corporate power to enter into this Merger Agreement and, subject to approval
of this Agreement by the holders of Company Common Stock, to carry out its
obligations hereunder. The execution and delivery of this Merger Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors. This Merger Agreement
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and
<PAGE>
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Except for the approval of the holders of
Company Common Stock, no other corporate proceedings on the part of the Company
are necessary to authorize this Merger Agreement and the transactions
contemplated hereby. Except as set forth in Section 5.4 of the Company
Disclosure Schedule, the Company is not subject to or obligated under (a) any
charter or bylaw provision, or (b) any indenture or other loan document
provision, other contract, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit, by its
executing and carrying out this Merger Agreement, other than, in the case of
clause (b) only, (A) any breaches, violations, defaults, terminations,
cancellations, accelerations or losses which, either singly or in the aggregate,
will not have a Company Material Adverse Effect or prevent the consummation of
the transactions contemplated hereby and (B) the laws and regulations referred
to in the next sentence. Except as disclosed in Section 5.4 of the Company
Disclosure Schedule or, with respect to the Merger or the transactions
contemplated thereby, in connection, or in compliance, with the provisions of
the HSR Act, the Securities Act, the Exchange Act, and the corporation,
securities or blue sky laws or regulations of the various states, no filing or
registration with, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by the Company of the Merger or the
other transactions contemplated hereby, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Company Material Adverse Effect or prevent the consummation of
the transactions contemplated hereby.
Section 5.5 Reports and Financial Statements.
(a) The Company has previously furnished Parent with true and complete
copies of its (i) Annual Reports on Form 10-K for the fiscal years ended March
31, 1993 and 1994, as filed with the Commission (and any amendments thereto),
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 1994,
September 30, 1994 and December 31, 1994, as filed with the Commission (and any
amendments thereto), (iii) definitive proxy statements (and any supplements
thereto) related to all meetings of its shareholders (whether annual or special)
since April 1, 1994 and (iv) all other reports filed by the Company with the
Commission since March 31, 1994, which are all the documents (other than
preliminary material) that the Company was required to file with the Commission
pursuant to the Exchange Act and the rules and regulations of the Commission
thereunder since that date (clauses (i) through (iv) being referred to herein
collectively as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports complied in all material respects with the requirements of
the Exchange Act and the rules and regulations of the Commission thereunder
applicable to such Company SEC Reports. As of their respective dates, the
Company SEC Reports did not contain any untrue statement of a material fact or
<PAGE>
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of the Company included in the Company
SEC Reports comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto. The financial statements included in the Company SEC Reports:
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto); present fairly, in all material respects, the financial position
of the Company and its subsidiaries as at the dates thereof and the results of
their operations and cash flow for the periods then ended subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Exchange Act and the rules promulgated thereunder; and are in all material
respects, in accordance with the books of account and records of the Company.
(b) The audited consolidated financial statements of the Company for
the fiscal year ended March 31, 1995 (the "1995 Financial Statements") delivered
to Parent pursuant to Section 9.3(d) hereof comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto. The 1995 Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto);
present fairly, in all material respects, the financial position of the Company
and its subsidiaries as at March 31, 1995 and the results of their operations
and cash flow for the fiscal year then ended; and are in all material respects,
in accordance with the books of account and records of the Company. The parties
hereto acknowledge that the representation and warranty contained in this
Section 5.5(b) shall not be effective until the date the 1995 Financial
Statements are delivered to Parent pursuant to Section 9.3(d) hereof.
Section 5.6 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports or as disclosed in Section 5.6 of the Company Disclosure
Schedule, since March 31, 1994, there has not been any Company Material Adverse
Effect (other than as a result of changes in laws or regulations of general
applicability).
Section 5.7 Litigation. Except as disclosed in Section 5.7 of the Company
Disclosure Schedule, there is no suit, action or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries which, either alone or in the aggregate, is likely, insofar as the
Company reasonably foresees, to have a Company Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
specifically against the Company or any of its subsidiaries having, or which,
insofar as the Company reasonably foresees, in the future could have, either
alone or in the aggregate, a Company Material Adverse Effect.
Section 5.8 Information in Disclosure Documents.
<PAGE>
(a) None of the information concerning the Company or its subsidiaries
to be included or incorporated by reference in the Proxy Statement or the
Registration Statement will, in the case of the Proxy Statement or any
amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of the
Meeting of holders of Company Common Stock to be held in connection with the
Merger, or, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder. The foregoing representations and warranties
of Company contained in this Section 5.8 shall in no event apply to any
statements or omissions in the Registration Statement or the Proxy Statement
based upon information provided by Parent for use therein.
(b) No representation or warranty made by the Company contained in
this Agreement and no statement contained in any certificate, list, exhibit or
other instrument specified in this Agreement, including without limitation the
Company Disclosure Schedule, contains any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
Section 5.9 Employee Benefit Plans. Except as disclosed in the Company SEC
Reports or in Section 5.9 of the Company Disclosure Schedule, there are no
employee benefit or compensation plans or arrangements, including "employee
benefit plans," as defined in Section 3(3) of ERISA, and including, but not
limited to, plans or arrangements relating to former employees, including, but
not limited to, retiree medical plans, established or maintained by or
contributed to by the Company or any of its subsidiaries or "ERISA Affiliates",
or collective bargaining agreements to which the Company or any of its
subsidiaries is a party (together, the "Company Benefit Plans"). An "ERISA
Affiliate" shall mean any corporation or trade or business that is a member of
any group of organizations (i) described in Section 4.14(b) or (c) of the Code,
of which the Company is a member and (ii) described in Section 4.14(m) or (o) of
the Code, of which the Company is a member. To the best knowledge of the
Company, no default exists with respect to the obligations of the Company or any
of its subsidiaries or ERISA Affiliates under such Company Benefit Plan, which
default, alone or in the aggregate, would have a Company Material Adverse
Effect. Except as disclosed in Section 5.9 of the Company Disclosure Schedule,
there are no disputes or grievances subject to any grievance procedure, unfair
labor practice proceedings, arbitration or litigation under such Company Benefit
Plans, which have not been finally resolved, settled or otherwise disposed of,
nor is there any default, or any condition which, with notice or lapse of time
or both, would constitute such a default, under any such Plans, by the Company
or its subsidiaries or ERISA Affiliates or, to the best knowledge of the Company
and its subsidiaries, any other party thereto, which failure to resolve, settle
or otherwise dispose of, or which default, alone or in the aggregate, would have
a Company
<PAGE>
Material Adverse Effect. Since December 31, 1994, there have been no strikes,
lockouts or work stoppages or slowdowns, or to the best knowledge of the Company
and its subsidiaries, jurisdictional disputes or except as set forth in Section
5.9 of the Company Disclosure Schedule organizing activity occurring or
threatened with respect to the business or operations of the Company or its
subsidiaries which have had or would have a Company Material Adverse Effect.
Section 5.10 ERISA. All Company Benefit Plans have been administered in
accordance, and are in compliance, with the applicable provisions of ERISA,
except where such failures to administer or comply would not have a Company
Material Adverse Effect. Except as disclosed in Section 5.10 of the Company
Disclosure Schedule, each of the Company Benefit Plans which is intended to meet
the requirements of Section 401(a) of the Code has been determined by the
Internal Revenue Service to be "qualified," within the meaning of such section
of the Code, and the Company knows of no fact which is likely to have an adverse
effect on the qualified status of such plans. Except with respect to the SEIU
Local 36 Pension Plan as to which the Company makes no representation, none of
the Company Benefit Plans which are defined benefit pension plans have incurred
any "accumulated funding deficiency" (whether or not waived) as that term is
defined in Section 412 of the Code and the fair market value of the assets of
each such plan equal or exceed the accrued liabilities of such plan. To the best
knowledge of the Company, except with respect to the SEIU Local 36 Pension Plan
as to which the Company makes no representation, there are not now nor have
there been any non-exempt "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA, involving the Company's
Benefit Plans which could subject the Company, its subsidiaries, ERISA
Affiliates or Parent to the penalty or tax imposed under Section 502(i) of ERISA
or Section 4975 of the Code. No Company Benefit Plan which is subject to Title
IV of ERISA has been completely or partially terminated; no proceedings to
completely or partially terminate any Company Benefit Plan have been instituted
within the meaning of Subtitle C of said Title IV of ERISA; and no reportable
event within the meaning of Section 4043(b) of said Subtitle C of ERISA has
occurred with respect to any Company Benefit Plan except, in each case that the
Company makes no representation with respect to the SEIU Local 36 Pension Plan.
Neither the Company nor any of its subsidiaries or ERISA Affiliates has made a
complete or partial withdrawal, within the meaning of Section 4201 of ERISA,
from any multiemployer plan which has resulted in, or is reasonably expected to
result in, any withdrawal liability to the Company or any of its subsidiaries
except for any such liability which would not have a Company Material Adverse
Effect. Neither the Company nor any of its subsidiaries or ERISA Affiliates has
engaged in any transaction described in Section 4069 of ERISA within the last
five years except for any such transaction which would not have a Company
Material Adverse Effect.
Section 5.11 Takeover Provisions Inapplicable. Assuming the representation
in Section 4.9 is accurate, as of the date hereof and at all times on or prior
to the Effective Date, Section 203 of the DGCL is, and shall be, inapplicable to
the Merger and the transactions contemplated by this Merger Agreement.
<PAGE>
Section 5.12 Fairness Opinion. The Company has received the written opinion
of Lazard Freres & Co., financial advisors to the Company, dated the date
hereof, to the effect that the consideration to be received by the Company's
shareholders is fair to the shareholders of the Company from a financial point
of view.
Section 5.13 Financial Advisor. The Company represents and warrants that,
(a) except for Lazard Freres & Co., no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of the Company, and (b) the fees and
commissions payable to Lazard Freres & Co., as contemplated by this Section will
not exceed the aggregate amount set forth in the letter dated March 15, 1995,
from Lazard Freres & Co. to the Company (a complete and correct copy of which
has been delivered to Parent as an attachment to Section 5.13 of the Company
Disclosure Schedule).
Section 5.14 Compliance with Applicable Laws. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities, including, without limitation,
applicable state insurance and health commissions, except for such permits,
licenses, variances, exemptions, orders and approvals the failure of which to
hold would not have a Company Material Adverse Effect (the "Company Permits").
The Company and its subsidiaries are in compliance with the terms of the Company
Permits, except for such failures to comply, which singly or in the aggregate,
would not have a Company Material Adverse Effect. Except as disclosed in the
Company SEC Reports filed prior to the date of this Merger Agreement or in
Section 5.14 of the Company Disclosure Schedule, the businesses of the Company
and its subsidiaries are not being conducted in violation of any law, ordinance
or regulation of any Governmental Entity, including, without limitation,
applicable state insurance and health commissions, except for possible
violations which individually or in the aggregate do not and would not have a
Company Material Adverse Effect. Except as disclosed in Section 5.14 of the
Company Disclosure Schedule, no investigation or review by any Governmental
Entity, including, without limitation, applicable state insurance and health
commissions, with respect to the Company or any of its subsidiaries is pending,
or, to the knowledge of the Company, threatened, nor has any Governmental
Entity, including, without limitation, applicable state insurance and health
commissions, indicated an intention to conduct the same, other than those the
outcome of which would not have a Company Material Adverse Effect.
Section 5.15 Liabilities. Except as disclosed in Section 5.15 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries has
any material liabilities or obligations (absolute, accrued, contingent or
otherwise) that would be required to be reflected on, or reserved against in, a
balance sheet of the Company, or disclosed in the notes thereto, prepared in
accordance with the published rules and regulations of the Commission regarding
Quarterly Statements on Form 10-Q and Annual Statements on Form 10-K and
generally accepted accounting principles, except (a) as otherwise reported in
the consolidated financial statements contained in the Company SEC Reports or
(b) for liabilities
<PAGE>
or obligations incurred in the ordinary course of business since December 31,
1994, that would not have a Company Material Adverse Effect.
