<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 1, 2000
(Date of Report)
January 11, 2000
(Date of earliest event reported)
McKESSON HBOC, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-13252 94-3207296
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
McKesson Plaza
One Post Street
San Francisco, CA 94104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 983-8300
Item 5. Other Events
We are filing this Current Report on Form 8-K to make generally available
certain information regarding the Registrant.
On January 11, 2000, the Registrant entered into a definitive Stock
Purchase Agreement, a copy of which is attached hereto as Exhibit 99.1, with
Groupe Danone SA, a company organized under the laws of France, whereby Groupe
Danone will purchase all of the outstanding capital stock of McKesson Water
Products Company, a California corporation and a wholly-owned subsidiary of the
Registrant, for a total consideration of $1.1 billion in cash. The Company's
pro forma financial information which reflects the classification of the net
assets and results of operations of the McKesson Water Products Company as a
discontinued operation is attached hereto as Exhibit 99.2.
On January 25, 2000, the Registrant issued a press release announcing the
Registrant's results for the third quarter ended December 31, 1999. A copy of
the press release announcing the Registrant's third quarter results is set forth
in Exhibit 99.3 to this Current Report on Form 8-K and is hereby incorporated by
reference herein.
Item 7 Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
99.1* Stock Purchase Agreement, dated as of January 10, 2000, by and
among McKesson HBOC, Inc., Danone International Brands, Inc.
and Groupe Danone SA.
99.2 Pro forma financial information of the Registrant.
99.3 Press Release issued by the Registrant on January 25, 2000.
___________________
* Exhibit A, B and C have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Registrant agrees to furnish supplementally a copy of
such omitted exhibits to the Commission upon request.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
McKESSON HBOC, INC.
(Registrant)
Date: February 1, 2000 By: /s/ Ivan D. Meyerson
---------------------------------
Name: Ivan D. Meyerson
Title: Senior Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
Exhibit No. Title
99.1* Stock Purchase Agreement, dated as of January 10, 2000, by and
among McKesson HBOC, Inc., Danone International Brands, Inc. and
Groupe Danone SA.
99.2 Pro forma financial information of the Registrant.
99.3 Press Release issued by the Registrant on January 25, 2000.
___________________
* Exhibit A, B and C have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Registrant agrees to furnish supplementally a copy of
such omitted exhibits to the Commission upon request.
<PAGE>
EXHIBIT 99.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
McKESSON HBOC, INC.,
DANONE INTERNATIONAL BRANDS, INC.
and
GROUPE DANONE
dated as of
January 10, 2000
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TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF SHARES
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Section 1.1 Sale and Transfer of Shares.................. 1
Section 1.2 The Purchase Price........................... 1
Section 1.3 Purchase Price............................... 1
ARTICLE II
THE CLOSING
Section 2.1 The Closing.................................. 3
Section 2.2 Deliveries by Seller......................... 3
Section 2.3 Deliveries by Purchaser...................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Organization................................. 4
Section 3.2 Authorization; Validity of Agreement......... 4
Section 3.3 Execution; Validity of Agreement............. 5
Section 3.4 Consents and Approvals; No Violations........ 5
Section 3.5 Ownership and Possession of Shares........... 6
Section 3.6 Good Title Conveyed.......................... 6
Section 3.7 Company Action............................... 6
Section 3.8 Capitalization............................... 6
Section 3.9 Organization; Qualification of Company....... 6
Section 3.10 Subsidiaries................................. 7
Section 3.11 Financial Statements......................... 7
Section 3.12 No Undisclosed Liabilities................... 7
Section 3.13 Prepayment of Company Debt................... 8
Section 3.14 Absence of Certain Changes................... 8
Section 3.15 Title to Properties; Encumbrances............ 8
Section 3.16 Real Property................................ 8
Section 3.17 Leases....................................... 8
Section 3.18 Contracts and Commitments.................... 9
Section 3.19 Customers and Suppliers...................... 9
Section 3.20 Insurance.................................... 10
Section 3.21 Casualties................................... 10
Section 3.22 Litigation................................... 10
Section 3.23 Environmental Matters........................ 10
Section 3.24 Compliance with Laws......................... 11
Section 3.25 Employee Benefit Plans....................... 11
Section 3.26 Tax Matters.................................. 12
Section 3.27 Intellectual Property........................ 13
Section 3.28 Labor Matters................................ 15
Section 3.29 Bank Accounts................................ 15
Section 3.30 Brokers or Finders........................... 15
Section 3.31 Affiliated Transactions...................... 16
Section 3.32 Accounts Receivable.......................... 16
Section 3.33 Inventories.................................. 16
Section 3.34 Payables..................................... 16
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<TABLE>
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Section 3.35 Product Liability........................................................ 16
Section 3.36 Dividends................................................................ 16
Section 3.37 No Other Representations................................................. 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Organization............................................................. 17
Section 4.2 Authorization; Validity of Agreement..................................... 17
Section 4.3 Consents and Approvals; No Violations.................................... 17
Section 4.4 Acquisition of Shares for Investment..................................... 18
Section 4.5 Availability of Funds.................................................... 18
Section 4.6 Litigation............................................................... 18
Section 4.7 Investigation by Purchaser; Seller's Liability........................... 18
Section 4.8 Brokers or Finders....................................................... 19
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company........................................ 19
Section 5.2 Access; Confidentiality.................................................. 22
Section 5.3 Efforts and Actions to Cause Closing to Occur............................ 23
Section 5.4 Tax Matters.............................................................. 25
Section 5.5 Publicity................................................................ 30
Section 5.6 Employees; Employee Benefits............................................. 30
Section 5.7 Indemnification.......................................................... 34
Section 5.8 Transition Services...................................................... 34
Section 5.9 Intercompany Arrangements................................................ 34
Section 5.10 Treatment of Seller Guaranties........................................... 34
Section 5.11 Update of Disclosure Schedule............................................ 35
Section 5.12 Maintenance of Books and Records......................................... 35
Section 5.13 Seller's Trademarks and Logos............................................ 35
Section 5.14 License Agreement........................................................ 36
Section 5.15 Intellectual Property Assignments........................................ 36
Section 5.16 Unclaimed Property Audit................................................. 36
Section 5.17 Non-Competition.......................................................... 36
Section 5.18 Further Action........................................................... 37
Section 5.19 Environmental Compliance................................................. 37
Section 5.20 Environmental Compliance................................................. 38
Section 5.21 Environmental Compliance................................................. 38
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Closing.............. 38
Section 6.2 Conditions to Obligations of Purchaser to Effect the Closing............. 38
Section 6.3 Conditions to Obligations of Seller to Effect the Closing................ 39
ARTICLE VII
TERMINATION
Section 7.1 Termination.............................................................. 40
Section 7.2 Effect of Termination.................................................... 41
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ARTICLE VIII
INDEMNIFICATION
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Section 8.1 Indemnification; Remedies......................... 41
Section 8.2 Notice of Claim; Defense.......................... 44
Section 8.3 Resolution of All Tax-Related Disputes............ 45
Section 8.4 Tax Effect of Indemnification Payments............ 45
Section 8.5 No Duplication; Sole Remedy Procedures............ 46
Section 8.6 No Right of Off-set/Set-off....................... 46
ARTICLE IX
DEFINITIONS AND INTERPRETATION
Section 9.1 Definitions....................................... 46
Section 9.2 Interpretation.................................... 54
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses................................. 54
Section 10.2 Amendment and Modification........................ 55
Section 10.3 Notices........................................... 55
Section 10.4 Counterparts...................................... 55
Section 10.5 Entire Agreement; No Third Party Beneficiaries.... 56
Section 10.6 Severability...................................... 56
Section 10.7 Governing Law..................................... 56
Section 10.8 Dispute Resolution................................ 56
Section 10.9 Venue............................................. 56
Section 10.10 Time of Essence................................... 57
Section 10.11 Extension; Waiver................................. 57
Section 10.12 Election of Remedies.............................. 57
Section 10.13 Assignment........................................ 57
Section 10.14 Waiver of Jury Trial.............................. 57
Section 10.15 Specific Performance.............................. 57
Section 10.16 Guarantee......................................... 57
</TABLE>
EXHIBITS:
Trademark Assignment
Patent Assignment
Net Book Value Calculation
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STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, dated as of January 10, 2000, by and among
Groupe Danone, a societe anonyme organized under the laws of the Republic of
France, as Guarantor, Danone International Brands, Inc., a Delaware corporation,
McKesson HBOC, Inc., a Delaware corporation and the holder of all the capital
stock of McKesson Water Products Company. Certain capitalized terms used in
this Agreement have the meanings assigned to them in Article IX or elsewhere in
the Agreement.
WHEREAS, Seller owns all of the issued and outstanding Shares of
McKesson Water Products Company, a California corporation; and
WHEREAS, each of the Boards of Directors of Purchaser and Seller has
approved, and the Board of Directors of Seller deems it advisable and in the
best interests of its shareholders to consummate, the acquisition of the Company
by Purchaser, which acquisition is to be effected by the purchase of all the
outstanding capital stock of the Company by Purchaser upon the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
Section 1.1 Sale and Transfer of Shares. Subject to the terms and
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conditions of this Agreement, at the Closing, Seller shall sell, convey, assign,
transfer and deliver to Purchaser all the issued and outstanding Shares, free
and clear of all Encumbrances, except for any Encumbrance relating to the resale
of the Shares by the Purchaser arising under the Securities Act or any
applicable state securities laws and Purchaser shall purchase, acquire and
accept the Shares from Seller.
Section 1.2 The Purchase Price. Subject to the terms and conditions
------------------
of this Agreement, in consideration of the aforesaid sale, conveyance,
assignment, transfer and delivery to Purchaser of the Shares, Purchaser shall
pay to Seller an amount of cash equal to $1,105,000,000.
Section 1.3 Purchase Price Adjustment.
-------------------------
(a) As promptly as practicable, but no later than 90
calendar days after the Closing Date, Seller shall prepare and deliver to
Purchaser a closing balance sheet as of the Closing Date (the "Closing Balance
---------------
Sheet") prepared in accordance with GAAP on a basis consistent with the
- -----
Financial Statements and a statement of the Net Book Value of the Company as of
the Closing Date derived therefrom (the "Closing Statement"), accompanied by a
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report
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2
prepared by Deloitte & Touche, LLP which states that the Closing Balance Sheet
presents fairly the financial position of the Company in accordance with GAAP
(provided that the materiality level for such Closing Statement shall be the
--------
level appropriate for businesses of the same size, scope and nature as the
Company) and with adjustments similar to normal year-end adjustments, and that
the Closing Balance Sheet fairly presents the financial position of the Company
as at the Closing Date. Seller and its accountants shall be provided with
reasonable access to the books and records of the Company reasonably related to
the Seller's preparation of the Closing Balance Sheet and the Closing Statement,
and the Purchaser shall ensure that personnel of the Company are available and
cooperative with the audit process and the signing of appropriate management
representation letters.
(b) In the event that $213,702,000 exceeds the Net Book Value of
the Company set forth on the Closing Statement, Seller shall make a payment to
Purchaser equal to the amount of such excess. In the event that the Net Book
Value of the Company set forth on the Closing Statement exceeds $213,702,000,
Purchaser shall make a payment to Seller equal to the amount of such excess. For
illustrative purposes, attached hereto as Exhibit 1.3(b) is a worksheet showing
the derivation of the dollar amount set forth in this Section 1.3(b).
(c) Any payment required to be made by any party in accordance
with clause (b) above shall be made within five Business Days of the date on
which the Closing Statement becomes final and binding on the parties in
accordance with this Section 1.3 and shall be made with interest thereon,
calculated at the Interest Rate from the Closing Date to the date of payment.
(d) Purchaser may dispute any amounts reflected on the Closing
Statement but solely on the basis that (i) the Closing Statement was not
prepared in accordance with GAAP, (ii) the Closing Statement was not prepared on
a basis consistent with the Financial Statements, or (iii) the mathematical
computations or clerical entries embodied in the Closing Statement are
inaccurate; provided, however, that Purchaser shall notify Seller in writing of
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each disputed item (such notice being a "Notice of Dispute"), specifying the
-----------------
amount thereof in dispute and setting forth in reasonable detail each disputed
item and amount and the basis for such dispute, within 30 calendar days after
Purchaser's receipt of the Closing Statement. Practices, policies, estimates and
other matters used in the preparation of the Closing Statement that are
permitted under GAAP shall not be subject to dispute by Purchaser except on the
grounds that the Closing Statement was not prepared on a basis consistent with
the Financial Statements. Purchaser and its accountants shall be provided with
reasonable access to the books, records and non-proprietary work papers of the
Seller and its accountants reasonably related to the Purchaser's review of the
Closing Statement, provided that the Purchaser executes customary waiver and
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indemnification letters for the Seller's accountants. In the event of such a
dispute, Seller and Purchaser shall attempt to reconcile their differences and
any resolution by them as to any disputed amounts shall be final and binding on
the parties hereto. If Purchaser and Seller are unable to reach a resolution
with such effect within 30 calendar days of the delivery of the Notice of
Dispute, Purchaser and Seller shall submit the items remaining in dispute for
resolution to an independent accounting firm of national reputation mutually
appointed by Purchaser and Seller (the "Independent Accounting Firm"), which
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shall, within 30 calendar days after submission, determine and report to the
parties upon such remaining disputed items and such
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3
report shall be final and binding on the parties hereto. The fees and
disbursements of the Independent Accounting Firm shall be allocated between
Purchaser and Seller, in the same proportion that the aggregate amount of such
remaining disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each (as finally determined by the Independent
Accounting Firm) bears to the total amount of such remaining disputed items so
submitted. If Purchaser does not deliver a Notice of Dispute to Seller within 30
calendar days of the date of delivery to Purchaser of the Closing Statement, the
Closing Statement delivered to Purchaser shall be final and binding on the
parties hereto upon the expiration of such 30 calendar day period.
(e) Each party shall make each payment due to the other party
hereunder as soon as practicable on the day when due in U.S. Dollars by wire
transfer in immediately available funds. All computations of interest shall be
made by the party entitled to receive payment on the basis of a year of 360
days, in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable. Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest.
ARTICLE II
THE CLOSING
Section 2.1 The Closing. The sale and transfer of the Shares by
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Seller to Purchaser shall take place at the offices of Shearman & Sterling at
10:00 a.m., New York City time, two Business Days following the satisfaction
and/or waiver of all conditions to close set forth in Article VI, unless another
date or place is agreed in writing by each of the parties hereto.
Section 2.2 Deliveries by Seller. At the Closing, Seller shall
--------------------
deliver to Purchaser:
(a) one or more certificates representing all the issued and
outstanding Shares, each such certificate to be duly and validly endorsed in
favor of Purchaser or accompanied by a separate stock power duly and validly
executed by Seller and otherwise sufficient to vest in Purchaser good title to
such Shares;
(b) resignations of each director of the Company and each
Company Subsidiary;
(c) a certification of non-foreign status for Seller in the form
and manner which complies with the requirements of Section 1445 of the Code and
the regulations promulgated thereunder; and
(d) all other previously undelivered documents required to be
delivered by Seller to Purchaser at or prior to the Closing in connection with
the Transactions.
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4
Section 2.3 Deliveries by Purchaser. At the Closing, Purchaser
-----------------------
shall:
(a) transfer the amount set forth in Section 1.2 to an account
designated by Seller prior to the Closing by wire transfer in immediately
available funds; and
(b) deliver to Seller all other previously undelivered documents
required to be delivered by Purchaser to Seller at or prior to Closing in
connection with the Transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Schedule prepared and signed by
Seller and delivered to Purchaser simultaneously with the execution hereof or as
expressly reflected in the Financial Statements, Seller represents and warrants
to Purchaser that all of the statements contained in this Article III are true
as of the date of this Agreement (or, if made as of a specified date, as of such
date). For purposes of the representations and warranties of Seller contained
herein, disclosure in any section of the Disclosure Schedule of any facts or
circumstances shall be deemed to be disclosure of such facts or circumstances
with respect to all representations or warranties by Seller calling for
disclosure of such information, whether or not such disclosure is specifically
associated with or purports to respond to one or more or all of such
representations or warranties if it is reasonably apparent on the face of the
Disclosure Schedule that such disclosure is applicable.
Section 3.1 Organization. Seller is a corporation duly organized,
------------
validly existing and in good standing under the laws of Delaware. Seller has all
requisite corporate or other power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power, authority, and governmental
approvals would not have, individually or in the aggregate, a material adverse
effect on Seller's ability to consummate the Transactions.
Section 3.2 Authorization; Validity of Agreement. Seller has the
------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and the other Transaction Documents to which it is or will be a party and to
consummate the Transactions and the other transactions contemplated thereby.
The execution, delivery and performance by Seller of this Agreement and the
other Transaction Documents to which it is or will be a party, and the
consummation of the Transactions and the other transactions contemplated thereby
have been or will be duly authorized by the Board of Directors of Seller, and no
other corporate action on the part of Seller is or will be necessary to
authorize the execution, delivery and performance by Seller of this Agreement
and the other Transaction Documents to which it is or will be a party or the
consummation of the Transactions and the other transactions contemplated
thereby. No vote of, or consent by, the holders of any class or series of stock
issued by Seller is or will be
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5
necessary to authorize the execution and delivery by Seller of this Agreement
and the other Transaction Documents to which it is or will be a party or the
consummation by it of the Transactions and the other transactions contemplated
thereby.
Section 3.3 Execution; Validity of Agreement. This Agreement and the
--------------------------------
other Transaction Documents to which it is a party have been or will be duly
executed and delivered by Seller, and, assuming due and valid authorization,
execution and delivery hereof and thereof by Purchaser, are or will be valid and
binding obligations of Seller, enforceable against Seller in accordance with its
terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws of
general application affecting enforcement of creditors' rights generally and (b)
the availability of the remedy of specific performance or injunctive or other
forms of equitable relief may be subject to equitable defenses and would be
subject to the discretion of the court before which any proceeding therefor may
be brought.
Section 3.4 Consents and Approvals; No Violations. Except for the
-------------------------------------
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of the HSR Act, none of the execution,
delivery or performance of this Agreement or the other Transaction Documents to
which it is or will be a party by Seller, the consummation by Seller of the
Transactions or the other transactions contemplated thereby or compliance by
Seller with any of the provisions hereof or thereof will (a) conflict with or
result in any breach of any provision of the certificate of incorporation or by-
laws of Seller, the Company or any Company Subsidiary, (b) require any filing
with, or permit, authorization, consent or approval of, any Governmental Entity,
(c) 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 or acceleration) under, or result in the creation of
any Encumbrance on any of the Shares or on any assets or properties of the
Seller or the Company or the Company Subsidiaries pursuant to, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
permit, franchise, contract, agreement or other instrument or obligation to
which Seller or any of its Subsidiaries is a party or by which any of them or
any of their respective properties or assets may be bound, or (d) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Seller, any of its Subsidiaries or any of their properties or assets, excluding
from the foregoing clauses (b), (c) and (d) such violations, breaches or
defaults which (A) would not, individually or in the aggregate, have a Company
Material Adverse Effect (without giving effect to the second proviso of the
definition thereof) or a material adverse effect on Seller's ability to
consummate the Transactions or the transactions contemplated by the other
Transaction Documents or (B) would become applicable solely as a result of the
business or activities in which Purchaser is or proposes to be engaged or solely
as a result of any acts or omissions pertaining specifically to Purchaser.
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6
Section 3.5 Ownership and Possession of Shares. Seller is the sole
----------------------------------
record and beneficial owner of all the issued and outstanding Shares. The
certificates representing the Shares are now and at all times during the term
hereof shall be held by Seller or by a nominee or custodian for the sole and
exclusive benefit of Seller, free and clear of all Encumbrances whatsoever,
except for any Encumbrances created by this Agreement and Encumbrances relating
to the resale of the Shares by Purchaser arising under the Securities Act or any
applicable state securities laws.
Section 3.6 Good Title Conveyed. The stock certificates, stock
-------------------
powers, endorsements, assignments and other instruments to be executed and
delivered by Seller to Purchaser at the Closing will be valid and binding
obligations of Seller, enforceable in accordance with their respective terms,
and will effectively vest in Purchaser good title to all the Shares, free and
clear of all Encumbrances, except restrictions relating to the resale of the
Shares by Purchaser imposed by the Securities Act and any applicable state
securities laws.
Section 3.7 Company Action. No vote of, or consent by, the holders
--------------
of any class or series of capital stock issued by the Company or any Company
Subsidiary is or will be necessary to authorize the execution and delivery by
Seller of this Agreement and the other Transaction Documents or the consummation
by it of the Transactions and the transactions contemplated by the other
Transaction Documents.
Section 3.8 Capitalization. The authorized capital stock of the
--------------
Company consists of 10,000 Shares. As of the date hereof, (a) 10,000 Shares are
issued and outstanding, (b) no Shares are owned by any Person other than Seller,
and (c) no Shares are issued and held in the treasury of the Company. All the
outstanding Shares and shares of capital stock of the Company Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable. Except as set
forth above, as of the date hereof, (d) there are no shares of capital stock of
the Company authorized, issued or outstanding; and (e) there are no existing
options, warrants, calls, pre-emptive rights, subscriptions, registration or
other rights, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company or any Company
Subsidiary, obligating the Company or any Company Subsidiary to issue, transfer
or sell or cause to be issued, transferred or sold any shares of capital stock
of the Company or any Company Subsidiary.
Section 3.9 Organization; Qualification of Company. The Company (a)
--------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the state of California; (b) has full corporate power and authority to
carry on its business as it is now being conducted and to own the properties and
assets it now owns; and (c) is duly qualified or licensed to do business as a
foreign corporation in good standing in every jurisdiction in which such
qualification is required or, if the Company fails to be qualified in any such
jurisdiction, such failure would not individually or in the aggregate have a
Company Material Adverse Effect (without giving effect to the second proviso of
the definition thereof). Seller has heretofore delivered to Purchaser complete
and correct copies of the certificate of incorporation and by-laws of the
Company as presently in effect.
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7
Section 3.10 Subsidiaries.
------------
(a) The Disclosure Schedule sets forth the name, jurisdiction of
incorporation and authorized capital of each Company Subsidiary and the
jurisdictions in which each Company Subsidiary is qualified to do business. All
the outstanding capital stock of each Company Subsidiary is owned directly or
indirectly by the Company, free and clear of all Encumbrances and all material
claims or charges of any kind, and is validly issued, fully paid and
nonassessable. Each Company Subsidiary (i) is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation; (ii) has full corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns; and (iii) is duly qualified or licensed to do business as a foreign
corporation in good standing in every jurisdiction in which such qualification
is required or, if a Company Subsidiary fails to be qualified in any such
jurisdiction, such failure would not individually or in the aggregate have a
Company Material Adverse Effect (without giving effect to the second proviso in
the definition thereof).
(b) Other than the Company Subsidiaries, there are no other
corporations, partnerships, joint ventures, associations or other entities in
which the Company or any Company Subsidiary owns, of record or beneficially, any
direct or indirect equity or other interest or any right (contingent or
otherwise) to acquire the same. Other than the Company Subsidiaries, neither the
Company nor any Company Subsidiary is a member of (and no part of the business
of the Company or any Company Subsidiary is conducted through) any partnership.
The Company is not a party to any joint venture agreement.
Section 3.11 Financial Statements.
--------------------
(a) True and complete copies of the Financial Statements are
included in the Disclosure Schedule. The Financial Statements have been prepared
from, are in accordance with and accurately reflect, the books and records of
the Company and the Company Subsidiaries (which are complete and accurate in all
material respects), comply in all material respects with applicable accounting
requirements, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be stated in the notes thereto)
and fairly present the consolidated financial position and the consolidated
results of operations and cash flows of the Company and the Company Subsidiaries
as of the times and for the periods referred to therein.
