EXHIBIT 10.40
NON-COMPETITION AGREEMENT
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AGREEMENT, dated as of February 12, 1997 (the "Agreement"), by and among
Vitalink Pharmacy Services, Inc. Vitalink Pharmacy Services, Inc., a Delaware
corporation ("Vitalink"), Manor Care, Inc., a Delaware corporation ("Manor
Care") and New GranCare, Inc., a California corporation ("New GranCare").
RECITALS
WHEREAS, in accordance with the terms of an Amended and Restated Agreement
and Plan of Distribution dated September 3, 1996 (the "Distribution Agreement")
between GranCare, Inc. and New GranCare,Inc., the Skilled Nursing Businesses
currently conducted by GranCare, Inc., a California corporation ("GranCare"),
will be restructured such that all such businesses will be held by GranCare
(capitalized terms used herein and not defined shall have the meaning set forth
in the Distribution Agreement); and
WHEREAS, pursuant to an Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement") dated September 3, 1996 between Vitalink and GranCare,
Vitalink and GranCare will combine their respective pharmacy businesses and
GranCare will be merged with and into Vitalink (the "Merger") with Vitalink the
surviving corporation; and
WHEREAS, pursuant to the Distribution Agreement, immediately prior to the
Merger the stockholders of GranCare will receive as a dividend one share of
common stock of New GranCare for each share of GranCare common stock currently
held by them as of the Distribution Record Date; and
WHEREAS, to induce GranCare to enter into the Merger Agreement and the
Distribution Agreement, Manor Care, New GranCare and Vitalink have agreed to
enter into this Agreement for the purpose of regulating, for a period of three
years from the Effective Time, certain aspects of their business relationships;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
NON-COMPETITION -- PHARMACY BUSINESS
Section 1.1 Non-competition. Manor Care, and New GranCare acknowledge
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that: the principal business of Vitalink is, and will be following the Merger,
the institutional pharmacy business (the "Institutional Pharmacy Business"), the
Institutional Pharmacy Business of Vitalink is national in scope and Vitalink
will suffer substantial and irreparable harm in the event Manor Care or New
GranCare should engage in the Institutional Pharmacy Business in
competition with Vitalink. Accordingly, for a period of three years from the
Effective Time neither Manor Care nor New GranCare will, directly or indirectly,
own, manage, operate, join, control or participate in the ownership, management,
operation or control of any person (other than Vitalink) that is engaged in the
Institutional Pharmacy Business in the United States, other than temporarily as
provided in Section 1.3 hereof.
Section 1.2 Severability. Manor Care and New GranCare acknowledge that
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the restricted period of time and geographical area under Section 1.1 hereof are
reasonable, in view of the nature of the Institutional Pharmacy Business, the
knowledge of Manor Care and New GranCare of the Institutional Pharmacy Business
and transactions contemplated by the Distribution Agreement and the Merger
Agreement. Notwithstanding the foregoing, if any provision, or any part thereof,
of this Article I is held to be unenforceable because of the duration thereof or
the area covered thereby, the parties agree that the court making the
determination shall have the power to reduce the duration or the area of such
provision or to delete specific words or phrases, and in its reduced or amended
form such provision shall then be enforceable and enforced.
Section 1.3 Option to Purchase.
