EXHIBIT 2.5
NON-COMPETITION AGREEMENT
AGREEMENT, dated as of ,1996 (the "Agreement"), by and among
Explorer, a Delaware corporation ("Explorer"), Parent, a Delaware corporation
("Parent") and SNFCo, a [ ] corporation ("SNFCo").
RECITALS
WHEREAS, in accordance with the terms of a Distribution Agreement
dated September , 1996 (the "Distribution Agreement") between Scout and SNFCo,
the Skilled Nursing Businesses currently conducted by Scout, a California
corporation ("Scout"), will be restructured such that all such businesses will
be held by SNFCo (capitalized terms used herein and not defined shall have the
meaning set forth in the Distribution Agreement); and
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated September , 1996 between Explorer and Scout, Explorer and
Scout will combine their respective pharmacy businesses and Scout will be merged
with and into Explorer (the "Merger") with Explorer the surviving corporation;
and
WHEREAS, pursuant to the Distribution Agreement, immediately prior to
the Merger the stockholders of Scout will receive as a dividend one share of
common stock of SNFCo for each share of Scout common stock currently held by
them as of the Distribution Record Date; and
WHEREAS, to induce Scout to enter into the Merger Agreement and the
Distribution Agreement, Parent, SNFCo and Explorer 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:
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ARTICLE I
NON-COMPETITION - PHARMACY BUSINESS
Section 1.1 Non-competition. Parent and SNFCo acknowledge that: the
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principal business of Explorer is, and will be following the Merger, the
institutional pharmacy business (the "Institutional Pharmacy Business"), the
Institutional Pharmacy Business of Explorer is national in scope and Explorer
will suffer substantial and irreparable harm in the event Parent or SNFCo should
engage in the Institutional Pharmacy Business in competition with Explorer.
Accordingly, for a period of three years from the Effective Time neither Parent
nor SNFCo will, directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of any person
(other than Explorer) 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. Parent and SNFCo acknowledge that the
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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 Parent and SNFCo 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) Explorer recognizes that Parent and SNFCo 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. Explorer agrees that Parent or SNFCo may make such an Acquisition so
long as it complies with the terms of this Section 1.3. The proposed acquiror
(Parent or SNFCo, as the case may be, the "Acquiror") shall, not less than 30
days prior to the proposed closing date of the Acquisition, give written
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notice (the "Purchase Notice") to Explorer 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 Explorer 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 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. Explorer 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. Explorer and the Acquiror shall negotiate in good faith regarding the
other terms of the purchase of such Institutional Pharmacy Business by Explorer
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 Explorer 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 Explorer 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 Explorer.
(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 Explorer (the "Sale Notice"), which
Sale Notice shall
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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 Explorer 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 Explorer of the Sale Notice,
Explorer shall give written notice to the Acquiror if Explorer elects to
purchase such Institutional Pharmacy Business (the "Acceptance Notice"). If the
Acquiror does not receive the Acceptance Notice from Explorer within such ten
business-day period, Explorer 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 Explorer 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 forth in such Sale Notice and herein. Upon exercise of Explorer's
right of first offer pursuant to this Section 1.3(c), the Acquiror and Explorer
shall be legally obligated to consummate the purchase and sale contemplated
thereby. The Acquiror and Explorer 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 SNFCo 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. Explorer acknowledges that: one of the
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principal businesses of each of Parent and SNFCo is the construction and
management of skilled nursing facilities (the "Skilled Nursing Business"); that
the Skilled Nursing Business of Parent and SNFCo is national in scope and that
Parent and SNFCo will suffer substantial and irreparable
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harm in the event Explorer should enter into competition with Parent and SNFCo.
Accordingly, for a period of three years from the Effective Time Explorer 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. Explorer 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 Explorer 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. Explorer hereby agrees that, in the event
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it acquires assets associated with the Skilled Nursing Business, or a company
engaged in the Skilled Nursing Business, as a result of the acquisition of one
or more businesses not in the Skilled Nursing Business, it will notify Parent
and SNFCo upon its acquisition thereof of the nature of such assets or company.
Explorer 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 Parent. Parent 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. Parent 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 Parent and
the consummation of the
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transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent. This Agreement has been duly executed
and delivered by Parent and constitutes a valid and binding obligation of Parent
enforceable against it in accordance with its terms.
Section 3.2 Representations and Warranties of Explorer. Explorer is
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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. Explorer 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 Explorer and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Explorer.
This Agreement has been duly executed and delivered by Explorer and constitutes
a valid and binding obligation of Explorer, enforceable against it in accordance
with its terms.
Section 3.3 Representations and Warranties of SNFCo. SNFCo is duly
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organized, validly existing and in good standing under the laws of the State of
[ ] and has the requisite corporate power and authority to carry on its
business as now being conducted. SNFCo 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 SNFCo and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of SNFCo. This
Agreement has been duly executed and delivered by SNFCo and constitutes a valid
and binding obligation of SNFCo, enforceable against it in accordance with its
terms.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. This Agreement shall be governed by the
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laws 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.
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Section 4.2 Binding Effect. This Agreement shall be binding on and
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inure 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
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hereunder 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 Parent and
Explorer) and in the Distribution Agreement (in the case of SNFCo).
Section 4.4 Counterparts. This Agreement may be executed in two or
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more 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 Explorer, SNFCo and Parent.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the date above written.
PARENT
By: __________________________
Name:
Title:
EXPLORER
By: __________________________
Name:
Title:
SNFCo
By: __________________________
Name:
Title:
