Exhibit 2.1
-------------------------------------
STOCK PURCHASE AGREEMENT
between
ADVANCE PARADIGM, INC.
and
RITE AID CORPORATION
Dated as of July 11, 2000
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Table of Contents
Page
ARTICLE I
SALE AND PURCHASE OF SHARES; PURCHASE PRICE
Section 1.1 Company Shares....................................1
Section 1.2 Purchase Price....................................1
Section 1.3 Closing...........................................2
Section 1.4 Deliveries by the Seller..........................2
Section 1.5 Deliveries by the Purchaser.......................3
Section 1.6 "Due From" and "Due To" Accounts..................4
Section 1.7 EBITDA Adjustment................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Organization and Authority of the Seller..........7
Section 2.2 Organization, Authority and Capitalization of
the Company and Subsidiaries; Company Shares...8
Section 2.3 Consents and Approvals; No Violations.............9
Section 2.4 Financial Statements.............................10
Section 2.5 Absence of Certain Changes.......................11
Section 2.6 Litigation.......................................11
Section 2.7 Compliance with Applicable Law, Permits..........11
Section 2.8 Environmental Matters............................12
Section 2.9 Intellectual Property............................13
Section 2.10 Employee Benefit Plans...........................16
Section 2.11 Taxes............................................18
Section 2.12 Material Contracts...............................21
Section 2.13 Assets Necessary to Business.....................23
Section 2.14 Title to Assets..................................24
Section 2.15 Labor Relations..................................24
Section 2.16 Insurance........................................25
Section 2.17 Investment.......................................25
Section 2.18 Brokers..........................................25
Section 2.19 No Implied Representations; No OIG
Representation................................26
Section 2.20 Affiliated Transactions..........................26
Section 2.21 Absence of Undisclosed Liabilities...............27
Section 2.22 Relationship with Customers......................27
Section 2.23 Full Disclosure..................................27
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Organization and Authority of the Purchaser......27
Section 3.2 Capitalization; Ownership of Subsidiaries........29
Section 3.3 Consents and Approvals; No Violations............31
Section 3.4 Absence of Certain Changes.......................32
Section 3.5 Availability of Funds............................32
Section 3.6 Investment.......................................32
Section 3.7 Business Combination Provision;
Takeover Laws; Rights Plan.................32
Section 3.8 Brokers..........................................32
Section 3.9 No Implied Representations.......................33
Section 3.10 Incorporation of Additional Representations......33
Section 3.11 Full Disclosure..................................33
ARTICLE IV
COVENANTS
Section 4.1 Conduct of the Business of the Company...........33
Section 4.2 Conduct of the Business of the Purchaser.........37
Section 4.3 Access to Information............................39
Section 4.4 Best Efforts.....................................40
Section 4.5 Further Assurances; No Hindrances................41
Section 4.6 Employee Matters.................................41
Section 4.7 Access to Records................................42
Section 4.8 Notice of Possible Breach........................43
Section 4.9 Supplemental Disclosure..........................43
Section 4.10 Notices of Certain Events........................43
Section 4.11 Confidentiality..................................44
Section 4.12 Insurance........................................44
Section 4.13 Non-Solicitation of Employees....................45
Section 4.14 1998 Purchase Agreement..........................45
Section 4.15 Purchaser Stockholder Meeting....................46
Section 4.16 Nasdaq National Market...........................47
Section 4.17 Nonsolicitation..................................47
Section 4.18 Restrictive Covenants............................48
Section 4.19 Transition Services..............................49
Section 4.20 OIG Investigation................................49
Section 4.21 Voting Agreements................................50
Section 4.22 Service Agreement ...............................50
Section 4.23 Humana Agreement.................................50
ARTICLE V
CONDITIONS
Section 5.1 Conditions to Each Party's Obligations...........50
Section 5.2 Conditions to Obligations of the Purchaser.......50
Section 5.3 Conditions to Obligations of the Seller..........51
ARTICLE VI
TERMINATION AND AMENDMENT
Section 6.1 Termination......................................52
Section 6.2 Effect of Termination............................53
Section 6.3 Amendment........................................53
Section 6.4 Extension; Waiver................................53
ARTICLE VII
TAX MATTERS
Section 7.1 Retention of Records.............................54
Section 7.2 Cooperation......................................55
Section 7.3 Transfer Taxes...................................55
Section 7.4 Exercise of Certain Options and Certain
Equity Grants..................................55
Section 7.5 No Section 338 Election..........................57
Section 7.6 Tax Returns......................................57
Section 7.7 Allocation of Taxes..............................59
Section 7.8 Tax Indemnity....................................60
Section 7.9 Contests.........................................62
Section 7.10 Miscellaneous....................................63
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by the Seller....................64
Section 8.2 Limitations on Indemnification by the Seller.....64
Section 8.3 Indemnification by the Purchaser.................65
Section 8.4 Limitations on Indemnification by the Purchaser..65
Section 8.5 Notice of Claims.................................66
Section 8.6 Defense of Third Party Claims....................66
Section 8.7 Payment of Claims................................67
Section 8.8 No Liability of Officers, Directors and Managers.67
Section 8.9 No Third Party Benefit...........................67
Section 8.10 Definition.......................................67
Section 8.11 Exclusive Remedy.................................68
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices..........................................68
Section 9.2 Headings.........................................69
Section 9.3 Counterparts.....................................69
Section 9.4 Entire Agreement; Assignment.....................69
Section 9.5 Governing Law....................................70
Section 9.6 Specific Performance.............................70
Section 9.7 Publicity........................................70
Section 9.8 Binding Nature; No Third Party Beneficiaries.....71
Section 9.9 Severability.....................................71
Section 9.10 Interpretation...................................71
Section 9.11 Payment of Expenses..............................71
Section 9.12 Survival of Representations, Warranties and
Agreements.....................................71
EXHIBITS:
Exhibit A.............Term Sheet for Purchaser Series A Preferred Shares
Exhibit B.............Term Sheet for Purchaser Series B Preferred Shares
Exhibit C..........Term Sheet for Purchaser Notes and Purchaser Warrants
Exhibit D........................Term Sheet for Class B Purchaser Shares
Exhibit E....Term Sheet for Certain Terms of the Stockholders' Agreement
Exhibit F.......................................Form of Voting Agreement
INDEX OF DEFINED TERMS
PAGE
1998 Purchase Agreement............................................45
Acquisition Proposal...............................................48
Agreement ........................................................1
Assignment Date....................................................46
Audits .......................................................19
Business ........................................................1
Cash Purchase Price.................................................1
Certificates of Designation.........................................2
Claims and Damages.................................................66
Class B Purchaser Shares............................................2
Closing ........................................................2
Closing Date........................................................2
Closing Statement...................................................5
Code .......................................................17
Company ........................................................1
Company Contracts..................................................21
Company Employee Plans.............................................16
Company ERISA Affiliate............................................17
Company Intellectual Property......................................16
Company Leased Properties..........................................24
Company License Agreements.........................................13
Company Material Adverse Effect.....................................8
Company Permitted Liens............................................24
Company Proprietary Software.......................................13
Company Shares......................................................1
Company Software...................................................16
Company Trade Secrets..............................................16
Confidential Information...........................................44
Confidentiality Agreement..........................................40
Consolidated Returns...............................................57
Controlling Party..................................................63
Current Employment Agreement.......................................37
Designated Real Property............................................3
Disagreement........................................................6
Due From Rite Aid Account...........................................4
Due To Rite Aid Account.............................................4
E & Y .......................................................10
EBITDA Amount......................................................5
Effective Date......................................................2
Employment Taxes...................................................55
Environmental Law..................................................13
ERISA .......................................................16
Final Statement.....................................................6
FIRPTA Certificate..................................................3
GAAP ........................................................8
Governmental Entity.................................................8
Guarantors ........................................................2
Hazardous Substance................................................13
HHS .......................................................26
HSR Act .......................................................10
Indemnitee .......................................................65
Indemnitor .......................................................65
Indenture ........................................................1
Interest Rate.......................................................7
JLL .......................................................33
JLL Purchase Agreement.............................................33
Knowledge of Seller................................................16
Law ........................................................8
Liens ........................................................9
Lilly .......................................................45
May Balance Sheet..................................................11
Non-Controlling Party..............................................63
Notice of Claim....................................................65
OIG .......................................................26
OIG Investigation..................................................49
Option .......................................................55
Options .......................................................55
Other Transaction Agreements.......................................28
Part-Year Fraction.................................................59
Proxy Statement....................................................47
Purchase Price......................................................1
Purchaser ........................................................1
Purchaser Common Stock..............................................2
Purchaser Confidentiality Agreement................................40
Purchaser Disclosure Schedule......................................27
Purchaser Material Adverse Effect..................................28
Purchaser Notes.....................................................1
Purchaser Preferred Shares..........................................1
Purchaser Returns..................................................58
Purchaser Series A Preferred Shares.................................1
Purchaser Series B Preferred Shares.................................1
Purchaser Stockholder Proposal.....................................47
Purchaser Warrant Shares............................................2
Purchaser Warrants..................................................2
Registration Rights Agreements......................................3
Representative.....................................................48
Seller ........................................................1
Seller Confidentiality Agreement...................................40
Seller Disclosure Schedule..........................................7
Seller Equity......................................................55
Seller Indemnitees.................................................46
Series B Certificate of Designation.................................2
Series A Certificate of Designation.................................1
Special Meeting....................................................46
Stock Purchase.....................................................56
Stockholders' Agreement.............................................3
Takeover Laws......................................................32
Tax .......................................................20
Tax Authority......................................................20
Tax Law .......................................................20
Tax Period .......................................................21
Tax Records .......................................................54
Tax Report .......................................................55
Tax Return .......................................................21
Taxes .......................................................20
Transfer Taxes.....................................................55
Withholding Taxes..................................................55
STOCK PURCHASE AGREEMENT, (the "Agreement"), dated as of July 11,
2000, between Advance Paradigm, Inc., a Delaware corporation (the "Purchaser"),
and Rite Aid Corporation, a Delaware corporation (the "Seller").
WHEREAS, PCS Holding Corporation, a Delaware corporation and a wholly
owned subsidiary of the Seller (the "Company"), provides computer-based
prescrip tion drug claims processing, pharmacy benefit administration and
management services, mail order pharmacy services, data management and
disease-management services to health plan sponsors (as provided by the
Company and its subsidiaries, the "Business"); and
WHEREAS, the Purchaser has agreed to acquire from the Seller, and the
Seller has agreed to sell to the Purchaser, all of the outstanding shares
of Class A Common Stock, par value $1.00 per share (the " Company Shares"),
of the Company on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES; PURCHASE PRICE
Section 1.1 Company Shares. Upon the terms and subject to the condi
tions of this Agreement, at the Closing (as defined below), the Seller
shall sell and deliver to the Purchaser, and the Purchaser shall purchase
and acquire, the Company Shares.
Section 1.2 Purchase Price. The aggregate purchase price (the
"Purchase Price") to be paid by the Purchaser to the Seller in
consideration for the sale and delivery of the Company Shares shall,
subject to adjustment as provided in Sections 1.5(a) and 1.7, consist of:
(i) $675 million in cash (the "Cash Purchase Price"); (ii) 125,000 shares
of Series A-2 preferred stock of the Purchaser (the "Purchaser Series A-2
Preferred Shares") to be issued under a certificate of designation (the
"Series A-2 Certificate of Designation") having the terms set forth in the
term sheet attached hereto as Exhibit A; (iii) $200 million aggregate
principal amount of senior subordi nated notes of the Purchaser (the
"Purchaser Notes") to be issued under an indenture (the "Indenture") by and
among the Purchaser, certain subsidiaries of the Purchaser (the
"Guarantors") and the trustee party thereto having the terms set forth in
the term sheet attached hereto as Exhibit C; and (iv) warrants (the
"Purchaser Warrants") to purchase an aggregate of 2% of the Purchaser's
common stock (the "Purchaser Warrant Shares"), par value $0.01 per share
("Purchaser Common Stock"), outstand ing on a fully-diluted basis (assuming
consummation of the transactions contem plated hereby and by the JLL
Purchase Agreement (as defined in Section 3.10)), having the terms set
forth in the term sheet attached hereto as Exhibit C. Pursuant to the JLL
Purchase Agreement, the Purchaser intends to issue and sell (i) 65,854
shares of Series A-1 preferred stock of the Purchaser (the "Purchaser
Series A-1 Shares") to be issued under a certificate of designation (the
"Series A-1 Certificate of Designa tion") having the terms set forth in the
term sheet attached hereto as Exhibit A and (ii) 84,146 shares of Series B
preferred stock of the Purchaser (the "Purchaser Series B Preferred Shares"
and, collectively with the Purchaser Series A-1 Preferred Shares and the
Purchaser Series A-2 Preferred Shares, the "Purchaser Preferred Shares") to
be issued under a certificate of designation (the "Series B Certificate of
Designation" and, together with the Series A-1 Certificate of Designation
and the Series A-2 Certificate of Designation, the "Certificates of
Designation") having the terms set forth in the term sheet attached hereto
as Exhibit B. The Purchaser Preferred Shares shall be convertible into
shares of Class B common stock of the Purchaser (the "Class B Purchaser
Shares") having the terms set forth in the term sheet attached hereto as
Exhibit D.
Section 1.3 Closing. Upon the terms and subject to the conditions of
this Agreement, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place on the first business day
following the Effective Date, at 10:00 a.m., New York City time, at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New
York, New York, or at such other time or at such other place as shall be
agreed upon by the parties. For purposes of this Agreement, "Effective
Date" shall mean the first Saturday which is (x) at least three business
days following the satisfaction or waiver of the conditions (other than
conditions which by their nature are to be satisfied at closing, but
subject to such conditions) set forth in Article V hereof and (y) the first
day of the Company's fourteen day payment cycle. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
Section 1.4 Deliveries by the Seller. At the Closing, the Seller
shall deliver or cause to be delivered to the Purchaser the following:
(a) Certificates for all of the outstanding Company Shares,
duly endorsed in blank, or accompanied by stock powers duly executed in
blank, with any necessary stock transfer tax stamps attached or provided
for;
(b) the resignations of (i) all members of the Board of
Directors of the Company and its wholly owned subsidiaries and (ii) those
members of the Board of Directors of any subsidiary that is not wholly
owned by the Company that are employees or directors of the Seller or the
Company or are designees of the Seller or the Company;
(c) the stock books, stock ledgers, minute books and corporate
seals of the Company and the subsidiaries;
(d) a certificate of non-foreign status as provided in Section
1445(b)(2) of the Code (as hereinafter defined) and Treasury Regulation
1.1445-2(b) (the "FIRPTA Certificate");
(e) registration rights agreements having the registration
terms set forth in the term sheets attached hereto as Exhibits A, B, C and
D (the "Registration Rights Agreements"), duly executed by the Seller; and
(f) a stockholders' agreement having certain of the terms set
forth in the term sheets attached hereto as Exhibits A, B, D and E (the
"Stockholders' Agreement"), duly executed by the Seller; and
(g) such other duly executed documents and certificates as may
be required to be delivered by the Seller pursuant to the terms of this
Agreement.
Section 1.5 Deliveries by the Purchaser. At the Closing, the
Purchaser shall deliver or cause to be delivered to the Seller the
following:
(a) an amount of cash equal to the sum of (i) the Cash Purchase
Price and (ii) the Pre-Closing Real Property Proceeds in immediately
available funds by wire transfer to an account specified by the Seller
prior to the Closing Date. "Pre- Closing Real Property Proceeds" means the
net cash proceeds (after deductions for taxes, real estate registration and
other expenses associated with such sale), if any, received by the Company
or any of its subsidiaries from the sale or disposition of the real
property described in Section 4.1(c) of the Seller Disclosure Schedule (the
"Designated Real Property") prior to the Closing in accordance with Section
4.1(c) and not previously distributed or otherwise transferred to the
Seller by the Company;
(b) duly executed certificates representing the Purchaser Series
A-2 Preferred Shares, registered in the name of the Seller;
(c) duly executed certificates representing the Purchaser Notes
and the Purchaser Warrants, registered in the name of Seller;
(d) the Indenture, duly executed by the Purchaser, the Guarantors
and the trustee thereunder;
(e) the Certificates of Designation, in the form duly executed by
the Purchaser and filed with the Secretary of State of the State of Delaware;
(f) the Registration Rights Agreements duly executed by the
Purchaser;
(g) the Stockholders' Agreement, duly executed by the Purchaser;
and
(h) such other duly executed documents and certificates as may
be required to be delivered by the Purchaser pursuant to the terms of this
Agreement.
Section 1.6 "Due From" and "Due To" Accounts.
(a) As of the Closing Date, the liability of the Seller and its
subsidiaries to the Company and its subsidiaries in respect of the payment
obliga tions reflected or which should have been reflected in the
intercompany account designated as the "due from Rite Aid account" as of
the Effective Date (determined in a manner consistent with the past
practice of the Seller with respect to such account) (the "Due From Rite
Aid Account") shall be cancelled and deemed repaid and none of the Seller
or any of its subsidiaries shall have any further liability or obligation
to the Company or any of its subsidiaries with respect to such cancelled
amount.
(b) As of the Closing Date, the liability of the Company and
its subsidiaries to the Seller and its subsidiaries in respect of the
payment obligations reflected or which should have been reflected in the
intercompany account desig nated as the "due to Rite Aid account" as of the
Effective Date (determined in a manner consistent with the past practice of
the Seller with respect to such account) (the "Due To Rite Aid Account")
shall be cancelled and deemed repaid and none of the Company or any of its
subsidiaries shall have any further liability or obligation to the Seller
or any of its subsidiaries with respect to such cancelled amount.
Section 1.7 EBITDA Adjustment.
(a) Promptly after the Closing Date, but in no event more than
45 days thereafter, the Purchaser shall deliver to the Seller an unaudited
statement (the "Closing Statement") setting forth (i) the amounts of the
Due From Rite Aid Account and the Due To Rite Aid Account immediately prior
to the cancellation of such accounts pursuant to Section 1.6 hereof and
(ii) the amount (which may be positive or negative) of earnings before
interest, taxes, depreciation and amortization of the Company and its
subsidiaries on a consolidated basis for the period beginning on and
including April 22, 2000 and ending on and including the last business day
prior to the Effective Date (the "EBITDA Amount"). The Closing Statement
(i) shall be prepared in accordance with generally accepted accounting
principles consistent with the accounting principles, practices and
methodologies used in preparation of the financial statements referenced in
Section 2.4 hereof (except that, regardless of whether so required by
generally accepted accounting principles, the calculation of the EBITDA
Amount set forth in the Closing Statement shall not reflect (x) any
Disregarded Liability (as defined herein) or (y) any transactions related
to the sale of the Designated Real Property, (ii) shall not give effect to
the transactions contemplated hereby and (iii) shall disregard any change,
event or circumstance occurring after the Effective Date. Without the
written consent of the Seller, the Purchaser shall not make any adjustments
to the Closing Statement following the delivery thereof to the Seller. The
Purchaser shall provide the Seller and its representatives with copies of
the Purchaser's and the Company's work papers and access to the Purchaser's
and the Company's accountants' work papers generated in connection with the
preparation of the Closing Statement, as well as access to employees and
representatives of the Company and its accounting firms to assist the
Seller in its review of such work papers. In addition, following delivery
of the Closing Statement, the Seller and its representatives shall be
entitled to review the books and records of the Company and its
subsidiaries. If the Seller accepts the Closing Statement, the Seller
shall, within 30 days of delivery of the Closing Statement to the Seller,
deliver to the Purchaser a written notice to such effect and, upon delivery
of such notice, the Closing Statement shall be final and binding upon the
parties for purposes of this Agreement. For purposes of this Agreement,
"Disre garded Liability" means any liability or expense (other than normal
salary payments and routine related employee benefit expenses during the
period beginning on and including April 22, 2000 and ending on and
including the last business day prior to the Effective Date) arising from
any of the employment, severance and other compensation agreements and
arrangements which have been disclosed in Section 2.5 or Section
2.12(a)(xii) of the Seller Disclosure Schedule.
(b) Within 30 days after delivery of the Closing Statement to
the Seller, the Seller may dispute all or any part of the Closing Statement
by giving written notice to the Purchaser setting forth in reasonable
detail the basis for such dispute (any such dispute hereinafter called a
"Disagreement"). The Seller and the Purchaser shall promptly commence good
faith negotiations with a view to resolving such Disagreement not later
than 30 days after the date on which such notice of Disagreement is
delivered to the Purchaser. If the Seller and the Purchaser are unable to
resolve a Disagreement (by notice to the other party) within 30 days
following the date on which such notice of Disagreement was delivered to
the Purchaser, such Disagreement shall be referred to an independent public
accounting firm mutually selected by the Seller and the Purchaser for a
resolution of such Disagreement, in accordance with the requirements of
Section 1.7(a) above. If such parties do not promptly agree on the
selection of an independent public accounting firm, each such party shall
select an independent public accounting firm and such two independent
public accounting firms shall jointly select the independent public
accounting firm. The determinations made by such independent public
accounting firm with respect to any Disagreement shall be final and binding
upon such parties for all purposes under this Agreement. Each of such
parties shall use its best efforts to cause the independent public
accounting firm to render its determination as soon as practicable after
referral of the Disagreement to such firm, and each shall cooper ate with
such firm and the Purchaser shall, and shall cause the Company to, provide
such firm with reasonable access to the books, records, personnel and
representatives of the Purchaser, the Company and the Company's
subsidiaries and such other information as such firm may require in order
to render its determination. The fees and expenses of any independent
public accounting firm retained pursuant to this Section 1.7(b) shall be
paid one-half by the Seller and one-half by the Purchaser. The Closing
Statement, as adjusted in accordance with the resolution of any Dis
agreement with respect thereto or, if there shall exist no Disagreement, as
delivered to the Seller pursuant to Section 1.7(a) above, is referred to as
the "Final Statement."
(c) On the second business day following the determination of
the Final Statement, a payment shall be made in immediately available funds
by wire transfer to an account specified by the recipient prior to such date.
The amount of the payment and its recipient shall be determined as set forth
below.
(i) If the amount of the Due From Rite Aid Account shown
on the Final Statement exceeds $218 million, then such excess shall
be subtracted from the EBITDA Amount shown on the Final Statement. If
the result so obtained exceeds zero, the Purchaser shall pay to the
Seller an amount equal to such excess over zero. If the result so
obtained is less than zero, the Seller shall pay to the Pur chaser an
amount equal to such shortfall below zero.
(ii) If $218 million exceeds the amount of the Due From
Rite Aid Account shown on the Final Statement, then such excess, plus
the amount (if any) of the Due To Rite Aid Account shown on the Final
Statement, shall be added to the EBITDA Amount shown on the Final
Statement. If the result so obtained exceeds zero, the Purchaser
shall pay to the Seller an amount equal to such excess over zero. If
the result so obtained is less than zero, the Seller shall pay to the
Purchaser an amount equal to such shortfall below zero.
(iii)Any payment made pursuant to this section shall be
made together with interest on such amount at an annual rate equal to
the prime rate of interest calculated on a 365 day year (as quoted
daily by The Wall Street Journal) (the "Interest Rate") from the
Closing Date to the date of the payment of such amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth in the disclosure schedule being delivered by the
Seller to the Purchaser (the "Seller Disclosure Schedule"), the Seller
represents and warrants to the Purchaser as follows:
Section 2.1 Organization and Authority of the Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all necessary
corporate power and authority to execute and deliver this Agreement, to
perform its obligations under this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by the Seller and the consummation by the Seller of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Seller and no other corporate
actions or proceedings on the part of the Seller are necessary to authorize
this Agreement or for the Seller to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by the Seller and (assuming due authorization,
execution and delivery by the Purchaser) constitutes a legal, valid and
binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, subject to limitations imposed by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and general
equitable principles.
Section 2.2 Organization, Authority and Capitalization of the Company
and Subsidiaries; Company Shares.
(a) The Company and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate power and
authority to own, lease or operate its properties and assets and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified to do business and in good standing and is
duly licensed, authorized or qualified to transact business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing has not had a Company
Material Adverse Effect. "Company Material Adverse Effect" means a change
or effect on the Business that is materially adverse to the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole, but shall not include any changes or effects
(x) relating to or resulting from general economic, political or market
conditions after the date of this Agreement, including (i) changes after
the date of this Agreement in any statute, law, ordinance, regulation,
rule, code, order or other requirement or rule of law (each, a "Law") or in
the interpretation of any Law by any court of competent jurisdiction or any
governmental, regulatory or administrative authority, agency or commission
(a "Governmental Entity") and (ii) changes in generally accepted accounting
principles ("GAAP"), (y) resulting from the execution or announcement of
this Agreement or compliance with the terms hereof or (z) generally
affecting the industries in which the Company and its subsidiaries operate.
A "subsidiary" of an entity means any entity in which the specified entity
directly or indirectly owns at least a majority of the outstanding stock or
other equity or general voting interest.
(b) The authorized capital stock of the Company consists of
1,000 shares of Class A Common Stock, par value $1.00 per share, 160 shares
of Class B Common Stock, par value $1.00 per share, and 1,000 shares of
Class C Common Stock, par value $1.00 per share. The Company Shares
constitute all the outstanding shares of capital stock of the Company and
there are no shares of capital stock of the Company reserved for issuance
upon exercise of outstanding stock options or otherwise. All of the Company
Shares have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. Except for this Agreement, there are no
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of capital stock of the Company or any other equity security of the
Company or any securities representing the right to purchase or otherwise
receive any shares of capital stock of the Company or any other equity
security of the Company.
(c) Section 2.2(c) of the Seller Disclosure Schedule lists each
subsidiary of the Company. Except as set forth in Section 2.2(c) of the
Seller Disclosure Schedule, the Company owns, directly or indirectly, all
of the issued and outstanding shares of the capital stock of each of such
subsidiaries, free and clear of all liens, charges, encumbrances and
security interests whatsoever, and all of such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights. There are no subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such subsidiary or
any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such subsidiary.
(d) Except as set forth in Section 2.2(d) of the Seller
Disclosure Schedule, the Seller has good and valid title to the Company
Shares, free and clear of any security interests, pledges, mortgages,
liens, encumbrances, charges, options or any other adverse claims,
restrictions or third party rights of any kind whatsoever ("Liens") and, at
the Closing, the Seller will deliver such shares to the Purchaser, free and
clear of any Liens.
(e) The Seller has heretofore delivered to the Purchaser true
and complete copies of the certificate of incorporation and bylaws or
similar organiza tional documents of the Company and each of its
subsidiaries.
Section 2.3 Consents and Approvals; No Violations.
(a) No filing or registration with, and no permit,
authorization, certificate, waiver, license, consent or approval of, any
Governmental Entity is necessary for execution, delivery or performance by
the Seller of this Agreement, except (x) for the applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "
HSR Act"), or (y) as a result of facts or circumstances particular to the
Purchaser.