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(a) Vitalink recognizes that Manor Care and New GranCare each (as it has in
the past) may in the future acquire healthcare businesses (an "Acquisition")
which also include an Institutional Pharmacy Business or an interest therein,
the ownership or possession of which would violate the terms of Section 1.1
hereof. Vitalink agrees that Manor Care or New GranCare may make such an
Acquisition so long as it complies with the terms of this Section 1.3. The
proposed acquiror (Manor Care or New GranCare, as the case may be, the
"Acquiror") shall, not less than 30 days prior to the proposed closing date of
the Acquisition, give written notice (the "Purchase Notice") to Vitalink of the
terms of such Acquisition including, the identity of the seller (the "Seller")
and the proposed purchase price for the Acquisition and audited historical
financial statements of the Acquisition and of the Institutional Pharmacy
Business portion of the Acquisition for a period of three fiscal years prior to
the Acquisition to the extent available and otherwise unaudited financial
statements. The purchase price for the Institutional Pharmacy Business to be
paid by Vitalink shall be the price specified by the Acquiror ("Purchase Price")
in the Purchase Notice, which price shall not exceed an amount equal to 120
percent of the product of (i) the earnings before interest, taxes, depreciation
and amortization for the most recent fiscal year determined in accordance with
generally accepted accounting principles consistently applied ("EBITDA") as
reflected in the most recent annual financial statement of the Institutional
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Pharmacy Business portion of the Acquisition and (ii) a fraction, the numerator
of which is the aggregate purchase price for the Acquisition and the denominator
of which is the EBITDA for the most recent fiscal year as reflected in most
recent annual financial statement of the Acquisition. Vitalink shall have the
right to purchase the Institutional Pharmacy Business portion of the Acquisition
by giving written notice to the Acquiror within 15 business days following
receipt of the Purchase Notice. Vitalink and the Acquiror shall negotiate in
good faith regarding the other terms of the purchase of such Institutional
Pharmacy Business by Vitalink with reference to the manner and under the terms
and conditions as the Acquisition and shall execute such documents reasonably
required to document such purchase.
(b) In the event Vitalink elects not to purchase such Institutional
Pharmacy Business at the Purchase Price, the Acquiror nonetheless may complete
the Acquisition but use its commercially reasonable efforts to divest itself of
such Institutional Pharmacy Business within one year of the closing of the
Acquisition. In such event, the Acquiror may divest such Institutional Pharmacy
Business without further obligation to Vitalink at a price payable in cash that
equals or exceeds the Purchase Price provided that the Institutional Pharmacy
Business is otherwise being sold on the same terms as it had been proposed to be
sold to Vitalink.
(c) In the event that Acquiror determines to sell such Institutional
Pharmacy Business for a price less than the Purchase Price, the Acquiror shall
give prompt written notice to Vitalink (the "Sale Notice"), which Sale Notice
shall contain (i) the proposed minimum sale price and (ii) all other material
terms and conditions of the proposed sale. Each Sale Notice shall be deemed and
irrevocable offer to sell, on the terms set forth in such Sale Notice and
herein, such Institutional Pharmacy Business and Vitalink will have the
irrevocable and exclusive option, as hereinafter provided, to buy on the terms
set forth in such Sale Notice and herein, such Institutional Pharmacy Business.
Within 10 business days following receipt by Vitalink of the Sale Notice,
Vitalink shall give written notice to the Acquiror if Vitalink elects to
purchase such Institutional Pharmacy Business (the "Acceptance Notice"). If the
Acquiror does not receive the Acceptance Notice from Vitalink within such ten
business-day period, Vitalink shall be deemed to have declined to purchase such
Institutional Pharmacy Business and the Acquiror shall be free to sell such
Institutional Pharmacy Business at a price equal to or exceeding the price and
on the terms specified in the Sale Notice. If Vitalink elects to purchase such
Institutional Pharmacy Business, the Acceptance Notice shall be deemed to be an
irrevocable commitment to purchase such Institutional Pharmacy Business on the
terms set
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forth in such Sale Notice and herein. Upon exercise of Vitalink's right of
first offer pursuant to this Section 1.3(c), the Acquiror and Vitalink shall be
legally obligated to consummate the purchase and sale contemplated thereby. The
Acquiror and Vitalink shall negotiate in good faith regarding the other terms of
the purchase and shall use all commercially reasonable efforts to secure any
approvals required in connection therewith and to close such purchase and sale
as soon as reasonably practicable.
(d) The parties hereto agree that the acquisition after the Time of
Distribution by GranCare of the businesses code-named "Project Balloon" shall be
exempt from this Article I.