Section 5.16 Taxes. Each of the Company and its subsidiaries has filed all
tax returns (including, without limitation, estimated tax returns) required to
be filed by any of them (other than for returns, the due date for the filing of
which, including extensions, has not yet passed) and has paid (or the Company
has paid on its behalf), or has set up an adequate reserve for the payment of,
all taxes (including, without limitation, estimated taxes) required to be paid
in respect of the periods covered by such returns (except (a) where the failure
to pay would not have a Company Material Adverse Effect, (b) in the case of
failure to file any return with any state or local taxing authority (other than
any return required to be filed with respect to income taxes, franchise taxes
imposed in lieu of income taxes, sales taxes and employment taxes by the
Company, DPSI, HCS or HPI with the States of Arizona, California and New Mexico
and the Commonwealth of Pennsylvania), where such failure would not have a
Company Material Adverse Effect and (c) in the case of failure to file any
return required to be filed with respect to income taxes, franchise taxes
imposed in lieu of income taxes, sales taxes and employment taxes by the
Company, DPSI, HCS or HPI with the States of Arizona, California and New Mexico
and the Commonwealth of Pennsylvania, where such failures would not subject the
Company and such subsidiaries to liability attributable solely to failure to
file in excess of $100,000 in the aggregate). The information contained in such
tax returns is true, complete and accurate, except where a failure to be so
would not have a Company Material Adverse Effect. Except as disclosed in Section
5.16 of the Company Disclosure Schedule, neither the Company nor any subsidiary
of the Company is delinquent in the payment of any tax, assessment or
governmental charge, except where such delinquency would not have a Company
Material Adverse Effect. Except as disclosed in Section 5.16 of the Company
Disclosure Schedule, no deficiencies for any taxes have been proposed, asserted
or assessed against the Company or any of its subsidiaries that have not been
finally settled or paid in full, which would have a Company Material Adverse
Effect, and no requests for waivers of the time to assess any such tax are
pending. The federal income tax returns of the Company and each of its
subsidiaries consolidated in such returns for periods through March 31, 1990
have been examined by and settled with the Internal Revenue Service or are
considered closed years for federal income tax purposes. Neither the Company nor
any of its subsidiaries is a party to or obligated under any agreement,
commitment or arrangement that could in connection with the transactions
contemplated hereby require the payment of any "excess parachute payment" within
the meaning of section 280G of the Code. Neither the Company nor any of its
subsidiaries (a) has filed a consent under section 341(f) of the Code concerning
collapsible corporations or (b) been a member of an affiliated, combined,
unitary group, other than a group the common parent of which is the Company, or
has any liability for taxes of any other person under Treasury Regulation
section 1.1502-6 or any similar provision of state, local or foreign law, as
transferee or successor, by contract or otherwise. For the purposes of this
Merger Agreement, the term "tax" shall include all federal, state, local and
foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and assessments of
any nature whatsoever together with all interest, penalties and additions
imposed with respect to such amounts.
<PAGE>
Section 5.17 Certain Agreements.
(a) Except as disclosed in the Company SEC Reports filed prior to the
date of this Merger Agreement or in Section 5.17 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any oral
or written (i) agreement, contract, indenture or other instrument relating to
Indebtedness (as defined below) in an amount outstanding exceeding $1,000,000,
(ii) agreement which, after giving effect to the transactions contemplated by
this Merger Agreement, purports to restrict or bind Parent or any of its
subsidiaries (other than the Surviving Corporation and its subsidiaries but only
to the extent such agreement would bind or restrict the Company and/or one or
more of its subsidiaries without regard to the consummation of this Merger
Agreement) in any respect that could have a Parent Material Adverse Effect or
(iii) contract, agreement or commitment (except those entered into in the
ordinary course of business) having a Company Material Adverse Effect. For
purposes of this Merger Agreement, "Indebtedness" means any liability in respect
of (A) borrowed money, (B) capitalized lease obligations, (C) the deferred
purchase price of property or services (other than trade payables in the
ordinary course of business) and (D) guarantees of any of the foregoing. Except
as disclosed in Section 5.17 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries is in default (or would be in default with
notice or lapse of time, or both) under any indenture, note, credit agreement,
loan document, lease, license or other agreement including, but not limited to,
any Company Benefit Plan, whether or not such default has been waived, which
default, alone or in the aggregate with other such defaults, would have a
Company Material Adverse Effect.
(b) Section 5.17 of the Company Disclosure Schedule contains a list of
(i) each of the customers of HCS who as a group constitute such subsidiary's 30
highest revenue producing customers for the nine months ended December 31, 1994,
(ii) each of the customers of HPI who as a group constitute such subsidiary's 30
highest revenue producing customers for the nine months ended December 31, 1994
and (iii) each of the pharmaceutical suppliers of the Company and its
subsidiaries who as a group constitute the 30 most significant pharmaceutical
suppliers to the Company and its subsidiaries taken as a whole (as measured by
the dollar amounts paid to such pharmaceutical suppliers during the nine months
ended December 31, 1994).
(c) The Company has made available to Parent a true and complete copy
of each agreement between the Company or any subsidiary of the Company and any
employee or consultant which (i) in any year could involve the payment of
$50,000 or more to any such employee, or $100,000 or more to any such consultant
or (ii) is not terminable by the Company or a subsidiary of the Company without
additional liability upon notice of 90 days or less.
Section 5.18 Patents, Trademarks, etc. The Company and its subsidiaries
have all patents, trademarks, trade names, service marks, trade secrets,
copyrights and licenses and other proprietary intellectual property rights and
licenses as are necessary in connection with the businesses of the Company and
its subsidiaries, the lack of which would have a Company Material Adverse
Effect, and except as disclosed in Section 5.18 of the
<PAGE>
Company Disclosure Statement, the Company does not have any knowledge of any
conflict with the rights of the Company and its subsidiaries therein or any
knowledge of any conflict by them with the rights of others therein which,
insofar as reasonably can be foreseen, could have a Company Material Adverse
Effect.
Section 5.19 Accounting Matters. Neither the Company nor, to its best
knowledge, any of its affiliates, has through the date hereof, taken or agreed
to take any action that would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling of interests." The
Company has received a letter from KPMG Peat Marwick LLP, a copy of which is
attached to Section 5.19 of the Company Disclosure Schedule, to the effect that
the Merger will qualify for "pooling of interests" accounting treatment if
consummated in accordance with this Merger Agreement and if the operations of
Parent and the Surviving Corporation are conducted in a manner that do not
violate "pooling of interests" accounting treatment.
Section 5.20 Investment Company Act. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940.
Section 5.21 Properties, Liens. The Company and its subsidiaries own or
lease all of their respective tangible and intangible properties, real and
personal, free and clear of any liens, claims, charges, options or other
encumbrance (it being understood that, with respect to leased properties, such
representation regarding the absence of liens, claims, charges, options or other
encumbrances relates only to the leasehold interest of Company or its
subsidiary), except for (a) statutory mechanics and materialmen's liens (b)
liens for current taxes not yet delinquent and (c) liens to secure Indebtedness
created solely to finance the acquisition of the property subject thereto, the
existence of which, are not reasonably likely to result in a Company Material
Adverse Effect. All buildings, structures and equipment owned or leased by the
Company or its subsidiaries are in satisfactory condition and repair for the
requirements of its business as now being conducted, except where the failure to
be in such condition and repair would not have a Company Material Adverse
Effect. There are no proceedings affecting any of such properties pending or
threatened which may reasonably be expected to curtail the use of such property
for the purpose for which it was acquired or the purpose for which it is now
used, except where such curtailment would not have a Company Material Adverse
Effect. Section 5.21 of the Company Disclosure Schedule lists all real property
owned or leased by the Company. The Company has delivered to Parent complete and
correct copies of all leases of real or personal property to which the Company
or any of its subsidiaries is a party and which involve payment by or to the
Company or any of its subsidiaries in excess of $150,000 per any 12-month
period.
Section 5.22 Environmental Liability.
(a) The businesses of the Company and its subsidiaries have been and
are operated in material compliance with all applicable statutory or regulatory
requirements of all Governmental Entities with jurisdiction over the environment
or over workplace health and safety, and neither the Company nor any of its
subsidiaries has caused or allowed the
<PAGE>
generation, treatment, storage, release or disposal of hazardous substances
except in accordance with such statutes and regulations as they existed at the
time of such generation, treatment, storage, release or disposal.
(b) Neither the Company nor its subsidiaries has received any written
notice or, to the best knowledge of the Company, any other communication, from
any Governmental Entity alleging or concerning any violation by the Company or
any of its subsidiaries of, or responsibility or liability of the Company or any
of its subsidiaries under, any statute or regulation relating to the
environment. There are no pending or, to the best knowledge of the Company,
threatened, claims, suits, proceedings or investigations with respect to the
businesses or operations of the Company or any of its subsidiaries alleging or
concerning any violation of or responsibility or liability under any statutes or
regulations relating to the environment, nor does the Company have any knowledge
of any fact or condition which might reasonably be expected to give rise to such
a claim, suit, proceeding or investigation.
(c) The Company and its subsidiaries are in possession of all material
approvals, permits and licenses from all Governmental Entities under statutes
and regulations relating to the environment and to workplace health and safety
with respect to the operation of the businesses of the Company and its
subsidiaries; there are no pending or, to the best knowledge of the Company,
threatened, actions, proceedings or investigations seeking to revoke or deny
renewal of any of such approvals, permits and licenses; nor does the Company
have knowledge of any fact or condition which might reasonably be expected to
give rise to any action, proceeding or investigation to revoke or deny renewal
of such approvals, permits or licenses if such revocation or denial would
constitute a Company Material Adverse Effect.
Section 5.23 Certain Relationships. All billings made to customers and
suppliers of the Company or any subsidiary have been properly computed and
billed in compliance with applicable laws, rules, regulations, agreements, and
procedures, and no such customer has any right to any refund, price or fee
adjustments, offsets, or similar right with respect to any such charges, except
where the failure to so comply or the amount of such right would not have a
Company Material Adverse Effect.
Section 5.24 Insurance. Section 5.24 of the Company Disclosure Schedule
contains a complete list of all of the Company's current insurance policies and
bonds and sets forth for each such policy and bond the name of the insurance
company, the name of the insured, the name of any additional insureds, the
amount and type of coverage, and, if greater than $10,000, the amount of the
deductible or retention, if any.
Section 5.25 Certain Healthcare Regulatory Matters.
(a) To the best knowledge of the Company, the Company and its
subsidiaries have not engaged knowingly and willfully in any activities which
are prohibited under federal Medicare and Medicaid statutes, including, without
limitation, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn or related
state or local statutes or
<PAGE>
regulations or which otherwise constitutes fraud, including, without limitation,
the following: (i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (ii) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment; (iii) knowingly and willfully failing to
disclose knowledge of the occurrence of any event affecting the initial or
continued right to any benefit or payment on its behalf or on behalf of another,
with intent to secure such benefit or payment fraudulently; (iv) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay such remuneration (a) in return for referring an
individual to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid or (b) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing, or ordering any good, facility, service, or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(b) The Company and its subsidiaries have complied and are in
compliance, in all material respects, with applicable state laws regulating
pharmacies.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 6.1 Organization. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Sub has
not engaged in any business (other than certain organizational matters) since it
was incorporated.
Section 6.2 Capitalization. The authorized capital stock of Sub consists of
1,000 shares of common stock, par value $0.01 per share, 100 shares of which are
validly issued and outstanding, fully paid and nonassessable and are owned by
Parent free and clear of all liens, claims and encumbrances.