(b) The average Net Working Capital per month of the Company for
the twelve month period ended September 30, 1999 is $5,000,000. The Company has
managed the Net Working Capital for such period in the ordinary course of
business consistent with past practice.
Section 3.12 No Undisclosed Liabilities. Except for liabilities
--------------------------
and obligations incurred in the ordinary course of business, between the Balance
Sheet Date and the date hereof, neither the Company nor any Company Subsidiary
has incurred any liabilities or obligations that are reasonably expected to have
a Company Material Adverse Effect.
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8
Section 3.13 Prepayment of Company Debt. No Indebtedness of the
--------------------------
Company or any Company Subsidiary contains any material restriction upon (a)
the prepayment of any material amount of Indebtedness of the Company or any
Company Subsidiary, (b) the incurrence of a material amount of Indebtedness by
the Company or any Company Subsidiary or (c) the ability of the Company or any
Company Subsidiary to grant any material lien on the properties or assets of the
Company or any Company Subsidiary. The Disclosure Schedule sets forth the amount
of principal and unpaid interest outstanding under each instrument evidencing
Indebtedness of the Company and any Company Subsidiaries, if any, that will
accelerate or become due or result in a right on the part of the holder of such
Indebtedness (with or without due notice or lapse of time) to require
prepayment, redemption or repurchase as a result of the execution of this
Agreement or the consummation of any of the Transactions.
Section 3.14 Absence of Certain Changes. Except as expressly
--------------------------
required by this Agreement, since the Balance Sheet Date, (i) no event that
resulted in or is reasonably likely to result in a Company Material Adverse
Effect has occurred and (ii) the Company has not taken action that, if taken
after the date hereof, would constitute a violation of Sections 5.1(a) through
5.1(j), (m), (n) or (r) hereof.
Section 3.15 Title to Properties; Encumbrances. Except for property
---------------------------------
sold since the Balance Sheet Date in the ordinary course of business, each of
the Company and each Company Subsidiary has good and marketable title to all the
properties and assets (including, without limitation, real property, water
rights, inventory, equipment, facilities and intangible assets) reflected
on the Balance Sheet, free and clear of all material Encumbrances not disclosed
on the Balance Sheet. All such properties and assets constitute the properties
and assets necessary to conduct the business of the Company and the Company
Subsidiaries as currently conducted, other than the Intellectual Property
Assignments and property and assets used to provide ordinary course corporate
services to the Company and the Company Subsidiaries.
Section 3.16 Real Property. The Disclosure Schedule sets forth a
-------------
complete list and the location of all owned Real Property (the "Owned Real
----------
Property"). True and complete copies of all documents evidencing all
- --------
Encumbrances upon the Owned Real Property have heretofore been furnished to
Purchaser. To the Knowledge of Seller, there are no condemnation proceedings or
eminent domain proceedings pending or threatened in writing against the Real
Property.
Section 3.17 Leases. Set forth in Section 3.16 of the Disclosure
------
Schedule is a true and correct list of all real property leased by the Company
and the Company Subsidiaries. A true and complete copy of each Lease has
heretofore been delivered to Purchaser. Each Lease is valid, binding and
enforceable in accordance with its terms and is in full force and effect. There
is no existing material default by the Company or any Company Subsidiary, or, to
the Knowledge of the Seller, by any other party thereto, under any of the Leases
nor any event which, with notice or lapse of time or both, would constitute such
a material default.
<PAGE>
9
Section 3.18 Contracts and Commitments
-------------------------
(a) Section 3.18 of the Disclosure Schedule sets forth, as of the
date hereof, a true, complete and correct list of every contract, agreement,
loan, lease, license, guarantee, understanding or commitment that (i) provides
for future payments by the Company or any Company Subsidiary, or to the Company
or any Company Subsidiary, of more than $500,000 per annum and has an unexpired
term exceeding one year and may not be canceled upon 60 days' notice without any
liability, penalty or premium (excluding purchase orders, invoices and leasing
transactions entered into or incurred in the ordinary course of business); (ii)
was entered into by the Company or a Company Subsidiary with an Affiliate, a
stockholder, officer, director or significant employee of the Company, a Company
Subsidiary or Seller; (iii) is a collective bargaining or similar agreement;
(iv) involves an agreement with any bank, finance company or other organization
for Indebtedness of the Company or any Company Subsidiary; (v) restricts the
Company or any Company Subsidiary from engaging in any business or activity
anywhere in the world, other than restrictions which are immaterial to the
conduct of the Business; or (vi) is an employment agreement, consulting
agreement, severance or termination agreement or similar arrangement. Section
3.18 of the Disclosure Schedule (which shall be delivered no later than four
days from the date hereof) sets forth, as of the date hereof, a true, complete
and correct list of all wells, springs and other water sources used by the
Company or any Company Subsidiary in its business.
(b) As of the date hereof, (i) there is not and, to the
Knowledge of Seller, there has not been claimed or alleged by any Person with
respect to any contract listed or which should be listed in Section 3.18 of the
Disclosure Schedule any existing default or event that, with notice or lapse of
time or both, would constitute a default or event of default on the part of the
Company or any Company Subsidiary or, to the Knowledge of Seller, on the part of
any other party thereto, except such defaults, events of default and other
events that would not result in a Company Material Adverse Effect and (ii) no
consent, approval, authorization or waiver from, or notice to, any Governmental
Entity or other Person is required in order to maintain in full force and effect
any of the contracts listed or which should be listed in Section 3.18 of the
Disclosure Schedule, other than (A) such consents and waivers that have been
obtained and are unconditional and in full force and effect and such notices
that have been duly given and (B) such consents, approvals, authorizations,
waivers or notices, the failure of which to have or give would not have a
Company Material Adverse Effect. Neither the Company nor any Company Subsidiary
is in default with respect to any contract listed or which should be listed in
Section 3.18 of the Disclosure Schedule, except as would not reasonably be
expected to result in a Company Material Adverse Effect.
Section 3.19 Customers and Suppliers. Since the Balance Sheet Date,
-----------------------
there has not been any material adverse change in the business relationship of
the Company or any Company Subsidiary with any of the 10 largest customers of
the Company (on the basis of consolidated Company sales) during the period from
the Balance Sheet Date to the date hereof, or any of the 10 largest suppliers of
the Company or any Company Subsidiary (on the basis of consolidated Company
purchases of goods or services) during the same period.
<PAGE>
10
Section 3.20 Insurance. The Disclosure Schedule sets forth a true
---------
and complete list and description of all insurance policies in effect as of the
date hereof, providing coverage with respect to the business or assets of the
Company or the Company Subsidiaries. Each of such policies has been issued to
Seller or a Subsidiary thereof. Each of such policies is valid and binding and
in full force and effect in all material respects, all premiums due thereunder
have been paid when due (except for any failures to pay any such premiums that,
individually or in the aggregate, are not likely to result in a Company Material
Adverse Effect), and none of the Seller, the Company or any Company Subsidiary
has received any notice of cancellation or termination in respect of any such
policy.
Section 3.21 Casualties. Since the Balance Sheet Date, neither the
----------
Company nor any Company Subsidiary has been affected as a result of flood, fire
or explosion which constitutes a Company Material Adverse Effect, whether or not
such damages or losses are covered by insurance.
Section 3.22 Litigation. There is no action, suit, inquiry,
----------
proceeding or investigation by or before any court or Governmental Entity
pending or, to the Knowledge of Seller, threatened against or involving the
Company or any Company Subsidiary that is reasonably expected to have a Company
Material Adverse Effect or that would reasonably be expected to materially
impede the ability of Seller or the Company to complete the Closing.
Section 3.23 Environmental Matters. Except as would not reasonably
---------------------
be expected to have a Company Material Adverse Effect and, other than with
respect to clause (c), to the Constructive Knowledge of Seller, (a) the Company
and each Company Subsidiary are in compliance with all applicable Environmental
Laws and Environmental Permits, and all past non-compliance with Environmental
Laws or Environmental Permits has been resolved without any pending, on-going or
future obligation, cost or liability, (b) neither the Company nor any Company
Subsidiary has received any written notice, claim or other written communication
with respect to the business of, or any property currently or formerly owned or
leased by, the Company or any Company Subsidiary from any Governmental Entity or
third party alleging that the Company or any Company Subsidiary is not in
compliance with or liable under any Environmental Law, (c) there has been no
"release", as that term is defined in the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq. ("CERCLA"), of any
-- ----
Hazardous Material in excess of any applicable reportable quantity or in any
quantity, concentration or manner that is reasonably expected to require
investigation, remediation, removal, monitoring or any other action pursuant to
Environmental Law, in each case at, to or from any of the Real Property or,
during the period of the Company's or any Company Subsidiary's ownership, lease,
use or occupancy thereof, any real property formerly owned, leased, used or
occupied by the Company or any Company Subsidiary, (d) there are no underground
or aboveground storage tanks or any surface impoundments, septic tanks, pits,
sumps or lagoons in which Hazardous Materials are being treated, stored or
disposed on any of the Real Property, (e) neither the Company nor any Company
Subsidiary is conducting any investigation, remediation, removal, monitoring or
other action relating to any release or threatened release of any Hazardous
Material at the Real Property or at any other site, location or operation,
either voluntarily or pursuant to the order of any Governmental Entity or the
requirements of any Environmental Law or Environmental Permit, (f) there is no
asbestos or
<PAGE>
11
asbestos-containing material requiring abatement, remediation or other legally
required action by the Company on any of the Real Property, (g) none of the Real
Property is listed or proposed for listing on the National Priorities List or
the Comprehensive Environmental Response, Compensation and Liability Information
System under CERCLA, (h) the Company and each Company Subsidiary can maintain
present production levels in compliance with Environmental Laws applicable as of
the date hereof without an increase in capital or operating expenditures and
without modifying any Environmental Permits or obtaining any additional
Environmental Permits, and (i) Seller has made available to Purchaser copies of
any environmental assessment or audit reports in Seller's possession relating to
the Company's or any Company Subsidiary's operations or the Real Property, or
any property formerly owned, leased, used or occupied by the Company or any
Company Subsidiary.
Section 3.24 Compliance with Laws.
--------------------
(a) The Company and the Company Subsidiaries have complied in a timely
manner and in all respects with all laws, rules and regulations, ordinances,
judgments, decrees, orders, writs and injunctions of all United States federal,
state, local, foreign governments and agencies thereof that apply to the
business, properties or assets of the Company or any Company Subsidiary, except
for violations that would not reasonably be expected to result in a Company
Material Adverse Effect.
(b) The Company and each of the Company Subsidiaries holds all
governmental qualifications, registrations, filings, privileges, franchises,
licenses, permits, approvals or authorizations material to the operation of the
respective business and the ownership and use of the respective assets and
properties of the Company and such Company Subsidiaries, as a whole
(collectively, "Material Licenses"). All Material Licenses, to the Knowledge of
-----------------
Seller, are in full force and effect and the respective Company or Company
Subsidiary is in material compliance with each such Material License. All
Material Licenses will be available for use by the respective Company or Company
Subsidiary immediately after the Closing. As of the date hereof, no written
notices have been received by the Company or any of the Company Subsidiaries
alleging the failure to hold any material qualification, registration, filing,
privilege, franchise, license, permit, approval or other authorization.
Section 3.25 Employee Benefit Plans.
----------------------
(a) The Disclosure Schedule contains a true and complete list of all
Plans. The Company has heretofore made available to Purchaser a true and
complete copy of each written Plan and any amendments thereto and each agreement
creating or modifying any related trust or other funding vehicle. Except as
disclosed on Section 3.25(a) of the Disclosure Schedule, there are no other
employee benefit plans, programs, arrangements or agreements, whether formal or
informal, whether in writing or not, to which the Company is a party, with
respect to which the Company has any obligation or which are maintained,
contributed to or sponsored by the Company or Seller for the benefit of any
current or former employee, officer or director of the Company. The Company has
no express or implied commitment (i) to create, incur liability with respect to
or cause to exist any other employee benefit plan, program or arrangement, (ii)
to enter into any contract or agreement to provide compensation or benefits to
<PAGE>
12
any individual or (iii) to modify, change or terminate any Plan, other than with
respect to a modification, change or termination required by ERISA or the Code.
(b) The Company has not incurred any liability under, arising out of
or by operation of Title IV or Section 302 of ERISA (other than liability for
premiums to the PBGC arising in the ordinary course), including, without
limitation, any liability in connection with (i) the termination or
reorganization of any employee benefit plan subject to Title IV of ERISA or (ii)
the withdrawal from any "multi-employer pension plan" as defined in Section
3(37) or 4001(a)(3) of ERISA or "multiple-employer pension plan" as described in
Section 4063 or 4064 of ERISA, and no fact or event exists which could give rise
to any such liability.
(c) The PBGC has not instituted proceedings to terminate any Title IV
Plan and no condition exists that presents a material risk that such proceedings
will be instituted.
(d) No Title IV Plan is a "multi-employer pension plan," as defined in
Section 3(37) of ERISA, nor is any Title IV Plan a "multiple-employer or pension
plan" described in Sections 4063(a) and 4064 of ERISA.
(e) To the best Knowledge of Seller, each Plan has been operated and
administered in all material respects in accordance with its terms and
applicable law, including ERISA and the Code. Seller has performed all
material obligations required to be performed by it under, is not in any
material respect in default under or in violation of, and has no Knowledge of
any material default or violation by any party to, any Plan. No action, claim
or proceeding is pending or, to the Knowledge of the Seller, threatened with
respect to any Plan (other than claims for benefits in the ordinary course) and
no fact or event exists that could give rise to any such action, claim or
proceeding.
(f) Each Plan intended to be "qualified" within the meaning of Section
401(a) or 401(k) of the Code is so qualified and each trust established in
connection with any Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is so exempt.
(g) None of the Plans provides for the payment of separation,
severance, termination or similar-type benefits to any person or obligates
Seller to pay separation, severance, termination or similar-type benefits solely
or partially as a result of any transaction contemplated by this Agreement or as
a result of a "change in ownership or effective control", within the meaning of
such term under Section 280G of the Code. None of the Plans provides for or
promises retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of the Company.
Section 3.26 Tax Matters.
-----------
(a) The Company and each Company Subsidiary has timely filed (or there
have been filed on their behalf) with appropriate taxing authorities all Tax
Returns required to be filed by them on or prior to the date hereof, and such
Tax Returns are complete and correct in all material respects.
<PAGE>
13
(b) There are no liens for Taxes upon any property or assets of the
Company or any Company Subsidiary, except for liens for Taxes not yet due.
(c) No federal, state, local or foreign audits, examinations,
investigations or other administrative proceedings (such audits, examinations,
investigations and other administrative proceedings referred to collectively as
"Audits") or court proceedings are presently pending with regard to any Taxes or
------
Tax Returns filed by or on behalf of the Company or any Company Subsidiary.
(d) There are no outstanding requests, agreements, consents or waivers
to extend the statutory period of limitations applicable to the assessment of
any Taxes or deficiencies against the Company or any Company Subsidiary.
(e) Neither the Company nor any of the Company Subsidiaries is a party
to any tax sharing, tax indemnity or other agreement or arrangement with any
Person.
(f) All Taxes owed by the Company and any Company Subsidiary have been
timely paid and all Taxes which the Company or any Company Subsidiary are
required by law to withhold or to collect for payment have been duly withheld
and collected.
(g) Neither the Company nor any Company Subsidiary has filed a consent
under Section 341(f) of the Code or any comparable provision of state statutes.
(h) As a result of a change in accounting method for a Tax period
beginning on or before the Closing Date, none of the Company or any Company
Subsidiary will be required to include any adjustment under Section 481(c) of
the Code (or any corresponding provision of state or local Tax law) in taxable
income for any Tax period beginning on or after the Closing Date.
Section 3.27 Intellectual Property.
---------------------
(a) Section 3.27 of the Disclosure Schedule (which shall be delivered
no later than four (4) days from the date hereof) sets forth a true and complete
list of all Patents, registered Trademarks, registered Copyrights and Licenses
included in the Company Intellectual Property.
(b) To the Knowledge of Seller, there are no oppositions,
cancellations, invalidity proceedings, interferences or re-examination
proceedings presently pending with respect to the Company Intellectual Property
that are reasonably likely to have a Company Material Adverse Effect.
(c) To the Knowledge of Seller, the conduct of the business of the
Company and the Company Subsidiaries, and the use of the Company Intellectual
Property in connection therewith, does not conflict with or infringe any
Intellectual Property rights of any Person, and neither the Company nor any
Company Subsidiary has received any notice from any
<PAGE>
14
other Person pertaining to or challenging the right of the Company or any
Company Subsidiary to use any of the Company Intellectual Property.
(d) The Company and the Company Subsidiaries are the exclusive owners
of the entire and unencumbered right, title and interest in and to the Company
Intellectual Property, except for Intellectual Property licensed to the Company
and the Intellectual Property assigned to the Company pursuant to the Trademark
Assignment and Patent Assignment, the forms of which are attached hereto as
Exhibits 3.27(a) and 3.27(b), respectively (the "Intellectual Property
---------------------
Assignments"). Seller is the exclusive owner of the Intellectual Property
- -----------
assigned pursuant to the Intellectual Property Assignments. The Company and the
Company Subsidiaries are entitled to use the Company Intellectual Property in
the ordinary course of the business of the Company and the Company Subsidiaries
as presently conducted or as currently proposed to be conducted.
(e) The Company Intellectual Property and, to the Knowledge of Seller,
any Intellectual Property licensed to the Company or any Company Subsidiary
under the Licenses included in the Company Intellectual Property, is subsisting,
valid and enforceable, and has not been adjudged invalid or unenforceable in
whole or part.
(f) To the Knowledge of Seller, no person is engaging in any activity
that infringes the Company Intellectual Property. Except as set forth in Section
3.27(f) of the Disclosure Schedule, neither the Company nor any Company
Subsidiary has granted any license or other right to any third party with
respect to the Company Intellectual Property.
(g) The Company and the Company Subsidiaries have taken reasonable
steps in accordance with normal industry practice to maintain the
confidentiality of the Trade Secrets relating to the water purification process.
To the Knowledge of Seller, there has been no misappropriation of any material
Trade Secrets relating to the water purification process by any person.
(h) The Company and all Company Subsidiaries have (1) undertaken an
assessment of those Company Systems that could be or could have been adversely
affected by a failure to be Year 2000 Compliant, (2) developed a plan and time
line for rendering such Systems Year 2000 Compliant, and (3) to date,
implemented such plan in accordance with such timetable in all material
respects. Except as would not have a Company Material Adverse Effect, all
Company Systems are Year 2000 Compliant. For purposes hereof, "Company Systems"
---------------
shall mean all computer, hardware, software, systems, and equipment (including
embedded microcontrollers in non-computer equipment) embedded within or required
to operate the current products of the Company or any Company Subsidiary, and/or
material to or necessary for the Company, or any Company Subsidiary, to carry on
its business as currently conducted. For purposes hereof, "Year 2000 Compliant"
-------------------
means that the Company Systems provide uninterrupted millennium functionality in
that the Company Systems did and will record, store, process and present
calendar dates falling on or after January 1, 2000, in the same manner and with
the same functionality as the Company Systems record, store, process, and
present calendar dates falling on or before December 31, 1999.
<PAGE>
15
Section 3.28 Labor Matters.
-------------
(a) There is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or to the Knowledge of Seller, threatened against the Company
or any Company Subsidiary.
(b) Neither the Company nor any Company Subsidiary is a party to or
bound by any collective bargaining agreement with any labor organization
applicable to employees of the Company or any Company Subsidiary.
(c) the Company has not breached or otherwise failed to comply with
the provisions of any collective bargaining or union contract and there are no
grievances pending or, to the Knowledge of Seller, threatened against the
Company under any such agreement or contract that are reasonably likely to have
a Company Material Adverse Effect.
(d) No labor union has been certified by the National Labor Relations
Board as bargaining agent for any of the employees of the Company or any Company
Subsidiary.
(e) Neither the Company nor any Company Subsidiary has experienced any
material work stoppage or other material labor difficulty during the two-year
period ending on the date hereof.
(f) There is no unfair labor practice charge or complaint against the
Company or any Company Subsidiary pending or threatened before the National
Labor Relations Board or any other Governmental Entity or any current union
organization drive involving employees of the Company that could reasonably be
expected to have a Company Material Adverse Effect.
(g) Since the enactment of the WARN Act, neither the Company nor any
Company Subsidiary has effectuated a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Company or any Company
Subsidiary, and there has not occurred a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of the Company or any Company
Subsidiary.
Section 3.29 Bank Accounts. The Disclosure Schedule sets forth (a) the
-------------
names and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which the Company or any Company Subsidiary
maintains safe deposit boxes, checking accounts or other accounts of any nature
the available balance of which customarily exceeds $5,000 and (b) the names of
all Persons authorized to draw thereon, make withdrawals therefrom or have
access thereto.
Section 3.30 Brokers or Finders. No agent, broker, investment banker,
------------------
financial advisor or other firm or Person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee in connection with any of
the Transactions except for Lehman
<PAGE>
16
Brothers Inc. whose fees and expenses will be paid by Seller in accordance with
Seller's agreement with such firm.
Section 3.31 Affiliated Transactions. Except as set forth on Schedule 3.31,
-----------------------
no material contracts or agreements (including, without limitation, agreements
or contracts for the provision of any services or the sale of any goods) are in
effect as of the date hereof between the Company or any Company Subsidiary, on
the one hand, and the Seller or its Affiliates or executive officers on the
other hand other than with respect to ordinary course residential deliveries of
water.
Section 3.32 Accounts Receivable. All accounts receivable and notes due and
-------------------
uncollected reflected on the Balance Sheet, and all accounts receivable and
notes due and uncollected arising subsequent to the Balance Sheet Date (i) have
arisen in the ordinary course of business of the Company and the Company
Subsidiaries; and (ii) represent valid obligations due the Company and the
Company Subsidiaries enforceable in accordance with their terms.
Section 3.33 Inventories. The Company's and the Company Subsidiaries'
-----------
inventory of supplies, raw materials, work in process and finished goods
consists only of items of quality commercially usable in the ordinary course of
business, except for any items of obsolete material or material below standard
quality, all of which have been written down to realizable market value, or for
which adequate reserves have been provided in accordance with GAAP, and the
current amount of such inventory is reasonable in the present circumstances of
the business of the Company and the Company Subsidiaries.
Section 3.34 Payables. All accounts payable of the Company or any Company
--------
Subsidiary have arisen, and as of the Closing Date will have arisen, from bona
----
fide transactions in the ordinary course of business consistent with past
- ----
practice.
Section 3.35 Product Liability. No facts or circumstances exist that
-----------------
reasonably would be expected to be the basis for any claims or remedial expenses
(including, without limitation, claims for product liability, defects, breaches,
product warranties or personal injury claims) in connection with the production,
packaging, sale, distribution or use of any of the products produced in the
business of the Company or any Company Subsidiary prior to or on the Closing
Date that are reasonably likely to result in a Company Material Adverse Effect.
Section 3.36 Dividends. Since the Balance Sheet Date, the Company has not
---------
paid any dividends or made any other distribution (whether in cash, securities
or other property) to the Seller outside of the ordinary course of business.
Section 3.37 No Other Representations. Except for the representations and
------------------------
warranties contained in this Article III, any other Transaction Documents, and
the certificate required to be delivered pursuant to Section 6.2(b), neither
Seller nor any other person or entity acting on behalf of Seller, makes any
representation or warranty, express or implied.
