EXHIBIT 99.2
AMENDED AND RESTATED
PREFERRED STOCK PURCHASE AGREEMENT
BY AND BETWEEN
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.,
AND
NEW MOUNTAIN PARTNERS, L.P.
DATED: NOVEMBER 26, 2003
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.....................................................1
1.1 Definitions.......................................................1
ARTICLE 2 PURCHASE AND SALE OF SERIES A PREFERRED STOCK.............10
2.1 Purchase and Sale of Series A Preferred Stock....................10
2.2 Increase in Purchase Amount......................................10
2.3 Certification of Designation.....................................11
2.4 Closing..........................................................11
2.5 Use of Proceeds..................................................11
2.6 Additional Issuances; Adjustment.................................11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................12
3.1 Corporate Existence and Power....................................12
3.2 Subsidiaries.....................................................13
3.3 Corporate Authorization; No Contravention........................13
3.4 Governmental Authorization; Third Party Consents.................14
3.5 Binding Effect...................................................14
3.6 Capitalization of the Company and its Subsidiaries...............14
3.7 SEC Documents; ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Compliance.........................15
3.8 Absence of Certain Developments..................................17
3.9 No Undisclosed Liabilities.......................................17
3.10 Compliance with Laws.............................................18
3.11 Litigation.......................................................18
3.12 Material Contracts...............................................19
3.13 Environmental....................................................20
3.14 Taxes............................................................20
3.15 Title to Property and Assets; Leases.............................21
3.16 Compliance with ERISA............................................22
3.17 Labor Relations; Employees.......................................23
3.18 Certain Payments.................................................24
3.19 Insurance........................................................24
3.20 Intellectual Property............................................24
3.21 Affiliate Transactions...........................................25
3.22 Investment Company Act...........................................25
3.23 Private Offering.................................................26
3.24 Board Approval; Stockholder Approval.............................26
3.25 Series A Preferred Stock.........................................26
3.26 No Brokers or Finders............................................27
3.27 Disclosure.......................................................27
3.28 Suitability......................................................27
3.29 Off Balance Sheet Arrangements...................................27
3.30 Regulatory Compliance............................................27
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................29
4.1 Existence and Power..............................................29
4.2 Authorization; No Contravention..................................29
4.3 Governmental Authorization; Third Party Consents.................29
4.4 Binding Effect...................................................29
4.5 Purchase for Own Account, Etc....................................29
4.6 Receipt of Information...........................................30
4.7 No Brokers or Finders............................................30
4.8 Sufficient Funds.................................................30
4.9 Litigation.......................................................30
ARTICLE 5 COVENANTS OF THE COMPANY.......................................31
5.1 Conduct of Business..............................................31
5.2 No Solicitation..................................................34
5.3 Regulatory Approval; Litigation..................................36
5.4 Board of Directors...............................................36
5.5 Access...........................................................36
5.6 Employee Benefits Matters........................................37
5.7 Payment of Dividends.............................................38
5.8 Consents.........................................................39
5.9 Legends..........................................................39
5.10 Confirmation of Surplus..........................................39
ARTICLE 6 STOCKHOLDERS MEETING; TENDER OFFER.............................39
6.1 Preparation of Proxy Statement; Stockholders Meeting.............39
6.2 Tender Offer.....................................................41
6.3 Other Matters....................................................41
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO CLOSE.............................................42
7.1 Conditions to Closing............................................42
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO CLOSE...............................................44
8.1 Conditions to Closing............................................44
ARTICLE 9 REGISTRATION RIGHTS; RIGHT OF FIRST OFFER;
OTHER AGREEMENTS OF THE COMPANY................................45
9.1 Registration Rights..............................................45
9.2 Other Registration Rights........................................45
9.3 Right of First Offer.............................................45
9.4 Rule 144.........................................................47
9.5 Availability of Common Stock.....................................47
9.6 No Rights Plan...................................................47
ARTICLE 10 TERMINATION OF AGREEMENT.......................................47
10.1 Termination......................................................47
10.2 Survival after Termination.......................................49
10.3 Termination Payment..............................................49
ARTICLE 11 INDEMNIFICATION................................................51
11.1 Indemnification..................................................51
11.2 Terms of Indemnification.........................................51
ARTICLE 12 MISCELLANEOUS..................................................52
12.1 Survival.........................................................52
12.2 Fees and Expenses................................................52
12.3 Notices..........................................................53
12.4 Successors and Assigns...........................................54
12.5 Amendment and Waiver.............................................54
12.6 Counterparts.....................................................54
12.7 Headings.........................................................54
12.8 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.....54
12.9 Severability.....................................................55
12.10 Entire Agreement.................................................55
12.11 Further Assurances...............................................55
12.12 Public Announcements.............................................56
12.13 Specific Performance.............................................56
12.14 Subsidiaries.....................................................56
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Amended Bylaws
Exhibit B Articles of Amendment
Exhibit C Certificate of Designations
Exhibit D Management Rights Letter
Exhibit E Board of Directors
Exhibit F Offer Conditions
Exhibit G Opinion of Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
Exhibit H Registration Rights Agreement
Schedule 3.2 Subsidiaries
Schedule 3.3 Corporate Authorization; No Contravention
Schedule 3.4 Governmental Authorization; Third Party Consents
Schedule 3.6 Capitalization of the Company and its Subsidiaries
Schedule 3.7 SEC Documents; ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Compliance
Schedule 3.8 Absence of Certain Developments
Schedule 3.9 Undisclosed Liabilities
Schedule 3.10(a) Compliance with Laws
Schedule 3.11 Litigation
Schedule 3.12(a) Material Contracts
Schedule 3.12(b) Non-Competition Agreements
Schedule 3.13 Environmental
Schedule 3.14 Taxes
Schedule 3.15 Title to Property and Assets; Leases
Schedule 3.16 Compliance with ERISA
Schedule 3.17 Labor Relations; Employees
Schedule 3.20 Intellectual Property
Schedule 3.21(a) Affiliate Transactions
Schedule 3.21(b) Ongoing Intercompany Transactions
Schedule 3.26 No Brokers and Finders
Schedule 4.3 Governmental Authorization; Third Party Consents
Schedule 5.1(a)(i) Conduct of Business; Capital Expenditures
Schedule 5.1(a)(ii) Conduct of Business; Contractual Obligations
Schedule 5.1(a)(iii) Conduct of Business; Financing and Indebtedness
Schedule 5.1(a)(vi) Conduct of Business; Sell, Lease, etc.
Schedule 7.1.6 Material Contracts
AMENDED AND RESTATED
PREFERRED STOCK PURCHASE AGREEMENT
AMENDED AND RESTATED PREFERRED STOCK PURCHASE AGREEMENT, dated as of
November 26, 2003 (as the same may be amended, supplemented or modified in
accordance with the terms hereof, this "Agreement"), by and between
National Medical Health Card Systems, Inc., a Delaware corporation (the
"Company") and New Mountain Partners, L.P., a Delaware limited partnership
(the "Purchaser").
WHEREAS, the parties hereto entered into a Preferred Stock Purchase
Agreement, dated as of October 30, 2003 (the "Original Purchase
Agreement"), and they now desire to amend and restate the Original Purchase
Agreement pursuant to this Agreement (it being understood that all
references herein to "the date hereof" refer to October 30, 2003);
WHEREAS, the Company proposes to issue and sell to the Purchaser, and
the Purchaser proposes to buy, for an aggregate purchase price of
$80,000,003 (subject to increase pursuant to Section 2.2), an aggregate of
6,956,522 shares (subject to adjustment pursuant to Section 2.2) of Series
A 7% Convertible Preferred Stock, par value $0.10 per share (the "Series A
Preferred Stock"); and
WHEREAS, it is a condition to the willingness of the Purchaser to
execute and deliver this Agreement that the Company, the Purchaser and
certain stockholders of the Company execute and deliver the Support
Agreement (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms shall have the meanings
set forth below:
"Acquisition Proposal" has the meaning assigned to such term in
Section 5.2.
"Actions" means actions, causes of action, suits, claims, complaints,
demands, litigations or legal, administrative or arbitral proceedings.
"Additional Shares" has the meaning assigned to such term in Section
2.2.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person and, for purposes of Section 3.21 only,
with respect to any individual, the spouse, parent, sibling, child,
step-child, grandchild, niece or nephew of such individual or the spouse
thereof and any trust for the benefit of such Stockholder or any of the
foregoing. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management
and policies of such Person, whether through the ownership of Voting
Securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" has the meaning assigned to such term in the Preamble.
"Alternative Transaction Notice" has the meaning assigned to such term
in Section 10.1(a)(v).
"Amended Bylaws" means the Amended and Restated Bylaws of the Company,
in the form attached hereto as Exhibit A, which shall provide for
committees for the declaration of dividends on the Series A Preferred Stock
(one committee of Series A Directors and one committee of Independent
Directors) and remove provisions relating to the classification of the
Board of Directors.
"Articles of Amendment" means the Amendment to the Certificate of
Incorporation of the Company, in the form attached hereto as Exhibit B,
which shall, among other things, increase the number of authorized shares
of Preferred Stock to 15,000,000 shares, increase the authorized number of
shares of Common Stock to ensure that there are a sufficient number of
shares of Common Stock outstanding to allow for the conversion of the
Series A Preferred Stock and remove provisions relating to the
classification of the Board of Directors.
"associate" has the meaning assigned in Rule 12b-2 promulgated by the
Commission under the Exchange Act.
"beneficially own" with respect to any securities means having
"beneficial ownership" of such securities as determined pursuant to Rule
13d-3 under the Exchange Act, as in effect on the date hereof.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee thereof.
"Board Recommendation" has the meaning assigned to such term in
Section 6.1(b).
"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which banking institutions in New York City are authorized or
obligated by law or executive order to remain closed.
"Bylaws" means the bylaws of the Company, as the same may have been
amended and in effect as of the Closing Date.
"Certificate of Designations" means the certificate of designations
setting forth the designation, powers and preferences of the Series A
Preferred Stock, substantially in the form attached hereto as Exhibit C.
"Certificate of Incorporation" means the certificate of incorporation
of the Company, as the same may have been amended and in effect as of the
Closing Date.
"Change in the Board Recommendation" has the meaning assigned to such
term in Section 6.1(b).
"Claims" means losses, claims, damages or liabilities, joint or
several, Actions or proceedings (whether commenced or threatened).
"Closing" has the meaning assigned to such term in Section 2.4.
"Closing Amount" has the meaning assigned to such term in Section 2.4.
"Closing Date" has the meaning assigned to such term in Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to
time.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $0.001 per share, of
the Company.
"Company" has the meaning assigned to such term in the Preamble.
"Company Agreements" has the meaning assigned to such term in Section
3.1.
"Company Benefit Plans" means all employee benefit plans providing
benefits to any current or former employee or director of the Company or
any of its Subsidiaries or any beneficiary or dependent thereof that are
sponsored or maintained by the Company or any of its Subsidiaries or ERISA
Affiliates or to which the Company or any of its Subsidiaries or ERISA
Affiliates contributes or is obligated to contribute, including without
limitation all employee welfare benefit plans within the meaning of Section
3(1) of ERISA, all employee pension benefit plans within the meaning of
Section 3(2) of ERISA, and all bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, restricted stock, severance,
termination pay and fringe benefit plans.
"Company Options" has the meaning assigned to such term in Section
3.6.
"Confidentiality Agreement" means the confidentiality agreement dated
July 24, 2003, between New Mountain Capital and the Company.
"Contemplated Transactions" means the transactions contemplated by
this Agreement and the exhibits hereto, including without limitation the
issuance, purchase and sale of the Series A Preferred Stock, the adoption
of the Articles of Amendment, and the Offer.
"Contractual Obligation" means, as to any Person, any agreement,
undertaking, contract, indenture, mortgage, deed of trust, credit
agreement, note, evidence of indebtedness or other instrument, written or
otherwise, to which such Person is a party or by which it or any of its
property is bound.
"Conversion Shares" has the meaning assigned to such term in Section
4.5(c).
"Decrees" has the meaning assigned to such term in Section 3.10(a).
"DGCL" means the Delaware General Corporation Law.
"Employment Agreement" means a contract, offer letter or agreement of
the Company or any of its Subsidiaries with or addressed to any individual
who is rendering or has rendered services thereto as an employee or
consultant, pursuant to which the Company or any of its Subsidiaries has
any actual or contingent liability or obligation in excess of $75,000 to
provide compensation and/or benefits in consideration for past, present or
future services.
"Environmental Claim" means any claim, action, cause of action,
investigation of which the Company or any of its Subsidiaries has
knowledge, or written notice by any Person to the Company or any of its
Subsidiaries alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a) the
presence, or release into the environment, of any Material of Environmental
Concern at any location, or (b) circumstances forming the basis of any
violation or liability, or alleged violation or liability, of any
Environmental Law.
"Environmental Laws" means all Federal, state, local, and foreign
statute, law, regulation, ordinance, rule, common law, judgment, order,
decree or other governmental requirement or restriction relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface
or subsurface strata and natural resources), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; provided that
Environmental Laws does not include the Occupational Safety and Health Act
or any other similar Requirement of Law governing worker safety or
workplace conditions.
"Equitable Principles" means applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws
affecting creditors' rights generally from time to time in effect and to
general principles of equity, regardless of whether in a proceeding at
equity or at law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated thereunder from
time to time.
"ERISA Affiliate" means each entity which is a member of a "controlled
group of corporations," under "common control" or an "affiliated service
group" with the Company or its Subsidiaries within the meaning of Sections
414(b), (c) or (m) of the Code, or required to be aggregated with the
Company or its Subsidiaries under Section 414(o) of the Code, or is under
"common control" with the Company or its Subsidiaries, within the meaning
of Section 4001(a)(14) of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder by the Commission from
time to time.
"Existing Plans" has the meaning assigned to such term in Section 3.6.
"Fully Diluted Basis" has the meaning assigned to such term in Section
2.1.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision of any thereof, and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government or any
international regulatory body or self regulatory organization having or
asserting jurisdiction over a Person, its business or its properties.
"HFG Credit Facility" means the Receivables Purchase Agreement and the
Loan Agreement, each as in effect on the date hereof.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder by
the Federal Trade Commission from time to time.
"Intellectual Property" has the meaning assigned to such term in
Section 3.20.
"knowledge of the Company" means the actual knowledge of the chairman
or any executive officer of the Company or any of its Subsidiaries, after
due inquiry of those persons employed by the Company or its Subsidiaries
charged with administrative or operational responsibility for such matter.
"Leases" has the meaning assigned to such term in Section 3.15.
"Licenses" has the meaning assigned to such term in Section 3.10(b).
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), voting or other
restriction, preemptive right or other security interest of any kind or
nature whatsoever.
"Loan Agreement" means the Loan and Security Agreement, dated as of
January 29, 2002, as amended on the date hereof, between NMHC Funding, LLC,
a Delaware limited liability company, and HFG Healthco-4 LLC, a Delaware
limited liability company.
"Management Rights Letter" means the management rights letter between
the Company and the Purchaser, substantially in the form attached hereto as
Exhibit D.
"Material Adverse Effect" means any material adverse change in or
affecting (i) the business, properties, assets, liabilities, operations,
results of operations (financial or otherwise), condition, or prospects of
the Company and its Subsidiaries taken as a whole or (ii) the ability of
the Company or any of the Company's Subsidiaries to consummate the
Contemplated Transactions; provided, however, that none of the following
shall be deemed in themselves, either alone or in combination, to
constitute, and none of the following shall be taken into account in
determining whether there has been, a Material Adverse Effect: (A) any
change in the market price or trading volume of the capital stock of the
Company after the date hereof, (B) any changes, events or occurrences in
the United States securities markets which are not specific to the Company,
(C) any changes, events, developments or effects resulting from general
economic conditions, which are not specific to the Company or its
Subsidiaries and which do not affect the Company or its Subsidiaries in a
materially disproportionate manner and (D) any changes resulting from the
execution or announcement of this Agreement and the Contemplated
Transactions.