Section 6.3 Authority Relative to This Merger Agreement. Sub has the
corporate power to enter into this Merger Agreement and to carry out its
obligations hereunder. The execution and delivery of this Merger Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by its Board of Directors and sole shareholder, and no other
corporate proceedings on the part of Sub are necessary to authorize this Merger
Agreement and the transactions contemplated hereby. Except as referred to herein
or in connection, or in compliance, with the provisions of the HSR Act, the
Securities Act, the Exchange Act and the environmental, corporation, securities
or blue sky laws or regulations of the various states, no filing or registration
with, or authorization, consent or approval of, any public body or authority is
necessary for the consummation by
<PAGE>
Sub of the Merger or the transactions contemplated by this Merger Agreement,
other than filings, registrations, authorizations, consents or approvals the
failure to make or obtain would not prevent the consummation of the transactions
contemplated hereby.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by the Company Pending the Merger. Prior to
the Effective Date, unless Parent shall otherwise agree in writing:
(a) The Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their reasonable best efforts to preserve
intact their present business organizations, keep available the services of
their present officers and key employees and preserve their relationships
with customers, suppliers and others having business dealings with them to
the end that their goodwill and on-going businesses shall be unimpaired at
the Effective Date, except such impairment as would not have a Company
Material Adverse Effect. The Company shall, and shall cause its
subsidiaries to use their reasonable best efforts to, (i) maintain
insurance coverages and its books, accounts and records in the usual manner
consistent with prior practices; (ii) comply in all material respects with
all laws, ordinances and regulations of Governmental Entities applicable to
the Company and its subsidiaries; (iii) maintain and keep its properties
and equipment in good repair, working order and condition, ordinary wear
and tear excepted; and (iv) perform in all material respects its
obligations under all contracts and commitments to which it is a party or
by which it is bound, in each case other than where the failure to so
maintain, comply or perform, either individually or in the aggregate, would
result in a Company Material Adverse Effect;
(b) except as required by this Merger Agreement, the Company shall not
and shall not propose to (i) sell or pledge or agree to sell or pledge any
capital stock owned by it in any of its subsidiaries, (ii) amend its
Certificate of Incorporation or Bylaws, (iii) split, combine or reclassify
its outstanding capital stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of capital stock of the Company, or declare, set aside or pay any
dividend or other distribution payable in cash, stock or property, or (iv)
directly or indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of Company capital stock;
(c) the Company shall not, nor shall it permit any of its subsidiaries
to, (i) except as required by this Merger Agreement, issue, deliver or sell
or agree to issue, deliver or sell any additional shares of, or rights of
any kind to acquire any shares of, its capital stock of any class, any
Indebtedness (other than pursuant to existing lines of credit for use in
the ordinary course of business and consistent with past practices) or any
option, rights or warrants to acquire, or securities convertible
<PAGE>
into, shares of capital stock other than issuances of Company Common
Stock disclosed in Section 7.1 of the Company Disclosure Schedule; (ii)
acquire, lease or dispose or agree to acquire, lease or dispose of any
capital assets or any other assets other than in the ordinary course of
business, (iii) incur additional Indebtedness or encumber or grant a
security interest in any asset or enter into any other material transaction
other than in each case in the ordinary course of business; (iv) acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, in each case in this Clause (iv) which are material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, except that the Company may create new wholly-owned
subsidiaries in the ordinary course of business; or (v) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(d) except as disclosed in the Company Disclosure Schedule, the
Company shall not, nor shall it permit, any of its subsidiaries to, except
as required to comply with applicable law or pursuant to the terms of
existing agreements that were not required to be included in the Company
Disclosure Schedule, (i) adopt, enter into, terminate or amend any bonus,
profit sharing, compensation, severance, termination, stock option,
pension, retirement, deferred compensation, employment or other Company
Benefit Plan, agreement, trust, fund or other arrangement for the benefit
or welfare of any director, officer or current or former employee, (ii)
increase in any manner the compensation or fringe benefit of any director,
officer or employee (except for normal increases in the ordinary course of
business that are consistent with past practice and that, in the aggregate,
do not result in a material increase in benefits or compensation expense to
the Company and its subsidiaries relative to the level in effect prior to
such amendment), (iii) pay any benefit not provided under any existing plan
or arrangement, (iv) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company Benefit
Plan (including, without limitation, the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units
or restricted stock, or the removal of existing restrictions in any benefit
plans or agreements or awards made thereunder) (other than such plans and
arrangements (other than stock options) which are made in the ordinary
course of business consistent with past practice), (v) take any action to
fund or in any other way secure the payment of compensation or benefits
under any employee plan, agreement, contract or arrangement or Company
Benefit Plan other than in the ordinary course of business consistent with
past practice, or (vi) adopt, enter into, amend or terminate any contract,
agreement, commitment or arrangement to do any of the foregoing, provided,
however, that nothing contained herein shall prevent the Company or any of
its subsidiaries from paying any bonus to or increasing the compensation of
any employee in accordance with the terms of any employment agreement for
such employee that was provided to Parent prior to the date hereof;
<PAGE>
(e) the Company shall not, nor shall it permit any of its subsidiaries
to, (i) make any investments in non-investment grade securities exceeding
$1,000,000 or (ii) sell, at a loss of greater than $50,000, any debt
securities held for investment purposes;
(f) the Company shall not, nor shall it permit any of its subsidiaries
to form any corporation, partnership, joint venture or other business
association or entity, provided, however, that the Company may form a
wholly owned subsidiary with the prior written consent of Parent, which
consent shall not be unreasonably withheld; and
(g) the Company shall not, nor shall it permit any of its subsidiaries
to, take or cause to be taken any action, which would disqualify the Merger
as a "pooling of interests" for accounting purposes.
Section 7.2 Conduct of Business by Parent Pending the Merger. Prior to the
Effective Date, unless the Company shall otherwise agree in writing or except as
otherwise required by this Merger Agreement:
(a) Parent shall, and shall cause its Significant Subsidiaries to, use
their reasonable best efforts to preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and on-going businesses shall be unimpaired at the
Effective Date, except such impairment as would not have a Parent Material
Adverse Effect. Parent shall, and shall cause its Significant Subsidiaries
to use their reasonable best efforts to, (i) maintain insurance coverages
and its books, accounts and records in the usual manner consistent with
prior practices; (ii) comply in all material respects with all laws,
ordinances and regulations of Governmental Entities applicable to Parent
and its Significant Subsidiaries; (iii) maintain and keep its properties
and equipment in good repair, working order and condition, ordinary wear
and tear excepted; and (iv) perform in all material respects its
obligations under all contracts and commitments to which it is a party or
by which it is bound, in each case other than where the failure to so
maintain, comply or perform, either individually or in the aggregate, would
result in a Parent Material Adverse Effect;
(b) Parent shall not amend any of the material terms or provisions of
the Parent Company Stock;
(c) Parent shall not take any action that would result in the failure
to maintain the trading of Parent Common Stock on the New York Stock
Exchange;
(d) Parent shall not declare or pay any dividend or distribution on
any outstanding shares of its capital stock; and
<PAGE>
(e) Parent shall not, nor shall it permit any of its subsidiaries to,
take, or cause to be taken, any action which would disqualify the Merger as
a "pooling of interests" for accounting purposes.
Section 7.3 Conduct of Business of Sub. During the period from the date of
this Merger Agreement to the Effective Date, Sub shall not engage in any
activities of any nature except as provided in or contemplated by this Merger
Agreement. Parent shall take all actions necessary to cause Sub to perform its
obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth herein.
Section 7.4 Notice of Breach. Each party shall promptly give written notice
to the other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which would cause or constitute
a breach of any of its representations, warranties or covenants contained or
referenced in this Merger Agreement and will use all reasonable efforts to
prevent or promptly remedy the same. Any such notification shall not be deemed
an amendment of the Company Disclosure Schedule or the Parent Disclosure
Schedule.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information. Each of the Company and Parent and
their respective subsidiaries shall afford to the other and to the other's
employees, accountants, counsel and other representatives full access during
normal business hours (and at such other times as the parties may mutually
agree) throughout the period prior to the Effective Date to all of its
properties, books, contracts, commitments, records and personnel and, during
such period, each shall furnish promptly to the other (a) a copy of each report,
schedule and other document filed or received by it pursuant to the requirements
of federal or state securities laws, and (b) all other information concerning
its business, properties and personnel as the other may reasonably request
(including, without limitation, updated information on pending litigation). An
employee or agent of a party desiring access pursuant to this Section 8.1 shall
contact one of the representatives of the other party whose name is set forth in
Section 8.1 of such other party's Disclosure Schedule. Each of the Company and
Parent shall hold, and shall cause their respective employees and agents to
hold, in confidence all such information in accordance with the terms of the
confidentiality agreement dated January 11, 1995 between Parent and the Lazard
Freres & Co. on behalf of the Company.
Section 8.2 Registration Statement/Proxy Statement.
(a) As promptly as practicable after the execution of this Merger
Agreement, the Company and Parent shall prepare and file with the Commission
preliminary proxy materials which shall constitute the preliminary Proxy
Statement and a preliminary prospectus with respect to the Parent Common Stock
to be issued in connection with the Merger. As promptly as practicable after
comments are received from the Commission with respect to the preliminary proxy
materials and after the furnishing by the Company and Parent of all
<PAGE>
information required to be contained therein, the Company shall file with the
Commission the definitive Proxy Statement and Parent shall file with the
Commission the definitive Proxy Statement and the Registration Statement and
Parent and the Company shall use all reasonable efforts to cause the
Registration Statement to become effective as soon thereafter as practicable.
(b) Parent and the Company shall make all necessary filings with
respect to the Merger and the Parent Share Proposal, under the Securities Act
and the Exchange Act and the rules and regulations thereunder, and under
applicable blue sky or similar securities laws and shall use all reasonable
efforts to obtain required approvals and clearances with respect thereto.
Section 8.3 Compliance with the Securities Act.
(a) Prior to the Effective Date, the Company shall deliver to Parent a
letter identifying all persons who were, at the time of the Company
Shareholders' Meeting convened in accordance with Section 3.6, "affiliates" of
the Company as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates"). In identifying such Affiliates, the Company
shall consult with counsel, which counsel shall be satisfactory to counsel for
Parent.
(b) The Company shall obtain a written agreement from each person who
is identified as an Affiliate in the letter referred to in clause (a) above, in
the form previously approved by the parties, that he or she will not offer to
sell, sell or otherwise dispose of any Parent Common Stock issued to him or her
pursuant to the Merger, except in compliance with Rule 145 or another exemption
from the registration requirements of the Securities Act. The Company shall
deliver such written agreements to Parent on or prior to the Effective Date. The
Company shall use its best efforts to cause each person who is identified as an
Affiliate in such opinion to deliver to Parent, on or prior to the earlier of
(i) the mailing of the Proxy Statement/Prospectus or (ii) the 30th day prior to
the Effective Date, a written agreement, in the form to be approved by the
parties hereto, that such Affiliate will not thereafter sell or in any other way
reduce such Affiliate's risk relative to any Parent Common Stock received in the
Merger (within the meaning of the Commission's Financial Reporting Release No.
l, "Codification of Financing Reporting Policies," Section 201.01 (47 F.R.
21030) (April 15, 1982)), until such time as financial results (including
combined sales and net income) covering at least 30 days of post-merger
operations have been published, except as permitted by Staff Accounting Bulletin
No. 76 issued by the Commission. Within 45 days after the end of the first
fiscal quarter of Parent ending at least 30 days after the Effective Date,
Parent will publish results including at least 30 days of combined operations of
Parent and the Company as referred to in the written agreements provided for by
this Section 8.3(b).
Section 8.4 Stock Exchange Listing. Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the Parent Common Stock to
be issued pursuant to the Merger.
<PAGE>
Section 8.5 Employee Matters.
(a) Subject to the provisions of subsection (b) of this Section 8.5,
Parent shall take all actions necessary or appropriate to permit the employees
of the Company and its subsidiaries on the Effective Date ("Affected Employees")
to participate after the Effective Date in those of Parent's employee benefit
programs that are comparable to Company employee benefit programs and to cause
the Surviving Corporation to take all actions necessary or appropriate to adopt
such Parent employee benefit programs effective as of the Effective Date. Parent
will cause the Surviving Corporation to give each Affected Employee full credit
for service with the Company for purposes of eligibility to participate in,
vesting and payment of benefits under, and eligibility for any Parent-
subsidized benefit provided under (but not, except as provided in the preceding
clause for purposes of determining the amount of any benefit under), any such
Parent employee benefit program.