<PAGE>
17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
Section 4.1 Organization. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware.
Purchaser has all requisite corporate or other power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority, and
governmental approvals would not have, individually or in the aggregate, a
material adverse effect on Purchaser's ability to consummate the Transactions.
Section 4.2 Authorization; Validity of Agreement. Purchaser has full
------------------------------------
corporate power and authority to execute and deliver this Agreement and the
other Transaction Documents to which it is or will be a party and to consummate
the Transactions and the other transactions contemplated thereby. The
execution, delivery and performance by Purchaser of this Agreement and the other
Transaction Documents to which it is or will be a party and the consummation of
the Transactions have been or will be duly authorized by the Board of Directors
of Purchaser, and no other corporate action on the part of Purchaser is or will
be necessary to authorize the execution and delivery by Purchaser of this
Agreement and the other Transaction Documents to which it is or will be a party
or the consummation of the Transactions and the other transactions contemplated
thereby. No vote of, or consent by, the holders of any class or series of stock
issued by Purchaser is necessary to authorize the execution and delivery by
Purchaser of this Agreement and the other Transaction Documents to which it is
or will be a party or the consummation by it of the Transactions and the other
transactions contemplated thereby. This Agreement and the other Transaction
Documents to which it is or will be a party have been or will be duly executed
and delivered by Purchaser, and, assuming due and valid authorization, execution
and delivery hereof by Seller, are or will be valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their terms except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws of general application affecting
enforcement of creditors' rights generally and (b) the availability of the
remedy of specific performance or injunctive or other forms of equitable relief
may be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought.
Section 4.3 Consents and Approvals; No Violations. Except for the filings,
-------------------------------------
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the HSR Act, none of the execution, delivery
or performance of this Agreement or the other Transaction Documents to which it
is or will be a party by Purchaser, the consummation by Purchaser of the
Transactions or the other transactions contemplated hereby or compliance by
Purchaser with any of the provisions hereof will (a) conflict with or result in
any breach of any provision of the certificate of incorporation or by-laws of
Purchaser, (b) require any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (c) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or
<PAGE>
18
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, permit, franchise, contract,
agreement or other instrument or obligation to which Purchaser or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Purchaser, any of its
Subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (b), (c) and (d), such violations, breaches or defaults which (A) would
not, individually or in the aggregate, have a material adverse effect on
Purchaser's ability to consummate the Transactions or (B) would become
applicable solely as a result of the business or activities in which the Seller
is or proposes to be engaged or solely as a result of any acts or omissions
pertaining specifically to Seller.
Section 4.4 Acquisition of Shares for Investment; Ability to Evaluate and
-------------------------------------------------------------
Bear Risk. (a) Purchaser is acquiring the Shares for investment and not with a
- ---------
view toward, or for sale in connection with, any distribution thereof, nor with
any present intention of distributing or selling the Shares. Purchaser agrees
that the Shares may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act and any applicable state securities laws, except pursuant to any exemption
from such registration under such Act and such laws.
(b) Purchaser is able to bear the economic risk of holding the Shares for
an indefinite period, and has knowledge and experience in financial and business
matters such that it is capable of evaluating the risks of the investment in the
Shares.
Section 4.5 Availability of Funds. Purchaser currently has access to
---------------------
sufficient immediately available funds in cash or cash equivalents and will at
the Closing have sufficient immediately available funds, in cash, to pay the
Purchase Price and to pay any other amounts payable pursuant to this Agreement
and to effect the Transactions.
Section 4.6 Litigation. There is no claim, action, suit, proceeding or, to
----------
the knowledge of Purchaser, governmental investigation pending or, to the
knowledge of Purchaser, threatened against Purchaser or any of its Subsidiaries
by or before any court or Governmental Entity that, individually or in the
aggregate, would reasonably be expected to materially impede the ability of
Purchaser to complete the Closing.
Section 4.7 Investigation by Purchaser; Seller's Liability. Purchaser has
----------------------------------------------
conducted its own independent investigation, review and analysis of the
business, operations, assets, liabilities, results of operations, financial
condition, software, technology and prospects of the Company and the Company
Subsidiaries to the extent permitted by the Seller and the Seller's
representatives, which investigation, review and analysis was done by Purchaser
and its Affiliates and, to the extent Purchaser deemed appropriate, by
Purchaser's representatives. Purchaser acknowledges that it and its
representatives have been provided adequate access to the personnel and access
to certain records of the Company and the Company Subsidiary for such purpose.
In entering into this Agreement, Purchaser acknowledges that it has relied
solely upon the aforementioned investigation, review and analysis and not on any
factual representations or opinions of Seller or Seller's representatives
(except the representations and warranties of Seller
<PAGE>
19
set forth in Article III of this Agreement, the other Transaction Documents and
the certificate delivered pursuant to Section 6.2(b)), and Purchaser:
(a) acknowledges that none of Seller, the Company, the Company
Subsidiaries or any of their respective directors, officers, shareholders,
employees, Affiliates, controlling persons, agents, advisors or
representatives makes or has made any oral or written representation or
warranty, either express or implied, as to the accuracy or completeness of
any of the information (including in the descriptive memorandum relating
to the Company provided to the Purchaser, in materials furnished in the
Company's data room, in presentations by the Company's management or
otherwise) provided or made available to the Purchaser or its directors,
officers, employees, Affiliates, controlling persons, agents or
representatives; and
(b) agrees, to the fullest extent permitted by law, that none of
Seller, the Company, the Company Subsidiaries or any of their respective
directors, officers, employees, shareholders, Affiliates, controlling
persons, agents, advisors or representatives shall have any liability or
responsibility whatsoever to Purchaser or its directors, officers,
employees, Affiliates, controlling persons, agents or representatives on
any basis (including in contract or tort, under federal or state securities
laws or otherwise) based upon any information provided or made available,
or statements made (including in the descriptive memorandum relating to the
Company provided to the Purchaser, in materials furnished in the Company's
data room, presentations by the Company's management or otherwise), to
Purchaser or its directors, officers, employees, Affiliates, controlling
persons, advisors, agents or representatives (or any omissions therefrom),
including in respect of the specific representations and warranties of
Seller set forth in this Agreement, except that the foregoing limitations
shall not apply to Seller insofar as Seller makes the specific
representations and warranties set forth in Article III of this Agreement;
the other Transaction Documents and the certificate delivered pursuant to
Section 6.2(b) but always subject to the limitations and restrictions
contained in Article VIII.
Section 4.8 Brokers or Finders. Neither Purchaser nor any of its
------------------
Subsidiaries or its Affiliates has entered into any agreement or arrangement
entitling any agent, broker, investment banker, financial advisor or other firm
or Person to any broker's or finder's fee or any other commission or similar fee
in connection with any of the Transactions, except those whose fees and expenses
will be paid by Purchaser in accordance with Purchaser's agreement with such
Persons.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. Except as expressly
---------------------------------
provided in this Agreement and except as set forth in the Disclosure Schedule
and except as may be consented to in writing by Purchaser (such consent not to
be unreasonably withheld or delayed)
<PAGE>
20
between the date of this Agreement and the Closing Date, Seller will cause the
Company and the Company Subsidiaries to (i) conduct their business only in the
ordinary course and on a basis consistent with past practice, (ii) use
commercially reasonable efforts to preserve intact their business organization
and assets, (iii) use commercially reasonable efforts to keep available to
themselves and to Purchaser the services of their present officers and key
employees, (iv) not shorten or lengthen the customary payment cycles for any of
its payables or receivables and (v) use commercially reasonable efforts to
preserve their current relationships with their respective customers, suppliers,
distributors and other Persons with which they have significant business
relationships. Without limiting the generality of the foregoing, Seller shall
assure that, after the date hereof and prior to the Closing Date, without the
prior written consent of Purchaser:
(a) neither the Company nor any Company Subsidiary shall: (i) amend its
certificate of incorporation or by-laws or similar organizational documents,
(ii) issue, sell, transfer, pledge, dispose of or encumber any shares of any
class or series of its capital stock, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of any class or series of its capital stock, (iii) except
as set forth in Section 5.9, declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to any shares of
any class or series of its capital stock, (iv) split, combine or reclassify any
shares of any class or series of its stock, or (v) redeem, purchase or otherwise
acquire directly or indirectly any shares of any class or series of its capital
stock, or any instrument or security which consists of or includes a right to
acquire such shares;
(b) neither the Company nor any of the Company Subsidiaries shall: (i)
incur or assume any (x) long-term debt or (y) Indebtedness in an individual
amount not to exceed $100,000 and an aggregate amount not to exceed $500,000,
(ii) discharge, settle, release or otherwise modify the terms of any
Indebtedness or other liability, other than modifications of short-term debt in
the ordinary and usual course of business and consistent with past practice, or
(iii) assume or guarantee the obligations, on a contingent basis or otherwise,
of any other Person, except in the ordinary course of business;
(c) neither the Company nor any Company Subsidiary shall (A) grant any
increase, or announce any increase, in the wages, salaries, compensation,
bonuses, incentives, pension or other benefits payable by the Company or any
Company Subsidiary to any of its employees other than normal recurring increases
in the ordinary course of business or pursuant to plans, programs or agreements
existing on the date hereof, including, without limitation, any increase or
change pursuant to any Plan or (B) establish or increase or promise to increase
any benefits under any Plan, in either case except as required by law or any
agreement or involving ordinary increases consistent with the past practices of
the Company or such Company Subsidiary;
(d) neither the Company nor any Company Subsidiary shall voluntarily permit
any insurance policy naming it as a beneficiary or a loss payable payee to be
cancelled or terminated prior to the Closing Date;
<PAGE>
21
(e) neither the Company nor any of the Company Subsidiaries shall adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
Company Subsidiary;
(f) neither the Company nor any Company Subsidiary shall change in any
material respect any of the accounting methods or practices used by it unless
required by GAAP;
(g) neither the Company nor any of the Company Subsidiaries shall take, or
agree to or commit to take, any action that would result in any of the
conditions to the Closing set forth in Article VI not being satisfied, or would
make any representation or warranty of Seller contained herein inaccurate in any
material respect at, or as of any time prior to, the Closing Date, or that would
materially impair the ability of Purchaser or Seller to consummate the Closing
in accordance with the terms hereof or materially delay such consummation;
(h) neither the Company nor any Company Subsidiary shall voluntarily permit
or take any action or omit to take any action which results in any of the assets
or properties (whether tangible or intangible) of the Company or any Company
Subsidiary to be subjected to any Encumbrance other than Permitted Encumbrances;
(i) neither the Company nor any Company Subsidiary shall, except in the
ordinary course of business consistent with past practice, discharge or
otherwise obtain the release of any material Encumbrance;
(j) neither the Company nor any Company Subsidiary shall merge with, enter
into a consolidation with or acquire an interest of 5% or more in any Person or
acquire a substantial portion of the assets or business of any Person or any
division or line of business thereof, or otherwise acquire any material assets
other than in the ordinary course of business consistent with past practice;
(k) neither the Company nor any Company Subsidiary shall make any capital
expenditure or commitment for any capital expenditure in excess of $5,000,000 in
the aggregate per month;
(l) neither the Company nor any Company Subsidiary shall sell, transfer,
lease, sublease, license or otherwise dispose of any properties or assets, real,
personal or mixed (including, without limitation, leasehold interests and
intangible assets), other than the sale of immaterial assets or inventories in
the ordinary course of business consistent with past practice;
(m) neither the Company nor any Company Subsidiary shall enter into any
agreement, arrangement or transaction with any of its directors, officers, or
shareholders (or with any relative, beneficiary, spouse or Affiliate of such
Person) (other than to hire new employees in the ordinary course of business);
<PAGE>
22
(n) neither the Company nor any Company Subsidiary shall write down or
write up (or fail to write down or write up in accordance with GAAP consistent
with past practice) the value of any inventories or receivables or revalued any
assets of the Company or any Company Subsidiary other than in the ordinary
course of business consistent with past practice and in accordance with GAAP;
(o) neither the Company nor any Company Subsidiary shall amend,
terminate, cancel or compromise any material claims of the Company or any
Company Subsidiary or waive any other rights of substantial value to the Company
or any Company Subsidiary other than in the ordinary course of business and
consistent with past practice;
(p) neither the Company nor any Company Subsidiary shall allow any
material governmental permit that was issued or relates to the Company or any
Company Subsidiary or otherwise relates to any property or asset of the Company
or any Company Subsidiary to lapse or terminate or fail to renew any such
governmental permit or any insurance policy that is scheduled to terminate or
expire within 45 calendar days of the Closing Date;
(q) neither the Company nor any Company Subsidiary shall amend, modify
or consent to the termination of any contract listed or which should be listed
in Section 3.18 of the Disclosure Schedule or the Company's or any Company
Subsidiary's rights thereunder other than in the ordinary course of business and
consistent with past practice;
(r) neither the Company nor any Company Subsidiary shall terminate,
discontinue, close or dispose of any plant, facility or other business
operation;
(s) neither the Company nor any Company Subsidiary shall make any
material charitable contribution;
(t) neither the Company nor any of the Company Subsidiaries shall
enter into any agreement, contract, commitment or arrangement to do any of the
foregoing; and
(u) neither the Company nor any of the Company Subsidiaries shall
make, change or revoke any material Tax election or Tax accounting method, or
shall settle or compromise any material Tax deficiency.
Notwithstanding anything to the contrary contained herein, nothing shall
prohibit Seller from sweeping cash from the accounts of the Company in
accordance with Seller's cash management program in the ordinary course of
business and consistent with past practice.
Section 5.2 Access; Confidentiality.
-----------------------
(a) Seller shall cause the Company prior to the Closing to (i) give
Purchaser and its authorized representatives reasonable access to all books,
records, personnel, offices and other facilities and properties of the Company,
(ii) permit Purchaser to make such copies and inspections thereof as Purchaser
may reasonably request and (iii) cause the officers of the Company to furnish
Purchaser with such financial and operating data and other information with
respect to the business and properties of the Company as Purchaser may from time
to time
<PAGE>
23
reasonably request; provided, however, that any such access shall be conducted
-------- -------
at Purchaser's expense, at a reasonable time, under the supervision of Seller's
or the Company's personnel and in such a manner as not to interfere with the
normal operation of the business of Seller or the Company. Notwithstanding
anything contained in this or any other agreement between Purchaser and Seller
executed prior to the date hereof, none of the Company, any Company Subsidiary,
Seller or any Affiliate of Seller shall have any obligation to make available to
Purchaser or its representatives, or provide Purchaser or its representatives
with, any consolidated, combined or unitary Tax Return filed by Seller or any of
its Affiliates or predecessors (other than any such tax returns and materials,
including pro forma tax returns and schedules, solely relating to the Company or
any Company Subsidiary), or any related material, and nothing herein shall
require Seller to disclose any information to Purchaser if such disclosure would
in Seller's sole and absolute discretion (i) jeopardize any attorney-client or
other legal privilege, or (ii) contravene any applicable laws or fiduciary duty.
(b) The provisions of the Confidentiality Agreement shall remain
binding and in full force and effect until the Closing, at which time such
Confidentiality Agreement and the obligations of Purchaser thereunder and under
this Section 5.2 shall terminate. The information delivered to Purchaser or its
authorized representatives pursuant hereto, including the information contained
in the Disclosure Schedule, shall be deemed to be Evaluation Material (as
defined and subject to the exceptions contained in the Confidentiality
Agreement) until the Closing. Seller shall keep all information in its
possession relating to the Company or any Company Subsidiary confidential on the
terms and conditions of the Confidentiality Agreement which shall apply to the
Seller as if such terms and conditions were applicable to the Seller rather than
the Purchaser, and as if fully set forth herein, except as necessary or
advisable for Seller to perform its obligations under this Agreement.
Section 5.3 Efforts and Actions to Cause Closing to Occur.
---------------------------------------------
(a) Prior to the Closing, upon the terms and subject to the conditions
of this Agreement, Purchaser and Seller shall use their respective commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done and cooperate with each other in order to do, all things
necessary, proper or advisable (subject to any applicable laws) to consummate
the Closing and the other Transactions as promptly as practicable, including the
preparation and filing of all forms, registrations and notices required to be
filed to consummate the Closing and the other Transactions and the taking of
such actions as are necessary to obtain any requisite approvals, authorizations,
consents, orders, licenses, permits, qualifications, exemptions or waivers by
any third party or Governmental Entity. In addition, no party hereto shall and
Seller shall cause the Company not to take any action after the date hereof that
could reasonably be expected to materially delay the obtaining of, or result in
not obtaining, any permission, approval or consent from any Governmental Entity
or other Person required to be obtained prior to Closing. Nothing contained in
this Agreement shall require Seller, the Company or Purchaser to pay any
consideration to any other Person from whom any such approvals, authorizations,
consents, orders, licenses, permits, qualifications, exemptions or waiver is
requested.
<PAGE>
24
(b) Prior to the Closing, each party shall promptly consult with the
other party hereto with respect to, provide any necessary information with
respect to, and provide the other parties (or their respective counsel) with
copies of, all filings made by such party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity in connection
with this Agreement and the Transactions. Each party hereto shall promptly
inform the other of any communication received by such party from any
Governmental Entity regarding any of the Transactions. If any party hereto or
Affiliate thereof receives a request for information or documentary material
from any such Governmental Entity with respect to any of the Transactions, then
such party shall endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request.
(c) In addition to and without limiting the agreements of the parties
contained above, Purchaser and Seller shall (i) take promptly all actions
necessary to make the filings required of them or any of their Affiliates under
the HSR Act, (ii) comply at the earliest practicable date with any request for
additional information or documentary material received by the Company,
Purchaser, Seller or any of their Affiliates from the FTC or the DOJ pursuant to
the HSR Act or from any state Attorney General or other Governmental Entity in
connection with antitrust matters, (iii) cooperate with each other in connection
with any filing under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the Transactions commenced by the FTC,
DOJ, any state Attorney General or any other Governmental Entity, (iv) use their
best efforts to resolve such objections, if any, as may be asserted with respect
to the Transactions under any antitrust law and (v) advise the other parties
promptly of any material communication received by such party from the FTC, DOJ,
any state Attorney General or any other Governmental Entity regarding any of the
Transactions, and of any understandings, undertakings or agreements (oral or
written) such party proposes to make or enter into with the FTC, DOJ, any state
Attorney General or any other Governmental Entity in connection with the
Transactions. Concurrently with the filing of notifications under the HSR Act
or as soon thereafter as practicable, Seller and Purchaser shall each request
early termination of the HSR Act waiting period. With regard to Purchaser,
"best efforts" for purposes of Section 5.3(c)(iv) shall include, without
limitation, at the request of Seller, proffering Purchaser's willingness to
accept an order providing for the divestiture by Purchaser of such properties,
assets, operations, or businesses of Purchaser or Seller as are necessary to
permit Purchaser to consummate the transactions contemplated by this Agreement,
including, without limitation, an offer to hold separate such properties,
assets, operations or businesses pending any such divestiture, and Purchaser's
willingness to accept such other conditions, restrictions, limitations, or
agreements affecting Purchaser's full rights or ownership of the Shares as may
be necessary to resolve such objections, if any, as may be asserted by the FTC,
DOJ, any state Attorney General or any other Governmental Entity with respect to
the Transactions under any antitrust law.
<PAGE>
25
Section 5.4 Tax Matters.
-----------
(a) Section 338 Election.
--------------------
(i) Seller and Purchaser shall jointly make and file an election
under Section 338(h)(10) of the Code (and under any comparable provisions of
state or local law) (the "Elections") for the Company and each Company
---------
Subsidiary (other than Compania General de Aguas S.A. de C.V. and, as soon as
practicable after the Closing, Seller and Purchaser shall mutually prepare a
Form 8023 (or applicable successor form), with all attachments. Purchaser and
Seller shall cooperate with each other to take all actions necessary and
appropriate (including filing such additional forms, returns, elections,
schedules and other documents as may be required) to effect and preserve timely
Elections in accordance with the provisions of Section 338(h)(10) of the Code
and the Treasury Regulations thereunder (and any comparable provisions of state
or local tax law) or any successor provisions.
(ii) In connection with such Elections, Purchaser shall cause the
Company to prepare not later than 60 days following the Closing, and solely for
purposes of this Section 5.4(a)(ii), a balance sheet for the Company and each
Company Subsidiary as of the Closing Date for which a Section 338(h)(10)
Election will be made setting forth the assets and liabilities of the Company
and each such Company Subsidiary, which balance sheets shall form the basis for
the determinations required to be made by the Seller and the Purchaser pursuant
to the immediately succeeding sentence. Not later than 120 days after the
Closing, Seller and Purchaser shall act together in good faith to (1) determine
and agree upon the "Aggregate Deemed Sale Price" in accordance with the Treasury
Regulations under Section 338 of the Code promulgated thereunder and (2)
determine and agree upon the proper allocations of the "Aggregate Accrued Sale
Price" among the assets of the Company and each Company Subsidiary (in
accordance with Section 338(b)(5) of the Code and the Treasury Regulations
promulgated thereunder). Seller and Purchaser shall (x) be bound by such
determination and such allocations for purposes of determining any Taxes, (y)
prepare and file their Tax Returns on a basis consistent with such determination
of the "Aggregate Deemed Sale Price" and such allocations and (z) take no
position inconsistent with such determination and allocations on any applicable
Tax Return, in any proceeding before any Taxing Authority. If Seller and
Purchaser fail to reach agreement with respect to the "Aggregate Accrued Sale
Price" and/or such allocations, or if Seller shall disagree with any item
contained in the balance sheet prepared for purposes of this Section 5.4(a)(ii),
then Seller and Purchaser shall, not later than 10 business days after either
Seller or Purchaser shall have terminated, in writing, discussions with respect
to such items, submit all such disputed items for resolution pursuant to Section
8.3. In the event that any of such allocations is disputed by any Taxing
Authority, the party receiving notice of the dispute shall promptly notify the
other party hereto of the dispute.
<PAGE>
26
(b) Tax Returns. Except as provided in Section 5.4(d),
-----------
(i) Seller shall file or cause to be filed when due all
income and franchise Tax Returns that are required to be filed by or with
respect to the Company or any Company Subsidiary for taxable years or
periods ending on or before the Closing Date, and Seller shall remit (or
cause to be remitted) subject to Section 5.4(c)(ii) and Section 8.1(b) any
Taxes due in respect of such Tax Returns.
(ii) Purchaser shall cause the Company to file or cause to
be filed all Tax Returns that are due after the Closing Date that are
required to be filed by or with respect to the Company or any Company
Subsidiary for taxable years or periods ending on or before the Closing
Date other than income and franchise Tax Returns. Any Tax Returns which the
Purchaser is required to cause the Company to file or cause to be filed
pursuant to this Section 5.4(b)(ii) shall be completed in a manner
consistent with past practice and shall be submitted (with copies of any
relevant schedules, work papers and other documentation then available) to
Seller for Seller's approval not less than 30 days prior to the Due Date
for the filing of such Tax Return, which approval may not be unreasonably
withheld. Purchaser shall remit (or cause to be remitted) any Taxes due in
respect of such Tax Returns to the extent that such Taxes are specifically
identified and reflected as a current liability for unpaid Taxes on the
Balance Sheet.
(iii) Purchaser shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company
for taxable years or periods ending after the Closing Date, and Purchaser
shall remit (or cause to be remitted) any Taxes due in respect of such Tax
Returns.