(b) Neither the execution and delivery of this Agreement by the
Seller nor the consummation by the Seller of the transactions contemplated
by this Agreement nor compliance by the Seller with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of
the certificate of incorpora tion or by-laws (or similar organizational
documents) of the Seller, the Company or any subsidiary of the Company,
(ii) require the consent or waiver of any person (other than a Governmental
Entity) or result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, modification or acceleration) (whether
after the giving of notice or the passage of time or both) or result in the
imposition of or the creation of any Lien upon any of the assets or
properties of the Company or any of its subsidiaries pursuant to or under,
any of the terms, conditions or provisions of any note, lease, license,
contract or agreement to which the Seller, the Company or any subsidiary of
the Company is a party or by which the Seller, the Company or any
subsidiary of the Company, or any of their respective assets, is bound or
(iii) violate any order, writ, injunction, decree, or Law applicable to the
Seller, the Company or any subsidiary of the Company, except in the case of
(ii) or (iii), for violations, breaches or defaults which, or consents or
waivers the absence of which, individually or in the aggregate, have not
had and would not have a Company Material Adverse Effect or which would not
prevent or materially delay the consummation of the transactions
contemplated by this Agreement or which would not prevent or materi ally
affect the ability of Purchaser to conduct the Business.
Section 2.4 Financial Statements. Section 2.4 of the Seller
Disclosure Schedule sets forth copies of (a) the consolidated balance
sheets of the Company and its subsidiaries as of December 31 for the
calendar years 1998 and 1999 and as of February 26, for the fiscal year
2000, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the calendar years 1997 through
1999, and the fiscal year ended February 26, 2000, inclusive, in each case
accompanied by the audit report of Ernst & Young LLP independent public
accoun tants ("E & Y") with respect to the Company, and (b) the unaudited
consolidated balance sheet of the Company and its subsidiaries as of May
27, 2000 and the unaudited consolidated statement of income for the
thirteen-week period ended May 27, 2000. The December 31, 1999 consolidated
balance sheet of the Company, including the related notes, where
applicable, fairly presents the consolidated financial position of the
Company and its subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 2.4 (including the related
notes, where applicable) fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consoli dated operations and consolidated
financial position of the Company and its subsid iaries for the respective
fiscal periods or as of the respective dates therein set forth; and each of
such statements (including the related notes, where applicable) has been
prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of
unaudited statements as permitted by Form 10-Q. The May 27, 2000
consolidated balance sheet of the Company is sometimes referred to as the
"May Balance Sheet."
Section 2.5 Absence of Certain Changes. Since February 26, 2000 (i)
the Business has been conducted only in the ordinary course of business,
(ii) neither the Company nor any subsidiary has taken any of the actions
set forth in Section 4.1(b) hereof, assuming that Section 4.1(b) applied to
the period since February 26, 2000 (except that, prior to the Closing, the
Company or any of its subsidiaries may take any of the actions permitted by
Section 4.1(c)) and (iii) the Business has not suffered a Company Material
Adverse Effect.
Section 2.6 Litigation. As of the date hereof, except as set forth in
Section 2.6 of the Seller Disclosure Schedule, (a) there is no suit, claim,
action, proceeding or, to the knowledge of the Seller, investigation
pending against the Company or any of its subsidiaries before or by any
Governmental Entity or non-governmental body or by any third party or, to
the knowledge of the Seller, threatened against the Company or any of its
subsidiaries, and (b) neither the Company nor any of its subsidiaries is
subject to any outstanding order of any Governmental Entity. As of the date
of this Agreement, there are no pending or, to the knowledge of the Seller,
threatened actions which would prevent or delay the Seller from
consummating the transactions contemplated hereby.
Section 2.7 Compliance with Applicable Law, Permits. Except as has
not had or would not have a Company Material Adverse Effect, (a) the
Company and its subsidiaries possess all permits, licenses, variances,
exemptions, orders, approvals and authorizations of all Governmental
Entities and all consents and waivers of any other persons (other than
Governmental Entities) necessary for the Company and its subsidiaries to
own, lease or otherwise hold the assets of the Business and to carry on the
Business as currently conducted and (b) the Business is being conducted in
compliance with all laws, regulations and ordinances of all Governmental
Entities including (i) laws regarding the provision of insurance, third
party administration services and primary health care services, (ii) the
Prescription Drug Marketing Act, the Federal Controlled Substances Act of
1970, the Food, Drug and Cosmetic Act and any applicable state Pharmacy
Practice Acts, Controlled Substances Acts, Dangerous Drug Acts and Food,
Drug and Cosmetic Acts and (iii) laws regarding the provision of goods and
services under Medicare or Medicaid or other programs administered by
Governmental Entities. This Section 2.7 does not relate to matters with
respect to (x) environmental matters, which are the subject of Section 2.8,
(y) benefits and employment matters, which are the subject of Section 2.10
and (z) Taxes, which are the subject of Section 2.11.
Section 2.8 Environmental Matters.
(a) Except as has not had or would not have a Company Material
Adverse Effect, (i) the Company and its subsidiaries have been and are in
compliance in all respects with all applicable Environmental Laws (as
defined below) (which compliance includes, without limitation, the
possession by the Company and its subsidiaries of all permits and other
government authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof), (ii) no Hazardous
Substances (as defined below) have been disposed on or released onto, under
or adjacent to any of the properties owned, leased or operated by the
Company or its subsidiaries (including soils, groundwater, surface water,
buildings or other structures), (iii) as of the date hereof, none of the
Company, any of its subsidiaries or the Seller or, to the knowledge of the
Seller, any person whose liability under any Environmental Law the Company
has or may have retained or assumed either contractually or by operation of
law, has received any written notice, demand, letter or claim alleging that
the Company or any subsidiary or any such person is in violation of or
liable under any Environmental Law, (iv) as of the date hereof, none of the
Company, any of its subsidiaries or the Seller has received any written
notice, demand, letter or claim alleging the potential responsibility of
the Company or any subsidiary of the Company for off-site disposal of any
Hazardous Substance pursuant to the Federal Comprehensive Environmental
Response, Com pensation and Liability Act or any other Environmental Law
and (v) as of the date hereof, there are no present or, to the knowledge of
the Seller, past actions, activities, circumstances, conditions, events or
incidents which would be reasonably likely to form the basis of any
legitimate notice, demand, letter or claim under Sections 2.8(a)(ii), (iii)
or (iv), including but not limited to claims for personal injury, or
property damage alleged to result from use, handling or exposure to or
injury from any Hazardous Substance.
(b) "Environmental Law" means any national, regional, federal,
state, municipal or local law, regulation, order, judgment or decree issued
or promul gated by any Governmental Entity, or common law, in effect
relating to the protec tion of human health or the indoor and outdoor
environment (including, without limitation, natural resources) or any
Hazardous Substances.
(c) "Hazardous Substance" means any pollutant, contaminant,
substance, material, waste, hazardous material, industrial waste, solid
waste, special waste, toxic waste, toxic substance, hazardous waste,
hazardous substance, chemical oil, substance that is regulated pursuant to
any Environmental Law, including without limitation any petroleum product,
by-product or additive, asbestos, asbestos- containing material, medical
waste, chlorofluorocarbon, hydrochloroflourocarbon or polychlorinated
biphenyls.
Section 2.9 Intellectual Property.
(a) Section 2.9(a) of the Seller Disclosure Schedule sets
forth, as of the date of this Agreement, for all Company Intellectual
Property (as defined herein) owned by the Company or any of its
subsidiaries: a complete and accurate list, as of the date of this
Agreement, of all U.S. and foreign (i) patents and patent applications;
(ii) trademark and servicemark registrations (including Internet domain
registrations), trademark and servicemark applications, and material
unregistered servicemarks and trademarks; and (iii) copyright registrations
and copyright applications.
(b) Section 2.9(b) of the Seller Disclosure Schedule sets
forth, as of the date of this Agreement, all contracts for material Company
Software (as defined herein) which is owned by the Company or its
subsidiaries ("Company Proprietary Software") and all material Company
Software which is licensed, leased or otherwise used by the Company or any
of its subsidiaries, and identifies which Company Software is owned,
licensed, leased or otherwise used, as the case may be.
(c) Section 2.9(c) of the Seller Disclosure Schedule sets
forth, as of the date of this Agreement, all agreements granting or
obtaining any right to use or practice any rights under any Company
Intellectual Property, to which the Company or any of its subsidiaries is a
party or otherwise bound, as licensee or licensor thereunder, including
license agreements, settlement agreements and covenants not to sue
(collectively, the "Company License Agreements").
(d) Except as has not had or would not have a Company Material
Adverse Effect:
(i) the Company or its subsidiaries own or have the
right to use all Company Intellectual Property, free and clear of all
liens,
(ii) any Company Intellectual Property owned or, to the
Knowledge of the Seller, used, by the Company or its subsidiaries is
valid and subsisting in full force and effect, has not been cancelled
or abandoned and, as of the date of this Agreement, has not expired,
(iii)the Seller has not received written notice from any
third party regarding any actual or potential infringement by the
Company or any of its subsidiaries of any intellectual property of
such third party and the Seller has no Knowledge of any legitimate
basis for such a claim against the Company or any of its
subsidiaries,
(iv) the Seller has not received written notice from any
third party regarding any assertion or claim challenging the validity
of any Company Intellectual Property owned by the Company or any of
its subsidiaries and the Seller has no Knowledge of any legitimate
basis for such a claim,
(v) neither the Company nor any of its subsidiaries has
licensed or sublicensed its rights in any Company Intellectual
Property, or received or been granted any such rights, other than
pursuant to the Company License Agreements,
(vi) to the Knowledge of Seller, no third party is
misappropriating, infringing, diluting or violating any Company
Intellectual Property owned by the Company or any of its subsidiar
ies,
(vii) to the Knowledge of the Seller, no employee,
officer, agent, representative, attorney, director, majority
stockholder, or other person that is affiliated with the Company or
any of its subsidiaries, has ever accused a third party of
misappropriating, infringing, diluting or violating any Intellectual
Property owned by the Company or any of its subsidiaries,
(viii) the Company License Agreements are valid and binding
obligations of the Company or its subsidiaries and, to the Knowledge
of Seller, the other party thereto, enforceable in accor dance with
their terms, subject to limitations imposed by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and general
equitable principles, and there exists no event or condition which
will result in a violation or breach of, or constitute a default by
the Company or its subsidiaries or, to the Knowledge of Seller, the
other party thereto, under any such Company License Agreement,
(ix) the Company and each of its subsidiaries takes
reasonable measures to protect the confidentiality of Company Trade
Secrets (as defined herein), including requesting employees to
execute employee agreements acknowledging the existence of trade
secret information of the Company, requesting third parties who are
granted access thereto to execute written non-disclosure agreements,
marking confidential documents such as software manuals as trade
secret to prevent inadvertent disclosure, controlling copies of
proprietary software and access to such software to prevent the
misappropriation of such software, and reviewing marketing and
promotional materials to ensure that trade secret materials have not
been disclosed. Neither the Company nor any of its subsidiaries has
disclosed or authorized to be disclosed any of its Company Trade
Secrets to any third party other than pursuant to a non-disclosure
agreement that is reasonably ex pected to adequately protect the
Company's or the applicable subsid iary's proprietary interests in
and to such Company Trade Secrets,
(x) the Company is not aware of any claims that it has
hired an employee, officer, agent, consultant or other person away
from a third party in violation of a nondisclosure, non-compete, or
trade secret agreement between the hired person and the third party.
The Company has taken reasonable measures to ensure that no em
ployees, officers, agents, consultants or other person that is
affiliated with the Company or any of its subsidiaries, are using
trade secrets of a third party, and
(xi) all Company Proprietary Software was either
developed (a) by employees of the Company or any of its subsidiaries
within the scope of their employment; or (b) by independent contrac
tors who have assigned their rights to the Company or any of its
subsidiaries pursuant to one or more written agreements.
(e) As used herein, the term "Company Intellectual Property"
means all trademarks, service marks, trade names, Internet domain names,
designs, logos, slogans and general intangibles of like nature, together
with goodwill, registra tions and affiliations relating to the foregoing;
registered and unregistered patents, copyrights (including registrations
and applications of any of the foregoing); Com pany Software; and
confidential information, technology, know-how, inventions, processes,
formulae, algorithms, models and methodologies (such confidential items,
collectively "Company Trade Secrets") used in the Business as conducted as
of the date of this Agreement and any licenses to use any of the foregoing.
"Company Software" means any and all (i) computer programs, including any
and all software implementation of algorithms, models and methodologies
whether in source code or object code, (ii) databases and computations,
including any and all data and collec tions of data but excluding
individual customer data, (iii) all documentation, includ ing user manuals
and training materials, relating to any of the foregoing, and (iv) the
content and information contained in any Web site. As used in this Section
2.9, and notwithstanding Section 9.10(b), the term "Knowledge of Seller"
with respect to the Seller shall mean the knowledge of the persons set
forth in Section 2.9(e) of the Seller Disclosure Schedule.
Section 2.10 Employee Benefit Plans.
(a) Section 2.10(a) of the Seller Disclosure Schedule contains
a complete list of all employee benefit plans (as defined in Section 3(3)
of the Em ployee Retirement Income Security Act of 1974, as amended
("ERISA")), all employment and severance agreements, and all bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, programs,
policies and agreements, in each case that are sponsored, maintained,
contributed to or required to be contributed to by the Company or any of
its subsidiaries, or to which the Company or any of its subsidiar ies is a
party for the benefit of any current or former employee, director,
consultant or independent contractor of the Company or any of its
subsidiaries (together, the "Company Employee Plans"). Except as set forth
on Section 2.10(a) of the Seller Disclosure Schedule, none of the Company
Employee Plans is sponsored, main tained, contributed to or required to be
contributed to by the Seller or any of its subsidiaries (other than the
Company and its subsidiaries) and no current employee, director, consultant
or independent contractor of the Seller or any of its subsidiaries (other
than the Company and its subsidiaries) participates or is eligible to
participate in such Company Employee Plans.
(b) The Seller has delivered or made available to the Purchaser
accurate and complete copies of the following with respect to the Company
Em ployee Plans, to the extent applicable, as of the date of this
Agreement: (i) all plan documents and all amendments thereto, (ii) summary
plan descriptions and summa ries of material modifications, (iii) trust
documents, insurance contracts and other funding instruments, (iv) the two
most recently prepared financial statements and actuarial reports, (v) the
two most recently filed annual reports and (vi) determination letters
received from the Internal Revenue Service.
(c) All Company Employee Plans have been administered and
operated in compliance with the requirements of ERISA, the Internal Revenue
Code of 1986, as amended (the "Code"), and all other applicable Laws,
except for failures to so administer and operate Company Employee Plans
that have not had or would not have a Company Material Adverse Effect. Each
Company Employee Plan that is intended to be qualified under Section 401(a)
of the Code has received a current determination letter from the Internal
Revenue Service stating that it is so qualified in its entirety, and to the
knowledge of Seller each such plan is so qualified, and, as of the date of
this Agreement, no such determination letter has been revoked. There have
been no "prohibited transactions" within the meaning of Section 4975 of the
Code or Section 406 of ERISA involving any of the Company Employee Plans
that would be reasonably likely to subject the Company or any of its
subsidiaries to any penalties or taxes that would be reasonably likely to
have a Company Material Adverse Effect.
(d) Each Company Employee Plan that is subject to the minimum
funding requirements of Section 412 of the Code is in compliance with such
require ments, and no Company Employee Plan has a minimum funding variance
or waiver under Section 412(d) of the Code. Neither the Company, its
subsidiaries, nor any trade or business that together with the Company or
any of its subsidiaries would be deemed a "single employer" under Section
4001(b) of ERISA (a "Company ERISA Affiliate") has any liability, and no
event has occurred that could reasonably give rise to any liability under
Title IV of ERISA (other than for the payment of premiums to the Pension
Benefit Guaranty Corporation), except as has not had a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries partici
pates in any multiemployer plan (as defined in Section 3(37) of ERISA), nor
has the Company, its subsidiaries or any ERISA Affiliate incurred any
withdrawal liability to a multiemployer plan that has not been satisfied in
full, except as has not had a Company Material Adverse Effect.
(e) As of the date of this Agreement, no actual or, to the
knowl edge of the Seller, threatened disputes, lawsuits, claims (other than
routine claims for benefits), or to the knowledge of the Seller,
investigations or audits by any person or Governmental Entity have been
filed or are pending with respect to the Company Employee Plans or the
Company or any of its subsidiaries in connection with any Company Employee
Plan or the fiduciaries or administrators thereof.
(f) The execution and delivery of this Agreement and the consum
mation of the transactions contemplated hereunder will not constitute an
event under any Company Employee Plan that will cause any payment, benefit,
acceleration, vesting, distribution, or obligation to fund benefits with
respect to any current or former employee of the Company or any of its
subsidiaries.
(g) No Company Employee Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Company or any subsidiary for periods
extending beyond their retirement or other termination of service, other
than (i) coverage mandated by applicable Law, (ii) death benefits under any
"pension plan" or (iii) benefits the full cost of which is borne by the
current or former employee (or his beneficiary).
Section 2.11 Taxes.
(a) Except as set forth in Section 2.11 of the Seller Disclosure
Schedule:
(i) Each of the Company and its subsidiaries has (giving
effect to all extensions obtained) (x) duly and timely filed (or
there has been filed on its behalf) with the appropriate Governmental
Entities all income and other material Tax Returns required to be
filed by it, and all such Tax Returns are true, correct and complete
in all material respects and (y) timely paid (or accrued on the
Company's books) or there has been paid on its behalf all material
Taxes due and payable;
(ii) The Company and its subsidiaries have complied in
all material respects with all applicable Tax Laws relating to the
payment and withholding of Taxes;
(iii)There are no Liens for Taxes upon the assets or
properties of the Company or its subsidiaries except for statutory
Liens for current Taxes not yet due or Liens for Taxes being
contested in good faith;
(iv) None of the Company or its subsidiaries has
requested in writing any extension of time within which to file any
Tax Return in respect of any taxable year which has not since been
filed, and no outstanding written waivers or comparable written
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns has been given by or on behalf of
the Company or its subsidiaries;
(v) To the knowledge of the Seller, no U.S. federal,
state, local or foreign audits, reviews or other administrative
proceed ings or court proceedings ("Audits") exist or have been
initiated with regard to any Taxes or Tax Returns of the Company or
its subsidiar ies, and none of the Company or its subsidiaries has
received any written notice of such an Audit;
(vi) None of the Company or its subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor
provision) or agreed in writing to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or its
subsidiaries;
(vii)Each subsidiary of the Company is a United States
Person (as defined in Section 7701(a)(30) of the Code).
(viii) None of the Company or its subsidiaries has at any
time during past five years used the cash method of accounting. None
of the Company or its subsidiaries has agreed nor is it required to
make any adjustment by reason of a change in accounting method that
would affect any taxable year ending after the Closing Date, and no
Tax Authority has proposed any such adjustment or change in
accounting method that would affect any taxable year ending after the
Closing Date. None of the Company or its subsidiaries has an appli
cation pending with any Tax Authority requesting permission for any
change in accounting method that relate to their business or
operations and that would affect any taxable year ending after the
Closing Date;
(ix) There is no contract, agreement, plan or arrange
ment covering any employee or former employee of the Company or its
subsidiaries that, individually or collectively, could give rise to
the payment by the Company or its subsidiaries of any amount that
would not be deductible by reason of Section 280G of the Code;
(x) Neither the Company nor its subsidiaries owns
any interest in an entity which would be considered a "partnership"
for federal income tax purposes;
(b) "Tax" or "Taxes" means all taxes, charges, levies, fees, or
other assessments imposed by any federal, state, local or foreign Tax
Authority, including, but not limited to, any income, gross income, gross
receipts, profits, capital stock, franchise, business, withholding payroll,
social security, workers compensation, unemployment, disability, property,
ad valorem, stamp, excise, occupation, service, sales, use, license, lease,
transfer, import, export, value added, goods and services, alternative
minimum, estimated or other similar tax (including any fee, assessment, or
other charge in the nature of or in lieu of any tax), and any interest,
penalties, additions to tax, or additional amounts in respect of the
foregoing.
(c) "Tax Authority" means, with respect to any Tax, the Govern
mental Entity that imposes such Tax and the agency (if any) charged with
the collection or administration of such Tax for such entity.
(d) "Tax Law" means the law (including any applicable regula
tions or any administrative pronouncement) of any Governmental Entity
relating to any Tax.
(e) "Tax Period" means, with respect to any Tax, the period for
which the Tax is reported as provided under the applicable Tax Law.
(f) "Tax Return" means any report of Taxes due, any claims for
refund of Taxes paid, any information return with respect to Taxes or any
other similar report, statement, declaration, or document required to be
filed under applica ble Tax Law, including any attachments, exhibits or
other materials submitted with any of the foregoing and including any
amendments or supplements to any of the foregoing.
Section 2.12 Material Contracts.
(a) Section 2.12(a) of the Seller Disclosure Schedule lists the
following notes, leases, licenses, contracts and agreements ("Company
Contracts") to which the Company or any subsidiary, as of the date of this
Agreement, is a party or is bound:
(i) each mortgage, indenture, note, installment
obligation or other instrument, contract, agreement or arrangement
relating to the borrowing of money by the Company or any of its
subsidiaries in an amount exceeding $10 million;
(ii) any guaranty, direct or indirect, by the Company or
any subsidiary of any obligation for borrowed money (A) in an amount
exceeding $10 million of any person or entity or (B) in any amount of
Seller or any subsidiary of Seller (other than the Company and its
subsidiaries), in either case, excluding endorsements made for
collection in the ordinary course of business;
(iii)any obligation to sell or to register the sale of any
of the shares of capital stock or other securities of the Company or
any of its subsidiaries;
(iv) any obligation to make payments, contingent or
otherwise, arising out of the prior acquisition or disposition of a
business;
(v) each collective bargaining or union contract;
(vi) each contract for the purchase of capital equip
ment, materials or supplies, other than any contract which is termina
ble without material penalty on 60 or fewer days' notice or involves
the receipt or payment of less than $500,000 per year;
(vii)each contract for the acquisition or disposition of
material assets, other than in the ordinary course of business;
(viii) each contract relating to the leasing of or other
arrangement for use of material real or personal property;
(ix) each contract with any manufacturer of
pharmaceuticals involving the annual payment by the manufacturer of
at least $1 million;
(x) each of the top 50 contracts measured by mem bership
(as calculated in accordance with industry practices) with any
insurance company, health maintenance organization or other cus
tomer;
(xi) each contract between the Company or its subsid
iaries, on the one hand, and the Seller and its subsidiaries (other
than the Company or its subsidiaries) on the other hand;
(xii) any employment agreement with any director,
officer or employee of the Company or its subsidiaries;
(xiii) any contract with a term in excess of one year from
the date hereof which is not otherwise terminable upon 60 days
advance notice without cause and without financial penalty and which
involves the payment or receipt of an amount (in one or a series of
transactions) in excess of $1 million per year; and
(xiv)any limited partnership, joint venture or other
unincorporated business organization or similar arrangement or
agreement.
(b) Except as has not had or would not have a Company Material
Adverse Effect, (x) neither the Company nor any subsidiary is (and to the
knowledge of the Seller, as of the date of this Agreement, no other party
is) in breach or default under the Company Contracts and no event has
occurred under the Company Contracts which would constitute (with or
without due notice or lapse of time or both) a breach or default by the
Company or any of its subsidiaries or, to the knowl edge of the Seller, by
any other party thereto (or give rise to any right of termination,
cancellation, modification or acceleration against the Company or any of
its subsid iaries, or, to the knowledge of the Seller, any other party
thereto) under the Company Contracts and (y) each Company Contract is a
valid and binding obligation of the Company or its subsidiary and, to the
knowledge of the Seller, as of the date of this Agreement, the other party
thereto, enforceable against such persons in accordance with its terms,
subject to limitations imposed by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and general equitable principles.
(c) From January 1, 2000 through the date of this Agreement, no
customer of the Company which individually accounted for 500,000 or more
members (determined on a basis consistent with past practices of the
Business) during the year ended December 31, 1999 or at any time since
January 1, 2000, has cancelled or otherwise terminated its business
relationships with the Company or its subsidiaries. As of the date of this
Agreement, (i) none of the Seller, the Company or any of its subsidiaries
has received written notice, or to the knowledge of the Seller, other
communication of any actual or alleged breach of or default under or threat
ened cancellation, termination or acceleration of such contracts, and (ii)
to the knowledge of the Seller, no event has occurred or circumstances
exist that would give the Company or any other person party to such
contracts the right to exercise any remedy under or to cancel or terminate
any such contract.
Section 2.13 Assets Necessary to Business. The assets,
properties, con tracts and rights of the Company and its subsidiaries
include all of the assets, properties, contracts and rights that are
necessary for the conduct of the Business in the manner as it is currently
conducted, and are reflected in the May Balance Sheet (other than assets
that have been sold or disposed of in the ordinary course of business and
except that the sale or other disposition of the Designated Real Property
pursuant to Section 4.1(c) may occur prior to Closing). The Company and
each of its subsidiaries have maintained all of their tangible assets in
good and normal operating condition, and all such assets are free and clear
from all defects in all material respects, ordinary wear and tear excepted,
and all such tangible assets are fully adequate and suitable for the
purposes for which they are presently used.
Section 2.14 Title to Assets. Each of the Company and its subsidiaries
has good and valid title (or in the case of real property owned by the
Company or its subsidiaries, good and marketable title) to all of its
material assets, properties and rights, free and clear of all Liens, other
than (x) as set forth in Section 2.14 of the Seller Disclosure Schedule or
in the May Balance Sheet and (y) (i) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary course
of business, (ii) Liens arising under original purchase price condi tional
sales contracts and equipment leases with third parties entered into in the
ordinary course of business and (iii) Liens for Taxes that are (A) not due
and payable or (B) being contested in good faith ("Company Permitted
Liens"). Section 2.14 of the Seller Disclosure Schedule sets forth a list
of all real property owned by the Company or its subsidiaries and, as of
the date of this Agreement, the leases relating to the assets of the
Business constituting leasehold interests in real property, and
improvements and appurtenances thereto (the "Company Leased Properties").
Notwithstanding anything herein to the contrary, the representations and
warranties set forth in this Agreement shall not be breached or deemed
untrue or incorrect for any purpose hereunder if prior to the Closing the
Company or any of its subsidiaries sells, transfers, or otherwise disposes
of all or any portion of its interest in the Designated Real Property in
accordance with Section 4.1(c). As of the date of this Agreement, the
leases relating to the Company Leased Properties are in full force and
effect, and constitute the legal, valid and binding obligation of the
Company or its subsidiaries, and to the knowledge of Seller the other party
thereto, subject to limitations imposed by bankruptcy, fraudulent
conveyance, insolvency, reorganiza tion, moratorium and other laws relating
to or affecting creditors' rights generally and general equitable
principles. There exist no defaults or conditions which with the giving of
notice or the passage of time, or both, would constitute a default by the
Company or its subsidiaries or to the knowledge of Seller, as of the date
of this Agreement, the other party thereto with respect to the leases for
the Company Leased Properties except for such defaults or conditions which
have not had a Company Material Adverse Effect.