(b) After the Effective Date, Parent shall have a reasonable period
not to exceed one year (the "Review Period") in which to review all of the
employee and fringe benefit plans maintained by the Company or any of its
subsidiaries (the "Company Plans") for compatibility and consistency with
Parent's employee benefit programs. During the Review Period, Parent may
determine to have the Surviving Corporation continue in effect any one or more
of the Company Plans, amend or modify any one or more of the Company Plans,
merge one or more of the Company Plans into a comparable Parent employee benefit
plan adopted by the Surviving Corporation or terminate any one or more of the
Company Plans in its or their entirety. Any such amendment, modification or
termination shall not deprive any Affected Employee of any benefit in which such
Affected Employee has become entitled to immediately prior to the Effective
Date. If the Surviving Corporation is continuing in effect any of the Company
Plans during the Review Period, then (i) neither it nor Parent shall be
obligated to adopt a comparable Parent employee benefit plan for Affected
Employees, it being intended by the parties that there be no duplication of
benefits, and (ii) the obligation to have the Surviving Corporation adopt the
comparable Parent employee benefit plan or program, as set out in subsection (a)
above, shall arise, and such adoption shall be effective only as of the date the
comparable Company Plan is discontinued and not as of the Effective Date. If
Parent does not maintain an employee benefit plan comparable to one of the
Company Plans, there shall be no obligation to adopt any plan or program upon
the discontinuance or termination of such Company Plan.
(c) Parent acknowledges the existence and continuing obligations of
HCS under the collective bargaining agreements listed on Section 5.9 of the
Company Disclosure Schedule. Notwithstanding the foregoing, nothing contained in
this Merger Agreement shall be construed under any circumstances as imposing on
Parent or any of its subsidiaries (other than HCS after the Effective Date) any
obligation or liability under such collective bargaining agreements.
Section 8.6 Registration of Securities. Parent promptly shall prepare and
file with the Commission a registration statement under the Securities Act
covering the shares of Parent Common Stock issuable to directors, officers or
employees of the Company upon
<PAGE>
exercise of the Outstanding Options pursuant to the provisions of Section 3.5
(the "Employee Shares Registration Statement"). Subsequent to the Effective
Date, Parent will use all reasonable efforts to (a) cause the Employee Shares
Registration Statement to become effective and (b) to the extent required by
law, keep the Employee Shares Registration Statement current and effective under
the Securities Act.
Section 8.7 Indemnification of Directors and Officers.
(a) The Certificate of Incorporation of the Surviving Corporation
shall contain the provision with respect to indemnification set forth in the
Certificate of Incorporation of the Company on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Date in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Date were directors or
officers of the Company in respect of actions or omissions occurring at or prior
to the Effective Date (including, without limitation, the transactions
contemplated by this Agreement), unless such modification is required by law.
(b) From and after the Effective Date, Parent shall, and shall cause
the Surviving Corporation to, indemnify, defend and hold harmless the present
and former officers and directors of the Company (collectively, the "Indemnified
Parties") against all losses, expenses, claims, damages, liabilities or amounts
that are paid in settlement of, with the approval of Parent and the Surviving
Corporation, or otherwise in connection with any claim, action, suit, proceeding
or investigation (a "Claim"), based in whole or in part on the fact that such
person is or was a director or officer of the Company and arising out of actions
or omissions occurring at or prior to the Effective Date (including, without
limitation, the transactions contemplated by this Agreement), in each case to
the full extent permitted under the DGCL (and shall pay expenses in advance of
the final disposition of any such action or proceeding to each Indemnified Party
to the fullest extent permitted under DGCL, upon receipt from the Indemnified
Party to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of the DGCL).
(c) Any Indemnified Party wishing to claim indemnification under this
Section 8.7, upon learning of any such Claim, shall notify Parent (although the
failure so to notify Parent shall not relieve Parent from any liability which
Parent may have under this Section 8.7 except to the extent such failure
prejudices Parent), and shall deliver to Parent the undertaking contemplated by
Section 145(e) of the DGCL.
(d) Parent shall use its reasonable best efforts to cause to be
maintained in effect for not less than three years after the Effective Date the
current policies of directors' and officers' liability insurance maintained by
the Company with respect to matters occurring prior to the Effective Date;
provided, however, that (i) Parent may substitute therefor policies of
substantially similar coverage containing substantially similar terms and
conditions for the Indemnified Parties to the extent reasonably available and
(ii) Parent shall not be required to pay an annual premium for such insurance in
excess of 150% of the last annual premium paid
<PAGE>
prior to the date hereof, but in such case shall purchase as much coverage as
possible for such amount.
(e) This Section 8.7 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on Parent and the Surviving Corporation and
their respective successors and assigns.
Section 8.8 HSR Act. The Company and Parent shall use all reasonable
efforts to file as soon as practicable notifications under the HSR Act in
connection with the Merger and the transactions contemplated hereby and to
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional information or documentation
and to respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other governmental authority in connection
with antitrust matters.
Section 8.9 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Merger
Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings (including, but not limited to, filings under the HSR Act and with all
applicable Governmental Entities) and to lift any injunction or other legal bar
to the Merger (and, in such case, to proceed with the Merger as expeditiously as
possible), subject, however, in the case of the Merger Agreement and the Parent
Share Proposal, to the appropriate vote of the shareholders of the Company and
Parent. Notwithstanding the foregoing, there shall be no action required to be
taken and no action will be taken in order to consummate and make effective the
transactions contemplated by this Merger Agreement if such action, either alone
or together with another action, would result in a Company Material Adverse
Effect or a Parent Material Adverse Effect.
Section 8.10 No Solicitation. Subject to the fiduciary duties of the Board
of Directors of the Company, as advised by outside counsel, neither the Company
nor any of its subsidiaries shall, directly or indirectly, take (nor shall the
Company authorize or permit its subsidiaries, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents or
affiliates, to take) any action to (a) encourage, solicit or initiate the
submission of any Acquisition Proposal (as defined below), (b) enter into any
agreement with respect to any Acquisition Proposal or (c) participate in any way
in discussions or negotiations with, or furnish any information to, any person
in connection with, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal. The Company will promptly communicate to Parent
any solicitation by the Company and the terms of any proposal or inquiry,
including the identity of the person and its affiliates making the same, that it
may receive in respect of any such transaction, or of any such information
requested from it or of
<PAGE>
any such negotiations or discussions being sought to be initiated with it. For
purposes of this Merger Agreement, "Acquisition Proposal" shall mean any
proposed (i) merger, consolidation or similar transaction involving the Company,
(ii) sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of assets of the Company or its
subsidiaries representing 25% or more of the consolidated assets of the Company
and its subsidiaries, (iii) issue, sale, or other disposition of (including by
way of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 25% or more of the voting power
of the Company or (iv) transaction in which any person shall acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership or any "group" (as such term is defined
under the Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of 25% or more of the outstanding
Company Common Stock.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) This Merger Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the holders of the
Company Common Stock.
(b) The Parent Share Proposal shall have been approved by the
requisite vote of the holders of the Parent Common Stock.
(c) The Parent Common Stock issuable in the Merger shall have been
authorized for listing on the NYSE upon official notice of issuance.
(d) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(e) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act. No stop order suspending
the effectiveness of the Registration Statement shall have been issued by the
Commission and remain in effect.
(f) No preliminary or permanent injunction or other order by any
federal or state court in the United States which prevents the consummation of
the Merger shall have been issued and remain in effect.
(g) Parent and the Company shall have received updated letters from
Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP, dated not more than two
business days prior to the Effective Date, to the effect that the Merger
qualifies for "pooling of
<PAGE>
interests" accounting treatment if consummated in accordance with this Merger
Agreement and if the operations of Parent and the Surviving Corporation are
conducted in a manner that do not violate "pooling of interests" accounting
treatment.
Section 9.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Date of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Merger Agreement required to be performed on or
prior to the Effective Date and the representations and warranties of Parent and
Sub contained in this Merger Agreement shall be true when made and on and as of
the Effective Date as if made on and as of such date (except to the extent they
relate to a particular date, in which case they shall remain true and correct as
of such date), and the Company shall have received a certificate of the
President or Chief Executive Officer or a Vice President of Parent and Sub to
that effect.
(b) The Company shall have received a favorable opinion of Cozen and
O'Connor, based upon certain factual representations of the Company, Parent, Sub
and, if available, holders of greater than five percent of Company Common Stock
reasonably requested by such counsel, dated the Effective Date, to the effect
that the Merger will constitute a reorganization for federal income tax purposes
within the meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by the shareholders of the
Company upon the conversion of their shares of Company Common Stock into
shares of Parent Common Stock pursuant to the terms of the Merger (except
to the extent cash is received in lieu of fractional shares);
(ii) The tax basis of the shares of Parent Common Stock received by
the shareholders of the Company on the conversion of Company Common Stock
pursuant to the Merger will be the same as the basis of the shares of
Company Common Stock converted (less any portion of such basis allocable to
any fractional interest in any share of Parent Common Stock); and
(iii) The holding period of the Parent Common Stock into which
shares of Company Common Stock are converted will include the period that
such shares of Company Common Stock were held by the holder, provided such
shares were held as a capital asset by such holder.
(c) All permits, consents, authorizations, approvals, registrations,
qualifications, designations and declarations set forth in Section 4.4 of the
Parent Disclosure Schedule shall have been obtained, and all filings and notices
set forth in Section 4.4 of the Parent Disclosure Schedule shall have been
submitted by Parent.
<PAGE>
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the additional following
conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Merger Agreement required to be performed on or
prior to the Effective Date and the representations and warranties of the
Company contained in this Merger Agreement shall be true when made and on and as
of the Effective Date as if made on and as of such date (except to the extent
they relate to a particular date, in which case they shall remain true and
correct as of the applicable date made), except as contemplated or permitted by
this Merger Agreement, and Parent and Sub shall have received a certificate of
the President or Chief Executive Officer or a Vice President of the Company to
that effect.
(b) Parent shall have received a favorable opinion of Gibson, Dunn &
Crutcher, based upon certain factual representations of the Company, Parent, Sub
and, if available, holders of greater than five percent of Company Common Stock
reasonably requested by such counsel, dated the Effective Date, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that the
Company, Parent and Sub will each be a party to that reorganization within the
meaning of Section 368(b) of the Code.
(c) All permits, consents, authorizations, approvals, registrations,
qualifications, designations and declarations set forth in Section 5.4 of the
Company Disclosure Schedule shall have been obtained and to the extent required
to be submitted prior to the Effective Date, all filings and notices set forth
in Section 5.4 of the Company Disclosure Schedule shall have been submitted by
the Company.
(d) Audited financial statements of the Company and its subsidiaries
for the fiscal year ending March 31, 1995 will be available as soon as
reasonably practicable but not later than May 31, 1995.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.l Termination. This Merger Agreement may be terminated at any
time prior to the Effective Date, whether before or after approval by the
shareholders of the Company:
(a) by mutual consent of the Board of Directors of Parent and the
Board of Directors of the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated on or before September 15, 1995 (provided the terminating party is
not otherwise in material breach of its representations, warranties or
obligations under this Merger Agreement);
<PAGE>
(c) by the Company if any of the conditions specified in Sections 9.1
and 9.2 have not been met or waived by the Company at such time as such
condition is no longer capable of satisfaction; or
(d) by Parent if any of the conditions specified in Sections 9.1 and
9.3 have not been met or waived by Parent at such time as such condition is no
longer capable of satisfaction.