"Material Contracts" has the meaning assigned to such term in Section
3.12.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, industrial, toxic or hazardous wastes, substances or
constituents, petroleum and petroleum products (or any by-product or
constituent thereof), asbestos or asbestos-containing materials, lead or
lead-based paints or materials, PCBs, or radon, or any other materials that
are regulated by, or may form the basis of liability under, any
Environmental Law.
"Maximum Number" has the meaning assigned to such term in Section 6.2.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means The Nasdaq Stock Market Inc.'s National Market System.
"NYSE" means the New York Stock Exchange.
"Offer" has the meaning assigned to such term in Section 6.2.
"Offer Conditions" has the meaning assigned to such term in Section
6.2.
"Offer Consideration" has the meaning assigned to such term in Section
6.2.
"Original Purchase Agreement" has the meaning assigned to such term in
the Preamble.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company,
company, limited liability company, trust, unincorporated association,
Governmental Authority, or any other entity of whatever nature.
"Preferred Stock" has the meaning assigned to such term in Section
3.6.
"Proposed Securities" has the meaning assigned to such term in Section
9.3(a)(i).
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Proxy Statement" has the meaning assigned to such term in Section
6.1(a).
"Purchase Price" has the meaning assigned to such term in Section 2.1.
"Purchaser" has the meaning assigned to such term in the Preamble.
"Qualified Acquisition Proposal" has the meaning assigned to such term
in Section 5.2.
"Receivables Purchase Agreement" means the Receivables Purchase and
Transfer Agreement, dated as of January 29, 2002, as amended on the date
hereof, among the Company, the other providers named therein and NMHC
Funding, LLC, as purchaser.
"Registrable Securities" means the Series A Preferred Stock, the
Common Stock and other securities, if any, issuable upon conversion of the
Series A Preferred Stock, any securities issued pursuant to Purchaser's
rights under Section 9.3, and any other securities included in the term
Registrable Securities in the Registration Rights Agreement, in each case,
until any such security is effectively registered under the Securities Act
and disposed of in accordance with the Registration Statement covering it,
or is distributed to the public by the holder thereof pursuant to Rule 144.
"Registration Rights Agreement" shall have the meaning assigned to
such term in Section 9.1.
"Registration Statement" means any registration statement of the
Company under the Securities Act that covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
related Prospectus, all amendments and supplements to such registration
statement (including post-effective amendments), all exhibits and all
material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"Required Vote" has the meaning assigned to such term in Section
3.24(c).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and bylaws or other organizational or governing documents of
such Person, and any law (including, without limitation, laws related to
Taxes and Environmental Laws), treaty, rule, regulation, ordinance,
qualification, standard, license or franchise or determination of an
arbitrator or a court or other Governmental Authority, including the NYSE
or NASD or any national securities exchange or automated quotation system
on which the Common Stock is listed or admitted to trading, in each case
applicable to, or binding upon, such Person or any of its property or to
which such Person or any of its property is subject or pertaining to any or
all of the transactions contemplated hereby.
"Return" has the meaning assigned to such term in Section 5.1(a)(ix).
"Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission.
"▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act" has the meaning assigned to such term in Section
3.7(a)
"SEC Reports" means each registration statement, report, proxy
statement or information statement (other than preliminary materials) or
other documents filed by the Company or any of its Subsidiaries with the
Commission pursuant to the Securities Act or the Exchange Act or the rules
and regulations thereunder since June 30, 2001, each in the form (including
exhibits and any amendments) filed with the Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder by the Commission from time to
time.
"Series A Preferred Stock" has the meaning assigned to such term in
the Recitals hereto.
"Shares" mean the shares of Common Stock.
"Stockholders Meeting" has the meaning assigned to such term in
Section 6.1(b).
"Subsidiary" of any specified Person means any other Person more than
50% of the outstanding voting securities of which is owned or controlled,
directly or indirectly, by such specified Person or by one or more other
Subsidiaries of such specified Person, or by such specified Person and one
or more other Subsidiaries of such specified Person. For the purposes of
this definition, "voting securities" means securities which ordinarily have
voting power for the election of directors (or other Persons having similar
functions), whether at all times or only so long as no senior class of
securities has such voting power by reason of any contingency, or other
ownership interests ordinarily constituting a majority voting interest.
"Superior Proposal" has the meaning assigned to such term in Section
6.1(b).
"Support Agreement" means the Support Agreement, dated as of the date
hereof, by and among the Company, the stockholders listed therein and the
Purchaser.
"Support Payment" has the meaning assigned to such term in Section
10.3.
"Tax Claim" has the meaning assigned to such term in Section
5.1(a)(ix).
"Tax" or "Taxes" means any taxes, assessment, duties, fees, levies,
imposts, deductions, or withholdings, including income, gross receipts, ad
valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers'
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever, imposed by any taxing
authority of any government or country or political subdivision of any
country, and any liabilities with respect thereto, including any penalties,
additions to tax, fines or interest thereon and includes any liability for
Taxes of another Person by Contract, as a transferee or successor, under
Treasury Regulation 1.1502-6 or analogous state, local or foreign
Requirement of Law provision or otherwise.
"Tax Holdback" has the meaning assigned to such term in Section 10.3.
"Tendered Shares" has the meaning assigned to such term in the Support
Agreement.
"Termination Payment" has the meaning assigned to such term in Section
10.3.
"Transaction Expenses" has the meaning assigned to such term in
Section 12.2(b).
"Voting Securities" mean any class or classes of stock of the Company
pursuant to which the holders thereof have the general power under ordinary
circumstances to vote with respect to the election of the Board of
Directors, irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency.
ARTICLE 2
PURCHASE AND SALE OF SERIES A PREFERRED STOCK
2.1 Purchase and Sale of Series A Preferred Stock. Subject to the
terms set forth herein and in reliance upon the representations set forth
below, the Company shall issue and sell to the Purchaser and the Purchaser
shall purchase from the Company 6,956,522 shares of Series A Preferred
Stock, for an aggregate purchase price of $80,000,003 (subject to increase
pursuant to Section 2.2) (the "Purchase Price"). Immediately following the
Closing, and assuming the Maximum Number are tendered into the Offer, the
Purchaser shall own 54.6% (subject to adjustment pursuant to Section 2.2)
of the equity of the Company on a fully diluted basis (i.e., assuming the
exercise of all Company Options (whether or not vested) and the issuance of
all shares of Common Stock listed on Schedule 3.6, the granting and
exercise of all the options or securities allowed pursuant to Section
5.6(iii) and the conversion of the Series A Preferred Stock into Common
Stock, all as of the Closing ("Fully Diluted Basis")).
2.2 Increase in Purchase Amount. If the Company and the Purchaser so
agree, at the Closing the Company shall issue and sell to the Purchaser
additional shares of Series A Preferred Stock for a purchase price of
$11.50 per share (the "Additional Shares"). The Company and the Purchaser
agree that if the Company issues and sells to the Purchaser any Additional
Shares, the Company will increase the Maximum Number by a number of shares
(rounded up to the nearest whole share) equal to (x) the amount of the
additional proceeds received from the issuance of the Additional Shares
divided by (y) the Offer Consideration.
2.3 Certification of Designation. The Series A Preferred Stock shall
have the powers, rights and other terms set forth in the form of
Certificate of Designations attached hereto as Exhibit C.
2.4 Closing. The issuance, sale and purchase of the Series A Preferred
Stock shall take place at a closing (the "Closing") to be held at the
offices of Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, One New York Plaza,
New York, New York, at 10:00 A.M., local time, on the Closing Date. On the
first Business Day after the conditions set forth in Sections 7.1 and 8.1
(other than those to be satisfied on the Closing Date, which shall be
satisfied or waived on such date) have been satisfied or waived by the
party entitled to waive such conditions or such later date and time as the
parties may agree in writing (the "Closing Date"), (A) the Purchaser shall
(x) deliver to the Company by wire transfer in immediately available funds
to an account or accounts designated in writing by the Company to the
Purchaser at least two Business Days prior to the Closing Date, funds in an
amount equal to the Purchase Price (which funds will be used by the Company
in accordance with Section 2.5) and (y) make or cause to be made the
deliveries set forth in Section 8.1 and (B) the Company shall (w) accept
for payment and pay for shares validly tendered in the Offer and not
withdrawn as set forth in Section 6.2, (x) issue and deliver to the
Purchaser all of the shares of the Series A Preferred Stock registered in
the name of the Purchaser, (y) pay to the Purchaser or its designated
Affiliate by wire transfer of immediately available funds to an account or
accounts designated in writing by the Purchaser to the Company at least two
Business Days before the Closing an amount equal to $1,450,000 (the
"Closing Amount") and (z) make or cause to be made the deliveries set forth
in Section 7.1.
2.5 Use of Proceeds. Up to $50,000,005 (subject to adjustment pursuant
to Section 2.2) of the amount received by the Company in respect of the
Purchase Price shall be used by the Company solely to purchase the Shares
pursuant to and in accordance with the Offer, and the Company shall not,
without the prior written consent of the Purchaser, borrow any moneys or
use any funds, from whatever source, to finance the Offer and the balance
of the Purchase Price shall be used for working capital and other purposes
approved by the Board of Directors.
2.6 Additional Issuances; Adjustment. (a) In the event that at any
time after the Closing the representation and warranty set forth in the
last sentence of Section 3.6 (as adjusted pursuant to Section 2.2) is
determined not to have been true as of the Closing, the Company shall issue
to the Purchaser, at no cost to the Purchaser, and as an adjustment to the
purchase price paid by the Purchaser per share of Series A Preferred Stock,
an additional amount of Series A Preferred Stock such that, if such
issuance of additional Series A Preferred Stock had been made at the
Closing, such representation and warranty would have been true and accurate
in all respects at the Closing.
(b) If at the time of any required adjustment pursuant to Section
2.6(a), all shares of Series A Preferred Stock have been converted into
shares of Common Stock, the Company shall promptly issue to the Purchaser,
at no cost to the Purchaser and as an adjustment to the purchase price paid
by the Purchaser per share of Series A Preferred Stock, an additional
amount and kind of Common Stock equal to the amount and kind of Common
Stock issuable upon the conversion (based on the conversion ratio in effect
at the time the last shares of Series A Preferred Stock were converted into
shares of Common Stock) of the amount of Series A Preferred Stock which
would have been issued with respect to such adjustment pursuant to Section
2.6(a) if such adjustment had been made immediately prior to the time the
last shares of Series A Preferred Stock were converted into shares of
Common Stock.
(c) Any additional shares of Series A Preferred Stock and Common
Stock issued to the Purchaser pursuant to this Section 2.6 shall be treated
as if they were issued at the Closing and shall reflect any dividends or
other distributions which would have accrued or have been payable with
respect to, and the application of any anti-dilution, ratable treatment or
similar provisions (as set forth in the Certificate of Incorporation,
Certificate of Designations, applicable law or otherwise) which would have
been applicable to, such shares of Series A Preferred Stock and Common
Stock had they been issued at the Closing.
(d) In connection with any issuances of stock pursuant to this
Section 2.6, the Company (i) shall take all action necessary to cause its
Certificate of Incorporation or Certificate of Designations to be amended
to increase the authorized capital of the Company to permit such issuances
and (ii) shall reserve a sufficient number of shares of Common Stock for
issuance to the Purchaser upon the conversion of any shares of Series A
Preferred Stock so issued. Any shares of Series A Preferred Stock or Common
Stock issued to the Purchaser pursuant to this Section 2.6 shall, when
issued, be validly issued and fully paid and nonassessable with no personal
liability attaching to the ownership thereof and free and clear of all
Liens.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware; (b) has all requisite corporate power and authority
to own and operate its properties, to lease the properties it operates as
lessee and to carry on its business as currently conducted and currently
contemplated to be conducted; and (c) has (or will have, as applicable) all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement, the Support Agreement, the Registration
Rights Agreement, the Management Rights Letter, the Articles of Amendment,
the Amended Bylaws and the Certificate of Designations (collectively, the
"Company Agreements"). The Company is duly qualified to do business as a
foreign corporation in, and is in good standing under the laws of, each
jurisdiction in which the conduct of its business or the nature of the
property owned requires such qualification except where the failure to be
so qualified or in good standing, individually or in the aggregate, has not
had and would not reasonably be expected to have a Material Adverse Effect.
3.2 Subsidiaries. Except as set forth on Schedule 3.2, the Company has
no Subsidiaries and no interest or investments in any corporation,
partnership, limited liability company, trust or other entity or
organization. Each Subsidiary listed on Schedule 3.2 has been duly
organized, is validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite corporate (or, in the
case of an entity other than a corporation, other) power and authority to
own and operate its properties, to lease the properties it operates as
lessee and to carry on its business as currently conducted and currently
contemplated to be conducted, and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or the nature of its properties requires such qualification except
where the failure to be so qualified or in good standing, individually or
in the aggregate, has not had and would not reasonably be expected to have
a Material Adverse Effect. Except as set forth on Schedule 3.2, all of the
issued and outstanding stock (or equivalent interests) of each Subsidiary
set forth on Schedule 3.2 has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Company free and clear of
any Liens and there are no rights, options or warrants outstanding or other
agreements to acquire shares of stock (or equivalent interests) of such
Subsidiary. Schedule 3.2 sets forth the capitalization of each of the
Subsidiaries, including the amount and kind of equity interests held by the
Company in the Subsidiary and the percentage interest represented thereby.
3.3 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company of each Company Agreement and the
consummation of the Contemplated Transactions, (a) subject to the
satisfaction of the matters described in Section 3.24(c), have been duly
authorized by all necessary corporate action of the Company; (b) do not
contravene the terms of the Certificate of Incorporation or Bylaws or the
organizational documents of its Subsidiaries; (c) do not entitle any Person
to exercise any statutory or contractual preemptive rights to purchase
shares of capital stock or any equity interest in the Company and (d)
subject to receipt or satisfaction of the approvals, consents, exemptions,
authorizations or other actions, notices or filings set forth on Schedule
3.4, and except as may result from any facts or circumstances relating
solely to the Purchaser or its Affiliates, do not violate or result in any
breach or contravention of, a default under, or an acceleration of any
obligation under or the creation (with or without notice, lapse of time or
both) of any Lien under, result in the termination or loss of any right or
the imposition of any penalty under any Contractual Obligation of the
Company or its Subsidiaries or by which their respective assets or
properties are bound or any Requirement of Law applicable to the Company or
its Subsidiaries or by which their respective assets or properties are
bound except for any of the foregoing that, individually or in the
aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.3, no event has
occurred and no condition exists which (upon notice or the passage of time
or both) would constitute, or give rise to: (i) any breach, violation,
default, change of control or right to cause the Company to repurchase or
redeem under, (ii) any Lien on the assets of the Company or any of its
Subsidiaries under, (iii) any termination right of any party, or any loss
of any right or imposition of any penalty, under or (iv) any change or
acceleration in the rights or obligations of any party under, any material
Contractual Obligation of the Company or its Subsidiaries (or by which
their respective assets or properties are bound) or the Certificate of
Incorporation or Bylaws or the organizational documents of the Company's
Subsidiaries except for any of the foregoing that, individually or in the
aggregate, would not be material to the Company and its Subsidiaries taken
as a whole.
