EXHIBIT 99.(d)(1)
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AGREEMENT AND PLAN OF MERGER
among
MERCK & CO., INC.
PV ACQUISITION CORP.
and
PROVANTAGE HEALTH SERVICES, INC.
dated as of
May 4, 2000
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TABLE OF CONTENTS
Page
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ARTICLE 1 OFFER................................................................. 2
Section 1.01. The Offer..................................................... 2
Section 1.02. Company Actions............................................... 4
Section 1.03. Directors of the Company...................................... 5
ARTICLE 2 THE MERGER............................................................ 6
Section 2.01. The Merger.................................................... 6
Section 2.02. Closing....................................................... 6
Section 2.03. Effective Time................................................ 6
Section 2.04. Effects of the Merger......................................... 6
Section 2.05. Certificate of Incorporation and Bylaws....................... 6
Section 2.06. Directors and Officers........................................ 7
Section 2.07. Conversion of Shares.......................................... 7
Section 2.08. Dissenting Shares............................................. 7
Section 2.09. Payments for Shares........................................... 8
Section 2.10. Stock Option and Other Plans.................................. 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY........ 10
Section 3.01. Corporate Existence and Power................................. 10
Section 3.02. Corporate Authority........................................... 10
Section 3.03. Governmental Authorization.................................... 11
Section 3.04. Non-contravention............................................. 11
Section 3.05. Offer Documents; Proxy Statement; Schedule 14D-9.............. 11
Section 3.06. Financing..................................................... 12
Section 3.07. Finders' Fees................................................. 12
Section 3.08. Delaware Law.................................................. 12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ........................ 12
Section 4.01. Corporate Existence and Power................................. 12
Section 4.02. Corporate Authority........................................... 13
Section 4.03. Governmental Authorization.................................... 13
Section 4.04. Non-contravention............................................. 13
Section 4.05. Capitalization................................................ 14
Section 4.06. Subsidiaries.................................................. 15
Section 4.07. Company SEC Documents and Financial Statements................ 15
Section 4.08. Schedule 14D-9; Offer Documents; and Proxy Statement.......... 16
Section 4.09. Absence of Certain Changes.................................... 16
Section 4.10. Litigation.................................................... 17
Section 4.11. Proprietary Rights............................................ 17
Section 4.12. Benefit Plans; ERISA.......................................... 17
Section 4.13. Environmental Matters......................................... 19
Section 4.14. Taxes......................................................... 19
Section 4.15. Certain Approvals............................................. 20
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Section 4.16. Opinion of Financial Advisor.................................. 20
Section 4.17. Rights Plan................................................... 20
Section 4.18. Fees and Commissions.......................................... 20
Section 4.19. Compliance; Permits........................................... 20
Section 4.20. Contracts..................................................... 20
Section 4.21. Affiliate Transactions........................................ 21
Section 4.22. Working Capital............................................... 21
ARTICLE 5 COVENANTS............................................................. 22
Section 5.01. Conduct of Business of the Company............................ 22
Section 5.02. Acquisition Proposals......................................... 22
Section 5.03. Access to Information......................................... 23
Section 5.04. Commercially Reasonable Efforts............................... 25
Section 5.05. Indemnification Exculpation and Insurance..................... 25
Section 5.06. Employee Plans and Benefits and Employment Contracts.......... 27
Section 5.07. Meeting of the Company's Stockholders......................... 29
Section 5.08. De-registration............................................... 30
Section 5.09. Certain Actions............................................... 31
Section 5.10. Affiliate Transactions........................................ 31
Section 5.11. Public Announcements.......................................... 32
Section 5.12. Performance by Merger Subsidiary.............................. 32
ARTICLE 6 CONDITIONS TO THE MERGER.............................................. 33
Section 6.01. Conditions to Each Party's Obligation to Effect the Merger.... 33
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER........................................ 33
Section 7.01. Termination................................................... 33
Section 7.02. Effect of Termination......................................... 33
Section 7.03. Amendment..................................................... 34
Section 7.04. Extension; Waiver............................................. 35
Section 7.05. Procedure for Termination, Extension or Waiver................ 36
ARTICLE 8 MISCELLANEOUS......................................................... 36
Section 8.01. Non-Survival of Representations and Warranties................ 36
Section 8.02. Entire Agreement; Assignment.................................. 36
Section 8.03. Validity...................................................... 38
Section 8.04. Notices....................................................... 38
Section 8.05. Governing Law................................................. 38
Section 8.06. Jurisdiction.................................................. 38
Section 8.07. Descriptive Headings.......................................... 38
Section 8.08. Parties in Interest........................................... 38
Section 8.09. Counterparts.................................................. 38
Section 8.10. Fees and Expenses............................................. 38
Section 8.11. Enforcement of Agreement...................................... 39
Section 8.12. Waiver of Jury Trial.......................................... 39
Section 8.13. Certain Definitions........................................... 39
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement'), dated as of May 4,
2000, among Merck & Co., Inc., New Jersey corporation ("Parent"), PV Acquisition
Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Parent
("Merger Subsidiary"), and ProVantage Health Services, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the
Company deem it advisable and in the best interests of their respective
stockholders that Parent acquire the Company upon the terms and subject to the
conditions provided for in this Agreement;
WHEREAS, in furtherance thereof, it is proposed that the acquisition
be accomplished by Merger Subsidiary commencing a cash tender offer (as it may
be amended from time to time as permitted by this Agreement, the "Offer") to
purchase all of the issued and outstanding shares of common stock, par value
$.01 per share, of the Company (the "Common Stock"), and the associated Rights
(as defined in Section 4.05) (the shares of Common Stock and any associated
Rights are referred to herein as "Shares"), for $12.25 per Share (such amount or
any greater amount per Share paid pursuant to the Offer being hereinafter
referred to as the "Offer Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has approved the Offer
and the Merger and resolved to recommend that holders of Shares tender their
Shares pursuant to the Offer and approve and adopt this Agreement and the
Merger;
WHEREAS, the Boards of Directors of Parent (on its own behalf and as
the sole stockholder of Merger Subsidiary), Merger Subsidiary and the Company
have each approved this Agreement and the merger of Merger Subsidiary with and
into the Company (the "Merger") in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"), in the case of each of the Company and
Merger Subsidiary, and in accordance with the New Jersey Business Corporation
Act, in the case of Parent, and upon the terms and conditions set forth in this
Agreement;
WHEREAS, Parent has required, as a condition to its willingness to
enter into this Agreement, that SKO Holdings, Inc., a wholly-owned subsidiary of
ShopKo Stores, Inc. (collectively, the "Majority Stockholder"), enter into a
Stockholder Agreement (the "Stockholder Agreement") with Parent, substantially
in the form attached hereto as Exhibit A, concurrently with the execution of
this Agreement;
WHEREAS, Parent has required, as a condition to its willingness to
enter into this Agreement, that the Majority Stockholder enter into a letter
with the Company, providing for certain changes in their existing contractual
arrangements upon the Majority Shareholder ceasing to own a majority of the
outstanding Common Stock (the "Side Letter"); and
WHEREAS, Parent has required, as a condition to its willingness to
enter into this Agreement, that Merck-Medco Managed Care, L.L.C. enter into new
employment contacts (the
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"Employment Contracts") with certain employees, providing for the terms and
conditions of their employment with Merck-Medco Managed Care, L.L.C. after the
consummation of the Offer.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, Parent, Merger Subsidiary and the Company agree as
follows:
ARTICLE 1
OFFER
Section 1.01. The Offer.
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(a) Within a reasonable period of time after the date of the execution
of this Agreement, Parent shall cause Merger Subsidiary to commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), and Merger Subsidiary shall commence, the Offer. Parent shall
use its best efforts to cause Merger Subsidiary to commence the Offer no later
than the fifth business day after the execution of this Agreement. The
obligation of Merger Subsidiary to accept for payment and pay for Shares
tendered pursuant to the Offer shall be subject to only those conditions set
forth in Annex A (any of which may be waived by Merger Subsidiary in its sole
discretion; provided, however, that, without the consent of the Company, except
as contemplated by Section 1.01(e), Merger Subsidiary shall not waive the
Minimum Tender Condition (as defined in Annex A)). Subject to the terms of the
Offer and this Agreement and the satisfaction or earlier waiver of all the
conditions of the Offer set forth in Annex A as of any expiration date of the
Offer, Merger Subsidiary shall accept for payment and pay for all Shares validly
tendered and not withdrawn pursuant to the Offer as soon as practicable after it
is permitted to do so under applicable law.
(b) As soon as practicable on the date of commencement of the Offer,
Parent and Merger Subsidiary shall file with the Securities and Exchange
Commission (the "SEC") with respect to the Offer a Tender Offer Statement on
Schedule TO (together with all amendments and supplements thereto, the "Schedule
TO"), which will comply in all material respects with the provisions of
applicable federal securities laws and will contain an offer to purchase
relating to the Offer (the "Offer to Purchase") and forms of related letters of
transmittal and summary advertisement (which documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"Offer Documents"). Parent and Merger Subsidiary shall make all filings
required by applicable state law relating to the Offer (the "State Filings") as
and when required by applicable state law. Parent and Merger Subsidiary will
deliver copies of the proposed forms of the Schedule TO, the Offer Documents and
the State Filings (as well as any change thereto) to the Company within a
reasonable time prior to the commencement of the Offer for prompt review and
comment by the Company and its counsel. Parent and Merger Subsidiary will
provide the Company and its counsel in writing any comments that Merger
Subsidiary, Parent or their counsel may receive from the SEC or its staff or any
applicable state authority with respect to the Offer Documents or the State
Filings promptly after the receipt thereof. Parent and Merger Subsidiary shall
promptly correct any information in the Schedule TO, the Offer Documents or the
State Filings that shall have become false or misleading in any material respect
and take all steps necessary to cause such Schedule TO, Offer Documents or State
Filings as so corrected to be filed
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with the SEC and any applicable state authority and disseminated to the
stockholders of the Company, as and to the extent required by applicable law.
Parent and Merger Subsidiary will provide copies of any amendments or
supplements to the Offer Documents, the Schedule TO or the State Filings prior
to any filing of such amendments or supplements with the SEC or any applicable
state authority in order to provide the Company and its counsel with a
reasonable opportunity to review and comment.
(c) Each of Parent and Merger Subsidiary expressly reserves the right
to modify the terms of the Offer, except that neither Parent nor Merger
Subsidiary shall, without the prior written consent of the Company, decrease the
price per Share payable in the Offer, change the form of consideration payable
in the Offer, decrease the number of Shares sought pursuant to the Offer (except
as contemplated by Section 1.01(e)), change or modify the conditions to the
Offer in a manner adverse to the Company or holders of Shares, impose additional
conditions to the Offer, or amend any term of the Offer in any manner adverse to
the Company or holders of Shares. Notwithstanding the foregoing, Merger
Subsidiary, without the consent of the Company, (i) shall extend the Offer, if
at the then scheduled expiration date of the Offer any of the conditions to
Merger Subsidiary's obligation to accept for payment and pay for Shares shall
not have been satisfied, until such time as such condition is satisfied, if such
condition may in the reasonable judgment of Merger Subsidiary be satisfied in a
time period reasonable for such satisfaction, and (ii) may extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC or the staff thereof applicable to the Offer. Each extension, if any, of
the Offer pursuant to clause (i) of the preceding sentence shall not exceed the
lesser of ten business days or such fewer number of days that Merger Subsidiary
reasonably believes are necessary to cause the conditions of the Offer set forth
in Annex A to be satisfied. Merger Subsidiary may provide for a "subsequent
offering period" in accordance with Rule 14d-11 under the Exchange Act with the
prior consent of the Company (such consent not to be unreasonably withheld).
Notwithstanding the foregoing, Merger Subsidiary shall have no obligation to
extend the Offer if the condition to the Offer set forth in Section (c)(x) of
the Annex A is not satisfied at the scheduled expiration date of the Offer.
(d) On or prior to the date that Merger Subsidiary becomes obligated
to accept for payment and pay for Shares pursuant to the Offer, Parent will
provide or cause to be provided to Merger Subsidiary the funds necessary to pay
for all Shares that Merger Subsidiary becomes obligated to accept for payment
and pay for pursuant to the Offer.
(e) Notwithstanding anything to the contrary in this Agreement, Merger
Subsidiary may waive the Minimum Tender Condition (as defined in Annex A)
without the consent of the Company as long as Merger Subsidiary is permitted by
applicable law to and does exercise the Option (as defined in the Stockholder
Agreement) immediately following the consummation of the Offer and acquires
title to all of the Shares subject thereto and thereafter promptly consummates
the Merger.
(f) The parties hereby agree that the initial scheduled expiration
date of the Offer shall be June 14, 2000. The parties further agree that any
extension of the expiration date of the Offer shall result in the Offer expiring
on the twelfth business day after the end of a Company
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Fiscal Period. For purposes of this Agreement, Company Fiscal Period shall mean
any of April 29, 2000; May 27, 2000; July 1, 2000; July 29, 2000; August 26,
2000; September 30, 2000; October 28, 2000; November 25, 2000; or December 30,
2000.
Section 1.02. Company Actions.
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(a) The Company hereby consents to the Offer and represents that the
Company's Board of Directors, at a meeting duly called and held, has adopted
resolutions approving the Offer, the Merger and this Agreement, determining that
the terms of the Offer and the Merger are fair to, and in the best interests of,
the Company's stockholders and recommending acceptance of the Offer and approval
of the Merger and this Agreement by the stockholders of the Company; provided,
however, that the Board of Directors of the Company may modify, withdraw or
change such recommendation solely to the extent that the Company and the Board
of Directors are permitted to do so under Section 5.02 of this Agreement.
Subject to the foregoing and Section 5.02, the Company hereby consents to the
inclusion in the Offer Documents of the recommendations of the Company's Board
of Directors described in this Section.
(b) The Company will file with the SEC on the date of the commencement
of the Offer a Solicitation/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto, the "Schedule 14D-9") containing
such recommendations of the Board in favor of the Offer and the Merger;
provided, however, that the Board of Directors of the Company may modify,
withdraw or change such recommendation solely to the extent that the Board of
Directors and the Company are permitted to do so under Section 5.02 of this
Agreement. The Company will deliver the proposed forms of the Schedule 14D-9
and the exhibits thereto to Parent within a reasonable time prior to the
commencement of the Offer for prompt review and comment by Parent and its
counsel. Parent and its counsel shall be given a reasonable opportunity to
review any amendments and supplements to the Schedule 14D-9 prior to their
filing with the SEC or dissemination to stockholders of the Company. The
Company will provide Parent and its counsel in writing any comments that the
Company or its counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after receipt thereof, and shall disseminate the
Schedule 14D-9 as required by Rule 14d-9 promulgated under the Exchange Act.
The Company shall promptly correct any information in the Schedule 14D-9 that
shall have become false or misleading in any material respect and take all steps
necessary to cause such Schedule 14D-9 as so corrected to be filed with the SEC
and disseminated to the stockholders of the Company, as and to the extent
required by applicable federal securities laws.
(c) In connection with the Offer, the Company shall furnish to, or
cause to be furnished to, Parent mailing labels, security position listings and
any available listing or computer file containing the names and addresses of the
record holders and non-objecting beneficial owners of the Shares as of a recent
date and shall furnish Parent with such information and assistance as Parent or
its agents may reasonably request in communicating the Offer to the stockholders
of the Company. Subject to the requirements of applicable law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Merger
Subsidiary shall, and shall cause each of their affiliates to, hold the
information contained in any of such labels and lists in confidence, use such
information only in connection with the Offer and the Merger, and, if this
Agreement is terminated, promptly deliver to the Company all copies of such
information, labels, listings and
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files or extracts therefrom then in their possession, in the possession of their
agents or representatives or under their control.
Section 1.03. Directors of the Company. Promptly upon the acceptance
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for payment of and payment for any Shares by Merger Subsidiary pursuant to the
Offer (and, to the extent the Minimum Tender Condition is waived pursuant to
Section 1.01(e), the exercise of the Option as contemplated by Section 1.01(e)),
Merger Subsidiary shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Board of Directors of the Company as
will give Merger Subsidiary, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Board of Directors of the Company equal to
the product of (a) the number of directors on the Board of Directors of the
Company and (b) the percentage that such number of votes represented by Shares
so purchased and Shares otherwise held by Parent and its affiliates, if any,
bears to the number of votes represented by Shares outstanding, and the Company
shall at such time, subject to applicable law, cause Merger Subsidiary's
designees to be so elected by its existing Board of Directors. Subject to
applicable law, the Company shall take all action requested by Parent necessary
to effect any such election, including mailing to its stockholders the
information statement (the "Information Statement") containing the information
required by Section 14(f) of the Exchange Act and Rule 14(f)-1 promulgated
thereunder, and the Company shall make such mailing with the mailing of the
Schedule 14D-9 (provided that Parent and Merger Subsidiary shall have provided
to the Company on a timely basis all information required to be included in the
Information Statement with respect to Merger Subsidiary's designees). In
connection with the foregoing, the Company will, subject to applicable law,
promptly either increase the size of the Board of Directors of the Company
and/or obtain the resignation of such number of its current directors as is
necessary to enable Merger Subsidiary's designees to be elected or appointed to
the Company's Board of Directors as provided above; provided, however, that
prior to the Effective Time (as defined in Section 2.03) the Board of Directors
of the Company shall always have at least two (2) members who are neither
officers, directors, stockholders or designees of Merger Subsidiary or any of
its affiliates ("Merger Subsidiary Insiders") and each committee of the Board of
Directors of the Company shall have at least one (1) member who is not a Merger
Subsidiary Insider. If the number of directors who are not Merger Subsidiary
Insiders is reduced below two (2) for any reason prior to the Effective Time,
then the remaining director who is not a Merger Subsidiary Insider shall be
entitled to designate a person to fill such vacancy who is not a Merger
Subsidiary Insider and who shall be a director not deemed to be a Merger
Subsidiary Insider for all purposes of this Agreement. Following the election of
Merger Subsidiary's designees to the Company's Board of Directors pursuant to
this Section 1.03 and prior to the Effective Time (i) any amendment or
termination of this Agreement by the Company, (ii) any extension or waiver by
the Company of the time for the performance of any of the obligations or other
acts of Parent or Merger Subsidiary under this Agreement or (iii) any waiver of
the Company's rights hereunder shall, in any such case, require the concurrence
of a majority of the directors of the Company then in office who are not Merger
Subsidiary Insiders.
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ARTICLE 2
THE MERGER
Section 2.01. The Merger. Upon the terms and subject to the
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conditions hereof, and in accordance with the relevant provisions of the DGCL,
Merger Subsidiary shall be merged with and into the Company as soon as
practicable following the satisfaction or waiver of the conditions set forth in
Article 6. Following the Merger, the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall continue its existence under
the laws of the State of Delaware, and the separate corporate existence of
Merger Subsidiary shall cease.
Section 2.02. Closing. The closing of the Merger (the "Closing") will
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take place at 9:00 a.m. on a date to be specified by the parties, which shall be
no later than the second business day after satisfaction or waiver of the
conditions set forth in Article 6, unless another time or date, or both, are
agreed to in writing by the parties hereto. The Closing will be held at the
offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
unless another place is agreed to by the parties.
Section 2.03. Effective Time. Upon the terms and subject to the
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conditions hereof, as soon as possible after consummation of the Offer and, to
the extent required by the DGCL, after the vote of the stockholders of the
Company in favor of the approval of the Merger and this Agreement has been
obtained, the Merger shall be consummated by filing with the Secretary of State
of the State of Delaware, as provided in the DGCL, a certificate of merger or
other appropriate documents (in any such case, the "Certificate of Merger") and
the parties hereto shall make all other filings or recordings required under the
DGCL (the later of the time of such filing or the time specified in the
Certificate of Merger being the "Effective Time").
Section 2.04. Effects of the Merger. The Merger shall have the
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effects set forth in Section 259 of the DGCL. As of the Effective Time, the
Company, as the Surviving Corporation, shall be a wholly-owned subsidiary of
Parent.
Section 2.05. Certificate of Incorporation and Bylaws.
---------------------------------------
(a) The certificate of incorporation of Merger Subsidiary in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation (the "Charter") from and after the
Effective Time; provided, however, that Article FIRST of the Charter shall be
amended to provide that the name of the Surviving Corporation shall be the name
of the Company and as so amended shall be the Charter until amended in
accordance with applicable law and this Agreement.
(b) The bylaws of Merger Subsidiary in effect at the Effective Time
shall be the bylaws of the Surviving Corporation from and after the Effective
Time until amended in accordance with applicable law and this Agreement.
Section 2.06. Directors and Officers. The directors of Merger
----------------------
Subsidiary and the officers of the Company immediately prior to the Effective
Time shall be the directors and
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officers of the Surviving Corporation until their respective successors are duly
elected and qualified.
Section 2.07. Conversion of Shares. At the Effective Time, by virtue
--------------------
of the Merger and without any action on the part of Parent, Merger Subsidiary,
the Company or the holders of any of the following securities:
(a) each Share held by the Company as treasury stock and each issued
and outstanding Share owned by Parent, Merger Subsidiary or any other subsidiary
of Parent shall be cancelled and retired and no payment made with respect
thereto;
(b) each issued and outstanding Share, other than those Shares
referred to in Section 2.07(a) or Dissenting Shares (as defined in Section
2.08), shall be converted into the right to receive from the Surviving
Corporation an amount of cash equal to the Offer Price (the "Merger
Consideration"); and
(c) each share of common stock of Merger Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into one
share of common stock of the Surviving Corporation.
Section 2.08. Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, any issued and outstanding Shares held by a Person (a
"Dissenting Stockholder") who does not vote in favor of the Merger and complies
with all the provisions of Delaware law concerning the right of holders of
Shares to require appraisal of their Shares ("Dissenting Shares") shall not be
converted as described in Section 2.07(b), but shall become the right to receive
such consideration as may be determined to be due to such Dissenting Stockholder
pursuant to the laws of the State of Delaware. If, after the Effective Time,
such Dissenting Stockholder withdraws its demand for appraisal or fails to
perfect or otherwise loses such Dissenting Stockholder's right of appraisal, in
any case pursuant to the DGCL, such Dissenting Stockholder's Shares shall be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration. The Company shall give Parent (a) prompt notice of any
demands for appraisal of Shares received by the Company and (b) the opportunity
to participate in and direct all negotiations and proceedings with respect to
any such demands. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
Section 2.09. Payments for Shares.
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(a) Prior to the commencement of the Offer, Parent shall appoint a
commercial bank or trust company reasonably acceptable to the Company to act as
exchange agent for the Offer and the Merger (the "Exchange Agent"). Parent will
enter into an exchange agent agreement with the Exchange Agent, in form and
substance reasonably acceptable to the Company, and shall deposit or cause to be
deposited with the Exchange Agent in trust for the benefit of the Company's
stockholders cash at such times as shall be necessary to make the payments
pursuant to the Offer and Section 2.07 to holders of Shares (such amounts being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, make the payments provided for in the
preceding sentence out of the Exchange Fund.
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(b) Promptly after the Effective Time, Parent and the Surviving
Corporation shall cause the Exchange Agent to mail to each record holder, as of
the Effective Time, of an outstanding certificate or certificates that
immediately prior to the Effective Time represented Shares (the "Certificates")
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) and instructions for
use in effecting the surrender of the Certificate or payment therefor. Upon
surrender to the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed, the holder of such Certificate shall be paid in
exchange therefor cash in an amount equal to the product of the number of Shares
represented by such Certificate multiplied by the Merger Consideration, less any
applicable withholding taxes, and such Certificate shall forthwith be cancelled.
No interest will be paid or accrued on the cash payable upon the surrender of
the Certificates. If payment is to be made to a Person other than the Person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered be properly endorsed or otherwise in
proper form for transfer and that the Person requesting such payment pay any
transfer or other taxes required by reason of the payment to a Person other than
the registered holder of the Certificate surrendered or established to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.09, each Certificate (other than Certificates representing Shares owned by
Parent, Merger Subsidiary or any other subsidiary of Parent or Dissenting
Shares) shall represent for all purposes only the right to receive the Merger
Consideration in cash multiplied by the number of Shares evidenced by such
Certificate, without any interest thereon.
(c) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for cash as provided in this Section 2.09.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the stockholders of the Company
for twelve months after the Effective Time shall be repaid to the Surviving
Corporation. Any stockholders of the Company who have not theretofore complied
with this Section 2.09 shall thereafter look only to Parent and the Surviving
Corporation for payment of their claim for the Merger Consideration per Share,
without any interest thereon.
(e) To the fullest extent permitted by applicable law, none of Parent,
Merger Subsidiary, the Company or the Exchange Agent shall be liable to any
Person in respect of any cash delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(f) In the event that, subsequent to the date of this Agreement but
prior to the Effective Time, the outstanding Shares shall have been changed into
a different number of Shares or a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange, recapitalization or other similar transaction, the Merger
Consideration shall be appropriately adjusted.
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Section 2.10. Stock Option and Other Plans.
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(a) Effective as of the Effective Time, Parent shall assume each
outstanding option to acquire Common Stock (each, a "Company Option"), under any
stock option or similar plan of the Company (each, a "Stock Plan") in accordance
with this Section 2.10 and with the terms of the Stock Plan under which such
Company Option was granted and the stock option agreement by which such Company
Option is evidenced. Parent acknowledges and agrees that each Company Option,
to the extent currently not exercisable, will become exercisable in accordance
with its terms upon the acceptance for payment of and payment for the Shares by
Merger Subsidiary pursuant to the Offer and, if applicable, the exercise of the
Option as contemplated by Section 1.01(e). The proceeds from the exercise of
any Company Option shall be excluded from the calculation of Company Net Working
Capital.
(b) Effective as of the Effective Time, each Company Option shall be
deemed to constitute an option (a "New Parent Option") to purchase, on the same
terms and conditions as were applicable to such Company Option, the number of
shares of Parent common stock (rounded to the nearest whole number) equal to the
product of (A) and (B), where (A) is the number of shares of Common Stock
subject to such Company Option and (B) is the Offer Price divided by the average
of the closing sales prices of Parent common stock on the New York Stock
Exchange for the ten (10) consecutive days immediately prior to and including
the day preceding the Effective Time, at an exercise price per share of Parent
common stock (rounded to the nearest whole cent) equal to (x) divided by (y),
where (x) is the aggregate exercise price for the shares of Common Stock subject
to such Company Option and (y) is the aggregate number of shares of Parent
common stock purchasable pursuant to the New Parent Option (as calculated
immediately above); provided, however, that in the case of any Company Option to
which Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
applies, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the Code.
At or prior to the Effective Time, the Company shall take all necessary actions
to permit the assumption of the unexercised Company Options by Parent pursuant
to this Section. Section 2.10(b) of the Company Disclosure Schedule sets forth
two examples of the calculations contemplated by this paragraph.
(c) Not later than twenty-one calendar days after the Effective Time,
Parent shall file a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") on Form S-8 or other appropriate form covering
shares of Parent common stock subject to issuance upon the exercise of the New
Parent Options.
(d) All Stock Plans shall terminate as of the Effective Time and the
Company shall use commercially reasonable efforts to ensure that following the
Effective Time no holder of a Company Option or any participant in any Stock
Plans shall have any right thereunder to acquire any capital stock of the
Company or any Subsidiary or the Surviving Corporation.
-9-
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Except as set forth in the disclosure schedule of Parent and Merger
Subsidiary hereto (the "Parent Disclosure Schedule"), Parent and Merger
Subsidiary represent and warrant to the Company as follows:
Section 3.01. Corporate Existence and Power. Each of Parent and
-----------------------------
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power to carry on its business as it is now being conducted.
Each of Parent and Merger Subsidiary is duly qualified to do business as a
foreign corporation, and is in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not or reasonably be expected to materially
delay or materially impair the ability of Parent or Merger Subsidiary to perform
their obligations under this Agreement or to consummate the transactions
contemplated by this Agreement (a "Parent Material Adverse Effect"). Merger
Subsidiary is a wholly-owned subsidiary of Parent.
Section 3.02. Corporate Authority. Each of Parent and Merger
-------------------
Subsidiary has the requisite corporate power and authority to execute and
deliver this Agreement and the Stockholder Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Parent and Merger Subsidiary of this Agreement and the Stockholder Agreement,
and the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby and thereby, have been duly authorized by their respective
Board of Directors and the sole stockholder of Merger Subsidiary, and no other
corporate action on the part of Parent or Merger Subsidiary is necessary to
authorize the execution and delivery of this Agreement and the Stockholder
Agreement and the consummation by each of Parent and Merger Subsidiary of the
transactions contemplated hereby (including the Offer) and thereby. Each of this
Agreement and the Stockholder Agreement has been duly executed and delivered by
each of Parent and Merger Subsidiary and constitutes a valid and binding
agreement of each of Parent and Merger Subsidiary, enforceable against each of
Parent and Merger Subsidiary in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally.
-10-
Section 3.03. Governmental Authorization. No consent, approval, order or
--------------------------
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity") is required by Parent or Merger Subsidiary in connection
with the execution and delivery of this Agreement and the Stockholder Agreement
by Parent or Merger Subsidiary or the consummation by Parent and Merger
Subsidiary of the transactions contemplated by this Agreement and the
Stockholder Agreement, except for (a) the filing of a premerger notification and
report form by Parent under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (b) requirements under the Exchange Act; (c)
the filing of the Certificate of Merger pursuant to the DGCL and appropriate
documents with the relevant authorities of other states in which Parent or any
of its subsidiaries is qualified to do business; and (d) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have or reasonably be expected to have a Parent Material Adverse
Effect.
Section 3.04. Non-contravention. The execution, delivery and
-----------------
performance by Parent and Merger Subsidiary of this Agreement and the
Stockholder Agreement and the consummation by Parent and Merger Subsidiary of
the transactions contemplated hereby and thereby do not and will not (with or
without notice, lapse of time or both) (a) contravene or conflict with the
certificate of incorporation or bylaws or other equivalent organizational
document, in each case as amended, of Parent or any of its subsidiaries; (b)
assuming compliance with the matters referred to in Section 3.03, contravene or
conflict with or constitute a violation of any provision of any federal, state,
foreign or local law, regulation, judgment, injunction, order or decree binding
upon or applicable to Parent or any of its subsidiaries; (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any obligation of Parent or any of its subsidiaries or require
consent of any third party or to a loss of a material benefit to which Parent or
any of its subsidiaries is entitled under any provision of any agreement,
contract or other instrument binding upon Parent or any of its subsidiaries or
any license, franchise, permit or other similar authorization held by Parent or
any of its subsidiaries; or (d) result in the creation or imposition of any Lien
on any asset of Parent or any of its subsidiaries, other than, in the case of
clauses (b), (c) and (d), any such conflict violation, default, right, loss or
Lien that, individually or in the aggregate, would not reasonably be expected to
have a Parent Material Adverse Effect.
Section 3.05. Offer Documents; Proxy Statement; Schedule 14D-9.
------------------------------------------------
None of the Offer Documents, the Schedule TO or the State Filings nor any
information supplied by Parent or Merger Subsidiary for inclusion in the
Schedule 14D-9 will, at the time the Offer Documents, the Schedule TO, the State
Filings, the Schedule 14D-9 or any amendments or supplements thereto, are filed
with the SEC or any applicable state authority or are first published, sent or
given to stockholders of the Company, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading. The
information supplied by Parent and Merger Subsidiary for inclusion in the letter
to stockholders, notice of meeting, proxy statement and form of proxy, or the
information statement, as the case may be, to be distributed to stockholders in
connection with the Merger, or any schedule required to be filed with the SEC in
connection therewith (collectively, the "Proxy Statement"), will not, on the
date the Proxy Statement (or any amendment or supplement thereto)
-11-
is first mailed to stockholders of the Company, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading, or shall, at the time
of the meeting of the Company's stockholders (the "Company Stockholder
Meeting"), omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of proxies for the
Company Stockholder Meeting which shall have become false or misleading.
Notwithstanding the foregoing, Parent and Merger Subsidiary make no
representation or warranty with respect to any information supplied by or on
behalf of the Company which is contained in any of the Offer Documents, the
Schedule TO, the State Filings, the Proxy Statement or any amendment or
supplement thereto. The Offer Documents and the Schedule TO shall comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder.
Section 3.06. Financing. At each of (a) the time that Merger
---------
Subsidiary becomes obligated to accept for payment and pay for Shares pursuant
to the Offer and, if applicable, the exercise of the Option and (b) the
Effective Time, Parent will have, and will make available to Merger Subsidiary,
the funds necessary to consummate the Offer and, if applicable, the exercise of
the Option and the Merger and the transactions contemplated thereby, and to pay
related fees and expenses.
Section 3.07. Finders' Fees. Except for ▇. ▇. ▇▇▇▇▇▇ & Co., whose
-------------
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Merger Subsidiary.
Section 3.08. Delaware Law. As of the time immediately prior to the
------------
execution of this Agreement, neither Parent nor any of its subsidiaries was an
"interested stockholder" as such term is defined in Section 203 of the DGCL.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule of the Company hereto
(the "Company Disclosure Schedule"), the Company hereby represents and warrants
to Parent and Merger Subsidiary as follows:
Section 4.01. Corporate Existence and Power. The Company is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Stare of Delaware, and has the requisite corporate power to carry on its
business as it is now being conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not have or reasonably be expected to
have a material adverse effect on the
-12-
financial condition, assets (including intangible assets), liabilities
(contingent or otherwise), business or results of operations of the Company and
its Subsidiaries taken as a whole, or materially delay or materially impair the
ability of the Company to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement (a "Company Material
Adverse Effect"). For purposes of this Agreement, any payments made by the
Majority Stockholder or its affiliates pursuant to Section 5.13 of this
Agreement shall be ignored in determining whether there has been or is
reasonably likely to be a Company Material Adverse Effect. The Company has
heretofore delivered to Parent true and complete copies of the Company's
certificate of incorporation and bylaws as currently in effect.
Section 4.02. Corporate Authority. The Company has the requisite
-------------------
corporate power and authority to execute and deliver this Agreement and, subject
to any required approval of the Merger by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution and delivery by
the Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors, and except for any required approval of the Merger by the Company's
stockholders, no other corporate action on the part of the Company is necessary
to authorize the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights generally.
Section 4.03. Governmental Authorization. No consent, approval, order
--------------------------
or authorization of or registration, declaration or filing with, any
Governmental Entity is required by the Company or any Subsidiary in connection
with the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this Agreement,
except for (a) the filing of a premerger notification and report form by the
Company under the HSR Act; (b) requirements under the Exchange Act; (c) the
filing of the Certificate of Merger pursuant to the DGCL and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business; and (d) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
Section 4.04. Non-contravention. The execution, delivery and
-----------------
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not and will not (with or without
notice, lapse of time or both) (a) contravene or conflict with the certificate
of incorporation or bylaws of the Company or the comparable charter or
organizational documents of any Subsidiary; (b) assuming compliance with the
matters referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of any federal, state, foreign or local law,
regulation, judgment, injunction, order or decree binding upon or applicable to
the Company or any Subsidiary; (c) constitute a default under or give rise to a
right of termination, cancellation or acceleration of any obligation of the
Company or any Subsidiary or require consent of any third party or to a loss of
a material benefit to which the Company or any Subsidiary is entitled under any
provision of any agreement, contract or other instrument binding upon the
Company or any Subsidiary or any license, franchise, permit or other
-13-
similar authorization held by the Company or any Subsidiary; or (d) result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary, other than, in the case of clauses (b), (c) and (d), any such
conflict, violation, default, right, loss or Lien that, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect.
Section 4.05. Capitalization. The authorized capital stock of the
--------------
Company consists of 50,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of which
100,000 shares have been designated as Series B Junior Participating Preferred
Stock and reserved for issuance in connection with the Rights Agreement, dated
as of March 12, 1999, between the Company and Norwest Bank Minnesota, National
Association (the "Rights Agreement"). As of the date hereof, there were
outstanding 18,150,000 shares of Common Stock, no shares of Preferred Stock and
Stock Options to purchase an aggregate of 873,309 Shares (none of which were
exercisable). All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable (except
for certain statutory liabilities that may be imposed by Section 180.0622(2)(b)
of the Wisconsin Business Corporation Law (the "WBCL") for unpaid employee
wages). Except as set forth in this Section and except for the Company's
obligations under the Rights Agreement (including with respect to the preferred
share purchase rights issued thereunder (the "Rights")), there are outstanding
(a) no shares of capital stock or other voting securities of the Company, (b) no
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, and (c) no preemptive rights, options
or other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the
securities in clauses (a), (b) and (c) being referred to collectively as the
"Company Securities"). There are no outstanding (i) stock appreciation rights or
phantom stock units or (ii) obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any Company Securities. The Company and
its Subsidiaries do not have any bonds, debentures, notes or other obligations
outstanding that would give the holders of which the right to vote (or
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter ("Voting Debt"). No Shares,
Preferred Stock or other securities of the Company, the Surviving Corporation,
Parent or any of their respective affiliates will be subject to issuance
pursuant to the Rights Agreement as a result of the Offer, the Merger or the
other transactions contemplated by this Agreement and the Stockholder Agreement
and no Distribution Date (as such term is defined in the Rights Agreement) shall
have occurred as a result of the Offer, the Merger or the other transactions
contemplated by this Agreement or the Stockholder Agreement.
Section 4.06. Subsidiaries. The Company Disclosure Schedule sets forth
------------
a list of each material Subsidiary of the Company. Each Subsidiary of the
Company is a corporation or limited liability company duly incorporated or
organized, as the case may be, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has all requisite
power and authority to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation or foreign limited liability
company and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where failure to be so
qualified would not have a Company Material Adverse Effect. All of the
outstanding shares of capital stock or other ownership interests in each of the
Subsidiaries have been validly issued, and are fully
-14-
paid, non-assessable (except for certain statutory liabilities that may be
imposed by Section 180.0622(2)(b) of the WBCL for unpaid employee wages) and are
owned by the Company or another Subsidiary free and clear of all Liens.
Section 4.07. Company SEC Documents and Financial Statements.
----------------------------------------------
Since July 14, 1999, the Company has filed all required forms, reports,
registration statements, information statements and documents with the SEC
required to be filed by it pursuant to the federal securities laws and the SEC
rules and regulations thereunder (collectively, the "Company SEC Documents"),
all of which have complied as of their respective filing dates in all material
respects with all applicable requirements of the Securities Act, and the
Exchange Act, and the rules promulgated thereunder in effect as of the date of
filing. None of the Company SEC Documents required by the Exchange Act at the
time filed, nor any of the Company SEC Documents required by the Securities Act
as of the date of their effectiveness, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
that information contained in any Company SEC Document has been revised or
superseded by a later-filed Company SEC Document filed and publicly available
prior to the date hereof. The financial statements of the Company included in
the Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form l0-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations, retained earnings, changes in financial position and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except for (a) liabilities incurred in the
ordinary course of business since January 29, 2000, (b) liabilities accrued or
reserved against in the Company SEC Documents, or (c) liabilities disclosed
herein or in the Company Disclosure Schedule, the Company does not have any
liabilities (whether, direct, indirect, accrued or contingent), except for such
liabilities, individually or in the aggregate, that would not have a Company
Material Adverse Effect.
Section 4.08. Schedule 14D-9; Offer Documents; and Proxy Statement.
----------------------------------------------------
Neither the Schedule 14D-9 nor any information supplied by the Company for
inclusion in the Offer Documents, the Schedule TO or the State Filings will, at
the respective times the Schedule 14D-9, the Offer Documents, the Schedule TO,
the State Filings or any amendments or supplements thereto are filed with the
SEC or any applicable state authority are first published, sent or given to
stockholders of the Company, as the case may be, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading. The Proxy Statement
will not, on the date the Proxy Statement (or any amendment or supplement
thereto) is first mailed to the stockholders of the Company, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading or will, at
the time of the Company Stockholder Meeting, omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Stockholder Meeting which shall be
become
-15-
false or misleading in any material respect. The Schedule 14D-9 and the Proxy
Statement will, when filed by the Company with the SEC, comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to information supplied by or
on behalf of Parent or Merger Subsidiary which is contained in any of the
foregoing documents.
Section 4.09. Absence of Certain Changes. Except as disclosed in the
--------------------------
Company SEC Documents or as contemplated by this Agreement, since January 29,
2000, there has not been any event, occurrence or development that has had or
would be reasonably likely to result in a Company Material Adverse Effect,
except for general economic changes or changes that affect the industry of the
Company or any Subsidiary generally (collectively, "General Changes") and
changes in the Company's business after the date hereof attributable primarily
to actions taken by Parent or Merger Subsidiary, which shall include without
limitation any disruptions to the business of the Company and its Subsidiaries
primarily as a result of the execution of this Agreement or the announcement of
the transactions contemplated by this Agreement (collectively, the "Transaction
Changes"). Except as disclosed in the Company SEC Documents, since January 29,
2000, there has not been (a) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the Company or
any redemption or other acquisition by the Company of any Shares, (b) any split,
combination, or reclassification of the Company's capital stock or any issuance
or the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (c) any granting by
the Company or any of the Subsidiaries to any officer or key employee of the
Company or any of the Subsidiaries of any increase in compensation, except in
the ordinary course of business consistent with past practice or as was required
under employment agreements in effect as of the date of the most recent
financial statements included in the Company SEC Documents, (d) any entry by the
Company or any Subsidiary into any employment, severance or termination
agreement with any such officer or key employee or granting by the Company or
any Subsidiary to any such officer or key employee of any increase in severance
or termination pay, except as was required under employment, severance or
termination agreements in effect as of the date of the most recent financial
statements included in the Company SEC Documents, (e) any damage, destruction or
loss, whether or not covered by insurance, that has or would be reasonably
likely to have a Company Material Adverse Effect or (f) any change in accounting
methods, principles or practices by the Company or any Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles.
Section 4.10. Litigation. Except as disclosed in the Company SEC
----------
Documents, as of the date hereof, there is no civil, criminal, administrative or
regulatory action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
before any court or arbitrator or before or by any governmental body, agency or
official that would have or be reasonably likely to have a Company Material
Adverse Effect.
Section 4.11. Proprietary Rights. The Company and its Subsidiaries
------------------
possess or have adequate rights to use all material trademarks, service marks,
brand marks, brand names, trade names, trade dress, domain names, inventions
(whether patentable or unpatentable), patents, databases, computer software and
related documents and data, and copyrights, and all applications
-16-
and registrations therefor (collectively, the "Proprietary Rights"), necessary
for the operation of the businesses of each of the Company and its Subsidiaries
as currently conducted free and clear of all Liens with such exceptions as would
not have a Company Material Adverse Effect. The use of such Proprietary Rights
by the Company or its Subsidiaries does not conflict with, infringe upon or
violate the Proprietary Rights of any other Person, except where such conflict,
infringement or violation would not have a Company Material Adverse Effect. The
Company has received no written notice that the use of any Proprietary Rights by
the Company or its Subsidiaries conflicts with, infringes upon or violates any
Proprietary Rights of any other Person. Neither the Company nor any of its
Subsidiaries is in default under the terms of any third party license or other
right to use any Proprietary Rights, except where such default would not have a
Company Material Adverse Effect. To the Company's knowledge, no third party has
infringed upon, violated or otherwise come into conflict with the Proprietary
Rights possessed or used by the Company or its Subsidiaries, except where such
conflict, infringement or violation would not have a Company Material Adverse
Effect.
Section 4.12. Benefit Plans; ERISA.
--------------------
(a) The Company Disclosure Schedule sets forth a complete list of all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), bonus, pension, profit
sharing, deferred compensation, incentive compensation, excess benefit, stock,
stock option, severance, termination pay, change in control or other material
employee benefit plans, programs, arrangements or agreements currently
maintained, or contributed to, or required to be maintained or contributed to,
by the Company, the Majority Stockholder or any Person that, together with the
Company, is treated as a single employer under Section 414 of the Code for the
benefit of any current or former employees, officers, directors or independent
contractors of the Company or any Subsidiary and with respect to which the
Company or any Subsidiary has any liability (collectively, the "Benefit Plans").
The Company has delivered or made available to Parent true, complete and correct
copies of each Benefit Plan.
(b) Each Benefit Plan has been administered in accordance with its
terms and in compliance with the applicable provisions of ERISA, the Code and
other applicable law, except where the failure to so administer or comply would
not have a Company Material Adverse Effect.
(c) All Benefit Plans intended to be qualified under Section 401(a) of
the Code have been the subject of determination letters from the Internal
Revenue Service to the effect that such Benefit Plans are qualified and exempt
from federal income taxes under Section 401(a) and 501(a), respectively, of the
Code as amended at least through the statutory changes implemented under the Tax
Reform Act of 1986, and no such determination letter has been revoked nor, to
the knowledge of the Company, has revocation been threatened, nor has any such
Benefit Plan been amended since the date of its most recent determination letter
or application therefor in any respect that would adversely affect its
qualification.
(d) No Benefit Plan is subject to Title IV of ERISA or Section 412 of
the Code and no Benefit Plan is a "multiemployer plan" (as defined in Section
3(37) of ERISA).
-17-
(e) No Person has incurred any material liability under Title IV of
ERISA or Section 412 of the Code during the time such Person was required to be
treated as a single employer with the Company under Section 414 of the Code that
would have a Company Material Adverse Effect.
(f) With respect to any Benefit Plan that is an employee welfare
benefit plan (as defined in Section 3(l) of ERISA), (i) no such Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of employment or retirement other than (A) coverage mandated
by law or (B) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code, and (ii) each such Benefit Plan (including any such
Plan covering retirees or other former employees) may be amended or terminated
without liability that would have a Company Material Adverse Effect.
(g) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Benefit Plan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee of the
Company or any of its Subsidiaries, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company or
Parent to cause any such Benefit Plan to be amended or terminated (or which
would result in any materially adverse consequence for so doing). No payment or
benefit that will or may be made by the Company, Parent, or any of their
respective subsidiaries or affiliates with respect to any employee of the
Company or any of its Subsidiaries under any Benefit Plan in connection with the
Offer and the Merger will be characterized as an "excess parachute payment,"
within the meaning of Section 280G(b)(1) of the Code. The parties hereby agree
to use their commercially reasonable efforts to limit the application of Section
280G(b)(1) of the Code to the transactions contemplated hereby.
Section 4.13. Environmental Matters. Except as set forth in the
----------------------
Company SEC Documents, to the Company's knowledge, (a) the Company and each
Subsidiary is and has been in material compliance with, and has no material
liability under, any and all laws relating to the protection of human health or
the environment ("Environmental Laws"), and (b) neither the Company nor any
Subsidiary is the subject of any federal, state, local or foreign investigation,
and neither the Company nor any Subsidiary has received any written notice or
claim, or entered into any negotiations or agreements with any Person, relating
to any material liability or material remedial action or potential material
liability or material remedial action under any Environmental Laws.
Section 4.14. Taxes. The Company and each of its Subsidiaries, and
-----
any consolidated, combined or unitary group for tax purposes of which the
Company or any of its Subsidiaries is or has been a member, has timely filed,
taking into account all extensions of time to file, all Tax Returns required to
be filed by it in the manner provided by law, except any Tax Return with respect
to which no material Taxes were due. All such filed Tax Returns are true,
correct and complete in all material respects. The Company and each of its
Subsidiaries have timely paid all Taxes shown as due on such Tax Returns, except
and, for Taxes that are adequately reserved for on the Company financial
statements in accordance with generally accepted accounting principles, for
which a notice of deficiency has been received. The Company and each of its
-18-
Subsidiaries have timely withheld and paid over to the appropriate taxing
authority where due all Taxes required to be withheld from amounts owing to any
employee, creditor or third party. Except as set forth in the Company Disclosure
Schedule, (a) no claim for material unpaid Taxes has become a Lien against the
property of the Company or any of its Subsidiaries or is being asserted against
the Company or any of its Subsidiaries; (b) no audit, examination, investigation
or other proceeding is pending, being conducted, or to the knowledge of the
Company, threatened by a Tax authority in connection with any examination of
Taxes paid by or on behalf of, or Tax Returns filed by or on behalf of, the
Company and its Subsidiaries; (c) no extension or waiver of the statute of
limitations on the assessment of any Taxes has been granted by the Company or
any of its Subsidiaries and is currently in effect; (d) neither the Company nor
any of its Subsidiaries is a party to, is bound by, or has any obligation under,
or potential liability with regards to, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement and neither the
Company nor any Subsidiary has any liability for Taxes under Treasury Regulation
Section 1.1502-6 (or an analogous provision of state, local or foreign law),
other than Taxes of the Company and its Subsidiaries; (e) no power of attorney
has been granted by or with respect to the Company or any of its Subsidiaries
with respect to any matter relating to Taxes; (f) neither the Company nor any of
its Subsidiaries has any material deferred intercompany gain or loss arising as
a result of a deferred intercompany transaction within the meaning of Treasury
Regulation Section 1.1502-13 (or similar provision under state, local or foreign
law) or any excess loss accounts within the meaning of Treasury Regulation
Section 1.1502-19; and (g) neither the Company nor any of its Subsidiaries has
been the subject of a Tax ruling or determination that has continuing effect.
Section 4.15. Certain Approvals. Except for Chapter 552 of the WBCL
-----------------
and Section 203 of the DGCL, no "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation ("Antitakeover
Statutes") is applicable to the Company, the Shares, the Offer, the Merger, this
Agreement, the Stockholder Agreement or the transactions hereby or thereby. The
Board of Directors of the Company has approved the Offer, the Merger and the
other transactions contemplated by this Agreement in accordance with the
provisions of Section 203 of the DGCL.
Section 4.16. Opinion of Financial Advisor. The Board of Directors of
----------------------------
the Company has received the opinion of ▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇
Incorporated ("▇▇▇▇▇▇▇ ▇▇▇▇▇"), dated the date of this Agreement, to the effect
that the consideration to be received by the holders of Shares pursuant to this
Agreement is fair to such stockholders from a financial point of view.
Section 4.17. Rights Plan. The Board of Directors of the Company has
-----------
irrevocably and unconditionally amended the Rights Agreement to provide that so
long as this Agreement has not been terminated pursuant to Section 7.01, a
Distribution Date (as such term is defined in the Rights Agreement) shall not
occur or be deemed to occur, and neither Parent nor Merger Subsidiary shall
become an Acquiring Person (as such term is defined in the Rights Agreement), as
a result of the execution, delivery or performance of this Agreement, the
announcement, making or consummation of the Offer, the acquisition of the Shares
pursuant to the Offer or the Merger, the consummation of the Merger or any other
transaction contemplated by this Agreement.
-19-
Section 4.18. Fees and Commissions. Other than fees payable to
--------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇, no Person is entitled to receive from the Company or any
Subsidiary any investment banking, brokerage or finder's fee or commissions in
connection with this Agreement or the transactions contemplated hereby. Parent
has been provided with a true and correct copy of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ engagement
letter.
Section 4.19. Compliance; Permits. Neither the Company nor any of its
-------------------
Subsidiaries is in default or violation of any federal, state, foreign or local
law, regulation, judgment, injunction, order or decree binding or applicable to
the Company or any of its Subsidiaries or by which its or any of their
respective properties are bound or affected (except, in each case, with respect
to environmental matters, which are governed by Section 4.13), except, with
respect to laws and regulations, for any such defaults or violations that,
individually or in the aggregate, would not have or reasonably be expected to
have a Company Material Adverse Effect. Each of the Company and its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its and their respective properties and to
carry on its and their respective businesses as such are now being conducted
(collectively, the "Company Permits"), except where the failure to possess such
Company Permits, individually or in the aggregate, would not have a Company
Material Adverse Effect.
Section 4.20. Contracts. (a) Each contract that is material to the
----------
business of the Company and the Subsidiaries (a "Company Material Contract") is
in full force and effect, other than as would not have, individually or in the
aggregate, a Company Material Adverse Effect. Neither the Company nor any
Subsidiary, nor, to the knowledge of the Company, any other party, is in default
under any Company Material Contract, except for such defaults which would not
have, individually or in the aggregate, a Company Material Adverse Effect and,
to the knowledge of the Company, no event has occurred which, with the passage
of time or the giving of notice or both, would constitute such a default.
(b) During the twelve months immediately prior to the date hereof, no
Significant Customer (as defined below) has cancelled or otherwise terminated or
threatened in writing to terminate its relationship with the Company or its
Subsidiaries. For purposes of this Section 4.20 "Significant Customer" means
any customer of the Company's pharmacy management business that, individually or
in the aggregate, accounted for 10.0% or more of the consolidated revenues of
the Company during the fiscal year ended January 29, 2000.
Section 4.21. Affiliate Transactions.
----------------------
(a) The Company Disclosure Schedule sets forth a complete and correct
list as of the date hereof of (A) all written contracts and agreements to which
the Company or any of its Subsidiaries, on the one hand, and the Majority
Stockholder or any of its affiliates (other than the Company or its
Subsidiaries), on the other hand, are a party that are in effect as of the date
hereof and (B) all material non-cash and non-cash equivalent assets, properties
and services of the Company or its Subsidiaries used by the Majority Stockholder
or any of its affiliates (other than the Company or its Subsidiaries) at any
time since January 29, 2000.
-20-
(b) The Company Disclosure Schedule sets forth (i) a description of
all intercompany payables or receivables (whether long term or short term, all
of which will be deemed short term for purposes of this Agreement) as of the
date hereof between the Majority Stockholder and its affiliates (other than the
Company and its Subsidiaries), on the one hand, and the Company and its
Subsidiaries, on the other hand, and (ii) the net amount of such intercompany
payables and/or receivables (the "Intercompany Balance") as of April 1, 2000.
Section 4.22. Working Capital. The Company Disclosure Schedule sets
---------------
forth the amount of Company Net Working Capital as of April 1, 2000. For
purposes of this Agreement, "Company Net Working Capital" shall mean current
assets less current liabilities. Current assets include without limitation cash
and cash equivalents, receivables (less allowance for losses), pharmaceutical
inventories, deferred tax benefits and other current assets. Current liabilities
include without limitation short-term debt, accounts payable, accrued
liabilities and all intercompany amounts due to and/or from the Majority
Stockholder and its affiliates other than the Company (whether short term or
long term). Except as expressly required to the contrary by this definition, the
accounting policies that are used in the definition of Company Net Working
Capital shall be consistent with those applied to the financial statements of
the Company as of and for the year ended January 29, 2000 (the "January 29, 2000
Financial Statements"). Company Net Working Capital on any particular date shall
be calculated as if such date were the Company's normal year-end.
ARTICLE 5
COVENANTS
Section 5.01. Conduct of Business of the Company. Except as
----------------------------------
contemplated by this Agreement or as approved in writing by Parent, during the
period from the date of this Agreement to the Effective Time (unless (i) Parent,
as controlling shareholder, directs the Company to the contrary or (ii) Parent's
designees on the Company's Board of Directors vote in favor of a contrary
action), the Company and the Subsidiaries will each conduct its operations
according to its ordinary and usual course of business and, to the extent
consistent therewith, will use their respective commercially reasonable efforts
to preserve its business organization substantially intact and substantially
maintain its existing relations and goodwill with customers, suppliers,
distributors, creditors, lessors, employees and business associates. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, neither the Company nor any Subsidiary, without the
prior written consent of Parent, will:
(a) issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of (i) additional shares of capital stock of any class (including the
Shares), or securities convertible into any such shares, or any rights, warrants
or options to acquire any such shares or other convertible securities, or grant
or accelerate any right to convert or exchange any securities of the Company for
shares, other than (A) Shares issuable pursuant to the terms of outstanding
Company Options and commitments disclosed in Section 4.05, or (B) the issuance
of shares of capital stock to the Company by a wholly-owned Subsidiary, or (ii)
any other securities in respect of, in lieu of or in substitution for Shares
outstanding on the date thereof or split, combine or reclassify any of the
Company's capital stock or (iii) any Voting Debt or any other property or
assets;
-21-
(b) purchase, redeem or otherwise acquire, or propose to purchase or
otherwise acquire, any of its outstanding securities (including the Shares)
other than pursuant to the Stock Plans;
(c) declare, set aside or pay any dividend or other distribution on
any shares of capital stock of the Company, except that a direct or indirect
wholly-owned Subsidiary may pay a dividend or distribution to its parent;
(d) make (i) any acquisition of a material amount of assets or
securities, any disposition (including by way of any Lien) of a material amount
of assets or securities, or enter into a material contract or release or
relinquish any material contract rights, or make any amendments, or
modifications thereto, except in all instances for actions in the ordinary
course of business, or (ii) for the initial ninety days after the date hereof,
any individual capital expenditures in excess of $350,000 and $3.0 million in
the aggregate; provided, however, if the Offer has not been consummated within
ninety days of the date hereof, the parties will negotiate in good faith to
establish a reasonable capital expenditure budget.
(e) except in the ordinary course of business, (i) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
Person or (ii) make any loans, advances of capital contributions to, or
investments in, any other Person, other than to the Company or any direct or
indirect wholly-owned Subsidiary;
(f) propose or adopt any amendments to the certificate of
incorporation or bylaws of the Company;
(g) except as provided in Section 5.01(g) of the Company Disclosure
Schedule, enter into any new employment, severance or termination agreements
with, or grant any increase in severance or termination pay to, any officers,
directors or key employees or grant any material increases in the compensation
(except in the ordinary course of business consistent with past practice) or
benefits to officers, directors and key employees or adopt any new employee
benefit plan, program, policy or arrangement;
(h) change any accounting methods, principles or practices materially
affecting their assets, liabilities or business, except insofar as may be
required by a change in generally accepted accounting principles;
(i) settle or compromise any material claims or litigation or modify,
amend or terminate any of its material contracts or waive, release or assign any
material rights or claims; or permit any insurance policy naming it as a
beneficiary or loss-payable payee to be canceled or terminated except in the
ordinary and usual course of business;
(j) make any material tax election or settle or compromise any
material income tax liability; or
(k) agree in writing or otherwise to take any of the foregoing
actions.
-22-
Section 5.02. Acquisition Proposals.
---------------------
The Company shall, and shall use its best efforts to cause its
nonstockholder affiliates and the officers, directors and employees of the
Company and its Subsidiaries to, and shall instruct its stockholder affiliates
and the representatives and agents of the Company and its Subsidiaries
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) to, immediately cease and
terminate any existing activities, discussions or negotiations, if any, with any
parties (other than Parent and Merger Subsidiary, any affiliate or associate of
Parent and Merger Subsidiary or any designees of Parent and Merger Subsidiary)
conducted heretofore with respect to any acquisition or exchange of all or any
material portion of the assets of, or more than 20% of the equity interest in,
the Company or any of its Subsidiaries (by direct purchase from the Company,
tender or exchange offer or otherwise) or any business combination, merger or
similar transaction (including an exchange of stock or assets) with or involving
the Company or any Subsidiary or division of the Company (an "Acquisition
Transaction"), other than the Offer and the Merger. Except as set forth in this
Section 5.02, the Company shall not, and shall use its best efforts to cause its
nonstockholder affiliates and the officers, directors and employees of the
Company and its Subsidiaries not to, and shall instruct its stockholder
affiliates and the representatives and agents of the Company and its
Subsidiaries (including, without limitation, any investment banker, attorney or
accountant retained by the Company or any of its Subsidiaries) not to, directly
or indirectly, knowingly encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any nonpublic information or data
(other than the Company's standard public information package) to, any Person or
group of Persons (other than Parent and Merger Subsidiary, any affiliate or
associate of Parent and Merger Subsidiary or any designees of Parent and Merger
Subsidiary) with respect to any inquiries or the making of any offer or proposal
(including, without limitation, any offer or proposal to the stockholders of the
Company) concerning an Acquisition Transaction (an "Acquisition Proposal") or
otherwise knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal; provided, however, that prior to the date of acceptance
for payment of and payment for Shares by Merger Subsidiary pursuant to the
Offer, or, to the extent the Minimum Tender Condition is waived pursuant to
Section 1.01(e), the date on which the Option is exercised (the earliest of such
dates is referred to as the "Closing Date"), the Company may furnish information
and access, but only in response to a request for information or access, to any
Person making a bona fide written fully-financed (which for the purposes of this
Agreement shall mean the receipt of a commitment letter, from a reputable Person
capable of financing the transaction, subject only to normal and customary
exceptions) all-cash Acquisition Proposal to the board of directors of the
Company after the date hereof which was not knowingly encouraged, solicited or
initiated by the Company or any of its affiliates or any director, employee,
representative or agent of the Company or any of its Subsidiaries (including,
without limitation, any investment banker, attorney or accountant retained by
the Company or any of its Subsidiaries) on or after the date hereof and may
participate in discussions and negotiate with such Person concerning any such
bona fide written fully-financed all-cash Acquisition Proposal and the board of
directors of the Company may modify, amend or withdraw its recommendation
relative to the Offer or the Merger or authorize the Company, subject to Section
7.02(b), to enter into a binding written agreement concerning a Superior
Proposal (as defined below), if and only if, in any such case, (i) the board of
directors of the Company determines in good faith, (A) taking into account the
reasoned advice of outside counsel to the Company to the effect that failing to
provide such information or access or to participate in such discussions or
negotiations or so to authorize or modify, to amend or withdraw
-23-
such recommendation, as the case may be, is more likely than not to constitute a
breach of such board's fiduciary duties under applicable law, and (B) taking
into account the advice of financial advisors to the Company to such effect,
that such bona fide written all-cash fully-financed Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all
financial aspects of the proposal and the Person making the proposal and would,
if consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable bona fide written fully-financed all-
cash Acquisition Proposal as to which both of the determinations referred to in
subclauses (A) and (B) above have been made being referred to in this Agreement
as a "Superior Proposal"), and (ii) the board of directors of the Company
receives from the Person making such bona fide written all-cash fully-financed
Acquisition Proposal an executed confidentiality agreement the terms of which
are (without regard to the terms of such Acquisition Proposal) (A) no less
favorable to the Company, and (B) no less restrictive to the Person making such
bona fide written all-cash fully-financed Acquisition Proposal than those
contained in the Confidentiality Agreement, dated as of December 28, 1999
referring to Parent as the "Recipient" (the "Company Confidentiality
Agreement"), between the Company and Parent. The Company will notify Parent
within 48 hours if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company and shall in such notice
indicate the identity of the offeror and the material terms and conditions of
any such proposal and thereafter shall keep Parent reasonably informed, on a
current basis, of the status and material terms of such proposals and the status
of such negotiations or discussions, providing copies to Parent of any
Acquisition Proposals made in writing. The Company shall provide Parent with
four business days advance notice of, in each and every case, its intention to
either enter into any agreement with or to provide any information to any Person
making any such inquiry or proposal. Subject to the provisions of Section 5.02,
the Company agrees not to release any third party from, or waive any provisions
of, any confidentiality or standstill agreement to which the Company is a party
and will use its best efforts to enforce any such agreements at the request of
and on behalf of Parent. The Company will inform the individuals or entities
referred to in the first sentence of this Section 5.02 of the obligations
undertaken in this Section 5.02. The Company also will, at the request of
Parent, promptly request each person or entity which has executed, within 12
months prior to the date of this Agreement, a confidentiality agreement in
connection with its consideration of acquiring the Company to return or destroy
all confidential information heretofore furnished to such person or entity by or
on behalf of the Company.
Section 5.03. Access to Information.
---------------------
(a) Except for competitively sensitive information or as limited by
applicable law, between the date of this Agreement and the Effective Time, the
Company will upon reasonable notice (i) give Parent and its authorized
representatives reasonable access during regular business hours to the Company's
and each Subsidiary's offices and other facilities and to its books and records,
(ii) permit Parent to make such inspections as it may require and (iii) cause
its officers and those of the Subsidiaries to furnish Parent with such financial
and operating data and other information with respect to the business and
properties of the Company and the Subsidiaries as Parent may from time to time
reasonably request (including any request related to implementation of Section
5.13 hereof). Parent and Merger Subsidiary will use their commercially
reasonable
-24-
efforts to minimize any disruption to the businesses of the Company and the
Subsidiaries that may result from the requests for data and information
hereunder.
(b) Information obtained by Parent pursuant to this Section 5.03 shall
be subject to the provisions of the Company Confidentiality Agreement, which
remains in full force and effect.
Section 5.04. Commercially Reasonable Efforts.
-------------------------------
(a) Subject to the terms and conditions of this Agreement and
applicable law, each of the parties shall act in good faith and use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement as soon as
practicable. Without limiting the foregoing, the parties shall use commercially
reasonable efforts to (and shall use commercially reasonable efforts to cause
their respective subsidiaries, and use commercially reasonable efforts to cause
their respective affiliates, directors, officers, employees, agents, attorneys,
accountants and representatives, to) (i) consult and cooperate with and provide
assistance to each other in the preparation and filing with the SEC of the Offer
Documents, the Schedule TO, the State Filings, the Schedule 14D-9 and the Proxy
Statement and all necessary amendments or supplements thereto; (ii) obtain all
consents, approvals, waivers, licenses, permits, authorizations, registrations,
qualifications or other permissions or actions by, and give all necessary
notices to, and make all filings with and applications and submissions to, any
Governmental Entity or other Person necessary in connection with the
consummation of the transactions contemplated by this Agreement as soon as
reasonably practicable; (iii) provide all such information concerning such
party, its subsidiaries and its officers, directors, employees, partners and
affiliates as may be necessary or reasonably requested in connection with any of
the foregoing and (iv) avoid the entry of, or have vacated or terminated, any
decree, order or judgment that would restrain, prevent, or delay the
consummation of the Offer or the Merger. Prior to making any application to or
filing with a Governmental Entity or other entity in connection with this
Agreement (other than filing under the HSR Act), each party shall provide the
other party with drafts thereof and afford the other party a reasonable
opportunity to comment on such drafts.
(b) Parent shall take any and all commercially reasonable steps
necessary to avoid or eliminate every applicable impediment under any antitrust,
competition or trade regulation law that is asserted by any Governmental Entity
with respect to the Offer or the Merger so as to enable the consummation of the
Offer or the Merger to occur as expeditiously as possible. The parties agree
that such commercially reasonable efforts of Parent shall include (1) the
obligation of Parent to litigate with any Governmental Entity for a period from
the date hereof through and including December 31, 2000 and (2) the obligation
of Parent to divest assets or businesses of the Company as may be required in
order to facilitate the expiration of any applicable waiting period under any
antitrust, competition or trade regulation law, to secure the termination of any
investigation by any Governmental Entity or to avoid the filing of litigation by
any Governmental Entity seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger, or to the entry of, or to effect the
dissolution of, any injunction, temporary restraining order or other order in
any suit or proceeding, which would otherwise have the effect of preventing or
delaying the purchase of Shares pursuant to the Offer or the consummation of the
Merger; provided, however, the parties further agree that nothing in this
-------- -------
section shall require that Parent (i)
-25-
divest, sell or hold separate any of its assets or properties other than assets
or properties of the Company, (ii) consent to Parent or the Company doing any of
the foregoing if any proposed divestiture of assets or businesses would have or
be reasonable likely to have a Company Material Adverse Effect, (iii) enter into
a consent decree or assume any other obligations with respect to the ongoing
operations of Parent, its subsidiaries or the Company or (iv) litigate with any
Governmental Entity for a period beyond December 31, 2000.
(c) Notwithstanding anything to the contrary in the foregoing
paragraph (b), Parent agrees that it will enter into a consent order if the sole
purpose of such order is to cause the Company to become subject to the existing
Federal Trade Commission consent order, In the Matter of Merck & Co., Inc. And
Merck-Medco Managed Care, L.L.C., File No. 951-0097, to the same extent that
Merck-Medco Managed Care, L.L.C. is currently subject to such consent order.
(d) The Company, Parent and Merger Subsidiary shall keep the other
reasonably apprised of the status of matters relating to completion of the
transactions contemplated hereby, including promptly furnishing the other with
copies of notices or other communications received by Parent, Merger Subsidiary
or the Company, as the case may be, or any of their respective Subsidiaries,
from any third party and/or any Governmental Entity with respect to the
transactions contemplated by this Agreement.
(e) The Company shall give prompt notice to Parent of any change that
has resulted in or would be reasonably likely to have a Company Material Adverse
Effect and Parent shall give the Company prompt notice of any change that has
resulted in or would be reasonably likely to have a Parent Material Adverse
Effect.
(f) If any Antitakeover Statute shall or may become applicable to the
Offer or the Merger or the other transactions contemplated by this Agreement or
the Stockholder Agreement, each of Parent and the Company and their respective
Board of Directors shall grant such approvals and take such lawful actions as
are necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement or the Stockholder
Agreement or by the Offer or the Merger and otherwise act to eliminate or
minimize the effects of such statute or regulation on such transactions.
Section 5.05. Indemnification Exculpation and Insurance.
-----------------------------------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, a
director, officer or employee of the Company or any of its Subsidiaries
(including in his or her role as a fiduciary of the employee benefit plans of
the Company, if applicable) (the "Indemnified Parties") is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he or she is or was a director,
officer or employee of the Company, any of its Subsidiaries or any of their
respective predecessors or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their commercially
reasonable efforts to defend against and respond thereto. It is understood and
agreed that after the
-26-
Effective Time, Parent shall indemnify and hold harmless, to the fullest extent
permitted by law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel satisfactory to them after consultation with Parent;
provided, however, that (A) Parent shall have the right to assume the defense
thereof and upon such assumption Parent shall not be liable to any Indemnified
Party for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if Parent elects not to assume such defense or counsel for the Indemnified
Parties reasonably advises that there are issues which raise conflicts of
interest between Parent and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them after consultation with Parent, and Parent
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (B) Parent shall in all cases be obligated pursuant to this Section
5.05(a) to pay for only one firm of counsel for all Indemnified Parties, (C)
Parent shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (D) Parent shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 5.05(a),
upon learning of any such claim, action, suit, proceeding or investigation,
shall promptly notify Parent thereof, provided that the failure to so notify
shall not affect the obligations of Parent under this Section 5.05(a) except to
the extent such failure to notify materially prejudices Parent. Upon written
request by an Indemnified Party, Parent shall advance all expenses incurred by
such Indemnified Party in connection with any such claim, action, suit,
proceeding or investigation to which such Indemnified Party is a party or is
entitled to indemnification pursuant to this Section 5.05(a). The right to
indemnification and the advancement of expenses conferred by this Section
5.05(a) shall not be exclusive of any other rights that any Indemnified Party
seeking indemnification or advancement of expenses may be entitled to or
hereafter acquire under any statute, agreement or provision of the Company's or
the Surviving Corporation's certificate of incorporation or bylaws or otherwise.
Parent's obligations under this Section 5.05(a) shall continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claim (a "Claim") asserted
or made within such period shall continue until the final disposition of such
Claim.
(b) Without limiting the foregoing, Merger Subsidiary and Parent agree
that (i) the certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
limitation of liability set forth in the Company's certificate of incorporation
and bylaws on the date hereof, which provisions shall not be amended, repealed
or otherwise modified for a period of six (6) years after the Effective Time in
any manner that would adversely affect the rights thereunder of individuals who
at any time prior to the Effective Time were directors or officers of the
Company, and (ii) all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now
-27-
existing in favor of the current or former directors or officers of the Company
and the Subsidiaries as provided in any indemnification agreements of the
Company shall be assumed by the Surviving Corporation in the Merger, without
further action, as of the Effective Time and shall survive the Merger and shall
continue in full force and effect (to the extent consistent with applicable law)
in accordance with their terms. In the event that Parent or the Surviving
Corporation or any of their respective successors or assigns (A) consolidates
with or merges into any other Person and is not the continuing or surviving
corporation or entity of such consolidation or merger or (B) transfers or
conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, proper provision will be made so that the
successors and assigns of Parent or the Surviving Corporation, as the case may
be, assume the obligations set forth in this Section 5.05.
(c) For six (6) years after the Effective Time, the Surviving
Corporation shall provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time, including
but not limited to the transactions contemplated by this Agreement, covering
each person currently covered by the Company's officers' and directors'
liability insurance policy, or who becomes covered by such policy prior to the
Effective Time, on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof, provided, however, that
in satisfying its obligation under this Section 5.05 the Surviving Corporation
shall not be obligated to pay annual premiums in excess of 200% of the amount
per annum the Company is currently paying for such coverage (the "Insurance
Amount"); provided further, that if the Insurance Amount is insufficient to
maintain or procure the coverage contemplated by this Section 5.05(c), then the
Surviving Corporation shall use commercially reasonable efforts to obtain as
much comparable insurance as is available for the Insurance Amount.
(d) For six (6) years after the Effective Time, Parent shall cause the
Surviving Corporation to honor its commitments and obligations pursuant to this
Section 5.05. The provisions of this Section 5.05 are (i) intended to be for
the benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) in addition to, and not in
substitution or, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
Section 5.06. Employee Plans and Benefits and Employment Contracts.
----------------------------------------------------
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to honor in accordance with their terms all existing
employment, severance, consulting or other compensation agreements, plans or
contracts between the Company or any Subsidiary and any officer, director or
employee of the Company or any Subsidiary set forth on Section 5.06 of the
Company Disclosure Schedule.
(b) Parent agrees that, on and following the Effective Time, all
employees of the Company and its subsidiaries as of the Effective Time (whether
or not on disability or leave of absence) (the "Current Employees") shall be
immediately eligible to participate in employee benefit plans and programs of
Parent and its Affiliates on substantially the same terms and conditions as are
applicable to similarly situated non-bargained employees (i) with crediting of
prior employment with the Company and the Majority Stockholder, to the extent
credited by either of them, for purposes of eligibility waiting periods and
vesting requirements, (ii) with recognition
-28-
of all co-payments and deductibles so that Current Employees are not treated as
new employees of Parent and its affiliates but as if they had been employees of
such entitles throughout the period that they were employed with the Company and
the Majority Stockholder and (iii) without application of preexisting condition
and similar exclusion provisions that did not apply to the Current Employees
prior to the Effective Time, but, in the case of each of (i) and (ii) only to
the extent that employment, co-payments and deductibles are recognized in
respect of employees of Parent and its affiliates other than the Current
Employees; and provided, that this Section 5.06(b) shall not apply to (x)
--------
eligibility to receive retiree medical benefits, (y) the application of the
cost-sharing features applicable to such retiree medical benefits and (z)
application of the provisions of all stock option programs of Parent and its
affiliates relating to retirement.
(c) The Company will take all action necessary such that, effective as
of the Closing Date, the Company shall cease to participate in the employee
benefit plans, programs, policies and arrangements sponsored and maintained by
the Majority Stockholder (collectively, the "ShopKo Plans").
(d) Except as provided in Section 5.06(e), the Company shall use
commercially reasonable efforts to cause the Majority Stockholder to retain,
bear and be responsible for all liabilities and obligations under the ShopKo
Plans. Without limiting the generality of the foregoing sentence, the Company
shall use commercially reasonable efforts to cause the Majority Stockholder to
bear and be responsible for all liabilities and obligations under the ShopKo
Stores, Inc. Deferred Compensation Plan. Prior to the Closing Date, the Company
shall cause any accrued liabilities applicable to the Shopko Plans to be removed
from its and its Subsidiaries' books.
(e) Prior to the Closing Date, the Company shall take all action
necessary such that, immediately prior to the Closing Date, all Current
Employees of the Company and its subsidiaries who participate in the ShopKo
Stores, Inc. Profit Sharing and Super Saver Plan (the "401(k) Plan") shall
become fully vested in any unvested portion of their accounts under the 401(k)
Plan. The Company shall cause the trustee of any trust in which the 401(k) Plan
participates (the "Trust"), as of the Trust's valuation date on or next
following the Effective Time (the "Valuation Date"), to value, in a manner
consistent with its prior practice, the account balances under the 401(k) Plan
of the Current Employees (collectively the "Account Balances"). As soon as
practicable after the determination of the Account Balances, the Company shall
cause the trustee of the Trust to transfer to a successor tax-qualified trust
designated by Parent an amount in cash equal to the Account Balances and
outstanding participant loans, if any (i) increased by interest during the
period from the Valuation Date to the date of transfer (the "Interim Period") at
an interest rate equal to the interest rate credited on short-term investments
held in the Trust (the "Short-Term Rate") and (ii) reduced by benefit payments
to employees or their beneficiaries made in accordance with the provisions of
the 401(k) Plan during the Interim Period plus interest on such benefit payments
at the Short-Term Rate from the date of payment until the transfer date.
Section 5.07. Meeting of the Company's Stockholders.
-------------------------------------
(a) After consummation of the Offer, to the extent required by
applicable law, the Company shall promptly take all action necessary in
accordance with the DGCL and the Company's certificate of incorporation and
bylaws to convene the Company Stockholder Meeting to consider and vote on the
Merger and this Agreement. At the Company Stockholder Meeting, all
-29-
of the Shares then owned by Parent, Merger Subsidiary or any other subsidiary of
Parent shall be voted to approve the Merger and this Agreement. Subject to
Section 5.02, the Board of Directors of the Company shall recommend that the
Company's stockholders vote to approve the Merger and this Agreement if such
vote is sought, shall use commercially reasonable efforts to solicit from
stockholders of the Company proxies in favor of the Merger and shall take all
other reasonable action in its judgment necessary and appropriate to secure the
vote of stockholders required by the DGCL to effect the Merger.
(b) If required under applicable law, the Company and Parent shall
prepare the Proxy Statement, file it with the SEC under the Exchange Act as
promptly as practicable after Merger Subsidiary purchases Shares pursuant to the
Offer, and use all reasonable efforts to have it cleared by the SEC. As
promptly as practicable after the Proxy Statement has been cleared by the SEC,
the Company shall mail the Proxy Statement to the stockholders of the Company as
of the record date for the Company Stockholder Meeting.
(c) Parent and Merger Subsidiary shall not, and they shall cause their
subsidiaries not to, sell, transfer, assign, encumber or otherwise dispose of
the Shares acquired pursuant to the Offer or otherwise prior to the Company
Stockholder Meeting; provided, however, that this Section 5.07(c) shall not
apply to the sale, transfer, assignment, encumbrance or other disposition of any
or all such Shares in transactions involving solely Parent, Merger Subsidiary
and/or one or more of their wholly-owned subsidiaries.
(d) Notwithstanding the foregoing, in the event that Merger Subsidiary
shall acquire Shares representing at least 90% of the votes represented by all
outstanding Common Stock, the parties hereto agree, at the request of Merger
Subsidiary, to take all necessary and appropriate action to cause the Merger to
become effective, in accordance with Section 253 of the DGCL, as soon as
reasonably practicable after such acquisition, without a meeting of the
stockholders of the Company.
Section 5.08. De-registration. The Company shall use commercially
---------------
reasonable efforts to cause the Shares to be de-registered from the New York
Stock Exchange and de-registered under the Exchange Act as soon as practicable
following the Effective Time.
Section 5.09. Certain Actions. The Company shall settle the
---------------
Intercompany Balance and terminate all ongoing contracts, commitments and
arrangements between the Majority Stockholder and its affiliates (other than the
Company or its Subsidiaries) and the Company and its Subsidiaries (including,
without limitation, those listed on the Company Disclosure Schedule) as of the
acceptance for payment of and payment for any Shares by Merger Subsidiary
pursuant to the Offer, except for transactions contemplated by this Agreement
and the following agreements as contemplated by the Side Letter: (a)
Indemnification and Hold Harmless Agreement dated July 19, 1999, which shall
remain in full force and effect after the Change of Control Date (as defined in
the Side Letter); (b) Tax Sharing Agreement dated July 19, 1999, which shall
remain in full force and effect after the Change of Control Date (as defined in
the Side Letter); (c) Prescription Benefit Management Agreement dated March 4,
1996, which shall be amended as of the Change of Control Date (as defined in the
Side Letter); (d) Lease Agreement dated August 1, 1999, which shall be amended
as of the Change of Control Date (as defined in the Side Letter); (e)
Information Technology Services Agreement dated July 19, 1999, which shall be
amended as of the Change of
-30-
Control Date (as defined in the Side Letter) and (f) End User License Agreement
dated as of January 29, 2000, which shall be amended as of the Change of Control
Date (as defined in the Side Letter) (collectively, the "Affiliate Agreements").
Section 5.10. Affiliate Transactions. Except as contemplated by this
----------------------
Agreement or the Side Letter or as approved in writing by Parent, after the date
of this Agreement to the consummation of the Offer, the Company:
(a) will not terminate, amend, modify, or grant any waivers of the
Affiliate Agreements or the Employment Contracts in any respects; or
(b) will not permit the Intercompany Balance to be increased or
decreased other than as a result of cash advances or payments required to be
made in the ordinary course of business pursuant to the terms of the agreements
listed in the Company Disclosure Schedule.
Section 5.11. Public Announcements. Parent and the Company shall
---------------------
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with, any press release or other public
statement with respect to the transactions contemplated by this Agreement,
including the Offer and the Merger, and shall not issue any such press release
or make any such public statement prior to such consultation, except as either
party may determine is required by applicable law or by obligations pursuant to
any listing agreement with any national securities exchange.
Section 5.12. Performance by Merger Subsidiary. Parent hereby agrees
--------------------------------
to cause Merger Subsidiary to comply with its obligations hereunder and under
the Offer and to cause Merger Subsidiary to consummate the Merger as
contemplated herein.
Section 5.13. Working Capital.
---------------
(a) The Company will, within five business days after the end of each
Company Fiscal Period (including, without limitation, the Company Fiscal Period
immediately prior to the scheduled expiration date of the Offer), deliver to
Parent a certificate providing the Company's good faith calculation of Company
Net Working Capital on a line-item by line-item basis at the end of such
immediately prior Company Fiscal Period.
(b) Parent shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ L.L.P. ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇") to,
within five business days of receipt by Parent of the certificate of the Company
contemplated by paragraph (a) of this Section 5.13 with regard to the Company
Fiscal Period immediately prior to expiration of the Offer, deliver to the
Company and the Majority Stockholder ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ calculation of Company
Net Working Capital on a line-item by line-item basis for such Company Fiscal
Period.
(c) If ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ calculation of Company Net Working Capital
discloses that Company Net Working Capital is less than $55.0 million (a
"Working Capital Shortfall"), the Majority Stockholder may within one business
day, in its sole discretion, make a payment to Parent in the amount of the
Working Capital Shortfall by immediately available funds. If the Majority
Stockholder timely makes such a payment or if ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ calculation of
Company Net Working Capital discloses no Working Capital Shortfall, the Company
will be
-31-
deemed to have satisfied the condition to the Offer set forth in paragraph
(c)(x) of Annex A. The provisions of this Section 5.13(c) are exclusive of the
provisions contained in Section 5.13(d).
(d) If ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ calculation of Company Net Working Capital
discloses that there is a Working Capital Shortfall, the Majority Stockholder
may within one business day, in its sole discretion, agree to the audit and
indemnification procedures set forth in Section 9 of the Side Letter. If the
Majority Stockholder timely so agrees in writing, the Company will be deemed to
have satisfied the condition to the Offer set forth in paragraph (c)(x) of Annex
A. The provisions of this Section 5.13(d) are exclusive of the provisions
contained in Section 5.13(c).
ARTICLE 6
CONDITIONS TO THE MERGER
Section 6.01. Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Merger. The respective obligations of each party to consummate the Merger are
------
subject to the satisfaction or waiver, where permissible, prior to the Effective
Time, of the following conditions:
(a) if required by applicable law, this Agreement shall have been
approved by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with applicable law;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
(c) Merger Subsidiary shall have purchased Shares tendered pursuant to
the Offer, except that this condition shall not be a condition to Parent's and
Merger Subsidiary's obligations to effect the Merger if Merger Subsidiary shall
have failed to purchase Shares pursuant to the Offer or, if applicable, pursuant
to the exercise of the Option, in breach of its obligations under this
Agreement; and
(d) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
Section 7.01. Termination. This Agreement may be terminated and the
-----------
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time (notwithstanding approval thereof by the stockholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent upon notification to the other
party, if the Offer has not been consummated by December 31, 2000; provided,
however, that the right to terminate this Agreement pursuant to this Section
7.01(b) shall not be available to any party whose
-32-
failure to fulfill any obligation under this Agreement or the Offer has been the
cause of, or resulted in, the failure of the Shares to have been purchased
pursuant to the Offer;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Offer or the Merger illegal or
otherwise prohibited or if any judgment, injunction, order or decree enjoining
Parent or the Company from consummating the Offer or the Merger is entered and
such judgment, injunction, order or decree shall become final and unappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this Section 7.01(c) shall have used commercially reasonable efforts to
remove such order, decree, ruling or injunction and shall not be in violation of
Section 5.04; or
(d) by the Company: if (i) the Company is not in material breach of
any of its covenants or agreements in this Agreement, (ii) the board of
directors of the Company authorizes the Company, prior to the Closing Date, and
subject to complying with the terms of this Agreement, to enter into a binding
written agreement concerning a Superior Proposal and the Company notifies Parent
in writing that it intends to enter into such an agreement, attaching the most
current version of such agreement to such notice, and (iii) Parent does not
make, within four business days of receipt of the Company's written notification
of its intention to enter into such an agreement, a written and binding offer
that is at least as favorable, from a financial point of view, to the
stockholders of the Company as the Superior Proposal. The Company agrees (x)
that it will not enter into a binding agreement referred to in clause (ii) of
the previous sentence until at least the first calendar day following the fourth
business day after it has provided the written notice to Parent required
thereby, (y) to notify Parent promptly if its intention to enter into a written
agreement referred to in such notice shall change at any time after giving such
notification and (z) that it will not terminate this Agreement or enter into a
binding agreement referred to in clause (ii) of the previous sentence if Parent
has, within the period referred to in clause (x) of this sentence, made a
written and binding offer that is at least as favorable to the Company's
stockholders from a financial point of view as the Superior Proposal; or
(e) by Parent, at any time prior to the Closing Date, if the board of
directors of the Company shall have failed to recommend, or shall have withdrawn
or adversely modified its approval or recommendation of, the Offer or the Merger
or failed to reconfirm its recommendation of the Offer or the Merger within four
business days after a written request by Parent to do so, or shall have resolved
to do any of the foregoing.
Section 7.02. Effect of Termination.
---------------------
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 7, this Agreement shall become void and
of no effect with no liability of any party hereto (or any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives) except as set forth below; provided, however, that except as
otherwise provided herein, no such termination shall relieve any party hereto of
any liability or damages resulting from any willful breach of this Agreement.
