-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KJePq3Zv9Xa4NK3O0g5xrKjzuU18h4qJLYRK5+wOWzgZCxkHOrCJOQxVtAuR7oqg qVUTaeszneP8/A/RI8rO0w== /in/edgar/work/0000950136-00-001427/0000950136-00-001427.txt : 20001013 0000950136-00-001427.hdr.sgml : 20001013 ACCESSION NUMBER: 0000950136-00-001427 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20001012 GROUP MEMBERS: ANTHONY GRILLO GROUP MEMBERS: DAVID Y. YING GROUP MEMBERS: JEFFREY C. LIGHTCAP GROUP MEMBERS: JLL ASSOCIATES III, L.L.C GROUP MEMBERS: LITTLEJOHN JOSEPH & LEVY FUND III LP GROUP MEMBERS: PAUL S. LEVY GROUP MEMBERS: RAMSEY A. FRANK SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCE PARADIGM INC CENTRAL INDEX KEY: 0001012956 STANDARD INDUSTRIAL CLASSIFICATION: [8090 ] IRS NUMBER: 752493381 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48759 FILM NUMBER: 738768 BUSINESS ADDRESS: STREET 1: 5215 N O'CONNOR STREET 2: STE 1600 CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2148306199 MAIL ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY SUITE 1900 CITY: IRVING STATE: TX ZIP: 75062 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LITTLEJOHN JOSEPH & LEVY FUND III LP CENTRAL INDEX KEY: 0001126129 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 522064769 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 450 LEXINGTON AVE STREET 2: SUITE 350 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2122888600 MAIL ADDRESS: STREET 1: 450 LEXINGTON AVE STREET 2: SUITE 350 CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D 1 0001.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934* Advance Paradigm, Inc. (Name of Issuer) Common Stock, Par Value $.01 Per Share (Title of Class of Securities) 007491103 (CUSIP Number) Paul S. Levy Joseph Littlejohn & Levy Fund III, L.P. 450 Lexington Avenue New York, New York 10017 (212) 286-8600 with a copy to: Raman Bet-Mansour, Esq. Debevoise & Plimpton 875 Third Avenue New York, NY 10022 (212) 909-6000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) October 2, 2000 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. 1 1. Name Of Reporting Person: Joseph Littlejohn & Levy Fund III, L.P. S.S. Or I.R.S. Identification No. Of Above Person: 52 206 4769 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): _____ 6. Citizenship Or Place Of Organization: Delaware Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: PN 2 1. Name Of Reporting Person: JLL Associates III, L.L.C. S.S. Or I.R.S. Identification No. Of Above Person: 52 206 4770 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): ___ 6. Citizenship Or Place Of Organization: Delaware Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: OO 3 1. Name Of Reporting Person: Paul S. Levy S.S. Or I.R.S. Identification No. Of Above Person: 053 38 0595 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): ___ 6. Citizenship Or Place Of Organization: U.S.A. Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: IN 4 1. Name Of Reporting Person: David Y. Ying S.S. Or I.R.S. Identification No. Of Above Person: 148 40 9252 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): ___ 6. Citizenship Or Place Of Organization: U.S.A. Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: IN 5 1. Name Of Reporting Person: Anthony Grillo S.S. Or I.R.S. Identification No. Of Above Person: 153 50 5589 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): ___ 6. Citizenship Or Place Of Organization: U.S.A. Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: IN 6 1. Name Of Reporting Person: Ramsey A. Frank S.S. Or I.R.S. Identification No. Of Above Person: ###-##-#### 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): ___ 6. Citizenship Or Place Of Organization: U.S.A. Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: IN 7 1. Name Of Reporting Person: Jeffrey C. Lightcap S.S. Or I.R.S. Identification No. Of Above Person: 103 54 8651 2. Check the appropriate Box if a Member of a group (a) [x] (b) [ ] 3. SEC Use Only 4. Source Of Funds: OO 5. Check Box If Disclosure Of Legal Proceedings Is Required Pursuant To Items 2(d) Or 2(e): ___ 6. Citizenship Or Place Of Organization: U.S.A. Number Of Shares Beneficially Owned By Each Reporting Person With: 7. Sole Voting Power: None 8. Shared Voting Power: 7,450,000 9. Sole Dispositive Power: None 10. Shared Dispositive Power: 7,450,000 11. Aggregate Amount Beneficially Owned By Each Reporting Person: 7,450,000 12. Check Box If The Aggregate Amount In Row (11) Excludes Certain Shares: [ ] 13. Percent Of Class Represented By Amount In Row (11): 17.9% 14. Type of Reporting Person: IN 8 ITEM 1. SECURITY AND ISSUER This statement on Schedule 13D relates to the common stock, par value $.01 per share (the "Common Stock") of Advance Paradigm, Inc., a Delaware corporation (the "Issuer"). The Issuer has also issued shares of Series A-1 11% Preferred Stock, par value $.01 per share (the "Series A-1 Preferred Stock") and shares of Series B Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock" and, together with the Series A-1 Preferred Stock, the "JLL Preferred Stock"). The shares of Series A-1 Preferred Stock have certain voting rights and are convertible into shares of Common Stock upon approval of such conversion by the stockholders of Issuer. The shares of Series B Preferred Stock are convertible into shares of Common Stock and have certain voting rights, as described in Item 4 below. The principal executive offices of the Issuer are located at 5215 North O'Connor Boulevard, Suite 1600, Irving, TX 75039. ITEM 2. IDENTITY AND BACKGROUND (a) This statement is being filed by Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership ("JLL Fund III"); JLL Associates III, L.L.C., a Delaware limited liability company and sole general partner of JLL Fund III ("JLL Associates); and Paul S. Levy, David Y. Ying, Anthony Grillo, Ramsey A. Frank and Jeffrey C. Lightcap, each a managing member of JLL Associates (such individuals, the "Individuals,", and together with JLL Fund III and JLL Associates, the "Reporting Persons"). The Joint Filing Agreement pursuant to which this Schedule 13D is filed is attached hereto as Exhibit 7. (b) The address of the principal business office of the Reporting Persons is c/o Joseph Littlejohn & Levy, Inc., 450 Lexington Avenue, New York, New York 10017. (c) The principal business of JLL Fund III is to make and hold investments in various entities. The principal business of JLL Associates is to act as the general partner, and be responsible for the business and affairs, of JLL Fund III. The principal business of each of the Individuals is to act as the managing members of JLL Associates and to serve in similar capacities with certain affiliates of JLL Fund III and JLL Associates. (d) During the last five years, none of the Reporting Persons has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) During the last five years, none of the Reporting Persons was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. 9 (f) JLL Fund III is a limited partnership organized under the laws of the State of Delaware. JLL Associates is a limited liability company organized under the laws of the State of Delaware. Each of the Individuals is a United States citizen. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION The Reporting Persons have acquired 65,415 shares of Series A-1 Preferred Stock, 6 shares of Series B Preferred Stock and 4,207,000 shares of Common Stock (collectively, the "JLL Shares"). The aggregate purchase price for the JLL Shares was $149,000,000. JLL Fund III obtained such funds from a capital contribution from its partners. ITEM 4. PURPOSE OF TRANSACTION. On July 11, 2000, JLL Fund III and the Issuer entered into a Securities Purchase Agreement (the "Securities Purchase Agreement"), pursuant to which the Issuer agreed to issue and sell, and JLL Fund III agreed to purchase, 65,854 shares of Series A-1 Preferred Stock and 84,146 shares of Series B Preferred Stock. A copy of the Securities Purchase Agreement is attached hereto as Exhibit 1 and is incorporated herein by reference. On October 2, 2000, JLL Fund III and the Issuer entered into an Exchange Agreement (the "Exchange Agreement") which, among other matters, modified the Securities Purchase Agreement to provide that the Issuer agreed to sell, and JLL Fund III agreed to purchase, 65,854 shares of Series A-1 Preferred Stock, 6 shares of Series B Preferred Stock and 4,178,950 shares of Common Stock. A copy of the Exchange Agreement is attached hereto as Exhibit 2 and is incorporated herein by reference. JLL Fund III acquired the JLL Shares for investment purposes. The Issuer issued the JLL Shares to JLL Fund III in order to finance a portion of the cost of the Issuer's acquisition of PCS Holding Corporation from Rite Aid Corporation ("Rite Aid"). In connection with this acquisition, the Issuer issued 125,000 shares of Series A-2 11% Preferred Stock, par value $.01 per share (the "Series A-2 Preferred Stock"), to Rite Aid as part of the purchase price of PCS Holding Corporation. Subject to the limitations set forth in the Stockholders' Agreement and the Certificates of Designation (in each case as defined and described below), the Reporting Persons may sell some or all of the JLL Shares either in the open market or in private transactions depending on their evaluation of the Issuer's business, prospects and financial condition, the market for the JLL Shares, other opportunities available to the Reporting Persons, prospects for the Reporting Persons' own businesses, general economic conditions, money and stock market conditions and other further developments. Depending on the same factors, and subject to the provision of the Stockholders Agreement described below in "Standstill Provisions," the Reporting Persons may decide to make additional purchases of shares. 10 The following is a description of certain terms and provisions relating to the JLL Shares: SERIES A-1 PREFERRED STOCK. The powers, designations, preferences, rights, qualifications and restrictions of the Series A-1 Preferred Stock are more fully set forth in the Certificate of Designations for the Series A-1 Preferred Stock, filed with the Secretary of State of the State of Delaware on October 2, 2000 (the "Series A-1 Certificate of Designations"), attached hereto as Exhibit 3 and incorporated herein by reference. The Series A-1 Preferred Stock has a liquidation preference of $1,000 per share (plus accumulated and unpaid dividends), and will accumulate dividends beginning on the 120th day following the issue date at a rate initially equal to 11% per annum and increasing in quarterly increments of 2% (up to a maximum of 16%) until Stockholder Approval (as defined below) is obtained. Dividends on the Series A-1 Preferred Stock are payable solely in additional shares of Series A-1 Preferred Stock and will cease to accrue once Stockholder Approval is obtained. Following Stockholder Approval (as defined below), dividends will be payable on the Series A-1 Preferred Stock and the Common Stock on a share-and-share-alike basis. Unless Stockholder Approval has been obtained, the Series A-1 Preferred Stock is mandatorily redeemable upon the earlier to occur of a change of control of the Issuer or the eleventh anniversary of the issue date. The Series A-1 Preferred Stock is convertible into Common Stock as described below under "Conversion of Preferred Stock" and "Conversion of Class B-1 Common Stock." SERIES B PREFERRED STOCK. The powers, designations, preferences, rights, qualifications and restrictions of the Series B Preferred Stock are more fully set forth in the Certificate of Designations for the Series B Preferred Stock, filed with the Secretary of State of the State of Delaware on October 2, 2000 (the "Series B Certificate of Designations" and, together with the Series A-2 Certificate of Designations, the "Certificates of Designations"), attached hereto as Exhibit 4 and incorporated herein by reference. The Series B Preferred Stock has a liquidation preference of $1,000 per share (plus accumulated and unpaid dividends). Dividends will be payable on the Series B Preferred Stock and the Common Stock on a share-and-share-alike basis. Unless Stockholder Approval has been obtained, the Series B Preferred Stock is mandatorily redeemable upon the earlier to occur of a change of control of the Issuer or the eleventh anniversary of the issue date. The Series B Preferred Stock is convertible into Common Stock as described below under "Conversion of Preferred Stock" and "Conversion of Class B-1 Common Stock." EXCHANGE RIGHTS. The shares of Common Stock issued to JLL Fund III (the "JLL Common Stock") are exchangeable at any time at the option of JLL Fund III for shares of Series B Preferred Stock at an exchange ratio initially equal to fifty shares of Common Stock for each share of Series B Preferred Stock, subject to adjustment for stock dividends and distributions, subdivisions, combinations and consolidations of stock. These exchange rights are described more fully in the Exchange Agreement. Upon Stockholder Approval, such shares of JLL Common Stock will convert first into shares of Series B Preferred Stock and then into shares of Class B-1 Common Stock (as defined below). 11 STOCKHOLDER APPROVAL. Pursuant to the Securities Purchase Agreement, the Issuer will seek the approval (the "Stockholder Approval") by the Issuer's stockholders of the conversion of the Series A-1 Preferred Stock (and the Series A-2 Preferred Stock, into Common Stock, the creation of two new class of common stock, par value $.01 per share, of the Issuer to be designated as Class B-1 Common Stock (the "Class B-1 Common Stock") and Class B-2 Common Stock (the "Class B-2 Common Stock" and, together with the Class B-1 Common Stock, the "Class B Common Stock"), and certain other amendments to the Issuer's certificate of incorporation. The Reporting Persons understand that the Issuer proposes to submit to stockholder approval the form of the Second Amended and Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") attached hereto as Exhibit 5 and incorporated herein by reference. The powers, designations, rights, qualifications and restrictions of the Class B Common Stock are set forth in the Restated Certificate of Incorporation. CONVERSION OF PREFERRED STOCK. At any time following Stockholder Approval, JLL Fund III may, at its option, convert its shares of Series A-1 Preferred Stock into shares of Class B-1 Common Stock. Prior to Stockholder Approval, JLL Fund III may, at its option, convert its shares of Series B Preferred Stock into shares of Common Stock. Upon Stockholder Approval, all outstanding shares of Series B Preferred Stock will convert automatically into shares of Class B-1 Common Stock. Upon conversion, each share of Series A-1 and Series B Preferred Stock will convert into a number of shares of Common Stock or Class B-1 Common Stock, as the case may be, obtained by dividing the liquidation preference of such share of Preferred Stock by the conversion price then in effect. The initial conversion price is $20, subject to adjustment for stock dividends and distributions, subdivisions, combinations and consolidations of stock and customary anti-dilution protections. The conversion rights of holders of shares of Series A-1 and Series B Preferred Stock are described more fully in the Certificates of Designations. CONVERSION OF CLASS B-1 COMMON STOCK. Following Stockholder Approval, the shares of Class B-1 Common Stock issued upon conversion of JLL Fund III's Preferred Stock will be convertible at any time at the option of the holders into shares of Common Stock at a conversion ratio initially equal to one share of Common Stock for each share of Class B-1 Common Stock, subject to adjustment for stock dividends and distributions, subdivisions, combinations and consolidations of stock and customary anti-dilution protections. The conversion rights of holders of shares of Class B-1 Common Stock are described more fully in the Restated Certificate of Incorporation. TRANSFER RESTRICTIONS. Under the terms of the Stockholders' Agreement, dated as of October 2, 2000, between JLL Fund III, Rite Aid Corporation, the Issuer, and certain other stockholders of the Corporation (the "Stockholders' Agreement"), JLL Fund III may not transfer the JLL Shares except in compliance with the provisions of the Stockholders' Agreement relating to transfers of shares, including customary provisions relating to compliance with securities laws and those provisions described below under "Standstill Provisions." A copy of the Stockholders' Agreement is attached hereto as Exhibit 6 and incorporated herein by reference. Under the terms of the Series A-1 Certificates of Designations, until the 120th day following the original issue date of the preferred stock, JLL Fund III may not transfer its shares of Series A-1 Preferred Stock 12 except to certain of its affiliates. Under the terms of the Series B Certificate of Designations and the Exchange Agreement, if JLL Fund III transfers its shares of Series B Preferred Stock or the JLL Common Stock prior to Stockholder Approval, such shares of Series B Preferred Stock will convert into Common Stock and lose the right to convert into Class B-1 Common Stock and the shares of JLL Common Stock will lose the right to convert into Class B-1 Common Stock upon Stockholder Approval. Following Stockholder Approval, under the terms of the Restated Certificate of Incorporation, JLL Fund III may not transfer its shares of Class B-1 Common Stock except to certain of its affiliates. Upon a transfer of Class B-1 Common in violation of this provision, the shares of Class B-1 Common Stock so transferred will convert automatically into shares of Common Stock. These transfer restrictions are described more fully in the Stockholders' Agreement, the Certificates of Designations and the Restated Certificate of Incorporation. CORPORATE GOVERNANCE. Pursuant to the terms of the Securities Purchase Agreement, the Series B Certificate of Designations, the Exchange Agreement and the Stockholders Agreement, two individuals designated by JLL Fund III (Messrs. Paul Levy and Ramsey Frank) were elected to the Board of Directors of the Issuer effective as of October 2, 2000. The Stockholders Agreement provides that the Issuer will use its reasonable best efforts to cause its Board of Directors to consist of eleven members. Prior to Stockholder Approval, at each annual meeting of stockholders of the Issuer, the holders of the Series B-1 Preferred Stock are entitled to elect, two members of the Board of Directors of the Issuer. Following Stockholder Approval, at each annual meeting of stockholders of the Issuer, the holders of Class B-1 Common Stock are entitled to elect, voting as a separate class, two members of the Board of Directors of the Issuer pursuant to the terms of the Restated Certificate of Incorporation and the Stockholders' Agreement. The number and manner of election of the directors are subject to change as set forth in the Series B Certificate of Designations, the Stockholders' Agreement and the Restated Certificate of Incorporation. Except as described in the foregoing, the JLL Shares are not entitled to vote in the election of directors of the Issuer. The terms of the Series B Preferred Stock and, following Stockholder Approval, the Restated Certificate of Incorporation provide that the Issuer may not take certain significant actions without the approval of the holders of the Series B Preferred Stock and the Series A-1 Preferred Stock (or, following Stockholder Approval, the holders of the Class B Common Stock). Such actions include, among other matters, mergers, consolidations, sales of all or substantially all assets and certain issuances of equity securities. These approval rights will terminate at such time as the holders of the Series A-1 and Series A-2 Preferred Stock and Class B Common Stock own a number of shares of Common Stock (on an as-converted basis) that is less than 10% of the number of shares of Common Stock issuable upon conversion of the originally issued number of shares of Series A-1, Series A-2 and Series B Preferred Stock, as adjusted for stock dividends and distributions, subdivisions, combinations and consolidations of stock. Except with respect to the election of directors and for the above-described matters subject to their separate approval, the holders of the Series B Preferred Stock (or, following Stockholder Approval, the holders of the Class B Common Stock and the Series A-1 Preferred Stock), are entitled to vote together as a single class with the holders of the Common Stock on all matters presented to the holders of the Common Stock for a 13 vote and to a number of votes to which they would have been entitled as holders of Common Stock if all of their shares of Class B Common Stock and Series A-1 Preferred Stock had been converted immediately prior to the record date for such vote. STANDSTILL PROVISIONS. The Stockholders' Agreement provides that for a period beginning on the issue date of the JLL Shares and ending on the earlier of the fourth anniversary of such issue date and the date of a change in control of the Issuer, JLL Fund III and its affiliates will refrain from purchasing additional shares of the Issuer's voting stock and from taking certain other actions relating to a change in control of the Issuer, including the formation of a "group" as defined in Section 13(d) of the Securities Exchange Act of 1934 and the solicitation of proxies. The standstill provisions are subject to certain exceptions and the standstill period may be terminated earlier than the fourth anniversary of the issue date. These standstill provisions are set forth in the Stockholders' Agreement. REGISTRATION RIGHTS. Pursuant to the Stockholders' Agreement, the Issuer has granted to the holders of the JLL Shares certain "demand" and "piggy-back" registration rights with respect to the JLL Shares. These registration rights, which are set forth in the Stockholders' Agreement, are subject to certain customary blackout and cutback provisions, are accompanied by customary indemnification provisions, and are described more fully. Except as set forth herein, the Reporting Persons do not have any plans or proposals which would relate to or result in any of the actions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. In addition, the Reporting Persons who are or become directors of the Issuer, may, in their capacities as such, propose that the Board of Directors consider one or more of such actions from time to time. The foregoing description of the terms and provisions relating to the JLL Shares is qualified in its entirety by the text of the Securities Purchase Agreement, the Exchange Agreement, the Certificates of Designations, the Restated Certificate of Incorporation and the Stockholders Agreement, which are attached to this Schedule 13D and incorporated herein by reference. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) (i) JLL Fund III is the direct beneficial owner of 4,178,950 shares of Common Stock. By virtue of its ownership of 6 shares of Series B Preferred stock, JLL Fund III may be deemed to beneficially own up to an additional 300 shares of Common Stock. Following Stockholder Approval, by virtue of its ownership of 65,415 shares of Series A-1 Preferred Stock, JLL Fund III may be deemed to beneficially own up to an additional 3,270,750 shares of Common Stock. Assuming the conversion of all shares of Preferred Stock owned by JLL Fund III, JLL Fund III may be deemed to beneficially own an aggregate of 7,450,000 shares of Common Stock, representing approximately 17.9% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of August 31, 2000 and after giving effect to the issuance of Common Stock sold pursuant to the Securities Purchase Agreement, the exercise of in-the-money options and warrants that have vested or will vest within 60 days of such date and the conversion of all outstanding shares of Preferred Stock). 14 (ii) By virtue of its position as general partner of JLL Fund III, JLL Associates may be deemed to be the beneficial owner of all of the shares in which JLL Fund III has direct beneficial ownership; (iii) By virtue of the Individual's positions as managing members of JLL Associates, each of them may be deemed to have a beneficial ownership interest in all of the shares in which JLL Fund III has direct beneficial ownership. (b) JLL Fund III, JLL Associates, and the Individuals have shared power to vote or dispose of the JLL Shares. (c) Other than the transactions described in Items 3 and 4, no other transactions in shares of Common Stock by the Reporting Persons were effected during the sixty days prior to the date of this Schedule 13D. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The response to Item 3 and Item 4 are incorporated herein by reference. Except as set forth in this Schedule 13D, none of the Reporting Persons have any contracts, arrangements, understandings or relationships (legal or otherwise) with each other or with any person with respect to any securities of the Issuer, including but not limited to the transfer of any of the JLL Shares, finder's fees, joint ventures, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Securities Purchase Agreement, dated as of July 11, 2000, between the Issuer and JLL Fund III. Exhibit 2 Exchange Agreement, dated as of October 2, 2000, between the Issuer and JLL Fund III. Exhibit 3 Certificate of Designations of Series A-1 11% Preferred Stock. Exhibit 4 Certificate of Designations of Series B Preferred Stock. Exhibit 5 Form of Second Amended and Restated Certificate of Incorporation of the Issuer (attached as Exhibit B to the Stockholders' Agreement). Exhibit 6 Stockholders' Agreement, dated as of October 2, 2000, among the Issuer, JLL Fund III, Rite Aid and certain other stockholders of the Issuer. Exhibit 7 Joint Filing Agreement 15 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to Joseph Littlejohn & Levy Fund III, L.P. is true, complete and correct. Dated: October 12, 2000 JOSEPH LITTLEJOHN & LEVY FUND III, L.P. By its General Partner JLL Associates III, L.L.C. By /s/ Ramsey A. Frank ------------------------------------------- Name: Ramsey A. Frank, for Joseph Littlejohn & Levy, Inc., as Manager of JLL Associates III, L.L.C. 16 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to JLL Associates III, L.L.C. is true, complete and correct. Dated: October 12, 2000 JLL ASSOCIATES III, L.L.C. By /s/ Ramsey A. Frank ------------------------------------------- Name: Ramsey A. Frank, for Joseph Littlejohn & Levy, Inc., as Manager of JLL Associates III, L.L.C. 17 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to me is true, complete and correct. Dated: October 12, 2000 /s/ Paul S. Levy ----------------------------------- Paul S. Levy 18 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to me is true, complete and correct. Dated: October 12, 2000 /s/ David Y. Ying ----------------------------------- David Y. Ying 19 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to me is true, complete and correct. Dated: October 12, 2000 /s/ Anthony Grillo ----------------------------------- Anthony Grillo 20 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to me is true, complete and correct. Dated: October 12, 2000 /s/ Ramsey A. Frank ----------------------------------- Ramsey A. Frank 21 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D with respect to me is true, complete and correct. Dated: October 12, 2000 /s/ Jeffrey C. Lightcap ----------------------------------- Jeffrey C. Lightcap 22 EX-1 2 0002.txt SECURITIES PURCHASE AGREEMENT ================================================================================ SECURITIES PURCHASE AGREEMENT dated as of July 11, 2000 between ADVANCE PARADIGM, INC. and JOSEPH LITTLEJOHN & LEVY FUND III, L.P. ================================================================================ ARTICLE 1 DEFINITIONS..........................................................2 Section 1.1. Definitions...................................................2 ARTICLE 2 ISSUANCE AND SALE....................................................5 Section 2.1 Purchase and Sale..............................................5 Section 2.2. Closing.......................................................6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................6 Section 3.1. Organization and Authority....................................6 Section 3.2. Authorization of Securities...................................7 Section 3.3. Capitalization; Ownership of Subsidiaries.....................8 Section 3.4. Consents and Approvals; No Violations.........................8 Section 3.5. SEC Reports...................................................9 Section 3.6. Financial Statements..........................................9 Section 3.7. Absence of Certain Changes....................................9 Section 3.8. Absence of Undisclosed Liabilities...........................10 Section 3.9. Litigation...................................................10 Section 3.10. Compliance with Applicable Law, Permits.....................10 Section 3.11. Intellectual Property.......................................10 Section 3.12. Employee Benefit Plans......................................12 Section 3.13. Taxes.......................................................14 Section 3.14. Company Contracts...........................................15 Section 3.15. Assets Necessary to Business................................17 Section 3.16. Insurance...................................................17 Section 3.17. Relationship with Customers.................................17 Section 3.18. Affiliated Transactions.....................................18 Section 3.19. Business Combination Provision; Takeover Laws; Rights Plan.............................................................18 Section 3.20. Finders' Fees...............................................18 Section 3.21. Full Disclosure.............................................18 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................19 Section 4.1. Existence and Power..........................................19 Section 4.2. Authorization................................................19 Section 4.3. Consents and Approvals; No Violations........................19 Section 4.4. Litigation...................................................20 Section 4.5. Investment Intention.........................................20 Section 4.6. Securities Law Matters.......................................20 Section 4.7. Finders' Fees................................................21 ARTICLE 5 COVENANTS...........................................................21 i Table of Contents (continued) Page ---- Section 5.1. Access to Information........................................21 Section 5.2. Conduct of the Business of the Company.......................21 Section 5.3. Reservation of Rights........................................24 Section 5.4. Stockholders' Meeting........................................24 Section 5.5. Use of Proceeds..............................................25 Section 5.6. PCS Acquisition; Debt Financing..............................25 Section 5.7. Supplemental Disclosure......................................26 Section 5.8. Exclusivity..................................................26 Section 5.9. Public Announcements.........................................27 Section 5.10. JLL as Purchaser Representative.............................27 Section 5.11. Nasdaq National Market Listing..............................27 Section 5.12. Employment Agreements.......................................27 Section 5.13. Best Efforts; Certain Filings...............................28 Section 5.14. Further Assurances..........................................28 ARTICLE 6 CONDITIONS TO CLOSING...............................................28 Section 6.1. Conditions to Obligations of the Purchasers and the Company.................................................................28 Section 6.2. Conditions to Obligation of the Purchasers...................29 Section 6.3. Conditions to Obligation of the Company......................30 ARTICLE 7 TERMINATION.........................................................30 Section 7.1. Grounds for Termination......................................30 Section 7.2. Effect of Termination........................................31 ARTICLE 8 SURVIVAL; INDEMNIFICATION...........................................32 Section 8.1. Survival of Representation and Warranties....................32 Section 8.2. Indemnification by the Company...............................32 Section 8.3. Limitations on Indemnification by the Company................32 Section 8.4. Indemnification by the Purchasers............................33 Section 8.5. Notice of Claims.............................................33 Section 8.6. Defense of Third Party Claims................................33 Section 8.7. Payment of Claims............................................34 Section 8.8. No Liability of Officers, Directors and Managers, Limitation on Remedies of Parties.......................................34 Section 8.9. No Third Party Benefit.......................................34 Section 8.10. Definition..................................................34 Section 8.11. Exclusive Remedy............................................35 ARTICLE 9 MISCELLANEOUS.......................................................35 Section 9.1. Notices......................................................35 Section 9.2. Expenses.....................................................36 ii Table of Contents (continued) Page ---- Section 9.3. Entire Agreement; Assignment.................................36 Section 9.4. Governing Law................................................36 Section 9.5. Specific Performance.........................................37 Section 9.6. Binding Nature; No Third Party Beneficiaries.................37 Section 9.7. Severability.................................................37 Section 9.8. Headings.....................................................37 Section 9.9. Counterparts.................................................37 Schedule I: Executive Officers Exhibit A: Term Sheet for Series A Certificate of Designation Exhibit B: Term Sheet for Series B Certificate of Designation Exhibit C: Term Sheet for Certificate of Designation for Class B Stock Exhibit D: Form of Voting Agreement iii SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT dated as of July 11, 2000 between Advance Paradigm, Inc., a Delaware corporation (the "Company"), and Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership ("JLL"). Recitals A. Concurrently with the execution of this Agreement, the Company is entering into a Stock Purchase Agreement, dated as of the date hereof (as the same may from time to time be modified, supplemented or restated, the "PCS Purchase Agreement"), between the Company and Rite Aid Corporation, a Delaware corporation ("Rite Aid"), with respect to the acquisition (the "PCS Acquisition") by the Company from Rite Aid of all of the outstanding shares of capital stock of PCS Holding Corporation, a Delaware corporation and a wholly owned subsidiary of Rite Aid ("PCS"). B. Upon the terms and conditions set forth in the PCS Purchase Agreement, the Company shall issue and deliver to Rite Aid, as part of the payment of the purchase price for PCS, 125,000 shares of Series A-1 11% Preferred Stock (and together with the Series A-2 11% Preferred Stock, the "Series A Preferred") to be issued under a certificate of designations having the terms set forth in the term sheet attached to this Agreement as Exhibit A and such other terms as may be agreed upon by the Company, Rite Aid and JLL (and together with the certificate of designations for the Series A-2 11% Preferred Stock, the "Series A Certificate of Designations"). C. The Company desires to issue and sell to the Purchasers (as defined in Article 1), and the Purchasers desire to subscribe to and purchase from the Company, (i) 65,854 shares of Series A Preferred at a purchase price of $1,000 per share, and (ii) 84,146 shares of Series B Convertible Preferred Stock (the "Series B Preferred" and, together with the Series A Preferred, the "Preferred Stock"), for a purchase price of $1,000 per share, to be issued under a certificate of designations having the terms set forth in the term sheet attached to this Agreement as Exhibit B and such other terms as may be agreed upon by the Company, Rite Aid and JLL (the "Series B Certificate of Designations" and, together with the Series A Certificate of Designations, the "Certificate of Designations"), all upon the terms and subject to the conditions of this Agreement. D. The Company desires to apply the proceeds of the issuance and sale of the Preferred Stock under this Agreement towards the payment of the cash portion of the purchase price for PCS. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1. Definitions. The following terms, as used herein, have the following meanings: "Board of Directors" means the Board of Directors of the Company. "Certificate of Designations" has the meaning given in Recital C. "Claims and Damages" has the meaning given in Section 8.10. "Class B Stock" means the Class B-1 and Class B-2 common stock of the Company, par value $0.01 per share, (i) to be created as separate classes of common stock following the receipt of the Requisite Stockholder Approval and (ii) to be issued under a Certificate of Designations having the terms set forth in the term sheet attached to this Agreement as Exhibit C and such other terms as may be agreed upon by the Company, Rite Aid and JLL. "Closing" has the meaning given in Section 2.2. "Closing Date" means the date of the Closing. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock of the Company, par value $0.01 per share. "Company" has the meaning given in the Introduction. "Company Contracts" has the meaning given in the Section 3.16(a). "Debt Financing" means the debt financing to be obtained by the Company from third party lenders in connection with the financing of the purchase price for the PCS Acquisition. "Disclosure Schedule" has the meaning given in the introduction to Article 3. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 2 "FFI Acquisition" means the acquisition by the Company of the affiliated companies comprising FFI Healthcare Services through the issuance of 3,500,000 shares of Common Stock to the shareholders of such affiliated companies. "GAAP" means accounting practices and principles generally accepted from time to time in the United States. "Governmental Entity" means any count of competent jurisdiction, any governmental, regulatory or administrative authority, agency or commission or any self-regulatory organization (including National Association of Securities Dealers, Inc.). "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnitee" has the meaning given in Section 8.5. "Indemnitor" has the meaning given in Section 8.5. "JLL" has the meaning given in the Introduction. "Law" means any statute, law, ordinance, regulation, rule, code, order or other requirement or rule of law. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind. "Material Adverse Effect" means a change or effect that is materially adverse to (A) the business, financial condition or results of operations of the Company and its subsidiaries taken as a whole, but shall not include any changes or effects (x) resulting from the execution or announcement of this Agreement or compliance with the terms hereof, (y) relating to or resulting from general economic, political or market conditions, including (i) changes after the date of this Agreement in any Law or in the interpretation of any Law by a Governmental Entity and (ii) changes in GAAP, or (z) generally affecting the industries in which the Company and its subsidiaries operate or (B) the ability of the Company and its subsidiaries to consummate the transactions contemplated hereby or by the other Transaction Documents. "Notice of Claim" has the meaning given in Section 8.5. "PCS" has the meaning given in Recital A. "PCS Acquisition" has the meaning given in Recital A. 3 "PCS Purchase Agreement" has the meaning given in Recital A. "Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Preferred Stock" has the meaning given in Recital C. "Proxy Statement" means the proxy or information statement of the Company prepared in connection with the Stockholder Proposal. "Purchase Price" has the meaning given in Section 2.1 "Purchasers" means JLL, and in the event JLL delivers a Schedule of Purchasers as contemplated by Section 2.1, each of the Persons named on such schedule. Each such Purchaser shall deliver to the Company a written instrument stating that it agrees to be bound by and be subject to the terms and conditions of this Agreement. "Representatives" means, with respect to any Person, its officers, directors, employees, accountants, counsel, financing sources, advisors and agents. "Requisite Stockholder Approval" means the approval of the Stockholder Proposal by the stockholders of the Company in accordance with applicable laws and the Company's Certificate of Incorporation. "Rite Aid" has the meaning given in Recital A. "Schedule of Purchasers" has the meaning given in Section 2.1. "SEC Reports" means all registration statements, prospectuses, reports, schedules, proxy statements and other documents filed since March 31, 1997 by the Company with the Commission pursuant to the Exchange Act or the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Series A Certificate of Designations" has the meaning given in Recital B. "Series A Preferred" has the meaning given in Recital B. "Series B Certificate of Designations" has the meaning given in Recital C. "Series B Preferred" has the meaning given in Recital C. 4 "Stockholders' Agreements" means such stockholders and similar agreements (including registration rights agreements), if any, as the Company and JLL and/or Rite Aid may enter into to reflect any of the terms set forth in the term sheets attached hereto as Exhibits A, B and/or C. "Stockholder Proposal" means the approval of the issuance of shares of Class B Stock upon the conversion of the Preferred Stock and any necessary related amendments to the Company's Certificate of Incorporation. "Taxes" has the meaning given to it in Section 3.15(b). "Transaction Documents" means this Agreement, the Series A Certificate of Designations, the Series B Certificate of Designations, the Stockholders' Agreements, the PCS Purchase Agreement, the Purchaser Notes (as defined in the PCS Purchase Agreement), the Indenture (as defined in the PCS Purchase Agreement), any other agreement or instrument between Rite Aid and the Company entered into pursuant to the PCS Purchase Agreement, and any credit or loan agreement, guarantees, collateral or security agreements and instruments and other agreements and instruments entered into or delivered by the Company or its subsidiaries in connection with the Debt Financing. ARTICLE 2 ISSUANCE AND SALE Section 2.1. Purchase and Sale. (a) No later than five business days prior to the Closing, JLL shall deliver to the Company a list of the Purchasers and the number of Series A and Series B Preferred Stock to be acquired by each Purchaser (the "Schedule of Purchasers"). In the event JLL does not deliver a Schedule of Purchasers, JLL shall purchase all the shares of Preferred Stock to be issued and sold pursuant to this Agreement, in which case the references to the Schedule of Purchasers shall be deemed to refer to JLL as the sole Purchaser of all such shares of Preferred Stock. (b) Upon the terms and subject to the conditions of this Agreement, the Company shall issue and sell to each Purchaser, and each Purchaser shall subscribe to and purchase from the Company, the number of Series A and B Preferred Stock specified in the Schedule of Purchasers free and clear of all Liens. The price to be paid for each share of Series A Preferred shall be $1,000, and the price to be paid for each share of Series B Preferred shall be $1,000, in cash. The Purchase Price shall be paid as provided in Section 2.2. (c) Notwithstanding anything in this Agreement to the contrary, (i) the aggregate number of shares of Series A Preferred and Series B Preferred to be purchased by the Purchaser pursuant to this Agreement shall be 65,854 shares and 84,146 shares, 5 respectively, for an aggregate purchase price of $150,000,000 (the "Purchase Price") in cash, and (ii) JLL shall be jointly and severally liable with each Purchaser for the subscription for and purchase by such Purchaser of the number of shares of Preferred Stock specified for such Purchaser in the Schedule of Purchasers. Section 2.2. Closing. (a) The closing of the purchase and sale of the Preferred Stock (the "Closing") shall take place at the location and on the date of the closing of the PCS Acquisition pursuant to the PCS Purchase Agreement, or at such other time or place as the Company and JLL may agree upon. At the Closing: (i) The Company shall deliver to each Purchaser, free and clear of all Liens, the shares of Preferred Stock purchased by such Purchaser by delivering stock certificates representing such shares. (ii)Each Purchaser shall deliver to the Company, in immediately available funds by wire transfer to the bank account designated by the Company in writing at least three business days prior to the Closing Date, the portion of the Purchase Price set forth opposite such Purchaser's name on the Schedule of Purchasers. (b) Notwithstanding anything to the contrary in this Agreement, the Closing shall occur (i) concurrently with the closing of the PCS Acquisition pursuant to the PCS Purchase Agreement and the closing of, and the making of loans pursuant to the definitive agreements for, the Debt Financing and (ii) only if the foregoing closings occur. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the disclosure schedule delivered by the Company to JLL on or prior to the execution and delivery of this Agreement (the "Disclosure Schedule"), the Company represents and warrants to each Purchaser as follows: Section 3.1. Organization and Authority. (a) The Company and each of its subsidiaries is a corporation, partnership, limited liability company or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite corporate or other power and authority to own, lease or operate its properties and assets and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified to do business and in good standing and is duly licensed, authorized or qualified to transact business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such 6 jurisdictions where the failure to be so duly qualified or licensed and in good standing has not had a Material Adverse Effect. (b) The Company has all necessary corporate power and authority (i) to execute and deliver this Agreement and the other Transaction Documents, (ii) to perform its obligations under this Agreement and the other Transaction Documents and (iii) to consummate the transactions contemplated by this Agreement and the other Transaction Documents, subject, in the case of the preceding clauses (ii) and (iii), to the receipt of Requisite Stockholder Approval in respect of the consummation of the transactions contemplated by the other Transactions Documents to the extent that Requisite Stockholder Approval is required therefor. The execution and delivery of each of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been, or prior to the Closing will be, duly authorized by all necessary corporate actions on the part of the Company, and except for the Requisite Stockholder Approval, no other corporate actions or proceedings on the part of the Company are necessary to authorize this Agreement or the Transaction Documents or for the Company to consummate the transactions contemplated hereby or thereby. (c) This Agreement has been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by JLL) constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to limitations imposed by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general equitable principles. Upon execution and delivery thereof, each of the other Transaction Documents will have been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by any other parties thereto) will constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to limitations imposed by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general equitable principles. Section 3.2. Authorization of Securities. (a) The issuance, sale and delivery of the Preferred Stock has been duly authorized by all requisite corporate action of the Company and the shares of Preferred Stock issued to the Purchasers in accordance with the Certificate of Designations, when issued and delivered at the Closing in accordance with the terms of this Agreement will be validly issued and outstanding, fully paid and nonassessable free and clear of any Liens and not subject to preemptive or other similar rights of the stockholders of the Company. (b) Upon receipt of the Requisite Stockholder Approval and the conversion of the outstanding shares of Preferred Stock into shares of Class B Stock in accordance with 7 their respective Certificate of Designations, each share of Class B Stock will be validly issued and outstanding, fully paid and nonassessable free and clear of any Liens (other than Liens created by the holders of Preferred Stock) and not subject to preemptive or other similar rights of the stockholders of the Company. Section 3.3. Capitalization; Ownership of Subsidiaries. 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 $0.01 per share. As of the date of this Agreement, there are 25,040,884 shares of Common Stock and no shares of preferred stock issued and outstanding, and no shares of Common Stock held in the Company's treasury. As of the date of this Agreement, no shares of Common Stock or preferred stock have been reserved for issuance, except as disclosed in the SEC Reports filed prior to the date hereof or set forth in the Disclosure Schedule. All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid, non-assessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date hereof, other than (i) as set forth on the Disclosure Schedule and (ii) in connection with the transactions contemplated by this Agreement and other Transaction Documents, there are no outstanding options, warrants, rights, puts, calls, commitments, or other contracts, arrangements, or understandings issued by or binding upon the Company requiring, and there are no outstanding debt or equity securities of the Company which upon the conversion, exchange or exercise thereof would require, the issuance, sale or transfer by the Company of any new or additional equity interests in the Company (or any other securities of the Company or any of its subsidiaries which, whether after notice, lapse of time or payment of monies, are or would be convertible into or exercisable or exchangeable for equity interests in the Company). There are no voting trusts or other agreements or understandings to which the Company or any of its subsidiaries is a party with respect to the voting of capital stock of the Company. Section 3.4. Consents and Approvals; No Violations. (a) No filing or registration with, and no permit, authorization, certificate, waiver, license, consent or approval of, any Governmental Entity is necessary for execution, delivery or performance by the Company of this Agreement or any of the other Transaction Documents, except (i) for the applicable requirements of the HSR Act, (ii) for the filing of the Certificates of Designations with the Secretary of State of the State of Delaware, (iii) for the filing of the certificate of designations for the Class B Stock with the Secretary of State of the State of Delaware, or (iv) as a result of facts or circumstances particular to the Purchasers. (b) Neither the execution and delivery of this Agreement or any of the other Transaction Documents by the Company nor the consummation by the Company of the transactions contemplated hereby or thereby nor compliance by the Company with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or bylaws (or similar organizational 8 documents) of the Company or any subsidiary of the Company, (ii) require the consent or waiver of any person (other than a Governmental Entity) or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, modification or acceleration) (whether after the giving of notice or the passage of time or both) or result in the imposition of or the creation of any Lien upon any of the assets or properties of the Company or any of its subsidiaries pursuant to or under, any of the terms, conditions or provisions of any note, lease, license, contract or agreement to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company, or any of their respective assets, is bound or (iii) violate any order, writ, injunction, decree, statute, treaty, rule or regulation applicable to the Company or any subsidiary of the Company, except in the case of (ii) or (iii), for violations, breaches or defaults which, or consents or waivers the absence of which, individually or in the aggregate, have not had or would not have a Material Adverse Effect. Section 3.5. SEC Reports. The Company has filed all required SEC Reports when due in accordance with the Exchange Act or the Securities Act, as the case may be. As of their respective dates, the SEC Reports complied in all material respects with all applicable requirements of the Exchange Act or the Securities Act, as the case may be. None of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date. Section 3.6. Financial Statements. The consolidated financial statements of the Company contained in the SEC Reports complied as to form in all material respects with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present, in conformity with GAAP (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended. Section 3.7. Absence of Certain Changes. Since March 31, 2000, except for the FFI Acquisition and the PCS Acquisition, (i) the businesses of the Company and its subsidiaries have been conducted only in the ordinary course of business, and (ii) neither the Company nor any subsidiary has taken any of the actions set forth in Section 5.2(b) assuming that Section 5.2(b) applied to the period since March 31, 2000. Since March 31, 2000, the Company has not suffered a Material Adverse Effect. 9 Section 3.8. Absence of Undisclosed Liabilities. To the knowledge of the Company, except as disclosed in SEC Reports filed prior to the date hereof or described in the Disclosure Schedule, the Company has no liabilities or obligations (whether direct or indirect, accrued or contingent) other than Liabilities and obligations that would not have a Material Adverse Effect. Section 3.9. Litigation. Except as disclosed in SEC Reports filed prior to the date hereof or described in the Disclosure Schedule or as would not have a Material Adverse Effect, (i) there is no suit, claim, action, proceeding or, to the knowledge of the Company, investigation pending against the Company or any of its subsidiaries before or by any Governmental Entity or non-governmental body or by any third party or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries, and (ii) neither the Company nor any of its subsidiaries is subject to any outstanding order of any Governmental Entity. As of the date of this Agreement, there are no pending or, to the knowledge of the Company, threatened actions which would prevent or delay the Company from consummating the transactions contemplated hereby, or by any of the other Transaction Documents. Section 3.10. Compliance with Applicable Law, Permits. Except as has not had or would not have a Material Adverse Effect, (i) the Company and its subsidiaries possess all permits, licenses, variances, exemptions, orders, approvals and authorizations of all Governmental Entities and all consents and waivers of any other persons (other than Governmental Entities) necessary for the Company and its subsidiaries to own, lease or otherwise hold the assets of its businesses and to carry on its businesses as currently conducted and (ii) such businesses are being conducted in compliance with all laws, regulations and ordinances of all Governmental Entities, including (A) laws regarding the provision of insurance, third party administration services and primary health care services, (B) the Prescription Drug Marketing Act, the Federal Controlled Substances Act of 1970, the Food, Drug and Cosmetic Act and any applicable state Pharmacy Practice Acts, Controlled Substances Acts, Dangerous Drug Acts and Food, Drug and Cosmetic Acts and (C) laws regarding the provision of goods and services under Medicare or Medicaid or other programs administered by Governmental Entities. This Section 3.10 does not relate to matters with respect to (x) benefits and employment matters, which are the subject of Section 3.12, and (y) Taxes, which are the subject of Section 3.13. Section 3.11. Intellectual Property. (a) Except as has not had or would not have a Material Adverse Effect: (i) the Company or its subsidiaries own or have the right to use all Company Intellectual Property (as defined in Section 3.11(b)), free and clear of all Liens; (ii)any Company Intellectual Property owned or, to the knowledge of the Company, used, by the Company or its subsidiaries is valid and subsisting in full 10 force and effect, has not been cancelled or abandoned and, as of the date of this Agreement, has not expired; (iii) the Company has not received written notice from any third party regarding any actual or potential infringement by the Company or any of its subsidiaries of any intellectual property of such third party and the Company has no knowledge of any legitimate basis for such a claim against the Company or any of its subsidiaries; (iv)the Company has not received written notice from any third party regarding any assertion or claim challenging the validity of any Company Intellectual Property owned by the Company or any of its subsidiaries and the Company has no knowledge of any legitimate basis for such a claim; (v) neither the Company nor any of its subsidiaries has licensed or sublicensed its rights in any Company Intellectual Property, or received or been granted any such rights; (vi)to the knowledge of the Company, no third party is misappropriating, infringing, diluting or violating any Company Intellectual Property owned by the Company or any of its subsidiaries; (vii) to the knowledge of the Company, no employee, officer, agent, representative, attorney, director, majority stock holder, or other person that is affiliated with the Company or any of its subsidiaries, has ever accused a third party of misappropriating, infringing, diluting or violating any Company Intellectual Property owned by the Company or any of its subsidiaries; (viii) the Company and each of its subsidiaries takes reasonable measures to protect the confidentiality of Company Trade Secrets (as defined in Section 3.11(b)), including requiring employees to execute employee agreements acknowledging the existence of trade secret information of the Company, requiring third parties who are granted access thereto to execute written non-disclosure agreements, marking confidential documents such as software manuals as trade secret to prevent inadvertent disclosure, controlling copies of proprietary software and access to such software to prevent the misappropriation of such software, and reviewing marketing and promotional materials to ensure that trade secret materials have not been disclosed. Neither the Company nor any of its subsidiaries has disclosed or authorized to be disclosed any of its Company Trade Secrets to any third party other than pursuant to a nondisclosure agreement that is reasonably expected to adequately protect the Company's or the applicable subsidiary's proprietary interests in and to such Company Trade Secrets; 11 (ix)the Company is not aware of any claims that it has hired an employee, officer, agent, consultant or other person away from a third party in violation of a nondisclosure, non-compete, or trade secret agreement between the hired person and the third party. The Company has taken reasonable measures to ensure that no employees, officers, agents, consultants or other person that is affiliated with the Company or any of it subsidiaries, are using trade secrets of a third party; and (x) all Company Proprietary Software (as defined in Section 3.11(b)) has been developed either (A) by employees of the Company or any of its subsidiaries within the scope of their employment or (B) by independent contractors who have assigned their rights to the Company or any of its subsidiaries pursuant to one or more written agreements. (b) The term: (i) "Company Intellectual Property" means all trademarks, service marks, trade names, Internet domain names, designs, logos, slogans and general intangibles of like nature, together with goodwill, registrations and affiliations relating to the foregoing; registered and unregistered patents, copyrights (including registrations and applications of any of the foregoing); Company Software; confidential information, technology, know-how, inventions, processes, formulae, algorithms, models and methodologies (such confidential items, collectively "Company Trade Secrets") used by the Company and its subsidiaries in the conduct of their business and operations as conducted as of the date of this Agreement and any licenses to use any of the foregoing; (ii) "Company Software" means any and all (A) computer programs, including any and all software implementation of algorithms, models and methodologies whether in source code or object code, (B) databases and computations, including any and all data and collections of data but excluding individual customer data, (C) all documentation, including user manuals and training materials, relating to any of the foregoing, and (D) the content and information contained in any Web site; and (iii) "Company Proprietary Software" means all Company Software that is owned by the Company or its subsidiaries. Section 3.12. Employee Benefit Plans. (a) The term "Company Employee Plans" means all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all employment and severance agreements, and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar employee benefit plans, programs, policies and agreements, in each case that are sponsored, maintained, contributed to or required to be contributed to by the Company or any of its subsidiaries, or to which the Company or any of its subsidiaries is a party for the benefit of any current or former employee, director, consultant or independent contractor of the Company or any of its subsidiaries. 