3.4 Governmental Authorization; Third Party Consents. Except as set
forth on Schedule 3.4, no approval, consent, qualification, order,
exemption, authorization or other action by, or notice to, or filing with,
any Governmental Authority, or any other Person in respect of any
Requirement of Law, Contractual Obligation or otherwise, and no lapse of a
waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the issuance, sale and delivery of the Series A Preferred
Stock) by the Company, or enforcement against the Company, of the Company
Agreements or the consummation of the Contemplated Transactions except for
any of the foregoing that, if not obtained, given or made, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
3.5 Binding Effect. Each of the Company Agreements has been (or will,
as of the Closing, be, as applicable) duly authorized, executed and
delivered by the Company and, subject to Equitable Principles, constitutes
(or will, as of the Closing, constitute, as applicable) the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
3.6 Capitalization of the Company and its Subsidiaries. The authorized
stock of the Company consists of (i) 25,000,000 shares of Common Stock and
(ii) 10,000,000 shares of preferred stock, par value $0.10, of the Company
(the "Preferred Stock"). As of the date hereof, (a) no shares of Preferred
Stock are issued or outstanding, (b) 7,651,918 shares of Common Stock were
issued and outstanding, (c) 3,050,000 shares of Common Stock were reserved
for or subject to issuance upon the exercise of outstanding Company
Options, and (d) shares of Common Stock are issuable in connection with the
earn-out provision in connection with the acquisition by the Company of
Portland Professional Pharmacy and Portland Professional Pharmacy
Associates as set forth on Schedule 3.6. Schedule 3.6 sets forth a true and
correct list of all outstanding rights, options or warrants to purchase
shares of any class or series of stock of the Company (collectively, the
"Company Options") and a true and correct list of each of the Company's
stock option, incentive, purchase or other plans pursuant to which options
or warrants to purchase stock of the Company may be issued (collectively,
the "Existing Plans"). Except (1) as set forth in subsection (d) in the
first sentence of this Section 3.6, (2) for shares of Common Stock issued
pursuant to the exercise of outstanding Company Options, and (3) for shares
of Common Stock issuable upon conversion of the Series A Preferred Stock,
on the Closing Date there will be no shares of Common Stock or any other
equity security of the Company issued or outstanding and no shares of
Common Stock or any other equity security of the Company or any of its
Subsidiaries issuable upon conversion or exchange of any security of the
Company or any of its Subsidiaries nor will there be any rights, options or
warrants outstanding or other agreements to acquire shares of stock of the
Company or any of its Subsidiaries nor will the Company or any of its
Subsidiaries be contractually obligated to issue any shares of stock or to
purchase, redeem or otherwise acquire any of its outstanding shares of
stock. Neither the Company nor any of its Subsidiaries has created any
"phantom stock," stock appreciation rights or other similar rights the
value of which is related to or based upon the price or value of the Common
Stock. Neither the Company nor any of its Subsidiaries has outstanding debt
or debt instruments providing for voting rights with respect to the Company
or such Subsidiary to the holders thereof. No stockholder of the Company or
any of its Subsidiaries or other Person is entitled to any preemptive or
similar rights to subscribe for shares of stock of the Company or any of
its Subsidiaries. All of the issued and outstanding shares of Common Stock
are duly authorized, validly issued, fully paid, and nonassessable. Except
as set forth on Schedule 3.6 hereto, neither the Company nor any of its
Subsidiaries has granted to any Person the right to demand or request that
the Company or such Subsidiary effect a registration under the Securities
Act of any securities held by such Person or to include any securities of
such Person in any such registration by the Company or such Subsidiary.
Immediately following the Closing, and assuming that the Maximum Number are
tendered into the Offer, the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock that will be issued to the
Purchaser under this Agreement will represent, in the aggregate, no less
than 54.6% (as adjusted pursuant to Section 2.2) of the outstanding capital
stock of the Company on a Fully Diluted Basis, and the voting power of such
issued shares of Series A Preferred Stock will represent, in the aggregate,
no less than 54.6% (as adjusted pursuant to Section 2.2) of the total
number of votes able to be cast on any matter by Voting Securities of the
Company on a Fully Diluted Basis.
3.7 SEC Documents; ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Compliance. (a) The Company has made
available to the Purchaser the SEC Reports filed with the Commission prior
to the date hereof. The Company and each of its Subsidiaries have timely
filed each registration statement, report, proxy statement or information
statement (other than preliminary materials) or other documents required to
be filed by it with the Commission pursuant to the Securities Act or the
Exchange Act or the rules and regulations thereunder since June 30, 2001.
As of their respective dates, the SEC Reports (i) were prepared in all
material respects in accordance with the applicable requirements of the
Securities Act, the Exchange Act, and the rules and regulations thereunder
and complied in all material respects with the then applicable accounting
requirements, (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in the light of the circumstances
under which they were made, not misleading, except for those statements, if
any, as have been modified by subsequent filings with the Commission prior
to the date hereof, and (iii) with respect to SEC Reports filed after July
30, 2002, at the time filed included or were accompanied by the
certifications required by the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules and
regulations promulgated thereunder (the "▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act") to be filed
or submitted by the Company's principal executive officer and principal
financial officer (each of which certification was true and correct and
complied with the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act) and otherwise complied in all
material respects with the applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act. The financial statements and other financial information included in
each of the SEC Reports fairly present, in all material respects, the
financial condition, results of operations and cash flows of the Company
and its Subsidiaries as of, and for the periods presented in, the
applicable SEC Reports. Except as set forth on Schedule 3.7, each of the
consolidated balance sheets of the Company and its Subsidiaries included in
or incorporated by reference into the SEC Reports (including the related
notes and schedules) present fairly, in all material respects, the
financial position of the Company and its Subsidiaries as of its date and
each of the consolidated statements of operations, cash flows and
shareholders' equity of the Company and its Subsidiaries included in or
incorporated by reference into the SEC Reports (including any related notes
and schedules) present fairly, in all material respects, the results of
operations and cash flows of the Company and its Subsidiaries for the
periods set forth, in each case in conformity with GAAP consistently
applied during the periods involved, except as may be noted (subject, in
the case of unaudited statements, to those exceptions as may be permitted
by Form 10-Q of the Commission and to normal year-end audit adjustments).
(b) The management of the Company has (i) designed disclosure
controls and procedures to ensure that material information relating to the
Company, including its consolidated Subsidiaries, is made known to the
management of the Company by others within those entities, and (ii) has
disclosed, based on its most recent evaluation, to the Company's outside
auditors and the audit committee of the Board of Directors (A) any
significant deficiencies in the design or operation of internal controls
which could adversely affect the Company's ability to record, process,
summarize and report financial data and have identified for the Company's
outside auditors any material weaknesses in internal controls and (B) any
fraud, whether or not material, that involves management or other employees
who have a significant role in the Company's internal controls. A summary
of any of those disclosures made by management to the Company's auditors
and audit committee has been furnished to Purchaser. The Company and each
of its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(c) Since June 30, 2001, neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, any director, officer,
employee, auditor, accountant or representative of the Company or any of
its Subsidiaries has received or otherwise had or obtained knowledge of any
complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures, methodologies
or methods of the Company or any of its Subsidiaries or their respective
internal accounting controls, including any complaint, allegation,
assertion or claim that the Company or any of its Subsidiaries has engaged
in questionable accounting or auditing practices. No attorney representing
the Company or any of its Subsidiaries, whether or not employed by the
Company or any of its Subsidiaries, has reported evidence of a material
violation of securities laws, breach of fiduciary duty or similar violation
by the Company or any of its officers, directors, employees or agents to
the Board of Directors or any committee thereof or to any director or
officer of the Company.
(d) To the knowledge of the Company, no employee of the Company
or any of its Subsidiaries has provided or is providing information to any
law enforcement agency regarding the commission or possible commission of
any crime or the violation or possible violation of any law, rule,
regulation, order, decree or injunction. Neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, any contractor,
subcontractor or agent of the Company or any such Subsidiary of the Company
has discharged, demoted, suspended, threatened, harassed or in any other
manner discriminated against an employee of the Company or any of its
Subsidiaries in the terms and conditions of employment because of any act
of such employee described in 18 U.S.C. ss.1514A(a).
3.8 Absence of Certain Developments. Since June 30, 2002, except as
set forth on Schedule 3.8 and except as described in the SEC Reports filed
with the Commission prior to the date hereof (a) each of the Company and
its Subsidiaries has operated in the ordinary course, (b) there has been no
occurrence or event of the type set forth in Section 5.1(a) and (c) there
has occurred no fact, event, circumstance or development that, individually
or in the aggregate, has had or would reasonably be expected to have a
Material Adverse Effect.
3.9 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any material liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, except (a) liabilities or
obligations disclosed or reserved against in the SEC Reports filed with the
Commission prior to the date hereof, (b) liabilities or obligations which
arose after the last date of any such SEC Report, in the ordinary course of
business consistent with past practice that, individually or in the
aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect and (c) except as set forth on Schedule 3.9,
liabilities incurred in connection with the Contemplated Transactions that
are not in breach of this Agreement.
3.10 Compliance with Laws. (a) Except as set forth in the SEC Reports
filed with the Commission prior to the date hereof or as set forth on
Schedule 3.10(a), neither the Company nor any of its Subsidiaries in the
conduct of its business, is, or since June 30, 2001, has been, in violation
of any Requirement of Law, or any judgments, orders, rulings, injunctions
or decrees of a Governmental Authority (collectively, "Decrees"),
applicable thereto or to the employees conducting such business, except for
violations that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect.
(b) Licenses. The Company and its Subsidiaries as applicable,
have obtained or made, as the case may be, all permits, licenses,
authorizations, orders and approvals, and all filings, applications and
registrations with, all Governmental Authorities ("Licenses"), that are
required to conduct the businesses of the Company and its Subsidiaries in
the manner and to the full extent as currently conducted or currently
contemplated to be conducted except where such failure to obtain or make,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect. None of such Licenses is
subject to any restriction or condition that limits or would reasonably be
expected to limit in any material way the full operation of the Company or
its Subsidiaries as currently conducted or currently contemplated to be
conducted. Each of the Licenses has been duly obtained, is valid and in
full force and effect, and is not subject to any pending or threatened
proceeding to limit, condition, suspend, cancel, suspend, or declare such
License invalid. Neither the Company nor any of its Subsidiaries is in
default in any material respect with respect to any of the Licenses, and to
the knowledge of the Company no event has occurred which constitutes, or
with due notice or lapse of time or both may constitute, a default by the
Company or any such Subsidiary under any License.
3.11 Litigation. Except as set forth on Schedule 3.11, there is no
legal action, suit, arbitration, proceeding or, to the knowledge of the
Company, other legal, administrative or other governmental investigation or
inquiry pending or claims asserted (or, to the knowledge of the Company,
any threat thereof) to which the Company or any of its Subsidiaries or
relating to any of the Company Agreements or the Contemplated Transactions
or against any officer, director or employee of the Company in connection
with such Person's relationship with or actions taken on behalf of the
Company that, individually or in the aggregate, has had or would reasonably
be expected to have a Material Adverse Effect or would reasonably be
expected to prohibit or materially delay the Closing. The Company is not
subject to any Decree that, individually or in the aggregate, has had or
would reasonably be expected to have a Material Adverse Effect.
3.12 Material Contracts. (a) Schedule 3.12(a) sets forth as of the
date hereof a true, correct and complete list of the following Contractual
Obligations (including every written amendment, modification or supplement
to the foregoing or other material amendment, modification or supplement to
the foregoing that is binding on the Company or any of its Subsidiaries) to
which the Company or any of its Subsidiaries is a party: (i) any
Contractual Obligation that is a "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K of the Commission), (ii)
Contractual Obligations that collectively represent the top 20 agreements
(based on rebate receipts) with pharmaceutical manufacturers for the
Company and its Subsidiaries during the Company's last fiscal year, (iii)
Contractual Obligations that collectively represent the top 20 agreements
(based on revenue) for pharmacy benefit management services provided by the
Company and its Subsidiaries during the Company's last fiscal year, (iv)
Contractual Obligations that collectively represent the top 20 (based on
payments) pharmacy agreements during the Company's last fiscal year, (v)
any Contractual Obligation (other than a Contractual Obligation described
in one of the other provisions of this Section 3.12(a) without regard to
any threshold contained therein) that involves annual expenditures during
the Company's last fiscal year by the Company or any Company Subsidiary in
excess of $200,000 and is not otherwise cancelable by the Company or any of
its Subsidiaries without any financial or other penalty on 90-days' or less
notice, (vi) any Lease for real property or (vii) any other Contractual
Obligation that is material to the Company or its Subsidiaries (each
Contractual Obligation referenced above in clauses (i) through (vii)
individually, a "Material Contract" and collectively, "Material
Contracts"); provided that, with respect to Company Material Contracts
described above, such list shall identify the date of such contract and any
communications (written or, to the knowledge of the Company, oral) received
by the Company or its Subsidiaries from any party to such contract or on
behalf of any such party that such party intends to cancel, terminate, seek
re-bidding of or fail to renew such contract. Except as set forth on
Schedule 3.12(a), the Company has delivered or made available true, correct
and complete copies of all such Contractual Obligations to counsel to
Purchaser.
(b) All of the Material Contracts are valid, binding and in full
force and effect in all material respects and enforceable by the Company in
accordance with their respective terms in all material respects, subject to
Equitable Principles. The Company is not in material default or breach
under any of its Contractual Obligations or organizational documents and,
to the knowledge of the Company, no other party to any of its Contractual
Obligations is in material default or breach thereunder (and no event has
occurred which with the passage of time or the giving of notice or both
would result in a material default or breach by the Company or, to the
knowledge of the Company, by any other party thereunder). Except as set
forth on Schedule 3.12(b), neither the Company nor any of its Subsidiaries
is a party to any non-competition agreement or any other agreement or
obligation that materially limits or will materially limit the Company or
any of its Subsidiaries from engaging in any line of business in any
territory.
3.13 Environmental. Except as set forth on Schedule 3.13, the Company
and its Subsidiaries are, and have been, in compliance with all
Environmental Laws, except where such non-compliance, individually or in
the aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries
has received any written notice that alleges that the Company or its
Subsidiaries is not in compliance with any Environmental Laws, and to the
knowledge of the Company, there are no circumstances that could reasonably
be expected to prevent or interfere with such compliance in the future.
There is no Environmental Claim pending, or to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries with
respect to the operations or business of the Company or its Subsidiaries,
or against any Person whose liability for any Environmental Claim the
Company or its Subsidiaries has retained or assumed either contractually or
by operation of law. Except as, individually or in the aggregate, has not
had and would not reasonably be expected to have a Material Adverse Effect,
there has been no release at any time of any Materials of Environmental
Concern at, on, about, under or within any real property currently, or to
the knowledge of the Company, formerly owned, leased, operated or
controlled by the Company or any of its Subsidiaries or any of their
predecessors.
3.14 Taxes. Except as set forth on Schedule 3.14 hereto, all Returns
required to be filed by the Company and each of its Subsidiaries have been
timely filed (after giving effect to any valid extensions of time in which
to make such filings) and all such Returns are true, complete, and correct
in all material respects. All Taxes that are due or claimed to be due from
the Company and each of its Subsidiaries have been timely paid, other than
those (i) currently payable without penalty or interest or (ii) being
contested in good faith and by appropriate proceedings and for which, in
the case of both clauses (i) and (ii), adequate reserves have been
established on the books and records of the Company and its Subsidiaries in
accordance with GAAP. There are no proposed, asserted, ongoing or to the
knowledge of the Company, threatened, assessments, examinations, claims,
deficiencies, Liens or other litigation with regard to any Taxes or Returns
of the Company or any of its Subsidiaries. To the knowledge of the Company,
the accruals and reserves on the books and records of the Company and its
Subsidiaries in respect of any Tax liability for any taxable period not
finally determined are adequate to meet any assessments of Tax for any such
period. The Company is not a United States real property holding
corporation as defined in Section 897(c)(2) of the Code. Except as set
forth on Schedule 3.14, the Company and each of its Subsidiaries are not
currently the beneficiary of any extension of time within which to file any
Tax Return. All material amounts required to be collected or withheld by
the Company or any of its Subsidiaries have been collected or withheld and
any such amounts that are required to be remitted to any taxing authority
have been duly and timely remitted. Neither the Company nor any of its
Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency. No taxing authority in a jurisdiction where the Company or its
Subsidiaries do not file Tax Returns has made a written claim or assertion
that the Company or its Subsidiaries are or may be subject to taxation by
such jurisdiction. Except as set forth on Schedule 3.14, the Company and
each of its Subsidiaries is not a party to or bound by any Tax sharing or
Tax allocation or similar Contractual Obligation. True and complete copies
of all income Tax Returns that have been filed by the Company or any of its
Subsidiaries for Tax periods after December 31, 1999 have been delivered or
made available to the Purchaser. The Company and each of its Subsidiaries
(A) has not been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group of which the Company was the
common parent) or (B) does not have any liability for the Taxes of any
Person (other than the Company) under Treasury Regulation ss. 1.1502-6 (or
any similar provision of state, local, or foreign Requirement of Law), as a
transferee or successor, by contract, or otherwise. The Company and each of
its Subsidiaries has not agreed, and is not required to include in income
any adjustment pursuant to Section 481(a) of the Code (or analogous
provision of foreign, state, or local Requirement of Law) by reason of a
change in accounting method or otherwise, and the Company and each of its
Subsidiaries does not have knowledge that the Internal Revenue Service (or
other taxing authority) has proposed or is considering any such change in
accounting. The Company and each of its Subsidiaries will not be required
to include any item of income in, or exclude any item of deduction from,
taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any: (A) "closing agreement" as described in
Code ss. 7121 (or any corresponding or similar provision of state, local or
foreign income Tax Requirement of Law) executed on or prior to the Closing
Date; (B) installment sale or open transaction disposition made on or prior
to the Closing Date; or (C) prepaid amount received on or prior to the
Closing Date.