(iv) Any Tax Return required to be filed by Purchaser
relating to any Straddle Period shall be completed in a manner consistent
with the Company's past practice and submitted (with copies of any relevant
schedules, work papers and other documentation then available) to Seller
for Seller's approval not less than 30 days prior to the Due Date for the
filing of such Tax Return, which approval shall not be unreasonably
withheld.
(v) Upon the written request of Purchaser setting forth in
detail the computation of the amount owed, Seller shall pay to Purchaser,
no later than 2 days prior to the Due Date for the applicable Tax Return,
the Taxes for which Seller is liable pursuant to Section 8.1(b)(ii) but
which are payable with any Tax Return to be filed by Purchaser with respect
to any Straddle Period.
(vi) Within 120 days after the Closing Date or sooner if
reasonably required by Seller to timely file any Tax Return required to be
filed or caused to be filed by it pursuant to the terms of this Agreement,
Purchaser shall cause the Company to prepare and provide to Seller a
package of Tax information materials, including schedules and work papers,
required by Seller to enable Seller to prepare and file all Tax Returns
required to be prepared and filed by it pursuant to Section 5.4(b)(i) or to
review all Tax Returns proposed to be filed by or on behalf of the Company
or any
<PAGE>
27
Company Subsidiary pursuant to Section 5.4(b)(ii). Such package shall be
consistent with those prepared by the Company and provided to Seller in the
past. Seller shall reimburse Purchaser and the Company for reasonable costs
incurred in preparing such packages. Purchaser shall prepare such package
in good faith in a manner consistent with the Company's past practice.
(vii) Seller may amend any Tax Return filed or required to be
filed for any taxable years or periods ending on or before the Closing Date
provided that it would not result in a Tax detriment to the Purchaser, the
Company or any Company Subsidiary.
(c) Computation of Tax Liabilities.
------------------------------
(i) To the extent permitted or required by law or
administrative practice, (A) the taxable year of the Company which includes
the Closing Date shall be treated as closing on (and including) the Closing
Date and, notwithstanding the foregoing, (B) all transactions not in the
ordinary course of business occurring after the Closing shall be reported
on Purchaser's consolidated United States federal income Tax Return to the
extent permitted by Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) and
shall be similarly reported on other Tax Returns of Purchaser or its
Affiliates to the extent permitted by law. For purposes of Sections
5.4(b)(i) and (b)(ii) and Sections 8.1(b)(ii) and 8.1(c)(i), where it is
necessary to apportion between Seller and Purchaser the Tax liability of an
entity for a Straddle Period (which is not treated under the immediately
preceding sentence as closing on the Closing Date), such liability shall be
apportioned between the period deemed to end at the close of the Closing
Date, subject to Sections 8.1(b)(i) and 8.1(d)(i)(B), and the period deemed
to begin at the beginning of the day following the Closing Date on the
basis of an interim closing of the books, except that Taxes (such as real
property Taxes) imposed on a periodic basis shall be allocated on a daily
basis.
(ii) In determining Seller's liability for Taxes pursuant to
this Agreement, Seller shall be credited with the amount of any estimated
Taxes paid by or on behalf of the Company prior to the Closing Date. To the
extent that Seller's liability for Taxes for a taxable year or period is
less than the amount of estimated Taxes previously paid by or on behalf of
the Company with respect to all or a portion of such taxable year or
period, Purchaser shall pay Seller the difference within two days after
filing the Tax Return relating to such Taxes.
(d) Transfer Taxes. All Transfer Taxes resulting directly from the
--------------
Transactions shall be borne 50% by Purchaser and 50% by the Seller. Seller
shall cooperate with Purchaser and, subject to the other terms of this
Agreement, take any action reasonably requested by Purchaser which does not
cause Seller to incur any cost or material inconvenience in order to
minimize Transfer Taxes. Notwithstanding the provisions of Section 5.4(b),
which shall not apply to Tax Returns relating to Transfer Taxes, any Tax
Returns that must be filed in connection with Transfer Taxes shall be
prepared and filed when due by the party primarily or customarily
responsible under the
<PAGE>
28
applicable local law for filing such Tax Returns, and such party will use
its reasonable efforts to provide such Tax Returns to the other party at
least 10 days prior to the Due Date for such Tax Returns.
(e) Refunds.
-------
(i) Any Tax refund (including any interest in respect thereof)
received by Purchaser or the Company and any amounts credited against Tax
to which Purchaser or the Company becomes entitled, in either case other
than by way of any carryback from a taxable period, or portion thereof
beginning on or after the Closing Date or with respect to Taxes for which
Seller would have no indemnification obligation pursuant to Section 8.1 or
with respect to refunds or credits reflected on the Balance Sheet, that
relate to any taxable period, or portion thereof, ending on or before the
Closing Date shall be for the account of Seller, and Purchaser shall pay
over to Seller any such refund or the amount of any such credit in the case
of a refund, within five days after receipt or entitlement thereto, and in
the case of a credit, within five days after utilization thereof. Purchaser
shall pay Seller interest at the rate prescribed under section 6621(a)(1)
of the Code, compounded daily, on any amount not paid when due under this
Section 5.4(e). For purposes of this Section 5.4(e), where it is necessary
to apportion a refund or credit between Purchaser and Seller for a Straddle
Period, such refund or credit shall be apportioned between the period
deemed to end at the close of the Closing Date and the period deemed to
begin at the beginning of the day following the Closing Date on the basis
of an interim closing of the Company's books, except that refunds or
credits of Taxes (e.g., real property Taxes) imposed on a periodic basis
shall be allocated on a daily basis.
(ii) Purchaser shall cooperate, and cause the Company to
cooperate, in obtaining any Tax refund that Seller reasonably believes
should be available, including through filing appropriate forms with the
applicable Taxing Authorities.
(f) Certain Post-Closing Settlement Payments. If the examination of
----------------------------------------
any federal, state, local or other Tax Return of Seller for any taxable
period ending on or before the Closing Date shall result (by settlement or
otherwise) in any adjustment which permits Purchaser or the Company to
increase deductions, losses or tax credits or decrease the income, gains or
recapture of tax credits which would otherwise (but for such adjustments)
have been reported or taken into account (including by way of any increase
in basis) by Purchaser or the Company for one or more periods ending after
the Closing Date, Seller shall notify Purchaser and provide it with
adequate information so that Purchaser can reflect on its or the Company's
Tax Returns such increases in deductions, losses or tax credits or
decreases in income, gains or recapture of tax credits. Purchaser shall pay
to Seller, within 30 days of the receipt of such information, the lesser of
the amount of any resulting tax benefits to Purchaser or the Company and
the amount of any Tax liability to Seller which would not have arisen but
for the adjustment giving rise to the tax benefit.
<PAGE>
29
(g) Post-Closing Actions which Affect Seller's Liability for Taxes.
--------------------------------------------------------------
(i) Purchaser shall not permit the Company to take any action
(not including the Elections) which could reasonably be expected to
increase Seller's liability for Taxes (including any liability of Seller to
indemnify Purchaser for Taxes pursuant to this Agreement).
(ii) None of Purchaser or any Affiliate of Purchaser shall (or
shall cause or permit the Company to) amend, refile or otherwise modify any
Tax Return relating in whole or in part to the Company with respect to any
taxable year or period ending on or before the Closing Date without the
prior written consent of Seller, which consent may not be unreasonably
withheld.
(iii) Purchaser and any Affiliate of Purchaser may (and may cause
or permit the Company to) carryback for Federal, state, local or foreign
tax purposes to any taxable period, or portion thereof, of the Company or
Seller or any affiliate of Seller ending before, or which includes, the
Closing Date any operating losses, net operating losses, capital losses,
tax credits or similar items arising in, resulting from, or generated in
connection with a taxable year of Purchaser or any Affiliate of Purchaser,
or portion thereof, ending on or after the Closing Date. Any Tax refund
(including interest in respect thereof received by Seller or any Affiliate
thereof and any amounts credited against Tax to which the Seller or any
Affiliate thereof) becomes entitled, in either case by reason of such
carryback, shall be for the account of Purchaser, and Seller shall pay over
to Purchaser any such refund or the amount of any such credit in the case
of a refund, within 5 days of receipt or entitlement thereto, and in the
case of a credit, within 5 days after the utilization thereof. Seller shall
pay interest at the rate prescribed under Section 6621(a)(1) of the Code,
compounded daily on any amount not paid when due under this Section
5.5(g)(iii).
(h) Termination of Existing Tax Sharing Agreements. Any and all
----------------------------------------------
existing Tax sharing agreements or arrangements, written or oral, between
Seller and any Affiliates thereof and the Company or its Subsidiaries,
shall terminate as of the Closing.
(i) Assistance and Cooperation. After the Closing Date, each of
--------------------------
Seller and Purchaser shall (and shall cause their respective Affiliates
to):
(i) timely sign and deliver such certificates or forms as
may be necessary or appropriate to establish an exemption from (or
otherwise reduce), or file Tax Returns or other reports with respect to,
Transfer Taxes;
(ii) assist the other party in preparing any Tax Returns
which such other party is responsible for preparing and filing in
accordance with Section 5.4(b);
(iii) cooperate fully in preparing for any audits of, or
disputes with Taxing Authorities regarding, any Tax Returns of the Company;
and
<PAGE>
30
(iv) timely provide any written or other consent required by
the other party to enable it to sign any Tax Return, waiver, consent or
other document relating to any Tax Return required to be filed by it
pursuant to Section 5.4 or any defense of any claim conducted by it
pursuant to Section 8.2.
Section 5.5 Publicity. The initial press release with respect to the
---------
execution of this Agreement of each of Purchaser and Seller shall be subject to
the approval of such other party. Thereafter, until the Closing, or the date
the Transactions are terminated or abandoned pursuant to Article VII, neither
Seller, the Company, Purchaser nor any of their respective Affiliates shall
issue or cause the publication of any press release or other public announcement
with respect to this Agreement or the Transactions without prior consent of the
other party, except as may be required by law or by any listing agreement with a
national securities exchange or trading market, in which case any such required
press release or public announcement shall be subject to the extent practicable
to prior review by such other party.
Section 5.6 Employees; Employee Benefits.
----------------------------
(a) On and after the Closing, until the first anniversary of the
Closing, Purchaser shall cause the Company to provide the Retained Employees
with salaries, incentive opportunities and benefit plans, programs and
arrangements (other than stay bonus and retention arrangements, retiree health
and retiree life insurance) which are substantially no less favorable in the
aggregate than those currently provided as of the date hereof by the Seller, the
Company and the Company Subsidiaries.
(b) With respect to each employee benefit plan, practice or
policy of Purchaser or any of its Affiliates, each Retained Employee shall be
given credit under such plan for all service prior to the Closing Date with the
Company or any predecessor employer (to the extent such credit was given by the
Seller, the Company or any predecessor employer under a comparable Plan), for
purposes of determining eligibility and vesting (but not benefit accrual);
provided, however, such service shall not be credited to the extent it would
- -------- -------
result in a duplication of benefits. Such service shall apply for purposes of
satisfying any waiting periods, evidence of insurability requirements, or the
application of any preexisting condition limitations. Subject to the terms of
the plans of Purchaser, such Retained Employees shall be given credit for
amounts paid under a corresponding employee benefit plan during the same period
for purposes of applying deductibles, copayments and out-of-pocket maximums as
though such amounts had been paid in accordance with the terms and conditions of
the comparable employee benefit plan of the Purchaser.
(c) Purchaser shall be responsible and assume all liability for
all notices or payments due to any Retained Employees, and all notices,
payments, fines or assessments due to any Governmental Entity, pursuant to any
applicable foreign, federal, state or local law, common law, statute, rule or
regulation with respect to the employment, discharge or layoff of employees by
the Company after the Closing, including the WARN Act, Section 4980B of the
Internal Revenue Code and any rules or regulations as have been issued in
connection with the foregoing.
<PAGE>
31
(d) From and after the Closing, Purchaser shall be responsible for, and
shall indemnify and hold harmless the Seller and its Affiliates and their
officers, directors, employees, Affiliates and agents and the fiduciaries
(including plan administrators) of the Plans from and against, any and all
claims, losses, damages, costs and expenses (including attorneys' fees and
expenses) and other liabilities and obligations relating to or arising out of
(i) all salaries, wages, commissions, bonuses, employee incentive or other
compensation, severance, holiday, vacation, welfare or retirement benefits
(other than retirement benefits provided by the Seller's Retirement Plan,
Supplemental Retirement Plan, retiree health and retiree life insurance Plans,
1984 Executive Benefit Retirement Plan, 1988 Executive Survivor Benefits Plan
and 1988 Management Survivor Benefits Plan) earned on or after the Closing by
any Retained Employee or reserved on the Closing Statement, (ii) the liabilities
expressly assumed by Purchaser under this Section 5.6 or any failure by
Purchaser to comply with the provisions of this Section 5.6, (iii) any
continuing contributions or other obligations of the Company with respect to the
Plans listed on the Disclosure Schedule as Plans subject to collective
bargaining agreements, (iv) any claims of, or damages or penalties sought by,
any Retained Employee, or any Governmental Entity on behalf of or concerning any
Retained Employee, with respect to any act or failure to act by Purchaser after
the Closing to the extent arising from the employment, discharge, layoff or
termination of any Retained Employee after the Closing and (v) the EEOC
Investigation identified in the Disclosure Schedule.
(e) Seller shall be responsible for, and shall indemnify and hold harmless
Purchaser and its Affiliates and their officers, directors, employees,
Affiliates, agents and the fiduciaries (including plan administrators) of the
Plans from and against any and all claims, losses, damages, costs, expenses
(including attorney's fees and expenses) and other liabilities and obligations
occurring or incurred prior to the Closing and relating to or arising out of (i)
all salaries, wages, commissions, bonuses, employee incentive or other
compensation, severance, holiday, vacation, welfare or retirement benefits
(including, without limitation, benefits provided under the Seller's Retirement
Plan, Supplemental Retirement Plan, retiree health and retiree life insurance
Plans, 1984 Executive Benefit Retirement Plan, 1988 Executive Survivor Benefits
Plan and 1988 Management Survivor Benefits Plan) earned on or prior to the
Closing by any Retained Employee other than those reserved on the balance sheet
of the Company and its consolidated Subsidiaries as of the Closing Date, (ii)
all liabilities not expressly assumed by the Purchaser under this Section 5.6 or
any failure by Seller to comply with the provisions of this Section 5.6, (iii)
those qualified Plans sponsored or maintained by the Company that are listed on
the Disclosure Schedule and identified as frozen Plans, (iv) the completion of
the termination of those Plans listed on the Disclosure Schedule and identified
as Plans in the process of being terminated, (v) any contributions or other
obligations of the Company incurred prior to the Closing with respect to the
Plans listed on the Disclosure Schedule as Plans subject to collective
bargaining agreements, and (vi) any claims or damages or penalties sought by any
Retained Employee, or any Governmental Entity on behalf of or concerning any
Retained Employee, with respect to any act or failure to act by Seller or the
Company prior to the Closing to the extent arising from the employment,
discharge, layoff or termination of any Retained Employee (other than the EEOC
Investigation identified in the Disclosure Schedule).
<PAGE>
32
(f) As of the Closing, any vested portion of an option to purchase shares
of Seller Common Stock issued pursuant to the 1994 Stock Option and Restricted
Stock Plan or the 1999 Stock Option and Restricted Stock Plan shall remain
exercisable until the earlier of three years following the date of the Closing
or the Terminal Date (as defined in each of such Plans) of such option.
(g) Effective as of the Closing, the Company, Seller and Purchaser shall
take all action necessary and appropriate to cause the liabilities of Seller's
Deferred Compensation Administration Plan II and the Option Gain Deferral Plan
(collectively, the "Deferred Compensation Plans") attributable to Retained
---------------------------
Employees to be transferred to a comparable deferred compensation plan sponsored
by the Purchaser or the Company (the "Purchaser DC Plans") in which such
------------------
employees are eligible to participate; provided, however, that such liabilities
-------- -------
shall only be transferred to the extent of the amount of the reserve on the
Closing Statement. Following such transfer, Purchaser, the Company and the
Purchaser DC Plans (or any successor thereto) shall be solely responsible for
all liabilities under the Deferred Compensation Plans relating to such Retained
Employees.
(h) Seller shall take all action as may be necessary and appropriate (i) to
cause each Retained Employee who is a participant in Seller's Profit-Sharing
Investment Plan, as amended (the "PSIP"), (x) to be treated as a terminated
----
employee with respect to the PSIP effective as of the date of Closing with
respect to eligibility to make contributions and to receive loans, in-service
withdrawals, allocations of employer contributions and forfeitures and (y) to
become fully vested in all benefits accrued under the PSIP through the date of
Closing; (ii) to cause the PSIP to make available to such Retained Employees as
soon as practicable following the Closing Date a distribution that qualifies
under Code Section 401(k)(10) and thus allows each Retained Employee to roll
over such distribution into an individual retirement account or a qualified plan
of the Company or Purchaser (if such plan permits such roll over); and (iii) if
requested by a Retained Employee, to transfer all outstanding loan balances
under the PSIP to a qualified Plan of the Company.
(i) The liabilities of Seller's Retirement Plan attributable to Retained
Employees shall remain in Seller's Retirement Plan and Seller shall provide for
the payment as they become due and in accordance with the terms of such Plan
upon the Retained Employee's termination of employment from Seller. Effective
as of the Closing, such Retained Employees shall not be entitled to any
additional credit for service or age under Seller's Retirement Plan; provided,
however, that the Retained Employees will be credited with any service with
Purchaser and its Affiliates following the Closing for purposes of determining
the Retained Employees' eligibility for an early retirement benefit under the
Seller's Retirement Plan.
(j) Purchaser and the Company shall provide to Seller such information
necessary for Seller to provide those benefits to Retained Employees described
in this Section 5.6, including, but not limited to, confirmation of a Retained
Employee's termination of employment from the Company or Purchaser. Seller
shall take all steps reasonable to provide to Purchaser and, if necessary, the
Retained Employees, such information necessary for Purchaser to provide those
benefits to Retained Employees described in this Section 5.6,
<PAGE>
33
including, without limitation, confirmation of a Retained Employee's termination
of employment from Seller and its affiliates and subsidiaries.
(k) Except where this Agreement provides otherwise, Seller shall pay (or
provide for the payment, as applicable) as of the date of Closing directly to
each eligible Retained Employee (i) a pro-rata award under Seller's Management
Incentive Plan, in accordance with the terms of the Plan and consistent with
past practice; (ii) a lump sum payment equal to the vested benefits credited to
the Account (as defined in Seller's Supplemental PSIP) of each eligible Retained
Employee who is a participant in Seller's Supplemental PSIP; and (iii) the
present value of the benefit payable to each Retained Employee who is a
participant in the Seller's Supplemental Retirement Plan in either a lump sum
payment or in accordance with the Retained Employee's election, as appropriate
under the terms of such Plan, and otherwise in accordance with the terms of each
such Plan.
(l) The Purchaser shall assume all responsibility for providing benefits
required under Part 6 of Title I of ERISA ("COBRA Benefits") in respect of
--------------
qualifying events occurring on or after the Closing for Retained Employees and
their qualified beneficiaries. Seller shall retain liability for all COBRA
Benefits in respect of qualifying events occurring prior to Closing for Retained
Employees and their qualified beneficiaries.
(m) Seller shall retain the liabilities pursuant to Seller's retiree heath
and retiree life insurance Plans attributable to Retained Employees and shall
provide coverage in accordance with the terms and conditions of such Plans upon
the eligible Retained Employee's termination of employment from the Company or
Purchaser. For purposes of determining a Retained Employee's eligibility for
such benefits as a retiree of Seller, employment with Seller shall be deemed to
terminate as of the Closing, and no period of time after the Closing shall be
taken into consideration in determining eligibility.
(n) Purchaser shall provide short-term disability coverage for all
Retained Employees eligible to receive short-term disability benefits as of the
Closing on substantially the same terms and conditions as in effect immediately
prior to the Closing, so that such Retained Employees receive short-term
disability benefits for a total of six months.
(o) Seller shall provide a long-term disability benefit pursuant to the
terms and conditions of Seller's Long-Term Disability Plan to (i) all Retained
Employees who are on long-term disability as of the Closing and (ii) those
Retained Employees who are on short-term disability leave as of the Closing and
who become eligible to receive a long-term disability benefit upon the
expiration of such short-term disability leave following the Closing.
(p) Effective as of the Closing, Purchaser shall be responsible for all
workers' compensation claims filed by Retained Employees based on events
occurring on and after the Closing. Seller shall retain liability for all
workers' compensation claims filed by Retained Employees and cases based on
events occurring prior to the Closing.
(q) In accordance with the terms of employment agreements entered into
between the Purchaser and certain Retained Employees, Seller shall, upon the
request of any
<PAGE>
34
Retained Employee, pay to the Purchaser any payments due to such Retained
Employee under the Company's Divestiture Incentive Plan.
(r) The Company, Seller and Purchaser shall cooperate and take all
such action as may be necessary to carry out the terms of this Section 5.6.
Section 5.7 Indemnification. Following the Closing, Purchaser shall cause
---------------
the Company not to make any changes to its certificate of incorporation or by-
laws that would adversely affect the rights of persons who are currently or were
officers or directors of the Company, other than any directors who are not
officers of the Company, to claim indemnification from such entity under the
terms of such certificate of incorporation or by-laws as in effect on the date
hereof for acts taken prior to the Closing.
Section 5.8 Transition Services. The Seller shall provide to the Company
-------------------
and the Company Subsidiaries administrative and other transition services
reasonably requested by Purchaser for a period of up to six months after the
Closing. The Seller, the Company and the Company Subsidiaries shall negotiate
in good faith and enter into a transition services agreement (the "Transition
----------
Services Agreement") prior to Closing setting forth the terms and conditions of
- ------------------
such services, including, without limitation, that the Company and the Company
Subsidiaries shall pay for such services at cost, and with other terms and
conditions that are customary for these types of services.
Section 5.9 Intercompany Arrangements. As of the Closing Date, all
-------------------------
intercompany accounts between the Company or any Company Subsidiary, on the one
hand, and Seller and its Affiliates (excluding the Company), on the other hand,
shall be canceled without any payment of funds and neither the Company nor any
Company Subsidiary shall have any further liability therefor. In addition,
except as otherwise expressly contemplated by this Agreement, all agreements and
commitments, whether written, oral or otherwise, which are solely between the
Company or any Company Subsidiary, on the one hand, and Seller and its
Affiliates (excluding the Company), on the other hand, shall be terminated and
of no further effect, simultaneously with the Closing, without any further
action or liability on the part of the parties thereto.
Section 5.10 Treatment of Seller Guaranties. Purchaser shall use its
------------------------------
commercially reasonable efforts, at Purchaser's expense, to have released and
cancelled at the Closing each Seller Guaranty; provided, however, that to the
-------- -------
extent that any Seller Guaranty cannot be so released and cancelled, Purchaser
shall use its commercially reasonable efforts, at Purchaser's expense, to cause
itself to be substituted for Seller and each of Seller's Affiliates directly
affected thereby in respect of such Seller Guaranty (or if not possible, added
as the primary obligor with respect thereto). If Purchaser is not able to
either release and cancel such Seller Guaranty or cause itself to be so
substituted in all respects in respect of such Seller Guaranty, then Purchaser
shall, at its election (a) obtain and deliver to Seller at the Closing letters
of credit in favor of Seller, on terms and conditions, and from financial
institutions, which in each case are reasonably satisfactory to Seller, with
respect to all the obligations covered by each Seller Guaranty or (b) otherwise
indemnify, defend and hold harmless Seller and each such Affiliate of Seller
with respect to all liabilities or expenses that might arise or be incurred by
<PAGE>
35
Seller or such Affiliate of Seller with respect to any such Seller Guaranty.
Seller will, and shall cause its Affiliates to, cooperate and use commercially
reasonable efforts to assist Purchaser in performing its obligations under this
Section 5.10.
Section 5.11 Update of Disclosure Schedule. Seller may, from time to
-----------------------------
time, prior to or on the Closing Date, by notice in accordance with this
Agreement supplement or amend the Disclosure Schedule, including one or more
supplements or amendments to correct any matter that would otherwise constitute
a breach of any representation, warranty or covenant contained herein. If,
pursuant to and in accordance with Section 7.1(f), such a supplement or
amendment of any section of the Disclosure Schedule materially and adversely
affects the benefits to be obtained by Purchaser under this Agreement, then
Purchaser shall have the right to terminate this Agreement, but such termination
shall be Purchaser's sole remedy relating to matters set forth in amendments or
supplements to any section of the Disclosure Schedule. Notwithstanding any
other provision hereof to the contrary, the Disclosure Schedule and the
representations and warranties made by the Seller shall be deemed for all
purposes to include and reflect such supplements and amendments as of the date
hereof and at all times thereafter, including the Closing Date.
Section 5.12 Maintenance of Books and Records. Each of the parties hereto
--------------------------------
shall preserve, until at least the eighth anniversary of the Closing Date, all
pre-Closing Date records possessed or to be possessed by such party relating to
the Company. After the Closing Date and up until at least the eighth
anniversary of the Closing Date, upon any reasonable request from a party hereto
or its representatives, the party holding such records shall (a) provide to the
requesting party or its representatives reasonable access to such records during
normal business hours and (b) permit the requesting party or its representatives
to make copies of such records, in each case at no cost to the requesting party
or its representatives (other than for reasonable out-of-pocket expenses);
provided, however, that nothing herein shall require either party to disclose
- -------- -------
any information to the other if such disclosure would jeopardize any attorney-
client or other legal privilege or contravene any applicable law. Such records
may be sought under this Section for any reasonable purpose, including to the
extent reasonably required in connection with the audit, accounting, tax,
litigation, federal securities disclosure or other similar needs of the party
seeking such records. Notwithstanding the foregoing, at any time after the
fifth anniversary of the date of this Agreement, any and all such records may be
destroyed by a party if such destroying party sends to the other parties hereto
written notice of its intent to destroy such records, specifying in reasonable
detail the contents of the records to be destroyed; such records may then be
destroyed after the 60th day following such notice unless the other party hereto
notifies the destroying party that such other party desires to obtain possession
of such records, in which event the destroying party shall transfer the records
to such requesting party and such requesting party shall pay all reasonable
expenses of the destroying party in connection therewith.
Section 5.13 Seller's Trademarks and Logos. (a) Notwithstanding anything
-----------------------------
to the contrary contained in this Agreement, it is expressly agreed that (1)
Purchaser is not purchasing, acquiring or otherwise obtaining, and the Company
will not be entitled to retain following the Closing Date, any right, title or
interest in any Trademarks employing Seller's name or any part or variation of
such name or anything confusingly similar thereto and (2) neither the Company
nor Purchaser or its Affiliates shall make any use of such Trademarks from and
after the Closing.
<PAGE>
36
(b) As of the Closing, Seller grants to Purchaser, the Company and the
Company Subsidiaries a non-exclusive, royalty free, fully paid license to use
and authorize others to use the Trademarks employing Seller's name and any part
or variation thereof used in the business of the Company or any Company
Subsidiary for a term that will end up to 30 days after Closing for any
letterhead stationary and any equipment bearing such a Trademark, and for all
other inventory and marketing material bearing such a Trademark, until such time
as all such inventory and marketing material shall have been used, sold or
distributed. Seller shall also permit Purchaser, the Company and the Company
Subsidiaries to make use of all trade dress as presently used by Seller, the
Company or the Company Subsidiaries and related to the Trademarks on the same
terms and conditions as are applicable to the Trademarks. It is the intention
of Purchaser to transition to a new corporate name and Trademarks for itself as
soon as reasonably practicable.
Section 5.14 License Agreement. At the Closing, Seller and the Company
-----------------
shall enter into a license agreement (the "License Agreement"). Pursuant to such
License Agreement, the Company shall license to Seller use of its "PC-1"
software, but solely for use by Seller and its Subsidiaries in the healthcare
business. Such license shall be non-exclusive, royalty-free and fully paid. In
addition, McKesson shall not be permitted to sublicense or assign any rights to
"PC-1" it may have. Also, such License Agreement shall contain a provision
allowing the Company to terminate upon a change of control of the Seller by
which a competitor of the Guarantor or any of its Affiliates gains control of
Seller.
Section 5.15 Intellectual Property Assignments. At or prior to the
---------------------------------
Closing, Seller shall enter into the Intellectual Property Assignments with the
Company.
Section 5.16 Unclaimed Property Audit. Purchaser agrees to reasonably
------------------------
cooperate and agrees to cause the Company to reasonably cooperate with Seller
and any of its employees, directors, representatives and other agents in
Seller's preparation for and response to any unclaimed property audit by any
state including, but not limited to, promptly providing copies of all reasonably
requested documents and making Company employees available to respond to
reasonable inquiries of Seller in connection with any such audit. The
obligations of the Purchaser under this Section 5.16 shall survive until the
expiration of the applicable state statutes of limitation.
Section 5.17 Non-Competition.
---------------
(b) For a period of five (5) years after the Closing (the "Restricted
----------
Period"), Seller shall not, and shall cause its Subsidiaries not to, engage,
- ------
directly or indirectly, in any business anywhere in the world that manufactures,
produces or supplies products or services of the kind manufactured, produced or
supplied by the Business, the Company or any Company Subsidiary as of the
Closing Date or, without the prior written consent of Purchaser, directly or
indirectly, own an interest in, manage, operate, join, control, or participate
in as an officer, employee, partner, stockholder, consultant or otherwise, any
Person that competes with Purchaser, the Business, the Company or any Company
Subsidiary in manufacturing, producing or supplying products or services of the
kind manufactured, produced or supplied by the
<PAGE>
37
Business, the Company or any Company Subsidiary as of the Closing; provided,
--------
however, that, for the purposes of this Section 5.17, ownership of securities
- -------
having no more than five percent of the outstanding voting power of any
competitor which are listed on any national securities exchange or traded
actively in the national over-the-counter market shall not be deemed to be in
violation of this Section 5.17 so long as the Person owning such securities has
no other connection or relationship with such competitor; provided further that
-------- -------
this Section 5.17 shall not prevent Seller's use of the Intellectual Property
licensed to it pursuant to the License Agreement.
(b) Seller agrees that, without Purchaser's prior written consent,
Seller will not, during the Restricted Period, employ any person who is or was
employed by the Company or any Company Subsidiary as one of the top 12 senior
management executives during the Restricted Period.
(c) The Restricted Period shall be extended by the length of any
period during which Seller is in breach of the terms of this Section 5.17.
(d) Seller acknowledges that a breach of its covenants contained in
Section 5.17 may cause irreparable damage to Purchaser, the exact amount of
which will be difficult to ascertain, and that the remedies at law for any such
breach will be inadequate. Accordingly Seller agrees that if it breaches any of
the covenants contained in Section 5.17 in addition to any other remedy which
may be available at law or in equity, Purchaser shall be entitled to specific
performance and injunctive relief.
(e) The parties further acknowledge that the time, scope, geographic
area and other provisions of Section 5.17 have been specifically negotiated by
sophisticated commercial parties and agree that all such provisions are
reasonable under the circumstances of the transactions contemplated by this
Agreement. In the event that the agreements in Section 5.17 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of their
extending for too great a period of time or over too great a geographical area
or by reason of their being too extensive in any other respect, they shall be
interpreted to extend only over the maximum period of time for which they may be
enforceable and/or over the maximum geographical area as to which they may be
enforceable and/or to the maximum extent in all other respects as to which they
may be enforceable, all as determined by such court in such action.
Section 5.18 Further Action. Each of the parties hereto shall use all
--------------
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.
Section 5.19 Environmental Compliance. With respect to any Real Property
------------------------
located in the State of New Jersey, the Company will comply with any obligations
it may have pursuant to the execution of this Agreement or the consummation of
the transactions contemplated herein to conduct any investigation, remediation,
removal, monitoring or other action with respect to Hazardous Materials, or
provide any notice to or obtain consent of
<PAGE>
38
Governmental Entities or third parties, pursuant to any applicable Environmental
Law or Environmental Permit.
Section 5.20 Seller Consent. Seller hereby consents to the consummation
---------------
of the transaction pursuant to any change of control provisions contained in any
agreement between Seller and the Company.
Section 5.21 PWC Claim Assignment. Effective as of the Closing, the
---------------------
Company will assign to Seller, and Seller will assume from the Company all
claims, and causes of action that the Company may have against PWC arising out
of or related to PWC's development of PC-1.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Closing.
-----------------------------------------------------------
The respective obligation of each party to effect the Closing shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) Statutes; Court Orders. No statute, rule or regulation shall
----------------------
have been enacted or promulgated by any Governmental Entity which prohibits the
consummation of the Closing; and there shall be no order or injunction of a
court of competent jurisdiction in effect precluding consummation of the
Closing; provided, however, that the parties shall use their commercially
-------- -------
reasonable efforts to have any such order or injunction vacated or lifted; and
(b) HSR Approval. The applicable waiting period under the HSR Act
------------
shall have expired or been terminated.
Section 6.2 Conditions to Obligations of Purchaser to Effect the Closing.
------------------------------------------------------------
The obligations of Purchaser to effect the Closing shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) Government Action. There shall not be pending any suit,
-----------------
action or proceeding by any Governmental Entity
(i) seeking to restrain or prohibit the consummation of the
Closing or the performance of any of the other Transactions, or seeking to
obtain from Seller or Purchaser any damages that are material in relation
to the Company or the Company Subsidiaries, or
(ii) seeking to impose material limitations on the ability of
Purchaser effectively to exercise full rights of ownership of the Shares,
including the right to vote the Shares, or
<PAGE>
39
(iii) which is reasonably expected to have a Company
Material Adverse Effect.
(b) Representations and Warranties. All of the representations
------------------------------
and warranties of Seller set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects and any such
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date (or if made as of a specified date, only as of such
date) and Purchaser shall have received a certificate to such effect from the
Seller signed by a duly authorized officer thereof.
(c) Seller Breach. Seller shall not have failed to perform in
-------------
any material respect any obligation or to comply in any material respect with
any covenant of Seller to be performed or complied with by it under this
Agreement, and the Purchaser shall have received a certificate to such effect
from the Seller signed by a duly authorized officer thereof.
(d) Termination. This Agreement shall not have been terminated
-----------
in accordance with its terms.
(e) Resolutions of Seller. Purchaser shall have received a true
---------------------
and complete copy, certified by the Secretary or an Assistant Secretary of
Seller, of the resolutions duly and validly adopted by the Board of Directors of
Seller evidencing its authorization of the execution and delivery of this
Agreement and the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby.
(f) Incumbency Certificate of Seller. Purchaser shall have
--------------------------------
received a certificate of the Secretary or an Assistant Secretary of Seller
certifying the names and signatures of the officers of Seller authorized to sign
this Agreement and the other documents to be delivered hereunder.
(g) Good Standing. Purchaser shall have received good standing
-------------
certificates for the Company from the secretary of state of the jurisdiction in
which each such entity is incorporated or organized, in each case dated as of a
date not earlier than five Business Days prior to the Closing Date and
accompanied by bring-down telegrams dated the Closing Date.
(h) Intellectual Property Assignments. Seller shall have
---------------------------------
delivered to Purchaser executed copies of (i) the Intellectual Property
Assignments and (ii) the License Agreement.
Section 6.3 Conditions to Obligations of Seller to Effect the Closing.
---------------------------------------------------------
The obligations of Seller to effect the Closing shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) Government Action. There shall not be pending any suit,
-----------------
action or proceeding by a Governmental Entity seeking to restrain or prohibit
the consummation of the
<PAGE>
40
Closing or the performance of any of the other Transactions, or seeking to
obtain from Seller any damages that are material in relation to the Company or
the Company Subsidiaries.
(b) Representations and Warranties. All of the representations and
------------------------------
warranties of Purchaser set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects and any such
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date (or if made as of a specified date, only as of such
date) and Seller shall have received a certificate to such effect from the
Purchaser, signed by a duly authorized officer thereof.
(c) Purchaser Breach. The Purchaser shall not have failed to perform
----------------
in any material respect any obligation or to comply in any material respect with
any covenant of the Purchaser to be performed or complied with by it under this
Agreement and Seller shall have received a certificate to such effect from the
Purchaser, signed by a duly authorized officer thereof.
(d) Termination. This Agreement shall not have been terminated in
-----------
accordance with its terms.
(e) Resolutions of Purchaser. Seller shall have received a true and
------------------------
complete copy, certified by the Secretary or Assistant Secretary of Purchaser,
of the resolutions duly and validly adopted by the Board of Directors of
Purchaser evidencing its authorization of the execution and delivery of this
Agreement and the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby.
(f) Incumbency Certificate of Purchaser. Seller shall have received a
-----------------------------------
certificate of the Secretary or Assistant Secretary of Purchaser certifying the
names and signatures of the officers of Purchaser authorized to sign this
Agreement and the other documents to be delivered hereunder.
ARTICLE VII
TERMINATION
Section 7.1 Termination. The Transactions may be terminated or abandoned
-----------
at any time prior to the Closing Date:
(a) By the mutual written consent of Purchaser and Seller;
(b) By Purchaser or Seller if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their commercially
reasonable efforts to lift) which permanently restrains, enjoins or otherwise
prohibits the acquisition by Purchaser of the Shares and such order, decree,
ruling or other action shall have become final and non-appealable;
<PAGE>
41
(c) By either party if the Closing shall not have occurred on or prior
to April 30, 2000, and such party is not in willful breach of this Agreement at
the time such party terminates this Agreement; provided, however, that such date
-------- -------
shall be extended to September 30, 2000 in the event that Seller and Purchaser
receive "second request" letters from the FTC and/or DOJ pursuant to the HSR
Act;
(d) By Seller if Purchaser shall have breached in any material respect
any of its representations, warranties, covenants or other agreements contained
in this Agreement which would give rise to the failure of a condition set forth
in Article VI, which breach cannot be or has not been cured within 30 days after
the giving of written notice by Seller to Purchaser specifying such breach;
(e) By Purchaser if Seller shall have breached any representation,
warranty, covenant or other agreement contained in this Agreement which would
give rise to the failure of a condition set forth in Article VI, which breach
cannot be or has not been cured within 30 days as to the giving of written
notice by Purchaser to Seller specifying such breach; or
(f) By Purchaser if (a) a supplement or amendment of any section of
the Disclosure Schedule made by Seller pursuant to Section 5.11 materially and
adversely affects the benefits to be obtained by Purchaser under this Agreement
and (b) any breach of a representation, warranty, covenant or other agreement
referred to in such supplement or amendment cannot be or has not been cured
within 30 days after supplement or amendment is made by Seller.
Section 7.2 Effect of Termination. In the event of the termination or
---------------------
abandonment of the Transactions by any party hereto pursuant to the terms of
this Agreement, written notice thereof shall forthwith be given to the other
party or parties specifying the provision hereof pursuant to which such
termination or abandonment of the Transactions is made, and there shall be no
liability or obligation thereafter on the part of Purchaser or Seller except for
fraud or for willful breach of this Agreement prior to such termination or
abandonment of the Transactions and except pursuant to Section 5.2(b) or 10.1.
No party shall have any liability to the other in connection with the
termination of this Agreement insofar as such termination is effected pursuant
to Section 7.1(f) except pursuant to Section 5.2(b) or 10.1.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification; Remedies.
-------------------------
(a) Seller shall indemnify, defend and hold harmless the Purchaser and
the Purchaser Indemnified Persons from and against and in respect of all
Purchaser Losses.
<PAGE>
42
(b) Seller shall indemnify and hold Purchaser harmless from and
against the following (net of the amount of any tax benefits received by
Purchaser or the Company as a result of the payment or accrual of any of the
following taking into account any additional Tax incurred by Seller as a result
of any indemnification payment pursuant to this Section 8.1):
(i) any liability for Taxes imposed on the Company or any
Company Subsidiary or for which the Company or any Company Subsidiary may
be liable, as a result of having been a member of an "affiliated group"
(within the meaning of Section 1504(a) of the Code) pursuant to Treasury
Regulation Section 1.1502-6(a) or comparable provisions of foreign, state
or local law (other than the affiliated group of Purchaser);
(ii) any liability for Taxes imposed on the Company or any
Company Subsidiary, or for which the Company or any Company Subsidiary may
otherwise be liable, for any taxable year or period that ends on or before
the Closing Date and, with respect to any Straddle Period, the portion of
such Straddle Period deemed to end on and include the Closing Date;
(iii) any liability for Taxes that would not have been imposed but
for the elections under Section 338(h)(10) or any comparable provisions of
state or local Tax law;
(iv) any and all losses, liabilities, damages, judgments,
settlements and expenses that arise out of breach of any representations or
warranties contained in Section 3.26; and
(v) all reasonable attorneys' fees and expenses and reasonable
accountants' fees and expenses incurred in the investigation or defense of
or in connection with the same.
provided, however, that Seller shall not be liable for and shall not indemnify
- -------- -------
Purchaser (or its Subsidiaries and Affiliates) for Excluded Taxes.
(c) Purchaser shall indemnify and hold Seller and Seller's
Subsidiaries and Affiliates harmless from and against (net of the amount of any
tax benefits received by Seller as a result of the payment or accrual of any of
the following taking into account any additional Tax incurred by Purchaser as a
result of any indemnification payment pursuant to this Section 8.1):
(i) Taxes imposed on the Company for any taxable year or period
that begins after the Closing Date and, with respect to any Straddle
Period, the portion of such Straddle Period beginning after the Closing
Date; and
(ii) Excluded Taxes.
<PAGE>
43
(d) Seller's indemnification obligations under Sections 8.1(a) and
8.1(b) shall be subject to each of the following limitations:
(i) Seller's indemnification obligations relating to (A) Purchaser
Losses shall survive only until June 30, 2001 (other than with respect to
representations and warranties made in (x) Section 3.23, which shall
survive until the fifth anniversary of the Closing Date and (y) Sections
3.2, 3.3, 3.5 and 3.6, which shall survive indefinitely) and (B) any Tax
Claims shall survive until the expiration of the applicable tax statute of
limitations plus 120 days. No claim for the recovery of any Purchaser
Losses or Tax Claims may be asserted by any Purchaser Indemnified Person
after the expiration of the applicable indemnification period; provided,
--------
however, that claims first asserted in writing by any Purchaser Indemnified
-------
Person with reasonable specificity prior to the expiration of the
applicable indemnification period shall not thereafter be barred by the
expiration of the applicable indemnification period. The parties intend by
the foregoing to shorten the statute of limitations and agree that no
claims or causes of action may be brought against Seller based upon,
directly or indirectly, any of the representations or warranties contained
in Article III after the applicable survival period or, except as provided
in Section 7.2, any termination of this Agreement. This Section 8.1 shall
not limit any covenant or agreement of the parties that contemplates
performance after the Closing.
<PAGE>
44
(ii) No reimbursement for Purchaser Losses asserted under
Section 8.1(a) shall be required unless the aggregate amount of Purchaser Losses
exceeds the Threshold, and, in such event, indemnification shall be made by
Seller only to the extent Purchaser Losses exceed the Threshold. Purchaser shall
not have the right to indemnification for any individual Purchaser Loss which is
equal to or less than (x) with respect to any such indemnification right of
Purchaser arising under Section 3.12, $7,000,000, and (y) with respect to any
other such indemnification right, $150,000. With respect to individual Purchaser
Losses which are equal to or less than the amount set forth in the foregoing
clause (y) which do not give rise to an indemnification right under Section
3.12, such Purchasers Losses shall not be counted for purposes of determining
whether the aggregate amount of Purchaser Losses exceeds the Threshold. The
limitations of this Section 8.1(d)(ii) shall not apply to Tax Claims.
(iii) Each Purchaser Loss shall be reduced by (1) the amount of
any insurance proceeds paid to Purchaser or any Purchaser Indemnified Person
with respect to such loss, (2) any indemnity, contribution or other similar
payment paid to Purchaser or any Purchaser Indemnified Person by any third party
with respect to such loss and (3) an amount equal to any reduction of income
Taxes attributable to such loss.
(iv) In no event shall Seller's aggregate liability to
Purchaser under this Agreement for breaches of representations or warranties,
covenants or agreements, whether pursuant to this Article VIII or otherwise,
exceed the Cap Amount.
Section 8.2 Notice of Claim; Defense.
------------------------
(a) Each Purchaser Indemnified Person shall give Seller prompt notice
of any third-party claim (other than claims arising out of any pending or
threatened audit, notice of deficiency, proposed adjustment, assessment,
examination or other administrative or court proceeding, suit, dispute or other
claim which could affect the liability for Taxes of Seller) that may give rise
to any indemnification obligation under this Article VIII, together with the
estimated amount of such claim, if reasonably ascertainable, (provided that
failure to deliver such notice shall not release Seller from any of its
obligations hereunder except to the extent Seller is materially prejudiced by
such failure), together with a description of the facts and circumstances on
which such claim is based. Seller shall have the right to assume the defense (at
Seller's expense) of any such claim through counsel of Seller's own choosing by
so notifying such Purchaser Indemnified Person within 30 days of the receipt by
Seller of such notice from such Purchaser Indemnified Person; provided,
--------
however, that any such counsel shall be reasonably satisfactory to such
- -------
Purchaser Indemnified Person. Seller shall be liable for the fees and expenses
of counsel employed by such Purchaser Indemnified Person for any period during
which Seller has not assumed the defense of any such third-party claim (other
than during any period in which Purchaser will have failed to give notice of the
third-party claim as provided above). If Seller assumes such defense through
counsel of its own choosing, such Purchaser Indemnified Person shall have the
right to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by Seller, it being understood that
Seller shall control such defense. If Seller chooses to defend or prosecute a
third-party claim, Purchaser shall cooperate in the defense or prosecution
thereof, which cooperation shall include, to the extent reasonably requested by
Seller, the retention and the provision to Seller of
<PAGE>
45
records and information reasonably relevant to such third-party claim, and
making employees of the Company reasonably available on a mutually convenient
basis to provide additional information and explanation of any materials
provided hereunder. If Seller chooses to defend or prosecute any third-party
claim, Purchaser shall agree to any settlement, compromise or discharge of such
third-party claim that Seller may recommend and that by its terms, discharges,
Purchaser from the full amount of liability in connection with such third party
claim, so long as the only remedy provided in such settlement compromise or
discharge is payment of monetary damages for which the Purchaser is indemnified
by the Seller. None of Purchaser, any of its Affiliates or the Company may
settle or otherwise dispose of any claim for which Seller may have a liability
under this Agreement without the prior written consent of Seller, which consent
will not be unreasonably withheld or delayed. Seller shall not be liable under
this Section 8.2(a) for any settlement, compromise or discharge effected without
its consent in respect of any claim for which indemnity may be sought hereunder.
No indemnified party shall take any action the purpose of which is to prejudice
the defense of any claim subject to indemnification hereunder or to induce a
third party to assert a claim subject to indemnification hereunder.
(b) (i) Each party hereto shall notify the chief tax officer of the
other party in writing within 15 days following receipt by such party of
written notice of any pending or threatened audits, notice of deficiency,
proposed adjustment, assessment, examination or other administrative or
court proceeding, suit, dispute or other claim which could affect the
liability for Taxes of such other party. If the party required to give such
notice fails to give such notice to the other party promptly, it shall not
be entitled to indemnification for any Taxes arising in connection with
such Tax Claim if and to the extent that such failure to give notice
materially and adversely affects the other party's right to participate in
or defend the Tax Claim.
(ii) Seller shall have the sole right to represent the Company's
interests in any Tax Claim relating to taxable periods ending on or before
the Closing Date and to employ counsel of its choice at its expense. In the
case of a Straddle Period, Seller shall be entitled to participate at its
expense in any Tax Claim relating in any part to Taxes attributable to the
portion of such Straddle Period deemed to end on or before the Closing Date
and, with the written consent of Purchaser, at Seller's sole expense, may
assume the control of such Tax Claim. None of Purchaser, any of its
Affiliates or the Company may settle or otherwise dispose of any Tax Claim
for which Seller may have a liability under this Agreement without the
prior written consent of Seller, which consent may not be unreasonably
withheld.
Section 8.3 Resolution of All Tax-Related Disputes. If Seller and
--------------------------------------
Purchaser cannot agree on the calculation of any amount relating to Taxes or the
interpretation or application of any provision of this Agreement relating to
Taxes, such dispute shall be resolved by a nationally recognized accounting firm
mutually acceptable to each of Seller and Purchaser, whose decision shall be
final and binding upon all persons involved and whose expenses shall be shared
equally by Seller and Purchaser.
Section 8.4 Tax Effect of Indemnification Payments. To the fullest extent
--------------------------------------
permitted by applicable law, all indemnity payments made by Seller to Purchaser
Indemnified
<PAGE>
46
Person, or by Purchaser Indemnified Persons to Seller, pursuant to this
Agreement shall be treated for all Tax purposes as adjustments to the
consideration paid with respect to the Shares.
Section 8.5 No Duplication; Sole Remedy Procedures.
--------------------------------------
(a) Any liability for indemnification hereunder shall be determined
without duplication of recovery by reason of the state of facts giving rise to
such liability constituting a breach of more than one representation, warranty,
covenant or agreement.
(b) Purchaser's rights to indemnification as provided for in
Section 8.1 for a breach of Seller's representations or warranties contained in
this Agreement shall constitute Purchaser's sole remedy for such a breach, and
Seller shall have no other liability or damages to Purchaser resulting from the
breach.
(c) The indemnification and other provisions of this Article VIII
shall govern the procedure for all indemnification matters under this Agreement,
except to the extent otherwise expressly provided herein.
Section 8.6 No Right of Off-set/Set-off. Neither Purchaser nor Seller
---------------------------
shall have any right to off-set or set-off any payment due pursuant to Section
1.2 of this Agreement against any other payment to be made pursuant to this
Agreement or otherwise (including against indemnification payments).
ARTICLE IX
DEFINITIONS AND INTERPRETATION
Section 9.1 Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided or unless the context clearly requires otherwise:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
"Agreement" or "this Agreement" shall mean this Stock Purchase Agreement,
together with the Exhibits hereto and the Disclosure Schedule.
"Balance Sheet" shall mean the most recent balance sheet of the Company and
its consolidated Subsidiaries included in the Financial Statements.
"Balance Sheet Date" shall mean the date of the Balance Sheet.
"Business" shall mean the packaged water business (including, without
limitation, home-office delivery and retail) and the filtration systems for
water business.
<PAGE>
47
"Business Day" shall mean a day other than Saturday, Sunday or any day on
which the principal commercial banks located in the State of California are
authorized or obligated to close under the laws of such state.
"Cap Amount" shall mean (1) with respect to any claim made on or prior to
the first anniversary of the Closing Date, $150,000,000, (2) with respect to any
claim made after the first anniversary of the Closing Date, but on or prior to
the third anniversary of the Closing Date, $130,000,000, (3) with respect to any
claim made after the third anniversary of the Closing Date, but on or prior to
the fourth anniversary of the Closing Date, $115,000,000, and (4) with respect
to any claim made after the fourth anniversary of the Closing Date,
$100,000,000.
"Closing" shall mean the closing referred to in Section 2.1.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean McKesson Water Products Company, a California
corporation.
"Company Intellectual Property" shall mean all Trademarks, Patents,
Copyrights, Trade Secrets and Licenses that are currently used in the business
of the Company or any Company Subsidiary or that are necessary to conduct the
business of the Company or the Company Subsidiaries as presently conducted or as
currently proposed to be conducted.
"Company Material Adverse Effect" shall mean any material adverse effect on
the business, financial condition or operations of the Company and all of the
Company Subsidiaries, taken as a whole; provided, however, that the effects of
-------- -------
changes that are generally applicable to (a) the industries and markets in which
the Company operates on the date hereof, or (b) the United States economy shall
be excluded from the determination of Company Material Adverse Effect or (c) the
United States securities markets; and provided further that any adverse effect
-------- -------
on the Company or any Company Subsidiary resulting from the execution of this
Agreement, any public announcement relating to this Agreement or the
Transactions or consummation of the Transactions shall also be excluded from the
determination of Company Material Adverse Effect.
"Company Subsidiary" shall mean each Person which is a Subsidiary of the
Company.
"Computer Software" shall mean computer software programs, databases,
source code and all documentation related thereto.
"Confidentiality Agreement" shall mean a letter agreement between Lehman
Bros. Inc., and Purchaser relating to confidentiality executed in connection
with the transactions contemplated hereby.
<PAGE>
48
"Constructive Knowledge of Seller" shall mean the knowledge of the
officers, directors and employees of Seller and the knowledge the officers,
directors and employees of Seller should have had after due inquiry and diligent
investigation.
"Copyrights" shall mean U.S. and foreign registered and unregistered
copyrights (including those in Computer Software and databases), rights of
publicity and all registrations and applications to register the same.
"Disclosure Schedule" shall mean the disclosure schedule of even date
herewith prepared and signed by the Company and Seller and delivered to
Purchaser simultaneously with the execution hereof, as amended or supplemented
by Seller pursuant to the terms of Section 5.11 hereof.
"DOJ" shall mean the Antitrust Division of the United States Department of
Justice.
"Due Date" shall mean, with respect to any Tax Return, the date such return
is due to be filed (taking into account any valid extensions).
"Encumbrances" shall mean any and all liens, charges, security interests,
options, claims, mortgages, pledges, proxies, voting trusts or agreements,
obligations, understandings or arrangements or other restrictions on title or
transfer of any nature whatsoever.
"Environmental Law" shall mean all federal, state, local or foreign laws,
ordinances, regulations, rules, codes, or final, nonappealable orders, writs,
judgments, injunctions or decrees governing pollution or the protection of the
environment, human health or safety as they relate to the environment or
Hazardous Materials or natural resources.
"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under or issued pursuant to any
Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Taxes" shall mean (a) any Taxes (other than income and franchise
Taxes) specifically identified and reflected as a current liability for unpaid
taxes on the Balance Sheet ("Reserved Taxes"), provided, however, that the
amount of such Reserved Taxes shall be reduced to the extent of payments by the
Company and its Subsidiaries made after the Balance Sheet Date and before the
Closing with respect to such Reserved Taxes, (b) any Taxes resulting from
transactions or actions taken by the Company on the Closing Date after the
Closing, (c) any
<PAGE>
49
Taxes that result from an actual or deemed election under Section 338 of the
Code or comparable provisions of state or local tax law or any similar
provisions of state law or the law of any other taxing jurisdiction with respect
to the Company or any Company Subsidiary in connection with any of the
transactions contemplated by this Agreement (other than the Elections, as
contemplated by Section 5.4(a) hereof), (d) any Transfer Taxes for which
Purchaser is liable pursuant to Section 5.4(d) and (e) any Taxes incurred solely
as a result of the Purchaser failing to cause the Company and each Company
Subsidiary to timely file or have filed on its behalf any Tax Return which the
Purchaser is required to cause the Company to file or cause to be filed pursuant
to the terms of this Agreement.
"Financial Statements" shall mean (a) the unaudited consolidated
balance sheets of the Company and the Company's consolidated Subsidiaries as at
March 31 in each of the fiscal years 1997 through 1999 together with unaudited
consolidated statements of income, shareholders' equity and cash flows for each
of the years then ended, and (b) a consolidated balance sheet of the Company and
the Company's consolidated Subsidiaries as at September 30, 1999 and unaudited
consolidated statements of income, shareholders' equity and cash flows for the
nine-month period then ended.
"FTC" shall mean the United States Federal Trade Commission.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Entity" shall mean a court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency.
"Guarantor" shall mean Groupe Danone, a societe anonyme organized
under the laws of the laws of the Republic of France.
"Hazardous Material" means (a) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or
substance regulated as toxic or hazardous or as a pollutant, contaminant or
hazardous or toxic waste under any Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indebtedness" shall mean (a) all indebtedness for borrowed money or
for the deferred purchase price of property or services (other than current
trade liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (b) any other indebtedness that is
evidenced by a note, bond, debenture or similar instrument, (c) all obligations
under financing leases or similar arrangements, (d) all obligations in respect
of acceptances and letters of credit issued or created or similar arrangements,
(e) all liabilities secured by any lien on any property or similar arrangements
and (f) all guarantee obligations, contingent or otherwise, or similar
arrangements.
<PAGE>
50
"Insurance Policy" shall mean any insurance policy maintained by
Seller or any of its Affiliates, other than any State Workers' Compensation
Policy or any insurance policy the premiums of which are paid directly by the
Company or any Company Subsidiary.
"Intellectual Property Assignments" shall have the meaning set forth
in Section 3.27.
"Intellectual Property" shall mean all of the following: (i)
Trademarks, (ii) Patents, (iii) Copyrights, (iv) Trade Secrets and (v)
inventions, whether or not patentable, whether or not reduced to practice, and
whether or not yet made the subject of a pending patent application or
applications.
"Interest Rate" shall mean the rate of interest announced publicly by
Citibank, N.A., in New York, New York, as its base rate.
"Knowledge of Seller" shall mean the actual (and not constructive or
imputed) knowledge of Charles Norris, David Mahoney, Gary Lamont, Gordon
Vanderhelm, Cynthia Pygin and Mike Riley.
"Lease" shall mean each lease pursuant to which the Company or any
Company Subsidiary leases any real or personal property (excluding leases
relating solely to personal property calling for rental or similar periodic
payments not exceeding $100,000 per annum or $500,000 over the remaining term of
the lease).
"Licenses" shall mean all licenses and agreements pursuant to which
the Company or any Company Subsidiary has acquired rights in or to any
Trademarks, Patents, Copyrights or Trade Secrets, or licenses and agreements
pursuant to which the Company or any Company Subsidiary has licensed or
transferred the right to use any of the foregoing.
"Net Book Value" shall mean, with respect to a specific date, an
amount equal to the excess of the total consolidated assets of the Company and
the Company Subsidiaries on such date over the total consolidated liabilities of
the Company and the Company Subsidiaries on such date.
"Net Working Capital" shall mean with respect to any month, the sum of
(x)(1)customer accounts receivable less allowances for doubtful accounts, (2)
notes and other receivables, (3) inventories and (4) prepaid expenses, less (y)
current payables and accruals, in each case determined in accordance with GAAP
as of the last day of such month.
"Patents" shall mean issued U.S. and foreign patents and pending
patent applications, patent disclosures, and any and all divisions,
continuations, continuations-in-part, reissues, reexaminations, and extensions
thereof, any counterparts claiming priority therefrom, utility models, patents
of importation/confirmation, certificates of invention and similar statutory
rights, whether provided by statute or international treaties or conventions.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
<PAGE>
51
"Permitted Encumbrances" means (i) Encumbrances for inchoate
mechanics' and materialmen's liens for construction in progress and workmen's,
repairmen's, warehousemen's and carriers' liens arising in the ordinary course
of business of the Company, or any Company Subsidiary, (ii) Encumbrances for
Taxes not yet payable and for Taxes being contested in good faith, (iii)
Encumbrances arising out of, under or in connection with this Agreement and (iv)
Encumbrances and imperfections of title the existence of which would not
materially affect the use of the property subject thereto.
"Person" shall mean a natural person, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Entity or other entity
or organization.
"Plan" shall mean each deferred compensation and each incentive
compensation, stock purchase, stock option and other equity compensation plan,
program, agreement or arrangement; each severance or termination pay, medical,
surgical, hospitalization, life insurance and other "welfare" plan, fund or
program (within the meaning of Section 3(1) of ERISA); each profit-sharing,
stock bonus or other "pension" plan, fund or program (within the meaning of
Section 3(2) of ERISA); each employment, termination or severance agreement; and
each other employee benefit plan, fund, program, agreement or arrangement, in
each case, that is sponsored, maintained or contributed to or required to be
contributed to by the Company or by any ERISA Affiliate, or to which the Company
or an ERISA Affiliate is party, whether written or oral, for the benefit of any
director, employee or former employee of the Company or any Company Subsidiary.
"Purchase Price" shall mean the amount set forth in Section 1.2 as
such amount may be adjusted pursuant to Section 1.3 after the Closing.
"Purchaser" shall mean Danone International Brands, Inc., a Delaware
corporation.
"Purchaser Indemnified Persons" shall mean Purchaser and each of its
Affiliates, their successors and assigns, and the officers, directors, employees
and agents of Purchaser and each of its Affiliates and their successors and
assigns.
"Purchaser Losses" shall mean any and all actual losses, liabilities,
damages, judgments, settlements and expenses (including interest and penalties
recovered by a third party with respect thereto and reasonable attorneys' fees
and expenses and reasonable accountants' fees and expenses incurred in the
investigation or defense of any of the same or in asserting, preserving or
enforcing any of the rights of any Purchaser Indemnified Person arising under
this Agreement) incurred by the Company or any of the Purchaser Indemnified
Persons that arise out of (a) any breach by Seller of any of Seller's
representations and warranties contained in or made by or pursuant to this
Agreement (which shall be determined without giving effect to any materiality
qualifier contained therein, including, without limitation, "Company Material
Adverse Effect"), (b) any breach by Seller of any covenants contained in this
Agreement or (c) any alleged or actual improper accounting practices by Seller
or any of its Subsidiaries (other
<PAGE>
52
than the Company or any of the Company subsidiaries) any related restatements of
Seller's earnings, any related reduction in the price of Seller's publicly-
traded securities or any related litigation, including without limitation the
Keystone litigation and the class actions against Seller related thereto;
provided, however, that the term "Purchaser Losses" shall not include the
- --------- -------
matters referred to in Section 8.1(b).
"Real Property" shall mean all real property that is owned or used by
the Company or any Company Subsidiary or that is reflected as an asset of the
Company or any Company Subsidiary on the Balance Sheet.
"Retained Employee" shall mean each person who was an active or
inactive employee (including but not limited to any such employee who is on any
leave of absence, whether paid or unpaid, including, but not limited to, Short-
or-Long Term Disability Leave or Workers' Compensation leave) of the Company or
any Company Subsidiary immediately prior to the Closing Date.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SEC" shall mean the United States Securities and Exchange Commission.
"Seller" shall mean McKesson HBOC, Inc., a Delaware corporation.
"Seller Guaranty" shall mean the guaranty of the industrial revenue
bonds issued by an agency of Waller County, Texas in the principal amount of
$6,000,000.
"Shares" shall mean shares of common stock, par value $10.00, issued
by the Company.
"Straddle Period" shall mean a taxable year or period beginning on or
before, and ending on or after, the Closing Date.
"Subsidiary" shall mean, with respect to any Person, any corporation
or other organization, whether incorporated or unincorporated, of which (a) at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries or (b) such Person or any other Subsidiary of such Person is a
general partner (excluding any such partnership where such Person or any
Subsidiary of such party does not have a majority of the voting interest in such
partnership).
"Tax" or "Taxes" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
governmental authority, including income, gross receipts, excise, property,
sales, gain, use, license, custom duty, unemployment, capital stock, transfer,
franchise, payroll, withholding, social security, minimum estimated, profit,
gift, severance, value added, disability, premium, recapture, credit,
occupation,
<PAGE>
53
service, leasing, employment, stamp and other taxes, and shall include interest,
penalties or additions attributable thereto or attributable to any failure to
comply with any requirement regarding Tax Returns.
"Tax Claim" shall mean a claim for indemnification or defense with
respect to losses, liabilities, judgments, settlements and expenses relating to
Taxes arising out of Article VIII, including reasonable attorneys' fees and
expenses and reasonable accountants' fees and expenses incurred in the
investigation or defense of any of the same or in asserting, preserving or
enforcing any of the rights of Purchaser or the Seller, as the case may be,
arising out of Article VIII.
"Taxing Authority" shall mean any federal, state, local or foreign
Governmental Entity responsible for the imposition of any Taxes.
"Tax Return" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any such
document prepared on a consolidated, combined or unitary basis and also
including any schedule or attachment thereto, and including any amendment
thereof.
"Threshold" shall mean an amount equal to $5,000,000.
"Title IV Plan" shall mean a Plan that is subject to Section 302 or
Title IV of ERISA or Section 412 of the Code.
"Trademarks" shall mean U.S. and foreign registered and unregistered
trademarks, trade dress, service marks, logos, trade names, corporate names and
all registrations and applications to register the same.
"Trade Secrets" shall mean information, including but not limited to,
a formula, pattern, compilation, program, device, method, technique, or process,
that (i) derives actual or potential independent economic value from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and (ii)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
"Transaction Documents" shall mean, collectively, this Agreement, the
Intellectual Property Assignments and the Transition Services Agreement and the
License Agreement.
"Transactions" shall mean all the transactions provided for or
contemplated by this Agreement.
"Transfer Taxes" shall mean all sales (including bulk sales), use,
transfer, recording, ad valorem, privilege, documentary, gains, gross receipts,
registration, conveyance, excise, license, stamp, duties or similar Taxes and
fees.
<PAGE>
54
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act.
Section 9.2 Interpretation.
--------------
(a) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(b) Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.
(d) The meaning assigned to each term defined herein shall be
equally applicable to both the singular and the plural forms of such term, and
words denoting any gender shall include all genders. Where a word or phrase is
defined herein, each of its other grammatical forms shall have a corresponding
meaning.
(e) A reference to any party to this Agreement or any other
agreement or document shall include such party's successors and permitted
assigns.
(f) A reference to any legislation or to any provision of any
legislation shall include any amendment to, and any modification or re-enactment
thereof, any legislative provision substituted therefor and all regulations and
statutory instruments issued thereunder or pursuant thereto.
(g) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. All costs and expenses incurred in
-----------------
connection with this Agreement and the consummation of the Transactions shall be
paid by the party incurring such expenses, except as specifically provided to
the contrary in this Agreement.
<PAGE>
55
Section 10.2 Amendment and Modification. This Agreement may be amended,
--------------------------
modified and supplemented in any and all respects, but only by a written
instrument signed by all of the parties hereto expressly stating that such
instrument is intended to amend, modify or supplement this Agreement.
Section 10.3 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if mailed, delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to Purchaser or Guarantor, to:
Groupe Danone
7, rue de Teheran
75008 Paris
France
Attention: Emmanuel Faber
Telecopy: 011-33-1-44-35-20-97
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Spencer D. Klein, Esq.
Telecopy: 212-848-7179
if to Seller, to:
McKesson HBOC, Inc.
One Post Street
San Francisco, CA 94104
Attention: Ivan D. Meyerson, Esq.
Telecopy: (415) 983-8826
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center, Suite 3800
San Francisco, CA 94111
Attention: Kenton J. King, Esq.
Telecopy: (415) 984-2698
Section 10.4 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become
<PAGE>
56
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 10.5 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement, the Transaction Documents and the Confidentiality Agreement (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof and (b) are not intended to confer upon any
Person, other than the parties hereto and thereto and the third parties
specified in Section 8.1, any rights or remedies hereunder.
Section 10.6 Severability. Any term or provision of this Agreement
------------
that is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction or other authority declares that any term or
provision hereof is invalid, void or unenforceable, the parties agree that the
court making such determination shall have the power to reduce the scope,
duration, area or applicability of the term or provision, to delete specific
words or phrases, or to replace any invalid, void or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision.
Section 10.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, excluding (to
the extent permissible by law) any rule of law that would cause the application
of the laws of a jurisdiction other than the State of New York.
Section 10.8 Dispute Resolution. In the event of a dispute arising
------------------
out of or in connection with this Agreement, the matter shall be submitted to
one of the Co-Chief Executive Officers of Seller and the Chief Executive Officer
of the Purchaser who shall meet in person in a neutral setting at least two (2)
times to attempt in good faith to resolve such matter, and no later than 30 days
after a request for such meeting is made. In the event that they have been
unable to resolve such matter within thirty (30) days after their first meeting,
either party may seek the legal remedies entitled to them hereunder in
accordance with Article VIII of this Agreement.
Section 10.9 Venue. Each of the parties hereto, including the
-----
Guarantor, (a) consents to submit itself to the personal jurisdiction of any
federal court located in New York City in the State of New York or any New York
state court located in New York City in the event any dispute that the parties
fail to resolve pursuant to Section 10.8 hereof arises out of this Agreement or
any of the Transactions, (b) agrees that it shall not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court, and (c) agrees that it shall not bring any action relating to this
Agreement or any of the Transactions in any court other than such federal or
state courts. Guarantor hereby irrevocably designates, appoints and empowers
C.T. Corporation System, as its true and lawful agent and attorney-in-fact, in
its name, place and stead to receive and accept on its behalf service of process
in any action, suit or
<PAGE>
57
proceeding with respect to any matters as to which it has submitted to
jurisdiction as set forth in this Section 10.9.
Section 10.10 Time of Essence. Each of the parties hereto hereby
---------------
agrees that, with regard to all dates and time periods set forth or referred to
in this Agreement, time is of the essence.
Section 10.11 Extension; Waiver. At any time prior to the Closing
-----------------
Date, either party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other party, (b) waive any inaccuracies in
the representations and warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) waive
compliance by the other parties with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
Section 10.12 Election of Remedies. Neither the exercise of nor the
--------------------
failure to exercise a right of set-off or to give notice of a claim under this
Agreement will constitute an election of remedies or limit Purchaser or any of
the Purchaser Indemnified Persons in any manner in the enforcement of any other
remedies that may be available to any of them, whether at law or in equity.
Section 10.13 Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Purchaser may assign, in its
sole discretion, any or all of its rights and interests hereunder to any direct
or indirect wholly owned Subsidiary of Purchaser. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
Section 10.14 Waiver of Jury Trial. Seller and Purchaser hereby
--------------------
irrevocably waive all right to trial by jury in any action, proceeding or
counterclaim (whether based in contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Seller or Purchaser in the
negotiation, administration, performance and enforcement thereof.
Section 10.15 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
Section 10.16 Guarantee. Guarantor hereby guarantees the performance
---------
by the Purchaser (or any of its assignees pursuant to Section 10.13) of all the
Purchaser's obligations hereunder. In connection with such guarantee, Guarantor
hereby represents and warrants to Seller (i) that it is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Republic of France and has all necessary corporate power and authority to enter
<PAGE>
58
into this Agreement, and to carry out its obligations hereunder, and (ii) that
the execution and delivery of this Agreement by Guarantor and the performance of
its obligations hereunder have been duly authorized by all requisite corporate
action on the part of Guarantor and (assuming due authorization, execution and
delivery by Seller and Purchaser) constitutes a legal, valid and binding
obligation of Guarantor enforceable against Guarantor in accordance with its
terms.
<PAGE>
59
IN WITNESS WHEREOF, Purchaser, Seller and Guarantor have executed this
Agreement or caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the date first written above.
DANONE INTERNATIONAL BRANDS INC.
By /s/ Emmanuel Faber
---------------------------------------
Name: Emmanuel Faber
Title:
GROUPE DANONE
By /s/ Emmanuel Faber
---------------------------------------
Name: Emmanuel Faber
Title: Executive Vice-President and Chief
Financial Officer
McKESSON HBOC, INC.
By /s/ David L. Mahoney
---------------------------------------
Name: David L. Mahoney
Title: Co-President and Co-Chief Executive
Officer
<PAGE>
EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
On January 11, 2000, McKesson HBOC, Inc. (the "Company") announced it had
entered into a definitive agreement to sell the McKesson Water Products Company,
a wholly-owned subsidiary of the Company, to Groupe DANONE for $1.1 billion in
cash. Following completion of this transaction, the Company will receive
approximately $700 million in after-tax proceeds. Management is still assessing
different alternatives with respect to the use of the proceeds.
The accompanying unaudited pro forma condensed consolidated balance sheet
information as of September 30, 1999, and the pro forma condensed consolidated
income information for the six months ended September 30, 1999 and fiscal years
ended March 31, 1999, 1998, and 1997, have been restated to classify the net
assets and results of operations of the McKesson Water Products Company as a
discontinued operation. Since the transaction has not yet been consummated,
neither the disposition of the McKesson Water Products Company, nor the expected
use of proceeds have been reflected in the accompanying pro forma financial
information. In addition, the accompanying unaudited pro forma financial
information does not purport to present the actual results that would have
occurred had the transaction been consummated at the beginning of each
respective period presented, nor project the Company's results of operations for
any future period.
The unaudited pro forma financial information should be read in conjunction with
the historical financial statements and notes thereto included in the Company's
Annual Report on Form 10-K/A for the year ended March 31, 1999, the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999, and other
information filed with the Securities and Exchange Commission.
<PAGE>
McKESSON HBOC, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
SEPTEMBER 30, 1999
(unaudited)
(in millions)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Consolidated Adjustments(1) Consolidated
--------------- ------------------ ----------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 179.0 $ (5.3) $ 173.7
Marketable securities available for sale 28.1 - 28.1
Receivables 2,743.6 (39.2) 2,704.4
Inventories 3,679.8 (7.0) 3,672.8
Prepaid expenses 167.0 (1.9) 165.1
--------------- ------------------ ----------------
Total current assets 6,797.5 (53.4) 6,744.1
Property, Plant and Equipment, Net 729.9 (185.5) 544.4
Capitalized Software 116.0 - 116.0
Notes Receivable 108.0 (0.5) 107.5
Goodwill and Other Intangibles 1,224.4 (27.8) 1,196.6
Net Assets of Discontinued Operations - 212.5 212.5
Other Assets 521.6 (1.5) 520.1
--------------- ------------------ ----------------
Total Assets $ 9,497.4 $ (56.2) $ 9,441.2
=============== ================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Drafts and accounts payable $ 3,326.4 $ (25.4) $ 3,301.0
Deferred revenue 300.4 (3.7) 296.7
Short-term borrowings and current portion of long-term debt 854.9 - 854.9
Other current liabilities 623.4 (20.4) 603.0
--------------- ------------------ ----------------
Total current liabilities 5,105.1 (49.5) 5,055.6
Postretirement Obligations and Other Noncurrent Liabilities 254.9 (0.4) 254.5
Long-Term Debt 929.8 (6.3) 923.5
McKesson HBOC-Obligated Mandatorily Redeemable Convertible
Preferred Securities of Subsidiary Grantor Trust Whose Sole
Assets are Junior Subordinated Debentures of McKesson HBOC 195.7 - 195.7
Stockholders' Equity 3,011.9 - 3,011.9
--------------- ------------------ ----------------
Total Liabilities and Stockholders' Equity $ 9,497.4 $ (56.2) $ 9,441.2
=============== ================== ================
</TABLE>
- -----------------
(1) Represents the reclassification of the McKesson Water Products Company's
assets and liabilities as a discontinued operation.
<PAGE>
McKESSON HBOC, INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME INFORMATION
SIX MONTHS ENDED SEPTEMBER 30, 1999
(unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Consolidated Adjustments(1) Consolidated
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 17,747.5 $ (209.3) $ 17,538.2
----------------- ----------------- -----------------
Costs and Expenses:
Cost of sales 16,446.8 (54.4) 16,392.4
Selling, distribution, research and development and
administration 1,024.1 (122.8) 901.3
Interest 61.3 (3.1) 58.2
----------------- ----------------- -----------------
Total 17,532.2 (180.3) 17,351.9
----------------- ----------------- -----------------
Income Before Taxes On Income and Dividends on
Preferred Securities of Subsidiary Trust 215.3 (29.0) 186.3
Income Taxes 82.8 (11.8) 71.0
----------------- ----------------- -----------------
Income Before Dividends on Preferred Securities of
Subsidiary Trust 132.5 (17.2) 115.3
Dividends on Convertible Preferred Securities of
Subsidiary Trust, Net of Tax Benefit (3.1) - (3.1)
----------------- ----------------- -----------------
Income After Taxes:
Continuing operations 129.4 (17.2) 112.2
Discontinued operations - 17.2 17.2
----------------- ----------------- -----------------
Net Income $ 129.4 $ - $ 129.4
================= ================= =================
Earnings Per Common Share:
Diluted:
Continuing operations $ 0.46 $ (0.06) $ 0.40
Discontinued operations - 0.06 0.06
----------------- ----------------- -----------------
Total $ 0.46 $ - $ 0.46
================= ================= =================
Basic:
Continuing operations $ 0.46 $ (0.06) $ 0.40
Discontinued operations - 0.06 0.06
----------------- ----------------- -----------------
Total $ 0.46 $ - $ 0.46
================= ================= =================
Shares on Which Earnings Per Common Share Were Based:
Diluted 290.2 290.2 290.2
Basic 280.9 280.9 280.9
</TABLE>
- -------------------
(1) Represents the reclassification of the results of operations of the
McKesson Water Products Company as a discontinued operation.
<PAGE>
McKESSON HBOC, INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME INFORMATION
YEAR ENDED MARCH 31, 1999
(unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Consolidated Adjustments(1) Consolidated
----------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues $ 30,382.3 $ (353.6) $ 30,028.7
----------------- ---------------- -----------------
Costs and Expenses:
Cost of sales 27,716.7 (87.2) 27,629.5
Selling, distribution, research and development and
administration 2,333.4 (220.4) 2,113.0
Interest 124.0 (6.0) 118.0
----------------- ---------------- -----------------
Total 30,174.1 (313.6) 29,860.5
----------------- ---------------- -----------------
Income Before Taxes On Income and Dividends on
Preferred Securities of Subsidiary Trust 208.2 (40.0) 168.2
Income Taxes 117.1 (15.7) 101.4
----------------- ---------------- -----------------
Income Before Dividends on Preferred Securities of
Subsidiary Trust 91.1 (24.3) 66.8
Dividends on Convertible Preferred Securities of
Subsidiary Trust, Net of Tax Benefit (6.2) - (6.2)
----------------- ---------------- -----------------
Income After Taxes:
Continuing operations 84.9 (24.3) 60.6
Discontinued operations - 24.3 24.3
----------------- ---------------- -----------------
Net Income $ 84.9 $ - $ 84.9
================= ================ =================
Earnings Per Common Share:
Diluted:
Continuing operations $ 0.31 $ (0.08) $ 0.23
Discontinued operations - 0.08 0.08
----------------- ---------------- -----------------
Total $ 0.31 $ - $ 0.31
================= ================ =================
Basic:
Continuing operations $ 0.31 $ (0.09) $ 0.22
Discontinued operations - 0.09 0.09
----------------- ---------------- -----------------
Total $ 0.31 $ - $ 0.31
================= ================ =================
Shares on Which Earnings Per Common Share Were Based:
Diluted 289.8 289.8 289.8
Basic 275.2 275.2 275.2
</TABLE>
- -------------------
(1) Represents the reclassification of the results of operations of the
McKesson Water Products Company as a discontinued operation.
<PAGE>
McKESSON HBOC, INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME INFORMATION
YEAR ENDED MARCH 31, 1998
(unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Consolidated Adjustments(1) Consolidated
---------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 22,419.3 $ (313.6) $ 22,105.7
---------------- ----------------- -----------------
Costs and Expenses:
Cost of sales 20,025.9 (78.8) 19,947.1
Selling, distribution, research and development and
administration 1,778.1 (182.0) 1,596.1
Interest 108.9 (5.7) 103.2
---------------- ----------------- -----------------
Total 21,912.9 (266.5) 21,646.4
---------------- ----------------- -----------------
Income Before Taxes On Income and Dividends on
Preferred Securities of Subsidiary Trust 506.4 (47.1) 459.3
Income Taxes 195.6 (17.7) 177.9
---------------- ----------------- -----------------
Income Before Dividends on Preferred Securities of
Subsidiary Trust 310.8 (29.4) 281.4
Dividends on Convertible Preferred Securities of
Subsidiary Trust, Net of Tax Benefit (6.2) - (6.2)
---------------- ----------------- -----------------
Income After Taxes:
Continuing operations 304.6 (29.4) 275.2
Discontinued operations - 29.4 29.4
---------------- ----------------- -----------------
Net Income $ 304.6 $ - $ 304.6
================ ================= =================
Earnings Per Common Share:
Diluted:
Continuing operations $ 1.10 $ (0.10) $ 1.00
Discontinued operations - 0.10 0.10
---------------- ----------------- -----------------
Total $ 1.10 $ - $ 1.10
================ ================= =================
Basic:
Continuing operations $ 1.14 $ (0.11) $ 1.03
Discontinued operations - 0.11 0.11
---------------- ----------------- -----------------
Total $ 1.14 $ - $ 1.14
================ ================= =================
Shares on Which Earnings Per Common Share Were Based:
Diluted 282.1 282.1 282.1
Basic 266.2 266.2 266.2
</TABLE>
- -------------------
(1) Represents the reclassification of the results of operations of the
McKesson Water Products Company as a discontinued operation.
<PAGE>
McKESSON HBOC, INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME INFORMATION
YEAR ENDED MARCH 31, 1997
(unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Consolidated Adjustments(1) Consolidated
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 16,914.3 $ (301.6) $ 16,612.7
----------------- ----------------- -----------------
Costs and Expenses:
Cost of sales 15,203.3 (70.1) 15,133.2
Selling, distribution, research and development and
administration 1,478.8 (192.3) 1,286.5
Interest 61.0 (3.0) 58.0
----------------- ----------------- -----------------
Total 16,743.1 (265.4) 16,477.7
----------------- ----------------- -----------------
Income Before Taxes on Income and Dividends on
Preferred Securities of Subsidiary Trust 171.2 (36.2) 135.0
Income Taxes 87.2 (13.9) 73.3
----------------- ----------------- -----------------
Income Before Dividends on Preferred Securities of
Subsidiary Trust 84.0 (22.3) 61.7
Dividends on Convertible Preferred Securities of
Subsidiary Trust, Net of Tax Benefit (0.7) - (0.7)
----------------- ----------------- -----------------
Income After Taxes:
Continuing operations 83.3 (22.3) 61.0
Discontinued operations 8.6 22.3 30.9
Discontinued operations - gain on sale of Armor All
stock 120.2 - 120.2
----------------- ----------------- -----------------
Net Income $ 212.1 $ - $ 212.1
================= ================= =================
Earnings Per Common Share:
Diluted:
Continuing operations $ 0.32 $ (0.09) $ 0.23
Discontinued operations 0.03 0.09 0.12
Discontinued operations - gain on sale of Armor All
stock 0.45 - 0.45
----------------- ----------------- -----------------
Total $ 0.80 $ - $ 0.80
================= ================= =================
Basic:
Continuing operations $ 0.33 $ (0.09) $ 0.24
Discontinued operations 0.03 0.09 0.12
Discontinued operations - gain on sale of Armor All
stock 0.47 - 0.47
----------------- ----------------- -----------------
Total $ 0.83 $ - $ 0.83
================= ================= =================
Shares on Which Earnings Per Common Share Were Based:
Diluted 265.2 265.2 265.2
Basic 253.9 253.9 253.9
</TABLE>
- -------------------
(1) Represents the reclassification of the results of operations of the
McKesson Water Products Company as a discontinued operation.
<PAGE>
EXHIBIT 99.3
Contact: Larry Kurtz
Vice President, Corporate Communications
415-983-8418
McKESSON HBOC, INC. REPORTS THIRD QUARTER RESULTS
SAN FRANCISCO, January 25, 2000 - McKesson HBOC, Inc., (NYSE:MCK) (McKessonHBOC)
today reported net income and earnings per diluted share, including special
items, of $166.8 million and 58 cents in its third quarter ended December 31,
1999, compared to net income and earnings per diluted share, including special
items, of $50.7 million and 18 cents in the third quarter a year ago.
Subsequent to the quarter's end, McKessonHBOC announced an agreement to sell its
Water Products business, the results of which are being reported as discontinued
operations.
McKessonHBOC's revenues from continuing operations increased 24 percent in
the third quarter, to $7.5 billion, excluding $2.3 billion of sales to
customers' warehouses, driven by a 30 percent increase in its U.S.
pharmaceutical distribution revenues. Including sales to customers' warehouses,
McKessonHBOC's revenues in the quarter were $9.9 billion, up 19 percent.
For the quarter, including special items that increased income by $100.1
million, McKessonHBOC had income from continuing operations of $160.6 million
and earnings per diluted share of 56 cents, compared to income from continuing
operations of $45.1 million and earnings per diluted share of 16 cents in the
third quarter a year ago. The third quarter a year ago included a $41.0 million
charge for special items. The $100.1 million of special items in the current
quarter consists predominantly of a net gain from the exchange and sale of
certain Healthcare Information Technology Business (ITB) equity assets, offset,
in part, by charges in the company's Healthcare Supply Management Business and
ITB segments.
Primarily as a result of lower ITB operating profit, for the third quarter,
before special charges, McKessonHBOC had operating profit from continuing
operations of $158.7 million compared to $177.4 million before special charges
in the third quarter a year ago. Income from continuing operations and earnings
per diluted share, before special items, was $60.5 million of 21 cents in the
third quarter, compared to income from continuing operations and earnings per
diluted share, before special items, of $86.1 million and of 30 cents in the
third quarter a year ago. Unless otherwise noted, all subsequent financial
discussions exclude special items.
"Our Healthcare Supply Management Business sustained above-market revenue
growth again this quarter," said John H. Hammergren and David L. Mahoney, co-
presidents and co-chief executive officers. "This continued growth results from
the market's acceptance of our solutions designed to deliver measurable value to
our customers and provides the base for sales of higher-margin products and
services such as our pharmacy automation offering."
"We are committed to implementing initiatives that are designed to position
the company for future growth and improved margins. As a major step, the
agreement to sell our non-core Water Products business will, upon consummation
of the transaction, complete our transition to a focused healthcare company,
strengthen the balance sheet and provide greater financial flexibility.
However, we do not currently expect a
<PAGE>
meaningful rebound in software sales until late in the 2000 calendar year, which
along with ongoing expenses necessary to enhance our ITB product and service
offering and relationships with customers will negatively affect the operating
margin of the company in fiscal 2001."
Healthcare Supply Management Operating Profit Up on Strong Revenue Growth
Operating profit of McKessonHBOC's Healthcare Supply Management segment
increased five percent in the quarter, to $137.3 million, on a 27 percent
increase in revenues. U.S. pharmaceutical distribution revenues were up 30
percent, to $5.9 billion, medical-surgical distribution revenues were up 12
percent, to $705 million, and international revenues were up 25 percent, to $611
million.
The Healthcare Supply Management operating profit margin decreased to 1.89
percent in the quarter, primarily due to receivable-related charges, continued
competitive pressures that affected both new and renewed pharmaceutical
distribution agreements, and a shift in McKessonHBOC's pharmaceutical
distribution mix to faster-growing customer segments. The receivable-related
charges, including a pharmaceutical distribution customer bankruptcy that
occurred after the quarter's close, decreased third-quarter operating margin 17
basis points. Without these changes, supply management operating profit would
have increased 15 percent. As previously reported, new and renewed agreements
signed in the current year, while designed to deliver profitability consistent
with the company's long-term financial targets, have less favorable terms than
previous agreements due to the effect of competition as well as implementation
expenses during the start-up phase, and therefore have the effect in the near
term of dampening profit margins. Additionally, in the third quarter, $24.6
million in special charges were recorded in the Supply Management business,
primarily for losses associated with a prior-year system implementation.
Healthcare Information Technology Revenue Declines
Overall revenues of the ITB segment were $293 million in the third quarter,
a decrease of 23 percent versus the prior year. Software revenues were $54
million, a decrease of 33 percent. Service and outsourcing revenues were $218
million in the third quarter, down 12 percent, driven by reduced implementation
services on the lower level of software sales in previous quarters. Hardware
revenues were $22 million in the third quarter, down 59 percent, reflecting the
lower level of software sales and lower unit prices. On a sequential basis, ITB
revenues of $293 million in the third quarter were down six percent compared to
the second quarter, with software revenues of $54 million up 13 percent.
ITB operating profit was $26.3 million in the third quarter, down 44
percent versus the prior year. ITB operating margin was nine percent in the
quarter, down from 12 percent in the third quarter a year ago, resulting from
the lower sales of software and services, and increased expenses to enhance
customer support.
In the third quarter, ITB recorded additional accounts receivable and
customer reserves of $69 million, associated with a revised estimate of the
impact of resolving customer satisfaction issues relating to certain product
installations. Following the completion of an assessment of the entire ITB
product portfolio in the fourth quarter of fiscal 2000, McKessonHBOC expects to
streamline its product offering to eliminate
<PAGE>
redundancies, focus on current and anticipated customer needs and implement
advanced technologies. As a result, the company expects to record additional
charges associated with impaired assets and related expenses in the fourth
quarter.
"During the past six months, we've built a solid management team in our
information technology business," said Hammergren and Mahoney. "Our goal has
been to re-establish confidence and trust among our customers so that we are
well positioned to create demand for our solutions, and we are making
significant progress. While we expect to see some benefit in the next fiscal
year, we believe the full impact of these efforts will be seen in ITB's
financial results in fiscal year 2002."
During the third quarter and continuing into early in the fourth quarter,
McKessonHBOC began selling shares in certain ITB equity investments to help fund
the company's e-health initiatives. ITB results for the third quarter include
net gains totaling $256 million, primarily from the exchange and sale of these
investments.
New e-Health Segment
During the third quarter, McKessonHBOC began reporting revenues and
operating profit of its new e-health business segment, following its November
1999 purchase of Abaton.com, a provider of Internet-based clinical products and
services to physicians. For the quarter, revenues of the e-health business were
$0.2 million, with an operating loss of $4.9 million. In addition, this segment
recorded a $1.5 million charge in the third quarter for the purchase of in-
process technology.
"With the acquisition of Abaton, we made a meaningful addition to our
strong business-to-business e-commerce platform," said Hammergren and Mahoney.
"Marrying Abaton's leading-edge solutions for physician connectivity to our
robust EDI transaction platform and physician practice management solutions
allows us to immediately compete as a leader in the e-health space. The Web-
based claims processing for physicians that will result from our agreement with
Claimsnet.com further reinforces our capability to capture the physician's
desktop through new offerings that add real value."
Financial Position and Additional Special Charges
At December 31, 1999, McKessonHBOC's cash and marketable securities totaled
approximately $400 million. Total debt at December 31, 1999, was $1.4 billion,
stockholders'equity was $3.2 billion and the company's net debt-to-capital ratio
was 22 percent, down from 33 percent at September 30, 1999. The improvement in
the net debt-to-capital ratio reflects third quarter cash flow from operations
and a gain on the exchange of certain marketable securities.
Net interest expense increased to $27.1 million in the third quarter from
$23.9 million in the third quarter a year ago, reflecting increased average
working capital to support strong Supply Management revenue growth. Corporate
expenses increased to $29.3 million in the third quarter from $13.6 million in
the third quarter a year ago, primarily because of costs associated with the
sale of receivables to support the growth of the Supply Management business and
certain employee benefits, the latter expense being higher in order to maintain
the level of benefits being provided to employees despite the currently lower
stock price. The special items for the third quarter include charges totaling
$3.1 million for accounting and legal fees and other costs incurred in
<PAGE>
connection with the company's earlier restatement of prior-year financial
statements and acquisition-related costs.
Return on committed capital for the twelve months ended December 31, 1999,
was 22 percent and return on equity for the same period was 12 percent. At
December 31, 1999, the company had 281.7 million common shares outstanding.
Discontinued Operations
On January 11, 2000, McKessonHBOC announced it had signed an agreement to
sell its Water Products business for $1.1 billion. Following the completion of
this transaction, which is expected to close in the fourth quarter, the company
will receive approximately $700 million in after tax proceeds.
For the third quarter, the Water Products business, now reported as a
discontinued operation, contributed two cents to earnings per diluted share
compared to two cents in the third quarter a year ago.
Financial Results for the First Nine Months of Fiscal Year 2000
For the nine months ended December 31, 1999, McKessonHBOC had revenues of
$20.8 billion, an increase of 23 percent, excluding sales to customers'
warehouses of $6.6 billion. McKessonHBOC's pharmaceutical distribution and
services revenues were $17.8 billion, up 26 percent, its medical-surgical
distribution revenues were $2.0 billion, up 24 percent and its ITB revenues were
$922 million, down 19 percent compared to the prior year.
Including special items, for the nine months, McKessonHBOC had net income
of $296.3 million and earnings per diluted share of $1.04, compared to net
income of $146.1 million and earnings per diluted share of 52 cents for the nine
months a year ago. Including special items, for the nine months, McKessonHBOC
had income from continuing operations of $272.9 million and earnings per diluted
share of 96 cents, compared to income from continuing operations of $122.7
million and earnings per diluted share of 44 cents for the nine months a year
ago. Excluding special items, for the nine months, McKessonHBOC had income from
continuing operations of $203.7 million and earnings per diluted share of 72
cents, compared to income from continuing operations of $219.3 million and
earnings per diluted share of 77 cents for the nine months a year ago.
McKesson HBOC, Inc., a Fortune 60 corporation, is the world's largest
supply management and healthcare information technology company. McKessonHBOC
provides supply management and information technologies across the entire
continuum of healthcare, including market-leading businesses in pharmaceutical
and medical-surgical distribution, automation, information technology and
outsourcing services for healthcare providers healthcare providers and payors.
More information about McKessonHBOC is available on our World Wide Website at:
www.mckhboc.com.
Except for the historical information contained herein, the matters
discussed in this press release may constitute forward-looking statements that
are made pursuant to the Safe Harbor provisions of the Securities Litigation
Reform Act of 1995 and involve risks and uncertainties that could cause actual
results to differ materially from those projected. These statements may be
identified by their use of forward-looking terminology such as "believes,"
"expects," "may," "should," "intends," "plans,"
<PAGE>
"estimates," "anticipates" and similar words. Risks and uncertainties include:
the resolution or outcome of pending litigation and government investigations
relating to the Company's previously announced financial restatement; the
Company's ability to recognize revenues in subsequent periods that had initially
been improperly recorded in prior periods; the Company's ability to successfully
integrate and operate acquired businesses and the risks associated with such
businesses, including the merger that created McKessonHBOC; the changing U.S.
healthcare environment, including potential changes in private and governmental
reimbursement for healthcare services, the method by which such services are
delivered, legislation or regulations governing such services or mandated
benefits, or changes in manufacturer' pricing or distribution policies;
substantial defaults in payment or a material reduction in purchases of our
products by large customers; the ability of the Company's Healthcare Information
Technology business to retain existing customers and to attract new customers in
light of rapid technological advances, slowing of demand for software products
because of Year 2000 concerns and challenges in integrating the Company's
software products; the effect of the events relating to, or arising out of, the
Company's restatement of financial results on the Company's ability to manage
its businesses and to attract and retain employees and management; the Company's
ability and the ability of the Company's vendors and customers to complete the
necessary actions to achieve a Year 2000 conversion for computer systems and
applications; and other factors discussed from time to time in reports filed by
McKesson HBOC, Inc. with the Securities and Exchange Commission. The company
assumes no obligation to update information contained in this release.
<PAGE>
<TABLE>
<CAPTION>
Schedule I-1
McKESSON HBOC, INC.
CONDENSED INCOME INFORMATION (1)
(unaudited)
(in millions except per share amounts)
Quarter Ended December 31 Nine Months Ended December 31
------------------------------------- ---------------------------------------
% %
FY00 FY99 Chg. FY00 FY99 Chg.
------------ --------- ----- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Excluding sales to customers' warehouses $ 7,544.7 $ 6,081.5 24.1 % $ 20,781.8 $ 16,913.1 22.9 %
Sales to customers' warehouses 2,346.2 2,206.0 6.4 6,647.3 4,806.9 38.3
------------ --------- ------------ -----------
Total 9,890.9 8,287.5 19.3 27,429.1 21,720.0 26.3
Costs and expenses before special items 9,788.6 8,147.6 20.1 27,090.2 21,358.5 26.8
Special items 158.3 (2) (60.3) (3) 108.1 (2) (146.5)(3)
------------ --------- ------------ -----------
Income before taxes on income 260.6 79.6 447.0 215.0
Income tax expense (98.5) (33.0) (169.5) (87.7)
Dividends on preferred securities of
subsidiary trust (1.5) (1.5) (4.6) (4.6)
------------ --------- ------------ -----------
Net income
Continuing operations
Before special items 60.5 86.1 (29.7) 203.7 219.3 (7.1)
Special items 100.1 (2) (41.0) (3) 69.2 (2) (96.6)(3)
------------ --------- ------------ -----------
Total from continuing operations 160.6 45.1 272.9 122.7
Discontinued operations 6.2 5.6 23.4 23.4
------------ --------- ------------ -----------
Total $ 166.8 $ 50.7 $ 296.3 $ 146.1
============ ========= ============ ===========
Earnings per common share
Diluted
Continuing operations
Before special items $ 0.21 $ 0.30 (30.0) $ 0.72 $ 0.77 (6.5)
Special items 0.35 (2) (0.14) (3) 0.24 (2) (0.33)(3)
------------ --------- ------------ -----------
Total from continuing operations 0.56 0.16 0.96 0.44
Discontinued operations 0.02 0.02 0.08 0.08
------------ --------- ------------ -----------
Total $ 0.58 $ 0.18 $ 1.04 $ 0.52
============ ========= ============ ===========
Basic
Continuing operations
Before special items $ 0.21 $ 0.31 (32.3) $ 0.72 $ 0.80 (10.0)
Special items 0.36 (2) (0.15) (3) 0.25 (2) (0.35)(3)
------------ --------- ------------ -----------
Total from continuing operations 0.57 0.16 0.97 0.45
Discontinued operations 0.02 0.02 0.08 0.08
------------ --------- ------------ -----------
Total $ 0.59 $ 0.18 $ 1.05 $ 0.53
============ ========= ============ ===========
Shares on which earnings per common
share were based
Diluted 288.8 289.7 (0.3) 289.8 289.3 0.2
Basic 281.4 275.2 2.3 281.1 274.1 2.6
</TABLE>
(1) All periods have been restated to classify the Water Products business as
a discontinued operation. On January 11, 2000, the Company announced it
had signed a definitive agreement to sell its Water Products business to
Groupe DANONE for $1.1 billion in cash.
(2) The quarter and nine months ended December 31, 1999 include charges for
receivable reserves and asset impairments in the Health Care Supply
Management segment totaling $30.3 million related primarily to a prior
year implementation of a contract system, partially offset by a $5.7
million reduction in prior year restructuring reserves. In addition, the
quarter and nine months include net gains totaling $256.0 million
primarily from the sale of Health Care Information Technology segment's
equity investments and from a gain on the exchange of the Company's WebMD
shares for Healtheon/WebMD shares that was recognized upon the completion
of the merger of the two companies in the quarter. These gains are
offset, in part, by a charge of $68.5 million for a change in estimate of
the segment's requirements for accounts receivable and customer reserves.
Also includes a charge of $1.5 million in the quarter in the e-Health
segment for the write-off of purchased in-process technology related to
the Company's November 1999 acquisition of Abaton.com. In addition,
Corporate and other includes charges totaling $2.4 million in the quarter
and $17.4 million in the nine months, respectively, for accounting and
legal fees and other costs incurred in connection with the Company's
earlier restatement of prior years' financial results and $0.7 million in
the quarter and $3.6 million in the nine months in acquisition-related
costs. Additionally, the nine months ended December 31, 1999 include
charges of $32.3 million for severance and other costs associated with
former employees.
(3) Includes charges associated with acquisitions in the Health Care Supply
Management and Health Care Information Technology segments of $26.5
million and $33.8 million, respectively, in the quarter and $105.1
million and $41.4 million, respectively, in the nine months ended
December 31, 1998. These charges include transaction costs, employee
benefit change in control provisions, employee severance, restructuring,
integration and system installation costs associated with acquisition-
related activities. The nine months ended December 31, 1998 also includes
charges for the terminated merger with AmeriSource Corporation.
<PAGE>
<TABLE>
<CAPTION>
Schedule I-2
McKESSON HBOC, INC.
RESULTS BY BUSINESS SEGMENT (1)
(unaudited)
(in millions)
Quarter Ended December 31
-------------------------------------------------------
FY00 FY99 % Chg.
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES
Health Care Supply Management
Pharmaceutical Distribution & Services (2)
U.S. Health Care $ 5,932.7 $ 4,572.5 29.7 %
International 610.6 489.1 24.8
------------ ------------
Total Pharmaceutical Distribution & Services 6,543.3 5,061.6 29.3
Medical/Surgical Distribution & Services 704.6 630.2 11.8
------------ ------------
Total Health Care Supply Management 7,247.9 5,691.8 27.3
------------ ------------
Health Care Information Technology
Software 53.6 79.9 (32.9)
Services 217.7 248.7 (12.5)
Hardware 21.5 52.2 (58.8)
------------ ------------
Total Health Care Information Technology 292.8 380.8 (23.1)
e-Health 0.2 -
Corporate 3.8 8.9
------------ ------------
Total $ 7,544.7 $ 6,081.5 24.1
============ ============
OPERATING PROFIT
Health Care Supply Management
Before special items $ 137.3 $ 130.3 5.4
Special items (24.6) (3) (26.5) (7)
------------ ------------
Total Health Care Supply Management 112.7 103.8
------------ ------------
Health Care Information Technology
Before special items 26.3 47.1 (44.2)
Special items 187.5 (4) (33.8) (8)
------------ ------------
Total Health Care Information Technology 213.8 13.3
------------ ------------
e-Health
Before special items (4.9) -
Special items (1.5) (5) -
------------ ------------
Total e-Health (6.4) -
------------ ------------
Total Operating Profit 320.1 117.1
Interest - net (27.1) (23.9)
Corporate and other
Before special items (29.3) (13.6)
Special items (3.1) (6) -
------------ ------------
Total Corporate and other (32.4) (13.6)
------------ ------------
Income from continuing operations before income taxes
Before special items 102.3 139.9 (26.9)
Special items 158.3 (3)-(6) (60.3) (7),(8)
------------ ------------
Income from continuing operations before
income taxes $ 260.6 $ 79.6
============ ============
Nine Months Ended December 31
-------------------------------------------------------
FY00 FY99 % Chg.
------------- ------------ -------------
<S> <C> <C> <C>
REVENUES
Health Care Supply Management
Pharmaceutical Distribution & Services (2)
U.S. Health Care $ 16,104.1 $ 12,624.1 27.6 %
International 1,713.8 1,483.7 15.5
------------- ------------
Total Pharmaceutical Distribution & Services 17,817.9 14,107.8 26.3
Medical/Surgical Distribution & Services 2,032.3 1,640.8 23.9
------------- ------------
Total Health Care Supply Management 19,850.2 15,748.6 26.0
------------- ------------
Health Care Information Technology
Software 153.4 238.5 (35.7)
Services 699.3 728.9 (4.1)
Hardware 69.2 168.1 (58.8)
------------- ------------
Total Health Care Information Technology 921.9 1,135.5 (18.8)
e-Health 0.2 -
Corporate 9.5 29.0
------------- ------------
Total $ 20,781.8 $ 16,913.1 22.9
============= ============
OPERATING PROFIT
Health Care Supply Management
Before special items $ 389.7 $ 346.9 12.3
Special items (24.6) (3) (105.1) (7)
------------- ------------
Total Health Care Supply Management 365.1 241.8
------------- ------------
Health Care Information Technology
Before special items 112.3 115.3 (2.6)
Special items 187.5 (4) (41.4) (8)
------------- ------------
Total Health Care Information Technology 299.8 73.9
------------- ------------
e-Health
Before special items (4.9) -
Special items (1.5) (5) -
------------- ------------
Total e-Health (6.4) -
------------- ------------
Total Operating Profit 658.5 315.7
Interest - net (81.5) (63.8)
Corporate and other
Before special items (76.7) (36.9)
Special items (53.3) (6) -
------------- ------------
Total Corporate and other (130.0) (36.9)
------------- ------------
Income from continuing operations before income taxes
Before special items 338.9 361.5 (6.3)
Special items 108.1 (3)-(6) (146.5)(7),(8)
------------- ------------
Income from continuing operations before
income taxes $ 447.0 $ 215.0
============= ============
</TABLE>
(1) All periods have been restated to classify the Water Products business as
a discontinued operation. On January 11, 2000, the Company announced it
had signed a definitive agreement to sell its Water Products business to
Groupe DANONE for $1.1 billion in cash.
(2) Excludes sales to customers' warehouses of $2,346.2 million and $2,206.0
million in the quarters and $6,647.3 million and $4,806.9 million in the
nine months ended December 31, 1999, and 1998, respectively.
(3) Includes $30.3 million in charges for receivable reserves and asset
impairments related primarily to a prior year implementation of a
contract system, partially offset by a $5.7 million reduction in prior
year restructuring reserves.
(4) Includes net gains totaling $256.0 million primarily on the sale of
equity investments and a gain on the exchange of the Company's WebMD
shares for Healtheon/WebMD shares that was recognized upon the completion
of the merger of the two companies in the quarter ended December 31,
1999. The gains are offset, in part, by a charge of $68.5 million for a
change in estimate of reserve requirements for accounts receivable and
customer reserves.
(5) Represents the write-off of purchased in-process technology associated
with the November 1999 acquisition of Abaton.com.
(6) Includes accounting and legal fees and other costs totaling $2.4 million
and $17.4 million incurred in the quarter and nine months ended December
31, 1999, in connection with the Company's earlier restatement of prior
years' financial results. Also includes $0.7 million and $3.6 million
incurred in the quarter and nine months ended December 31, 1999 in
acquisition-related costs. In addition, the nine months ended December
31, 1999 includes $32.3 million in severance and other costs associated
with former employees.
(7) Reflects charges associated with acquisitions including transaction
costs, employee benefit change of control provisions and restructuring,
integration and system installation costs associated with acquisition-
related activities. The nine months ended December, 1999 also includes
charges for the terminated merger with AmeriSource Corporation.
(8) Reflects charges associated with acquisitions including transaction
costs, employee severance and asset impairments.
<PAGE>
Schedule II-1
McKESSON HBOC, INC.
PRO FORMA CONDENSED INCOME INFORMATION
Income From Continuing Operations Before Special Items (1)
(unaudited)
(in millions except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended December 31 Nine Months Ended December 31
-------------------------------------- ----------------------------------
% %
FY00 FY99 Chg. FY00 FY99 Chg.
------- -------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Excluding sales to customers' warehouses $ 7,544.7 $ 6,081.5 24.1 % $20,781.8 $ 16,913.1 22.9 %
Sales to customers' warehouses 2,346.2 2,206.0 6.4 6,647.3 4,806.9 38.3
---------- ---------- --------- ---------
Total 9,890.9 8,287.5 19.3 27,429.1 21,720.0 26.3
Costs and expenses 9,788.6 8,147.6 20.1 27,090.2 21,358.5 26.8
---------- ---------- --------- ---------
Income before income taxes 102.3 139.9 (26.9) 338.9 361.5 (6.3)
Income taxes (40.3) (52.3) (130.6) (137.6)
Dividends on preferred securities of
subsidiary trust (1.5) (1.5) (4.6) (4.6)
---------- ---------- --------- ---------
Income before special items $ 60.5 $ 86.1 (29.7) $ 203.7 $ 219.3 (7.1)
========== ========== ========= ==========
Earnings per common share
Diluted $ 0.21 $ 0.30 (30.0) $ 0.72 $ 0.77 (6.5)
Basic 0.21 0.31 (32.3) 0.72 0.80 (10.0)
Shares on which earnings per common
share were based
Diluted 288.8 289.7 (0.3) 289.8 289.3 0.2
Basic 281.4 275.2 2.3 281.1 274.1 2.6
</TABLE>
(1) All periods have been restated to classify the Water Products business as a
discontinued operation. On January 11, 2000, the Company announced it had
signed a definitive agreement to sell its Water Products business to Groupe
DANONE for $1.1 billion in cash.
8
<PAGE>
Schedule II-2
McKESSON HBOC, INC.
PRO FORMA RESULTS BY BUSINESS SEGMENT
Income From Continuing Operations Before Special Items (1)
(unaudited)
(in millions)
<TABLE>
<CAPTION>
Quarter Ended December 31 Nine Months Ended December 31
----------------------------- -----------------------------
% %
FY00 FY99 Chg. FY00 FY99 Chg.
--------- --------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Health Care Supply Management
Pharmaceutical Distribution & Services (2)
U.S. Health Care $ 5,932.7 $ 4,572.5 29.7 % $16,104.1 $12,624.1 27.6 %
International 610.6 489.1 24.8 1,713.8 1,483.7 15.5
--------- --------- --------- ---------
Total Pharmaceutical Distribution & Services 6,543.3 5,061.6 29.3 17,817.9 14,107.8 26.3
Medical/Surgical Distribution & Services 704.6 630.2 11.8 2,032.3 1,640.8 23.9
--------- --------- --------- ---------
Total Health Care Supply Management 7,247.9 5,691.8 27.3 19,850.2 15,748.6 26.0
Health Care Information Technology
Software 53.6 79.9 (32.9) 153.4 238.5 (35.7)
Services 217.7 248.7 (12.5) 699.3 728.9 (4.1)
Hardware 21.5 52.2 (58.8) 69.2 168.1 (58.8)
--------- --------- --------- ---------
Total Health Care Information Technology 292.8 380.8 (23.1) 921.9 1,135.5 (18.8)
e-Health 0.2 - 0.2 -
Corporate 3.8 8.9 9.5 29.0
--------- --------- --------- ---------
Total $ 7,544.7 $ 6,081.5 24.1 $20,781.8 $16,913.1 22.9
========= ========= ========= =========
OPERATING PROFIT
Health Care Supply Management $ 137.3 $ 130.3 5.4 $ 389.7 $ 346.9 12.3
Health Care Information Technology 26.3 47.1 (44.2) 112.3 115.3 (2.6)
e-Health (4.9) - (4.9) -
-------- --------- --------- --------
Total 158.7 177.4 (10.5) 497.1 462.2 7.6
Interest - net (27.1) (23.9) (81.5) (63.8)
Corporate and other (29.3) (13.6) (76.7) (36.9)
-------- --------- --------- --------
Income before income taxes 102.3 139.9 (26.9) 338.9 361.5 (6.3)
Income taxes (40.3) (52.3) (130.6) (137.6)
Dividends on preferred securities of
subsidiary trust (1.5) (1.5) (4.6) (4.6)
-------- --------- --------- --------
Income from continuing operations before
special items $ 60.5 $ 86.1 (29.7) $ 203.7 $ 219.3 (7.1)
======== ========= ========= ========
STATISTICS ($ in millions)
Operating Profit as a % of revenues (2)
Health Care Supply Management 1.89% 2.29% (40) bp 1.96% 2.20% (24) bp
Health Care Information Technology 8.98% 12.37% (339) 12.18% 10.15% 203
e-Health N.M N.M N.M N.M
Earnings before interest and income taxes $129.4 $163.8 (21.0)% $420.4 $425.3 (1.2)%
as a % of revenues (2) 1.72% 2.69% (97) bp 2.02% 2.51% (49) bp
Diluted earnings per share $0.21 $0.30 (30.0)% $ 0.72 $0.77 (6.5)%
Return on committed capital - 12 months ended 22.0% 25.1%
Return on equity - 12 months ended 12.2% 13.0%
</TABLE>
(1) All periods have been restated to classify the Water Products business as a
discontinued operation. On January 11, 2000, the Company announced it had
signed a definitive agreement to sell its Water Products business to Groupe
DANONE for $1.1 billion in cash.
(2) Excludes sales to customers' warehouses of $2,346.2 million and $2,206.0
million in the quarters and $6,647.3 million and $4,806.9 million in the
nine months ended December 31, 1999, and 1998, respectively.
9
<PAGE>
Schedule III
McKESSON HBOC., INC.
PRO FORMA QUARTERLY RESULTS BY BUSINESS SEGMENT (1)
Income From Continuing Operations Before Special Items
(unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 1999
--------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ----------- ------------
REVENUES
Health Care Supply Management
Pharmaceutical Distribution & Services
<S> <C> <C> <C> <C> <C>
U.S. Health Care (2) $ 3,881.9 $ 4,169.7 $ 4,572.5 $ 4,775.1 $ 17,399.2
International 518.9 475.7 489.1 469.3 1,953.0
----------- ----------- ----------- ----------- ------------
Total 4,400.8 4,645.4 5,061.6 5,244.4 19,352.2
Medical/Surgical Distribution & Services 491.2 519.4 630.2 651.4 2,292.2
----------- ----------- ----------- ----------- ------------
Total Health Care Supply Management 4,892.0 5,164.8 5,691.8 5,895.8 21,644.4
----------- ----------- ----------- ----------- ------------
Health Care Information Technology
Software 76.3 82.3 79.9 106.5 345.0
Services 234.7 245.5 248.7 255.5 984.4
Hardware 58.5 57.4 52.2 40.6 208.7
----------- ----------- ----------- ----------- ------------
Total Health Care Information Technology 369.5 385.2 380.8 402.6 1,538.1
----------- ----------- ----------- ----------- ------------
e-Health -- -- -- -- --
Corporate 10.9 9.2 8.9 3.9 32.9
----------- ----------- ----------- ----------- ------------
Total $ 5,272.4 $ 5,559.2 $ 6,081.5 $ 6,302.3 $ 23,215.4
=========== =========== =========== =========== ============
OPERATING PROFIT
Health Care Supply Management $ 108.3 $ 108.3 130.3 $ 175.0 $ 521.9
as a % of revenues (2) 2.21% 2.10% 2.29% 2.97% 2.41%
Health Care Information Technology 45.7 22.5 47.1 68.7 184.0
as a % of revenues 12.37% 5.84% 12.37% 17.06% 11.96%
e-Health -- -- -- -- --
as a % of revenues -- -- -- -- --
----------- ----------- ----------- ----------- ------------
Total 154.0 130.8 177.4 243.7 705.9
Interest - net (20.3) (19.6) (23.9) (26.6) (90.4)
Corporate and other (12.8) (10.5) (13.6) (14.5) (51.4)
----------- ----------- ----------- ----------- ------------
Income before income taxes 120.9 100.7 139.9 202.6 564.1
Income taxes (46.2) (39.1) (52.3) (73.8) (211.4)
Dividends on preferred securities of
subsidiary trust (1.6) (1.5) (1.5) (1.6) (6.2)
----------- ----------- ----------- ----------- ------------
Income before special items $ 73.1 $ 60.1 $ 86.1 $ 127.2 $ 346.5
=========== =========== =========== =========== ============
Earnings per common share
Diluted $ 0.26 $ 0.21 $ 0.30 $ 0.45 $ 1.22
Basic 0.27 0.22 0.31 0.46 1.26
Shares on which earnings per common
share were based
Diluted 288.4 289.9 289.7 291.4 289.8
Basic 272.4 274.6 275.2 278.8 275.2
(1) All periods have been restated to classify the Water Products business as
a discontinued operation. On January 11, 2000, the Company announced it
had signed a definitive agreement to sell its Water Products business to
Groupe DANONE for $1.1 billion in cash.
(2) Excludes sales to customers' warehouses of: $ 927.9 $ 1,673.0 $ 2,206.0 $ 2,006.4 $ 6,813.3
</TABLE>
<TABLE>
<CAPTION>
Fiscal 2000
---------------------------------------
First Second Third
Quarter Quarter Quarter
----------- ----------- -----------
REVENUES
Health Care Supply Management
Pharmaceutical Distribution & Services
<S> <C> <C> <C>
U.S. Health Care (2) $ 4,907.4 $ 5,264.0 $ 5,932.7
International 555.5 547.7 610.6
----------- ----------- -----------
Total 5,462.9 5,811.7 6,543.3
Medical/Surgical Distribution & Services 655.1 672.6 704.6
----------- ----------- -----------
Total Health Care Supply Management 6,118.0 6,484.3 7,247.9
----------- ----------- -----------
Health Care Information Technology
Software 52.5 47.3 53.6
Services 244.6 237.0 217.7
Hardware 20.3 27.4 21.5
----------- ----------- -----------
Total Health Care Information Technology 317.4 311.7 292.8
----------- ----------- -----------
e-Health -- -- 0.2
Corporate 2.8 2.9 3.8
----------- ----------- -----------
Total $ 6,438.2 $ 6,798.9 $ 7,544.7
=========== =========== ===========
OPERATING PROFIT
Health Care Supply Management $ 125.4 $ 127.0 $ 137.3
as a % of revenues (2) 2.05% 1.96% 1.89%
Health Care Information Technology 56.1 29.9 26.3
as a % of revenues 17.67% 9.59% 8.98%
e-Health -- -- (4.9)
as a % of revenues -- -- N.M.
----------- ----------- -----------
Total 181.5 156.9 158.7
Interest - net (29.5) (24.9) (27.1)
Corporate and other (21.2) (26.2) (29.3)
----------- ----------- -----------
Income before income taxes 130.8 105.8 102.3
Income taxes (50.0) (40.3) (40.3)
Dividends on preferred securities of
subsidiary trust (1.6) (1.5) (1.5)
----------- ----------- -----------
Income before special items $ 79.2 $ 64.0 $ 60.5
=========== =========== ===========
Earnings per common share
Diluted $ 0.28 $ 0.23 $ 0.21
Basic 0.28 0.23 0.21
Shares on which earnings per common
share were based
Diluted 290.2 289.4 288.8
Basic 280.6 281.1 281.4
(1) All periods have been restated to classify the Water Products business as
a discontinued operation. On January 11, 2000, the Company announced it
had signed a definitive agreement to sell its Water Products business to
Groupe DANONE for $1.1 billion in cash.
(2) Excludes sales to customers' warehouses of: $ 2,160.6 $ 2,140.5 $ 2,346.2
</TABLE>
10