(b) In the event that (i) a bona fide written fully-financed all-cash
Acquisition Proposal shall have been made to the Company or any of its
stockholders or any Person shall have announced an intention (whether or not
conditional) to make a fully-financed all-cash Acquisition
-33-
Proposal with respect to the Company, and on or following the date of this
Agreement but prior to the Closing Date, such Acquisition Proposal, announcement
or intention is or becomes publicly known and (ii) on or following the date on
which such fully-financed all-cash Acquisition Proposal, announcement or
intention is or becomes publicly known, (A) this Agreement is terminated by
either Parent or the Company pursuant to Section 7.01(b) and if terminated by
Parent or Merger Subsidiary, such termination shall be prior to the Closing
Date, and within 6 months after such termination, the Company either enters into
a definitive agreement with respect to, or consummates, an Acquisition
Transaction or (B) this Agreement is terminated (x) by the Company pursuant to
Section 7.01(d) or (y) by Parent pursuant to Section 7.01(e), or (z) as a result
of the failure of the Company to satisfy any one of the conditions set forth in
paragraphs (iii) or (vii) of Annex A, then, subject to subsection (c) of this
Section 7.02, the Company (p) shall promptly, but in no event later than two
business days after the date of such termination if terminated by Parent or
Merger Subsidiary and simultaneously with such termination if terminated by
Company (except as otherwise provided in the proviso to this sentence) in the
case of a termination pursuant to clause (B) and on the next business day after
either a definitive agreement with respect to an Acquisition Transaction is
executed or an Acquisition Transaction is consummated in the case of a
termination pursuant to clause (A), pay Parent a termination fee of $8.0 million
in cash payable by wire transfer of same day funds, and (q) shall promptly, but
in no event later than two business days after being notified of such by Parent,
pay all of the documented out-of-pocket third party charges and expenses
reasonably incurred by Parent or Merger Subsidiary in connection with this
Agreement and the Stockholders Agreement and the transactions contemplated by
this Agreement and the Stockholders Agreement, including, without limitation,
fees and expenses of accountants, attorneys and financial advisors, up to a
maximum of $1,500,000, in the aggregate. The Company acknowledges that the
agreements contained in this Section 7.02(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Merger Subsidiary would not enter into this Agreement; accordingly,
if the Company fails to promptly pay the amount due pursuant to this Section
7.02, and, in order to obtain such payment, Parent or Merger Sub commences a
suit which results in a binding nonappealable judgment rendered by a court of
competent jurisdiction against the Company for the fee set forth in this
paragraph (b) the Company shall pay to Parent or Merger Subsidiary its
reasonable costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
(c) Parent agrees that the payment provided for in paragraph (b) of
this Section shall be the sole and exclusive remedy of Parent upon termination
of this Agreement pursuant to Sections 7.01(b), 7.01 (d) or 7.01(e) and such
remedy shall be limited to the aggregate of the sums stipulated in paragraph (b)
of this Section. Except as contemplated by the immediately preceding sentence,
nothing herein shall relieve any party from liability for the willful and
knowing breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement. In no event shall the Company be
required to pay to Parent more than one termination fee pursuant to this
Section.
Section 7.03. Amendment. To the extent permitted by applicable law,
---------
this Agreement may be amended by the parties at any time before or after
approval of this Agreement by the stockholders of the Company; provided,
however, that after any such stockholder approval, no amendment shall be made
which by law requires further approval of the Company's stockholders without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
Section 7.04. Extension; Waiver. At any time prior to the Effective
-----------------
Time, a party hereto may (a) extend the time for the performance of any of the
obligations or other acts of
-34-
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto by any
other party or (c) subject to Section 7.03, waive compliance by any other party
with any of the agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
any party to this Agreement assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
Section 7.05. Procedure for Termination, Extension or Waiver.
----------------------------------------------
A termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 in order to be effective shall require, in the case of Parent or the
Company, action by its Board of Directors or, with respect to any amendment of
this Agreement, a duly authorized committee of its Board of Directors.
ARTICLE 8
MISCELLANEOUS
Section 8.01. Non-Survival of Representations and Warranties. None of
----------------------------------------------
the representations and warranties made in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive after the Effective Time.
This Section 8.01 shall not limit any covenant or agreement of the parties
hereto that by its terms contemplates performance after the Effective Time.
Section 8.02. Entire Agreement; Assignment. This Agreement (including
----------------------------
the Company Disclosure Schedule and the Parent Disclosure Schedule), the
Stockholder Agreement and, to the extent contemplated in Section 5.03(b), the
Confidentiality Agreement, (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, provided, however, that Parent or Merger
Subsidiary may assign any of their rights and obligations to any direct or
indirect wholly-owned subsidiary of Parent, but no such assignment shall relieve
Parent or Merger Subsidiary of its obligations hereunder. Any of Parent, Merger
Subsidiary or any direct or indirect wholly-owned subsidiary of Parent may
purchase Shares under the Offer.
Section 8.03. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
-35-
Section 8.04. Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, by overnight courier (with delivery confirmed), or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
(a) To Parent or the Merger Subsidiary:
Merck & Co., Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇ ▇▇▇▇▇-▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Assistant General Counsel and
Secretary
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company:
ProVantage Health Services, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.,
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ & Lardner
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
-36-
Section 8.05. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
Section 8.06. Jurisdiction. Any suit, action or proceeding seeking to
------------
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought
against any of the parties in any federal court located in the State of Delaware
or any Delaware state court, and each of the parties hereto hereby consents to
the exclusive jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and waives any
objection to venue laid therein. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
State of Delaware. Without limiting the generality of the foregoing, each party
hereto agrees that service of process upon such party at the address referred to
in Section 8.04, together with written notice of such service to such party,
shall be deemed effective service of process upon such party.
Section 8.07. Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and shall not constitute a part
of or affect the meaning or interpretation of this Agreement.
Section 8.08. Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies of any nature whatsoever under or by reason of this Agreement
except for Sections 2.10, 5.05 and 5.06 (which are intended to be for the
benefit of the Persons entitled to therein, and may be enforced by such
Persons).
Section 8.09. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 8.10. Fees and Expenses. Subject to Section 7.02, all fees,
-----------------
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such fees and expenses,
whether or not the Offer or the Merger is consummated.
Section 8.11. Enforcement of Agreement. The parties hereto agree that
------------------------
money damages or other remedy at law would not be sufficient or adequate remedy
for any breach or violation of, or a default under, this Agreement by them and
that in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including, without limitation, specific
performance, without bond or other security being required.
Section 8.12. Waiver of Jury Trial. To the extent permitted by
--------------------
applicable law, the parties hereby irrevocably waive any and all rights to trial
by jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
Section 8.13. Certain Definitions. For purposes of this Agreement
-------------------
(including Annex A hereto), the following terms shall have the meanings ascribed
to them below:
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(a) "affiliate" of a Person shall mean (i) a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first-mentioned Person and (ii) an
"associate", as that term is defined in Rule 12b-2 promulgated under the
Exchange Act as in effect on the date of this Agreement.
(b) "control" (including the terms "controlling", "controlled by" and
"under common control with" or correlative terms) shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract, or otherwise.
(c) "fully diluted" in reference to the Shares means all outstanding
securities entitled generally to vote in the election of directors of the
Company on a fully diluted basis, after giving effect to the exercise or
conversion of all options, rights and securities exercisable or convertible into
such voting securities.
(d) "knowledge" shall mean the actual knowledge of the executive
officers of the Company after reasonable investigation, including consultation
with the principal executive officers of each of the operating Subsidiaries.
(e) "Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
(f) "Person" shall mean an individual, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(g) "subsidiary" shall mean, when used with reference to a Person
means a corporation (or other entity) the majority of the outstanding voting
securities (or equity interests) of which are owned directly or indirectly by
such Person.
(h) "Subsidiary" shall mean any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly owned by the Company.
(i) "Taxes" means any taxes of any kind, including but not limited to
those on or measured by or referred to as income, gross receipts, capital,
sales, use, ad valorem, franchise, profits, license, withholding, employment,
payroll, premium, value added, property or windfall profits taxes, environmental
transfer taxes, customs, duties or similar fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any governmental authority, domestic or
foreign.
(j) "Tax Return" means any return, report or statement required to be
filed with any governmental authority with respect to Taxes.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officer thereunto duly authorized, on the day
and year first above written.
MERCK & CO., INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President and
Chief Financial Officer
PV ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive
Officer
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ANNEX A
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CONDITIONS TO THE OFFER
The capitalized terms used in this Annex A have the meanings set forth
in the attached Agreement, except that the term "the Agreement" shall be deemed
to refer to the attached Agreement. Notwithstanding any other provision of the
Offer, Merger Subsidiary shall not be obligated to accept for payment or pay
for, subject to Rule 14e-l(c) of the Exchange Act, any Shares, not theretofore
accepted for payment and may terminate or amend the Offer if (a) that number of
Shares, which would represent at least a majority of the Shares entitled to vote
that are outstanding on a fully diluted basis after giving effect to the
exercise or conversion of all options, rights and securities exercisable or
convertible into or exchangeable for Shares or such voting securities, shall not
have been validly tendered and not withdrawn immediately prior to the expiration
of the Offer (the "Minimum Tender Condition"), (b) any applicable waiting period
under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer or (c) prior to the expiration of the Offer (immediately
prior to the Offer in the case of clause (viii)), any of the following
conditions exist or shall occur:
(i) there shall have been entered, enforced or issued by any
Governmental Entity any final non-appealable judgment, order, injunction or
decree, (A) which makes illegal, restrains or prohibits the making of the
Offer, the acceptance for payment of, or payment for, any Shares by Parent
or Merger Subsidiary, or the consummation of the Merger, or (B) which
imposes limitations on the ability of Parent or Merger Subsidiary or their
respective affiliates to exercise full rights of ownership of, any Shares
accepted for payment pursuant to the Offer including, without limitation,
the right to vote the Shares accepted for payment by it on all matters
properly presented to the stockholders of the Company or (C) which
prohibits or imposes any material limitation on Parent's, Merger
Subsidiary's or any of their respective affiliates' ownership or operation
of all or any material portion of the business or assets of the Company and
its Subsidiaries taken as a whole or Parent and its Subsidiaries taken as a
whole except as contemplated by clause (b)(2) of Section 5.04(b) of the
Merger Agreement (as limited by proviso (ii) of clause (b)(2) of such
Section 5.04(b));
(ii) there shall have been any pending action, litigation or
proceeding brought by any Governmental Entity or any action, litigation or
proceeding threatened in writing by the FTC seeking to achieve any of the
consequences referred to in clauses (A) through (C) of paragraph (i) above;
provided, however, Parent may not terminate the Agreement as a result of
the failure to satisfy this condition prior to December 31, 2000; and
further provided, however, that Parent shall comply with its obligations
under Section 5.04 of the Agreement;
(iii) the Company's Board of Directors shall have modified or
amended its recommendation of the Offer in any manner adverse to Parent or
Merger Subsidiary or shall have withdrawn its recommendation of the Offer
or shall have recommended acceptance of any Acquisition Proposal or shall
have failed to reconfirm its recommendation of the Offer within four
business days after a written request by Parent to do so, or shall have
resolved to do any of the foregoing; or
(iv) (A) the representations and warranties of the Company set
forth in this Agreement shall have failed to be true and correct as of the
date of this Agreement and as of the consummation of the Offer (except for
those representations and warranties made as of a specific date, which
shall have failed to be true and correct as of such date),
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considered without regard to any qualification by, or references to,
"material," "in all material respects" or "Company Material Adverse
Effect," except for such failures of such representations and warranties to
be true and correct that individually or in the aggregate, do not have a
Company Material Adverse Effect and except for General Changes or
Transaction Changes or (B) the Company shall have breached or failed to
comply in any material respect with any of its material obligations,
covenants or agreements under the Agreement and any such breach or failure
shall not have been substantially cured by the Company within five business
days after Parent provides written notice to the Company of such breach or
failure;
(v) the Merger Agreement shall have been terminated in accordance
with its terms;
(vi) there shall have occurred any event which could reasonably
be expected to have a Company Material Adverse Effect, except for General
Changes or Transaction Changes;
(vii) any corporation, entity, "group" or "person" (as defined
in the Exchange Act), other than Parent, Merger Sub, or the shareholder
that is party to the Stockholder Agreement (so long as such shareholder
does not breach any of the provisions of the Stockholder Agreement), shall
have acquired beneficial ownership of more than 25% of the outstanding
Shares;
(viii) there shall exist (A) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over the counter market in the United States (other than
shortening of trading hours or any trading halt resulting from a specified
increase or decrease in a market index), (B) a declaration of any banking
moratorium by federal or state authorities or any suspension of payments in
respect of banks or any limitation (whether or not mandatory) imposed by
federal or state authorities on the extension of credit by lending
institutions in the United States, or (C) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(ix) any provision in the Side Letter or Affiliate Agreements
shall have been amended, terminated, modified or waived in a manner not
contemplated by the Side Letter; or
(x) subject to the ability of the Majority Stockholder to timely
cure any shortfall in Company Net Working Capital pursuant to Section
5.13(c) or (d) of the Merger Agreement, Company Net Working Capital on the
last day of the Company Fiscal Period immediately preceding the scheduled
expiration of the Offer shall be less than $55.0 million.
which, in the reasonable good faith judgment of Parent and regardless of the
circumstances giving rise to any such condition, makes it inadvisable to proceed
with the Offer or with such acceptance for payment, purchase of, or payment for
Shares. The failure by Parent or Merger Subsidiary at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right, the
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waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
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