3.15 Title to Property and Assets; Leases. Except as set forth on
Schedule 3.15, each of the Company and its Subsidiaries has good and
marketable title, free and clear of all Liens to all of its assets,
including all real property and interests in real property owned in fee
simple by the Company and its Subsidiaries and all real property leased,
subleased or otherwise occupied by the Company and its Subsidiaries and any
assets and properties which it purports to own, except (i) Liens for taxes
not yet due and payable and (ii) Liens that do not interfere with the use,
utility or value of such assets in any material respect. All leases to
which the Company or any of its Subsidiaries is a party (collectively, the
"Leases") are valid and binding and in full force and effect in accordance
with their respective terms on the Company and its Subsidiaries and, to the
knowledge of the Company, with respect to each other party to any such
Leases, except, in each case, subject to Equitable Principles. No material
default (or event which, with the giving of notice or passage of time, or
both, would constitute a material default) by the Company or any of its
Subsidiaries, or to the knowledge of the Company by any other party
thereto, has occurred and is continuing under the Leases. The Company and
its Subsidiaries enjoy a peaceful and undisturbed possession under all such
Leases to which any of them is a party as lessee. With respect to each
Lease, to the knowledge of the Company, either (a) such Lease is not
subject or subordinate to any mortgage, deed of trust or other lien which
has priority over such Lease, or (b) the holder of any such lien has
entered into a valid, binding and enforceable nondisturbance agreement in
favor of the lessee pursuant to which the Lease cannot be extinguished or
terminated by reason of any foreclosure or other acquisition of title by
such holder if the lessee thereunder is not in default under the Lease as
of the date of acquisition of title. As used herein, the term "Lease" shall
also include subleases or other occupancy agreements (and any amendments
thereto) and the term "lessee" shall also include any sublessee or other
occupant. Neither the Company nor any of its Subsidiaries own any real
property.
3.16 Compliance with ERISA. Except as set forth on Schedule 3.16, the
Company has made available to the Purchaser true and complete copies of
each Employment Agreement and each material Company Benefit Plan, as well
as certain related documents, including, but not limited to, (a) the
actuarial report for such Company Benefit Plan (if applicable) for each of
the last two years, (b) the most recent determination letter from the IRS
(if applicable) for such Company Benefit Plan, (c) the two most recent
annual reports (Series 5500 and related schedules) required under ERISA (if
any), (d) the most recent summary plan descriptions (with all material
modifications) and (e) all material communications to any current or former
employees of the Company relating to any material Company Benefit Plan or
Employment Agreement. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect: (A)
each of the Company Benefit Plans has been operated and administered in all
material respects in compliance with its terms and all applicable laws; (B)
each of the Company Benefit Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified; and (C) there are no
pending, or to the knowledge of Company, threatened claims (other than
routine claims for benefits) by, on behalf of or against any of the Company
Benefit Plans or any trusts related thereto or pursuant to any Employment
Agreement. Neither the Company nor any ERISA Affiliate currently sponsors,
maintains or contributes to, and is not required to contribute to, nor has
ever sponsored, maintained or contributed to, and been required to
contribute to, or incurred any liability with respect to any "employee
benefit plan" (within the meaning of Section 3(3) of ERISA) that is subject
to Section 302 of the Code or Title IV of ERISA. No non-exempt "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406
of ERISA, has occurred with respect to any Company Benefit Plan which
could, individually or in the aggregate, reasonably be expected to result
in a material liability to the Company. No material liability under any
Company Benefit Plan has been funded nor has any such obligation been
satisfied with the purchase of a contract from an insurance company as to
which the Company has received notice that such insurance company is
insolvent or is in rehabilitation or any similar proceeding. Except as
would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, no Company Benefit Plan is under audit or, to
the knowledge of the Company, investigation by, or is the subject of a
proceeding with respect to, the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation, and, to the knowledge of the Company, no such
audit, investigation or proceeding is threatened. Except as set forth on
Schedule 3.16, with respect to each Company Benefit Plan which provides
medical benefits, short-term disability benefits or long-term disability
benefits (other than any "pension plan" within the meaning of Section 3(2)
of ERISA), all claims incurred by the Company under such Company Benefit
Plan are either insured pursuant to a contract of insurance whereby the
insurance company bears any risk of loss with respect to such claims or
covered under a contract with a health maintenance organization pursuant to
which such health maintenance organization bears the liability for such
claims. Except as set forth on Schedule 3.16 hereto or disclosed in the SEC
Reports filed with the Commission prior to the date hereof, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (either alone or in conjunction with
any other event such as termination of employment) (i) result in, or cause
any increase, acceleration or vesting of, any payment, benefit or award
under any Company Benefit Plan or Employment Agreement to any director or
employee of Company or any of its Subsidiaries, (ii) give rise to any
obligation to fund for any such payments, awards or benefits, (iii) give
rise to any limitation on the ability of the Company or any of its
Subsidiaries to amend or terminate any Company Benefit Plan, or (iv) result
in any payment or benefit that will or may be made by the Company or any of
its Subsidiaries or affiliates that will be characterized as an "excess
parachute payment," within the meaning of Section 280G of the Code. Except
as set forth on Schedule 3.16, neither the Company nor any of its
Subsidiaries or ERISA Affiliates has any liability to provide any
post-retirement or post-termination life, health, medical or other welfare
benefits to any current or former employees or beneficiaries or dependents
thereof which, individually or in the aggregate, is material, except for
health continuation coverage as required by Section 4980B of the Code or
Part 6 of Title I of ERISA or applicable state healthcare continuation
coverage laws which, individually or in the aggregate, is at no material
expense to the Company and its Subsidiaries. With respect to each Company
Benefit Plan, there are no understandings, agreements or undertakings that
would prevent the Company from amending or terminating such Company Benefit
Plan at any time without incurring material liability thereunder other than
in respect of accrued obligations and medical or welfare claims incurred
prior to such amendment or termination.
3.17 Labor Relations; Employees. Except as set forth on Schedule 3.17,
the Company is not in any material respect delinquent in payments to any of
its current or former employees for any wages, salaries, commissions,
bonuses or other direct compensation for any services performed by such
employee or for reimbursement of expenses. The Company is in material
compliance with all applicable Requirements of Law respecting employment,
employment practices, labor, terms and conditions of employment and wages
and hours. The Company is not a party to any Contractual Obligation with
any labor union, and no labor union has since July 1, 2001 requested or
sought to represent any of the employees, representatives or agents of the
Company. There is no labor strike, dispute, slowdown or stoppage pending
or, to the knowledge of the Company, threatened against or involving the
Company. To the knowledge of the Company, no key employee has announced
plans to terminate his or her employment with the Company.
3.18 Certain Payments. Neither the Company nor any Subsidiary nor, to
the knowledge of the Company, any director, officer, agent, employee, or
other Person associated with or acting on behalf of any of them, has
directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to
pay for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect
of the Company or any Subsidiary or any Affiliate of the Company or any
Subsidiary, or (iv) in violation of any Requirement of Law, or (b)
established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.19 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurers, insurance in such amounts,
including deductible arrangements, and of such a character as is, in the
judgment of the Board of Directors, reasonable in light of the risks faced
by the Company in the conduct of its business. All policies of title, fire,
liability, casualty, business interruption, workers' compensation and other
forms of insurance including, but not limited to, directors and officers
insurance, held by the Company and its Subsidiaries, are in full force and
effect in accordance with their terms. Neither the Company nor any of its
Subsidiaries is in default in any material respect under any provisions of
any such policy of insurance that has not been remedied and no such Person
has received notice of cancellation of any such insurance.
3.20 Intellectual Property. The Company and its Subsidiaries own the
entire and unencumbered right, title and interest in and to, or possess
adequate licenses or other rights to use, all intellectual property,
including but not limited to, patents, trademarks, service marks, trade
names, trade secrets, copyrights, domain names, computer software
(including but not limited to code, data, databases and documentation) and
know-how used in, or necessary to, the business as currently conducted or
currently contemplated to be conducted by the Company or any of its
Subsidiaries (the "Intellectual Property") except where such failure to so
own or possess, individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect. All Intellectual
Property which is a material patent, trademark, service ▇▇▇▇, trade name,
copyright or domain name is set forth on Schedule 3.20. The Company and
each of its Subsidiaries have performed all commercially reasonable acts to
protect and maintain its material Intellectual Property, including but not
limited to paying all required fees and Taxes to maintain all registrations
and applications of such Intellectual Property in full force and effect.
Except as set forth on Schedule 3.20, none of the Company or any of its
Subsidiaries has received any written notice of infringement of or conflict
with (or knows of such infringement of or conflict with) asserted rights of
others with respect to the use of Intellectual Property. To the knowledge
of the Company, the Company and its Subsidiaries do not in the conduct of
their business infringe or conflict with any right of any third party.
Except as set forth on Schedule 3.20, neither the Company nor any of its
Subsidiaries have asserted within two years of the date hereof, any claim
against any third party that such party has violated, infringed,
misappropriated or misused, in any material respect, any Intellectual
Property. The Company and its Subsidiaries have taken commercially
reasonable precautions to preserve and protect the availability,
confidentiality, security and integrity of data held or transmitted by or
through the Company and its Subsidiaries' computer networks, software,
hardware, and other systems.
3.21 Affiliate Transactions. (a) Except for transactions described on
Schedule 3.21(a) and transactions contemplated by the Support Agreement,
(i)(w) no current officer, director or employee of the Company or any of
its Subsidiaries, (x) to the knowledge of the Company, no former officer,
director or employee of the Company or any of its Subsidiaries, (y) to the
knowledge of the Company, no Affiliate or associate of any current officer,
director or employee of the Company or any of its Subsidiaries and (z) to
the knowledge of the Company, no Affiliate or associate of any former
officer, director or employee of the Company or any of its Subsidiaries
has, directly or indirectly, any interest in any contract, arrangement or
property (real or personal, tangible or intangible) used by the Company or
any such Subsidiary or in their respective businesses, or in any supplier,
distributor or customer of the Company or any such Subsidiary (other than
indirectly through such Person's ownership of the securities of a
corporation whose stock is traded on a national securities exchange or in
the over-the-counter market and less than one percent (1%) of the stock of
such corporation is beneficially owned by such Person) and (ii) neither the
Company nor any of its Subsidiaries shares any assets, rights or services
with any entity that is controlled by any current officer, director or
employee of the Company or any of its Subsidiaries or, to the knowledge of
the Company, by any former officer, director or employee of the Company or
any of its Subsidiaries.
(b) Except as set forth on Schedule 3.21(b), each ongoing
intercompany transaction set forth on Schedule 3.21(a) is on terms that are
(i) consistent with the past practice of the Company and (ii) at least as
favorable in the aggregate for such transaction to the Company as would be
available with independent third parties dealing at arms' length.
3.22 Investment Company Act. Neither the Company nor any of its
Subsidiaries is, and, after giving effect to consummation of the
transactions contemplated hereby and by the other Company Agreements, will
be, an "investment company" or an entity "controlled by" an "investment
company" (as such terms are defined in the Investment Company Act of 1940,
as amended).
3.23 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection
with the offer or sale of the Series A Preferred Stock. No registration of
the Series A Preferred Stock pursuant to the provisions of the Securities
Act will be required by the offer, sale, or issuance of the Series A
Preferred Stock pursuant to this Agreement and no registration of the
Conversion Stock upon conversion of the Series A Preferred Stock in
accordance with the Certificate of Designations will be required, assuming
the accuracy of the Purchaser's representations contained in Section 4.5.
3.24 Board Approval; Stockholder Approval. (a) The Board of Directors
at a meeting duly called and held has unanimously determined the
Contemplated Transactions to be advisable and in the best interests of the
Company and its stockholders and has approved the Contemplated
Transactions. The Board of Directors of the Company has received the
opinion of its financial advisor, Southwest Securities, to the effect that,
as of the date of such opinion, the issuance of the Series A Preferred
Stock and the Offer are fair from a financial point of view to the holders
of the Common Stock other than Affiliates of the Company.
(b) The Board of Directors has taken all action required in order
to (i) exempt the Purchaser, in respect to its purchase and conversion of
the Series A Preferred Stock and any other securities of the Company
acquired pursuant to the Contemplated Transactions, from "interested
stockholder" status as defined under Section 203 of the DGCL and (ii)
exempt the Contemplated Transactions from the requirements of, and from
triggering any provisions under, any "moratorium," "control share," "fair
price," "interested stockholder," "affiliate transaction," "business
combination" or other anti-takeover laws and regulations of any
Governmental Authority.
(c) The affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock is required under the DGCL
to approve the Articles of Amendment and the affirmative vote of the
holders of a majority of the total votes cast in person or by proxy at the
Stockholders Meeting is required under the rules of NASDAQ to approve the
Contemplated Transactions (collectively, the "Required Vote"). Except for
the Required Vote, no approval of the Company Agreements or of the
Contemplated Transactions by the holders of any shares of stock of the
Company is required in connection with the execution or delivery of the
Company Agreements or the consummation of the Contemplated Transactions,
whether pursuant to the DGCL, the Certificate of Incorporation or Bylaws,
the rules and regulations of the NASD, NASDAQ or otherwise.
3.25 Series A Preferred Stock. (a) All shares of the Series A
Preferred Stock, when issued and delivered in accordance with the terms of
this Agreement, the Certificate of Designations and the other Company
Agreements, will be duly and validly issued and outstanding, entitled to
the benefits contemplated by the Certificate of Designations, fully paid
and nonassessable and free and clear of any Liens (other than any Liens
granted by the Purchaser), not subject to preemptive or other similar
rights, and constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms.
(b) All shares of the Common Stock issued and delivered upon
conversion of the Series A Preferred Stock, in accordance with the terms of
the Certificate of Designation, will, when so issued and delivered, be duly
and validly issued and outstanding, fully paid and nonassessable and free
and clear of any Liens (other than any Liens granted by the Purchaser) and
not subject to preemptive or other similar rights.
3.26 No Brokers or Finders. Except as set forth on Schedule 3.26, no
agent, broker, finder, or investment or commercial banker or other Person
(if any) engaged by or acting on behalf of the Company or any Subsidiary or
Affiliate is or will be entitled to any brokerage or finder's or similar
fee or other commission as a result of the Company Agreements or the
Contemplated Transactions (except for the Closing Amount as set forth in
Section 2.4).
3.27 Disclosure. Neither this Agreement nor any certificate,
instrument or written statement furnished or made to the Purchaser by or on
behalf of the Company in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
herein and therein in light of the circumstances under which they were made
not misleading.
