<PAGE> 1
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
December 14, 1994
---------------------
Date of Report
(Date of earliest event reported)
Beverly Enterprises, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware
------------
(State or other jurisdiction of incorporation)
1-9550 95-4100309
---------- --------------
(Commission file number) (IRS employer identification no.)
5111 Rogers Avenue, Suite 40-A
Fort Smith, Arkansas 72919-1000
------------------------------ --------------
(Address of principal executive offices) (Zip code)
(501) 452-6712
------------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets
Synetic Acquisition
On December 14, 1994, Pharmacy Corporation of America, a California
corporation ("PCA"), an indirect wholly-owned subsidiary of Beverly
Enterprises, Inc., a Delaware corporation (the "Company"), consummated a
transaction with Synetic, Inc., a Delaware corporation ("Synetic"), whereby PCA
acquired all the issued and outstanding shares of common stock (the "Synetic
Shares") of three Synetic subsidiaries as follows: Dunnington Drug, Inc, a
Delaware corporation; Healthcare Prescription Services, Inc., an Indiana
corporation; and Alliance Health Services, Inc., a Delaware corporation
(collectively, the "Synetic Subsidiaries"). The Synetic Subsidiaries provide
pharmaceutical dispensing services in New England and Indiana to approximately
45,000 patients in various institutions, including nursing homes, transitional
care facilities, correctional facilities and group homes.
Cash consideration totalling $107,314,000 was paid in exchange for the
Synetic Shares, with such consideration being subject to adjustment pending
certain financial tests based on an audited combined balance sheet of the
Synetic Subsidiaries as of December 14, 1994. Further, $5,000,000 of the
purchase price was placed in escrow pending certain indemnification related
post-closing adjustments, if any.
Insta-Care Acquisition
On November 15, 1994, PCA consummated a transaction, whereby it
acquired all of the authorized, issued and outstanding shares of common stock
(the "Insta-Care Shares") of Insta-Care Holdings, Inc., a Florida corporation
("Insta-Care"), which was a subsidiary of Eckerd Corporation, a Delaware
corporation. Insta-Care provides pharmaceutical dispensing services to
approximately 65,000 patients in various institutions, including nursing homes,
transitional care facilities, correctional facilities and group homes.
Cash consideration totaling $112,000,000 was paid in exchange for the
Insta-Care Shares, with such consideration being subject to adjustment pending
certain financial tests based on an audited consolidated balance sheet of
Insta-Care as of November 14, 1994. Of the $112,000,000 total consideration, up
to $3,000,000 will be rebated to the Company in order to account for certain
transition expenses to be incurred by the Company in connection with the
acquisition. Further, $2,000,000 of the purchase price was placed in escrow
pending certain indemnification related post-closing adjustments, if any.
2
<PAGE> 3
Financing
On November 1, 1994, the Company executed a $375,000,000 Credit
Agreement (the "1994 Credit Agreement") with Morgan Guaranty Trust Company of
New York which provides for a $225,000,000 Term Loan (the "1994 Term Loan") and
a $150,000,000 Revolver/Letter of Credit Facility (the "1994 Revolver/LOC
Facility"). The proceeds from the 1994 Term Loan were used to consummate the
pharmacy acquisitions discussed above. The 1994 Revolver/LOC Facility has
replaced the Company's revolving credit facility and letter of credit facility
originally entered into in 1993. Currently, the 1994 Term Loan and any Revolver
borrowings will bear interest at adjusted LIBOR plus 1%, the Prime Rate, as
defined, or the adjusted CD rate, as defined, plus 1.125%, at the Company's
option. Such interest rates may be adjusted quarterly based on certain
financial ratio calculations. The 1994 Term Loan requires quarterly principal
and interest payments through October 1999.
General
Neither the acquisition of the Synetic Shares nor the acquisition of
the Insta-Care Shares is by and of itself a significant acquisition. However,
this Report on Form 8-K is being filed because the acquisitions collectively
result in an acquisition of businesses which is deemed to be a significant
acquisition by the Company.
ITEM 7. Financial Statements and Exhibits
a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. In accordance with
the instructions to this form, when considered individually, the financial
statements of the respective businesses acquired are not required.
b) PRO FORMA FINANCIAL INFORMATION. It is impractical to provide
the required pro forma financial information with this Report on Form 8-K. As
permitted by Item 7(b)(2), such pro forma financial information will be filed
under cover of an amendment to this Form 8-K as soon as practicable, but not
later than 60 days after this Report on Form 8-K must be filed.
c) EXHIBITS.
2.1 Stock Purchase Agreement, dated as of August 9,
1994, between Synetic, Inc. and Pharmacy
Corporation of America
2.2 Stock Purchase Agreement, dated as of September 12,
1994, between Eckerd Corporation and Pharmacy
Corporation of America
3
<PAGE> 4
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 hereunto duly authorized.
BEVERLY ENTERPRISES, INC.
/s/ SCOTT M. TABAKIN
Scott M. Tabakin,
Vice President, Controller and
Chief Accounting Officer
Date: December 28, 1994
4
<PAGE> 5
EXHIBIT INDEX
-------------
Ex. No. Description
- ------- -----------
2.1 Stock Purchase Agreement, dated as of August 9,
1994, between Synetic, Inc. and Pharmacy
Corporation of America
2.2 Stock Purchase Agreement, dated as of September 12,
1994, between Eckerd Corporation and Pharmacy
Corporation of America
<PAGE> 1
Exhibit 2.1
CONFORMED COPY
________________________________________________________________________________
_________________________________________
STOCK PURCHASE AGREEMENT
_________________________________________
dated as of August 9, 1994
between
SYNETIC, INC.
and
PHARMACY CORPORATION OF AMERICA
________________________________________________________________________________
<PAGE> 2
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms ............................................... 1
1.02. Other Defined Terms ................................................. 7
ARTICLE II
PURCHASE AND SALE
2.01. Purchase and Sale ................................................... 8
2.02. Purchase Price ...................................................... 8
2.03. Closing ............................................................. 9
2.04. Assumption of Certain Liabilities of the Seller and Medco ........... 9
2.05. Allocation of Purchase Price ........................................ 10
2.06. Purchase Price Adjustment ........................................... 10
2.07. Intercompany Amounts ................................................ 13
2.08. Escrow Account ...................................................... 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.01. Incorporation and Authority of the Seller ........................... 15
3.02. Incorporation and Qualification of the Companies and the
Subsidiaries ........................................................ 15
3.03. Capital Stock of the Companies ...................................... 16
3.04. Subsidiaries ........................................................ 16
3.05. No Conflict ......................................................... 17
3.06. Financial Statements ................................................ 17
3.07. Labor Matters ....................................................... 17
3.08. Absence of Certain Changes or Events ................................ 18
3.09. Absence of Litigation ............................................... 20
3.10. Compliance with Laws ................................................ 20
3.11. Consents, Approvals, Licenses, Etc. ................................. 20
3.12. Personal Property ................................................... 21
3.13. Intangible Property ................................................. 21
3.14. Real Property ....................................................... 22
3.15. Employee Benefit Matters ............................................ 24
3.16. Taxes ............................................................... 25
3.17. Stockholder Vote and Special Committee Approval ..................... 26
3.18. Material Contracts .................................................. 27
3.19. Customers ........................................................... 28
3.20. Brokers ............................................................. 28
3.21. Receivables ......................................................... 28
<PAGE> 3
Section Page
- ------- ----
3.22. Insurance ............................................................ 29
3.23. Transactions with Affiliates ......................................... 29
3.24. No Undisclosed Liabilities ........................................... 29
3.25. Environmental Compliance ............................................. 29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.01. Incorporation and Authority of the Purchaser ......................... 30
4.02. No Conflict .......................................................... 31
4.03. Consents and Approvals ............................................... 31
4.04. Absence of Litigation ................................................ 31
4.05. Investment Purpose ................................................... 31
4.06. Financing ............................................................ 32
4.07. Brokers .............................................................. 32
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Conduct of Business Prior to the Closing ............................. 32
5.02. Access to Information ................................................ 35
5.03. Confidentiality ...................................................... 36
5.04. Regulatory and Other Authorizations; Consents ........................ 36
5.05. Use of the Seller's Name ............................................. 37
5.06. Investigation ........................................................ 38
5.07. Stockholders' Meeting ................................................ 39
5.08. Non-Competition ...................................................... 39
5.09. SPMS ................................................................. 41
5.10. Further Action ....................................................... 42
5.11. Maintenance of Assets ................................................ 43
5.12. Non-Solicitation ..................................................... 43
5.13. Intercompany Debt .................................................... 43
5.14. Other Information .................................................... 44
(ii)
<PAGE> 4
Section Page
- ------- ----
ARTICLE VI
EMPLOYEE MATTERS
6.01. Employees ..................................................... 44
6.02. Certain Dunnington Agreements ................................. 45
6.03. Survival ...................................................... 45
ARTICLE VII
TAX MATTERS
7.01. Tax Indemnities ............................................... 45
7.02. Refunds and Tax Benefits ...................................... 46
7.03. Contests ...................................................... 47
7.04. Preparation of Tax Returns .................................... 48
7.05. Section 338(h)(10) Election ................................... 48
7.06. Cooperation and Exchange of Information ....................... 49
7.07. Conveyance Taxes .............................................. 50
7.08. Miscellaneous ................................................. 50
ARTICLE VIII
CONDITIONS TO CLOSING
8.01. Conditions to Obligations of the Seller ....................... 50
8.02. Conditions to Obligations of the Purchaser .................... 51
ARTICLE IX
INDEMNIFICATION
9.01. Survival ...................................................... 52
9.02. Indemnification by the Purchaser .............................. 52
9.03. Indemnification by the Seller ................................. 55
(iii)
<PAGE> 5
Section Page
- ------- ----
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.01. Termination ............................................. 59
10.02. Effect of Termination ................................... 59
10.03. Waiver .................................................. 60
ARTICLE XI
GENERAL PROVISIONS
11.01. Expenses ................................................ 60
11.02. Notices ................................................. 60
11.03. Public Announcements .................................... 61
11.04. Headings ................................................ 62
11.05. Severability ............................................ 62
11.06. Entire Agreement ........................................ 62
11.07. Assignment .............................................. 62
11.08. No Third-Party Beneficiaries ............................ 62
11.09. Waivers and Amendments .................................. 62
11.10. Specific Performance .................................... 63
11.11. Governing Law ........................................... 63
11.12. Counterparts ............................................ 63
11.13. Parent Company .......................................... 63
EXHIBITS
2.05 Allocation of the Purchase Price
11.13 Form of Parent Guaranty
(iv)
<PAGE> 6
STOCK PURCHASE AGREEMENT, dated as of August 9, 1994, between
SYNETIC, INC., a Delaware corporation (the "Seller" or "Synetic"), and PHARMACY
CORPORATION OF AMERICA, a California corporation (the "Purchaser").
WITNESSETH:
WHEREAS, the Seller owns (i) all the issued and outstanding
shares of common stock, par value $.01 per share (the "Dunnington Shares"), of
Dunnington Drug, Inc., a Delaware corporation ("Dunnington"), (ii) all the
issued and outstanding shares of common stock, without par value (the "HPS
Shares"), of Healthcare Prescription Services, Inc., an Indiana corporation
("HPS"), and (iii) all the issued and outstanding shares of common stock, par
value $.01 per share (the "Alliance Shares" and, together with the HPS Shares
and the Dunnington Shares, the "Shares"), of Alliance Health Services, Inc., a
Delaware corporation ("Alliance"; Alliance, Dunnington and HPS each being
referred to herein as a "Company" and collectively as the "Companies"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from the Seller, the Shares, upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the Purchaser and the
Seller hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms have the following meanings:
"Action" means any judicial, administrative or arbitrable
claim, action, suit, arbitration or proceeding (public or private) by or before
any Governmental Authority.
"Acquisition Agreements" means the Allcare Agreement, the
Dunnington Agreement and the Reliance Agreement.
"Affiliate" means, when used with respect to a specified
Person, another Person that, either directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
the Person specified; provided, however, that when used in any part of this
Agreement except Articles VI, VII and IX regarding Synetic or any of its
subsidiaries, the term "Affiliate" shall not include Merck or any of its
subsidiaries other than Synetic and its subsidiaries.
<PAGE> 7
2
"Agreement" means this Stock Purchase Agreement, dated as of
August 9, 1994, between the Seller and the Purchaser (including the Exhibits
hereto and the Disclosure Schedule) and all amendments hereto made in
accordance with Section 11.09.
"Allcare Agreement" means the Asset Purchase Agreement, dated
as of February 21, 1992, by and among Allcare Medication Services, Inc.,
William Green and Elliott Tertes and Synetic, as amended, a copy of which has
been made available to the Purchaser.
"Alliance Subsidiaries" means the following wholly owned
subsidiaries of Alliance: Brownstone Pharmacy, Inc., a Connecticut corporation,
Omni Med B, Inc., a Connecticut corporation, and Alliance Home Health Care,
Inc., a Connecticut corporation (each of which corporations is individually
referred to as an "Alliance Subsidiary").
"Books and Records" means all books of account and other
financial records pertaining to the Companies and the Subsidiaries.
"Business" means the business of providing prescription vending
services and consultant pharmacist services to nursing homes and other similar
long-term care facilities in the States of Connecticut, Indiana, Massachusetts
and Rhode Island, as conducted as of the date of this Agreement by the
Companies and the Subsidiaries.
"Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be closed in
the City of New York.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.).
"Closing Date Combined Net Worth" means the total assets minus
the total liabilities of the Companies and the Subsidiaries, on a combined
basis, in each case as shown on the Closing Balance Sheet, plus the Closing
Date Intercompany Amount.
"Closing Date Intercompany Amount" means the Intercompany
Amount at the Closing Date, as shown on the Closing Date Balance Sheet.
The word "combined" when used in this document to describe
financial statements refers to the combining of accounts in accordance with
GAAP.
"Confidentiality Agreement" means the letter agreement dated
as of June 9, 1994 between the Seller and the Parent.
"Contract" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sales contract, mortgage, license,
franchise agreement, insurance policy, binding commitment or other agreement,
whether written or oral.
<PAGE> 8
3
"DGCL" means the General Corporation Law of the State of
Delaware.
"Disclosure Schedule" means the Disclosure Schedule dated as
of the date of this Agreement delivered to the Purchaser by the Seller.
"Dunnington Agreement" means the Asset Purchase Agreement,
dated as of July 19, 1991, by and among Rix Dunnington Inc., Dunnington Super
Drug, Inc., Richard L. Weinberg, Gerald Weiner, Lester Weiner, Stanley D.
Siskind and Martis S. Karas and Synetic and Medco, a copy of which has been
made available to the Purchaser.
"Dunnington Subsidiaries" means the following subsidiaries of
Dunnington: Dunnington Rx Services of Rhode Island, Inc., a Rhode Island
corporation and a wholly owned subsidiary of Dunnington, Dunnington Rx Services
of Massachusetts, Inc., a Massachusetts corporation and a wholly owned
subsidiary of Dunnington, and DD Wholesale, Inc., a Massachusetts corporation
and a wholly owned subsidiary of Dunnington Rx Services of Massachusetts, Inc.
(each of which corporations is individually referred to as a "Dunnington
Subsidiary").
"Earn-Outs" means the obligations of Synetic to pay amounts
contingent upon the performance of certain parts of the Business pursuant to
the terms of the Acquisition Agreements.
"Encumbrance" means any security interest, pledge, mortgage,
lien, charge, adverse claim of ownership or use, or other encumbrance of any
kind.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means United States generally accepted accounting
principles in effect from time to time applied consistently throughout the
period involved.
"Governmental Authority" or "Governmental Authorities" means
any government, any governmental entity, department, commission, board, agency
or instrumentality, and any court, tribunal, or judicial or arbitral body,
whether federal, state or local.
"Governmental Order" means any order, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 as amended, and the rules and regulations thereunder.
<PAGE> 9
4
"Incremental Intercompany Amount" means the Closing Date
Intercompany Amount minus the Year-End Intercompany Amount.
"Intercompany Amount" means, as of any date, the amount of
"income taxes payable to parent" plus amounts "due to parent" minus amounts
"due from parent", as set forth on a combined balance sheet of the Companies
and the Subsidiaries.
"Internal Revenue Code" or "IRC" means the Internal Revenue
Code of 1986, as amended.
"IRS" means the United States Internal Revenue Service.
"knowledge" or "known" means, with respect to any matter in
question, if any of the Specified Officers of the Seller or the Purchaser, as
the case may be, has actual knowledge of such matter, after inquiry to all
persons that report directly to the respective Specified Officers regarding the
business of the Companies and the Subsidiaries. For purposes of this
definition, the term "Specified Officers" means: (a) with respect to the
Seller, (i) the persons listed in paragraph A of Section 1.01 of the Disclosure
Schedule; (ii) solely with respect to any matter relating to HPS, the person
listed in paragraph B of Section 1.01 of the Disclosure Schedule; (iii) solely
with respect to any matter relating to Dunnington or any Dunnington Subsidiary,
the person listed in paragraph C of Section 1.01 of the Disclosure Schedule;
and (iv) solely with respect to Alliance or any Alliance Subsidiary, the
persons listed in paragraph D of Section 1.01 of the Disclosure Schedule and
(b) with respect to the Purchaser, the persons listed in paragraph E of Section
1.01 of the Disclosure Schedule.
"Law" means any federal, state or local statute, law,
ordinance, regulation, rule, code, order or rule of common law (including,
without limitation, the Prescription Drug Marketing Act of 1987, the Federal
Controlled Substances Act of 1970, the Food, Drug and Cosmetic Act and any
state Pharmacy Practices Acts, Controlled Substances Acts, Dangerous Drug Acts,
Food, Drug and Cosmetic Acts, all as amended to date).
"Leased Real Property" means the real property leased by the
Companies or the Subsidiaries as tenant, or for which the Companies or the
Subsidiaries have an option to enter into a lease as tenant, together with, to
the extent leased by the Companies or the Subsidiaries, all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the
Companies or the Subsidiaries attached or appurtenant thereto, and all
easements, licenses, rights and appurtenances relating to the foregoing.
"Leases" means the leases for the Leased Real Property, copies
of which have been made available by the Seller to the Purchaser.
<PAGE> 10
5
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable.
"Licenses" means all of the licenses, permits and other
authorizations (including, but not limited to, pharmacy licenses, permits and
authorizations) required by a Governmental Authority for the operation of the
Business as conducted as of the date of this Agreement.
"Losses" of a Person means any and all losses, liabilities,
damages, claims, awards, judgments, costs and expenses (including, without
limitation, reasonable attorneys' fees) actually suffered or incurred by such
Person.
"Material Adverse Change" or "Material Adverse Effect" means
any change or effect that is materially adverse to the operations, business,
financial condition or results of operations of the Companies and the
Subsidiaries, taken as a whole, except for any such changes or effects
resulting from (i) changes in general economic, regulatory or political
conditions or changes that affect the institutional pharmacy business in
general and (ii) this Agreement or the transactions contemplated hereby or the
announcement hereof.
"Medco" means Medco Containment Services, Inc., a Delaware
corporation.
"Merck" means Merck & Co., Inc., a New Jersey corporation.
"1994 Audited Balance Sheet" means the audited combined
balance sheet of the Companies and the Subsidiaries as of the 1994 Balance
Sheet Date, together with the notes thereon.
"1994 Audited Financial Statements" means the 1994 Audited
Balance Sheet and the audited combined statements of income, retained earnings
and cash flow of the Companies and the Subsidiaries for the fiscal year ended
June 30, 1994, together with the notes thereon and accompanying report of the
Seller's Accountants.
"1994 Balance Sheet Date" means June 30, 1994.
"Parent" means Beverly Enterprises, Inc., a Delaware
corporation.
"Permitted Encumbrances" means (i) Encumbrances for inchoate
mechanics' and materialmen's liens for construction in progress and workmen's,
repairmen's, warehousemen's and carriers' liens arising in the ordinary course
of the Business which in the aggregate have a value of less than $100,000, (ii)
Encumbrances for Taxes not yet payable or for Taxes being contested in good
faith, (iii) Encumbrances arising out of, under or in connection with this
Agreement and (iv) Encumbrances and imperfections of title the
<PAGE> 11
6
existence of which would not materially affect the use of the property subject
thereto, consistent with past practice.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3)
of the Exchange Act.
"Proxy Statement" means the proxy statement to be furnished to
the stockholders of Synetic in connection with the solicitation of proxies by
the Board of Directors of Synetic for use at the Special Meeting.
"Purchase and Sale Agreement" means the agreement, dated as of
May 24, 1994, as the same may be amended from time to time, between Synetic and
Merck, a copy of which has been made available by Synetic to the Purchaser.
"Reliance Agreement" means the Stock Purchase Agreement, dated
as of February 3, 1993, by and among Louis S. Scianna, Peter P. Scianna, the
Louis S. Scianna Charitable Remainder Unitrust and the Peter P. Scianna
Charitable Remainder Unitrust and Synetic, a copy of which has been made
available to the Purchaser.
"Seller's Accountants" means Arthur Andersen & Co.,
independent accountants of the Seller,
"Special Committee" means the specially constituted committee
of the Board of Directors of the Seller established to review the Purchase and
Sale Agreement and the transactions contemplated thereby.
"Subsidiaries" means the Dunnington Subsidiaries and the
Alliance Subsidiaries (each of which corporations is individually referred to
as a "Subsidiary")
"Synetic Common Stock" means the common stock of the Seller,
par value $.01 per share
"Tax" or "Taxes" means all income, gross receipts, sales, use,
employment, franchise, profits, property or other taxes, fees, stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority with respect thereto.
"Year-End Combined Net Worth" means the total assets minus the
total liabilities of the Companies and the Subsidiaries, on a combined basis,
in each case as shown on the 1994 Audited Balance Sheet, plus the Year-End
Intercompany Amount.
"Year-End Intercompany Amount" means $2,686,000.
<PAGE> 12
7
SECTION 1.02. Other Defined Terms. The following terms have
the meanings defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquired Competing Business 5.08(a)
Acquisition Transaction 5.12
adjusted grossed-up basis 7 05(c)
Adjusting Amount 2.06(c)
Alliance Shares Preamble
Alliance Preamble
Allocation 7.05(c)
Benefit Plans 3.15(a)
Closing 2.03(a)
Closing Balance Sheet 2.06(b)
Closing Date 2.03(a)
Companies Preamble
Company Preamble
Compete 5.08(a)
Contest 7.03(b)
Cowen 3.20
deemed selling price 7.05(c)
Delivery Date 2.08(b)
Designated Amount 2.06(c)
Dunnington Preamble
Dunnington Shares Preamble
Escrow 2.08(a)
Escrow Agent 2.08(a)
Escrow Agreement 2.08(a)
Escrowed Amount 2.08(a)
Forms 7.05(b)
Government Antitrust Authority 5.04(b)
HPS Preamble
HPS Shams Preamble
Indemnified Losses 2.08(a)
Independent Accounting Firm 2.06(d)
Intangible Property 3.13(a)
J. P. Morgan 4.07
Material Contracts 3.18(a)
Nasdaq 3.11
Non-Competition Period 5.08(a)
Other Entity 7.01(f)
</TABLE>
<PAGE> 13
8
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Parent Guaranty 1113
Purchase Price 2.02
Purchaser Preamble
Purchaser's Accountants 2.06(d)
Purchaser's Threshold Amount 9.02(b)
Retained Names and Marks 5.05
Section 338 Election 7.05(a)
Seller Preamble
Seller's Notice 5.04(c)
Seller's Threshold Amount 9.03(b)
Shares Preamble
significant Subsidiary 5.08(a)
Source Code and Documentation 5.09(a)
Special Meeting 3.17(a)
SPMS 5.09(a)
SPMS Program 5.09(a)
SPMS Transferee 5.09(a)
Subsidiary Shares 3.04(b)
Synetic Preamble
tax exempt use property 3.16
Territory 5.8(a)
Threshold Amount 7.01(e)
Transferred Employees 6.01(a)
</TABLE>
ARTICLE 11
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the terms and subject
to the conditions set forth in this Agreement, the Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, the Shares.
SECTION 2.02. Purchase Price. The aggregate purchase price
(the "Purchase Price") for the Shares shall be $107,314,000 in cash or other
immediately available funds, subject to adjustment as provided in Sections 2.06
and 2.07. The Purchase Price shall be payable as provided in Section 2.03(c)
and, if applicable, Section 2.06 and Section 2.07.
<PAGE> 14
SECTION 2.03. Closing.
(a) Subject to the terms and conditions of this
Agreement, the sale and purchase of the Shares contemplated hereby shall take
place at a closing (the "Closing") to be held at 10:00 a.m., local time, on the
third Business Day following the later to occur of (i) the expiration or
termination of the applicable waiting periods under the HSR Act and (ii) the
satisfaction or waiver of all other conditions to the obligations of the
parties set forth in Article VIII, at the offices of Shearman & Sterling, 599
Lexington Avenue, New York. New York, or at such other time or on such other
date or at such other place as the Seller and the Purchaser may mutually agree
upon in writing (the day on which the Closing takes place being the "Closing
Date").
(b) At the Closing, the Seller shall deliver or cause to
be delivered to the Purchaser: (i) stock certificates (in definitive form)
evidencing the Shares duly endorsed in blank or accompanied by stock powers
duly executed in blank and otherwise in proper form for transfer; (ii) the
certificate required to be delivered pursuant to Section 8.02; and (iii) all
other previously undelivered documents, instruments and writings required to be
delivered to the Purchaser by the Seller at or prior to the Closing pursuant to
this Agreement.
(c) At the Closing, the Purchaser shall deliver to the
Seller: (i) the Purchase Price, less the Escrowed Amount (as defined in Section
2.08), by wire transfer in immediately available funds, to an account or
accounts designated at least two Business Days prior to the Closing Date by the
Seller in a written notice to the Purchaser, (ii) the certificate required to
be delivered pursuant to Section 8.01; and (iii) all other previously
undelivered documents, instruments and writings required to be delivered to the
Seller by the Purchaser at or prior to the Closing pursuant to this Agreement.
(d) At the Closing, the Purchaser shall deliver to the
Escrow Agent the Escrowed Amount, by wire transfer in immediately available
funds, to an account designated at least two Business Days prior to the Closing
Date by the Escrow Agent in a written notice to the Purchaser.
(e) Upon the Closing, the Seller will cause the existing
directors of the Companies and the Subsidiaries to resign from their respective
positions with such Companies and such Subsidiaries and the vacancies resulting
therefrom shall be filled by the Purchaser's designees immediately following
the Closing.
SECTION 2.04. Assumption of Certain Liabilities of the
Seller and Medco. On the terms and subject to the conditions of this Agreement,
the Purchaser shall, on the Closing Date, assume all obligations of the Seller
and Medco under the Acquisition Agreements and shall pay, perform and discharge
when due all Liabilities of the Seller and Medco under the Acquisition
Agreements, including the Earn-Outs. Without limiting the generality of the
foregoing, the Purchaser shall, and shall cause the Companies and the
Subsidiaries, (i) to fulfill their respective obligations with respect to the
calculation of any
<PAGE> 15
10
Earn-Out, (ii) to keep all books and records required to be kept pursuant to the
Acquisition Agreements in the manner required thereby, and (iii) to observe any
applicable covenants contained in the Acquisition Agreements. The Seller shall
indemnify and hold the Purchaser fully and promptly harmless in respect of any
amounts paid in accordance with the respective Acquisition Agreements in
satisfaction of such Earn-Outs, including but not limited to the Purchaser's
cost of defense (including the Purchaser's reasonable attorneys' fees and
expenses) in defending against any claims made by any party under the
Acquisition Agreements; provided, however, that the Seller shall have no
obligation to indemnify the Purchaser against any such amounts payable to the
extent resulting from (x) the Purchaser's breach of any provision of an
Acquisition Agreement or breach of the Purchaser's covenants contained in this
Section 2.04 and (y) any increase in the amount payable in respect of any
Earn-Out based on any fact or circumstance relating to the Purchaser and that
would not have been payable if the Purchaser had not acquired the Business. The
Purchaser and the Seller shall cooperate with and assist each other in the
calculation of the amount of any such Earn-Out and the Seller shall be given
reasonable access to the relevant books and records of the Companies and the
Subsidiaries for such purpose. The Purchaser and the Seller shall jointly
determine the amount of any such Earn-Out in accordance with the provisions of
the relevant Acquisition Agreement, with approval of the amount so calculated
not to be unreasonably withheld by either party .
SECTION 2.05. Allocation of Purchase Price. The Purchaser
and the Seller shall allocate the Purchase Price to the Shares of the
respective Companies and to the Seller's noncompetition covenants on IRS Form
8594, in accordance with Internal Revenue Code Section 1060 and the regulations
thereunder; provided, however, that the Purchaser and the Seller hereby agree
that as of the date of this Agreement the fair market value of the Seller's
noncompetition covenants is $500,000, and that the allocation on said Form 8594
shall reflect such fair market value and hereby agree to allocate the remainder
of the Purchase Price among the Shares of the respective Companies in
accordance with Exhibit 2.05 hereto. Any adjustment to the Purchase Price or
other consideration paid pursuant to this Agreement shall result in an
appropriate adjustment to such allocation.
SECTION 2.06. Purchase Price Adjustment.
(a) The Purchase Price shall be subject to adjustment, if
any, after the Closing Date as specified in this Section 2.06 and in Section
2.07.
(b) As soon as practicable (but in no event later than 60
calendar days following the Closing Date), the Seller shall prepare and deliver
to the Purchaser, at the Seller's expense, an audited combined balance sheet
for the Companies and the Subsidiaries (the "Closing Balance Sheet"), as of the
Closing Date. The Closing Balance Sheet shall be accompanied by the report
thereon of the Seller's Accountants, to the effect that, in their unqualified
opinion, the Closing Balance Sheet fairly presents the combined financial
position of the Companies and the Subsidiaries in accordance with GAAP applied
on a basis consistent with the preparation of the 1994 Audited Balance Sheet.
During the preparation of
<PAGE> 16
11
the Closing Balance Sheet by the Seller and the period of any dispute provided
for in Section 2.06(d), the Purchaser shall provide the Seller and the Seller's
Accountants reasonable access to the books, records, facilities and employees
of the Companies and the Subsidiaries, and the Purchaser shall cooperate fully
with the Seller's Accountants, in each case to the extent required by the
Seller and the Seller's Accountants in order to prepare the Closing Balance
Sheet and to investigate the basis for any such dispute. The Purchaser and its
representatives shall be given reasonable access to the books, records,
facilities and employees of the Seller, including copies of all supporting
documents and auditor's work papers used in the preparation of the Closing
Balance Sheet including, but not limited to, combining balance sheets and other
combining work papers, as necessary for them to review the Closing Balance
Sheet.
(c) Subject to the limitations set forth in Section
2.06(d), within 30 Business Days after the date of receipt by the Purchaser of
the Closing Balance Sheet:
(i) If the amount of the Closing Date Combined Net Worth
is less than an amount equal to the sum of (A) the Year-End Combined
Net Worth plus (B) the product of $100,000 multiplied by the number of
months, including fractional months expressed as a percentage, based
on a 30-day month, which shall have elapsed between the date of
execution of this Agreement and the Closing Date (the sum of (A) and
(B) calculated as provided above being hereinafter referred to as the
"Adjusting Amount"), by more than $500,000 (the "Designated Amount"),
the Seller shall immediately pay to the Purchaser, as an adjustment to
the Purchase Price, in immediately available funds, an amount equal to
(x) the Adjusting Amount minus (y) the sum of the amount of the
Closing Date Combined Net Worth and the Designated Amount; and
(ii) If the amount of the Closing Date Combined Net Worth
is greater than the Adjusting Amount by more than the Designated
Amount, the Purchaser shall immediately pay to the Seller, as an
adjustment to the Purchase Price, in immediately available funds, an
amount equal to (x) the amount of the Closing Date Combined Net Worth
minus (y) the sum of the Adjusting Amount and the Designated Amount.
(d) If not disputed by the Purchaser in accordance with
this Section 2.06(d), the Closing Balance Sheet delivered by the Seller to the
Purchaser shall be final, binding and conclusive on the parties hereto. The
Purchaser may dispute any amounts reflected on the Closing Balance Sheet to the
extent that the net effect of such disputed amounts in the aggregate would be
to change the Closing Date Combined Net Worth by more than the Designated
Amount, but only on the basis that the amounts reflected on the Closing Balance
Sheet were not arrived at in accordance with GAAP applied on a basis consistent
with the preparation of the 1994 Audited Balance Sheet; provided, however,
that the Purchaser shall notify the Seller and the Seller's Accountants in
writing of each disputed item, specifying the amount thereof in dispute and
setting forth, in detail, the basis for such dispute, within 30 Business Days
of the Purchaser's receipt of the Closing Balance Sheet. In
<PAGE> 17
12
the event of such a dispute, each of the Seller and the Purchaser shall
negotiate in good faith to reconcile their differences. If such dispute has not
been resolved within 10 Business Days after the notice referred to in the
preceding sentence has been given, Ernst & Young LLP (the "Purchaser's
Accountants") and the Seller's Accountants shall attempt to reconcile their
differences, and any resolution by them as to any disputed amounts shall be
final, binding and conclusive on the parties hereto. If any such resolution by
the Purchaser's Accountants and the Seller's Accountants leaves in dispute
amounts the net effect of which in the aggregate would not be to change the
Closing Date Combined Net Worth by at least the Designated Amount, all the
amounts remaining in dispute shall then be deemed to have been resolved in
favor of the Closing Balance Sheet, and such resolution shall be final, binding
and conclusive on the parties hereto. If the Purchaser's Accountants and the
Seller's Accountants are unable to reach a resolution, leaving in dispute
amounts the net effect of which in the aggregate would change the Closing Date
Combined Net Worth by at least the Designated Amount, the Purchaser's
Accountants and the Seller's Accountants shall submit the items remaining in
dispute that the Purchaser shall be entitled to dispute by the terms of this
Section 2.06(d) for resolution to Deloitte & Touche or such other independent
accounting firm as may be mutually acceptable to the Seller and the Purchaser
(the "Independent Accounting Firm"), which shall, within 30 Business Days of
such submission, determine and report to the Seller and the Purchaser upon such
remaining disputed items, and such report shall have the legal effect of an
arbitration award and shall be final, binding and conclusive on the Seller and
the Purchaser provided, however, that no such report shall impair any remedies
available to either party under Article IX of this Agreement. The fees and
disbursements of the Independent Accounting Firm shall be allocated between the
Seller and the Purchaser in the same proportion that the aggregate amount of
such remaining disputed items so submitted to the Independent Accounting Firm
which is unsuccessfully disputed by each such party (as finally determined by
the Independent Accounting Firm) bears to the total amount of such remaining
disputed items so submitted. No adjustment to any amount payable by the Seller
or the Purchaser pursuant to Section 2.06(c) shall be made with respect to
amounts disputed by the Purchaser pursuant to this Section 2.06(d), unless the
net effect of the amounts successfully disputed by the Purchaser in the
aggregate is to change the Closing Date Combined Net Worth by at least the
Designated Amount, in which case such adjustment shall only be made in an
amount equal to any excess over the Designated Amount. Any amount that is
payable under Section 2.06(c), including, without limitation, any portion
thereof that is subject to dispute under this Section 2.06(d) shall be paid by
the Seller or the Purchaser, as the case may be, in immediately available
funds, within five Business Days following the resolution of such dispute and
in an amount in accordance with such resolution.
(e) In acting to resolve any dispute pursuant to the
provisions of Section 2.06(d), the Purchaser's Accountants, the
Seller's Accountants and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
(f) Any payment required to be made by the Seller or the
Purchaser pursuant to Section 2.06(c) shall bear interest from the Closing Date
through the date of payment on the basis of the average of the daily rate of
interest publicly announced by
<PAGE> 18
13
Citibank, N.A. in New York, New York from time to time as its base rate from
the Closing Date to the date of such payment.
SECTION 2.07. Intercompany Amounts.
(a) If the Incremental Intercompany Amount is greater
than zero, the Seller shall pay to the Purchaser, as an adjustment to the
Purchase Price, an amount equal to the Incremental Intercompany Amount.
(b) If the Incremental Intercompany Amount is less than
zero, the Purchaser shall pay to the Seller, as an adjustment to the Purchase
Price, an amount equal to the amount by which zero exceeds the Incremental
Intercompany Amount.
(c) Any amount that is payable pursuant to the provisions
of this Section 2.07 shall be payable in immediately available funds within
five Business Days after delivery of the Closing Balance Sheet by the Seller to
the Purchaser.
SECTION 2.08. Escrow Account.
(a) Within 15 Business Days after the date hereof, the
Seller and the Purchaser will agree on a form of Escrow Agreement (the "Escrow
Agreement") with Bank of New York or any other commercial bank having total
assets in excess of $1,000,000,000 chosen by the Purchaser and reasonably
acceptable to the Seller (the "Escrow Agent"). The Escrow Agreement shall
contain (i) the terms set forth in this Section 2.08, mutatis mutandis, (ii)
usual and customary provisions for the reasonable protection of the Escrow
Agent, as may be requested by the Escrow Agent and (iii) such other terms as
the parties thereto may mutually agree. Prior to the Closing, the Seller and
the Purchaser shall enter into the Escrow Agreement with the Escrow Agent. At
the Closing, a portion of the Purchase Price equal to $5,000,000 (the "Escrowed
Amount") is to be withheld and deposited into an escrow account (the "Escrow")
with the Escrow Agent, to be held as security for and, as applicable,
distributed pursuant to the terms of the Escrow Agreement to offset amounts
payable by the Seller pursuant to its obligation to indemnify the Purchaser
contained in Section 2.04, Article VII and Article IX of this Agreement (the
"Indemnified Losses").
(b) If, during the term of the Escrow, the Purchaser
contends that it is entitled to receive, all or a part of the Escrowed Amount
still held by the Escrow Agent in accordance herewith, the Purchaser shall (i)
give the Escrow Agent written notice that the Purchaser contends in good faith
that all or a specified portion of the Escrowed Amount is required to offset
the Indemnified Losses, (ii) request such amount to be delivered to the
Purchaser on a specified date (the "Delivery Date"), not sooner than twenty
(20) Business Days after the later of delivery of a copy of such notice to the
Seller and to the Escrow Agent, and (iii) specify in reasonable detail the
grounds on which the claimed Indemnified Losses are based. The Purchaser shall
also certify to the Escrow Agent that a copy of the notice has been delivered
to the Seller accompanied by signed U.S. Postal Service return
<PAGE> 19
14
receipts evidencing delivery of the notice by registered or certified mail to
the Seller or alternate proof of actual delivery acceptable to the Escrow
Agent. The Escrow Agent shall be entitled to rely upon such certification as
conclusive evidence that proper notice has been given to the Seller.