ARTICLE II
NON-COMPETITION-SKILLED NURSING BUSINESSES
Section 2.1 Non-competition. Vitalink acknowledges that: one of the
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principal businesses of each of Manor Care and New GranCare is the construction
and management of skilled nursing facilities (the "Skilled Nursing Business");
that the Skilled Nursing Business of Manor Care and New GranCare is national in
scope and that Manor Care and New GranCare will suffer substantial and
irreparable harm in the event Vitalink should enter into competition with Manor
Care and New GranCare. Accordingly, for a period of three years from the
Effective Time Vitalink will not, directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of any business that is engaged in the Skilled Nursing Business in the United
States, other than temporarily as provided in Section 2.3 hereof.
Section 2.2 Severability. Vitalink acknowledges that the restricted
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period of time and geographical area under Section 2.1 hereof are reasonable, in
view of the nature of the Skilled Nursing Business, the knowledge of Vitalink of
the Skilled Nursing Business and transactions contemplated by the Distribution
Agreement and the Merger Agreement. Notwithstanding the foregoing, if any
provision, or any part thereof, of this Article II is held to be unenforceable
because of the duration thereof or the area covered thereby, the parties agree
that the court making the determination shall have the power to reduce the
duration or the area of such provision or to delete specific words or phrases,
and in its reduced or amended form such provision shall then be enforceable and
enforced.
Section 2.3 Notification. Vitalink hereby agrees that, in the event it
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acquires assets associated with the Skilled Nursing Business, or a company
engaged in the Skilled Nursing Business,
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as a result of the acquisition of one or more businesses not in the Skilled
Nursing Business, it will notify Manor Care and New GranCare upon its
acquisition thereof of the nature of such assets or company. Vitalink also
agrees that it will divest itself of such assets or company within one year of
the acquisition thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of Manor Care. Manor Care is
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duly organized, validly existing in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Manor Care has the requisite corporate power
and other authority to enter into this Agreement and consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Manor Care
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Manor Care. This
Agreement has been duly executed and delivered by Manor Care and constitutes a
valid and binding obligation of Manor Care enforceable against it in accordance
with its terms.
Section 3.2 Representations and Warranties of Vitalink. Vitalink is duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Vitalink has the requisite corporate power and
other authority to enter into this Agreement and consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Vitalink
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Vitalink. This
Agreement has been duly executed and delivered by Vitalink and constitutes a
valid and binding obligation of Vitalink, enforceable against it in accordance
with its terms.
Section 3.3 Representations and Warranties of New GranCare. New GranCare
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is duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. New GranCare has the requisite corporate
power and other authority to enter into this Agreement and consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by New GranCare and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of New
GranCare. This Agreement has been duly executed and delivered by New GranCare
and constitutes a valid and
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binding obligation of New GranCare, enforceable against it in accordance with
its terms.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. This Agreement shall be governed by the laws
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of the State of Delaware (regardless of the law that might otherwise govern
under applicable Delaware principles of conflicts of law) as to all matters,
including but not limited to matters of validity, construction, effect,
performance and remedies.
Section 4.2 Binding Effect. This Agreement shall be binding on and inure
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to the benefit of the parties hereto and their respective legal representatives,
successor and assigns. Nothing in this Agreement, expressed or implied is
intended to confer on any persons other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
Section 4.3 Notices, Etc. All notices and other communications hereunder
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shall be in writing and shall be delivered in the manner and at the address
(unless subsequently notified to the contrary in the manner provided therein) as
provided in the Merger Agreement (in the case of Manor Care and Vitalink) and in
the Distribution Agreement (in the case of New GranCare).
Section 4.4 Counterparts. This Agreement may be executed in two or more
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 4.5 Amendment. This Agreement may be amended, modified or
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supplemented only with the written agreement of Vitalink, New GranCare and Manor
Care.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date above written.
MANOR CARE, INC.
By: /s/ Xxxxx X. Xxxxx
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Name: Xxxxx X. Xxxxx
Title: Senior Vice President
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VITALINK PHARMACY SERVICES, INC.
By: /s/ Xxxxx X. Xxxxxxxx
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Name: Xxxxx X. Xxxxxxxx
Title: Vice President, Finance
NEW GRANCARE, INC.
By: /s/ Xxxxx X. Xxxxxxxxx
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Name:
Title:
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