3.28 Suitability. Neither the Company nor any of its directors,
officers, Subsidiaries or, to the knowledge of the Company, other
Affiliates (a) has ever been convicted of or, to the knowledge of the
Company since July 28, 1999, indicted for any felony or any crime involving
fraud, misrepresentation or moral turpitude, (b) is subject to any Decree
barring, suspending or otherwise limiting the right of the Company or such
Person to engage in any activity or (c) has ever been denied any License
affecting the Company's or such Person's ability to conduct any activity
currently conducted or currently contemplated to be conducted by the
Company, nor, to the knowledge of the Company, is there any basis upon
which such License may be denied.
3.29 Off Balance Sheet Arrangements. Except as disclosed in
Management's Discussion and Analysis of Financial Conditions and Results of
Operations in the Company's Form 10-K for the fiscal year ending June 30,
2003, neither the Company nor any of its Subsidiaries has or is subject to
any "Off-Balance Sheet Arrangement" (as defined in Item 303(a)(4)(ii) of
Regulation S-K promulgated under the Exchange Act).
3.30 Regulatory Compliance. (a) The Company and each of its
Subsidiaries are in material compliance with (i) to the extent applicable,
all rules and regulations of the Medicare and Medicaid programs, including
any guidance interpreting such rules and regulations; (ii) all federal
laws, rules, regulations and applicable guidance relating to health care
fraud and abuse, including, without limitation: (A) the Anti-Kickback Law,
42 U.S.C. ss.1320a-7b, 42 C.F.R. ss.1001.952, (B) the federal false coding
statute, 42 U.S.C. ss.1320a-7a, (C) the federal physician self-referral
prohibition, 42 U.S.C. ss.1395nn, 42 C.F.R. ss.411.351 et seq., and (D) the
false claims act, 31 U.S.C. ss.3729 et seq.; (iii) any and all state laws
relating to health care fraud and abuse; (iv) state laws relating to
Medicaid or any other state health care or health insurance programs; (v)
federal or state laws relating to billing or claims for reimbursement
submitted to any third party payor; and (vi) any other federal or state
laws relating to fraudulent, abusive or unlawful practices connected in any
way with the provision of health care items or services, or the billing for
or claims for reimbursement for such items or services provided to a
beneficiary of any state, federal or other governmental health care or
health insurance program or any private payor.
(b) Since July 28, 1999, neither the Company, any Subsidiary of
the Company, nor any director, officer, or, to the knowledge of the
Company, any employee or agent, of the Company or any Subsidiary of the
Company, with respect to actions taken on behalf of the Company or a
Subsidiary of the Company, (i) has been assessed a civil money penalty
under Section 1128A of the Social Security Act or any regulations
promulgated thereunder, (ii) has been excluded from participation in any
federal health care program or state health care program (as such terms are
defined by the Social Security Act), (iii) has been convicted of any
criminal offense relating to the delivery of any item or service under a
federal health care program relating to the unlawful manufacture,
distribution, prescription, or dispensing of a prescription drug or a
controlled substance or (iv) is a party to or subject to any action or
proceeding concerning any of the matters described above in clauses (i)
through (iii).
(c) The Company and each of its Subsidiaries are in compliance in
all material respects with all Requirements of Law with respect to matters
relating to patient or individual healthcare information, including,
without limitation, the Health Insurance Portability and Accountability Act
of 1996, Pub. L. No. 104-191, as amended, and any rules or regulations
promulgated thereunder (collectively, the "Healthcare Information Laws").
The Company and each of its Subsidiaries (i) have undertaken all necessary
surveys, audits, inventories, reviews, analyses, or assessments (including
any necessary risk assessments) on all areas required for material
compliance under all Healthcare Information Laws, (ii) have developed a
plan and time line for coming into material compliance with all Healthcare
Information Laws (the "Compliance Plan") and (iii) have implemented those
provisions of the Compliance Plan to ensure that such entity is and will
remain in material compliance with all Healthcare Information Laws.
(d) The Company and each of its Subsidiaries (i) are in material
compliance with all Requirements of Law and any other applicable guidance
relating to the operation of pharmacies, the repackaging of drug products,
the wholesale distribution of prescription drugs or controlled substances,
and the dispensing of prescription drugs or controlled substances, (ii) are
in material compliance with all Requirements of Law and any other
applicable guidance relating to the labeling, packaging, advertising, or
adulteration of prescription drugs or controlled substances and (iii) are
not subject to any sanction or other adverse action by any Governmental
Authority for the matters described above in clauses (i) and (ii).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
4.1 Existence and Power. The Purchaser (a) is duly organized and
validly existing under the laws of the jurisdiction of its formation and
(b) has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement.
4.2 Authorization; No Contravention. The execution, delivery and
performance by the Purchaser of each Company Agreement to which it is a
party and the Contemplated Transactions (a) have been duly authorized by
all necessary corporate or other action, (b) do not contravene the terms of
the Purchaser's organizational documents, and (c) do not violate, conflict
with or result in any breach or contravention of, or the creation of any
Lien under, any Contractual Obligation of the Purchaser or any Requirement
of Law applicable to the Purchaser, except for such violations, conflicts,
breaches or Liens which, individually or in the aggregate, have not had and
would not reasonably be expected to have a material adverse effect on the
Purchaser's ability to consummate the Contemplated Transactions.
4.3 Governmental Authorization; Third Party Consents. Except as listed
in Schedule 4.3 or, individually or in the aggregate, has not had and would
not reasonably be expected to have a material adverse effect on the
Purchaser's legal power or ability to own the Series A Preferred Stock and
exercise the rights incident thereto, no approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of
Law, and no lapse of a waiting period under a Requirement of Law, is
necessary or required in connection with the execution, delivery or
performance by the Purchaser, or enforcement against the Purchaser, of this
Agreement or the consummation of the Contemplated Transactions.
4.4 Binding Effect. This Agreement has been duly executed and
delivered by the Purchaser and, subject to Equitable Principles,
constitutes the legal, valid and binding obligation of the Purchaser,
enforceable against it in accordance with its terms.
4.5 Purchase for Own Account, Etc. (a) Purchase for Own Account. The
shares of Series A Preferred Stock are being acquired by the Purchaser for
its own account and with no current intention of distributing or reselling
such shares of Series A Preferred Stock or any part thereof in any
transaction that would be in violation of the securities laws of the United
States of America or any state, without prejudice, however, to the rights
of the Purchaser at all times to sell or otherwise dispose of all or any
part of the Series A Preferred Stock under an effective Registration
Statement under the Securities Act or under an exemption from said
registration available under the Securities Act. The Purchaser understands
and agrees that if the Purchaser should in the future decide to dispose of
any Series A Preferred Stock, it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect. The
Purchaser agrees to the imprinting, so long as required by law, of a legend
on all certificates representing shares of Series A Preferred Stock.
(b) Purchaser Status. The Purchaser is an "Accredited Investor"
(as defined in Rule 501(a)) under the Securities Act.
(c) Restricted Shares. The Purchaser understands (i) that the
shares of the Series A Preferred Stock have not been, and the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock (the
"Conversion Shares") will not (subject to Section 9.1) be registered under
the Securities Act or any state securities laws, by reason of their
issuance by the Company in a transaction exempt from the registration
requirements thereof and (ii) the shares of the Series A Preferred Stock
and the Conversion Shares may not be sold unless such disposition is
registered under the Securities Act and applicable state securities laws or
is exempt from registration thereunder.
4.6 Receipt of Information. The Purchaser represents that it has had
an opportunity to ask questions and receive answers and documents from the
Company regarding the business, properties, prospects and financial
condition of the Company and concerning the terms and conditions of the
offering of the Series A Preferred Stock and to obtain additional
information necessary to verify the accuracy of any information furnished
to the Purchaser or to which the Purchaser had access.
4.7 No Brokers or Finders. Except as contemplated by this Agreement
(including the Closing Amount), no agent, broker, finder, or investment or
commercial banker or other Person (if any) engaged by or acting on behalf
of the Purchaser or any of its Affiliates is or will be entitled to any
brokerage or finder's or similar fee or other commission as a result of
this Agreement or the Contemplated Transactions.
4.8 Sufficient Funds. The Purchaser will have at the Closing funds
sufficient to perform its obligations under this Agreement and to
consummate the Contemplated Transactions.
4.9 Litigation. There is no legal action, suit, arbitration or other
legal, administrative or other governmental investigation, inquiry or
proceeding pending or, to the knowledge of the Purchaser, threatened
against or affecting the Purchaser or relating to any of the Company
Agreements or the Contemplated Transactions which, if determined adversely
to the Purchaser, individually or in the aggregate, has had or would
reasonably be expected to have a material adverse effect on the Purchaser's
ability to consummate the Contemplated Transactions. The Purchaser is not
subject to any Decree that, individually or in the aggregate, has had or
would reasonably be expected to have a material adverse effect on the
Purchaser's ability to consummate the Contemplated Transactions.
ARTICLE 5
COVENANTS OF THE COMPANY
5.1 Conduct of Business. (a) Except as expressly contemplated by this
Agreement or consented to in writing by the Purchaser, from the date hereof
through the Closing Date, the Company and its Subsidiaries shall conduct
their businesses in the ordinary course, consistent with past practice and
generally in a manner such that the representations and warranties
contained in Article 3, to the extent such matters are within the Company's
or any of its Subsidiary's control, shall continue to be true and correct
in all material respects on and as of the Closing Date (except for
representations and warranties made as of a specific date) as if made on
and as of the Closing Date. The Company shall give the Purchaser prompt
notice of any event, condition or circumstance known or that becomes known
to the Company occurring from the date hereof through the Closing Date that
would constitute a violation or breach of (i) any representation or
warranty, whether made as of the date hereof or as of the Closing Date, or
(ii) any covenant of the Company contained in this Agreement; provided,
however, that no such notification shall relieve or cure any such breach or
violation of any such representation, warranty or covenant or otherwise
affect the accuracy of any such representation or warranty for the purposes
of Section 7.1; provided further, however, that the unintentional failure
to give notice shall not give rise to a claim for damages by the Purchaser.
Without limiting the generality of the foregoing, except as otherwise
expressly contemplated by the terms of this Agreement or agreed in writing
by the Purchaser, from and after the date hereof and through and including
the Closing Date, the Company shall not, and will cause its Subsidiaries
not to:
(i) make capital expenditures which are more than $100,000
individually or $300,000 in the aggregate except (x) pursuant to
agreements or commitments entered into by the Company or any of its
Subsidiaries prior to the date hereof and included on Schedule
3.12(a), (y) unless otherwise reserved against in the Company's most
recent financial statements filed with the Commission prior to the
date hereof, or (z) except as set forth on Schedule 5.1(a)(i);
(ii) enter into any or amend any Contractual Obligation,
other than in the ordinary course of business, or, in any event,
involving more than $100,000 individually or $300,000 in the aggregate
except as set forth on Schedule 5.1(a)(ii);
(iii) enter into, modify, make, renew, extend or otherwise
alter any credit agreement, note or other similar agreement (including
any interest rate or currency swap, hedge, collar or straddle or
similar transaction) or instrument to which the Company or a
Subsidiary is a party or incur or otherwise become liable with respect
to any indebtedness, other than (x) trade payables incurred in the
ordinary course of business and consistent with past practice, (y)
amendments of the HFG Credit Facility that would not impose any
additional obligations on the Company or any of its Subsidiaries or
otherwise adversely affect the Company or any of its Subsidiaries or
(z) as set forth on Schedule 5.1(a)(iii);
(iv) enter into any Contractual Obligation with respect to
the acquisition of any business, assets or property (real, personal or
mixed, tangible or intangible, including stock or other equity
interests in, or evidences of the indebtedness of, any other
corporation, partnership or entity), other than acquisitions of assets
in the ordinary course of business and consistent with past practice;
(v) form any joint venture or partnership;
(vi) sell, lease, license, surrender, relinquish, encumber,
pledge, transfer, amend, convey or otherwise dispose of any business,
property or assets (whether tangible or intangible) having an
aggregate market value of in excess of $100,000 individually or
$300,000 in the aggregate, except (x) sales of the inventory or (y)
transactions pursuant to the Receivables Purchase Agreement, in the
case of each of clauses (x) and (y) made in the ordinary course of
business consistent with past practice or (z) as set forth on Schedule
5.1(a)(vi);
(vii) fail to maintain any material property of the Company
or any of its Subsidiaries in customary repair, order and condition
consistent with the Company's or such Subsidiary's current maintenance
policies, ordinary wear and tear excepted;
(viii) discontinue, permit to lapse or otherwise fail to
keep in full force and effect any material policies of insurance or
knowingly take any action that would cause any such policy to
terminate or be terminable prior to the expiration of its stated term;
(ix) except as required by applicable law, make or change
any material Tax election of the Company or any of its Subsidiaries,
change any annual Tax accounting period of the Company or any of its
Subsidiaries, adopt or change any Tax accounting method of the Company
or any of its Subsidiaries, file any return, declaration, report,
claim for refund, or information return or statement relating to Taxes
(including any schedule or attachment thereto, and including any
amendment thereof, a "Return") relating to the Company or any of its
Subsidiaries in a manner that is materially inconsistent with past
practice, enter into any closing agreement relating to material Taxes
of the Company or any of its Subsidiaries, settle any material claim
made by any Governmental Authority including social security
administration, domestic or foreign, having jurisdiction over the
assessment, determination, collection or other imposition of Tax or
assessment relating to the Company or any of its Subsidiaries (a "Tax
Claim"), surrender any right to claim a refund of Taxes relating to
the Company or any of its Subsidiaries, consent to any extensions or
waivers of the limitations period applicable to any Tax Claim or
assessment relating to the Company or any of its Subsidiaries, or
enter into a Tax sharing agreement or similar arrangement with respect
to the Company or any of its Subsidiaries;
(x) purchase, redeem or otherwise acquire, split, combine or
reclassify, directly or indirectly, any of the Common Stock or other
equity securities or give notice of any intention to exercise any
right to purchase, redeem or otherwise acquire, split, combine or
reclassify, any of the Common Stock or other equity securities
(including any such purchase, redemption, acquisition or notice in
accordance with the terms of the Certificate of Incorporation or
Bylaws or any stockholders agreement);
(xi) except pursuant to the exercise of (x) Company Options
disclosed on Schedule 3.6 or (y) options permitted to be granted
pursuant to Section 5.6(iii), issue or sell, or issue any rights to
purchase or subscribe for, or subdivide or otherwise change, any
shares of the Company's or any of its Subsidiaries' stock or other
securities or similar rights;
(xii) declare or pay any dividends on or make other
distributions (whether in cash, stock or property or any combination
thereof), directly or indirectly, in respect of the Common Stock;
(xiii) amend the Certificate of Incorporation or Bylaws or
the organizational documents of any Subsidiary, except as contemplated
herein;
(xiv) settle any material Claim of, or against, the Company
or its Subsidiaries;
(xv) change any method of accounting or accounting practice
used by the Company or any of its Subsidiaries, except for any change
required by GAAP, by any Governmental Authority or by a change in law;
(xvi) cause or permit, by any act or failure to act, any
material License to expire or to be revoked, suspended, or modified,
or take any action that could reasonably be expected to cause any
Governmental Authority to institute proceedings for the suspension,
revocation, or adverse modification of any material License;
(xvii) maintain any significant amount of investments in or
trade in equities or other speculative securities; (xviii) take any
corporate or other action in furtherance of any of the foregoing; or
(xix) agree to do any of the foregoing.
(b) The Company shall promptly file with the Commission a Current
Report on Form 8-K pursuant to Item 1 of such Form when such form is
required to be filed.
