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Exhibit 10.2
INDEMNIFICATION, NONCOMPETITION AND TAX COOPERATION AGREEMENT
This Indemnification, Noncompetition and Tax Cooperation Agreement is
made as of this _____ day of _________________, 2001, by and among QUALITY KING
DISTRIBUTORS, INC., a New York corporation having an address of 0000 Xxxxx
Xxxxxx, Xxxxxxxxxx, Xxx Xxxx 00000 ("QK"), PRO'S CHOICE BEAUTY CARE, INC., a New
Jersey corporation having an address of 0000 Xxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxx
00000 ("Pro's Choice"), and QK HEALTHCARE, INC., a Delaware corporation having
an address of 0000 Xxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxx 00000 ("Healthcare").
RECITALS
A. QK has been engaged in the business of distributing pharmaceutical
products and related activities (the "Pharmaceutical Business"), the business of
distributing hair care products and related activities (the "Hair Care
Business"), the business of distributing health and beauty products and related
activities (the "Health and Beauty Business") and the business of distributing
grocery products and related activities (the "Grocery Distribution Business").
B. On the date hereof, QK is transferring all of its assets relating to
its Hair Care Business (the "Pro's Choice Assets") and all of its liabilities
relating to its Hair Care Business (the "Pro's Choice Liabilities") to Pro's
Choice pursuant to Sections 351, 368(a)(1)(D) and 355 of the Internal Revenue
Code of 1986, as amended, and the treasury regulations promulgated thereunder
(the "Code"), all as set forth in the Agreement and Plan of Corporate
Reorganization and Separation for Pro's Choice Beauty Care, Inc. dated
_____________, 2001.
C. On the date hereof, QK is transferring all of its assets relating to
its Pharmaceutical Business (the "Healthcare Assets") and liabilities relating
to its pharmaceuticals business (the "Healthcare Liabilities") to Healthcare
pursuant to Sections 351, 368(a)(1)(D) and 355 of the Code, all as set forth in
the Agreement and Plan of Corporate Reorganization and Separation for QK
Healthcare, Inc. dated _______, 2001.
D. All other assets of QK which are not Pro's Choice Assets or
Healthcare Assets (the "QK Assets") and all other liabilities of QK which are
not Pro's Choice Liabilities or Healthcare Liabilities (the "QK Liabilities")
are to be retained by QK.
E. Entering into this agreement by the parties hereto is a condition
precedent to QK making the transfers described above.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, it is agreed as follows:
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1. Definitions.
a. As used herein, the term "Losses" shall mean losses
(including lost revenues), damages, costs, obligations, claims, actions,
disputes, arbitrations, liabilities, expenses (including costs of
investigations, defending or prosecuting litigation and reasonable fees,
disbursements and other charges of attorneys), suits, demands, judgments, or
diminutions in value suffered or incurred, including (without limitation) as a
result of any loss, suspension or other impairment of any license or permit.
b. As used herein, "Taxes" shall mean all Federal, state,
local and foreign income, sales, use, property, payroll and other taxes
(including any applicable penalties and interest) imposed by any governmental
authority with respect to the ownership, operation, transfer or use of the
business or assets.
c. As used herein, "Affiliate" shall mean any party, individual
or entity that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the specified
party. For purposes of this definition, "control" when used with respect to any
party, individual or entity means the power to direct the management and
policies of such party, individual or entity, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
d. As used herein, the Closing Date shall mean _____________,
2001.
2. Indemnification by QK.
a. QK shall reimburse, indemnify and hold harmless Pro's Choice
and its respective successors and assigns, and any director, stockholder,
employee, agent or officer of Pro's Choice (the "Pro's Choice Group"), from and
against any and all Losses and/or Taxes, whether or not now known or asserted,
arising out of (i) the Pro's Choice Assets or the operation of the Hair Care
Business on or prior to the Closing Date, and (ii) the assets and the operation
of all businesses of QK which have not been transferred to Pro's Choice,
regardless of whether they arise before, on or after the Closing Date.
b. QK shall reimburse, indemnify and hold harmless Healthcare
and its respective successors and assigns, and any director, stockholder,
employee, agent or officer of Healthcare (the "Healthcare Group"), from and
against any and all Losses and/or Taxes, whether or not now known or asserted,
arising out of (i) the Healthcare Assets or the operation of the Pharmaceutical
Business on or prior to the Closing Date, and (ii) the assets and the operation
of all businesses of QK which have not been transferred to Healthcare, including
without limitation the Pro's Choice Assets and the operation of the Hair Care
Business, regardless of whether they arise before, on or after the Closing Date,
except for those Losses and/or Taxes for which QK and Pro's Choice jointly
indemnify the Healthcare Group under Section 3(b) below.
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3. a. Indemnification by Pro's Choice.
Pro's Choice shall reimburse, indemnify and hold harmless QK and its
respective successors and assigns, and any director, shareholder, employee,
agent or officer of QK (the "QK Group") from and against any and all Losses
and/or Taxes, whether or not now known or asserted, arising out of the operation
of the Pro's Choice Assets or the Hair Care Business after the Closing Date.
b. Indemnification by Pro's Choice and QK.
Pro's Choice and QK, jointly and severally, shall reimburse, indemnify
and hold harmless the Healthcare Group from and against any and all Losses
and/or Taxes, whether or not now known or asserted, arising out of the Pro's
Choice Assets or the operation of the Hair Care Business after the Closing Date.
4. Indemnification by Healthcare. Healthcare shall reimburse,
indemnify and hold harmless the QK Group and the Pro's Choice Group from and
against any and all Losses and/or Taxes arising out of the Healthcare Assets or
the operation of the Pharmaceutical Business after the Closing Date, other than
Losses arising out of Healthcare's initial public offering.
5. Notice of Claims; Defense of Third Party. A party claiming
indemnification hereunder (the "Asserting Party") must notify (in writing, in
reasonable detail and within a reasonable period of time after the Asserting
Party becomes aware of such claim) the party or parties from which
indemnification is sought (the "Defending Party") of the nature and basis of
such claim for indemnification. No failure to notify the Defending Party shall
relieve it of its obligations under this Agreement except to the extent that it
can demonstrate damages attributable to the Asserting Party's failure to notify.
If such claim relates to a claim, suit, litigation or other action by a third
party against the Asserting Party or any fixed or contingent liability to a
third party (a "Third Party Claim"), the Defending Party may elect to assume and
control the defense of the Third Party Claim at its own expense with counsel
selected by the Defending Party (and reasonably acceptable to the Asserting
Party) from and after such time as the Defending Party unconditionally agrees in
writing to accept, as against the Asserting Party, all liabilities on account of
such Third Party Claim. Assumption of such liability, as against the Asserting
Party, shall not be deemed an admission of liability as against any such third
party. Notwithstanding the foregoing, the Defending Party may not assume or
control the defense if the named parties to the Third Party Claim include both
the Defending Party and the Asserting Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them, in which case the Asserting Party shall have the right
to defend the Third Party Claim and to employ counsel reasonably approved by the
Defending Party, and to the extent the matter is determined to be subject to
indemnification hereunder, the Defending Party shall reimburse the Asserting
Party for the reasonable costs, disbursements and other charges of its counsel.
If the Defending Party assumes liability for the Third Party Claim as against
the Asserting Party and assumes the defense and control of the Third Party Claim
pursuant to this Section 5, the Defending Party shall not be liable for any fees
and expenses of counsel for the Asserting Party incurred thereafter in
connection with the Third Party Claim
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(except in the case of actual or potential differing interests, as provided in
the preceding sentence), but shall not agree to any settlement of such Third
Party Claim which does not include an unconditional release of the Asserting
Party by the third party claimant on account thereof. If the Defending Party
does not assume liability for and the defense of the Third Party Claim pursuant
to this Section 5, the Asserting Party shall have the right (i) to control the
defense thereof and (ii) to negotiate a settlement of the Third Party Claim (at
the Defending Party's expense to the extent the matter is determined to be
subject to indemnification hereunder) with the consent of the Defending Party,
which consent shall not be unreasonably withheld. The Asserting Party shall not
be entitled to settle any such Third Party Claim pursuant to the preceding
sentence unless such settlement includes an unconditional release of the
Defending Party by the third party claimant on account thereof. The Asserting
Party and the Defending Party shall use all reasonable efforts to cooperate
fully with respect to the defense and settlement of any Third Party Claim
covered hereunder except to the extent any action would, in the reasonable
judgment of such party, cause such party to jeopardize or lose the protection of
an attorney-client or other privilege.
6. Cooperation with Respect to Tax Matters
QK, Pro's Choice and Healthcare will cooperate with each other in
supplying information as may be requested by any of them in connection with the
preparation and timely completion of returns or audits relating to Taxes.
7. QK Noncompetition Agreement
a. QK agrees, for a period of five years from the Closing Date
(the "Noncompetition Term"), that neither it nor any Affiliate (other than
Healthcare, with respect to the Pharmaceutical Business) will directly or
indirectly, either through any form of ownership or as an agent, adviser,
consultant, shareholder (except for an interest of 5% or less in any entity),
partner or any other individual or representative capacity whatsoever, either
for its own benefit or for the benefit of any other person, firm, corporation,
governmental or private entity, or any other entity of any kind which is
competitive with the Pharmaceutical Business or the Hair Care Business, compete
with Healthcare or Pro's Choice in the United States, in any business activity
of the Pharmaceutical Business or the Hair Care Business as it was conducted
prior to the Closing Date or any business activities which constitute the
business of Pro's Choice or Healthcare on the Closing Date. Notwithstanding the
preceding sentence, QK shall be permitted to sell non-prescription
pharmaceutical products (the "Excluded Activities") during the Noncompetition
Term. Additionally, during the Noncompetition Term, neither QK nor any member of
the QK Group shall directly or indirectly request or advise any customer or
supplier of the Pharmaceutical Business or the Hair Care Business to withdraw,
curtail or cancel its business activities with Healthcare or Pro's Choice.
b. If during any period QK is not in compliance with the terms
of this Section 7, Pro's Choice or Healthcare, as the case may be, shall be
entitled to, among other remedies, compliance by QK with the terms of this
Section 7 for an additional period equal to the period of non-compliance. For
purposes of this Agreement, the term "Noncompetition Term" as
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it relates to QK shall also include this additional period. QK acknowledges that
the geographic boundaries, scope of prohibited activities and time of duration
of the provisions of this Section 7 are reasonable and no broader than necessary
to protect the legitimate business interests of Pro's Choice and Healthcare.
8. Pro's Choice Noncompetition Agreement
a. Pro's Choice agrees, for a period of five years from the
Closing Date (the "Noncompetition Term"), that neither it nor any Affiliate will
directly or indirectly, either through any form of ownership or as an agent,
adviser, consultant, shareholder (except for an interest of 5% or less in any
entity), partner or any other individual or representative capacity whatsoever,
either for its own benefit or for the benefit of any other person, firm,
corporation, governmental or private entity, or any other entity of any kind
which is competitive with the Pharmaceutical Business, the Grocery Business or
the Health and Beauty Business, with Healthcare or QK in the United States, in
any business activity of the Pharmaceutical Business, the Grocery Business or
the Health and Beauty Business as it was conducted prior to the Closing Date or
any business activities which constitute the business of QK or Healthcare on the
Closing Date. Additionally, during the Noncompetition Term, neither Pro's Choice
nor any member of the Pro's Choice Group shall directly or indirectly request or
advise any customer or supplier of the Pharmaceutical Business, the Grocery
Business or the Health and Beauty Business to withdraw, curtail or cancel its
business activities with QK or Healthcare.
b. If during any period Pro's Choice is not in compliance with
the terms of this Section 8, QK or Healthcare, as the case may be, shall be
entitled to, among other remedies, compliance by Pro's Choice with the terms of
this Section 8 for an additional period equal to the period of non-compliance.
For purposes of this Agreement, the term "Noncompetition Term" as it relates to
Pro's Choice shall also include this additional period. Pro's Choice
acknowledges that the geographic boundaries, scope of prohibited activities and
time of duration of the provisions of this Section 8 are reasonable and no
broader than necessary to protect the legitimate business interests of QK and
Healthcare.
9. Healthcare Noncompetition Agreement
a. Healthcare agrees, for a period of five years from the
Closing Date (the "Noncompetition Term"), that neither it nor any Affiliate
(except QK, with respect to the Grocery Business and the Health and Beauty
Business) will directly or indirectly, either through any form of ownership or
as an agent, adviser, consultant, shareholder (except for an interest of 5% or
less in any entity), partner or any other individual or representative capacity
whatsoever, either for its own benefit or for the benefit of any other person,
firm, corporation, governmental or private entity, or any other entity of any
kind which is competitive with the Hair Care Business, the Health and Beauty
Business or the Grocery Business, compete with Pro's Choice or QK in the United
States, in any business activity of the Grocery Business, the Health and Beauty
Business or the Hair Care Business as it was conducted prior to the Closing Date
or any business activities which constitute the business of QK or Pro's Choice
on the Closing Date. Notwithstanding the preceding sentence, Healthcare shall be
permitted to engage in the Excluded
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Activities during the Noncompetition Term. Additionally, during the
Noncompetition Term, neither Healthcare nor any member of the Healthcare Group
shall directly or indirectly request or advise any customer or supplier of the
Hair Care Business, the Health and Beauty Business or the Grocery Business to
withdraw, curtail or cancel its business activities with Pro's Choice or QK.
b. If during any period Healthcare is not in compliance with
the terms of this Section 9, QK or Pro's Choice, as the case may be, shall be
entitled to, among other remedies, compliance by Healthcare with the terms of
this Section 9 for an additional period equal to the period of non-compliance.
For purposes of this Agreement, the term "Noncompetition Term" as it relates to
Healthcare shall also include this additional period. Healthcare acknowledges
that the geographic boundaries, scope of prohibited activities and time of
duration of the provisions of this Section 9 are reasonable and no broader than
necessary to protect the legitimate business interests of QK and Pro's Choice.
10. Reformation of Sections 7, 8 and 9
The parties hereto agree and stipulate that the agreements and
covenants not to compete contained in Sections 7, 8 and 9 are fair and
reasonable in light of all the facts and circumstances of the relationships
between and among the parties; however, the parties are aware that in certain
circumstances courts have refused to enforce certain agreements not to compete.
Therefore, in furtherance of and not in derogation of the provisions of Sections
7, 8 and 9, the parties agree that, in the event a court should decline to
enforce the provisions of Sections 7, 8 or 9, the provisions of any of such
sections which a court has declined to enforce shall be modified or reformed to
restrict the party's competition, as applicable, to the maximum extent, as to
time, geography and business scope, which the court shall find enforceable;
provided, however, in no event shall the provisions of Sections 7, 8 or 9 be
deemed to be more restrictive to any of the parties than those contained
therein.
11. Covenants of QK and Pro's Choice. Each of QK and Pro's Choice
hereby agree that it shall not enter into any merger, consolidation, business
combination, or sale or distribution of all or substantially all of its assets,
or any transaction that would have a material adverse effect upon its ability to
perform its obligations under this Agreement unless provision shall have been
made for the performance of its obligations under Sections 2, 3, 6, 7, and 8,
which provision shall be determined to be satisfactory by the members of the
Board of Directors of Healthcare who shall be deemed to be independent under the
rules of the New York Stock Exchange.
12. General Provisions.
(a) No Waiver. Waiver of any provision of this Agreement, in whole or
in part, in any one instance shall not constitute a waiver of any other
provision in the same instance, nor any waiver of the same provision in another
instance, but each provision shall continue in full force and effect with
respect to any other then-existing or subsequent breach.
(b) Notice. Any notice required or permitted under this Agreement
shall be given in writing by (i) postage prepaid, United States first class,
registered or certified mail, return receipt
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requested, (ii) prepaid courier requiring receipt, or (iii) personal delivery,
to the parties at their respective addresses specified above, or at such other
address for a party as that party may specify by notice. Notice shall be
effective upon receipt.
(c) Severability and Reformation. Subject to the reformation provision
of Section 10, if any provision of this Agreement is held to be illegal, invalid
or unenforceable under any current or future law, and if the rights and
obligations of the parties under this Agreement would not be materially and
adversely affected thereby, such provision shall be fully separable and this
Agreement shall be construed as if such illegal, invalid or unenforceable
provisions had never comprised a part thereof, the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provisions or its severance therefrom. In lieu
of such illegal, invalid or unenforceable provisions, there shall be added
automatically as a part of this Agreement, a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and the parties hereto request the court or any
arbitrator to whom disputes involving this Agreement are submitted to reform the
otherwise illegal, invalid or unenforceable provision in accordance with this
Section 12 (c).
(d) Miscellaneous. This Agreement: (i) may be executed in any number
of counterparts, each of which, when executed by both parties to this Agreement
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument; (ii) shall be governed by and construed
under the laws of the State of New York applicable to contracts made, accepted,
and performed wholly within the State, without application of principles of
conflicts of laws; (iii) constitutes the entire agreement of the parties with
respect to its subject matter, superseding all prior oral and written
communications, proposals, negotiations, representations, understandings,
courses of dealing, agreements, contracts, and the like between the parties in
such respect; (iv) may be amended, modified, or terminated, and any right under
this Agreement may be waived in whole or in part, only by a writing signed by
all parties of this Agreement and with the consent of the majority of
independent directors of Healthcare (A director shall be deemed to be an
"independent director" if he or she satisfies the requirement of independence
set forth in the then current rules of the New York Stock Exchange); (v)
contains headings only for convenience, which headings do not form part, and
shall not be used in construction, of this Agreement; and (vi) shall bind and
inure to the benefit of the parties and their respective successors and assigns.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
QUALITY KING DISTRIBUTORS, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
PRO'S CHOICE BEAUTY CARE, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
QK HEALTHCARE, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
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