12 (b) The Company has delivered or made available to JLL accurate and complete copies of the following with respect to the Company Employee Plans, to the extent applicable, as of the date of this Agreement, (i) all plan documents and all amendments thereto, (ii) summary plan descriptions and summaries of material modifications, (iii) trust documents, insurance contracts and other funding instruments, (iv) the two most recently prepared financial statements and actuarial reports, (v) the two most recently filed annual reports and (vi) determination letters received from the Internal Revenue Service. (c) All Company Employee Plans have been administered and operated in compliance with the requirements of ERISA, the Code, and all other applicable Laws, except for failures to so administer and operate the Company Employee Plans that have not had or would not have a Material Adverse Effect. Each Company Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a current determination letter from the Internal Revenue Service stating that it is so qualified in its entirety, and to the knowledge of the Company each such plan is so qualified, and, as of the date of this Agreement, no such determination letter has been revoked. There have been no "prohibited transactions" within the meaning of Section 4975 of the Code or Section 406 of ERISA involving any of the Company Employee Plans that would be reasonably likely to subject the Company or any of its subsidiaries to any penalties or taxes that would be reasonably likely to have a Material Adverse Effect. (d) Each Company Employee Plan that is subject to the minimum funding requirements of Section 412 of the Code is in compliance with such requirements, and no Company Employee Plan has a minimum funding variance or waiver under Section 412(d) of the Code. Neither the Company, its subsidiaries, nor any trade or business that together with the Company or any of its subsidiaries would be deemed a "single employer" under Section 4001(b) of ERISA (a "Company ERISA Affiliate") has any liability, and no event has occurred that could reasonably give rise to any liability under Title IV of ERISA (other than for the payment of premiums to the Pension Benefit Guaranty Corporation), except as has not had or would not have a Material Adverse Effect. Neither the Company nor any of its subsidiaries participates in any multiemployer plan (as defined in Section 3(37) of ERISA), nor has the Company, its subsidiaries or any ERISA Affiliate incurred any withdrawal liability to a multiemployer plan that has not been satisfied in full, except as has not had or would not have a Material Adverse Effect. (e) As of the date of this Agreement, no actual or, to the knowledge of the Company, threatened disputes, lawsuits, claims (other than routine claims for benefits), or to the knowledge of the Company, investigations or audits by any person or Governmental Entity have been filed or are pending with respect to the Company Employee Plans or the Company or any of its subsidiaries in connection with any Company Employee Plan or the fiduciaries or administrators thereof. 13 (f) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder will not constitute an event under any Company Employee Plan that will cause any payment, benefit, acceleration, vesting, distribution, or obligation to fund benefits with respect to any current or former employee of the Company or any of its subsidiaries. (g) No Company Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees of the Company or any subsidiary for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by applicable Law, (ii) death benefits under any "pension plan" or (iii) benefits the full cost of which is borne by the current or former employee (or his beneficiary). Section 3.13. Taxes. (a) Except as disclosed in SEC Reports filed prior to the date hereof or as set forth in the Disclosure Schedule or has not had or would not have a Material Adverse Effect: (i) Each of the Company and its subsidiaries has (giving effect to all extensions obtained) (A) duly and timely filed (or there has been filed on its behalf) with the appropriate Governmental Entities all material Tax Returns required to be filed by it, and all such Tax Returns are true, correct and complete in all material respects, and (B) to the knowledge of the Company timely paid (or accrued on the Company's books) or there has been paid on its behalf all material Taxes due and payable; (ii)To the knowledge of the Company, the Company and its subsidiaries have complied in all material respects with all applicable Tax Laws relating to the payment and withholding of Taxes; (iii) There are no Liens for Taxes upon the assets or properties of the Company or its subsidiaries except for statutory Liens for current Taxes not yet due or Liens for Taxes being contested in good faith; (iv)None of the Company or any of its subsidiaries has requested in writing any extension of time within which to file any Tax Return in respect of any taxable year which has not since been filed, and no outstanding written waivers or comparable written consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns has been given by or on behalf of the Company or any of its subsidiaries; and (v) To the knowledge of the Company, no U.S. federal, state, local or foreign audits, reviews or other administrative proceedings or court proceedings ("Audits") exist or have been initiated with regard to any Taxes or Tax Returns of the Company 14 or any of its subsidiaries, and none of the Company or any of its subsidiaries has received any written notice of such an Audit. (b) The term: (i) "Tax" or "Taxes" means all taxes, charges, levies, fees, or other assessments imposed by any federal, state, local or foreign Tax Authority, including, but not limited to, any income, gross income, gross receipts, profits, capital stock, franchise, business, withholding payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, occupation, service, sales, use, license, lease, transfer, import, export, value added, goods and services, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax), and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing; (ii) "Tax Authority" means, with respect to any Tax, the Governmental Entity that imposes such Tax and the agency (if any) charged with the collection or administration of such Tax for such entity; (iii) "Tax Law" means the law (including any applicable regulations or any administrative pronouncement) of any Governmental Entity relating to any Tax; (iv) "Tax Period" means, with respect to any Tax, the period for which the Tax is reported as provided under the applicable Tax Law; and (v) "Tax Return" means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes or any other similar report, statement, declaration, or document required to be filed under applicable Tax Law, including any attachments, exhibits or other materials submitted with any of the foregoing and including any amendments or supplements to any of the foregoing. Section 3.14. Company Contracts. (a) The Company has made available to JLL true and correct copies (or in the case of oral contracts, accurate summaries of the material terms) of the following notes, leases, licenses, contracts and agreements ("Company Contracts") to which the Company or any subsidiary is a party or is bound: (i) each mortgage, indenture, note, installment obligation or other instrument, contract, agreement or arrangement relating to the borrowing of money by the Company or any of its subsidiaries in an amount exceeding $5 million; (ii)any guaranty, direct or indirect, by the Company or any subsidiary of any obligation for borrowed money in an amount exceeding $5 million of any Person, excluding endorsements made for collection in the ordinary course of business; (iii) any obligation to sell or to register the sale of any of the shares of capital stock or other securities of the Company or any of its subsidiaries; (iv)any obligation to make payments, contingent or otherwise, arising out of the prior acquisition or disposition of a business; (v) each collective bargaining or union contract; 15 (vi) each contract for the purchase of capital equipment, materials or supplies, other than any contract which is terminable without material penalty on 60 or fewer days' notice or involves the receipt or payment of less than $250,000 per year; (vii) each contract for the acquisition or disposition of material assets, other than in the ordinary course of business; (viii) each contract relating to the leasing of or other arrangement for use of material real or personal property; (ix)each of the top 10 contracts (measured by revenues of the Company and its subsidiaries) with any manufacturer of pharmaceuticals involving the annual payment by the manufacturer of at least $1 million; (x) each of the top 10 contracts (measured by revenues of the Company and its subsidiaries) with any insurance company, health maintenance organization or other customer; (xi) each contract between the Company or its subsidiaries, on the one hand, and any director, executive officer or greater than 5% stockholder of the Company on the other hand; (xii) any employment agreement with any director or executive officer of the Company or its subsidiaries; (xiii) any contract with a term in excess of one year from the date hereof which is not otherwise terminable upon 60 days advance notice without cause and without financial penalty and which involves the payment or receipt of an amount (in one or a series of transactions) in excess of $500,000 per year; and (xiv) any limited partnership, joint venture or other unincorporated business organization or similar arrangement or agreement. (b) Except as has not had or would not have a Material Adverse Effect, (i) neither the Company nor any subsidiary is (and to the knowledge of the Company, as of the date of this Agreement, no other party is) in breach or default under the Company Contracts and no event has occurred under the Company Contracts which would constitute (with or without due notice or lapse of time or both) a breach or default by the Company or any of its subsidiaries or, to the knowledge of the Company, by any other party thereto (or give rise to any right of termination, cancellation, modification or acceleration against the Company or any of its subsidiaries, or, to the knowledge of the Company, any other party thereto) under the Company Contracts and (ii) each Company Contract is a valid and binding obligation of the Company or its subsidiary and, to the knowledge of the Company, as of the date of this Agreement, the other party thereto, enforceable against 16 such persons in accordance with its terms, subject to limitations imposed by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general equitable principles. (c) Since March 31, 2000 through the date of this Agreement, no customer or group of customers of the Company which individually or in the aggregate accounted for 250,000 or more members (determined on a basis consistent with past practices of the Business) during the year ended March 31, 2000 or at any time since March 31, 2000, has cancelled or otherwise terminated its business relationships with the Company or its subsidiaries. As of the date of this Agreement, (i) none of the Company or any of its subsidiaries has received written notice, or to the knowledge of the Company, other communication of any actual or alleged breach of or default under or threatened cancellation, termination or acceleration of such contracts, and (ii) to the knowledge of the Company, no event has occurred or circumstances exist that would give the Company or any other person party to such contracts the right to exercise any remedy under or to cancel or terminate any such contract. Section 3.15. Assets Necessary to Business. The assets, properties, contracts and rights of the Company and its subsidiaries include all of the assets, properties, contracts and rights necessary for the conduct of its business in the manner as it is currently conducted and that are reflected in the consolidated balance sheet of the Company as at March 31, 2000 (other than assets reflected on such balance sheet that have been sold or disposed of in the ordinary course of business since the date thereof). The Company and each of its subsidiaries have maintained all their tangible assets in good and normal operating condition, and all such assets are free and clear from all defects in all material respects, ordinary wear and tear excepted, and all such tangible assets are fully adequate and suitable for the purposes for which they are presently used. Section 3.16. Insurance. The Company's insurance policies are adequate and suitable for the business and operations of the Company and its subsidiaries; the terms and conditions of such policies (including deductibles, retentions and risks covered) are similar to the terms and conditions of insurance policies customarily provided by companies of established reputation similarly situated and carrying on the same or similar businesses; such policies are in full force and effect; and the Company has complied in all material respects with all the terms and provisions of such policies. None of the material insurance policies maintained by the Company or any of its subsidiaries will lapse or become subject to termination by the insurer as a result of the transactions contemplated by this Agreement or any other Transaction Document. Section 3.17. Relationship with Customers. To the knowledge of the Company, since January 1, 2000, no material customer of the Company (including payors and pharmaceutical companies) has, on or prior to the date hereof, threatened to cancel or otherwise terminate its relationship with the Company, or to materially decrease its usage 17 of the services of the Company (it being agreed that requests for proposals by customers shall not be considered any such threats). Section 3.18. Affiliated Transactions. Since March 31, 2000, the Company has not paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets (tangible or intangible) to, or entered into any agreement or arrangement with, any of the officers, directors or shareholders of the Company or any of its subsidiaries, except for compensation to officers, directors and employees at rates not exceeding the rates of compensation paid during the fiscal year ended on March 31, 2000 and routine travel advances to officers and employees. Section 3.19. Business Combination Provision; Takeover Laws; Rights Plan. The Board of Directors has approved (including for purposes of rendering inapplicable Section 203 of the Delaware General Corporation Law) this Agreement and the other Transaction Documents, the transactions contemplated hereby and thereby, and issuance of shares of Common Stock upon conversion of the Series B Preferred, issuance of shares of Class B Stock upon the conversion of the Preferred Stock (assuming the receipt of the Requisite Stockholder Approval) and the issuance of Common Stock upon conversion of Class B Stock. No "fair price," "control share acquisition" or other similar anti-takeover statute applicable to the Purchaser (collectively, "Takeover Laws") will prevent or delay such transactions or conversion. The Company has not adopted or resolved to adopt a "shareholder rights plan" or similar plan. Section 3.20. Finders' Fees. Except for Merrill Lynch & Co., whose fees will be paid by the Company, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement. Section 3.21. Full Disclosure. No representation or warranty of the Company made in this Agreement or in any other Transaction Document, nor any written statement furnished to JLL pursuant to this Agreement or any other Transaction Document or in connection with the transactions contemplated hereby or thereby, contain or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statement in question not misleading. The Disclosure Schedule is a true, complete and accurate list or description, as appropriate, of the items purported to be listed or described on the Disclosure Schedule. JLL, on behalf of itself and each other Purchaser acknowledges that the Company is not making any representations and warranties other than as explicitly set forth in this Agreement or other Transaction Document. JLL, on behalf of itself and each other Purchaser agrees that it will not assert any claims against or seek any damages or other remedies (including pursuant to any implied warranties or similar rights, which JLL, 18 on behalf of itself and each other Purchaser expressly and irrevocably waives and agrees not to seek to enforce) from the Company or any of its representatives for the matters contemplated by this Agreement or the other Transaction Documents, except for fraud or as explicitly set forth in this Agreement or the other Transaction Documents. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser severally and not jointly, and JLL for itself and on behalf of each Purchaser, represents and warrants to the Company as of the date hereof and as of the Closing that: Section 4.1. Existence and Power. Such Purchaser is duly formed, validly existing and in good standing under the laws of its jurisdiction of organization. Section 4.2. Authorization. (a) Such Purchaser has all necessary corporate or other power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation by such Purchaser of the transactions contemplated hereby have been duly authorized by all necessary actions on the part of such Purchaser, and no other actions or proceedings on the part of such Purchaser are necessary to authorize this Agreement or for such Purchaser to consummate the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by such Purchaser and (assuming due authorization, execution and delivery by the Company) constitutes a legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to limitations imposed by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general equitable principles. Upon execution and delivery thereof, each of the other Transaction Documents to which such Purchaser is a party will have been duly and validly executed and delivered by such Purchaser and (assuming due authorization, execution and delivery by any other parties thereto) will constitute a legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to limitations imposed by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general equitable principles. Section 4.3. Consents and Approvals; No Violations. (a) No filing or registration with, and no permit, authorization, certificate, waiver, license, consent or 19 approval of, any Governmental Entity is necessary for execution, delivery or performance by such Purchaser of this Agreement or any of the other Transaction Documents, except (i) for the applicable requirements of the HSR Act, or (ii) as a result of facts or circumstances particular to the Company. (b) Neither the execution and delivery of this Agreement or any of the other Transaction Documents by such Purchaser nor the consummation by such Purchaser of the transactions contemplated hereby or thereby nor compliance by such Purchaser with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws (or similar organizational documents) of such Purchaser, (ii) require the consent or waiver of any person (other than a Governmental Entity) or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, modification or acceleration) (whether after the giving of notice or the passage of time or both) or result in the imposition of or the creation of any Lien upon any of the assets or properties of such Purchaser pursuant to or under, any of the terms, conditions or provisions of any note, lease, license, contract or agreement to which such Purchaser is a party or (iii) violate any order, writ, injunction, decree, statute, treaty, rule or regulation applicable to such Purchaser, except in the case of (ii) or (iii), for violations, breaches or defaults which, or consents or waivers the absence of which, individually or in the aggregate, would not have a material adverse effect on the ability of such Purchaser to consummate the transactions contemplated hereby or the other Transaction Documents. Section 4.4. Litigation. There is no action, suit, investigation or proceeding pending against, or to the knowledge of such Purchaser threatened against or affecting, such Purchaser before any Governmental Entity which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement or any other Transaction Document. Section 4.5. Investment Intention. Such Purchaser is an "accredited investor" as defined in Rule 501(a) under the Securities Act and such Purchaser is acquiring the Preferred Stock solely for such Purchaser's account for investment and not with a view to or for sale in connection with any distribution thereof in any transaction or series of transactions that would be in violation of the securities laws of the United States or any state thereof. Section 4.6. Securities Law Matters. Such Purchaser acknowledges that: (a) such Purchaser's shares will not be registered under the Securities Act or qualified under any state securities or "blue sky" laws, (b) it is not anticipated that there will be any public market for such Purchaser's shares, and (c) such Purchaser's shares must be held indefinitely and such Purchaser must continue to bear the economic risk of such 20 investment in such interest unless such interest is subsequently registered under the Securities Act and such state laws or an exemption from registration is available. Section 4.7. Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of such Purchaser who might be entitled to any fee or commission from the Company or any of its Affiliates upon consummation of the transactions contemplated by this Agreement. ARTICLE 5 COVENANTS Section 5.1. Access to Information. From the date hereof until the Closing Date, the Company shall (i) furnish to JLL and its Representatives such financial and operating data and other information relating to the Company and its subsidiaries and PCS and the PCS Acquisition as such Persons may reasonably request, (ii) afford JLL and its Representatives reasonable access, during normal business hours and upon prior notice, to the Company's offices, facilities, properties, personnel and books and records, instruct its Representatives to cooperate with JLL and its Representatives in their investigation of the Company and PCS, (iii) to the extent the Company has rights to access the properties, personnel and books and records of PCS, afford JLL and its Representatives access thereto, and (iv) furnish to JLL such information as the Company may from time to time obtain pursuant to Section 4.3 or 4.20, or any other provision of, the PCS Purchase Agreement. Any investigation pursuant to this Section 5.1 shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company or PCS. Section 5.2. Conduct of the Business of the Company. (a) Except as otherwise expressly provided in this Agreement or any other Transaction Document and except as set forth on the Disclosure Schedule, during the period from the date hereof to the Closing Date, the Company shall operate only in the ordinary course of business consistent with past practice. The Company shall use all reasonable efforts to preserve intact its present organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, and others having significant business dealings with the Company and its subsidiaries. (b) Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement or any other Transaction Document and except as set forth on the Disclosure Schedule, from the date of this Agreement to the Closing Date, neither the Company nor any of its subsidiaries may, without the written consent of JLL: 21 (i) amend its certificate of incorporation or bylaws (or other similar organizational documents) or alter through merger, liquidation, reorganization, restructuring or in any other fashion, the corporate structure or ownership of the Company or any of its subsidiaries; (ii)issue, sell or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise), pledge or otherwise encumber any shares of capital stock of the Company or any subsidiary of the Company, or any securities convertible into, or exchangeable for, any such shares or amend the terms of any such securities or agreements outstanding on the date hereof, except for issuances and sales of shares of Common Stock, or options therefor, to employees or customers of the Company and its subsidiaries in the ordinary course of business consistent with past practice so long as the aggregate amount of shares of Common Stock issued and sold (including shares issued upon exercises of options issued or sold) during the period between the date of this Agreement and the Closing Date does not exceed 250,000 (provided that no such options or shares shall be issued or sold to any of the persons named on Schedule I); (iii) (A) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock, or (B) redeem, repurchase or otherwise acquire any of its securities or split, combine or reclassify any shares of its capital stock; (iv)transfer, sell, lease, license or dispose of any material assets or rights, unless in the ordinary course of business consistent with past practice; or acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of or by any other manner any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets of any other person (other than the purchase of assets in the ordinary course of business and consistent with past practice); (v) other than in the ordinary course of business consistent with past practice and other than transactions with wholly-owned subsidiaries of the Company, (A) incur, assume, discharge, cancel or prepay any material indebtedness or other obligation or issue or sell any debt securities or rights to acquire any debt securities, (B) assume, guarantee, endorse or otherwise become liable (whether directly, contingently or otherwise) for the obligations of any other person, (C) make any loans, advances or capital contributions to, or investments in, any other person, (D) change the Company's practices with respect to the timing of payments or collections, (E) pledge or otherwise encumber shares of capital stock of the Company and its subsidiaries, or (F) mortgage or pledge any of its assets or permit to exist any Lien thereupon (other than Liens that would not, individually or in the aggregate, materially detract from the 22 values of such assets or materially interfere with the use of such assets or the conduct of the business of the Company and its subsidiaries); (vi)(i) amend any employee benefit plan in any material respect, (ii) pay any benefit not required by any existing plan, except for payments in the ordinary course of business consistent with past practice or as required by applicable law or existing contractual arrangements or (iii) enter into or adopt any employee benefit plan, except for plans that replace an existing plan without any material increase in costs or expenses over the plan being replaced; (vii) (A) enter into any employment agreement with any executive officer of the Company or modify in any material respect any of the terms and conditions of the employment of any executive officer, except for employment agreements with the Persons listed on Schedule I on terms consistent with the term sheets for such agreements provided to JLL on or prior to the date hereof, or (B) enter into any employment or severance agreement with any employee receiving or entitled to aggregate annual compensation in excess of $50,000, or adopt or enter into any collective bargaining agreement; (viii) enter into, amend, assign or terminate any Company Contract in a manner that is adverse to the Company in a material respect; (ix)enter into any agreement or engage in any transactions with any Affiliate of the Company or its subsidiaries other than in the ordinary course of business and consistent with past practices and on a basis no less favorable than would at the time be obtainable for a comparable transaction in arm's-length dealing with an unrelated third party; (x) settle or compromise any material litigation of the Company or any of its subsidiaries (whether or not commenced prior to the date of this Agreement) or settle, pay or compromise any claims, liabilities or obligations not required to be paid, individually in an amount in excess of $1 million; (xi) change or agree to change any accounting method or policy other than as required by GAAP or by law; (xii) change, or agree to change, any business policies which relate to advertising, pricing, personnel, labor relations, sales, returns or product acquisitions, in each case in a manner which would have a Material Adverse Effect; (xiii) make or commit to make any capital expenditure in excess of the Company's current budget; (xiv) settle or compromise any material Tax liability; or 23 (xv) take, or agree in writing or otherwise to take, any of the foregoing actions. Section 5.3. Reservation of Rights. For so long as any of the Series B Preferred is outstanding, the Company shall keep reserved for issuance a sufficient number of shares of Common Stock to satisfy its conversion obligations under the Series B Certificate of Designations. Section 5.4. Stockholders' Meeting. (a) As promptly as reasonably practicable following the Closing Date, the Company shall prepare and file the Proxy Statement with the Commission. JLL shall cooperate, and provide to, the Company all such information as may be necessary or appropriate regarding the Purchasers for inclusion in the Proxy Statement. The Company shall, as promptly as practicable after receipt thereof, provide JLL copies of any written comments and advise JLL of any oral comments, with respect to the Proxy Statement received from the Commission. The Company shall advise JLL of any request by the Commission for amendment of the Proxy Statement. If at any time any information relating to Company and the Purchasers, or any of their respective affiliates, officers or directors, should be discovered by the Company or JLL, which should be set forth in an amendment or supplement to the Proxy Statement so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party hereto and, to the extent required by Law, an appropriate amendment or supplement describing such information shall be promptly filed with the Commission and disseminated to the stockholders of the Company. (b) The Company shall call a stockholders' meeting, to be held as soon as reasonably practicable after the Commission's review of the Proxy Statement, for the purpose of voting upon the Stockholder Proposal, and the Company shall use all reasonable efforts to cause such stockholders' meeting to be held within 120 days following the Closing Date. In connection with the Company's stockholders' meeting, (i) the Company shall mail the Proxy Statement to its stockholders, (ii) the Board of Directors shall recommend to its stockholders the approval of the Stockholder Proposal, and (iii) the Board of Directors and officers of the Company shall use their commercially reasonable efforts to obtain the Requisite Stockholder Approval. (c) The Company covenants that (i) the Proxy Statement when filed with the Commission will comply as to form in all material respects with the applicable requirements of the Exchange Act, and (ii) at the time the Proxy Statement is first mailed to stockholders of the Company, and at the time such stockholders vote on approval of the matters for which Requisite Stockholder Approval is to be obtained, the Proxy Statement will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; provided that the foregoing 24 covenants contained in this Section 5.4(c) will not apply to statements or omissions included in the Proxy Statement based upon information furnished in writing to the Company by the Purchasers specifically for use therein. (d) In the event (i) the Board of Directors or any committee thereof withdraws, modifies, changes or qualifies, or publicly proposes to withdraw, modify, change or qualify, in a manner adverse to JLL its approval or recommendation of the Stockholder Proposal or (ii) any member of the Board of Directors or any executive officer of the Company, directly or through a representative, makes or causes to be made a statement, publicly or for public dissemination, that indicates such person does not recommend or support, without qualification, the approval by the Company's stockholders of the Stockholder Proposal, within three business days of JLL's request therefor, the Board of Directors fails to reaffirm publicly and unconditionally its recommendation to the Company's stockholders of the Stockholder Proposal, the Company shall pay to JLL a fee, in cash, equal to $5 million. The Company shall pay such fee no later than five business days following JLL's written request therefor by wire transfer of immediately available funds in the amount set forth in the preceding sentence to such bank account as may be designated by JLL. (e) The Company shall use its reasonable efforts to persuade Blue Cross and Blue Shield of Texas, a division of Health Care Service Corporation, to execute and deliver, prior to the mailing of the Proxy Statement to the stockholders of the Company, a voting agreement substantially in the form attached to this Agreement as Exhibit D or as otherwise agreed upon in good faith by the Company and JLL. (f) JLL shall, and shall cause any other Purchaser or any Person controlled by JLL or any Purchaser to, vote all of its shares of Preferred Stock (to the extent any such shares are entitled to vote thereon) and Common Stock in favor of the Stockholder Proposal at any meeting of the Company's stockholders with respect thereto. (g) The Company shall use its reasonable efforts to set the record date for the stockholders' meeting at which the Stockholder Proposal will be considered prior to the Company's earnings release for the quarter ended September 30, 2000. Section 5.5. Use of Proceeds. The Company will use the proceeds from the sale of the Preferred Stock to the Purchasers solely towards the funding of the cash portion of the purchase price for PCS. Section 5.6. PCS Acquisition; Debt Financing. Prior to the Closing, the Company may not, without the prior consent of JLL (not to be unreasonably withheld), (i) amend, supplement or otherwise modify the terms and conditions of, or waive any of its rights or closing conditions under, the PCS Purchase Agreement or any other agreement or instrument between Rite Aid and the Company entered into pursuant to the 25 PCS Purchase Agreement, (ii) execute and deliver the Purchaser Notes (as defined in the PCS Purchase Agreement) or the Indenture (as defined in the PCS Purchase Agreement), or (iii) enter into any definitive credit or loan agreement, guarantees, collateral or security agreement or instrument in connection with the Debt Financing; provided that in the case of clauses (ii) and (iii), JLL shall consent so long as the Purchaser Notes, the Indenture and the terms of the definitive documents for the Debt Financing are, in all material respects, consistent with the terms therefor contemplated by the PCS Purchase Agreement as of the date hereof. The Company shall keep JLL promptly informed of, and consult with JLL on, all matters and developments regarding the PCS Acquisition and the Debt Financing, including any discussions or negotiations with Rite Aid or the lenders proposing to provide the Debt Financing. Section 5.7. Supplemental Disclosure. From time to time prior to the Closing, the Company shall promptly following its becoming aware thereof supplement or amend the Disclosure Schedule with respect to any matter hereafter arising or discovered which, if known, existing or occurring at the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedule. Any supplement or amendment of the Disclosure Schedule made pursuant to this Section 5.7 shall not be deemed to cure any breach or inaccuracy of any representation or warranty made in this Agreement. Section 5.8. Exclusivity. During the Exclusive Period, neither the Company nor any of its Representatives may, without the prior written consent of JLL, directly or indirectly, (i) issue, offer, sell, contract to sell, offer or grant any option, right or warrant to purchase, or otherwise lend, transfer or dispose of, directly or indirectly, any equity securities of the Company or any securities convertible, exchangeable or exercisable for or repayable with equity securities of the Company, or file any registration statement under the Securities Act, in connection with any PCS Equity Financing, or (ii) solicit, initiate, encourage or knowingly facilitate any inquiries or proposals for, or enter into any discussions with respect to, any PCS Equity Financing. Notwithstanding the foregoing, the Company may hold discussions, enter into an agreement to sell and issue and sell shares of Preferred Stock to Rite Aid pursuant to the PCS Purchase Agreement as currently in effect or as amended in accordance with Section 5.6. "PCS Equity Financing" means any issuance, offer, sale, contract for sale, disposition or other transfer of any equity securities of the Company or its subsidiaries (or any securities convertible, exchangeable or exercisable for or repayable with any equity securities of the Company or its subsidiaries), (i) the proceeds of which are applied, directly or indirectly, towards the acquisition of PCS or all or any portion of the Business (as defined in the PCS Purchase Agreement) or any successor thereto, or (ii) to Rite Aid or any owner or holder of PCS or the Business as part of the consideration for the acquisition of PCS or all or any portion of the Business (as defined in the PCS Purchase Agreement), in each case whether pursuant to the PCS Purchase Agreement or any other agreement. "Exclusive Period" means the period beginning on the date of this 26 Agreement and ending (i) if the Closing occurs, the Closing Date and (ii) if the Closing does not occur, the end of the nine month period following the termination of this Agreement. Section 5.9. Public Announcements. Prior to the Closing, the parties agree to consult with each other before issuing any press release or making any public statement with respect to this Agreement or the other Transaction Documents and, except as may be required by applicable Law, will not issue any such press release or make any such public statement prior to such consultation. Following the Closing, the parties agree to consult with each other before issuing any press release or making any public filing that describes any terms of this Agreement or any other Transaction Document. Section 5.10. JLL as Purchaser Representative. Each Purchaser hereby designates and appoints JLL as its attorney(s)-in-fact with full power of substitution, to serve as the representative(s) of each such Purchaser to perform all such acts as are required, authorized or contemplated by this Agreement and the other Transaction Documents to be performed by such person and hereby acknowledges that JLL shall be the only persons authorized to take any action so required, authorized or contemplated by this Agreement and the other Transaction Documents by each such Purchaser. Each such Purchaser further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Purchaser. Each such Purchaser hereby authorizes the other parties hereto to disregard any notices or other action taken by such Purchaser pursuant to this Agreement, except for notice and actions taken by JLL. The other parties hereto are and will be entitled to rely on any action so taken or any notice given by JLL and are and will be entitled and authorized to give notices only to JLL for any notice contemplated by this Agreement to be given to any such Purchaser. A successor to JLL may be chosen by a majority in interest of the Purchasers; provided that notice thereof is given by the new representative to the Company. Section 5.11. Nasdaq National Market Listing. The Company shall use commercially reasonable efforts to cause the shares of Common Stock issuable upon conversion of the Preferred Stock or Class B Stock to be approved for listing on the Nasdaq National Market, subject to official notice of issuance, as soon as practicable and in any event prior to the 120th day following the Closing Date and to continue to be listed on the Nasdaq National Market thereafter. Section 5.12. Employment Agreements. The Company shall use reasonable efforts to enter into definitive employment agreements with each of the Persons listed on Schedule I on terms consistent with the term sheets for such agreements provided to JLL on or prior to the date hereof. The Company shall obtain the prior consent of JLL (not to be unreasonably withheld) prior to entering definitive agreements with such Persons that 27 are inconsistent, in any material respect, with the term sheets referred to in the previous sentence. Section 5.13. Best Efforts; Certain Filings. (a) Subject to the terms and conditions of this Agreement, the Company and JLL (on behalf of itself and each other Purchaser) will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable Laws to consummate the transactions contemplated by this Agreement and the other Transaction Documents, including (i) making of any required filings pursuant to the HSR Act, (ii) finalizing each of the Certificates of Designations and the certificate of designations for the Class B Stock, and (iii) using its reasonable best efforts to cause the satisfaction of all conditions to Closing. The parties shall promptly consult with each other with respect to, provide any necessary information with respect to and provide the other (or its counsel) copies of, all filings made by such party with any Governmental Entity or any other information supplied by such party to a Governmental Entity in connection with this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby. (b) The Company and JLL (on behalf of itself and each other Purchaser) shall cooperate with one another, and take all such actions as may be necessary or appropriate, (i) in determining whether any action by or in respect of, or filing with, any Government Entity is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Documents and (ii) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. Section 5.14. Further Assurances. The Company and JLL (on behalf of itself and each other Purchaser) agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement and the other Transaction Documents. ARTICLE 6 CONDITIONS TO CLOSING Section 6.1. Conditions to Obligations of the Purchasers and the Company. The obligations of the Purchasers and the Company to consummate the Closing are subject to the satisfaction (or waiver by the Company and JLL) of each of the following conditions: 28 (a) No statute, rule, regulation, order, decree, temporary restraining order or injunction shall have been enacted, entered, promulgated or enforced by a U.S. Governmental Entity which prohibits or materially restricts the consummation of the transactions contemplated by this Agreement, the PCS Purchase Agreement or any other Transaction Document and shall be in effect. (b) Any applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement, the PCS Purchase Agreement or any other Transaction Document shall have expired or been terminated, and all other material authorizations, consents, approvals, or clearances of any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement, the PCS Purchase Agreement or any other Transaction Document shall have been obtained. (c) Since February 26, 2000, there shall not have occurred a Company Material Adverse Effect (as defined in the PCS Purchase Agreement). (d) All of the conditions to the obligations of the Company to consummate the Closing of the PCS Acquisition set forth in the PCS Purchase Agreement shall have been satisfied or waived; provided that any such waiver by the Company shall have been given in accordance with Section 5.6. (e) The Company shall have entered into definitive agreements with lenders regarding the Debt Financing, and the lenders thereunder shall have made or propose to make loans or extensions of credit pursuant to such definitive agreements concurrently with the Closing. Section 6.2. Conditions to Obligation of the Purchasers. The obligation of the Purchasers to consummate the Closing is subject to the satisfaction (or waiver by JLL) of each of the following additional conditions: (a) The Company shall have performed in all material respects all of its obligations under this Agreement and the other Transaction Documents required to be performed by it on or prior to the Closing. (b) The representations and warranties of the Company contained in this Agreement shall in each case, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects at and as of the Closing, as if made at and as of such date (except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct or true and correct in all material respects, as the case may be, on and as of such earlier date). 29 (c) Each of the Series A Certificate of Designations and the Series B Certificate of Designations shall have been filed in accordance with the Delaware General Corporation Law. (d) The Company shall have delivered to the Purchasers (i) a copy of the resolutions adopted by the Board of Directors, certified by the Secretary of the Company, authorizing this Agreement and the other Transaction Documents, and the transactions contemplated hereunder and thereunder and (ii) a certificate, dated the Closing Date, signed by an officer of the Company, certifying as to the fulfillment of the conditions set forth in clauses (a), (b), (c) and (d) of this Section 6.2. (e) Since March 31, 2000, there shall not have occurred a Material Adverse Effect. (f) Two persons designated by JLL, two persons designated by Rite Aid and J.P. Millon shall have been elected to the Board of Directors; the number of directors that are officers or employees of the Company shall be three; and the Company shall have set the number of directors at eleven. Section 6.3. Conditions to Obligation of the Company. The obligation of the Company to consummate the Closing is subject to the satisfaction (or waiver by the Company) of the following further conditions: (a) JLL shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing Date. (b) The representations and warranties of each Purchaser contained in this Agreement shall be true in all material respects at and as of the Closing Date, as if made at and as of such date. (c) The Company shall have received a certificate signed by an appropriate officer of JLL certifying as to the fulfillment of the conditions set forth in clauses (a) and (b) of this Section 6.3. ARTICLE 7 TERMINATION Section 7.1. Grounds for Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of the Company and JLL; 30 (b) by either the Company or JLL upon written notice to the other party if the Closing shall not have been consummated on or before December 31, 2000, unless the failure to consummate the Closing by such date shall be due to the action or failure to act of the party seeking to terminate this Agreement; (c) by either the Company or JLL upon written notice to the other if the PCS Purchase Agreement shall have been terminated in accordance with the terms thereof; provided that any such termination by the Company shall also have been in accordance with Section 5.6. (d) by either the Company or JLL upon written notice to the other party if any United States court of competent jurisdiction or other competent U.S. Governmental Entity shall have issued an order, decree or injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree or injunction or other action shall have become final and nonappealable; or (e) by either the Company or JLL upon written notice to the other party if there shall have been a material breach by the other of any of its representations, warranties, covenants or agreements contained in this Agreement, which if not cured would cause the conditions set forth in Section 6.2 or Section 6.3, as the case may be, not to be satisfied; provided that as a condition to the right of the party to elect to terminate this Agreement pursuant to the immediately preceding clause, such party shall first provide 30 days prior notice to the other party specifying in reasonable detail the nature of the condition that such party has concluded will not be satisfied, and the other party shall be entitled during such 30 day period to commence any actions it may elect consistent with the terms of this Agreement to provide reasonable assurance to the first party that such condition will be satisfied prior to December 31, 2000; provided further that if such condition can be satisfied by the other party through the exercise of its best efforts and for so long as that party continues to use such best efforts, the first party may not terminate this Agreement under this Section 7.1(d) prior to December 31, 2000. Section 7.2. Effect of Termination. (a) In the event of the termination of this Agreement pursuant to Section 7.1 hereof, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, directors, officers or stockholders to any other party to this Agreement, except that (i) the provisions of this Section 7.2, and Sections 5.8, 9.1, 9.2, 9.4, 9.5, 9.6 and 9.7 shall remain in effect notwithstanding such termination, and (ii) notwithstanding anything to the contrary contained in this Agreement, no party shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. 31 ARTICLE 8 SURVIVAL; INDEMNIFICATION Section 8.1. Survival of Representation and Warranties. Each of the representations and warranties made by the Company and the Purchasers in this Agreement shall survive the Closing for a period of 18 months from the Closing Date; provided that the representations and warranties made by the Company in Section 3.13 regarding taxes shall survive until expiration of the applicable statute of limitations. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but no such termination shall affect any claim for a breach of a representation or warranty that was asserted before the date of termination. To the extent that such are to be performed after the Closing, each of the covenants and agreements contained in this Agreement shall survive the Closing for the period stated or, if no such period is stated, such covenant or agreement shall survive indefinitely. Section 8.2. Indemnification by the Company. The Company hereby agrees to indemnify and hold harmless each Purchaser and its successors and assigns after the Closing Date from and against: (i) any Claims and Damages asserted against or incurred by such Purchaser and occasioned by, arising out of or resulting from any breach of the representations and warranties of the Company that are set forth in this Agreement; and (ii)any Claims and Damages asserted against or incurred by the Purchaser and occasioned by, arising out of or resulting from the Company's failure to perform any of the Company's obligations for which performance after the Closing is specifically required or contemplated under this Agreement. Section 8.3. Limitations on Indemnification by the Company. The Purchasers' right to indemnification pursuant to Section 8.2 is subject to the following specific limitations: (a) The Purchasers shall not be entitled to assert any right of indemnification for any Claims and Damages pursuant to Section 8.2 after 18 months after the Closing Date, except as provided by Section 8.1. If written notice of a claim has been given prior to such expiration, then the relevant representations and warranties shall survive as to such claim until such claim has been finally resolved. (b) The Purchasers shall not be entitled to indemnification hereunder for any Claims and Damages pursuant to Section 8.2(i) until the aggregate losses, damages, or expenses suffered by the Purchaser in connection with such Claims and Damages exceed 32 $15,000,000 whereupon the Purchasers shall be entitled to indemnification hereunder for indemnification claims pursuant to Section 8.2(i) from the Company for all such Claims and Damages suffered by the Purchasers in excess of such amount; provided that in no event shall the Company be liable for such Claims and Damages in excess of $150,000,000 in the aggregate. Section 8.4. Indemnification by the Purchasers. The Purchasers, jointly and not severally, and JLL, on behalf of itself and jointly and severally with each other Purchaser, hereby agree to indemnify and hold harmless the Company, its successors and assigns, after the Closing Date from and against: (a) Any Claims and Damages asserted against or incurred by the Company and occasioned by, arising out of or resulting from any breach of the representations or warranties of the Purchasers that are set forth in this Agreement; and (b) Any Claims and Damages asserted against or incurred by the Company and occasioned by, arising out of or resulting from the Purchasers' failure to perform any of the Purchasers' obligations for which performance after the Closing is specifically required or contemplated under this Agreement. Section 8.5. Notice of Claims. Upon obtaining knowledge of any claim or demand which has given rise to, or could reasonably give rise to, a claim for indemnification hereunder, the party seeking indemnification ("Indemnitee") shall give written notice ("Notice of Claim") of such claim or demand to the other party ("Indemnitor"). Indemnitee shall furnish to Indemnitor in reasonable detail such information as Indemnitee may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). Subject to the time limitations set forth in Section 8.3 hereof, no failure or delay by Indemnitee in the performance of the foregoing shall reduce or otherwise affect the obligation of Indemnitor to indemnify and hold Indemnitee harmless, except to the extent that such failure or delay shall have adversely affected Indemnitor's ability to defend against, settle or satisfy any liability, damage, loss, claim or demand for which such Indemnitee is entitled to indemnification hereunder. The Seller and the Purchaser shall take reasonable actions to mitigate Claims and Damages. Section 8.6. Defense of Third Party Claims. If the claim or demand set forth in the Notice of Claim given by Indemnitee pursuant to Section 8.5 hereof is a claim or demand asserted by a third party, Indemnitor shall have 15 business days after the date on which such Notice of Claim is given by the Indemnitee to notify Indemnitee in writing of Indemnitor's election to defend such third party claim or demand on behalf of Indemnitee. If Indemnitor elects to defend such third party claim or demand, Indemnitee shall make available to Indemnitor and its agents and representatives all witnesses, 33 pertinent records, materials and information in the Indemnitee's possession or under the Indemnitee's control as is reasonably required by Indemnitor and shall otherwise cooperate with and assist Indemnitor in the defense of such third party claim in good faith. Indemnitee shall not pay, settle or compromise such third party claim or demand. If Indemnitor elects to defend such third party claim or demand, Indemnitee shall have the right to participate in the defense of such third party claim or demand, at Indemnitee's own expense. In the event, however, that the named parties to the action or proceeding include both Indemnitor and Indemnitee and Indemnitee reasonably determines that representation by counsel to Indemnitor of both Indemnitor and Indemnitee may present such counsel with a conflict of interest, then such Indemnitee may employ separate counsel to represent or defend it in any such action or proceeding and Indemnitor will pay the reasonable fees and disbursements of such counsel. If Indemnitor does not elect to defend such third party claim or demand or does not defend such third party claim or demand in good faith, Indemnitee shall have the right, in addition to any other right or remedy it may have hereunder, at Indemnitor's expense, to defend such third party claim or demand; provided that (i) Indemnitor shall not have any obligation to participate in the defense of, or defend, any such third party claim or demand; and (ii) Indemnitee's defense of or its participation in the defense of any such third party claim or demand shall not in any way diminish or lessen the obligations of Indemnitor under the agreements of indemnification set forth in this Article VIII. Section 8.7. Payment of Claims. Except for third party claims being defended in good faith, Indemnitor shall satisfy any undisputed obligations hereunder in cash within 30 days after the date of Notice of Claim is given by Indemnitee. Section 8.8. No Liability of Officers, Directors and Managers, Limitation on Remedies of Parties. Each Purchaser and the Company acknowledge and agree that it shall not assert any claims it may have arising from this Agreement against officers, directors, beneficiaries, managers, principals or agents of the other party or any affiliate of such party. Section 8.9. No Third Party Benefit. The rights to indemnification provided in this Agreement are intended solely for the benefit of the Purchasers, the Company, and their permitted successors and assigns, and are not intended to and shall not be construed as granting or creating a right to payment or indemnification to any other person. Without limiting the generality of the foregoing, no person providing insurance coverage to any Indemnitee shall have rights, whether of subrogation or otherwise, against the Indemnitor by virtue of this Agreement. Section 8.10. Definition. For purposes of this Article VIII, "Claims and Damages" shall mean any and all losses, claims, demands, liabilities, obligations, actions, suits, orders or proceedings asserted by any third party, person or entity, including but not limited to Governmental Entities, and all damages, costs, expenses, assessments, 34 judgments, recoveries and deficiencies, including interest, penalties, investigatory expenses, consultant's fees, and reasonable attorneys' fees and costs (including, without limitation, costs incurred in enforcing the indemnity), incurred by or awarded against a party for which a party is entitled to indemnification hereunder; provided that Claims and Damages shall expressly exclude punitive, exemplary, special or similar losses or damages. Section 8.11. Exclusive Remedy. After the Closing the sole and exclusive remedy of any party for any inaccuracy of any representation or warranty, or any breach of any agreement or obligation made in connection with this Agreement shall be the indemnification contained in this Article VIII. ARTICLE 9 MISCELLANEOUS Section 9.1. Notices. All notices and other communications hereunder shall be in writing and shall be effective upon receipt. Notice shall be given (i) by personal delivery to the appropriate address as set forth below (or at such other address for the party as shall be specified by like notice), (ii) by reliable overnight courier service to the appropriate address as set forth below (or at such other address for party as shall be specified by like notice), or (iii) by facsimile transmission to the appropriate facsimile number set forth below (or at such other facsimile number for party as shall be specified by like notice) with follow-up copy by reliable overnight courier service that next business day: (a) if to JLL or any other Purchaser, to: c/o Joseph Littlejohn & Levy Inc. 425 Lexington Avenue Suite 3350 New York, NY 10017 Attention: Ramsey Frank Telecopy: (212) 268-8686 with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attention: Steven Gross Telecopy: (212) 909-6836 35 (b) if to the Company to: Advance Paradigm, Inc. 545 E. John Carpenter Freeway, Ste. 1570 Irving, TX 75062 Telecopy: (972) 830-6008 Attention: General Counsel with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue, Suite 4100 Dallas, TX 75201 Telecopy: (214) 969-4343 Attention: J. Kenneth Menges, Jr., P.C. Section 9.2. Expenses. The Company shall pay and reimburse JLL for all its reasonable costs and expenses incident to this Agreement and the PCS Acquisition, including travel expenses of personnel of JLL and the legal and accounting fees and expenses of JLL; provided that in the event the Closing does not occur, the total reimbursement obligations of the Company may not exceed $750,000; provided further that if the Closing does not occur solely because of the breach by JLL of its obligations hereunder, the Company shall not be required to pay or reimburse JLL pursuant to this Section 9.2. Section 9.3. Entire Agreement; Assignment. (a) This Agreement, the other Transaction Documents and the documents and certificates delivered in connection herewith and therewith constitute the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. (b) This Agreement shall not be assigned by a party hereto by operation of law or otherwise; provided that (i) JLL may assign its rights and obligations hereunder to any other Purchaser, but no such assignment shall relieve JLL of its obligations hereunder if such assignee does not perform such obligations and JLL shall be jointly and severally liable with such assignee for the performance of its obligations hereunder, and (ii) the Company may assign its rights and obligations hereunder to any bank, financial institution or other lender providing financing to the Company as collateral for such financing. Section 9.4. Governing Law. This agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to any applicable 36 conflicts of law principles. The parties hereto expressly and irrevocably (i) consent to the exclusive jurisdiction of the federal courts sitting in the City of New York, County of New York, (ii) agree not to bring any action related to this agreement or the transactions contemplated hereby in any other court (except to enforce the judgment of such courts), (iii) agree not to object to venue in such courts or to claim that such forum is inconvenient and (iv) agree that notice or the service of process in any proceeding shall be properly served or delivered if delivered in the manner contemplated by Section 9.1. Final judgment by such courts shall be conclusive and may be enforced in any manner permitted by law. In addition, each of the parties hereto waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this agreement or any of the transactions contemplated hereby. Section 9.5. Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions contained in this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Section 9.6. Binding Nature; No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their permitted successors and assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person or persons any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. Section 9.7. Severability. This Agreement shall be deemed severable and the invalidity or unenforceability of any term or provision of this Agreement shall not affect the validity or enforceability of this Agreement or of any other term hereof, which shall remain in full force and effect. Section 9.8. Headings. The headings herein are inserted for convenience only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 9.9. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument. 37 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ADVANCE PARADIGM, INC. By: /s/David D. Halbert ------------------------------------------ Name: David D. Halbert Title: CEO JOSEPH LITTLEJOHN & LEVY FUND III, L.P. By its General Partner, JLL Associates, L.L.C. By: /s/Ramsey Frank ------------------------------------------ Name: Ramsey Frank, for Joseph Littlejohn & Levy Inc., Manager of JLL Associates, L.L.C. 38 SCHEDULE I Executive Officers* David Halbert Jon Halbert David George Danny Phillips Laurie Johansen Bob Horner J.P. Millon Thomas Garrity Susan deMars Jeff Sanders Ken Zadorian Mitch Henry Phil Pearce Richard Shinar Paul Banta Dan Sagedin Dough Stephens *Executive officers who are currently employees of PCS Holding Corporation or its subsidiaries to enter into agreements with, at the option of the Company, PCS Holding Corporation or the Company. i EX-2 3 0003.txt EXCHANGE AGREEMENT EXCHANGE AGREEMENT ------------------ EXCHANGE AGREEMENT, dated as of October 2, 2000, between Advance Paradigm, Inc., a Delaware corporation (the "Company"), and Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership ("JLL"). Recitals -------- A. The Company and JLL have entered into a Securities Purchase Agreement, dated as of July 11, 2000 ("Securities Purchase Agreement"), pursuant to which the Company has agreed to issue and sell to the Purchasers, and the Purchasers have agreed to subscribe to and purchase from the Company, an aggregate of (i) 65,854 shares of Series A Preferred for a purchase price of $1,000 per share and (ii) 84,146 shares of Series B Preferred for a purchase price of $1,000 per share. B. The parties desire to have the Company issue and sell to the Purchasers, in lieu of 84,146 shares of Series B Preferred, an aggregate of six shares of Series B Preferred and 4,207,000 shares of common stock, par value $0.01 per share (the "Common Stock"). C. Capitalized terms used but not defined in this Exchange Agreement, have the meanings specified in the Securities Purchase Agreement. NOW, THEREFORE, the parties agree as follows: Section 1. Purchase and Sale. ----------------- (a) Notwithstanding any provision to the contrary in the Securities Purchase Agreement, the Company shall issue and sell to the Purchasers, and the Purchasers shall subscribe to and purchase from the Company, at the Closing, an aggregate of: (i) 65,854 shares of Series A Preferred for a purchase price of $1,000 per share; (ii) six shares of Series B Preferred for a purchase price of $1,000 per share; and (iii) 4,207,000 shares of Common Stock for an aggregate purchase price of $84,140,000 (such 4,207,000 shares of Common Stock being referred to herein as the "Exchange Shares"). (b) Except as expressly set forth in this Exchange Agreement, all terms of the Securities Purchase Agreement shall be and remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of the Company and JLL. Section 2. Purchaser's Exchange Rights. --------------------------- (a) Prior to the second anniversary hereof, each Purchaser has the right (the "Purchaser Exchange Right"), at any time and from time to time (provided that the Company shall not be prohibited by applicable law from effecting such exchange), to exchange 50 Exchange Shares for one share of Series B Preferred (the "Exchange Ratio"). Each Purchaser may exercise its Purchaser Exchange Right by delivering to the Company the certificate or certificates representing such Exchange Shares, accompanied by a written notice specifying that the Purchaser is exercising the Purchaser Exchange Right and the number of Exchange Shares to be exchanged; provided that (i) at any exchange, the Purchasers may only elect to exchange the number of Exchange Shares that equals 50 or a multiple of 50, and (ii) only the Exchange Shares, and no other shares of Common Stock, may be exchanged pursuant to the Purchaser Exchange Right. (b) Upon receipt by the Company of the notice and certificates referred to in Section 2(a), the Exchange Shares being exchanged shall be automatically exchanged into Series B Preferred, without any further action by the Purchaser or the Company. The Company shall issue and deliver to the Purchaser exercising the Purchaser Exchange Right a certificate or certificates representing the shares of Series B Preferred for which the Exchange Shares are to be exchanged. Section 3. Automatic Exchange. Immediately following receipt of the Requisite Stockholder Approval but prior to the filing of an amended and restated certificate of incorporation approved in the Requisite Stockholder Approval (the "Restated Charter"), all Exchange Shares shall be automatically exchanged into shares of Series B Preferred at the Exchange Ratio, without any further action by any Purchaser or the Company, and the Company shall deliver to the Purchasers (i) a certificate or certificates representing the shares of Series B Preferred for which the Exchange Shares are so exchanged, or (ii) if, prior to the delivery of certificates for Series B Preferred, the shares of Series B Preferred have been converted into Class B Common Stock pursuant to the Restated Charter, a certificate or certificates representing the shares of Class B Common Stock into which the shares of Series B Preferred have been converted. Section 4. Reservation of Shares. The Company will at all times reserve for issuance such number of shares of Series B Preferred as may be issuable upon exercise of all of the Purchaser Exchange Rights or the receipt of Requisite Stockholder Approval, as the case may be. Section 5. Stock Certificates. Certificates representing shares of Series B Preferred will be deemed to have been issued, and the relevant Purchaser will be deemed to have become a holder of record of such shares of Series B Preferred, as of the date of exercise of the Purchaser Exchange Right or the receipt of Requisite Stockholder Approval, as the case may be. Section 6. Permitted Transferees. Upon the transfer of any Exchange Shares by a Purchaser to any of its Permitted Transferees (as defined in the Series B Certificate of Designations), the provisions of this Exchange Agreement will enure to the benefit of the Permitted Transferee so long as (i) the Permitted Transferee delivers a letter to the 2 Company agreeing that the Exchange Shares transferred to the Permitted Transferee are subject to the provisions of this Exchange Agreement and the Stockholders' Agreement, and (ii) such transfer is permitted by, and is in accordance with, Section 4.2 of the Stockholders' Agreement, whereupon such Permitted Transferee shall become a "Purchaser" under this Agreement and an "Investor" under the Stockholders' Agreement with all the rights and obligations of a Purchaser hereunder and an Investor thereunder as if an original party hereto and thereto. The provisions of this Agreement shall cease to apply, and shall be of no force or effect, with respect to any Exchange Share that is transferred to a Person other than a Permitted Transferee of a Purchaser. Section 7. Exchange Ratio. The Exchange Ratio and number of Exchange Shares specified in this Agreement shall be equitably adjusted for any stock dividends or distributions, subdivisions, combinations or consolidations of the shares of Common Stock as may be required to carry out the intent and purposes of this Agreement. Section 8. Voting Rights. Each Purchaser shall cause the Exchange Shares of such Purchaser to be present or represented at any meeting of stockholders of the Company at which such Exchange Shares are entitled to vote and to be counted for quorum purposes at such meeting, except that such Purchaser may not vote (or grant a proxy to any other person to vote), and shall abstain from voting, such Exchange Shares on any vote of the Company's stockholders for the election or removal of directors. Section 9. Legends. Each certificate representing Exchange Shares shall bear a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE EXCHANGE AGREEMENT, DATED AS OF OCTOBER 2, 2000, BETWEEN ADVANCE PARADIGM, INC. AND JOSEPH LITTLEJOHN & LEVY FUND III, L.P. A COPY OF SUCH EXCHANGE AGREEMENT IS ON FILE WITH THE SECRETARY OF ADVANCE PARADIGM, INC. AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST THEREFOR. Section 10. Amendment to Section 3.2 of the Securities Purchase Agreement. (a) The parties agree that Section 3.2(a) of the Securities Purchase Agreement is hereby deleted in its entirety and replaced with the following provision: As of the Closing Date, the issuance, sale and delivery of the Preferred Stock and Common Stock under this Agreement have been duly authorized by all requisite corporate action of the Company, and the shares 3 of Preferred Stock issued to the Purchasers in accordance with the Certificate of Designations and the shares of Common Stock issued to the Purchasers, when issued and delivered at the Closing in accordance with the terms of this Agreement will be validly issued and outstanding, fully paid and non-assessable free and clear of any Liens and not subject to preemptive or other similar rights of the stockholders of the Company. (b) The parties agree that the following provision to Section 3.2 of the Securities Purchase Agreement is hereby inserted as subsection (c) thereof: As of the Closing Date, the shares of Series B Preferred Stock, when issued in exchange for shares of Common Stock upon exercise of a Purchaser's Exchange Right or upon the receipt of the Requisite Stockholder Approval, as the case may be, will be validly issued and outstanding, fully paid and non-assessable free and clear of any Liens and not subject to preemptive or other similar rights of the stockholders of the Company. 4 IN WITNESS WHEREOF, the parties have caused this Exchange Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ADVANCE PARADIGM, INC. By: /s/ T. Danny Phillips --------------------------------- Name: T. Danny Phillips Title: Secretary JOSEPH LITTLEJOHN & LEVY FUND III, L.P., for itself and as the Purchaser Representative By its General Partner, JLL ASSOCIATES, L.L.C. By: /s/ Ramsey Frank --------------------------------- Name: Ramsey Frank Title: Senior Managing Director 5 EX-3 4 0004.txt CERTIFICATE OF DESIGNATIONS OF SERIES A-1 11% PREFERRED STOCK CERTIFICATE OF DESIGNATIONS of Series A-1 11% Preferred Stock of ADVANCE PARADIGM, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware ADVANCE PARADIGM, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in its Amended and Restated Certificate of Incorporation (as may be amended from time to time, the "Certificate of Incorporation"), the Board of Directors of the Corporation (the "Board of Directors") has duly adopted the following resolutions: WHEREAS, Article IV of the Certificate of Incorporation authorizes the issuance by the Corporation, from time to time, of 5,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), in one or more series or classes, having such powers, designations, preferences and relative, participating, optional and other special rights, including voting rights, and qualifications, limitations and restrictions as the Board of Directors determines; WHEREAS, pursuant to Article IV of the Certificate of Incorporation and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors has adopted the following resolutions creating a series of its Preferred Stock; RESOLVED, that a series of authorized Preferred Stock of the Corporation be, and it hereby is, created and that the powers, designations, preferences and relative, participating, optional and other special rights, including voting rights, and qualifications, limitations and restrictions of such series of Preferred Stock are as follows: Section 1. Designation and Number. (a) Such series of Preferred Stock is designated as Series A-1 11% Preferred Stock (the "Series A-1 Preferred Stock"), and the number of shares constituting such series is 517,573 shares. A total of 65,854 shares of Series A-1 Preferred Stock shall be initially issued, and 451,719 shares of Series A-1 Preferred Stock shall be reserved for issuance in accordance with Section 4(a) and may not be issued for any other purpose. (b) Shares of Series A-1 Preferred Stock issued and reacquired in any manner by the Corporation, including by purchase or redemption, shall (upon compliance with any applicable provisions of DGCL) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock other than as Series A-1 Preferred Stock. Section 2. Definitions. The following terms, as used in this Certificate of Designations, shall have the following meanings: "Additional Series A-1 Shares" has the meaning set forth in Section 4(a)(i). "Additional Shares of Common Stock" means all shares of Common Stock issued or sold by the Corporation after the Issue Date, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock: (i) issued upon the conversion or exchange of any series or class of Capital Stock issued and outstanding on the Issue Date into another series or class of Capital Stock of the Corporation without any additional consideration to the Corporation by the holder thereof; (ii) issued upon conversion of any shares of Series A Preferred Stock or Series B Preferred Stock into any class or series of Common Stock; (iii) issued upon conversion of any shares of Class B Common Stock into Regular Common Stock; (iv) issued upon the exercise of options or warrants that have been issued prior to, and are outstanding as of, the Issue Date; (v) issued upon exercise of options granted prior to the 120th day following the Issue Date to employees, consultants, officers or directors of the Corporation pursuant to any stock option plan in effect on the Issue Date and consistent with past practice, but in any event not in excess of 25,000 shares of Common Stock during such 120-day period; (vi) issued prior to the 120th day following the Issue Date to customers in the ordinary course of business consistent with past practice, but in any event not in excess of 25,000 shares of Common Stock during such 120-day period; (vii) issued upon exercise of the Senior Subordinated Notes Warrants; and (viii) issued upon exercise of the Management Options. "Affiliate" means, with respect to any specified Person, any other Person which, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such specified Person. Control of any Person shall consist of the power to direct the management and policies of such Person (whether through the ownership of voting securities, by contract, as trustee or otherwise) and shall be deemed to exist upon the ownership of securities entitling the holder thereof to exercise more than 20% of the voting power in the election 2 of directors of such Person (or other persons or bodies performing similar functions). "Board of Directors" has the meaning set forth in the Preamble hereto. "Business Day" means any day except Saturday, Sunday and any day on which banking institutions in New York City, New York generally are authorized or required by law or other governmental action to be closed. "Capital Stock" means (i) all shares, interests, participations or other equivalents (however designated) of capital stock of the Corporation, including each class or series of Common Stock or Preferred Stock, and (ii) any option, warrant or other arrangement representing the right to purchase or otherwise acquire any of the foregoing, including any securities convertible or exchangeable into any of the foregoing. "Certificate of Incorporation" has the meaning set forth in the Preamble hereto. "Change of Control" means the occurrence of either of the following: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Excluded Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total issued Common Stock or total issued Voting Stock of the Corporation; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Class A and Class C Directors (together with any new Class A or Class C Directors whose election by the Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by a vote of a majority of the Class A and Class C Directors then still in office who were either Class A or Class C Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease to constitute a majority of the Class A and Class C Directors then in office. "Class A Directors" means (i) prior to the Restated Charter Effectiveness, the Directors referred to as "Class A Directors" in the Stockholders' Agreement, and (ii) following the Restated Charter Effectiveness, the Directors referred to as "Class A Directors" in the Restated Certificate of Incorporation. "Class B Common Stock" means the Class B-1 Common Stock and the Class B-2 Common Stock. 3 "Class B-1 Common Stock" means the Class B-1 Common Stock to be created as a separate class of Common Stock upon the Restated Charter Effectiveness pursuant to the Restated Certificate of Incorporation. "Class B-1 Directors" means the Directors (i) designated initially by holders of Series B Preferred Stock pursuant to the Series B Certificate of Designations and (ii) following the Restated Charter Effectiveness, elected by holders of Class B-1 Common Stock pursuant to the Restated Certificate of Incorporation. "Class B-2 Common Stock" means the Class B-2 Common Stock to be created as a separate class of Common Stock upon the Restated Charter Effectiveness pursuant to the Restated Certificate of Incorporation. "Class B-2 Directors" means the Directors (i) designated initially by holders of Series A-2 Preferred Stock pursuant to the Series A-2 Certificate of Designations and (ii) following the Restated Charter Effectiveness, elected by holders of Class B-2 Common Stock pursuant to the Restated Certificate of Incorporation. "Class C Directors" means (i) prior to the Restated Charter Effectiveness, the Directors referred to as "Class C Directors" in the Stockholders' Agreement and (ii) following the Restated Charter Effectiveness, the Directors referred to as "Class C Directors" in the Restated Certificate of Incorporation. "Common Stock" means the common stock, par value $0.01 per share, of the Corporation, whether voting or non-voting, of any series or class (including Regular Common Stock and, following the Restated Charter Effectiveness, the Class B Common Stock). "Consolidated Cash Flow" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Consolidated Interest Expense" means, with respect to any specified Person for any period, the sum, without duplication, of: (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with capital lease obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings and net of the effect of all payments made or received pursuant to hedging obligations and excluding amortization of deferred financing costs, plus (ii) the consolidated interest of such Person and its Subsidiaries that 4 was capitalized during such period, plus (iii) any interest expense on Indebtedness of another Person that is guaranteed by that Person or any of its Subsidiaries or secured by a mortgage, lien, pledge, charge, encumbrance or other security interests on assets of such Person or any of its Subsidiaries. "Conversion" has the meaning set forth in Section 7(a). "Conversion Date" means the first date on which any certificates for shares of Series A-1 Preferred Stock are surrendered by the Electing Holder to the Corporation for conversion into Class B-1 Common Stock. "Conversion Price" has the meaning set forth in Section 7(b). "Conversion Ratio" has the meaning set forth in Section 7(b). "Convertible Securities" means any evidences of indebtedness, shares (other than shares of Regular Common Stock) or other securities that, by their terms, are directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. For avoidance of doubt, it is stipulated that the following are not Convertible Securities: (i) shares of Series A Preferred Stock issued as a dividend on shares of Series A Preferred Stock; and (ii) shares of Series B Preferred Stock issued in accordance with the JLL Exchange Agreement. "Corporation" has the meaning set forth in the Preamble hereto. "Current Market Price" means, as of any date, the average of the daily Market Prices of the Regular Common Stock for twenty consecutive trading days immediately preceding such date. "DGCL" means the General Corporation Law of the State of Delaware. "Director" means a member of the Board of Directors. "Dividend Payment Date" means March 31st, June 30th, September 30th and December 31st of each year, unless such day is not a Business Day, in which case Dividend Payment Date shall be the next succeeding Business Day. "Dividend Period" means (i) the period beginning on the Dividend Start Date and ending on the first Dividend Payment Date, and (ii) thereafter, the quarterly periods from (and including) the first day of a Dividend Period until the end of such period. "Dividend Rate" means, with respect to any share of Series A-1 Preferred Stock, (i) from (and including) the Dividend Start Date to (and including) 5 September 30, 2001, a rate per annum equal to 11% of the Liquidation Preference for such share as of the first day of the applicable Dividend Period, (ii) from (and including) October 1, 2001 to (and including) March 31, 2002, a rate per annum equal to thirteen percent (13%) of the Liquidation Preference for such share as of the first day of the applicable Dividend Period, and (iii) from (and including) and after April 1, 2002, a rate per annum equal to 16% of the Liquidation Preference for such share as of the first day of the applicable Dividend Period. "Dividend Start Date" means the 120th day following the Issue Date. "Electing Holder" has the meaning given in Section 7(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Excluded Holders" means (i) the Corporation and its Subsidiaries, (ii) the Principals and the Related Parties of the Principals, (iii) the Permitted Transferees, and the Affiliates of Permitted Transferees, (iv) the holders of shares of Series A-2 Preferred Stock and Series B Preferred Stock on the Issue Date and the "Permitted Transferees" (as defined in the Series A-2 Certificate of Designations or the Series B Certificate of Designations, as the case may be) and the Affiliates of the Persons referred in this clause (iv), and (v) any Person permitted or required to receive shares of Series B Preferred Stock pursuant to the JLL Exchange Agreement, the "Permitted Transferees" (as defined in the Series B Certificate of Designations) of such Persons (assuming that they are holders of Series B Preferred Stock), and the Affiliates of the Persons referred to in this clause (v). "GAAP" means accounting principles and practices generally accepted from time to time in the United States as in effect on the Issue Date. "Holder" means a record holder of shares of Series A-1 Preferred Stock. "Indebtedness" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Interest Coverage Ratio" means, as of any determination date, the ratio of Consolidated Cash Flow to Consolidated Interest Expense during the four-quarter period of the most recent four consecutive fiscal quarters ending prior to such determination date. In the event of any incurrence, assumption, guarantee, repayment, repurchase or redemption of any Indebtedness (other than ordinary working capital borrowings, excluding borrowings under the Senior Credit Facility) subsequent to the commencement of the period for which the Interest Coverage Ratio is being calculated and on or prior to the date or event for which 6 the calculation of the Interest Coverage Ratio is made (the "Calculation Date"), then the Interest Coverage Ratio shall be calculated giving effect to the incurrence, assumption, guarantee, repayment, repurchase or redemption of such Indebtedness, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter period. "Issue Date" means the original date of issuance of shares of Series A-1 Preferred Stock. "JLL" has the meaning set forth in Section 12. "JLL Exchange Agreement" means the Exchange Agreement dated as of the Issue Date between the Corporation and Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership, relating to the exchange of shares of Regular Common Stock into shares of Series B Preferred Stock, as the same may be amended, supplemented or restated from time to time. "Junior Stock" means (i) prior to the Restated Charter Effectiveness, the securities referred to in clause (i) of Section 3(a), and (ii) following the Restated Charter Effectiveness, the securities referred to in clause (i) of Section 3(b), in each case subject to Section 3(c). "Liquidation Event" means any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. "Liquidation Preference" means, for each share of Series A-1 Preferred Stock as of any date, (i) $1,000, plus (ii) in the case of any accumulated and unpaid dividends or distributions on such share as of such date payable in Additional Series A-1 Shares, (A) the number of such Additional Series A-1 Shares times $1,000 plus (B) the amounts referred to in clauses (iii) and (iv) of this definition for the accumulated and unpaid dividends thereon, (iii) all accumulated and unpaid cash dividends and distributions on such share as of such date, plus (iv) the Market Price of all other accumulated and unpaid dividends and distributions on such share as of such date (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for redemption, liquidation, dissolution or winding up, if any). "Management Options" means options to purchase up to an aggregate of 1,790,000 shares of Common Stock at an initial exercise price of $20 per share issued to officers and employees on or before the Issue Date. For purposes of this Certificate of Designations, the Management Options shall be deemed issued before the Issue Date. 7 "Mandatory Redemption Obligation" means the Corporation's redemption obligation set forth in Section 6. "Mandatory Redemption Price" has the meaning set forth in Section 6(a). "Market Price" means: (a) with respect to any security, on any given day, (i) if such security is listed or authorized for trading on a national securities exchange, the last sale price of such security, regular way, on such date, or if no such sale takes place on such date, the average of the closing bid and asked prices thereof, on such date, in each case as officially reported on the principal national securities exchange on which such security is listed or authorized for trading, (ii) if such security is not listed or authorized for trading on a national securities exchange but is quoted on the Nasdaq National Market, (A) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (B) if such security is so traded, but no such last trade information is reported, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, (iii) if such security is not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system but has a nationally recognized existing trading market, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose or (iv) if such security is not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system and does not have a nationally recognized existing trading market, the fair value of such security as (A) determined by an agreement between the Corporation and the Holders of a majority of the outstanding shares of Series A-1 Preferred Stock or (B) if the Corporation and such Holders fail to agree, determined jointly by an independent investment banking firm retained by the Corporation and by an independent investment banking firm retained by such Holders, or (C) if the Corporation or such Holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Corporation or such Holders, as the case may be, determined solely by the firm so retained or (D) if the firms so retained by the Corporation and by such Holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms; and (b) with respect to any other asset or property, the fair market value of such asset or property as (i) determined by an agreement between the Corporation and the Holders of a majority of the outstanding shares of Series A-1 Preferred Stock or (ii) if the Corporation and such Holders fail to agree, determined jointly by an independent investment banking firm retained by the Corporation and by an independent investment banking firm retained by such Holders, or (iii) if the Corporation or such Holders 8 shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Corporation or such Holders, as the case may be, determined solely by the firm so retained or (iv) if the firms so retained by the Corporation and by such Holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms. "New Securities" means (a) prior to the Restated Charter Effectiveness, any Capital Stock issued after the Issue Date, and (b) after the Restated Charter Effectiveness, any Capital Stock issued after such effectiveness by the Corporation for cash consideration, in each case other than (i) Capital Stock issued upon the conversion or exchange of any series or class of Capital Stock issued and outstanding on the Issue Date into another series or class of Capital Stock of the Corporation without any additional consideration to the Corporation by the holder thereof; (ii) Capital Stock issued upon conversion of any shares of Series A Preferred Stock or Series B Preferred Stock into any class or series of Common Stock; (iii) Regular Common Stock issued upon conversion of Class B Common Stock; (iv) shares of Series A Preferred Stock issued as a dividend on shares of Series A Preferred Stock; (v) dividends or distributions payable in shares of Capital Stock effected in accordance with Section 4(b) or 8(a); (vi) Capital Stock issued upon the exercise of options or warrants that have been issued prior to, and are outstanding as of, the Issue Date; (vii) Capital Stock issued to employees, consultants, officers or directors of the Corporation pursuant to any stock option plan in effect on the Issue Date and consistent with past practice or pursuant to a stock option plan adopted after the Issue Date; (viii) Capital Stock issued to holders of Series A-2 Preferred Stock or Series B Preferred Stock pursuant to the exercise by such holders of their preemptive rights contained in the Series A-2 Certificate of Designations or the Series B Certificate of Designations, as the case may be; (ix) Capital Stock issued upon exercise of the Senior Subordinated Notes Warrants; (x) Common Stock issued upon the exercise of Management Options; (xi) Capital Stock issued to customers in the ordinary course of business consistent with past practice, subject to a maximum amount, in any fiscal year of the Corporation, equal or equivalent to (A) 0.5% of the weighted average number of issued and outstanding shares of Common Stock during such fiscal year plus (B) the number of shares permitted under clause (A) for any fiscal year ending after the Issue Date but not previously expended; and (xii) shares of Series B Preferred Stock issued in accordance with the JLL Exchange Agreement. "Non-Class B Director" means any Director who is neither a Class B-1 Director nor a Class B-2 Director. 9 "Options" means rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. For avoidance of doubt, it is expressly stipulated that the following are not Options: (i) any rights, options or warrants to subscribe for, purchase or otherwise acquire shares of Common Stock referred to in clause (v) or (vi) of the definition of Additional Shares of Common Stock; and (ii) any right or option to acquire shares of Series B Preferred Stock pursuant to the JLL Exchange Agreement. "Parity Stock" means (i) prior to the Restated Charter Effectiveness, the securities referred to in clause (ii) of Section 3(a) and (ii) following the Restated Charter Effectiveness, the securities referred to in clause (ii) of Section 3(b), in each case subject to Section 3(c). "Permitted Transferee" has the meaning set forth in Section 12. "Person" means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. "Preemptive Rights Notice" has the meaning given in Section 9(a). "Preemptive Rights Portion" has the meaning given in Section 9(a). "Preferred Stock" has the meaning set forth in the Preamble hereto. "Principals" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Record Date" means, with respect to a dividend payable on March 31, June 30, September 30 and December 31 of each year, 5:00 p.m. (Eastern Standard Time) on the preceding March 15, June 15, September 15 and December 15, respectively. "Redemption Date" has the meaning given in Section 6(b). "Redemption Notice" has the meaning set forth in Section 6(b). "Related Parties" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Regular Common Stock" means (i) initially, the class of Common Stock existing on the Issue Date, and (ii) upon the Restated Charter Effectiveness, the Class A Common Stock created as a separate class of Common Stock pursuant to the Restated Certificate of Incorporation. 10 "Restated Certificate of Incorporation" means the Second Amended and Restated Certificate of Incorporation of the Corporation in the form attached as Exhibit B to the Stockholders' Agreement (as the same may from time to time be amended (x) prior to the Restated Charter Effectiveness, pursuant to the Stockholders' Agreement, and (y) after the Restated Charter Effectiveness, pursuant to such Restated Certificate of Incorporation and the DGCL), to be submitted for Stockholder Approval and following Stockholder Approval filed according to the DGCL with the Secretary of State of the State of Delaware. "Restated Charter Effectiveness" means the date of the filing of the Restated Certificate of Incorporation with the Secretary of State of the State of Delaware in accordance with the DGCL following Stockholder Approval. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Credit Facility" means the credit facilities evidenced by, and the loans and borrowings extended to the Corporation pursuant to the $825 million Senior Credit Agreement, dated on or about the Issue Date, among the Corporation, as borrower the subsidiary guarantors parties thereto, the initial lenders, initial issuing bank and swing line bank named therein, Bank of America, N.A., as Collateral Agent and Administrative Agent, Bank One, N.A., as Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Book-Runner, Lead Arranger and Syndication Agent, and Bank of America Securities LLC, as Joint Book-Runner and Joint Lead Arranger, and any one or more deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto or replacements thereof (including, without limitation, any amendment increasing the amount that may be borrowed thereunder) and any agreement providing therefor whether by or with respect to the same or any other agents, lenders, creditors or group of creditors (or any combination thereof) and including related notes, guarantee agreements, security agreements and other instruments executed in connection therewith. "Senior Stock" means the securities referred to in clause (iii) of Section 3(b), subject to Section 3(c). "Senior Subordinated Notes" means the Corporation's Senior Subordinated Notes due 2010 issued on or about the Issue Date in the initial principal amount of $200,000,000 (the "initial notes") and any notes registered under the Securities Act that are issued in exchange for such notes and any deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments or supplements thereto or replacements thereof. 11 "Senior Subordinated Notes Indenture" means the Indenture, dated as of October 2, 2000, between the Corporation and U.S. Trust of Texas, N.A., as trustee pursuant to which the Corporation's Senior Subordinated Notes due 2010 in the initial principal amount of $200,000,000 are issued, as the same may be amended from time to time. "Senior Subordinated Notes Warrants" means the warrants to purchase Regular Common Stock issued on or about the Issue Date to Rite Aid Corporation. For purposes of this Certificate of Designations, the Senior Subordinated Notes Warrants shall be deemed to have been issued before the Issue Date. "Series A Preferred Stock" means the Series A-2 Preferred Stock and Series A-1 Preferred Stock. "Series A Certificates of Designations" means the Series A-2 Certificate of Designations and this Certificate of Designations. "Series A-2 Certificate of Designations" means (i) initially, the Certificate of Designations for the Series A-2 Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on or about the Issue Date, and (ii) following the Restated Charter Effectiveness, Exhibit A to the Restated Certificate of Incorporation, in each case, as amended, supplemented or restated from time to time. "Series A-2 Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series A-2 11% Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and other special rights and qualifications, limitations and restrictions set forth in the Series A-2 Certificate of Designations. "Series A-1 Preferred Stock" has the meaning set forth in Section 1. "Series B Certificate of Designations" means (i) initially the Certificate of Designations for the Series B Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on or about the Issue Date, and (ii) following the Restated Charter Effectiveness, Exhibit C to the Restated Certificate of Incorporation, in each case, as amended, supplemented or restated from time to time. "Series B Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series B Convertible Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and 12 other special rights and qualifications, limitations and restrictions set forth in the Series B Certificate of Designations. "Stockholder Approval" means the approval by the stockholders of the Corporation of the adoption of the Restated Certificate of Incorporation and of the authorization and issuance of the Class B Common Stock to be issued to the Holders and the holders of the Series A-2 Preferred Stock and Series B Preferred Stock in accordance with the terms of this Certificate of Designations, the Series A-2 Certificate of Designations and the Series B Certificate of Designations. "Stockholders' Agreement" means the Stockholders' Agreement, dated on or about the Issue Date, among the Corporation, Joseph Littlejohn & Levy Fund III, L.P., Rite Aid Corporation and the other Persons named therein, as the same may be amended, supplemented or restated from time to time "Subsidiary" means, with respect to any specified Person: (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by a Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (A) the sole general partner or the managing general partner of which is the Person or a Subsidiary of that Person or (B) the only general partners of which are the Person or one or more Subsidiaries of that Person (or any combination thereof). "Transfer" means any direct or indirect (including, without limitation, through the transfer of a controlling interest in a Permitted Transferee) sale, transfer, assignment, grant of participation interest in, option, pledge, hypothecation, encumbrance or other disposition. "Voting Stock" means, with respect to any Person, the Capital Stock of any class or kind ordinarily having the power to vote generally for the election of directors (or other persons or bodies performing similar functions) of such Person. Section 3. Rank. (a) Prior to the Restated Charter Effectiveness. Prior to and until the Restated Charter Effectiveness, the Series A-1 Preferred Stock shall, with respect to dividends and distributions and upon a Liquidation Event, rank: (i) senior to (A) all classes or series of Common Stock and (B) each other class or series of Capital Stock of the Corporation created after the Issue Date and prior to the Restated Charter Effectiveness; and 13 (ii) on a parity with the Series A-2 Preferred Stock and the Series B Preferred Stock. (b) Following the Restated Charter Effectiveness. Upon and following the Restated Charter Effectiveness, the Series A-1 Preferred Stock shall, with respect to dividends and distributions and upon a Liquidation Event, rank: (i) senior to all classes or series of Common Stock; (ii) on a parity with the Series A-2 Preferred Stock; (iii) junior to each series or class of Preferred Stock created after the Restated Charter Effectiveness. (c) The respective definitions of Junior Stock, Parity Stock and Senior Stock shall also include any options, warrants or other rights exercisable or exchangeable for or convertible into any of the Junior Stock, Parity Stock or Senior Stock, as the case may be. Section 4. Dividends. (a) Prior to the Restated Charter Effectiveness. Prior to and until the Restated Charter Effectiveness: (i) Beginning on the Dividend Start Date, the Holders of outstanding shares of Series A-1 Preferred Stock shall be entitled to receive (if and to the extent of surplus legally available therefor), dividends at the Dividend Rate payable solely in additional shares of Series A-1 Preferred Stock ("Additional Series A-1 Shares") in accordance with the terms of this Section 4. Following the Dividend Start Date, such dividends shall be payable quarterly in arrears on each Dividend Payment Date for the Dividend Period ending on such Dividend Payment Date. Dividends on the Series A-1 Preferred Stock shall accrue (whether or not declared) and be cumulative from (and including) the first day of each Dividend Period in which dividends may be payable, and accrued dividends for each Dividend Period shall accumulate to the extent not paid on the Dividend Payment Date for such Dividend Period; provided that dividends on Additional Series A-1 Shares shall accrue from (and including) the date such Additional Series A-1 Shares are issued pursuant to this Section 4(a), whether or not in any Dividend Period there shall be surplus of the Corporation legally available for the payment of such dividends. Each such dividend shall be payable to the Holders of shares of Series A-1 Preferred Stock on the corresponding Record Date. (ii) The amount of dividends payable for each full Dividend Period for the Series A-1 Preferred Stock shall be computed by dividing the applicable Dividend Rate by four. The amount of dividends payable for any period shorter 14 or longer than a full Dividend Period, shall be computed on the basis of twelve 30-day months and a 360-day year. Holders of shares of Series A-1 Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of cumulative dividends as herein provided. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment on the Series A-1 Preferred Stock that may be in arrears; except that if dividends are not paid in full on any Dividend Payment Date, dividends will cumulate as if the unpaid dividends were payable in cash and the Liquidation Preference had been increased by the amount of unpaid dividends until paid. (iii) Dividends on the shares of Series A-1 Preferred Stock pursuant to this Section 4(a) shall continue to accrue and accumulate until full cumulative dividends (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to (but not including) the date of the Restated Charter Effectiveness) have been declared and paid on the Series A-1 Preferred Stock for all Dividends Periods terminating prior to the date of the Restated Charter Effectiveness; provided that such dividends shall cease to accrue or accumulate on (but not including) the date of the Restated Charter Effectiveness. (iv) The number of Additional Series A-1 Shares to be issued as dividends pursuant to this Section 4(a) will equal the cash amount of the dividend that would have been payable on a share of Series A-1 Preferred Stock if dividends were payable in cash, divided by $1,000, rounded to the nearest full share, up or down, after taking into account all shares of Series A-1 Preferred Stock owned by the Holder thereof, provided that if the resulting fractional share held by such Holder equals one-half of a share of Series A-1 Preferred Stock, such fractional share shall be rounded up to the nearest full share. (v) Accrued dividends for any past Dividend Periods may be declared and paid on any subsequent Dividend Payment Date or any other date established by the Board. (b) Following the Restated Charter Effectiveness. Upon and following the Restated Charter Effectiveness, in the event the Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any dividend or distribution on shares of any class or series of Common Stock (other than any dividend or distribution payable in shares of Common Stock effected in accordance with Section 8(a)), then and in each such event each Holder shall be entitled to receive the amount of such dividend or distribution that such Holder would have received had its shares of Series A-1 Preferred Stock been converted into Class B Common Stock pursuant to Section 7 immediately prior to the record date for such dividend or distribution. 15 (c) Dividends or Distributions on Parity Stock. So long as any shares of the Series A-1 Preferred Stock are outstanding, (i) no dividend or distribution may be declared or paid or set apart for payment on any Parity Stock by the Corporation, directly or indirectly, unless (A) such dividend or distribution is required by the terms of such Parity Stock pursuant to the certificate of designations for such Parity Stock (or other instrument pursuant to which such Parity Stock was created and setting forth the powers, designations, preferences and other special rights and qualifications, limitations and restrictions of such Parity Stock) as in effect on the initial issuance of such Parity Stock, and (B) all accumulated and unpaid dividends and distributions due to be paid on the Series A-1 Preferred Stock, and any redemption payments required by Section 6, have been or are contemporaneously paid or are being paid on a pro rata basis with any such Parity Stock, and (ii) except as otherwise provided in Section 6(f), no Parity Stock may be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available to a sinking fund for the redemption of any shares of such stock) by the Corporation directly or indirectly, unless (A) all accumulated and unpaid dividends and distributions due to be paid on the Series A-1 Preferred Stock, and any redemption payments required by Section 6, have been or are contemporaneously paid, and (B) such redemption, purchase or acquisition is required by the certificate of designations for such Parity Stock (or other instrument pursuant to which such Parity Stock was created and setting forth the powers, designations, preferences and other special rights and qualifications, limitations and restrictions of such Parity Stock) as in effect on the initial issuance of such Parity Stock. (d) Dividends or Distributions on Junior Stock. So long as any shares of Series A-1 Preferred Stock are outstanding, no dividends or other distribution may be declared or paid or set apart for payment on any Junior Stock, nor may any Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly, other than (i) a redemption, purchase or other acquisition of shares of Common Stock made solely pursuant to the terms of an employee incentive or benefit plan of the Corporation or its Subsidiaries, (ii) dividends or distributions on shares of Common Stock effected solely in accordance with Section 4(b) or 8(g), and (iii) dividends or distributions made solely in Junior Stock effected in accordance with Section 8(a). Section 5. Liquidation Rights. (a) Upon the occurrence of a Liquidation Event, subject to the rights of holders of Senior Stock and Parity Stock, each Holder shall be entitled to be paid, before any distribution is made on any Junior Stock, out of the assets of the Corporation available for distribution to its stockholders an amount per share in cash equal to the greater of (i) the Liquidation Preference, as of the date fixed for the Liquidation Event, for each outstanding share of Series A-1 Preferred Stock held by such Holder and (ii) the 16 amount such Holder would have received upon such final distribution if all outstanding shares of Series A-1 Preferred Stock had been converted into shares of Common Stock pursuant to Section 7 (assuming that (A) the Restated Charter Effectiveness has occurred and (B) all outstanding shares of Series A-2 Preferred Stock and Series B Preferred Stock had been converted into shares of Common Stock pursuant to the Series A-2 Certificate of Designations and the Series B Certificate of Designations, respectively, immediately prior to such Liquidation Event). (b) If the assets distributable in any such Liquidation Event to the Holders and to the holders of outstanding shares of all Parity Stock are insufficient to permit the payment to such holders of the full preferential amounts to which they may be entitled, such assets shall be distributed ratably among the holders of the outstanding shares of Series A-1 Preferred Stock and Parity Stock in proportion to the full preferential amount each such holder would otherwise be entitled to receive. (c) For purposes of this Section 5, a Liquidation Event shall, at the election of the Holders of a majority of the outstanding shares of Series A-1 Preferred Stock, voting separately as a single class, include (i) the consolidation or merger of the Corporation into any other corporation or entity if the Corporation is not the continuing or surviving corporation or entity of such consolidation or merger, (ii) the consolidation or merger of any other corporation or entity into the Corporation with the Corporation being the continuing or surviving corporation if, in connection with such consolidation or merger, the shares of Common Stock are changed into or exchanged for stock or other securities of any other Person or cash or any other property, and (iii) the transfer by the Corporation of all or substantially all of its properties or assets to any other corporation or entity (other than to a wholly-owned Subsidiary of the Corporation if such Subsidiary remains wholly owned by the Corporation after such transfer or any other transaction or series of transactions related to such transfer). (d) After payment of the full preferential amount to which the Holders are entitled pursuant to this Section 5, the Holders shall not be entitled to any further participation in any distribution of assets of the Corporation, and all rights of the Holders with respect to their shares of Series A-1 Preferred Stock shall terminate. Section 6. Redemption. (a) Unless the Restated Charter Effectiveness shall have occurred prior to the occurrence of the event described in clause (i) or (ii) of this Section 6(a), the Corporation shall redeem, to the extent of funds legally available therefor (determined pursuant to Section 6(e)), in the manner provided for in this Section 6 all of the then outstanding shares of Series A-1 Preferred Stock at the Liquidation Preference as of the Redemption Date (the "Mandatory Redemption Price") on (i) the eleventh anniversary of the Issue Date or (ii) in the event a Change of Control of the Corporation has occurred, upon 17 receipt of notice (no later than 30 days following the later of the occurrence of such Change of Control or public announcement of the occurrence of such Change of Control) from the Holders of a majority of the outstanding shares of Series A-1 Preferred Stock demanding a redemption of the outstanding shares of Series A-1 Preferred Stock. The Corporation shall pay the Mandatory Redemption Price in cash. The date for any such redemption (the "Redemption Date") shall be (A) in the case of a redemption occurring pursuant to clause (i) of this Section 6(a), the date of the eleventh anniversary of the Issue Date, or if such date is not a Business Day, the first Business Day following such date, and (B) in the case of a redemption occurring pursuant to clause (ii) of this Section 6(a), a date to be fixed by the Corporation that is a Business Day no earlier than 30 days and no later than 60 days following the notice referred to in clause (ii) of this Section 6(a). (b) No later than 20 days and no earlier than 60 days prior to the Redemption Date, the Corporation shall give written notice (the "Redemption Notice") to each Holder at such Holder's address as it appears on the stock books of the Corporation. The Redemption Notice shall state: (i) whether the redemption is pursuant to clause (i) or (ii) of Section 6(a); (ii) the Mandatory Redemption Price; (iii) Redemption Date; and (iv) the location (which shall be in New York City, New York) at which the Holder is to surrender to the Corporation (or its agent), for redemption, its certificate or certificates representing its shares of Series A-1 Preferred Stock, and the manner for the surrender of such certificate or certificates. (c) Each Holder shall surrender the certificate or certificates representing its shares of Series A-1 Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice. On the Redemption Date, the Corporation shall pay, or cause to be paid, the full Mandatory Redemption Price for the shares so surrendered in cash (i) to the Person whose name appears on such certificate or certificates as the owner thereof, and, upon such payment, each surrendered certificate shall be canceled and retired and (ii) if such certificate is not surrendered by a Holder but the Holder certifies to the Corporation that the certificate or certificates representing its shares of Series A-1 Preferred Stock have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such lost, stolen or destroyed certificates (and, if requested by the Corporation, posts a customary bond reasonably satisfactory to the Corporation to cover such loss), to such Holder. 18 (d) Unless the Corporation defaults in the payment of the applicable Mandatory Redemption Price, dividends on the shares of Series A-1 Preferred Stock shall cease to accumulate on the Redemption Date, and all rights of the Holders with respect to their Series A-1 Preferred Stock, other than the right to receive the Mandatory Redemption Price, shall terminate on the Redemption Date. (e) For the purpose of determining whether funds are legally available for redemption of Series A-1 Preferred Stock pursuant to this Section 6, (i) the Corporation shall value its assets at the highest amount permissible under applicable law, (ii) if the redemption is pursuant to clause (ii) of Section 6(a), the Corporation may, at its option, set aside the funds necessary to prepay, redeem or offer to purchase any Indebtedness of the Corporation or its Subsidiaries that, by its terms, has to be prepaid or redeemed, or requires that the Corporation or its Subsidiaries extend to the holders thereof an offer to purchase such Indebtedness, including the Senior Credit Facility and the Senior Subordinated Notes, and (iii) the Corporation may, at its option, set aside the funds necessary to satisfy any dividend, redemption or other obligations with respect to any Senior Stock or Parity Stock required by the certificate of designations for such Senior Stock or Parity Stock (or other instrument pursuant to which such Senior Stock or Parity Stock was created and setting forth the powers, designations, preferences and other special rights and qualifications, limitations and restrictions of such Senior Stock or Parity Stock). (f) If on the Redemption Date funds of the Corporation legally available therefor are insufficient to pay the Mandatory Redemption Price in full for all the shares of Series A-1 Preferred Stock, (i) the Corporation shall use funds to the extent legally available for such purpose, (ii) the Corporation shall effect the Mandatory Redemption Obligation pro rata according to the number of shares of Series A-1 Preferred Stock held by each holder and (iii) the Dividend Rate on any unpaid portion of the Mandatory Redemption Price shall be increased by 2%. If the Corporation is unable or fails to discharge its Mandatory Redemption Obligation, the Mandatory Redemption Obligation shall be discharged as soon as the Corporation is able to discharge the Mandatory Redemption Obligation. If and so long as the Mandatory Redemption Obligation is not fully discharged, the Corporation may not, directly or indirectly, (A) redeem, purchase, or otherwise acquire any Parity Stock or Junior Stock or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Parity Stock or Junior Stock (except in connection with a redemption, sinking fund or other similar obligation regarding Parity Stock being satisfied on a pro rata basis) or (B) declare or make any dividend or distribution in respect of any Junior Stock. (g) Notwithstanding the foregoing, any Holder may, at any time prior to the close of business on the Business Day immediately preceding the Redemption Date, elect to convert, pursuant to Section 7(a), its shares of Series A-1 Preferred Stock into Common Stock in lieu of any redemption of its Series A-1 Preferred Stock. Upon such 19 Conversion, the Holders shall no longer be entitled to any payment in connection with the redemption for the Series A-1 Preferred Stock. (h) The Corporation need not establish any sinking fund for the Mandatory Redemption Obligation. Section 7. Conversion. (a) Conversion Right. At any time following the Restated Charter Effectiveness, subject to and in compliance with the provisions of this Section 7, any Holder may, at such Holder's election, convert all, but not less than all, of such Holder's shares of Series A-1 Preferred Stock into shares of Class B-1 Common Stock (the "Electing Holder"), and upon any such conversion, all other outstanding shares of Series A-1 Preferred Stock shall automatically convert into shares of Class B-1 Common Stock (the "Conversion"). Notwithstanding any call for redemption pursuant to Section 6, the right to convert shares pursuant to this Section 7 shall terminate at the close of business on the Business Day immediately preceding the Redemption Date, unless the Corporation defaults in making payment of the Mandatory Redemption Price in full on the Redemption Date. (b) Conversion Ratio. The number of shares of Class B-1 Common Stock deliverable upon Conversion of one share of Series A-1 Preferred Stock, adjusted as provided in Section 8, is referred to in this Certificate of Designations as the "Conversion Ratio." The Conversion Ratio, as of any date, shall be an amount equal to the Liquidation Preference as of such date divided by the Conversion Price. The "Conversion Price" will initially be $20.00, subject to adjustment from time to time pursuant to Section 8. (c) Conversion Mechanics. (i) The Electing Holder shall surrender the certificate representing its shares of Series A-1 Preferred Stock at the principal office of the Corporation, with a written notice of election to convert completed and signed. (ii) On the Conversion Date, all outstanding shares of Series A-1 Preferred Stock shall be converted automatically without any further action by the Holders (and whether or not the certificates representing such shares are surrendered at the office of the Corporation). The Corporation shall issue certificates representing shares of Class B-1 Common Stock issuable upon the Conversion upon surrender of certificates representing the corresponding shares of Series A-1 Preferred Stock. Unless the shares issuable on Conversion by the Holder are to be issued in the same name as the name in which such shares of Series A-1 Preferred Stock are registered, each share surrendered shall be 20 accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the Holder or the Holder's duly authorized attorney. The Corporation shall not be obligated to issue certificates for shares of Class B-1 Common Stock in any name other than the name or names set forth on the certificates for the shares of Series A-1 Preferred Stock unless the requirements of the Stockholders' Agreement relating to the transfer of shares of Series A-1 Preferred Stock have been complied with or waived by the Corporation. (iii) Notwithstanding clause (i) or (ii) of this Section 7(c), if the Holder of any share or shares of Series A-1 Preferred Stock certifies to the Corporation that the certificates representing such share or shares have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such lost, stolen or destroyed certificates (and, if requested by the Corporation, posts a customary bond reasonably satisfactory to the Corporation to cover such loss), then the Corporation shall issue certificates representing the Class B-1 Common Stock issuable upon the Conversion in the name of such holder. (iv) As promptly as practicable after the delivery by the Holder of the certificates for shares of Series A-1 Preferred Stock (or in the case of a lost certificate, the certification, the agreement and, if requested, the posting of the bond described in clause (iii) of this Section 7(c)), the Corporation shall issue and shall deliver to such Holder, or, subject to compliance with the provisions Section 12 and the Stockholders' Agreement relating to the transfer of shares of Series A-1 Preferred Stock, on the Holder's written order to the Holder's transferee, (A) a certificate or certificates for the whole number of shares of Class B-1 Common Stock issuable upon the Conversion of such shares in accordance with the provisions of this Section 7, and (B) any cash adjustment required pursuant to Section 7(f). - (v) The Conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date. The Person in whose name or names any certificate or certificates for shares of Class B-1 Common Stock shall be issuable upon such Conversion shall be deemed to have become the holder of record of the shares of Class B-1 Common Stock represented thereby at such time on the Conversion Date and the Conversion shall be into a number of whole shares of Class B-1 Common Stock equal to the product of the number of shares of Series A-1 Preferred Stock surrendered multiplied by the Conversion Ratio in effect on the applicable Conversion Date. All shares of Class B-1 Common Stock delivered upon conversion of the Series A-1 Preferred Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens, pledges and other security interests and not subject to any preemptive rights. As of the effective time of the Conversion, the 21 shares of Series A-1 Preferred Stock so converted will no longer be deemed to be outstanding and all rights of a holder with respect to such shares so converted shall immediately terminate except the right to receive the Class B-1 Common Stock and other amounts payable pursuant to this Section 7. (d) Reservation of Shares; Compliance with Laws. The Corporation covenants that it will at all times following the Restated Charter Effectiveness reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Class B-1 Common Stock as shall be required for the purpose of effecting the Conversion of the Series A-1 Preferred Stock. Promptly (and in any event no later than two Business Days) following receipt of Stockholder Approval, the Corporation shall file the Restated Certificate of Incorporation pursuant to the DGCL with the Secretary of State of the State of Delaware. Prior to the delivery of any Common Stock that the Corporation is obligated to deliver upon the Conversion, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (e) Transfer Taxes, etc. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Class B-1 Common Stock upon the Conversion, other than any tax payable in respect of any transfer involved in the issue or delivery of shares of Class B-1 Common Stock in a name other than that of the Holder of the Series A-1 Preferred Stock to be converted. The Corporation shall have the right not to issue or deliver any shares of Class B-1 Common Stock in a name other than that of the Holder of the Series A-1 Preferred Stock to be converted unless and until the Person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (f) No Fractional Shares. No fractions of shares of Class B-1 Common Stock shall be required to be issued to a Holder in connection with the Conversion. In lieu thereof, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Current Market Price per share of Regular Common Stock on the Conversion Date. (g) No Impairment. The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate following the Restated Charter Effectiveness in order to protect the conversion rights of the holders of the Series A-1 Preferred Stock against impairment. Without limiting the generality of the foregoing, following the Restated Charter Effectiveness, the Corporation (i) will take all such action 22 as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid nonassessable shares of Class B-1 Common Stock on the Conversion, free of all preemptive rights, and (ii) will not take any action which results in any adjustment of the applicable Conversion Price if the total number of shares of Class B-1 Common Stock issuable after the action upon the Conversion of all of the Series A-1 Preferred Stock will exceed the total number of shares of Class B-1 Common Stock then authorized by the Corporation's Certificate of Incorporation and available for the purpose of issue upon such Conversion. Section 8. Adjustments to Conversion Price. (a) Adjustment for Stock Dividends, Distributions and Subdivisions. In the event the Corporation shall declare or pay any dividend or make any other distribution on the Common Stock payable in shares of Common Stock, or shall effect a subdivision of the outstanding Common Stock, into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock), then and in each such case the applicable Conversion Price in effect immediately prior to such stock dividend, distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, distribution or subdivision, be proportionately decreased, subject to the following qualifications: (i) in the event such issuance is declared but not effected, the applicable Conversion Price shall be readjusted as if such issuance was not declared; and (ii) no adjustment in the Conversion Price shall be made in the event the Holders simultaneously receive a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received had (assuming that the Restated Charter Effectiveness has occurred) the Series A-1 Preferred Stock been converted into Class B-1 Common Stock pursuant to Section 7 immediately prior to such event (or, if applicable, the record date for such event). (b) Adjustments for Combinations or Consolidation of Common Stock. In the event the outstanding Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then and in each such case the applicable Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (c) Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In the event the Corporation (i) consolidates with or merges into any other corporation or entity and is not the continuing or surviving corporation or entity of such consolidation or merger, (ii) permits any other corporation or entity to consolidate with or merge into the Corporation and the Corporation is the continuing or surviving corporation but, in connection with such consolidation or merger, the shares of Common Stock are changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (iii) transfers all or substantially all of its properties or assets, directly 23 or indirectly, to any other corporation or entity (other than to a wholly owned Subsidiary of the Corporation if such Subsidiary remains wholly owned by the Corporation after such transfer or any other transaction or series of transactions related to such transfer), then, and in each such event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Section 8(c), each Holder, upon the Conversion at any time after the consummation of such consolidation, merger or transfer, shall be entitled to receive, in lieu of the shares of Common Stock issuable upon the Conversion prior to such consummation, the stock and other securities, cash and property to which such Holder would have been entitled upon such consummation if such Holder (assuming that the Restated Charter Effectiveness has occurred) had converted its Series A-1 Preferred Stock pursuant to Section 7 immediately prior to such consummation (or, if applicable, any record date with respect to such transaction), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in this Section 8(c). Notwithstanding anything contained herein to the contrary, (A) the Corporation will not effect any of the transactions described in the clauses (i) through (iii) of this Section 8 unless, prior to the consummation thereof, each corporation (other than the Corporation) which may be required to deliver any stock, securities, cash or property upon the conversion of Series A-1 Preferred Stock shall assume, by written instrument, a copy of which shall be delivered to each Holder, the obligation to deliver to such Holder such shares of stock, securities, cash or property as such holder may be entitled to receive upon such conversion, and (B) in the event the Holders of a majority of the outstanding shares of Series A-1 Preferred Stock, voting separately as a single class, elect to declare that any of the transactions described in clauses (i) through (iii) constitute a Liquidation Event, then the provisions of this Section 8(c) shall not apply to such transaction and, in lieu thereof, the Holders shall be entitled to the amounts set forth in Section 5 with respect to such Liquidation Event. (d) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock is changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision, combination or consolidation of shares, or merger, consolidation or asset sale, provided for in Sections 8(a), 8(b) and 8(c) or any reclassification resulting from the adoption of the Restated Certificate of Incorporation), then and in each such case the applicable Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Series A-1 Preferred Stock shall be convertible into, in lieu of the number of shares of Class B-1 Common Stock which the Holders would otherwise have been entitled to receive (assuming that the Restated Charter Effectiveness has occurred), a number of shares of such other class or classes of stock equivalent to the number of shares of Class B-1 Common Stock that would have been subject to receipt by the Holders upon any Conversion (assuming that the Restated Charter Effectiveness has occurred) immediately before that change. No class or series of Common Stock shall be so changed into shares of any other class or series of stock 24 unless a proportional and equivalent change is made with respect to all other classes or series of Common Stock. For avoidance of doubt, it is stipulated that the provisions of this Section 8(d) shall not apply to any exchange of shares of Common Stock into shares of Series B Preferred Stock pursuant to the JLL Exchange Agreement. (e) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation, at any time after the Issue Date and prior to the Restated Charter Effectiveness, issues or sells Additional Shares of Common Stock for a consideration per share less than the Current Market Price in effect immediately prior to such issuance or sale, then and in each such event, the applicable Conversion Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest cent) determined by multiplying the applicable Conversion Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued or sold would purchase at the Current Market Price in effect immediately prior to such issuance or sale, and (ii) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (B) the number of Additional Shares of Common Stock so issued or sold. The provisions of this Section 8(e) shall not apply to any issuance or sale of Additional Shares of Common Stock for which an adjustment is provided under Section 8(a). (f) Issue of Securities Deemed Issue of Additional Shares of Common Stock. In the event (i) the Corporation, at any time after the Issue Date and prior to the Restated Charter Effectiveness, issues, sells or grants any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities and (ii) the consideration per share for the Additional Shares of Common Stock issuable upon the exercise of such Options, or in the case of Convertible Securities, the conversion or exchange of such Convertible Securities shall be less than the Current Market Price in effect immediately prior to such issue, sale or grant, or such record date, as the case may be, then, and in each such case, (A) the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issuances of Additional Shares of Common Stock issued as of the time of such issue, sale or grant or, in case such a record date shall have been fixed, as of the close of business on such record date, and (B) the Conversion Price shall be adjusted in accordance with Section 8(e) on the date of and immediately prior to such issue, sale or grant, or the record date, as the case may be. In any such case in which Additional Shares of Common Stock are deemed to be issued or sold pursuant to this Section 8(f): 25 (1) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Corporation, or increase in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the adjustments to the Conversion Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such decrease or increase becoming effective, be recomputed (and the Conversion Price shall automatically be adjusted as so recomputed) to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities which are outstanding at such time; and (3) no readjustment pursuant to the preceding clause (2) shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date and (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. The consideration per share deemed to be received by the Corporation for Additional Shares of Common Stock relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, actually received by the Corporation as consideration for the issue, sale, grant or assumption of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating to such Options or Convertible Securities without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise in full of such Options or the conversion or exchange in full of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise in full of such Options for Convertible Securities and the conversion or exchange in full of such Convertible Securities, by (y) the maximum number of Additional Shares of Common Stock (as set forth in the instruments relating to such Options or Convertible Securities, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (g) Certain Payments in Lieu of Dividends. In case the Corporation, at any time on or after the Issue Date and prior to the Restated Charter Effectiveness, shall, by dividend or otherwise, distribute to all holders of its Regular Common Stock evidences of 26 its indebtedness or assets (including securities other than dividends and distributions paid pursuant to Section 8(a)), then the Conversion Price shall be adjusted by multiplying the Conversion Price then in effect by a fraction (i) the numerator of which shall be (A) the Current Market Price of a share of Regular Common Stock on the record date fixed for such distribution minus (B) the Market Value of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Regular Common Stock and (ii) the denominator of which shall be the Current Market Price of a share of Regular Common Stock on the record date fixed for such distribution. (h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 8, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock, or any Options or Convertible Securities, as the case may be, issued or sold or deemed to have been issued, (ii) the number of shares of Common Stock outstanding or deemed to be outstanding, and (iii) the applicable Conversion Price in effect immediately prior to such issue or sale and as adjusted and readjusted on account thereof. The Corporation shall, upon the written request at any time of any Holder, furnish or cause to be furnished to such Holder a like certificate setting forth (i) the applicable Conversion Price at the time in effect, and showing how it was calculated, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon a Conversion. At the request of the Holders of a majority of the then outstanding Series A-1 Preferred Stock, the Corporation will have the certificates referred to in this Section 8(h) prepared and delivered by an internationally recognized independent accounting firm. Section 9. Preemptive Rights. (a) The Corporation shall provide each Holder with a written notice (a "Preemptive Rights Notice") of any proposed issuance by the Corporation of any New Securities at least 30 days prior to the proposed issuance date. Such notice shall specify the price at which the New Securities are to be issued and the other material terms of the issuance. Each Holder shall be entitled to purchase, at the price and on the terms at which such New Securities are proposed to be issued and specified in such Preemptive Rights Notice, such Holder's Preemptive Rights Portion of such class of the New Securities proposed to be issued. "Preemptive Rights Portion" means the pro rata portion of New Securities proposed to be issued by the Corporation, which amount shall, for each Holder, be based upon the ratio of (i) the number of shares of Class B-1 Common Stock that such Holder would receive upon the Conversion of its shares of Series A-1 Preferred Stock into Class B-1 Common Stock pursuant to Section 7 immediately prior to the 27 issuance of the New Securities (assuming that the Restated Charter Effectiveness had occurred) to (ii) the total number of issued and outstanding shares of Common Stock immediately prior to the issuance of the New Securities (assuming (A) that the Restated Charter Effectiveness has occurred and (B) the conversion of all securities convertible into, and the exercise of all options, warrants or other arrangements representing the right to purchase or otherwise acquire any shares of Common Stock). (b) A Holder may exercise its rights under this Section 9 by delivering written notice of its election to purchase New Securities to the Corporation within 15 days of receipt of the Preemptive Rights Notice. A delivery of such a written notice (which notice shall specify the amount of New Securities to be purchased by the Shareholder submitting such notice) by such Holder shall constitute a binding agreement of such Holder to purchase, at the price and on the terms specified in the Preemptive Rights Notice, the number of New Securities specified in such Holder's written notice. (c) In the case of any issuance of New Securities, the Corporation shall have 90 days from the date of the Preemptive Rights Notice to consummate the proposed issuance of any or all of such New Securities which the Holders have not elected to purchase at the price and upon terms that are not materially less favorable to the Corporation than those specified in the Preemptive Rights Notice. At the consummation of such issuance, the Corporation shall issue certificates representing the New Securities to be purchased by each Holder exercising preemptive rights pursuant to this Section 9 registered in the name of such Holder, against payment by such Holder of the purchase price for such New Securities. If the Corporation proposes to issue such New Securities after such 90-day period, it shall again comply with the procedures set forth in this Section. 9. Section 10. Voting Rights. (a) The Holders shall not be entitled to any voting rights, except as hereinafter provided in this Section 10 or as otherwise provided by DGCL or other applicable law. (b) So long as the number of outstanding shares of Series A-1 Preferred Stock is equal to or greater than 10% of the number of shares of Series A-1 Preferred Stock issued on the Issue Date (subject to adjustments for stock dividends or distributions and subdivisions, combinations or consolidation of stock), the affirmative vote of the Holders of at least a majority of the then outstanding shares of Series A-1 Preferred Stock voting or consenting, as the case may be, separately as a single class shall be required for the Corporation to: (i) amend or repeal any provision of, or add any provision to, the Corporation's certificate of incorporation or by-laws so as to affect adversely the powers, rights, preferences (including, without limitation, liquidation preferences, 28 conversion price and redemption provisions) or voting rights of the shares of Series A-1 Preferred Stock; provided that the filing of the Restated Certificate of Incorporation pursuant to the DGCL with the Secretary of State of the State of Delaware shall not require prior approval of the Holders pursuant to this Section 10(c); (ii) amend or repeal any provision of, or add any provision to, this Certificate of Designations, the Series A-2 Certificate of Designations or the Series B Certificate of Designations; (iii) authorize or create any class or series of Senior Stock or Parity Stock, or issue any shares of Senior Stock or Parity Stock, except in either case for the authorization and creation of the Series A-2 Preferred Stock and the Series B Preferred Stock, the issuance of shares of Series B Preferred Stock pursuant to the Series B Certificate of Designations, and the issuance of shares of Series A-2 Preferred Stock (including issuances of shares of Series A-2 Preferred Stock as a dividend on the Series A-2 Preferred Stock in accordance with the Series A-2 Certificate of Designations) in accordance with the Series A-2 Certificate of Designations; (iv) reclassify any shares of Junior Stock into shares of Parity Stock or Senior Stock, or any shares of Parity Stock into shares of Senior Stock, for avoidance of doubt it being stipulated that any exchange of shares of Regular Common Stock into shares of Series B Preferred Stock shall not be deemed a reclassification of such stock or require approval of the Holders pursuant to this Section 10(c); (v) repurchase or redeem any Capital Stock of the Corporation, other than (A) the Series A-2 Preferred Stock issued on the Issue Date or issued as a dividend on the Series A-2 Preferred Stock in accordance with the Series A-2 Certificate of Designations and (B) the Series B Preferred Stock issued pursuant to the Series B Certificate of Designations, for avoidance of doubt it being stipulated that any exchange of shares of Regular Common Stock into shares of Series B Preferred Stock shall not be deemed a redemption or repurchase of such stock or require approval of the Holders pursuant to this Section 10(c); (vi) incur, or permit any of its Subsidiaries to incur, any Indebtedness (other than any Indebtedness under the Senior Credit Facility or the Senior Subordinated Notes) that would result in the Corporation having an Interest Coverage Ratio of less than 1.50:1.00; provided that such incurrence shall not constitute a violation of this clause (vii) unless the Indebtedness so incurred remains outstanding for at least 30 consecutive days following the initial incurrence thereof; 29 (vii) voluntarily file for bankruptcy, liquidation, dissolution or winding up of the Corporation; (viii) increase the number of Directors to more than eleven, unless the holders of Series B Preferred Stock or Class B-1 Common Stock are entitled to elect an additional Class B-1 Director pursuant to the Series B Certificate of Designations or the Restated Certificate of Incorporation, or the holders of Series A-2 Preferred Stock or Class B-2 Common Stock are entitled to elect an additional Class B-2 Director pursuant to the Series A-2 Certificate of Designations or the Restated Certificate of Incorporation, in which case the number of Directors may be increased by the number of such additional Directors; (ix) have less than three of the employees or officers of the Corporation or its Subsidiaries serve as Directors (and in the event of any vacancy resulting from the death, disability, resignation or removal of such a Director, not have another employee or officer of the Corporation or its Subsidiaries elected or appointed promptly as a Director to fill such vacancy); (x) modify or repeal any of the provisions of the By-Laws (A) requiring that, the Board of Directors meet no less frequently than once in every calendar quarter, (B) requiring that each committee of the Board of Directors (including any audit or compensation committee, but excluding any nominating committees for the nomination of Directors) have, as members, a proportional number of Class B-1 Directors and Class B-2 Directors, as a group (in relation to the total number of Directors), unless (1) such representation is prohibited by applicable law or rules of the Nasdaq National Market, in which case such committees shall have, as members, the maximum number of Class B-1 Directors and Class B-2 Directors permitted by applicable law and rules of the Nasdaq National Market, or (2) the Class B-1 Directors and Class B-2 Directors elect not to serve on any such committee, or (C) relating to the number, election, powers or rights of Class B-1 Directors, Class B-2 Directors or Non-Class B Directors; or (xi) enter into any agreement with any Affiliate of the Corporation (other than Subsidiaries of the Corporation) involving amounts in excess of $5 million. (c) From and after the Restated Charter Effectiveness, so long as the number of outstanding shares of Series A-1 Preferred Stock is equal to or greater than 25% of the number of shares of Series A-1 Preferred Stock issued on the Issue Date (in each case, as adjusted for stock dividends or distributions and subdivisions, combinations or consolidation of stock), the Corporation may not, without the approval of Holders of at least a majority of the then outstanding shares of Series A-1 Preferred Stock voting or 30 consenting, as the case may be, separately as a single class, undertake, effect or consummate any transaction or series of transactions (i) described in clauses (i) through (iii) of Section 8(c), (ii) involving a merger or consolidation, other than a merger or consolidation which would result in the Voting Stock of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent more than 50% of the combined voting power of the Voting Stock of the Corporation or the surviving entity or parent thereof outstanding immediately after such merger or consolidation or (iii) through which the Corporation causes a Change of Control to be effected. (d) In addition to any other vote required by law, the affirmative vote of a majority of the Directors that are not employees or officers of the Corporation or its Subsidiaries shall be required for any decision by the Corporation regarding the appointment, removal or compensation of the Corporation's Chief Executive Officer, or any transaction between the Corporation (or any of its Subsidiaries) and the Corporation's Chief Executive Officer (or his or her Affiliates). (e) The approval of Holders of at least 75% of the then outstanding shares of Series A-1 Preferred Stock voting or consenting, as the case may be, shall be required for any amendment to this Certificate of Designations that reduces the Liquidation Preference or the Mandatory Redemption Obligation or amends the provisions of Section 3, 10(b) or 10(c) or this Section 10(e). Section 11. Reports and Notices. (a) The Corporation will provide the Holders, at the Corporation's expense, with the following: (i) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Corporation, and in any event within 45 days thereafter, a consolidated balance sheet of the Corporation and its Subsidiaries, as of the end of each such quarterly period, and consolidated statements of income and sources and applications of funds of the Corporation and its Subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles in the United States consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, subject to changes resulting from year end audit adjustments and the absence of notes, together with a management's discussion and analysis thereof, all in reasonable detail and certified by the principal financial or accounting officer of the Corporation. (ii) As soon as practicable after the end of each fiscal year of the Corporation, and in any event within 90 days thereafter, a consolidated balance 31 sheet of the Corporation and its Subsidiaries, as at the end of such fiscal year, and consolidated statements of income and sources and applications of funds of the Corporation and its Subsidiaries, for such year, prepared in accordance with generally accepted accounting principles in the United States consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, together with a management's discussion and analysis thereof, all in reasonable detail and certified with an unqualified audit opinion by independent public accountants of recognized national standing selected by the Corporation. So long as the Corporation is subject to the reporting requirements of the Exchange Act, the Corporation's obligations to provide the information required pursuant to clauses (i) and (ii) of this Section 11(a) shall be satisfied by the filing by the Corporation of its quarterly reports on Form 10-Q and its annual reports on Form 10-K, respectively, or any successor forms thereto, in accordance with the Exchange Act. (b) In the event that at any time after the date hereof, (i) the Corporation shall adopt a dividend policy, change a previously adopted dividend policy, or declare a dividend in the absence of, or in conflict with, a dividend policy or declare any distribution with respect to the Common Stock, or (ii) the Corporation shall declare any stock split, stock dividend, subdivision, combination, or similar distribution with respect to the Common Stock, regardless of the effect of any such event on the outstanding number of shares of Common Stock (either such event hereinafter being referred to as a "Notification Event"), then and in such case the Corporation shall cause to be mailed to the Holders, not later than the earlier of the date public announcement of the Notification Event is first made or the date ten days prior to the record date, if any, in connection with such Notification Event, written notice specifying the nature of such event and the effective date of, or the date on which the books of the Corporation shall close or a record shall be taken with respect to, such event. Such notice shall also set forth facts indicating the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the kind and amount of the shares of stock or other securities or property issuable or distributable with respect to the Series A-1 Preferred Stock. (c) The Corporation shall deliver to the Holders all notices and other reports delivered to holders of Regular Common Stock, including all notices and reports required by DGCL or other applicable laws. Section 12. Transfer Restrictions. Until the 120th day following the Issue Date and following the Restated Charter Effectiveness, any transfer of shares of Series A-1 Preferred Stock by a Holder to a Person other than a Permitted Transferee shall be null and void and of no force and effect. The Corporation may, at its discretion, as a condition to the transfer or registration of transfer of Series A-1 Preferred Stock to a purported Permitted Transferee, require the furnishing of affidavits or other proof as it 32 deems reasonably necessary to establish that the proposed transferee is a Permitted Transferee. The term "Permitted Transferee" of a Holder shall be (i) any direct or indirect Subsidiary of any Person who was a Holder on the Issue Date, (ii) any investment fund managed by Joseph Littlejohn & Levy, Inc., a Delaware corporation ("JLL"), (iii) any Person who is or becomes an investor in a fund managed by JLL, including Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership, (iv) the heirs, executors, administrators, testamentary trustees or legatees of any Holder who is an individual, (v) the spouses and the lineal descendants of any individual who is a Holder on the Issue Date, and (vi) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only an individual who was a Holder on the Issue Date and the Persons referred to in clause (v). IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its David D. Halbert, its Chairman and Chief Executive Officer, on this 2nd day of October, 2000. ADVANCE PARADIGM, INC. By: /s/ David D. Halbert ---------------- Name: David D. Halbert Title: Chairman and Chief Executive Officer 33 EX-4 5 0005.txt CERTIFICATE OF DESIGNATIONS OF SERIES B PREFERRED STOCK CERTIFICATE OF DESIGNATIONS of Series B Convertible Preferred Stock of ADVANCE PARADIGM, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware ADVANCE PARADIGM, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in its Amended and Restated Certificate of Incorporation (as may be amended from time to time, the "Certificate of Incorporation"), the Board of Directors of the Corporation (the "Board of Directors") has duly adopted the following resolutions: WHEREAS, Article IV of the Certificate of Incorporation authorizes the issuance by the Corporation, from time to time, of 5,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), in one or more series or classes, having such powers, designations, preferences and relative, participating, optional and other special rights, including voting rights, and qualifications, limitations and restrictions as the Board of Directors determines; WHEREAS, pursuant to Article IV of the Certificate of Incorporation and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors has adopted the following resolutions creating a series of its Preferred Stock; RESOLVED, that a series of authorized Preferred Stock of the Corporation be, and it hereby is, created and that the powers, designations, preferences and relative, participating, optional and other special rights, including voting rights, and qualifications, limitations and restrictions of such series of Preferred Stock are as follows: Section 1. Designation and Number. (a) Such series of Preferred Stock is designated as Series B Convertible Preferred Stock (the "Series B Preferred Stock"), and the number of shares constituting such series is 84,146 shares. A total of six shares of Series B-1 Preferred Stock shall be initially issued, and 84,140 shares of Series B Preferred Stock shall be reserved for issuance pursuant to the JLL Exchange Agreement and may not be issued for any other purpose. (b) Shares of Series B Preferred Stock issued and reacquired in any manner by the Corporation, including by purchase or redemption, shall (upon compliance with any applicable provisions of DGCL) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock other than as Series B Preferred Stock. Section 2. Definitions. The following terms, as used in this Certificate of Designations, shall have the following meanings: "Additional Shares of Common Stock" means all shares of Common Stock issued or sold by the Corporation after the Issue Date, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock: (i) issued upon the conversion or exchange of any series or class of Capital Stock issued and outstanding on the Issue Date into another series or class of Capital Stock of the Corporation without any additional consideration to the Corporation by the holder thereof; (ii) issued upon conversion of any shares of Series A Preferred Stock or Series B Preferred Stock into any class or series of Common Stock; (iii) issued upon the exercise of options or warrants that have been issued prior to, and are outstanding as of, the Issue Date; (iv) issued upon exercise of options granted prior to the 120th day following the Issue Date to employees, consultants, officers or directors of the Corporation pursuant to any stock option plan in effect on the Issue Date and consistent with past practice, but in any event not in excess of 25,000 shares of Common Stock during such 120-day period; (v) issued prior to the 120th day following the Issue Date to customers in the ordinary course of business consistent with past practice, but in any event not in excess of 25,000 shares of Common Stock during such 120-day period; (vi) issued upon exercise of the Senior Subordinated Notes Warrants; and (vii) issued upon the exercise of the Management Options. "Affiliate" means, with respect to any specified Person, any other Person which, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such specified Person. Control of any Person shall consist of the power to direct the management and policies of such Person (whether through the ownership of voting securities, by contract, as trustee or otherwise) and shall be deemed to exist upon the ownership of securities entitling the holder thereof to exercise more than 20% of the voting power in the election of directors of such Person (or other persons or bodies performing similar functions). "Board of Directors" has the meaning set forth in the Preamble hereto. 2 "Business Day" means any day except Saturday, Sunday and any day on which banking institutions in New York City, New York generally are authorized or required by law or other governmental action to be closed. "Capital Stock" means (i) all shares, interests, participations or other equivalents (however designated) of capital stock of the Corporation, including each class or series of Common Stock or Preferred Stock, and (ii) any option, warrant or other arrangement representing the right to purchase or otherwise acquire any of the foregoing, including any securities convertible or exchangeable into any of the foregoing. "Certificate of Incorporation" has the meaning set forth in the Preamble hereto. "Change of Control" means the occurrence of either of the following: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Excluded Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total issued Common Stock or total issued Voting Stock of the Corporation; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Class A and Class C Directors (together with any new Class A or Class C Directors whose election by the Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by a vote of a majority of the Class A and Class C Directors then still in office who were either Class A or Class C Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease to constitute a majority of the Class A and Class C Directors then in office. "Class A Directors" has the meaning given to it in the Stockholders' Agreement. "Class B Common Stock" means the Class B-1 Common Stock and the Class B-2 Common Stock. "Class B-1 Common Stock" means the Class B-1 Common Stock to be created as a separate class of Common Stock following Stockholder Approval pursuant to the Restated Certificate of Incorporation. "Class B-1 Directors" has the meaning set forth in Section 10(f). 3 "Class B-2 Common Stock" means the Class B-2 Common Stock to be created as a separate class of Common Stock following Stockholder Approval pursuant to the Restated Certificate of Incorporation. "Class B-2 Directors" means the Directors designated by holders of Series A-2 Preferred Stock pursuant to the Series A-2 Certificate of Designations. "Class C Directors" has the meaning given to it in the Stockholders' Agreement. "Common Stock" means the common stock, par value $0.01 per share, of the Corporation, whether voting or non-voting, of any series or class (including Regular Common Stock and, following Stockholder Approval, the Class B Common Stock). "Consolidated Cash Flow" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Consolidated Interest Expense" means, with respect to any specified Person for any period, the sum, without duplication, of: (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with capital lease obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings and net of the effect of all payments made or received pursuant to hedging obligations and excluding amortization of deferred financing costs, plus (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, plus (iii) any interest expense on Indebtedness of another Person that is guaranteed by that Person or any of its Subsidiaries or secured by a mortgage, lien, pledge, charge, encumbrance or other security interests on assets of such Person or any of its Subsidiaries. "Conversion" means a Mandatory Conversion or an Optional Conversion. "Conversion Date" means, (i) in the case of Optional Conversions, the date on which the certificates for shares of Series B Preferred Stock to be converted are surrendered to the Corporation and, (ii) in the case of a Mandatory Conversion, the date of filing of the Restated Certificate of Incorporation pursuant to the DGCL with the Secretary of State of the State of Delaware following receipt of Stockholder Approval. "Conversion Price" has the meaning set forth in Section 7(c). 4 "Conversion Ratio" has the meaning set forth in Section 7(c). "Convertible Securities" means any evidences of indebtedness, shares (other than shares of Regular Common Stock) or other securities that, by their terms, are directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. For avoidance of doubt, it is stipulated that the following are not Convertible Securities: (i) shares of Series A Preferred Stock issued as a dividend on shares of Series A Preferred Stock; and (ii) shares of Series B Preferred Stock issued in accordance with the JLL Exchange Agreement. "Corporation" has the meaning set forth in the Preamble hereto. "Current Market Price" means, as of any date, the average of the daily Market Prices of the Regular Common Stock for twenty consecutive trading days immediately preceding such date. "Current Series B Amount" means, as of any date of determination, (i) the number of shares of Series B Preferred Stock issued and outstanding on such date, plus (ii) the number of shares of Series B Preferred Stock issuable on such date under the JLL Exchange Agreement upon the exchange into Series B Preferred Stock of all shares of Regular Common Stock that may be so exchanged pursuant to the JLL Exchange Agreement on such date. "DGCL" means the General Corporation Law of the State of Delaware. "Director" means a member of the Board of Directors. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Excluded Holders" means (i) the Corporation and its Subsidiaries, (ii) the Principals and the Related Parties of the Principals, (iii) the Permitted Transferees, and the Affiliates of Permitted Transferees, and (iv) the holders of shares of Series A-1 Preferred Stock and Series A-2 Preferred Stock on the Issue Date and the "Permitted Transferees" (as defined in the Series A-1 Certificate of Designations or the Series A-2 Certificate of Designations, as the case may be) and the Affiliates of the Persons referred in this clause (iv), and (v) any Person permitted or required to receive shares of Series B Preferred Stock pursuant to the JLL Exchange Agreement, the Permitted Transferees of such Persons (assuming that such Persons are Holders) and the Affiliates of the Persons referred to in this clause (v). "GAAP" means accounting principles and practices generally accepted from time to time in the United States as in effect on the Issue Date. 5 "Holder" means a record holder of shares of Series B Preferred Stock. "Indebtedness" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Interest Coverage Ratio" means, as of any determination date, the ratio of Consolidated Cash Flow to Consolidated Interest Expense during the four-quarter period of the most recent four consecutive fiscal quarters ending prior to such determination date. In the event of any incurrence, assumption, guarantee, repayment, repurchase or redemption of any Indebtedness (other than ordinary working capital borrowings, excluding borrowings under the Senior Credit Facility) subsequent to the commencement of the period for which the Interest Coverage Ratio is being calculated and on or prior to the date or event for which the calculation of the Interest Coverage Ratio is made (the "Calculation Date"), then the Interest Coverage Ratio shall be calculated giving effect to the incurrence, assumption, guarantee, repayment, repurchase or redemption of such Indebtedness, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter period. "Initial Series B Amount" means, as of any date of determination, (i) the number of shares of Series B Preferred Stock issued on the Issue Date plus (ii) the number of shares of Series B Preferred Stock issuable on the Issue Date under the JLL Exchange Agreement upon the exchange into Series B Preferred Stock of all shares of Regular Common Stock that may be so exchanged pursuant to the JLL Exchange Agreement, in each case as adjusted for stock dividends or distributions and subdivisions, combinations or consolidations of stock on or prior to such date of determination. For avoidance of doubt, it is stipulated that the Initial Series B Amount on the Issue Date is 84,146. "Issue Date" means the date of the filing of this Certificate of Designations according to the DGCL with the Secretary of State of the State of Delaware. "JLL" has the meaning set forth in Section 12. "JLL Exchange Agreement" means the Exchange Agreement dated as of the Issue Date between the Corporation and Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership, relating to the exchange of shares of Regular Common Stock into shares of Series B Preferred Stock, as the same may be amended, supplemented or restated from time to time. "Junior Stock" has the meaning set forth in Section 3(a). 6 "Liquidation Event" means any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. "Liquidation Preference" means, for each share of Series B Preferred Stock as of any date, (i) $1,000, plus (ii) all accumulated and unpaid cash dividends and distributions on such share as of such date, plus (iii) the Market Price of all other accumulated and unpaid dividends and distributions on such share as of such date. "Management Options" means options to purchase up to an aggregate of 1,790,000 shares of Common Stock at an initial exercise price of $20 per share issued to officers and employees on or before the Issue Date. For purposes of this Certificate of Designations, the Management Options shall be deemed issued before the Issue Date. "Mandatory Conversion" has the meaning set forth in Section 7(b). "Mandatory Redemption Obligation" means the Corporation's redemption obligation set forth in Section 6. "Mandatory Redemption Price" has the meaning set forth in Section 6(a). "Market Price" means: (a) with respect to any security, on any given day, (i) if such security is listed or authorized for trading on a national securities exchange, the last sale price of such security, regular way, on such date, or if no such sale takes place on such date, the average of the closing bid and asked prices thereof, on such date, in each case as officially reported on the principal national securities exchange on which such security is listed or authorized for trading, (ii) if such security is not listed or authorized for trading on a national securities exchange but is quoted on the Nasdaq National Market, (A) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (B) if such security is so traded, but no such last trade information is so reported, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, (iii) if such security is not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system but has a nationally recognized existing trading market, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose or (iv) if such security is not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system and does not have a nationally recognized existing trading market, the fair value of such security as (A) determined by an agreement between the Corporation and the 7 Holders of a majority of the outstanding shares of Series B Preferred Stock or (B) if the Corporation and such Holders fail to agree, determined jointly by an independent investment banking firm retained by the Corporation and by an independent investment banking firm retained by such Holders, or (C) if the Corporation or such Holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Corporation or such Holders, as the case may be, determined solely by the firm so retained or (D) if the firms so retained by the Corporation and by such Holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms; and (b) with respect to any other asset or property, the fair market value of such asset or property as (i) determined by an agreement between the Corporation and the Holders of a majority of the outstanding shares of Series B Preferred Stock or (ii) if the Corporation and such Holders fail to agree, determined jointly by an independent investment banking firm retained by the Corporation and by an independent investment banking firm retained by such Holders, or (iii) if the Corporation or such Holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Corporation or such Holders, as the case may be, determined solely by the firm so retained or (iv) if the firms so retained by the Corporation and by such Holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms. "New Securities" means any Capital Stock issued after the Issue Date, other than (i) Capital Stock issued upon the conversion or exchange of any series or class of Capital Stock issued and outstanding on the Issue Date into another series or class of Capital Stock of the Corporation without any additional consideration to the Corporation by the holder thereof; (ii) Capital Stock issued upon conversion of any shares of Series A Preferred Stock or Series B Preferred Stock into any class or series of Common Stock; (iii) shares of Series A Preferred Stock issued as a dividend on any shares of Series A Preferred Stock; (iv) dividends or distributions payable in shares of Capital Stock effected in accordance with Section 8(a); (v) Capital Stock issued upon the exercise of options or warrants that have been issued prior to, and are outstanding as of, the Issue Date; (vi) Capital Stock issued to employees, consultants, officers or directors of the Corporation pursuant to any stock option plan in effect on the Issue Date and consistent with past practice or pursuant to a stock option plan adopted after the Issue Date; (vii) Capital Stock issued to holders of Series A Preferred Stock pursuant to the exercise by such holders of their preemptive rights contained in the applicable Series A Certificate of Designations; (viii) Capital Stock issued upon exercise of the Senior Subordinated Notes Warrants; 8 (ix) Common Stock issued upon exercise of the Management Options; (x) Capital Stock issued to customers in the ordinary course of business consistent with past practice, subject to a maximum amount, in any fiscal year of the Corporation, equal or equivalent to (A) 0.5% of the weighted average number of issued and outstanding shares of Common Stock during such fiscal year plus (B) the number of shares permitted under clause (A) for any fiscal year ending after the Issue Date but not previously expended in prior fiscal years; and (xi) shares of Series B Preferred Stock issued in accordance with the JLL Exchange Agreement. "Non-Class B Director" means any Director who is neither a Class B-1 Director nor a Class B-2 Director. "Options" means rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. For avoidance of doubt, it is stipulated that the following are not Options: (i) any rights, options or warrants to subscribe for, purchase or otherwise acquire the shares of Common Stock referred to in clause (iv) or (v) of the definition of Additional Shares of Common Stock; and (ii) any right or option to acquire shares of Series B Preferred Stock pursuant to the JLL Exchange Agreement. "Optional Conversion" has the meaning set forth in Section 7(a). "Parity Stock" has the meaning set forth in Section 3(a). "Permitted Transferee" has the meaning set forth in Section 12. "Person" means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. "Preemptive Rights Notice" has the meaning given in Section 9(a). "Preemptive Rights Portion" has the meaning given in Section 9(a). "Preferred Stock" has the meaning set forth in the Preamble hereto. "Principals" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Redemption Date" has the meaning given in Section 6(b). "Redemption Notice" has the meaning set forth in Section 6(b). 9 "Related Parties" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Regular Common Stock" means the class of Common Stock existing on the Issue Date. "Restated Certificate of Incorporation" means the Second Amended and Restated Certificate of Incorporation of the Corporation in the form attached as Exhibit B to the Stockholders' Agreement (as the same may from time to time be amended (x) prior to Stockholder Approval, pursuant to the Stockholders' Agreement, and (y) after Stockholder Approval, pursuant to such Restated Certificate of Incorporation and the DGCL), to be submitted for Stockholder Approval and following Stockholder Approval filed according to the DGCL with the Secretary of State of the State of Delaware. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Credit Facility" means the credit facilities evidenced by, and the loans and borrowings extended to the Corporation pursuant to the $825 million Senior Credit Agreement, dated on or about the Issue Date, among the Corporation, as borrower the subsidiary guarantors parties thereto, the initial lenders, initial issuing bank and swing line bank named therein, Bank of America, N.A., as Collateral Agent and Administrative Agent, Bank One, N.A., as Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Book-Runner, Lead Arranger and Syndication Agent, and Bank of America Securities LLC, as Joint Book-Runner and Joint Lead Arranger, and any one or more deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto or replacements thereof (including, without limitation, any amendment increasing the amount that may be borrowed thereunder) and any agreement providing therefor whether by or with respect to the same or any other agents, lenders, creditors or group of creditors (or any combination thereof) and including related notes, guarantee agreements, security agreements and other instruments executed in connection therewith. "Senior Stock" has the meaning given in Section 3(a). "Senior Subordinated Notes" means the Corporation's Senior Subordinated Notes due 2010 issued on or about the Issue Date in the initial principal amount of $200,000,000 (the "initial notes") and any notes registered under the Securities Act that are issued in exchange for such notes, and any 10 deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments or supplements thereto or replacements thereof. "Senior Subordinated Notes Indenture" means the Indenture, dated as of October 2, 2000, between the Corporation and U.S. Trust of Texas, N.A., as trustee pursuant to which the Corporation's Senior Subordinated Notes due 2010 in the initial principal amount of $200,000,000 are issued, as the same may be amended from time to time. "Senior Subordinated Notes Warrants" means the warrants to purchase Regular Common Stock issued on or about the Issue Date to Rite Aid Corporation. For purposes of this Certificate of Designations, the Senior Subordinated Notes Warrants shall be deemed to have been issued before the Issue Date. "Series A Preferred Stock" means the Series A-1 and Series A-2 Preferred Stock. "Series A Certificates of Designations" means the Series A-1 Certificate of Designations and the Series A-2 Certificate of Designations. "Series A-1 Certificate of Designations" means the Certificate of Designations for the Series A-1 Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on or about the Issue Date, and as amended, supplemented or restated from time to time. "Series A-2 Certificate of Designations" means the Certificate of Designations for the Series A-2 Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on or about the Issue Date, and as amended, supplemented or restated from time to time. "Series A-1 Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series A-1 11% Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and other special rights and qualifications, limitations and restrictions set forth in the Series A-1 Certificate of Designations. "Series A-2 Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series A-2 11% Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and other special rights and qualifications, limitations and restrictions set forth in the Series A-2 Certificate of Designations. "Series B Preferred Stock" has the meaning set forth in Section 1. 11 "Stockholder Approval" means the approval by the stockholders of the Corporation of the adoption of the Restated Certificate of Incorporation and of the authorization and issuance of the Class B Common Stock to be issued to the Holders and the holders of the Series A Preferred Stock in accordance with the terms of this Certificate of Designations and the Series A Certificates of Designations. "Stockholders' Agreement" means the Stockholders' Agreement, dated on or about the Issue Date, among the Corporation, Joseph, Littlejohn & Levy Fund III, L.P., Rite Aid Corporation and the other Persons named therein, as the same may be amended, supplemented or restated from time to time "Subsidiary" means, with respect to any specified Person: (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by a Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (A) the sole general partner or the managing general partner of which is the Person or a Subsidiary of that Person or (B) the only general partners of which are the Person or one or more Subsidiaries of that Person (or any combination thereof). "Transfer" means any direct or indirect (including, without limitation, through the transfer of a controlling interest in a Permitted Transferee) sale, transfer, assignment, grant of participation interest in, option, pledge, hypothecation, encumbrance or other disposition. "Voting Default" means the taking of (i) any of the actions set forth in clauses (i) through (xii) of Section 10(c) in violation of the provisions of Section 10(c) or (ii) any of the actions set forth in Section 10(d) in violation of the provisions Section 10(d). "Voting Stock" means, with respect to any Person, the Capital Stock of any class or kind ordinarily having the power to vote generally for the election of directors (or other persons or bodies performing similar functions) of such Person. Section 3. Rank. (a) The Series B Preferred Stock shall, with respect to dividends and distributions and upon a Liquidation Event, rank: (i) senior to (A) all classes or series of Common Stock and (B) each other class or series of Capital Stock of the Corporation hereafter created the 12 terms of which do not expressly provide that it ranks senior to, or on a parity with, the Series B Preferred Stock as to dividends and distributions and upon a Liquidation Event (all of the foregoing collectively referred to as "Junior Stock"); (ii) on a parity with (A) the Series A Preferred Stock and (B) each other series of Preferred Stock hereafter created the terms of which expressly provide that such class or series ranks on a parity with the Series B Preferred Stock as to dividends and distributions and upon a Liquidation Event (collectively referred to as "Parity Stock"); and (iii) junior to each series or class of Preferred Stock hereafter created the terms of which expressly provide that such class or series ranks senior to the Series B Preferred Stock as to dividends and distributions and upon a Liquidation Event (collectively referred to as "Senior Stock"). (b) The respective definitions of Junior Stock, Parity Stock and Senior Stock shall also include any options, warrants or other rights exercisable or exchangeable for or convertible into any of the Junior Stock, Parity Stock or Senior Stock, as the case may be. Section 4. Dividends. (a) In the event the Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any dividend or distribution on shares of any class or series of Common Stock (other than any dividend or distribution payable in shares of Common Stock effected in accordance with Section 8(a)), then and in each such event each Holder shall be entitled to receive the amount of such dividend or distribution that such Holder would have received had its shares of Series B Preferred Stock been converted into Common Stock pursuant to Section 7 immediately prior to the record date for such dividend or distribution. (b) So long as any shares of the Series B Preferred Stock are outstanding: (i) No dividend or distribution (other than dividends on Series A Preferred Stock payable solely in shares of Series A Preferred Stock paid in accordance with the applicable Series A Certificate of Designations) may be declared or paid or set apart for payment on any Parity Stock by the Corporation, directly or indirectly, unless in each case (A) such dividend or distribution is required by the terms of such Parity Stock pursuant to the certificate of designations for such Parity Stock (or other instrument pursuant to which such Parity Stock was created and setting forth the powers, designations, preferences and other special rights and qualifications, limitations and restrictions of such Parity Stock) as in effect on the initial issuance of such Parity Stock and (B) all accumulated and unpaid dividends and distributions due to be paid on the Series 13 B Preferred Stock have been or contemporaneously are paid or are being paid on a pro rata basis with any such Parity Stock. (ii) Except to the extent otherwise provided in Section 6(f), no Parity Stock may be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available to a sinking fund for the redemption of any shares of such stock) by the Corporation, directly or indirectly, unless (x) all accumulated and unpaid dividends and distributions due to be paid on the Series B Preferred Stock, or the redemption payments required by Section 6, have been or are contemporaneously are paid, and (y) (A) such redemption, purchase or acquisition is required by the certificate of designations for such Parity Stock (or other instrument pursuant to which such Parity Stock was created and setting forth the powers, designations, preferences and other special rights and qualifications, limitations and restrictions of such Parity Stock) as in effect on the initial issuance of such Parity Stock and the issuance of such Parity Stock was approved by the Holders in accordance with Section 10(c)(iv) or (B) such redemption, purchase or acquisition is made with the approval of the Holders in accordance with Section 10(c)(vi). (c) So long as any shares of the Series B Preferred Stock are outstanding, no dividends or other distribution may be declared or paid or set apart for payment on any Junior Stock by the Corporation, directly or indirectly, nor may any Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly, other than (i) a redemption, purchase or other acquisition of shares of Common Stock made solely pursuant to the terms of an employee incentive or benefit plan of the Corporation or its Subsidiaries, (ii) a dividend or other distribution on shares of Common Stock effected in accordance with Section 4(a) or 8(a), and (iii) dividends or distributions made solely in Junior Stock effected in accordance with Section 8(a). Section 5. Liquidation Rights. (a) Upon the occurrence of a Liquidation Event, subject to the rights of holders of Senior Stock and Parity Stock, each Holder shall be entitled to be paid, before any distribution is made on any Junior Stock, out of the assets of the Corporation available for distribution to its stockholders an amount per share in cash equal to the greater of (i) the Liquidation Preference, as of the date fixed for the Liquidation Event, for each outstanding share of Series B Preferred Stock held by such Holder and (ii) the amount such Holder would have received upon such final distribution if all outstanding shares of Series B Preferred Stock had been converted into shares of Common Stock pursuant to Section 7 and all outstanding shares of Series A Preferred Stock had been converted into shares of Common Stock pursuant to the Series A Certificates of 14 Designations immediately prior to such Liquidation Event (assuming such conversion is permissible under the terms thereof). (b) If the assets distributable in any such Liquidation Event to the Holders and to the holders of outstanding shares of all Parity Stock are insufficient to permit the payment to such holders of the full preferential amounts to which they may be entitled, such assets shall be distributed ratably among the holders of the outstanding shares of Series B Preferred Stock and Parity Stock in proportion to the full preferential amount each such holder would otherwise be entitled to receive. (c) For purposes of this Section 5, a Liquidation Event shall, at the election of the Holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, include (i) the consolidation or merger of the Corporation into any other corporation or entity if the Corporation is not the continuing or surviving corporation or entity of such consolidation or merger, (ii) the consolidation or merger of any other corporation or entity into the Corporation with the Corporation being the continuing or surviving corporation if, in connection with such consolidation or merger, the shares of Common Stock are changed into or exchanged for stock or other securities of any other Person or cash or any other property, and (iii) the transfer by the Corporation of all or substantially all of its properties or assets to any other corporation or entity (other than to a wholly-owned Subsidiary of the Corporation if such Subsidiary remains wholly owned by the Corporation after such transfer or any other transaction or series of transactions related to such transfer). (d) After payment of the full preferential amount to which the Holders are entitled pursuant to this Section 5, the Holders shall not be entitled to any further participation in any distribution of assets of the Corporation, and all rights of the Holders with respect to their Series B Preferred Stock shall terminate. Section 6. Redemption. (a) The Corporation shall redeem, to the extent of funds legally available therefor (determined pursuant to Section 6(e)), in the manner provided for in this Section 6 all of the then outstanding shares of Series B Preferred Stock at the Liquidation Preference as of the Redemption Date (the "Mandatory Redemption Price") on (i) the eleventh anniversary of the Issue Date or (ii) in the event a Change of Control of the Corporation has occurred, upon receipt of notice (no later than 30 days following the later of the occurrence of such Change of Control or public announcement of the occurrence of such Change of Control) from the Holders of a majority of the outstanding shares of Series B Preferred Stock demanding a redemption of the outstanding shares of Series B Preferred Stock. The Corporation shall pay the Mandatory Redemption Price in cash. The date for any such redemption (the "Redemption Date") shall be (A) in the case of a redemption occurring pursuant to clause (i) of this Section 6(a), the date of the eleventh 15 anniversary of the Issue Date, or if such date is not a Business Day, the first Business Day following such date, and (B) in the case of a redemption occurring pursuant to clause (ii) of this Section 6(a), a date to be fixed by the Corporation that is a Business Day no earlier than the 30 days and no later than 60 days following the notice referred to in clause (ii) of this Section 6(a). (b) No later than 20 days and no earlier than 60 days prior to the Redemption Date, the Corporation shall give written notice (the "Redemption Notice") to each Holder at such Holder's address as it appears on the stock books of the Corporation. The Redemption Notice shall state: (i) whether the redemption is pursuant to clause (i) or (ii) of Section 6(a); (ii) the Mandatory Redemption Price; (iii) Redemption Date; and (iv) the location (which shall be in New York City, New York) at which the Holder is to surrender to the Corporation (or its agent), for redemption, its certificate or certificates representing its shares of Series B Preferred Stock, and the manner for the surrender of such certificate or certificates. (c) Each Holder shall surrender the certificate or certificates representing its shares of Series B Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice. On the Redemption Date, the Corporation shall pay, or cause to be paid, the full Mandatory Redemption Price for the shares so surrendered in cash (i) to the Person whose name appears on such certificate or certificates as the owner thereof, and, upon such payment, each surrendered certificate shall be canceled and retired and (ii) if such certificate is not surrendered by a Holder but the Holder certifies to the Corporation that the certificate or certificates representing its shares of Series B Preferred Stock have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such lost, stolen or destroyed certificates (and, if requested by the Corporation, posts a customary bond reasonably satisfactory to the Corporation to cover such loss), to such Holder. (d) Unless the Corporation defaults in the payment of the applicable Mandatory Redemption Price, all rights of the Holders with respect to their Series B Preferred Stock, other than the right to receive the Mandatory Redemption Price, shall terminate on the Redemption Date. 16 (e) For the purpose of determining whether funds are legally available for redemption of Series B Preferred Stock pursuant to this Section 6, (i) the Corporation shall value its assets at the highest amount permissible under applicable law, (ii) if the redemption is pursuant to clause (ii) of Section 6(a), the Corporation may, at its option, set aside the funds necessary to prepay, redeem or offer to purchase any Indebtedness of the Corporation or its Subsidiaries that, by its terms, has to be prepaid or redeemed, or requires that the Corporation or its Subsidiaries extend to the holders thereof an offer to purchase such Indebtedness, including the Senior Credit Facility and the Senior Subordinated Notes, and (iii) the Corporation may, at its option, set aside the funds necessary to satisfy any dividend, redemption or other obligations with respect to any Senior Stock or Parity Stock required by the certificate of designations for such Senior Stock or Parity Stock (or other instrument pursuant to which such Senior Stock or Parity Stock was created and setting forth the powers, designations, preferences and other special rights and qualifications, limitations and restrictions of such Senior Stock or Parity Stock). (f) If on the Redemption Date funds of the Corporation legally available therefor are insufficient to pay the Mandatory Redemption Price in full for all the shares of Series B Preferred Stock, the Corporation shall (i) use funds to the extent legally available for such purpose, (ii) effect the Mandatory Redemption Obligation pro rata according to the number of shares of Series B Preferred Stock held by each holder and (iii) pay interest at the rate of 10% per annum on any unpaid portion of the Mandatory Redemption Price on a quarterly basis. If the Corporation is unable or fails to discharge its Mandatory Redemption Obligation, the Mandatory Redemption Obligation shall be discharged as soon as the Corporation is able to discharge the Mandatory Redemption Obligation. If and so long as the Mandatory Redemption Obligation is not fully discharged, the Corporation may not, directly or indirectly, (A) redeem, purchase, or otherwise acquire any Parity Stock or Junior Stock or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Parity Stock or Junior Stock (except in connection with a redemption, sinking fund or other similar obligation regarding Parity Stock (including the Series A Preferred Stock) being satisfied on a pro rata basis) or (B) declare or make any dividend or distribution in respect of any Junior Stock. (g) Notwithstanding the foregoing, each Holder may, at any time prior to the close of business on the Business Day immediately preceding the Redemption Date, elect to convert, pursuant to Section 7(a), all or any portion of its shares of Series B Preferred Stock into Common Stock in lieu of any redemption of its Series B Preferred Stock. Upon such Optional Conversion, such Holder shall no longer be entitled to any payment in connection with the redemption for the Series B Preferred Stock so converted. (h) The Corporation need not establish any sinking fund for the Mandatory Redemption Obligation. 17 Section 7. Conversion. (a) Optional Conversion. Subject to and in compliance with the provisions of this Section 7, each Holder may, at any time and from time to time, at such Holder's election, convert any or all outstanding shares of Series B Preferred Stock of such Holder into shares of Regular Common Stock (such conversion, an "Optional Conversion"). Notwithstanding any call for redemption pursuant to Section 6, the right to convert shares pursuant to the Optional Conversion shall terminate at the close of business on the Business Day immediately preceding the Redemption Date, unless the Corporation defaults in making payment of the Mandatory Redemption Price in full on the Redemption Date. (b) Mandatory Conversion. Subject to the provisions of this Section 7, upon the occurrence of the Stockholder Approval and the filing of the Restated Certificate of Incorporation pursuant to the DGCL with the Secretary of State of the State of Delaware, all of the outstanding shares of Series B Preferred Stock shall automatically convert into shares of Class B-1 Common Stock (such conversion, a "Mandatory Conversion"). (c) Conversion Ratio. The number of shares of Regular or Class B-1 Common Stock deliverable upon Conversion of one share of Series B Preferred Stock, adjusted as provided in Section 8, is referred to in this Certificate of Designations as the "Conversion Ratio." The Conversion Ratio as of any date shall be an amount equal to the Liquidation Preference as of such date divided by the Conversion Price. The "Conversion Price" will initially be $20.00, subject to adjustment from time to time pursuant to Section 8. (d) Conversion Mechanics. (i) In the case of an Optional Conversion, the Holder of the shares of Series B Preferred Stock to be converted shall surrender the certificate representing such shares at the principal office of the Corporation, with a written notice of election to convert completed and signed, specifying the number of shares to be converted. Unless the shares issuable on such Optional Conversion are to be issued in the same name as the name in which such shares of Series B Preferred Stock are registered, each share surrendered for such Optional Conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the Holder or the Holder's duly authorized attorney. The Corporation shall not be obligated to issue certificates for shares of Common Stock in any name other than the name or names set forth on the certificates for the shares of Series B Preferred Stock unless the requirements of the Stockholders' Agreement relating to the transfer of shares of Series B Preferred Stock have been complied with or waived by the Corporation. 18 (ii) In the event of a Mandatory Conversion, the outstanding shares of Series B Preferred Stock shall be converted automatically without any further action by the Holders and whether or not the certificates representing such shares are surrendered at the office of the Corporation. The Corporation shall issue certificates representing the shares of Class B-1 Common Stock issuable upon such Mandatory Conversion upon the surrender of certificates representing the corresponding shares of Series B Preferred Stock, in the same name as the name in which such shares of Series B Preferred Stock are registered. (iii) Notwithstanding clause (i) or (ii) of this Section 7(d), if the Holder of any share or shares of Series B Preferred Stock certifies to the Corporation that the certificates representing such share or shares have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such lost, stolen or destroyed certificates (and, if requested by the Corporation, posts a customary bond reasonably satisfactory to the Corporation to cover such loss), then the Corporation shall issue certificates representing the Regular Common Stock or Class B-1 Common Stock issuable upon any Optional Conversion or Mandatory Conversion, as the case may be, in the name of such holder. (iv) As promptly as practicable after the delivery by the Holder of the certificates for shares of Series B Preferred Stock (or in the case of a lost certificate, the certification, the agreement and, if requested, posting of the bond described in clause (iii) of this Section 7(d)), the Corporation shall issue and shall deliver to such Holder, or, subject to compliance with the provisions Section 12 and the Stockholders' Agreement relating to the transfer of shares of Series B Preferred Stock, on the Holder's written order to the Holder's transferee, (A) a certificate or certificates for the whole number of shares of Regular or Class B-1 Common Stock issuable upon the Conversion of such shares in accordance with the provisions of this Section 7, (B) any cash adjustment required pursuant to Section 7(g), and (C) in the event of an Optional Conversion in part, a certificate or certificates for the whole number of shares of Series B Preferred Stock not being so converted. (v) Each Conversion shall be deemed to have been effected immediately prior to the close of business on the applicable Conversion Date. The Person in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such Conversion shall be deemed to have become the holder of record of the shares of Common Stock represented thereby at such time on the applicable Conversion Date and such Conversion shall be into a number of whole shares of Common Stock equal to the product of the number of shares of Series B Preferred Stock surrendered multiplied by the Conversion Ratio in effect on the applicable Conversion Date. All shares of Common Stock 19 delivered upon conversion of the Series B Preferred Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens, pledges and other security interests and not subject to any preemptive rights. As of the effective time of such Conversion, the shares of Series B Preferred Stock to be so converted will no longer be deemed to be outstanding and all rights of a holder with respect to such shares so converted shall immediately terminate except the right to receive the Common Stock and other amounts payable pursuant to this Section 7 and, in the event of an Optional Conversion in part, a certificate or certificates representing the shares of Series B Preferred Stock not converted. (e) Reservation of Shares; Compliance with Laws. The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Regular Common Stock as shall be required for the purpose of effecting Optional Conversions of the Series B Preferred Stock. Promptly (and in any event no later than two Business Days) following receipt of Stockholder Approval, the Corporation shall file the Restated Certificate of Incorporation pursuant to the DGCL with the Secretary of State of the State of Delaware. Prior to the delivery of any Common Stock that the Corporation is obligated to deliver upon an Optional Conversion or Mandatory Conversion, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (f) Transfer Taxes, etc. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock upon any Conversion, other than any tax payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the Holder of the Series B Preferred Stock to be converted. The Corporation shall have the right not to issue or deliver any shares of Common Stock in a name other than that of the Holder of the Series B Preferred Stock to be converted unless and until the Person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (g) No Fractional Shares. No fractions of shares of Common Stock shall be required to be issued to a Holder in connection with a Conversion. In lieu thereof, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Current Market Price per share of Regular Common Stock on the Conversion Date. (h) No Impairment. The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid the observance or performance of any of the terms to be 20 observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment. Without limiting the generality of the foregoing, the Corporation (i) will take all such action as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid nonassessable shares of Common Stock on any Conversion, free of all preemptive rights, and (ii) will not take any action which results in any adjustment of the applicable Conversion Price if the total number of shares of Common Stock issuable after the action upon the Conversion of all of the Series B Preferred Stock will exceed the total number of shares of Common Stock then authorized by the Corporation's Certificate of Incorporation and available for the purpose of issue upon such Conversion. Section 8. Adjustments to Conversion Price. (a) Adjustment for Stock Dividends, Distributions and Subdivisions. In the event the Corporation shall declare or pay any dividend or make any other distribution on the Common Stock payable in shares of Common Stock, or shall effect a subdivision of the outstanding Common Stock, into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock), then and in each such case the applicable Conversion Price in effect immediately prior to such stock dividend, distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, distribution or subdivision, be proportionately decreased, subject to the following qualifications: (i) in the event such issuance is declared but not effected, the applicable Conversion Price shall be readjusted as if such issuance was not declared; and (ii) no adjustment in the Conversion Price shall be made in the event the Holders simultaneously receive a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received had the Series B Preferred Stock been converted into Common Stock pursuant to Section 7 immediately prior to such event (or, if applicable, the record date for such event). (b) Adjustments for Combinations or Consolidation of Common Stock. In the event the outstanding Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then and in each such case the applicable Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (c) Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In the event the Corporation (i) consolidates with or merges into any other corporation or entity and is not the continuing or surviving corporation or entity of such consolidation or merger, (ii) permits any other corporation or entity to consolidate with or merge into the Corporation and the Corporation is the continuing or surviving corporation 21 but, in connection with such consolidation or merger, the shares of Common Stock are changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (iii) transfers all or substantially all of its properties or assets, directly or indirectly, to any other corporation or entity (other than to a wholly owned Subsidiary of the Corporation if such Subsidiary remains wholly owned by the Corporation after such transfer or any other transaction or series of transactions related to such transfer), then, and in each such event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Section 8(c), each Holder, upon any Conversion at any time after the consummation of such consolidation, merger or transfer, shall be entitled to receive, in lieu of the shares of Common Stock issuable upon any Conversion prior to such consummation, the stock and other securities, cash and property to which such Holder would have been entitled upon such consummation if such Holder had converted its Series B Preferred Stock pursuant to Section 7 immediately prior to such consummation (or, if applicable, any record date with respect to such transaction), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in this Section 8(c). Notwithstanding anything contained herein to the contrary, (A) the Corporation will not effect any of the transactions described in the clauses (i) through (iii) of this Section 8 unless, prior to the consummation thereof, each corporation (other than the Corporation) which may be required to deliver any stock, securities, cash or property upon the conversion of Series B Preferred Stock shall assume, by written instrument, a copy of which shall be delivered to each Holder, the obligation to deliver to such Holder such shares of stock, securities, cash or property as such holder may be entitled to receive upon such conversion, and (B) in the event the Holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, elect to declare that any of the transactions described in clauses (i) through (iii) constitute a Liquidation Event, then the provisions of this Section 8(c) shall not apply to such transaction and, in lieu thereof, the Holders shall be entitled to the amounts set forth in Section 5 with respect to such Liquidation Event. (d) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon any Conversion is changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision, combination or consolidation of shares, or merger, consolidation or asset sale, provided for in Sections 8(a), 8(b) and 8(c) or any reclassification resulting from the adoption of the Restated Certificate of Incorporation), then and in each such case the applicable Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Series B Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the Holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the Holders upon any Conversion immediately before that change. No class or series of Common Stock shall be so changed into shares of any other class or series of 22 stock unless a proportional and equivalent change is made with respect to all other classes or series of Common Stock. For avoidance of doubt, it is stipulated that the provisions of this Section 8(d) shall not apply to any exchange of shares of Common Stock into shares of Series B Preferred Stock pursuant to the JLL Exchange Agreement. (e) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation, at any time after the Issue Date, issues or sells Additional Shares of Common Stock for a consideration per share less than the Current Market Price in effect immediately prior to such issuance or sale, then and in each such event, the applicable Conversion Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest cent) determined by multiplying the applicable Conversion Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued or sold would purchase at the Current Market Price in effect immediately prior to such issuance or sale, and (ii) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (B) the number of Additional Shares of Common Stock so issued or sold. The provisions of this Section 8(e) shall not apply to any issuance or sale of Additional Shares of Common Stock for which an adjustment is provided under Section 8(a). (f) Issue of Securities Deemed Issue of Additional Shares of Common Stock. In the event (i) the Corporation at any time after the Issue Date shall issue, sell or grant any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities and (ii) the consideration per share for the Additional Shares of Common Stock issuable upon the exercise of such Options, or in the case of Convertible Securities, the conversion or exchange of such Convertible Securities shall be less than the Current Market Price in effect immediately prior to such issue, sale or grant, or such record date, as the case may be, then, and in each such case, (A) the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issuances of Additional Shares of Common Stock issued as of the time of such issue, sale or grant or, in case such a record date shall have been fixed, as of the close of business on such record date, and (B) the Conversion Price shall be adjusted in accordance with Section 8(e) on the date of and immediately prior to such issue, sale or grant, or the record date, as the case may be. In any such case in which Additional Shares of Common Stock are deemed to be issued or sold pursuant to this Section 8(f): 23 (1) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Corporation, or increase in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the adjustments to the Conversion Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such decrease or increase becoming effective, be recomputed (and the Conversion Price shall automatically be adjusted as so recomputed) to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities which are outstanding at such time; and (3) no readjustment pursuant to the preceding clause (2) shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date and (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. The consideration per share deemed to be received by the Corporation for Additional Shares of Common Stock relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, actually received by the Corporation as consideration for the issue, sale, grant or assumption of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating to such Options or Convertible Securities without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise in full of such Options or the conversion or exchange in full of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise in full of such Options for Convertible Securities and the conversion or exchange in full of such Convertible Securities, by (y) the maximum number of Additional Shares of Common Stock (as set forth in the instruments relating to such Options or Convertible Securities, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (g) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 8, the Corporation at its expense shall promptly compute such adjustment or readjustment in 24 accordance with the terms hereof and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock, or any Options or Convertible Securities, as the case may be, issued or sold or deemed to have been issued, (ii) the number of shares of Common Stock outstanding or deemed to be outstanding, and (iii) the applicable Conversion Price in effect immediately prior to such issue or sale and as adjusted and readjusted on account thereof. The Corporation shall, upon the written request at any time of any Holder, furnish or cause to be furnished to such holder a like certificate setting forth (i) the applicable Conversion Price at the time in effect, and showing how it was calculated, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon a Conversion. At the request of the Holders of a majority of the then outstanding Series B Preferred Stock, the Corporation will have the certificates referred to in this Section 8(g) prepared and delivered by an internationally recognized independent accounting firm. Section 9. Preemptive Rights. (a) The Corporation shall provide each Holder with a written notice (a "Preemptive Rights Notice") of any proposed issuance by the Corporation of any New Securities at least 30 days prior to the proposed issuance date. Such notice shall specify the price at which the New Securities are to be issued and the other material terms of the issuance. Each Holder shall be entitled to purchase, at the price and on the terms at which such New Securities are proposed to be issued and specified in such Preemptive Rights Notice, such Holder's Preemptive Rights Portion of such class of the New Securities proposed to be issued. "Preemptive Rights Portion" means the pro rata portion of New Securities proposed to be issued by the Corporation, which amount shall, for each Holder, be based upon the ratio of (i) the number of shares of Common Stock that such Holder would receive upon the Conversion of its shares of Series B Preferred Stock into Common Stock pursuant to Section 7 immediately prior to the issuance of the New Securities to (ii) the total number of issued and outstanding shares of Common Stock immediately prior to the issuance of the New Securities (assuming (A) the conversion of all securities convertible into, and the exercise of all options, warrants or other arrangements representing the right to purchase or otherwise acquire any shares of Common Stock and (B) the receipt of Stockholder Approval and the filing of the Restated Certificate of Incorporation according to the DGCL with the Secretary of State of the State of Delaware). (b) A Holder may exercise its rights under this Section 9 by delivering written notice of its election to purchase New Securities to the Corporation within 15 days of receipt of the Preemptive Rights Notice. A delivery of such a written notice (which notice shall specify the amount of New Securities to be purchased by the Shareholder 25 submitting such notice) by such Holder shall constitute a binding agreement of such Holder to purchase, at the price and on the terms specified in the Preemptive Rights Notice, the number of New Securities specified in such Holder's written notice. (c) In the case of any issuance of New Securities, the Corporation shall have 90 days from the date of the Preemptive Rights Notice to consummate the proposed issuance of any or all of such New Securities which the Holders have not elected to purchase at the price and upon terms that are not materially less favorable to the Corporation than those specified in the Preemptive Rights Notice. At the consummation of such issuance, the Corporation shall issue certificates representing the New Securities to be purchased by each Holder exercising preemptive rights pursuant to this Section 9 registered in the name of such Holder, against payment by such Holder of the purchase price for such New Securities. If the Corporation proposes to issue such New Securities after such 90-day period, it shall again comply with the procedures set forth in this Section. 9. Section 10. Voting Rights. (a) The Holders shall not be entitled to any voting rights, except as hereinafter provided in this Section 10 or as otherwise provided by DGCL or other applicable law. (b) Except as otherwise required by law, each share of Series B Preferred Stock shall entitle the Holder thereof to vote on all matters submitted to a vote of the holders of the Regular Common Stock, voting together with the holders of the Regular Common Stock (and any other shares of Capital Stock which by its terms is entitled to vote together with the Regular Common Stock as a single class) on all matters as to which the holders of the Regular Common Stock shall be entitled to vote, other than (i) the election or removal of Directors and (ii) for matters for which applicable law requires the vote or consent of the holders of the Regular Common Stock as a separate class. With respect to any such vote, each share of Series B Preferred Stock shall entitle the Holder thereof to cast the number of votes equal to the number of votes which could be cast in such vote by a holder of the shares of Regular Common Stock into which such share of Series B Preferred Stock is convertible on the record date for such vote or, if no such record date is established, on the date of any written consent of stockholders. Notwithstanding anything to the contrary contained herein, except as otherwise required by law, any action required or permitted to be taken by the Holders of Series B Preferred Stock at any meeting of the Holders of Series B Preferred Stock may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by Holders who would have been entitled to cast the minimum number of votes which would be necessary to authorize such action at a meeting at which all Holders of Series B Preferred Stock entitled to vote thereon were present and voting. 26 (c) So long as the Current Series B Amount is equal to or greater than 10% of the Initial Series B Amount, the affirmative vote of the Holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting or consenting, as the case may be, separately as a single class shall be required for the Corporation to: (i) amend or repeal any provision of, or add any provision to, the Corporation's certificate of incorporation or by-laws so as to affect adversely the powers, rights, preferences (including, without limitation, liquidation preferences, conversion price and redemption provisions) or voting rights of the shares of Series B Preferred Stock; provided that the filing of the Restated Certificate of Incorporation pursuant to the DGCL with the Secretary of State of the State of Delaware shall not require prior approval of the Holders pursuant to this Section 10(c); (ii) amend or repeal any provision of, or add any provision to, this Certificate of Designations or either of the Series A Certificates of Designations; (iii) authorize or issue any additional shares of Series B Preferred Stock, other than pursuant to the JLL Exchange Agreement; (iv) authorize or create any class or series of Senior Stock or Parity Stock, or issue any shares of Senior Stock or Parity Stock, except in either case for the authorization and creation of the Series A Preferred Stock and the issuance of shares of Series A Preferred Stock (including issuances of shares of Series A Preferred Stock as a dividend on the Series A Preferred Stock in accordance with the applicable Series A Certificate of Designations) in accordance with the Series A Certificates of Designations; (v) reclassify any shares of Junior Stock into shares of Parity Stock or Senior Stock, or any shares of Parity Stock into shares of Senior Stock, for avoidance of doubt it being stipulated that any exchange of shares of Regular Common Stock into shares of Series B Preferred Stock shall not be deemed a reclassification of such stock or require the approval of the Holders pursuant to this Section 10(c); (vi) repurchase or redeem any Capital Stock of the Corporation, other than (A) the Series A Preferred Stock issued on the Issue Date or issued as a dividend on the Series A Preferred Stock in accordance with the applicable Series A Certificates of Designations and (B) the redemption of the Series B Preferred Stock pursuant to Section 6, for avoidance of doubt it being stipulated that any exchange of shares of Regular Common Stock into shares of Series B Preferred Stock shall not be deemed a redemption or repurchase of such stock or require the approval of the Holders pursuant to this Section 10(c); 27 (vii) incur, or permit any of its Subsidiaries to incur, any Indebtedness (other than any Indebtedness under the Senior Credit Facility or the Senior Subordinated Notes) that would result in the Corporation having an Interest Coverage Ratio of less than 1.50:1.00; provided that such incurrence shall not constitute a violation of this clause (vii) unless the Indebtedness so incurred remains outstanding for at least 30 consecutive days following the initial incurrence thereof; (viii) voluntarily file for bankruptcy, liquidation, dissolution or winding up of the Corporation; (ix) increase the number of Directors to more than eleven, unless the Holders are entitled to elect an additional Class B-1 Director pursuant to clause (v) of Section 10(f), or the holders of Series A-2 Preferred Stock are entitled to elect an additional Class B-2 Director pursuant to the Series A-2 Certificate of Designations, in which case the number of Directors may be increased by the number of such additional Directors; (x) have less than three of the employees or officers of the Corporation or its Subsidiaries serve as Directors (and in the event of any vacancy resulting from the death, disability, resignation or removal of such a Director, not have another employee or officer of the Corporation or its Subsidiaries elected or appointed promptly as a Director to fill such vacancy); (xi) modify or repeal any of the provisions of the By-Laws (A) requiring that, the Board of Directors meet no less frequently than once in every calendar quarter, (B) requiring that each committee of the Board of Directors (including any audit or compensation committee, but excluding any nominating committees for the nomination of Directors) have, as members, a proportional number of Class B-1 Directors and Class B-2 Directors, as a group (in relation to the total number of Directors), unless (1) such representation is prohibited by applicable law or rules of the Nasdaq National Market, in which case such committees shall have, as members, the maximum number of Class B-1 Directors and Class B-2 Directors permitted by applicable law and rules of the Nasdaq National Market, or (2) the Class B-1 Directors and Class B-2 Directors elect not to serve on any such committee, or (C) relating to the number, election, powers or rights of Class B-1 Directors, Class B-2 Directors or Non-Class B Directors; or (xii) enter into any agreement with any Affiliate of the Corporation (other than Subsidiaries of the Corporation) involving amounts in excess of $5 million. 28 (d) So long as the Current Series B Amount is equal to or greater than 25% of the Initial Series B Amount, the Corporation may not, without the approval of Holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting or consenting, as the case may be, separately as a single class, undertake, effect or consummate any transaction or series of transactions (i) described in clauses (i) through (iii) of Section 8(c), (ii) involving a merger or consolidation, other than a merger or consolidation which would result in the Voting Stock of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent more than 50% of the combined voting power of the Voting Stock of the Corporation or the surviving entity or parent thereof outstanding immediately after such merger or consolidation or (iii) through which the Corporation causes a Change of Control to be effected. (e) The approval of Holders of at least 75% of the then outstanding shares of Series B Preferred Stock voting or consenting, as the case may be, shall be required for any amendment to this Certificate of Designations that reduces the Liquidation Preference or the Mandatory Redemption Obligation or amends the provisions of Section 3, 10(c) or 10(d) or this Section 10(e). (f) The Holders voting or consenting, as the case may be, separately as a single class, shall be entitled to elect Directors (the Directors so elected, the "Class B-1 Directors") as follows: (i) On the Issue Date, two individuals designated by the holders of shares of Series B Preferred Stock shall be elected as Class B-1 Directors. (ii) So long as the Current Series B Amount is equal to or greater than 50% of the Initial Series B Amount, the Holders shall be entitled to elect, voting as a separate class, two Class B-1 Directors. (iii) So long as the Current Series B Amount is less than 50% but equal to or greater than 10% of the Initial Series B Amount, the Holders shall be entitled to elect, voting as a separate class, one Class B-1 Director. (iv) The Holders shall not be entitled to elect any Director pursuant to this Section 10(f) when the Current Series B Amount is less than 10% of the Initial Series B Amount. (v) In addition to the number of Class B-1 Directors provided in the preceding clauses (ii) and (iii), if at any time a Voting Default shall have occurred, the Holders shall be entitled, voting as a separate class, to elect one additional Class B-1 Director. 29 (vi) Upon any increase or decrease in the total number of Class B-1 Directors pursuant to this Section 10(f), there shall be a corresponding and equal increase or decrease in the total number of Directors. (vii) So long as the Holders of shares of Series B Preferred Stock are entitled to elect Class B-1 Directors under this Section 10(f), at any annual meeting of stockholders, or special meeting held in place thereof, the holders of shares of Series B Preferred Stock, voting or consenting (as the case may be separately) as a single class, shall be entitled to elect any Class B-1 Directors due to be elected at such meeting pursuant to the terms of this Certificate of Designations. Any vacancy occurring because of the death, disability, resignation or removal of a Class B-1 Director shall be filled by the vote or consent of the Holders. A Class B-1 Director may be removed without cause only by the vote or consent of the Holders of a majority of the outstanding shares of Series B Preferred Stock. (g) In addition to any other vote required by law, the affirmative vote of a majority of the Directors that are not employees or officers of the Corporation or its Subsidiaries shall be required for any decision of the Corporation regarding the appointment, removal or compensation of the Corporation's Chief Executive Officer , or any transaction between the Corporation (or any of its Subsidiaries) and the Corporation's Chief Executive Officer (or his or her Affiliates). Section 11. Reports and Notices. (a) The Corporation will provide the Holders, at the Corporation's expense, with the following: (i) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Corporation, and in any event within 45 days thereafter, a consolidated balance sheet of the Corporation and its Subsidiaries, as of the end of each such quarterly period, and consolidated statements of income and sources and applications of funds of the Corporation and its Subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles in the United States consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, subject to changes resulting from year end audit adjustments and the absence of notes, together with a management's discussion and analysis thereof, all in reasonable detail and certified by the principal financial or accounting officer of the Corporation. 30 (ii) As soon as practicable after the end of each fiscal year of the Corporation, and in any event within 90 days thereafter, a consolidated balance sheet of the Corporation and its Subsidiaries, as at the end of such fiscal year, and consolidated statements of income and sources and applications of funds of the Corporation and its Subsidiaries, for such year, prepared in accordance with generally accepted accounting principles in the United States consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, together with a management's discussion and analysis thereof, all in reasonable detail and certified with an unqualified audit opinion by independent public accountants of recognized national standing selected by the Corporation. So long as the Corporation is subject to the reporting requirements of the Exchange Act, the Corporation's obligations to provide the information required pursuant to clauses (i) and (ii) of this Section 11(a) shall be satisfied by the filing by the Corporation of its quarterly reports on Form 10-Q and its annual reports on Form 10-K, respectively, or any successor forms thereto, in accordance with the Exchange Act. (b) In the event that at any time after the date hereof, (i) the Corporation shall adopt a dividend policy, change a previously adopted dividend policy, or declare a dividend in the absence of, or in conflict with, a dividend policy or declare any distribution with respect to the Common Stock, or (ii) the Corporation shall declare any stock split, stock dividend, subdivision, combination, or similar distribution with respect to the Common Stock, regardless of the effect of any such event on the outstanding number of shares of Common Stock (either such event hereinafter being referred to as a "Notification Event"), then and in such case the Corporation shall cause to be mailed to the Holders, not later than the earlier of the date public announcement of the Notification Event is first made or the date ten days prior to the record date, if any, in connection with such Notification Event, written notice specifying the nature of such event and the effective date of, or the date on which the books of the Corporation shall close or a record shall be taken with respect to, such event. Such notice shall also set forth facts indicating the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the kind and amount of the shares of stock or other securities or property issuable or distributable with respect to the Series B Preferred Stock. (c) The Corporation shall deliver to the Holders all notices and other reports delivered to holders of Regular Common Stock, including all notices and reports required by DGCL or other applicable laws. Section 12. Transfer Restrictions. Any Transfer of shares of Series B Preferred Stock prior to the 120th day following the Issue Date by a Holder to a Person other than a Permitted Transferee shall result in the automatic conversion of the transferee's shares of Series B Preferred Stock into shares of Regular Common Stock 31 pursuant to Section 7, effective as of the date on which certificates representing the shares of Series B Preferred Stock are presented for transfer on the stock transfer record books of the Corporation. The Corporation may, at its discretion, as a condition to the transfer or registration of transfer of Series B Preferred Stock to a purported Permitted Transferee, require the furnishing of affidavits or other proof as it deems reasonably necessary to establish that the proposed transferee is a Permitted Transferee. The term "Permitted Transferee" of a Holder shall be (i) any direct or indirect Subsidiary of any Person who was a Holder on the Issue Date, (ii) any investment fund managed by Joseph Littlejohn & Levy, Inc., a Delaware corporation ("JLL"), (iii) any Person who is or becomes an investor in a fund managed by JLL, including Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership, (iv) the heirs, executors, administrators, testamentary trustees or legatees of any Holder who is an individual, (v) the spouses and the lineal descendants of any individual who is a Holder on the Issue Date, and (vi) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only the Persons referred to in clause (v). IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by David D. Halbert, its Chairman and Chief Executive Officer, on this 2nd day of October, 2000. ADVANCE PARADIGM, INC. By: /s/ David D. Halbert -------------------------- Name: David D. Halbert Title: Chairman and Chief Executive Officer EX-5 6 0006.txt SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ADVANCE PARADIGM, INC. ADVANCE PARADIGM, INC. a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Advance Paradigm, Inc. The Corporation was originally incorporated under the name "Advance Pharmacy Services, Inc." and filed its original Certificate of Incorporation (the "Original Certificate") with the Secretary of State of the State of Delaware on July 27, 1993. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on October 7, 1996. A Certificate of Merger, whereby Advance Health Care, Inc. merged with and into the Corporation, was filed with the Secretary of State of the State of Delaware on October 11, 1996. A first Certificate of Amendment to the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on October 11, 1996. A second Certificate of Amendment to the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on November 12, 1999 (the Amended and Restated Certificate of Incorporation, as so amended by the first and second Certificate of Amendment, the "First Certificate"). A Certificate of Designations of Series A-1 11% Preferred Stock, a Certificate of Designations of Series A-2 11% Preferred Stock, and a Certificate of Designations of Series B Convertible Preferred Stock were filed with the Secretary of State of the State of Delaware on October 2, 2000. 2. This Second Amended and Restated Certificate of Incorporation (this "Certificate"), which amends, restates and supersedes the provisions of the First Certificate as originally filed and thereafter amended as described in paragraph 1 above, was duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended from time to time (the "DGCL"), and was duly adopted by the stockholders of the Corporation in accordance with the applicable provisions of Sections 242 and 245 of the DGCL. 3. Capitalized terms used in this Certificate shall have the meaning given to such terms in Article IV. 4. The text of the First Certificate, as amended, is hereby amended, restated and superseded to read in its entirety as follows: ARTICLE I NAME ---- The name of the Corporation is AdvancePCS. ARTICLE II REGISTERED OFFICE ----------------- The address of the registered office of the Corporation in the State of Delaware is 2711 Fentonville Road, Suite 400,Wilmington. The name of its registered agent is Prentiss-Hall Corporation System, Inc. ARTICLE III PURPOSES -------- The purpose for which the Corporation is organized is the transaction of any or all lawful acts and activities for which corporations may be incorporated under the DGCL. ARTICLE IV DEFINITIONS ----------- The capitalized terms used in any exhibit hereto shall have the meanings given to them in such exhibit. The following terms, as used in this Certificate, shall have the following meanings: "Additional Shares of Common Stock" means all shares of Common Stock issued or sold by the Corporation after the Effective Date, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock: (i) issued upon the conversion or exchange of any series or class of Capital Stock issued and outstanding on the Effective Date into another series or class of Capital Stock of the Corporation without any additional consideration to the Corporation by the holder thereof, including shares of Common Stock issued upon conversion of any shares of Series A Preferred Stock into any class or 2 series of Common Stock; (ii) issued upon conversion of Class B-1 Common Stock or Class B-2 Common Stock into Class A Common Stock; (iii) issued upon exercise of options granted to employees, consultants, officers or directors of the Corporation pursuant to any stock option plan, in effect on the Effective Date; (iv) issued upon exercise of the Senior Subordinated Notes Warrants; and (v) issued upon the exercise of the Management Options. "Affiliate" means, with respect to any specified Person, any other Person which, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such specified Person. Control of any Person shall consist of the power to direct the management and policies of such Person (whether through the ownership of voting securities, by contract, as trustee or otherwise) and shall be deemed to exist upon the ownership of securities entitling the holder thereof to exercise more than 20% of the voting power in the election of directors of such Person (or other persons or bodies performing similar functions). "Board of Directors" means the board of directors of the Corporation. "Business Day" means any day except Saturday, Sunday and any day on which banking institutions in New York City, New York generally are authorized or required by law or other governmental action to be closed. "By-Laws" means the by-laws of the Corporation as in effect from time to time. "Capital Stock" means (i) all shares, interests, participations or other equivalents (however designated) of capital stock of the Corporation, including each class or series of Common Stock or Preferred Stock, and (ii) any option, warrant or other arrangement representing the right to purchase or otherwise acquire any of the foregoing, including any securities convertible or exchangeable into any of the foregoing. "Certificate" has the meaning given in paragraph 2 of the Introduction. "Class A Common Stock" has the meaning given in Section 5.1. "Class A Directors" means those persons designated as the initial Class A Directors as contemplated by the Stockholders Agreement and such other persons elected as Class A Directors pursuant to Article VIII. Only a person who is an officer or employee of the Corporation or its Subsidiaries shall be qualified for election as, and to serve as, a Class A Director. 3 "Class B Common Stock" means the Class B-1 Common Stock and the Class B-2 Common Stock. "Class B-1 Common Stock" has the meaning given in Section 5.1. "Class B-2 Common Stock" has the meaning given in Section 5.1. "Class B Directors" means the Class B-1 Directors and the Class B-2 Directors. "Class B-1 Directors" means those persons serving as Class B-1 Directors on the Effective Date pursuant to Section 10(f) of the Series B Certificate of Designations and such other persons elected by holders of Class B-1 Common Stock pursuant to Article VIII. "Class B-2 Directors" means (i) so long as shares of Series A-2 Preferred Stock are outstanding, those persons serving as Class B-2 Directors pursuant to Section 10(c) of the Series A-2 Certificate of Designations and (ii) following the conversion of Series A-2 Preferred Stock into Class B-2 Common Stock, such other persons elected by holders of Class B-2 Common Stock pursuant to Article VIII. "Class C Directors" means those persons designated as the initial Class C Directors as contemplated by the Stockholders Agreement and such other persons elected as Class C Directors pursuant to Article VIII. Only a person who qualifies as an independent director of the Corporation shall be qualified for election as, and to serve as, a Class C Director. Independent director shall have the meaning given to it, (i) if the Nasdaq National Market is the principal national securities market or quotation system on which the Class A Common Stock is listed, authorized for trading or quoted, in the rules of the Nasdaq National Market as in effect from time to time, or (ii) if the Nasdaq National Market is not the principal national securities exchange or quotation system on which the Class A Common Stock is listed, authorized for trading or quoted, in the rules or regulations of the national securities exchange or quotation system on which the Class A Common Stock is listed, authorized for trading or quoted. "Class D Director" means the person designated as the initial Class D Director as contemplated by the Stockholders Agreement and such other persons elected as the Class D Director pursuant to Article VIII. "Class D Termination Date" means the later of (a) October 2, 2002 and (b) the earlier to occur of (i) the holders of Series A-2 Preferred Stock and Class B Common Stock having the right to elect or designate, in the aggregate, two or less Class B Directors pursuant to Article VIII and the Series A-2 Certificate of 4 Designations and (ii) the sum of the Current Class B-1 Amount and the Current Class B-2 Amount, representing, in the aggregate, less than 50% of the Initial Class B Amount. "Common Stock" means the Class A Common Stock, the Class B-1 Common Stock and the Class B-2 Common Stock. "Consolidated Cash Flow" has the meaning given to such term in the indenture for the Senior Subordinated Notes. "Consolidated Interest Expense" means, with respect to any specified Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with capital lease obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings and net of the effect of all payments made or received pursuant to hedging obligations and excluding amortization of deferred financing costs, plus (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, plus (iii) any interest expense on Indebtedness of another Person that is guaranteed by that Person or any of its Subsidiaries or secured by a mortgage, lien, pledge, charge, encumbrance or other security interests on assets of such Person or any of its Subsidiaries. "Conversion" means a Mandatory Conversion or an Optional Conversion. "Conversion Date" means (i) in the case of an Optional Conversion, the date on which the certificates for shares of Class B Common Stock to be converted in such Optional Conversion are surrendered to the Corporation and (ii) in the case of a Mandatory Conversion, the date on which the Prohibited Transfer resulting in such Mandatory Conversion or the Mandatory Conversion Event occurs. "Conversion Ratio" has the meaning given in Section 5.3.7(c). "Convertible Securities" means any evidences of indebtedness, shares (other than shares of Common Stock) or other securities that, by their terms, are directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. "Corporation" has the meaning given in the Introduction. 5 "Current Class B-1 Amount" means, as of any date of determination, (i) the number of shares of Class B-1 Common Stock issued and outstanding on such date; plus (ii) the number of shares of Class B-1 Common Stock issuable upon the conversion on such date of all of the shares of Series A-1 Preferred Stock issued and outstanding on such date pursuant to the Series A-1 Certificate of Designations. "Current Class B-2 Amount" means, as of any date of determination, (i) if shares of Series A-2 Preferred Stock are issued and outstanding as of such date, the number of shares of Class B-2 Common Stock issuable upon the conversion on such date of all of the shares of Series A-2 Preferred Stock issued and outstanding on such date pursuant to the Series A-2 Certificate of Designations, and (ii) otherwise, the number of shares of Class B-2 Common Stock issued and outstanding on such date. "Current Market Price" means, as of any date, the average of the daily Market Prices of the Class A Common Stock for twenty consecutive trading days immediate-ly preceding such date. "DGCL" has the meaning given in paragraph 2 of the Introduction. "Director" means a member of the Board of Directors. "Effective Date" means the date of the filing of this Certificate with the Secretary of State of the State of Delaware. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "First Certificate" has the meaning given in paragraph 1 of the Introduction. "GAAP" means accounting principles and practices generally accepted from time to time in the United States as in effect on the Effective Date. "Indebtedness" has the meaning given to such term in the Senior Subordinated Notes Indenture. "Initial Class B Amount" means the Initial Class B-1 Amount plus the Initial Class B-2 Amount. "Initial Class B-1 Amount" means, as of any date of determination, the number of shares of Class B-1 Common Stock issuable upon the conversion of 65,854 shares of Series A-1 Preferred Stock and 84,146 shares of Series B 6 Preferred Stock pursuant to the Series A-1 Certificate of Designations and the Series B Certificate of Designations, respectively, at the respective conversion ratios therefor in effect on the date of the initial filing of such certificates of designations with the Secretary of State of the State of Delaware pursuant to the DGCL (regardless of the number of shares of Series B Preferred Stock issued and outstanding on such date and assuming that this Certificate was in full force and effect on such date), in each case as adjusted for stock dividends and distributions, and subdivisions, combinations or consolidations of stock on or prior to such date of determination. "Initial Class B-2 Amount" means, as of any date of determination, the number of shares of Class B-2 Common Stock issuable upon the conversion of 125,000 shares of Series A-2 Preferred Stock pursuant to the Series A-2 Certificate of Designations at the conversion ratio therefor in effect on the date of the initial filing of the Series A-2 Certificate of Designations with the Secretary of State of the State of Delaware pursuant to the DGCL (assuming that this Certificate was in full force and effect on such date), in each case as adjusted for stock dividends and distributions, and subdivisions, combinations or consolidations of stock on or prior to such date of determination. "Interest Coverage Ratio" means, as of any date of determination, the ratio of Consolidated Cash Flow to Consolidated Interest Expense during the four-quarter period of the most recent four consecutive fiscal quarters ending prior to such determination date. In the event of any incurrence, assumption, guarantee, repayment, repurchase or redemption of any Indebtedness (other than ordinary working capital borrowings, excluding borrowings under the Senior Credit Facility) subsequent to the commencement of the period for which the Interest Coverage Ratio is being calculated and on or prior to the date or event for which the calculation of the Interest Coverage Ratio is made (the "Calculation Date"), then the Interest Coverage Ratio shall be calculated giving effect to the incurrence, assumption, guarantee, repayment, repurchase or redemption of such Indebtedness, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter period. "JLL" has the meaning given in Section 5.3.11. "Management Options" means options to purchase up to an aggregate of 1,790,000 shares of Common Stock at an initial exercise price of $20 per share issued to officers and employees on or before October 2, 2000. "Mandatory Conversion" has the meaning set forth in Section 5.3.7(b). 7 "Mandatory Conversion Event" means the occurrence of both of the following: (i) the sum of the Current Class B-1 Amount and the Current Class B-2 Amount representing less than 10% of the Initial Class B Amount; and (ii) neither the holders of Class B Common Stock nor the holders of Series A-2 Preferred Stock being entitled to elect a Director pursuant to Article VIII or the Series A-2 Certificate of Designations, as the case may be. "Market Price" means: (a) with respect to any security, on any given day, (i) if such security is listed or authorized for trading on a national securities exchange, the last sale price of such security, regular way, on such date, or if no such sale takes place on such date, the average of the closing bid and asked prices thereof, on such date, in each case as officially reported on the principal national securities exchange on which such security is listed or authorized for trading, (ii) if such security is not listed or authorized for trading on a national securities exchange but is quoted on the Nasdaq National Market, (A) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (B) if such security is so traded, but no such last trade information is so reported, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, (iii) if such security is not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system but has a nationally recognized existing trading market, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose or (iv) if such security is not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system and does not have a nationally recognized existing trading market, the fair value of such security as (A) determined by an agreement between the Corporation and the holders of a majority of the outstanding shares of Class B Common Stock or (B) if the Corporation and such holders fail to agree, determined jointly by an independent investment banking firm retained by the Corporation and by an independent investment banking firm retained by such holders, or (C) if the Corporation or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Corporation or such holders, as the case may be, determined solely by the firm so retained or (D) if the firms so retained by the Corporation and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms; and (b) with respect to any other asset or property, the fair market value of such asset or property as (i) determined by an agreement between the Corporation and the holders of a majority of the outstanding shares of Class B Common Stock or (ii) if the Corporation and such holders fail to agree, determined jointly by an independent 8 investment banking firm retained by the Corporation and by an independent investment banking firm retained by such holders, or (iii) if the Corporation or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Corporation or such holders, as the case may be, determined solely by the firm so retained or (iv) if the firms so retained by the Corporation and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms. "New Securities" means any Capital Stock issued after the Effective Date by the Corporation for cash consideration, other than: (i) Capital Stock issued upon the conversion or exchange of any series or class of Capital Stock issued and outstanding on the Effective Date into another series or class of Capital Stock of the Corporation without any additional consideration to the Corporation by the holder thereof; (ii) shares of Class B Common Stock issued upon conversion of any shares of Series A Preferred Stock or Series B Preferred Stock into Class B Common Stock; (iii) Capital Stock issued upon conversion of any Class B Common Stock into Class A Common Stock; (iv) dividends or distributions payable in Capital Stock effected in accordance with Section 5.3.3; (v) Capital Stock issued upon the exercise of options or warrants that have been issued prior to, and are outstanding as of, the Effective Date, including the Management Options and the Senior Subordinated Notes Warrants; (vi) Capital Stock issued to employees, consultants, officers or directors of the Corporation pursuant to any stock option plan in effect on October 2, 2000 and consistent with past practice or adopted after October 2, 2000; (vii) Capital Stock issued to holders of Series A Preferred Stock pursuant to the exercise by such holders of their preemptive rights contained in the applicable Series A Certificate of Designations; and (viii) Capital Stock issued to customers in the ordinary course of business consistent with past practice, subject to a maximum amount in any fiscal year of the Corporation, equal or equivalent to (A) 0.5% of the weighted average number of issued and outstanding shares of Common Stock during such fiscal year plus (B) the number of shares permitted under clause (A) for any fiscal year ending after October 2, 2000 but not previously expended. "Non-Class B Directors" means any Director who is neither a Class B-1 Director nor a Class B-2 Director. "Optional Conversion" has the meaning set forth in Section 5.3.7(a). "Options" means rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. For avoidance of doubt, it is stipulated that rights, options or warrants 9 to subscribe for, purchase or otherwise acquire the shares of Common Stock referred to in clause (iii) of the definition of Additional Shares of Common Stock are not Options. "Original Certificate" has the meaning given in paragraph 1 of the Introduction. "Permitted Transferee" has the meaning set forth in Section 5.3.11. "Person" means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. "Preemptive Rights Notice" has the meaning given in Section 5.3.9(a). "Preemptive Rights Portion" has the meaning given in Section 5.3.9(a). "Preferred Stock" has the meaning given in Section 5.2. "Prohibited Transfer" means any Transfer of shares of Class B Common Stock not permitted by Section 5.3.11. "Restricted Holder" means a record holder of shares of Class B-1 Common Stock or Class B-2 Common Stock. "Senior Credit Facility" means the credit facilities evidenced by, and the loans and borrowings extended to the Corporation pursuant to the $825 million Senior Credit Agreement, dated as of October 2, 2000, among the Corporation, as borrower, the subsidiary guarantors parties thereto as subsidiary guarantors, the initial lenders, initial issuing bank and swing line bank named therein, Bank of America, N.A., as Collateral Agent and Administrative Agent, Bank One, N.A., as Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Book-Runner, Lead Arranger and Syndication Agent, and Bank of America Securities LLC, as Joint Book-Runner and Joint Lead Arranger, and any one or more deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto or replacements thereof (including, without limitation, any amendment increasing the amount that may be borrowed thereunder) and any agreement providing therefor whether by or with respect to the same or any other agents, lenders, creditors or group of creditors (or any combination thereof) and including related notes, guarantee agreements, security agreements and other instruments executed in connection therewith. "Senior Subordinated Notes" means the Corporation's Senior Subordinated Notes due 2010 issued October 2, 2000 in the initial principal 10 amount of $200,000,000 (the "initial notes") and any notes registered under the Securities Act that are issued in exchange for such notes, and any deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto or replacements thereof. "Senior Subordinated Notes Indenture" means the Indenture, dated as of October 2, 2000, between the Corporation and U.S. Trust of Texas. N.A., as trustee pursuant to which the Corporation's Senior Subordinated Notes due 2010 in the principal amount of $200,000,000 were issued, as the same may be amended from time to time. "Senior Subordinated Notes Warrants" means the warrants to purchase Class A Common Stock issued on October 2, 2000 to Rite Aid Corporation. "Series A Certificates of Designations" means the Series A-1 Certificate of Designations and the Series A-2 Certificate of Designations. "Series A-1 Certificate of Designations" means (i) prior to the Effective Date, the Certificate of Designations for the Series A-1 Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on October 2, 2000, and (ii) following the Effective Date, Exhibit A hereto, in each case as amended, supplemented or restated from time to time. "Series A-2 Certificate of Designations" means (i) prior to the Effective Date, the Certificate of Designations for the Series A-2 Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on October 2, 2000, and (ii) following the Effective Date, Exhibit B hereto, in each case amended, supplemented or restated from time to time. "Series A Preferred Stock" means the Series A-1 Preferred Stock and the Series A-2 Preferred Stock. "Series A-1 Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series A-1 11% Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and other special rights and qualifications, limitations and restrictions set forth in the Series A-1 Certificate of Designations. "Series A-2 Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series A-2 11% Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and other special rights and qualifications, limitations and restrictions set forth in the Series A-2 Certificate of Designations. 11 "Series B Certificate of Designations" means (i) prior to the Effective Date, the Certificate of Designations for the Series B Preferred Stock filed pursuant to the DGCL with the Secretary of State of the State of Delaware on October 2, 2000, and (ii) following the Effective Date, Exhibit C hereto, in each case as amended, supplemented or restated from time to time. "Series B Preferred Stock" means the Preferred Stock designated by the Board of Directors as Series B Convertible Preferred Stock and having the powers, designations, preferences, and the relative, participating, optional and other special rights and qualifications, limitations and restrictions set forth in the Series B Certificate of Designations. For avoidance of doubt, it is expressly stipulated that all issued and outstanding shares of Series B Preferred Stock will automatically be converted into Class B-1 Common Stock on the Effective Date, and thereafter such converted shares of Series B Preferred Stock shall have the status of authorized but unissued shares of Preferred Stock and the Series B Preferred Stock shall no longer be a designated series of Preferred Stock. "Stockholders' Agreement" means the Stockholders' Agreement, dated as of October 2, 2000, among the Corporation, Joseph Littlejohn & Levy Fund III, L.P., Rite Aid Corporation and the other Persons named therein, as the same may be amended, supplemented or restated from time to time. "Subsidiary" means, with respect to any specified Person: (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by a Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (A) the sole general partner or the managing general partner of which is the Person or a Subsidiary of that Person or (B) the only general partners of which are the Person or one or more Subsidiaries of that Person (or any combination thereof). "Transfer" means any direct or indirect (including, without limitation, through the transfer of a controlling interest in a transferee) sale, transfer, assignment, grant of participation interest in, option, pledge, hypothecation, encumbrance or other disposition. "Voting Default" means the taking of any of the actions set forth in clauses (i) through (ix) of Section 5.3.10(b) or any of the actions set forth in Section 5.3.10(c) in violation of the provisions of such sections. 12 "Voting Stock" means, with respect to any Person, the Capital Stock of any class or kind ordinarily having the power to vote generally for the election of directors (or other persons or bodies performing similar functions) of such Person. ARTICLE V CAPITAL STOCK ------------- Section 5.1 Authorized Capital Stock. The aggregate number of shares of capital stock that the Corporation is authorized to issue is _______ shares, consisting of (a) ________ shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), (b) _____ shares of Class B-1 Common Stock, par value $.01 per share (the "Class B-1 Common Stock"), (c) ________ shares of Class B-2 Common Stock, par value $.01 per share (the "Class B-2 Common Stock"), and (d) 5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). Upon the effectiveness of this Certificate pursuant to the DGCL (the "Effective Time"), each share of common stock, par value $0.01 per share, of the Corporation issued and outstanding immediately prior to the Effective Time shall be reclassified, changed, converted and exchanged into one share of Class A Common Stock. From and after the Effective Time, stock certificates that immediately prior to the Effective Time represented such shares of common stock shall automatically and without the necessity of presenting the same for exchange, represent shares of Class A Common Stock. Section 5.2 Preferred Stock. Of the authorized Preferred Stock, ____________ shares are designated Series A-1 11% Preferred Stock (the "Series A-1 Preferred Stock"), ____________ shares are designated Series A-2 11% Preferred Stock (the "Series A-2 Preferred Stock"), and ___________ shares are designated Series B Convertible Preferred Stock (the "Series B Preferred Stock"). The respective rights, preferences and powers, and the restrictions, qualifications and limitations thereon, granted to and imposed on the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock are set forth in Exhibits A, B and C, respectively, to this Certificate and incorporated herein by reference. Except for the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock, all shares of Preferred Stock may be issued, from time to time, with such powers, designations, preferences and relative, participating, optional or other special rights, including voting rights, and qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors in accordance with this Certificate and the DGCL. 13 Section 5.3 Common Stock. 5.3.1 Generally. Except as otherwise provided in this Certificate or as required by the DGCL, all shares of Class A Common Stock, Class B-1 Common Stock and Class B-2 Common Stock shall be identical in all respects and shall entitle the holders thereof to the same rights, powers and preferences. 5.3.2 Issuance of Class B Common Stock. Shares of Class B-1 Common Stock and Class B-2 Common Stock may only be issued upon the conversion of Series A-1 Preferred Stock, Series A-2 Preferred Stock or Series B Preferred Stock, as applicable, into Class B-1 Common or Class B-2 Common Stock, as applicable, in accordance with the applicable Series A Certificate of Designations or the Series B Certificate of Designations, as the case may be, or in accordance with this Section 5.3, and may not be issued for any other purpose. 5.3.3 Dividends and Distributions. Subject to the rights of holders of Preferred Stock, holders of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Company as may be declared and paid thereon by the Board of Directors from time to time. The holders of the Class A Common Stock, the Class B-1 Common Stock and the Class B-2 Common Stock shall be entitled to receive and to share equally and ratably, share and share alike, any such dividends and other distributions, subject to the following: (i) if the Conversion Ratio on the record date for payment of any such dividend or distribution is other than one, then the amount of such dividend or distribution allocated between the shares of Class A Common Stock, on the one hand, and the shares of Class B Common Stock, on the other hand, shall be adjusted to be proportionate based on the Conversion Ratio then in effect; and (ii) if the dividends or distributions that are declared are payable in shares of Common Stock, such dividends or distributions will be declared at the same rate on each such class of Common Stock, and the dividends or distributions payable to holders of Class A Common Stock will be paid in Class A Common Stock, the dividends or distributions payable to holders of Class B-1 Common Stock will be paid in Class B-1 Common Stock and the dividends or distributions payable to holders of Class B-2 Common Stock will be paid in Class B-2 Common Stock. 5.3.4 Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and distribution in full of preferential amounts (if any) to be distributed to the holders of shares of Preferred Stock, the holders of shares of Class A Common Stock, Class B-1 Common Stock and Class B-2 14 Common Stock shall be entitled to share equally, on a share for share basis, in the remaining net assets of the Corporation available for distribution to the stockholders of the Corporation. Notwithstanding anything in the foregoing to the contrary, if the Conversion Ratio at the time of the liquidation, dissolution or winding up of the affairs of the Corporation is other than one, then the net assets of the Corporation allocated between the shares of Class A Common Stock, on the one hand, and the shares of Class B Common Stock, on the other hand, shall be adjusted to be proportionate based on the Conversion Ratio then in effect. Neither the consolidation nor the merger of the Corporation with or into any other Person, nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 5.3.4. 5.3.5 Subdivisions, Combinations or Consolidations of Common Stock. The Corporation may not subdivide, combine, consolidate or reclassify any class of Common Stock without subdividing, combining, consolidating or reclassifying each other class of Common Stock on an equal per share basis. Without limiting the generality of the foregoing: (i) in the event the outstanding shares of any class of Common Stock are subdivided or reclassified into a greater number of shares of Common Stock, then and in each such case the Corporation shall effect a corresponding subdivision or reclassification of the outstanding shares of each other class of Common Stock into a greater number of shares of each such class on an equal and proportionate basis; and (ii) in the event the outstanding shares of any class of Common Stock are combined, consolidated or reclassified into a lesser number of shares of such Common Stock, then and in each such case the Corporation shall effect a corresponding combination, consolidation or reclassification of the outstanding shares of each other class of Common Stock into a lesser number of shares of each such class on an equal and proportionate basis. 5.3.6 Consolidation Merger, Sale of Assets, etc. In the event the Corporation (i) consolidates with or merges into any other corporation or entity and is not the continuing or surviving corporation or entity of such consolidation or merger, (ii) permits any other corporation or entity to consolidate with or merge into the Corporation and the Corporation is the continuing or surviving corporation but, in connection with such consolidation or merger, the shares of any class of Common Stock are changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (iii) transfers all or substantially all of its properties or assets, directly or indirectly, to any other corporation or entity (other than to a wholly owned Subsidiary of the Corporation if such Subsidiary remains wholly owned by the Corporation after such 15 transfer or any transaction or series of transactions related to such transfer), then, and in each such event, holders of each class of Common Stock shall be entitled to receive the stock and other securities, cash and property, if any, to be received as a result of any such transaction on an equal per share basis with the holders of each other class of Common Stock, except that if the Conversion Ratio at the time of any such transaction is other than one, then the stock and other securities, cash and property, to be allocated between the shares of Class A Common Stock, on the one hand, and shares of Class B Common Stock, on the other hand, shall be adjusted to be proportionate based on the Conversion Ratio then in effect. 5.3.7 Conversion of Class B Common Stock. (a) Optional Conversion. Subject to and in compliance with the provisions of this Section 5.3.7, each holder of shares of Class B Common Stock may, at any time and from time to time, at such holder's election, convert any or all outstanding shares of Class B Common Stock of such holder into shares of Class A Common Stock (such conversion, an "Optional Conversion"). (b) Mandatory Conversion. Subject to the provisions of this Section 5.3.7, (i) upon the occurrence of a Prohibited Transfer, all of the outstanding shares of Class B Common Stock being Transferred in such Prohibited Transfer shall automatically convert into shares of Class A Common Stock, and (ii) upon the occurrence of a Mandatory Conversion Event, all of the outstanding shares of Class B Common Stock shall automatically convert into shares of Class A Common Stock (any such conversion, a "Mandatory Conversion"). (c) Conversion Ratio. Upon any Optional Conversion or a Mandatory Conversion, the holder of the shares of Class B Common Stock being converted shall receive a number of shares of Class A Common Stock equal to the product of (A) the number of shares of Class B Common Stock being converted and (B) the Conversion Ratio then in effect. The "Conversion Ratio" shall initially be one, and shall be subject to adjustment from time to time pursuant to Section 5.3.8. (d) Conversion Mechanics. (i) In the case of an Optional Conversion, the holder of the shares of Class B Common Stock to be converted shall surrender the certificate representing such shares at the principal office of the Corporation, with a written notice of election to convert completed and signed, specifying the number of shares to be converted. Unless the shares issuable on such Optional Conversion are to be issued in the same name as the name in which such shares of Class B Common Stock are registered, each share surrendered for such Optional Conversion shall be accompanied by instruments of transfer, in form satisfactory 16 to the Corporation, duly executed by the holder or the holder's duly authorized attorney. The Corporation shall not be obligated to issue certificates for shares of Class A Common Stock in any name other than the name or names set forth on the certificates for the shares of Class B Common Stock unless the requirements of the Stockholders' Agreement relating to the transfer of shares of Class B Common Stock have been complied with or waived by the Corporation. (ii) In the event of a Mandatory Conversion, (A) if such Mandatory Conversion is pursuant to clause (i) of Section 5.3.7(b), all shares of Class B Common Stock Transferred in the related Prohibited Transfer, and (B) if such Mandatory Conversion is pursuant to clause (ii) of Section 5.3.7(b), all outstanding shares of Class B Common Stock, shall be converted automatically without any further action by the holder or holders thereof and whether or not the certificates representing such shares are surrendered at the office of the Corporation. The Corporation shall issue certificates representing the shares of Class A Common Stock issuable upon such Mandatory Conversion upon the surrender of certificates representing the corresponding shares of Class B Common Stock, in the same name as the name in which such shares of Class B Common Stock are registered. (iii) Notwithstanding clause (i) or (ii) of this Section 5.3.7(d), if the holder of any share or shares of Class B Common Stock certifies to the Corporation that the certificates representing such share or shares have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such lost, stolen or destroyed certificates (and, if requested by the Corporation, posts a customary bond reasonably satisfactory to the Corporation to cover such loss), then the Corporation shall issue certificates representing the Class A Common Stock issuable upon any Optional Conversion or Mandatory Conversion, as the case may be, in the name of such holder. (iv) In connection with any Conversion, as promptly as practicable after the delivery by a holder of shares of Class B Common Stock of the certificates for shares of Class B Common Stock (or in the case of a lost certificate, the certification, the agreement and, if requested, posting of the bond described in clause (iii) of this Section 5.3.7(d)), the Corporation shall issue and shall deliver to such holder, or, on the holder's written order, to the holder's transferee, (A) a certificate or certificates for the whole number of shares of Class A Common Stock issuable upon the Conversion of such shares in accordance with the provisions of this Section 5.3.7, (B) any cash adjustment required pursuant to Section 5.3.7(g), and (C) in the event of an Optional Conversion in part, a certificate or certificates for the whole number of shares of Class B Common Stock not being so converted. 17 (v) Each Conversion shall be deemed to have been effected immediately prior to the close of business on the applicable Conversion Date. The Person in whose name or names any certificate or certificates for shares of Class A Common Stock shall be issuable upon such Conversion shall be deemed to have become the holder of record of the shares of Class A Common Stock represented thereby at such time on the applicable Conversion Date and such Conversion shall be into a number of whole shares of Class A Common Stock equal to the product of the number of shares of Class B Common Stock surrendered multiplied by the Conversion Ratio in effect on the applicable Conversion Date. All shares of Class A Common Stock delivered upon conversion of the Class B Common Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens, pledges and other security interests and not subject to any preemptive rights. As of the effective time of such Conversion, the shares of Class B Common Stock to be so converted will no longer be deemed to be outstanding and all rights of a holder with respect to such shares so converted shall immediately terminate, except the right to receive the Class A Common Stock and other amounts payable pursuant to this Section 5.3.7 and, in the event of an Optional Conversion in part, a certificate or certificates representing the shares of Class B Common Stock not converted. (e) Reservation of Shares; Compliance with Laws. The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Class A Common Stock as shall be required for the purpose of effecting Conversions of Class B Common Stock (including the Conversion of all shares of Class B Common Stock issuable from time to time upon conversion of shares of Series A-1 Preferred Stock or Series A-2 Preferred Stock). Prior to the delivery of any Class A Common Stock that the Corporation is obligated to deliver upon an Optional Conversion or Mandatory Conversion, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (f) Transfer Taxes, etc. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Class A Common Stock upon any Conversion, other than any tax payable in respect of any transfer involved in the issue or delivery of shares of Class A Common Stock in a name other than that of the holder of the Class B Common Stock to be converted. The Corporation shall have the right not to issue or deliver any shares of Class A Common Stock in a name other than that of the holder of the Class B Common Stock to be converted unless and until the Person requesting such issuance or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. 18 (g) No Fractional Shares. No fractions of shares of Class A Common Stock shall be required to be issued to a holder in connection with a Conversion. In lieu thereof, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Current Market Price per share of Class A Common Stock on the Conversion Date. (h) No Impairment. The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other voluntary action, avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 5.3.7 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion rights of the holders of the Class B Common Stock against impairment. Without limiting the generality of the foregoing, the Corporation (i) will take all such action as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid nonassessable shares of Class A Common Stock on any Conversion, free of all preemptive rights, and (ii) will not take any action which results in any adjustment of the applicable Conversion Ratio if the total number of shares of Class A Common Stock issuable after the action upon the Conversion of all of the Class B Common Stock (including the Conversion of all shares of Class B Common Stock issuable from time to time upon conversion of shares of Series A-1 Preferred Stock or Series A-2 Preferred Stock) will exceed the total number of shares of Class A Common Stock then authorized by this Certificate of Incorporation and available for the purpose of issuance upon such Conversion. 5.3.8 Adjustments to Conversion Ratio. (a) Adjustment of Conversion Ratio Upon Issuance of Additional Shares of Common Stock. In the event the Corporation, at any time after the Effective Date, issues or sells Additional Shares of Common Stock for a consideration per share less than the Current Market Price in effect immediately prior to such issuance or sale, then and in each such event, the Conversion Ratio shall be adjusted, concurrently with such issue or sale, by multiplying the Conversion Ratio then in effect by a fraction, (i) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issuance or sale plus (B) the number of shares of Additional Shares of Common Stock so issued or sold, and (ii) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (B) the number of shares of Common Stock that the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued or sold would purchase at the Current Market Price in effect immediately prior to such issuance or sale. The provisions of this Section 5.3.8(a) shall not apply to any issuance or sale of Additional Shares of Common Stock subject to the provisions of Sections 5.3.3 or 5.3.5. 19 (b) Issuances of Securities Deemed Issuances of Additional Shares of Common Stock. In the event (x) the Corporation at any time after the Effective Date shall issue, sell or grant any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities and (y) the consideration per share for the Additional Shares of Common Stock issuable upon the exercise of such Options, or in the case of Convertible Securities, the conversion or exchange of such Convertible Securities shall be less than the Current Market Price in effect immediately prior to such issue, sale or grant, or such record date, as the case may be, then, and in each such case, (A) the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issuances of Additional Shares of Common Stock issued as of the time of such issue, sale or grant or, in case such a record date shall have been fixed, as of the close of business on such record date, and (B) the Conversion Ratio shall be adjusted in accordance with Section 5.3.8(a) on the date of and immediately prior to such issue, sale or grant, or the record date, as the case may be. In any such case in which Additional Shares of Common Stock are deemed to be issued or sold pursuant to this Section 5.3.8(b): (1) no further adjustment in the applicable Conversion Ratio shall be made upon the subsequent issuance of Convertible Securities or Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Corporation, or increase in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the adjustments to the Conversion Ratio computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such decrease or increase becoming effective, be recomputed (and the Conversion Ratio shall automatically be adjusted as so recomputed) to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities which are outstanding at such time; and (3) no readjustment pursuant to the preceding clause (2) shall have the effect of decreasing the applicable Conversion Ratio to an amount which is less than the higher of (A) the applicable Conversion Ratio on the original adjustment date and (B) the applicable Conversion Ratio that would have resulted from any 20 issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. The consideration per share deemed to be received by the Corporation for Additional Shares of Common Stock relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, actually received by the Corporation as consideration for the issuance, sale, grant or assumption of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating to such Options or Convertible Securities without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise in full of such Options or the conversion or exchange in full of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise in full of such Options for Convertible Securities and the conversion or exchange in full of such Convertible Securities, by (y) the maximum number of Additional Shares of Common Stock (as set forth in the instruments relating to such Options or Convertible Securities, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (c) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Ratio pursuant to this Section 5.3.8, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of Series A Preferred Stock and Class B Common Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock, or any Options or Convertible Securities, as the case may be, issued or sold or deemed to have been issued, (ii) the number of shares of Common Stock outstanding or deemed to be outstanding, and (iii) the applicable Conversion Ratio in effect immediately prior to such issue or sale and as adjusted and readjusted on account thereof. The Corporation shall, upon the written request at any time of any holder of shares of Series A Preferred Stock or Class B Common Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) the applicable Conversion Ratio at the time in effect, and showing how it was calculated, and (ii) the number of shares of Class A Common Stock and the amount, if any, of other property which at the time would be received upon a Conversion. At the request of the holders of a majority of the then outstanding Class B Common Stock, the Corporation will have the certificates referred to in this Section 5.3.8(c) prepared and delivered by an internationally recognized independent accounting firm. 21 5.3.9 Preemptive Rights. (a) The Corporation shall provide each holder of Class B Common Stock with a written notice (a "Preemptive Rights Notice") of any proposed issuance by the Corporation of any New Securities at least 30 days prior to the proposed issuance date. Such notice shall specify the price at which the New Securities are to be issued and the other material terms of the issuance. Each holder of Class B Common Stock shall be entitled to purchase, at the price and on the terms at which such New Securities are proposed to be issued and specified in such Preemptive Rights Notice, such holder's Preemptive Rights Portion of such class of the New Securities proposed to be issued. "Preemptive Rights Portion" means the pro rata portion of New Securities proposed to be issued by the Corporation, which amount shall, for each holder of Class B Common Stock, be based upon the ratio of (i) the number of shares of Class A Common Stock into which such holder's Class B Common Stock would be convertible immediately prior to the issuance of the New Securities to (ii) the total number of issued and outstanding shares of Common Stock immediately prior to the issuance of the New Securities (assuming the conversion of all securities convertible into, and the exercise of all options, warrants or other arrangements representing the right to purchase or otherwise acquire any shares of Common Stock). (b) A holder of Class B Common Stock may exercise its rights under this Section 5.3.9 by delivering written notice of its election to purchase New Securities to the Corporation within 15 days of receipt of the Preemptive Rights Notice. A delivery of such a written notice (which notice shall specify the amount of New Securities to be purchased by the holder submitting such notice) by such holder shall constitute a binding agreement of such holder to purchase, at the price and on the terms specified in the Preemptive Rights Notice, the number of New Securities specified in such holder's written notice. (c) In the case of any issuance of New Securities, the Corporation shall have 90 days from the date of the Preemptive Rights Notice to consummate the proposed issuance of any or all of such New Securities which the holders of Class B Common Stock have not elected to purchase at the price and upon terms that are not materially less favorable to the Corporation than those specified in the Preemptive Rights Notice. At the consummation of such issuance, the Corporation shall issue certificates representing the New Securities to be purchased by each holder of Class B Common Stock exercising preemptive rights pursuant to this Section 5.3.9 registered in the name of such holder, against payment by such holder of the purchase price for such New Securities. If the Corporation proposes to issue such New Securities after such 90-day period, it shall again comply with the procedures set forth in this Section 5.3.9. (d) Other than as provided in this Certificate with respect to the Class B Common Stock or Series A Preferred Stock or as specifically authorized in the certificate 22 of designation establishing the terms of any other series of Preferred Stock or in an agreement approved by the Board of Directors, no holder of shares of any class or series of capital stock shall be entitled to any preemptive or preferential right to purchase or subscribe to the Capital Stock. 5.3.10 Voting Rights. (a) General. Except as otherwise provided in this Certificate or required by law, (i) the holders of the Common Stock shall be entitled to vote on all matters requiring stockholder action, each outstanding share of Class A Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote and each share of Class B Common Stock shall entitle the holder thereof to a number of votes equal to the number of votes which could be cast in such vote by a holder of the shares of Class A Common Stock into which such share of Class B Common Stock is convertible on the record date for such vote, and (ii) the holders of the Class A Common Stock, Class B-1 Common Stock and Class B-2 Common Stock shall vote together as one class on all such matters. Notwithstanding the foregoing, unless otherwise required by law, (i) except as set forth in Sections 5.3.10(b) and 5.3.10(c) with respect to holders of Class B Common Stock, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate (or on any amendment to a certificate of designations of any series of Preferred Stock) that only alters or changes the powers, preferences, rights or other terms of one or more outstanding series or class of Preferred Stock if the holders of such series or class of Preferred Stock are entitled to vote or consent, either separately or together with the holders of one or more other such series or classes of Preferred Stock, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Preferred Stock) or pursuant to the DGCL, (ii) holders of Class A Common Stock, as such, shall not be entitled to vote on any matter submitted to a vote of the holders of Class B Common Stock pursuant to Sections 5.3.10(b) and 5.3.10(c), (iii) holders of Class A Common Stock and Class B Common Stock shall be entitled to vote for Directors only as set forth in Article VIII below, and (iv) holders of Common Stock, as such, shall not be entitled to vote on or consent to any matter submitted to a vote of any series of Preferred Stock in which the holders of such series of Preferred Stock, either separately or together with any other series of Preferred Stock, are entitled to vote pursuant to this Certificate or a certificate of designations of a series of Preferred Stock, unless otherwise provided in such certificate of designations. (b) Matters Subject to Approval of Holders of Class B Common Stock. In addition to any other voting rights provided in this Certificate or required by law, the affirmative vote of the holders of at least two-thirds of the then outstanding shares of Class B-1 Common Stock and Class B-2 Common Stock voting or consenting, as the case may be, together as a separate class shall be required for the Corporation to: 23 (i) amend or repeal any provision of, or add any provision to, this Certificate or the By-Laws so as to affect adversely the powers, rights, preferences including, without limitation, the conversion rights (including the Conversion Ratio) or voting rights, of the shares of Class B-1 Common Stock or Class B-2 Common Stock; (ii) amend or repeal any provision of, or add any provision to, either of the Series A Certificates of Designations; (iii) authorize the issuance of or issue any additional shares of Class B-1 Common Stock or Class B-2 Common Stock, other than upon the conversion of the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock, or pursuant to the provisions of Section 5.3.3. or Section 5.3.5; (iv) incur, or permit any of its Subsidiaries to incur, any Indebtedness (other than any Indebtedness under the Senior Credit Facility or the Senior Subordinated Notes) that would result in the Corporation having an Interest Coverage Ratio of less than 1.50:1.00; provided that such incurrence shall not constitute a violation of this clause (iv) unless the Indebtedness so incurred remains outstanding for at least 30 consecutive days following the initial incurrence thereof; (v) voluntarily file for bankruptcy, liquidation, dissolution or winding up of the Corporation; (vi) increase the number of Directors to more than eleven, unless (A) the holders of Class B-1 Common Stock are entitled to elect an additional Class B-1 Director pursuant to Section 8.4, (B) the holders of Class B-2 Common Stock are entitled to elect an additional Class B-2 Director pursuant to Section 8.4, (C) the holders of Series A-2 Preferred Stock are entitled to elect an additional Class B-2 Director pursuant to the Series A-2 Certificate of Designations, in which case the number of Directors may be increased by the number of such additional Directors as provided in this Certificate, or (D) such increase is otherwise permitted in this Certificate; (vii) have less than three employees or officers of the Corporation or its Subsidiaries serve as Directors (and in the event of any vacancy resulting from the death, disability, resignation, disqualification or removal of such a Director, not have another employee or officer promptly elected or appointed as a Director to fill such vacancy) as provided in this Certificate; 24 (viii) modify or repeal any of the provisions of the By-Laws (A) requiring that the Board of Directors meet no less frequently than once in every calendar quarter, or (B) requiring that each committee of the Board of Directors (including any audit or compensation committee, but excluding any nominating committees for the nomination of Directors) have, as members, a proportional number of Class B-1 Directors and Class B-2 Directors, as a group (in relation to the total number of Directors), unless (1) such representation is prohibited by applicable law or rules of the Nasdaq National Market or such other national securities exchange upon which the Corporation's securities may be listed for trading from time to time, in which case such committees shall have, as members, the maximum number of Class B-1 Directors and Class B-2 Directors permitted by applicable law and rules of the Nasdaq National Market or such national securities exchange, or (2) the Class B-1 Directors and Class B-2 Directors - elect not to serve on any such committee or (C) relating to the number, election, powers or rights of Class B-1 Directors, Class B-2 Directors or Non-Class B Directors; or (ix) enter into any agreement with any Affiliate of the Corporation (other than Subsidiaries of the Corporation) involving amounts in excess of $5 million. (c) So long as the sum of the Current Class B-1 Amount and the Current Class B-2 Amount is equal to or greater than 25% of the Initial Class B Amount and equal to or greater than 5% of the total issued and outstanding shares of Common Stock (assuming the conversion of all securities convertible into, and the exercise of all options, warrants or other arrangements representing the right to purchase or otherwise acquire, any shares of Common Stock), in addition to any other voting rights provided in this Certificate or required by law, the affirmative vote of the holders of at least two-thirds of the then outstanding shares of Class B-1 Common Stock and Class B-2 Common Stock voting or consenting, as the case may be, together as a separate class, shall be required for the Corporation to undertake, effect or consummate any transaction or series of transactions (i) described in clauses (i) through (iii) of Section 5.3.6, (ii) involving a merger or consolidation of the Corporation with or into any Person, other than a merger or consolidation which would result in the Voting Stock of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent more than 50% of the combined voting power of the Voting Stock of the Corporation or the surviving entity or parent thereof outstanding immediately after such merger or consolidation or (iii) through which the Corporation causes a Change of Control to be effected. 5.3.11 Transfer Restrictions. Any Transfer of shares of Class B Common Stock by a Restricted Holder to a Person other than a Permitted Transferee shall result in the automatic conversion (pursuant to Section 5.3.7(b)) into shares of Class A Common Stock of the shares of Class B Common Stock of such Restricted Holder so transferred. 25 The Corporation may, at its discretion, as a condition to the transfer or registration of transfer of Class B Common Stock to a purported Permitted Transferee, require the furnishing of affidavits or other proof as it deems reasonably necessary to establish that the proposed transferee is a Permitted Transferee. The term "Permitted Transferee" means, (a) with respect to a holder of Class B-1 Common Stock, (i) any direct or indirect Subsidiary of any Person who was a record holder of Series B Preferred Stock on the date of the initial filing of the Series B Certificate of Designations, (ii) any investment fund managed by Joseph Littlejohn & Levy, Inc., a Delaware corporation ("JLL"), (iii) any Person who is or becomes an investor in a fund managed by JLL including Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership, (iv) the heirs, executors, administrators, testamentary trustees or legatees of any individual who was a record holder of Series A-1 Preferred Stock or Series B Preferred Stock, (v) the spouses and the lineal descendants of any individual who owned shares of Series A-1 Preferred Stock or Series B Preferred Stock on the date of the initial filing of the Series A-1 Certificate of Designations and the Series B Certificate of Designations, and (vi) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only (A) an individual who was a holder of Series A-1 Preferred Stock or Series B Preferred Stock on the date of the initial filing of the Series A-1 Certificate of Designations and the Series B Certificate of Designations, and (B) the Persons referred to in clause (v), and (b) with respect to a holder of Class B-2 Common Stock, (i) any Subsidiary of such holder, (ii) Rite Aid Corporation, a Delaware corporation, and any direct or indirect Subsidiary of Rite Aid Corporation, and (iii) any Person who is an institutional lender acquiring such shares of Class B-2 Common Stock or a security interest therein or pledge thereof from any Person referred to in clause (ii) as security for Indebtedness of such Person referred to in clause (ii) (including any such acquisition upon foreclosure). ARTICLE VI TERM ---- The Corporation is to have perpetual existence. ARTICLE VII WINDING UP; RECEIVERSHIP ------------------------ Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation 26 under the provisions of Section 291 of the DGCL, or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the DGCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. ARTICLE VIII BOARD OF DIRECTORS; BY-LAWS --------------------------- Section 8.1 General Powers. Except as otherwise expressly provided in this Certificate, the property, affairs and business of the Corporation shall be managed under the direction of the Board of Directors and, except as otherwise expressly provided by the DGCL, this Certificate or the By-Laws, all of the powers of the Corporation shall be vested in the Board of Directors. Section 8.2 Number of Directors. The number of Directors of the Corporation shall initially be 11 and shall initially consist of three Class A Directors, two Class B-1 Directors, two Class B-2 Directors, three Class C Directors and one Class D Director. The number of Directors shall be subject to increase or decrease (i) as provided in this Certificate, (ii) pursuant to the terms of any Preferred Stock issued by the Corporation with the approval of a majority of the Class A Directors, a majority of the Class C Directors, and all of the Class B Directors, or (iii) as otherwise may be determined by the unanimous approval of the Board. Section 8.3 Reduction in Number of Class B Directors. 8.3.1 Reduction in Class B-1 Directors. Notwithstanding Section 8.2, if, at any time, (i) the Current Class B-1 Amount shall represent less than 50% of the Initial Class B-1 Amount, then the number of Class B-1 Directors shall be reduced by one and the term of the Class B-1-II Director shall automatically terminate, and (ii) the Current Class B-1 Amount shall represent less than 10% of the Initial Class B-1 Amount, then the number of Class B-1 Directors shall be reduced to zero Class B-1 Directors and the term of the Class B-1-I Director shall automatically terminate. 27 8.3.2 Reduction in Class B-2 Directors. Notwithstanding Section 8.2, if, at any time after the second anniversary of the Effective Date, (i) the Current Class B-2 Amount shall represent less than 50% of the Initial Class B-2 Amount, then the number of Class B-2 Directors shall be reduced by one and the term of the Class B-2-II Director shall automatically terminate, and (ii) the Current Class B-2 Amount shall represent less than 10% of the Initial Class B-2 Amount, then the number of Class B-2 Directors shall be reduced to zero Class B-2 Directors and the term of the Class B-2-I Director shall automatically terminate. 8.3.3 Reduction in Total Directors. Upon any reduction in the number of Class B-1 Directors or Class B-2 Directors pursuant to the terms of this Certificate, the total number of total Directors shall automatically be reduced by the number of the reduction in the number of Class B-1 Directors or Class B-2 Directors, as applicable. Section 8.4 Right of Holders to Elect Additional Directors. Notwithstanding Sections 8.2 or 8.3, if a Voting Default shall occur after the Effective Date and: (i) if there are shares of Class B-1 Common Stock issued and outstanding at the time of such Voting Default, then the total number of Directors shall be increased by one additional Director, which is hereby deemed to be a Class B-1 Director, and the total number of Directors constituting the Class B-1 Directors shall be automatically increased by one and (A) prior to the first annual meeting of stockholders after such Voting Default, such additional Director shall be designated by the Class B-1 Directors, and (B) at and following the first annual meeting of stockholders after the date of such Voting Default, such additional Director shall be elected by the holders of shares of Class B-1 Common Stock, voting or consenting separately as a single class; and (ii) if there are shares of Class B-2 Common Stock issued and outstanding at the time of such Voting Default, then the total number of Directors shall be increased by one additional Director, which is hereby deemed to be a Class B-2 Director, and the total number of Directors constituting the Class B-2 Directors shall be automatically increased by one and (A) prior to the first annual meeting of stockholders after such Voting Default, such additional Director shall be designated by the Class B-2 Directors, and (B) following the first annual meeting of stockholders after the date of such Voting Default, such additional Director shall be elected by the holders of shares of Class B-2 Common Stock voting or consenting separately as a single class. Any additional Directors elected pursuant to this Section 8.4 shall not be divided into classes pursuant to Section 8.5.6, the term of any such Director elected by holders of Class B-1 Common Stock shall automatically terminate when the number of Class B-1 Directors is reduced to zero pursuant to Section 8.3.1, and the term of any such Director 28 elected by holders of Class B-2 Common Stock shall automatically terminate when the number of Class B-2 Directors is reduced to zero pursuant to Section 8.3.2. Section 8.5 Election of Directors. 8.5.1 Class A Directors. Prior to each annual meeting of stockholders, the Corporation's nominees for Class A Directors standing for election at such meeting shall be nominated by a majority of the Non-Class B Directors then in office. The Class A Directors shall be elected by plurality vote of the holders of the shares of Class A Common Stock, voting or consenting (as the case may be) separately as a single class. Each Class A Director so elected shall at the time of such election be designated as a Class A-I Director, a Class A-II Director or a Class A-III Director, as applicable, and shall hold office as set forth in Section 8.5.6. 8.5.2 Class B-1 Directors. Prior to each annual meeting of stockholders, the Corporation's nominees for Class B-1 Directors standing for election at such meeting shall be nominated by a majority of the Class B-1 Directors then in office. The Class B-1 Directors shall be elected by plurality vote of the holders of the shares of Class B-1 Common Stock, voting or consenting (as the case may be) separately as a single class. Other than the Class B-1 Director elected or appointed pursuant to Section 8.4, each Class B-1 Director so elected, shall at the time of such election be designated as a Class B-1-I Director or a Class B-1-II Director, as applicable, and shall hold office as set forth in Section 8.5.6. 8.5.3 Class B-2 Directors. Prior to each annual meeting of stockholders, the Corporation's nominees for Class B-2 Directors standing for election at such meeting shall be nominated by a majority of the Class B-2 Directors then in office. So long as there are any outstanding shares of Series A-2 Preferred Stock, the Class B-2 Directors shall be elected by holders of Series A-2 Preferred Stock pursuant to the Series A-2 Certificate of Designations. From and after the conversion of the Series A-2 Preferred Stock into Class B-2 Common Stock, the Class B-2 Directors shall be elected by plurality vote of the holders of the shares of Class B-2 Common Stock, voting or consenting (as the case may be) separately as a single class, present in person or by proxy at such meeting and entitled to vote on the election of Class B-2 Directors. Other than the Class B-2 Director elected or appointed pursuant to Section 8.4, each Class B-2 Director so elected shall at the time of such election be designated as a Class B-2-I Director or a Class B-2-II Director, as applicable, and shall hold office as set forth in Section 8.5.6. 8.5.4 Class C Directors. Prior to each annual meeting of stockholders, the Corporation's nominees for Class C Directors standing for election at such meeting shall be nominated by vote of a majority of the Class A and Class C Directors then in office. The Class C Directors shall be elected by plurality vote of the holders of the shares of Class A Common Stock, voting or consenting (as the case may be) separately as a single 29 class. Each Class C Director so elected shall at the time of such election be designated as a Class C-I Director, a Class C-II Director or a Class C-III Director, as applicable, and shall hold office as set forth in Section 8.5.6. 8.5.5 Class D Director. Prior to each annual meeting of stockholders the record date for which is prior to the Class D Termination Date, the Corporation's nominee for the Class D Director shall be an individual designated by vote of (i) a majority of the Class A Directors then in office, and (ii) approved by all of the Class B Directors then in office, such approval not to be unreasonably withheld. The Class D Director shall be elected by plurality vote of the holders of the shares of Common Stock, voting together as a single class. Following the Class D Termination Date, the class of Class C Directors shall increase by one, the Class D Director then in office shall become a Class C Director and the class of Class D Director shall cease to exist. 8.5.6 Classification by Term of Office. The Class A Directors shall be divided into three classes, designated Class A-I, Class A-II and Class A-III, with one Class A-I Director, one Class A-II Director and one Class A-III Director. The Class B-1 Directors shall be divided into two classes, designated Class B-1-I, and Class B-1-II, with one Class B-1-I and one Class B-1-II Director. The Class B-2 Directors shall be divided into two classes, designated Class B-2-I and B-2-II, with one Class B-2-I Director and one Class B-2-II Director. The Class C Directors shall be divided into three classes, designated Class C-I, Class C-II and Class C-III, with one Class C-I Director, one Class C-II Director and one Class C-III Director. The term of the initial Class A-I, Class B-1-I, Class B-2-I and Class C-I Directors shall terminate on the first annual meeting of stockholders of the Corporation following the Effective Date, the term of the initial Class A-II, Class B-1-II, Class B-2-II and Class C-II Directors shall terminate on the second annual meeting of stockholders of the Corporation following the Effective Date, and the term of the initial Class A-III, Class C-III Director and Class D Director shall terminate on the third annual meeting of stockholders of the Corporation following the Effective Date. At each annual meeting of stockholders of the Corporation, successors to the Directors whose terms expire at that annual meeting shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Except as otherwise provided herein, a Director shall hold office until the annual meeting of stockholders for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Section 8.6 Directors Elected by Holders of Preferred Stock. Notwithstanding anything in the foregoing to the contrary, except as provided herein with respect to the Class B-2 Directors elected by the holders of Series A-2 Preferred Stock pursuant to Section 8.5.3, the holders of any one or more series of Preferred Stock may have the right to elect Directors if the creation of such series of Preferred Stock was authorized by a majority of the Class A Directors, a majority of the Class C Directors and all of the Class 30 B Directors. The election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of any certificate of designations applicable thereto (authorized in accordance with the preceding sentence), and the Directors so elected shall not be divided into classes pursuant to Section 8.5.6. During any period when the holders of any series of Preferred Stock have the right to elect additional Directors as provided for or fixed pursuant to the terms of such series of Preferred Stock, then upon commencement and for the duration of the period during which such right continues: (i) the then otherwise total authorized number of Directors of the Corporation shall automatically be increased by such specified number of Directors, and the holders of such Preferred Stock shall be entitled to elect the additional Directors so provided for or fixed pursuant to said provisions and (ii) each such additional Director shall serve until such Director's successor shall have been duly elected and qualified, or until such Director's right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to such Director's earlier death, disqualification, resignation or removal. Except as otherwise provided by the Board of Directors in the resolution or resolutions establishing such series, whenever the holders of any series of Preferred Stock having such right to elect additional Directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional Directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional Directors, shall forthwith terminate and the total and authorized number of Directors of the Corporation shall be reduced accordingly. Section 8.7 Removal of Directors; Qualification. Subject to the rights, if any, of any class or series of Preferred Stock to elect Directors and to remove any Director whom the holders of any such stock have the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office without cause only by the affirmative vote or consent of the holders of at least a majority of the votes represented by the shares then entitled to vote in the election of such Director. Section 8.8 Vacancies. (a) Except as otherwise provided in this Certificate with respect to the right of the holders of any class or series of Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled: (i) in the case of the Class A Directors, either (A) by the nomination by a majority of the remaining Class A and Class C Directors and election by the 31 same stockholder vote as is required for the election of Class A and Class C Directors or (B) by the vote of a majority of the remaining Class A and Class C Directors then in office, (ii) in the case of the Class B-1 Directors, either (A) by the nomination by all of the remaining Class B-1 Directors and election by the same stockholder vote as is required for the election of Class B-1 Directors or (B) by the vote of all of the remaining Class B-1 Directors then in office, (iii) in the case of the Class B-2 Directors, either (A) by the nomination by all of the remaining Class B-2 Directors and election by the same stockholder vote as is required for the election of the Class B-2 Directors or (B) by the vote of all of the remaining Class B-2 Directors then in office, (iv) in the case of the Class C Directors, either (A) by the nomination by a majority of the remaining Class A and Class C Directors and election by the same stockholder vote as is required for the election of Class C Directors or (B) by the vote of the remaining Class A and Class C Directors then in office, and (v) in the case of the Class D Director (A) by the nomination by a majority of the Class A Directors, and approved by all of the Class B Directors then in office (such approval not to be unreasonably withheld), and election by the same stockholder vote as is required by the election of the Class D Director, or (B) by the vote of a majority of the Class A Directors, and approved by all of the Class B Directors then in office (such approval not to be unreasonably withheld). (b) Except as otherwise provided in this Certificate, any Director elected in accordance with Section 8.8(a) shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director's successor shall have been duly elected and qualified or until such Director's earlier resignation or removal. Except as otherwise provided in this Certificate and subject to the rights (if any) of the holders of any series of Preferred Stock, when the number of Directors is increased or decreased, the Board of Directors shall determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided that no decrease in the number of Directors may shorten the term of any incumbent Director (except as otherwise provided in Sections 8.3, 8.4, 8.5.5 and 8.6). (c) In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board of Directors until such vacancy is filled. 32 Section 8.9 By-Laws. Subject to applicable law and the right of the stockholders of the Corporation to adopt, amend or repeal the By-Laws of the Corporation the power to adopt, amend, or repeal the By-Laws of the Corporation shall be exercised by the Board of Directors of the Corporation. Section 8.10 Pertaining to the Chief Executive Officer. In addition to any other vote required by law, the affirmative vote of a majority of the Directors who are not Class A Directors shall be required for any decision of the Corporation regarding the appointment, removal or compensation of the Corporation's Chief Executive Officer, or any transaction between the Corporation (or any of its Subsidiaries) and the Corporation's Chief Executive Officer (or his or her Affiliates). ARTICLE IX DIRECTORS' LIABILITY -------------------- To the fullest extent permitted by the DGCL, a Director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or amendment of this Article IX by the stockholders of the Corporation or by changes in applicable law shall, to the extent permitted by applicable law, be prospective only, and shall not adversely affect any limitation on the personal liability of any director of the Corporation at the time of such repeal or amendment. ARTICLE X INDEMNIFICATION OF DIRECTORS, OFFICERS, ETC. -------------------------------------------- The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding and any inquiry or investigation that could lead to such an action, suit or proceeding (whether or not by or in the right of the Corporation), by reason of the fact that such person is or was a Director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another corporation, partnership, joint venture, sole proprietorship, trust, nonprofit entity, employee benefit plan or other enterprise, against all judgments, penalties (including excise and similar taxes), fines, settlements and expenses (including attorneys' fees and court costs) actually and reasonably incurred by such person in connection with such action, suit or proceeding to the fullest extent permitted by any applicable law, and such indemnity shall inure to the benefit of the heirs, executors and administrators of any such person so indemnified pursuant to this Article X. The right to indemnification under this 33 Article X shall be a contract right and shall include, with respect to directors and officers, the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its disposition; provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article X or otherwise. The Corporation may, by action of its Board of Directors, pay such expenses incurred by employees and agents of the Corporation upon such terms as the Board of Directors deems appropriate. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall not be deemed exclusive of any other right to which those seeking indemnification may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Any repeal or amendment of this Article X by the stockholders of the Corporation or by changes in applicable law shall, to the extent permitted by applicable law, be prospective only, and not adversely affect the indemnification of any person who may be indemnified at the time of such repeal or amendment. ARTICLE XI AMENDMENTS ---------- From time to time any of the provisions of this Certificate may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws and the provisions of this Certificate, and all rights at any time conferred upon the stockholders of the Corporation by this certificate of incorporation are granted subject to the provisions of this Article XI. 34 IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by [_______], its [_______], this ____ day of ________________, ____. ADVANCE PARADIGM, INC. By: _____________________________ Name: Title: 35 EX-6 7 0007.txt STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 2, 2000, AMONG THE ISSUER, JLL FUND III, RITE AID AND CERTAIN OTHER STOCKHOLDERS OF THE ISSUER ================================================================================ STOCKHOLDERS' AGREEMENT among ADVANCE PARADIGM, INC., RITE AID CORPORATION, JOSEPH LITTLEJOHN & LEVY FUND III, L.P. and THE OTHER PERSONS NAMED HEREIN dated as of October 2, 2000 ================================================================================ Table of Contents ----------------- ARTICLE I DEFINITIONS
Page ---- Section 1.1. Definitions.................................................................1 ARTICLE II CORPORATE GOVERNANCE AND MANAGEMENT Section 2.1. Composition of the Board...................................................12 Section 2.2. Election of Directors......................................................13 Section 2.3. Certain Provisions Regarding the Board of Directors........................14 Section 2.4. Charter and Bylaws.........................................................15 ARTICLE III REGISTRATION RIGHTS Section 3.1. Required Registrations.....................................................15 Section 3.2. "Piggy-Back"Registration Rights............................................20 Section 3.3. Registration Procedures....................................................21 Section 3.4. Delay of Filing or Sales...................................................25 Section 3.5. Underwritten Offerings.....................................................25 Section 3.6. Indemnification............................................................27 Section 3.7. Rule 144...................................................................30 Section 3.8. Transfer of Registration Rights and Obligations............................30 ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS Section 4.1. Standstill.................................................................31 Section 4.2. Transfer Restrictions; Legends.............................................32 Section 4.3. Additional Restrictions on Transfers By Rite Aid...........................36 Section 4.4. Access; Reports and Notices................................................36 Section 4.5. Presence for Quorum Requirement............................................38 Section 4.6. JLL Exchange Agreement.....................................................38
i Table of Contents ----------------- (continued)
Page ---- ARTICLE V MISCELLANEOUS Section 5.1. Entire Agreement...........................................................38 Section 5.2. Binding Effect; Benefit....................................................38 Section 5.3. Assignability..............................................................38 Section 5.4. Amendment; Waiver..........................................................39 Section 5.5. Termination................................................................39 Section 5.6. Notices....................................................................39 Section 5.7. Headings...................................................................40 Section 5.8. Counterparts...............................................................40 Section 5.9. Applicable Law.............................................................40 Section 5.10. Specific Performance.......................................................40 Section 5.11. Consent to Jurisdiction....................................................40 Section 5.12. Severability...............................................................41 Schedule I:....Notice Information Exhibit A:.....By-Laws Exhibit B:.....Certificate of Incorporation
ii STOCKHOLDERS' AGREEMENT ----------------------- STOCKHOLDERS' AGREEMENT dated as of October 2, 2000 among (i) Advance Paradigm, Inc., a Delaware corporation (the "Company"), (ii) Rite Aid Corporation, a Delaware corporation ("Rite Aid"), (iii) Joseph Littlejohn & Levy Fund III, L.P., a Delaware limited partnership ("JLL") and (iv) the other Persons named on the signature pages hereof (such Persons and JLL are collectively referred to as the "JLL Stockholders"). Recitals -------- A. Concurrently with the execution of this Agreement, the Company is issuing and delivering to Rite Aid, and Rite Aid is acquiring, a total of 125,000 shares of the Company's Series A-2 11% Preferred Stock (the "Series A-2 Preferred Stock") pursuant to the Stock Purchase Agreement, dated as of July 11, 2000, between the Company and Rite Aid. B. Concurrently with the execution of this Agreement, the Company is issuing and selling to the JLL Stockholders, and the JLL Stockholders are subscribing for and purchasing, a total of (i) 65,854 shares of the Company's Series A-1 11% Preferred Stock (the "Series A-1 Preferred Stock"), (ii) six shares of the Company's Series B Convertible Preferred Stock (the "Series B Preferred Stock") and (iii) 4,207,000 shares of Regular Common Stock (as defined in Article I) pursuant to the Securities Purchase Agreement, dated as of July 11, 2000, between the Company and JLL, and the Exchange Agreement, dated as of the date hereof, between the Company and JLL (the "JLL Exchange Agreement"). C. The parties hereto desire to enter into this Agreement to govern certain of their rights, duties and obligations relating to their ownership of stock of the Company. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I --------- DEFINITIONS ----------- Section 1.1. Definitions. The following terms, as used herein, have the following meanings: "Acquisition Intention Event" means, with respect to any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), (i) any filing of a Schedule 13D under the Exchange Act, or any amendment to a previously-filed Schedule 13D, by such person or group stating that it plans or proposes any transaction of the type described in clauses (b) through (f) of Item 4 of Schedule 13D, (ii) any public announcement by such person or group that it plans or proposes any transaction of the type described in clauses (b) through (f) of Item 4 of Schedule 13D, or (iii) knowledge of the Investors that such person or group plans or proposes any transaction of the type described in clauses (b) through (f) of Item 4 of Schedule 13D. "Affiliate" means, with respect to any specified Person, any other Person which, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such specified Person. Control of any Person shall consist of the power to direct the management and policies of such Person (whether through the ownership of voting securities, by contract, as trustee or otherwise) and shall be deemed to exist upon the ownership of securities entitling the holder thereof to exercise more than 20% of the voting power in the election of directors of such Person (or other persons or bodies performing similar functions). "beneficially own" and "beneficial ownership" have the meanings given to them in Rules 13d-3 and 13d-5 under the Exchange Act. A Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. "Board" means the board of directors of the Company. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law or other governmental action to close. "By-Laws" means the amended and restated by-laws of the Company in the form of Exhibit A adopted by the Board prior to the date hereof and effective as of the date hereof, as the same may be amended, modified or supplemented from time to time. "Capital Stock" means (i) all shares, interests, participations or other equivalents (however designated) of capital stock of the Company, including each class or series of Common Stock or Preferred Stock, and (ii) any option, warrant or other arrangement representing the right to purchase or otherwise acquire any of the foregoing, including any securities convertible or exchangeable into any of the foregoing. "Certificate of Incorporation" means the Second Amended and Restated Certificate of Incorporation of the Company in the form of Exhibit B, to be submitted to the stockholders of the Company for approval and thereafter filed according to the DGCL with the Secretary of State of the State of Delaware, as the same may be amended, modified or supplemented from time to time. "Change of Control" has the meaning given to it in the Series A Certificates of Designations. 2 "Class A Common Stock" means the Class A Common Stock to be created as a separate class of Common Stock following the Class B Effectiveness, having the powers, designations and preferences set forth in the Certificate of Incorporation. "Class A Directors" has the meaning given to it in Section 2.1(a). "Class B Directors" means the Class B-1 Directors and the Class B-2 Directors. "Class B Common Stock" means the Class B-1 Common Stock and the Class B-2 Common Stock. "Class B-1 Common Stock" means the Class B-1 Common Stock to be created as a separate class of Common Stock following the Class B Effectiveness, having the powers, designations and preferences set forth in the Certificate of Incorporation. "Class B-2 Common Stock" means the Class B-2 Common Stock to be created as a separate class of Common Stock following the Class B Effectiveness, having the powers, designations and preferences set forth in the Certificate of Incorporation. "Class B-1 Directors" means the Directors (i) designated initially by holders of Series B Preferred Stock pursuant to the Series B Certificate of Designations and (ii) following the Class B Effectiveness, elected by holders of Class B-1 Common Stock pursuant to the Certificate of Incorporation. "Class B-2 Directors" means the Directors (i) designated initially by holders of Series A-2 Preferred Stock pursuant to the Series A-2 Certificate of Designations, (ii) following the Class B Effectiveness, so long as any shares of Series A-2 Preferred Stock are outstanding, elected by the holders of the Series A-2 Preferred Stock pursuant to the Series A-2 Certificate of Designations, and (iii) following the Class B Effectiveness, in the event shares of Series A-2 Preferred Stock have been converted into Class B-2 Common Stock, elected by holders of Class B-2 Common Stock pursuant to the Certificate of Incorporation. "Class B Effectiveness" means the date of the filing of the Certificate of Incorporation with the Secretary of State of the State of Delaware in accordance with DGCL following receipt of Stockholder Approval. "Class C Directors" has the meaning given to it in Section 2.1(a). "Class D Director" has the meaning given to it in Section 2.1(a). "Class D Termination Date" means the later of (a) the second anniversary of the date hereof and (b) the earlier to occur of (i) the holders of Series A-2 Preferred Stock, Series B Preferred Stock, Class B-1 Common Stock and Class B-2 Common Stock 3 having the right to designate, in the aggregate, two or less Class B Directors pursuant to the applicable Organizational Documents and (ii) the Current Investor Amount representing less than 50% of the Initial Investor Amount. "Class of Registrable Securities" means the following, each of which constitutes a separate "Class of Registrable Securities": (i) Shares of Series A-1 Preferred Stock, together with any shares of Common Stock or other securities (whether securities of the Company or another issuer) issued or proposed to be issued with respect thereto (A) by way of stock dividend or other distribution, stock split or reverse stock split, or (B) in connection with a combination of shares, recapitalization, merger, consolidation, exchange offer or other reorganization; (ii) Shares of Series A-2 Preferred Stock, together with any shares of Common Stock or other securities (whether securities of the Company or another issuer) issued or proposed to be issued with respect thereto (A) by way of stock dividend or other distribution, stock split or reverse stock split, or (B) in connection with a combination of shares, recapitalization, merger, consolidation, exchange offer or other reorganization; (iii) (x) Shares of Regular Common Stock issued to the JLL Stockholders pursuant to the JLL Exchange Agreement and (y) shares of Regular Common Stock issued or issuable upon the conversion of shares of Series B Preferred Stock in accordance with the Series B Certificate of Designations, together with any shares of Common Stock or other securities (whether securities of the Company or another issuer, but excluding any shares of Series B Preferred Stock) issued or proposed to be issued with respect to such shares of Regular Common Stock or Series B Preferred Stock (A) by way of stock dividend or other distribution, stock split or reverse stock split, or (B) in connection with a combination of shares, recapitalization, merger, consolidation, exchange offer or other reorganization; (iv) Shares of Regular Common Stock issued or issuable upon conversion of shares of Class B-1 Common Stock in accordance with the Certificate of Incorporation, together with any shares of Common Stock or other securities (whether securities of the Company or another issuer, but excluding any shares of Class B-1 Common Stock) issued or proposed to be issued with respect to such shares of Regular Common Stock or Class B-1 Common Stock (A) by way of stock dividend or other distribution, 4 stock split or reverse stock split, or (B) in connection with a combination of shares, recapitalization, merger, consolidation, exchange offer or other reorganization; and (v) Shares of Regular Common Stock issued or issuable upon conversion of shares of Class B-2 Common Stock in accordance with the Certificate of Incorporation, together with any shares of Common Stock or other securities (whether securities of the Company or another issuer, but excluding any shares of Class B-2 Common Stock) issued or proposed to be issued with respect to such shares of Regular Common Stock or Class B-2 Common Stock (A) by way of stock dividend or other distribution, stock split or reverse stock split, or (B) in connection with a combination of shares, recapitalization, merger, consolidation, exchange offer or other reorganization. "Common Stock" means (i) initially, the common stock, par value $.01 per share, of the Company, and (ii) following the Class B Effectiveness, the Class A Common Stock, the Class B-1 Common Stock and the Class B-2 Common Stock. "Company" has the meaning given to it in the Introduction. "Covered Securities" has the meaning given to it in Section 4.2(a). "Credit Agreement" has the meaning given to it in the Indenture, dated on or about the date hereof, with U.S. Trust of Texas, N.A., as trustee, relating to the Company's Senior Subordinated Notes due 2010. "Current Investor Amount" means, as of any date of determination, (i) the number of shares of Regular Common Stock issuable upon the conversion on such date of all of the Series A Preferred Stock, Series B Preferred Stock and Class B Common Stock that are (A) issued and outstanding on such date, and (B) owned by the Investors and their Permitted Transferees on such date, plus (ii) the number of shares of Regular Common Stock owned by the Investors and their Permitted Transferees on such date received as a result of the conversion of shares of Series A Preferred Stock, Series B Preferred Stock or Class B Common Stock, plus (iii) the number of shares of Regular Common Stock issued to JLL Stockholders on the date hereof that are owned by the Investors and their Permitted Transferees on such date. For purposes of determining the number of shares of Regular Common Stock issuable upon the conversion of shares of Series A Preferred Stock, the parties shall assume that (x) the Class B Effectiveness has occurred, and (y) shares of Series A Preferred Stock would be converted first into Class B Common Stock pursuant to the applicable Series A Certificate of Designations and thereafter into Regular Common Stock pursuant to the Certificate of Incorporation. 5 "Current Market Price" means, as of any date, the average of the daily Market Prices of the Regular Common Stock for twenty consecutive trading days immediately preceding such date. "Market Price" means, on any given day, (i) if shares of Regular Common Stock are listed or authorized for trading on a national securities exchange, the last sale price of the Regular Common Stock, regular way, on such date, or if no such sale takes place on such date, the average of the closing bid and asked prices thereof, on such date, in each case as officially reported on the principal national securities exchange on which the Regular Common Stock is listed or authorized for trading, (ii) if shares of Regular Common Stock are not listed or authorized for trading on a national securities exchange but are quoted on the Nasdaq National Market, (A) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (B) if shares of Regular Common Stock are so traded, but no such trade information is so reported, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, (iii) if shares of Regular Common Stock are not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system but have a nationally recognized existing trading market, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose or (iv) if shares of Regular Common Stock are not listed or authorized for trading on a national securities exchange or the Nasdaq National Market or any comparable system and do not have a nationally recognized existing trading market, the fair value of such security as (A) determined by an agreement between the Company and Rite Aid or (B) if the Company and Rite Aid fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by Rite Aid, or (C) if the Company or Rite Aid shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by the Company or Rite Aid, as the case may be, determined solely by the firm so retained or (D) if the firms so retained by the Company and by Rite Aid shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm chosen by the first two such firms. "DGCL" means the General Corporation Law of the State of Delaware. "Director" means any director of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Holders" means (i) the Corporation and its Subsidiaries, (ii) the Principals (as defined in the Senior Subordinated Notes Indenture) and the Related Parties (as defined in the Senior Subordinated Notes Indenture) of the Principals, and (iii) the Investors, the Permitted Transferees of the Investors and Affiliates of the Persons referred to in this clause (iii). 6 "Governmental Authority" means any government, any political subdivision, any governmental agency, bureau, department, board or commission, any court or tribunal or any other governmental instrumentality, whether federal, state or local, domestic or foreign. "Holder" means any Person who owns, of record, any Registrable Securities. "Initial Investor Amount" means, as of any date of determination, (i) the number of shares of Regular Common Stock issuable upon the conversion of all the Series A Preferred Stock and Series B Preferred Stock issued on the date hereof pursuant to the applicable Series A Certificate of Designations or the Series B Certificate of Designations, plus (ii) the number of shares of Regular Common Stock issued to the JLL Stockholders on the date hereof, in each case as adjusted for stock dividends and distributions, subdivisions, combinations or consolidations of stock on or prior to such date of determination. For purposes of determining the number of shares of Regular Common Stock issuable upon the conversion of shares of Series A Preferred Stock, the parties shall assume that (x) the Class B Effectiveness has occurred, and (y) shares of Series A Preferred Stock would be converted first into Class B Common Stock pursuant to the applicable Series A Certificate of Designations and thereafter into Regular Common Stock pursuant to the Certificate of Incorporation. For avoidance of doubt, it is stipulated that the Initial Investor Amount on the date hereof is 13,750,000. "Investors" means the JLL Stockholders, Rite Aid and each Person who is or shall become a party to this Agreement whether as an original party as of the date hereof or hereafter pursuant to Section 4.2(b) and Section 5.3. "JLL" has the meaning given to it in the Introduction. "JLL Exchange Agreement" has the meaning given to it in Recital B. "JLL Stockholders" has the meaning given to it in the Introduction. "Long-Form Registration" means a registration of securities pursuant to a registration statement on Form S-1 or Form S-2 (or any successor form) under the Securities Act. "Material Activity" has the meaning given to it in Section 3.4. "Non-Class B Director" means any Director who is neither a Class B-1 Director nor a Class B-2 Director. "OIG Investigation" means (i) the investigation described in the investigative subpoena issued to PCS Holding Corporation (or its Subsidiaries) by the Office of the Inspector General of the United States Department of Health and Human Services on 7 November 23, 1999, and (ii) any investigation, suit, action, litigation or other proceeding related to or arising from the investigation referred to in clause (i) of this definition. "Organizational Documents" means (i) prior to the Class B Effectiveness, the Series A Certificates of Designations and the Series B Certificate of Designations, and (ii) following the Class B Effectiveness, the Certificate of Incorporation (including the exhibits thereto). "Participating Holder" has the meaning given to it in Section 3.2(a). "Participating Registrable Securities" means the Registrable Securities referred to in clauses (iii), (iv) and (v) of the definition of Class of Registrable Securities. "Permitted Transferee" has (i) with respect to holders of Series A-1 Preferred Stock in their capacity as such, the meaning given to it in the Series A-1 Certificate of Designations, (ii) with respect to holders of Series A-2 Preferred Stock in their capacity as such, the meaning given to it in the Series A-2 Certificate of Designations, (iii) with respect to holders of Series B Preferred Stock in their capacity as such, the meaning given to it in the Series B Certificate of Designations, (iv) with respect to holders of Class B Common Stock in their capacity as such, the meaning given to it in the Certificate of Incorporation, and (v) with respect to JLL Stockholders and any other holders of Regular Common Stock issued to the JLL Stockholders on the date hereof, the meaning given to it in the Series B Certificate of Designations (assuming that the JLL Stockholders and such other holders are holders of Series B Preferred Stock). "Person" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a Governmental Authority. "Registrable Securities" means any securities included in any Class of Registrable Securities. Notwithstanding the foregoing, securities shall cease to be Registrable Securities when (x) a registration statement under the Securities Act covering such security is declared effective by the SEC and such securities have been disposed of pursuant to such effective registration statement or (y) such securities are sold under circumstances in which all of the applicable conditions under Rule 144 (or any similar provisions then in force) under the Securities Act are satisfied. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with Article III, including, (a) all registration, filing and NASD fees, (b) all fees and expenses of complying with securities or blue sky laws, (c) all word processing, duplicating and printing expenses, (d) messenger and delivery expenses, (e) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any "comfort" letters required by or incident to such performance and compliance, (f) premiums and other costs of 8 policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered (if the Company elects to obtain any such insurance), (g) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, including counsel for the underwriters but excluding underwriting discounts and commissions, and (h) reasonable costs and expenses incurred for presentations to or meetings with prospective investors in connection with the offer or sale of Registrable Securities in a public offering thereof. Notwithstanding anything in the foregoing to the contrary, Registration Expenses do not include (x) the fees and disbursements of counsel to one or more Selling Stockholders, or (y) transfer taxes, and underwriting discounts or commissions and brokerage fees for the sale of any securities included in a Class of Registrable Securities. "Regular Common Stock" means (A) initially, the common stock, par value $.01, of the Company and (B) following the Class B Effectiveness, the Class A Common Stock. "Requested Securities" has the meaning given in Section 3.1(a). "Requesting Holders" has the meaning given to it in Section 3.1(a). "Rite Aid" has the meaning given to it in the Introduction. "Rite Aid Maximum Permitted Amount" means an amount of Common Stock, or other Covered Securities convertible into Common Stock, in the aggregate constituting or convertible into more than 50% of the number of shares of Regular Common Stock into which all of the shares of Series A-2 Preferred Stock originally issued to Rite Aid would then be convertible (assuming that (i) the Class B Effectiveness has occurred and (ii) the shares of Series A-2 Preferred Stock would be converted (A) first into Class B-2 Common Stock pursuant to the Series A-2 Certificate of Designations and (B) thereafter into Regular Common Stock pursuant to the Certificate of Incorporation). "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Selling Stockholder" means any Requesting Holder or Participating Holder. "Senior Subordinated Notes" has the meaning given to it in the Series A Certificates of Designations. "Senior Subordinated Notes Indenture" has the meaning given to it in the Series A Certificates of Designations. 9 "Senior Subordinated Notes Warrants" has the meaning given to it in the Series A Certificates of Designations. "Series A Certificates of Designations" means the Series A-1 Certificate of Designations and the Series A-2 Certificate of Designations. "Series A-1 Certificate of Designations" means (i) prior to the Class B Effectiveness, the Certificate of Designations for the Series A-1 Preferred Stock as filed according to the DGCL with the Secretary of State of the State of Delaware on or about the date hereof, or (ii) following the Class B Effectiveness, Exhibit A to the Certificate of Incorporation, in each case, as amended, supplemented or restated from time to time. "Series A-2 Certificate of Designations" means (i) prior to the Class B Effectiveness, the Certificate of Designations for the Series A-2 Preferred Stock as filed according to the DGCL with the Secretary of State of the State of Delaware on or about the date hereof, or (ii) following the Class B Effectiveness, Exhibit B to the Certificate of Incorporation, in each case, as amended, supplemented or restated from time to time. "Series A Preferred Stock" means Series A-1 Preferred Stock or Series A-2 Preferred Stock, or both, as the context may require. "Series A-1 Preferred Stock" has the meaning given to it in Recital B. "Series A-2 Preferred Stock" has the meaning given to it in Recital A. "Series B Certificate of Designations" means (i) prior to the Class B Effectiveness, the Certificate of Designations for the Series B Preferred Stock as filed according to the DGCL with the Secretary of State of the State of Delaware on or about the date hereof, or (ii) following the Class B Effectiveness, Exhibit C to the Certificate of Incorporation, in each case, as amended, supplemented or restated from time to time. "Series B Preferred Stock" has the meaning given to it in Recital B. "Short-Form Registration" means a registration of securities under the Securities Act that is not a Long-Form Registration. "Standstill Period" means the period beginning on the date hereof and ending on the earliest to occur of: (i) the fourth anniversary of the date hereof; (ii) the approval by the Board of any transaction or series of related transactions with respect to or resulting in the direct or indirect acquisition by any "person" or "group" (as such terms are used in Section 10 13(d) and 14(d) of the Exchange Act), other than the Excluded Holders, of beneficial ownership of more than 35% of the total issued Common Stock (assuming the exercise or conversion of all options, warrants or other arrangements representing the right to purchase or otherwise acquire any shares of Common Stock, including any securities convertible or exchangeable into any of the foregoing); (iii) the consolidation or merger of the Company with or into any other corporation or entity, whether or not the Company is the continuing or surviving corporation or entity, other than the merger or the consolidation of the Company with or into a wholly-owned Subsidiary of the Company; (iv) the transfer by the Company of all or substantially all of its properties or assets to any other corporation or entity, other than to a wholly-owned Subsidiary of the Company if such Subsidiary remains wholly-owned by the Company; (v) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Excluded Holders, is or becomes the beneficial owner, directly or indirectly, of more than 35% of the total issued Common Stock (assuming the exercise or conversion of all options, warrants or other arrangements representing the right to purchase or otherwise acquire any shares of Common Stock, including any securities convertible or exchangeable into any of the foregoing), except that if the Investors have Transferred beneficial ownership of any Common Stock to such "person" or "group" following an Acquisition Intention Event by such "person" or "group", then the percentage referred in this clause (v) shall be increased by the percentage of the total issued Common Stock (assuming the exercise or conversion of all options, warrants or other arrangements representing the right to purchase or otherwise acquire any shares of Common Stock, including any securities convertible or exchangeable into any of the foregoing) represented by the Common Stock the beneficial ownership of which was Transferred to such "person" or "group" by the Investors and their Permitted Transferees after the Acquisition Intention Event; and (vi) the Current Investor Amount representing less than 10% of the Initial Investor Amount; but excluding the period between the following dates: (A) if a meeting of the Company's stockholders for the purpose of voting on the matters contemplated in the definition of Stockholder Approval has been duly convened by December 15, 2000 but the Class B 11 Effectiveness has not occurred prior to the 120th day following the date hereof, then between the 180th day following the date hereof and the Class B Effectiveness; and (B) if the stockholders meeting referred to in clause (A) has not been duly convened by December 15, 2000 and the Class B Effectiveness has not occurred prior to the 120th day following the date hereof, then between the 120th day following the date hereof and the Class B Effectiveness. "Stockholder Approval" means the approval by the Company's stockholders of the Certificate of Incorporation and of the authorization and issuance of the Class B Common Stock to be issued to the holders of the Series A Preferred Stock and Series B Preferred Stock in accordance with the terms of the Series A Certificates of Designations and the Series B Certificate of Designation. "Subsidiary" of any specified Person is any corporation, limited liability company, partnership or other entity (i) of which the stock or membership, general or limited partnership or other ownership interests having ordinary power to elect a majority of the board of directors (or other persons or bodies performing similar functions) are directly or indirectly owned by such specified Person or (ii) in which such specified Person directly or indirectly owns at least a majority of the outstanding stock or other equity or general voting interest. "Transfer" has the meaning given to it in Section 4.2(a). "Voting Stock" means the Capital Stock of any class or kind ordinarily having the power to vote generally for the election of directors (or other persons or bodies performing similar functions) of the Company. With respect to the Company, Voting Stock shall include (i) Regular Common Stock, (ii) prior to the Class B Effectiveness, the Series A-2 Preferred Stock and the Series B Preferred Stock, and (iii) following the Class B Effectiveness, the Series A-2 Preferred Stock, the Class B-1 Common Stock and the Class B-2 Common Stock. ARTICLE II CORPORATE GOVERNANCE AND MANAGEMENT Section 2.1. Composition of the Board. Prior to the Class B Effectiveness, the parties hereto shall use their reasonable best efforts to cause the number of the Directors and the composition of the Board to be as set forth in this Section 2.1. As of and following the Class B Effectiveness, the composition of the Board and the number of Directors shall be governed by the Certificate of Incorporation. (a) Subject to Sections 2.1(b), (c) and (d), the Board shall consist of eleven Directors, designated as follows: 12 (i) Three Directors shall be employees or officers of the Company or its Subsidiaries nominated by a majority of the Class A and Class C Directors (the "Class A Directors"); (ii) Two Directors shall be Class B-1 Directors; (iii) Two Directors shall be Class B-2 Directors; (iv) Three Directors, who would (if elected) be "independent" directors within the meaning of the rules of the Nasdaq National Market, shall be individuals nominated by a majority of the Class A and Class C Directors (the "Class C Directors"); and (v) Until the occurrence of the Class D Termination Date, one Director shall be Jean-Pierre Millon, and his successor or replacement shall be designated in accordance with Section 2.2(e) (Jean-Pierre Millon and such successor or replacement Director, the "Class D Director"). (b) In the event, and in each case, that the number of Class B-1 Directors or Class B-2 Directors is subject to decrease pursuant to the applicable Organizational Document, then (i) there shall be a corresponding decrease in the total number of Directors, and (ii) the number of Class B-1 Directors or Class B-2 Directors referred to in clause (ii) or (iii) of Section 2.1(a), as the case may be, shall be reduced correspondingly. (c) In the event, and in each case, that the holders of Series A-2 Preferred Stock or Series B Preferred Stock are entitled to elect additional Directors pursuant to the applicable Organizational Document, then (i) there shall be a corresponding increase in the total number of Directors, (ii) the number of Class B-1 Directors shall be increased to account for the additional Director elected by the holders of the Series B Preferred Stock, and (iii) the number of Class B-2 Directors shall be increased to account for the additional Director elected by the holders of the Series A-2 Preferred Stock. (d) Upon the occurrence of the Class D Termination Date, the Class D Director shall become a Class C Director, resulting in a corresponding increase in the number of Class C Directors, and such Director shall be designated, and may be removed or replaced, as a Class C Director according to Section 2.2(d). Section 2.2. Election of Directors. Prior to the Class B Effectiveness, the parties hereto shall use their reasonable best efforts to cause the election, appointment and filling of vacancies of Directors to be as set forth in this Section 2.2. As of and following the Class B Effectiveness, the election of the Directors shall be governed by the Certificate of Incorporation. 13 (a) Class A Directors. At any annual meeting of stockholders, or special meeting held in place thereof, where any Class A Directors are due to be elected, the parties shall use all reasonable efforts to cause the election of the nominee or nominees referred to in Section 2.1(a)(i) as a Class A Director. Upon any vacancy occurring because of the death, disability, disqualification, resignation or removal of a Class A Director, the parties shall use their reasonable best efforts to cause the person filling such vacancy to be an officer or employee of the Company or its Subsidiaries nominated in accordance with Section 2.1(a)(i), and to cause such person to be elected or appointed as a Class A Director. (b) Class B-1 Directors. The election, filling of vacancies and removal of Class B-1 Directors shall be governed by the Series B Certificate of Designations. (c) Class B-2 Directors. The election, filling of vacancies and removal of Class B-2 Directors shall be governed by the Series A-2 Certificate of Designations. (d) Class C Directors. At any annual meeting of stockholders, or special meeting held in place thereof, where any Class C Directors are due to be elected, the parties shall use all reasonable efforts to cause the election of the nominee or nominees referred to in Section 2.1(a)(iv) as a Class C Director. Upon any vacancy occurring because of the death, disability, disqualification, resignation or removal of a Class C Director, the parties shall use their reasonable best efforts to cause the person filling such vacancy to be an individual nominated in accordance with Section 2.1(a)(iv), and to cause such person to be elected or appointed as a Class C Director. (e) Class D Director. At any annual meeting of stockholders, or special meeting held in place thereof, prior to the occurrence of the Class D Termination Event where the Class D Director is due to be elected, the parties shall use their reasonable best efforts to cause the election of the nominee referred to in Section 2.1(a)(v) as the Class D Director. Prior to the occurrence of the Class D Termination Date, upon any vacancy occurring because of the death, disability, disqualification, resignation or removal of Jean-Pierre Million (or any subsequent Class D Director), the parties shall use their reasonable best efforts to cause the person filling such vacancy to be an individual (A) designated by a majority of the Class A Directors and (B) approved (such approval not to be unreasonably withheld) by all of the Class B Directors, and to cause such person to be elected or appointed as a Class D Director. Following the Class D Termination Date, the number of Class C Directors shall increase by one, such Class D Director shall become a Class C Director and the class of Class D Director shall cease to exist. Section 2.3. Certain Provisions Regarding the Board of Directors. The Company acknowledges and agrees that (i) in addition to any other vote required by law, the affirmative vote of a majority of the Directors that are not Class A Directors shall be 14 required for any decision of the Company regarding the appointment, removal or compensation of the Company's Chief Executive Officer, or any transaction between the Company (or any of its Subsidiaries) and the Company's Chief Executive Officer (or his or her Affiliates), (ii) the Board of Directors shall meet no less frequently than once in every calendar quarter, (iii) each committee of the Board of Directors (including any audit or compensation committee, but excluding any nominating committees for the nomination of Directors) shall have, as members, a proportional number of Class B-1 Directors and Class B-2 Directors, as a group (in relation to the total number of Directors), unless (1) such representation is prohibited by applicable law or rules of the Nasdaq National Market or any other national securities exchange on which the Company's securities are listed for trading, in which case such committees shall have, as members, the maximum number of Class B-1 Directors and Class B-2 Directors permitted by applicable law and rules of the Nasdaq National Market or such national securities exchange, or (2) the Class B-1 Directors and Class B-2 Directors elect not to serve on any such committee, and (iv) except as otherwise specified herein or in any Organizational Document, all powers and rights of Class B-1 Directors, Class B-2 Directors and Non-Class B Directors, in their capacity as Directors, shall be identical in all respects. Section 2.4. Charter and Bylaws. (a) Promptly upon (and in any event no later than two Business Days following) the receipt of Stockholder Approval, the Company shall file the Certificate of Incorporation pursuant to the DGCL with the Secretary of the State of Delaware. (b) The By-Laws have been duly adopted as the by-laws of the Company, effective as of the date hereof, pursuant to the DGCL. (c) The Company shall take all other actions reasonably necessary, to ensure that the Company's by-laws facilitate and do not at any time conflict with any provision of this Agreement. ARTICLE III REGISTRATION RIGHTS ------------------- Section 3.1. Required Registrations. (a) Request. Upon the terms and subject to the conditions of this Agreement, upon the written request of the Holders of a majority in interest of the Registrable Securities of a Class of Registrable Securities (the "Requesting Holders") requesting that the Company effect registration under the Securities Act of all or a specified number of such Registrable Securities (such specified number of such Registrable Securities, the 15 "Requested Securities") (which request shall also specify the intended method or methods of disposition thereof), the Company shall use its best efforts to effect the registration under the Securities Act of the Requested Securities requested by the Requesting Holders for disposition according to the intended method or methods of disposition specified by the Requesting Holders (including a shelf registration) to the extent required or deemed appropriate by the Requesting Holders to permit the disposition (according to the intended method or methods thereof specified by the Requesting Holders) of the Requested Securities. Notwithstanding anything in this Section 3.1 to the contrary, the Company's obligations to effect any registration pursuant to this Section 3.1 shall be subject to the following conditions: (i) With respect to the registration of the Registrable Securities referred to in clause (i) of the definition of Class of Registrable Securities: (A) the request for such registration may not be submitted (x) prior to the 270th day following the date of this Agreement or (y) after the Class B Effectiveness, and the Company shall not be required to effect such registration after the Class B Effectiveness, and (B) the Company shall not be required to effect more than two Long-Form Registrations of such Registrable Securities, it being understood that there is no limit on the number of Short-Form Registrations of such Registrable Securities that the Company is required to effect pursuant to this Section 3.1. (ii) With respect to the registration of the Registrable Securities referred to in clause (ii) of the definition of Class of Registrable Securities: (A) the request for such registration may not be submitted (x) prior to the 270th day following the date of this Agreement or (y) after the Class B Effectiveness, and the Company shall not be required to effect such registration after the Class B Effectiveness, and (B) the Company shall not be required to effect more than two Long-Form Registrations of such Registrable Securities, it being understood that there is no limit on the number of Short-Form Registrations of such Registrable Securities that the Company is required to effect pursuant to this Section 3.1. 16 (iii) With respect to the registration of Registrable Securities referred to in clause (iii) of the definition of Class of Registrable Securities: (A) the request for such registration may not be submitted after the Class B Effectiveness, and the Company shall not be required to effect such registration after the Class B Effectiveness, and (B) the Company shall not be required to effect more than two registrations of such Registrable Securities pursuant to this Section 3.1. (iv) With respect to the registration of Registrable Securities referred to in clause (iv) of the definition of Class of Registrable Securities: (A) the request for such registration may only be submitted after the later to occur of (x) six months after the date hereof and (y) the Class B Effectiveness, and (B) the Company shall not be required to effect more than two registrations of such Registrable Securities pursuant to this Section 3.1. (v) With respect to the registration of Registrable Securities referred to in clause (v) of the definition of Class of Registrable Securities: (A) the request for such registration may only be submitted after the later to occur of (x) six months after the date hereof and (y) the Class B Effectiveness, and (B) the Company shall not be required to effect more than two registrations of such Registrable Securities pursuant to this Section 3.1. If the Requesting Holders request registration of their Requested Securities on a delayed or continuing basis under Rule 415 under the Securities Act (or any successor or similar rule), the Company shall keep such registration continuously effective for at least 24 months (or such shorter period specified by the Requesting Holders) following the date on which such registration statement is declared effective or until all such Registrable Securities registered thereunder are sold, whichever is shorter. (b) Withdrawal. The Requesting Holders shall have the right to request withdrawal of any registration statement filed pursuant to this Section 3.1 (and the 17 Company shall so withdraw such registration statement with respect to the Registrable Securities) prior to the effectiveness of such registration statement. (c) Effective Registration Statement. A registration requested pursuant to this Section 3.1 shall not be deemed to be effected (i) if a registration statement with respect thereto does not become effective under the Securities Act (other than as a result of a withdrawal of such registration statement by the Requesting Holders prior to the effectiveness thereof pursuant to Section 3.1(b)), (ii) if, after it has become effective, such registration is interfered with for any reason by any stop order, injunction or other order or requirement of the SEC or any other Governmental Authority, and the result of such interference prevents the Requesting Holders from disposing of any of the Requested Securities according to the intended methods of disposition or the Company exercises its rights under Section 3.4 and delays the proposed distribution of any Requested Securities and the Requesting Holders determine not to sell Requested Securities pursuant to such registration as a result of such delay, (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with any underwritten offering are not satisfied or waived with the consent of the Requesting Holders holding more than one-half of the Requested Securities that were to have been sold thereunder, other than as a result of any breach by any Requesting Holder or any underwriter of its obligations thereunder or hereunder, or (iv) if, because of inclusion in such registration of securities held by the Company (including pursuant to Section 3.1(g)), more than 5% of the Requested Securities for such registration are not registered. (d) Registration Statement Form. Registration statements filed under this Section 3.1 shall be on such form of the SEC as shall be selected by the Company and approved by the Requesting Holders (which approval shall not be unreasonably withheld), and as shall permit the disposition of the Requested Securities according to the intended method or methods of disposition specified by the Requesting Holders. The Company agrees to include in any such registration statement additional information or material reasonably requested by the Requesting Holders. (e) Expenses. The Company shall pay all Registration Expenses in connection with any registration requested pursuant to this Section 3.1. (f) Selection of Underwriters. If a registration pursuant to this Section 3.1 involves an underwritten offering, the managing or lead underwriter or underwriters shall be selected by the Requesting Holders; except that if a registration pursuant to this Section 3.1 involves an underwritten offering of the Registrable Securities referred to in clause (iv) or (v) of the definition of Class of Registrable Securities and the Company proposes to register and sell securities in such offering, the managing or lead underwriter or underwriters shall be selected jointly by the Company and the Requesting Holders. 18 (g) Priority in Requested Registrations. If a registration pursuant to this Section 3.1 involves an underwritten offering, and the managing or lead underwriter or underwriters advise the Requesting Holders in writing (a copy of which shall be provided by the Requesting Holders to the Company) that, in its or their opinion, the number of securities requested to be included in such registration by the Requesting Holders, the Company and any other Person exceeds the number that can be sold in such offering within a price range reasonably acceptable to the Requesting Holders, the Company shall include in such registration the number of securities that the Requesting Holders are so advised can be sold in such offering pursuant to the following provisions: (i) If the registration pursuant to this Section 3.1 involves the registration of Registrable Securities referred to in clause (i) or (ii) of the definition of Class of Registrable Securities, (A) first, the Registrable Securities proposed to be included by the Requesting Holders, (B) second, the securities requested to be included in such registration by the Company, and (C) third, the securities of any other Person or Persons proposed to be included in such registration; and (ii) If the registration pursuant to this Section 3.1 involves the registration of Registrable Securities referred to in clause (iii), (iv) or (v) of the definition of Class of Registrable Securities, (A) first, the Registrable Securities proposed to be included by the Requesting Holders and the securities requested to be included in such registration by the Company, each pro rata in accordance with the number of Registrable Securities proposed to be included by the Requesting Holders and the number of securities so proposed to be included by the Company, respectively, and (B) second, the securities of any other Person or Persons proposed to be included in such registration. (h) Inconsistent Rights. The Company shall not grant to any Person any registration or other rights inconsistent with the provisions of this Section 3.1. 19 Section 3.2. "Piggy-Back" Registration Rights. (a) Right to Participate. If the Company at any time proposes to register any of its securities under the Securities Act (other than (1) by a registration on Form S-4 or S-8 or any successor or similar forms or filed in connection with an exchange offer or any offering of securities solely to the Company's existing stockholders, and (2) registrations of the Senior Subordinated Notes, whether or not for sale for its own account, the Company shall give prompt written notice to each Holder of Participating Registrable Securities of its intention to do so and of the rights of the Holders under this Section 3.2. Upon the terms and subject to the conditions of this Agreement, upon the written request of any Holder (each, a "Participating Holder") made within 30 days after the delivery of any such notice by the Company (which request shall specify the Participating Registrable Securities intended to be disposed of by any Participating Holder and the intended method or methods of such disposition), the Company shall use its best efforts to effect the registration under the Securities Act of all Participating Registrable Securities which the Company has been so requested to register by such Participating Holders, to the extent required or reasonably deemed appropriate by such Participating Holders to permit the disposition (in accordance with the intended methods thereof specified by the Participating Holders), of the Participating Registrable Securities so to be registered. If, at any time after giving written notice of its intention to register any such securities and prior to the effective date of the registration statement filed in connection with such registration, the Company determines for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Participating Holder and, thereupon, (i) in the case of a determination not to register, the Company need not register any Participating Registrable Securities in connection with such registration (but shall, in such case, pay the reasonable fees and expenses of counsel (but of no more than one counsel in an amount not to exceed $20,000) to the Participating Holders in addition to the Registration Expenses), without prejudice, however, to the rights of the Participating Holders to request that such registration be effected as a registration under Section 3.1, and (ii) in the case of a determination to delay registering, the Company may delay registering any Participating Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 3.2 shall relieve the Company of its obligation to effect any registration upon request under Section 3.1. (b) Priority in Piggy-Back Registration Rights. If a registration pursuant to this Section 3.2 involves an underwritten offering and the managing or lead underwriter or underwriters advises the Company in writing (a copy of which shall be provided by the Company to each Participating Holder) that, in its or their opinion, the number of securities requested and otherwise proposed to be included in such registration exceeds the number that can be sold in such offering within a price range reasonably acceptable to the Company, the Company shall include in such registration, the number of securities that the Company is so advised can be sold in such offering determined as follows: 20 (i) If the registration is a primary registration on behalf of the Company, (w) first, the securities proposed to be included by the Company, (x) second, if the securities proposed to be registered are the Senior Subordinated Notes Warrants or shares of Common Stock issuable upon exercise thereof, then such Senior Subordinated Notes Warrants or such shares, (y) third, the Participating Registrable Securities requested to be included in such registration by the Participating Holders on a pro rata basis based on the number of Participating Registrable Securities requested to be included in such registration by each Participating Holder, and (z) fourth, the securities of other Persons requested to be included in such registration, and (ii) If the registration is a secondary registration on behalf of a Person or Persons other than a Holder, (A) first, the securities proposed to be registered by such other Person or Persons, and (B) second, the Participating Registrable Securities requested to be included in such registration by the Participating Holders, on a pro rata basis based on the number of Participating Registrable Securities requested to be included in such registration by each Participating Holder. (c) Inconsistent Rights. The Company shall not grant to any holder of its securities any registration rights inconsistent with the provisions of this Section 3.2. (d) Expenses. The Company shall pay all Registration Expenses in connection with any registration requested pursuant to this Section 3.2. (e) Selection of Underwriters. If an registration pursuant to this Section 3.2 involves an underwritten offering, the managing or lead underwriter or underwriters shall be selected by the Company. Section 3.3. Registration Procedures. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities as provided in Sections 3.1 and 3.2, the Company shall as expeditiously as possible: (a) prepare and as soon thereafter as possible file with the SEC the requisite registration statement to effect such registration and thereafter use its best efforts to cause such registration statement to become effective; provided that before filing such registration statement or any amendments or supplements thereto, the Company (i) shall furnish to the Selling Stockholders and their counsel copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel, and (ii) may not file any such registration statement or amendment or supplement to which any such Selling Stockholder shall have reasonably objected on the grounds that, in the opinion of counsel to such Selling Stockholder, such registration statement or amendment 21 or supplement does not comply in all material respects with the requirements of the Securities Act; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement continuously effective for a period of either (i) not less than 120 days (subject to extension pursuant to the last paragraph of this Section 3.3 or, if applicable, such longer period contemplated by the last sentence of Section 3.1(a)) or, if such registration statement relates to an underwritten offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sales of securities by an underwriter or dealer; or (ii) such shorter period as is required for the disposition of all of the securities covered by such registration statement in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement (but in any event not before the expiration of any longer period of effectiveness required under the Securities Act), and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; (c) furnish to each seller of securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents in order to facilitate the disposition of such securities owned by such seller in accordance with such seller's intended method of disposition, as such seller may reasonably request, but only during such time as the Company shall be required under the provisions hereof to cause such registration statement to remain current; (d) use its best efforts to register or qualify securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions in the United States as each seller thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and to take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions in the United States of the securities owned by such seller, except that for the performance of its obligations under this Section 3.3(d), the Company shall not for any such purpose be required to (i) qualify generally to do business as a foreign corporation in any jurisdiction where it would not otherwise be required to qualify but for the requirements of this Section 3.3(d), (ii) consent to general service of process in any such jurisdiction, (iii) subject itself to taxation in any such 22 jurisdiction or (iv) conform its capitalization or the composition of its assets at the time to the securities or blue sky laws of such jurisdiction; (e) use its best efforts to cause all securities covered by such registration statement to be registered with or approved by such other Governmental Authorities as may be necessary by virtue of the business and operations of the Company to enable the sellers to consummate the disposition thereof; (f) furnish to each Selling Stockholder a signed counterpart, addressed to such Selling Stockholder (and the underwriters, if any), of: (i) an opinion of counsel for the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), in form and substance reasonably satisfactory to such Selling Stockholder; and (ii) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), in form and substance reasonably satisfactory to such Selling Stockholder, signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities; (g) furnish to each such Selling Stockholder a copy of any amendment or supplement to such registration statement or prospectus (other than any amendment or supplement in the form of a filing which the Company is required to make pursuant to the Exchange Act); (h) notify each Selling Stockholder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the discovery of the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such Selling Stockholder promptly prepare and furnish to such Selling Stockholder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to 23 the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve months beginning after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (j) cooperate in the conduct of such due diligence relating to the Company as the Selling Stockholders and the managing or lead underwriter or underwriters (including their counsel and other authorized representatives) may reasonably request and is customary for such offering, including by making available for inspection the Company's financial and other records and pertinent corporate and other documents as shall be reasonably necessary or appropriate to enable such persons to conduct their due diligence and by causing the Company's officers and personnel to supply information and respond to all inquiries reasonably requested by such persons in connection with their due diligence; (k) use its best efforts to provide customary assistance to the underwriters in their selling efforts and presentations to prospective investors, including by making available the Company's officers and personnel for presentations to and meetings with prospective investors; and (l) use its best efforts to list all shares of Regular Common Stock covered by such registration statement on any national securities exchange on which the Regular Common Stock is then listed or on the Nasdaq National Market if the Regular Common Stock is then quoted on the Nasdaq National Market not later than the effective date of such registration statement. Each Selling Stockholder shall furnish the Company in writing for inclusion in the registration statement such information regarding such Selling Stockholder and the distribution of such Registrable Securities being sold as the Company may from time to time reasonably request. Each Selling Stockholder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.3(h), such Selling Stockholder shall forthwith discontinue such Selling Stockholder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Selling Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.3(h) and, if so directed by the Company, 24 such Selling Stockholder shall use its reasonable efforts to deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Selling Stockholder's possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. If the Company shall give any such notice, the applicable time period mentioned in Section 3.3(b) during which a registration statement is to remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 3.3(h), to and including the date when each Selling Stockholder shall have received the copies of the supplemented or amended prospectus contemplated by Section 3.3(h). Section 3.4. Delay of Filing or Sales. (a) The Company shall have the right, upon giving notice to the Selling Stockholders of the exercise of such right, to delay filing a registration statement or to require such Selling Stockholders not to sell any Registrable Securities pursuant to a registration statement for a period of 90 days from the date on which such notice is given, or such shorter period of time as may be specified in such notice or in a subsequent notice delivered by the Company to such effect prior to or during the effectiveness of the registration statement, if (i) the Company is engaged in negotiations with respect to, or has taken a substantial step to commence, or there otherwise is pending, any merger, acquisition, other form of business combination, divestiture, tender offer, financing or other similar transaction, or there is an event or state of facts relating to the Company, in each case which is material to the Company (any of the foregoing, a "Material Activity"), (ii) such Material Activity would, in the opinion of counsel for the Company, require disclosure so as to permit the Registrable Securities to be sold in compliance with law, and (iii) such disclosure would, in the reasonable judgment of the Company, be adverse to its interests. Notwithstanding anything in the foregoing to the contrary, the Company will not have the right to delay the filing of a registration statement or the selling of Registrable Securities if at any time during the 365 days preceding the date on which such notice was given the Company had delayed either the filing of a registration statement that included Registrable Securities or the selling of Registrable Securities. (b) The Company shall pay all Registration Expenses and all reasonable fees and expenses of counsel (but no more than one counsel in an amount not to exceed $20,000) for the Selling Stockholders with respect to any registration of Registrable Securities or sales thereof that has been delayed for more than 30 days pursuant to this Section 3.4. Section 3.5. Underwritten Offerings. (a) Required Underwritten Offerings. If requested by the underwriters of any underwritten offering of Registrable Securities pursuant to a registration requested under Section 3.1, the Company shall enter into an underwriting agreement with such 25 underwriters for such offering. Such agreement shall be reasonably satisfactory in substance and form to each Selling Stockholder, the Company and the underwriters and shall contain representations, warranties, indemnities and agreements as are customarily provided or entered into by an issuer in underwriting agreements of this type, including indemnities for the benefit of the underwriters to the effect and to the extent provided to the Selling Stockholders in Section 3.6. The Selling Stockholders shall be parties to such underwriting agreement and may, at their option, require that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Selling Stockholders. (b) Piggy-Back Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 3.2 and such securities are to be distributed by or through one or more underwriters, the Company shall, if requested by the Selling Stockholders pursuant to Section 3.2 and subject to the provisions of Section 3.2(b), use its best efforts to arrange for such underwriters to include those Registrable Securities designated by the Selling Stockholders among the securities to be distributed by such underwriters. The Selling Stockholders shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Selling Stockholders and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Selling Stockholders. No underwriting agreement (or other agreement in connection with such offering) shall require any Selling Stockholder to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Selling Stockholder, such Selling Stockholder's Registrable Securities and such Selling Stockholder's intended method of distribution and any other representation required by law. (c) Holdback Agreements. (i) Each Holder agrees by becoming a holder of Registrable Securities not to effect any public sale or distribution of any equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act (or any similar provision then in force), during the ten days before and the 90 days after any underwritten registration pursuant to Section 3.1 or 3.2 has become effective (or such shorter or longer period as may be reasonably requested by the lead or managing underwriter and consented to by the Holders of a majority in interest of the Registrable Securities, such consent not to be unreasonably 26 withheld), except (A) as part of such underwritten registration or (B) as consented to by the lead or managing underwriter of the offering pertaining thereto. (ii) The Company agrees: (x) not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the ten days before and the 90 days after any underwritten registration pursuant to Section 3.1 or 3.2 has become effective (or such shorter or longer period as may be requested by the lead or managing underwriter and consented to by the Company, such consent not to be unreasonably withheld), except (1) as part of such underwritten registration, (2) as consented to by the lead or managing underwriter of the offering pertaining thereto, and (3) pursuant to (A) registrations on Form S-4 or S-8, or any successor or similar forms thereto; (B) sales upon exercise or exchange, by the holder thereof, of options, warrants or convertible securities; or (C) any other agreement to issue equity securities or securities convertible into or exchangeable or exercisable for any of such securities in effect on the date the Selling Stockholders deliver to the Company the request to register, or include in a registration, Registrable Securities under Sections 3.1 or 3.2, as the case may be; and (y) to use all reasonable efforts to cause holders of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities, whether outstanding on the date of this Agreement or issued at any time after the date of this Agreement (other than any such securities acquired in a public offering, including any public sales pursuant to Rule 144), to agree not to effect any such public sale or distribution of such securities during such period, except as part of any such registration if permitted. Section 3.6. Indemnification. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 3.1 or 3.2, the Company shall, and hereby does, indemnify and hold harmless each Selling Stockholder, its directors, officers, employees, agents and advisors, and each other Person, if any, who controls such Selling Stockholder within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which each such Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which the Registrable Securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein or used in connection with 27 the offering of securities covered thereby, or any amendment or supplement thereto; (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company, or any of its directors, officers, employees, agents or advisors, of any law or regulation with respect to such registration or offer or sale of Registrable Securities, and the Company will reimburse such Person for any reasonable legal or any other expenses incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that (A) the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, in reliance upon and in conformity with written information prepared and furnished to the Company by any Selling Stockholder specifically for use in the preparation thereof, and (B) that the Company shall not be liable to any Selling Stockholder who participates as an underwriter in any such registration or any other Person who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of the securities to such Person if such statement or omission was timely corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such Person and shall survive the transfer of such securities by such Person. The Company shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified in respect of a claim for each jurisdiction in which such counsel is required unless a conflict of interest exists between such indemnified party and any other indemnified party in respect of such claim. (b) Indemnification by the Selling Stockholders. The Company may require, as a condition to including any Registrable Securities held by a Selling Stockholder in any registration statement filed pursuant to Sections 3.1 or 3.2, that the Company receive an undertaking reasonably satisfactory to it from such Selling Stockholder, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.6(a)) the Company, each director, officer, employee, agent and advisor of the 28 Company and each other Person, if any, who controls the Company within the meaning of the Securities Act (other than such Persons who are Selling Stockholders), with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information prepared and furnished to the Company by such Selling Stockholder specifically for use therein. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer, employee, agent, advisor or controlling Person and shall survive the transfer of such securities by such Selling Stockholder. The indemnity provided by each Selling Stockholder under this Section 3.6(b) shall be only with respect to its own misstatements and omissions and not with respect to those of any other seller or prospective seller of securities, and not jointly and severally, and shall be limited in amount to the net amount of proceeds received by such Selling Stockholder from the sale of Registrable Securities pursuant to such registration statement. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subsections of this Section 3.6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 3.6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless a conflict of interest between such indemnified and indemnifying parties exists in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, if the indemnifying party is entitled to do so hereunder, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution. If for any reason the indemnity set forth in the preceding subsections of this Section 3.6 is unavailable, or is insufficient to hold harmless an indemnified party, other than by reason of the exceptions provided therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified 29 party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the offering of securities and the statements or omissions or alleged statements or omissions which resulted in such loss, claim, damage, or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party. No party shall be liable for contribution under this Section 3.6(d) except to the extent and under such circumstances as such party would have been liable to indemnify under this Section 3.6 if such indemnification were enforceable under applicable law. (e) Payments. The indemnification or contribution required by this Section 3.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, subject to refund if the party receiving such payments is subsequently found not to have been entitled thereto hereunder. Section 3.7. Rule 144. The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder (or, if the Company is not required to file such reports, shall, upon the request of any holder of Registrable Securities, make publicly available other information) and shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell, to the extent permitted under Section 4.2, Registrable Securities and the Series B Preferred Stock without registration under the Securities Act pursuant to (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (ii) any similar rule or regulation hereafter promulgated. Upon the request of any Holder, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Section 3.8. Transfer of Registration Rights and Obligations. The rights provided in this Article III are for the benefit of all Holders in addition to the Investors, and all such Holders may enforce their rights and remedies directly against the Company. In the event the Company issues or distributes, or proposes to issue or distribute, any shares or other securities of another issuer to any Holder and such shares or other securities would be Registrable Securities, the Company shall use its reasonable best efforts to cause such issuer to deliver to the Holders a written instrument, in form and substance reasonably satisfactory to the Holders, that such issuer is bound by and subject to all the terms and conditions of this Agreement to the same extent as the Company and that the rights and remedies provided herein to the Holders apply in all respects to the Registrable Securities of such issuer. 30 ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS -------------------------------- Section 4.1. Standstill. Without the prior written consent of the Company (approved by a majority of the Class A and Class C Directors voting together) or except as provided in this Agreement or in the Organizational Documents, during the Standstill Period, no Investor may, and no Investor shall permit any of the Permitted Transferees of such Investor to, and JLL shall not permit Joseph Littlejohn & Levy Inc. or any of its Subsidiaries to: (a) acquire, publicly announce an intention to acquire, or agree to acquire, directly or indirectly (including through one or more intermediaries), by purchase or otherwise, beneficial ownership of any Voting Stock of the Company resulting in an increase in such Investor's percentage beneficial ownership, at such time, of the Company's Voting Stock on a fully diluted basis; (b) make any public announcement or proposal whatsoever with respect to a merger or other business combination, sale or transfer of assets, recapitalization, dividend, share repurchase, liquidation or other extraordinary corporate transaction with the Company that would result in a Change of Control of the Company; (c) solicit or encourage any third party to make any statement or proposal, or take any action to require the Company to make a public announcement regarding the possibility of any transaction referred to in Section 4.1(b), or advise, assist or encourage any other Persons in connection with the foregoing; (d) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are defined in Rule 14a-1 under the Exchange Act) to vote any Voting Stock, seek to advise, encourage or influence any person or entity with respect to the voting of any Voting Stock, or initiate or propose any shareholder proposal or induce or attempt to induce any other Person to initiate any shareholder proposal; or (e) make or advance any request or proposal to amend, modify or waive any provision of this Section 4.1 or propose any transaction referred to in Section 4.1(b), except in a manner that such Investor in good faith (after consultation with counsel) believes will not require public disclosure thereof (including through any press release or other public announcement or any filing with the SEC, by such Investor or the Company under applicable law or the rules of the Nasdaq National Market or any stock exchange). 31 Notwithstanding anything in this Section 4.1 to the contrary, the provisions of this Section 4.1 shall not apply to the following Permitted Transferees of an Investor unless and until such Permitted Transferees acquire beneficial ownership of Covered Securities: (i) with respect to JLL and its Permitted Transferees, the Persons referred to in clause (iii) of Section 12 of the Series B Certificate of Designations or clause (a)(iii) of Section 5.3.11 of the Restated Certificate of Incorporation; and (ii) with respect to Rite Aid and its Permitted Transferees, the Persons referred to in clause (iii) of Section 12 of the Series A-2 Certificate of Designations or clause (b)(iii) of Section 5.3.11 of the Restated Certificate of Incorporation. Section 4.2. Transfer Restrictions; Legends. (a) General. None of the Investors or any of their successors in interest may, directly or indirectly (including, without limitation, through the Transfer of a controlling interest in a controlled Affiliate), sell, transfer, assign, grant a participation in, option, pledge, hypothecate, encumber or otherwise dispose of (each, a "Transfer") any of their Regular Common Stock, Class B Common Stock, Series A Preferred Stock or Series B Preferred Stock (collectively, the "Covered Securities") except: (i) subject to Section 4.2(b), any Covered Security may be Transferred to a Permitted Transferee of the holder thereof; and (ii) (A) any Covered Security that is Regular Common Stock and (B) after the 120th day following the date hereof and prior to the Class B Effectiveness, the Series A Preferred Stock and Series B Preferred Stock, may be Transferred: (1) pursuant to an effective registration statement under the Securities Act (including a registration effected under Article III), (2) pursuant to Rule 144 under the Securities Act, or any successor to such rule, in the event all the conditions to such Transfer have been met, (3) upon delivery to the Company of a written opinion of legal counsel (who shall be reasonably satisfactory to the Company) addressed to the Company and in substance reasonably satisfactory to the Company to the effect that the proposed Transfer may be effected without registration under the Securities Act, or (4) upon delivery of a "no action" letter from the SEC to the effect that the making of such a Transfer without registration under the Securities Act will not result in a recommendation by the staff of the SEC that action be taken with respect thereto. 32 Any purported Transfer in violation of this Agreement shall be null and void and of no force and effect. (b) Transfers to Permitted Transferees. No share of Covered Securities shall be Transferred pursuant to clause (i) of Section 4.2(a) to any Permitted Transferee unless: (A) such Permitted Transferee shall have agreed in writing, in a manner reasonably acceptable in form and substance to the Company, (x) to accept the shares of Covered Securities Transferred to it subject to the terms and conditions of this Agreement, (y) to be bound by this Agreement and to agree and acknowledge that such Permitted Transferee shall constitute an Investor for all purposes of this Agreement and (z) if a Permitted Transferee of Rite Aid, to be bound by and subject to the provisions of Section 4.3, and (B) the Company shall have received (1) a written opinion of legal counsel (who shall be reasonably satisfactory to the Company) addressed to the Company and in substance reasonably satisfactory to the Company to the effect that the proposed Transfer may be effected without registration under the Securities Act or (2) a "no action" letter from the SEC to the effect that the making of such a Transfer without registration under the Securities Act will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; provided that any such Permitted Transferee to whom such Covered Securities are Transferred to secure any obligations of the transferor shall not be required to deliver the written documents referred to in this Section 4.2(b) unless and until such Permitted Transferee exercises any rights as a secured party and thereby terminates such transferor's beneficial ownership of such Covered Securities. (c) Legends. (i) Subject to clause (vi) of this Section 4.2(c), each certificate representing shares of Covered Securities shall bear legends in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR PURSUANT TO AN 33 EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933. (ii) Subject to clause (vi) of this Section 4.2(c), each certificate for shares of Series A-1 Preferred Stock shall bear legends in substantially the following form: THIS SECURITY IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN (1) THE CERTIFICATE OF DESIGNATIONS FOR ADVANCE PARADIGM, INC.'S SERIES A-1 11% PREFERRED STOCK AND (2) THE STOCKHOLDERS' AGREEMENT, DATED AS OF October 2, 2000, BETWEEN ADVANCE PARADIGM, INC. AND CERTAIN OF ITS STOCKHOLDERS, AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH SUCH TRANSFER RESTRICTIONS. A COPY OF SUCH STOCKHOLDERS' AGREEMENT IS ON FILE WITH THE SECRETARY OF ADVANCE PARADIGM, INC. AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. (iii) Subject to clause (vi) of this Section 4.2(c), each certificate for shares of Series A-2 Preferred Stock shall bear legends in substantially the following form: THIS SECURITY IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN (1) THE CERTIFICATE OF DESIGNATIONS FOR ADVANCE PARADIGM, INC.'S SERIES A-2 11% PREFERRED STOCK AND (2) THE STOCKHOLDERS' AGREEMENT, DATED AS OF OCTOBER 2, 2000, BETWEEN ADVANCE PARADIGM, INC. AND CERTAIN OF ITS STOCKHOLDERS, AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH SUCH TRANSFER RESTRICTIONS. A COPY OF SUCH STOCKHOLDERS' AGREEMENT IS ON FILE WITH THE SECRETARY OF ADVANCE PARADIGM, INC. AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. 34 (iv) Subject to clause (vi) of this Section 4.2(c), each certificate for shares of Series B Preferred Stock shall bear legends in substantially the following form: THIS SECURITY IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN (1) THE CERTIFICATE OF DESIGNATIONS FOR ADVANCE PARADIGM, INC.'S SERIES B PREFERRED STOCK AND (2) THE STOCKHOLDERS' AGREEMENT, DATED AS OF OCTOBER 2, 2000, BETWEEN ADVANCE PARADIGM, INC. AND CERTAIN OF ITS STOCKHOLDERS, AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH SUCH TRANSFER RESTRICTIONS. A COPY OF SUCH STOCKHOLDERS' AGREEMENT IS ON FILE WITH THE SECRETARY OF ADVANCE PARADIGM, INC. AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. (v) Subject to clause (vi) of this Section 4.2(c), each certificate for shares of Class B Common Stock shall bear legends in substantially the following form: THIS SECURITY IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN (1) ADVANCE PARADIGM, INC'S CERTIFICATE OF INCORPORATION AND (2) THE STOCKHOLDERS' AGREEMENT, DATED AS OF OCTOBER 2, 2000, BETWEEN ADVANCE PARADIGM, INC. AND CERTAIN OF ITS STOCKHOLDERS, AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH SUCH TRANSFER RESTRICTIONS. A COPY OF SUCH STOCKHOLDERS' AGREEMENT IS ON FILE WITH THE SECRETARY OF ADVANCE PARADIGM, INC. AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. (vi) If any Covered Securities cease to be Registrable Securities, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate evidencing such Covered Securities without the legends contemplated by this Section 4.2 (unless the restrictions referred to in such legends continue to apply under applicable law). 35 Section 4.3. Additional Restrictions on Transfers By Rite Aid. Prior to the second anniversary of the date of this Agreement, Rite Aid may not Transfer any of its Covered Securities representing more than the Rite Aid Maximum Permitted Amount to any Person (other than a Permitted Transferee of Rite Aid), unless: (a) after six months from the date hereof, if the Current Market Price as of any date after the date hereof shall have exceeded $40.00 (subject to adjustments for stock dividends or distributions and subdivisions, combinations or consolidations of stock); (b) the Class B Effectiveness shall not have occurred within 120 days of the date of this Agreement; (c) any of the events set forth in clauses (ii) through (v) of the definition of "Standstill Period" shall have occurred; (d) a Change of Control shall have occurred; or (e) the Company shall have consented to such Transfer. Section 4.4. Access; Reports and Notices. (a) The Company shall provide the Investors, at the Company's expense, with the following: (i) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its Subsidiaries, as of the end of each such quarterly period, and consolidated statements of income and sources and applications of funds of the Corporation and its Subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, subject to changes resulting from year end audit adjustments and the absence of notes, together with a management's discussion and analysis thereof, all in reasonable detail and certified by the principal financial or accounting officer of the Company. (ii) As soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such fiscal year, and consolidated statements of income and sources and applications of funds of the Company and its Subsidiaries, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in 36 each case in comparative form the figures for the previous fiscal year, together with a management's discussion and analysis thereof, all in reasonable detail and certified with an unqualified audit opinion by independent public accountants of recognized national standing selected by the Company. (iii) Prior to the commencement of each fiscal year an annual budget together with a summary of the business plan and financial plan of the Company for such fiscal year. Any material changes in such financial plan shall be submitted as promptly as practicable after such changes have been approved by the Board of Directors. (iv) Copies of all information (financial and other), reports, notices and presentations (including all compliance certificates) delivered under or pursuant to the Credit Agreements. (v) From time to time upon the reasonable request of the Investors, during normal business hours, access to the offices, facilities, properties, officers, employees and other personnel, auditors, legal counsel and other advisors and consultants, and books and records (including financial and operating data) of the Company and its Subsidiaries. The Company shall instruct its officers, employees and other personnel, and auditors, legal counsel and other advisors and consultants to cooperate with the Investors, and provide the Investors with the appropriate information, in connection with their due diligence and investigation of the Company and its operations. Any investigation pursuant to this clause (v) shall be conducted in a manner so as not to interfere unreasonably with the conduct of the business of the Company. (vi) Promptly upon becoming aware of them, notices of all material events, conditions, circumstances and developments with respect to the Company, its operations, results of operations and financial condition, including any changes or proposed changes in federal, state or local law or regulation applicable to the Company or the industries in which the Company and its Subsidiaries operate. So long as the Company is subject to the reporting requirements of the Exchange Act, the Company's obligations to provide the financial information required by clauses (i) and (ii) of this Section 4.3(a) shall be satisfied by the filing by the Company of its quarterly reports on Form 10-Q and its annual reports on Form 10-K, respectively, in accordance with the Exchange Act. (b) The Company shall provide the Investors with regular reports, in reasonable detail, of developments in all material litigation and regulatory proceedings, including the OIG Investigation. The Company shall retain the law firm of Reed, Smith, Shaw & McClay to represent the Company in the OIG Investigation and may not, 37 without the prior written consent of the Holders of a majority in interest of the Covered Securities, terminate such representation or retain other outside counsel in connection with the OIG Investigation. (c) Unless otherwise required by law, each Investor agrees that it shall (i) hold in confidence and cause its Affiliates to hold in confidence all non-public information furnished to such Investor by the Company and (ii) not use or disclose any such information to any third party without the Company's prior written consent (which consent shall not be unreasonably withheld). Section 4.5. Presence for Quorum Requirement. Each Investor shall cause all Covered Securities of such Investor to be present or represented at any meeting of stockholders of the Company at which any such Covered Security is entitled to vote and to be counted for quorum purposes at such meeting. Section 4.6. JLL Exchange Agreement. Each JLL Stockholder acknowledges and agrees that is bound by and subject to the terms of the JLL Exchange Agreement as if such JLL Stockholder is an original party thereto. ARTICLE V MISCELLANEOUS ------------- Section 5.1. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof. Section 5.2. Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. Except pursuant to Section 3.6 or as set forth in Section 3.8, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 5.3. Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or any Investor; provided that any Persons acquiring shares of Covered Securities pursuant to clause (i) of Section 4.2(a) shall, upon the delivery of the documents contemplated by Section 4.2(b), become an "Investor" under this Agreement with all the rights and obligations of an Investor as if an original party to this Agreement. 38 Section 5.4. Amendment; Waiver. No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective. No provision of this Agreement (including, prior to the Class B Effectiveness, Exhibit B) may be amended or otherwise modified except by an instrument in writing (i) executed by the Company and (ii) approved by (A) the holders of a majority of the Series A-1 Preferred Stock or the Class B-1 Common Stock, as the case may be, then outstanding voting together as a single class on an as-converted- basis and (B) the holders of a majority of the Series A-2 Preferred Stock or the Class B-2 Common Stock, as the case may be, then outstanding voting together as a single class on an as-converted-basis. Section 5.5. Termination. (a) This Agreement shall terminate on the first date on which no shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Class B Common Stock are outstanding, except for the provisions of (i) Article III which shall survive and be in full force and effect so long as any Registrable Securities are outstanding or may be issued, (ii) Section 4.1 which shall survive and be in full force and effect until the expiration or termination of the Standstill Period, and (iii) Section 4.2 which shall survive and be in full force and effect until the restrictions referred to in the legends to Section 4.2(c) no longer apply under applicable law. (b) The provisions of Article II shall terminate, and be of no further force or effect, upon the earlier of (i) the Class B Effectiveness, and (ii) the Investors no longer being entitled to designate any Class B Directors pursuant to the Series A-2 Certificate of Designations or the Series B Certificate of Designations. Section 5.6. Notices. (a) All notices, consents, requests, approvals and other communications provide for in this Agreement, shall be in writing and shall be deemed validly duly given when sent by fax (with confirmation in writing via first class U.S. mail), upon personal delivery or on the third Business Day after being sent by registered or certified U.S. mail (postage prepaid, return receipt requested) to the parties at the fax number or address set forth below or at such other fax number or address as a party may designate to the other parties: 39 (i) if to the Company, to: Advance Paradigm, Inc. 545 E. John Carpenter Freeway, Ste. 1570 Irving, TX 75062 Telecopy: (972) 830-6008 Attention: General Counsel with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue, Suite 4100 Dallas, TX 75201 Telecopy: (214) 969-4343 Attention: J. Kenneth Menges, Jr., P.C. (ii) if to an Investor, to the fax number or the address set forth for such Investor on Schedule I hereto, with copies as set forth therein. (b) Any Person who becomes an Investor pursuant to this Agreement shall provide its address and fax number to the Company, which shall promptly provide such information to each other Investor. Section 5.7. Headings. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. Section 5.8. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Section 5.9. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws rules of such state. Section 5.10. Specific Performance. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies which may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. Section 5.11. Consent to Jurisdiction. The parties hereto expressly and irrevocably (i) consent to the exclusive jurisdiction of the federal courts sitting in the City 40 of New York, County of New York, (ii) agree not to bring any action related to this agreement or the transactions contemplated hereby in any other court (except to enforce the judgment of such courts), (iii) agree not to object to venue in such courts or to claim that such forum is inconvenient and (iv) agree that notice or the service of process in any proceeding shall be properly served or delivered if delivered in the manner contemplated by Section 5.6. Final judgment by such courts shall be conclusive and may be enforced in any manner permitted by law. In addition, each of the parties hereto waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this agreement or any of the transactions contemplated hereby. Section 5.12. Severability. If one or more provisions of this Agreement are held to be unenforceable to any extent under applicable law, such provision shall be interpreted as if it were written so as to be enforceable to the maximum possible extent so as to effectuate the parties' intent to the maximum possible extent, and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms to the maximum extent permitted by law. 41 IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the date first above written. ADVANCE PARADIGM, INC. By /s/ T. Danny Phillips -------------------------------- Name: T. Danny Phillips Title: Secretary RITE AID CORPORATION By /s/ Elliot Gerson -------------------------------- Name: Elliot Gerson Title: Senior Executive Vice President JOSEPH LITTLEJOHN & LEVY FUND III, L.P. By /s/ Ramsey Frank -------------------------------- Name: Ramsey Frank Title: Senior Managing Director 42 MILLER FAMILY HOLDINGS, LLC By /s/ Sharon L. Miller -------------------------------- Name: Sharon L. Miller Title: Managing Member /s/ Saul Fox ---------------------------- Saul Fox /s/ Dexter Paine ---------------------------- Dexter Paine /s/ David Jessick ---------------------------- David Jessick /s/ Jean-Pierre Millon ---------------------------- Jean-Pierre Millon /s/ Jon Grovman ---------------------------- Jon Grovman /s/ Charles Levy ---------------------------- Charles Levy /s/ Chris Ying ---------------------------- Chris Ying /s/ John Marchetti ---------------------------- John Marchetti /s/ Stephen Wise ---------------------------- Stephen Wise 43 /s/ Michael Berk ---------------------------- Michael Berk /s/ Domingo J. Rodriguez ---------------------------- Domingo J. Rodriguez /s/ Brett Milgrim ---------------------------- Brett Milgrim /s/ Navin Thukkaram ---------------------------- Navin Thukkaram /s/ Craig Dolinick ---------------------------- Craig Dolinick /s/ John Kim ---------------------------- John Kim /s/ Michael Chang ---------------------------- Michael Chang 44 SCHEDULE I ---------- NOTICE INFORMATION FOR INVESTORS -------------------------------- RITE AID CORPORATION 30 Hunter Lane Camp Hill, PA 17011 Attention: Elliot Gerson Telecopy: (717) 760-7867 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue N.W. Washington, D.C. 20005 Attention: Kevin Barnette Telecopy: (202) 393-5760 JOSEPH LITTLEJOHN & LEVY FUND III, L.P. 450 Lexington Avenue Suite 3350 New York, NY 10017 Attention: Ramsey Frank Telecopy: (212) 286-8626 with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attention: Steven Gross Telecopy: (212) 909-6836 MILLER FAMILY HOLDINGS, LLC 1881 S.W. Naito Parkway Suite 250 Portland, OR 97201 Attention: Robert G. Miller Telecopy: (503) 241-9604 SAUL FOX 950 Tower Lane Suite 1150 Foster City, CA 94404 Telecopy: (605) 525-1396 DEXTER PAINE 950 Tower Lane Suite 1150 Foster City, CA 94404 Telecopy: (605) 525-1396 DAVID JESSICK RiteAid Corporation 350 Hunter Lane Camphill, PA 17011 Telecopy: (717) 975-5905 JEAN-PIERRE MILLON PCS HealthSystems 9501 Shea Boulevard Scottsdale, AZ 85260 Telecopy: (480) 661-2239 JON GROVMAN Ladenberg Thalmann & Co. Inc. 590 Madison Avenue 34th Floor New York, NY 10022 Telecopy: (212) 409-2412 CHARLES LEVY Duquesne Capital 900 Third Avenue New York, NY 10022 Telecopy: (212) 404-1126 CHRIS YING 135 East Emerson Road Lexington, MA 02173 Telecopy: (781) 744-5397 JOHN MARCHETTI Elmwood Country Club 282 Carroll Close Tarrytown, NY 10591 Telecopy: (914) 592-6601 STEPHEN WISE MICHAEL BERK DOMINGO J. RODRIGUEZ BRETT MILGRIM NAVIN THUKKARAM CRAIG DOLINICK JOHN KIM MICHAEL CHANG c/o Joseph Littlejohn & Levy Inc. 450 Lexington Avenue Suite 3350 New York, NY 10017 Telecopy: (212) 286-8626 EX-7 8 0008.txt JOINT FILING AGREEMENT Exhibit 7 JOINT FILING AGREEMENT The undersigned hereby agree to the joint filing of the Schedule 13D to which this Agreement is attached and to the joint filing of all amendments thereto. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when each of the parties designated as signatories shall have executed one counterpart. Dated: October 12, 2000 JOSEPH LITTLEJOHN & LEVY FUND III, L.P. By its General Partner JLL Associates III, L.L.C. By /s/Ramsey A. Frank -------------------------------- Name: Ramsey A. Frank, for Joseph Littlejohn & Levy, Inc., as Manager of JLL Associates III, L.L.C. JLL ASSOCIATES III, L.L.C. By /s/Ramsey A. Frank --------------------------------- Name: Ramsey A. Frank, for Joseph Littlejohn & Levy, Inc., as Manager of JLL Associates III, L.L.C. /s/Paul S. Levy ------------------------------------ Paul S. Levy /s/David Y. Ying ------------------------------------ David Y. Ying /s/Anthony Grillo ------------------------------------ Anthony Grillo /s/Ramsey A. Frank ------------------------------------- Ramsey A. Frank /s/Jeffrey C. Lightcap ------------------------------------- Jeffrey C. Lightcap -----END PRIVACY-ENHANCED MESSAGE-----