5.2 No Solicitation. Without limiting the Company's other obligations
under this Agreement, the Company agrees that, from the date hereof until
the Closing, neither it nor any of its Subsidiaries nor any of the officers
and directors of it or its Subsidiaries shall, and that it shall use its
reasonable best efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, (i) initiate, solicit, encourage or knowingly facilitate
(including by way of furnishing information) any inquiries or the making of
any proposal or offer with respect to, or a transaction to effect, a
merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving it or any of its Subsidiaries, or any purchase or
sale of 30% or more of the consolidated assets (including without
limitation stock of its Subsidiaries) of it and its Subsidiaries, taken as
a whole, or any purchase or sale of, or tender or exchange offer for, the
equity securities of the Company that, if consummated, would result in any
Person (or the stockholders of such Person) beneficially owning securities
representing 20% or more of the total voting power of the Company (or of
the surviving parent entity in such transaction) or any of its Subsidiaries
(any such proposal, offer or transaction, including any single or
multi-step transaction or series of related transactions (other than a
proposal or offer made by the Purchaser or any of its Affiliates) being
hereinafter referred to as an "Acquisition Proposal"), (ii) have any
discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal, (iii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition
Proposal or (iv) approve or recommend, or propose to approve or recommend,
or execute or enter into, any letter of intent, agreement in principle,
merger agreement, acquisition agreement, option agreement or other similar
agreement or propose publicly or agree to do any of the foregoing related
to any Acquisition Proposal; provided, however, that the foregoing shall
not prohibit the Company, (A) from complying with Rule 14e-2 and Rule 14d-9
under the Exchange Act with regard to a bona fide tender offer or exchange
offer, or (B) from participating in negotiations or discussions with or
furnishing information to any Person in connection with an unsolicited bona
fide Acquisition Proposal which is submitted in writing by such Person to
the Board of Directors of the Company after the date hereof; provided
further, however, that prior to participating in any such discussions or
negotiations or furnishing any information, (i) the Company receives from
such Person an executed confidentiality agreement on terms no less
favorable to the Company than the Confidentiality Agreement, a copy of
which shall be provided only for informational purposes to the Purchaser,
and (ii) the Board of Directors of the Company shall have concluded in good
faith, after consulting with its outside financial advisors and counsel,
that such Acquisition Proposal is reasonably likely to be or to result in a
Superior Proposal (as defined in Section 6.1(b) hereto) (an Acquisition
Proposal which meets all of the conditions set forth in this clause (B),
including the Board of Directors of the Company having reached the
conclusion set forth in clause (B)(ii), being herein referred to as a
"Qualified Acquisition Proposal"), or (C) after the Board of Directors of
the Company has received a Qualified Acquisition Proposal, from engaging in
negotiations and discussions with the Stockholders (as defined in the
Support Agreement) with respect to such Qualified Acquisition Proposal. If
the Board of Directors of the Company receives an Acquisition Proposal, the
Company shall promptly inform the Purchaser in writing of the terms and
conditions of such proposal and the identity of the Person making it, and
will keep the Purchaser informed, on a current basis, of the status and
terms of any such proposals or offers by any Person (whether written or
oral). The Company will, and will cause its Affiliates to, immediately
cease and cause to be terminated any activities, discussions or
negotiations existing as of the date hereof with any Persons (other than
the Purchaser and its Affiliates) conducted heretofore with respect to any
Acquisition Proposal, and request the return or destruction of all
non-public information furnished in connection therewith. The Company shall
not release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which such party or its
Subsidiaries is a party; provided, however, that the Company may waive any
provisions of a standstill agreement so long as (A) the Company promptly
informs the Purchaser in writing of such waiver and the identity of the
Person requesting such waiver (and the Company hereby agrees that it will
keep the Purchaser informed, on a current basis, of the status and terms of
any proposal made by the Person requesting such waiver), (B) such waiver is
limited to allowing the party subject to the standstill agreement (x) to
submit to the Board of Directors of the Company, on a confidential basis, a
written Acquisition Proposal and (y) if such Acquisition Proposal is a
Qualified Acquisition Proposal, to pursue discussions and negotiations with
respect to such Qualified Acquisition Proposal with the Company, and (C)
the Company otherwise observes the terms of this Section 5.2 with respect
to such Acquisition Proposal.
5.3 Regulatory Approval; Litigation. (a) Each of the Purchaser and the
Company agrees that it will use its reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, and to assist and
cooperate with the other party in doing all things, which may be required
to obtain all necessary actions or non-actions, waivers, consents and
approval from Governmental Authorities, including without limitation,
(x)(i) preparing and filing, or causing to be prepared and filed, with the
appropriate Governmental Authorities, the requisite notification with
respect to the Contemplated Transactions pursuant to the HSR Act, (ii)
promptly supplying all information requested by Governmental Authorities in
connection with the HSR Act notification and cooperating with each other in
responding to any such request, (iii) using all reasonable efforts to cause
the applicable HSR Act waiting periods to be terminated early or to expire
without further inquiry or extension of time by any Governmental Authority
and (iv) otherwise causing the HSR Requirements to be satisfied, including
by supplying all information requested by Governmental Authorities in
connection therewith and (y) obtaining the consent of the NASDAQ for the
listing of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, subject only to official notice of issuance;
provided, however, that, in connection with obtaining any such action,
non-action, waiver, consent or approval, the Purchaser shall not be
required to agree, and the Company, without the consent of the Purchaser
shall not agree, to any condition or action that the Purchaser reasonably
believes would, individually or in the aggregate, adversely affect
Purchaser's ability to obtain the benefits (financial or otherwise) from
the Contemplated Transactions (including benefits set forth in the Company
Agreements).
(b) The Purchaser and the Company agree that if any Action is
brought seeking to restrain or prohibit or otherwise relates to
consummation of the Contemplated Transactions, the parties shall use all
commercially reasonable efforts to defend such Action, whether judicial or
administrative, and to seek to have any stay or temporary restraining order
entered by any court or Governmental Authority reversed or vacated.
5.4 Board of Directors. At or prior to the Closing Date, the Company
will take all action necessary (including without limitation using its
reasonable best efforts to cause the resignation of the current members of
the Company's (and Subsidiaries') Boards of Directors (and committees
thereof)) (or, if necessary, to increase the size of such Boards of
Directors) so that, on such date the composition of the Company's Board of
Directors shall be as set forth in Exhibit E hereto.
5.5 Access. (a) From the date hereof until the Closing, upon
reasonable notice, the Company shall (and shall cause its Subsidiaries to)
afford to the officers, employees, accountants, counsel, financial advisors
and other representatives of the Purchaser reasonable access during normal
business hours, during the period prior to the Closing, to all its books,
records, properties, plants and personnel and, during such period, the
Company shall (and shall cause its Subsidiaries to) furnish promptly to the
Purchaser (i) a copy of each report, schedule, registration statement and
other document filed, published, announced or received by it during such
period pursuant to the requirements of Federal or state laws, as
applicable, and (ii) all other information concerning it and its business,
properties and personnel as the Purchaser may reasonably request. The
Purchaser will hold any information obtained pursuant to this Section 5.5
in confidence in accordance with, and will otherwise be subject to, the
provisions of the Confidentiality Agreement. Any investigation by the
Purchaser shall not affect the representations and warranties of the
Company or the conditions to its obligations to consummate the transactions
contemplated by this Agreement.
(b) From the date hereof until the Closing, the Company shall
promptly keep the Purchaser and its representatives informed of any
material development in the business of the Company or its Subsidiaries
provided that the unintentional failure to keep the Purchaser and its
representatives informed shall not give rise to a claim for damages by any
Purchaser. Without limiting the foregoing, from the date hereof until the
Closing, the Company shall cause its officers to consult and cooperate with
representatives of the Purchaser in order to facilitate a smooth transition
as of the Closing. Nothing in this Section 5.5 shall give the Purchaser or
its Affiliates any approval rights over the day-to-day activities of the
Company.
5.6 Employee Benefits Matters. Without limiting the generality of the
foregoing, except as otherwise expressly agreed in writing by the
Purchaser, the Company shall not, and shall cause its Subsidiaries not to,
take any of the following actions:
(i) enter into any new Employment Agreement unless such
agreement (x) is in the ordinary course consistent with past practice,
(y) is terminable at will without severance or (z) does not obligate
the Company or any Subsidiary to provide compensation and/or benefits
in excess of $120,000 per year unless an offer letter is outstanding,
which offer letter is disclosed on Schedule 3.16, or amend any
existing Employment Agreement or hire any executive officer of the
Company or any of its Subsidiaries;
(ii) adopt any new Company Benefit Plan or, except as may be
required by applicable law, amend any existing Company Benefit Plan;
provided, however, that the Company's 1999 Stock Option Plan may be
amended to increase the stock options available for grant thereunder,
not to exceed an amount in excess of 2,000,000 options in the
aggregate;
(iii) except in the ordinary course of business consistent
with past practice, grant any stock options or other equity-based
compensation to any employee or director of the Company or any of its
Subsidiaries; provided, however, that the amount of Shares subject to
options or other equity-based compensation awards permitted to be
granted pursuant to this Section 5.6(iii) shall not exceed 90,000
(such amount to be increased by the amount of any Company Options
cancelled after the date hereof);
(iv) increase the salaries, wages, or other compensation or
benefits of any employee or director of the Company or any of its
Subsidiaries, except for such increases with respect to employees who
are not officers of the Company or any of its Subsidiaries that are in
the ordinary course of business consistent with past practice and do
not result in an aggregate increase in the annual cost of compensation
and benefits for employees of the Company and its Subsidiaries of more
than five percent (5%) over such annual costs as in effect on the date
hereof; or
(v) agree to do any of the foregoing.
5.7 Payment of Dividends. (a) Except as set forth in Section 5.7(c),
the Company agrees that after the Closing, so long as it is not prohibited
from doing so under any Requirement of Law (including any fiduciary
obligation of the Board of Directors), (a) it will pay cash dividends on
the Series A Preferred Stock, as promptly as practicable, on a current
basis and (b) if the Company has insufficient surplus to declare such
dividends, it will review the values of its assets and will revalue its
assets to the extent possible so as to enable it to pay such dividends, as
promptly as practicable, on a current basis.
(b) In addition, for so long as the Initial Holders (as defined
in the Certificate of Designations) beneficially own shares of Common Stock
that constitute either (x) 33% or more of the Series A Preferred Stock
issued on the Closing Date (as adjusted for any split, subdivision,
combination, recapitalization or similar event from the Closing Date until
the date of determination) or (y) 15% or more of the combined voting power
of the then outstanding Voting Securities, whichever is lower, the Company
shall refrain and shall cause its Subsidiaries to refrain from entering
into any agreements which would preclude the payment of dividends on the
Series A Preferred Stock, excluding the HFG Credit Facility and any
agreements for any replacement, refinancing or extension thereof provided
that such renewal, refinancing or extension (i) does not provide for
borrowings in excess of the amount that may be borrowed under the HFG
Credit Facility and (ii) is on substantially similar terms as, or terms no
more restrictive with respect to the payment of dividends than, the HFG
Credit Facility, and shall seek a waiver under any agreements which would
prevent such payments at any time.
(c) The Company and the Purchaser agree that no dividends on
shares of Series A Preferred Stock shall be declared by the Board of
Directors of the Company (A) during the period that a Default or Event of
Default (as such terms are defined in the Loan Agreement, as amended from
time to time) shall have occurred and be continuing under the Loan
Agreement, as amended from time to time, (B) if the payment of any such
dividend would result in an Event of Termination (as defined in the
Receivables Purchase Agreement, as amended from time to time), (C) if the
payment of any such dividend would result in a Group-Wide Event of
Termination (as defined in the Receivables Purchase Agreement, as amended
from time to time) and (D) if the payment of any such dividend would result
in a Servicer Termination Event (as defined in the Receivables Purchase
Agreement, as amended from time to time).
5.8 Consents. The Company shall (and shall cause its applicable
Subsidiary to), on or prior to the Closing, obtain all consents listed or
required to be listed on Schedule 3.4 hereto.
5.9 Legends. Any legends placed on the Series A Preferred Stock or the
Common Stock or other securities issuable, if any, pursuant to the
Contemplated Transactions shall be removed by the Company upon delivery of
an opinion of counsel reasonably acceptable to the Company stating that
such legend is no longer necessary.
5.10 Confirmation of Surplus. Prior to the Closing Date, the Board of
Directors of the Company shall take all such action as it deems necessary
to be reasonably satisfied that the Contemplated Transactions may be
effected in a manner consistent with Section 160 of the DGCL.
ARTICLE 6
STOCKHOLDERS MEETING; TENDER OFFER
6.1 Preparation of Proxy Statement; Stockholders Meeting. (a) As
promptly as reasonably practicable following the date hereof, the Company
shall prepare and file with the Commission a proxy statement (such proxy
statement and any amendments or supplements thereto, the "Proxy Statement")
with respect to the Contemplated Transactions. The Proxy Statement shall
seek approval of the matters to be submitted for approval at the
Stockholders Meeting as provided below. The Company shall use reasonable
best efforts to have the Proxy Statement cleared by the Commission as
promptly as reasonably practicable after filing with the Commission. The
Company shall, as promptly as practicable after receipt thereof, provide
the Purchaser copies of any written comments and advise the Purchaser of
any oral comments, with respect to the Proxy Statement received from the
Commission. The Company shall provide the Purchaser with a reasonable
opportunity to review and comment on the Proxy Statement and any amendment
or supplement thereto prior to filing such with the Commission, and with a
copy of all such filings made with the Commission. Notwithstanding any
other provision herein to the contrary, neither the Proxy Statement nor any
amendment or supplement thereto shall be filed or made without the approval
of the Purchaser (which approval shall not be unreasonably withheld or
delayed). The Company will use reasonable best efforts to cause the Proxy
Statement to be mailed to its stockholders as promptly as practicable. If
at any time any information should be discovered by the Company which
should be set forth in an amendment or supplement to the Proxy Statement so
that it would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, the
Company shall promptly notify the Purchaser and, to the extent required by
applicable law, an appropriate amendment or supplement describing such
information shall be promptly filed with the Commission and disseminated to
the stockholders of the Company.
(b) The Company shall duly take all lawful action to call, give
notice of, convene and hold a meeting of its stockholders as promptly as
practicable after the date hereof for the purpose of obtaining the Required
Vote (including, without limitation, with respect to the issuance of the
Series A Preferred Stock and the issuance of shares of Common Stock upon
conversion of the Series A Preferred Stock, the Articles of Amendment and
such other amendments to the Certificate of Incorporation as may be
necessary or appropriate to give effect to any of the Contemplated
Transactions (including without limitation the grant of right of first
offer as contemplated by Article 9 hereof), and any other action that may
be required with respect to any of the transactions contemplated by this
Agreement) (the "Stockholders Meeting") and shall take all lawful action to
solicit the approval of all such matters by the Company's stockholders. The
Company shall include in the Proxy Statement the recommendation of the
Board of Directors in favor of approval of all such matters (the "Board
Recommendation") and the written opinion of Southwest Securities, dated the
date hereof, to the effect that, as of the date hereof, the issuance of the
Series A Preferred Stock and the Offer are fair, from a financial point of
view, to the holders of the Common Stock other than Affiliates of the
Company; provided, that, the Company shall not be required to include the
Board Recommendation in the Proxy Statement if, at the time of the mailing
of the Proxy Statement, the Board of Directors of the Company would be
permitted to make a Change in the Board Recommendation pursuant to the next
sentence of this Section 6.1(b). The Board of Directors of the Company
shall not withdraw, modify or qualify (or propose to withdraw, modify or
qualify) in any manner adverse to the Purchaser such recommendation (a
"Change in the Board Recommendation"); provided, however, that the Board of
Directors of the Company may make a Change in the Board Recommendation in
connection with an unsolicited bona fide Acquisition Proposal which is
submitted in writing to the Board of Directors of the Company after the
date hereof if the Company shall have complied in all respects with the
requirements of Section 5.2 with respect to such Acquisition Proposal;
provided that the Board of Directors of the Company shall have concluded in
good faith, after consulting with its outside financial advisors and
counsel that such Acquisition Proposal is financially superior to the
holders of the Common Stock than the Contemplated Transactions, taking into
account all relevant factors (including financing, required approvals and
the timing and likelihood of consummation and the post-closing prospects
for the Company) (a "Superior Proposal") and that the failure to take such
action would reasonably be likely to violate the obligations of the
directors under Delaware law. Unless this Agreement shall have been
terminated in accordance with its terms, the Company shall comply with all
of its obligations under this Agreement, including calling and holding a
Stockholders Meeting under this Section 6.1(b) and submitting the matters
set forth in Section 3.24(c) to a vote of the stockholders of the Company,
even if the Board of Directors of the Company determines at any time after
the date hereof to make a Change in the Board Recommendation.