Section 2.15 Labor Relations. Except for occurrences that have
not had or would not have a Company Material Adverse Effect, (a) the
Company and its subsidiaries are in compliance in all material respects
with all applicable laws respecting employment and employment practices,
terms and conditions of employ ment and wages and hours; (b) none of the
Seller, the Company or any of its subsid iaries has received written notice
of any legitimate charge or complaint against the Company or any of its
subsidiaries pending before the Equal Employment Opportu nity Commission,
the National Labor Relations Board, or any other Governmental Entity
regarding an unlawful employment practice; (c) none of the Company or any
of its subsidiaries are party to any collective bargaining agreement and
there is no labor strike, slowdown or stoppage actually pending or, to the
knowledge of the Seller, threatened or being carried out against the
Company or its subsidiaries; (d) none of the Seller, the Company or any of
its subsidiaries has received written notice that any representation
petition respecting the employees of the Company or its subsidiaries has
been filed with the National Labor Relations Board; and (e) the Company and
its subsidiaries are and have been in substantial compliance with all
notice and other requirements under the Worker Adjustment and Retaining
Notifica tion Act of 1988 or similar state statute.
Section 2.16 Insurance. Section 2.16 of the Seller Disclosure Schedule
sets forth all material insurance policies maintained by the Company or any
of its subsidiaries for the benefit of or in connection with the Company or
the Business. Except as set forth in Section 2.16 of the Seller Disclosure
Schedule, none of the material insurance policies maintained by the Company
or any of its subsidiaries for the benefit of or in connection with the
Company or the Business will lapse or become subject to termination by the
insurer as a result of the transactions contem plated by this Agreement.
Section 2.17 Investment. The Seller, with respect to all of the
securities of the Purchaser to be acquired by it hereunder, is not
acquiring such securities with a present view to, or with any present
intention of, distributing, disposing, or reselling any thereof in any
transaction which would be in violation of the securities laws of the
United States of America or any State, without prejudice, however, to the
Seller's right at all times to sell or otherwise dispose of all or any part
of such securities under an effective registration statement under the
Securities Act and other applica ble State securities laws or under an
exemption from such registration requirements, and subject, nevertheless,
to the disposition of the Seller's property being at all times within its
control.
Section 2.18 Brokers. No broker, investment banker, financial
advisor or other person, other than J.P. Morgan Securities Inc., the fees
and expenses of which will be paid by the Seller, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of the Seller or any subsidiary of
the Seller.
Section 2.19 No Implied Representations; No OIG Representation. The
Seller acknowledges that, except as set forth in Section 3.10, the
Purchaser is not making any representations or warranties other than as
explicitly set forth in this Agreement. The Seller agrees that it shall not
assert any claims against or seek any damages or other remedies (including
pursuant to any implied warranties or similar rights, which the Seller
expressly and irrevocably waives and agrees not to seek to enforce) from
the Purchaser or any of its officers, directors, affiliates, stockholders,
agents, advisors or representatives (collectively, "representatives") for
any matters contemplated hereby except for fraud or as explicitly set forth
or incorporated herein. Notwithstanding anything to the contrary contained
herein, the Seller makes no representation or warranty with respect to the
Company's or any other party's compliance or noncompliance with any Laws,
the compliance or noncompliance with which is being investigated (including
through any future extensions or resumptions of such investigation) by the
Office of the Inspector General (the "OIG") of the United States Department
of Health and Human Services (the "HHS") or enforced by the HHS or
otherwise arising out of the OIG Investigation (as defined in Section
4.20(a) of this Agreement).
Section 2.20 Affiliated Transactions. Except as set forth in
Section 2.20 of the Seller Disclosure Schedule, neither the Company nor any
subsidiary of the Company has, directly or indirectly, acquired any asset
(real or personal, tangible or intangible) or obtained any service from, or
disposed of any asset or furnished any service to, or entered into any
agreement, commitment or understanding with, (i) the Seller or any
subsidiary or greater than 5% shareholder of the Seller (other than the
Company and its subsidiaries), (ii) to the knowledge of the Seller any
director, officer or employee of the Seller or any subsidiary of the Seller
(other than the Company and its subsidiaries), or (iii) to the knowledge of
the Seller any associate, relative or other related party of any person
referred to in clause (i) or (ii). Except as set forth in Section 2.20 of
the Seller Disclosure Schedule, none of the persons named in clause (i) (or
to the knowledge of the Seller clauses (ii) or (iii)) of the preceding
sentence, directly or indirectly, (x) owns any interest in any asset used
or held for use in connection with the business and operations of the
Company or any subsidiary of the Seller, (y) owns or has any interest in a
supplier, customer or competitor of the Company or any subsidiary of the
Company, or (z) has received any loans from or is otherwise a debtor of, or
made any loans to or is otherwise a creditor of, the Company or any
subsidiary of the Company.
Section 2.21 Absence of Undisclosed LiabilitiTo the knowledge of the
Seller, except as described in Section 2.21 of the Seller Disclosure
Schedule or as otherwise disclosed in this Agreement, the Company has no
liabilities or obligations (whether direct, indirect, accrued or
contingent) other than liabilities and obligations which would not have a
Company Material Adverse Effect.
Section 2.22 Relationship with Custom To the knowledge of the Seller,
no material customer of the Company (including payors and pharmaceutical
compa nies) has, since January 1, 2000 and on or prior to the date hereof,
threatened to cancel or otherwise terminate its relationship with the
Company, or to materially decrease its usage of the services of the Company
(it being agreed that requests for proposals from customers shall not be
considered any such threat). For purposes of this Section 2.22 only,
"knowledge of the Seller" includes (in addition to the knowl edge of the
persons set forth in Section 9.10(b) of the Seller Disclosure Schedule) the
knowledge of Richard Shiner or Dan Segedin.
Section 2.23 Full Disclosure. No representation or warranty of the
Seller made in this Agreement or in any ancillary agreement, nor any
written statement furnished to the Purchaser pursuant to this Agreement or
any ancillary agreement or in connection with the transactions contemplated
thereby, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the
statement in question not misleading. Each of the schedules attached hereto
is a true, complete and accurate list or description, as appropriate, of
the items purported to be listed or described on that schedule.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Except as set forth in the disclosure schedule being delivered
by the Purchaser to the Seller (the "Purchaser Disclosure Schedule"), the
Purchaser repre sents and warrants to the Seller as follows:
Section 3.1 Organization and Authority of the Purchaser.
(a) The Purchaser and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdic tion of its organization and has all requisite corporate power and
authority to own, lease or operate its properties and assets and to carry
on its business as now being conducted. The Purchaser and each of its
subsidiaries is duly qualified to do business and in good standing and is
duly licensed, authorized or qualified to transact business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or
licensing neces sary, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing has not had a Purchaser
Material Adverse Effect. "Purchaser Material Adverse Effect" means a change
or effect that is materially adverse to (A) the business, financial
condition or results of operations of the Purchaser and its subsidiaries
taken as a whole, but shall not include any changes or effects (x) relating
to or resulting from general economic, political or market conditions after
the date of this Agreement, including (i) changes after the date of this
Agreement in any Law or in the interpretation of any Law by any
Governmental Entity and (ii) changes in GAAP, (y) resulting from the
execution or announcement of this Agreement or compliance with the terms
hereof or (z) generally affecting the industries in which the Purchaser and
its subsidiaries operate or (B) the ability of the Purchaser and its
subsidiaries to consummate the transactions contemplated hereby or by the
Other Transaction Agreements. "Other Transaction Agreements" means the
Certificates of Designation, the Stockholders' Agreement, the Purchaser
Warrants, the Purchaser Notes, the Indenture and the Registration Rights
Agreements.
(b) The Purchaser has all necessary corporate power and
authority to execute and deliver this Agreement and the Other Transaction
Agreements, to perform its obligations under this Agreement and the Other
Transaction Agreements and to consummate the transactions contemplated by
this Agreement and the Other Transaction Agreements. The execution and
delivery of each of this Agreement and the Other Transaction Agreements by
the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate actions on the part of Purchaser and no other corporate actions
or proceedings on the part of the Purchaser are necessary to authorize this
Agreement or the Other Transaction Agreements or for the Purchaser to
consummate the transactions contemplated hereby or thereby.
(c) This Agreement has been duly and validly executed and
delivered by Purchaser and (assuming due authorization, execution and
delivery by the Seller) constitutes a legal, valid and binding obligation
of the Purchaser, enforce able against the Purchaser in accordance with its
terms, subject to limitations imposed by bankruptcy, fraudulent conveyance,
insolvency, reorganization, morato rium and other laws relating to or
affecting creditors' rights generally and general equitable principles.
Upon execution and delivery thereof at the Closing, each of the Other
Transaction Agreements will have been duly and validly executed and deliv
ered by Purchaser and (assuming due authorization, execution and delivery
by any other parties thereto) will constitute a legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, subject to limitations imposed by bankruptcy,
fraudulent conveyance, insolvency, reorganiza tion, moratorium and other
laws relating to or affecting creditors' rights generally and general
equitable principles.
(d) The Purchaser Notes have been duly authorized and, at the
Closing, the Purchaser Notes and the guarantees thereof by the Guarantors
will have been duly executed by the Purchaser and the Guarantors, as the
case may be, and, when authenticated, issued and delivered in the manner
provided for in the Indenture and delivered as provided in this Agreement,
will constitute legal, valid and binding obligations of the Purchaser and
the Guarantors, as the case may be, enforceable against the Purchaser and
the Guarantors in accordance with their terms, subject to limitations
imposed by bankruptcy, fraudulent conveyance, insolvency, reorganiza tion,
moratorium and other laws relating to or affecting creditors' rights
generally and general equitable principles, and will be entitled to the
benefits of the Indenture.
(e) The Purchaser has heretofore delivered to the Seller true
and complete copies of the certificate of incorporation and bylaws or
similar organiza tional documents of the Purchaser and each of its
subsidiaries.
Section 3.2 Capitalization; Ownership of Subsidiaries. (a) The
authorized capital stock of the Purchaser consists of 50,000,000 shares of
Purchaser Common Stock, and 5,000,000 shares of preferred stock, par value
$0.01 per share ("Purchaser Preferred Stock"). As of the date of this
Agreement, there were 25,040,884 shares of Purchaser Common Stock and no
shares of Purchaser Preferred Stock issued and outstanding, and no shares
of Purchaser Common Stock held in Purchaser's treasury. As of the date of
this Agreement, no shares of Purchaser Common Stock or Pur chaser Preferred
Stock were reserved for issuance, except as set forth in Section 3.2(a) of
the Purchaser Disclosure Schedule. All issued and outstanding shares of
Purchaser Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this
Agreement, except as referred to above or as reflected in Section 3.2(a) of
the Purchaser Disclosure Schedule, there are no outstanding subscription,
options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of
Purchaser Common Stock or Purchaser Preferred Stock or any other equity
securities of the Purchaser or any securities representing the right to
purchase or otherwise receive any shares of Purchaser Common Stock or
Purchaser Preferred Stock or other equity securities of the Purchaser.
(b) The Purchaser Preferred Shares have been duly authorized
for issuance pursuant to this Agreement and, when issued and delivered by
the Purchaser pursuant to this Agreement, will be validly issued and fully
paid and non-assessable, with no personal liability attaching to the
ownership thereof. The issuance of the Purchaser Preferred Shares is not
subject to any preemptive or other similar rights of any securityholder of
the Purchaser. The shares of Purchaser Common Stock issuable upon
conversion of the Purchaser Series B Preferred Shares have been duly
authorized and reserved for issuance upon such conversion by all necessary
corporate action and such shares, when issued upon such conversion, will be
validly issued and will be fully paid and non-assessable, with no personal
liability attaching to the ownership thereof, and the issuance of such
shares upon such conversion will not be subject to any preemptive or other
similar rights of any security-holder of the Purchaser.
(c) Subject to the receipt of the necessary approvals from the
stockholders of the Purchaser, the Class B Purchaser Shares issuable upon
the conversion of the Purchaser Preferred Shares shall have been duly
authorized upon such conversion by all necessary corporate action and such
shares, when issued upon such conversion, will be validly issued and fully
paid and non-assessable, with no personal liability attaching to the
ownership thereof. The issuance of the Class B Purchaser Shares shall not
be subject to any preemptive or other similar rights of any security-holder
of the Purchaser. The shares of Purchaser Common Stock issuable upon
conversion of the Class B Purchaser Shares shall have been duly authorized
upon such conversion by all necessary corporate action and such shares,
when issued upon such conversion, will be validly issued and will be fully
paid and non- assessable, with no personal liability attaching to the
ownership thereof, and the issuance of such shares upon such conversion
will not be subject to any preemptive or other similar rights of any
security-holder of the Purchaser.
(d) The Purchaser Warrants have been duly authorized and, at
the Closing, will have been duly executed by the Purchaser and, when
authenticated, issued and delivered in the manner provided for in this
Agreement, will constitute legal, valid and binding obligations of the
Purchaser, enforceable against the Pur chaser in accordance with their
terms, subject to limitations imposed by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and general equitable principles. The
Purchaser Warrant Shares issuable upon the exercise of the Purchaser
Warrants have been duly authorized and reserved for issuance upon such
exercise by all necessary corporate action and such shares, when issued
upon the exercise of the Purchaser Warrants, will be validly issued and
will be fully paid and non-assessable, with no personal liability attaching
to the ownership thereof, and the issuance of such shares upon such
exercise will not be subject to any preemptive or other similar rights of
any security-holder of the Purchaser.
Section 3.3 Consents and Approvals; No Violations. (a) No filing or
registration with, and no permit, authorization, certificate, waiver,
license, consent or approval of, any Governmental Entity is necessary for
execution, delivery or perfor mance by the Purchaser of this Agreement or
any of the Other Transaction Agree ments, or the performance by the
Purchaser of its obligations under the Purchaser Preferred Shares or the
Purchaser Notes, except (x) for the applicable requirements of the HSR Act,
(y) for the filing of the Certificates of Designation with the Secretary of
State of the State of Delaware, or (z) as a result of facts or
circumstances particular to the Seller.
(b) Neither the execution and delivery of this Agreement or any of
the Other Transaction Agreements by the Purchaser nor the consummation by
the Purchaser of the transactions contemplated hereby or thereby nor
compliance by the Purchaser with any of the provisions hereof or thereof or
of the Purchaser Preferred Shares or the Purchaser Notes will (i) conflict
with or result in any breach of any provision of the certificate of
incorporation or by-laws (or similar organizational documents) of the
Purchaser or any subsidiary of the Purchaser, (ii) require the consent or
waiver of any person (other than a Governmental Entity) or result in a
violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation, modification or acceleration) (whether after the giving of
notice or the passage of time or both) or result in the imposition of or
the creation of any Lien upon any of the assets or properties of the
Purchaser or any of its subsidiaries pursuant to or under, any of the
terms, conditions or provisions of any note, lease, license, contract or
agreement to which the Purchaser or any subsidiary of the Purchaser is a
party or by which the Purchaser or any subsidiary of the Purchaser, or any
of their respective assets, is bound or (iii) violate any order, writ,
injunction, decree or Law applicable to the Purchaser or any subsidiary of
the Purchaser, except in the case of (ii) or (iii), for violations,
breaches or defaults which, or consents or waivers the absence of which,
individually or in the aggregate, have not had and would not have a
Purchaser Material Adverse Effect.
Section 3.4 Absence of Certain Changes. Since December 31, 1999 (i)
the businesses of the Purchaser and its subsidiaries have been conducted
only in the ordinary course of business, (ii) neither the Purchaser nor any
subsidiary has taken any of the actions set forth in Section 4.2(b) hereof,
assuming that Section 4.2(b) applied to the period since December 31, 1999
and (iii) the Purchaser has not suffered a Purchaser Material Adverse
Effect.
Section 3.5 Availability of Funds. Purchaser has delivered to Rite
Aid commitment letters providing for financing of the transaction
contemplated by this Agreement, subject to the conditions set forth in such
letters. Copies of all such commitment letters are attached to this
Agreement. Purchaser shall not modify or amend any such commitment letters
or the JLL Purchase Agreement without the prior written consent of Seller.
Section 3.6 Investment. The Purchaser, with respect to all of the Com
pany Shares to be acquired by it hereunder, is not acquiring such
securities with a present view to, or with any present intention of,
distributing or reselling any thereof in any transaction which would be in
violation of the securities laws of the United States of America or any
State, without prejudice, however, to the Purchaser's right at all times to
sell or otherwise dispose of all or any part of such Company Shares under
an effective registration statement under the Securities Act and other
applica ble State securities laws or under an exemption from such
registration requirements, and subject, nevertheless, to the disposition of
the Purchaser's property being at all times within its control.
Section 3.7 Business Combination Provision; Takeover Laws; Rights
Plan. The Purchaser's Board of Directors has approved (including for
purposes of rendering inapplicable Section 203 of the Delaware General
Corporation Law) this Agreement and the Other Transaction Agreements, the
transactions contemplated hereby and thereby and the issuance of all
securities of the Purchaser contemplated to be issued hereby or thereby. No
"fair price", "control share acquisition" or other similar anti-takeover
statute applicable to the Purchaser (collectively, "Takeover Laws") will
prevent or delay such transactions or issuances. The Purchaser has not
adopted or resolved to adopt a "shareholder rights plan" or similar plan.
Section 3.8 Brokers. No broker, investment banker, financial advisor
or other person, other than Merrill Lynch & Co., the fees and expenses of
which will be paid by the Purchaser, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser or any subsidiary of the Purchaser.
Section 3.9 No Implied Representations. The Purchaser acknowledges
that the Seller is not making any representations or warranties regarding
the Business other than as explicitly set forth in this Agreement. The
Purchaser agrees that it shall not assert any claims against or seek any
damages or other remedies (including pursuant to any implied warranties or
similar rights, which the Purchaser expressly and irrevocably waives and
agrees not to seek to enforce) from the Seller or any of its
representatives for any matters relating to the Business or the other
matters contem plated hereby except for fraud or as explicitly set forth
herein.
Section 3.10 Incorporation of Additional Representations. Each of the
representations and warranties of the Purchaser set forth in that certain
stock pur chase agreement, dated the date hereof, by and between the
Purchaser and Joseph Littlejohn & Levy Inc. or any of its affiliates
("JLL") pursuant to which JLL will purchase capital stock of the Purchaser
(the "JLL Purchase Agreement") is incorpo rated into this Agreement by
reference and Seller shall be entitled to rely on such representations and
warranties to the same extent as Seller would be entitled to rely thereon
pursuant to the terms of this Agreement had such incorporated representa
tions and warranties been fully and actually set forth herein.
Section 3.11 Full Disclosure. No representation or warranty of the Pur
chaser made in this Agreement or in any ancillary agreement, nor any
written statement furnished to the Seller pursuant to this Agreement or any
ancillary agree ment or in connection with the transactions contemplated
thereby, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the
statement in question not misleading. Each of the schedules attached hereto
is a true, complete and accurate list or description, as appropriate, of
the items purported to be listed or described on that schedule.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of the Business of the Company.
(a) During the period from the date hereof to the Closing Date,
the Seller shall, except as otherwise expressly provided in this Agreement,
cause the Company to operate only in the ordinary course of business
consistent with past practice. The Seller shall, and shall cause the
Company to, use all reasonable efforts to preserve intact the present
organization of the Business, keep available the services of the present
officers and employees of the Company and preserve the Company's
relationships with customers, suppliers, and others having significant
business dealings with the Business.
(b) Without limiting the generality of the foregoing, and
except as set forth in Section 4.1 of the Seller Disclosure Schedule or as
otherwise expressly provided in this Agreement, from the date of this
Agreement to the Closing Date, the Seller shall cause the Company and each
of its subsidiaries not to, without the written consent of the Purchaser:
(i) amend its certificate of incorporation or by-laws (or
other similar organizational documents) or alter through merger,
liquidation, reorganization, restructuring or in any other fashion,
the corporate structure or ownership of the Company or any of its
subsidiaries;
(ii) issue, sell or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber any shares of capital stock
of the Company or any subsidiary of the Company, or any securities
convertible into, or exchangeable for, any such shares or amend the
terms of any such securities or agreements outstanding on the date
hereof;
(iii)(A) subject to Section 4.1(c), declare, set aside,
make or pay any dividend or other distribution in respect of its
capital stock, or (B) redeem, repurchase or otherwise acquire any of
its securities or split, combine or reclassify any shares of its
capital stock;
(iv) (A) subject to Section 4.1(c), transfer, sell,
lease, license or dispose of any material assets or rights, unless in
the ordi nary course of business consistent with past practice; or
(B) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of or by
any other manner any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets in the ordinary course of business
and consistent with past practices);
(v) other than transactions with wholly-owned
subsidiaries of the Company, (A) incur, assume, discharge, cancel or
prepay any material indebtedness or other obligation or issue or sell
any debt securities or rights to acquire any debt securities, (B)
assume, guarantee, endorse or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other
person, (C) other than in the ordinary course of business except with
respect to Seller and subsidiaries of Seller solely in accordance
with Section 4.1(b)(ix) make any loans, advances or capital
contributions to, or investments in, any other person; (D) change the
Company's practices with respect to the timing of payments or
collections; (E) pledge or otherwise encumber shares of capital stock
of the Company and its subsidiaries; or (F) mortgage or pledge any of
its assets or permit to exist any Lien (other than Company Permitted
Liens) thereupon;
(vi) enter into, adopt, amend or terminate any em ployee
benefit plan, or increase in any material respect the compensa tion
or fringe benefits of any officer or employee of the Company or pay
any benefit not required by any existing plan, except in the ordi
nary course of business or as required by applicable law or existing
contractual arrangements;
(vii) enter into any employment or severance agree ment
with any employee, or adopt or enter into any collective bargain ing
agreement;
(viii) enter into, amend, assign or terminate any Com pany
Contract, except in the ordinary course of business and consis tent
with past practices;
(ix) enter into any agreement or engage in any trans
actions with the Seller or its subsidiaries (other than the Company
and its subsidiaries) or any director, officer, employee or greater
than 5% shareholder of Seller or its subsidiaries other than in the
ordinary course of business and consistent with past practices and on
a basis no less favorable than would at the time be obtainable for a
comparable transaction in arm's-length dealing with an unrelated
third party;
(x) settle or compromise any material litigation of the
Company or any of its subsidiaries (whether or not commenced prior to
the date of this Agreement) or settle, pay or compromise any claims,
liabilities or obligations not required to be paid, individually in
an amount in excess of $1 million per year;
(xi) change or agree to change any accounting
method or policy other than as required by GAAP or by Law;
(xii) change, or agree to change, any business policies
which relate to advertising, pricing, personnel, labor relations,
sales, returns or product acquisitions, in each case in a manner
which would have a Company Material Adverse Effect;
(xiii) settle or compromise any material Tax liability;
(xiv) make any capital expenditures; or
(xv) take, or agree in writing or otherwise to take, any
of the foregoing actions.
(c) Notwithstanding anything herein to the contrary, prior to
the Closing, the Seller shall be permitted to (i) cause the Company or any
of its subsid iaries to sell, transfer, or otherwise dispose of (including
by way of a dividend or distribution to the Seller) all or any portion of
the Company's or such subsidiary's interest in the Designated Real
Property, provided that the Company shall not have any liability or
obligation with respect to such sale, transfer or other disposition,
other than any liabilities or obligations that reduce or count against the
EBITDA Amount; and/or (ii) cause the Company or any of its subsidiaries to
enter into a lease with respect to the Designated Real Property and a
related agreement concerning parking arrangements in the forms
substantially similar to those set forth in Section 4.1(c) of the Seller
Disclosure Schedule.
(d) The Seller and the Purchaser acknowledge that each of the
current officers or employees of the Company listed in Section 4.1(d) of
the Seller Disclosure Schedule: (i) is currently a party to or is bound by
an employment agreement (a "Current Employment Agreement") entered into by
and between the Company and such officer or employee and (ii) has, on or
prior to the date hereof, delivered a term sheet to the Purchaser which
sets forth the terms and conditions pursuant to which such officer or
employee shall be employed by the Company from and after the Closing Date.
From the date of this Agreement to the Closing Date, the Seller shall not,
and it shall cause the Company not to, breach any provision of any such
Current Employment Agreement, terminate any such officer or employee
without cause or engage in any acts, or fail to engage in any acts, which
would reasonably be expected to give any such officer or employee the right
to terminate his or her employment with the Company for "good reason" (or a
comparable basis) under his or her Current Employment Agreement.
Section 4.2 Conduct of the Business of the Purchaser.
(a) During the period from the date hereof to the Closing Date,
the Purchaser shall and shall cause its subsidiaries, except as otherwise
expressly provided in this Agreement, to operate only in the ordinary
course of business consistent with past practice. The Purchaser shall, and
shall cause its subsidiaries to, use all reasonable efforts to preserve
intact its and their present organization, keep available the services of
its and their present officers and employees and preserve its and their
relationships with customers, suppliers, and others having significant
business dealings with it or them.
(b) Without limiting the generality of the foregoing, and
except as set forth in Section 4.2 of the Purchaser Disclosure Schedule or
as otherwise ex pressly provided in this Agreement, from the date of this
Agreement to the Closing Date, the Purchaser shall not and shall cause each
of its subsidiaries not to, without the written consent of the Seller:
(i) amend its certificate of incorporation or by-laws (or
other similar organizational documents) or alter through merger,
liquidation, reorganization, restructuring or in any other fashion,
the corporate structure or ownership of the Purchaser or any of its
subsidiaries;
(ii) issue, sell or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber any shares of capital stock
of the Purchaser or any subsidiary of the Purchaser, or any
securities convertible into, or exchangeable for, any such shares or
amend the terms of any such securities or agreements outstanding on
the date hereof;
(iii)(A) declare, set aside, make or pay any dividend or
other distribution in respect of its capital stock, or (B) redeem,
repurchase or otherwise acquire any of its securities or split,
combine or reclassify any shares of its capital stock;
(iv) (A) transfer, sell, lease, license or dispose of any
material assets or rights, unless in the ordinary course of business
consistent with past practice; or (B) acquire or agree to acquire, by
merging or consolidating with, by purchasing an equity interest in or
a portion of the assets of or by any other manner any business or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets of any other person (other than the purchase of assets in the
ordinary course of business and consistent with past practices);
provided that the Purchaser may take any action set forth in this
clause (B) if and to the extent that such action would not give the
financing sources under the Purchaser's financing commitments
referenced in Section 3.5 hereof the right not to fund such
commitments.
(v) other than in the ordinary course of business and
other than transactions with wholly-owned subsidiaries of the Pur
chaser, (A) incur, assume, discharge, cancel or prepay any material
indebtedness or other obligation or issue or sell any debt securities
or rights to acquire any debt securities, (B) assume, guarantee,
endorse or otherwise become liable (whether directly, contingently or
other wise) for the obligations of any other person, (C) make any
loans, advances or capital contributions to, or investments in, any
other person; (D) change the Purchaser's practices with respect to
the timing of payments or collections; (E) pledge or otherwise
encumber shares of capital stock of the Purchaser and its
subsidiaries; or (F) mortgage or pledge any of its assets or permit
to exist any Lien (other than (i) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary
course of business, (ii) Liens arising under original purchase price
conditional sales contracts and equipment leases with third parties
entered into in the ordinary course of business and (iii) Liens for
Taxes that are (A) not due and payable or (B) being contested in good
faith ("Purchaser Permitted Liens")) thereupon;
(vi) enter into, adopt, amend or terminate any em ployee
benefit plan, or increase in any material respect the compensa tion
or fringe benefits of any officer or employee of the Purchaser or pay
any benefit not required by any existing plan, except in the ordi
nary course of business or as required by applicable law or existing
contractual arrangements;
(vii) settle or compromise any material litigation of the
Purchaser or any of its subsidiaries (whether or not commenced prior
to the date of this Agreement) or settle, pay or compromise any
claims, liabilities or obligations not required to be paid,
individually in an amount in excess of $1 million per year;
(viii) change or agree to change any accounting
method or policy other than as required by GAAP or by Law;
(ix) change, or agree to change, any business policies
which relate to advertising, pricing, personnel, labor relations,
sales, returns or product acquisitions, in each case in a manner
which would have a Purchaser Material Adverse Effect;
(x) settle or compromise any material Tax liability;
or
(xi) take, or agree in writing or otherwise to take, any
of the foregoing actions.
Section 4.3 Access to Information.
(a) Upon reasonable notice, and subject to applicable law and
any applicable contractual restrictions, the Seller shall, and shall cause
the Company to, afford to the officers, employees, accountants, counsel and
other representatives of the Purchaser reasonable access during normal
business hours to all of the Com pany's offices, facilities, properties,
books and records relating to the Business, and the Seller shall furnish
promptly to the Purchaser all information concerning the business,
properties and personnel of the Business as the Purchaser may reasonably
request. All information provided or made available to, or obtained by, the
Pur chaser or any of its officers, employees, accountants, counsel or other
representa tives, or by any of the Purchaser's financing sources (or their
respective accountants or counsel) shall be kept confidential pursuant to
the confidentiality agreement dated December 2, 1999 between the Purchaser
and the Seller (the "Seller Confidentiality Agreement"). Notwithstanding
the foregoing, the Purchaser shall not have the right to receive or obtain
any information relating to Taxes or Tax Returns of the Seller or any of
its affiliates, other than information relating solely to the Company and
its subsidiaries.
(b) Upon reasonable notice, and subject to applicable law and
any applicable contractual restrictions, the Purchaser shall, and shall
cause its subsidiar ies to, afford to the officers, employees, accountants,
counsel and other representa tives of the Seller reasonable access during
normal business hours to all of the Purchaser's offices, facilities,
properties, books and records, and the Purchaser shall furnish promptly to
the Seller all information concerning the business, properties and
personnel of the Purchaser and its subsidiaries as the Seller may
reasonably request. All information provided or made available to, or
obtained by, the Seller or any of its officers, employees, accountants,
counsel or other representatives, or by any of the Seller's financing
sources (or their respective accountants or counsel) shall be kept
confidential pursuant to the confidentiality agreement dated June 19, 2000,
between the Seller and the Purchaser (the "Purchaser Confidentiality
Agreement" and, together with the Seller Confidentiality Agreement, the
"Confidentiality Agreement").
Section 4.4 Best Efforts.
(a) Upon the terms and subject to the conditions of this Agree
ment, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper or advisable under applicable Laws to
consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable including the preparation and filing
of all forms, registrations and notices required to be filed to consummate
the transactions contemplated by this Agreement and the taking of such
actions as are necessary to obtain any requisite approvals, consents,
orders, exemptions or waivers by any Governmental Entity, including making
the filings pursuant to the HSR Act within 10 business days of the date
hereof. Each party shall promptly consult with the other with respect to,
provide any necessary information with respect to and provide the other (or
its counsel) copies of, all filings made by such party with any
Governmental Entity or any other information supplied by such party to a
Govern mental Entity in connection with this Agreement and the transactions
contemplated by this Agreement.
(b) Notwithstanding the provisions set forth in Section 4.4(a),
or any other covenant herein contained, in connection with the receipt of
any necessary approvals under the HSR Act, neither the Company nor any
subsidiary of the Company shall be required to divest or hold separate or
otherwise take or commit to take any action that materially limits the
Purchaser's freedom of action with respect to, or its ability to retain,
the Company or any material portions of the businesses, product lines,
properties or assets of the Company, without the Purchaser's prior written
consent.
(c) Notwithstanding the provisions set forth in Section 4.4(a),
or any other covenant herein contained, in connection with the receipt of
any necessary approvals under the HSR Act, neither the Seller nor any
subsidiary of the Seller shall be required to divest or hold separate or
otherwise take or commit to take any action that materially limits Seller's
freedom of action with respect to, or its ability to retain, any material
portions of the businesses, product lines, properties or assets of the
Seller or any subsidiary of the Seller, without the Seller's prior written
consent.
Section 4.5 Further Assurances; No Hindrances. From time to time
after the Closing, without additional consideration, each of the Seller and
the Purchaser will execute and deliver such further instruments and take
such other action as may be necessary to make effective the transactions
contemplated by this Agreement or any of the Other Transaction Agreements.
Upon the terms and subject to the conditions of this Agreement, each of the
parties hereto shall use its reasonable best efforts (i) to cause all
conditions precedent to its obligations to consummate the transactions
contemplated hereby to be satisfied and (ii) not to take, or cause to be
taken, any actions to hinder or delay the consummation of the transactions
contem plated hereby.
Section 4.6 Employee Matters.
(a) For a period of one year after the Closing Date, the
Purchaser shall, or shall cause the Company and its subsidiaries to,
provide, at the election of the Purchaser, each employee of the Company and
its subsidiaries with benefits (including pension and welfare benefits)
that are substantially comparable to either (i) the benefits provided under
the benefit plans applicable to such persons as in effect immediately prior
to the Closing or (ii) the benefits provided to similarly situated
employees of the Purchaser as of the Closing Date. To the extent that
service is relevant for eligibility, vesting or health or welfare benefit
calculations or allowances (including entitlement to vacation and sick
days) under any benefit plan or arrangement covering current or former
employees of the Company or its subsid iaries, such plan or arrangement
shall credit such employees for service credited for comparable purposes
prior to the Closing Date, provided, however, that such service shall not
be recognized to the extent that such service would result in a duplication
of benefits. Subject to the foregoing, nothing in this Section 4.6(a) shall
be construed to restrict the right of the Company or its subsidiaries to
terminate or modify such benefit plans.
(b) For a period of one year following the Closing Date, the
Purchaser shall ensure that each employee of the Company and its
subsidiaries shall continue to be paid base salary at no lower a rate than
in effect immediately prior to the Closing, provided, however, that the
Purchaser may make appropriate adjust ments to such salary in individual
cases based on merit and performance in a manner consistent with the
treatment of other similarly situated employees of the Purchaser and its
subsidiaries.
(c) From and after the Closing, the Purchaser shall, and shall
cause the Company and each of its subsidiaries to, assume, honor and
perform in accordance with its terms each of the employment, severance and
other compensa tion agreements and arrangements which have been disclosed
in Section 2.5 or Section 2.12(a)(xii) of the Seller Disclosure Schedule.
The provisions of this Section 4.6(c) are intended to be for the benefit
of, and shall be enforceable by, the individu als who are parties to such
agreements and arrangements.
(d) The Purchaser acknowledges that it values and desires to
have continued following the Closing Date the skills and services of the
employees of the Company and its subsidiaries, and currently intends to
maintain all such employees following the Closing Date; provided, however,
that this Section 4.6 shall not be construed to create any right to
employment or to limit the ability of the Purchaser or any of its
affiliates to terminate the employment of any of such employees at any
time.
Section 4.7 Access to Records. (a) The Purchaser agrees that it shall
preserve and keep all books and records in respect of the Business that
relate to periods prior to the Closing, or to matters for which the Seller
may be required to provide indemnification hereunder, for a period of six
years from the Closing Date (or any longer period required by applicable
law or until the final resolution of any matters for which the Seller may
be required to provide indemnification hereunder), and shall give the
Seller reasonable access to such books and records during normal business
hours.
(b) Subject to applicable law and any applicable contractual
restrictions, if following the Closing a party hereto (or its subsidiaries)
is in posses sion of any information relating to the Business which the
other party requires in order to prepare documents required to be filed
with Governmental Entities or its financial statements, such party shall
furnish such information to the other party as soon as reasonably
practicable following a written request for such information.
Section 4.8 Notice of Possible Breach. Prior to the Closing, if any
party to this Agreement shall become aware of any fact, event or
circumstance that would constitute a breach of this Agreement by the other
party or that would result in the failure to satisfy any condition set
forth in Article V, such party shall promptly notify the other party
thereof in writing. The parties shall thereupon provide reasonable
cooperation to cure or remedy such breaches or satisfy such closing
conditions.
Section 4.9 Supplemental Disclosure. From time to time prior to the
Closing, the Seller will, and will cause the Company to, promptly following
its becoming aware thereof supplement or amend the Seller Disclosure
Schedule with respect to any matter hereafter arising or discovered which,
if known, existing or occurring at the date of this Agreement, would have
been required to be set forth or described in the Seller Disclosure
Schedule. From time to time prior to the Closing, the Purchaser will,
promptly following its becoming aware thereof supplement or
amend the Purchaser Disclosure Schedule with respect to any matter
hereafter arising or discovered which, if known, existing or occurring at
the date of this Agreement, would have been required to be set forth or
described in the Purchaser Disclosure Schedule. Any supplement or amendment
of the Seller Disclosure Schedule or the Purchaser Disclosure Schedule made
pursuant to this Section 4.9 shall not be deemed to cure any breach or
inaccuracy of any representation or warranty made in this Agreement.
Section 4.10 Notices of Certain Events. The Seller shall, and shall
cause the Company to, notify the Purchaser in writing and the Purchaser
shall notify the Seller in writing of:
(a) any notice or other communication received by the Seller,
the Company or the Purchaser, as the case may be, from any person alleging
that the consent of such person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Entity received by the Seller, the Company or the Purchaser, as the case
may be, that relates to the transactions contemplated by this Agreement or
that is materially significant to the Business; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the Seller's or the Purchaser's, as the case may be,
knowledge threatened against, relating to or involving or otherwise
affecting the Seller, the Company or the Purchaser, as the case may be,
that relate to the consummation of the transactions contemplated by this
Agreement.
Section 4.11 Confidentiality. From the Closing Date until the fifth
anniver sary of the Closing Date, the Seller will not, and will not permit
its subsidiaries or any of their respective affiliates to, disclose to any
person without the prior written consent of the Purchaser any confidential
or non-public information relating to or concerning the Business (the
"Confidential Information"), unless (i) disclosure is required to be made
under applicable Law or (ii) such information is or becomes generally
available (a) to the public other than as a result of disclosure by the
Seller in violation of this Section 4.11 or (b) to the Seller on a
non-confidential basis from a source, other than the Company or the
Purchaser, which to the knowledge of the Seller, is not prohibited from
disclosing the confidential information by contractual, legal or fiduciary
obligation. The Seller shall notify the Purchaser promptly after receipt by
the Seller of any request for such information.
Section 4.12 Insurance. The Seller shall keep, or cause to be kept,
all material insurance policies maintained by the Seller for the benefit of
the Business, or suitable replacements therefor (which may include policies
containing terms equal or more favorable than the policies that they are
replacing), in full force and effect up to the Closing. To the extent the
Seller or any of its subsidiaries receives, whether before or after the
Closing Date, any proceeds from any insurance policy with respect to the
Business, the Seller shall or shall cause its subsidiary to pay over to the
Company such proceeds as promptly as practicable.
Section 4.13 Non-Solicitation of Employees.
(a) From and after the date hereof, the Seller shall not,
without the prior written approval of the Purchaser, for a period of two
years from the Closing Date, directly or indirectly, solicit, encourage,
entice or induce any person who is an employee of the Company or any of its
subsidiaries at the date hereof or who becomes an employee of the Company
or any of its subsidiaries after the date hereof but prior to the Closing
Date, to terminate his or her employment with the Company or any of its
subsidiaries, or hire or employ any person who is an employee of the
Company or any of its subsidiaries at the date hereof or who becomes an
employee of the Company or any of its subsidiaries after the date hereof
but prior to the Closing Date; provided that the foregoing shall not apply
to persons who approach the Seller or any of its subsidiaries for the
purposes of employment or who are hired as a result of the use of an
independent employment agency where contact between such person and the
independent employment agency was initiated by such person or as a result
of the use of a general solicitation (such as an advertisement) not specifi
cally directed to employees of the Company.
(b) If it is ever held that the restriction placed on any party
to this Agreement by this Section 4.13 is too onerous and is not necessary
for the protection of the other party or parties hereto, each party to this
Agreement agrees that any court of competent jurisdiction may impose lesser
restrictions which such court may consider to be necessary or appropriate
to properly protect the other party or parties hereto.
Section 4.14 1998 Purchase Agreement. (a) Promptly following the
Closing, the Seller shall assign to the Company all of the Seller's rights
under the Stock Purchase Agreement, dated as of November 17, 1998 (the
"1998 Purchase Agreement"), between the Seller and Eli Lilly and Company
("Lilly"), subject to obtaining Lilly's consent to such assignment. The
Seller shall use its reasonable efforts to obtain the consent of Lilly to
such assignment in form and substance satisfactory to Purchaser. Beginning
on the date hereof and until such consent is obtained, the Seller shall use
its reasonable efforts to secure the benefits of such rights for the
Company. Promptly following the Closing, the Purchaser shall cause the
Company to assume any obligations of the Seller under the 1998 Purchase
Agreement which arise after the Closing, subject to obtaining Lilly's
consent to such assumption. The Seller shall use its reasonable efforts to
obtain the consent of Lilly to such assumption in form and substance
satisfactory to the Purchaser. From and after the date on which Lilly has
consented to such assignment and assumption (the "Assignment Date"), the
Purchaser shall, and shall cause the Company and each of the Company's
subsidiaries to, provide reasonable cooperation to the Seller in connection
with the Seller's performance of any of its obligations under the 1998
Purchase Agreement which arise prior to the Closing.
(b) From and after the Assignment Date, the Purchaser shall,
and shall cause the Company and each of its subsidiaries to, perform and
comply with all of the Seller's obligations and agreements under the 1998
Purchase Agreement arising after the Assignment Date.
(c) Notwithstanding anything in this Agreement to the contrary, in
the event that the Seller and its representatives, officers, directors,
employees, agents, advisors and affiliates (collectively, the "Seller
Indemnitees") suffers or incurs any judgments, fines, penalties, losses,
claims, liabilities, damages, demands, complaints, actions or causes of
action, suits, proceedings, investigations, arbitrations, assess ments, and
any interest thereon and any costs and expenses, including reasonable
attorneys' fees in connection therewith (collectively, "Damages"), with
respect to any matter or event occurring or arising prior to or after the
Closing for which such Seller Indemnitee would have been entitled to
indemnification from Lilly under the terms of the 1998 Purchase Agreement
had the transactions contemplated hereby not occurred, then the Purchaser
shall, and shall cause the Company and its subsidiaries to, on behalf of
the Seller Indemnitees and for their benefit, use its and their reason able
efforts to pursue all claims for such indemnification under the 1998
Purchase Agreement with respect to any such Damages. The Purchaser shall
use its reasonable efforts not to, and shall cause each of its affiliates
(including the Company and its subsidiaries) to use its reasonable efforts
not to, take or fail to take any action (including agreeing to any
amendment or waiver) that would limit or otherwise adversely affect any
indemnification rights of the Purchaser or any of its affiliates (including
the Company and its subsidiaries), or the Seller or any of its affiliates
under the 1998 Purchase Agreement.
Section 4.15 Purchaser Stockholder Meeting. The Purchaser, acting
through its Board of Directors, shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") promptly
following (but in no event before) the Closing for the purpose of
considering and taking action upon a proposal to approve each and
every transaction contemplated hereby or by any of the Other
Transaction Agreements which under applica ble Law or the rules of
the Nasdaq National Market is required to be ap proved by the
shareholders of the Purchaser (including any necessary amend ments to
the Purchaser's Certificate of Incorporation) (the "Purchaser Stock
holder Proposal");
(ii) prepare and file with the Securities and Exchange
Com mission a preliminary proxy statement relating to the Purchaser
Stockholder Proposal and use its reasonable best efforts (x) to
obtain and furnish the information required to be included by the SEC
in the Proxy Statement (as hereinafter defined) and, after
consultation with the Seller, to respond promptly to any comments
made by the SEC with respect to the preliminary proxy statement and
cause a definitive proxy statement (the "Proxy State ment") to be
mailed to its shareholders and (y) to obtain the necessary approval
of the Purchaser Stockholder Proposal by its shareholders; and
(iii) include in the Proxy Statement the recommendation
of its Board of Directors that shareholders of the Purchaser vote in
favor of the approval of the Purchaser Stockholder Proposal.
Section 4.16 Nasdaq National Market. The Purchaser shall use its
reason able best efforts to cause the shares of Purchaser Common Stock to
be issued upon conversion of the Purchaser Series B Preferred Shares and
the Class B Purchaser Shares and the Purchaser Warrant Shares to be issued
upon exercise of the Purchaser Warrants to be approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, as promptly
as possible (subject in the case of the Class B Purchaser Shares to the
approval of the Purchaser Stockholder Proposal).
Section 4.17 Nonsolicitation. Except with respect to this Agreement,
none of the Seller, any subsidiary of the Seller, or any director, officer,
employee or Representative of the Seller or any of its subsidiaries may
directly or indirectly (1) solicit, initiate, encourage or knowingly
facilitate (including by way of furnishing information) any inquiries
relating to, or the making of, any Acquisition Proposal by any person, or
(2) have any discussion with or furnish any confidential information or
data to any person relating to an Acquisition Proposal, or engage in any
negotia tions concerning an Acquisition Proposal, or knowingly facilitate
any effort or attempt to make or implement an Acquisition Proposal. The
Seller shall, and will cause its officers, directors and Representatives
to, immediately cease and cause to be terminated any activities,
discussions or negotiations existing as of the date of this Agreement with
any parties conducted heretofore with respect to any Acquisition Proposal
and Seller will use its reasonable best efforts to cause such parties to
return or destroy confidential information concerning the Company provided
to such parties by or on behalf of the Seller (which efforts will include
directing J.P. Morgan & Co., Inc. to request such return or destruction).
The Seller shall promptly inform its directors, officers, employees, and
Representatives of the obligations undertaken in this Section 4.18.
"Acquisition Proposal" means any proposal or offer (whether or not in
writing) to acquire in any manner, directly or indirectly, any Company
Shares, any shares of capital stock or other securities of the Company or
any of its subsidiar ies or all or any material portion of the assets or
properties of Company or any of its subsidiaries. "Representative" shall
mean any investment banker, financial advisor, attorney, accountant,
consultant, or other representative.
Section 4.18 Restrictive Covenants.
(a) As a material inducement to the Purchaser to enter into
this Agreement, the Seller and its controlled affiliates shall not engage
for a term of ten (10) years after the Closing Date in pharmacy claims
processing, retail pharmacy network management, mail service pharmacy,
rebate management or the negotiation and performance of drug manufacturer
agreements (a "Restricted Business"); provided that it shall not be a
violation of this subsection for the Seller or any of its controlled
affiliates to: (i) acquire or own less than five percent (5.0%) of any
class of securities of any entity engaged in a Restricted Business that is
listed on any securities exchange or otherwise publicly traded; (ii)
acquire or own any interest in any entity engaged in a Restricted Business
so long as such Restricted Business does not contribute more than ten
percent (10%) of the revenues of such entity and the Seller on a pro forma
combined basis for twelve month period ending at the time of such
acquisition; (iii) acquire or own any interest in any entity engaged in a
Re stricted Business that contributes more than ten percent (10%) of the
revenues of such entity and the Seller on a pro forma combined basis for
the twelve month period ending at the time of such acquisition; provided
that within one year following such acquisition, the Seller disposes of
such Restricted Business or portions thereof so that such Restricted
Business does not then contribute more than ten percent (10%) of the
revenues of such entity and the Seller on a combined basis; (iv) continue
to comply with its current contractual commitments to drugstore.com; (v)
obtain volume discounts and rebates for purchases and sales of drugs
through the Seller's or any of its controlled affiliates' retail chain
stores, provided that except as required by law such discounts and rebates
shall be solely for the Seller's or such affiliates' own accounts and shall
not be shared with any third parties; (vi) acquire or own a mail service
pharmacy for its own account for individual consumers, provided such
services are neither marketed nor provided to third parties; or (vii) be
acquired, owned or controlled by any third party engaged in a Restricted
Business. Any acquisition or investment made by the Seller or any of its
controlled affiliates which is permissible under this Section 4.18 at the
time when made cannot thereafter be the basis of a claim of violation of
this Section 4.18.
(b) Notwithstanding anything contained herein to the contrary,
in the event of a breach or threatened breach of the covenants contained in
Section 4.18(a) hereof, Purchaser may, in addition to any other available
remedies, be entitled to an injunction enjoining the Seller and its
affiliates or any person or persons acting for or with the Seller in any
capacity whatsoever from violating any of the terms herein, in accordance
with applicable law regarding the award of an equitable remedy.
Section 4.19 Transition Services. For a period of up to six months
follow ing the Closing, at the request of the Purchaser, the Seller will
provide to the Com pany administrative and other transition services;
provided that the Seller shall only be obligated to provide those types of
services that the Seller has historically provided to the Company, and the
Seller shall not be obligated to provide any higher level or quantity of
such services than the Seller has historically provided to the Company. The
Company shall reimburse the Seller for the Seller's full cost of providing
such services, promptly after the Seller submits reasonably detailed
invoices therefor to the Purchaser.
Section 4.20 OIG Investigation.
(a) During the period from the date hereof to the Closing Date,
the Seller shall, and shall cause the Company to, deliver to the Purchaser,
as promptly as practicable, a copy of any filing, notice, communication or
other document sent to or received from the OIG with respect to the
investigation described in the investigative subpoena issued to the Company
by the OIG on November 23, 1999 (the "OIG Investigation").
(b) During the period from the date hereof to the Closing Date,
the Seller shall, and shall cause the Company to, consult with the
Purchaser on a regular basis with respect to the OIG Investigation and
shall advise the Purchaser of any material developments in the OIG
Investigation promptly after becoming aware of such developments.
(c) Notwithstanding any provision of Section 4.20(a) or (b) to
the contrary, neither the Seller nor the Company shall be required to take
any action which would constitute a partial or complete waiver of either
the Seller's or the Company's attorney-client or other privilege.
Section 4.21 Voting Agreements. The Purchaser shall use its reasonable
best efforts to obtain, prior to the record date for the Special Meeting, a
voting agreement in substantially the form attached hereto as Exhibit F
from each of the stockholders of the Purchaser listed in such Exhibit F.
Section 4.22 Service Agreement. Prior to the Closing, the Seller and
the Purchaser shall discuss in good faith the terms of a possible PBM
services agree ment between the Company and the Seller. Such service
agreement, if concluded between the parties, would become effective as of
the Closing and would expire on the tenth anniversary of the Closing.
Section 4.23 Humana Agreement. Prior to the Closing, with respect to
the anticipated discussions between the Company and Humana regarding a
possible pharmacy benefit management agreement between the Company and
Humana, the Seller agrees that the Company will not, without the prior
consent of the Purchaser, make any substantive offers or proposals to
Humana in the course of such discus sions, or enter into such agreement.
ARTICLE V
CONDITIONS
Section 5.1 Conditions to Each Party's Obligations. The respective
obligation of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction of each of the following
conditions, unless waived in writing by each of the parties hereto:
(a) No statute, rule, regulation, order, decree, temporary
restrain ing order or injunction shall have been enacted, entered,
promulgated or enforced by a United States Governmental Entity which
prohibits or materially restricts the consummation of the transactions
contemplated by this Agreement and shall be in effect.
(b) Any applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated and all other material authorizations, consents,
approvals, or clearances of any Governmental Entity necessary for the
consummation of the transactions contemplated by this Agreement shall have
been obtained.
Section 5.2 Conditions to Obligations of the Purchaser. The
obligation of the Purchaser to effect the transactions contemplated by this
Agreement is further subject to the satisfaction of each of the following
conditions, unless waived in writing by the Purchaser:
(a) The representations and warranties of the Seller contained
in Article II of this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing, with the same force and effect as if made at
the Closing, except that representations and warranties which are made as
of a specific date need only be true and correct in all material respects
as of such date.
(b) The Seller shall have performed and complied in all
material respects with all covenants and agreements required to be
performed or complied with by it under this Agreement at or prior to the
Closing.
(c) The Purchaser shall have received a certificate of an
executive officer of the Seller to the effect that the conditions set forth
in Sections 5.2(a) and 5.2(b) above have been satisfied.
(d) The Purchaser shall have received evidence reasonably
satisfactory to it of the approval of the required lenders to the Seller of
the transac tions contemplated by this Agreement (including evidence of the
release of liens of such lenders on any stock or assets of the Company).
(e) Purchaser shall have received debt and equity financing
sufficient to consummate the transactions contemplated by this Agreement,
provided that this condition shall be deemed satisfied if the Purchaser
shall have materially breached its obligations under Section 4.5 hereof.
Section 5.3 Conditions to Obligations of the Seller. The obligation
of the Seller to effect the transactions contemplated by this Agreement is
further subject to the satisfaction of each of the following conditions,
unless waived in writing by the Seller:
(a) The representations and warranties of the Purchaser in this
Agreement shall have been true and correct in all material respects when
made and shall be true and correct in all material respects as of the
Closing, with the same force and effect as if made at the Closing, except
that representations and warranties which are made as of a specific date
need only be true and correct in all material respects as of such date.
(b) The Purchaser shall have performed and complied in all
material respects with all covenants and agreements required to be
performed or complied with by it under this Agreement at or prior to the
Closing.
(c) The Seller shall have received from an executive officer of
the Purchaser a certificate, to the effect that the conditions set forth in
Sections 5.3(a) and 5.3(b) above have been satisfied.
(d) The required lenders to the Seller shall have consented to
this Agreement and the transactions contemplated hereby.
ARTICLE VI
TERMINATION AND AMENDMENT
Section 6.1 Termination. This Agreement may be terminated:
(a) at any time prior to the Closing, by mutual written consent of
the Seller and the Purchaser;
(b) at any time on or after the seventh business day after the
date hereof, by the Purchaser, if the Seller shall not theretofore have
notified the Pur chaser of the satisfaction of the condition set forth in
Section 5.3(d);
(c) at any time on or after the tenth business day after the
date hereof, by the Seller, if the condition set forth in Section 5.3(d)
shall not theretofore have been satisfied;
(d) at any time prior to the Closing, by either the Seller or
the Purchaser if the Closing shall not have occurred on or before December
31, 2000 (unless the failure to consummate the Closing by such date shall
be due to the action or failure to act of the party seeking to terminate
this Agreement);
(e) at any time prior to the Closing, by either the Seller or
the Purchaser if any United States court of competent jurisdiction or other
competent United States Governmental Entity shall have issued an order,
decree or injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree or injunction or other action shall have
become final and nonappealable; or
(f) at any time prior to the Closing, by either the Purchaser or the
Seller if there shall have been a material breach by the other of any of
its representa tions, warranties, covenants or agreements contained in this
Agreement, which if not cured would cause the conditions set forth in
Section 5.2 or Section 5.3, as the case may be, not to be satisfied,
provided, however, that as a condition to the right of the party to elect
to terminate this Agreement pursuant to the immediately preceding clause,
such party shall first provide 30 days' prior notice to the other party
specify ing in reasonable detail the nature of the condition that such
party has concluded will not be satisfied, and the other party shall be
entitled during such 30 day period to commence any actions it may elect
consistent with the terms of this Agreement to provide reasonable assurance
to the first party that such condition will be satisfied prior to December
31, 2000 and provided, further, that if such condition can be satisfied by
the other party through the exercise of its best efforts and for so long as
that party continues to use such best efforts, the first party may not
terminate this Agreement under this Section 6.1(d) prior to December 31,
2000.
Section 6.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 6.1 hereof, this Agreement shall
forthwith become void and have no effect, without any liability on the part
of any party hereto or its affiliates, directors, officers or stockholders
to any other party to this Agreement, except that (a) the provisions of
this Section 6.2, Sections 9.7 and 9.11 and the Confidentiality Agreement
shall remain in effect notwithstanding such termination and (b)
notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damages arising
out of its willful breach of any provision of this Agreement.
Section 6.3 Amendment. This Agreement may be amended or modified at
any time by the parties hereto, but only by an instrument in writing signed
on behalf of each of the parties hereto.
Section 6.4 Extension; Waiver. At any time prior to the Closing, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representa tions and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any
of the agreements or conditions contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. Neither
the failure nor the delay on the part of any party to exercise any right,
remedy, power or privilege under this Agreement shall operate as a waiver
thereof.
ARTICLE VII
TAX MATTERS
Section 7.1 Retention of Records. Each of the Purchaser and the
Seller shall retain, and the Purchaser shall cause the Company and its
subsidiaries to retain, all Tax Records in its possession for all open Tax
Periods ending on or before or including the Closing Date, until six months
following the expiration of the statute of limitations (and any extensions
thereof) of the respective Tax Periods. "Tax Records" means any Tax Return,
Tax Return workpapers, documentation relating to any Audit, and any other
books of account or records (whether on paper, computer disk or any other
medium) required to be maintained under the applicable Tax Law or under any
record retention agreement with any Tax Authority.
Section 7.2 Cooperation. The Purchaser and the Seller covenant and
agree that subsequent to the Closing, upon reasonable notice and during
normal business hours, they and their affiliates will (i) give the other
party and its representatives information, books and records relevant to
the Company or any of its subsidiaries, to the extent necessary to enable
the other party to prepare its Tax Returns or determine the amount of any
Realized Tax Benefit the amount of which the requesting party may be
entitled to receive pursuant to this Agreement, and (ii) provide the other
party or its affiliates with such information, books and records as may
reasonably be requested in connection with any Tax Return, inquiry,
election, audit or other examination by any Tax Authority, or judicial or
administrative proceedings relating to liability for Taxes. The Seller and
the Purchaser also shall make available to each other, as reasonably
requested, and at the expense of the requesting party, knowl edgeable
employees or advisors of the party or its affiliates of which the request
is made and personnel responsible for preparing and maintaining
information, books, records and documents in connection with Tax filings,
audits, disputes or litigation. Notwithstanding the foregoing or any other
provision in this Agreement, neither the Purchaser nor the Company (or any
affiliates of either) shall have the right to receive or obtain any
information relating to Taxes of the Seller, any of its affiliates, or any
of its predecessors other than information relating solely to the Company
or any of its subsidiaries.
Section 7.3 Transfer Taxes. All transfer, documentary, recording,
notarial, sales, use, registration, stamp and other similar taxes, fees and
expenses (including, but not limited to, all applicable stock transfer,
real estate transfer or gains Taxes and including any penalties, interest
and additions to such tax) ("Transfer Taxes") incurred in connection with
this Agreement and the transactions contemplated hereby shall be borne
equally by the Seller and the Purchaser, regardless of which party is
obligated to pay such tax under applicable law. The Purchaser and the
Seller shall cooperate in timely making and filing all Tax Returns as may
be required to comply with the provisions of laws relating to such Transfer
Taxes.
Section 7.4 Exercise of Certain Options and Certain Equity Grants.
(a) Promptly after an exercise of a option with respect to the
common stock of the Seller (each an "Option" and collectively, the "Options")
by,or the grant of Seller common stock (together with any cash payment
required to be made in connection with the grant of such Seller common
stock, the "Seller Equity") to, an employee or former employee of the
Company, the Seller shall provide the Company with a report detailing such
exercise or grant. On a monthly basis, the Seller shall pay over to the
Company the amount of all withholding taxes (the "Withholding Taxes")
collected by the Seller in respect of the exercise of such Options or the
grant of such Seller Equity in the preceding calendar month and shall
provide a report (the "Tax Report") confirming the exercises and grants
occurring during such calendar month. The Tax Report shall indicate the
amount of any Withholding Taxes due and payable not collected by the
Seller. The Purchaser and the Company and each of its subsidiaries
acknowledge that the Seller shall not be obligated to take any action to
collect Withholding Taxes with respect to Options with respect to the
common stock of Seller or Seller Equity other than (i) for exer cises
effected through any cashless exercise program maintained by the Seller
from time to time and (ii) by making demand on optionees engaging in a cash
exercise.
(b) The Purchaser shall cause the Company and each of its
Subsidiaries to pay to the proper Governmental Entity (i) all Withholding
Taxes received from the Seller pursuant to Section 7.4(a) or otherwise
payable in connec tion with the exercise of the Options and grants of
Seller Equity and (ii) the amount of any additional employment Taxes
arising under federal, state or local Law ("Employment Taxes") required to
be paid with respect to the exercise of any Options or grants of Seller
Equity. To the extent the Tax Report indicates that Withholding Taxes have
not been collected with respect to any current employees of the Company or
any of its subsidiaries, the Purchaser shall cause the Company or the
relevant subsidiary to withhold and collect from the wages or other
compensation of such current employees the amount of Withholding Taxes not
collected by the Seller, and pay to the proper Governmental Entity the
amount of any such Withholding Taxes. The Purchaser shall cause the Company
and each of its subsidiaries to (i) prepare and file any Tax Returns
required to be filed in connection with Withholding Taxes and Employment
Taxes within the time and manner prescribed by applicable Law and (ii)
prepare and provide to persons who exercised such Options or received such
Seller Equity, any statement, form or other document required to be
provided under applicable Law.
(c) The parties to this Agreement shall treat, with respect to
any payment described in Section 7.4(a) or (b), any amount that is required
to be in cluded in the gross income of the holders of any Option or the
recipient of any Seller Equity as an amount that may be properly deductible
by the Company or the relevant subsidiary after the Closing Date.
(d) Following the Closing Date, in the event of the exercise of
an Option by or the grant of Seller Equity to an employee or former
employee of the Company or any of its subsidiaries and the payment of cash
or other property by the Seller (or its designated agent) in respect of
such Option or Seller Equity, the Purchaser shall pay or cause the Company
or the relevant subsidiary to pay to the Seller the amount of any Tax
Benefit (as defined in Section 7.4(e)) attributable to any payment
described in this Section 7.4(d) within 30 days of the date on which such
Tax Benefit is Realized, whether for the Tax Period in which the Option is
exercised or Seller Equity is granted, as the case may be, or for another
Tax Period.
(e) For purposes of this Article VII, "Tax Benefit" shall mean
the product of (i) the sum of any increased deductions or losses or
decreases in income or gains (including by way of amended Tax Returns),
multiplied by (ii) 42%; Tax Benefits are "Realized" on the date of filing
the Tax Return for the Tax Period in which such Tax Benefit results in an
actual decrease in Taxes.
Section 7.5 No Section 338 Election. The Purchaser and the Seller
agree that no election under section 338 of the Code (or any similar
provision of the law of any state or other taxing jurisdiction) shall be
made in connection with this purchase and sale of the Company Shares (the
"Stock Purchase"), and that for purposes of all Tax Returns and other
applicable filings, the Purchaser and the Seller will report the Stock
Purchase as a purchase and sale, respectively, of the Company Shares.
Section 7.6 Tax Returns.
(a) Consolidated Returns. Seller shall prepare (or cause to be
prepared) and timely file all consolidated United States Income Tax Returns
(within the meaning of Section 1501 of the Code and the Treasury
Regulations promulgated pursuant to Section 1502 of the Code) and all other
combined, joint, consolidated or unitary Tax Returns required to be filed
with any Tax Authority (collectively the "Consolidated Returns") with
respect to the Company and each subsidiary for any Tax Period including, or
ending on or before, the Closing Date. Payment of Taxes shown to be due on
such Consolidated Returns shall be made in accordance with Section 7.8
hereof. In a manner consistent with past custom and practice of Seller and
the Company and each subsidiary, Purchaser shall timely provide (or cause
to be provided) to the Seller all information (including pro forma Tax
Returns, schedules, statements and supporting documentation) reasonably
required in connection with the preparation and filing of such Consolidated
Returns. Seller shall not elect, pursuant to Treasury Regulation Section
1.1502-20(g) or Treasury Regulation Section 1.1502-96(d), or any comparable
provision of law or regulations, to reattribute to itself any portion of
the net operating loss carryovers, net capital loss carryovers or section
382 limitation, if any, attributable to the Company or any of its
subsidiaries. Any consolidated section 382 limitation applicable to the
Seller and its subsidiaries (including the Company and its subsidiaries) as
of the Closing Date, if any, shall be apportioned between the Seller and
its subsidiaries (other than the Company and its subsidiaries), on the one
hand, and the Company and its subsidiar ies, on the other, pursuant to
Treasury Regulation Section 1.1502-95 based on the relative fair market
value of such entities immediately prior to the Closing Date. Any such
allocation shall be proposed by the Seller for approval by the Purchaser,
which approval shall not be unreasonably withheld.
(b) Separate Company Returns. Seller shall prepare (or cause to
be prepared) and timely file all other Tax Returns with respect to the
Company and each subsidiary that are not Consolidated Returns and that are
for Tax Periods ending on or before the Closing Date; provided however,
that the filing of any such Tax Return shall, except as set forth on
Schedule 7.6(b), be subject to the Purchaser's prior written consent, which
shall not be unreasonably withheld; provided further that the Purchaser
shall consent to the filing of any such Tax Return if such filing would not
have a significant adverse effect on the Taxes of the Company or its
subsidiaries for any Post-Closing Period. Purchaser shall prepare (or cause
to be prepared) and timely file all Tax Returns for any Tax Period ending
after the Closing Date that are not Consolidated Returns (the "Purchaser
Returns"). If the Seller is obligated under this Agreement to indemnify the
Purchaser for any Taxes due with respect to a Purchaser Return, the filing
of such Purchaser Return shall be subject to the Seller's prior written
consent, which shall not be unreasonably withheld; provided however, that
the Seller shall consent to the filing of any such Tax Return if such
filing would not have a significant adverse effect on the Taxes of the
Company or its subsidiaries for any Pre-Closing Period. Payment of Taxes
shown to be due on such Tax Returns shall be made in accordance with
Section 7.8 hereof and shall be allocated among the parties in accordance
with Section 7.7(b) hereof.
(c) Tax Accounting Practices. Any Tax Return that includes any of
the Company's or subsidiaries' assets or activities for any Pre-Closing Period
shall be prepared in accordance with past Tax accounting practices used
with respect to the Tax Returns in question (unless the party responsible
for preparing the Tax Return determines that the past practices are no
longer permissible under the Code or other applicable Tax law), and to the
extent any items are not covered by past practices (or in the event such
past practices are no longer permissible under the Code or other applicable
Tax law), in accordance with reasonable Tax accounting practices selected
by the party responsible for preparing the Tax Return.
(d) Amendment of Tax Returns. Except as set forth on Schedule
7.6(d) or as required under applicable law, from the date of this
Agreement, Seller agrees not to amend any Tax Return attributable to a
Pre-Closing Period (as defined in Section 7.8 of this Agreement) without
the consent of the Purchaser, such consent not to be unreasonably withheld;
provided however, that the Purchaser shall consent to the filing of any
amended Tax Return if such filing would not have a significant adverse
effect on the Taxes of the Company or its subsidiaries for any Post-Closing
Period. From the Closing Date, Purchaser agrees not to amend any Tax Return
attributable to a Pre-Closing Period (as defined in Section 7.8 of this
Agreement) without the consent of the Seller, such consent not to be
unreasonably withheld; provided however, that the Seller shall consent to
the filing of any amended Tax Return if such filing would not have a
significant adverse effect on the Taxes of the Company or its subsidiaries
for any Pre-Closing Period.
Section 7.7 Allocation of Taxes.
(a) Purchaser Return Taxes. From and after the Closing Date,
Purchaser shall pay (or cause the Company or any subsidiary to pay) to the
appropri ate Tax Authorities any Taxes due on or after the Closing Date
with respect to a Purchaser Return.
(b) Allocation of Straddle Period Taxes. Purchaser and Seller
shall, to the extent permitted by applicable Tax Law and except as otherwise
provided herein, elect with the relevant Tax Authority to close the Tax Period
of the Company and its subsidiaries as of and including the Closing Date.
Subject to the preceding sentence, in the case of Taxes attributable to the
Company or its subsidiar ies that are payable with respect to any Tax
Period beginning before the Closing Date and ending after the Closing Date
(a "Straddle Period") the portion of any such Taxes that are allocable to
the portion of the Straddle Period ending on the Closing Date shall: (1) in
the case of Taxes that are either (A) based upon or related to income or
receipts or (B) imposed in connection with any sale, transfer or assignment
of property (real or personal, tangible or intangible) be deemed equal to
the amount that would be payable if the Tax year ended on and included the
Closing Date and (2) in the case of Taxes (other than those described in
clause (i)) imposed on a period basis with respect to the business or
assets of the Company or its subsidiaries or otherwise measured by the
level of any item, be deemed to be the amount of such Taxes for the entire
Straddle Period (or, in the case of such Taxes determined on an arrears
basis, the amount of such Taxes for the immediately preceding Tax Period)
multiplied by a fraction the numerator of which is the number of calendar
days in the portion of the Straddle Period ending on and including the
Closing Date and the denominator of which is the number of calendar days in
the entire Straddle Period (the "Part-Year Fraction"). For purposes of
clause (1) of the preceding sentence, any exemption, deduction, credit or
other item that is calculated on an annual basis shall be allocated to the
portion of the Straddle Period ending on the Closing Date on a pro rata
basis determined by multiplying the total amount of such item allocated to
the Straddle Period times the Part-Year Fraction. 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 7.7(b) shall be computed by reference to the level of such items on
the Closing Date.
(c) Post-Closing Tax Periods. From and after the Closing Date,
for the portion of any Straddle Period that begins on the day after the
Closing Date and any other Tax Period beginning after the Closing Date,
without duplication of any amount otherwise payable by Purchaser pursuant
to this Agreement, Purchaser shall pay, or cause the Company or any
subsidiary to pay, to the appropriate Tax Authority any other Taxes due
with respect to the Company or any subsidiary for any such period.
Section 7.8 Tax Indemnity.
(a) Seller's Indemnity for Taxes for Pre-Closing Periods.
Except to the extent otherwise taken into account in computing the EBITDA
Adjustment pursuant to Section 1.7 of this Agreement and notwithstanding
Article VIII, from and after the Closing Date, without duplication of any
amount otherwise payable by Seller pursuant to this Agreement, Seller shall
indemnify Purchaser and its respective affiliates against all Taxes imposed
on or payable by the Company or any of its subsidiaries:
(i) with respect to any Tax Period ending on or before
the Closing Date and the portion of the Straddle Period ending on the
Closing Date (a "Pre-Closing Period") (which, for purposes of this
Section 7.8(a), shall include any Tax Period in which Lilly held an
equity interest in the Company or any of its subsidiaries), except to
the extent such Taxes are attributable to any breach of Section 7.5 of
this Agreement; or
(ii) that are attributable to Seller or any member of an
affiliated, consolidated, combined or unitary Tax group of which the
Company or any of its subsidiaries is or was a member prior to the
Closing Date (including any consolidated group with respect to which
Eli Lilly was the common parent) that is imposed under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law) by reason of such Company being included in any such
affiliated, consolidated, combined or unitary Tax group.
(b) Seller's Indemnity for Payments Attributable to Pre-Closing
Periods. Except to the extent taken into account in computing the EBITDA
Adjust ment pursuant to Section 1.7 of this Agreement and notwithstanding
Article VIII, from and after the Closing Date, without duplication of any
amount otherwise payable by Seller pursuant to this Agreement, Seller shall
indemnify Purchaser and its respective affiliates against any payments owed
by the Company or its subsidiar ies to any third party (other than a
Governmental Entity) with respect to Taxes accruing on or before the
Closing Date, including, without limitation, any obligation to make
payments to Lilly under the 1998 Purchase Agreement which accrued on or
before the Closing Date.
(c) Purchaser Indemnity for Taxes for Post-Closing Tax Periods.
Except to the extent otherwise taken into account in computing the EBITDA
Adjust ment pursuant to Section 1.7 of this Agreement and notwithstanding
Article VIII, from and after the Closing Date, Purchaser shall indemnify
Seller against all Taxes of Purchaser, relating to any Tax Period or
portion thereof that begins on or after the Closing Date.
(d) Payments. Payment by the indemnitor of any amount due under
this Section 7.8 shall be made within 30 days following written notice by the
indemnitee that payment of such amounts to the appropriate Tax Authority is
due, such written notice to reasonably demonstrate that the indemnitee is
entitled to such payment under the terms of this Agreement. If Seller or
any of its affiliates receives an assessment or other notice of Taxes due
with respect to the Company or any of its subsidiaries for any period for
which Seller is not responsible, in whole or in part, pursuant to Section
7.7 hereof, then Purchaser shall pay such Tax, or if Seller pays such Tax,
then Purchaser shall pay to Seller the amount of such Tax for which Seller
is not responsible. In the case of a Tax that is contested in accordance
with the provisions of Section 7.9 hereof, payment of the Tax to the
appropriate Tax Author ity will not be considered to be due earlier than
the date of a final determination to such effect is made by the appropriate
Tax Authority or court.
(e) Tax Refund. If the Purchaser or any of its subsidiaries
(including, for this purpose, the Company or any of its subsidiaries after
the Closing Date) receives a Tax refund of the Company or any of its
subsidiaries with respect to a Pre-Closing Period, the Purchaser shall pay
(or cause the Company or its subsidiar ies to pay) to the Seller the amount
of such Tax refund (net of any costs or expenses incurred by the Purchaser
or the Company or its subsidiaries in obtaining the Tax Refund). Such
payment shall be made within 15 days of the receipt of such Tax refund by
the Purchaser or any of its subsidiaries.
Section 7.9 Contests.
(a) Notices. After the Closing Date, Purchaser and Seller each
shall notify the other in writing within 5 days of receipt of any notice of
the com mencement of any Tax audit or administrative or judicial proceeding
affecting the Taxes of any of the Company or any of its subsidiaries,
which, if determined adversely to the taxpayer, would be grounds for
indemnification under this Agree ment by the other party (or parties, in
the case of Seller) ("Tax Indemnitor"). Such notice shall contain factual
information describing any asserted Tax liability in reasonable detail and
shall include copies of any notice or other document received from any Tax
Authority in respect of any such asserted Tax liability. If either
Purchaser or Seller fail to give the other party prompt notice of an
asserted Tax liability as required under this Agreement, then (i) if the
Tax Indemnitor is precluded by the failure to give prompt notice from
contesting the asserted Tax liability in any administrative or judicial
forums, then such party shall not have any obligation to indemnify the
other party for any loss or damage arising out of such asserted Tax
liability, and (ii) if the Tax Indemnitor is not so precluded from
contesting, if such failure to give prompt notice results in a detriment to
the Tax Indemnitor, then any amount which the Tax Indemnitor is otherwise
required to pay pursuant to this Agreement with respect to such liability
shall be reduced by the amount of such detriment.
(b) Control of Contests Involving Consolidated Returns. In the case
of an audit or administrative or judicial proceeding involving any asserted
liability for Taxes ("Tax Controversy") with respect to a Consolidated
Return for a Pre-Closing Period, Seller shall have the right, at its
expense, to control the conduct of such Tax Controversy.
(c) Control of Contests Involving Separate Company Returns. In
the case of a Tax Controversy with respect to a Tax Return that is not a
Consolidated Return and is for a Tax Period ending on or before the Closing
Date, Seller shall have the right, at its expense, to control the conduct
of such Tax Controversy. In the case of a Tax Controversy involving an
asserted liability for Taxes with respect to the Company or any of its
subsidiaries relating to a Straddle Period, other than a Tax Controversy
with respect to a Consolidated Return, Purchaser shall have the right, at
its expense, to control the conduct of such Tax Controversy.
(d) Post-Closing Periods. Purchaser shall control the defense
and settlement of any Tax Controversy involving any asserted liability for
Taxes imposed with respect to the Company or any of its subsidiaries
relating to Tax Periods that begin after the Closing Date.
(e) Procedures. If the resolution of any Tax Controversy would
be grounds for indemnification under this Agreement (including, for this
purpose, as a result of altering the Tax Period in which items of income,
gain, loss, deduction or credit are reported) by the party not in control
of the conduct of such Tax Contro versy (the "Non-Controlling Party") or
otherwise adversely affect the Tax liability of the Non-Controlling Party,
(i) the party in control of such Tax Controversy (the "Controlling Party")
shall keep the Non-Controlling Party fully informed of any proceedings,
events, and developments relating to or in connection with such Tax
Controversy; (ii) the Non-Controlling Party shall be entitled to receive
copies of all correspondence and documents relating to such Tax
Controversy; (iii) the Control ling Party shall consult with the
Non-Controlling Party and shall not enter into any settlement with respect
to any such Tax Controversy without the Non-Controlling Party's prior
written consent, such consent not to be unreasonably withheld; and (iv) at
its own cost and expense, the Non-Controlling Party shall have the right to
participate (but not control) the defense of such Tax Controversy.
Section 7.10 Miscellaneous.
(a) Character of Payments. Any payment made by the Seller, the
Purchaser, or any of their respective subsidiaries (including the Company
and any of its subsidiaries) under this Article VII shall constitute an
adjustment to the Purchase Price for all tax purposes.
(b) Interest on Payments. To the extent any payment obligation
under this Article VII is not made on a timely basis (as determined by the
relevant provision of this Article VII), the amount due and payable shall
bear interest at an annual rate equal to the Interest Rate from the last
date such payment would be timely under the relevant provision of this
Article VII to the date of the payment of such amount.
(c) Survival of Tax Claims. Notwithstanding any other provision
of this Agreement to the contrary, any obligations of the parties pursuant
to this Article VII shall be unconditional and absolute and shall survive
until the expiration of the applicable statute of limitations (taking into
account any applicable extensions or tollings thereof) relating to the
Taxes at issue.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by the Seller. The Seller hereby agrees
to indemnify and hold harmless the Purchaser and its successors and assigns
after the Closing Date from and against:
(a) Any Claims and Damages asserted against or incurred by the
Purchaser and occasioned by, arising out of or resulting from any breach of
the representations and warranties of the Seller that are set forth in this
Agreement; and
(b) Any Claims and Damages asserted against or incurred by the
Purchaser and occasioned by, arising out of or resulting from the Seller's
failure to perform any of the Seller's obligations for which performance
after the Closing is specifically required or contemplated under this
Agreement.
Section 8.2 Limitations on Indemnification by the Seller. The
Purchaser's right to indemnification pursuant to Section 8.1 hereof is
subject to the following specific limitations:
(a) The Purchaser shall not be entitled to assert any right of
indemnification for any Claims and Damages pursuant to Section 8.1(a) after
eighteen (18) months after the Closing Date, except as provided by Section
9.12. If written notice of a claim has been given prior to such expiration,
then the relevant representations and warranties shall survive as to such
claim until such claim has been finally resolved.
(b) The Purchaser shall not be entitled to indemnification
under Section 8.1(a) for any Claims and Damages until the aggregate losses,
damages, or expenses suffered by the Purchaser in connection with such
Claims and Damages exceed fifteen million Dollars ($15,000,000) whereupon
the Purchaser shall be entitled to indemnification hereunder for
indemnification claims from the Seller for all such Claims and Damages
suffered by the Purchaser in excess of such amount; provided, however, that
in no event shall the Seller be liable for such Claims and Damages in
excess of one billion Dollars ($1,000,000,000) in the aggregate.
Section 8.3 Indemnification by the Purchaser. The Purchaser hereby
agrees to indemnify and hold harmless the Seller, its successors and
assigns, after the Closing Date from and against:
(a) Any Claims and Damages asserted against or incurred by the
Seller and occasioned by, arising out of or resulting from any breach of
the represen tations or warranties of the Purchaser that are set forth or
incorporated by reference in this Agreement; and
(b) Any Claims and Damages asserted against or incurred by the
Seller and occasioned by, arising out of or resulting from the Purchaser's
failure to perform any of the Purchaser's obligations for which performance
after the Closing is specifically required or contemplated under this
Agreement.
Section 8.4 Limitations on Indemnification by the Purchaser. The
Seller's right to indemnification pursuant to Section 8.3 hereof is subject
to the following specific limitations:
(a) The Seller shall not be entitled to assert any right of
indemnifi cation for any Claims and Damages pursuant to Section 8.3(a)
after eighteen (18) months after the Closing Date, except as provided by
Section 9.12. If written notice of a claim has been given prior to such
expiration, then the relevant representations and warranties shall survive
as to such claim until such claim has been finally resolved.
(b) The Seller shall not be entitled to indemnification under
Section 8.3(a) for any Claims and Damages until the aggregate losses, damages
or expenses suffered by the Seller in connection with such Claims and Damages
exceed fifteen million Dollars ($15,000,000) whereupon the Seller shall be
entitled to indemnification hereunder for indemnification claims from the
Purchaser for all such Claims and Damages suffered by the Seller in excess
of such amount; provided, however, that in no event shall the Purchaser be
liable for such Claims and Damages in excess of one billion Dollars
($1,000,000,000) in the aggregate.
Section 8.5 Notice of Claims. Upon obtaining knowledge of any claim
or demand which has given rise to, or could reasonably give rise to, a
claim for indem nification hereunder, the party seeking indemnification
("Indemnitee") shall give written notice ("Notice of Claim") of such claim
or demand to the other party ("Indemnitor"). Indemnitee shall furnish to
Indemnitor in reasonable detail such information as Indemnitee may have
with respect to such indemnification claim (including copies of any
summons, complaint or other pleading which may have been served on it and
any written claim, demand, invoice, billing or other document evidencing or
asserting the same). Subject to the time limitations set forth in Sections
8.2 and 8.4 hereof, no failure or delay by Indemnitee in the performance of
the foregoing shall reduce or otherwise affect the obligation of Indemnitor
to indemnify and hold Indemnitee harmless, except to the extent that such
failure or delay shall have adversely affected Indemnitor's ability to
defend against, settle or satisfy any liability, damage, loss, claim or
demand for which such Indemnitee is entitled to indemnification hereunder.
The Seller and the Purchaser shall take reasonable actions to mitigate
Claims and Damages.
Section 8.6 Defense of Third Party Claims. If the claim or demand set
forth in the Notice of Claim given by Indemnitee pursuant to Section 8.5
hereof is a claim or demand asserted by a third party, Indemnitor shall
have fifteen (15) business days after the date on which such Notice of
Claim is given by the Indemnitee to notify Indemnitee in writing of
Indemnitor's election to defend such third party claim or demand on behalf
of Indemnitee. If Indemnitor elects to defend such third party claim or
demand, Indemnitee shall make available to Indemnitor and its agents and
representatives all witnesses, pertinent records, materials and information
in the Indemnitee's possession or under the Indemnitee's control as is
reasonably required by Indemnitor and shall otherwise cooperate with and
assist Indemnitor in the defense of such third party claim in good faith.
Indemnitee shall not pay, settle or compromise such third party claim or
demand. If Indemnitor elects to defend such third party claim or demand,
Indemnitee shall have the right to participate in the defense of such third
party claim or demand, at Indemnitee's own expense. In the event, however,
that the named parties to the action or proceeding include both
Indemnitor and Indemnitee and Indemnitee reasonably determines that
representation by counsel to Indemnitor of both Indemnitor and Indemnitee
may present such counsel with a conflict of interest, then such Indemnitee
may employ separate counsel to represent or defend it in any such action or
proceeding and Indemnitor will pay the reasonable fees and disbursements of
such counsel. If Indemnitor does not elect to defend such third party claim
or demand or does not defend such third party claim or demand in good
faith, Indemnitee shall have the right, in addition to any other right or
remedy it may have hereunder, at Indemnitor's expense, to defend such third
party claim or demand; provided, however, that (a) Indemnitor shall not
have any obligation to participate in the defense of, or defend, any such
third party claim or demand; and (b) Indemnitee's defense of or its
participation in the defense of any such third party claim or demand shall
not in any way diminish or lessen the obligations of Indemnitor under the
agreements of indemnification set forth in this Article VIII.
Section 8.7 Payment of Claims. Except for third party claims being
defended in good faith, Indemnitor shall satisfy any undisputed obligations
hereun der in cash within thirty (30) days after the date of Notice of
Claim is given by Indemnitee.
Section 8.8 No Liability of Officers, Directors and Managers. Each of
the Purchaser and the Seller acknowledges and agrees that it shall not
assert any claims it may have arising from this Agreement against officers,
directors, beneficiaries, managers, principals or agents of the other party
or any affiliate of such party.
Section 8.9 No Third Party Benefit. The rights to indemnification
provided in this Agreement are intended solely for the benefit of the
Purchaser, the Seller, and their permitted successors and assigns, and are
not intended to and shall not be construed as granting or creating a right
to payment or indemnification to any other person. Without limiting the
generality of the foregoing, no person providing insurance coverage to any
Indemnitee shall have rights, whether of subrogation or otherwise, against
the Indemnitor by virtue of this Agreement.
Section 8.10 Definition. For purposes of this Article VIII, "Claims
and Damages" shall mean any and all losses, claims, demands, liabilities,
obligations, actions, suits, orders, statutory or regulatory compliance
requirements, or proceed ings asserted by any third party, person or
entity, including but not limited to Governmental Entities, and all
damages, costs, expenses, assessments, judgments, recoveries and
deficiencies, including interest, penalties, investigatory expenses,
consultant's fees, and reasonable attorneys' fees and costs (including,
without limitation, costs incurred in enforcing the indemnity), incurred by
or awarded against a party for which a party is entitled to indemnification
hereunder; provided that Claims and Damages shall expressly exclude
punitive, exemplary, special or similar losses or damages.
Section 8.11 Exclusive Remedy. Subject to Section 7.8 and Section
9.6, after the Closing the sole and exclusive remedy of any party for any
inaccuracy of any representation or warranty, or any breach of any
agreement or obligation made in this Agreement, shall be the
indemnification contained in this Article VIII.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. All notices and other communications hereunder
shall be in writing and shall be effective upon receipt. Notice shall be
given (i) by personal delivery to the appropriate address as set forth
below (or at such other address for the party as shall be specified by like
notice), (ii) by reliable overnight courier service to the appropriate
address as set forth below (or at such other address for the party as shall
be specified by like notice), or (iii) by facsimile transmission to the
appropriate facsimile number set forth below (or at such other facsimile
number for the party as shall be specified by like notice) with follow-up
copy by reliable overnight courier service the next business day:
(a) if to the Seller, to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Attention: General Counsel
Telecopy: (717) 760-7867
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue N.W.
Washington, DC 20005
Telecopy: (202) 393-5760
Attention: C. Kevin Barnette, Esq.
if to the Purchaser to:
Advance Paradigm, Inc.
545 E. John Carpenter Freeway, Ste. 1570
Irving, TX 75062
Telecopy: (972) 830-6008
Attention: General Counsel
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201
Telecopy: (214) 969-4343
Attention: J. Kenneth Menges, Jr., P.C.
Section 9.2 Headings. The headings herein are inserted for
convenience only and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
Section 9.3 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same
instrument.
Section 9.4 Entire Agreement; Assignment.
(a) This Agreement and the documents and certificates delivered
in connection herewith constitute the entire agreement among the parties
hereto with respect to the subject matter hereof, and supersedes all prior
agreements and under standings, both written and oral, among the parties
with respect to the subject matter hereof, other than the Confidentiality
Agreement.
(b) This Agreement shall not be assigned by a party hereto by
operation of law or otherwise; provided, that (A) the Purchaser may assign
its rights and obligations hereunder to (i) any wholly owned subsidiary of
the Purchaser or (ii) any bank, financial institution or other lender
providing financing to the Purchaser as collateral security for such
financing and (B) the Seller may assign its rights hereun der, and may
pledge any securities of the Purchaser issued or issuable to the Seller
pursuant this Agreement or any of the Other Transaction Agreements, to any
bank, financial institution, or other lender providing financing to the
Seller as collateral security for such financing. No such assignment shall
relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations.
Section 9.5 Governing Law. This agreement shall be governed and
construed in accordance with the laws of the State of New York, without
regard to any applicable conflicts of law principles. The parties hereto
expressly and irrevoca bly (i) consent to the exclusive jurisdiction of the
federal courts sitting in the City of New York, County of New York, (ii)
agree not to bring any action related to this agreement or the transactions
contemplated hereby in any other court (except to enforce the judgment of
such courts), (iii) agree not to object to venue in such courts or to claim
that such forum is inconvenient and (iv) agree that notice or the service
of process in any proceeding shall be properly served or delivered if
delivered in the manner contemplated by Section 9.1 hereof. Final judgment
by such courts shall be conclusive and may be enforced in any manner
permitted by law. In addition, each of the parties hereto waives any right
to trial by jury with respect to any claim or proceeding related to or
arising out of this agreement or any of the transactions contemplated
hereby.
Section 9.6 Specific Performance. The parties hereto agree that
irrepara ble damage would occur in the event that any of the provisions
contained in this Agreement was not performed in accordance with its
specific terms or was otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
Section 9.7 Publicity. No party hereto shall issue any press release
with respect to the transactions contemplated by this Agreement without
prior written notice to the other party hereto and only after giving the
other party hereto a reason able opportunity to consult with respect to the
content thereof.
Section 9.8 Binding Nature; No Third Party Beneficiaries. This Agree
ment shall be binding upon and inure solely to the benefit of each party
hereto and their permitted successors and assigns, and except as otherwise
expressly set forth herein, nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person or persons any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 9.9 Severability. This Agreement shall be deemed severable
and the invalidity or unenforceability of any term or provision of this
Agreement shall not affect the validity or enforceability of this Agreement
or of any other term hereof, which shall remain in full force and effect.
Section 9.10 Interpretation. As used in this Agreement, (a)
"including" (or similar terms) shall be deemed followed by "without
limitation" and shall not be deemed to be limited to matters of a similar
nature to those enumerated, (b) except as set forth in Sections 2.9 and
2.22 hereof, "knowledge" (or similar terms) with respect to the Seller
shall mean the knowledge of the persons set forth in Section 9.10(b) of the
Seller Disclosure Schedule, (c) "knowledge" (or similar terms) with respect
to the Purchaser shall mean the knowledge of the persons set forth in
Section 9.10(c) of the Purchaser Disclosure Schedule and (d) the phrases
"the date of this Agreement," "the date hereof" and words of similar import
shall be deemed to refer to the date first written above.
Section 9.11 Payment of Expenses. Except as otherwise expressly set
forth in this Agreement, whether or not the transactions contemplated by
this Agreement shall be consummated, each party hereto shall pay its own
expenses incident to preparing for, entering into and carrying out this
Agreement. The Seller will not cause the Company to assume responsibility
for any such expenses of the Seller.
Section 9.12 Survival of Representations, Warranties and Agreements.
Each of the representations and warranties made by the Seller and the
Purchaser in this Agreement shall survive the Closing for a period of
eighteen (18) months from the Closing Date; provided, however, that the
representations and warranties made by the Seller in Section 2.8 and 2.11
regarding environmental matters and taxes shall survive until expiration of
the applicable statute of limitations and any representa tions and
warranties made by the Purchaser and incorporated herein regarding taxes
shall survive until the expiration of the applicable statute of
limitations. Following the date of termination of a representation or
warranty, no claim can be brought with respect to a breach of such
representation or warranty, but no such termination shall affect any claim
for a breach of a representation or warranty that was asserted before the
date of termination. To the extent that such are to be performed after the
Closing, each of the covenants and agreements contained in this Agreement
shall survive the Closing for the period stated or, if no such period is
stated, such covenant or agree ment shall survive indefinitely.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
ADVANCE PARADIGM, INC.
By: /s/ David D. Halbert
______________________________________
Name: David D. Halbert
Title: Chief Executive Officer
RITE AID CORPORATION
By: /s/ Elliot S. Gerson
______________________________________
Name: Elliot S. Gerson
Title: Senior Executive Vice President
Exhibit A
ADVANCE PARADIGM, INC.
SERIES A 11% PREFERRED STOCK
SUMMARY OF TERMS OF CERTIFICATE OF DESIGNATIONS
Note: Series A will not be convertible into Class B
Common Stock until stockholder approval is obtained.
Company Advance Paradigm, Inc. (the "Company").
Investors Rite Aid Corporation ("Rite Aid") and affiliates of
Joseph Littlejohn & Levy Inc. ("JLL"). The term
"Holder" means any holder, from time to time, of
Series A Preferred Stock (as defined below).
Security 190,854 shares of newly-issued Series A 11%
Preferred Stock (the "Series A Preferred
Stock"), to be issued in two series as follows:
o 65,854 shares of Series A Preferred Stock,
designated as Series A-1 Preferred Stock, to
JLL; and
o 125,000 shares of Series A Preferred Stock,
designated as Series A-2 Preferred Stock, to
Rite Aid.
Shares of Series A-1 and Series A-2 Preferred
Stock will be issued pursuant to two separate
certificates of designation, all of the terms of
which will be identical, except as set forth
under "Conversion", "Voting Rights" and "Board
of Directors" below. As used in this term sheet,
Series A Preferred Stock refers to Series A-1
and Series A-2 Preferred Stock.
Liquidation Preference $1,000 per share of Series A Preferred Stock.
Rank Prior to Stockholder Approval. Prior to receipt of
Stockholder Approval (as defined below), the
Series A Preferred Stock will rank (i) pari passu in
right of payment to the Series B Convertible
Preferred Stock (the "Series B Preferred Stock")
and (ii) senior in right of payment to all other
equity securities of the Company (including
Common Stock and any other preferred stock) for
purposes of dividends and distributions and upon
liquidation, dissolution or winding up of the
Company. No dividend will be paid on any class of
equity securities of the Company, unless all
accumulated dividends in respect of the Series A
Preferred Stock have been paid in full.
After Stockholder Approval. The Series A
Preferred Stock will rank (i) senior in right of
payment to all series of Common Stock (including
Class B Common Stock) and (ii) junior in right
of payment to all other equity securities of the
Company (including any other preferred stock)
for purposes of dividends and distributions and
upon liquidation, dissolution or winding up of
the Company.
Dividends Prior to Stockholder Approval. Dividends will
accrue at the annual rate of 11% per annum
beginning on the 120 th day following the
initial issuance of the Series A Preferred
Stock, payable quarterly in arrears. The
dividend rate will increase by (i) 2% at the end
of the first two-quarter period thereafter and
(ii) by 3% at the end of the two- quarter period
following the period referred to in clause (i);
the dividend rate will not increase beyond 16%.
Notwithstanding anything in the foregoing to the
contrary, the dividend rate will stop increasing
on receipt of Stockholder Approval, and
dividends will stop accruing on the date that
Stockholder Approval is obtained ("Approval
Date").
Prior to Stockholder Approval, dividends will be
payable solely in additional shares of Series A
Preferred Stock. The parties will seek to
structure the dividends so that the Holders will
not, for tax purposes, realize income upon
payment-in-kind of the dividend.
Prior to Stockholder Approval, any dividends of
cash or other assets by the Company on its
equity securities will reduce the Conversion
Price, as described under "Anti-Dilution" below.
After Stockholder Approval. Any dividend or
distribution on shares of Common Stock will be
payable on the Series A Preferred Stock (on a
"share-and-share alike" basis on an "as-if-
converted" basis at the time of such dividend or
distribution).
Liquidation Rights In the event of a liquidation, dissolution or
winding up of the Company, the Holders will be
entitled to receive the greater of the following:
o The Liquidation Preference, plus all accrued,
unpaid dividends; and
o The securities and/or property that would be
received upon such liquidation, dissolution
or winding up by the holders of the number of
shares of Common Stock issuable upon the
conversion of all of the Series A Preferred
Stock (assuming that the Series A Preferred
Stock were convertible as set forth under
"Conversion" below without Stockholder
Approval).
A consolidation, merger or recapitalization of
the Company, or a sale of all or substantially
all of assets of the Company will, at the
election of a majority of the Holders, be deemed
to be a liquidation, dissolution or winding up.
Conversion Following the approval by the Company's
stockholders of the authorization and issuance of
the Class B Common Stock to be issued to the
holders of the Series A and Series B Preferred
Stock (including approval of any necessary
amendments to the Company's Certificate of
Incorporation) (the "Stockholder Approval"), the
Series A Preferred Stock will be convertible, at any
time at the option of the Holders, into Class B
Common Stock at the initial conversion price of
$20.00, subject to adjustment as described under
"Anti-Dilution" below (the "Conversion Price").
Upon any such conversion, shares of Series A-1
Preferred Stock will be converted into Class B-1
Common Stock, and shares of Series A-2 Preferred
Stock will be converted into Class B-2 Common
Stock. In the event of the conversion of any
share of Series A-1 or Series A-2 Preferred
Stock, all shares of such series will be
automatically converted.
The number of shares of Class B Common Stock
into which any share of Series A Preferred Stock
may be converted shall be determined (i) if the
Approval Date is prior to the 120 th day
following the initial issuance of the Series A
Preferred Stock, by dividing the Liquidation
Preference by the Conversion Price in effect at
the time of conversion and (ii) if the Approval
Date is on or after the 120 th day following the
initial issuance of the Series A Preferred
Stock, by dividing the Liquidation Preference,
plus accrued, unpaid dividends, by the
Conversion Price in effect at the time of the
Conversion.
Anti-Dilution o The Conversion Price will be adjusted
proportionately in the event of a stock
split, stock dividend, or other dilutive
transaction.
o In any consolidation, merger,
recapitalization or sale of all or
substantially all of the assets of the
Company, the Holders will get the same
securities and/or property as holders of
Common Stock on an "as-if-converted" basis
(assuming that the Series A Preferred Stock
were convertible as set forth under
"Conversion" above without Stockholder
Approval), unless the Holders exercise their
right to deem it to be a liquidation,
dissolution or winding up of the Company, in
which case the Holders will receive the
amount stated under "Liquidation Rights"
above.
o The Conversion Price will be reduced on a
weighted average price formula basis in the
event of the issuance by the Company of any
equity securities (including any option,
warrant or security convertible into or
exchangeable for equity securities), at a
purchase, conversion, or exercise price less
than the fair market value of the Common
Stock in effect at the time. This provision
will not apply to issuances of equity
securities to customers of the Company in the
ordinary course and to grants of options or
issuances of shares pursuant to existing
option plans (subject to limitations mutually
acceptable to the Holders and the Company and
consistent with the Company's past practices)
that take place prior to the 120 th day after
the issuance of the Series A Preferred Stock
or after the Stockholder Approval.
o The Conversion Price will be reduced, on a
weighted average formula basis, by the fair
market value of any assets (including cash)
distributed by the Company in respect of its
junior equity securities. The Conversion
Price will not be reduced in the event of a
dividend or distribution referred to under
"Dividends-- After Stockholder Approval"
above.
Preemptive Rights The Holders will be offered the right to participate
in future issuances of equity securities to enable
them to maintain their then current fully diluted
percentage ownership of the Company. Following
receipt of Stockholder Approval, the foregoing
preemptive rights will apply only to issuances of
equity securities for cash.
Reserved Shares After receipt of Stockholder Approval,
the Company will maintain sufficient authorized
but unissued shares of the Class B Common Stock
to permit conversion of all outstanding Series A
Preferred Stock.
Mandatory Redemption Unless Stockholder Approval shall have been
obtained, the Company will redeem the Series A
Preferred Stock:
o On the 11th anniversary of the investment; or
o Upon a Change-of-Control of the Company.
The redemption price of each share will be equal
to its Liquidation Preference, plus accrued,
unpaid dividends.
"Change-of-Control" means any person, entity or
group, other than the Holders and holders of
Series B Preferred Stock, acquiring, directly or
indirectly, beneficial ownership of more than
40% of the Common Stock or the voting rights in
respect of the Company. Any redemption pursuant
to a Change-of-Control will only take place
after repayment of any debt of the Company
required as a result of such Change-of-Control.
Voting Rights The Series A Preferred Stock will not
have any voting rights, except as (i) provided
by law or as set forth under "Board of
Directors" below, and (ii) as set forth below
with respect to Series A-1 Preferred Stock.
The approval of a majority of the Holders of the
Series A-1 Preferred Stock, voting together as a
separate class, will be required for the
following actions by the Company:
o Amendments to the Company's Certificate of
Incorporation or Bylaws that would adversely
affect the rights or preferences of the
Series A Preferred Stock;
o Any amendment to the certificate of
designations for the Series A or the Series B
Preferred Stock;
o Any issuances of shares of Class B Stock,
other than upon the conversion of Series A or
B Preferred Stock;
o So long as the outstanding shares of Series
A-1 Preferred Stock are 25% or more of the
Series A-1 Preferred Stock issued on the
initial issuance date (subject to adjustments
for stock splits, stock dividends, etc.), any
merger, consolidation, other business
combination or any sale of all or
substantially all of the assets of the
Company;
o Any issuance of senior or pari passu equity
securities (other than shares of Series A
Preferred Stock and Series B Preferred Stock
in accordance with the certificate of
designation therefor in effect on the date of
issuance of the Series A Preferred Stock);
o Any repurchase or redemption of equity
securities (other than options, warrants and
equity securities convertible into or
exchangeable for equity securities), other
than Series B Preferred Stock in accordance
with the certificate of designation therefor
in effect on the date of issuance of the Series
A Preferred Stock;
o Incurrence of indebtedness or guaranties of
indebtedness (other than pursuant to the $825
million senior secured credit facility and
the $200 million of senior subordinated notes
issued to Rite Aid, and any extensions,
renewals and refinancings thereof) that would
result in the Company's ratio of pro forma
adjusted LTM EBITDA to interest expense being
less than 1.50:1.00. The Company will have a
30-day cure period before the remedies for
the breach of this provision will be
triggered;
o Voluntary filing for bankruptcy, liquidation or
dissolution or winding up of Company;
o Any increase in the size of the Board, and any
decrease in the number of Class A directors of
the Company; and
o Transactions with affiliates involving amounts
in excess of $5 million
Board of Directors The Board will have eleven members, divided into
the following classes: three Class A directors, al
of whom will be officers and employees of the
Company; two Class B-1 directors and two Class
B-2 directors (collectively, and including the Class
B directors under the certificates of designations
for the Class B Stock, the "Class B directors"), all
of whom will be designated as provided below;
three Class C directors, all of whom will be
"independent" directors within the meaning of the
Nasdaq National Market rules; and one Class D
director who will be designated as provided below.
o Holders of Series A-2 Preferred Stock will
designate the two Class B-2 directors. Upon the
conversion of the Series A-2 Preferred Stock
into Class B Stock, as set forth under
"Conversion" above, the Class B-2 directors
will become Class B-2 directors under the
certificate of designations for the Class B-2
Common Stock.
o Holders of Series B Preferred Stock will
designate the two Class B-1 directors. Upon
the conversion of the Series B Preferred
Stock into Class B Stock, the Class B-1
directors will become Class B-1 directors
under the certificate of designations for the
Class B-1 Common Stock.
o The initial Class D director will be J.P. Millon.
o The reduction in number of Class B directors,
the designation of the Class D director, and
any possible increase in number of Class B
directors will be as set forth with respect
to the Class B Stock.
The Board will meet at least quarterly. The
Class B directors (as a group) will be entitled
to proportional representation on committees,
including audit and compensation committees, to
the extent such representation of Class B
directors on any such committee is permitted by
SEC and NASD regulations.
All votes regarding the appointment, removal or
compensation of the Company's Chief Executive
Officer, or any transaction between the Company
and the Chief Executive Officer, will be made
only by Class B and Class C directors.
Transfer Restrictions The Holders may not transfer their shares of
Series A Preferred Stock prior to the
120 th day following the initial issuance, other
than to their respective controlled affiliates
or to their lenders as security ("Permitted
Transferees"). For purposes of this provision,
JLL controlled affiliates will include funds
managed by JLL and current and future investors
in funds managed by JLL.
After Stockholder Approval is obtained, the
Holders may not transfer their shares of Series
A Preferred Stock, other than to their
respective Permitted Transferees.
Registration Rights Beginning on the 270 th day following the
initial issuance, Holders of Series A-1 and
Series A-2 Preferred Stock will each have two
"long-form" demand registration rights and
unlimited "short- form" registration rights. The
demand registration rights will end upon receipt
of Stockholder Approval.
The Company may delay effecting a demand
registration once a year for up to 90 days for
customary reasons.
The exercising Investor will designate the
underwriters in any offering pursuant to a
demand registration. All registration and
offering expenses to be paid by the Company,
except for underwriters' commission and fees,
taxes and fees of legal counsel to the
Investors.
Rule 144 The Company will comply with the necessary
requirements to enable the Holders to sell under
Rule 144 any Series A Preferred Stock (it being
understood that the Company will not be required
to list or have quoted the Series A Preferred Stock
on any stock exchange or inter-dealer quotation
system).
Governing Law Delaware
Exhibit B
ADVANCE PARADIGM, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
SUMMARY OF TERMS OF CERTIFICATE OF DESIGNATIONS
Note: Series B will be convertible, from the outset, into 19.9% of the
primary outstanding common stock minus the warrant shares issuable pursuant
to the warrant described in the term sheet for the Purchaser Notes.
Company Advance Paradigm, Inc. (the "Company").
Investors Affiliates of Joseph Littlejohn & Levy Inc.
("JLL"). The term "Holder" means any holder,
from time to time, of the Series B Preferred Stock
(as defined below).
Security 84,146 shares of newly-issued Series B
Convertible Preferred Stock (the "Series B
Preferred Stock"), to be issued to JLL.
Liquidation Preference $1,000 per share of Series B Preferred Stock.
Rank The Series B Preferred Stock will rank (a) pari
passu in right of payment to the Series A-1 and
Series A-2 11% Preferred Stock of the Company
(collectively, the "Series A Preferred Stock") and
(b) senior in right of payment to all other equity
securities of the Company (including Common
Stock and any other preferred stock) for purposes
of dividends and distributions and upon liquidation,
dissolution or winding up of the Company. No
dividend will be paid on any class of equity
securities of the Company, unless all accumulated
dividends in respect of the Series B Preferred Stock
have been paid in full.
Liquidation Rights In the event of a liquidation,
dissolution or winding up of the Company, the
Holders will be entitled to receive the greater
of the following:
o The Liquidation Preference; and
o The securities and/or property that would be
received upon such liquidation, dissolution
or winding up by the holders of the number of
shares of Common Stock issuable upon the
conversion of all of the Series B Preferred
Stock.
A consolidation, merger or recapitalization of
the Company, or a sale of all or substantially
all of assets of the Company will, at the
election of a majority of the Holders, be deemed
to be a liquidation, dissolution or winding up.
Conversion Mandatory Conversion: Upon the approval by the
Company's stockholders ("Stockholder Approval")
of the authorization and issuance of the Class B
Common Stock to be issued to the holders of the
Series A and the Series B Preferred Stock
(including the approval of any necessary
amendments to the Company's Certificate of
Incorporation), the Series B Preferred Stock will be
converted into Class B-1 Common Stock
(including the Class B-2 Common Stock into
which any Series A Preferred Stock would convert,
"Class B Stock") at the Conversion Price (as
defined below).
Optional Conversion: The Holders may, at any
time and from time to time, convert the Series B
Preferred Stock into Common Stock at the
Conversion Price.
Conversion Price The initial Conversion Price will be $20.00. The
number of shares of Common Stock or Class B
Stock into which any share of Series B Preferred
Stock may be converted shall be determined by
dividing the Liquidation Preference by the
Conversion Price in effect at the time of
conversion. Such Conversion Price and number of
shares of Common Stock or Class B Stock will be
subject to adjustment as described under "Anti-
Dilution" below.
Dividends Any dividend or distribution on shares of Common
Stock will be payable on the Series B Preferred
Stock on a "share-and-share alike" basis (on an
as- if-converted basis at the time of such
dividend or distribution).
Anti-Dilution o The Conversion Price will be adjusted
proportionately in the event of a stock
split, stock dividend, or other dilutive
transaction.
o In any consolidation, merger,
recapitalization or sale of all or
substantially all of the assets of the
Company, the Holders will get the same
securities and/or property as holders of
Common Stock on an "as-if-converted" basis,
unless the Holders exercise their right to
deem it to be a liquidation, dissolution or
winding up of the Company in which case they
will receive the amount stated under
"Liquidation Rights" above.
o The Conversion Price will be reduced on a
weighted average price formula basis in the
event of the issuance by the Company of any
equity securities (including any option,
warrant or security convertible into or
exchangeable for equity securities) at a
purchase, conversion, or exercise price less
than the fair market value of the Common
Stock in effect at the time. This provision
will not apply to issuances of equity
securities to customers of the Company in the
ordinary course and to grants of options or
issuances of shares pursuant to existing
option plans (subject to limitations mutually
acceptable to the Holders and the Company and
consistent with the Company's past practices)
that take place prior to the 120 th day after
the issuance of the Series B Preferred Stock.
Preemptive Rights The Holders will be offered the right to
participate in future issuances of equity
securities to enable them to maintain their then
current fully diluted percentage ownership of
the Company.
Reserved Shares The Company will maintain sufficient
authorized but unissued shares of the Common
Stock to permit conversion of all outstanding
Series B Preferred Stock.
Mandatory Redemption The Company will redeem the Series B Preferred
Stock:
o On the 11th anniversary of the investment; or
o Upon a Change-of-Control of the Company.
The redemption price of each share will be equal
to its Liquidation Preference, plus accrued,
unpaid dividends.
"Change-of-Control" means any person, entity or
group, other than the Holders and holders of
Series A Preferred Stock, acquiring, directly or
indirectly, beneficial ownership of more than
40% of the Common Stock or the voting rights in
respect of the Company. Any redemption pursuant
to a Change-of-Control will only take place
after repayment of any debt of the Company
required as a result of such Change-of-Control.
Transfer Restrictions The Holders may not transfer their shares
of Series B Preferred Stock prior to the
120 th day following the initial issuance, other
than to their respective controlled affiliates.
For purposes of this provision, JLL controlled
affiliates will include funds managed by JLL and
current and future investors in funds managed by
JLL.
Registration Rights The Holders will have two demand registration
rights and unlimited piggyback registration rights.
These registration rights will apply to any Common
Stock received upon the conversion of the Series
B Preferred Stock, but will expire upon conversion
of the Series B Preferred Stock into Class B Stock.
The priority and cutback provisions will be
substantially similar to those of the Class B
Stock. The Company may delay effecting a demand
registration once a year for up to 90 days for
customary reasons.
The exercising Holders will designate the
underwriters in any offering pursuant to a
demand registration. All registration and
offering expenses to be paid by the Company,
except for underwriters' commission and fees,
taxes and fees of legal counsel to the Holders.
Rule 144 The Company will comply with necessary
requirements to enable the Holders to sell under
Rule 144 any Series B Preferred Stock and any
Common Stock received upon conversion of Series
B Preferred Stock (it being understood that the
Company will not be required to list or have quoted
the Series B Preferred Stock on be required to list
or have quoted the Series B Preferred Stock on any
stock exchange or inter-dealer quotation system).
Voting Rights The Series B Preferred Stock will vote as
a single class with the Common Stock on an
as-if-converted basis, except for the election
of directors.
So long as the outstanding shares of Series B
Preferred Stock are 10% or more of the Series B
Preferred Stock issued on the initial issuance
date (subject to adjustments for stock splits,
stock dividends, etc.), the approval of a
majority of the Holders, voting as a separate
class, will be required for the following
actions by the Company:
o Amendments to the Company's Certificate of
Incorporation or Bylaws that would adversely
affect the rights or preferences of the
Series B Preferred Stock;
o Any amendment to the certificate of
designations for either Series A-1 or Series
A-2 of Preferred Stock;
o So long as the outstanding shares of Series B
Preferred Stock are 25% or more of the Series
B Preferred Stock issued on the initial
issuance date (subject to adjustments for
stock splits, stock dividends, etc.), any
merger, consolidation, other business
combination or any sale of all or
substantially all of the assets of the
Company;
o Any issuance of additional shares of Series B
Preferred Stock or senior or pari passu
equity securities (other than shares of
Series A Preferred Stock in accordance with
the certificate of designation therefor in
effect on the date of issuance of the Series
B Preferred Stock);
o Any repurchase or redemption of equity
securities (including options, warrants and
securities convertible into or exchangeable
for equity securities), other than Series A
Preferred Stock in accordance with the
certificate of designation therefor in effect
on the date of issuance of the Series B
Preferred Stock;
o Incurrence of indebtedness or guaranties of
indebtedness (other than pursuant to the $825
million senior secured facility and the $200
million of senior subordinated notes issued
to Rite Aid, and any extensions, renewals and
refinancings thereof) that would result in
the Company's ratio of pro forma adjusted LTM
EBITDA to interest expense being less than
1.50:1.00. The Company will have a 30-day
cure period before the remedies for breach of
this provision will be triggered;
o Voluntary filing for bankruptcy, liquidation or
dissolution or winding up of Company;
o Any increase in the size of the Board, and any
decrease in the number of Class A directors of
the Company; and
o Transactions with affiliates involving
amounts in excess of $5 million.
Board Of Directors The Board will have eleven members, divided into
the following two classes: three Class A directors,
all of whom will be officers and employees of the
Company; two Class B-1 directors and two Class
B-2 directors (collectively, and including any Class
B directors under the certificate of designation for
the Class B Stock, the "Class B directors"), all of
whom will be designated as provided below; three
Class C directors, all of whom will be
"independent" directors within the meaning of the
Nasdaq National Market rules; and one Class D
director, who will be designated as provided below.
o Holders of Series B Preferred Stock will
designate the Class B-1 directors. Upon the
conversion of the Series B Preferred Stock
into Class B Stock, as set forth under
"Conversion --Mandatory Conversion" above,
the Class B-1 directors will become Class B-1
directors under the certificate of
designations for the Class B-1 Common Stock.
o Holders of Series A-2 Preferred Stock will
designate the two Class B-2 directors. Upon
the conversion of the Series A-2 Preferred
Stock into Class B Stock, the Class B-2
directors will become Class B-2 directors under
the certificate of designation of the Class B-2
Common Stock.
o The initial Class D director will be J.P. Millon.
o The reduction in the number of Class B
directors, the designation of the Class D
director and any possible increase in number
of Class B directors will be as set forth
with respect to the Class B Stock.
The Board will meet at least quarterly. The
Class B directors (as a group) will be entitled
to proportional representation on committees,
including audit and compensation committees, to
the extent such representation of Class B
directors on any such committee is permitted by
SEC and NASD regulations.
All votes regarding the appointment, removal or
compensation of the Company's Chief Executive
Officer, or any transaction between the Company
and the Chief Executive Officer, will be made
only by Class B and Class C directors.
Governing Law Delaware
Exhibit C
SENIOR SUBORDINATED NOTES
SUMMARY OF TERMS*
Issuer: Advance Paradigm, Inc. (the "Company"). The
Company will also be the obligor under the
Credit Agreements.
Principal Amount: $200 million aggregate principal amount (the
"Notes").
Issue Price: 100% of principal amount.
Interest: 11% per annum in cash, payable semiannually
in arrears, which rate will increase to 12%
per annum after 18 months from the date of
issuance and 13% per annum after 24 months
from the date of issuance, subject, in each
case, to adjustment as described under
"Registration Rights."
Maturity: 10 years from the date of issuance.
Mandatory Redemption: None.
-----------
* The Indenture under which the Notes will be issued (the "Indenture")
will contain such customary terms and provisions in addition to those
described herein as, in the opinion of J.P. Morgan Securities Inc.
and Merrill Lynch & Co. would be appropriate at the time of issuance
for an issue of senior subordinated high yield debt securities in the
public or Rule 144A markets for cash by an issuer with financial
ratios comparable with those of the Company and with a rating for its
senior subordinated debt of B.
Such terms and provisions will be substantially similar to those in
the Indenture dated October 15, 1999 of IASIS Healthcare Corporation,
with such changes as are appropriate for an issuer engaged in the
business conducted by the Company and which reflect the agreement set
forth in the preceding sentence.
Optional Redemption: Redeemable by the Company (i) in whole, or,
if not in whole, in an aggregate amount of up
to $75 million at par plus accrued and unpaid
interest and any liquidated damages, until 24
months after the date of issuance, and (ii)
as specified below under "Registration
Rights." In addition, until 36 months from
the date of issuance, the Company may redeem
up to $75 million of the Notes (less any
Notes redeemed pursuant to the previous
sentence) at 113% plus accrued and unpaid
interest and any liquidated damages, with the
net cash proceeds of any Equity Offering (an
"Equity Clawback"), provided that
(1) at least $125 million of the Notes
remain outstanding immediately after
the occurrence of the redemption;
and
(2) the redemption must occur within
90 days of the closing of any such
Equity Offering.
Thereafter (except as specified below under
"Registration Rights"), the Notes will not be
redeemable until five years from the date of
issuance, at a premium that will decline
ratably to par two years prior to maturity,
plus accrued and unpaid interest and any
liquidated damages.
Notwithstanding anything to the contrary
contained in this Summary of Terms, any
redemption or repayment of the Notes
following 24 months from the date of issuance
will not cause or result in any reduction in
the number of Warrants.
Ranking: The Notes will be unsecured indebtedness of
the Company. The Notes will be subordinated
in right of payment to all Senior Debt of the
Company, will rank pari passu in right of
payment with other senior subordinated
indebtedness of the Company, and will be
senior in right of payment to all
subordinated indebtedness of the Company.
The subordination provisions will provide
that the Company may not make any payment or
distribution of any kind with respect to the
Notes or acquire any Notes for cash or
property or otherwise, except in Permitted
Junior Securities or from a defeasance trust,
if:
(1) a payment default on Designated
Senior Debt occurs and is
continuing; or
(2) any other default occurs and is
continuing on any Designated Senior
Debt that permits holders of that
Designated Senior Debt or their
Representative to accelerate its
maturity and the Trustee receives a
"Payment Blockage Notice" from the
Representative of that Designated
Senior Debt.
The Company may and shall resume payments on
and distributions with respect to the Notes
upon the earlier of:
(1) in the case of a payment default,
the date upon which the default is
cured or waived; and
(2) in the case of a nonpayment default,
the earliest of:
(a) the date on which all nonpayment
defaults are cured or waived or
ceased to exist;
(b) 179 days after the date of
delivery of the applicable
Payment Blockage Notice; or
(c) the date on which the Trustee
receives notice from the
Representative for the
Designated Senior Debt
rescinding the Payment Blockage
Notice, unless the maturity of
any Designated Senior Debt has
been accelerated.
No new Payment Blockage Notice will be
effective unless and until at least 360 days
have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice.
No nonpayment default that existed or was
continuing on the date of delivery of any
Payment Blockage Notice to the Trustee will
be, or be made, the basis for a subsequent
Payment Blockage Notice unless the default
has been cured or waived for a period not
less than 90 consecutive days.
Guarantees: By the same Subsidiaries of the Company that
guarantee the Credit Agreements, on a senior
subordinated basis. At such time as the
Credit Agreements are no longer in effect,
the Notes will be guaranteed by any
Subsidiary of the Company that is or becomes
an obligor under any Indebtedness on a senior
subordinated basis; provided that Subsidiaries
that are obligated with respect to less than
$5 million of Indebtedness, individually, and
$30 million, in the aggregate, will not be
required to guarantee the Notes.
Restricted Subsidiaries: The Board of Directors may designate any
Restricted Subsidiary to be an Unrestricted
Subsidiary if at the time of and after giving
effect to such designation, no Default or
Event of Default shall have occurred and be
continuing. If a Restricted Subsidiary is
designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstand
ing Investments of the Company and its
Restricted Subsidiaries in the Subsidiary so
designated will be deemed to be an Investment
made as of the time of the designation and
will either reduce the amount available for
Restricted Payments or reduce the amount
available for future Investments. That
designation will only be permitted if the
Investment would be permitted at that time
under the Restricted Payments covenant and
if the Restricted Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary.
The Board of Directors may only designate a
Subsidiary as an Unrestricted Subsidiary to
the extent that such Subsidiary:
(1) has no Indebtedness other than
Non-Recourse Debt;
(2) is not party to any agreement,
contract, arrangement or
understanding with the Company or any
Restricted Subsidiary of the Company
unless the terms of any agreement,
contract, arrangement or
understanding of this type are no
less favorable to the Company or the
Restricted Subsidiary than those that
might be obtained at the time from
Persons who are not Affiliates of the
Company;
(3) is a Person with respect to which
neither the Company nor any of its
Restricted Subsidiaries has any
direct or indirect obligation:
(a) to subscribe for additional
Equity Interests;
(b) to maintain or preserve the
Person's financial condition
or to cause the Person to
achieve any specified levels
of operating results; or
(c) on any guarantee of any
obligations of such Person.
(4) has not guaranteed or otherwise
directly or indirectly provided
credit support for any Indebtedness
of the Company or any of its
Restricted Subsidiaries;
except in the case of clause (1), (3) or (4),
to the extent:
(a) that the Company or the
Restricted Subsidiary could
otherwise provide a guarantee
or incur such Indebtedness
under the Incurrence of
Indebtedness covenant; and
(b) the provision of the guarantee,
the incurrence of Indebtedness,
the making of a loan or the
acquisition of additional
Equity Interests and any other
Investment otherwise would be
permitted under the Restricted
Payments covenant and the other
provisions of the Indenture.
If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements
as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted
Subsidiary and any Indebtedness of the
Subsidiary shall be deemed to be incurred by
a Restricted Subsidiary of the Company as of
that date and, if the Indebtedness is not
permitted to be incurred as of that date
under the covenant, the Company shall be in
default of that covenant. The Board of
Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that the
designation shall be deemed to be an
incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding
Indebtedness of the Unrestricted Subsidiary
and the designation shall only be permitted
if:
(1) the Indebtedness is permitted under
the Incurrence of In debtedness
covenant, calculated on a pro forma
basis as if the designation had
occurred at the beginning of the
four- quarter reference period,
unless the Indebtedness is Permitted
Debt; and
(2) no Default or Event of Default has
occurred and would be continuing
following the designation.
Covenants: The Indenture will contain covenants customary
for high yield debt securities, including, but
not limited to:
o Repurchases at the Option of Holders
- Change of Control
- Asset Sales
o Restricted Payments
o Incurrence of Indebtedness and
Preferred Stock
o No Senior Subordinated Debt
o Liens
o Dividend and Other Payment Restrictions
Affecting Subsidiaries
o Merger, Consolidation or Sale of Assets
o Transactions with Affiliates
o Additional Subsidiary Guarantees
o Business Activities
o Provision of Reports and Financial
Information
Events of Default: The Indenture will contain events of default
customary for high yield debt securities,
including: failure to pay interest for 30
days or principal when due; failure to
comply with Merger, Change of Control and
Asset Sale provisions; failure to comply with
all other covenants for 60 days following
notice by the Trustee or by the holders of
25% in principal amount of the Notes then
outstanding; cross-acceleration to certain
other debt (including, but not limited to,
debt of Unrestricted Subsidiaries that is
guaranteed by the Company or a Restricted
Subsidiary) in excess of $10 million (as a
result of default in payment of principal);
unenforceability of Guarantees of a
Significant Subsidiary or Subsidiaries that
taken together would constitute a Significant
Subsidiary and certain events of bankruptcy
with respect to the Company or any
Significant Subsidiary that is a Restricted
Subsidiary (a "Material Subsidiary") or
Subsidiaries that if taken together would
constitute a Material Subsidiary. In the case
of an Event of Default arising from events of
bankruptcy, all outstanding Notes will become
due and payable immediately without further
action or notice. If any other Event of
Default occurs and is continuing, the
Trustee, upon request of holders of at least
25% in principal amount of the Notes then
outstanding, or the holders of at least 25%
in principal amount of the then outstanding
Notes may declare all the Notes to be due and
payable by notice in writing to the Company
and the same:
(1) will become immediately due and payable;
or
(2) if there are any amounts outstanding
under the Credit Agreements, will
become immediately due and payable
upon the first to occur of an
acceleration under the Credit
Agreement or five business days after
receipt by the Company and the
Representative under the Credit
Agreement of an acceleration notice;
provided that Rite Aid will agree
that if it holds at least 25% of the
principal amount of the Notes then
outstanding and, without the request
or joinder in such acceleration
notice of any other holders, has
initiated such acceleration, such
period shall be 15 business days. The
holders of a majority in aggregate
principal amount of the then
outstanding Notes by written notice
to the Trustee may on behalf of all
of the holders rescind an
acceleration and its consequences if
the rescission would not conflict
with any judgment or decree and if
all existing Events of Default have
been cured or waived, but not in
cluding Events of Default as a result
of nonpayment of principal, interest
or premium that has become due because
of the acceleration or other provisions
as required by the Trust Indenture Act.
Transferability of Notes: The Notes may be transferred, in whole or
from time to time in part, without the
consent of the Company, unless any such
transfer would violate the Securities Act;
provided that Rite Aid will agree not to
transfer Notes in a privately negotiated
transaction to any entity that, at the
closing of the PCS Acquisition, has been
identified as a direct competitor of the
Company on a schedule reasonably acceptable
to Rite Aid.
Registration Rights: The Company, the Subsidiary Guarantors and
Rite Aid will enter into a registration
rights agreement. Under the terms of the
registration rights agreement, the Company
and the Subsidiary Guarantors will agree to
file a shelf registration statement with the
SEC to cover resales of the Notes, the
Warrants and the underlying Common Stock.
Under the terms of the registration rights
agreement, the Company and the Guarantors
will agree to use their reasonable best
efforts to file the shelf registration
statement with the SEC on or prior to 75 days
after the issuance of the Notes and to cause
the shelf registration to be declared
effective by the SEC on or prior to 165 days
after the issuance of the Notes.
The Company will pay liquidated damages if:
(1) the Company fails to file the
registration statement required by
the registration rights agreement on
or before the date specified for the
required filing; or
(2) the required registration statement
is not declared effective by the SEC
on or prior to the date specified for
effectiveness, referred to as the
"effectiveness target date"; or
(3) the shelf registration statement is
declared effective but thereafter
ceases to be effective or usable in
connection with resales of Notes
during the periods specified in the
registration rights agreement,
subject to customary black- out
periods. Each event referred to in
clauses (1) through (3) above is
referred to as a "registration
default."
The amount of liquidated damages will be
equal to a per annum rate of 0.50% on the
principal amount of Notes held by the
holders, with respect to the first 90-day
period immediately following the occurrence
of the first registration default.
Liquidated damages will increase by an
additional per annum rate of 0.25% with
respect to each subsequent 90-day period
until all registra tion defaults have been
cured, up to a maximum amount of liquidated
damages for all registration defaults of
2.00% per annum on the princi pal amount of
Notes.
The Company will pay all accrued liquidated
damages on each interest payment date in the
manner provided for the payment of interest
in the Indenture. Following the cure of all
registration defaults, the accrual of
liquidated damages will cease.
The Company and the Guarantors will agree to
use their reasonable best efforts to keep the
shelf registration statement effective until
the later of (i) two years from the date of
issuance of the Notes or such longer period
as is reasonably requested by Rite Aid in
order to facili tate resales by Rite Aid of
the Notes and Warrants and (ii) two years
after the date that Rite Aid is no longer a
holder of Notes, and will take such customary
actions as are reasonably required to
facilitate unre stricted resales of the
Notes, including but not limited to,
executing customary underwriting or purchase
agreements, participation in marketing and
roadshow efforts, delivery of certificates,
comfort letters and legal opinions and
providing customary indemnification and
contribution.
At the option of either the Company or the
holders of 25% of the Notes originally
issued (other than Rite Aid) the Company will
offer to exchange the Notes for notes with
identical terms pursuant to a registered
exchange offer. The Company's obligation to
keep the shelf registration statement
effective pursuant to clause (ii) above shall
be deemed satisfied if and to the extent that
the holders receive notes that are "freely
tradeable" as a result of any such exchange
offer.
During any period after two years from the
date of issuance of the Notes that Rite Aid
has requested the shelf registration to
remain effective, the Company may redeem the
Notes held by Rite Aid, in whole but not in
part, at par plus accrued and unpaid interest
and any liquidated damages, upon 20-30 days'
notice to Rite Aid, which notice will have
the effect of causing all Notes held by Rite
Aid to become due and payable on the
redemption date specified in such notice and
suspending the Company's obligation to keep
the shelf registration statement effective.
The Company will also take comparable actions
in order to facilitate resales of Notes in
transactions exempt from, or not subject to,
the registration requirements of the
Securities Act.
Warrants: Simultaneous with the issuance of the Notes,
the Company shall issue Warrants entitling
the holders to purchase an aggregate of 2% of
the Company's Class A Common Stock (the
"Common Stock") outstanding on the date of
the issuance of the Notes, on a fully diluted
basis, after giving pro forma effect to the
PCS Acquisition and the financing therefore,
excluding the issuance of the Warrants,
subject to certain adjustments.
The Warrants will become exercisable after
the second anniversary of the date of
issuance (the "Second Anniversary") only if
the Notes have not been redeemed in full on
or prior to the Second Anniversary and
will expire on the tenth anniversary of the
date of issuance. If the Warrants do not
become exercisable after the Second
Anniversary, they will expire on the Second
Anniversary. Subject to the provisions
contained in "Optional Redemption" contained
herein, the number of Warrants exercisable on
or after the Second Anniversary shall be
reduced by the same percentage as the
percentage of Notes repaid or redeemed on or
prior to the Second Anniversary.
The exercise price of the Warrants shall be
$20.00 per share, subject to adjustment. The
exercise price may be paid in cash or in lieu
of any cash payment, the holder shall have
the right at any time after the Second
Anniversary, and from time to time to
exercise the Warrants in full or in part on a
cashless basis, pursuant to a customary
cashless exercise formula.
The number of shares of Common Stock issuable
upon the exercise of the Warrants will be
subject to customary public company
anti-dilution provisions upon the occurrence
of certain events, including, but not limited
to: (i) stock dividends, (ii) stock splits,
subdivisions, combinations,
reclassifications, mergers and consolidations
affecting the Common Stock, (iii) the
issuance of shares of Common Stock or certain
rights to all holders of Common Stock,
warrants or options entitling the holders
thereof to purchase shares of Common Stock,
(iv) any distribution by the Company to all
holders of Common Stock of any indebtedness
or assets (other than ordinary cash
distributions not to exceed, on an annual
basis, a specified percentage of the market
price of the Common Stock) or (v) sales of
Common Stock at a price per share lower than
either the then current market price of the
Common Stock or the exercise price.
The Warrants will be detachable from the
Notes after the Second Anniversary, subject
to the following paragraph. After the Second
Anniversary, the holder may transfer the
Warrants, in whole or from time to time in
part, to any other person or entity, without
the consent of the Company, unless any such
transfer would violate the Securities Act.
Prior to the Second Anniversary, the Warrants
may be transferred, without the consent of
the Company, only along with the related
Notes, unless any such transfer would violate
the Securities Act.
Notwithstanding anything to the contrary
contained in this Summary of Terms, on or
prior to the Second Anniversary, Rite Aid
shall have the right at any time, and from
time to time, to transfer the Notes without
the Warrants being attached, in connection
with sales made pursuant to Rule 144A
pursuant to the Securities Act. In the event
of any such separation of the Notes and the
Warrants prior to the Second Anniversary,
Rite Aid will agree to hold the Warrants
attributable to the Notes so transferred
until the Second Anniversary.
The holders of the Warrants will have
piggy-back registration rights with respect
to the Warrants and the shares of Common
Stock issuable upon exercise of the Warrants,
as will be more fully detailed in a
registration rights agreement between the
Company and Rite Aid Corporation, for the
benefit of the holders from time to time of
the Warrants and the underlying Common Stock.
Such registration rights will be no less
favorable than the comparable registration
rights with respect to the Series A and
Series B Preferred Stock, Class B Common
Stock and Common Stock granted in connection
with the PCS Acquisition and the related
financing.
Exhibit D
ADVANCE PARADIGM, INC.
CLASS B COMMON STOCK
SUMMARY OF TERMS OF CERTIFICATE OF DESIGNATIONS
Company Advance Paradigm, Inc. (the "Company").
Investors Rite Aid Corporation ("Rite Aid") and affiliates
of Joseph Littlejohn & Levy Inc. ("JLL"). The
term "Holders" means any holder, from time to
time, of Class B Stock (as defined below), which
will include only JLL, Rite Aid and their
respective Permitted Transferees (as defined
below).
Security 13,750,000 newly-issued Class B Common Stock,
par value $0.01 per share (the "Class B Stock"),
to be issued in two series as follows:
o 7,500,000 shares of Class B Stock, designated
as Class B-1 Stock, to JLL upon the
conversion of the Series A and Series B
Preferred Stock of the Company held by JLL;
and
o 6,250,000 shares of Class B Stock, designated
as Class B-2 Stock, to Rite Aid upon the
conversion of the Series A Preferred Stock of
the Company held by Rite Aid.
Shares of Class B-1 and Class B-2 Stock will be
issued pursuant to two separate certificates of
designation, all of the terms of which will be
identical, except as set forth under "Voting
Rights" and "Board of Directors" below. As used
in this term sheet, Class B Stock refers to
Class B-1 and Class B-2 Stock.
In the event the Series A and B Preferred Stock
are not converted into Class B Stock prior to
the 120th day of the issuance of the Series A
and B Preferred Stock, then the number of shares
of Class B Stock that JLL and Rite Aid will
receive upon such conversion will be adjusted in
accordance with the terms of the Series A and
Series B Preferred Stock (e.g., to account for
the additional shares resulting from the payment
of dividends paid-in-kind on the Series A
Preferred Stock).
Liquidation In any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the
Holders will equally share in the remaining net
assets of the corporation with the Common Stock,
par value $0.01 per share, of the Company (the
"Common Stock") on a "share-and-share alike"
basis with the Common Stock.
Dividends Any dividend or distribution on shares of Common
Stock shall be payable on the Class B Stock on a
"share-and-share alike" basis with the Common
Stock.
Conversion The Holders may, at any time and from time to
time, convert the Class B Stock into Common
Stock on a one-for-one basis, subject to
adjustment as described under "Anti-Dilution"
below (the "Conversion Ratio").
Stock Split, Dividend, Shares of Class B Stock or Common Stock
etc. may be split up, subdivided, combined or
reclassified only if the shares of the other
class are proportionately split up, subdivided,
combined or reclassified in a manner that
maintains the same proportionate equity
ownership between the Class B Stock and Common
Stock.
Anti-Dilution o In any consolidation, merger, recapitalization
or sale of all or substantially all of the assets
of the Company, the Holders will get the same
securities and/or property as holders of
Common Stock on an "as-if-converted" basis.
o The Conversion Ratio will be reduced on a
weighted average price formula basis in the
event of the issuance by the Company of any
equity securities (including any option,
warrant or security convertible into or
exchangeable for equity securities), at a
purchase, conversion, or exercise price less
than the fair market value of the Common
Stock in effect at the time. This provision
will not apply to issuances of equity
securities to customers of the Company in the
ordinary course and to grants of options or
issuances of shares pursuant to existing
option plans, subject to limitations mutually
acceptable to the Company and the Holders and
consistent with the Company's past practices.
Preemptive Rights The Holders will be offered the right to
participate in future issuances of equity
securities for cash to enable it to maintain its
then current fully diluted percentage ownership
of the Company.
Reserved Shares The Company will maintain sufficient
authorized but unissued shares of the Common
Stock to permit conversion of all outstanding
Class B Stock.
Transfers of Class Shares of Class B Stock may only be transferred
B Stock after being converted into Common Stock, except
for transfers by a Holder to its controlled
affiliates or to its lenders as security (the
"Permitted Transferees"). For purposes of this
provision, JLL controlled affiliates will include
funds managed by JLL, and current and future
investors in funds managed by JLL.
Registration Rights Holders of Class B-1 and Class B-2 Stock
(and any Common Stock into which they may be
converted) will each have:
o Two demand registration rights; and
o Unlimited piggyback registration rights.
These registration rights will apply to shares
of Common Stock issued upon conversion of the
Class B Stock. In the event of underwriter
cutback in a demand registration, the exercising
Holder will have priority over any other
shareholder. In addition, in the event of
underwriter cutback where the Company proposes
to sell shares, (a) if a demand registration,
the exercising Holder and the Company will
participate on a pro rata basis, and (b) if a
registration initiated by the Company to affect
a primary offering, the Company will have
priority over the Holders. A Holder will not be
deemed to have exercised a demand registration
right if, by reason of the Company's
participation in the offering, there is an
underwriter cutback of 5% or more of the shares
included in such Holder's demand.
No Holder may exercise any demand registration
right within the first six months after the
closing of the investment. The Company may delay
effecting a demand registration once a year for
up to 90 days for customary reasons.
The Holder will designate the underwriters in
any offering pursuant to a demand registration
by such Holder, except if the Company proposes
to participate in the offering, the underwriters
will be selected jointly by the exercising
Holder and the Company. All registration and
offering expenses to be paid by the Company,
except for underwriters' commission and fees,
taxes and fees of legal counsel to the Holders.
Rule 144 The Company will comply with necessary
requirements to enable the Holders to sell under
Rule 144 any Common Stock received upon
conversion of Class B Stock.
Voting Rights The Class B Stock will vote as a single
class with the Common Stock on an
as-if-converted basis, except for the election
of directors (which voting will be governed by
the terms set forth below under "Board of
Directors").
The approval of two-thirds of the Holders of the
Class B-1 and Class B-2 Stock, voting together
as a separate class, will be required for the
following actions by the Company:
o Amendments to the Company's Certificate of
Incorporation or Bylaws that would adversely
affect the rights of the Class B-1 or Class
B-2 Stock;
o Any amendment to the certificate of
designations for the Series A Preferred
Stock, or the Class B-1 or Class B-2 Stock;
o Any issuances of shares of Class B-1 or Class
B-2 Stock, other than upon the conversion of
Series A or B Preferred Stock;
o So long as the Holders hold 25% or more of
their initial investment and 5% or more of
the Common Stock (on a fully diluted basis),
any merger, consolidation, other business
combination or any sale of all or
substantially all of the assets of the
Company. It is understood that the Holders
will not receive any payment for their
approval of any of the foregoing;
o Incurrence of indebtedness or guaranties of
indebtedness (other than pursuant to the $825
million senior secured facility and the $200
million of senior subordinated notes issued
to Rite Aid, and any extensions, renewals and
refinancings thereof) that would result in
the Company's ratio of pro forma adjusted LTM
EBITDA to interest expense being less than
1.50:1.00. The Company will have a 30-day
cure period before the remedies for breach of
this provision will be triggered;
o Voluntary filing for bankruptcy, liquidation or
dissolution or winding up of Company;
o Any increase in the size of the Board, and any
decrease in the number of Class A directors of
the Company; and
o Transactions with affiliates involving
amounts in excess of $5 million.
Board Of Directors The Board will have eleven members, divided into
the following classes: three Class A directors, all
of whom will be officers and employees of the
Company; two Class B-1 directors, and two Class
B-2 directors (collectively referred to as "Class B
directors"), all of whom will be designated as
provided below; three Class C directors, all of
whom will be "independent" directors within the
meaning of the Nasdaq National Market rules; and
one Class D director, who will be designated as
provided below.
o The Holders of Class B-1 Stock (i.e., JLL and
its Permitted Transferees) will designate the
two Class B-1 directors. When the outstanding
shares of Class B-1 Stock represent less than
50% of the number of shares issued on the
Conversion Date, the Holders of Class B-1
Stock will have the right to designate one
director. The Holders of Class B-1 Stock will
no longer have the right to designate a
director when the outstanding shares of Class
B-1 Stock represent less than 10% of the
number of shares of Class B-1 Stock issued on
the Conversion Date.
o Until the second anniversary of the Conversion
Date (as defined below), Holders of Class B-2
Stock (i.e., Rite Aid and its Permitted
Transferees) will designate the two Class B-2
directors. Thereafter, when the outstanding
shares of Class B-2 Stock represent less than
50% of the number of shares of Class B-2
Stock issued on the Conversion Date, the
Holders of Class B-2 Stock will have the
right to designate one director. The Holders
of Class B-2 Stock will no longer have the
right to designate a director when the
outstanding shares of Class B-2 Stock
represent less than 10% of the number of
shares of Class B-2 Stock issued on the
Conversion Date.
o The initial Class D director will be J.P.
Millon. Prior to the later of the second
anniversary of the Conversion Date and the
Class D Termination Date (as defined below),
any replacement Class D director will be the
person (A) designated by a majority of the
Class A directors and (B) approved by a
majority of Holders of the Class B-1 and
Class B-2 Stock (approval not to be
unreasonably withheld), each voting as a
separate class (or if there are shares of
only one class outstanding, by a majority of
Holders of such class). The "Class D
Termination Date" means the earlier to occur
of (x) the Holders holding less than 50% of
their initial investment, and (y) there being
two or less Class B directors, on which date
the Class D director will become a Class C
director and such class of directors will
cease to exist.
o The number of Class B directors and the size
of the Board will decrease upon any reduction
in the number of Class B directors.
o If the Company takes any of the actions
specified under "Voting Rights" without the
approval of the Holders, the number of each
of Class B-1 and Class B-2 directors will
increase by one, with the size of the Board
increasing by such number (i.e., no decrease in
the number of directors of any other class).
o The foregoing percentages shall be subject to
adjustments for stock splits, stock
dividends, etc. "Conversion Date" means the
date of the conversion of the Series A and
Series B Preferred Stock into Class B Stock
in accordance with the certificate of
designation for the Series A and Series B
Preferred Stock; provided that if any Series
A Preferred Stock is not converted into Class
B-2 Stock upon receipt of stockholder
approval for such conversion and the creation
of Class B Stock, then (i) Conversion Date
will mean, for such Series A Preferred Stock,
the date of such stockholder approval and
(ii) the number of outstanding shares of
Class B-2 Stock as of the Conversion Date
will be the number of shares of Class B-2
Stock into which such Series A Preferred
Stock would be convertible on such date.
The Board will meet at least quarterly. The
Class B directors (as a group) will be entitled
to proportional representation on committees,
including audit and compensation committees, to
the extent such representation of Class B
directors on any such committee is permitted by
SEC and NASD regulations.
All votes regarding the appointment, removal or
compensation of the Company's Chief Executive
Officer, or any transaction between the Company
and the Chief Executive Officer, will be made
only by Class B and Class C directors.
Automatic Conversion All outstanding shares of Class B Stock
will be automatically converted into Common
Stock when (i) the number of outstanding
shares of Class B Stock represents less than 10%
of the Holders' initial investment, and (ii) the
Holders no longer have a right to designate a
director.
Standstill Until the fourth anniversary of the closing, the
Holders will be subject to customary standstill
provisions, including non-participation in proxy
contests and not purchasing any additional shares
of Common Stock resulting in an increase to its
ownership percentage in the Company. This
standstill covenant will terminate in the event (a)
the Board proposes to enter into a transaction
involving a sale of more than 35% of the capital
stock of the Company, (b) of a merger of the
Company or (c) the acquisition by any person or
group of persons of more than 35% of the
Company's capital stock.
Governing Law Delaware
EXHIBIT E
[Intentionally Omitted-See Exhibits A-D]
Exhibit F
[form of voting agreement for ffi]
July __, 2000
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Attn: Robert Miller
Chairman/Chief Executive Officer
Joseph Littlejohn & Levy Inc.
425 Lexington Avenue
Suite 3350
New York, NY 10017
Re: Voting Agreement
Ladies and Gentlemen:
The undersigned (the "Stockholder") understands that Rite Aid
Corporation, a Delaware corporation ("Seller"), and Advance Paradigm, Inc.,
a Delaware corporation ("Purchaser"), are entering into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
providing for, among other things, the sale (the "Sale") by Seller of all
of the outstanding shares of Class A Common Stock, par value $1.00 per
share of PCS Holding Corporation, a Delaware corporation and a wholly owned
subsidiary of Seller (the "Company"), to Purchaser. The Stockholder also
understands that the Purchase Agreement provides that a portion of the
aggregate purchase price to be paid by Purchaser to Seller shall be payable
in the form of shares of Series A Preferred Stock of Purchaser (the "Series
A Preferred"). The Stockholder also understands that Joseph Littlejohn &
Levy Inc. or one or more of its affiliates ("JLL") and Purchaser are
entering into a Securities Purchase Agreement (the "Securities Purchase
Agreement, and together with the Stock Purchase Agreement, the "Purchase
Agreements") providing for, among other things, the purchase of shares of
Series A Preferred Stock of and shares of Series B Convertible Preferred
Stock of Purchaser (the "Series B Preferred") by JLL. The Stockholder
further understands that following the Closing of the transactions
contemplated by the Purchase Agreements, all of the Series A Preferred and
Series B Preferred then outstanding shall, subject to the receipt of
requisite approvals from the stockholders of Purchaser, be convertible into
a newly-created class of common stock of the Purchaser (the "Class B Common
Stock") having the terms set forth in the Class B Common Stock summary of
terms (the "Summary of Terms") attached to the Purchase Agreements.
Capitalized terms used but not defined herein shall have the
respective meanings ascribed to such terms in the Purchase Agreements. The
Stockholder is entering into this letter agreement at the request of Seller
and JLL, as a condition to Seller's and JLL's willingness to enter into the
Purchase Agreements and to consummate the transactions contemplated
thereby. As used herein, "Shares" means any and all shares of common stock,
par value $0.01 per share, of the Purchaser owned by the Stockholder or
hereafter acquired by the Stockholder by the exercise of options or
otherwise.
Section 1. The Stockholder hereby confirms and agrees with you
as follows:
A. The Stockholder is the beneficial and record owner of the
number of Shares set forth opposite the Stockholder's name on Schedule I
hereto, free and clear of all liens, charges, encumbrances, adverse claims,
voting agreements and commitments of every kind, except as disclosed on
Schedule I. Except as set forth on Schedule I and except for options or
warrants held by the Stockholder as set forth in Section 3.2(a) of the
Purchaser Disclosure Schedule relating to the Stock Purchase Agreement,
neither the Stockholder nor any company, trust or other entity controlled
by the Stockholder owns any additional shares of the capital stock of
Purchaser or any interest therein or has any voting rights with respect to
any additional shares of capital stock of Purchaser.
B. The Stockholder will not, and will not permit any company,
trust or other entity controlled by the Stockholder to, directly or
indirectly, (i) prior to the Announcement Date (as hereinafter defined),
contract to sell, sell or otherwise transfer or dispose of any of the
Shares or any interest therein or options or securities convertible
thereinto or any voting rights with respect thereto, (ii) grant any proxy
or power of attorney, deposit any of the Shares into a voting trust or
enter into a voting agreement or arrangement with respect to the Shares
except as provided in this letter agreement or (iii) take any action which
would make any representation or warranty made by the Stockholder in this
Agreement untrue or incorrect or have the effect of preventing or disabling
the Stockholder from performing the Stockholder's obligations under this
letter agreement. "Announcement Date" means the date on which Purchaser
publicly announces its results of operations for the quarter ended
September 30, 2000.
C. The Stockholder will, and will cause any company, trust or
other entity controlled by the Stockholder to, vote all of the Shares
against the approval of any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any
other obligation or agreement of Purchaser under the Purchase Agreements or
of the Stockholder under this letter agreement.
D. Any time Purchaser seeks the approval of its stockholders,
whether such approval is sought at a meeting of the stockholders of
Purchaser or by written consent, for the authorization and issuance
(including, without limitation, the approval of any necessary amendments to
Purchaser's Certificate of Incorporation) of any securities of Purchaser
issuable pursuant to the Purchase Agreements (including, without
limitation, the Class B Common Stock having the terms set forth in the
Summary of Terms), the Stockholder will, and will cause any company, trust
or other entity controlled by the Stockholder to, vote all of the Shares in
favor of such authorization and issuance.
E. The Stockholder represents and warrants that the Stockholder
has all necessary power and authority to enter into this letter agreement
and that this letter agreement is the legal, valid and binding agreement of
the Stockholder, and is enforceable against the Stockholder in accordance
with its terms.
F. The Stockholder agrees that it will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional
or further transfers, assignments, endorsements, consents and other
instruments as Seller and JLL may reasonably request for the purpose of
effectively carrying out the transactions contemplated by this letter
agreement and to vest the power to vote the Shares as contemplated by
Sections 1(C) and/or 1(D).
G. The Stockholder agrees that it will not enter into any
agreement or understanding with any person the effect of which would be
inconsistent with or violative of any provision contained in this letter
agreement.
Section 2. Purchaser agrees with and covenants to Seller that
Purchaser shall not register the transfer of any of the undersigned's
Shares without the prior written consent of Seller.
Section 3. Purchaser and the undersigned agree that damages are
an inadequate remedy for the breach of any term or condition of this letter
agreement and that you shall be entitled to a temporary restraining order
and preliminary and permanent injunctive relief in order to enforce the
terms of this letter agreement.
Section 4. This letter agreement will automatically terminate
and be of no further force and effect upon the earlier of: (i) the
termination of the Purchase Agreements or (ii) the time at which all
outstanding shares of Series A Preferred and Series B Preferred shall have
become immediately convertible into Class B Common Stock.
Section 5. This letter agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Delaware,
excluding that body of law relating to conflict of law.
Section 6. This letter agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly states the
understanding between us by signing and returning to each of the
undersigned a counterpart hereof.
Very truly yours,
[To be executed by the relevant
stockholders]
Acknowledged and agreed to
as to Sections 2 through 6:
ADVANCE PARADIGM, INC.
By:__________________________
Name:
Title:
Confirmed on the date first
above written:
RITE AID CORPORATION
By:__________________________
Name:
Title:
JOSEPH LITTLEJOHN & LEVY INC.
By:__________________________
Name:
Title
SCHEDULE I
Stockholder Number of Shares
----------- ----------------
[form of voting agreement for management generally]
July __, 2000
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Attn: Robert Miller
Chairman/Chief Executive Officer
Joseph Littlejohn & Levy Inc.
425 Lexington Avenue
Suite 3350
New York, NY 10017
Re: Voting Agreement
Ladies and Gentlemen:
The undersigned (the "Stockholder") understands that Rite Aid
Corporation, a Delaware corporation ("Seller"), and Advance Paradigm, Inc.,
a Delaware corporation ("Purchaser"), are entering into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
providing for, among other things, the sale (the "Sale") by Seller of all
of the outstanding shares of Class A Common Stock, par value $1.00 per
share of PCS Holding Corporation, a Delaware corporation and a wholly owned
subsidiary of Seller (the "Company"), to Purchaser. The Stockholder also
understands that the Purchase Agreement provides that a portion of the
aggregate purchase price to be paid by Purchaser to Seller shall be payable
in the form of shares of Series A Preferred Stock of Purchaser (the "Series
A Preferred"). The Stockholder also understands that Joseph Littlejohn &
Levy Inc. or one or more of its affiliates ("JLL") and Purchaser are
entering into a Securities Purchase Agreement (the "Securities Purchase
Agreement, and together with the Stock Purchase Agreement, the "Purchase
Agreements") providing for, among other things, the purchase of shares of
Series A Preferred Stock of and shares of Series B Convertible Preferred
Stock of Purchaser (the "Series B Preferred") by JLL. The Stockholder
further understands that following the Closing of the transactions
contemplated by the Purchase Agreements, all of the Series A Preferred and
Series B Preferred then outstanding shall, subject to the receipt of
requisite approvals from the stockholders of Purchaser, be convertible into
a newly-created class of common stock of the Purchaser (the "Class B Common
Stock") having the terms set forth in the Class B Common Stock summary of
terms (the "Summary of Terms") attached to the Purchase Agreements.
Capitalized terms used but not defined herein shall have the
respective meanings ascribed to such terms in the Purchase Agreements. The
Stockholder is entering into this letter agreement at the request of Seller
and JLL, as a condition to Seller's and JLL's willingness to enter into the
Purchase Agreements and to consummate the transactions contemplated
thereby. As used herein, "Shares" means any and all shares of common stock,
par value $0.01 per share, of the Purchaser owned by the Stockholder or
hereafter acquired by the Stockholder by the exercise of options or
otherwise.
Section 1. The Stockholder hereby confirms and agrees with you
as follows:
A. The Stockholder is the beneficial and record owner of the
number of Shares set forth opposite the Stockholder's name on Schedule I
hereto, free and clear of all liens, charges, encumbrances, adverse claims,
voting agreements and commitments of every kind, except as disclosed on
Schedule I. Except as set forth on Schedule I and except for options or
warrants held by the Stockholder as set forth in Section 3.2(a) of the
Purchaser Disclosure Schedule relating to the Stock Purchase Agreement,
neither the Stockholder nor any company, trust or other entity controlled
by the Stockholder owns any additional shares of the capital stock of
Purchaser or any interest therein or has any voting rights with respect to
any additional shares of capital stock of Purchaser.
B. The Stockholder will not, and will not permit any company,
trust or other entity controlled by the Stockholder to, directly or
indirectly, (i) prior to the 120th day following the date hereof, contract
to sell, sell or otherwise transfer or dispose of any of the Shares or any
interest therein or options or securities convertible thereinto or any
voting rights with respect thereto, other than as contemplated hereby, (ii)
grant any proxy or power of attorney, deposit any of the Shares into a
voting trust or enter into a voting agreement or arrangement with respect
to the Shares except as provided in this letter agreement or (iii) take any
action which would make any representation or warranty made by the
Stockholder in this Agreement untrue or incorrect or have the effect of
preventing or disabling the Stockholder from performing the Stockholder's
obligations under this letter agreement.
C. The Stockholder will, and will cause any company, trust or
other entity controlled by the Stockholder to, vote all of the Shares
against the approval of any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any
other obligation or agreement of Purchaser under the Purchase Agreements or
of the Stockholder under this letter agreement.
D. Any time Purchaser seeks the approval of its stockholders,
whether such approval is sought at a meeting of the stockholders of
Purchaser or by written consent, for the authorization and issuance
(including, without limitation, the approval of any necessary amendments to
Purchaser's Certificate of Incorporation) of any securities of Purchaser
issuable pursuant to the Purchase Agreements (including, without
limitation, the Class B Common Stock having the terms set forth in the
Summary of Terms), the Stockholder will, and will cause any company, trust
or other entity controlled by the Stockholder to, vote all of the Shares in
favor of such authorization and issuance.
E. The Stockholder represents and warrants that the Stockholder
has all necessary power and authority to enter into this letter agreement
and that this letter agreement is the legal, valid and binding agreement of
the Stockholder, and is enforceable against the Stockholder in accordance
with its terms.
F. The Stockholder agrees that it will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional
or further transfers, assignments, endorsements, consents and other
instruments as Seller and JLL may reasonably request for the purpose of
effectively carrying out the transactions contemplated by this letter
agreement and to vest the power to vote the Shares as contemplated by
Sections 1(C) and/or 1(D).
G. The Stockholder agrees that it will not enter into any
agreement or understanding with any person the effect of which would be
inconsistent with or violative of any provision contained in this letter
agreement.
Section 2. Purchaser agrees with and covenants to Seller that
Purchaser shall not register the transfer of any of the undersigned's
Shares without the prior written consent of Seller.
Section 3. Purchaser and the undersigned agree that damages are
an inadequate remedy for the breach of any term or condition of this letter
agreement and that you shall be entitled to a temporary restraining order
and preliminary and permanent injunctive relief in order to enforce the
terms of this letter agreement.
Section 4. This letter agreement will automatically terminate
and be of no further force and effect upon the earlier of: (i) the
termination of the Purchase Agreements or (ii) the time at which all
outstanding shares of Series A Preferred and Series B Preferred shall have
become immediately convertible into Class B Common Stock.
Section 5. This letter agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Delaware,
excluding that body of law relating to conflict of law.
Section 6. This letter agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly states the
understanding between us by signing and returning to each of the
undersigned a counterpart hereof.
Very truly yours,
[To be executed by the relevant
stockholders]
Acknowledged and agreed to as
to Sections 2 through 6:
ADVANCE PARADIGM, INC.
By:__________________________
Name:
Title:
Confirmed on the date first
above written:
RITE AID CORPORATION
By:__________________________
Name:
Title:
JOSEPH LITTLEJOHN & LEVY INC.
By:__________________________
Name:
Title
SCHEDULE I
Stockholder Number of Shares
----------- ----------------
[form of voting agreement for David D. Halbert & Jon S. Halbert]
July __, 2000
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Attn: Robert Miller
Chairman/Chief Executive Officer
Joseph Littlejohn & Levy Inc.
425 Lexington Avenue
Suite 3350
New York, NY 10017
Re: Voting Agreement
Ladies and Gentlemen:
The undersigned (the "Stockholder") understands that Rite Aid
Corporation, a Delaware corporation ("Seller"), and Advance Paradigm, Inc.,
a Delaware corporation ("Purchaser"), are entering into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
providing for, among other things, the sale (the "Sale") by Seller of all
of the outstanding shares of Class A Common Stock, par value $1.00 per
share of PCS Holding Corporation, a Delaware corporation and a wholly owned
subsidiary of Seller (the "Company"), to Purchaser. The Stockholder also
understands that the Purchase Agreement provides that a portion of the
aggregate purchase price to be paid by Purchaser to Seller shall be payable
in the form of shares of Series A Preferred Stock of Purchaser (the "Series
A Preferred"). The Stockholder also understands that Joseph Littlejohn &
Levy Inc. or one or more of its affiliates ("JLL") and Purchaser are
entering into a Securities Purchase Agreement (the "Securities Purchase
Agreement, and together with the Stock Purchase Agreement, the "Purchase
Agreements") providing for, among other things, the purchase of shares of
Series A Preferred Stock of and shares of Series B Convertible Preferred
Stock of Purchaser (the "Series B Preferred") by JLL. The Stockholder
further understands that following the Closing of the transactions
contemplated by the Purchase Agreements, all of the Series A Preferred and
Series B Preferred then outstanding shall, subject to the receipt of
requisite approvals from the stockholders of Purchaser, be convertible into
a newly-created class of common stock of the Purchaser (the "Class B Common
Stock") having the terms set forth in the Class B Common Stock summary of
terms (the "Summary of Terms") attached to the Purchase Agreements.
Capitalized terms used but not defined herein shall have the
respective meanings ascribed to such terms in the Purchase Agreements. The
Stockholder is entering into this letter agreement at the request of Seller
and JLL, as a condition to Seller's and JLL's willingness to enter into the
Purchase Agreements and to consummate the transactions contemplated
thereby. As used herein, "Shares" means any and all shares of common stock,
par value $0.01 per share, of the Purchaser owned by the Stockholder or
hereafter acquired by the Stockholder by the exercise of options or
otherwise.
Section 1. The Stockholder hereby confirms and agrees with you
as follows:
A. The Stockholder is the beneficial and record owner of the
number of Shares set forth opposite the Stockholder's name on Schedule I
hereto, free and clear of all liens, charges, encumbrances, adverse claims,
voting agreements and commitments of every kind, except as disclosed on
Schedule I. Except as set forth on Schedule I and except for options or
warrants held by the Stockholder as set forth in Section 3.2(a) of the
Purchaser Disclosure Schedule relating to the Stock Purchase Agreement,
neither the Stockholder nor any company, trust or other entity controlled
by the Stockholder owns any additional shares of the capital stock of
Purchaser or any interest therein or has any voting rights with respect to
any additional shares of capital stock of Purchaser.
B. The Stockholder will not, and will not permit any company,
trust or other entity controlled by the Stockholder to, directly or
indirectly, (i) prior to the 180th day following the date hereof, contract
to sell, sell or otherwise transfer or dispose of any of the Shares or any
interest therein or options or securities convert ible thereinto or any
voting rights with respect thereto, other than as contemplated hereby,
provided that after the 120th day following the date hereof, the
Stockholder shall be permitted to sell Shares representing up to ten
percent(10%) of the total number of Shares owned by the Stockholder as the
date hereof, (ii) grant any proxy or power of attorney, deposit any of the
Shares into a voting trust or enter into a voting agreement or arrangement
with respect to the Shares except as provided in this letter agreement or
(iii) take any action which would make any representation or warranty made
by the Stockholder in this Agreement untrue or incorrect or have the effect
of preventing or disabling the Stockholder from performing the
Stockholder's obligations under this letter agreement.
C. The Stockholder will, and will cause any company, trust or
other entity controlled by the Stockholder to, vote all of the Shares
against the approval of any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any
other obligation or agreement of Purchaser under the Purchase Agreements or
of the Stockholder under this letter agreement.
D. Any time Purchaser seeks the approval of its stockholders,
whether such approval is sought at a meeting of the stockholders of
Purchaser or by written consent, for the authorization and issuance
(including, without limitation, the approval of any necessary amendments to
Purchaser's Certificate of Incorporation) of any securities of Purchaser
issuable pursuant to the Purchase Agreements (including, without
limitation, the Class B Common Stock having the terms set forth in the
Summary of Terms), the Stockholder will, and will cause any company, trust
or other entity controlled by the Stockholder to, vote all of the Shares in
favor of such authorization and issuance.
E. The Stockholder represents and warrants that the Stockholder
has all necessary power and authority to enter into this letter agreement
and that this letter agreement is the legal, valid and binding agreement of
the Stockholder, and is enforceable against the Stockholder in accordance
with its terms.
F. The Stockholder agrees that it will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional
or further transfers, assignments, endorsements, consents and other
instruments as Seller and JLL may reasonably request for the purpose of
effectively carrying out the transactions contemplated by this letter
agreement and to vest the power to vote the Shares as contemplated by
Sections 1(C) and/or 1(D).
G. The Stockholder agrees that it will not enter into any
agreement or understanding with any person the effect of which would be
inconsistent with or violative of any provision contained in this letter
agreement.
Section 2. Purchaser agrees with and covenants to Seller that
Purchaser shall not register the transfer of any of the undersigned's
Shares without the prior written consent of Seller.
Section 3. Purchaser and the undersigned agree that damages are
an inadequate remedy for the breach of any term or condition of this letter
agreement and that you shall be entitled to a temporary restraining order
and preliminary and permanent injunctive relief in order to enforce the
terms of this letter agreement.
Section 4. This letter agreement will automatically terminate
and be of no further force and effect upon the earlier of: (i) the
termination of the Purchase Agreements or (ii) the time at which all
outstanding shares of Series A Preferred and Series B Preferred shall have
become immediately convertible into Class B Common Stock.
Section 5. This letter agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Delaware,
excluding that body of law relating to conflict of law.
Section 6. This letter agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly states the
understanding between us by signing and returning to each of the
undersigned a counterpart hereof.
Very truly yours,
[To be executed by the relevant
stockholders]
Acknowledged and agreed to
as to Sections 2 through 6:
ADVANCE PARADIGM, INC.
By:__________________________
Name:
Title:
Confirmed on the date first
above written:
RITE AID CORPORATION
By:__________________________
Name:
Title:
JOSEPH LITTLEJOHN & LEVY INC.
By:__________________________
Name:
Title
SCHEDULE I
Stockholder Number of Shares
----------- ----------------
STOCK OWNERSHIP
David A. George - 3,000 Shares
David D. Halbert - 711,841 Shares*
Jon S. Halbert - 165,344 Shares**
Robert W. Horner, III - 200 Shares***
Laurie I. Johansen - 8,380 Shares
James J. Mindala - 741,476 Shares
T. Danny Phillips - 48,500 Shares****
John L. Puls, Jr. and Brandie Puls - 864,193 Shares
Michael D. Ware - 42,000 Shares
Paul F. Wutz - 746,876 Shares
* Includes 102,976 shares owned by entities or individuals under
Stockholder's control
** Includes 96,844 shares owned by entities or individuals under
Stockholder's control
*** Includes 200 shares owned by individuals under Stockholder's control
**** Includes 7,500 shares owned by individuals under Stockholder's control