(e) by Parent if any of the following shall have occurred:
(i) any person (other than Parent or any subsidiary of Parent) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), a tender offer or exchange offer to purchase any shares of Company
Common Stock such that, upon consummation of such offer, such person would
own or control 25% or more of the then outstanding Company Common Stock and
the Board of Directors of the Company, within ten business days after such
tender offer or exchange offer is so commenced, either fails to recommend
against acceptance of such tender offer or exchange offer by its
shareholders or takes no position with respect to the acceptance of such
tender offer or exchange offer by its shareholders;
(ii) the Company or any subsidiary of the Company shall have
authorized, recommended, proposed or publicly announced an intention to
authorize, recommend or propose, or entered into, an agreement with any
person (other than Parent or any subsidiary of Parent) to (A) effect a
merger, consolidation or similar transaction involving the Company or any
of its material subsidiaries, (B) sell, lease or otherwise dispose of
assets of the Company or its subsidiaries representing 25% or more of the
consolidated assets of the Company and its subsidiaries or (C) issue, sell
or otherwise dispose of (including by way of merger, consolidation, share
exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 25% or more of the voting power of the Company or any of its
subsidiaries;
(iii) any person (other than Parent, any subsidiary of Parent or the
Company or any of its subsidiaries in a fiduciary capacity) shall have
acquired beneficial ownership (as such term is defined in Rule 13d-3 under
the Exchange Act) or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act) shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 25% or more of the then outstanding Company Common Stock; or
(iv) the holders of Company Common Stock shall not have approved the
Merger Agreement at the meeting of such stockholders held for the purpose
of voting on the Merger Agreement or such meeting shall not have been held
prior to September 14, 1995 or shall have been canceled, in each case after
(A) any person (other than Parent or any subsidiary of Parent) shall have
publicly announced a
<PAGE>
proposal, or publicly disclosed an intention to make a proposal, to engage
in any transaction described in clauses (i), (ii) or (iii) above or (B) the
Company's Board of Directors shall have withdrawn or modified in a manner
adverse to Parent the recommendation of the Company's Board of Directors
that the holders of the Company Common Stock approve the Merger Agreement
and the Merger; provided that any communication by the Company as
contemplated by Regulation 14d-9(e) promulgated under the Exchange Act
shall not be deemed a withdrawal or modification of such recommendation.
(f) by the Company (i) if its Board of Directors, in the exercise of
its fiduciary duties, accepts an Acquisition Proposal of the type specified in
(i), (ii) or (iii) of such term's definition, or (ii) upon the occurrence of an
event specified in paragraph (e)(iii) of this Section 10.1.
Section 10.2 Effect of Termination. In the event of termination of this
Merger Agreement by either Parent or the Company, as provided above, this Merger
Agreement shall forthwith become void and (except for the willful breach of this
Merger Agreement by any party hereto) there shall be no liability on the part of
either the Company, Parent or Sub or their respective officers or directors;
provided that Sections 4.11 and 5.13, the last sentence of Section 8.1, Section
10.2, the last sentence of Section 11.1 and Sections 11.2, 11.3 and 11.7 shall
survive the termination.
Section 10.3 Amendment. This Merger Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval hereof by the shareholders of the Company
and Parent, but, after such approval, no amendment shall be made which changes
the ratios at which Company Common Stock is to be converted into Parent Common
Stock as provided in Section 3.1 or which in any way materially adversely
affects the rights of such shareholders, without the further approval of such
shareholders. This Merger Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 10.4 Waiver. At any time prior to the Effective Date, the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant 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 if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Effectiveness of Representations and Warranties. The
representations and warranties set forth in this Agreement shall (a) remain
operative
<PAGE>
regardless of any investigation made by or on behalf of any other party hereto,
whether prior to or after execution hereof, and (b) terminate at the Effective
Date (except as expressly stated elsewhere herein). All covenants and agreements
set forth in this Agreement shall survive the Effective Date and any termination
of this Merger Agreement in accordance with their terms.
Section 11.2 Notices. All notices or other communications under this Merger
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Diagnostek, Inc.
4500 Alexander Boulevard, N.E.
Albuquerque, New Mexico 87107
Attn: Nunzio P. DeSantis, Chairman
Facsimile No: (505) 761-6125
With a copy to:
Cozen & O'Connor
1900 Market Street
Philadelphia, Pennsylvania 19103
Attn: E. Gerald Riesenbach, Esq.
Facsimile No.: (215) 665-2013
If to Parent or Sub:
Value Health, Inc.
22 Waterville Road
Avon, Connecticut 06001
Attn: General Counsel
Facsimile No.: (203) 676-8695
With a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attn: Sean P. Griffiths, Esq.
Facsimile No.: (212) 949-7606
<PAGE>
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 11.3 Fees and Expenses.
(a) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Merger Agreement and the transactions
contemplated by this Merger Agreement shall be paid by the party incurring such
expenses, except that the parties agree to each pay 50% of the filing fees
required under the HSR Act and the Securities Act and 50% of all printing
expenses incurred by either party.
(b) Within two business days after Parent has given notice of
termination of this Agreement pursuant to the provisions of Section 10.1(e)
hereof, or the Company has given notice of termination of this Agreement (x)
pursuant to the provisions of Section 10.1(f) hereof or (y) following the
occurrence of an event specified in Section 10.1(e)(iv) hereof, the Company
shall pay to Parent, by wire transfer to an account specified by Parent, an
amount equal to $15 million.
Section 11.4 Publicity. So long as this Merger Agreement is in effect,
Parent, Sub and the Company agree to consult with each other in issuing any
press release or otherwise making any public statement with respect to the
transactions contemplated by this Merger Agreement, and none of them shall issue
any press release or make any public statement prior to such consultation,
except as may be required by law or by obligations pursuant to any listing
agreement with any national securities exchange. The commencement of litigation
relating to this Agreement or the transactions contemplated hereby or any
proceedings in connection therewith shall not be deemed a violation of this
Section 11.4.
Section 11.5 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Merger Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Merger
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
Section 11.6 Interpretation.
(a) When a reference is made in this Merger Agreement to subsidiaries
of Parent or the Company, the word "subsidiaries" means corporations more than
50% of whose outstanding voting securities are directly or indirectly owned by
Parent or the Company, as the case may be. The headings contained in this Merger
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Merger Agreement.
<PAGE>
(b) For purposes of this Agreement the promulgation of proposals for,
or the implementation of, federal or state health care legislation shall not
constitute either a Parent Material Adverse Effect or a Company Material Adverse
Effect.
(c) Whenever a representation or warranty herein is made to the
"knowledge," "best knowledge" or awareness of a party, it shall refer to matters
within the actual knowledge of such party's executive officers, and in case of
the Company, the Senior Management of HCS and HPI, after due investigation of
reasonably available corporate records concerning the subjects discussed herein.
(d) Notwithstanding any other provision of the Agreement, it shall not
be a Company Material Adverse Effect or a breach of any representation,
warranty, covenant or other provision of this Agreement if between the date
hereof and the Effective Date one or more of the suppliers and/or customers of
the Company listed on Section 11.6(d) of the Company Disclosure Schedule ceases
to do business with the Company or any of its subsidiaries, or changes the terms
and conditions pursuant to which it does business with the Company or its
subsidiaries, because of the transactions contemplated by this Agreement.
Section 11.7 Miscellaneous. This Merger Agreement (including the documents
and instruments referred to herein):
(a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof (other than as provided in
the confidentiality agreements between the Company and Parent dated as of
February 22, 1995, and between Lazard Freres & Co., on behalf of the Company,
and Parent dated as of January 11, 1995, as the same may be amended);
(b) except as provided in the last sentence of Section 8.3(b) and
Sections 3.5, 8.5, 8.6 and 8.7, is not intended to confer upon any other person
any rights or remedies hereunder and shall be binding upon and inure to the
benefit solely of each party hereto, and their respective successors and
assigns;
(c) shall not be assigned by operation of law or otherwise, except
that Sub shall have the right to assign to Parent or any direct wholly-owned
subsidiary of Parent any and all rights and obligations of Sub under this Merger
Agreement; and
(d) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware (without giving
effect to the provisions thereof relating to conflicts of law). This Merger
Agreement may be executed in two or more counterparts which together shall
constitute a single agreement.
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Merger Agreement to be signed by their respective officers thereunder duly
authorized all as of the date first written above.
VALUE HEALTH, INC.
/s/ Robert E. Patricelli
By: Robert E. Patricelli
Title: Chief Executive Officer
ATTEST:
/s/ Paul M. Finigan
By: Paul M. Finigan
Title: Vice President and General Counsel
VHI MERGER-SUB. CORP.
/s/ William J. McBride
By: William J. McBride
Title: President and Chief Operating Officer
ATTEST:
/s/ Paul M. Finigan
By: Paul M. Finigan
Title: Vice President and General Counsel
DIAGNOSTEK, INC.
/s/ Nunzio P. DeSantis
By: Nunzio P. DeSantis
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ Courtlandt G. Miller
By: Courtlandt G. Miller
Title: Secretary
EXHIBIT 10.2
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of March 27, 1995, between
Diagnostek, Inc., a Delaware corporation (the "Corporation"), Value Health,
Inc., a Delaware corporation ("Parent") (for purposes of Section 6 hereof) and
Nunzio P. DeSantis (the "Consultant");
WHEREAS, pursuant to the Agreement and Plan of Merger dated as
of the date hereof (the "Merger Agreement"), VHI Merger- Sub. Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent, will, subject to
satisfaction of certain conditions, be merged with and into the Corporation with
the result that the Corporation will become a wholly-owned subsidiary of Parent
(such merger being referred to herein as the "Merger"); and
WHEREAS, effective as of the Effective Date (as defined in the
Merger Agreement), the employment of Consultant by the Corporation pursuant to
the Employment Agreement dated as of October 1, 1990 between the Corporation and
the Consultant (the "Employment Agreement") shall be terminated by the
Corporation; Consultant will thereupon be entitled to and shall receive from the
Corporation the "Termination Compensation" specified in Section 5(c) of the
Employment Agreement; and neither the Consultant nor the Corporation shall have
any further obligations thereunder relating to the employment of Consultant by
the Corporation or any of its subsidiaries; and
WHEREAS, the Corporation recognizes that the Consultant
possesses unique and extensive skill and expertise with respect to the
businesses in which the Corporation is engaged and with respect to current
trends and developments in the healthcare industry generally; and
WHEREAS, the Corporation desires to retain the services of the
Consultant as a consultant in order that his personal knowledge, skill and
experience be available to assist the Corporation and its affiliates with
respect to specified aspects of their operations and strategic planning, and the
Consultant is willing to perform in such capacity on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other
mutual covenants and agreements herein contained, the parties hereto, intending
to be legally bound, hereby mutually covenant and agree as follows:
<PAGE>
1. Consultant's Duties and Responsibilities.
(a) Effective as of the Effective Date, the Corporation hereby
retains the Consultant as a consultant for the Term (as hereinafter defined).
The Consultant agrees to act in such capacity on the terms and conditions
hereinafter set forth. The Consultant's services shall consist of providing
advice to the Corporation or any of its affiliates with respect to specified
aspects of their operations and strategic planning, to the extent and as
instructed from time to time by the Chairman of the Board or President of
Parent. Initial duties are expected to include assistance in integration of the
Corporation within the Parent organization, maintenance of the Corporation's
customer relationships and assistance to Parent in exploration of opportunities
for the imaging business of the Corporation. In performing such services, the
Consultant shall use all reasonable efforts to promote the best interests of the
Corporation. For purposes of this Agreement, the term "affiliates" shall include
all entities controlled by or under common control with the Corporation. The
Consultant shall perform his services in Albuquerque, New Mexico.
(b) In performing his services, the Consultant is not to be
considered an officer or employee of the Corporation or any of its affiliates,
and he will not be eligible to participate in any profit sharing, retirement,
life insurance, health insurance or any other benefit plan available to
employees of the Corporation or any of its affiliates, except to the extent
otherwise provided in Section 3(c) hereof. The Consultant agrees that he shall
not represent himself as acting in his capacity as a consultant to the
Corporation (or any affiliate thereof), or otherwise use his affiliation with
the Corporation (or any affiliate thereof), in his business activities not
conducted pursuant to this Agreement on behalf of the Corporation (or any
affiliate thereof). In the performance of Consultant's services under this
Agreement, Consultant shall adhere to those fiduciary standards, ethical
practices, and standards of care and competence which are normal and customary
for professionals rendering consulting and advisory services of the nature
provided for in this Agreement. Consultant is not authorized to waive any right
or to incur, enter into, assume, or create any debt, obligation, agreement or
release of any kind whatsoever in the name of or on behalf of the Corporation
(or any affiliate thereof) or in any way to bind the Corporation (or any
affiliate thereof).
(c) For a period of six months from the Effective Date, the
Corporation shall provide Consultant with suitable office and secretarial space
and equipment at the Corporation's offices in Albuquerque, New Mexico and
support to enable Consultant to assist the Corporation in the
<PAGE>
transition of management of the Corporation following the Merger.
2. Term.
(a) The term of this Agreement (the "Term") will commence on
the Effective Date and will continue through the fifth anniversary of the
Effective Date subject to earlier termination pursuant to the terms of this
Agreement. This Agreement (except for the obligations set forth in Section 7)
shall terminate immediately in the event of the Consultant's death, disability
or resignation; provided that, in the event of disability of Consultant, until
the earlier of the death of Consultant or the fifth anniversary of the Effective
Date, the Corporation shall continue to comply with Section 3(b) hereof.
(b) In the event this Agreement is terminated by reason of the
death or disability of the Consultant, the Corporation shall continue the
payment of the fee described in Section 3(a) hereof for a period of 12 months
thereafter (but not beyond the original five-year term) to the Consultant or his
personal representatives (in the case of disability) or to the surviving spouse
of the Consultant or, if none, to the Consultant's estate, in the case of the
Consultant's death. For purposes of this Agreement, "disability" shall mean the
Consultant's inability or incapacity to perform his duties hereunder due to a
mental or physical illness, accident, injury or condition, or any other cause,
for a period of 180 days in any twelve consecutive month period.
(c) Notwithstanding anything in this Agreement, it is
expressly understood and agreed by all parties hereto that, in the event the
Merger Agreement is terminated for any reason whatsoever, this Agreement shall
be null and void, ab initio, without any liability on the part of any party (or
any of such party's affiliates) to any other party.
3. Consulting Fees. In consideration for the services to be
rendered under this Agreement, the Consultant shall, during the Term, receive
the following:
(a) Fee. A fee of $120,000 per year (payable in equal
monthly installments on the 15th day of each month).
(b) Split Dollar Agreement. The Corporation will pay when
due the portion of the premiums for life insurance policies (the
"Policies") required to be paid pursuant to a Split Dollar Agreement,
dated as of April 1, 1992, by and between the Corporation and the
DeSantis Family Irrevocable Trust, a Split Dollar Agreement, dated as
of April 1, 1992, by and between the Corporation and
<PAGE>
the Dorothy Smith Irrevocable Trust and a Split Dollar Agreement,
dated as of April 1, 1992, by and between the Corporation and the
Velia DeSantis Family Trust (together, the "Split Dollar Agreements")
which are due within the Term (provided that, without increasing the
foregoing obligation, the annual aggregate premiums payable thereunder
shall not exceed $327,000). The Consultant agrees that the Corporation
may assign its rights and interest in the Split Dollar Agreements to
Parent or any affiliate thereof and that the Corporation and/or any
such assignee shall have a perfected first priority secured interest
in the Policies for, and shall have a right to receive from the
proceeds of such Policies, the full amount of any premium payments
with respect to such Policies made by the Corporation or any such
affiliate or their predecessors, and the Consultant agrees to amend
the Split Dollar Agreements to the extent reasonably requested by the
Corporation to provide therefor, and further agrees that the
Corporation shall have no obligation to make any payments under this
Section 3(b) at any time at which the Corporation has reasonably
determined, after giving Consultant notice and a 30-day opportunity to
cure, that the Corporation does not have such a perfected first
priority secured interest. Without limiting in any way the
Corporation's rights hereunder and under the Split Dollar Agreements,
the Corporation's obligations under this Section 3(b) shall cease,
prior to the expiration of the Term, upon the first to die of
Consultant or Consultant's spouse if, but only if, the proceeds from
the policies covered by the Split Dollar Agreements which are paid to
beneficiaries (other than the Corporation or any of its affiliates)
upon such first death are sufficient to pay or otherwise adequately
provide for all future premiums estimated to be due under the
remaining policies covered by the Split Dollar Agreements. Subject to
the foregoing provisions of this Section 3(b), the payments required
by the Corporation in this Section 3(b) shall continue for the Term,
but for not less than five years; provided that the Corporation shall
have no obligation to make any further payments hereunder in the event
of an uncured material breach by Consultant of the Non- Compete
Agreement (as defined in Section 4(i) hereof).
(c) Health Insurance. If and to the extent that the
Corporation's existing group health benefits providers confirm in
writing prior to the Effective Date that Consultant's engagement as a
consultant under this Agreement will enable Consultant (and eligible
family members) to continue to be covered under the Corporation's
group health benefit plan or plans at normal group rates as in effect
from time to time, then
<PAGE>
the Corporation will take reasonable steps to facilitate the obtaining
and maintaining of such coverage during the Term subject to its
continued availability. No assurance has or will be given by the
Corporation with respect to the availability of this coverage. If such
coverage is available, the Corporation will pay that portion of the
premiums for such coverage which it currently pays for Consultant and
his eligible family members.
4. Termination. The Corporation may only terminate the
consulting engagement set forth in this Agreement for cause. For purposes of
this Agreement, the term "cause" shall mean any of the following:
(i) Any material breach by the Consultant of any provision
of this Agreement or the Agreement Not to Compete between Parent
and Consultant of even date herewith (the "Non- Compete
Agreement"), which breach continues for 45 days after written
notice to the Consultant specifying the breach.
(ii) Any willful action by the Consultant (other than an
action taken at the direction of the Corporation) that
(A) is intended to have; or
(B) could have reasonably been expected to have,
a materially detrimental effect on the interests of the
Corporation or any of its affiliates; or
(iii) Any final and unappealable conviction of the
Consultant of any offense involving (A) moral turpitude, (B)
misappropriation of funds or (C) drug addiction.
Upon termination of this Agreement for cause, the Consultant
shall forfeit any unvested portion of the Option (as defined in Section 6
hereof) and any right to additional fees (except for accrued but unpaid fees)
under this Agreement or the Non-Compete Agreement, and the Corporation shall
have no further obligation to the Consultant hereunder with respect hereto or
thereto (except as otherwise provided in Section 3(b) hereof).
5. Status as Independent Contractor. It is mutually agreed
that the Consultant is an independent contractor and not an employee of the
Corporation and as such, the Consultant shall be responsible for the following
throughout the entire Term of this Agreement.
<PAGE>
(a) Maintaining his own records of expenses;
(b) Paying self-employment taxes, income taxes and other taxes
and assessments for which Consultant has responsibility; and
(c) Complying with all relevant local, state and federal laws
applicable to Consultant in the context of this Agreement.
6. Stock Option; Guaranty.
(a) In further consideration of the valuable and extensive
services to be rendered by Consultant hereunder, effective as of the Effective
Date, the Consultant shall be granted an option (the "Option") to purchase
350,000 shares of common stock, no par value per share, of Parent at an exercise
price per share equal to the closing price of the common stock of Parent on the
New York Stock Exchange on the date on which the Merger is consummated. The
Option shall be subject to terms and conditions set forth in the form of the
Stock Option Agreement annexed hereto as Annex I.
(b) Parent hereby guarantees all of the obligations of the
Corporation under this Agreement.
7. Indemnification.
The parties hereto agree, and this Agreement has been
negotiated based on the mutual belief, that all amounts payable to the
Consultant hereunder and under the Non-Compete Agreement, severally and in the
aggregate, constitute "reasonable compensation" for the personal services to be
rendered (or, in the case of the Non-Compete Agreement, not rendered to third
parties) by the Consultant, within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). If, notwithstanding the
foregoing, there is a final determination that any portion of the amounts
payable to or for the benefit of the Consultant under this Agreement and/or
under the Employment Agreement or the Non-Compete Agreement constitutes an
"excess parachute payment" as such term is used in Section 280G and 4999 of the
Code, then the Corporation shall, within 60 days of said final determination,
pay to the Consultant an additional sum (the "Additional Amount") in an amount
such that after all federal, state and local taxes of any kind which would apply
to the receipt by the Consultant of the Additional Amount have been subtracted
therefrom, the remainder of the Additional Amount would equal the sum of (i) the
amount of the tax imposed on the Consultant by Section 4999(a) of the Code and
by any comparable provision of any state or local tax law with
<PAGE>
respect to the "excess parachute payment", plus (ii) any interest and/or
penalties thereon.
The Corporation shall have the right, at its sole expense, to
contest an assertion by any taxing authority that any of the aforesaid amounts
payable to the Consultant constitutes an "excess parachute payment" and, if the
Corporation chooses to contest any such assertion, the Consultant agrees to
cooperate with and assist the Corporation in such context. If, the Corporation
elects not to contest such assertion, there shall be no obligation hereunder on
the part of the Consultant to contest such assertion. For purposes of this
Agreement, a "final determination" shall mean a court decision or an assertion
or determination by a taxing authority from which the Corporation (on behalf of
Consultant) is unable to appeal further (or from which any further appeals have
been rejected or refused); or which the Corporation determines not to appeal or
contest further; or an assertion or determination by a taxing authority which
the Corporation elects not to contest; or the settlement of any such assertion
or determination to which the Corporation agrees. The obligation of the
Corporation to the Consultant set forth in this Section 7 shall survive the
expiration or other termination of this Agreement, the Employment Agreement
and/or the Non-Compete Agreement, any provision of this Agreement or those
Agreements to the contrary notwithstanding.
Consultant agrees to notify the Corporation in a timely manner
in the event of any audit or other proceeding by any taxing authority in which
it is asserted that any portion of the amounts payable to or for the benefit of
Consultant under this Agreement, the Employment Agreement or the Non-Compete
Agreement constitutes an "excess parachute payment". Consultant further agrees
not to settle any such assertion without the prior written consent of the
Corporation.
8. Notice. Any notice that either party hereto may desire to
give the other shall be deemed delivered three days after the date on which such
Notice has been deposited in the United States Mail as certified or registered
mail, return receipt requested, addressed as follows:
To the Corporation:
c/o Value Health, Inc.
22 Waterville Road
Avon, Connecticut 06001
Attn: General Counsel
Facsimile No.: (203)676-8695
<PAGE>
To the Consultant:
c/o Nunzio P. DeSantis
4500 Alexander Boulevard, N.E.
Albuquerque, New Mexico 87107
Facsimile No.: (505) 761-6125
provided that the addresses above specified may be changed by either party
hereto by giving notice thereof to the other pursuant to this paragraph. Notice
may also be given by facsimile to the foregoing facsimile numbers or personal
delivery at the foregoing addresses, and delivery of any such notice shall be
deemed made at the time of the sending of a facsimile or upon the making of a
personal delivery.
9. No Conflict. Consultant represents and warrants that he is
not a party to any agreement or under any obligation which would conflict with
the terms of this Agreement or prevent him from carrying out his
responsibilities under this Agreement.
10. Waiver/Miscellaneous. No waiver of any provision of this
Agreement shall be effective unless in a writing signed by the waiving party.
The Corporation shall be permitted to withhold any amounts which any taxing
authority asserts are required by law to be withheld for federal, state or local
tax purposes (the withholding of which shall be treated as a payment to the
Consultant for purposes of this Agreement), and the Consultant shall upon notice
and request reimburse the Corporation for any amounts not withheld that were
required to be withheld.
11. Assignment; Binding Effect. The obligations of Consultant
hereunder are personal and may not be assigned or delegated by him under any
circumstances. This Agreement shall be binding upon and inure to the benefit of
the parities hereto and their respective heirs (to the extent provided for
herein), successors and permitted assigns.
12. Headings. The paragraph and other headings in this
Agreement are inserted solely as a matter of convenience and for reference and
are not a part of this Agreement.
13. Severability. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provisions hereof is invalid or unenforceable (a) the remaining terms
and provisions hereof shall be unimpaired and (b) the invalid or unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and
<PAGE>
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts to be performed in that state and without regard to law that might
otherwise govern under applicable principles of conflict of laws.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Entire Agreement/Modification. The terms and provisions of
this instrument constitute the entire agreement between the parties with respect
to the subject matter hereof and shall supersede all previous communications,
representations or agreements, either oral or written, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended, modified or altered except in writing signed by the parties.
17. Expenses. The Corporation will reimburse the Consultant
for reasonable out-of-pocket expenses incurred by Consultant outside of New
Mexico which are incurred in the performance of his duties hereunder, in
accordance with Parent's corporate policies and subject to reasonably detailed
documentation.
18. Release. In consideration of the payments and benefits
provided to the Consultant under this Consulting Agreement, the Consultant
hereby releases and forever discharges the Corporation, Parent and their
respective affiliates, and each of their respective officers, employees and
directors from any and all claims, actions and causes of action that the
Consultant may have, or in the future may possess, arising out of his employment
relationship with the Corporation or any of its affiliates and the termination
thereof. The provisions of this Section 18 shall not apply with respect to (i)
the obligations of the Corporation hereunder and under the Non-Compete
Agreement, (ii) claims for payment of currently accrued compensation, (iii)
rights to indemnification in the Consultant's capacity as an officer or director
of the Corporation or any of its subsidiaries, (iv) any benefits to which the
Consultant is entitled under terms of employee benefit plans of the Corporation
and its affiliates in which he participates and (v) the obligation of the
Corporation to pay and the right of the Consultant to receive, at the Effective
Date, the "Termination Compensation" specified in Section 5(c) of the Employment
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate on this 27th day of March , 1995.
Consultant
/s/ Nunzio P. DeSantis
Nunzio P. DeSantis
Diagnostek, Inc.
By: /s/ William Barron
Title: President
Value Health, Inc.
(For Purposes of Section 6 of
this Agreement only)
By: /s/ Robert E. Patricelli
Title: Chief Executive Officer
<PAGE>
Annex I
VALUE HEALTH, INC.
Non-Qualified Stock Option Agreement
Value Health, Inc., a Delaware corporation (the "Company"),
hereby grants this ___ day of _________, 1995, (the "Grant Date") to
___________________ (the "Optionee") an option to purchase a maximum of 350,000
shares of its Common Stock, no par value (the "Option Shares"), at the price of
$_________ per share, on the following terms and conditions:
1. Grant Under 1991 Stock Option Plan; Consulting Agreement.
This option is granted pursuant to and is governed by the Company's 1991 Stock
Option Plan (the "Plan") and, unless the context otherwise requires, terms used
herein shall have the same meanings as in the Plan. Determinations made in
connection with this option pursuant to the Plan shall be governed by the Plan
as it exists on this date. Optionee has entered into a Consulting Agreement (the
"Consulting Agreement") with Diagnostek, Inc. (the "Corporation") of even date
herewith pursuant to which Optionee has been retained by the Corporation as a
consultant.
2. Grant as Non-Qualified Option. This option shall be treated
for federal income tax purposes as a Non-Qualified Option (rather than an
incentive stock option), and the Board of Directors of the Company, or any
committee approved by the Board, intends to take appropriate action, if
necessary, to achieve this result.
3. Vesting. If the Optionee has continued to be engaged as a
consultant under the Consulting Agreement on the following dates, the Optionee
may exercise this option for the number of shares set opposite the applicable
date:
On January 2, 1996 - 70,000 shares
On January 2, 1997 - 70,000 shares
On January 2, 1998 - 70,000 shares
On January 2, 1999 - 70,000 shares
On January 2, 2000 - 70,000 shares
Except as otherwise provided in Articles 4 and 5, the foregoing rights may be
exercised up to and including the date which is ten (10) years from the date
this option is granted.
<PAGE>
4. Termination of Consulting Agreement. If the engagement of
Optionee as a consultant under the Consulting Agreement is terminated by the
resignation of Optionee prior to the end of the Term (as defined in the
Consulting Agreement) or by the Corporation for cause (as defined in the
Consulting Agreement), no further installments of this option shall become
exercisable and this option shall terminate after the passage of ninety (90)
days from the date of such termination, but in no event later than the scheduled
expiration date. In such case, the Optionee's only rights hereunder shall be
those which are properly exercised before the termination of this option.
5. Death; Disability. If the Optionee dies while engaged as a
consultant under the Consulting Agreement, this option may be exercised, to the
extent of the number of shares with respect to which the Optionee could have
exercised it on the date of his death, by his estate, personal representative or
beneficiary to whom this option has been assigned pursuant to Article 9 hereof,
at any time within 180 days after the date of death, but not later than the
scheduled expiration date. If the Optionee's engagement as a consultant under
the Consulting Agreement is terminated by reason of his disability (as defined
in the Consulting Agreement), this option may be exercised, to the extent of the
number of shares with respect to which the Optionee could have exercised it on
the date of such termination, at any time within 180 days after the date of such
termination, but not later than the scheduled expiration date. At the expiration
of such 180-day period or the scheduled expiration date, whichever is the
earlier, this option shall terminate and the only rights hereunder shall be
those as to which the option was properly exercised before such termination.
6. Partial Exercise. Exercise of this option up to the extent
above stated may be made in part at any time and from time to time within the
above limits, except that this option may not be exercised for a fraction of a
share unless such exercise is with respect to the final installment of stock
subject to this option and a fractional share (or cash in lieu thereof) must be
issued to permit the Optionee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Optionee in accordance with the terms hereof.
7. Payment of Price. The option price is payable in United
States dollars and may be paid in cash or by check, or any combination of the
foregoing, equal in amount to the option price.
<PAGE>
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, this option may be exercised by written notice to
the Company, at the principal executive office of the Company. Such notice shall
state the election to exercise this option and the number of shares in respect
of which it is being exercised and shall be signed by the person or persons so
exercising this option. Such notice shall be accompanied by payment of the full
purchase price of such shares, and the Company or its transfer agent shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. The certificate or certificates
for the shares as to which this option shall have been so exercised shall be
registered in the name of the person or persons so exercising this option (or,
if this option shall be exercised by the Optionee and if the Optionee shall so
request in the notice exercising this option, shall be registered in the name of
the Optionee and another person jointly, with right or survivorship) and shall
be delivered as provided above to or upon the written order of the person or
persons exercising this option. In the event this option shall be exercised,
pursuant to Article 5 hereof, by any person or persons other than the Optionee,
such notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option. All shares that shall be purchased
upon the exercise of this option as provided herein shall be fully paid and
non-assessable.
9. Option Not Transferable. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During the
Optionee's lifetime, only the Optionee can exercise this option.
10. No Obligation to Exercise Option. The grant and acceptance
of this option impose no obligation on the Optionee to exercise it.
11. Right to Terminate Services as a Consultant. This
Agreement does not constitute a contract of, or an implied promise to continue,
Optionee's status as a consultant to the Corporation or to be engaged or
retained in any status or position by or with the Company or any of its other
affiliated entities; nor does this Agreement affect any right the Corporation
may have to terminate Optionee's consulting engagement at any time. Optionee
shall have no rights in the benefits conferred by this Agreement or in any
Option Shares except to the extent the Option is exercised while vested and
otherwise in accordance with the terms of this Agreement. Nothing in this
Section 11 shall alter the rights and obligations of the parties to the
Consulting Agreement.
<PAGE>
12. No Rights as Stockholder until Exercise. The Optionee
shall have no rights as a stockholder with respect to shares subject to this
Agreement until a stock certificate therefor has been issued to the Optionee and
is fully paid for. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization of the Company, no adjustment shall be
made for dividends or similar rights for which the record date is prior to the
date such stock certificate is issued.
13. Capital Changes and Business Successions. It is the
purpose of this option to encourage the Optionee to work for the best interests
of the Company and its stockholders. Since, for example, that might require the
issuance of a stock dividend or a merger with another corporation, the purpose
of this option would not be served if such a stock dividend, merger or similar
occurrence would cause the Optionee's rights hereunder to be diluted or
terminated and thus be contrary to the Optionee's interest. The Plan contains
provisions designed to preserve options at full value in a number of
contingencies. Therefore, provisions in the Plan for adjustment with respect to
stock subject to options and the related provisions with respect to successors
to the business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.
14. Withholding Taxes. The Company shall be permitted to
withhold any amounts which any taxing authority asserts are required by law to
be withheld for federal, state or local tax purposes upon exercise of this
option, and the Optionee shall, upon notice and request, reimburse the Company
for any amounts not withheld that were required to be withheld.
15. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused
this instrument to be executed, and the Optionee whose signature appears below
acknowledges receipt of a copy of the Plan and acceptance of an original copy of
this Agreement.
______________________________ VALUE HEALTH, INC.
Optionee
______________________________ By:____________________________
Full Name of Optionee Title:
______________________________
Street Address
______________________________
City, State, Zip
EXHIBIT 10.3
AGREEMENT NOT TO COMPETE
AGREEMENT NOT TO COMPETE dated as of March 27, 1995, between
Value Health, Inc., a Delaware corporation (the "Corporation") and Diagnostek,
Inc., a Delaware corporation (the "Acquired Company") and Nunzio P. DeSantis
("DeSantis");
WHEREAS, pursuant to the Agreement and Plan of Merger dated as
of the date hereof (the "Merger Agreement"), Value Health Merger-Sub Corp., a
Delaware corporation and a wholly-owned subsidiary of the Corporation, will,
subject to satisfaction of certain conditions, be merged with and into the
Acquired Company with the result that Acquired Company will become a
wholly-owned subsidiary of the Corporation (such merger being referred to herein
as the "Merger"); and
WHEREAS, effective as of the Effective Date (as defined in the
Merger Agreement), the employment of DeSantis by the Acquired Company pursuant
to the Employment Agreement dated as of October 1, 1990 between Acquired Company
and DeSantis shall be terminated by the Acquired Company; and
WHEREAS, the Corporation has requested that DeSantis enter
into a consulting agreement (the "Consulting Agreement") so that the Corporation
can avail itself of DeSantis' unique skills and expertise and extensive
experience with respect to those businesses in which the Corporation and the
Acquired Company are presently engaged, and DeSantis has agreed to enter into
the Consulting Agreement on the terms and conditions set forth therein; and
WHEREAS, in the course of developing his skills, expertise and
experience, DeSantis has established valuable relationships with suppliers,
customers and agencies throughout the United States in healthcare-related
fields; and
WHEREAS, the Corporation and the Acquired Company have
determined that it is imperative in order to protect the value and the benefits
which they anticipate will accrue to them by virtue of the Merger, to secure
DeSantis' agreement, inter alia, to refrain from competing with the Corporation,
the Acquired Company and their affiliates for a period of time considered by the
parties hereto to be sufficient to protect the interests of the Corporation, the
Acquired Company and their affiliates, and DeSantis is willing to extend such
protection to the Corporation and the Acquired Company, all on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other
mutual covenants and agreements herein contained, the parties hereto, intending
to be legally bound hereby, mutually covenant and agree as follows:
<PAGE>
1. 0bligations of and Restrictions and Limitations on
DeSantis.
(a) No Competing Employment or Service. During the
ten-year period beginning with the Effective Date (the
"Restricted Period"), DeSantis will not (as an individual,
partner, stockholder, officer, employee, consultant or
otherwise), anywhere within the United States of America and
its territories and possessions (including Puerto Rico),
control, own an interest in, manage, operate, join, lend money
or other financial assistance to or participate in or be
connected with any individual, partnership, limited liability
company, firm, corporation or other entity that, at such time,
competes with any of the businesses engaged in by the
Corporation, the Acquired Company or any of their subsidiaries
(collectively, the "Companies") as of the date of this
Agreement, including without limitation activities relating to
(i) providing prescription drugs through mail service, (ii)
processing prescription drug claims, (iii) providing pharmacy
management, administrative, consulting or other services for
the benefit of benefit plan sponsors, hospitals, health
maintenance organizations, prisons and long-term health care
facilities and (iv) disease management product development
activities or disease management program implementation
services. Nothing contained in this Agreement shall preclude
DeSantis from engaging or otherwise being interested in any
business or venture which involves the development,
manufacture, distribution and/or sale of homeopathic
medicines, homeopathic drugs, homeopathic vitamins or other
homeopathic or related products, or shall prevent DeSantis
from holding, for passive investment only, up to five percent
(5%) of any class of equity securities of a company engaged in
an activity set forth above in this Section 1(a) whose
securities are traded on a national securities exchange, or on
NASDAQ or an over-the-counter market.
(b) No Interference. During the Restricted Period,
DeSantis will not, whether for his own account or for the
account of any other individual, partnership, limited
liability company, firm, corporation or other
<PAGE>
entity, solicit, offer employment to, endeavor to entice away
from any of the Companies, or otherwise intentionally
interfere with the relationship of any of the Companies with,
any person who is employed by or otherwise engaged to perform
services for any of the Companies (including, without
limitation, any independent sales representatives or
organizations) or any person who, or organization which, at
the time of such interference, is, or was within the then most
recent l2- month period, a customer or client of any of the
Companies.
(c) Confidential Information. Throughout the
Restricted Period, DeSantis agrees to maintain the
confidentiality of, and shall not disclose to anyone not
employed by any of the Companies nor use for his own benefit
or for the benefit of any third party, without prior written
consent of the Corporation, any confidential matter or
information of any of the Companies including, without
limitation, trade secrets, ideas, inventions, designs and
other matters of a confidential business nature, such as
information about costs, profits, markets, payroll
information, plans for future development and any other
information of like nature to the extent such information is
not available to the public at large. In addition, if
presented such confidential matter or information by any third
party, DeSantis will not confirm such matter or information or
otherwise associate such matter or information with any of the
Companies. Commercial use of such information or matter by any
of the Companies without specific public disclosure shall not
constitute a release of DeSantis' obligation of
confidentiality.
(d) Property of the Corporation. DeSantis agrees to
deliver promptly to the Corporation, on termination of the
Consulting Agreement or at any time the Corporation may
otherwise request prior thereto, all memoranda, notes,
records, reports, manuals and any other documents of a
confidential nature belonging to any of the Companies and/or
pertaining to his consulting projects for any of the
Companies, including all copies of such materials which
DeSantis may then possess or have under his control. The
Corporation agrees to make copies of such materials accessible
to DeSantis to the
<PAGE>
extent reasonably required by DeSantis in connection with any
tax audit or other government inquiry.
(e) Inventions. Any invention, improvement or
discovery, whether or not patentable; any copyrightable
materials; any trademark or service mark; and any trade secret
that relates to the past or present business of any of the
Companies (including research and evaluation), which DeSantis
may have conceived, made, developed or authored, either alone
or in conjunction with others, in the course of his prior
employment by the Acquired Company, shall be the sole and
exclusive property of the Acquired Company. DeSantis will
disclose to the Acquired Company, each such invention,
improvement, discovery, copyrightable material, trademark,
service mark, or trade secret and will whenever requested to
do so by the Corporation, promptly execute any and all
applications, assignments and other instruments which the
Corporation shall deem necessary in order to apply for and
obtain letters patent of the United States and/or foreign
countries for such invention, improvement or discovery or U.S.
or foreign registrations with respect to any such
copyrightable material, trademark or service mark and in order
to assign and convey to the Acquired Company or its order the
sole and exclusive right, title and interest in and to such
invention, improvement, discovery, copyrightable material,
trademark, service mark, or trade secret.
(f) Remedies. DeSantis recognizes that, in the event
that any of the provisions of this Section 1 are violated, the
damage and loss to the Corporation would be immediate,
irreparable and incalculable. The parties, therefore, agree
that in the event of a violation of any of the provisions of
this Section 1, DeSantis shall immediately forfeit the right
to receive any additional fees or payments of any kind under
both this Agreement and the Consulting Agreement (except for
accrued fees for services previously rendered and except as
otherwise provided in Section 7 of the Consulting Agreement,
the provisions of which shall also apply with respect to the
payment of the consideration to which DeSantis is entitled
hereunder) and the right to exercise any
<PAGE>
unvested portion of the Option referred to in the Consulting
Agreement. In addition, the Corporation shall be entitled to
specific performance of Section 1 of this Agreement and to
injunctive relief, whether mandatory or prohibitory, to
prevent the loss of, the unauthorized use of or the
dissemination of, any confidential information or other
matter. Nothing contained herein, however, shall restrict the
Corporation's right to pursue any other remedy at law or in
equity with respect to such breach or violation including
without limitation the right to seek recovery of any fees paid
to DeSantis hereunder and other damages which are available
under applicable law.
2. Payment for Agreement Not to Compete. In consideration of
the promises, restrictions and obligations set forth in or imposed by Section 1
hereof, the Corporation shall pay DeSantis the sum of $3,500,000 which amount
shall be paid in two equal installments, the first of which shall be paid on the
Effective Date and the second of which shall be paid on the first anniversary of
the Effective Date.
3. Notice. Any notice that either party hereto may desire to
give the other shall be deeded delivered three days after the date on which such
Notice has been deposited in the United States Mail as certified or registered
mail, return receipt requested, addressed as follows:
To the Corporation:
Value Health, Inc.
22 Waterville Road
Avon, Connecticut 06001
Attn: General Counsel
Facsimile No.: (203) 676-8695
To DeSantis:
Nunzio P. DeSantis
4500 Alexander Boulevard, N.E.
Albuquerque, New Mexico 87107
Facsimile No.: (505) 761-6125
provided that the addresses above specified may be changed by either party
hereto giving notice thereof to the other pursuant to this paragraph. Notice may
also be given by facsimile to the foregoing facsimile numbers or personal
delivery at the foregoing addresses, and delivery of any such
<PAGE>
notice shall be deemed made at the time of the sending of a facsimile or upon
the making of a personal delivery.
4. No Conflict. DeSantis represents and warrants that he is
not a party to any agreement or under any obligation which would conflict with
the terms of this Agreement or prevent him from carrying out his
responsibilities under this Agreement.
5. Waiver/Miscellaneous. No waiver of any provision of this
Agreement shall be effective unless in a writing signed by the
waiving party.
6. Assignment; Binding Effect. The obligations of DeSantis
hereunder are personal and may not be assigned or delegated by him under any
circumstances. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
7. Headings. The paragraph and other headings in this Agreement
are inserted solely as a matter of convenience and for reference and are not a
part of this Agreement.
8. Severability. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within
which judicial review (if permitted) of such determination may be perfected,
that any term or provision thereof is invalid or unenforceable (a) the
remaining terms and provisions hereof shall be unimpaired and (b) the invalid or
unenforceable term or provision shall be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts to be performed in that state and without regard to law that might
otherwise govern under applicable principles of conflict of laws.
10. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. Entire Agreement/Modification. The terms and provisions of this
instrument constitute the entire agreement between the parties with respect to
the subject matter hereof, and shall supersede all previous communications,
representations or agreements, either oral or written, between the parties
hereto with respect to the subject matter hereof.
<PAGE>
This Agreement may not be amended, modified or altered except in writing signed
by the parties.
12. Effectiveness. Notwithstanding anything in this Agreement, it is
expressly understood and agreed by all parties hereto that, in the event that
the Merger Agreement is terminated for any reason whatsoever, this Agreement
shall be null and void, ab initio, without any liability on the part of any
party (or any of such parties' affiliates) to any other party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in duplicate on this 27th day of March, 1995.
/s/ Nunzio P. DeSantis
Nunzio P. DeSantis
Value Health, Inc.
By: /s/ Robert E. Patricelli
Title: Chief Executive Officer
Diagnostek, Inc.
By: /s/ William Barron
Title: President
EXHIBIT 10.4
FOR RELEASE 8 A.M., MARCH 27, 1995
Contacts:
Value Health: Judith Hyfield-Starr (203) 678-3472
Diagnostek: Fred Spar or Todd Fogarty, Kekst & Co. (212) 593-2655
VALUE HEALTH, INC. TO ACQUIRE DIAGNOSTEK, INC.
To Create Largest Independent Prescription Drug Benefit Manager
AVON, CONN. & ALBUQUERQUE, N.M., MARCH 27, 1995 -- Value Health, Inc. (NYSE:VH)
and Diagnostek, Inc. (NYSE:DXK) today announced that they have signed a
definitive agreement whereby Value Health will acquire Diagnostek in a merger
valued at close to $480 million.
The merger will create the nation's largest independent prescription benefit
management (PBM) company covering approximately 32 million lives, of which about
24 million are served by retail or mail service pharmacy benefits, and with
combined 1994 PBM revenues of more than $1.1 billion. When pharmaceutical
manufacturer-owned PBMs are included in the comparisons, the new company would
rank second in revenues and third in covered lives and drug spend under
management.
Terms of the transaction call for each share of Diagnostek to be exchanged for
0.55 shares of Value Health's stock. The transaction will provide shareholders
of Diagnostek with an indicated value of $18.84 per share based on Value
Health's closing stock price on Friday, March 24, 1995. Actual transaction
values will depend on Value Health's closing stock price on the day the
transaction is completed. The transaction is intended to be tax-free and
accounted for as a pooling-of-interests, and could close as early as June.
"We believe that relative size will be an important determinant of PBM success
in the future," said Robert E. Patricelli, Chairman and CEO of Value Health.
"Combining our ValueRx subsidiary with Diagnostek will give us a leading
competitive position and the opportunity to preserve the best practices of both
companies so that we can better serve our customers," Patricelli added.
"The transaction will be non-dilutive to Value Health's earnings going forward,"
Patricelli said, "and there will be opportunities for significant synergies
beginning in 1996. We will be taking a restructuring reserve in the quarter in
which the deal closes," he added.
"We're pleased to be joining an outstanding managed care company such as Value
Health, and feel the union will afford our employees many opportunities to grow
with the new company," said Nunzio P. DeSantis, Diagnostek's founder, Chairman
and Chief Executive Officer. DeSantis will leave active management of the
company at closing to pursue other business interests and will serve as a
consultant to Value Health. Barry M. Smith, Chairman and Chief Executive Officer
of ValueRx, will head the new combined PBM
<PAGE>
company. Smith commented, "I want to commit to our customers and employees that
we are joining the ValueRx and Diagnostek resources in order to build the vary
best PBM and institutional pharmacy enterprise in the country."
Diagnostek and ValueRx are both providers of integrated drug management services
designed to contain the costs of prescription benefit programs. The companies
arrange for the provision of prescription drugs through their own mail service
dispensing facilities and through contracted networks of retail pharmacies.
Diagnostek was founded in 1983 as a provider of stand-alone diagnostic imaging
centers, and entered the PBM business in 1988 and the institutional pharmacy
business the following year. Headquartered in Albuquerque, NM, it is the
nation's third largest provider of mail order services dispensing more than 3.5
million mail order prescriptions in 1994. It maintains mail order facilities in
Albuquerque and Bensalem, PA, and operates a national network of more than
51,000 retail pharmacies which dispensed more than 8.9 million prescriptions in
1994. Its mail and retail drug programs combined cover about 16 million lives.
The company has 1400 employees, and had 1994 revenues from all divisions of $656
million.
Diagnostek also provides pharmacy contract management services to hospitals,
nursing homes, HMOs and other institutions. Its institutional pharmacy business
is comprised of HPI Health Care Services, Inc., acquired from Omnicare in 1989,
and Diagnostek Pharmacy Inc., originally part of Chronitech and acquired in
1993. HPI primarily manages hospital pharmacies and services 130 facilities in
the U.S. and one in Canada. Diagnostek Pharmacy provides specialty services for
HIV/AIDS patients and has pharmacies in San Francisco and Los Angeles, CA.
ValueRx, headquartered in Scottsdale, AZ, recently opened a state-of-the-art
mail order facility in Davenport, IA and has mail order and retail programs
covering 8 million lives and another 8 million lives under drug utilization
review programs. ValueRx works through 37,000 retail pharmacies in its national
network. ValueRx dispensed more than 34.4 million mail and retail prescriptions
in 1994 and had 1994 revenues of $660 million.
Value Health, Inc., ValueRx's parent company, is a leading provider of specialty
managed care benefit programs and health care information services. Value
Health's specialty managed care benefit programs include prescription drugs,
mental health and substance abuse and workers' compensation. Value Health's
health care information services include clinically based precertification and
claims review, provider profiling, claims cost analysis, evaluation and
management of health benefit providers, health policy and management consulting
and disease management program development. Value Health provides services to
more than 64 million people and its customers include 58 of the nation's 250
largest corporations.