6.2 Tender Offer. As promptly as reasonably practicable following the
date hereof, but in any event not later than one (1) Business Day after the
mailing of the Proxy Statement as set forth in Section 6.1(a), the Company
shall commence (within the meaning of Rule 13e-4(a)(4) under the Exchange
Act), an offer (the "Offer") to purchase up to 4,545,455 outstanding Shares
(as adjusted pursuant to Section 2.2) (the "Maximum Number") at a price of
$11.00 per Share, net to the seller in cash (as paid pursuant to the Offer,
the "Offer Consideration"), in compliance with the applicable provisions of
Rule 13e-4 and Rule 13e-3, if applicable, and Regulation MA of the
Commission, and pursuant to documentation in form and substance reasonably
satisfactory to the Purchaser. The obligation of the Company to consummate
the Offer and to accept for payment and pay for Shares validly tendered in
the Offer and not withdrawn, up to the Maximum Number, shall be subject
only to the conditions set forth in Exhibit F hereto (the "Offer
Conditions"). The Company expressly reserves the right, in its sole
discretion, to waive any such condition (other than the Minimum Condition
as defined in the Offer Conditions) and make any other changes in the terms
and conditions of the Offer; provided that no such change may be made
unless previously approved by the Purchaser in writing which approval shall
not be unreasonably withheld.
6.3 Other Matters. The Company shall use its reasonable best efforts
to cause the completion of the Offer to occur on the Business Day
immediately following the day the Stockholders Meeting occurs. After
receipt of a written notice from the Company that all of the conditions set
forth in Section 8.1 have been satisfied or waived and subject to the
satisfaction or waiver of all of the conditions set forth in Section 7.1,
other than the condition that the Company shall have accepted for payment
all Shares validly tendered into the Offer and not withdrawn, up to the
Maximum Number, the Purchaser shall deliver to the Company written notice
indicating that all of the conditions set forth in Section 7.1 have been
satisfied or waived by the Purchaser other than the condition that the
Company shall have accepted for payment all Shares validly tendered in the
Offer and not withdrawn, up to the Maximum Number. Subject to the
satisfaction or waiver of all of the Offer Conditions and the conditions
set forth in Section 8.1 and upon receipt of the Purchaser's notice, the
Company will accept for payment all Shares validly tendered into the Offer
and not withdrawn, up to the Maximum Number. The Company and the Purchaser
will each use their respective reasonable best efforts to cause the Closing
to occur immediately after the Company shall have accepted for payment all
Shares validly tendered into the Offer and not withdrawn, up to the Maximum
Number.
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
7.1 Conditions to Closing. The obligation of the Purchaser to enter
into and complete the Closing are subject to the fulfillment on or prior to
the Closing Date of the following conditions, any one or more of which may
be waived by the Purchaser:
7.1.1 Representations and Covenants. The representations and
warranties of the Company contained in this Agreement shall be true
and correct in all material respects (other than those which are
qualified as to materiality, Material Adverse Effect or other similar
term, which shall be true and correct in all respects) on and as of
the Closing Date with the same force and effect as though made on and
as of the Closing Date (except that representations and warranties
made as of a specific date shall be true and correct in all material
respects (except as aforesaid) on such date); the Company shall have
in all material respects performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with
by the Company on or prior to the Closing Date; and the Company shall
have delivered to the Purchaser a certificate, dated the date of the
Closing Date and signed by an executive officer of the Company, to the
foregoing effect.
7.1.2 Opinion of Counsel to the Company. The Purchaser shall have
received the legal opinion of Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., counsel to
the Company, dated the Closing Date, addressed to the Purchaser, with
respect to the matters set forth in Exhibit G hereto.
7.1.3 No Actions. (a) No Action shall be pending or overtly
threatened by any Governmental Authority or any other party against
the Company or any of its directors or the Purchaser, which Action is
reasonably likely to (x) restrain or prohibit the consummation of any
of the Contemplated Transactions, or (y) result in damages that alone
or together with the costs and expenses of defending such Action are
material in relation to the Company and its Subsidiaries, taken as a
whole.
(b) No law, order, decree, rule or injunction shall have been
enacted, entered, promulgated or enforced by any Governmental
Authority that prohibits or makes illegal the consummation of any of
the Contemplated Transactions.
7.1.4 Stockholder Approval. The Required Vote shall have been
obtained and shall be in full force and effect.
7.1.5 No Material Adverse Effect. Since the date hereof, no event
or development shall have occurred (or failed to occur) and there
shall be no circumstance (and the Purchaser shall not have become
aware of any previously existing circumstance) that, individually or
in the aggregate, has had or would reasonably be expected to have a
Material Adverse Effect.
7.1.6 Material Contracts. No more than one of the Contractual
Obligations listed on Schedule 7.1.6 (i) shall not be in full force
and effect at the Closing or (ii) shall, to the knowledge of the
Company, be terminated during the current term or not be renewed upon
the expiration of its current term.
7.1.7 Consents. Any and all consents, approvals, orders, Licenses
and other actions (i) necessary to be obtained from Governmental
Authorities in order to consummate the Contemplated Transactions and
for the Company to operate its business as currently conducted and as
currently contemplated to be conducted following the Closing shall
have been obtained and delivered to Purchaser without any limitation,
restriction or requirement that would adversely affect the ability of
the Purchaser to obtain the benefits (financial or otherwise) from the
Contemplated Transactions, and any applicable waiting periods (and any
extensions thereof) shall have been terminated or shall have expired,
and (ii) necessary to be obtained from parties other than Governmental
Authorities in order to consummate the Contemplated Transactions and
for the Company to operate its business as currently conducted and as
currently contemplated to be conducted following the Closing (except
for those consents, approvals, orders, Licenses and other actions, the
failure of which to obtain, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect) shall
have been obtained and delivered to Purchaser without any material
adverse change in the terms or conditions of any Contractual
Obligation, and all such consents, approvals, orders, Licenses and
other actions shall be in full force and effect.
7.1.8 NASDAQ Listing. The shares of Common Stock issuable upon
conversion of the Series A Preferred Stock shall have been approved
for listing on NASDAQ, subject only to official notice of issuance.
7.1.9 Completion of the Offer. All of the Offer Conditions shall
be satisfied and the Company shall have accepted for payment all
Shares validly tendered in the Offer and not withdrawn, up to the
Maximum Number.
7.1.10 Company Agreements. The Company shall have entered into
the Registration Rights Agreement and the Management Rights Letter.
The Articles of Amendment and the Certificate of Designations in the
forms attached hereto as Exhibits B and C shall, respectively, have
been filed with and accepted for record by the Secretary of State of
Delaware in accordance with the DGCL. The Company shall have adopted
the Amended Bylaws in the form attached hereto as Exhibit A.
7.1.11 Employment. ▇▇▇▇▇ ▇. ▇▇▇▇, the President and Chief
Executive Officer of the Company, shall continue to be an active
employee of the Company, and the Employment Agreement between Company
and ▇▇▇▇▇ ▇. ▇▇▇▇, dated May 3, 2000 amended by amendments no. 1 - 6
in the form in effect on the date hereof shall be in full force and
effect on the Closing Date.
7.1.12 Board of Directors. The Board of Directors of the Company
shall have been reconstituted as set forth on Exhibit E, effective as
of the Closing.
ARTICLE 8
CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE COMPANY TO CLOSE
8.1 Conditions to Closing. The obligation of the Company to enter into
and complete the Closing are subject to the fulfillment on or prior to the
Closing Date of the following conditions, any one or more of which may be
waived by the Company:
8.1.1 Representations and Covenants. The representations and
warranties of the Purchaser contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of the Closing
Date (except that representations and warranties made as of a specific
date shall be true and correct in all material respects on such date);
the Purchaser shall have in all material respects performed and
complied with all covenants and agreements required by this Agreement
to be performed or complied with by it on or prior to the Closing
Date; and the Purchaser shall have delivered to the Company a
certificate, dated the date of the Closing Date and signed by the
Purchaser, to the foregoing effect.
8.1.2 No Actions. (a) No Action shall be pending or overtly
threatened by any Governmental Authority or any other party against
the Company or any of its directors or the Purchaser, which Action is
reasonably likely to (x) restrain or prohibit the consummation of any
of the Contemplated Transactions, or (y) result in damages that alone
or together with the costs and expenses of defending such Action are
material in relation to the Company and its Subsidiaries, taken as a
whole.
(b) No law, order, decree, rule or injunction shall have
been enacted, entered, promulgated or enforced by any Governmental
Authority that prohibits or makes illegal or otherwise relates to the
consummation of any of the Contemplated Transactions.
8.1.3 Stockholder Approval. The Required Vote shall have been
obtained and shall be in full force and effect.
8.1.4 Consents. Any and all consents, approvals, orders, Licenses
and other actions necessary to be obtained (a) from Governmental
Authorities in order to consummate the Contemplated Transactions and
for the Company to operate its business as currently conducted and as
currently contemplated to be conducted following the Closing and (b)
from parties other than Governmental Authorities in order to
consummate the Contemplated Transactions shall have been obtained
(except for those consents, approvals, orders, Licenses and other
actions, the failure of which to obtain, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect), and any applicable waiting periods (and any extensions
thereof) shall have been terminated or shall have expired.
8.1.5 Completion of the Offer. The Minimum Condition shall be
satisfied.
ARTICLE 9
REGISTRATION RIGHTS; RIGHT OF FIRST OFFER;
OTHER AGREEMENTS OF THE COMPANY
9.1 Registration Rights. On or prior to the Closing Date, the Company
shall enter into a Registration Rights Agreement (the "Registration Rights
Agreement") with respect to the Registrable Securities having the terms set
forth in Exhibit H hereto.
9.2 Other Registration Rights. The Company shall not grant any right
of registration under the Securities Act relating to any of its securities
to any Person other than the Purchaser if such rights would or could
reasonably be expected to frustrate, impede or limit the Purchaser's rights
pursuant to the Registration Rights Agreement.
9.3 Right of First Offer. (a) From the Closing Date, and for as long
as the Purchaser beneficially owns shares of Common Stock that constitute
either (x) 33% or more of the Series A Preferred Stock issued on the
Closing Date (as adjusted for any split, subdivision, combination,
recapitalization or similar event from the Closing Date until the date of
determination) or (y) 15% or more of the combined voting power of the then
outstanding Voting Securities, whichever is lower, in the event the Company
proposes to issue Common Stock of any kind (including any warrants, options
or securities or units comprising securities convertible into or
exchangeable for Common Stock or rights to acquire the same) of the
Company, other than (1) stock options to acquire shares of Common Stock or
restricted Common Stock issued after the Closing Date to employees,
consultants, officers or non-employee directors of the Company which
issuances have been approved by the Board of Directors and the Compensation
Committee of the Board of Directors pursuant to any stock option,
restricted stock, stock purchase or stock bonus plan, agreement or
arrangement that has been approved by the Board of Directors and the
Compensation Committee of the Board of Directors and any shares of Common
Stock issuable upon the exercise of such stock options; (2) securities
issued upon conversion of the Series A Preferred Stock; (3) securities
issuable as dividends or distributions on shares of the Company's Series A
Preferred Stock; (4) securities issued as consideration for the acquisition
of another business entity or business segment of any such entity by the
Company by merger, purchase of substantially all the assets or other
reorganization agreement if such issuance is approved by the Board of
Directors; (5) securities issuable upon exercise of outstanding Company
Options and Common Stock issuable in connection with prior acquisitions by
the Company, each as set forth on Schedule 3.6; (6) securities issuable
upon conversion or exchange of (a) securities issued in accordance with
this Section 9.3 or (b) securities issued pursuant to clauses (1) through
(5) above, then the Company shall:
(i) deliver to the Purchaser written notice setting forth in
reasonable detail (1) the terms and provisions of the securities
proposed to be issued (the "Proposed Securities"); (2) the price and
other terms of the proposed sale of such securities; (3) the amount of
such securities proposed to be issued; and (4) such other information
as the Purchaser may reasonably request in order to evaluate the
proposed issuance; and
(ii) offer to issue to the Purchaser a portion of the
Proposed Securities equal to a percentage determined by dividing (x)
the number of shares of Common Stock beneficially owned by the
Purchaser (assuming conversion of all shares of Series A Preferred
Stock into Common Stock), by (y) the total number of shares of Common
Stock then outstanding.
The Purchaser must exercise the purchase rights hereunder within 20
Business Days after receipt of such notice from the Company.
(b) Upon the expiration of the offering period described above,
or if the Purchaser shall default in paying for or purchasing the Proposed
Securities on the terms offered by the Company, the Company shall
thereafter be free to sell such Proposed Securities that the Purchaser has
not elected to purchase during the 120 days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to the Purchaser. Any Proposed Securities offered or sold by the
Company after such 120-day period must be reoffered to the Purchaser
pursuant to this Section 9.3.
(c) The election by the Purchaser not to exercise its rights
under this Section 9.3 in any one instance shall not affect its rights
(other than in respect of a reduction in their percentage holdings) as to
any subsequent proposed issuance. Any sale of such securities by the
Company without first giving the Purchaser the rights described in this
Section 9.3 shall be void and of no force and effect, and the Company shall
not register such sale or issuance on the books and records of the Company.
9.4 Rule 144. The Company shall file all reports required to be filed
by it under the Securities Act and the Exchange Act and shall take such
further action as the Purchaser may reasonably request, all to the extent
required to enable the Purchaser to sell the Series A Preferred Stock or
the Common Stock into which the Series A Preferred Stock may be converted
pursuant to and in accordance with Rule 144. Such action shall include, but
not be limited to, making available adequate current public information
meeting the requirements of paragraph (c) of Rule 144.
9.5 Availability of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued Common Stock,
for the purpose of effecting the conversion of the Series A Preferred
Stock, at least the full number of shares of Common Stock then issuable
upon the conversion of such securities. The Company will, from time to
time, in accordance with the laws of the State of Delaware, increase the
authorized amount of Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall be
insufficient to permit conversion of the Series A Preferred Stock.