(c) If, prior to the Delivery Date, the Escrow Agent has
not received written objection from the Seller in the form and manner specified
in paragraph (d) below, to the payment to the Purchaser of the amount requested
by the Purchaser, the Escrow Agent shall deliver to the Purchaser on the
Delivery Date the requested amount up to the amount of the Escrowed Amount held
by the Escrow Agent.
(d) If, prior to the Delivery Date, the Escrow Agent
receives a written objection from the Seller to payment of the requested amount
to the Purchaser, accompanied by a certification to the Escrow Agent with a
copy delivered to the Purchaser in the same manner as specified for written
notice to be delivered by the Purchaser under paragraph (b) above, that the
Seller in good faith has reasonable grounds for disputing the amount or reasons
for such claim, (i) the Escrow Agent shall so advise the Purchaser and (ii) the
Escrow Agent shall continue to hold such amount in Escrow until receipt of
written instructions executed by each of the Purchaser and the Seller as to the
disposition of such amount. If, however, the Purchaser and the Seller are
unable to agree as to the disposition of such amount within twenty (20)
Business Days after the Delivery Date, the Escrow Agent shall be authorized to
interplead the requested amount (up to the Escrowed Amount held by the Escrow
Agent) into the registry of a court of competent jurisdiction in the Southern
District of New York, and stand fully discharged from further responsibilities
with respect to such amount.
(e) All amounts received by the Escrow Agent to be held
in the Escrow shall be held by the Escrow Agent in an interest bearing account
or similar type of account or certificate of deposit with a bank reasonably
satisfactory to the Escrow Agent, the Purchaser and the Seller (which may be
the Escrow Agent) until delivery of the entire amount is required under the
terms of this Section 2.08. The Escrow Agent shall receive any increase and
shall hold the same in the Escrow in accordance herewith.
(f) The term of the Escrow shall continue from the
Closing Date until the earlier of the date which is 120 days after the Closing
Date or until all Escrowed Amounts shall have been delivered by the Escrow
Agent under the Escrow Agreement. If and to the extent there are any funds
remaining as part of the Escrowed Amount on the date which is 120 days after
the Closing Date, such remaining portion shall be delivered forthwith to the
Seller, and the Escrow Agent shall have no further liabilities or
responsibilities under the Escrow Agreement to any Person.
(g) The Seller and the Purchaser hereby agree to (i)
share equally in the payment of the Escrow Agent's reasonable compensation for
the services to be rendered under the Escrow Agreement; (ii) share equally in
the payment or reimbursement of the
<PAGE> 20
15
Escrow Agent upon request for all expenses, disbursements and advances,
including reasonable attorneys' fees, incurred or made by it in connection with
carrying out its duties under the Escrow Agreement; and (iii) jointly and
severally indemnify the Escrow Agent for, and to hold it harmless against any
loss, liability or expense incurred without gross negligence or willful
misconduct on the part of the Escrow Agent, arising out of or in connection
with its performance of the Escrow provided for under the Escrow Agreement and
carrying out its duties under the Escrow Agreement, including the costs and
expenses of defending itself against any claim of liability.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth in the Disclosure Schedule, the Seller
represents and warrants to the Purchaser as follows:
SECTION 3.01. Incorporation and Authority of the Seller.
The Seller is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Seller, the performance by
the Seller of its obligations hereunder and the consummation by the Seller of
the transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Seller (other than the requisite approval
of the stockholders of the Seller under the DGCL). This Agreement has been duly
executed and delivered by the Seller, and (assuming due authorization,
execution and delivery by the Purchaser) this Agreement constitutes a legal,
valid and binding obligation of the Seller enforceable against the Seller in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 3.02. Incorporation and Qualification of the
Companies and Subsidiaries. Each Company and each Subsidiary is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and authority to own,
operate or lease the properties and assets now owned, operated or leased by it
and to carry on its business in all material respects as currently conducted by
such Company or Subsidiary, except for such failures which, when taken together
with all such failures, would not have a Material Adverse Effect. Section 3.02
of the Disclosure Schedule lists each jurisdiction where each Company and each
Subsidiary is qualified to do business as a foreign corporation. Each Company
and each Subsidiary is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction listed in Section 3.02 of the
Disclosure Schedule, which are the only jurisdictions where the
<PAGE> 21
16
character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failures which,
when taken together with all other such failures, would not have a Material
Adverse Effect, True and complete copies of the certificate of incorporation
and bylaws (or equivalent organization documents) of each Company and each
Subsidiary, each of the foregoing as amended to the date of this Agreement,
have been made available for review by the Purchaser. Complete and accurate
copies of the minute books of the Companies and the Subsidiaries have been
provided by the Seller to the Purchaser. To the knowledge of the Seller, the
minutes contained therein accurately reflect all material corporate actions
voted upon by the stockholders and the board of directors of the respective
Companies and Subsidiaries during the period in which the Seller was the direct
or indirect owner of the outstanding common stock of the respective Companies
and Subsidiaries.
SECTION 3.03. Capital Stock of the Companies. The Shares
constitute all the issued and outstanding shares of capital stock of the
Companies. The Shares have been duly authorized and validly issued and are
fully paid and nonassessable and were not issued in violation of any preemptive
rights. There are no options, warrants or rights of conversion or other rights,
agreements, arrangements or commitments relating to the capital stock of any
Company obligating any Company to issue or sell any of its shares of capital
stock. The Seller owns the Shares free and clear of all Encumbrances, except
for: (i) the Earn-Outs; (ii) any Encumbrances set forth in Section 3.03 of the
Disclosure Schedule and (iii) any Encumbrances arising out of, under or in
connection with this Agreement. There are no voting trusts, stockholder
agreements, proxies or other agreements in effect with respect to the voting or
transfer of the Shares.
SECTION 3.04. Subsidiaries.
(a) Other than the Subsidiaries, there are no other
corporations, partnerships, joint ventures, associations or other entities in
which any Company or Subsidiary owns, of record or beneficially, any direct or
indirect equity or other interest or any right (contingent or otherwise) to
acquire the same. No Company or Subsidiary is a member of (nor is any part of
the Business conducted through) any partnership, nor is any Company or
Subsidiary a participant in any joint venture or similar arrangement (other
than the Earn-Outs).
(b) Section 3.04(b) of the Disclosure Schedule sets forth
the jurisdiction of incorporation of each Subsidiary, its authorized capital
stock, the number and type of its issued and outstanding shares of capital
stock, and the current ownership by the Companies and their respective
Subsidiaries of such shares (collectively, the "Subsidiary Shares"). The
Subsidiary Shares constitute all the issued and outstanding shares of capital
stock of the respective Subsidiaries. The Subsidiary Shares have been duly
authorized and validly issued and are fully paid and nonassessable and were not
issued in violation of any preemptive rights. There are no options, warrants
or rights of conversion or other rights, agreements, arrangements or
commitments relating to the capital stock of any Subsidiary obligating any
<PAGE> 22
17
Subsidiary to issue or sell any of its shares of capital stock. Either a
Company or another Subsidiary owns the Subsidiary Shares issued by the
respective Subsidiaries, free and clear of all Encumbrances, except (i) as set
forth in Section 3.04 of the Disclosure Schedule; (ii) the Earn-Outs; and (iii)
Encumbrances arising out of or in connection with this Agreement. There are no
voting trusts, stockholder agreements, proxies or other agreements in effect
with respect to the voting or transfer of the Subsidiary Shares.
SECTION 3.05. No Conflict. Assuming all consents,
approvals, authorizations and other actions described in Section 3.11 have
been obtained and all filings and notifications listed in Section 3.11 of the
Disclosure Schedule have been made, and except as may result from any facts or
circumstances relating solely to the Purchaser, the execution, delivery and
performance of this Agreement by the Seller do not and will not (a) violate or
conflict with the Certificate of Incorporation or By-laws of the Seller, any
Company or any Subsidiary, (b) conflict with or violate any Law or Governmental
Order applicable to the Seller, any Company or any Subsidiary, except as would
not, individually or in the aggregate, have a Material Adverse Effect or (c)
result in any breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on the Shares or
on any of the assets or properties of any Company or any Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument relating to such assets or properties to
which the Seller, any Company or any Subsidiary is a party or by which any of
such assets or properties is bound or affected, except as would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.06. Financial Statements. The Seller has
delivered to the Purchaser the 1994 Audited Financial Statements (a copy of
which is included in Section 3.06 of the Disclosure Schedule). The 1994 Audited
Financial Statements have been prepared in accordance with GAAP in a manner
consistent with prior periods and present fairly, in all material respects, the
financial position, results of operations and cash flows of the Companies and
the Subsidiaries as at the date and for the period indicated.
SECTION 3.07. Labor Matters. No Company or Subsidiary is a
party to any labor agreement with respect to its employees with any labor
organization, group or association. As of the date of this Agreement, there are
no representation proceedings pending with or, to the knowledge of the Seller,
threatened in writing by any labor organization or group of employees of any
Company or Subsidiary, nor are there, to the knowledge of the Seller, any
organizing activities involving any Company or Subsidiary pending with or
threatened in writing by any such organization or group. Except where the
failure to comply would not have a Material Adverse Effect, each Company and
each Subsidiary is in material compliance with all applicable Laws respecting
employment practices, terms and conditions of employment, discrimination,
safety and health, workers' compensation, wages, hours of work and the
collection and payment of withholding and/or social security taxes and similar
taxes. Except as would not have a Material Adverse Effect,
<PAGE> 23
18
as of the date of this Agreement, (a) there is no unfair labor practice charge
or complaint against any Company or Subsidiary pending or, to the knowledge of
the Seller, threatened in writing before the National Labor Relations Board or
any comparable state agency, (b) there is no complaint, charge or claim pending
or, to the knowledge of the Seller, threatened in writing against any Company
or Subsidiary with any Governmental Authority, arising out of, in connection
with, or otherwise relating to the employment by any Company or Subsidiary of
any individual, and (c) there is no labor strike, labor disturbance or work
stoppage pending against any Company or Subsidiary. Except as set forth in
Section 3.07 of the Disclosure Schedule, as of the date of this Agreement there
are no claims for workers' compensation.
SECTION 3.08. Absence of Certain Changes or Events. Since
the 1994 Balance Sheet Date and except as set forth in Section 3.08 of the
Disclosure Schedule or as contemplated by this Agreement, there has not been:
(a) to the date of this Agreement, any damage,
destruction or loss to any of the assets or properties of any Company
or any Subsidiary involving a loss or diminution in value of an
aggregate of more than $100,000;
(b) to the date of this Agreement, any Encumbrance of any
kind created on any properties or assets (whether tangible or
intangible) of any Company or any Subsidiary, other than (i) Permitted
Encumbrances, (ii) Encumbrances that will be released at or prior to
the Closing and (iii) Encumbrances on assets having a value not
exceeding $100,000 in the aggregate;
(c) to the date of this Agreement, any sale, assignment,
transfer, lease or other disposition or agreement to sell, assign,
transfer, lease or otherwise dispose of any of the fixed assets of any
Company or any Subsidiary, having an aggregate value exceeding
$100,000;
(d) to the date of this Agreement, any acquisition (by
merger, consolidation, or acquisition of stock or assets) by any
Company or Subsidiary of any corporation, partnership or other
business organization or division thereof for consideration in excess
of $100,000 in the aggregate;
(e) to the date of this Agreement, (i) any incurrence by
any Company or Subsidiary of any indebtedness for borrowed money
(other than intercompany loans in the ordinary course of business,
(ii) any issuance by any Company or Subsidiary of any debt securities
or (iii) except in the ordinary course of business, any assumption,
granting, guarantee or endorsement, or other accommodation arrangement
making any Company or any Subsidiary responsible for, the Liabilities
of any Person (other than another Company or Subsidiary), in the case
of (i), (ii) and (iii) above, having an aggregate value exceeding
$100,000;
<PAGE> 24
19
(f) any change in any method of accounting or accounting
practice used by any Company or any Subsidiary, other than such
changes required by GAAP;
(g) any Material Adverse Change or, to the date of this
Agreement, any change or effect that is materially adverse to the
operations, business, financial condition, results of operations or
business prospects of the Companies and the Subsidiaries, taken as a
whole;
(h) to the date of this Agreement, (i) any employment,
deferred compensation, severance or similar agreement entered
into or amended by any Company or Subsidiary, except any employment
agreement providing for compensation of less than $75,000 per annum
entered into in the ordinary course of business, (ii) any increase in
the compensation payable or to become payable by it to any of its
directors, officers, employees, agents or representatives, (iii) any
increase in the coverage or benefits available under any severance
pay, termination pay, vacation pay, company awards, salary
continuation or disability, sick leave, deferred compensation, bonus
or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives, other than,
in the case of (ii) and (iii) above, normal increases in the ordinary
course of business consistent with past practice and that in the
aggregate have not resulted in a material increase in the benefits or
compensation expense of the Companies or the Subsidiaries;
(i) to the date of this Agreement, any transaction or
Contract entered into by the Companies or the Subsidiaries requiring
aggregate payments by the Companies and the Subsidiaries in excess of
$100,000 per annum, other than Contracts to purchase inventory and
supplies in the ordinary course consistent with past practice of the
Companies and the Subsidiaries;
(j) any failure by any Company or Subsidiary to pay and
discharge trade payables within 90 days, except where disputed in good
faith and except for any such payables subject to "special" dating
terms provided by vendors;
(k) to the date of this Agreement, any loans, advances or
capital contributions by any Company or any Subsidiary to, or
investments in, any Person, other than loans or advances (i) to
employees which do not exceed $25,000 in the aggregate, (ii) made to a
Company or a Subsidiary or (iii) made to Synetic or any other
Affiliate of Synetic (including Merck and its Affiliates) and included
in the Intercompany Amount;
(l) to the date of this Agreement, any amendment,
cancellation, termination, relinquishment, waiver or release by any
Company or any Subsidiary of any Material Contract, except in the
ordinary course of business consistent with past
<PAGE> 25
20
practice of the Companies or the Subsidiaries and as would not,
individually or in the aggregate, have a Material Adverse Effect;
(m) to the date of this Agreement, any Extraordinary Loss
or Extraordinary Losses (as defined in Opinion No. 30 of the
Accounting Principles Board of the American Institute of Certified
Public Accountants and any amendments thereto) suffered by any Company
or Subsidiary which would be required to be classified separately in
the combined income statement of the Companies and the Subsidiaries
under Paragraph 11 or Paragraph 24 of such Opinion No. 30;
(n) to the date of this Agreement, any capital
expenditures or capital additions or betterments made or committed to
be made by any Company or Subsidiary in excess of $50,000 individually
or $250,000 in the aggregate; or
(o) any agreement to take any actions specified in this
Section 3.08, except for this Agreement.
SECTION 3.09. Absence of Litigation. Except as set forth in
Section 3.09 of the Disclosure Schedule, as of the date of this Agreement, (a)
there are no Actions pending or, to the knowledge of the Seller, threatened
against the Seller, any Company or any Subsidiary that question the validity of
this Agreement, any documents being delivered by the Seller in connection
herewith, or any action taken or to be taken by the Seller in connection with
the transactions contemplated hereby; (b) there are no Actions pending against
the Seller, any Company or any Subsidiary, or any of the assets or properties
of any Company or any Subsidiary that would, individually or in the aggregate,
have a Material Adverse Effect; and (c) there is no outstanding or, to the
knowledge of the Seller, threatened in writing Action of a Governmental
Authority against, affecting or naming the Companies, the Subsidiaries and
their respective assets and properties that would, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.10. Compliance with Laws. The Companies, the
Subsidiaries and the conduct of the Business are in compliance with all
applicable Laws, except (a) as set forth in Section 3.10 of the Disclosure
Schedule or (b) where the failure to comply would not have a Material Adverse
Effect. Neither the Seller nor any Company nor any Subsidiary has received any
written notice to the effect that the Seller or any Company or any Subsidiary
is not in compliance with any applicable Laws except (x) as set forth in
Section 3.10 of the Disclosure Schedule or (y) where the failure to comply
would not have a Material Adverse Effect.
SECTION 3.11. Consents, Approvals, Licenses, Etc. No
consent, approval, authorization, license, order or permit of, or declaration,
filing or registration with, or notification to, any Governmental Authority, or
any other person or entity, is required to be made or obtained by the Seller,
the Companies, the Subsidiaries or any of their respective Affiliates in
connection with the execution, delivery and performance of this
<PAGE> 26
21
Agreement and the consummation of the transactions contemplated hereby, except:
(a) as set forth in Section 3.11 of the Disclosure Schedule; (b) applicable
requirements, if any, of the DGCL, the Exchange Act, state securities or blue
sky laws, The Nasdaq Stock Market Inc. ("Nasdaq") and the HSR Act; (c) where
the failure to obtain such consents, approvals, authorizations, licenses,
orders or permits of, or to make such declarations, filings or registrations or
notifications would not, either individually or in the aggregate, prevent the
Seller from performing its obligations under this Agreement and would not have
a Material Adverse Effect; and (d) as may be necessary as a result of any facts
or circumstances relating solely to the Purchaser. As of the date of this
Agreement, all of the Licenses of each Company and each Subsidiary are in full
force and effect and the respective Company or Subsidiary is in compliance with
each such License, except as would not have a Material Adverse Effect.
SECTION 3.12. Personal Property. Except as would not have a
Material Adverse Effect, the Companies and the Subsidiaries collectively own,
have a valid leasehold interest in or have legal right to use all of the
tangible personal property necessary to carry on the Business, free and clear
of all Encumbrances, except Permitted Encumbrances and Encumbrances reflected
on the 1994 Audited Financial Statements.
SECTION 3.13. Intangible Property.
(a) The term "Intangible Property" shall mean each
trademark, trade name, service mark, brand mark, brand name, computer program,
database, industrial design and copyright used by a Company or a Subsidiary in
connection with the Business.
(b) Section 3.13(b) of the Disclosure Schedule lists all
Intangible Property necessary to the conduct of the Business and sets forth,
for any such Intangible Property that is not owned by a Company or a
Subsidiary, the name of the owner and the Contract(s) or other arrangements
under which any Company or Subsidiary uses such Intangible Property.
(c) All of the Intangible Property listed in Section
3.13(b) of the Disclosure Schedule is owned by or licensed to a Company or a
Subsidiary. No person or entity has a right to receive a royalty or similar
payment in respect of any such Intangible Property pursuant to any contractual
arrangements entered into by a Company or a Subsidiary, and (iii) as of the
date of this Agreement, no Action is pending against any Company or Subsidiary
either (A) challenging or seeking to deny or restrict the use by any Company
or Subsidiary of any of such Intangible Property or (B) alleging that any
service provided or products sold, or Intangible Properly used, are being
provided, sold or used in violation of any intangible property of any third
Person. There are no uses of Intangible Property in the ordinary course of the
Business that, to the knowledge of the Seller, violate or infringe upon any
intangible property owned by a third Person and, as of the date of this
Agreement, the Seller does not have knowledge of any infringement or violation
of the right of any Company or Subsidiary in or to the Intangible Property by
any third party.
<PAGE> 27
22
SECTION 3.14. Real Property.
(a) No Company or Subsidiary owns any real property.
(b) The Seller has delivered to the Purchaser true,
correct and complete copies of the Leases, including all material amendments,
modifications, supplements, side letters and consents affecting the obligations
of any party thereunder. Section 3.14(b) of the Disclosure Schedule lists each
parcel of Leased Real Property and identifies with respect to each such Lease,
the parties thereto, the address of such property subject to the Lease and a
summary of certain terms of such Lease. Except as disclosed in Section 3.14(b)
of the Disclosure Schedule or as would not have a Material Adverse Effect, the
Subsidiary or Company party to the respective Leases, as of the date of this
Agreement (i) has a valid and subsisting leasehold interest in each such Lease,
and (ii) is in undisturbed, actual and exclusive possession of all space that
it is currently entitled to possess under each such Lease and no rights adverse
to the rights of such Company or Subsidiary have, to the knowledge of the
Seller, been asserted by any third Persons. With respect to those Leases that
were assigned or subleased to the Companies or the Subsidiaries by a third
party, all necessary consents to such assignments or subleases have been
obtained and delivered to the Purchaser. Except as set forth in Section
3.14(b) of the Disclosure Schedule or as would not have a Material Adverse
Effect: (i) none of the Leased Real Property is subject to any lease, sublease,
license or other agreement granting to any other Person any right to the use,
occupancy or enjoyment of the Leased Real Property or any part thereof. There
does not exist any actual or, to the knowledge of the Seller, threatened in
writing condemnation or eminent domain proceedings that affect any Leased Real
Property or any part thereof, and the Company and its Subsidiaries have not
received any written notice of the intention of any Governmental Authority or
other Person to take or use all or any part thereof. No Company nor any
Subsidiary is obligated under or a party to, any option, right of first refusal
or other contractual right to sell, assign or dispose of any Leased Real
Property or any portion thereof or interest therein.
(c) Except as would not have a Material Adverse Effect:
(i) none of the Leased Real Property is subject to any lease, sublease, license
or other agreement granting to any other Person any right to the use, occupancy
or enjoyment of the Leased Real Property or any part thereof; (ii) each of the
Leases is in full force and effect and is valid and enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity), and
there is no defaUlt under any Lease either by the Company or the Subsidiary
party thereto or, to the knowledge of the Seller, by any other party thereto,
and no event has, to the knowledge of the Seller, occurred that with the lapse
of time or the giving of notice or both would constitute a default thereunder;
(iii) each of the Leases covers the entire estate it purports to cover; (iv)
no previous or current party to any such Lease has given notice of or made a
claim with respect to any breach or default thereunder; (v) the Leased Real
Property complies in all material
<PAGE> 28
23
respects with all applicable Laws and no notice of violation of any Law has
been received by the Companies or the Subsidiaries or, to the best knowledge of
the Seller, has been issued by any Governmental Authority with respect to the
Leased Real Property; (vi) the Companies and the Subsidiaries have all material
certificates of occupancy and other Licenses of any Governmental Authority
necessary for the current use and operation by the Companies or the
Subsidiaries of the Leased Real Property; such Licenses have been validly
issued by the appropriate Governmental Authorities in compliance with all
applicable Laws, and the Companies and the Subsidiaries have complied with all
material conditions of such Licenses applicable to them; no default or
violation, or event that with the lapse of time or giving of notice or both
would become a default or violation, has occurred in the due observance of any
such License; all such Licenses are in full force and effect without further
consent or approval of any Person; the Seller does not have any knowledge of,
nor has any Company or any Subsidiary received, any written notice from any
Governmental Authority to the effect that there is lacking any such License
required in connection with the Company's or Subsidiary's current use or
operation of any Leased Real Property; (vii) no part of any Leased Real
Property is subject to any building or use restrictions that would restrict or
prevent the present use and operation of the Leased Real Property and the
Leased Real Property is properly and duly zoned for its current use by the
Companies or the Subsidiaries and such current use is in all respects a
conforming use by the Companies and the Subsidiaries; (viii) no Governmental
Authority having jurisdiction over any Leased Real Property has issued or, to
the best knowledge of the Seller, threatened in writing to issue any notice or
Governmental Order that materially and adversely affects the use or operation
of any Leased Real Property, or requires, as of the date hereof or a specified
date in the future, any material repairs or alterations or additions or
improvements thereto, or the payment or deduction of any money, fee, exaction
or property; (ix) the Seller does not know of any actual or pending imposition
of any assessments for public improvements with respect to any Leased Real
Property and, to the best knowledge of the Seller, no such improvements have
been constructed or planned that would be paid for by means of assessments
upon any Leased Real Property; (x) no labor has been performed or material
furnished for any portion of any Leased Real Property for which any Lien in
excess of $100,000 in value in the aggregate can be claimed; (xi) no
improvements constituting a part of any Leased Real Property encroach on real
property not leased by the Companies or the Subsidiaries, to the extent that
removal of such encroachment would materially impair the manner and extent of
the current use, occupancy and operation of such improvements or cost in excess
of $100,000 in the aggregate; (xii) all components of all improvements included
within the Leased Real Property, including, without limitation, the roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer waste water, storm water, paving and
parking equipment, systems and facilities included therein, are in good
condition, working order and repair; (xiii) all water, gas, electrical, steam,
compressed air, telecommunication, sanitary and storm sewage lines and systems
and other similar systems Serving the Leased Real Property are installed and
operating and are sufficient to enable the Leased Real Properly to continue to
be used and operated in the manner currently being used and operated; (xiv)
neither the Leased Real Property nor portion thereof has suffered any material
damage by fire or other casualty that has not heretofore
<PAGE> 29
24
been completely restored to its original condition; (xv) no portion of the
Leased Real Property is located in a special flood hazard area as designated by
any Governmental Authority; (xvi) no Company nor any Subsidiary has received
any written notice from any insurance company that has issued a policy with
respect to any Leased Real Property requesting performance of any structural or
other repairs or alterations to the Leased Real Property: (xvii) no Leased Real
Property is dependent for its access, operation or utility on any land,
building or other improvement not part of the Leased Real Property; (xviii) the
Leased Real Property abuts a publicly dedicated right of way and is otherwise
not dependent for ingress or egress on third party interests; and (xix) all
utility systems required in connection with use, occupancy and operation of the
Leased Real Property are supplied directly to the Leased Real Property by
facilities of public utilities, are sufficient for their present purposes, are
fully operational and in good working order, and are benefitted by customary
utility easements providing for the continued use and maintenance of such
systems.
SECTION 3.15. Employee. Benefit Matters.
(a) With respect to each employee benefit plan
(including, without limitation, any "employee benefit plan" as defined in
Section 3(3) of ERISA), program, arrangement and contract maintained or
contributed to by any Company or any Subsidiary (the "Benefit Plans"), the
Seller has made available to the Purchaser a copy of (i) the most recent annual
report (Form 5500) filed with the IRS if required, (ii) such Benefit Plan
document, if any, (iii) if applicable, each trust agreement relating to such
Benefit Plan, (iv) the most recent summary plan description for each Benefit
Plan for which a summary plan description is required and (v) the most recent
determination letter, if any, issued by the IRS with respect to any Benefit
Plan qualified under Section 401(a) of the Internal Revenue Code. Section
3.15(a) of the Disclosure Schedule sets forth a complete and accurate list of
all Benefit Plans as of the date of this Agreement.
(b) With respect to the Benefit Plans, except as set
forth in Section 3.15(b) of the Disclosure Schedule, no event has occurred and,
to the knowledge of the Seller, there exists no condition or set of
circumstances, in connection with which any Company or Subsidiary could be
subject to any liability under the terms of such Benefit Plans, ERISA, the
Internal Revenue Code or any other applicable Law which would have a Material
Adverse Effect. No Benefit Plan is subject to Title IV of ERISA.
(C) The Seller has made available to the Purchaser (i)
copies of all employment agreements in effect as of the date of this Agreement
with officers of the Companies and the Subsidiaries, (ii) copies of all
severance agreements, material programs and material policies of the Companies
and the Subsidiaries with or relating to their employees, and, (iii) copies of
all material plans, programs, agreements and other arrangements of the
Companies and the Subsidiaries with or relating to its employees which contain
change in control provisions.
<PAGE> 30
25
(d) Except as described in Section 3.15(d) of the
Disclosure Schedule or as otherwise required by Law, no Benefit Plan of any
Company or Subsidiary provides retiree medical or retiree life insurance
benefits to any person.
(e) Except as described in Section 3.15(e) of the
Disclosure Schedule, all annual reports (Forms 5500) which, to the knowledge of
the Seller, are required to be filed with respect to Benefit Plans have been
promptly and properly filed or if such reports are not currently due will be
filed when due, or if such documents are currently due, timely extension of
such due date has been requested. Except as disclosed in Section 3.15(e) of the
Disclosure Schedule each Benefit Plan intended to qualify under Section 401 of
the Code has been determined by the Internal Revenue Service to so qualify as
of the date of such determination, and the Seller is not aware of any
circumstances which could affect such qualification.
(f) As of the date of this Agreement, there are no
pending Actions relating to the Benefit Plans against the Company or any
Subsidiary (other than claims for benefits in the ordinary course), except as
disclosed in Section 3.15(f) of the Disclosure Schedule.
SECTION 3.16. Taxes. Except as set forth in Section 3.16 of
the Disclosure Schedule, all federal, state, local and foreign tax returns,
reports and statements required to be filed by each Company and Subsidiary have
been filed with the appropriate governmental agencies, and all taxes and other
impositions shown thereon to be due and payable have been paid prior to the
date on which any fine, penalty, interest or late charge may be added thereto
or for nonpayment thereon, or any such fine, penalty, interest or late charge
has been paid. All such returns, reports and statements are true, complete and
correct, and there are no material deficiencies in respect thereof. Each
Company and Subsidiary has paid when due and payable all taxes required to be
paid by it. Prior, proper and accurate amounts have been withheld by each
Company and Subsidiary from their respective employees for all periods in full
and complete compliance with the tax, Social Security and unemployment
withholding provisions of applicable federal, state, local and foreign law, and
such withholdings have been paid in a timely fashion to the respective
governmental agencies. Each Company and Subsidiary has mailed to the recipients
of payments made in the ordinary course of business and filed with the IRS or
appropriate Governmental Authority substantially all information returns
required to be filed in respect of such payments and no Company or Subsidiary
is liable for any material penalties for failure to file such information
returns nor are they liable for any material backup withholding in respect of
any such payments. The federal income tax returns of the consolidated group of
which each Company and Subsidiary is a member are currently being audited for
the taxable years ended June 1991 through June 1993; prior to becoming members
of such consolidated group Dunnington and HPS were acquired pursuant to asset
acquisitions and Alliance was an S corporation within the meaning of IRC
Section 1361. Section 3.16 of the Disclosure Schedule sets forth, for each
Company and Subsidiary, those taxable years for which its tax returns are
currently being audited by the IRS or any other applicable Governmental
Authority. Except as set forth in Section 3.16 of the Disclosure Schedule, no
consent extending the period of
<PAGE> 31
26
limitations for assessment of any tax has been executed. Section 3.16 of the
Disclosure Schedule hereto sets forth each election made by each Company or
Subsidiary which has the effect of (i) deferring any item of gross income for
federal income tax purposes to a period later than the corresponding period for
which such item of income is reportable on the financial statements of the
Company or Subsidiary or (ii) accelerating any item of expense, loss or
deduction to a taxable period which is earlier than the corresponding period
for which such item of expense, loss or deduction is reportable on the
financial statements of the Company or Subsidiary. Section 3.16 of the
Disclosure Schedule sets forth every item, not otherwise included in the
preceding sentence, capitalized for financial statement purposes but deducted
on the tax return filed on or prior to the Closing Date. None of the Companies
nor any of their Subsidiaries has made an election to reduce basis in lieu of
recognizing any income pursuant to IRC Sections 108 and 1017. Except as set
forth in Section 3.16 of the Disclosure Schedule or as a result of the
transactions contemplated by this Agreement, no net operating loss or other tax
attribute is limited by IRC Section 382 or 383. None of the Companies nor any
of their Subsidiaries has filed a consent pursuant to IRC Section 341(f) or
agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection
(f) assets (as such term defined in IRC Section 341(f(4)). None of the property
owned by the Companies or any of their Subsidiaries is property which such
Company is required to treat as being owned by any other person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax exempt use property" within the meaning of IRC Section
168(h). Except as set forth in Section 3.16 of the Disclosure Schedule, none of
the Companies nor any of their Subsidiaries have agreed or have been requested
to make any adjustment under IRC Section 481(a) by reason of a change in
accounting method or otherwise. Except as set forth in Section 3.16 of the
Disclosure Schedule, none of the Companies nor any of their Subsidiaries have
any obligation under any written tax sharing agreement.
SECTION 3.17. Stockholder Vote and Special Committee
Approval.
(a) Pursuant to the Purchase and Sale Agreement and
subject to the terms thereof, Synetic has agreed to take all action necessary
to call a Special Meeting of the stockholders of Synetic (including any
postponements or adjournments thereof, the "Special Meeting") in order to
consider and vote upon, among other things, a proposal to approve, in
accordance with the requirements of the DGCL, the sale of the Business by the
Seller.
(b) The Special Committee has approved this Agreement and
the transactions contemplated hereby.
<PAGE> 32
27
SECTION 3.18. Material Contracts.
(a) Section 3.18(a) of the Disclosure Schedule lists the
following Contracts (collectively, with the Leases listed in Section 3.14(b) of
the Disclosure Schedule, the "Material Contracts") in effect as of the date of
this Agreement to which any Company or Subsidiary is a party:
(i) any Contract (other than the Leases listed in Section
3.14(b) of the Disclosure Schedule) that the Seller reasonably
anticipates will, in accordance with its terms, involve aggregate
payments by any Company or Subsidiary of more than $100,000 within the
12 month period following the date of this Agreement and that is not
cancelable within 60 days without liability;
(ii) any lease or leases of personal property involving
any annual expense in excess of $50,000 per annum per lease or
$250,000 per annum in the aggregate for any related group of leases
and not cancelable within 60 days without liability;
(iii) any Contracts containing covenants limiting the
freedom of any Company or Subsidiary to engage in any line of business
or compete with any Person after the Closing;
(iv) any employment agreements or other agreements with
any director, officer or key employee the term of which will not
expire until more than three years after the date of this Agreement
or that involve annual payments by any Company or Subsidiary in excess
of $75,000 that are not terminable within 60 days without liability or
penalty;
(v) any joint venture agreement, shareholder agreement or
similar arrangement;
(vi) any Contract relating to indebtedness for borrowed
money or capitalized leases, or other Contract in respect of which the
Companies or the Subsidiaries are obligated in any way to provide
funds in respect of, or to guarantee or assume, any debt, obligation
or dividend of any person or entity, in each case, in excess of
$50,000, other than Intercompany Amounts; and
(vii) any indemnity arrangement arising in connection with
any sale or disposition of assets (other than sales of assets in the
ordinary course of business).
(b) Except as set forth on Section 3.18(b) of the Disclosure
Schedule, no Company or Subsidiary is (and, to the knowledge of the Seller, no
other party is), as of the date of this Agreement, in breach or violation of,
or default under, any of the Material Contracts, where such breach or violation
or default would have a Material Adverse Effect. Except as set forth on Section
3,18(b) of the Disclosure Schedule, each Material Contract is,
<PAGE> 33
28
as of the date of this Agreement, a valid agreement, arrangement or commitment
of the Company or Subsidiary which is a party thereto, enforceable against such
Company or Subsidiary in accordance with its terms and, to the knowledge of the
Seller, is a valid agreement, arrangement or commitment of each other party
thereto, enforceable against such party in accordance with its terms, except in
each case where enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and, except where
enforceability is subject to the application of equitable principles or
remedies or as would not have a Material Adverse Effect.
SECTION 3.19. Customers. Section 3.19 of the Disclosure
Schedule contains a complete and accurate list, as of the date of this
Agreement, of the 10 largest customers of the Companies and the Subsidiaries
taken as a whole in terms of revenues, or annualized revenues, during the
fiscal year ended on the 1994 Balance Sheet Date, showing the approximate total
sales by the Companies and the Subsidiaries to each such customer during such
period. Except as set forth in Section 3.19 of the Disclosure Schedule, from
the 1994 Balance Sheet Date through the date of this Agreement, (a) there has
not, to the knowledge of the Seller, been any change in the business
relationships of any Company or Subsidiary with any customers named in Section
3.19 of the Disclosure Schedule that would, in the aggregate, have a Material
Adverse Effect and (b) no Company or Subsidiary has received any written notice
from any one or more of such customers that said customer or customers intends
to terminate their business relationships with any Company or Subsidiary, which
termination would have a Material Adverse Effect.
SECTION 3.20. Brokers. Except for Cowen & Co. ("Cowen"), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Seller. The
Seller is solely responsible for the fees and expenses of Cowen.
SECTION 3.21. Receivables.
(a) Except as set forth in Section 3.21(a) of the
Disclosure Schedule, there are no employee advances and loans in excess of
$20,000 in the aggregate made by the Companies and the Subsidiaries as of the
date of this Agreement.
(b) All accounts receivable of the Companies and the
Subsidiaries have arisen in the ordinary course of business consistent with past
practice. The accounts receivable of the Companies and the Subsidiaries are
reported on the 1994 Audited Financial Statements at their estimated aggregate
net realizable amounts. Provided that the past practice of the Companies and
the Subsidiaries is followed in connection with the collection of such accounts
receivable (as described in Section 3.21(b) of the Disclosure Schedule), such
accounts receivable are realizable at the aggregate value thereof reflected in
the Books and Records of the Companies and the Subsidiaries, net of reserves
therefor established in accordance with past practice.
<PAGE> 34
29
SECTION 3.22. Insurance.
(a) Section 3.22(a) of the Disclosure Schedule sets forth
a list of all policies of insurance of any kind or nature covering the
Companies and the Subsidiaries or any of the employees of the Companies and the
Subsidiaries or their respective assets, including, without limitation,
policies of life, disability, fire, theft, workers compensation, employee
fidelity and other casualty and liability insurance. Section 3.22(a) of the
Disclosure Schedule sets forth for each such policy of insurance, (i) the name
of the provider thereof, (ii) the type of coverage, (iii) the policy number,
(iv) the term of the policy and (v) the amount of coverage provided thereby.
All such policies are in full force and effect and, with respect to such
policies which are occurrence based policies, will continue to provide coverage
following the Closing Date to the same extent provided prior to the Closing
Date for claims arising in connection with the operation of the business on or
prior to the Closing Date. The Seller has delivered or otherwise made available
to the Purchaser true, correct and complete copies of each such policy,
including all amendments, modifications, supplements or side letters relating
thereto.
(b) At all times since the date of acquisition thereof by
the Seller, the Companies and the Subsidiaries have maintained insurance
covering the Companies and the Subsidiaries, the employees of and assets
comprising the Companies and the Subsidiaries comparable in terms of the type
of coverage to that maintained by the Companies and the Subsidiaries as of the
date hereof.
SECTION 3.23. Transactions with Affiliates. Except as set
forth in Section 3.23 of the Disclosure Schedule, from the 1994 Balance Sheet
Date to the date of this Agreement, there have been no material transactions,
agreements or arrangements between the Companies and the Subsidiaries, on the
one hand, and (i) the Seller or any of its Affiliates, (ii) any director or
officer of the Seller or any of its Affiliates or (iii) any member of the
immediate family of any individual described in (i) or (ii) on the other.
SECTION 3.24. No Undisclosed Liabilities. The Companies and
the Subsidiaries do not have any Liabilities, other than: (a) as reflected or
reserved against on the 1994 Audited Balance Sheet; (b) Liabilities with
respect to matters expressly disclosed pursuant to this Article III or covered
by a representation or warranty (other than this Section 3.24) and not required
to be disclosed by the terms of such representation or warranty; (c)
Liabilities incurred after the date of this Agreement and permitted under
Section 5.01 hereof; (d) Liabilities incurred from the 1994 Balance Sheet Date
to the date of this Agreement in the ordinary course of business consistent
with past practice; and (e) such additional Liabilities which individually or
in the aggregate would not have a Material Adverse Effect.
SECTION 3.25. Environmental Compliance. As of the date of
this Agreement: (a) no toxic wastes or other toxic or hazardous substances or
materials have been released or disposed by the Companies and the Subsidiaries
on any of the Leased Real
<PAGE> 35
30
Property in any manner or quantity that could reasonably be expected to give
rise to any material Liabilities of the Companies and the Subsidiaries; (b)
the Companies and the Subsidiaries have operated in accordance with all Laws
relating to pollution or protection of the environment, except for such
non-compliance which, singly or in the aggregate, would not have a Material
Adverse Effect; (c) to the Seller's knowledge, neither the Companies nor the
Subsidiaries have disposed or arranged (by contract, agreement or otherwise),
within the meaning of Section 107(a)(3) of CERCLA, for the disposal of any
hazardous substance that was generated or used by any of them at any off-site
location that at the time of such disposal was listed or proposed for inclusion
on the National Priority List promulgated pursuant to CERCLA or any list
promulgated by any Governmental Authority for the purpose of identifying sites
which pose an imminent danger to public health and safety; (d) except where the
failure to do so would not have a Material Adverse Effect, each of the
Companies and the Subsidiaries has all required federal, state and local
permits, licenses, certificates and approvals, with respect to their respective
operations relating to (i) air emissions, (ii) discharges to surface water or
groundwater, (iii) noise emissions, (iv) solid or liquid waste disposal, and
(v) the use, generation, storage, transportation or disposal of toxic hazardous
substances or wastes; and (e) the Seller has no knowledge that any Governmental
Authority has determined that there has been a hazardous discharge at or from
the Leased Real Property. The provisions of this Section 3.25 shall survive the
Closing and remain in full force and effect for a period of five years after
the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
SECTION 4.01. Incorporation and Authority of the Purchaser.
The Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of California and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Purchaser, the performance
by the Purchaser of its obligations hereunder and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized
by all requisite corporate action on the part of the Purchaser. This Agreement
has been duly executed and delivered by the Purchaser, and (assuming due
authorization, execution and delivery by the Seller) constitutes a legal,
valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms, subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
<PAGE> 36
31
SECTION 4.02. No Conflict. Except as may remit from any
facts or circumstances relating solely to the Seller, the execution, delivery
and performance of this Agreement by the Purchaser does not and will not: (a)
violate or conflict with the Articles of Incorporation or By-laws (or other
similar applicable documents) of the Purchaser; (b) conflict with or violate
any Law or Governmental Order applicable to the Purchaser, except as would not,
individually or in the aggregate, have a material adverse effect on the
business or financial condition of the Purchaser or on the ability of the
Purchaser to consummate the transactions contemplated by this Agreement; or (c)
result in any breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on any of the
assets or properties of the Purchaser pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument relating to such assets or properties to which the Purchaser or any
of its subsidiaries is a party or by which any of such assets or properties is
bound or affected, except as would not, individually or in the aggregate, have
a material adverse effect on the business or financial condition of the
Purchaser or the ability of the Purchaser to consummate the transactions
contemplated by this Agreement.
SECTION 4.03. Consents and Approvals. The execution and
delivery of this Agreement by the Purchaser does not, and the performance of
this Agreement by the Purchaser will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except (a) as described in a writing
delivered to the Seller by the Purchaser on the date of this Agreement, (b) the
notification and waiting period requirements of the HSR Act, (c) where failure
to obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent or delay the Purchaser from
performing any of its material obligations under this Agreement and (d) as may
be necessary as a result of any facts or circumstances relating solely to the
Seller. The Purchaser is not aware of any fact or circumstances relating to the
Purchaser that would preclude the Purchaser from receiving any of the Licenses
or any other consent, approval or authorization listed in the writing described
in clause (a) of the previous sentence.
SECTION 4.04. Absence of Litigation. No Action is pending
or, to the knowledge of the Purchaser, threatened in writing against the
Purchaser which seeks to delay or prevent the consummation of the transactions
contemplated hereby or which would be reasonably likely to materially and
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
SECTION 4.05. Investment Purpose. The Purchaser is
acquiring the Shares solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof.
<PAGE> 37
32
SECTION 4.06. Financing. The Purchaser has all funds
necessary to consummate the transactions contemplated by this Agreement.
SECTION 4.07. Brokers. Except for J. P. Morgan Securities,
Inc. no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Purchaser. The Purchaser is solely responsible for the fees and expenses of
J. P. Morgan.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business prior to the Closing.
(a) Unless the Purchaser otherwise agrees in writing
(such agreement not to be unreasonably withheld) and except as otherwise set
forth herein or in Section 5.01 of the Disclosure Schedule, between the date of
this Agreement and the Closing Date, the Seller will cause each Company and
each Subsidiary to:
(i) operate only in the usual, regular and ordinary
manner consistent with past practice, and use reasonable efforts to
(A) preserve its present business operations, organization and
goodwill, (B) keep available the services of its present i employees,
(C) preserve its present relationships with persons having business
dealings with it and (D) comply in all material respects with all
contractual obligations under Material Contracts;
(ii) use reasonable efforts to (A) maintain all of its
assets and properties in their current condition, normal wear and tear
excepted, and (B) maintain insurance upon all of such properties in
such amounts and of such kinds comparable to that in effect on the date
hereof (with insurers of substantially the same or better financial
condition);
(iii) maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with past
practice;
(iv) maintain inventory of the Companies and the
Subsidiaries of similar kind, amount and quality as that maintained in
accordance with past practice and collect accounts receivable in
accordance with past practice (as described in Section 3.21(b) of the
Disclosure Schedule);
(v) use reasonable efforts to maintain or cause to be
maintained the Intangible Property listed on Schedule 3.13(b) in full
force and effect through the
<PAGE> 38
33
Closing Date and to renew, to the extent permitted under applicable
Law, any such Intangible Property subject to expiration on or prior to
the Closing Date;
(vi) promptly notify the Purchaser of any (A) casualty
losses or damages suffered by any Company or Subsidiary with respect
to property and assets having an aggregate replacement cost of more
than $100,000 or which could cause a Material Adverse Effect, whether
or not such losses or damages are covered by insurance, and (B)
material legal proceedings commenced by or against any Company or
Subsidiaries or any legal proceeding commenced or threatened against
the Seller, any Company or any Subsidiary relating to the transactions
contemplated by this Agreement;
(vii) promptly and accurately record in the corporate
minute books of the Companies and the Subsidiaries all material
corporate action taken on or after the date hereof by the
stockholders or the board of directors (including committees thereof)
of the Companies and the Subsidiaries, and promptly following such
recordation deliver true, correct and complete copies thereof to the
Purchaser;
(b) Except as expressly provided in this Agreement or in
Section 5.01 of the Disclosure Schedule, between the date of this Agreement and
the Closing Date, the Seller will not permit the Companies and the Subsidiaries
to do any of the following without the prior written consent of the Purchaser
(which consent shall not be unreasonably withheld):
(i) enter into any merger or consolidation with any
corporation or other entity;
(ii) make a loan, advance or capital contribution to, any
other Person, except (A) to any Company or Subsidiary, (B) loans and
advances in the ordinary course of business in accordance with past
practice and (C) loans, advances and capital contributions of less
than $50,000 individually and $200,000 in the aggregate;
(iii) enter into or modify any Contract with any Person,
other than (A) in the ordinary course of business consistent with past
practice and (B) Contracts having requiring payments by the Companies
and the Subsidiaries of less than $50,000 individually and $200,000 in
the aggregate.
(iv) make any renovation of the Leased Real Property
involving an obligation of more than $100,000 in the aggregate on the
part of the Company or the Subsidiaries;
(v) (A) increase the rate of compensation payable or to
become payable to any of its employees or agents, other than normal
increases in the ordinary course of business consistent with past
practice to Persons receiving cash compensation of less than $75,000
per annum; (B) pay or provide for any bonus, stock option, stock
purchase, profit-sharing, deferred compensation, pension, retirement
or other similar
<PAGE> 39
34
payment or arrangement to or in respect of any such employee or agent
except to the extent the Companies or the Subsidiaries are, on the
date hereof, contractually obligated to do so or required to do so by
Law and except as would not materially increase the benefits or
compensation expense of the Companies and the Subsidiaries; and (C)
enter into any new, or amend in any material respect any existing
employment, severance, or consulting agreement, sales agency or other
Contract with respect to the performance of personal services, except
any such agreement providing for cash compensation of less than
$75,000 per annum entered into or amended in the ordinary course of
business;
(vi) (A) voluntarily incur any obligation or liability
other than (1) normal trade or business obligations incurred in the
ordinary course of business in accordance with past practice and (2)
obligations and liabilities to the Seller incurred in accordance with
past practice; (B) sell, assign, transfer, convey, lease or otherwise
dispose of any material assets of the Companies and the Subsidiaries,
other than inventory of the Companies and the Subsidiaries in the
ordinary course of business; (C) cancel or compromise any material
debt or claim or waive or release any material right of the Companies
or the Subsidiaries, except for adjustments or settlements made in the
ordinary course of business consistent with past practice; (D) make
any capital expenditure in excess of $100,000 individually or $250,000
in the aggregate; or (E) enter into any collective bargaining
agreement or enter into negotiations (the status of which will be
regularly communicated to the Purchaser) with any labor organization
relating to any of the employees of the Companies or the Subsidiaries;
(vii) (A) create any Encumbrance on the Shares, and (B)
create any Encumbrance of any kind on any properties or assets
(whether tangible or intangible) of any Company or any Subsidiary,
other than (1) Permitted Encumbrances, (2) Encumbrances that will be
released at or prior to the Closing and (3) Encumbrances on assets
having a value not exceeding $100,000 in the aggregate;
(viii) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof;
(ix) except where the aggregate value does not exceed
$100,000 (net of any reduction in outstanding amounts under existing
obligations), (A) incur any indebtedness for borrowed money (other
than intercompany loans in the ordinary course of business, (B) issue
any debt securities or (C) except in the ordinary course of business,
assume, grant, guarantee or endorse, or make any other accommodation
arrangement making any Company or any Subsidiary responsible for, the
Liabilities of any Person (other than another Company or Subsidiary);
(x) Change any method of accounting or accounting
practice used by any Company or any Subsidiary, except as required by
GAAP;
<PAGE> 40
35
(xi) issue or sell any additional shares of the capital
stock of, or other equity interests in, any Company or any Subsidiary,
or securities convertible into or exchangeable for such shares or
equity interests, or issue or grant of any options, warrants, calls,
subscription rights or other rights of any kind to acquire additional
shares of such capital stock, such other equity interests, or such
securities;
(xii) declare, set aside or pay any dividend;
(xiii) amend any Company's or Subsidiary's Certificate of
Incorporation or By-laws or equivalent organization documents; or
(xiv) agree to take any of the actions specified in this
Section 5.01(b).
SECTION 5.02. Access to Information.
(a) From the date of this Agreement until the Closing,
upon reasonable notice, the Seller shall, and shall cause the officers,
employees, auditors and agents of the Seller, the Companies and the
Subsidiaries to, (i) afford the officers, employees and authorized agents and
representatives of the Purchaser reasonable access, during normal business
hours, to the offices, properties, books and records of the Companies and the
Subsidiaries (including copies, as required) and (ii) furnish to the officers,
employees and authorized agents and representatives of the Purchaser such
additional financial and operating data and other information (including
combined financial statements and auditor's work papers, if any, relating
thereto) regarding the assets, properties, goodwill and business of the
Companies and the Subsidiaries as the Purchaser may from time to time
reasonably request in order to assist the Purchaser in fulfilling its
obligations under this Agreement and to facilitate the consummation of the
transfers contemplated hereby; provided, however, that the Purchaser shall not
unreasonably interfere with any of the businesses or operations of the Seller,
the Companies, the Subsidiaries or any Affiliate of the Seller or any Affiliate
of Merck.
(b) The Purchaser agrees that it shall preserve and keep
all Books and Records in the Purchaser's possession for a period of at least
eight years from the Closing Date. After such eight-year period, before the
Purchaser shall dispose of any of such Books and Records, at least 90 calendar
days' prior written notice to such effect shall be given by the Purchaser to
the Seller, and the Seller shall be given an opportunity, at its cost and
expense, to remove and retain all or any part of such Books and Records as the
Seller may select.
(c) Each party agrees that it will cooperate with and
make available to the other party, during normal business hours, all Books and
Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date which
are necessary or useful in connection with any Tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring
<PAGE> 41
36
any such Books and Records, information or employees for any reasonable
business purpose. The party requesting any such Books and Records, information
or employees shall bear all of the out-of-pocket costs and expenses (including,
without limitation, attorneys' fees, but excluding reimbursement for salaries
and employee benefits) reasonably incurred in connection with providing such
Books and Records, information or employees. The Seller may require certain
financial information relating to the Business for periods prior to the
Closing Date for the purpose of filing federal, state, local and foreign tax
returns and other governmental reports, and the Purchaser agrees to furnish
such information to the Seller at the Seller's request and expense.
SECTION 5.03. Confidentiality. The terms of the
Confidentiality Agreement are hereby incorporated herein by reference and shall
continue in full force and effect until the Closing, at which time such
Confidentiality Agreement and the obligations of the Purchaser under this
Section 5.03 shall terminate; provided, however, that the Confidentiality
Agreement shall terminate only in respect of that portion of the Proprietary
Information (as defined in the Confidentiality Agreement) exclusively relating
to the transactions contemplated by this Agreement. If this Agreement is, for
any reason, terminated prior to the Closing, the Confidentiality Agreement
shall continue in full force and effect.
SECTION 5.04. Regulatory and Other Authorizations;
Consents.
(a) Each party hereto shall use all reasonable efforts to
obtain all authorizations, consents, orders and approvals of, and to give all
notices to and make all filings with, all Governmental Authorities and other
third parties that may be or become necessary for its execution and delivery
of, and the performance of its obligations pursuant to, this Agreement and will
cooperate fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals, giving such notices, and making
such filings. The Purchaser acknowledges that it shall be solely responsible
for obtaining the Licenses and all other consents, approvals and authorizations
referred to in the writing described in Section 4.03(a) and the Seller agrees
to assist the Purchaser in its efforts with respect thereto. Each party
hereto agrees to make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby
within five Business Days of the date hereof and to supply promptly any
additional information and documentary material that may be requested pursuant
to the HSR Act. The parties hereto acknowledge that time shall be of the
essence in this Agreement and agree not to take any action that will have the
effect of unreasonably delaying, impairing or impeding the receipt of any
required authorizations, consents, orders or approvals.
(b) The Purchaser shall take promptly all reasonable
actions deemed by the Purchaser in its good faith discretion to be necessary to
avoid or eliminate each and every impediment under any antitrust law that may
be asserted by any Governmental Authority with jurisdiction over the
enforcement of any applicable antitrust laws ("Government
<PAGE> 42
37
Antitrust Authority") or any other party to the consummation of the acquisition
of the Shares by the Purchaser in accordance with the terms of this Agreement.
(c) The Purchaser agrees that if, prior to the Closing,
the Purchaser or any of its Affiliates enters into any other agreement with
respect to any acquisition, merger, joint venture or similar transaction which
causes any Government Antitrust Authority to assert an impediment under any
antitrust law to the Purchaser's acquisition of the Shares, the Purchaser will
take all reasonable action as may be required with respect to such other
transaction in order to eliminate each and every impediment asserted by such
Government Antitrust Authority in a timely manner so as not to cause any
material delay in the Closing Date. For purposes of this Section 5.04(c),
there shall be deemed to be a "material delay" if the Purchaser has not taken
all such reasonable action required to eliminate each and every such impediment
by the 30th day (but, in any event, not later than three Business Days prior to
February 15, 1994) after receipt by the Purchaser of a Seller's Notice. A
"Seller's Notice" is a written notice in accordance with this Agreement from a
duly authorized officer of the Seller stating that the Seller is ready, willing
and able (but for the existence of any impediment to Closing asserted by any
Government Antitrust Authority) to consummate the Closing pursuant to the
terms of this Agreement. In the event that there shall occur a "material
delay" within the meaning of this Section 5.04(c), in addition to any other
rights or remedies that may be available to the Seller, the closing condition
set forth in Section 8.02(a)(i) shall be deemed satisfied in the event that the
certificate delivered at Closing pursuant to Section 8.02(a)(iii) states that
the condition contained in Section 8.02(a)(i) was satisfied on the date of the
Seller's Notice.
(d) The Purchaser will cooperate with the Seller in
obtaining any consents of landlords necessary or advisable in connection with
the transactions contemplated by this Agreement, including, without limitation,
providing to such landlords (i) guarantees by the Purchaser of the obligations
of any Company or any Subsidiary under the Leases and (ii) furnishing such
financial statements and other financial information with respect to the
Purchaser and the Parent as such landlords may reasonably request; provided,
however, that no material adjustments shall be made to any Lease without the
Purchaser's prior written consent, which consent shall not be unreasonably
withheld.
SECTION 5.05. Use of the Seller's Name. No interest
in or right to use the name "Synetic" or any derivation thereof or any logo,
trademark or trade name of the Seller (collectively, the "Retained Names and
Marks") is being transferred to the Purchaser pursuant to the transactions
contemplated hereby and such rights of the Companies and the Subsidiaries shall
terminate as of the Closing Date. The Purchaser will, immediately following the
Closing Date, cause each Company and each Subsidiary to remove or obliterate
all the Retained Names and Marks from its signs, purchase orders, invoices,
sales orders, labels, letterheads, shipping documents, and other items and
materials, and not to put into use after the Closing Date any such items and
materials not in existence on the Closing Date that bear any Retained Name or
Mark or any name, mark or logo similar thereto. Notwithstanding the foregoing,
the Companies and the Subsidiaries may, for a period of 60
<PAGE> 43
38
calendar days following the Closing Date, use any purchase orders, invoices,
sales orders, labels, letterheads, or shipping documents existing on the
Closing Date that bear any Retained Name or Mark or any name, mark or logo
similar thereto, where the removal of any Retained Name or Mark or any such
similar name, mark or logo would be impractical; provided, that the Purchaser
shall place, or cause to be placed, a stamp, mark or other notation on any such
item that identifies the relevant Companies and Subsidiaries as Affiliates or
businesses of the Purchaser (and not of the Seller). The Purchaser agrees that
the Seller shall have no responsibility for claims by third parties arising out
of, or relating to, the use by the Purchaser, the Companies, the Subsidiaries
or any Affiliate thereof of any Retained Name or Mark after the Closing Date,
and the Purchaser agrees to indemnify and hold harmless the Seller from any and
all claims that may arise out of the use thereof by the Purchaser, the
Companies, the Subsidiaries or any Affiliate thereof.
SECTION 5.06. Investigation.
(a) The Purchaser acknowledges and agrees that it (i) has
made its own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, the Companies, the Subsidiaries and the
Business, (ii) has been furnished with or given adequate access to such
information about the Companies, the Subsidiaries and the Business as it has
requested, and (iii) will not assert any claim against the Seller or any of its
directors, officers, employees, agents, stockholders, Affiliates, consultants,
counsel, accountants, investment bankers or representatives, or hold the Seller
or any such Persons liable, for any inaccuracies, misstatements or omissions
with respect to information (other than, with respect to the Companies, the
Subsidiaries and the Business, the representations and warranties contained in
this Agreement) furnished by the Seller or any such Persons concerning the
Seller, its Affiliates, the Companies, the Subsidiaries and the Business.
(b) In connection with the Purchaser's investigation of
the Companies, the Subsidiaries and the Business, the Purchaser has received
from the Seller certain projections and other forecasts for the Companies and
the Subsidiaries and certain plan and budget, information. The Purchaser
acknowledges that there are uncertainties inherent in attempting to make such
projections, forecasts, plans and budgets, that the Purchaser is familiar with
such uncertainties, that the Purchaser is taking full responsibility for making
its own evaluation of the adequacy and accuracy of all estimates, projections,
forecasts, plans and budgets so furnished to it, and that the Purchaser will
not assert any claim against the Seller or any of its directors, officers,
employees, agents, stockholders, affiliates, consultants, counsel, accountants,
investment bankers or representatives, or hold the Seller or any such persons
liable, with respect thereto. Accordingly, the Seller makes no representation
or warranty with respect to any estimates, projections, forecasts, plans or
budgets referred to in this Section 5.06(b).
<PAGE> 44
39
SECTION 5.07. Stockholders' Meeting.
(a) The Seller shall take all action necessary in
accordance with applicable Laws and its Certificate of Incorporation and
By-Laws to convene the Special Meeting. Subject to its fiduciary duties, the
Board of Directors of the Seller shall recommend approval of the proposals
contained in the Proxy Statement and the Seller shall take all lawful action to
solicit, and use all reasonable efforts to obtain, such approval. None of the
information contained in the Proxy Statement will, at the time of the mailing
of such Proxy Statement and at the time of the Special Meeting, 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 were made, not misleading. If at
any time prior to the Special Meeting any event or circumstance relating to the
Seller or any of its subsidiaries, or its or their respective officers or
directors, should be discovered by the Seller which should be set forth in the
Proxy Statement to be used in connection with the Stockholders' Meeting, the
Seller shall promptly supplement the Proxy Statement. The Seller represents
that all documents that the Seller is responsible for filing with the
Securities and Exchange Commission in connection with the transactions
contemplated by this Agreement and the Purchase and Sale Agreement will comply
as to form and substance in all material respects with the applicable
requirements of the Exchange Act, and the rules and regulations thereunder.
(b) The Purchaser will supply such information about the
Purchaser and its Affiliates as may be required for inclusion or incorporation
by reference in the Proxy Statement and any supplement thereto. None of such
information will, at the time of the mailing of such Proxy Statement and at the
time of the Stockholders' Meeting, 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.
SECTION 5.08. Non-Competition.
(a) The Seller acknowledges and agrees that the Business
is conducted in the States of Connecticut, Indiana, Massachusetts and Rhode
Island and that the reputation and goodwill of the Companies and the
Subsidiaries are an integral part of its business success throughout the
respective areas where they conduct their respective businesses. As an
inducement for the Purchaser to enter into this Agreement, the Seller agrees
that for a period commencing on the Closing Date and ending on the fifth
anniversary of the Closing Date (the "Non-Competion Period"), except with the
Purchaser's prior written consent, the Seller shall not, directly or
indirectly, or through one or more Affiliates, own, manage, operate, join,
control or participate in the ownership, management, operation or control of,
any profit or non-profit business or organization in any part of the Territory
(as hereinafter defined) which, directly or indirectly, Competes (as
hereinafter defined) with the Purchaser. For purposes of this Section 5.08, a
profit or non-profit business or organization shall be deemed to "compete" with
the Purchaser if such business or organization engages in the
<PAGE> 45
40
business as engaged by any Company or any Subsidiary as of the Closing Date,
including but not limited to providing infusion therapy, distributing
urological, enternal and other health care products and supplies, providing
medical record keeping services, or providing prescription vending services and
consultant pharmacist services, in each case to nursing homes and other similar
long-term care facilities. In addition, during the Non-Competition Period,
none of the Seller or any of its Affiliates shall (i) provide or assist any
other Person in the development or provision of an institutional pharmacy
management system using any material component or know-how involved in the
development of the SPMS for use by any Person engaged in the business of any
Company or Subsidiary (as described in the immediately preceding sentence) in
the United States, (ii) solicit, raid, entice or induce any person that
currently is, or at the Closing Date shall be (or, in the case of termination,
is at the time of termination), an employee of any Company or Subsidiary to
become employed by any Person (other than the Purchaser), or (iii) approach any
such employee for such purpose or authorize or participate with the taking of
such actions by any other Person, or assist or participate with any such Person
in taking such action; provided, however, the provisions of this sentence shall
not prohibit the Seller or its Affiliates from advertising generally,
including advertisements designed to attract new employees. For purposes of
this Section 5.08, the term "Territory" means an area comprising the States of
Connecticut, Indiana, Massachusetts and Rhode Island. Nothing contained in
this Section 5.08 shall prevent the Seller from acquiring any business that
competes with the Purchaser (the "Acquired Competing Business"), through
merger, stock purchase, acquisition of assets or otherwise, provided that (A)
such Acquired Competing Business constitutes a subsidiary or division (other
than a "significant Subsidiary" as such term is defned in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission) of a
larger business acquired at the same time as the Acquired Competing Business,
which larger business does not compete with the Purchaser, and (B) such
Acquired Competing Business is sold to a Person who is not an Affiliate of the
Seller within one year from the date of acquisition thereof.
(b) The Seller acknowledges that a breach of its covenants contained in
Section 5.08(a) may cause irreparable damage to the Purchaser, the exact amount
of which will be difficult to ascertain, and that the remedies at law for any
such breach will be inadequate. Accordingly, Seller agrees that if it breaches
any of the covenants contained in Section 5.08(a), in addition to any other
remedy which may be available at law or in equity, the Purchaser shall be
entitled to specific performance and injunctive relief against the Seller.
(c) The parties further acknowledge that the time, scope,
geographic area and other provisions of Section 5.08(a) have been specifically
negotiated by sophisticated commercial parties and agree that all such
provisions are reasonable under the circumstances of the transactions
contemplated by this Agreement. In the event that the agreements in Section
5.08(a) shall be determined by any court of competent jurisdiction to be
unenforceable by reason of their extending for too great a period of time or
over too great a geographical area or by reason of their being too extensive
in any other respect, they shall be interpreted to extend only over the maximum
period of time for which they may be
<PAGE> 46
41
enforceable and/or over the maximum geographical area as to which they may be
enforceable and/or to the maximum extent in all other respects as to which they
may be enforceable, all as determined by such court in such action.
(d) The existence of any claim or cause of action which
any party may have against another party shall not constitute a defense or bar
to the enforcement of any of the provisions of this Section 5.08, but such
claim or cause of action may be pursued through separate court action by such
party.
SECTION 5.09. SPMS.
(a) On or immediately prior to the Closing Date, the Seller
will transfer and assign to Dunnington or another Company designated by the
Purchaser (the "SPMS Transferee") all right, title and interest of the Seller
in and to the computer systems described and identified in Section 5.09 of the
Disclosure Schedule, and known as the Synetic Pharmacy Management System (the
"SPMS"), including (i) each and every computer program related thereto, and
each copy thereof, all conversions, derivative works, improvements,
modifications, translations and updates of all or part of the SPMS programs in
any form or medium (the "SPMS Programs") and (ii) all human-readable
programming lists, flow charts, input and output charts, instruction materials,
logic charts, technical manuals and other materials intended to assist either
users or programmers working with the SPMS Programs to use it (collectively, the
"Source Code and Documentation"). Section 5.09 of the Disclosure Schedule
includes a list of all license fees or similar charges payable to any third
party in connection with any software, computer program or similar product
required for use of the SPMS or otherwise included in the SPMS. Upon transfer
of the SPMS as contemplated by this Section 5.09, all proprietary rights in the
SPMS shall become the sole and exclusive property of the SPMS Transferee, the
Seller shall retain no rights therein, copies thereof or documentation relating
thereto, in whatever form or medium in which such rights and documentation
exist, and the Seller and its Affiliates will purge all copies of the SPMS from
their computer systems and storage media and shall certify to the Purchaser in
writing promptly following the Closing that such copies have been purged.
This assignment and transfer includes the full and exclusive rights comprised
in the copyright of the work and all revisions thereof, including but not
limited to, the right, by itself or with others throughout the world, to
publish, republish and distribute the work and to prepare, publish and
distribute derivative works based thereon, in all languages and in all formats
and media of expression now known or later developed and to license or permit
others to do so. The Seller recognizes and agrees that the SPMS is considered
to be a valuable asset and trade secret of the Seller and contains proprietary
and confidential information of the Seller, for which the purchase thereof, and
sole and exclusive rights of use pertaining thereto, has been bargained for and
agreed to be paid by the Purchaser as part of the Purchase Price. The Seller
warrants that the SPMS has been developed, implemented and installed in a
proper and workmanlike manner and that, on the Closing Date, the Source Code
and Documentation, together with normal maintenance, updating and modifications
in the ordinary course of business consistent with past practice, will permit
the Purchaser to run the SPMS Programs
<PAGE> 47
42
described in Section 5.09 of the Disclosure Schedule; provided that the Seller
does not warrant that the SPMS is error-free or that its use will be
uninterrupted. To the extent that the Companies and the Subsidiaries do not
have adequate personnel to accomplish the transition, the Seller agrees to,
and to use its reasonable efforts to cause Medco, as necessary, to cooperate
with and assist the Purchaser as reasonably required during a transition
period, not to exceed 90 days following the Closing Date without compensation
(but including reimbursement of the individuals involved for out of pocket
travel and related expenses, if any) and thereafter for an additional period of
90 days at agreed upon rates of compensation for the time and out of pocket
travel and related expenses of the individuals involved, to continue the use of
the SPMS under the management and control of the Purchaser in the Business at
the locations where it is currently in use, including, but not limited to,
updating the Source Code and Documentation, so that such Source Code and
Documentation, together with normal maintenance, updating and modifications in
the ordinary course of business consistent with past practice, will permit the
Purchaser to run the SPMS Programs approval described in Section 5.09 of the
Disclosure Schedule.
(b) From the date of this Agreement until the Closing
Date, (i) the Seller agrees to hold the SPMS in confidence to the same extent
that it protects other confidential and proprietary information and to take all
reasonable precautions consistent with its past practices to safeguard the
confidentiality of the SPMS, (ii) no portion of the SPMS may be disclosed,
furnished, transferred, displayed or otherwise made available by the Seller to
any Person other than the Purchaser or the Companies and the Subsidiaries. The
Seller agrees to take appropriate action by instruction, agreement and
otherwise with its Affiliates and its and their employees to inform them of the
trade secret proprietary and confidential nature of the SPMS and to obtain
their compliance with the provisions of this Section 5.09.
(c) THE PURCHASER ACKNOWLEDGES THAT THE SELLER IS NOT A
MERCHANT WITH RESPECT TO THE SPMS. EXCEPT AS PROVIDED IN SECTION 5.09(a), THE
SELLER MAKES AND THE PURCHASER RECEIVES NO WARRANTY, EXPRESS OR IMPLIED,
REGARDING THE SPMS AND THERE ARE EXRESSLY EXCLUDED ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
(d) In no event shall the Seller be liable for any
special, indirect, incidental or consequential damages, or any damages arising
out of or in connection with the use or performance of the SPMS, whether in
an action based on warranty, contract or tort, including negligence or strict
liability.
SECTION 5. 10. Further Action. Subject to the terms
and conditions herein provided, each of the parties hereto covenants and agrees
to use its best efforts to deliver or cause to be delivered such documents and
other papers and to take or cause to be taken such further actions as may be
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated hereby and to carry out the intent of
this Agreement.
<PAGE> 48
43
SECTION 5.11. Maintenance of Assets. From and after
the date hereof and until the Closing, the Seller shall and shall cause the
Companies and the Subsidiaries to use reasonable efforts to maintain all of the
assets of the Companies and the Subsidiaries consisting of tangible property,
and all replacements thereof and improvements thereon, in their existing
condition, normal wear and tear excepted, and use, operate and maintain all of
such assets in a reasonable manner in conformity with past practice. In the
event of material damage to or destruction of any of such assets prior to the
Closing Date, the Seller shall repair or replace such assets as soon as
reasonably practicable after such loss or damage.
SECTION 5.12. Non-Solicitation. The Seller covenants
that, unless this Agreement is terminated in accordance with its terms, from
the date hereof through the Closing Date it will not, and will not permit any
of its representatives to, (i) knowingly solicit, assist, initiate, facilitate
or encourage any inquiries, proposals, offers or bids from any other party
relating to an Acquisition Transaction (as defined below), or (ii) furnish or
cause to be furnished to any Person any non-public information relating to the
Companies, the Subsidiaries or any of the assets or the business of the
Companies or the Subsidiaries, other than in the ordinary course of business
consistent with past practice. The Seller covenants that from and after the
date hereof until this Agreement is terminated in accordance with its terms, it
will not, directly or indirectly, enter into, or permit any of its
representatives or Affiliates to enter into, any agreement with any third party
for the acquisition of any of the Shares or any material portion of the assets
of the Companies or the Subsidiaries (an "Acquisition Transaction"). The
Seller covenants and agrees to inform the Purchaser in writing by facsimile
within twenty-four (24) hours following the receipt by it or any of its
Affiliates or representatives of any proposal, solicitation or bid (including
the terms thereof and the Person making such proposal, solicitation or bid) in
respect of any Acquisition Transaction.
SECTION 5.13. Intercompany Debt.
(a) The Purchaser shall cause the Companies and the
Subsidiaries to pay, immediately after the Closing, to the Seller in
immediately available funds, $2,686,000, representing an estimate of the
Intercompany Amount on the Closing Date.
(b) If the Incremental Intercompany Amount is greater
than zero, the Purchaser shall cause the Companies and the Subsidiaries
to pay such amounts in accordance with such obligations within five Business
Days after delivery of the Closing Balance Sheet by the Seller to the
Purchaser.
(c) If the Incremental Intercompany Amount is less than
zero, the Seller, shall pay to the Companies and the Subsidiaries an amount
equal to the amount by which zero exceeds the Incremental Intercompany Amount
within five Business Days after delivery of the Closing Balance Sheet by the
Seller to the Purchaser.
<PAGE> 49
44
SECTION 5.14. Other Information. The Seller shall
provide to the Purchaser monthly income statements and balance sheets relating
to the Companies and the Subsidiaries as the Seller customarily prepares for
its own use, in the form customarily prepared on a regular basis.
ARITCLE VI
EMPLOYEE MATTERS
SECTION 6.01. Employees.
(a) The Purchaser will treat employees of the Companies
and the Subsidiaries as of the Closing Date ("Transferred Employees") no less
favorably with respect to employee benefits than its own similarly situated
employees (excluding the Transferred Employees), as reasonably determined by
the Purchaser in good faith, and will cause the Companies and the Subsidiaries
to adopt on or promptly after the Closing Date employee benefit plans no less
favorable than the employee benefit plans generally available to such similarly
situated employees.
(b) To the extent that service is relevant for purposes
of eligibility, participation, vesting or benefit accrual under any employee
benefit plan, program or arrangement established or maintained by the
Purchaser, the Companies or the Subsidiaries, the Purchaser shall cause such
Transferred Employees to be credited for service on or prior to the Closing
with any Company, any Subsidiary, the Seller or any of their respective
Affiliates (including Medco or any of its subsidiaries). The Purchaser shall
not apply any preexisting condition provisions to deny or limit coverage for,
or participation by, any Transferred Employee under any health care coverage
benefit plan maintained by the Purchaser or any of its Affiliates to the extent
that such Transferred Employee is covered as of the Closing Date under a health
care coverage benefit plan of any Company or any Subsidiary providing health
care coverage benefits, provided that, if there is a dispute with respect to
the coverage of any such Transferred Employee based on a preexisting condition
provision under the health care coverage benefit plans of any Company or
Subsidiary, the health care coverage benefits plans of the Purchaser and its
Affiliates shall not be required to provide coverage with respect to such
preexisting condition unless and until it has been determined under the terms
of the health care coverage benefits plans of such Company or Subsidiary that
such employee's disputed pre-existing condition was covered under such health
care coverage benefits plans of the Companies and the Subsidiaries.
(c) Seller agrees to reimburse Purchaser upon request for
the cost of salary and other employee benefits (excluding travel and
entertainment expenses) incurred by Purchaser with respect to Peter Scianna,
Louis Scianna and Elliott Tertes under (and for the initial term of) their
respective employment agreements as in effect on the Closing Date.
<PAGE> 50
45
SECTION 6.02. Certain Dunnington Agreements. The Seller
shall indemnify and hold harmless the Purchaser, the Companies and Subsidiaries
from and against any and all claims, liabilities, losses and expenses arising
out of or in connection with Section 9.5(c) of the Dunnington Agreement. The
Purchaser shall reasonably cooperate (and shall cause the Companies and
Subsidiaries after the Closing Date to reasonably cooperate) in good faith with
the Seller to take any actions, without material cost to the Purchaser, the
Companies and Subsidiaries, necessary or desirable to extinguish or limit the
Seller's liability under this Section.
SECTION 6.03. Survival. The covenants and agreements
of the parties hereto contained in this Article VI shall survive the Closing
and shall remain in full force and effect until the expiration of all statutes
of limitations with respect to the respective matters set forth herein.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Tax Indemnities.
(a) From and after the Closing Date, the Seller agrees to
indemnify, without any gross-up for Taxes, the Purchaser and each Company
against all Taxes (i) imposed on the Seller or any member of an affiliated
group with which the Seller files a consolidated or combined income tax return
(other than the Companies and the Subsidiaries) with respect to any taxable
period that ends on or before the Closing Date or includes the Closing Date, or
(ii) imposed on any Company or any Subsidiary with respect to any taxable
period or portion thereof that ends on or before the Closing Date; provided,
however, that no indemnity shall be provided under this Agreement for any Taxes
resulting from (x) a reduction in any net operating loss, capital loss or Tax
credit carryover allocable to any Company or any Subsidiary or (y) any
transaction of any Company or any Subsidiary occurring on or after the Closing
Date that is not in the ordinary course of business. Any indemnity payment
made hereunder by the Seller to the Purchaser shall, in accordance with Section
7.08(a), be treated as an adjustment to the Purchase Price for tax purposes.
(b) From and after the Closing Date, the Purchaser and
the respective Companies shall indemnify, without any gross-up for Taxes, the
Seller and its affiliates against all Taxes imposed on or with respect to such
Companies and their respective Subsidiaries that are not subject to
indemnification pursuant to paragraph (a) of this Section 7.01, including, but
not limited to, Taxes resulting from any transaction of any such Company and
its Subsidiaries occurring on or after the Closing Date that is not in the
ordinary course of business. Any indemnity payment made hereunder by the
Purchaser to the Seller shall, in accordance with Section 7.08(a), be treated as
an adjustment to the Purchase Price for tax purposes.
<PAGE> 51
46
(c) Payment by the indemnitor of any amount due under
this Section 7.01 shall be made within ten days following written notice by the
indemnitee that payment of such amounts to the appropriate Tax authority is
due, provided that the indemnitor shall not be required to make any payment
earlier than two days before it is due to the appropriate Tax authority. In
the case of a Tax that is contested in accordance with the provisions of
Section 7.03, payment of the Tax to the appropriate Tax authority will not be
considered to be due earlier than the date a final determination to such effect
is made by the appropriate Taxing authority or a court.
(d) For purposes of this Agreement, in the case of any
Tax that is imposed on a periodic basis and is payable for a period that begins
before the Closing Date and ends after the Closing Date, the portion of such
Taxes payable for the period ending on the Closing Date shall be (i) in the
case of any Tax other than a Tax based upon or measured by income, the amount
of such Tax for the entire period multiplied by a fraction, the numerator of
which is the number of days in the period ending on the Closing Date and the
denominator of which is the number of days in the entire period and (ii) in
the case of any Tax based upon or measured by income, the amount which would be
payable if the taxable year ended on the Closing Date. Any credit shall be
prorated based upon the fraction employed in clause (i) of the next preceding
sentence. In the case of any Tax based upon or measured by capital (including
net worth or long-term debt) or intangibles, any amount thereof required to be
allocated under this Section 7.01(d) shall be computed by reference to the
level of such items on the Closing Date.
(e) The respective indemnification obligations of the
Purchaser and the Seller pursuant to this Section 7.01 shall not be effective
until the aggregate dollar amount of all Taxes which would otherwise be
indemnifiable pursuant to this Section 7.01 by such party exceeds $50,000
(the "Threshold Amount"), and then only to the extent such aggregate amount
exceeds the Threshold Amount.
(f) Notwithstanding anything in this Section 7.01 to the
contrary, if any Company or any Subsidiary is included in a consolidated,
combined or unitary return or report, then (i) neither Purchaser nor Seller nor
any of their affiliates shall be responsible to the other in respect of any Tax
imposed on or measured by the income, property or business activities of any
entity other than any Company or any Subsidiary ("Other Entity"), and (ii)
there shall be no Threshold Amount applicable in respect of any such Other
Entity for purposes of Section 7.01(e).
SECTION 7.02. Refunds and Tax Benefits.
(a) The Purchaser shall promptly pay to the Seller any
refund or credit (including any interest paid or credited with respect thereto)
received by the Purchaser, any Company or any Subsidiary of Taxes (i) relating
to taxable periods or portions thereof ending on or before the Closing Date or
(ii) attributable to an amount paid by the Seller under Section 7.01 hereof.
The Purchaser shall, if the Seller so requests and at the Seller's
<PAGE> 52
47
expense, cause the relevant entity to file for and obtain any refund to which
the Seller is entitled under this Section 7.02. The Purchaser shall permit the
Seller to control (at the Seller's expense) the prosecution of any such refund
claim, and shall cause the relevant entity to authorize by appropriate power of
attorney such persons as the Seller shall designate to represent such entity
with respect to such refund claim.
(b) If the Purchaser and each Company shall not make an
election under Section 172(b)(3) of the Internal Revenue Code to relinquish the
entire carryback period with respect to any net operating loss, capital loss
or tax credit attributable to such Company or any of its Subsidiaries in any
taxable period beginning after the Closing Date that could be carried back to a
taxable year of such Company or any such Subsidiary ending on or before the
Closing Date, then the Purchaser or each Company or Subsidiary may carry back
such net operating loss, capital loss or tax credit, as the case may be, to
such prior taxable year, provided, however, that neither the Seller nor any
affiliate thereof shall be required to pay to the Purchaser, any Company, any
Subsidiary or any of their affiliates any refund or credit of Taxes that
results from such carryback or to otherwise indemnify the Purchaser, any
Company, any Subsidiary or any of their affiliates for such refund or credit of
Taxes.
SECTION 7.03. Contests.
(a) After the Closing Date, the Purchaser shall promptly
notify the Seller in writing of the commencement of any Tax audit or
administrative or judicial proceeding or of any demand or claim on the
Purchaser or any Company or Subsidiary which, if determined adversely to the
taxpayer or after the lapse of time would be grounds for indemnification under
Section 7.01. Such notice shall contain factual information (to the extent
known to the Purchaser or any Company or Subsidiary) describing the asserted
Tax liability in reasonable detail and shall include copies of any notice or
other document received from any taxing authority in respect of any such
asserted Tax liability. If the Purchaser fails to give the Seller prompt
notice of an asserted Tax liability as required by this Section 7.03, then, if
the Seller is precluded by the failure to give prompt notice from contesting
the asserted Tax liability in both the administrative and judicial forums, then
the Seller shall not have any obligation to indemnify for any loss arising out
of such asserted Tax liability.
(b) The Seller may elect to direct, through counsel of
its own choosing and at its own expense, any audit, claim for refund and
administrative or judicial proceeding involving any asserted liability with
respect to which indemnity may be sought under Section 7.01 (any such audit,
claim for refund or proceeding relating to an asserted Tax liability is
referred to herein as a "Contest"). If the Seller elects to direct a Contest,
it shall within 30 calendar days of receipt of the notice of asserted Tax
liability notify the Purchaser of its intent to do so, and the Purchaser shall
cooperate and shall cause each Company and/or Subsidiary or its respective
successor or successors to cooperate, at the Seller's expense, in each phase of
such Contest. If the Seller elects not to direct the Contest, fails to notify
the Purchaser of its election as herein provided or contests its obligation to
indemnify under
<PAGE> 53
48
Section 7.01, the Purchaser or any Company and/or Subsidiary may pay,
compromise or contest, at its own expense, such asserted Tax liability. In any
event, the Seller may participate, at its own expense, in the Contest. If
the Seller chooses to direct the Contest, the Purchaser shall promptly empower
and shall cause the Companies or their respective successors promptly to
empower (by power of attorney and such other documentation as may be necessary
and appropriate) such representatives of the Seller as it may designate to
represent the Purchaser or the Companies and/or the Subsidiaries or their
respective successors in the Contest insofar as the Contest involves an
asserted Tax liability for which the Seller would be liable under Section 7.01.
SECTION 7.04. Preparation of Tax Returns. The
Seller shall prepare and file any tax returns and schedules relating to the
Company and the Subsidiaries for the period ending on or before the Closing
Date. Such returns and schedules shall be prepared on a basis consistent with
those prepared for prior tax years unless a different treatment of any item is
required by an intervening change in law. The Purchaser shall prepare or cause
each Company to prepare any tax return relating to such Company or any of its
Subsidiaries for any period ending after the Closing Date.
SECTION 7.05. Section 3.38(h)(10) Election.
(a) The parties agree that in connection with the sale of
the Shares contemplated hereby, the parties shall cause an express election
pursuant to Section 338(h)(10) of the Internal Revenue Code (a "Section 338
Election") to be made in respect of the Companies and the Subsidiaries, and
shall comply with the rules and regulations applicable to such Section 338
Election.
(b) For purposes of executing a Section 338 Election, on
or prior to the Closing Date, the Purchaser and the Seller (and/or other
entities as necessary) jointly shall execute four copies (three for the
Purchaser and one for the Seller) of Internal Revenue Service Form 8023 (or any
successor form) and all attachments required to be filed therewith pursuant to
applicable Treasury regulations. The forms relating to the Section 338
Election for federal, state and local Tax purposes hereinafter shall be
referred to as the "Forms". The Purchaser and the Seller agree that the Forms
shall be filed with the appropriate tax authorities not earlier than 60 days
before the latest date for the filing thereof. At least 120 days prior to the
latest date for the filing of each Form, the Purchaser shall prepare and submit
to the Seller any necessary corrections, amendments or supplements to such Form
and the attachments thereto, as executed by the Purchaser and the Seller
(and/or other entities as necessary) on or before the Closing Date. The
Purchaser shall not file any Form or the attachments thereto as corrected,
amended or supplemented unless it shall have obtained the Seller's consent
thereto, which consent shall not be unreasonably withheld. On or prior to the
30th day after the Seller's receipt of such corrections, amendments or
supplements from the Purchaser, the Seller shall deliver to the Purchaser
either (A) its consent to such filing or (B) a written notice specifying in
reasonable detail all disputed items and the basis therefor. If, within 30
days after the Purchaser's receipt of the written notice described in clause
(B)
<PAGE> 54
49
above, the Purchaser and the Seller have been unable to resolve their
differences, any remaining disputed issues shall be submitted to a nationally
recognized independent public accounting firm in the United States (other than
a firm which then serves, has been selected to serve in the future or has
served within the past three years as the independent auditor for the Purchaser
or any of its affiliates) selected by the Purchaser, and reasonably acceptable
to the Seller, to resolve in a final binding manner after hearing the views of
both parties. In that event, the Purchaser and the Seller shall execute and
consent to the filing of the corrected, amended or supplemented Form in the
manner determined by such accounting firm. In no event, however, shall the
Forms be filed later than 15 days before they are due. The fees and expenses
of the accounting firm shall be shared equally.
(c) For purposes of making a Section 338 Election, the
Purchaser and the Seller shall agree upon an allocation of the Purchaser's
"adjusted grossed-up basis" in the Shares (within the meaning of the
Treasury Regulations under section 338 of the Internal Revenue Code) to the
tangible and intangible assets of the Companies and the Subsidiaries as of the
Closing Date (the "Allocation"). The Allocation shall be binding upon the
Purchaser and the Seller for purposes of allocating the "deemed selling price"
(within the meaning of the Treasury Regulations) among the assets of the
Companies and the Subsidiaries. Neither party shall file any tax return, or
take a position with a Tax authority, that is inconsistent with the Allocation.
If the Purchaser and Seller shall not be able to agree to the Allocation, they
shall submit any dispute to Deloitte & Touche or such other independent
accounting firm as may be mutually acceptable to the Seller and the Purchaser
to resolve all disputed matters related to the Allocation, and such resolution
shall be binding on both parties.
SECTION 7.06. Cooperation and Exchange of Informa-
tion. The Seller and the Purchaser will provide each other with such
cooperation and information as either of them reasonably may request of the
other in filing any tax return, amended return or claim for refund, determining
a liability for Taxes or a right to a refund of Taxes or participating in or
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of relevant tax returns or
portions thereof, together with accompanying schedules and related work papers
and documents relating to rulings or other determinations by taxing
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanations of any documents or information
provided hereunder. Each party will retain all returns, schedules and work
papers and all material records or other documents relating to Tax matters of
the Companies for the taxable period first ending after the Closing Date and
for all prior taxable periods until the later of (i) the expiration of the
statute of limitations of the taxable periods to which such returns and other
documents relate, without regard to extensions except to the extent notified by
the other party in writing of such extensions for the respective Tax periods,
or (ii) eight years following the due date (without extension) for such
returns. Any information obtained under this Section 7.06 shall be kept
confidential, except as may be otherwise necessary in connection with the
filing of returns or claims for refund or in conducting an audit or other
proceeding.
<PAGE> 55
50
SECTION 7.07. Conveyance Taxes. The Purchaser
agrees to assume liability for and to pay all sales, transfer, stamp, stock
transfer, real property transfer or gains and similar Taxes incurred as a
result of the sale of the Shares contemplated hereby.
SECTION 7.08. Miscellaneous.
(a) The parties agree to treat all payments made under
this Article VII, under any other indemnity provision contained in this
Agreement, and for any misrepresentations or breach of warranties or covenants
as adjustments to the Purchase Price for Tax purposes.
(b) Except as expressly provided otherwise and except for
the representations contained in Section 3.16 of this Agreement, this Article
VII shall be the sole provision governing Tax matters and indemnities therefor
under this Agreement.
(c) For purposes of this Article VII, all references to
the Purchaser, the Seller, the Companies and the Subsidiaries include
successors.
(d) The covenants and agreements of the parties hereto
contained in this Article VII shall survive the Closing and shall remain in
full force and effect until the expiration of all statutes of limitations
with respect to any Taxes that would be indemnifiable by the Seller under
Section 7.01(a) of this Agreement or by the Purchaser under Section 7.01(b) of
this Agreement.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller.
The obligations of the Seller to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment or waiver, at or prior to
the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all material respects as of the
Closing, with the same force and effect as if made as of the Closing
(or, in the case of representations and warranties of the Purchaser
which address matters only as of a particular date, as of such date)
except where the failure to be so true and correct would not have a
material adverse effect on the ability of the Purchaser to consummate
the transactions contemplated by this Agreement; (ii) the covenants
and agreements contained in this Agreement to be complied with by the
Purchaser at or prior to the Closing shall have been complied with in
all material respects except where the failure to so comply would not
have a material adverse effect on the ability of the Purchaser to
consummate the transactions
<PAGE> 56
51
contemplated by this Agreement; and (iii) the Seller shall have
received a certificate of the Purchaser as to the matters set forth in
clauses (i) and (ii) above signed by a duly authorized officer of the
Purchaser;
(b) HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable to the purchase of the Shares
contemplated hereby shall have expired or shall have been terminated;
(c) No Order. No Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation or other Governmental Order which is in effect and has the
effect of making the transactions contemplated by this Agreement
illegal or otherwise prohibiting consummation of such transactions
and no Governmental Authority has threatened in writing to bring an
Action seeking any such Governmental Order, which threat has not been
rescinded; provided, however, that the provisions of this Section
8.01(c) shall not apply if the Seller has directly or indirectly
solicited or encouraged any such action;
(d) Stockholder Votes. The sale of the Business by the
Seller and the Purchase and Sale Agreement and the transactions
contemplated thereby shall have been approved by the votes of the
stockholders of the Seller required pursuant to the DGCL; and
(e) Opinion of the Purchaser's Counsel. The Seller shall
have received an opinion or opinions of Weil, Gotshal & Manges,
counsel for the Purchaser, and the respective General Counsels of the
Purchaser and the Parent, dated the Closing Date, in the forms
previously agreed to by the Seller and the Purchaser.
SECTION 8.02. Conditions to Obligations of the Purchaser.
The obligations of the Purchaser to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment or waiver, at or prior to
the Closing, of each of the following conditions:
(a) Representations and Warranties: Covenants. (i) The
representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects as of the
Closing, with the same force and effect as if made as of the Closing
(or, in the case of representations and warranties of the Seller which
address matters only as of a particular date, as of such date)
except where the failure to be so true and correct would not have a
Material Adverse Effect; (ii) the covenants and agreements contained
in this Agreement to be complied with by Seller at or prior to the
Closing shall have been complied with in all material respects, except
where the failure to so comply would not have a Material Adverse
Effect; and (iii) the Purchaser shall have received a certificate of
the Seller as to the matters set forth in clauses (i) and (ii) above
signed by a duly authorized officer of the Seller;
<PAGE> 57
52
(b) HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable to the purchase of the Shares
contemplated hereby shall have expired or shall have been terminated;
(c) No Order. No Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other Governmental Order which is in effect
and has the effect of making the transactions contemplated by this
Agreement illegal or otherwise prohibiting consummation of such
transactions and no Governmental Authority has threatened in writing
to bring an Action seeking any such Governmental Order, which threat
has not been rescinded; provided, however, that the provisions of this
Section 8.02(c) shall not apply if the Purchaser has directly or
indirectly solicited or encouraged any such action;
(d) Stockholder Votes. The sale of the Business by the
Seller and the Purchase and Sale Agreement and the transactions
contemplated thereby shall have been approved by the votes of the
stockholders of the Seller required pursuant to the DGCL; and
(e) Opinion of Seller's Counsel. The Purchaser shall
have received an opinion or opinions of Shearman & Sterling, counsel
for the Seller, dated the Closing Date, in the form previously agreed
to by the Seller and the Purchaser.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival. Subject to the limitations and
other provisions of this Agreement, the representations, warranties, covenants
and agreements of the parties hereto contained herein shall survive the
Closing and shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Seller or the Purchaser, for a period
of 18 months after the Closing Date; provided, however, that the
representations, warranties, covenants and agreements set forth in Sections
2.04, 2.05, 2.06, 2.08, 3.16, 3.25, 5.02(b), 5.03, 5.05, 5.06, 5.08, 5.09 and
5.10, and Articles VI, VII, and IX shall remain in full force and effect for
the applicable periods specified in the respective Sections or Articles or, if
no such period is specified, indefinitely; and provided further that the
representations and warranties and covenants set forth in Sections 3.07, 3.15
and 5.02(c) shall remain in full force and effect until the termination of all
liabilities arising from the subject matter thereof pursuant to all applicable
statutes of limitations and the provisions of Article XI shall survive until
the last to survive of the other provisions of this Agreement.
SECTION 9.02. Indemnification by the Purchaser.
(a) The Purchaser agrees, subject to the other terms and
conditions of this Agreement and without gross-up for Taxes, to indemnify the
Seller against and hold the Seller harmless from all Losses to the Seller
arising out of (i) the breach of or any inaccuracy in any representation,
warranty, covenant or agreement of the Purchaser herein (other than Article
VII, it being understood that the sole remedy for breach thereof shall be
pursuant to Article VII). Anything in Section 9.01 to the contrary
notwithstanding no claim
<PAGE> 58
53
may be asserted nor may any action be commenced against the Purchaser for
breach of any representation, warranty, covenant or a reement contained herein,
unless written notice of such claim or action is received by the Purchaser
describing in detail the facts and circumstances with respect to the subject
matter of such claim or action on or prior to the date on which the
representation, warranty, covenant or agreement on which such claim or action
is based ceases to survive as set forth in Section 9.01, irrespective of
whether the subject matter of such claim or action shall have occurred before
or after such date.
(b) The indemnification obligations of the Purchaser pursuant to
Section 9.02(a) shall not be effective until the aggregate dollar amount of all
Losses which would otherwise be indemnifiable pursuant to Section 9.02(a)
exceeds $500,000 (the "Purchaser's Threshold Amount"), and then only to the
extent such aggregate amount exceeds the Purchaser's Threshold Amount. In
addition, no claim may be made against the Purchaser for indemnification
pursuant to Section 9.02(a) with respect to any individual item of Loss, unless
such item exceeds $15,000 or any related group of items, unless such related
group of items exceeds $50,000, nor shall any such item or related group of
items be applied to or considered part of the Purchaser's Threshold Amount.
The indemnification obligations of the Purchaser pursuant to this Section 9.02
shall be effective only until the dollar amount paid in respect of the Losses
indemnified against under this Section 9.02 aggregates to an amount equal to
$110,000,000. For the purposes of this Section 9.02(b), in computing such
individual or aggregate amounts of claims, the amount of each claim shall be
deemed to be an amount (i) net of any Tax benefit to the Seller or any
Affiliate thereof, (ii) net of any insurance proceeds and any indemnity,
contribution or other similar payment recoverable by the Seller or any
Affiliate from any third party with respect thereto and (iii) net of any
adjustments to the Purchase Price pursuant to Section 2.06 with respect to the
subject matter in dispute.
(c) Payments by the Purchaser pursuant to Section 9.02(a) shall be
limited to the amount of any Losses that remains after deducting therefrom (i)
any Tax benefit to the Seller or any Affiliate thereof, (ii) any insurance
proceeds and any indemnity, contribution or other similar payment recoverable
by the Seller from any third party with respect thereto and (iii) any
adjustments to the Purchase Price pursuant to Section 2.06 with respect to the
subject matter in dispute. If a payment is made by the Purchaser in accordance
with this Section 9.02, and if in a subsequent taxable year a Tax benefit is
realized by the Seller or any Affiliate of the Seller with which the Seller
files a consolidated, combined or unitary tax return (that was not previously
taken into account to reduce an amount otherwise payable by the Purchaser under
Section 9.02), the Seller shall pay to the Purchaser at the time of such
realization the amount of such Tax benefit to the extent that the Tax benefit
would have resulted in a reduction in the amount paid by the Purchaser under
Section 9.02 if the Tax benefit had been obtained in the year of such payment.
A Tax benefit will be considered to be realized for purposes of this Section
9.02 at the time that it is reflected on a tax return of the Seller or any
Affiliate of the Seller with which the Seller files a consolidated, combined or
unitary tax return.
<PAGE> 59
54
(d) The Seller agrees to give the Purchaser written notice of any
claim, assertion, event or proceeding by or in respect of a third party as to
which it may request indemnification hereunder or as to which the Purchaser's
Threshold Amount may be applied as soon as is practicable and in any event
within 30 days of the time that the Seller learns of such claim, assertion,
event or proceeding; provided, however, that the failure to so notify the
Purchaser shall not affect rights to indemnification hereunder except to the
extent that the Purchaser is actually prejudiced by such failure. The
Purchaser shall have the right to direct, through counsel of its own choosing,
the defense or settlement of any such claim or proceeding at its own expense.
If the Purchaser elects to assume the defense of any such claim or proceeding,
the Seller may participate in such defense, but in such case the expenses of
the Seller shall be paid by the Seller, provided that such defense or
settlement may be at the Purchaser's expense if: (i) the Purchaser shall have
agreed to the retention of separate counsel; (ii) the defendants or target of
such claim, assertion, event or proceeding involve more than one indemnified
party or both the Purchaser and the Seller have concluded that such
representation by the same counsel would be inappropriate due to actual or
potentially differing interests between them in the conduct in respect of such
claim, assertion, event or proceeding as if there were legal defenses available
to the Seller that are different from or additional to those available to the
Purchaser, or (iii) the Purchaser shall have failed to employ legal counsel
reasonably acceptable to the Seller within a reasonable amount of time. The
Seller shall provide the Purchaser with access to its records and personnel
relating to any such claim, assertion, event or proceeding during normal
business hours and shall otherwise cooperate with the Purchaser in the defense
or settlement thereof, and the Purchaser shall reimburse the Seller for all its
reasonable out-of-pocket expenses in connection therewith. Except as provided
above, if the Purchaser elects to direct the defense of any such claim or
proceeding, the Seller shall not pay, or permit to be paid, any part of any
claim or demand arising from such asserted liability, unless the Purchaser
consents in writing to such payment or unless the Purchaser, subject to the
last sentence of this Section 9.02(d), withdraws from the defense of such
asserted liability, or unless a final judgment from which no appeal may be taken
by or on behalf of the Purchaser is entered against the Seller for such
liability. If the Purchaser shall fail to defend, or if, after commencing or
undertaking any such defense, the Purchaser fails to prosecute or withdraws
from such defense, the Seller shall have the right to undertake the defense or
settlement thereof, at the Purchaser's expense. If the Seller assumes the
defense of any such claim or proceeding pursuant to this Section 9.02(d) and
proposes to settle such claim or proceeding prior to a final judgment thereon
or to forego. appeal with respect thereto, then the Seller shall give the
Purchaser prompt written notice thereof and the Purchaser shall have the right
to participate in the settlement or assume or reassume the defense of such
claim or proceeding.
(e) The Seller hereby acknowledges and agrees that, from and after
the Closing, its sole and exclusive remedy with respect to any and all claims
relating to the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in this Article IX and in Article VII. In
furtherance of the foregoing, the Seller hereby waives, to the fullest extent
permitted under applicable law, any and all other rights, claims and causes of
action it may have, from and after the Closing, against the Purchaser or its
<PAGE> 60
55
officers, directors, employees, agents, representatives and Affiliates relating
to the subject matter of this Agreement.
(f) Except as set forth in this Agreement, the Purchaser is not
making any representation, warranty, covenant or agreement with respect to the
matters contained herein. Notwithstanding anything to the contrary contained
in this Agreement, no breach of any representation, warranty, covenant or
agreement contained herein shall give rise to any right on the part of the
Seller, after the consummation of the purchase and sale of the Shares
contemplated by this Agreement, to rescind this Agreement or any of the
transactions contemplated hereby.
(g) Notwithstanding anything to the contrary contained in this
Agreement, the Purchaser shall have no liability under any provision of this
Agreement for and in no event shall the Purchaser's Threshold Amount be applied
to any consequential damages. The Seller shall take all reasonable steps to
mitigate its Losses upon and after becoming aware of any event which could
reasonably be expected to give rise to any Losses.
(h) For purposes of this Section 9.02, in determining whether
there has been a breach of any representation or warranty contained in Article
IV, such representations and warranties shall not be qualified by the terms
"Material Adverse Effect" or "Material Adverse Change" or by any phrase using
such terms.
SECTION 9.03. Indemnification by the Seller.
(a) The Seller agrees, subject to the other terms and conditions
of this Agreement and without gross-up for Taxes, to indemnify the Purchaser
against and hold it harmless from all Losses to the Purchaser arising out of
(i) any Action set forth on Section 3.09 of the Disclosure Schedule and any
other Action arising on or after the date of this Agreement and before the
Closing which would, if it had arisen prior to the date of this Agreement, have
been required to be disclosed on the Disclosure Schedule pursuant to Section
3.09 (but this clause (i) shall not include any Action between the Purchaser
and the Parent, on the one hand, and the Seller on the other hand, or any
Action with respect to the validity of this Agreement), (ii) a breach of
Sections 6.01(c) or 6.02, (iii) the breach of or any inaccuracy in any
representation, warranty, covenant or agreement of the Seller herein (other
that Section 2.04, Section 3.16 and Article VII, it being understood that the
sole remedy for breach of such provisions shall be pursuant to Section 2.04 and
Article VII, respectively), and (iv) Liabilities to the extent arising from any
failure to maintain insurance by the Companies or the Subsidiaries or their
respective predecessors, for the period from January 1, 1989 through the date
of acquisition by the Seller, comparable in terms of the type of coverage to
that maintained by the Companies and the Subsidiaries on the date hereof.
Anything in Section 9.01 to the contrary notwithstanding, no claim may be
asserted nor any action commenced against the Seller for breach of any
representation, warranty, covenant or agreement contained herein, unless
written notice of such claim or action is received by the Seller describing in
detail the facts and circumstances with respect to the
<PAGE> 61
56
subject matter of such claim or action on or prior to the date on which the
representation, warranty, covenant or agreement on which such claim or action
is based ceases to survive as set forth in Section 9.01, irrespective of
whether the subject matter of such claim or action shall have occurred before
or after such date.
(b) The indemnification obligations of the Seller pursuant to
Section 9.03(a)(iii) shall not be effective until the aggregate dollar amount
of all Losses which would otherwise be indemnifiable pursuant to Section
9.03(a)(iii) exceeds $500,000 (the "Seller's Threshold Amount"), and then only
to the extent such aggregate amount exceeds the Seller's Threshold Amount. In
addition, no claim may be made against the Seller for indemnification pursuant
to Section 9.03(a)(iii) with respect to any individual item of Loss, unless
such item exceeds $15,000 or any related group of items, unless such related
group of items exceeds $50,000, nor shall any such item or related group of
items be applied to or considered part of the Seller's Threshold Amount. The
indemnification obligations of the Seller pursuant to this Section 9.03 shall
be effective only until the dollar amount paid in respect of the Losses
indemnified against under this Section 9.03 aggregates to an amount equal to
$110,000,000. For the purposes of this Section 9.03(b), in computing such
individual or aggregate amounts of claims, the amount of each claim shall be
deemed to be an amount (i) net of any Tax benefit, (ii) net of any insurance
proceeds and any indemnity, contribution or other similar payment recoverable
by the Purchaser or any Affiliate from any third party with respect thereto and
(iii) net of any adjustments to the Purchase Price pursuant to Section 2.06
with respect to the subject matter in dispute.
(c) Payments by the Seller pursuant to Section 9.03(a) shall be
limited to the amount of any Losses that remains after deducting therefrom (i)
any Tax benefit, (ii) any insurance proceeds and any indemnity, contribution or
other similar payment recoverable by the Purchaser or any Affiliate from any
third party with respect thereto and (iii) any adjustments to the Purchase
Price pursuant to Section 2.06 with respect to the subject matter in dispute.
If a payment is made by the Seller in accordance with this Section 9.03, and if
in a subsequent taxable year a Tax benefit is realized by the Purchaser, any
Company, or Subsidiary or any Affiliate of the Purchaser, any Company or any
Subsidiary with which any Company or any Subsidiary files a consolidated,
combined or unitary tax return (that was not previously taken into account to
reduce an amount otherwise payable by the Seller under Section 9.03), the
Purchaser, any such Company, any such Subsidiary or any Affiliate of the
Purchaser, any Company or any Subsidiary with which any Company or any
Subsidiary files a consolidated, combined, or unitary tax return shall pay to
the Seller at the time of such realization the amount of such Tax benefit to
the extent that the Tax benefit would have resulted in a reduction in the
amount paid by the Seller under this Section 9.03 if the Tax benefit had been
obtained in the year of such payment. A Tax benefit will be considered to be
realized for purposes of this Section 9.03 at the time that it is reflected on
a tax return of the Purchaser, any Company, any Subsidiary or any Affiliate of
the Purchaser, any Company or any Subsidiary with which the Purchaser, any
Company or any Subsidiary files a consolidated, combined or unitary tax return.
<PAGE> 62
57
(d) The Purchaser agrees to give the Seller written notice of any
claim, assertion, event or proceeding by or in respect of a third party as to
which it may request indemnification hereunder or as to which the Seller's
Threshold Amount may be applied as soon as is practicable and in any event
within 30 days of the time that the Purchaser learns of such claim, assertion,
event or proceeding; provided, however, that the failure to so notify the
Seller shall not affect rights to indemnification hereunder except to the
extent that the Seller is actually prejudiced by such failure. The Seller
shall have the right to direct, through counsel of its own choosing, the
defense or settlement of any such claim or proceeding at its own expense. If
the Seller elects to assume the defense of any such claim or proceeding, the
Purchaser may participate in such defense, but in such case the expenses of the
Purchaser shall be paid by the Purchaser, provided that such defense or
settlement may be at the Seller's expense if: (i) the Seller shall have agreed
to the retention of separate counsel; (ii) the Defendants or target of such
claim, assertion, event or proceeding involve more than one indemnified party
or both the Seller and the Purchaser have concluded that such representation by
the same counsel would be inappropriate due to actual or potentially differing
interests between them in the conduct in respect of such claim, assertion,
event or proceeding as if there were legal defenses available to the purchaser
that are different from or additional to those available to the seller, or
(iii) the seller shall have failed to employ legal counsel reasonably
acceptable to the purchaser within a reasonable amount of time. The purchaser
shall provide the seller with access to its records and personnel relating to
any such claim, assertion, event or proceeding during normal business hours and
shall otherwise cooperate with the seller in the defense or settlement thereof,
and the seller shall reimburse the Purchaser for all its reasonable
out-of-pocket expenses in connection therewith. If the seller elects to direct
the defense of any such claim or proceeding, the Purchaser shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability unless the Seller consents in writing to such payment or unless the
Seller, subject to the last sentence of this section 9.03(d), withdraws from
the defense of such asserted liability or unless a final judgment from which no
appeal may be taken by or on behalf of the seller is entered against the
purchaser for such liability. If the seller shall fail to defend, or if after
commencing or undertaking any such defense, fail to prosecute or withdraws from
such defense, the Purchaser shall have the right to undertake the defense or
settlement thereof, at the Seller's expense. If the Purchaser assumes the
defense of any such claim or proceeding pursuant to this Section 9.03(d) and
proposes to settle such claim or proceeding prior to a final judgment thereon
or to forego any appeal with respect thereto, then the Purchaser shall give the
Seller prompt written notice thereof and the Seller shall have the right to
participate in the settlement or assume or reassume the defense of such claim
or proceeding.
(e) The Purchaser hereby acknowledges and agrees that, from and
after the Closing, except as provided in Section 2.06, its sole and exclusive
remedy with respect to any and all claims relating to the subject matter of
this Agreement shall be pursuant to the indemnification provisions set forth in
this Article IX, in Section 2.04, and in Article VII. In furtherance of the
foregoing, the Purchaser hereby waives, from and after the Closing, to the
fullest extent permitted under applicable law, any and all other rights, claims
and causes of action it (or, after the Closing, any Company or Subsidiary) may
have against the Seller or
<PAGE> 63
58
its officers, directors, employees, agents, representatives and Affiliates
relating to the subject matter of this Agreement.
(f) Except as set forth in this Agreement, the Seller is not
making any representation, warranty, covenant or agreement with respect to the
matters contained herein. Anything herein to the contrary notwithstanding, no
breach of any representation, warranty, covenant or agreement contained herein
shall give rise to any right on the part of the Purchaser, after the
consummation of the purchase and sale of the Shares contemplated hereby, to
rescind this Agreement or any of the transactions contemplated hereby.
(g) Notwithstanding anything to the contrary contained in this
Agreement, except for and subject to the express provisions of Section 2.04,
the Seller shall have no liability under any provision of this Agreement for
and in no event shall the Seller's Threshold Amount be applied to: (i) any
Losses to the extent that such Losses result from or arise out of actions taken
by the Purchaser, any Company, any Subsidiary, or their respective Affiliates
after the Closing Date and (ii) any consequential damages. The Purchaser shall
take and shall cause the Companies and the Subsidiaries to take all reasonable
steps to mitigate their Losses upon and after becoming aware of any event which
could reasonably be expected to give rise to any Losses.
(h) For purposes of this Section 9.03, in determining whether
there has been a breach of any representation or warranty contained in Article
III, such representations and warranties shall not be qualified by the terms
"Material Adverse Effect" or "Material Adverse Change" or by any phrase using
such terms, except any representations and warranties so qualified in Sections
3.08(g) and 3.14(c).
(i) Notwithstanding anything to the contrary in this Article IX,
the Seller shall control (and the Purchaser shall reasonably cooperate at the
Seller's expense in connection therewith) the disposition of the Actions
identified in Section 9.03(a)(i); provided, however, that without the prior
consent of the Purchaser (such consent not to be unreasonably withheld) the
Seller shall not enter into any agreement with any Governmental Authority to
settle any such Action if the terms of such settlement require the Purchaser or
any of its Affiliates to agree to take any action relating to their respective
businesses, other than the making of cash payments and related ministerial
acts, or to agree to refrain from taking any such action.
<PAGE> 64
59
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated
at any time prior to the Closing:
(a) by the mutual written consent of the Seller and the
Purchaser;
(b) by either the Seller or the Purchaser, if any
Governmental Authority with jurisdiction over such matters shall have
issued a Governmental Order restraining, enjoining or otherwise
prohibiting the sale of the Shares hereunder and such order, decree,
ruling or other action shall have become final and unappealable, other
than any Governmental Order that would not have been issued, or would
cease to prevent the sale of the Shares, if the Purchaser had complied
with its obligations under Section 5.04(b); provided, however, that the
provisions of this Section 10.01(b) shall not be available to any
party unless such party shall have used its best efforts to oppose any
such Governmental Order or to have such Governmental Order vacated or
made inapplicable to the transactions contemplated by this Agreement;
(c) by either the Seller or the Purchaser, if the Closing
shall not have occurred prior to February 15, 1995; provided, however,
that the right to terminate this Agreement under this Section 10.01(c)
shall not be available to any party whose failure to fufill any
obligation under this Agreement shall have been the cause of, or shall
have resulted in, the failure of the Closing to occur prior to such
date; or
(d) by the Seller, if the Closing shall not have occurred
within 60 days after satisfaction of the last to be satisfied of the
conditions specified in Sections 8.01(b) and 8.01(d); provided,
however, that the right to so terminate shall not be available to the
Seller: (i) if the Seller shall have willfully breached this Agreement
or (ii) at any time when the Seller would be unable to deliver a
certificate as to the matters set forth in Section 8.02(a)(i).
Time shall be of the essence in this Agreement.
SECTION 10.02. Effect of Termination. In the event of
termination of this Agreement as provided in Section 10.01, this Agreement
shall forthwith become void and there shall be no liability on the part of any
party hereto to the other party except (a) as set forth in Section 5.03, (b)
that nothing herein shall relieve either party from liability for any willful
breach hereof and (c) if the Purchaser terminates this Agreement pursuant to
Section 10.01(c) and, prior to such termination the Seller shall have had
contacts or entered into negotiations relating to in Acquisition Transaction
with any other Person (other than any contacts or negotiations which occurred
prior to the date of this Agreement), at any time after execution of this
Agreement and within six months after termination hereof the Seller
<PAGE> 65
60
shall enter into a definitive agreement with such Person or its Affiliate
relating to an Acquisition Transaction, then the Seller, upon execution of the
definitive agreement for such Acquisition Transaction, shall pay to the
Purchaser a termination fee of $2,200,000.
SECTION 10.03. Waiver. At any time prior to the Closing,
either party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. Except as otherwise specifically
provided herein, all costs and expenses, including, without limitation, fees
and disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs and expenses, whether or not the
Closing shall have occurred.
SECTION 11.02. Notices. All notices requests, claims,
demands and other communications hereunder shall be in writing and shall be
given or made (and shall be deemed to have been duly given or made upon
receipt) by delivery in person, by courier service, by cable, by telecopy, by
telegram, by telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 11.02):
(a) if to the Seller:
Synetic, Inc.
100 Summit Avenue
Montvale, NJ 07645
Attention: Victor L. Marrero, Vice President - Treasurer
Telecopier: (201) 358-5773
<PAGE> 66
61
with copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Creighton O'M. Condon, Esq.
Telecopier: (212) 848-7179
(b) if to the Purchaser:
Pharmacy Corporation of America
1871 Lefthand Circle
Longmont, Colorado 80501
Attention: Ron Kane
Telecopier: (303) 651-1702
with copies to:
Beverly Enterprises, Inc.
5111 Rogers Avenue, Suite 40-A
Fort Smith, Arkansas 72919-1000
Attention: Robert W. Pommerville,
General Counsel, Senior
Vice President and Secretary
Telecopier: (501) 452-3760
and
Giroir & Gregory, Professional Association
111 Center Street, Suite 1900
Little Rock, Arkansas 72201
Attention: H. Watt Gregory, Esq.
Tele,copier: (501) 374-2380
and
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Warren T. Buhle, Esq.
Telecopier: (212) 310-8007
SECTION 11.03. Public Announcements. Unless otherwise
required by applicable Law or stock exchange requirements or requirements of
Nasdaq, no party to this
<PAGE> 67
62
Agreement shall make any public announcements in respect of this Agreement or
the transactions contemplated hereby or otherwise communicate with any news
media without prior notification to the other party, and the parties shall
cooperate as to the timing and contents of any such announcement.
SECTION 11.04. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 11.05. Severability. If any term or other
provision of this Agreement is invalid, iilegai or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the greatest extent possible.
SECTION 11.06. Entire Agreement. This Agreement
(including the Disclosure Schedule and the Exhibits hereto) constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written and
oral, other than the Confidentiality Agreement, between the Seller and the
Purchaser with respect to the subject matter hereof and except as otherwise
expressly provided herein.
SECTION 11.07. Assignment. This Agreement shall not be
assigned, by operation of Law or otherwise, to any Person except that the
Purchaser may assign all of its rights and obligations under this Agreement to
an Affiliate of the Purchaser, provided that no such assignment shall release
the Purchaser from its obligations under this Agreement.
SECTION 11.08. No Third-Party Beneficiaries. This Agreement
shall be binding upon, shall inure to the benefit of, and shall be enforceable
by the parties hereto and their successors and permitted assigns. Except as
specifically provided to the contrary in Articles VI, VII and IX, this Agreement
is for the sole benefit of the parties hereto and their successors and
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 11.09. Waivers and Amendments. This Agreement may be
amended or modified, and the terms and conditions hereof may be waived, only by
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege
<PAGE> 68
63
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of any party of any right, power or privilege hereunder, nor any single or
partial exercise of any other right, power or privilege hereunder, preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which any party may otherwise
have at Law or in equity.
SECTION 11.10. Specific Performance. The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement required to be performed prior to the Closing was not performed in
accordance with the terms hereof and that, prior to the Closing, the parties
shall be entitled to specific performance of the term s hereof, in addition to
any other remedy at Law or in equity.
SECTION 11.11. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts executed in and to be performed in that State.
All actions and proceedings arising out of or relating to this Agreement shall
be heard and determined in a New York state or federal court sitting in the
City of New York, and the parties hereto hereby irrevocably submit to the
exclusive jurisdiction of such courts in any such action or proceeding and
irrevocably waive the defense of an inconvenient forum to the maintenance of
any such action or proceeding.
SECTION 11.12. Countearts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 11.13. Parent Guaranty. Concurrently with the
execution of this Agreement by the parties hereto, the Parent shall execute and
deliver to the Seller a guarantee substantially in the form of Exhibit 11. 13
hereto (the "Parent Guaranty"). The Purchaser acknowledges that the Seller is
relying on the Parent Guaranty and the covenants, agreements, representations
and warranties contained therein in entering into this Agreement.
<PAGE> 69
64
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
SYNETIC, INC.
By: /s/ Charles A. Mele
Name: Charles A. Mele
Title: Executive Vice President
PHARMACY CORPORATION OF AMERICA
By: /s/ Robert D. Woltil
Name: Robert D. Woltil
Title: Executive Vice President,
Finance and Chief
Financial Officer
<PAGE> 70
Exhibit 2.05
Allocation of the Purchase Price
Alliance Shares $30,000,000
Dunnington Shares $55,814,000
HPS Shares $21,000,000
<PAGE> 71
Exhibit 11.13
Form of Parent Guaranty
GUARANTY
Reference is made to the Stock Purchase Agreement, dated as of August
9, 1994 (the "Stock Purchase Agreement"), by and between Synetic, Inc., a
Delaware corporation (the "Seller") and Pharmacy Corporation of America, a
California corporation (the "Purchaser") and a wholly owned subsidiary of
Beverly Enterprises, Inc., a Delaware corporation (the "Guarantor"). Terms
used in the Purchase Agreement and not defined herein are used herein as
therein defined.
1. Guaranty
In consideration of the Seller entering into the Purchase
Agreement with the Purchaser, the Guarantor hereby unconditionally guarantees
to the Seller that the Purchaser (for purposes of this Guaranty, Purchaser
shall be deemed to include any permitted assignee or successor of Purchaser
under the Stock Purchase Agreement) will fully and punctually perform all of
its obligations under the Purchase Agreement to be performed prior to or at the
Closing, including but not limited to the full and punctual payment and
discharge when due of all of the Purchaser's monetary obligations to the
Seller under the Purchase Agreement due at or prior to the Closing and any
instruments and documents executed and delivered pursuant thereto at or prior
to the Closing, including without limitation, all monetary obligations which
the Purchaser may incur to the Seller pursuant to the Purchase Agreement due at
or prior to the Closing, and with respect of any breach prior to the Closing of
any representation, warranty, covenant or agreement of the Purchaser set forth
in the Purchase Agreement (collectively, the "Obligations"). This Guaranty is
an absolute, unconditional and continuing guaranty of the full and punctual
payment and performance by the Purchaser of the Obligations and not of their
collectibility only and is in no way conditioned upon any requirement that the
Seller first attempt to collect any of the Obligations from the Purchaser or
resort to any security or other means of obtaining payment of any of the
Obligations which the Seller now has or may acquire after the date hereof, or
upon any other contingency whatsoever.
2. The Inducement.
In order to induce the Seller to enter into the Purchase
Agreement, the Guarantor warrants and represents as follows: (i) the Guarantor
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all necessary power and authority to
enter into this Guaranty, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby; (ii) the Guarantor has
<PAGE> 72
2
taken all necessary corporate action to authorize the execution, delivery and
performance of this Guaranty; (iii) the Guaranty has been duly executed and
delivered by the Guarantor and is a legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms; (iv)
the Purchaser is a wholly owned subsidiary of the Guarantor; (v) the Guarantor
provides financing and financial, accounting, management and other services for
the Purchaser; and (vi) the financial success of the Purchaser will directly
and substantially benefit the Guarantor and the transactions contemplated by
the Purchase Agreement will be to the mutual benefit of the Purchaser and the
Guarantor. The Guarantor acknowledges that the Seller is relying on the
foregoing representations in entering into the Purchase Agreement.
3. Guarantor's Further Agreements to Pay.
The Guarantor further agrees, as the principal obligor and not
as a guarantor only, to pay to the Seller, all costs and expenses (including
court costs and legal expenses) incurred or expended by the Seller in
connection with the enforcement hereof.
4. Liability of Guarantor and Defenses.
The liability of the Guarantor hereunder in connection with
payment or performance of the Obligations shall be limited to that of the
Purchaser under the Purchase Agreement. If for any reason the Purchaser has a
defense to a claim by the Seller that it failed to discharge any of the
Obligations or has any claim against the Seller which would constitute a
counterclaim, then the Guarantor's obligations shall be subject to and have
the benefit of such defenses or counterclaims; provided, however, that anything
contained in this paragraph 4 to the contrary notwithstanding, the liability of
the Guarantor shall not be discharged, impaired or otherwise affected by any
creditors' rights, bankruptcy, receivership or other insolvency proceedings by
or against the Purchaser or any reorganization, dissolution, liquidation or
winding up of the Purchaser, none of which shall constitute a defense or claim
of Purchaser to the benefit of which the Guarantor would be entitled. The
Guarantor further agrees that this Guaranty shall continue to be effective or
be reinstated, if at any time, payment of any Obligations, or any part thereof,
is rescinded or must otherwise be restored by Seller upon the bankruptcy or
reorganization of Purchaser or otherwise.
5. The Seller's Freedom to Deal with the Purchaser and Other
Parties.
The Seller shall be at liberty, without giving notice to or
obtaining the assent of the Guarantor and without relieving the Guarantor of
any liability hereunder, to deal with the Purchaser, and with each other party
who is now or after the date hereof becomes liable in any manner for any of
the Obligations, in such manner as the Seller in its sole discretion deems fit
and to this end the Guarantor gives to the Seller full authority in its sole
discretion to do any or all of the following things: (a) vary the terms and
grant extensions or renewals
<PAGE> 73
3
of any present or future indebtedness or obligations to the Seller of the
Purchaser or any such other party, (b) grant time, waivers and other
indulgences in respect thereto, (c) vary, release, exchange or discharge,
wholly or partially, or delay in or abstain from perfecting and enforcing any
security or guaranty or other means of obtaining payment of any of the
Obligations which the Seller now has or acquires after the date hereof, (d)
accept partial payments from the Pumhaser or any such other party, (e) release
or discharge wholly or partially, any endorser or guarantor, and (f) compromise
or make settlement or other arrangement with the Purchaser of any such other
party.
6. Waivers by Guarantor.
The Guarantor waives notice of acceptance hereof, notice of any
action taken or admitted by the Seller in reliance hereon, and any requirement
that the Seller be diligent or prompt in making demands hereunder or asserting
any other rights of the Seller hereunder.
7. Demands and Notices.
It is further agreed that the undersigned waives any demand for
payment and notice of nonpayment or nonperformance under the Purchase Agreement
and that without notice to the undersigned or without affecting the liability
hereunder, the Seller may enforce rights against the Purhaser and/or may take
or release security and or surrender documents, grant extensions, renewals and
indulgences.
8. Amendments, Waivers, etc.
No provision of this Guaranty can be changed, waived,
discharged, or terminated except by an instrument in writing signed by the
Seller and the Guarantor expressly referring to the provision of this Guaranty
to which such instrument relates; and no such waiver shall extend to, affect or
impair any right with respect to any Obligation which is not expressly dealt
with therein. No course of dealing or delay or omissions on the part of the
Seller in exercising any right shall operate as a waiver thereof or otherwise
be prejudicial thereto.
9. Miscelaneous Provisions.
This Guaranty is intended to be governed by and construed in
accordance with the laws of the State of New York and shall inure to the
benefit of the Seller and its successors in title, assigns, and legal
representatives and shall be binding on the Guarantor and on Guarantor's
successors and assigns. The Guarantor hereby submits to the nonexclusive
jurisdiction of the courts of the State of New York and the federal courts of
the United States of America located in such State in respect of any dispute
or other matter
<PAGE> 74
4
arising out of or relating to this Guaranty or the transactions contemplated
hereby, and hereby waives, and agrees not to assert, as defense in any action,
suit or proceeding arising out of or relating to this Guaranty, that it is not
subject thereto, or that the suit, action or proceeding is brought in an
inconvenient forum, or that the venue of the suit, action or proceeding is
improper. The Guarantor agrees that final judgment (with all right of appeal
having expired or been waived) against such party in any such action, suit or
proceeding shall be conclusive and may be enforced in any jurisdiction by suit
on the judgment, a certified copy of which shall be conclusive evidence of the
fact and amount of the recovery arising from such judgment.
10. Termination. This Guaranty and the obligations of the
Guarantor hereunder shall terminate upon consummation of the transactions at
the Closing.
In the event of any inconsistencies between the provisions of
this Guaranty and the provisions of the Purchase Agreement, the provisions of
the Purchase Agreement shall prevail.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
on its behalf by its officer thereunto duly authorized on the 9th day of
August, 1994.
BEVERLY ENTERPRISES, INC.
By: _____________________________
Its: ____________________________
<PAGE> 1
Exhibit 2.2
EXECUTION COPY
--------------
STOCK PURCHASE AGREEMENT
dated as of September 12, 1994
between
ECKERD CORPORATION
and
PHARMACY CORPORATION OF AMERICA
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms ................................... 1
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale ...................................... 6
SECTION 2.02. Total Consideration; Adjustments to
Total Consideration .................................. 6
SECTION 2.03. Closing; Closing Deliveries; Escrow .................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 3.01. Incorporation and Authority of the Seller .............. 13
SECTION 3.02. Incorporation and Qualification of the Company ......... 14
SECTION 3.03. Capital Stock of the Company ........................... 14
SECTION 3.04. Subsidiaries of the Company ............................ 14
SECTION 3.05. No Conflict ............................................ 15
SECTION 3.06. Consents and Approvals ................................. 16
SECTION 3.07. Financial Statements ................................... 16
SECTION 3.08. Absence of Undisclosed Liabilities ..................... 16
SECTION 3.09. Litigation ............................................. 17
SECTION 3.10. Compliance with Laws ................................... 17
SECTION 3.11. Environmental, Health and Safety Compliance ............ 17
SECTION 3.12. Licenses and Permits ................................... 18
SECTION 3.13. Intangible Property .................................... 18
SECTION 3.14. Properties ............................................. 19
SECTION 3.15. Insurance .............................................. 19
SECTION 3.16. Employee Benefit Matters ............................... 20
SECTION 3.17. Labor Matters .......................................... 21
SECTION 3.18. Taxes .................................................. 22
SECTION 3.19. Brokers ................................................ 22
SECTION 3.20. Material Contracts ..................................... 23
SECTION 3.21. Transactions with Affiliates ........................... 24
<PAGE> 3
Page
----
SECTION 3.22. Absence of Certain Changes or Events ............. 24
SECTION 3.23. Receivables ...................................... 26
SECTION 3.24. Customers ........................................ 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Incorporation and Authority of the Purchaser ..... 27
SECTION 4.02. No Conflict ...................................... 27
SECTION 4.03. Absence of Litigation ............................ 27
SECTION 4.04. Consents and Approvals ........................... 28
SECTION 4.05. Investment Purpose ............................... 28
SECTION 4.06. Financing ........................................ 28
SECTION 4.07. Brokers .......................................... 28
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing ......... 28
SECTION 5.02. Investigation .................................... 32
SECTION 5.03. Access to Information ............................ 32
SECTION 5.04. Books and Records ................................ 33
SECTION 5.05. Confidentiality .................................. 34
SECTION 5.06. Regulatory and Other Authorizations; Consents .... 34
SECTION 5.07. No Solicitation .................................. 35
SECTION 5.08. Notification to Governmental Authorities ......... 35
SECTION 5.09. Transition Expenses .............................. 35
SECTION 5.10. Further Action ................................... 38
SECTION 5.11. Interim Period Financial Statements .............. 38
SECTION 5.12. Noncompetition ................................... 38
SECTION 5.13. Use of Name ...................................... 39
SECTION 5.14. Florida Inventory Recoveries ..................... 40
SECTION 5.15. IRB Matters ...................................... 40
<PAGE> 4
Page
----
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Employees .................................................... 40
SECTION 6.02. Stock Options ................................................ 41
ARTICLE VII
TAX MATTERS
SECTION 7.01. Indemnity .................................................... 42
SECTION 7.02. Returns and Payments ......................................... 43
SECTION 7.03. Refunds ...................................................... 44
SECTION 7.04. Contests ..................................................... 44
SECTION 7.05. Tax Benefits ................................................. 45
SECTION 7.06. Certain Audit Adjustments .................................... 45
SECTION 7.07. Cooperation and Exchange of Information ...................... 46
SECTION 7.08. Conveyance Taxes ............................................. 46
SECTION 7.09. Miscellaneous ................................................ 47
SECTION 7.10. Section 338(h)(10) Election .................................. 47
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller ...................... 48
SECTION 8.02. Conditions to Obligations of the Purchaser ................... 49
SECTION 8.03. Mutual Conditions to Obligations ............................. 50
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival ..................................................... 52
SECTION 9.02. Indemnification by the Purchaser ............................. 52
SECTION 9.03. Indemnification by the Seller ................................ 55
<PAGE> 5
Page
----
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination ................................................ 59
SECTION 10.02. Effect of Termination ...................................... 59
SECTION 10.03. Extension; Waiver........................................... 59
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses ................................................... 60
SECTION 11.02. Notices .................................................... 60
SECTION 11.03. Public Announcements ....................................... 61
SECTION 11.04. Headings ................................................... 61
SECTION 11.05. Severability ............................................... 62
SECTION 11.06. Entire Agreement ........................................... 62
SECTION 11.07. Assignment ................................................. 62
SECTION 11.08. No Third-Party Beneficiaries ............................... 62
SECTION 11.09. Amendment; Waiver .......................................... 62
SECTION 11.10. Governing Law .............................................. 62
SECTION 11.11. Counterparts ............................................... 62
EXHIBIT
Exhibit 2.02(b)(i): Reference Balance Sheet
<PAGE> 6
STOCK PURCHASE AGREEMENT, dated as of September 12, 1994, between
ECKERD CORPORATION, a Delaware corporation (the "Seller"), and PHARMACY
CORPORATION OF AMERICA, a California corporation (the "Purchaser").
WITNESSETH:
WHEREAS, as of the Closing Date, the Seller shall own all of the
authorized, issued and outstanding shares of common stock, par value $.10 per
share ("Common Stock") (all of such shares of Common Stock being referred to
herein, collectively, as the "Shares"), of INSTA-CARE HOLDINGS, INC., a Florida
corporation (the "Company"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from the Seller, the Shares, in each case on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Seller
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Adjusted Closing Balance Sheet" has the meaning specified in
Section 2.02(b)(i).
"Adjusted Net Book Value", as of any date, means an amount
equal to the excess of the Total Assets over the Total Liabilities as
of such date. As used in this definition, the terms "Total Assets" and
"Total Liabilities" mean all of the Company's assets and liabilities,
respectively, determined on a consolidated basis in accordance with
GAAP; provided, however, that in determining Adjusted Net Book Value,
(a) all amounts payable to the Company in respect of notes receivable
from management (including, without limitation, accrued interest
income thereon) shall be excluded from the Total Assets, and (b) all
amounts payable by the Company or its Subsidiaries to the Seller, all
amounts owing in respect of bank overdrafts, Taxes and the Convertible
Debentures (including, without limitation, accrued and unpaid interest
thereon), all obligations related to the put options granted pursuant
to the Stock
<PAGE> 7
2
Option Agreements and all obligations arising pursuant to the terms of the
Company Agreements shall be excluded from the Total Liabilities.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. As used in this definition, the term "control" (including the terms
"controlled by" and "under common control with") means, with respect to the
relationship between or among two or more Persons, the possession, directly or
indirectly, of the power to direct or cause the direction of the affairs or the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Balance Sheets" has the meaning specified in Section 2.02(b)(i).
"Business" means the business conducted by the Company and its
Subsidiaries including, without limitation, the institutional pharmacy business
conducted by the Company and its Subsidiaries and the business of providing
infusion therapy and home health care services conducted by the Company and its
Subsidiaries.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized to be closed in the City of New
York.
"Closing" has the meaning specified in Section 2.03(a).
"Closing Balance Sheet" has the meaning specified in Section
2.02(b)(i).
"Closing Date" has the meaning specified in Section 2.03(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Agreements" means, collectively, the Agreement, dated March
31, 1994, between the Company and Daniel A. Smith, and the Agreement, dated
July 18, 1994, between the Company and Roger V. Levitt.
"Company Facilities" has the meaning specified in Section 5.09(d)(ii).
"Convertible Debentures" means the 9% Convertible Debentures due April
1, 1998 of the Company.
"Credit Agreement" means the Credit Agreement, dated as of June 14,
1993, among the Seller, the lenders party thereto, and Chemical Bank and
Nationsbank of Florida, N.A., as managing agents, as amended and restated as of
August 3, 1994.
<PAGE> 8
3
"Delivery Date" has the meaning specified in Section 2.03(g)(ii).
"Designated Amount" means U.S. $500,000.
"Disclosure Schedule" means the Disclosure Schedule, dated as of the
date hereof, delivered to the Purchaser by the Seller and forming a part of
this Agreement.
"Employee Plans" has the meaning specified in Section 3.16.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Escrow" has the meaning specified in Section 2.03(g)(i).
"Escrow Agent" has the meaning specified in Section 2.03(g)(i).
"Escrow Agreement" has the meaning specified in Section 2.03(g)(i).
"Escrowed Amount" has the meaning specified in Section 2.03(g)(i).
"Extraordinary Loss" means an "extraordinary loss" or "extraordinary
losses", as those terms are defined in Opinion No. 30 of the Accounting
Principles Board of the American Institute of Certified Public Accountants, and
any amendments thereto.
"GAAP" means United States generally accepted accounting principles in
effect from time to time, applied consistently throughout the period involved
and consistently with prior periods.
"Governmental Authority" or "Governmental Authorities" means any
government, any governmental entity, department, commission, board, agency or
instrumentality, and any court, tribunal, or judicial body, whether federal,
state or local.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Industrial Development Bonds" means the bonds issued by the
Development Authority of Coweta County (Georgia) and the bonds issued by the
Industrial Development Board of the City of Hammond, Inc. with respect to
certain of the Seller's warehouse facilities.
<PAGE> 9
4
"Intangible Property" has the meaning specified in Section 3.13.
"IRS" means the Internal Revenue Service.
"Law" means any federal, state or local statute, law, ordinance,
regulation, rule, code or order (including, without limitation, the
Prescription Drug Marketing Act of 1987, the Federal Controlled Substances Act
of 1970, and the Food, Drug and Cosmetic Act).
"Leases" means the leases for the Leased Real Property, copies of
which have been made available by the Seller to the Purchaser.
"Leased Real Property" means the real property leased by the Company
or the Subsidiaries as tenant, together with, to the extent leased by the
Company or such Subsidiary, all buildings and other structures, facilities,
fixtures, or improvements located thereon.
"Licenses" means all of the licenses, permits and other authorizations
(including, without limitation, pharmacy licenses, permits and authorizations)
required by a Governmental Authority for the operation of the Business as
conducted as of the date of this Agreement.
"Lien" means any lien, security interest, pledge, mortgage, charge or
other encumbrance of any kind.
"Material Adverse Change" or "Material Adverse Effect" means any
change or effect that is, or is reasonably likely to be, materially adverse to
the operations, affairs, Business, condition (financial or otherwise) or
results of operations of the Company and the Subsidiaries, taken as a whole.
"1993 Audited Financial Statements" means the audited consolidated
balance sheet and the audited consolidated statements of income, stockholder's
equity and cash flow of the Company and the Subsidiaries for the fiscal year
ended December 31 1993, together with the notes thereon and accompanying report
of the Seller's Accountants.
"1994 Unaudited Financial Statements" means the Reference Balance
Sheet and the unaudited consolidated statements of income and cash flow of the
Company and the Subsidiaries for the seven-month period ended on July 31, 1994,
which financial statements shall be subject to normal recurring year-end
adjustments and shall not be accompanied by notes thereon.
<PAGE> 10
5
"Permitted Liens" means (i) Liens for inchoate mechanics' and
materialmen's liens for construction in progress and workmen's, repairmen's,
warehousemen's and carriers' liens arising in the ordinary course of the
Business which in the aggregate have a value of less than $100,000, (ii) Liens
for Taxes not yet payable and for "Taxes being contested in good faith, (iii)
Liens arising out of, under or in connection with this Agreement and the
transactions contemplated hereby and (iv) Liens and imperfections of title the
existence of which would not materially adversely affect the use of the
property subject thereto, consistent with past practice.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended.
"Purchase Price" means the purchase price for the Shares, which
purchase price shall be an amount equal to the Total Consideration less (i) the
amounts payable by the Company immediately prior to, or concurrently with, the
Closing described in clauses (i), (ii), (iii) and (iv) of Section 2.03(e) and
(ii) an amount equal to the Transaction Expenses.
"Purchaser Facilities" has the meaning specified in Section
5.09(d)(ii). "Reference Balance Sheet" has the meaning specified in Section
2.02(b)(i). "Returns" has the meaning specified in Section 7.02.
"Stock Option Agreements" means, collectively, the Stock Option
Agreement, dated July 31, 1992, between the Company and Joseph N. Klalo, the
Stock Option Agreement, dated July 31, 1992, between the Company and Robert D.
Stevens, and the Stock Option Agreement, dated April 30, 1993, between the
Company and Francis Downing.
"Subsidiaries" means the subsidiaries of the Company listed in Section
3.04 of the Disclosure Schedule (each of which is individually referred to as a
"Subsidiary").
"Summary Transition Expense Report" has the meaning specified in
Section 5.09(c).
"Target Business" has the meaning specified in Section 5.01(d).
"Tax" or "Taxes" means all income, gross receipts, gains, sales, use,
employment, franchise, profits, excise, property, value added or other taxes,
fees, stamp taxes and duties, assessments or charges of any kind whatsoever
(whether
<PAGE> 11
6
payable directly or by withholding), together with any interest,
penalties, additions to tax and additional amounts imposed by any
governmental or taxing authority with respect thereto.
"Total Consideration" has the meaning specified in Section
2.02(a).
"Transaction Expenses" means all investment banking,
accounting and legal fees and related expenses payable by the Seller
in connection with the transactions contemplated by this Agreement,
together with the maximum amount payable by the Seller under Section
5.09.
"Transition Expenses" has the meaning specified in Section
5.09(d).
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. On the terms and subject to
the conditions set forth in this Agreement, the Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, on the Closing
Date, the Shares.
SECTION 2.02. Total Consideration: Adjustments to Total
Consideration. (a) Total Consideration. Subject to the adjustments set forth in
Section 2.02(b), the aggregate consideration payable by the Purchaser on the
Closing Date is One Hundred Twelve Million Dollars (U.S. $112,000,000) (the
"Total Consideration"), in cash.
(b) Adjustments to Total Consideration. The Total
Consideration shall be subject to adjustment, if any, after the Closing Date as
specified in this Section 2.02(b).
(i) Balance Sheets. As soon as practicable, but in any
event within 60 calendar days following the Closing Date, the Seller,
at Seller's expense, shall deliver to the Purchaser an audited
consolidated balance sheet (and the related notes and schedules
thereto) of the Company and the Subsidiaries (the "Closing Balance
Sheet") as of the close of business on the date immediately preceding
the Closing Date, together with the unqualified report thereon of KPMG
Peat Marwick, independent accountants of the Seller ("Seller's
Accountants"), stating that the Closing Balance Sheet fairly presents
the consolidated financial position of the Company and the
Subsidiaries at the close of business on the date immediately
preceding the Closing Date in conformity with GAAP applied on a basis
consistent with GAAP as applied in the preparation of the consolidated
balance sheet of the Company as of July 31, 1994 attached hereto as
Exhibit 2.02(b)(i) (the "Reference Balance Sheet"). Concurrently with
the delivery of the Closing Balance Sheet, the Seller shall, at the
Seller's
<PAGE> 12
7
expense, deliver to the Purchaser an additional consolidated balance
sheet of the Company and the Subsidiaries (the "Adjusted Closing
Balance Sheet") which shall be the same in all respects as the Closing
Balance Sheet except that the allowance for doubtful accounts
reflected on the Closing Balance Sheet in connection with (x) accounts
receivable outstanding for more than a year at the close of business
on the date immediately preceding the Closing Date and (y) accounts
receivable outstanding at the close of business on the date
immediately preceding the Closing Date with respect to which the
Company, any Subsidiary or the account debtor has commenced
litigation, shall be adjusted on the Adjusted Closing Balance Sheet to
be an amount equal to 80% of the gross amount of such outstanding
accounts receivable referred to in clauses (x) and (y) as included in
the accounts receivable reflected on the Closing Balance Sheet. The
Closing Balance Sheet and the Adjusted Closing Balance Sheet are
sometimes referred to herein, collectively as the "Balance Sheets".
(ii) Cooperation. During the preparation of the Balance
Sheets by the Seller and the period of any dispute referred to in
Section 2.02(b)(iv), the Purchaser shall provide the Seller and
Seller's Accountants with reasonable access to the books, records,
facilities and employees of the Company and its successors, if any,
and shall cooperate fully with Seller's Accountants, in each case to
the extent required by the Seller and Seller's Accountants in order to
prepare the Balance Sheets and to investigate the basis for any such
dispute; provided, however, that any such investigation shall be
conducted in such a manner so as not to interfere unreasonably with
the operation of the Business. Seller shall provide the Purchaser and
Purchaser's Accountants with reasonable access to the books, records,
facilities and employees of the Seller, and shall cooperate fully with
Purchaser's Accountants, in each case to the extent required in order
for Purchaser and Purchaser's Accountants to review the Balance
Sheets. The Seller shall cooperate with the Purchaser and shall use
its reasonable efforts to obtain from the Seller's Accountants copies
of all supporting documents and auditor's work papers used in the
preparation of the Balance Sheets, including, without limitation,
consolidating balance sheets and other consolidating work papers, as
necessary for the Purchaser and Purchaser's Accountants to review the
Balance Sheets, it being understood, however, that Seller's
Accountants will require as a condition to making available any work
papers to any Person a customary hold harmless agreement executed by
such Person in respect thereof.
(iii) Total Consideration Adjustment. Subject to the
limitation set forth in Section 2.02(b)(iv)(C) hereof, within 30
Business Days after the date of receipt by the Purchaser of the
Balance Sheets:
(A) in the event that the Adjusted Net Book Value
reflected on the Reference Balance Sheet exceeds the Adjusted
Net Book Value reflected on the Adjusted Closing Balance Sheet
by more than the Designated Amount, the Seller shall pay to
the Purchaser, as an adjustment to the Total Consideration,
<PAGE> 13
8
in immediately available funds, an amount equal to such excess
over the Designated Amount; and
(B) in the event that the Adjusted Net Book Value
reflected on the Adjusted Closing Balance Sheet exceeds the
Adjusted Net Book Value reflected on the Reference Balance
Sheet by more than the Designated Amount, the Purchaser shall
pay to the Seller, as an adjustment to the Total
Consideration, in immediately available funds, an amount equal
to such excess over the Designated Amount.
Any such adjustment shall also constitute an adjustment to the
Purchase Price.
(iv) Disputes. (A) If not disputed by the Purchaser in
accordance with this Section 2.02(b)(iv), the Adjusted Closing Balance
Sheet delivered by the Seller to the Purchaser shall be final, binding
and conclusive on the parties hereto.
(B) The Purchaser may dispute any amounts reflected on
the Adjusted Closing Balance Sheet to the extent that the net effect
of such disputed amounts in the aggregate would be to change the
Adjusted Net Book Value reflected on the Adjusted Closing ]Balance
Sheet by more than the Designated Amount, but only on the basis that
(1) the amounts reflected on the Adjusted Closing Balance Sheet (other
than the allowance for doubtful accounts in connection with
outstanding accounts receivable established pursuant to clauses (x)
and (y) of Section 2.02(b)(i)) were not arrived at in accordance with
GAAP applied on a basis consistent with GAAP as applied in the
preparation of the Reference Balance Sheet, or (2) the amount of any
reserves established in connection with the Adjusted Closing Balance
Sheet (other than the allowance for doubtful accounts in connection
with outstanding accounts receivable established pursuant to clauses
(x) and (y) of Section 2.02(b)(i)) has materially changed from the
amount of such reserves established in connection with the Reference
Balance Sheet as a result of a change in the application of accounting
estimates or principles applied in establishing such reserves;
provided, however, that the Purchaser shall notify the Seller and
Seller's Accountants in writing of each disputed item, specifying the
amount thereof in dispute and setting forth, in reasonable detail, the
basis for such dispute, within 30 Business Days of the Purchaser's
receipt of the Balance Sheets. In the event of such a dispute, the
Purchaser and the Seller shall negotiate in good faith to reconcile
their differences as expeditiously as possible, and any resolution by
them as to any disputed amounts shall be final, binding and conclusive
on the parties hereto. If any such resolution by the Purchaser and the
Seller leaves in dispute amounts the net effect of which in the
aggregate would not be to change the Adjusted Net Book Value reflected
on the Adjusted Closing Balance Sheet by more than the Designated
Amount, all the amounts remaining in dispute shall then be deemed to
have been resolved in favor of the Adjusted Closing Balance Sheet, and
such resolution shall be final, binding and
<PAGE> 14
9
conclusive on the parties hereto. If the Purchaser and the Seller are
unable to reach a resolution with such effect within 10 Business Days
after the Purchaser's notification to the Seller of the disputed
items, the Seller and the Purchaser shall submit the items then
remaining in dispute that the Purchaser shall be entitled to dispute
by the terms of this Section 2.02(b)(iv) for resolution to Ernst &
Young LLP ("Purchaser's Accountants") and Seller's Accountants, who
shall attempt to reconcile the remaining disputed amounts and any
resolution by them as to any such remaining disputed amounts shall be
final, binding and conclusive on the parties hereto. If any such
resolution by Purchaser's Accountants and Seller's Accountants leaves
in dispute amounts the net effect of which in the aggregate would not
be to change the Adjusted Net Book Value reflected on the Adjusted
Closing Balance Sheet by more than the Designated Amount, all the
amounts remaining in dispute shall then be deemed to have been
resolved in favor of the Adjusted Closing Balance Sheet delivered by
the Seller to the Purchaser. If Purchaser's Accountants and Seller's
Accountants are unable to reach a resolution with such effect within
20 Business Days after submission to them of such items remaining in
dispute, Purchaser's Accountants and Seller's Accountants shall submit
the items then remaining in dispute for resolution to such other
independent accounting firm of national reputation as may be mutually
acceptable to the Purchaser and the Seller (the "Independent
Accounting Firm"), which shall, within 30 Business Days after such
submission, determine, on the basis and subject to the provisions set
forth in the first sentence of this paragraph (B), and report to the
Purchaser and the Seller upon such remaining disputed items, and such
report shall have the legal effect of an arbitration award and shall
be final, binding and conclusive on the parties hereto. The fees and
disbursements of the Independent Accounting Firm shall be allocated
between the Purchaser and the Seller in the same proportion that the
aggregate amount of such remaining disputed items so submitted to the
Independent Accounting Firm which is unsuccessfully disputed by each
such party (as finally determined by the Independent Accounting Firm)
bears to the total amount of such remaining disputed items so
submitted.
(C) No adjustment to any amount payable by the Seller or
the Purchaser pursuant to Section 2.02(b)(iii) shall be made with
respect to amounts disputed by the Purchaser pursuant to this Section
2.02(b)(iv) unless the net effect of the amounts successfully disputed
by the Purchaser in the aggregate is to change the Adjusted Net Book
Value reflected on the Adjusted Closing Balance Sheet by more than the
Designated Amount, in which case such adjustment (upward or downward)
shall only be made in an amount equal to any excess over the
Designated Amount.
(D) Any amount that has been disputed under this Section
2.02(b)(iv) shall be paid by the Seller or the Purchaser, as the case
may be, in immediately available funds, within five Business Days
following the resolution of such dispute and in an amount in
accordance with such resolution.
<PAGE> 15
10
(E) In acting under this Agreement, Seller's Accountants,
Purchaser's Accountants and the Independent Accounting Finn shall be
entitled to the privileges and immunities of arbitrators.
(v) Interest. Any payment required to be made by the
Seller or the Purchaser pursuant to Section 2.02(b)(iii) shall bear
interest from (and including) the Closing Date to (but excluding) the
date of payment at the rate of interest publicly announced from time
to time by Chemical Bank in New York, New York as its base rate.
SECTION 2.03. Closing; Closing Deliveries; Escrow. (a)
Closing. Subject to the terms and conditions of this Agreement, the sale and
purchase of the Shares contemplated hereby shall take place at a closing (the
"Closing") to be held at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York at 10:00 A.M. New York time on the fifth Business
Day following the satisfaction or waiver of all conditions to the obligations
of the parties set forth in Article VIII, or at such other place or time or on
such other date as the Seller and the Purchaser may mutually agree upon in
writing (the day on which the Closing takes place being referred to herein as
the "Closing Date").
(b) Closing Deliveries by the Seller. At the Closing, the
Seller shall deliver, or cause to be delivered, to the Purchaser (i) stock
certificates evidencing the Shares duly endorsed in blank or accompanied by
stock powers duly executed in blank, in proper form for transfer, together with
the Subsidiary Shares (as defined in Section 3.04); (ii) the opinions,
certificates and other documents and agreements required to be delivered
pursuant to Section 8.02; and (iii) all other previously undelivered documents,
instruments and writings required to be delivered to the Purchaser by the
Seller at or prior to the Closing pursuant to this Agreement.
(c) Closing Deliveries by the Purchaser. At the Closing,
the Purchaser shall deliver, or cause to be delivered, (i) to the Company the
amounts specified in writing by the Seller as sufficient to satisfy the
Company's obligations referred to in clauses (i), (ii), (iii) and (iv) of
Section 2.03(e), by wire transfer in immediately available funds to an account
or accounts designated by the Seller at least two Business Days prior to the
Closing Date, (ii) to the Escrow Agent the amount of $2,000,000, by wire
transfer in immediately available funds to an account or accounts designated by
the Escrow Agent or the Seller at least two Business Days prior to the Closing
Date, and (iii) to the Seller (A) the balance of the Total Consideration, by
wire transfer in immediately available funds to an account or accounts
designated by the Seller at least two Business Days prior to the Closing Date;
(B) the opinions, certificates and other documents and agreements required to
be delivered pursuant to Section 8.01; and (C) all other previously undelivered
documents, instruments and writings required to be delivered to the Seller by
the Purchaser at or prior to the Closing pursuant to this Agreement.
<PAGE> 16
11
(d) Upon the Closing, the Seller will cause the existing
directors of the Company and the Subsidiaries to resign from their respective
positions with the Company and the Subsidiaries and the vacancies resulting
therefrom shall be filled by the Purchaser's designees immediately following
the Closing.
(e) Related Events, The following events shall take place
immediately prior to, or concurrently with, the Closing:
(i) all amounts payable by the Company or its
Subsidiaries to the Seller shall be repaid by the Company;
(ii) all outstanding Convertible Debentures shall be
redeemed, prepaid or otherwise cancelled by the Company;
(iii) all options to purchase shares of Common Stock
granted pursuant to any of the Stock Option Agreements shall be
redeemed, repurchased or otherwise cancelled by the Company;
(iv) all obligations arising pursuant to the terms of the
Company Agreements as a result of the sale of the Shares as
contemplated by this Agreement shall be Paid or otherwise satisfied by
the Company; and
(v) all notes receivable from management delivered in
connection with the issuance of the Convertible Debentures shall be
cancelled.
Notwithstanding any other provision of this Agreement to the contrary, the
aggregate amounts payable by the Company pursuant to clauses (i), (ii), (iii)
and (iv) above shall not exceed the difference between the Total Consideration
and the Purchase Price.
(f) Effective Date. Notwithstanding Section 2.02, the
sale and purchase of the Shares as contemplated herein shall be deemed for all
purposes to have taken place as of the Closing Date.
(g) Escrow Account. (i) Within 15 Business Days after the
date hereof, the Seller and the Purchaser will agree on a form of Escrow
Agreement (the "Escrow Agreement") with Chemical Bank or another commercial
bank having total assets in excess of $1 billion mutually acceptable to the
Purchaser and the Seller as the escrow agent (the "Escrow Agent"). The Escrow
Agreement shall contain (A) the terms set forth in this. Section 2.03(g), (B)
usual and customary provisions for the reasonable protection of the Escrow
Agent, as may be requested by the Escrow Agent, and (C) such other terms as,
the parties thereto may mutually agree. Prior to the Closing, the Seller and
the Purchaser shall enter into the Escrow Agreement with the Escrow Agent. At
the Closing, the amount of $2,000,000 (the "Escrowed Amount") is to be withheld
from the Total Consideration and
<PAGE> 17
12
deposited into the escrow account (the "Escrow") with the Escrow Agent, to be
held as security for, and, as applicable, distributed pursuant to the terms of
the Escrow Agreement to offset, amounts payable by the Seller pursuant to its
obligation to indemnify the Purchaser contained in Article VII and Article IX
of this Agreement (the "Indemnified Losses"). The Escrow Agent shall distribute
to the Seller any interest or other earnings on the Escrowed Amount on a
monthly basis
(ii) If, during the term of the Escrow, the Purchaser
contends that it is entitled to receive all or a part of the Escrowed Amount
still held by the Escrow Agent in accordance with the Escrow Agreement, the
Purchaser shall (A) give the Escrow Agent written notice that the Purchaser
contends in good faith that the Purchaser is entitled to receive all or a
specified portion of the Escrowed Amount under Article VII or Article IX of
this Agreement, (B) request such amount to be delivered to the Purchaser on a
specified date (the "Delivery Date") not sooner than 20 Business Days after the
later of delivery of a copy of such notice to, the Seller and to the Escrow
Agent, and (C) specify in reasonable detail the grounds on which such claim is
based. The Purchaser shall also certify to the Escrow Agent that a copy of the
notice has been delivered to the Seller, with such certification accompanied by
signed U.S. Postal Service return receipts evidencing delivery of the notice
by registered or certified mail to the Seller or alternate proof of actual
delivery acceptable to the Escrow Agent. The Escrow Agent shall be entitled to
rely upon such certification as conclusive evidence that proper notice has been
given to the Seller.
(iii) If, prior to the Delivery Date, the Escrow Agent has
not received written objection from the Seller, in the form and manner
specified in paragraph (iv) below, to the payment to the Purchaser of the
amount requested by the Purchaser, the Escrow Agent shall deliver to the
Purchaser on the Delivery Date the requested amount up to the amount of the
Escrowed Amount then held by the Escrow Agent.
(iv) If, prior to the Delivery Date, the Escrow Agent
receives a written objection from the Seller to payment of the requested amount
to the Purchaser, accompanied by a certification to the Escrow Agent with a
copy delivered to the Purchaser in the same manner as specified for written
notice to be delivered by the Purchaser under paragraph (ii) above, that the
Seller in good faith has reasonable grounds for disputing such requested amount
or the basis for such claim, (A) the Escrow Agent shall so advise the Purchaser
and (B) the Escrow Agent shall continue to hold such amount in Escrow until
receipt of written instructions executed by each of the Purchaser and the
Seller as to the disposition of such amount. If, however, the Purchaser and the
Seller are unable to agree as to the disposition of such amount within 20
Business Days after the Delivery Date, the Escrow Agent shall continue to hold
such funds in Escrow until the Seller and the Purchaser shall provide the
Escrow Holder with joint instructions or until a court of competent
jurisdiction shall direct the disposition thereof.
<PAGE> 18
13
(v) All amounts received by the Escrow Agent to be held
in Escrow shall be held by the Escrow Agent until their release pursuant to
this Section 2.03(g) in an interest bearing account or similar type of account
or certificate of deposit with a bank reasonably satisfactory to the Escrow
Agent, the Purchaser and the Seller (which may be the Escrow Agent), or in such
other investments as the Seller and the Purchaser may mutually agree, until
distribution of the entire Escrowed Amount is required under the terms of this
Section 2.03(g).
(vi) The term of the Escrow shall continue from the
Closing Date until the earlier of the date which is 18 months after the Closing
Date or on which the entire Escrowed Amount shall have been distributed by the
Escrow Agent under the terms of the Escrow Agreement, except as set forth in
paragraph (iv) above. If and to the extent there are any funds remaining as
part of the Escrowed Amount on the date which is 18 months after the Closing
Date which are not in dispute, such remaining portion shall be delivered
forthwith to the Seller, and the Escrow Agent shall have no further liabilities
or responsibilities under the Escrow Agreement to any Person.
(vii) The Seller and the Purchaser hereby agree to (A)
share equally in the payment of the Escrow Agent's reasonable compensation for
the services to be rendered under the Escrow Agreement, (B) share equally in
the payment or reimbursement of the Escrow Agent upon request for all
documented expenses, disbursements and advances, including reasonable
attorneys' fees, incurred or made by the Escrow Agent in connection with
carrying out its duties under the Escrow Agreement, and (C) jointly and
severally indemnify the Escrow Agent for, and hold it harmless against, any
loss, liability or expense incurred without gross negligence or willful
misconduct on the part of the Escrow Agent, in connection with its performance
of the Escrow provided for under the Escrow Agreement and carrying out its
duties under the Escrow Agreement, including the costs and expenses of
defending itself against any claim of liability.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
SECTION 3.01. Incorporation and Authority of the Seller. The
Seller is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Seller, the performance by
the Seller of its obligations hereunder and the consummation by the Seller of
the transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Seller. This Agreement has been duly
executed and delivered by the Seller, and (assuming due authorization,
execution and delivery by the Purchaser) this
<PAGE> 19
14
Agreement constitutes a legal, valid and binding obligation of the Seller
enforceable against the Seller in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.02. Incorporation and Qualification of the Company.
The Company is a corporation duly incorporated and validly existing under the
laws of the State of Florida and has the requisite corporate power and
authority to own, operate or lease the properties and assets now owned,
operated or leased by the Company and to carry on the Business as it is now
being 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, operated or leased or the nature of its activities makes
such qualification necessary, except for such failures which, when taken
together with all other such failures, would not have a Material Adverse
Effect. True and complete copies of the Articles of Incorporation and By-laws
of the Company, as amended to the date of this Agreement, have been made
available for review by the Purchaser.
SECTION 3.03. Capital Stock of the Company. As of the date
hereof, the Seller owns 8,000,000 shares of Common Stock of the Company, which
shares constitute all of the issued and outstanding shares of capital stock of
the Company as of the date hereof. 742,000 shares of Common Stock of the
Company are reserved for issuance upon conversion of the Convertible Debentures
and 467,335 shares of Common Stock are reserved for issuance upon exercise of
outstanding options. The Shares have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in violation of any
preemptive rights. Except as set forth in Section 3.03 of the Disclosure
Schedule, (i) there are no options, warrants or rights of conversion or other
rights, agreements, arrangements or commitments obligating the Company to issue
or sell any of its shares of capital stock, and (ii) the Seller owns all the
Shares free and clear of all Liens, except for any Liens arising out of this
Agreement.
SECTION 3.04. Subsidiaries of the Company. A true and complete
list of the Subsidiaries, listing the name, jurisdiction of incorporation of
each Subsidiary, and jurisdiction in which each Subsidiary is qualified to do
business as a foreign corporation, is set forth in Section 3.04 of the
Disclosure Schedule. Each Subsidiary is a corporation duly incorporated and
validly existing under the laws of its respective jurisdiction of
incorporation, has the requisite corporate power and authority to own, operate
or lease the properties and assets now owned, operated or leased by such
Subsidiary and to carry on its business as currently conducted by 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, operated or leased or the nature of its activities makes such
qualification necessary, except for such failures which, when taken together
with all other such failures, would not have a Material Adverse Effect. Each of
the Subsidiaries is wholly owned by the
<PAGE> 20
15
Company or another Subsidiary. Except as set forth in Section 3.04 of the
Disclosure Schedule, (i) other than the Subsidiaries, there are no
corporations, partnerships, joint ventures, associations or other entities in
which the Company or any Subsidiary owns, of record or beneficially, any direct
or indirect equity or other interest or any right (contingent or otherwise) to
acquire the same and (ii) neither the Company nor any Subsidiary is a member of
(nor is any part of the Business conducted through) any partnership, nor is the
Company or any Subsidiary a participant in any joint venture or similar
arrangement. Section 3.04 of the Disclosure Schedule sets forth for each
Subsidiary, its authorized capital stock, the number and type of its issued and
outstanding shares of capital stock, and the current ownership by the Company
and its respective Subsidiaries of such shares (collectively, the "Subsidiary
Shares"). The Subsidiary Shares have been duly authorized and validly issued
and are fully paid and nonassessable and were not issued in violation of any
preemptive rights. Except as set forth in Section 3.04 of the Disclosure
Schedule, there are no options, warrants or rights of conversion or other
rights, agreements, arrangements or commitments obligating any Subsidiary to
issue or sell any of its shares of capital stock Either the Company or another
Subsidiary owns the Subsidiary Shares, free and clear of all Liens, except (i)
as set forth in Section 3.04 of the Disclosure Schedule and (ii) Liens arising
out of or in connection with this Agreement. Except as set forth in Section
3.04 of the Disclosure Schedule, there are no voting trusts, stockholder
agreements, proxies or other agreements in effect with respect to the voting or
transfer of the Subsidiary Shares.
True and complete copies of the Certificate of Incorporation
and By-laws (or equivalent organizational documents) of each Subsidiary, each
as amended to the date of this Agreement, have been made available for review
by the Purchaser. The minute books of the Company and the Subsidiaries contain
complete and accurate records of all meetings and accurately reflect all other
corporate action of the respective stockholders and boards of directors
(including committees thereof) of the Company and the Subsidiaries.
SECTION 3.05. No Conflict. Assuming all consents, approvals,
authorizations and other actions described in Section 3.06 have been obtained
and all filings and notifications listed in Section 3.06 of the Disclosure
Schedule have been made, and except as may result from any facts or
circumstances relating solely to the Purchaser, the execution and delivery of
this Agreement by the Seller do not and the performance of this Agreement by
the Seller will not (a) violate or conflict with the Certificate of
Incorporation or By-laws of the Seller, the Company or any Subsidiary, (b)
except as would not, individually or in the aggregate, have a Material Adverse
Effect, conflict with or violate any Law or Governmental Order applicable to
the Seller, the Company, any Subsidiary or Business, or (c) except as would not
individually or in the aggregate have a Material Adverse Effect or as described
in Section 3.05 of the Disclosure Schedule, result in any breach of, or
constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Lien on the Shares or any of the assets or properties of the
Company or any Subsidiary pursuant to, any note, bond,
<PAGE> 21
16
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument relating to such assets or properties to which the Seller or
the Company is a party or by which any of such assets or properties is bound or
affected.
SECTION 3.06. Consents and Approvals. The execution and
delivery of this Agreement by the Seller do not, and the performance of this
Agreement by the Seller will not, require any consent, approval, authorization,
license, order or permit of, or other action by, or declaration, filing or
registration with or notification to, any governmental or regulatory authority
or other Person, except (a) as described in Section 3.06 of the Disclosure
Schedule, (b) for the notification and waiting period requirements of the HSR
Act, (c) where failure to obtain such consent, approval, authorization or
action, or to make such filing or notification, would not prevent the Seller
from performing any of its material obligations under this Agreement and would
not have a Material Adverse Effect, and (d) as may be necessary as a result of
any facts or circumstances relating solely to the Purchaser. Except as set
forth in Section 3.06 of the Disclosure Schedule, as of the date of this
Agreement, all of the Licenses of the Company and each Subsidiary are in full
force and effect and the Company and each Subsidiary is in compliance with each
such License, except as would not have a Material Adverse Effect.
SECTION 3.07. Financial Statements. The Seller has furnished
the Purchaser with copies of the 1993 Audited Financial Statements and the 1994
Unaudited Financial Statements. Except as set forth in Section 3.07 of the
Disclosure Schedule, all such financial statements (i) have been prepared in
accordance with the books of account and other financial records of the
Company, (ii) have been prepared in accordance with GAAP, and (iii) present
fairly in all material respects the consolidated financial condition, results
of operations and cash flow of the Company and the Subsidiaries as of the times
and for the periods referred to therein.
SECTION 3.08. Absence of Undisclosed Liabilities. The Company
and the Subsidiaries do not have any liabilities (whether accrued or fixed,
absolute or contingent, matured or unmatured, asserted or unasserted or
determined or determinable (herein a "Liability" or "Liabilities")), and, to
the Seller's knowledge, as of the date of this Agreement, there is no basis for
the assertion of such Liabilities against the Company or any Subsidiary, except
for Liabilities (i) set forth in Section 3.08 of the Disclosure Schedule or
otherwise disclosed pursuant to this Article III or covered by a representation
or warranty (other than this Section 3.08) and not required to be disclosed by
the terms of such representation or warranty, (ii) as, and to the extent,
reflected or reserved against in the, Reference Balance Sheet, (iii) incurred
from the date of the Reference Balance Sheet to the date of this Agreement in
the ordinary course of business consistent with past practice, (iv) incurred
after the date of this Agreement in the ordinary course of business consistent
with past practice and permitted under Section 5.01 hereof, (v) with respect to
the matters addressed in Section 3.18 and Article VII (which shall be governed
solely by the terms of
<PAGE> 22
17
such Section 3.18 and Article VII, respectively) or (vi) which individually or
in the aggregate would not have a Material Adverse Effect.
SECTION 3.09. Litigation. Except as set forth in Section 3.09
of the Disclosure Schedule, (a) there are no claims, actions, proceedings or
investigations ("Actions") pending, or, to the knowledge of the Seller,
threatened, that question the validity of this Agreement or any action taken or
to be taken by the Seller in connection with the transactions contemplated
hereby, (b) there are no Actions pending against the Seller, the Company or any
Subsidiary, wherein any unfavorable outcome would have a Material Adverse
Effect, and (c) there is no outstanding, or, to the knowledge of Seller,
threatened, action of a Governmental Authority against or naming the Company,
any Subsidiary or their respective assets and properties wherein any
unfavorable outcome would have a Material Adverse Effect. Except as set forth
in Section 3.09 of the Disclosure Schedule, neither the Company, any Subsidiary
nor any of their respective assets or properties is subject to any order, writ,
judgment, injunction, decree, determination or award having a Material Adverse
Effect.
SECTION 3.10. Compliance with Laws. The Company, the
Subsidiaries and the conduct of the Business are in substantial compliance with
all applicable Laws, except (a) as set forth in Section 3. 10 of the Disclosure
Schedule or (b) where the failure to comply would not have a Material Adverse
Effect. Neither the Seller, the Company nor any Subsidiary has received any
written notice from a Governmental Authority to the effect that the Company or
any Subsidiary is not in compliance with any applicable Laws except (x) as set
forth in Section 3. 10 of the Disclosure Schedule or (y) where the failure to
comply would not have a Material Adverse Effect,
SECTION 3.11. Environmental, Health and Safety Compliance.
Except as disclosed in Section 3. 11 of the Disclosure Schedule, (a) the
Company and the Subsidiaries currently hold all the environmental, health and
safety permits, licenses and approvals of Governmental Authorities necessary
for the current use, occupancy and operation of the Business, except for such
permits, licenses and approvals the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect, (b) the Company and the
Subsidiaries are in compliance with all their environmental, health and safety
permits, licenses and approvals of Governmental Authorities, except as would
not have a Material Adverse Effect, and (c) there is, to the knowledge of the
Seller, no existing practice, action or plan of the Company or the Subsidiaries
and no existing condition of their respective assets which could reasonably be
expected to give rise to any civil or criminal liability under, or prevent
compliance with, any environmental, health or occupational safety statute,
regulation, ordinance or decree other than those the existence of which would
not have a Material Adverse Effect. Without limiting the generality of the
foregoing, except as disclosed in Section 3.11 of the Disclosure Schedule, as
of the date of this Agreement (i) to the Seller's knowledge, no toxic wastes or
other toxic or hazardous substances or materials have been released or disposed
by the Company or any Subsidiary on any of the Leased Real
<PAGE> 23
18
Property in any manner or quantity that could reasonably be expected to give
rise to any material liability of the Company and the Subsidiaries, (ii) the
Company and the Subsidiaries have operated in accordance with all Laws relating
to pollution or protection of the environment, except for such non-compliance
which, singly or in the aggregate, would not have a Material Adverse Effect,
(iii) to the Seller's knowledge, neither the Company nor any of the
Subsidiaries has disposed or arranged (by contract, agreement or otherwise),
within the meaning of Section 107(a)(3) of CERCLA, for the disposal of any
hazardous substance that was generated or used by any of them at any off-site
location that at the time of such disposal was listed or proposed for inclusion
on the National Priority List promulgated pursuant to CERCLA or any list
promulgated by any governmental authority for the purpose of identifying sites
which pose an imminent danger to public health and safety, and (iv) to the
Seller's knowledge, no Governmental Authority has determined that there has
been a hazardous discharge at or from the Leased Real Property.
SECTION 3.12. Licenses and Permits. Except as set forth in
Sections 3.11 and 3.12 of the Disclosure Schedule, (a) the Company and the
Subsidiaries hold all Licenses necessary to carry on the Business as it is now
being conducted, and (b) are in compliance with each such License and all such
Licenses are in full force and effect, except in each case for such Licenses
the absence or impairment of which would not have a Material Adverse Effect.
SECTION 3.13. Intangible Property. (a) The term "Intangible
Property" shall mean each trademark, trade name, service mark, brand mark,
brand name, computer program, database, industrial design and copyright used by
the Company or a Subsidiary in connection with the Business.
(b) Section 3.13 of the Disclosure Schedule lists all
Intangible Property necessary to the conduct of the Business and sets forth,
for any such Intangible Property that is not owned by the Company or a
Subsidiary, the name of the owner and the contract(s) or other arrangements
under which the Company or such Subsidiary uses such Intangible Property.
(c) The Company owns or has the right to use all of the
Intangible Property listed in Section 3.13 of the Disclosure Schedule. As of
the date of this Agreement, except as set forth in Section 3.13 of the
Disclosure Schedule, no Person has a right to receive a royalty or similar
payment in respect of any such Intangible Property pursuant to any contractual
arrangements entered into by the Company or a Subsidiary, and no Action is
pending against the Company or a Subsidiary either (i) challenging or seeking
to deny or restrict the use by the Company or such Subsidiary of any such
Intangible Property or (ii) alleging that any service provided or products
sold, or Intangible Property used, are being provided, sold or used in
violation of any intangible property right of any third person, There are no
uses of intangible Property in the ordinary course of the Business that, to
the knowledge of the Seller, violate or infringe upon any intangible property
owned by a third
<PAGE> 24
19
Person and the Seller does not have knowledge of any infringement or violation
of the right of the Company or any Subsidiary in or to the Intangible Property
by any third party.
SECTION 3.14. Properties. (a) Except as would not have a
Material Adverse Effect, the Company and the Subsidiaries collectively own,
have a valid leasehold interest in or have, the legal right to use all of the
tangible personal property necessary to carry on the Business as currently
conducted, free and clear of all Liens, except Permitted Liens or as set forth
on Section 3.14(a) of the Disclosure Schedule.
(b) Neither the Company nor any Subsidiary owns any real property.
(c) The Seller has delivered to the Purchaser true,
correct and complete copies of the Leases, including all material
amendments, modifications, supplements, side letter agreements and consents
affecting the obligations of any party thereunder. Section 3.14(c) of the
Disclosure Schedule lists each parcel of Leased Real Property and identifies,
with respect to each Lease, the parties thereto, the address of such property
subject to the Lease, the rental payments due thereunder and the term thereof.
Except as disclosed in Section 3.14(c) of the Disclosure Schedule or as would
not have a Material Adverse Effect, the Company or Subsidiary party to the
respective Leases, as of the date of this Agreement, (i) has a valid and
subsisting leasehold interest in each such Lease, and (ii) is in actual and
exclusive possession of all space that it is currently entitled to possess
under each such Lease and no rights adverse to the right of the Company or such
Subsidiary to such possession have, to the knowledge of the Seller, been
asserted by any third Persons. Except as set forth in Section 3.14(c) of the
Disclosure Schedule or as would not have a Material Adverse Effect: (i) with
respect to those Leases that were assigned or subleased to the Company or any
Subsidiaries by a third party, all necessary consents to such assignments or
subleases have been obtained; (ii) neither the Company nor any Subsidiary is
obligated under or a party to any option, right of first refusal or other
contractual right to sell, assign or dispose of any Leased Real Property or any
portion thereof or interest therein; (iii) each of the Leases is in full force
and effect and, to the Seller's knowledge, is valid and there is no default
under any Lease either by the Company or the Subsidiary party thereto or, to
the knowledge of the Seller, by any other party thereto, and no event has, to
the knowledge of the Seller, occurred that with the lapse of time or the giving
of notice or both would constitute a default thereunder; (iv) to the Seller's
knowledge, the Leased Real Property is not subject to any building or use
restrictions that would restrict or prevent the current use and operation of
the Leased Real Property; (v) no Leased Real Property is dependent for its
access, operation or utility on any land, building or other improvement not
part of the Leased Real Property; and (vi) the Leased Real Property abuts a
publicly dedicated right of way and is otherwise not dependent for ingress or
egress on third party interests.
SECTION 3.15. Insurance. (a) Section 3.15(a) of the Disclosure
Schedule sets forth, as of the date of the Agreement, a list of all policies of
insurance covering the Company and the Subsidiaries or the employees of the
Company and the Subsidiaries or its
<PAGE> 25
20
assets, including, without limitation, policies of life, disability, fire,
theft, workers' compensation, employee fidelity and other casualty and
liability insurance. Except as set forth in Section 3.15(a) of the Disclosure
Schedule, all such policies are in full force and effect, and will be
maintained in effect by the Seller up to and including the Closing Date. The
Seller has delivered or otherwise made available to the Purchaser true, correct
and complete copies of each such policy, including all material amendments,
modifications, supplements or side letter agreements relating thereto.
(b) Except as otherwise set forth therein, Section
3.15(b) of the Disclosure Schedule sets forth for each policy of insurance
maintained by or for the benefit of the Company and the Subsidiaries since
October 10, 1989 (i) the name and address of the provider thereof, (ii) the
property or casualty covered thereby and (iii) the amount of coverage provided
thereby (including the deductibles thereof).
SECTION 3.16. Employee Benefit Matters. (a) Section 3.16 of
the Disclosure Schedule contains a true and complete list, as of the date of
the Agreement, of all employee benefit plans (within the meaning of Section
3(3) of ERISA) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance, tuition assistance,
layoff, leave of absence or other contracts or agreements with respect to which
the Company has any obligation or which are maintained, contributed to or
sponsored by the Company for the benefit of any current employee, officer or
director of the Company or any former employee of the Company who was
previously employed in the Business, other than plans, programs, arrangements,
contracts or agreements for which no benefits are payable after the Closing
(the "Employee Plans"). Except as disclosed in Section 3.16 of the Disclosure
Schedule, each Employee Plan is in writing and the Seller has previously
delivered to the Purchaser a true and complete copy of each Employee Plan and a
true and complete copy of each of the following documents, to the extent
applicable, prepared in connection with each such Employee Plan: (i) a copy of
each trust or other funding arrangement, (ii) the most, recently filed IRS Form
5500, (iii) the most recently received IRS determination letter, and (iv) the
most recently prepared actuarial report and financial statement. Except as
otherwise disclosed in Section 3.16 of the Disclosure Schedule, the Seller and
the Company have no express or implied commitment to modify, change or
terminate any Employee Plan, other than with respect to modifications, changes
or terminations required by ERISA or the Code.
(b) None of the Employee Plans (i) is a multiemployer
plan, within the meaning of Section 3(37) or 4001(a)(3) of ERISA, or a single
employer pension plan, within the meaning of Section 4001(a)(15) of ERISA, for
which the Company could incur liability under Section 4063 Or 4064 of ERISA, or
(ii) except as otherwise disclosed in Section 3.16 of the Disclosure Schedule,
provides or promises to provide retiree medical or life insurance benefits
<PAGE> 26
21
(c) With respect to each Employee Plan, neither the
Seller nor the Company is currently liable for any material tax arising under
section 4971, 4972, 4975, 4979, 4980 or 4980B of the Code, and no fact or event
exists which could reasonably give rise to any such liability. Neither the
Seller nor the Company has incurred any material liability under Title IV of
ERISA (other than any liability for premiums, if any, to the Pension Benefit
Guaranty Corporation arising in the ordinary course) that could have a Material
Adverse Effect, and no fact or event exists that could reasonably be expected
to result in such a liability. None of the assets of the Company is the subject
of any Lien: arising under Section 302(f) of ERISA or section 412(n) of the
Code, and neither the Seller nor the Company has been required to post any
security under Section 307 of ERISA or section 401(a)(29) of the Code with
respect to any Employee Plan, and no fact or event exists which could
reasonably give rise to any such Lien or requirement to post any such security.
(d) Each Employee Plan is now and has been operated in
all material respects in accordance with the requirements of all applicable
laws, including, without limitation, ERISA and the Code. The Reference Balance
Sheet reflects accruals of all amounts of employer contributions and premiums
accrued by the Company but unpaid with respect to the Employee Plans as of the
date of the Reference Balance Sheet.
(e) Except as disclosed in Section 3.16 of the Disclosure
Schedule, each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS
that it is so qualified, and each related trust which is intended to be exempt
from federal income tax pursuant to section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and no fact or event
has occurred since the date of such determination letter that could reasonably
be expected to adversely affect such qualification or exemption, as the case
may be,
SECTION 3.17. Labor Matters. Except as set forth in Section
3.17 of the Disclosure Schedule, (i) there are no complaints, charges, claims
or controversies pending or, to the knowledge of the Seller, threatened to be
filed by or before any Governmental Authority arising out of, in connection
with or otherwise relating to the employment by the Company or the Subsidiaries
of any individual wherein any unfavorable outcome would have a Material Adverse
Effect, (ii) neither the Company nor any of the Subsidiaries are parties to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any of the Subsidiaries, (iii) there are no
unfair labor practice complaints pending against the Company or any of the
Subsidiaries before the National Labor Relations Board, (iv) there are no
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any of the Subsidiaries, and (v) as
of the date of this Agreement, there are no organizing activities or
representation proceedings involving the Company or any Subsidiary pending or,
to the knowledge of the Seller, threatened by any labor organization or group
of employees of the Company and the Subsidiaries. Except as set forth in
Section 3.17 of the Disclosure Schedule, the Company
<PAGE> 27
22
and the Subsidiaries are in substantial compliance with all applicable laws
respecting employment practices, terms and conditions of employment,
discrimination, health, safety, workers' compensation, wages and hours and the
collection and payment of withholding and/or social security taxes and similar
taxes the noncompliance with which would have a Material Adverse Effect.
SECTION 3.18. Taxes. Except as set forth in Section 3.18 of
the Disclosure Schedule and except for such matters that are not material: (a)
all federal, state, local and foreign tax returns, reports and statements
required to be filed by the Company have been or will be filed with the
appropriate governmental agencies, and all taxes and other impositions shown
thereon to be due and payable have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto or for nonpayment
thereon, or any such fine, penalty, interest or late charge has been paid; (b)
all such returns, reports and statements are true, complete and correct, and
there are not deficiencies in respect thereof; (c) proper and accurate amounts
have been withheld by the Company from their employees for all periods in
compliance with the tax, Social Security and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective governmental agencies; (d)
the Company has mailed to the recipients of payments made in the ordinary
course of business and filed with the IRS or appropriate Governmental Authority
all information returns required to be filed in respect of such payments and
the Company is not liable for any penalties for failure to file such
information returns nor is it liable for backup withholding in respect of any
such payments; (e) the Federal income tax returns of the Company have not been
audited; (f) no tax returns are currently being audited by the IRS or any other
applicable Governmental Authority, (g) no consent extending the period of
limitations for assessment of any Tax has been executed, except that Federal
and Florida income tax years of the Seller, which include the Company since the
Seller's acquisition thereof, have been extended. Except for such items that
are not material, Section 3.18 of the Disclosure Schedule sets forth each and
every state or other taxing jurisdiction in which the nature of the Company's
business or assets requires it to file income or property tax returns and such
schedule further sets forth for each such jurisdiction the type of return the
Company is required to file.
SECTION 3.19. Brokers. Except for Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Seller. The Seller is solely
responsible for the fees and expenses of Merrill Lynch.
<PAGE> 28
23
SECTION 3.20. Material Contracts.
(a) Section 3.20(a) of the Disclosure Schedule lists the
following contracts, other than the Stock Option Agreements, the Company
Agreements and the Leases (collectively, with the Leases listed in Section
3.14(c) of the Disclosure Schedule, the "Material Contracts"), in effect as of
the date of this Agreement to which the Company, or any Subsidiary is a party:
(i) any commitment, contract, agreement, note, loan,
evidence of indebtedness, purchase order or letter of credit (other
than the Leases listed in Section 3.14(c) of the Disclosure Schedule)
that the Seller reasonably anticipates will, in accordance with its
terms, involve aggregate payments by the Company or any Subsidiary of
more than $100,000 within the 12 month period following the date of
this Agreement and that is not cancelable without liability;
(ii) any lease of personal property involving any annual
expense in excess of $25,000 per lease or $100,000 in the aggregate
for any related group of leases, and not cancelable without liability;
(iii) any contracts or agreements containing covenants
limiting the freedom of the Company or any Subsidiary to engage in any
line of business or compete with any Person;
(iv) all employment agreements;
(v) any contract or agreement with any stockholder,
director, officer or key employee not terminable without penalty or
liability arising from such termination;
(vi) any joint venture agreement, shareholder agreement or
similar arrangement;
(vii) any contract or other agreement relating to
indebtedness for borrowed money or capitalized leases, or other
agreement or contract in respect of which the Company or any
Subsidiary is obligated in any way to provide funds in respect of, or
to guarantee or assume, any debt, obligation or dividend of any
Person, in each case, in excess of $50,000; and
<PAGE> 29
24
(viii) any indemnity arrangement or undertaking arising in
connection with any sale or disposition of assets (other than sales of
assets in the ordinary course of business).
(b) Except as set forth in Section 3.20(b) of the
Disclosure Schedule, neither the Company nor any Subsidiary is (and, to the
knowledge of the Seller, no other party is) as of the date of this Agreement,
in breach or violation of, or default under, any of the Material Contracts,
where such breach, violation or default would have a Material Adverse Effect.
Each Material Contract is, as of the date of this Agreement, a valid agreement,
arrangement or commitment of the Company or the Subsidiary which is a party
thereto and, to the Seller's knowledge, is a valid agreement, arrangement or
commitment of each other party thereto other than the Company or any
Subsidiary, enforceable against such party in accordance with its terms, except
in each case where enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and except where
enforceability is subject to the application of equitable principles or
remedies or as would not have a Material Adverse Effect.
SECTION 3.21. Transactions with Affiliates. Except as set
forth in Section 3.21 of the Disclosure Schedule, there are no existing
transactions, agreements or arrangements between the Company and the
Subsidiaries, on the one hand, and (i) the Seller or any of its Affiliates,
(ii) any director or officer of the Seller or any of its Affiliates or (iii)
any member of the immediate family of any individual described in clause (i) or
(ii) on the other hand.
SECTION 3.22. Absence of Certain Changes or Events. Since the
date of the Reference Balance Sheet through the date of this Agreement and
except as set forth in Section 3.22 of the Disclosure Schedule or as
contemplated by this Agreement, there has not been:
(a) any damage, destruction or loss to any of the assets
or properties of the Company or any Subsidiary involving a loss or
diminution in value of an aggregate of more than $100,000;
(b) any Lien of any kind created on any properties or
assets (whether tangible or intangible) of the Company or any
Subsidiary, other than (i) Permitted Liens, (ii) Liens that will be
released at or prior to the Closing and (iii) Liens on assets having a
value not exceeding $100,000 in the aggregate;
(c) any sale, assignment, transfer, lease or other
disposition or agreement to sell, assign, transfer, lease or otherwise
dispose of any of the fixed assets of the Company or any Subsidiary,
having an aggregate value exceeding $100,000;
<PAGE> 30
25
(d) any acquisition (by merger, consolidation, or
acquisition of stock or assets) by the Company or any Subsidiary of
any corporation, partnership or other business organization or
division thereof for consideration in excess of $100,000 in the
aggregate;
(e) (i) any incurrence by the Company or any Subsidiary
of any indebtedness for borrowed money, (ii) issuance by the Company
or any Subsidiary of any debt securities or (iii) assumption,
granting, guarantee or endorsement, or other accommodation arrangement
making the Company or any Subsidiary responsible for, the Liabilities
of any Person (other than another Subsidiary) having an aggregate
value exceeding $100,000;
(f) any material change in any method of accounting or
accounting practice used by the Company or any Subsidiary;
(g) any Material Adverse Change;
(h) any employment, deferred compensation, severance or
similar agreement entered into or amended by the Company or any
Subsidiary or any increase in the compensation payable or to become
payable by it to any of its directors, officers, employees (other
than normal increases for hourly employees in the ordinary course of
business consistent with past practice), agents or representatives or
any increase in the coverage or benefits available under any severance
pay, termination pay, vacation pay, company awards, salary
continuation or disability, sick leave, deferred compensation, bonus
or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives (other than
normal increases in the ordinary course of business consistent with
past practice and that in the aggregate have not resulted in a
material increase in the benefits or compensation expense of the
Company or the Subsidiaries);
(i) any transaction or Material Contract entered into by
the Company or, any Subsidiary having, in the aggregate, a value or
requiring payments in excess of $100,000;
(j) any failure by the Company or any Subsidiary to pay
and discharge current liabilities within 120 days, except where
disputed in good faith by appropriate proceedings;
(k) any loans, advances or capital contributions by the
Company or any Subsidiary to, or investments in, any Person, other
than loans or advances. to employees in the ordinary course of
business consistent with the past practices of the
<PAGE> 31
26
Company or the Subsidiaries and which in any case, in the aggregate,
do not exceed $25,000;
(l) any amendment, cancellation, termination,
relinquishment, waiver or release by the Company or any Subsidiary of
any Material Contract or right except in the ordinary course of
business consistent with past practice of the Company or the
Subsidiaries and which, in the aggregate, would not be material to the
Company or the Subsidiaries;
(m) any Extraordinary Loss or Extraordinary Losses
suffered by the Company or any Subsidiary;
(n) any capital expenditures or capital additions or
betterments made or committed to be made by the Company or any
Subsidiary in excess of $25,000 individually or $125,000 in the
aggregate per month; or
(o) any agreement to take any actions specified in this
Section 3.22, except for this Agreement.
SECTION 3.23. Receivables. (a) Except as set forth in Section
3.23 of the Disclosure Schedule, there are no employee advances and loans in
excess of $10,000 in the aggregate made by the Company and the Subsidiaries as
of the date of this Agreement.
(b) All accounts receivable of the Company and the
Subsidiaries have arisen in the ordinary course of business consistent with
past practice. The accounts receivable of the Company and the Subsidiaries,
as of July 31, 1994, are reported in the Reference Balance Sheet at their
estimated aggregate net realizable amounts, except that no representation is
made in this sentence with respect to the allowance for doubtful accounts
relating to accounts receivable outstanding in excess of one year or with
respect to which the Company, any Subsidiary or an account debtor has
comumenced litigation.
SECTION 3.24. Customers. The Seller has delivered to the
Purchaser a complete and accurate list, as of the date of this Agreement, of
the 10 largest customers of the Company and the Subsidiaries taken as a whole
in terms of revenues during the fiscal year ended December 31, 1993, showing
the approximate total sales by the Company and the Subsidiaries to each such
customer during such period. Except as set forth in Section 3.24 of the
Disclosure Schedule, from December 31, 1993 through the date of this Agreement,
(a) there has not, to the knowledge of the Company, been any change in the
business relationships of the Company or any Subsidiary with any such customers
that would, in the aggregate, have a Material Adverse Effect and (b) neither
the Company nor any Subsidiary has received any written notice from any such
customers that such customer or customers intend to terminate their business
relationships with the Company or any Subsidiary.
<PAGE> 32
27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
SECTION 4.01. Incorporation and Authority of the Purchaser. The
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of California and has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Purchaser, and (assuming due
authorization, execution and delivery by the Seller) constitutes a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 4.02. No Conflict. Except as may result from any
facts or circumstances relating solely to the Seller, the execution, delivery
and performance of this Agreement by the Purchaser do not and will not (a)
violate or conflict with the Certificate of Incorporation or By-laws (or other
similar applicable documents) of the Purchaser, (b) conflict with or violate
any Law or Governmental Order applicable to the Purchaser, except as would not,
individually or in the aggregate, have or be reasonably likely to have a
material adverse effect on the operations, affairs, business condition
(financial or otherwise) or results of operation of the Purchaser or on the
ability of the Purchaser to consummate the transactions contemplated by this
Agreement, or (c) result in any breach of, or constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Lien on anv
of the assets or properties of the Purchaser pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease;, license, permit, franchise or
other instrument relating to such assets or properties to which the Purchaser
or any of its subsidiaries is a party or by which any of such assets or
properties is bound or affected, except as would not have a material adverse
effect on the Purchaser's ability to consummate the transactions contemplated
by this Agreement.
SECTION 4.03. Absence of Litigation. No claim, action,
proceeding or investigation is pending which seeks to delay or prevent the
consummation of the transactions contemplated hereby or which would be
reasonably likely to materially and adversely affect or restrict the
Purchaser's ability to consummate the transactions contemplated by this
Agreement.
<PAGE> 33
28
SECTION 4.04. Consents and Approvals. The execution and
delivery of this Agreement by the Purchaser do not, and the performance of
this Agreement by the Purchaser will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority or other Person except (a) as described in
a writing delivered to the Seller by the Purchaser on the date hereof, (b) for
the notification and waiting period requirements of the HSR Act, (c) where
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not prevent the Purchaser from performing
any of its material obligations under this Agreement, and (d) as may be
necessary as a result of any facts or circumstances relating solely to the
Seller.
SECTION 4.05. Investment Purpose. The Purchaser is acquiring
the Shares solely for the purpose of investment and not with a view to, or for
offer or sale in connection with, any distribution thereof.
SECTION 4.06. Financing. The Purchaser will have at the time of
the Closing all funds necessary to consummate the transactions contemplated by
this Agreement.
SECTION 4.07. Brokers. Except for J.P. Morgan Securities, Inc.
("J.P. Morgan") and Stephens Inc. ("Stephens"), no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser. The Purchaser
is solely responsible for the fees and expenses of J.P. Morgan and Stephens.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. (a)
Unless the Purchaser otherwise agrees in writing (such agreement not to be
unreasonably withheld) and except as otherwise set forth in Section 5.01 of the
Disclosure Schedule or contemplated in this Agreement, between the date of this
Agreement and the Closing Date, the Seller will cause the Company and each
Subsidiary to:
(i) conduct the Business only in the ordinary course
consistent with past practice, and use reasonable efforts to (A)
preserve its current business operations, organizations and goodwill,
(B) preserve the current relationships of the Company and the
Subsidiaries with their respective customers, suppliers, distributors,
officers and other key employees and other Persons with which the
Company and the Subsidiaries have significant business relationships,
and (C) comply in all material respects with its obligations under the
Material Contracts;
<PAGE> 34
29
(ii) (A) maintain all of its assets and properties in
their current condition, normal wear and tear excepted, and (B)
maintain insurance upon all of such properties and with respect to
operation of the Business in such amounts and of such kinds
comparable to that in effect on the date hereof (with insurers of
substantially the same or better financial condition);
(iii) maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with prior
years;
(iv) maintain inventory of the Company and the
Subsidiaries of similar kind, amount and quality as that maintained on
the date hereof and collect accounts receivable in accordance with
past practice;
(v) maintain or cause to be maintained the Intangible
Property in full force and effect up to the Closing Date and, without
limitation, have renewed or have made and will make within an
applicable renewal period ending on or prior to the Closing Date
application to renew all of the Intangible Property subject to
expiration on or prior to the Closing Date;
(vi) comply in all material respects with all applicable
Laws to which it is subject;
(vii) promptly notify the Purchaser of any (A)
Extraordinary Loss suffered by the Company or any Subsidiary, (B)
damage, destruction or loss to any of the assets or properties of the
Company or any Subsidiary involving a loss or diminution in value in
an aggregate of more than $100,000 or which could cause a Material
Adverse Effect, whether or not such damage, destruction or losses are
covered by insurance, and (C) Action by a Governmental Authority or
material legal proceedings commenced by or against the Company or any
Subsidiaries or any legal proceeding commenced or threatened against
the Seller, the Company or any Subsidiary relating to the transactions
contemplated by this Agreement; and
(viii) accurately record (as soon as reasonably
practicable) in the corporate minute books of the Company and the
Subsidiaries all material corporate action taken on or after the date
hereof by the stockholders or the board of directors (including
committees thereof) of the Company and the Subsidiaries, and promptly
following such recordation deliver true, correct and complete copies
thereof to the Purchaser.
(b) Except as expressly provided in this Agreement or the
Disclosure Schedule (including Section 5.01 thereof), between the date of this
Agreement and the Closing Date, the Seller will not permit the Company or any
of the Subsidiaries to do any of the following without the prior written
consent of the Purchaser, which consent will not be unreasonably withheld:
<PAGE> 35
30
(i) enter into any merger or consolidation with any
corporation or other entity, or engage in any new line of business or
maintain an interest in, or make a loan, advance or capital
contribution to, or investment in, any Person, other than loans or
advances to employees in the ordinary course of business consistent
with past practices of the Company or the Subsidiaries and which in
any case, in the aggregate, do not exceed $25,000;
(ii) enter into or modify in any material respect any
Material Contract with any Person, other than in the ordinary course
of business consistent with past practice;
(iii) make any capital expenditures involving an obligation
on the part of the Company or the Subsidiaries in excess of $125,000
in the aggregate per month;
(iv) (A) increase the rate of compensation payable or to
become payable to any of its employees or agents (other than normal
increases for hourly employees in the ordinary course of business
consistent with past practice), (B) pay or provide for any bonus,
stock option, stock purchase, profit-sharing, deferred compensation,
pension, retirement or other similar payment or arrangement to or in
respect of any such employee or agent except to the extent the Company
or the Subsidiaries are, on the date hereof, contractually obligated
to do so, and (C) enter into any new, or amend in any material respect
any existing, employment, severance, or consulting agreement, sales
agency or other Material Contract with respect to the performance of
personal services;
(v) (A) incur or become subject to, or agree to incur or
become subject to, any obligation or liability (contingent or
otherwise), except (1) normal trade or business obligations (including
Material Contracts) incurred in the ordinary course of business and
consistent with past practice and (2) obligations under Material
Contracts listed on the Disclosure Schedule, (B) except in the
ordinary course of business, discharge or satisfy any Lien or pay any
obligation or liability (fixed or contingent), (C) sell, assign,
transfer, convey, lease or otherwise dispose of, or agree to sell,
assign, transfer, convey, lease or otherwise dispose of, any of the
assets of the Company and the Subsidiaries, other than obsolete
equipment in the ordinary course of business consistent with past
practice, inventory of the Company and the Subsidiaries in the
ordinary course of business, and other assets the aggregate value of
which does not exceed $10,000, (D) cancel or compromise any debt or
claim or waive or release any right of the Company or the
Subsidiaries, except for adjustments or settlements made in the
ordinary course of business consistent with past practice, (E) enter
into any commitment to make or make any capital expenditure in excess
of $25,000 individually or $125,000 in the aggregate per month, (F)
enter into any collective bargaining agreement or enter into
negotiations (the status of which will be regularly communicated to
the Purchaser) with any labor organization relating to any
<PAGE> 36
31
of the employees of the Company or the Subsidiaries, (G) introduce any
material change with respect to the operations of the business of the
Company or the Subsidiaries, including, without limitation, any change
in the method of accounting or the method of stocking inventory, and
(H) enter into any transaction or make or enter into any contract or
commitment which by reason of its size or otherwise is not in the
ordinary course of business consistent with past practice;
(vi) Except as set forth in Section 5.01(b)(vi) of the
Disclosure Schedule, create or permit to exist any Lien on the
Shares, any Lien of any kind on any properties or assets (whether
tangible or intangible) of the Company or any Subsidiary, other than
(A) Permitted Liens, (B) Liens that will be released at or prior to
the Closing and (C) Liens on assets having a value not exceeding
$100,000 in the aggregate;
(vii) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof;
(viii) except where the aggregate value does not exceed
$100,000, (A) incur any indebtedness for borrowed money, any
obligation or liability (contingent or otherwise), (B) issue any debt
securities or (C) assume, grant, guarantee or endorse, or make any
other accommodation arrangement making the Company or any Subsidiary
responsible for, the Liabilities of any Person (other than another
Subsidiary);
(ix) change any method of accounting or accounting
practice used by the Company or any Subsidiary, except as required by
GAAP;
(x) issue or sell any additional shares of the capital
stock of, or other equity interests in, the Company or any Subsidiary,
or securities convertible into or exchangeable for such shares or
equity interests, or issue or grant any options, warrants, calls,
subscription rights or other rights of any kind to acquire additional
shares of such capital stock, such other equity interests, or such
securities,
(xi) declare, set aside or pay any dividend;
(xii) amend the Company's or any Subsidiary's Certificate
of Incorporation or by-laws (or equivalent organizational documents);
or
(xiii) agree to take any of the actions specified in this
Section 5.01(b) except for this Agreement.
(c) The Purchaser acknowledges that the Seller intends to
cancel effective at the Closing, all of the intercompany service agreements and
other arrangements except as
<PAGE> 37
32
set forth in Section 5.01(c) of the Disclosure Schedule and that such
cancellations will not result in a breach of this Agreement.
(d) The Purchaser agrees that if the Seller or the
Company shall request pursuant to Section 5.01(b) that the Purchaser consent to
the acquisition by the Company or any Subsidiary of any corporation, other
entity, assets, store, business division or business operation engaged in the
institutional pharmacy business (the "Target Business") the purchase price of
which does not exceed $5,000,000 and the Purchaser shall withhold such
consent, the Purchaser will not, and will not permit any of its Affiliates to,
acquire, or agree to acquire, the Target Business prior to the earlier of (i)
the Closing Date and (ii) the date that is six months after the date on which
this Agreement shall terminate pursuant to Article X.
SECTION 5.02. Investigation. (a) The Purchaser acknowledges and
agrees that it (i) has made its own inquiry and investigation into, and, based
thereon, has formed an independent judgment concerning, the Company and the
Business, (ii) has been furnished with or given adequate access to such
information about the Company, the Subsidiaries and the Business as it has
requested, and (iii) will not assert any claim against the Seller or any of its
Affiliates or any of their respective directors, officers, employees, agents,
stockholders, consultants, investment bankers or representatives, or hold the
Seller or any such Persons liable, for any inaccuracies, misstatements or
omissions with respect to information (other than, with respect to the Seller,
the Company, the Subsidiaries and the Business, the representations and
warranties contained in this Agreement) furnished by the Seller or such Persons
concerning the Seller, the Company, the Subsidiaries and the Business.
(b) In connection with the Purchaser's investigation of
the Company and the Business. the Purchaser has received, and may receive
hereafter, from the Seller certain estimates, projections, forecasts, plans and
budgets for the Company, including, without limitation, estimated income
statement and balance sheet information for the Company's fiscal year 1994,
projected income statement and balance sheet information for fiscal years 1995
and 1996 and certain plan and budget information. The Purchaser acknowledge's
that there are uncertainties inherent in attempting to make such estimates,
projections, forecasts, plans and budgets, and the Purchaser is familiar with
such uncertainties, is taking full responsibility for making its own evaluation
of the adequacy and accuracy of all estimates, projections, forecasts, plans and
budgets so furnished to it, and will not assert any claim against the
Seller or any of its Affiliates or any of their respective directors, officers,
employees, agents, stockholders, consultants, investment bankers or
representatives, or hold the Seller or any such Persons liable with respect
thereto. Accordingly, the Seller makes no representation or warranty with
respect to any estimates, projections, forecasts, plans or budgets referred to
in this Section 5.02.
SECTION 5.03. Access to Information. (a) From the date hereof
until the Closing, upon reasonable notice, the Seller shall, and share cause
each of its and each of the
<PAGE> 38
33
Company's officers, directors, employees, auditors and agents to, (i) afford
the officers, employees and authorized agents and representatives of the
Purchaser reasonable access, during normal business hours, to the offices,
properties, books and records of the Company and the Subsidiaries (including
copies, as requested) and (ii) furnish to the officers, employees and
authorized agents and representatives of the Purchaser such additional
financial and operating data and other information (including financial
statements and auditor's work papers, if any, relating thereto to the extent
the Seller's Accountants agree to so furnish such work papers, it being
understood that Seller's Accountants will require as a condition to furnishing
such work papers to any Person that such Person execute a customary hold
harmless agreement in respect thereof) regarding the assets, properties,
goodwill and business of the Company and the Subsidiaries as the Purchaser may
from time to time reasonably request; provided, however, that such
investigation shall not unreasonably interfere with any of the businesses or
operations of the Seller or any of its Affiliates.
(b) In order to facilitate the resolution of any claims
made by or against or incurred by the Seller prior to the Closing, the
Purchaser shall, after the Closing, upon reasonable notice (i) afford the
officers, employees and authorized agents and representatives of the Seller
reasonable access, during normal business hours, to the offices, properties,
books and records of the Purchaser, the Company and the Subsidiaries with
respect to the Business, (ii) furnish to the officers, employees and authorized
agents and representatives of the Seller such additional financial and other
information regarding the Business as the Seller may from time to time
reasonably request and (iii) make available to the Seller, at the Seller's
expense, the employees of the Company and the Subsidiaries whose assistance,
testimony or presence is necessary to assist the Seller in evaluating and
defending such claims, including, without limitation, the presence of such
persons as witnesses in hearings or trials for such purposes; provided, however,
that such investigation shall not unreasonably interfere with the business or
operations of the Purchaser or any of its Affiliates.
SECTION 5.04. Books and ecords. (a) The Purchaser agrees that it
shall preserve and keep all books and records of the Company and of the
Subsidiaries in the Purchaser's possession for a period of at least eight years
from the Closing Date. After such eight-year period, the Purchaser shall
provide to the Seller, at least 90 calendar days prior to the disposal of any
such books and records, written notice to such effect, and the Seller shall be
given the opportunity, at Seller's cost and expense, to remove and retain all
or any part of such books and records as the Seller may select. During such
eight-year period, duly authorized representatives of the Seller shall, upon
reasonable notice, have access thereto during normal business hours to examine,
inspect and copy such books and records.
(b) If, in order properly to prepare documents required
to be filed with governmental authorities or its financial statements, it is
necessary that either party hereto or any successors thereto be furnished with
additional information relating to the Company or the Business, and such
information is in the possession of the other party hereto, such party
<PAGE> 39
34
possessing such information agrees to use its best efforts to furnish such
information to such other party hereto, at the cost and expense of the party
being furnished such information.
(c) Each party agrees that it will cooperate with and
make available to the other party, during normal business hours, all books and
records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date which
are necessary or useful in connection with any Tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such books and records, information on employees for any
reasonable business purpose. The party requesting any such books and
records, information or employees shall bear all of the out-of-pocket costs and
expenses (including, without limitation, attorney's fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such books and records, information or employees.
SECTION 5.05. Confidentiality. The terms of the letter agreement
dated as of July 1, 1994 (the "Confidentiality Agreement") between the Seller
and the Purchaser are hereby incorporated by reference and shall continue in
full force and effect until the Closing, at which time such Confidentiality
Agreement and the obligations of the Purchaser under this Section 5.05 shall
terminate; provided, however, that the Confidentiality Agreement shall terminate
only in respect of that portion of the Proprietary Information (as defined in
the Confidentiality Agreement) exclusively relating to the transactions
contemplated by this Agreement. If this Agreement is, for any reason,
terminated prior to the Closing, the Confidentiality Agreement shall continue
in full force and effect in respect of such Proprietary Information.
SECTION 5.06. Regulatory and Other Authorizations; Consents. (a)
Each party hereto will use its reasonable efforts to obtain all authorizations,
consents, orders and approvals of all Federal, state and local regulatory
bodies and officials that may be or become necessary for its execution and
delivery of, and the performance of its obligations pursuant to, this
Agreement, and will cooperate fully with the other party in promptly seeking to
obtain all such authorizations, consents, orders and approvals. Each party
hereto agrees to make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby
within five Business Days of the date hereof and to supply promptly any
additional information and documentary material that may be requested pursuant
to the HSR Act. The parties hereto will not take any action that will have the
effect of delaying, impairing or impeding the receipt of any required
authorizations, consents, orders or approvals, provided, however, that nothing
in this Agreement shall be construed to prevent or impair the Purchaser from
taking any action it deems reasonable in response to any action or proposed or
threatened action by any Governmental Authority with jurisdiction over the
enforcement of any applicable antitrust laws ("Governmental Antitrust
Authority").
<PAGE> 40
35
(b) Without Iimniting the generality of the Purchaser's
undertakings pursuant to Section 5.06(a), the Purchaser shall (i) use its
reasonable efforts to prevent the entry in a judicial or administrative
proceeding brought under any antitrust law by any Govermnental Antitrust
Authority or any other Person of any permanent or preliminary injunction or
other order that would make consummation of the acquisition of the Shares in
accordance with the terms of this Agreement, unlawful or that would prevent or
delay such consummation; and (ii) use its reasonable efforts, in the event that
such an injunction or order has been issued in such a proceeding, to cause such
injunction or order to be vacated, modified or suspended so as to permit such
consummation on a schedule as close as possible to that contemplated by this
Agreement.
(c) The Purchaser will use its reasonable efforts to
assist the Seller in obtaining the releases referred to in Section 8.01(c),
including, without limitation (i) providing to such landlords (A) guarantees by
the Purchaser of the obligations of the Company under the Leases and (B) such
financial statements and other financial informnation with respect to the
Purchaser as such landlords may reasonably request; provided that no material
adjustments shall be made to any such Leases without the Purchaser's prior
wrinen consent, which consent shall not be unreasonably withheld.
SECTION 5.07. No Solicitation. For a period of two years
following the Closing, (a) the Seller shall not, directly or indirectly,
actively solicit or induce any employee of the Company or the Subsidiaries to
leave such employment and become an employee of the Seller or any Affiliate
thereof, and (b) the Purchaser, the Company and its subsidiaries shall not,
directly or indirectly, actively solicit or induce any employee of the Seller
or any Affiliate thereof to leave such employment and become an employee of the
Purchaser or any Affiliate thereof; provided, however, that nothing in this
Section 5.07 shall prohibit the Seller, the Purchaser or any of their
respective Affiliates from employing any Person who contacts them on his or her
own initiative and without any direct or indirect solicitation by the Seller or
any of its Affiliates or by the Purchaser or any of its Affiliates, as the case
may be.
SECTION 5.08. Notification to Governmental Authorities. The
Purchaser, promptly after the Closing, and in any event not later than 60 days
after the Closing Date, shall notify each Governmental Authority (a)
responsible for the regulatory supervision and administration of the Business
or (b) that would have on record the ownership of the Seller or the names of
the officers and directors (either current or former) of the Seller, with
respect to the Purchaser's ownership of the Business and with respect to the
names of the then current officers and directors of the Purchaser.
SECTION 5.09. Transition Expnses. (a) The Seller agrees to be
responsible for all Transition Expenses (as hereinafter defined) incurred prior
to the date that is 18 months after the Closing Date in connection with the
transactions contemplated by this
<PAGE> 41
36
Agreement provided, that the aggregate amount of such expenses for which the
Seller shall be responsible shall not exceed Three Million Dollars
($3,000,000).
(b) Payments of Transition Expenses shall be due and
payable by the Seller as follows:
(i) the sum of $1,000,000 on the date six months
after the Closing Date;
(ii) the sum of $1,000,000 on the date 12 months
after the Closing Date; and
(iii) the sum of $1,000,000 on the date 18 months
after the Closing Date; provided, that to the extent the
aggregate Transition Expenses do not equal at least
$3,000,000, any required adjustment to the payments described
above shall be made at the time of furnishing the final
Summary Transition Expense Report (as hereinafter defined).
(c) The Purchaser shall furnish to the Seller within 45 days after the end
of each full calendar quarter occurring after the Closing Date and through the
earlier to occur of the date 18 months after the Closing Date or the date on
which the Summary Transition Expense Report reflects aggregate Transition
Expenses of at least $3,000,000, a summary report of Transition Expenses from
the Closing Date through the end of such calendar quarter (the "Summary
Transition Expense Report") accompanied by a certificate of an officer of the
Purchaser, certifying as to the nature, type and amount, by category, of such
Transition Expenses. The Purchaser shall provide the Seller with reasonable
access to the books and records of the Purchaser and its Affiliates, including,
without limitation, the Company or any Subsidiary, to the extent required in
order for the Seller to verify the Transition Expenses as provided to the
Seller. The Seller shall have the right to dispute any such amounts only to the
extent that they do not reflect actual Transition Expenses incurred by the
Purchaser or any of its Affiliates, including but not limited to the Company or
any of its Subsidiaries.
(d) As used in this Agreement, "Transition Expenses"
means the following expenses (without regard for any de minimis, threshold,
deductible or other offset or credit mechanisms employed elsewhere in this
Agreement):
(i) All separation costs associated with
voluntary or involuntary termination of any employee of the
Purchaser or its Affiliates, including but not limited to the
Company or any of its Subsidiaries, on or after the Closing
Date and arising as a direct result of the transactions
contemplated by this Agreement, including but not limited to
(A) termination payments, "parachute" payments or other
severance or similar compensatory payments, whether or not
made under any employment, separation, severance,
non-competition or
<PAGE> 42
37
other agreement, arrangement with or commitment to such
employee; (B) vacation, sick leave, leave of absence or layoff
expenses or payments made, whether or not under any unfunded
employee benefit or welfare plan; (C) costs arising out of or
associated with accelerated vesting of any benefits or options
for the account or in favor of any Transferred Employee (as
defined in Section 6.01), including but not limited to stock
options assumed pursuant to Section 6.02 of this Agreement
(but only up to $750,000 in the aggregate of such costs); and
(D) all other direct expenses incurred by the Purchaser as a
result of termination of any such employee, including but not
limited to attorneys' fees and expenses incurred in defending
in good faith any employee claims relating to the foregoing
clauses (A) through (C); provided, that the Seller's
responsibility under clauses (A) and (B) above shall not
exceed the costs that would have been incurred under the plans
and policies of the Company and the Subsidiaries in effect as
of the date of this Agreement; provided further, that if any
of such costs relate to termination of any employee of any
Person other than the Company or its Subsidiaries, the Seller
shall be responsible only (1) for that portion of such costs
which would have been incurred if such terminated employee had
been an employee of the Company or any of its Subsidiaries,
and (2) where there was substantial overlap in function or
geographic area served with respect to services provided by an
employee of the Company or any Subsidiary who was not so
terminated; and provided further, that if any such costs
relate to termination of a group of employees of any Person
other than the Company or any Subsidiary as a result of the
termination or shutdown, in whole or in part, of a Purchaser
Facility (as defined below) which substanially overlaps in
function or geographic area served with a Company Facility (as
defined below), the Seller shall be responsible only for the
aggregate amount of such costs which would have been incurred
if such Company Facility had been terminated or shut down, in
whole or in part, and the employees of the Company or such
Subsidiary associated with such Company Facility had been
terminated; and
(ii) (A) All direct costs associated with or
arising out of termination or shutdown of one or more
facilities owned, leased or subleased by the Purchaser or its
Affiliates other than the Company or its Subsidiaries (the
"Purchaser Facilities"), or of one or more facilities owned,
leased or subleased by the Company or any of its Subsidiaries
(the "Company Facilities"), including but not limited to,
cancellation or termination fees, accelerated rent payments,
liquidated damages or other contract payments or costs arising
out of termination or cancellation of any leases or subleases
on any such facilities; provided that if the facility which is
terminated or shut down is a Purchaser Facility substantially
overlaps in function or geographic area served a Company
Facility, and if the facility which is terminated or shut down
is a Company Facility it substantially overlaps in function
or geographic area
<PAGE> 43
38
served a Purchaser Facility; and (B) all direct costs
associated with transfer, consolidation, relocation or other
similar transition-related activity pertaining to inventory,
equipment, personnel, records and any other related assets as
a result of any Purchaser Facility substantially overlapping
in function or geographic area served any Company Facility,
provided that if any of such costs relate to termination or
shutdown of any Purchaser Facilities, the Seller shall be
responsible only for that portion of such costs that would
have been incurred if the facility which was terminated or
shut down had been a Company Facility.
SECTION 5.10. Further Action. Subject to the terms and
conditions herein provided, each of the parties hereto shall execute and
deliver such documents and other papers and take such further actions as may be
reasonably required to carry out the provisions hereof and to give effect to
the transactions contemplated hereby. Without limiting the generality of the
foregoing, the Seller shall use its reasonable efforts to obtain any required
consents from its lenders under the Credit Agreement as promptly as practicable
following the date of th is Agreement and will keep the Purchaser fully
apprised of the Seller's efforts in connection therewith.
SECTION 5.11 Interim Period Financial Statements. The
Seller shall furnish or cause to be furnished to the Purchaser within 20 days
after the end of each month between the date hereof and the Closing Date,
monthly income statements and balance sheets relating to the Company and the
Subsidiaries, in the form customarily prepared on a regular basis for the
Seller's own use.
SECTION 5.12 Noncompetition. (a) Until the earlier of
(i) the date that is three years after the Closing Date, and (ii) the date of
the complete discontinuance by the Purchaser, its Subsidiaries and their
respective successors and assigns of the Competitive Business in the Territory
(as such terms are defined hereinafter), the Seller shall not establish or
acquire, directly or indirectly, without the prior written consent of the
Purchaser, a company or business division engaged in the business of providing
pharmaceuticals to long-term care facilities (the "Competitive Business") in
the Territory; provided, however, that nothing contained herein shall prevent
the Seller from acquiring one or more business divisions whose principal
operations do not fall within the prohibitions of this covenant,
notwithstanding the fact that such company or business division may conduct
operations in the Territory which would otherwise fall within the prohibitions
of this covenant; and, provided further, that nothing contained herein shall
restrict or otherwise hinder the Seller's ability to conduct any business from
its retail stores including, without limitation, business that would constitute
a Competing Business if it were conducted by the Seller otherwise than through
its retail stores or to own and operate any business other than a Competitive
Business. If, on or before the date that is two years after the Closing Date,
the Seller shall acquire a Competitive Business in the Territory pursuant to
the first proviso of the immediately preceding sentence, the Seller agrees to
use its
<PAGE> 44
39
reasonable efforts to divest itself of such Competitive Business within one
year after the date of such acquisition; provided, however, that,
notwithstanding the foregoing, the Seller shall not be required to divest such
Competitive Business on terms that are materially less favorable to it than the
terms on which such Competitive Business was acquired.
(b) As used in Section, the term "Territory" means the
following jurisdictions: (i) the State of Massachusetts; (ii) the State of
Connecticut; (iii) that portion of the State of Texas which is located north of
an imaginary line extending from the eastern border of the state to the western
border of the state and passing through a point 10 miles south of the southern
boundary of the city of Houston, a point 10 miles south of the southern
boundary of the city of San Antonio and a point 10 miles south of the southern
boundary of the city of El Paso; (iv) the counties of Dade, Duval, Monroe,
Collier, Broward, Hendry, Palm Beach and Lee in the State of Florida; and
(v) the counties of DeKalb, Fulton, Cobb, Gwinnett, Clayton, Douglas, Forsyth
and Fayette in the State of Georgia.
(c) As a separate and independent covenant, the Seller
agrees with the Purchaser that, until the earlier of (i) the date that is three
years after the Closing Date, and, (ii) the date of the complete discontinuance
by the Purchaser, its Subsidiaries and their respective successors and assigns
of the Competitive Business in the Territory, the Seller shall not, directly or
indirectly, call upon, solicit, or attempt to do business constituting
Competitive Business with any customers of the Business, the Company or any
Subsidiary with whom the Business, the Company or any Subsidiary had any
dealings during the period of time in which the Company was a subsidiary of
the Seller, or take away or interfere or attempt to interfere with any custom,
trade, business or patronage of the Business, the Company or any Subsidiary.
(d) Notwithstanding anything to the contrary set forth
herein, the provisions of this Section 5.12 shall not be deemed to limit the
activities of any Person whose business operations in the Territory would
otherwise fall within the prohibitions of this covenant in the event such
Person acquires all or substantially all of the outstanding capital stock or
assets of the Seller, or in connection therewith merges with or into the
Seller.
SECTION 5.13. Use of Name. Anything herein to the contrary
notwithstanding, no interest in or right to use the name "Eckerd" or any
derivation thereof or any logo, trademark or trade name containing the name
"Eckerd" or any derivation thereof (collectively, the "Retained Names and
Marks") is being transferred to the Purchaser pursuant to the transactions
contemplated hereby. The Purchaser will, as promptly as practicable following
the Closing Date, remove or obliterate all the Retained Names and Marks from
its signs, purchase orders, invoices, sales orders, labels, letterheads,
shipping documents and other materials, and the Purchaser shall not put into
use after the Closing Date any such materials that bear any Retained Name or
Mark or any name, mark or logo similar thereto and shall assign, or cause the
Company or any Subsidiary to assign, to the Seller all such Retained Names and
Marks. Notwithstanding the foregoing, the Purchaser
<PAGE> 45
40
shall be entitled for a period of 30 days following the Closing Date to use any
signs, purchase orders, invoices, sales orders, labels, letterheads, packing
materials or shipping documents existing on the Closing Date that bear any
Retained Name or Mark or any name, mark or logo similar thereto, ha each case
where the removal of any Retained Name or Mark or any such similar name, mark
or logo would be impractical; provided, however, that the Purchaser shall place
a stamp, mark or other notation on any such item that identifies the Business
as a business of the Purchaser (and not the Seller). The Purchaser agrees that
the Seller shall have no responsibility for claims by third parties arising out
of, or relating to, the use of the Purchaser or any Subsidiary of any Retained
Name or Mark after the Closing Date, and the Purchaser agrees to defend,
indemnify and hold harmless the Seller from any and all claims that may arise
out of the use thereof by the Purchaser or any business thereof whether or not
in accordance with this Agreement.
SECTION 5.14. Florida Inventory Recoveries. The Seller
shall be entitled to pursue and control the recovery of any amounts to which
the Company or any Subsidiary may be entitled in connection with the theft by a
Subsidiary employee of inventory in Florida, and the purchaser shall (and
shall cause the Company and the Subsidiaries to), at the Seller's expense,
cooperate with, execute and deliver such documents and other papers and take
such further action as may be reasonably requested by, the Seller in order to
facilitate such recovery. The Seller shall be entitled to collect, receive and
retain all such amounts recovered and, to the extent that the Purchaser, the
Company or any Subsidiary shall collect or receive any of such amounts, the
Purchaser shall promptly turn over, or cause to be turned over, all such
amounts to the Seller.
SECTION 5.15. IRB Matters. The Seller will use its
reasonable efforts to obtain releases of the purported guaranties of the
Company issued in connection with the Industrial Revenue Bonds; provided,
however, that unless and until such releases are obtained, the Seller shall
maintain in full force and effect letters of credit issued for the account of
the Seller in support of the Industrial Development Bonds comparable to such
letters of credit outstanding on the date hereof.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Employees. (a) The Purchaser will treat
employees of the Company and the Subsidiaries as of the Closing Date
("Transferred Employee") no less favorably with respect to employee benefits
than its own similarly situated employees (excluding the Transferred
Employees), as reasonably determined by the Purchaser, in good faith, and will
cause the Company and the Subsidiaries to adopt on or promptly after the
<PAGE> 46
41
Closing Date employee benefit plans no less favorable than the employee benefit
plans generally available to such similarly situated employees.
(b) To the extent that service is relevant for purposes
of eligibility, vesting or benefit accrual under any employee benefit plan
(including, without limitation, the Stock Option Plan (as hereinafter
defined)), program or arrangement established or maintained by the Purchaser or
the Company for the benefit of Transferred Employees, the Purchaser shall cause
such Transferred Employees to be credited for service on or prior to the
Closing with the Seller, the Company or any Affiliate thereof.
SECTION 6.02. Stock Options. Effective as of the Closing
Date, the Company's obligations under the Company's First Employees Stock
Option Plan (the "Stock Option Plan") with respect to each outstanding option
granted thereunder to purchase shares of Common Stock ("Stock Options"), as
amended pursuant to the following sentence, shall be assumed by its indirect
parent Beverly Enterprises, Inc. ("BEI") The Stock Options so assumed by BEI
shall continue to have, and be subject to, the same terms and conditions set
forth in the Stock Option Plan as in effect immediately prior to the Closing
Date, except that (a) each such Stock Option shall be exercisable for that
number of whole shares of BEI's common stock ("BEI Common Stock") equal to the
product of the number of shares of Common Stock covered by the Stock Option
immediately prior to the Closing Date multiplied by the Option Exchange Ratio
(as hereinafter defined), rounded to the nearest whole number of shares of BEI
Common Stock, (b) the per share exercise price for the shares of BEI's Common
Stock issuable upon the exercise of such assumed Stock Option shall be equal to
the quotient determined by dividing the exercise price per share of Common
Stock at which such Stock Option was exercisable immediately prior to the
Closing Date by the Option Exchange Ratio, and rounding the resulting exercise
price to the nearest whole cent, and (c) each Stock Option shall become
immediately exercisable, if not already exercisable, and shall remain
exercisable for a period of 90 days upon the involuntary termination of the
employment of the holder of such Stock Option with the Company (other than as a
consequence of cause (as hereinafter defined)) occurring within the one-year
period following the Closing Date or, solely in the case of Mr. Dennis Pyburn,
occurring at any time following the Closing Date. The date of grant shall be
the date on which the Stock Option was originally granted by the Company. BEI
shall (i) reserve for issuance the number of shares of BEI Common Stock that
will become issuable upon the exercise of such Stock Options pursuant to this
Section 6.02 and (ii) as soon as practicable following the Closing Date, issue
to each holder of an outstanding Stock Option a document evidencing the
assumption by BEI of the Company's obligations with respect thereto under this
Section 6.02. Nothing in this Section 6.02 shall affect the schedule of vesting
with respect to the Stock Options to be assumed by BEI as provided in this
Section 6.02. It is the intention of the parties hereto that, subject to
applicable law, the Stock Options assumed by BEI qualify following the Closing
Date as "incentive stock options" (as defined in section 422 of the Code) to
the extent that the Stock Options qualified as incentive stock options prior to
the Closing Date, provided that neither the Purchaser nor BEI shall have any
liability to the
<PAGE> 47
42
Seller, the holder of any such Stock Options or any other Person if such Stock
Options are subsequently determined not to be incentive stock options (as so
defined), as a result of the implementation of this Section 6.02. As used
herein, the "Option Exchange Ratio" means a fraction, the numerator of which is
the quotient determined by dividing the Purchase Price by the number of Shares
outstanding immediately prior to the Closing, and the denominator of which is
the closing price per share of BEI Common Stock on the New York Stock Exchange
on the date immediately preceding the Closing Date. As used in this Section,
"cause" means (i) a felony conviction against the holder of any Stock Options,
(ii) the commission of an act of fraud or embezzlement by such holder against
the Company or any of its subsidiaries, or (iii) with respect to any such
holder who is a party to an employment agreement with the Company, any other
event constituting "cause" as defined in such employment agreement and, with
respect to any such holder who is not a party to any such employment agreement,
any breach of any agreement not to disclose or solicit to which such holder is
a party.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Indemnity. (a) The Seller agrees to indemnify
the Purchaser and the Company against all Taxes of the Company or of any member
of any affiliated group with which the Company files a consolidated or combined
income tax return, with respect to any period or portion thereof that ends on
or before the Closing Date, in excess of the amount reserved for Taxes in the
Closing Balance Sheet not previously taken into account under Section 706(b)
but excluding such Taxes required to be borne by the Purchaser pursuant to
Section 7.08. The Purchaser shall be responsible for Taxes for which it is not
indemnified pursuant to the first sentence hereof, and, in addition, for Taxes
attributable to any transactions occurring on the Closing Date but after the
Closing that are not in the ordinary course of business, other than Taxes based
on income arising by reason of the Election (as hereinafter defined).
(b) In the case of Taxes that are payable with respect to
a taxable period that begins before the Closing Date and ends after the Closing
Date (excluding any such Taxes that are taken into account in allocating
liabilities under Section 7.08), the portion of any such Tax that is allocable
to the portion of the period ending on the Closing Date shall be: (i) in the
case of Taxes that are either (x) based upon or related to income or receipts
or (y) imposed in connection with any sale or other transfer or assignment of
property, real or personal, tangible or intangible (other than conveyances
pursuant to this Agreement, as provided under Section 7.08), deemed equal to
the amount which would be payable if the taxable year ended on the Closing
Date, and (ii) in the case of Taxes imposed on a periodic basis with respect to
the assets of the Company or otherwise, measured by the level of any item,
deemed to be the amount of such Taxes for the emit period (or, in the case of
such
<PAGE> 48
43
Taxes determined on an annual basis, the amount of such Taxes for the
immediately preceding period) multiplied by a fraction, the numerator of which
is the number of calendar days in the portion of such period ending on the
Closing Date, and the denominator of which is the number of calendar days in
the entire period.
SECTION 7.02. Returns and Payments. (a) From the date of this
Agreement through and after the Closing Date, the Seller shall prepare and file
or otherwise furnish to the appropriate Person or cause to be prepared and
filed or so furnished) in a timely manner all Tax returns, reports and forms
("Returns") with respect to the Company for any taxable period ending on or
before the Closing Date, and the Purchaser shall do the same for any taxable
period ending after the Closing Date. Returns filed by the Seller and returns
filed by the Purchaser for any taxable period that includes the Closing Date
shall be prepared in a manner consistent with past practices employed by
the Seller with respect to the Company (except to the extent there is no
reasonable basis in law therefor) and, if the Election (as hereinafter defined)
is made, consistent with the Allocation (as hereinafter defined). With respect
to any Return required to be filed with respect to the Company after the
Closing Date and as to which an amount of Tax is allocable to the Seller under
Section 7.01(b), the Purchaser shall provide to the Seller and its
authorized representatives, at least 30 days prior to the due date (including
any extension thereof) for the filing of such Return, a copy of such completed
Return and a statement (together with supporting schedules and information)
certifying the amount at Tax shown on such Return that is allocable to the
Seller pursuant to Section 7.01(b), and the Seller and its authorized
representatives shall have the right to review such Return and statement prior
to the filing of such Return. The Seller and the Purchaser agree to consult and
to attempt in good faith to resolve any issues arising as a result of such
review of such Return and statement.
(b) The Seller shall pay, or cause to be paid, when due
and payable all Taxes which accrue with respect to the Company and that
are required to be reported on Returns which are required to be filed by the
Seller pursuant to this subsection (b) to the extent such Taxes exceed the
amount, if any, reserved for such Taxes on the Closing Balance Sheet. The
Purchaser shall pay, or cause to be paid, when due and payable all Taxes which
accrue with respect to the Company for any other taxable period (subject to its
right of indemnification from the Seller for the portion of any Tax period that
includes the Closing Date pursuant to Sections 7.01(a) and (b)). Payment by the
Seller of any amounts due under this Article VII shall be made (i) with respect
to agreed amounts, at least three calendar days before the due date of the
applicable estimated or final Return required to be filed by Purchaser on which
is required to be reported or other amounts for a period ending after the
Closing Date for which the Seller is responsible under Section 7.01(a),
provided, however, that no such payment shall be due from the Seller prior to
10 Business Days following receipt of written notice from the Purchaser, or
(ii) within 10 Business Days following either an agreement between the Seller
and the Purchaser that an indemnity amount is payable or a "determination,"
as defined in section 1313(a) of the Code.
<PAGE> 49
44
SECTION 7.03. Refunds. Any refunds received by the
Purchaser or the Company or any of their respective successors of Taxes in
respect of the Company relating to taxable periods or portions thereof ending
on or before the Closing Date shall be for the account of the Seller, and the
Purchaser shall pay over to the Seller any such refund or the amount of any
such benefit within five Business Days of the earlier of receipt or entitlement
thereto. For purposes of the preceding sentence, the term "refund" shall
include any overpayment relating to taxable periods or portions thereof
ending on or before the Closing Date that are applied to or otherwise reduce
the Tax liability of the Purchaser, the Company or any of their respective
successors for any Tax period or portion thereof beginning on or after the
Closing Date. the Purchaser shall, if the Seller so requests, cause the
relevant entity to file for and obtain any refunds or equivalent amounts to
which the Seller is entitled under this Section 7.03. The Purchaser shall
permit the Seller to control the prosecution of any such refund claim, and
shall cause the relevant entity to authorize by appropriate power of attorney
such persons as the Seller shall designate to represent such entity with
respect to such refund claim and the Seller shall reimburse the Purchaser for
all its reasonable out-of-pocket expenses in connection therewith.
SECTION 7.04. Contests. (a) After the Closing, the
Purchaser shall promptly notify the Seller in writing of the commencement of
any Tax audit or administrative or judicial proceeding and shall also
separately notify the Seller in writing of any demand or claim on the Purchaser
or the Company which, if determined adversely to the taxpayer or after the
lapse of time, would be grounds for indemnification by the Seller under this
Article VII. Such notice shall contain factual information (to the extent
known to the Purchaser or the Company) describing the asserted Tax liability in
reasonable detail and shall include copies of any notice or other document
received from any taxing authority in respect of any such asserted Tax
liability.
(b) The Seller may elect to direct, through counsel of
its own choosing and at its own expense, any audit, claim for refund and
administrative or judicial proceeding involving any asserted liability with
respect to which indemnity may be sought under this Article VII (any such
audit, claim for refund or proceeding relating to an asserted Tax liability
being referred to herein as a "Contest"). If the Seller elects to direct the
Contest of an asserted Tax liability, it shall, within 30 calendar days of
receipt of the notice of asserted Tax liability, notify the Purchaser of its
intent to do so, and the Purchaser shall cooperate and shall cause the Company
or its successor to cooperate, at the Seller's expense, in each phase of such
Contest. If the Seller elects not to direct the Contest, fails to notify the
Purchaser of its election as herein provided, or contests its obligation to
indemnify under Section 7.01, the Purchaser or the Company may pay, compromise
or contest, at its own expense such asserted liability; provided, however, that
in such case, neither the Purchaser nor the Company may settle or compromise any
asserted liability over the objection of the Seller and provided, further, that
if Seller does not elect to direct such Contest and does not agree to such
settlement it shall bear the cost of any further Contest by paying to Purchaser
each month, within ten (10) days after rendition by Purchaser of an invoice,
all of
<PAGE> 50
45
Purchaser's out of pocket costs and expenses of prosecuting such Contest. In
any event, each of the Purchaser (or the Company) and the Seller may
participate, at its own expense, in the Contest. If the Seller chooses to
direct the Contest, the Purchaser shall promptly empower and shall cause the
Company or its successor promptly to empower (by power of attorney and such
other documentation as may be appropriate) such representatives of the Seller
as Seller may designate to represent the Purchaser or the Company or its
successor in the Contest insofar as the Contest involves an asserted Tax
liability for which the Seller would be liable under this Article VII.
SECTION 7.05. Tax Benefits. The Purchaser agrees to pay to
the Seller the benefit received by the Company or the Purchaser from the use in
any Tax period of a carryforward of a Tax Asset (as hereinafter defined) from a
taxable period or portion thereof on or prior to the Closing Date. Such benefit
shall be considered to equal the excess of (i) the amount of Taxes that would
have been payable by the Company or the Purchaser in the absence of such
carryforward over (ii) the amount of Taxes actually payable by the Company or
the Purchaser. Payment of such amount shall be made within five Business Days
of filing the applicable Returns for the period to which the Tax Asset is
carried forward. If, subsequent to any such payment by the Purchaser to the
Seller, there shall be a final determination resulting from an audit which
results in a reduction of the Tax Asset so carried forward, the Seller shall
promptly repay to the Purchaser any amount exceeding that which would have been
payable to the Seller pursuant to the preceding sentence had the amount of the
benefit been calculated taking into account such determination, together with
an amount equal to any interest and penalties payable by the Purchaser as a
result of such determination. "Tax Asset" means any net operating loss, net
capital loss, investment tax credit, investment or other tax credit or
charitable deduction or any other Tax attribute (including deductions or
credits relating to alternative minimum taxes) which is allocable under
applicable State or local (but not federal) Tax law to the Company.
SECTION 7.06. Certain Audit Adjustments. (a) If an audit
adjustment, claim for refund or amended return ("Adjustment") after the date
hereof shall both increase a State or local (but not federal) Tax liability
which is allocated to the Seller under Section 7.01 (or reduce losses or
credits otherwise available to the Seller) for a period ending on or before the
Closing Date and decrease a Tax liability of the Purchaser or the Company for a
period ending after the Closing Date, then, when and to the extent that the
Purchaser (or the Company) derives a benefit from such decrease (through a
reduction of Taxes, refund of Taxes paid or credit against Taxes due), the
Purchaser shall promptly pay to the Seller an amount equal to the amount of
such refund, reduction or credit to the extent the Seller has not previously
been compensated for such benefit under Section 7.01(b). Similarly, if an
Adjustment shall both decrease a Tax liability which is allocated to the Seller
under Section 7.01 for a period ending on or before the Closing Date and
increase the Tax liability of the Purchaser or the Company (or reduce losses or
credits otherwise available to any such entity) for a period ending after the
Closing Date, then, when and to the extent that the Seller derives a benefit
from such decrease (through a refund or reduction of Taxes paid or credit
<PAGE> 51
46
against Taxes due), the Seller shall promptly pay to the Purchaser the amount
of such refund, reduction or credit up to the Purchaser's correlative increase
in Tax liability for the period ending after the Closing Date.
(b) If Taxes imposed on the Seller with respect to the
Company for taxable periods or portions thereof ending on or before the Closing
Date are increased as the result of an adjustment on an audit or other
examination by a taxing authority, the Purchaser shall promptly pay the Seller
an amount equal to such increase in Taxes, to the extent that such increase
does not exceed the amount reserved for Taxes in the Closing Balance Sheet not
previously taken into account under Section 7.01.
SECTION 7.07. Cooperation and Exchange of Information. The
Seller and the Purchaser will provide each other, and the Purchaser will cause
the Company to provide the Seller, with such cooperation and information as the
Seller or the Purchaser reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes, or participating in or conducting any audit or other
proceeding in respect of Taxes. Such cooperation shall include providing copies
of relevant Returns or portions thereof, together with accompanying schedules
and related work papers and documents relating to rulings or other
determinations by taxing authorities, but in no event shall the Seller be
required to disclose to the Purchaser any information relating to the
operations of the Seller other than the Company. The Seller and the Purchaser
shall make their respective employees, and the Purchaser shall cause the
Company to make the Company's employees, available on a mutually convenient
basis to provide explanations of any documents or information provided
hereunder. The Seller and the Purchaser will retain, and the Purchaser will
cause the Company to retain, all Returns, schedules and work papers and all
material records or other documents relating to Tax matters of the Company for
its taxable period first ending after the Closing Date and for all prior
taxable periods until the later of (i) the expiration of the statute of
limitations of the taxable periods to which such Returns and other documents
relate, without regard to extensions except to the extent notified by the other
party in writing of such extensions for the respective Tax periods or (ii) six
years following the due date (without extension) for such Returns. After such
time, the Purchaser shall provide to the Seller, at least 90 calendar days
prior to the disposal of any of such books and records, written notice to such
effect, and the Seller shall be given an opportunity, at its cost and expense,
to remove and retain all or any part of such books and records as the Seller
may select. Any information obtained under this Section 7.07 shall be kept
confidential, except as may be otherwise necessary in connection with the
filing of Returns or claims for refund or in conducting an audit or other
proceeding.
SECTION 7.08. Conveyance Taxes. The Purchaser agrees to
assume liability for, and to hold the Seller harmless against, any sales, use,
transfer, stamp, stock transfer, real property transfer, and value added taxes,
any transfer, registration, recording or other fees, and any similar Taxes
incurred as a result of the transactions contemplated hereby, and shall file
such applications and documents as shall permit any such Tax to be assessed and
<PAGE> 52
47
paid on or prior to the Closing Date in accordance with any available pre-sale
filing procedure.
SECTION 7.09. Miscellaneous. (a) The Seller and the
Purchaser agree to treat all payments made by either such party to or for the
benefit of the other such party (including any payments to the Company) under
this Article VII, under other indemnity provisions of this Agreement, and for
any misrepresentations or breach of warranties or covenants as adjustments to
the Purchase Price or as capital contributions for Tax purposes, and that such
agreed treatment shall govern for Tax purposes hereof.
(b) Payments by the Seller pursuant to this Article VII
shall be limited to the amount of any liability or damage that remains after
deducting therefrom or paying to the Seller (i) any indemnity, contribution or
other similar payment recovered by Purchaser from any third party with respect
thereto and (ii) any reserves provided for the item in question on the Closing
Balance Sheet.
(c) For purposes of this Article VII, the terms the
"Purchaser" and the "Seller," respectively, shall include each member of the
affiliated group of corporations of which it is or becomes a member.
(d) The Seller shall cause any tax-sharing agreements or
arrangements with the Company to be terminated as of the Closing Date, with no
amounts to be payable after the Closing in respect of such agreements or
arrangements other than those payable in respect of current tax payable
accounts or as provided in this Agreement.
SECTION 7.10. Section 338(h)(10) Election. (a) The
Purchaser and the Seller shall (i) cooperate in the preparation of an election
under section 338(h)(10) of the Code ("Election") with respect to the purchase
of the Shares hereunder and (ii) jointly file such Election with the Purchaser
on a timely basis and comply with the rules and regulations applicable to such
Election. The Seller and the Purchaser shall, where possible, also make such
election under applicable State or local corporate income or franchise tax law.
(b) The Purchaser shall determine the value of the
tangible and intangible assets of the affected Companies and shall timely
provide the Seller with an allocation of the Purchaser's "adjusted grossed-up
basis" in the Shares (within the meaning of the Treasury Regulations under
section 338 of the Code) to such assets (the "Allocation"); provided, however,
that an officer of the Purchaser shall certify to the Seller in writing that
the Allocation is reasonable. The Allocation shall be binding upon the
Purchaser and the Seller for purposes of allocating the "deemed selling price"
(within the meaning of the Treasury Regulations) among the assets of the
Company and the affected subsidiaries (the "Companies"). If the Allocation is
later adjusted or contested upon audit, settlement or litigation, the Purchaser
shall indemnify the Seller for any costs (including, without limitation,
professional fees) and penalties (but not tax deficiencies or interest)
attributable to
<PAGE> 53
48
such adjusted Allocation or contest; provided, however, that the Seller shall
not incur any professional fees without the Purchaser's consent which shall not
be unreasonably withheld and the Purchaser shall be primarily responsible for
the contest.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller. The
obligations of the Seller to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Purchaser contained in this
Agreement shall be true and correct as of the Closing (except where
the failure to be so true and correct would not have a material
adverse effect), with the same force and effect as if made as of the
Closing, other than such representations and warranties as are made as
of another date, and all the covenants contained in this Agreement to
be complied with by the Purchaser on or before the Closing shall have
been complied with (except where the failure to so comply would not
have a material adverse effect on the Purchaser's ability to
consummate the transactions contemplated by this Agreement), and the
Seller shall have received a certificate of the Purchaser to such
effect signed by a duly authorized officer thereof;
(b) Consents, Approvals, etc. The Seller shall have
received all consents, approvals and authorizations to the
transactions contemplated by this Agreement, including, without
limitation, each of the consents described in Section 3.06 of the
Disclosure Schedule as required to permit the consummation of such
transactions;
(c) Release of Guarantees, etc. (i) All guarantees
executed by the Seller in connection with the Leases as disclosed in
Section 3.14 of the Disclosure Schedule, shall have been released by
the appropriate Persons, or, at the Purchaser's option, the Purchaser
shall have indemnified the Seller against any liability thereunder
arising with respect to the period beginning on the Closing Date,
which indemnity shall be in form and substance satisfactory to Seller;
and (ii) the Seller shall have been released by the appropriate
Persons from its capacity as co-lessee under all Leases in which the
Seller is so designated or acts in such capacity, or, at the
Purchaser's option, the Purchaser shall have indemnified Seller
against any liability arising in connection with such designation or
capacity with respect to the period beginning on the Closing Date,
which indemnity shall be in form and substance satisfactory to Seller;
<PAGE> 54
49
(d) Secretary's Certificate. The Purchaser shall have
delivered to the Seller a certificate of the Secretary of the
Purchaser, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Seller;
(e) Legal Opinions. The Seller shall have received from
the Purchaser's counsel legal opinions, addressed to the Seller and
dated the Closing Date, in form and substance reasonably satisfactory
to the Seller;
(f) Satisfaction of Obligations. The Seller shall have
received evidence reasonably satisfactory to it that the obligations
specified in Sections 8.03(d), (e), and (f) have been satisfied; and
(g) Approval by Banks. The Seller shall have received any
consent required under the Credit Agreement and the other documents
executed in connection therewith.
SECTION 8.02. Conditions to Obligations of the Purchaser.
The obligations of the Purchaser to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the Closing,
of each of the following conditions:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Seller contained in this
Agreement shall be true and correct as of the Closing (except where
the failure to be so true and correct would not have a Material
Adverse Effect), with the same force and effect as if made as of the
Closing, other than such representations and warranties as are made as
of another date, and all the covenants contained in this Agreement to
be complied with by the Seller on or before the Closing shall have
been complied with (except where the failure to so comply would not
have a Material Adverse Effect), and the Purchaser shall have received
a certificate of the Seller to such effect signed by a duly authorized
officer thereof; provided, however, that if (x) any Action is
commenced against the Company or any Subsidiary after the date of this
Agreement and prior to the Closing Date the effect of which could be
to cause the condition set forth in this Section 8.02(a) to fail to be
fulfilled, and (y) the Purchaser fails to notify the Seller that the
Purchaser intends to assert that such Action has caused the condition
set forth in this Section 8.02(a) to fail to be fulfilled, on or prior
to the later of (1) the date on which the condition set forth in
Section 8.03(g) is satisfied, and (2) 45 days after the date on which
the Purchaser is notified in writing by the Seller of the commencement
of such Action, describing in reasonable detail the facts and
circumstances with respect to the subject matter of such Action, then,
such Action shall be entirely disregarded for purposes of determining
whether the condition set forth in this Section 8.02(a) has been
satisfied;
(b) Consents, Approvals, etc. The Seller shall have
received all consents, approvals and authorizations to the
transactions contemplated by this Agreement,
<PAGE> 55
50
including, without limitation, each of the consents described in
Section 3.06 of the Disclosure Schedule and the consent of the lenders
party to the Credit Agreement, as required to permit the consummation
of such transactions, except to the extent that the failure to obtain
any such consents, approvals and authorizations would not have a
Material Adverse Effect;
(c) Release of Guarantees. All guarantees and the
indemnity, contribution and subrogation agreement executed by the
Company or any Subsidiary thereof in connection with the Credit
Agreement shall have been released by the appropriate Persons;
(d) Secretary's Certificate. The Seller shall have
delivered to the Purchaser a certificate of the Secretary of the
Seller, dated as of the Closing Date, in form and substance
satisfactory to the Purchaser; and
(e) Legal Opinions. The Purchaser shall have received
from the Seller's counsel legal opinions, addressed to the Purchaser
and dated the Closing Date, in form and substance reasonably
satisfactory to the Purchaser.
SECTION 8.03. Mutual Conditions to Obligations. The
obligations of the Seller and of the Purchaser, respectively, to consummate the
transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions:
(a) HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable to the purchase of the Shares
contemplated hereby shall have expired or shall have been terminated;
(b) No Order. No United States or state governmental
authority or other agency or commission or United States or state
court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or
permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise
restraining or prohibiting consummation of such transactions;
provided, however, that the parties hereto shall use their reasonable
efforts to have any such order or injunction vacated;
(c) Release of Liens. All Liens on or against the Shares
or the Subsidiary Shares or any assets of the Company or the
Subsidiaries created in connection with the Credit Agreement in favor
of the lenders party thereto shall have been released by Chemical
Bank, as collateral agent for such lenders, which releases are subject
to the conditions set forth in Section 8.03(c) of the Disclosure
Schedule;
<PAGE> 56
51
(d) Convertible Debentures. (i) The Company shall have
redeemed, prepaid or otherwise cancelled the Convertible Debentures,
and the promissory notes delivered to the Company in connection with
the issuance of such Convertible Debentures shall have been cancelled
and (ii) the provisions of each employment agreement between the
Company and such holders of the Convertible Debentures relating to the
payment of the "Additional Compensation" referred to therein shall be
deleted;
(e) Stock Option Agreements. The options to purchase
shares of Common Stock granted to each of Joseph N. Klalo, Robert D.
Stevens and Francis Downing pursuant to the Stock Option Agreements
shall have been redeemed, repurchased or otherwise cancelled by the
Company;
(f) Company Agreements. All obligations arising pursuant
to the terms of the Company Agreements as a result of the sale of the
Shares as contemplated by this Agreement shall have been paid or
otherwise satisfied by the Company;
(g) DEA and Other Governmental Actions. The Actions
listed in Items A, B, C and D of Section 3.09 of the Disclosure
Schedule shall have been resolved to the reasonable satisfaction of
the Seller and the Purchaser, subject to the provisions of Section
9.03(j); provided, however, that such Actions will be deemed to have
been resolved to the reasonable satisfaction of the Seller and the
Purchaser if such resolution involves only the making of cash
payments, related ministerial acts and the agreement of the Company
and/or the Subsidiaries to refrain from future violations; and
(h) New Governmental Actions. Any Action commenced by a
Governmental Authority against the Company or any Subsidiary after the
date of this Agreement alleging violations of Law by the Company
and/or any Subsidiary comparable to the violations alleged in
connection with the Actions listed in Items A, B, C or D of Section
3.09 of the Disclosure Schedule shall have been resolved to the
reasonable satisfaction of the Seller and the Purchaser, subject to
the provisions of Section 9.03(j); provided, however, that such
Actions will be deemed to have been resolved to the reasonable
satisfaction of the Seller and the Purchaser if such resolution
involves only the making of cash payments, related ministerial acts
and the agreement of the Company and/or the Subsidiaries to refrain
from future violations.
<PAGE> 57
52
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival. Subject to the limitations and
other provisions of this Agreement, the representations, warranties, covenants
and agreements of the parties contained herein shall survive the Closing and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Seller or the Purchaser, for a period of 18 months after
the Closing Date; provided, however, that (i) the representations and
warranties set forth in Section 3.11 shall remain in full force and effect for
a period of five years after the Closing Date and (ii) the representations and
warranties set forth in Section 3.18 and the agreements set forth in Sections
5.01(d), 5.02(b), 5.03(b), 5.04, 5.05, 5.07, 5.09, 5.10, 5.12, 5.13, 5.14 and
5.15 and Articles VI, VII, IX and XI shall remain in full force and effect for
the applicable periods specified in the respective Sections or Articles or, if
no such period is specified, until the applicable period under the statute of
limitations therefor has expired.
SECTION 9.02. Indemnification by the Purchaser. (a) The
Purchaser agrees, subject to the other terms and conditions of this Agreement
and without gross-up for Taxes, to indemnify the Seller and its Affiliates and
their respective officers, directors, employees, agents, successors and assigns
(as used in this Section 9.02, each an "Indemnified Party") against, and to
hold them harmless from, all liabilities of and damages tO the Seller arising
out of the material breach of any representation, warranty, covenant or
agreement of the Purchaser herein (other than in Article VII, it being
understood that the sole remedy for breach thereof shall be pursuant to Article
VII, as the case may be). Anything in Section 9.01 to the contrary
notwithstanding, no claim may be asserted nor may any action be commenced
against the Purchaser for breach of any representation, warranty, covenant or
agreement contained herein, unless written notice of such claim or action is
received by the Purchaser describing in detail the facts and circumstances with
respect to the subject matter of such claim or action on or prior to the date
on which the representation, warranty, covenant or agreement on which such
claim or action is based ceases to survive as set forth in Section 9.01,
irrespective of whether the subject matter of such claim or action shall have
occurred before or after such date.
(b) No claim may be made against the Purchaser for
indemnification pursuant to this Section 9.02 with respect to any individual
item of liability or damage, unless such item exceeds U.S.$25,000 and unless
the aggregate of all such liabilities and damages of the Indemnified Parties
with respect to this Section 9.02 shall exceed U.S.$1,O00,000, and the
Purchaser shall not be required to pay or be liable for the first
U.S.$1,000,000 in aggregate amount of any such liabilities and damages. No
Indemnified Party shall be indemnified pursuant to this Section 9.02 with
respect to any individual item of liability or damage if the aggregate of all
liabilities and damages of the Indemnified Parties for which the Indemnified
Parties have received indemnification pursuant to this Section 9.02
<PAGE> 58
53
shall have exceeded an amount equal to 100% of the Total Consideration. For the
purposes of this Section 9.02(b), in computing such individual or aggregate
amounts of claims, the amount of each claim shall be deemed to be an amount (i)
net of any Tax benefit to the Indemnified Parties, (ii) net of any insurance
proceeds and any indemnity, contribution or other similar payment recovered by
the Indemnified Parties from any third party with respect thereto and (iii)
without duplication of any adjustments to the Total Consideration paid pursuant
to Section 2.02 with respect to the subject matter in dispute.
(c) Payments by the Purchaser pursuant to Section 9.02(a)
shall be limited to the amount of any liability or damage that remains after
deducting therefrom (i) any Tax benefit to the Indemnified Parties, (ii) any
insurance proceeds and any indemnity, contribution or other similar payment
recovered by the Indemnified Parties from any third party with respect thereto
and (iii) any adjustments to the Total Consideration paid to the Seller
pursuant to Section 2.02 with respect to the matter in dispute. A Tax benefit
will be considered to be recognized by the Indemnified Party for purposes of
this Section 9.02 in the tax period in which the indemnity payment occurs, and
the amount of the Tax benefit shall be determined by assuming that the
Indemnified Party is in the maximum applicable statutory tax bracket after any
deductions or other allowances reportable with respect to a payment hereunder.
(d) An Indemnified Party shall give the Purchaser written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which an Indemnified Party has knowledge concerning any liability or
damage as to which such Indemnified Party may request indemnification hereunder
or any liability or damage as to which the U.S.$1,O00,000 amount referred to in
Section 9.02(b) may be applied as soon as practicable and in any event within
30 days after the time that the Indemnified Party learns of such claim,
assertion, event or proceeding, provided, however, that the failure to so
notify the Purchaser shall not affect the Indemnified Party's rights to
indemnification hereunder except to the extent that the Purchaser is prejudiced
by such failure or such notice is given after the date specified in the last
sentence of Section 9.02(a). The Purchaser shall have the right to direct,
through counsel of its own choosing, the defense or settlement of any such
claim or proceeding at its own expense. If the Purchaser elects to assume the
defense of any such claim or proceeding, the Indemnified Party may participate
in such defense, but in such case the expenses of the Indemnified Party shall
be paid by the Indemnified Party, provided that such expenses may be at the
Purchaser's expense if (i) the Purchaser shall have agreed to the retention of
separate counsel, or (ii) counsel for the Purchaser shall have advised the
Purchaser and such Indemnified Party in writing that such representation by the
same counsel would be inappropriate due to actual differing interests between
them in the conduct in respect of such claim, assertion, event or proceeding.
The Indemnified Party shall provide the Purchaser with access to its records
and personnel relating to any such claim, assertion, event or proceeding during
normal business hours and shall otherwise cooperate with the Purchaser in the
defense or settlement thereof, and the Purchaser shall reimburse the
Indemnified Party for all its reasonable out-of-pocket expenses in connection
therewith. If
<PAGE> 59
54
the Purchaser elects to direct the defense of any such claim or proceeding, the
Indemnified Party shall not pay, or permit to be paid, any part of any claim or
demand arising from such asserted liability, unless the Purchaser consents in
writing to such payment or unless the Purchaser, subject to the last sentence
of this Section 9.02(d), withdraws from the defense of such asserted liability,
or unless a final judgment from which no appeal may be taken by or on behalf of
the Purchaser is entered against the Indemnified Party for such liability. If
the Purchaser shall fail to defend, or if, after commencing or undertaking any
such defense, the Purchaser fails to prosecute or withdraws from such defense,
the Indemnified Party shall have the right to undertake the defense or
settlement thereof, at the Purchaser's expense. If the Indemnified Party
assumes the defense of any such claim or proceeding pursuant to this Section
9.02(d) and proposes to settle such claim or proceeding prior to a final
judgment thereon or to forego appeal with respect thereto, then the Indemnified
Party shall give the Purchaser prompt written notice thereof and the Purchaser
shall have the right to participate in the settlement or assume or reassume the
defense of such claim or proceeding.
(e) The Seller hereby acknowledges and agrees that,
except as provided in Section 2.02(b), its sole and exclusive remedy with
respect to any and all claims relating to the subject matter of this Agreement
shall be pursuant to the indemnification provisions set forth in this Article
IX and in Article VII. In furtherance of the foregoing, the Seller hereby
waives, to the fullest extent permitted under applicable law, any and all
rights, claims and causes of action it may have against the Purchaser or its
officers, directors, employees, agents, representatives and Affiliates relating
to the subject matter of this Agreement and arising under or based upon any
Federal, state or local statute, law, ordinance, rule or regulation (including,
without limitation, any such rights, claims or causes of action arising under
or based upon common law or otherwise).
(f) Except as set forth in this Agreement, the Purchaser
is not making any representation, warranty, covenant or agreement with respect
to the matters contained herein. Anything herein to the contrary
notwithstanding, no breach of any representation, warranty, covenant or
agreement contained herein shall give rise to any right on the part of the
Indemnified Party, after the consummation of the purchase and sale of the
Shares contemplated by this Agreement, to rescind this Agreement or any of the
transactions contemplated hereby.
(g) The Purchaser shall have no liability under any
provision of this Agreement for any liabilities and damages to the extent that
such liabilities and damages relate to actions taken by the Seller or its
Affiliates before the Closing Date, and in no event shall the Purchaser be
liable for consequential damages. The Seller shall take all reasonable steps to
mitigate all such liabilities and damages upon and after becoming aware of any
event which could reasonably be expected to give rise to such liabilities and
damages.
(h) For purposes of this Section 9.02, in determining
whether there has been a breach of any representation or warranty contained in
Article IV, such representations
<PAGE> 60
55
and warranties shall not be qualified by the terms "Material Adverse Effect" or
"Material Adverse Change" or by any phrase using such terms.
SECTION 9.03. Indemnification by the Seller. (a) The Seller
agrees, subject to the other terms and conditions of this Agreement and
without gross-up for Taxes, to indemnify the Purchaser and its Affiliates and
their respective officers, directors, employees, agents, successors and
assigns (as used in this Section 9.03, each an "Indemnified Party") against,
and to hold them harmless from, all liabilities of and damages to the Purchaser
arising out of (i) the material breach of any representation, warranty,
covenant or agreement of the Seller herein (other than in Section 3.18 and
Article VII, it being understood that the sole remedy for breach thereof shall
be pursuant to Section 3.18 and Article VII, as the case may be), (ii) any
legal or administrative proceeding commenced against the Company or any
Subsidiary prior to the Closing Date, (iii) any Action commenced by a
Governmental Authority against the Purchaser, the Company or any Subsidiary on
or after the Closing Date through the date 18 months after the Closing Date
and to the extent arising out of facts and circumstances existing or occurring
prior to the Closing Date relating to the ownership or operation of the
Business, (iv) any Action commenced by any Person (other than a Governmental
Authority) against the Purchaser, the Company or any Subsidiary on or after
the Closing Date through the date 18 months after the Closing Date and to the
extent arising out of facts and circumstances existing or occurring prior to
the Closing Date relating to the ownership or operation of The Business, and
(v) any failure by The Company to satisfy all of the obligations referred to
in clauses (i), (ii), (iii) and (iv) of Section 2.03(e). Anything in Section
9.01 to the contrary notwithstanding, no claim may be asserted nor may any
action be commenced against the Seller for (x) breach of any representation,
warranty, covenant or agreement contained herein, unless written notice of
such claim or action is received by the Seller describing in reasonable detail
the facts and circumstances with respect to the subject matter of such claim
or action on or prior to the date on which the representation, warranty,
covenant or agreement on which such claim or action is based ceases to survive
as set forth in Section 9.01, irrespective of whether the subject matter of
such claim or action shall have occurred before or after such date or (y) any
claim by the Purchaser against the Seller arising out of clause (iii) or (iv)
of the immediately preceding sentence, unless written notice of such claim is
received by the Seller describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim on or prior to
the date that is 18 months after the Closing Date.
(b) No claim may be made against the Seller for
indemnification pursuant to Section 9.03(a)(i) or 9.03(a)(iv) with respect to
any individual item of liability or damage, unless such item exceeds
U.S.$25,000 and unless the aggregate of all such liabilities and damages of the
Indemnified Parties with respect to such Section 9.03(a)(i) and 9.03(a)(iv)
shall exceed U.S.$1,000,000, and the Seller shall not be required to pay or be
liable for the first U.S.$1,000,000 in aggregate amount of any such
liabilities and damages. No Indemnified Party shall be indemnified pursuant to
Section 9.03(a) with respect to any individual item of liability or damage if
the aggregate of all liabilities and damages of the
<PAGE> 61
56
Indemnified Parties for which the Indemnified Parties have received
indemnification pursuant to this Section 9.03 shall have exceeded an amount
equal to 100% of the Total Consideration. For the purposes of this Section
9.03(b), in computing such individual or aggregate amounts of claims, the
amount of each claim shall be deemed to be an amount (i) net of any Tax benefit
to the Indemnified Parties, (ii) net of any insurance proceeds and any
indemnity, contribution or other similar payment recovered by the Indemnified
Parties from any third party with respect thereto, (iii) net of any reserves
provided for the item in question in the Adjusted Closing Balance Sheet and
(iv) without duplication of any adjustments to the Total Consideration paid
pursuant to Section 2.02 with respect to the subject matter in dispute.
(c) Payments by the Seller pursuant to Section 9.03(a)
shall be limited to the amount of any liability or damage that remains after
deducting therefrom (i) any Tax benefit to the Indemnified Parties, (ii) any
insurance proceeds and any indemnity, contribution or other similar payment
recovered by the Indemnified Parties from any third party with respect thereto,
(iii) any reserves provided for the item in question in the Adjusted Closing
Balance Sheet and (iv) any adjustments to the Total Consideration paid pursuant
to Section 2.02 with respect to the subject matter in dispute. A Tax benefit
will be considered to be recognized by an Indemnified Party for purposes of
this Section 9.03 in the tax period in which the indemnity payment occurs, and
the amount of the Tax benefit shall be determined by assuming that such
Indemnified Party is in the maximum applicable statutory tax bracket after any
deductions or other allowances reportable with respect to a payment hereunder.
(d) An Indemnified Party shall give the Seller written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which such Indemnified Party has knowledge concerning any liability or
damage as to which such Indemnified Party may request indemnification hereunder
or any liability or damage as to which the U.S.$1,000,000 amount referred to in
Section 9.03(b) may be applied as soon as practicable and in any event within
30 days after the time that the Indemnified Party learns of such claim,
assertion, event or proceeding; provided, however, that the failure to so notify
the Seller shall not affect the Indemnified Party's rights to indemnification
hereunder except to the extent that the Seller is prejudiced by such failure or
such notice is given after the date specified in the last sentence of Section
9.03(a). The Seller shall have the right to direct, through counsel of its own
choosing, the defense or settlement of any such claim or proceeding at its own
expense. If the Seller elects to assume the defense of any such claim or
proceeding, the Indemnified Party may participate in such defense, but in such
case the expenses of the Indemnified Party shall be paid by the Indemnified
Party, provided that such expenses may be at the Seller's expense if (i) the
Seller shall have agreed to the retention of separate counsel, or (ii) counsel
for the Seller shall have advised the Seller and the Indemnified Party in
writing that such representation by the same counsel would be inappropriate due
to actual differing interests between them in the conduct in respect of such
claim, assertion, event or proceeding. The Indemnified Party shall provide the
Seller with
<PAGE> 62
57
access to its records and personnel relating to any such claim, assertion,
event or proceeding during normal business hours and shall otherwise cooperate
with the Seller in the defense or settlement thereof, and the Seller shall
reimburse the Indemnified Party for all its reasonable out-of-pocket expenses
in connection therewith. If the Seller elects to direct the defense of any
such claim or proceeding, the Indemnified Party shall not pay, or permit to be
paid, any part of any claim or demand arising from such asserted liability
unless the Seller consents in writing to such payment or unless the Seller,
subject to the last sentence of this Section 9.03(d), withdraws from the
defense of such asserted liability or unless a final judgment from which no
appeal may be taken by or on behalf of the Seller is entered against the
Indemnified Party for such liability. If the Seller shall fail to defend, or if
after commencing or undertaking any such defense, the Seller fails to
prosecute or withdraws from such defense, the Indemnified Party shall have the
right to undertake the defense or settlement thereof, at the Seller's expense.
If the Indemnified Party assumes the defense of any such claim or proceeding
pursuant to this Section 9.03(d) and proposes to settle such claim or
proceeding prior to a final judgment thereon or to forego any appeal with
respect thereto, then the Indemnified Party shall give the Seller prompt
written notice thereof and the Seller shall have the right to participate in
the settlement or assume or reassume the defense of such claim or proceeding.
(e) Anything in this Article IX to the contrary
notwithstanding, the Seller shall have no obligation under this Article IX to
indemnify any Indemnified Party with respect to any matter that (i) was the
subject of a dispute with respect to the Adjusted Closing Balance Sheet
pursuant to the terms of Section 2.02(b) but did not result in an adjustment
to the Total Consideration pursuant to such Section 2.02(b), or (ii) could have
been the subject matter of a dispute with respect to the Adjusted Closing
Balance Sheet pursuant to the terms of Section 2.02(b) but was not asserted
by the Purchaser regardless of whether any such dispute could have involved an
amount greater or less than the Designated Amount. Any such matter shall be
disregarded for all purposes of this Section 9.03.
(f) The Purchaser hereby acknowledges and agrees that,
except as provided in Section 2.02(b), its sole and exclusive remedy with
respect to any and all claims relating to the subject matter of this Agreement
shall be pursuant to the indemnification provisions set forth in this Article
IX and in Article VII. In furtherance of the foregoing, the Purchaser hereby
waives, to the fullest extent permitted under applicable law, any and all
rights, claims and causes of action it (or, after the Closing, the Company)
may have against the Seller or its officers, directors, employees, agents,
representatives and Affiliates relating to the subject matter of this
Agreement and arising under or based upon any Federal, state or local statute,
law, ordinance, rule or regulation (including, without limitation, any such
rights, claims or causes of action arising under or based upon common law or
otherwise).
(g) Except as set forth in this Agreement, the Seller is
not making any representation, warranty, covenant or agreement with respect to
the matters contained herein. Anything herein to the contrary notwithstanding,
no breach of any representation, warranty,
<PAGE> 63
58
covenant or agreement contained herein shall give rise to any right on the part
of the Purchaser, after the consummation of the purchase and sale of the Shares
contemplated hereby, to rescind this Agreement or any of the transactions
contemplated hereby.
(h) The Seller shall have no liability under any
provision of this Agreement for any liabilities and damages to the extent that
such liabilities and damages relate to actions taken by the Purchaser or its
Affiliates, including, without limitation, the Company and the Subsidiaries,
after the Closing Date, and in no event shall the Seller be liable for
consequential damages. The Purchaser shall take, and shall cause the Company
and the Subsidiaries to take, all reasonable steps to mitigate all such
liabilities and damages upon and after becoming aware of any event which
could reasonably be expected to give rise to such liabilities and damages,
including, without limitation, pursuing or authorizing the Seller to pursue on
the Purchaser's, the Company's or any Subsidiary's behalf, any claim the
Purchaser, the Company or any Subsidiary may have against third parties which
is related to the matter with respect to which the notice or claim for
indemnification may be made or, at the Purchaser's option, assigning any such
claim that may be assigned to the Seller. In connection with the pursuit of any
such claim against a third party or the assignment of any such claim to the
Seller, the Purchaser shall (and shall cause the Company and each Subsidiary
to) cooperate with the Seller, and execute and deliver such documents and other
papers and take such further actions as may be reasonably requested by the
Seller to carry out the provisions of this paragraph.
(i) For purposes of this Section 9.03, in determining
whether there has been a breach of any representation or warranty contained in
Article III, such representations and warranties shall not be qualified by the
terms "Material Adverse Effect" or "Material Adverse Change" or by any phrase
using such terms.
(j) Notwithstanding anything to the contrary in this
Article IX, the Seller shall control (and the Purchaser shall reasonably
cooperate at the Seller's expense in connection therewith) the disposition of
the Actions identified in Section 9.03(a) (ii), (iii) and (iv); provided,
however, that without the prior consent of the Purchaser, the Seller shall not
enter into any agreements with any Governmental Authority to settle any such
Action if the terms of such settlement require the Purchaser or any of its
Affiliates (i) to agree to take any action relating to their respective
businesses (other than the making of cash payments and related ministerial
acts), or (ii) to agree to refrain from taking any such action (other than
refraining from future violations so long as the Seller does not also agree to
the imposition of any specified penalties on the Purchaser or any of its
Affiliates in the event of the occurrence of any such future violations).
<PAGE> 64
59
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated
at any time prior to the Closing:
(a) by the mutual written consent of the Seller and the
Purchaser;
(b) by either the Seller or the Purchaser, if the
Closing shall not have occurred by the 105th calendar day after the
date of this Agreement if the conditions set forth in Section 8.03(a),
Section 8.03(b) or Section 8.03(g) shall not have been satisfied; or
(c) by either the Seller or the Purchaser, if the Closing
shall not have occurred prior to the date that is nine months after
the date of this Agreement; provided, however, that the right to
terminate this Agreement under this Section 10.01(c) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall have resulted
in, the failure of the Closing to occur prior to such date.
Time shall be of the essence in this Agreement.
SECTION 10.02. Effect of Termination. In the event of
termination of this Agreement as provided in Section 10.01, this Agreement
shall forthwith become void and there shall be no obligation or liability on
the part of any party hereto except (a) as set forth in Sections 5.01(d), 5.05
and 11.01 and (b) nothing herein shall relieve either party from liability for
any wilful breach of this Agreement.
SECTION 10.03. Extension Waiver. At any time prior to the
Closing, either party hereto may (a) extend the time for the performance of any
of the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party to be
bound thereby.
<PAGE> 65
60
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. All costs and expenses including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 11.02. Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made as of the date delivered, mailed or telecopied if
delivered personally or mailed by registered or certified mail (postage
prepaid, return receipt requested), or telecopied, as the case may be (except
that notices after the giving of which there is a designated period within
which to perform an act and notices of changes of address shall be effective
only upon receipt) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to the Seller:
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 34647
Attention: Samuel G. Wright
Senior Vice President-Finance
and
Robert E. Lewis
General Counsel
Telecopier: (813) 399-6119
with a copy under separate cover to:
Shearman & Sterling
725 South Figueroa Street, 21st Floor
Los Angeles, California 90017
Attention: Rebecca L. Prentice
Telecopier: (213) 239-0381
with a copy to:
Shackelford, Farrior, Stallings & Evans
501 East Kennedy Boulevard, Suite 1400
Tampa, Florida 33602
Attention: Warren Frazier
Telecopier: (813) 273-5145
<PAGE> 66
61
(b) if to the Purchaser:
Pharmacy Corporation of America
1871 Lefthand Circle
Longmont, Colorado 80501
Attention: Ron Kane
Telecopier: (303) 651-1702
with copies to:
Beverly Enterprises. Inc.
5111 Rogers Avenue, Suite 40-A
Fort Smith, Arkansas 72919-1000
Attention: Robert W. Pommerville,
General Counsel, Senior
Vice President and Secretary
Telecopier: (501) 452-3760
and
Giroir & Gregory, Professional Association
111 Center Street, Suite 1900
Little Rock, Arkansas 72201
Attention: H. Watt Gregory, Esq.
Telecopier: (501) 374-2380
and
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Warren T. Buhle, Esq.
Telecopier: (212) 310-8007
SECTION 11.03. Public Announcements. Unless otherwise
required by any applicable law or stock exchange requirement, no party to this
Agreement shall make any public announcement in respect of this Agreement or
the transactions contemplated herein or otherwise communicate with any news
media without prior notification to the other party hereto, and the parties
hereto shall cooperate as to the timing and contents of any such announcement.
SECTION 11,04. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
<PAGE> 67
62
SECTION 11.05. Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party hereto. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of such parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest
extent possible.
SECTION 11.06. Entire Agreement. This Agreement and the
other documents and agreements contemplated to be delivered in connection
herewith constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede all prior agreements and undertakings,
both written and oral, other than the Confidentiality Agreement, with respect
to the subject matter hereof and except as otherwise expressly provided herein.
SECTION 11.07. Assignment. This Agreement shall not be
assigned by operation of law or otherwise without the express written consent
of the parties hereto.
SECTION 11.08. No Third Party Beneficiaries. Except as
provided in Articles V, VI, VII and IX, this Agreement is for the sole benefit
of the parties hereto and their permitted assigns, and nothing herein, express
or implied, is intended to or shall confer upon any other Person any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 11.09. Amendment; Waiver. This Agreement may be
amended or modified only by an instrument in writing signed by the parties
hereto. Waiver of any term or condition of this Agreement shall only be
effective if in writing and shall not be construed as a waiver of any
subsequent breach or waiver of the same term or condition, or a waiver of any
other term or condition of this Agreement.
SECTION 11.10. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts executed in and to be performed in that State.
SECTION 11.11. Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE> 68
63
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
ECKERD CORPORATION
By /s/ SAMUEL G. WRIGHT
Name: Samuel G. Wright
Title: Senior Vice President - Finance
PHARMACY CORPORATION OF AMERICA
By /s/ ROBERT D. WOLTIL
Name: Robert D. Woltil
Title: Executive Vice President -
Finance and Chief
Financial Officer