9.6 No Rights Plan. From the date hereof and for as long as the
Purchaser beneficially owns Common Stock representing at least 15% of the
total voting power of the Company (assuming conversion of all then
outstanding shares of Series A Preferred Stock into Common Stock,
regardless of whether such securities are actually then convertible),
without the prior written consent of the Purchaser, the Company shall not
adopt or enter into any "poison pill" rights plan or any similar plan or
agreement or declare or pay any dividend of any rights to purchase stock of
the Company in connection with such a plan or agreement.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1 Termination. (a) This Agreement may be terminated prior to the
Closing as follows:
(i) by either the Purchaser or the Company if (A) the
Closing shall not have occurred before April 30, 2004, or (B) the
approval of the Company's stockholders, as set forth in Section 6.1(b)
hereof, shall not have been obtained by reason of the failure to
obtain the Required Vote at a duly held meeting of stockholders or any
adjournment thereof; provided, however, that the right to terminate
this Agreement under this Section 10.1(a)(i) shall not be available to
any party whose failure to perform any covenant or obligation under
this Agreement or willful breach of a representation or warranty has
been the cause of or resulted in the failure of the Closing to occur
on or before such date;
(ii) at the election of the Purchaser, if (A) prior to the
Closing Date there shall have been a breach of any of the Company's
representations, warranties, covenants or agreements, which breach
would result in the failure to satisfy any of the conditions set forth
in Section 7.1, and such breach shall be incapable of being cured or,
if capable of being cured, shall not have been cured within 30 days
after written notice thereof shall have been received by the Company,
(B) the Board of Directors shall have (x) failed to make the Board
Recommendation, (y) withdrawn the Board Recommendation or (z) modified
or qualified, in any manner adverse to the Purchaser, the Board
Recommendation (or resolved or proposed to take any such action
referred to in clause (x), (y) or (z)), in each case whether or not
permitted by the terms hereof, (C) the Company shall have breached its
obligations under this Agreement by reason of either a breach of
Section 5.2, a failure to call and hold the Stockholders Meeting in
accordance with Section 6.1(b), a failure to prepare and mail to its
stockholders the Proxy Statement in accordance with Section 6.1(a) or
a failure to commence the Offer in accordance with Section 6.2 or to
consummate the Offer promptly upon satisfaction of the Offer
Conditions in accordance with Section 6.2 after receipt of the notice
from the Purchaser pursuant to Section 6.3, unless such failure was
caused by the actions or inactions of the Purchaser (or its
representatives) in violation in any material respect of their
obligations under this Agreement, or (D) any of the stockholders party
to the Support Agreement shall have breached any of their respective
obligations under Sections 1 and 2 of the Support Agreement in any
material respects and such breach shall be incapable of being cured
or, if capable of being cured, shall not have been cured within 30
days after written notice thereof shall have been received by such
stockholder;
(iii) at the election of the Company, if prior to the
Closing Date there shall have been a breach of any of the Purchaser's
representations, warranties, covenants or agreements, which breach
would result in the failure to satisfy any of the conditions set forth
in Section 8.1, and such breach shall be incapable of being cured or,
if capable of being cured, shall not have been cured within 30 days
after written notice thereof shall have been received by the
Purchaser;
(iv) at the election of the Company or the Purchaser, if any
Governmental Authority has taken any Action, which Action is final and
not subject to appeal, seeking to prevent the consummation of the
Closing or any other Contemplated Transaction and the Company or the
Purchaser, as the case may be, reasonably and in good ▇▇▇▇▇ ▇▇▇▇ it
impracticable or inadvisable to proceed in view of such Action;
provided, however, that the party terminating this Agreement pursuant
to this Section 10.1(iv) shall have used all commercially reasonable
efforts to have such Action vacated;
(v) at the election of the Company, if (A) the Company is
not in breach in any material respect of any of the terms of this
Agreement, (B) the Board of Directors of the Company shall have made a
Change in the Board Recommendation in accordance with Section 6.1 and
authorizes the Company, subject to complying with the terms of this
Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company
notifies the Purchaser in writing that it intends to enter into such
an agreement, attaching the most current version of such agreement to
such notice (the "Alternative Transaction Notice"), (C) the Purchaser
does not make, prior to five Business Days after receipt of the
Alternative Transaction Notice, an offer that the Board of Directors
of the Company determines, in good faith after consultation with its
financial advisors, is at least as favorable as the Superior Proposal
taking into account all relevant factors (including financing,
required approvals, the timing and likelihood of consummation and the
post-closing prospects for the Company) and (D) the Company prior to
such termination pays to the Purchaser in immediately available funds
the fees and expenses required to be paid pursuant to Section 10.3 and
Section 12.2(b); or
(vi) at any time on or prior to the Closing Date, by mutual
written consent of the Company and the Purchaser.
(b) If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Sections
10.2 and 10.3.
10.2 Survival after Termination. If this Agreement terminates pursuant
to Section 10.1 and the Contemplated Transactions are not consummated, this
Agreement shall become null and void and have no further force or effect,
except that any such termination shall be without prejudice to the rights
of any party on account of the non-satisfaction of the conditions set forth
in Articles 7 and 8 or on account of the termination of this Agreement,
each resulting from the intentional or willful breach or violation of the
representations, warranties, covenants or agreements of another party under
this Agreement. Notwithstanding anything in this Agreement to the contrary,
the provisions of Sections 3.26 and 4.7, this Section 10.2, Sections 10.3,
11.1 and 11.2 and Article 12 shall survive any termination of this
Agreement.
10.3 Termination Payment. If
(i) this Agreement shall be terminated at a time at which
the Purchaser is entitled to terminate this Agreement pursuant to
Section 10.1(a)(ii)(A) and either (x) within twelve (12) months of
such termination the Company or any of its Subsidiaries enters into
any agreement with respect to, or consummates, any Acquisition
Proposal that was received prior to such termination or (y) within (3)
months of such termination the Company or any of its Subsidiaries
enters into any agreement with respect to, or consummates, any
Acquisition Proposal, or
(ii) this Agreement shall be terminated at a time at which
the Purchaser is entitled to terminate this Agreement pursuant to
Section 10.1(a)(ii)(B) and the approval of the Company's stockholders,
as set forth in Section 6.1(b), shall not have been obtained by reason
of the failure to obtain the Required Vote at a duly held meeting of
stockholders or any adjournment thereof, or
(iii) this Agreement shall be terminated at a time at which
the Purchaser is entitled to terminate this Agreement pursuant to
Section 10.1(a)(ii)(C),
then, in each such case, the Company shall promptly, but in no event later
than the date of such termination (or in the case of clause (i), if later,
the date the Company or its Subsidiary enters into such agreement with
respect to or consummates (whichever is earlier) such Acquisition
Proposal), pay the Purchaser (to the account or accounts designated by the
Purchaser) a termination payment in an amount equal to $2,000,000 (the
"Termination Payment"), by wire transfer of immediately available funds, in
addition to any amount to which Purchaser is then entitled pursuant to
Section 12.2(b).
If the Company elects to terminate this Agreement pursuant to Section
10(a)(v), the Company, prior to such termination, shall pay to the
Purchaser (to the account or accounts designated by the Purchaser) the
Termination Payment, by wire transfer of immediately available funds, in
addition to any amount to which Purchaser is then entitled pursuant to
Section 12.2(b).
Notwithstanding the foregoing, if the Purchaser is paid any amounts
pursuant to Section 3(f) of the Support Agreement (the "Support Payment"),
any such amounts paid, less the amount of the Tax Holdback, shall reduce
the amount of the Termination Payment payable to the Purchaser pursuant to
this Section 10.3 (but shall not reduce any amount that the Purchaser is
entitled to pursuant to Section 12.2(b)); provided, however, that if a
Termination Payment becomes payable pursuant to this Section 10.3 prior to
the time that a Support Payment is payable, the Company shall pay the
Termination Payment to the Purchaser in accordance with this Section 10.3
and the Purchaser shall pay over to the Company the amount of any Support
Payment received by the Purchaser, less the amount of the Tax Holdback, as
and when the Support Payment is actually received. As used herein, the term
"Tax Holdback" shall mean the amount that Purchaser reasonably believes
will be necessary to satisfy any potential indemnification obligations that
the Purchaser may have under Section 3(f)(iv) of the Support Agreement.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification. The Company hereby agrees to indemnify, defend
and hold harmless the Purchaser, its Affiliates and its directors,
managers, officers, agents, advisors, representatives, employees,
successors and assigns (each, a "Purchaser Indemnitee") from and against
all Claims, including without limitation, interest, penalties and
attorneys' fees and expenses, asserted against, resulting to, or imposed
upon or incurred by such Purchaser Indemnitee by a third party and arising
out of or resulting from any allegation or Claim in respect of any wrongful
action or inaction by the Company in connection with the authorization,
execution, delivery and performance of this Agreement or the Company
Agreements, except to the extent that the Purchaser Indemnitee has
committed a material breach of its representations, warranties or
obligations under this Agreement, which breach is the cause of the
Company's wrongful action or inaction. If the Closing occurs, any payment
by the Company to any Purchaser Indemnitee pursuant to Section 11.1 shall
be treated for all income tax purposes as an adjustment to the price paid
by the Purchaser for the Series A Preferred Stock pursuant to this
Agreement.
11.2 Terms of Indemnification. The obligations and liabilities of the
Company with respect to Claims by third parties will be subject to the
following terms and conditions: (a) a Purchaser Indemnitee will give the
Company prompt notice of any Claims asserted against, resulting to, imposed
upon or incurred by such Purchaser Indemnitee, directly or indirectly, and
the Company will undertake the defense thereof by representatives of their
own choosing which are reasonably satisfactory to such Purchaser
Indemnitee; provided that the failure of any Purchaser Indemnitee to give
notice as provided in this Section 11.2 shall not relieve the Company of
its obligations under this Article 11, except to the extent that such
failure has materially and adversely affected the rights of the Company;
(b) if within a reasonable time after notice of any Claim, the Company
fails to defend, such Purchaser Indemnitee will have the right to undertake
the defense, compromise or settlement of such Claims on behalf of and for
the account and at the risk of the Company, subject to the right of the
Company to assume the defense of such Claim at any time prior to
settlement, compromise or final determination thereof; (c) if there is a
reasonable probability that a Claim may materially and adversely affect a
Purchaser Indemnitee other than as a result of money damages or other money
payments, such Purchaser Indemnitee will have the right at its own expense
to defend, or co-defend, such Claim; (d) neither the Company nor the
Purchaser Indemnitee will, without the prior written consent of the other,
settle or compromise any Claim or consent to entry of any judgment relating
to any such Claim; (e) with respect to any Claims asserted against a
Purchaser Indemnitee, such Purchaser Indemnitee will have the right to
employ one counsel of its choice in each applicable jurisdiction (if more
than one jurisdiction is involved) to represent such Purchaser Indemnitee
if, in such Purchaser Indemnitee's reasonable judgment, a conflict of
interest between such Purchaser Indemnitee and the Company exists in
respect of such Claims, and in that event the fees and expenses of such
separate counsel shall be paid by the Company; and (f) the Company will
provide each Purchaser Indemnitee reasonable access to all records and
documents of the Company relating to any Claim.
ARTICLE 12
MISCELLANEOUS
12.1 Survival. All representations and warranties, covenants and
agreements of the Company and the Purchaser contained in this Agreement
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Purchaser or any controlling
Person thereof or by or on behalf of the Company, any of its officers and
directors or any controlling Person thereof, and such representations and
warranties shall expire on the Closing Date (except as provided in Section
2.6). The covenants and agreements contained herein shall survive in
accordance with their terms.
12.2 Fees and Expenses. (a) The Company shall pay its own expenses
incurred in connection with the negotiation, execution, delivery,
performance and consummation of this Agreement and the Contemplated
Transactions (including without limitations expenses incurred in connection
with the Offer and the filing, printing and mailing of the Proxy
Statement).
(b) Unless this Agreement is terminated pursuant to Section
10.1(a)(i)(B) (provided such termination is not at a time that the
Purchaser is entitled to terminate this Agreement pursuant to another
provision of Section 10.1(a) and be reimbursed for its expenses under this
Section 12.2(b)), 10.1(a)(ii)(D) or 10.1(a)(iii), whether or not the
Contemplated Transactions are consummated and without limiting Section
10.3, the Company shall reimburse the Purchaser for the reasonable,
documented out-of-pocket expenses of the Purchaser or any of their
Affiliates (whether or not incurred prior to the date hereof) not to exceed
$1,500,000 in the aggregate, including, without limitation, the fees,
disbursements and other reasonable expenses of attorneys, accountants and
any other advisors thereto, arising out of or relating to the negotiation,
execution, delivery, performance and consummation of this Agreement and the
Contemplated Transactions and all filing fees and expenses incurred by the
Purchaser in connection with any filing by the Purchaser under the HSR Act
("Transaction Expenses"); provided, that if this Agreement is terminated
pursuant to Section 10(a)(i)(A), the Transaction Expenses shall be
reimbursed only if within twelve (12) months of such termination the
Company or any of its Subsidiaries enters into any agreement with respect
to, or consummates, any Acquisition Proposal that was received prior to
such termination. Such reimbursement shall be made from time to time not
later than the third Business Day following the date on which the Purchaser
provides a written documented statement of their theretofore unreimbursed
expenses to the Company.
(c) On the Closing Date, the Company shall pay to the Purchaser
the Closing Amount, as set forth in Section 2.4.
12.3 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given if delivered personally or
telecopied, on the date of such delivery, or if sent by reputable overnight
courier, on the first Business Day following the date of such mailing, as
follows:
(a) if to the Company:
National Medical Health Card Systems, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Purchaser:
New Mountain Partners, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may by notice given in accordance with this Section 12.3
designate another address or Person for receipt of notices hereunder.
12.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the parties
hereto. Other than the parties hereto and their successors and permitted
assigns, and except as set forth in Article 11, no Person is intended to be
a beneficiary of this Agreement. No party hereto may assign its rights
under this Agreement without the prior written consent of the other party
hereto; provided, however, that, without the prior written consent of the
Company, (x) prior to the Closing the Purchaser may assign all or any
portion of its rights hereunder (along with the corresponding obligations)
to any Affiliate of the Purchaser and (y) after the Closing the Purchaser
may assign all or any portion of its rights hereunder (along with the
corresponding obligations) to any purchaser or transferee of shares of the
Series A Preferred Stock. Any assignee of any Purchaser pursuant to the
proviso of the foregoing sentence shall be deemed to be a "Purchaser" for
all purposes of this Agreement.
12.5 Amendment and Waiver. (a) No failure or delay on the part of the
Company or the Purchaser in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Company or the Purchaser at
law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement and any waiver of any provision of this
Agreement shall be effective only if it is made or given in writing and
signed by the Company (in the case of any amendment, supplement,
modification or waiver after the Closing, with the approval of not less
than a majority of the directors not appointed by the Purchaser) and the
Purchaser.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, all of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
12.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
12.8 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by and construed in accordance with the
Requirements of Law of the State of New York without giving effect to the
principles of conflict of laws. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United
States of America, in each case located in the County of New York, for any
Action arising out of or relating to this Agreement and the Contemplated
Transactions (and agrees not to commence any Action relating thereto except
in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set
forth in this Agreement, or such other address as may be given by one or
more parties to the other parties in accordance with the notice provisions
of Section 12.2, shall be effective service of process for any action, suit
or proceeding brought against it in any such court. Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in the courts of the
State of New York or the United States of America, in each case located in
the County of New York, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such
Action brought in any such court has been brought in an inconvenient forum.
Each of the parties irrevocably and unconditionally waives, to the fullest
extent permitted by applicable Requirements of Law, any and all rights to
trial by jury in connection with any action, suit or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby.
12.9 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions hereof.
12.10 Entire Agreement. This Agreement, together with the schedules
and exhibits hereto, and the Company Agreements referred to herein or
delivered pursuant hereto, are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement, together with the
schedules and exhibits hereto, and the Company Agreements referred to
herein or delivered pursuant hereto, supersede all prior agreements and
understandings between the parties with respect to such subject matter.
12.11 Further Assurances. Subject to the terms and conditions of this
Agreement, from time to time after the Closing, the Company and the
Purchaser agree to cooperate with each other, and at the request of the
other party, to execute and deliver any further instruments or documents
and take all such further action as the other party may reasonably request
in order to evidence or effectuate the consummation of the Contemplated
Transactions and to otherwise carry out the intent of the parties
hereunder. In furtherance and not in limitation of the foregoing, the
Company agrees to all actions necessary to give effect to the voting rights
of the Series A Preferred Stock in accordance with the terms thereof.
12.12 Public Announcements. Except as required by any Requirement of
Law, none of the parties hereto will issue or make any reports, statements
or releases to the public with respect to this Agreement or the
Contemplated Transactions without consulting the other parties, and, during
the period from the date hereof until thirty (30) days after the Closing
Date, without the approval of the other parties (such approval not to be
unreasonably withheld or delayed).
12.13 Specific Performance. The parties acknowledge that money damages
are not an adequate remedy for violations of this Agreement and that any
party may, in its sole discretion, apply to a court of competent
jurisdiction for specific performance or injunctive or such other relief as
such court may deem just and proper in order to enforce this Agreement or
prevent any violation hereof and, to the extent permitted by applicable
law, each party waives any objection to the imposition of such relief or
any requirement for a bond.
12.14 Subsidiaries. Whenever this Agreement provides that a Subsidiary
of the Company is obligated to take or refrain from taking any action, the
Company shall cause such Subsidiary to take or refrain from taking such
action.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers hereunto duly
authorized as of the date first above written.
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: CEO & President
PURCHASER:
NEW MOUNTAIN PARTNERS, L.P.
By: New Mountain Investments, L.P.,
its general partner
By: New Mountain GP, LLC,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer