<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997
REGISTRATION NO. 333-30581
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
KENDLE INTERNATIONAL INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
OHIO 8731 31-1274091
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
700 CAREW TOWER
CINCINNATI, OHIO 45202
(513) 381-5550
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
EDWARD E. STEINER, ESQ.
KEATING, MUETHING & KLEKAMP, P.L.L.
1800 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6468
FACSIMILE (513) 579-6957
(Name, address, including zip code, telephone and facsimile numbers,
including area code, of agent for service)
Copy to:
SCOTT S. ROSENBLUM, ESQ.
MARK B. SEGALL, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3903
TELEPHONE (212) 715-9100
FACSIMILE (212) 715-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 23, 1997
PROSPECTUS
3,600,000 SHARES
[KENDLE LOGO]
KENDLE INTERNATIONAL INC.
COMMON STOCK
---------------------------
Of the 3,600,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering"), 3,000,000 are being offered by Kendle International Inc.
("Kendle" or the "Company") and 600,000 are being offered by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." Prior to the Offering, there has been no public market
for the Common Stock. It is currently estimated that the initial public offering
price will be between $12.00 and $14.00 per share. See "Underwriting" for a list
of the factors to be considered in determining the initial public offering
price. Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "KNDL." The Company will not receive any of the proceeds
from the sale of the shares by the Selling Shareholders.
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 7.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
============================================================================================================
PROCEEDS TO
UNDERWRITING COMPANY (2) PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS (1) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------
Total (3)........................... $ $ $ $
============================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting" and "Principal and
Selling Shareholders."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
540,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to the Selling Shareholders
will be $ , $ , $ and $ , respectively.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Underwriting" and "Principal
and Selling Shareholders."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters, subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1997.
---------------------------
LEHMAN BROTHERS J.C. BRADFORD & CO.
, 1997
<PAGE> 3
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. Certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement, including
exhibits, schedules and reports filed as part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete; and, in such instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission in Washington, D.C. and copies of all or any part of which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices located at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained at prescribed rates by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
------------------------
The Company intends to distribute to its shareholders annual reports
containing audited financial statements and will make available copies of
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
------------------------
Kendle(SM), the Kendle logo, TrialWare(SM) and the names of certain other
services offered by Kendle are service marks, trademarks or registered service
marks or trademarks of Kendle. All other trademarks or service marks appearing
in this Prospectus are trademarks, service marks or registered trademarks or
service marks of the respective companies that utilize them.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors"
appearing elsewhere in this Prospectus, and the financial statements and notes
thereto. Unless otherwise indicated, the information set forth in this
Prospectus: (i) does not give effect to the exercise of the Underwriters'
over-allotment option and (ii) gives effect to the proposed 36.5 for 1 stock
split of the Company's Common Stock.
THE COMPANY
Kendle is a contract research organization ("CRO") that provides a broad
range of clinical research and drug development services to the pharmaceutical
and biotechnology industries. Kendle augments the research and development
activities of pharmaceutical and biotechnology companies by offering high
quality, value added clinical research services and proprietary information
technology designed to reduce drug development time and expense. The Company's
services include Phase II to Phase IV clinical trial design and management,
clinical data management, biostatistical analysis, medical writing and
regulatory consultation and representation. Kendle believes that it is one of a
small number of CROs capable of providing a broad range of services within
multiple therapeutic areas, including cardiovascular, central nervous system,
gastrointestinal, immunology, oncology, respiratory, skeletal disease and
inflammation. Since its inception, Kendle has served more than 40 clients,
including 12 of the world's 20 largest pharmaceutical companies. In 1996, Kendle
participated in 62 studies at approximately 4,100 sites involving approximately
20,000 patients.
In furtherance of the Company's strategy to expand its international
coverage and range of services, the Company purchased U-Gene Research B.V.
("U-Gene"), based in Utrecht, the Netherlands, which provides Phase II to Phase
IV clinical trial design and management, and owns and operates a
state-of-the-art 38-bed Phase I testing unit, and entered into an agreement to
purchase GMI Gesellschaft fur Angewandte Mathematik und Informatik mbH ("gmi"),
based in Munich, Germany, which provides Phase II to Phase IV clinical trial
design and management and specializes in the field of pharmacoeconomic analysis
(the "Acquisitions"). The Company believes that the Acquisitions will make
Kendle the sixth largest CRO in Europe, based on total revenues, and will
enhance its ability to provide customers with a single source for contract
research services throughout North America and Europe.
The CRO industry derives substantially all of its revenue from the
pharmaceutical and biotechnology industries. In 1995, worldwide expenditures on
research and development by pharmaceutical and biotechnology companies are
estimated to have been $35.0 billion, of which the Company estimates $22.0
billion was spent on the type of drug development activities offered by the CRO
industry. The Company believes that approximately $2.5 billion of such spending
was outsourced to CROs in 1995.
The Company believes that the outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will continue
to increase as these companies strive to increase revenues through faster drug
development while also dealing with cost containment pressures. The CRO
industry, by specializing in clinical trials management, is often able to
perform the needed services with a higher level of expertise or specialization,
more quickly and at a lower cost than a client could perform the services
internally.
The Company believes that pharmaceutical and biotechnology companies are
increasingly selecting CROs that have the following capabilities: (i) a broad
range of therapeutic expertise in designing and managing all phases of clinical
trials; (ii) the ability to efficiently collect, edit and analyze data from
thousands of patients with various clinical conditions from many geographically
dispersed sites; (iii) the ability to provide a full range of services to
clients who desire to use fewer CROs to manage their drug development processes;
and (iv) global capabilities that incorporate diverse populations and allow
simultaneous filings of registration packages in several major jurisdictions.
Kendle's strategy is to continue to enhance its reputation as a
high-quality provider of a full range of CRO services. The Company's strategy
consists of the following key elements: (i) continue to expand its
3
<PAGE> 5
broad range of therapeutic expertise; (ii) offer its clients "one-stop shopping"
with a full range of services that encompass the clinical research process and
complement the research and development departments of its clients; (iii)
expedite the drug development process through innovative information technology
offered via the Company's proprietary TrialWare(sm) software; (iv) continue to
build a brand presence that portrays high quality work; and (v) supplement
internal growth through strategic acquisitions that expand the Company's
geographic presence and add to Kendle's clinical research capabilities in
existing or new therapeutic areas or service offerings.
ACQUISITIONS
U-Gene Acquisition
On July 1, 1997, Kendle acquired U-Gene for 30 million Dutch guilders
($15.6 million) (the "U-Gene Acquisition"). The Company utilized funds provided
under a bank credit facility (the "Bank Credit Facility") to consummate the
U-Gene Acquisition. U-Gene has been in existence since 1986 and has conducted
trials in several countries including the Netherlands, the United Kingdom and
Italy. U-Gene offers a full range of clinical drug development services
including Phase I to Phase IV national and multinational clinical trials,
biostatistics, quality management and regulatory consultation. In Phase II to
Phase IV, U-Gene has experience in a broad range of therapeutic areas, including
cardiovascular, central nervous system, gynecology, hematology and infectious
diseases. Since 1986, U-Gene has served more than 100 clients, including 19 of
the world's largest pharmaceutical companies. In 1996, U-Gene participated in
115 studies at approximately 500 sites involving approximately 4,700 patients
and recorded net revenues of $12.5 million, a 37% increase over the prior year,
and operating profit of $1.3 million, a 47% increase over the prior year.
gmi Acquisition
On July 2, 1997, the Company entered into a definitive agreement to acquire
gmi for 19.5 million Deutsche marks. Total acquisition costs are expected to be
approximately $9.5 million in cash and $2.8 million in shares of Common Stock,
with the number of shares to be determined by the initial public offering price
(the "gmi Acquisition"). The Company expects to close the gmi Acquisition
concurrently with the Offering. If the Offering is not completed by September
15, 1997, the cash portion of the gmi Acquisition will be funded with borrowings
under the Bank Credit Facility. Founded in 1983, gmi provides a wide range of
clinical drug development services including Phase II to Phase IV clinical
trials and has experience in a variety of national and international projects
across a wide range of diseases. gmi also engages in scientific consulting, the
planning, realization and evaluation of health economic studies and gmi also
conducts seminars, in-house training programs and presentations. gmi operates
primarily in Germany, but has conducted trials in six additional countries
including Austria, the United Kingdom, Switzerland and France. In 1996, gmi
participated in 119 studies at multiple sites and recorded net revenues of $7.0
million, a 32% increase over the prior year, and operating profit of $1.4
million, a 16% increase over the prior year.
Management believes that the Acquisitions will establish the Company as a
full-service international CRO. On a pro forma basis, the Company is the sixth
largest European CRO, based on total revenues, and is one of a small number of
CROs able to offer clients the full range of Phase I through Phase IV clinical
trials in North America and Europe. U-Gene and gmi will increase both the number
and the geographic scope of the clients served by Kendle, enabling the Company
to cross-sell its services and enhance its relationships with existing clients.
U-Gene and gmi will also add a number of additional areas of therapeutic
expertise that complement Kendle's areas of proficiency.
The Company plans to repay the indebtedness incurred under the Bank Credit
Facility with the proceeds from the Offering. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources." The gmi Acquisition is subject
to customary closing conditions contained in the definitive agreement, including
satisfactory due diligence investigation, the receipt of regulatory approvals
and the continued accuracy of the representations and warranties. See "The
Acquisitions," "Bank Credit Facility" and "Risk Factors--Risks Associated with
Acquisitions."
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock Offered by the Company.......... 3,000,000 shares
Common Stock Offered by the Selling
Shareholders............................... 600,000 shares
Common Stock to be Outstanding after the
Offering................................... 7,350,687 shares(1)(2)
Use of Proceeds.............................. To repay indebtedness incurred in connection
with the U-Gene Acquisition, fund the cash
portion of the gmi Acquisition (which is
expected to close simultaneously with the
consummation of the Offering), general
corporate purposes, including working
capital, and possible future acquisitions of
related businesses. See "Use of Proceeds."
Nasdaq National Market Symbol................ KNDL
</TABLE>
- ---------------
(1) Excludes: (i) 1,000,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option and Stock Incentive Plan, of which options
to purchase 270,000 shares will be granted concurrently with the Offering at
an exercise price equal to the assumed initial public offering price of
$13.00 to employees and nonemployee directors; (ii) 15,000 shares of Common
Stock reserved for issuance under the 1997 Directors Compensation Plan; and
(iii) options to purchase 424,860 shares of Common Stock not currently
exercisable granted under the 1995 Stock Option and Stock Incentive Plan.
See "Management -- Employee Benefit Plans," and Note 4 to the Company's
financial statements.
(2) Includes options for the purchase of 329,449 shares of Common Stock, which
become immediately exercisable upon the consummation of the Offering.
5
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------------- -------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(1) 1996
------------ ------ ------ ------ ------- -------- ------------
(UNAUDITED) (UNAUDITED)
-------------------------
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STATEMENT OF OPERATIONS DATA:
Net revenues...................... $2,468 $2,555 $4,431 $6,118 $12,959 $32,463 $2,063
------ ------ ------ ------ ------- ------- ------
Costs and expenses:
Direct costs.................... 1,689 1,548 2,760 3,564 8,176 21,178 1,395
Selling, general and
administrative................ 1,158 603 1,067 1,776 3,278 6,658 372
Depreciation and amortization... 81 111 127 168 316 1,706 45
------ ------ ------ ------ ------- ------- ------
Total costs and expenses........ 2,928 2,262 3,954 5,508 11,770 29,542 1,812
------ ------ ------ ------ ------- ------- ------
Income (loss) from operations..... (460) 293 477 610 1,189 2,921 251
Interest expense.................. (72) (61) (43) (69) (65) (65) (18)
Other income, net................. 37 20 24 6 10 62 2
------ ------ ------ ------ ------- ------- ------
Income (loss) before income
taxes........................... (495) 252 458 547 1,134 2,918 235
Income taxes...................... 1,333
------ ------ ------ ------ ------- ------- ------
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 1,585 $ 235
====== ====== ====== ====== ======= ======= ======
HISTORICAL PRO FORMA DATA (2):
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 235
Pro forma income tax expense
(benefit)....................... (198) 101 183 219 454 94
------ ------ ------ ------ ------- ------
Pro forma net income (loss)....... $ (297) $ 151 $ 275 $ 328 $ 680 $ 141
====== ====== ====== ====== ======= ======
Historical pro forma net income
(loss) per share................ $(0.07) $ 0.04 $ 0.07 $ 0.08 $ 0.16 $ 0.03
====== ====== ====== ====== ======= ======
PRO FORMA NET INCOME PER SHARE.... $ 0.21
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,031 4,031 4,031 4,080 4,239 7,457 4,162
<CAPTION>
PRO
FORMA
1997 1997(1)
------ -------
------------------
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STATEMENT OF OPERATIONS DATA:
Net revenues...................... $5,962 $11,230
------ -------
Costs and expenses:
Direct costs.................... 3,376 6,437
Selling, general and
administrative................ 1,893 2,714
Depreciation and amortization... 150 496
------ -------
Total costs and expenses........ 5,419 9,647
------ -------
Income (loss) from operations..... 543 1,583
Interest expense.................. (31) (31)
Other income, net................. 17 33
------ -------
Income (loss) before income
taxes........................... 529 1,585
Income taxes...................... 686
------ -------
Net income (loss)................. $ 529 $ 899
====== =======
HISTORICAL PRO FORMA DATA (2):
Net income (loss)................. $ 529
Pro forma income tax expense
(benefit)....................... 212
------
Pro forma net income (loss)....... $ 317
======
Historical pro forma net income
(loss) per share................ $ 0.07
======
PRO FORMA NET INCOME PER SHARE.... $ 0.12
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,263 7,481
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------------------------
AS PRO FORMA
ACTUAL ADJUSTED(4) AS ADJUSTED(1)
------ ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $(294) $34,705 $ 12,314
Total assets................................................. 9,847 44,847 55,934
Total debt, excludes current portion of long-term debt....... 1,155 1,155 2,715
Total shareholders' equity................................... 1,257 35,532 38,761
</TABLE>
- ---------------
(1) The pro forma data give effect to: (i) the Acquisitions; (ii) the Offering;
(iii) borrowings and repayments under the Bank Credit Facility; (iv) the
recognition of an estimated $25 of deferred income taxes upon the
termination of Kendle's S corporation election; and (v) the payment of the S
corporation distribution of approximately $700. The pro forma data also
reflect the application of corporate income taxes to the Company's net
income at an assumed statutory combined federal and state rate of 40%, which
would have been recorded if the Company had been a C corporation during such
period. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Termination of S Corporation Status," "Use of Proceeds," "Bank
Credit Facility" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) The historical pro forma data reflect the application of corporate income
taxes to the Company's net income at an assumed statutory combined federal
and state rate of 40%, which would have been recorded if the Company had
been a C corporation.
(3) Weighted average common and equivalent shares outstanding assumes: (i) the
issuance of sufficient shares at an assumed initial public offering price of
$13.00 per share to pay the portion of the S corporation distribution to be
paid from the proceeds of the Offering; (ii) options to purchase shares of
Common Stock granted by the Company during the twelve months preceding the
Offering were outstanding for all periods presented, using the treasury
stock method at an assumed initial public offering price of $13.00 per
share; and (iii) the Warrants issued in connection with the U-Gene
Acquisition. See "Termination of S Corporation Status."
(4) As adjusted to reflect: (i) the sale by the Company of 3,000,000 shares of
Common Stock offered by the Company at an assumed initial public offering
price of $13.00 per share, after deducting underwriting discounts and
estimated offering expenses; (ii) the recognition of $25 of deferred income
taxes upon the termination of Kendle's S corporation election; and (iii) the
payment of the S corporation distribution of approximately $700. See "Use of
Proceeds."
6
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following risk factors, in addition to the other information
contained in this Prospectus, should be considered carefully in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
DEPENDENCE ON CERTAIN CLIENTS AND INDUSTRIES
During 1996 and the first three months of 1997, revenues from G.D. Searle &
Co. accounted for approximately 48% and 66%, respectively, of the Company's net
revenues. Other Company clients have, from time to time, accounted for more than
10% of the Company's net revenues, with revenues from The Procter & Gamble
Company and Amgen, Inc. accounting for approximately 19% and 13%, respectively,
of the Company's net revenues in 1996 and revenues from The Procter & Gamble
Company accounting for approximately 13% of the Company's net revenues for the
first three months of 1997. In addition, as of March 31, 1997, G.D. Searle & Co.
accounted for $11.2 million, or approximately 57%, of the Company's backlog.
However, on a pro forma basis assuming consummation of the Acquisitions as of
January 1, 1996, revenues from G.D. Searle & Co. were approximately 19% and 35%
of the Company's net revenues in 1996 and for the first three months of 1997,
respectively, and no other client would have accounted for more than 10% of the
Company's net revenues. Nonetheless, the CRO industry in general continues to be
dependent on the research and development efforts of the principal
pharmaceutical and biotechnology companies as major clients, and the Company
believes that this dependence will continue. The loss of business from any of
the Company's major clients would have a material adverse effect on the Company.
See "Business -- Clients and Marketing."
As a provider of integrated product development services to the
pharmaceutical and biotechnology industries, the Company's revenues are highly
dependent on industry research and development expenditures. Decreases in such
expenditures, including decreases resulting from economic downturns in these
industries or from industry mergers or other consolidations, could have a
material adverse effect on the Company. Furthermore, the Company has benefitted
to date from the tendency of pharmaceutical and biotechnology companies to
outsource an increasing percentage of their large clinical research projects and
other drug development activities. A reversal of this trend would have a
material adverse effect on the Company. See "Business -- General."
LOSS OR DELAY OF LARGE CONTRACTS
Most of the Company's service contracts are terminable by the client upon
30 days' notice. Clients may terminate or delay contracts for a variety of
reasons, including the failure of products to satisfy safety requirements,
unexpected or undesired clinical results, the client's decision to forego a
particular study, insufficient patient enrollment or investigator recruitment or
production problems resulting in shortages of the drug. The Company believes
that several factors, including increased cost containment pressures associated
with healthcare reform efforts, have caused pharmaceutical and biotechnology
companies to apply more stringent criteria to the decision to proceed with
clinical trials and therefore may have resulted in a greater willingness of
these companies to cancel contracts with CROs. The loss or delay of a large
contract or of multiple contracts could have a material adverse effect on the
Company. See "Business -- Contractual Arrangements."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to make additional strategic acquisitions as part of
its growth strategy. There can be no assurance that the Company will be able to
identify suitable acquisition candidates or that, if identified, the Company
will be able to acquire such companies on favorable terms. Acquisitions involve
numerous risks, including difficulties in the integration of the operations and
services of the acquired company; acquisition and integration expenses; the
diversion of management's attention from other business concerns; the successful
integration of the Company's business culture with those of acquired companies,
both in the United States and internationally; and the potential loss of key
employees. Acquisitions of foreign companies involve the
7
<PAGE> 9
additional risks of, among others, assimilating differences in foreign business
practices, exchange rate fluctuations, managing foreign companies, business
cycle risks in different countries, and overcoming language barriers. If the
Company consummates any acquisitions in the future, there can be no assurance
that such acquired businesses will be successfully integrated into the Company's
operations. See "Use of Proceeds" and "Business -- Company Strategy."
The Acquisitions will expand the Company's client and business bases and
increase the number of Company employees. However, there can be no assurance
that either U-Gene or gmi will be integrated successfully into Kendle's
operations. These Acquisitions could have a material adverse effect on the
Company.
VOLATILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly operating results are subject to volatility due to
such factors as the commencement, completion, cancellation or delay of
contracts; the progress of ongoing projects; cost overruns; the Company's sales
cycle; demand for the Company's services; competitive industry conditions; the
ability of the Company to develop, introduce and market new services on a timely
basis; changes in the mix of services provided to clients; changes in client
research and development expenditures and other general economic factors.
Because a large portion of the Company's operating costs are fixed, variations
in the timing and progress of large contracts or of multiple contracts can
materially affect quarterly results. The Company believes that comparisons of
its quarterly financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance. However, fluctuations in the
Company's quarterly operating results could affect the market price of the
Common Stock in a manner unrelated to the longer term operating performance of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED TO ATTRACT, RETAIN, INTEGRATE AND MANAGE PROFESSIONAL STAFF
The Company's business is labor intensive and involves the delivery of
specialized professional services. The Company's success depends in large part
upon its ability to attract, develop, motivate, integrate and retain highly
skilled employees. There is significant competition from other CROs as well as
from the in-house research departments of pharmaceutical and biotechnology
companies and other enterprises for employees with the skills required to
perform the services offered by the Company. There can be no assurance that the
Company will be able to attract, retain and integrate a sufficient number of
highly skilled employees in the future or that it will continue to be successful
in training, retaining, integrating and motivating its current employees. The
loss of a significant number of employees or the Company's inability to hire
sufficient numbers of qualified employees could have a material adverse effect
on the Company.
LIMITED INTERNATIONAL PRESENCE
Pharmaceutical and biotechnology companies are increasingly attempting to
expand the market for new drugs by pursuing regulatory approvals in multiple
countries simultaneously rather than sequentially as they have in the past. To
compete effectively for large, international contracts, a CRO must demonstrate
its ability to organize and manage large-scale trials on a global basis. Prior
to the U-Gene Acquisition, the Company did not have operations outside of North
America. If the gmi Acquisition is not consummated, there can be no assurance
that the Company will not experience difficulties in developing, integrating, or
acquiring international capabilities successfully or entering into alliances
with foreign CROs that meet the needs of the Company's clients. Foreign
operations also involve additional risks of assimilating differences in foreign
business practices; hiring, integrating, retaining and motivating qualified
personnel; exchange rate fluctuations; managing foreign companies; business
cycle risks in different countries and overcoming language barriers. The
Company's limited international experience may have a material adverse effect on
the Company.
8
<PAGE> 10
COMPETITION; CRO INDUSTRY CONSOLIDATION
The Company primarily competes against in-house research departments of
pharmaceutical and biotechnology companies, universities and teaching hospitals
and other full-service CROs, a number of which possess substantially greater
capital, technical and other resources than the Company. CROs generally compete
on the basis of previous experience, medical and scientific expertise in
specific therapeutic areas, the quality of contract research, the ability to
organize and manage large-scale trials on a global basis, medical database
management capabilities, the ability to provide statistical and regulatory
services, the ability to recruit investigators, the ability to integrate
information technology with systems to improve the efficiency of contract
research, an international presence with strategically located facilities,
financial viability and price. The Company's failure to compete effectively in
any one or more of these areas could have a material adverse effect on the
Company.
The CRO industry is highly fragmented, with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. However, the CRO industry is consolidating. This consolidation
trend has been caused, in part, by the decision of pharmaceutical and
biotechnology company clients to contract with fewer CROs, streamlining the
outsourcing process by entering into preferred provider relationships with a few
CROs or awarding a smaller number of large contracts to qualified CROs. This
trend is likely to increase competition among the larger CROs for both clients
and acquisition candidates and may lead to price and other forms of competition
that could have a material adverse effect on the Company. See
"Business -- Competition."
FIXED PRICE NATURE OF CONTRACTS
Most of the Company's service contracts are fixed price contracts, with
some variable components, which place the risk of cost overruns on the Company.
Under-pricing of major contracts or significant cost overruns could have a
material adverse effect on the Company. See "Business -- Contractual
Arrangements."
POTENTIAL LIABILITY RISKS OF CONDUCTING CLINICAL TRIALS
Clinical research services involve the testing of new drugs on human
volunteers pursuant to study protocols. Such testing exposes the Company to the
risk of liability for personal injury or death to study participants resulting
from, among other things, possible unforeseen adverse side effects or improper
administration of the new drug. Many study participants are already seriously
ill and are at risk of further illness or death. In addition, as a result of the
U-Gene Acquisition, the Company conducts Phase I trials and is subject to the
general risks associated with Phase I trials, including but not limited to,
adverse events resulting from the administration of drugs to clinical trial
participants and the professional malpractice of Phase I medical care providers.
The Company has entered into indemnification agreements which it believes
provide protection from these risks. However, if the Company were required to
pay damages or incur defense costs in connection with a personal injury or
wrongful death claim that is outside the scope of indemnification agreements
that may exist with clients, or if any such indemnification agreement, although
in force, is not performed in accordance with its terms, it could have a
material adverse effect on the Company. The Company currently does not maintain
liability insurance with respect to these risks. U-Gene carries professional
liability insurance in connection with its Phase I facility. See
"Business -- Potential Liability and Insurance."
REGULATORY RISKS
The Company's business depends on the continued strict government
regulation of the drug development process. In the United States, the general
trend has been toward continued or increased regulation. In Europe, the general
trend has been toward coordination of common standards for clinical testing of
new drugs, leading to changes in the various requirements currently imposed by
each country. Changes in regulations, including a relaxation of regulatory
standards or the introduction of streamlined drug approval procedures, could
materially adversely affect the demand for the Company's services. Moreover, if
the current regulatory structure is not changed, the failure on the part of the
Company to comply with applicable regulations could
9
<PAGE> 11
result in the termination of ongoing research or the disqualification of data
for submission to regulatory authorities. See "Business -- General" and "--
Government Regulation."
UNCERTAINTY IN HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. Implementation of government health care reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies which could decrease the business opportunities available to CROs. The
Company is unable to predict the likelihood of health care reform legislation
being enacted into law or the effects such legislation would, if enacted, have
on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends upon the capabilities and continuing efforts
of Candace Kendle Bryan, Pharm. D., its Chief Executive Officer, and Christopher
C. Bergen, its President, who are married to each other. The loss of either of
these persons or other key management personnel, including the strategic
business unit directors, could have a material adverse effect on the Company.
MANAGEMENT OF GROWTH
In addition to the growth anticipated from the Acquisitions, the Company
has experienced rapid growth over the past two years. The Company believes that
sustained growth places a strain on operational, human and financial resources.
In order to manage its growth, the Company must continue to improve its
operating and administrative systems and attract, retain and integrate qualified
management and professional, scientific and technical personnel. Failure to
manage growth effectively could have a material adverse effect on the Company.
CONTROL BY MANAGEMENT; UNDESIGNATED PREFERRED STOCK; CERTAIN ANTI-TAKEOVER
PROVISIONS
After the Offering, Dr. Bryan and Mr. Bergen will control approximately
33.1% of Kendle's outstanding Common Stock (approximately 30.8% if the
Underwriters' over-allotment option is exercised in full) and, if they act
together, will be able to significantly influence all matters requiring approval
by shareholders, including the election of directors. After the Offering, the
Company's executive officers and directors will, as a group, control
approximately 34.9% of Kendle's outstanding Common Stock. The Board of Directors
also has the authority to issue 100,000 shares of undesignated preferred stock
and to determine the rights, preferences, privileges and restrictions of such
shares without further action by shareholders. Any issue of preferred stock
could be given rights which would adversely affect the equity of the holders of
Common Stock and could have a preference over Common Stock with respect to
dividends and liquidation rights. In addition, Ohio law contains provisions that
may discourage takeover bids for the Company that have not been negotiated with
the Board of Directors. The terms of a series of preferred stock and such Ohio
law provisions could have the effect of delaying or preventing a change in
control of the Company and, accordingly, could limit the price that investors
might be willing to pay for the Common Stock, including transactions in which
holders of Common Stock might receive a premium for their shares over the market
price. See "Principal and Selling Shareholders" and "Description of Capital
Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock will
be determined by negotiations among management of the Company and the
representatives of the Underwriters and may not be indicative of future market
prices. See "Underwriting" for factors to be considered in determining the
initial public offering price per share. The Company has applied for listing of
the Common Stock on the Nasdaq National Market, and, even if approved for
listing, there can be no assurance that an active trading market will develop or
be sustained subsequent to the Offering or that the market price of Common Stock
will not decline below the initial public offering price.
10
<PAGE> 12
In addition, broad market trading and valuation fluctuations have adversely
affected the valuation of health care-focused and technology-based service
companies and may adversely affect the market price of the Common Stock.
Furthermore, the stock market has, from time to time, experienced extreme price
and volume fluctuations in the shares of certain issuers, which in some
circumstances have been unrelated to the operating performance of particular
companies affected. The Common Stock may be subject to wide fluctuations in
price in response to variations in quarterly operating results and other
factors, including the evolving business prospects of the Company's clients,
suppliers and competitors, changes in the financial estimates by securities
analysts, acquisitions or the failure to make acquisitions, general economic or
market conditions and other factors.
DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in the Offering (assuming an initial
public offering price of $13.00 per share) will experience an immediate and
substantial dilution of $7.91 in the adjusted pro forma net tangible book value
per share of Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of previously issued Common Stock
in the public market following the Offering could adversely affect the market
price for the Company's Common Stock. The number of shares of Common Stock
eligible for sale in the public market is limited by restrictions under the
Securities Act and lock-up agreements entered into by the Company, the Company's
officers and directors and all existing holders of Common Stock. Under these
lock-up agreements, subject to certain specified exceptions, the Company and
such persons have agreed not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Underwriters. As a result of these restrictions, only the
3,600,000 shares of Common Stock offered hereby will be eligible for sale on the
date of this Prospectus; and an additional 3,050,000 shares will be eligible for
sale 180 days after the date of this Prospectus, in accordance with Rules 701
and/or 144 promulgated under the Securities Act. The Company also intends, after
the effective date of the Offering, to register on a registration statement on
Form S-8 approximately 1,000,000 shares of Common Stock reserved for issuance
under the Company's 1997 Stock Option and Stock Incentive Plan. In addition,
approximately $2.8 million in shares of Common Stock, with the number of shares
to be determined by the initial public offering price, will be issued to
shareholders of gmi in connection with the gmi Acquisition. Such shares will be
eligible for sale outside of the United States pursuant to Regulation S and in
the United States pursuant to Rule 144 one year after issuance. See "Shares
Eligible for Future Sale."
11
<PAGE> 13
THE ACQUISITIONS
On July 1, 1997, the Company acquired all of the issued and outstanding
capital stock of U-Gene for 30 million Dutch guilders ($15.6 million). Ten
percent of such amount is in the form of a promissory note subject to an escrow
agreement, which expires January 1, 1999.
On July 2, 1997, the Company entered into a definitive stock purchase
agreement to acquire gmi for 19.5 million Deutsche marks. Total acquisition
costs are expected to be approximately $9.5 million in cash and $2.8 million in
shares of Common Stock, with the number of shares to be determined by the
initial public offering price. The gmi Acquisition is expected to close
simultaneously with the closing of the Offering. If the Offering is not
completed by September 15, 1997, the cash portion of the gmi Acquisition will be
funded with borrowings under the Bank Credit Facility. The closing of the gmi
Acquisition is subject to customary closing conditions contained in the
definitive agreement, including satisfactory due diligence investigation, the
continued accuracy of representations and warranties and the receipt of all
applicable governmental approvals and consents.
U-Gene has been in existence since 1986 and has conducted trials in the
Netherlands, the United Kingdom and Italy. U-Gene offers a full range of
clinical drug development services including Phase I to Phase IV national and
multinational clinical trial designs, biostatistics, quality management and
regulatory consultation. In Phase II to Phase IV, U-Gene has experience in a
broad range of therapeutic areas, including cardiovascular, central nervous
system, gynecology, hematology and infectious diseases. Since 1986, U-Gene has
served more than 100 clients, including 19 of the world's 20 largest
pharmaceutical companies. In 1996, U-Gene participated in 115 studies at
approximately 500 sites involving approximately 4,700 patients and recorded net
revenues of $12.5 million, a 37% increase over the prior year, and operating
profit of $1.3 million, a 47% increase over the prior year. U-Gene leases
facilities at two sites in Utrecht. Its clinical headquarters, adjacent to the
University Hospital, house a state-of-the-art 38-bed clinical pharmacology unit,
medical writers and other clinical personnel. The Company's Phase I unit was
originally built in 1991, and was increased from 26 beds to 38 beds and fully
refurbished in early 1996. Facilities include state-of-the-art intensive
monitoring equipment for continuous electrocardiolography, 24-hour ambulatory
blood pressure measurement, and automated vital signs monitors. In addition to
its five wards, the unit has volunteer recreation facilities, a preparative
pharmacy, a meal preparation area and dining room, and a laboratory for sample
processing and certain types of assay. U-Gene's second site houses Phase II to
Phase IV monitoring activities, the biostatistics group, marketing and general
management.
Founded in 1983, gmi provides a wide range of clinical drug development
services including Phase II to Phase IV clinical trials and has experience in a
variety of national and international projects across a wide range of diseases.
gmi also engages in scientific consulting, the planning, realization and
evaluation of health economic studies and conducts seminars, in-house training
programs and presentations. gmi operates primarily in Germany, but has conducted
trials in six additional countries including Austria, the United Kingdom,
Switzerland and France. gmi leases its facility in Munich. The facility includes
approximately 9,000 square feet of primarily office space. In 1996, gmi
participated in 119 studies at multiple sites and recorded net revenues of $7.0
million, a 32% increase over the prior year, and operating profit of $1.4
million, a 16% increase over the prior year.
Management believes that the Acquisitions will establish the Company as a
full-service international CRO. On a pro forma basis, the Company is the sixth
largest CRO in Europe, based on total revenues, and is one of a small number of
CROs able to offer clients the full range of Phase I through Phase IV clinical
trials in North America and Europe. U-Gene and gmi will increase both the number
and the geographic scope of the clients served by Kendle, enabling the Company
to cross-sell its services and enhance its relationships with existing clients.
U-Gene and gmi will also add a number of additional areas of therapeutic
expertise that complement Kendle's areas of proficiency.
12
<PAGE> 14
BANK CREDIT FACILITY
In connection with the Acquisitions, NationsBank, N.A. (the "Bank") has
agreed to lend the Company up to $20 million under a senior secured revolving
credit facility (the "Senior Credit Facility") and up to $10 million in
subordinated promissory notes (the "Subordinated Credit Facility") (the Senior
Credit Facility and the Subordinated Credit Facility, together referred to as
the Bank Credit Facility).
Outstanding borrowings under the Senior Credit Facility bear interest at a
rate equal to either LIBOR plus the Applicable Margin (as defined), or the
higher of the Bank's prime rate or the Federal Funds rate plus 0.50%. All
amounts outstanding thereunder become due and payable in June 2000. The
Subordinated Credit Facility consists of 12% Subordinated Series A and B
Promissory Notes which are payable over a five year term (the "Series A Note"
and "Series B Note") and Common Stock Purchase Warrants (the "Warrants"). Each
Warrant is exercisable at $0.01 per share of Common Stock and expires ten years
from issuance.
The Bank Credit Facility contains various restrictive financial covenants,
including limitations on senior and total debt levels, capital expenditures and
future acquisitions, as well as the maintenance of certain fixed coverage ratios
and minimum net worth levels, and is collateralized by all the assets and shares
of Common Stock held by Dr. Bryan, Mr. Bergen, the Kendle Stock Trust and Hazel
Kendle (which shares will be released as collateral upon consummation of the
Offering) and existing and hereafter acquired material subsidiaries.
BANK CREDIT FACILITY UTILIZATION -- U-GENE ACQUISITION
On July 1, 1997 the U-Gene Acquisition and related costs were funded with
approximately $9.4 million from the Senior Credit Facility, a promissory note
payable to U-Gene deposited in an escrow account pursuant to the U-Gene purchase
agreement of approximately $1.6 million and $5 million from the Series A Note.
In addition, the Company issued the Warrants to the Bank to purchase 4% of the
outstanding shares of Common Stock of the Company prior to the Offering (153,738
shares). If the Offering is not completed on or before December 1, 1997, the
number of shares which may be purchased upon exercise of the Warrants will be
increased to 5%, and 6% if not completed by March 1, 1998.
BANK CREDIT FACILITY UTILIZATION -- GMI ACQUISITION
Although the Company expects the gmi Acquisition to close simultaneously
with the closing of the Offering, the Company is required per the gmi definitive
agreement, to consummate the gmi Acquisition not later than September 15, 1997.
If the Offering is not completed by September 15, 1997, or a mutually agreed
upon later date, then the Company expects to borrow approximately $4.5 million
from the Senior Credit Facility and $5 million from the Series B Note to fund
the cash portion of the gmi Acquisition. In addition, the non-cash portion of
the gmi Acquisition would be funded through the issuance of a subordinated
security by the Company (mandatory convertible exchangable preferred stock) to
the gmi shareholders. Upon issuance of the Series B Note, the Company is
required under the Subordinated Credit Facility to issue the Warrants to the
Bank for the purchase of an additional 3% of the outstanding shares of Common
Stock of the Company, and 4% if the Offering is not completed by March 1, 1998.
In addition, under the terms of the gmi definitive agreement, the Bank issued a
standby letter of credit to the gmi shareholders to secure the cash portion of
the gmi Acquisition price due to such shareholders.
The Company intends to repay all outstanding Subordinated Promissory Notes
and amounts outstanding under the Senior Credit Facility related to the U-Gene
Acquisition, with proceeds from the Offering. The Warrants issued in connection
with the U-Gene Acquisition will be exercised by the Bank and converted to
Common Stock concurrently with the consummation of the Offering.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby by the Company are estimated to be approximately $35
million (approximately $42 million if the over-allotment option is exercised in
full), assuming an initial public offering price of $13.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company expects to utilize approximately $14.4 million of the
proceeds in order to repay bank indebtedness incurred in connection with the
U-Gene Acquisition, and will use approximately $9.5 million to fund the cash
portion of the gmi Acquisition, which the Company expects to occur concurrently
with the Offering. The Company estimates that it will invest approximately $3
million to $4 million during 1997 for capital expenditures related to facilities
and investments in information technology. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company expects to use the remaining net proceeds from
the Offering for general corporate purposes, including working capital. A
portion of the proceeds may also be used to acquire or invest in similar or
complementary businesses; however, there are no agreements or commitments with
respect to any such transactions at the present time. Certain of the proceeds
may also be used to make payments related to the termination of the Company's S
corporation status. See "Termination of S Corporation Status" and "Certain
Transactions." Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term interest-bearing,
investment-grade obligations. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders.
TERMINATION OF S CORPORATION STATUS
Since 1989, the Company has been treated as an S corporation for federal
income tax purposes pursuant to an election under Subchapter S of the Internal
Revenue Code of 1986 (the "Code") and for certain state income tax purposes. As
a result, substantially all of the income of the Company has been taxed directly
to its shareholders rather than to the Company. Following the closing of the
Offering, the Company will be subject to federal and state income taxes.
Immediately prior to consummation of the Offering, Kendle will terminate
its S corporation status and will be subject to C corporation taxation.
Accordingly, as of such date, the Company will become fully subject to federal
and state income taxes. In connection with the termination of the Company's S
corporation status, the Company will distribute approximately $700,000 to its S
corporation shareholders primarily representing the Company's previously earned
but undistributed taxable Subchapter S income. The $700,000 represents the
maximum the Company may distribute at the time of the Offering in accordance
with the provisions the Bank Credit Facility.
In connection with the termination of Kendle's S corporation status, the
Company will record deferred income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." As of
March 31, 1997, such deferred income taxes would have totaled approximately
$25,000. This income tax expense will be in addition to income tax expense
otherwise incurred in such quarter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 to the Company's
financial statements.
DIVIDEND POLICY
Except for dividends paid to enable its shareholders to pay federal, state
and local income and earnings taxes, prior to December 1996 the Company did not
pay cash dividends on its Common Stock. Beginning in 1996, the Company
instituted a cash dividend to provide for routine, quarterly distributions of
previously taxed earnings. The Company currently anticipates that after the
Offering all of its earnings will be retained for development of the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future. Future cash dividends, if any, will be paid at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions, limitations under the
Bank Credit Facility and such other factors as the Board of Directors may deem
relevant.
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<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) on an actual basis; (ii) on an as adjusted basis to reflect
(a) the sale of 3,000,000 shares of Common Stock offered by the Company at an
assumed initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses, (b) the
recognition of an estimated $25,000 of deferred income taxes upon the
termination of the Company's S corporation status, (c) the payment of the S
corporation distribution of approximately $700,000, and (d) the reclassification
of retained earnings to additional paid-in capital; and (iii) on a pro forma
basis as adjusted to give effect to the items discussed in (ii)(a) through (d)
above and the Acquisitions (including the issuance of the Warrants in
conjunction with the U-Gene Acquisition). The table should be read in
conjunction with the financial statements and notes thereto and the Unaudited
Pro Forma Condensed Consolidated Financial Statements included elsewhere in this
Prospectus. See "Use of Proceeds," "Selected Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------
AS PRO FORMA AS
ACTUAL ADJUSTED ADJUSTED(1)
------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash.......................................................... $ 14 $ 34,314 $ 13,832
====== ======= =======
Short-term debt:
Current portion of capital lease obligations................ $ 342 $ 342 $ 342
Obligations under capital leases, less current portion........ 1,155 1,155 1,155
Note payable -- escrow agreement.............................. 1,560
Shareholders' equity:
Preferred stock; 100,000 shares authorized; no shares issued
or outstanding...........................................
Common stock, 12,000,000 shares authorized; 3,650,000 shares
issued and outstanding; 6,650,000 shares issued and
outstanding, as adjusted; and 7,021,238 shares issued and
outstanding, pro forma as adjusted (2)................... 75 105 109
Additional paid-in capital.................................. 270 35,427 39,752
Retained earnings (deficit)................................. 912 -- (1,100)
------ ------- -------
Total shareholders' equity............................... 1,257 35,532 38,761
------ ------- -------
Total capitalization................................ $2,754 $ 37,029 $ 41,818
====== ======= =======
</TABLE>
- ---------------
(1) Pro forma as adjusted includes: (i) Warrants issued in conjunction with the
Bank Credit Facility; (ii) 217,500 shares issued in conjunction with the gmi
Acquisition; and (iii) the write-off of the unamortized debt discount (net
of a tax benefit) and the conversion of the Warrants to shares of Common
Stock.
(2) Excludes exercisable options for the purchase of 329,449 shares of Common
Stock.
15
<PAGE> 17
DILUTION
The net tangible book value of the Company at March 31, 1997, on a pro
forma basis to reflect the $700,000 S corporation distribution and the
recognition of $25,000 in deferred income taxes upon the termination of the
Company's S corporation election, was approximately $532,000, or $0.15 per
share. See "Termination of S Corporation Status." Without taking into account
any other changes in net tangible book value after March 31, 1997, other than to
give effect to pro forma adjustments for the sale by the Company of 3,000,000
shares of its Common Stock offered hereby at an assumed initial public offering
price of $13.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses), the adjusted pro forma net
tangible adjusted book value of the Company at March 31, 1997 would have been
approximately $35.5 million, or $5.09 per share. This amount represents an
immediate increase in net tangible book value of $4.94 per share to existing
shareholders of the Company and an immediate dilution in net tangible book value
of $7.91 per share to purchasers of shares of Common Stock offered hereby as
illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Net tangible book value per share............................... $0.15
Increase per share attributable to new shareholders............. 4.94
-----
Pro forma net tangible book value per share....................... 5.09
------
Dilution per share to new shareholders............................ $ 7.91
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences between existing shareholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share (assuming an initial
public offering price of $13.00 per share and before deducting underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2).......... 3,653,614 49.7 $ 78,289 0.2 $ 0.02
Options immediately exercisable at
the Offering.................... 325,835 4.4 337,025 0.8 1.03
Warrants issued in connection with
the U-Gene Acquisition.......... 153,738 2.1 1,537 * 0.01
Shares to be issued in connection
with the gmi Acquisition........ 217,500 3.0 2,827,500 6.7 13.00
New investors..................... 3,000,000 40.8 39,000,000 92.3 13.00
--------- ----- ----------- -----
Total................... 7,350,687 100.0 $42,244,351 100.0
========= ===== =========== =====
</TABLE>
- ---------------
* Less than 0.1%
(1) Sales by the Selling Shareholders in the Offering will cause the number of
shares held by existing shareholders to be reduced to 3,053,614 or 41.5% of
the total shares of Common Stock to be outstanding after the Offering, and
will increase the number of shares held by new investors to 3,600,000
shares, or 49.0% (4,140,000 shares or 52.5% if the Underwriters'
over-allotment option is exercised in full) of the total shares of Common
Stock to be outstanding after the Offering. See "Principal and Selling
Shareholders."
(2) Existing shares include options exercisable prior to the Offering for the
purchase of 3,614 shares of Common Stock.
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statements of operations for
the three month period ended March 31, 1997 and the year ended December 31, 1996
give effect to the Acquisitions as if they had occurred on January 1, 1996. The
unaudited pro forma condensed consolidated balance sheet as of March 31, 1997
gives effect to the Acquisitions as if they had occurred on March 31, 1997.
The unaudited pro forma condensed consolidated financial statements give
effect only to the reclassifications and adjustments set forth herein. The pro
forma financial information is provided as additional information only and is
not necessarily indicative of actual results that would have been achieved had
the Acquisitions been consummated at the beginning of the periods presented or
of future results.
These statements have been prepared from the financial statements of the
Company, U-Gene and gmi and should be read in conjunction with such statements
and the notes thereto which are included elsewhere herein.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
CONSOLIDATED
ACTUAL ACTUAL ACTUAL PRO FORMA PRO FORMA
KENDLE U-GENE GMI ADJUSTMENTS TOTALS (5)
------ ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $5,962 $3,273 $1,995 $ 11,230
Costs and expenses:
Direct costs.......................... 3,376 2,075 986 6,437
Selling, general and administrative... 1,893 703 118 2,714
Depreciation and amortization......... 150 85 20 $ 208(1) 496
33(2)
------ ------ ------ ----- -------
Total costs and expenses........... 5,419 2,863 1,124 241 9,647
------ ------ ------ ----- -------
Income from operations.................. 543 410 871 (241) 1,583
Other income (expense):
Interest expense...................... (31) (31)
Other................................. 17 11 5 33
------ ------ ------ ----- -------
Income before income taxes.............. 529 421 876 (241) 1,585
Income taxes............................ 148 412 126(3) 686
------ ------ ------ ----- -------
Net income.............................. $ 529 $ 273 $ 464 $(367) $ 899
====== ====== ====== ===== =======
Weighted average common and equivalent
shares outstanding.................... 7,481(4)
Earnings per common and common
equivalent share...................... $ 0.12
=======
</TABLE>
See notes on the following page
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
CONSOLIDATED
ACTUAL ACTUAL ACTUAL PRO FORMA PRO FORMA
KENDLE U-GENE GMI ADJUSTMENTS TOTALS (5)
------- ------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $12,959 $12,508 $6,996 $ 32,463
Costs and expenses:
Direct costs........................ 8,176 8,108 4,894 21,178
Selling, general and
administrative................... 3,278 2,783 597 6,658
Depreciation and amortization....... 316 320 105 $ 832(1) 1,706
133(2)
------- ------- ------ ------- -------
Total costs and expenses......... 11,770 11,211 5,596 965 29,542
------- ------- ------ ------- -------
Income from operations................ 1,189 1,297 1,400 (965) 2,921
Other income (expense):
Interest expense.................... (65) (65)
Other............................... 10 7 45 62
------- ------- ------ ------- -------
Income before income taxes............ 1,134 1,304 1,445 (965) 2,918
Income taxes.......................... 465 658 210(3) 1,333
------- ------- ------ ------- -------
Net income............................ $ 1,134 $ 839 $ 787 $(1,175) $ 1,585
======= ======= ====== ======= =======
Weighted average common and equivalent
shares outstanding.................. 7,457(4)
Earnings per common and common
equivalent share.................... $ 0.21
=======
</TABLE>
- ---------------
(1) Adjusted to reflect amortization expense. The excess of the cost of the
Acquisitions over net assets acquired will be amortized over 30 years using
the straight line method. The cost of the gmi Acquisition was computed using
the exchange rate in effect as of May 1, 1997.
(2) Adjusted to reflect amortization of debt issuance costs on the Senior Credit
Facility.
(3) Adjusted to reflect: (i) the application of corporate income taxes to the
Company's net income at an assumed statutory combined federal and state rate
of 40% which would have been recorded if the Company had been a C
corporation during such period; (ii) the application of corporate income
taxes for U-Gene and gmi at effective tax rates of 35% and 43%,
respectively; and (iii) the tax effect of the pro forma adjustments using an
estimated statutory rate of 40%. The pro forma adjustment includes non-
deductible amortization of goodwill relating to the U-Gene Acquisition of
$469 and $117 for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively.
(4) Pro forma weighted average common and equivalent shares outstanding
includes: (i) the issuance of 3,000 shares of Common Stock through the
Offering; (ii) the issuance of 218 shares of the Company's Common Stock for
the gmi Acquisition; (iii) the issuance of sufficient shares at an assumed
initial public offering price of $13.00 per share to pay the portion of the
S corporation distribution to be paid from the proceeds of the Offering;
(iv) options to purchase shares of Common Stock granted by the Company
during the twelve months preceding the Offering as if they were outstanding
for all periods presented using the treasury stock method at an assumed
initial public offering price of $13.00 per share; and (v) the Warrants
issued in connection with the U-Gene Acquisition.
(5) Pro forma adjustments do not give effect to the non-recurring charge for the
write-off of the unamortized debt discount associated with the Bank Credit
Facility of $1,100 (net of tax benefit of $400) upon repayment of the
Subordinated Credit Facility.
18
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA
ADJUSTMENTS TO REFLECT ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL ACTUAL TO REFLECT U-GENE TO REFLECT TO REFLECT GMI CONSOLIDATED
KENDLE U-GENE GMI BORROWING ACQUISITION OFFERING ACQUISITION PRO FORMA
------- ------- ------- ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................... $ 14 $ 879 $2,560 $14,040(1) $ (14,040)(2) $ 35,000(3) $ (9,483)(7) $ 13,832
(14,440)(4)
(700)(8)
2(4)
Receivables -- trade.... 4,379 3,540 1,597 9,516
Unreimbursed
investigator and
project costs......... 2,610 2,610
Other current assets.... 137 386 91 614
------ ------ ------ ------- -------- -------- ------- -------
Total current
assets.............. 7,140 4,805 4,248 14,040 (14,040) 19,862 (9,483) 26,572
------ ------ ------ ------- -------- -------- ------- -------
Property and
equipment............. 2,441 1,073 149 3,663
Other assets............ 266 73 400(1) 739
Excess of purchase price
over net assets
acquired.............. 14,078(2) 10,882(7) 24,960
------ ------ ------ ------- -------- -------- ------- -------
Total assets........ $9,847 $5,951 $4,397 $14,440 $ 38 $ 19,862 $ 1,399 $ 55,934
====== ====== ====== ======= ======== ======== ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of
obligations under
capital leases........ $ 342 $ 342
Amounts payable--book
overdraft............. 1,164 1,164
Advances of investigator
and project costs..... 480 480
Trade payables.......... 1,923 $1,508 $ 831 4,262
Dividends payable....... 140 140
Income taxes payable.... 1,160 $ (400)(4) 760
Accrued liabilities..... 471 1,051 796 2,318
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............. 3,055 1,555 182 4,792
------ ------ ------ -------- -------
Total current
liabilities......... 7,435 4,254 2,969 (400) 14,258
------ ------ ------ -------- -------
Obligations under
capital leases less
current portion....... 1,155 1,155
Pension obligation...... 175 175
Note payable -- escrow
agreement............. $ 1,560(2) 1,560
Deferred income taxes... 25(5) 25
Senior debt............. $ 9,440(1) (9,440)(4)
Subordinated debt....... 3,500(1) (3,500)(4)
Common stock purchase
warrants.............. 1,500(1) (1,500)(4)
------ ------ ------ ------- -------- -------- -------
Total liabilities... 8,590 4,429 2,969 14,440 1,560 (14,815) 17,173
------ ------ ------ ------- -------- -------- -------
</TABLE>
See notes on the following page
19
<PAGE> 21
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA
ADJUSTMENTS TO REFLECT ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL ACTUAL TO REFLECT U-GENE TO REFLECT TO REFLECT GMI CONSOLIDATED
KENDLE U-GENE GMI BORROWING ACQUISITION OFFERING ACQUISITION PRO FORMA
------ ------ ------ ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholders Equity:
Common Stock......... $ 75 $ 172 $ 32 $ (172)(2) $ 30(3) $ (32)(7) $ 109
2(4) 2(7)
Paid-in capital...... 270 15 (15)(2) 912(6) 2,825(7) 39,752
(25)(5)
34,970(3)
(700)(8)
1,500(4)
Retained earnings
(deficit).......... 912 1,484 1,516 (1,484)(2) (912)(6) (1,516)(7) (1,100)
(1,100)(4)
Cumulative foreign
currency
translation
adjustments........ (149) (120) 149(2) 120(7)
------ ------ ------ -------- ------- ------- -------
Total shareholders'
equity............. 1,257 1,522 1,428 (1,522) 34,677 1,399 38,761
------ ------ ------ -------- ------- ------- -------
Total Liabilities and
Shareholders'
Equity............... $9,847 $5,951 $4,397 $14,440 $ 38 $ 19,862 $ 1,399 $ 55,934
====== ====== ====== ======= ======== ======= ======= =======
</TABLE>
- ---------------
(1) To record the proceeds from the Company's borrowings under the Bank Credit
Facility. The Bank Credit Facility includes a Senior Credit Facility, which
is a three-year revolving credit facility, bearing interest at a rate equal
to either LIBOR plus the Applicable Margin (as defined), or the Bank's prime
rate or the Federal Funds rate plus 0.50% and a Subordinated Credit
Facility, which is a five-year facility, bearing interest at 12%. As part of
the Subordinated Credit Facility, the Company also issued stock purchase
warrants containing a put feature. This put feature expires upon
consummation of the Offering. An allocation from the Subordinated Credit
Facility proceeds has been made to the Warrants, with the amount recorded
for the Warrants determined by their estimated fair market value. The
allocation of the proceeds to the Warrants has been accounted for as a debt
discount on the Subordinated Credit Facility borrowing. The Company also
incurred approximately $400 of debt issuance costs in connection with the
Bank Credit Facility.
(2) To record the acquisition of the net assets of U-Gene (including the
recording of the excess of purchase price over net assets acquired) and
eliminate shareholders' equity. The purchase price was 30,000 guilders
($15,600). Of the purchase price, $14,040 was paid in cash and $1,560 paid
in the form of a promissory note payable to U-Gene deposited in an escrow
account pursuant to the U-Gene purchase agreement. No allocation of purchase
price was made to existing contracts as the Company believes that profits to
be earned on contracts will be proportionate to the costs incurred
subsequent to the acquisition.
(3) To record the net proceeds from the initial public offering of $35,000,
consisting of 3,000 shares at an assumed price per share of $13.00, after
deducting underwriting commissions and discounts and estimating Offering
expenses of approximately $4,000.
(4) To record: (i) the repayment of the Bank Credit Facility; (ii) the write-off
of the unamortized debt discount of $1,100 (net of a tax benefit of $400);
and (iii) the assumed exercise of the Warrants issued in connection with the
U-Gene Acquisition.
(5) To record deferred income taxes upon the termination of the Company's S
corporation election.
(6) To record the reclassification of the Company's retained earnings to
additional paid-in capital upon terminating S corporation status.
(7) To record the purchase of the net assets of gmi (including the recording of
the excess of acquisition costs over net assets acquired) and eliminate
shareholders' equity. The acquisition costs (converted to U.S. dollars using
an exchange rate of 0.58 (DM/U.S.$ as of May 1, 1997)) consist of
approximately $9,483 in cash and $2,825 in shares of Common Stock at an
assumed initial public offering price of $13.00 per share. No allocation of
purchase price was made to existing contracts as the Company believes that
profits to be earned on contracts will be proportionate to the costs
incurred subsequent to the acquisition.
(8) To record payment of the S corporation distribution of $700 upon termination
of S corporation status.
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below at and for the year ended
December 31, 1992 are derived from unaudited financial statements and include
all adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for this period. For each of the years in the
four-year period ended December 31, 1996, the selected financial data are
derived from financial statements that have been audited by Coopers & Lybrand
L.L.P., independent accountants. The audited balance sheets as of December 31,
1995 and 1996 and the related statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended December 31, 1996
and related notes thereto appear elsewhere in this Prospectus. The balance sheet
data at March 31, 1997 and the statement of operations data for the three months
ended March 31, 1997 and 1996 are derived from unaudited financial statements
and include all adjustments, consisting only of normal recurring adjustments,
that the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
three months ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1997. The selected
pro forma financial data are derived from the unaudited pro forma condensed
consolidated financial statements included elsewhere in this Prospectus and are
based on the financial statements of the Company, U-Gene and gmi, adjusted to
give effect to the Acquisitions and certain other matters. The selected pro
forma statement of operations data for the year and three month period ended
December 31, 1996 and March 31, 1997, respectively, give effect to the
Acquisitions as if they had occurred on January 1, 1996. The pro forma balance
sheet data at March 31, 1997 give effect to the Acquisitions as if they had
occurred on March 31, 1997. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and are qualified by reference to the financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------------- ------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(1) 1996
------------ ------ ------ ------ ------- ------- ------------
(UNAUDITED) (UNAUDITED)
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $2,468 $2,555 $4,431 $6,118 $12,959 $32,463 $2,063
------ ------ ------ ------- ------- ------ ------
Costs and expenses:
Direct costs.................... 1,689 1,548 2,760 3,564 8,176 21,178 1,395
Selling, general and
administrative................ 1,158 603 1,067 1,776 3,278 6,658 372
Depreciation and
amortization.................. 81 111 127 168 316 1,706 45
------ ------ ------ ------- ------- ------ ------
Total costs and expenses...... 2,928 2,262 3,954 5,508 11,770 29,542 1,812
------ ------ ------ ------- ------- ------ ------
Income (loss) from operations..... (460) 293 477 610 1,189 2,921 251
Interest expense.................. (72) (61) (43) (69) (65) (65) (18)
Other income, net................. 37 20 24 6 10 62 2
------ ------ ------ ------- ------- ------ ------
Income (loss) before income
taxes........................... (495) 252 458 547 1,134 2,918 235
Income taxes...................... 1,333
------ ------ ------ ------- ------- ------ ------
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $1,585 $ 235
====== ====== ====== ======= ======= ====== ======
HISTORICAL PRO FORMA DATA(2):
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 235
Pro forma income tax expense
(benefit)....................... (198) 101 183 219 454 94
------ ------ ------ ------- ------- ------
Pro forma net income (loss)....... $ (297) $ 151 $ 275 $ 328 $ 680 $ 141
====== ====== ====== ======= ======= ======
Historical pro forma net income
(loss) per share................ $(0.07) $ 0.04 $ 0.07 $ 0.08 $ 0.16 $ 0.03
====== ====== ====== ======= ======= ======
PRO FORMA NET INCOME PER SHARE.... $ 0.21
======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,031 4,031 4,031 4,080 4,239 7,457 4,162
<CAPTION>
PRO
FORMA
1997 1997(1)
------- -------
-------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 5,962 $11,230
------- -------
Costs and expenses:
Direct costs.................... 3,376 6,437
Selling, general and
administrative................ 1,893 2,714
Depreciation and
amortization.................. 150 496
------- -------
Total costs and expenses...... 5,419 9,647
------- -------
Income (loss) from operations..... 543 1,583
Interest expense.................. (31) (31)
Other income, net................. 17 33
------- -------
Income (loss) before income
taxes........................... 529 1,585
Income taxes...................... 686
------- -------
Net income (loss)................. $ 529 $ 899
======= =======
HISTORICAL PRO FORMA DATA(2):
Net income (loss)................. $ 529
Pro forma income tax expense
(benefit)....................... 212
-------
Pro forma net income (loss)....... $ 317
=======
Historical pro forma net income
(loss) per share................ $ 0.07
=======
PRO FORMA NET INCOME PER SHARE.... $ 0.12
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,263 7,481
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1997
---------------------------------------------------- ---------------------
PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(1)
------ ------ ------- ------- ------ ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ (972) $ (492) $ (208) $ (139) $ (294) $ (294) $12,314
Total assets............................ 832 2,181 1,874 2,432 8,623 9,847 55,934
Total debt.............................. 278 173 139 151 761 1,155 2,715
Total shareholders' equity (deficit).... (827) (343) 51 345 944 1,257 38,761
</TABLE>
- ---------------
(1) The pro forma data give effect to: (i) the Acquisitions; (ii) the Offering;
(iii) borrowing and repayments under the Bank Credit Facility; (iv) the
recognition of an estimated $25 of deferred income taxes upon the
termination of Kendle's S corporation election; and (v) the payment of the S
corporation distribution of approximately $700. The pro forma data also
reflect the application of corporate income taxes to the Company's net
income at an assumed statutory combined federal and state rate of 40%, which
would have been recorded if the Company had been a C corporation during such
periods. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Termination of S Corporation Status," "Use of Proceeds," "Bank
Credit Facility" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) The historical pro forma data reflect the application of corporate income
taxes to the Company's net income at an assumed statutory combined federal
and state rate of 40%, which would have been recorded if the Company had
been a C corporation during such periods.
(3) Weighted average common and equivalent shares outstanding assumes: (i) the
issuance of sufficient shares at an assumed initial public offering price of
$13.00 per share to pay the portion of the S corporation distribution to be
paid from the proceeds of the Offering; (ii) options to purchase shares of
Common Stock granted by the Company during the twelve months preceding the
Offering were outstanding for all periods presented, using the treasury
stock method at an assumed initial public offering price of $13.00 per
share; and (iii) Warrants issued in connection with the U-Gene Acquisition.
See "Termination of S Corporation Status."
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides integrated clinical research services on a contract
basis to the pharmaceutical and biotechnology industries. These services include
Phase II to Phase IV clinical trial management, clinical data management,
biostatistical analysis, medical writing and regulatory consultation and
representation. Historically, the Company has grown through internal expansion.
Its strategy is to build its business in the future through a combination of
internal growth and acquiring businesses that offer services similar or
complementary to those offered by the Company.
Kendle's clinical research and development services contracts are generally
fixed price, with some variable components, and range in duration from a few
months to several years. A portion of the contract fee is typically required to
be paid at the time the contract is entered into and the balance is received in
installments over the contract's duration, in some cases on a milestone
achievement basis. Most of the Company's contracts are terminable upon 30 days'
notice by the client. Clients terminate or delay contracts for a variety of
reasons, including, among others, the failure of the product being tested to
satisfy safety requirements, unexpected or undesired clinical results of the
product, the client's decision to forego a particular study, insufficient
patient enrollment or investigator recruitment or production problems resulting
in shortages of the drug. Although the Company typically is entitled to receive
certain fees for winding down a study which is terminated or delayed and, in
some cases, a termination fee, the loss or delay of a large contract or the loss
or delay of multiple contracts could have a material adverse effect on the
Company.
Kendle recognizes revenues from contracts on the percentage of completion
method, measured by the total costs incurred as a percentage of estimated total
costs for each contract. Kendle uses this method because management considers
total costs incurred to be the best available measure of progress on these
contracts. The estimated total costs of contracts are reviewed and revised
periodically throughout the lives of the contracts with adjustment to revenues
resulting from such revisions being recorded on a cumulative basis in the period
in which the revisions are made. Additionally, the Company incurs costs, in
excess of contract amounts, in subcontracting with third-party investigators.
Such costs, which are reimbursable by its clients, are excluded from direct
costs and net revenues.
The Company's backlog consists of anticipated net revenues from work under
letter agreements and contracts which have not been realized. At March 31, 1997,
Kendle's backlog was approximately $19.7 million compared to $5.4 million at
March 31, 1996, a 263% increase. At March 31, 1997, U-Gene's and gmi's backlogs
were approximately $9.6 million and $6.9 million, respectively. The Company
believes that its backlog as of any date is not necessarily a meaningful
predictor of future results and no assurances can be given that the Company will
be able to fully realize all of its backlog as revenues. See
"Business -- Backlog."
Direct costs consist of compensation and related fringe benefits for
project-related employees, unreimbursed project-related costs and allocated
facilities, information systems and other costs. Selling, general and
administrative expenses consist of compensation and related fringe benefits for
sales and administrative employees, professional services and advertising costs,
as well as unallocated costs related to facilities, information systems and
other costs.
Following the Acquisitions, a significant percentage of the Company's cash
flow from operations will be derived from operations outside the United States.
As the Company's plans are to repatriate earnings from
U-Gene and gmi to the U.S., the Company will be subject to the risks of currency
exchange rate fluctuations.
23
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net revenues and the percentage change in these items
compared to the prior comparable period. The trends illustrated in the following
table may not be indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
(DECREASE)
PERCENTAGE OF NET REVENUES ---------------------------
---------------------------------------------
THREE MONTHS YEAR YEAR QUARTER
ENDED ----- ----- -------
YEAR ENDED DECEMBER 31, MARCH 31, 1994 1995 1996
------------------------- --------------- TO TO TO
1994 1995 1996 1996 1997 1995 1996 1997
----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 38.1% 111.8% 188.9%
Costs and expenses
Direct costs.................... 62.3 58.3 63.1 67.6 56.6 29.1 129.4 142.0
Selling, general and
administrative................ 24.1 29.0 25.3 18.0 31.8 66.4 84.6 409.3
Depreciation and amortization... 2.9 2.7 2.4 2.2 2.5 32.5 88.1 229.2
Income from operations............ 10.7 10.0 9.2 12.2 9.1 27.9 94.8 116.1
Other income (expenses), net...... (0.4) (1.0) (0.4) (0.8) (0.2) 232.6 (13.1) (12.6)
Net income........................ 10.3 9.0 8.8 11.4 8.9 19.4 107.2 125.0
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net revenues increased by $3.9 million, or 188.9%, from $2.1 million for
the three months ended March 31, 1996 to $6.0 million for the three months ended
March 31, 1997. The increase in net revenues was due to an increase in the
volume of clinical research and clinical data management projects. Revenues from
G.D Searle & Co. and The Procter & Gamble Company accounted for approximately
66% and 13%, respectively, of net revenues for the three months ended March 31,
1997. Net revenues from clients other than G.D. Searle & Co. increased $651,000,
or 47.4%, from $1.4 million for the three months ended March 31, 1996 to $2.0
million for the three months ended March 31, 1997.
Direct costs increased by $2.0 million, or 142.0%, from $1.4 million for
the three months ended March 31, 1996 to $3.4 million for the three months ended
March 31, 1997. Direct costs expressed as a percentage of net revenues decreased
from 67.6% for the three months ended March 31, 1996 to 56.6% for the three
months ended March 31, 1997. The decrease was due primarily to the absorption of
indirect project related costs over a larger revenue base as the Company's
volume of business increased.
Selling, general and administrative expenses increased by $1.5 million, or
409.3%, from $372,000 for the three months ended March 31, 1996 to $1.9 million
for the three months ended March 31, 1997. Selling, general and administrative
expenses as a percentage of net revenues increased from 18.0% for the three
months ended March 31, 1996 to 31.8% for the three months ended March 31, 1997.
This increase was primarily due to increases in unallocated costs, recruiting
and system support activity as compared to the same period in 1996.
Depreciation and amortization expense increased $104,000, or 229.2%, from
$46,000 for the three months ended March 31, 1996 to $150,000 for the three
months ended March 31, 1997. This increase was due primarily to capital
expenditures associated with the three offices opened by the Company in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues increased by $6.9 million, or 111.8%, from $6.1 million for
the year ended December 31, 1995 to $13.0 million for the year ended December
31, 1996. The increase in net revenues was due to an increase in the volume of
clinical research and clinical data management projects. Revenues from G.D.
Searle & Co., The Procter & Gamble Company and Amgen, Inc. accounted for
approximately 48%, 19% and 13%, respectively, of net revenues for the year ended
December 31, 1996. Net revenues from clients other than G. D. Searle & Co.
increased $3.1 million, or 86.9%, from $3.6 million for the year ended December
31, 1995 to $6.7 million for the year ended December 31, 1996.
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<PAGE> 26
Direct costs increased by $4.6 million, or 129.4%, from $3.6 million for
the year ended December 31, 1995 to $8.2 million for the year ended December 31,
1996. Direct costs expressed as a percentage of net revenues increased from
58.3% for the year ended December 31, 1995 to 63.1% for the year ended December
31, 1996. The increase in direct costs was due to the hiring and contracting of
additional project-related personnel to meet the needs of current and future
projects, and increased occupancy and other costs associated with three
additional offices opened by the Company during 1996.
Selling, general and administrative expenses increased by $1.5 million, or
84.6%, from $1.8 million for the year ended December 31, 1995 to $3.3 million
for the year ended December 31, 1996. The increase in selling, general and
administrative expenses was primarily due to increased business development
costs, travel, training and systems support activities. Selling, general and
administrative expenses increased at a significantly lower rate than net
revenues for the year ended December 31, 1996, declining as a percentage of net
revenues from 29.0% for the year ended December 31, 1995 to 25.3% for the year
ended December 31, 1996.
Depreciation and amortization expense increased $148,000, or 88.1%, from
$168,000 for the year ended December 31, 1995 to $316,000 for the year ended
December 31, 1996. The increase was due primarily to capital expenditures
associated with the three offices opened by the Company in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues increased by $1.7 million, or 38.1%, from $4.4 million in 1994
to $6.1 million in 1995. The increase in net revenues was due to an increase in
clinical research and clinical data management projects. Revenues from G.D.
Searle & Co., Rhone-Poulene Rorer, Inc. and Parke-Davis, a division of Warner-
Lambert Co., accounted for approximately 42%, 12% and 11%, respectively, of net
revenues for the year ended December 31, 1995. Net revenues from clients other
than G.D. Searle & Co. increased $1.4 million, or 63.1%, from $2.2 million for
the year ended December 31, 1994 to $3.6 million for the year ended December 31,
1995.
Direct costs increased by $804,000, or 29.1%, from $2.8 million in 1994 to
$3.6 million in 1995. Direct costs as a percentage of net revenues decreased
from 62.3% in 1994 to 58.3% in 1995. The decrease was due primarily to the
absorption of indirect project related costs over a larger revenue base as the
Company's volume of business increased.
Selling, general and administrative expenses increased by $708,000, or
66.4%, from $1.1 million in 1994 to $1.8 million in 1995. Selling, general and
administrative expenses as a percentage of net revenues increased from 24.1% in
1994 to 29.0% in 1995. The increase in selling, general and administrative
expenses was due to increased business development, travel and systems support
activities and an increase in unallocated costs.
Depreciation and amortization expenses increased by $41,000, or 32.5%, from
$127,000 in 1994 to $168,000 in 1995. This increase was primarily due to
purchases of furniture, fixtures and equipment as a result of increases in the
Company's operations.
QUARTERLY RESULTS
The Company's quarterly operating results are subject to volatility due to
such factors as the commencement, completion, cancellation or delay of
contracts; the progress of ongoing projects; cost overruns; the Company's sales
cycle; demand for the Company's services; competitive industry conditions; the
ability of the Company to develop, introduce and market new services on a timely
basis; changes in the mix of services provided to clients; changes in client
research and development expenditures and other general economic factors.
Because a large portion of the Company's operating costs are fixed, variations
in the timing and progress of large contracts or of multiple contracts can
materially affect quarterly results.
The following table presents unaudited quarterly operating results for the
Company for each of the nine most recent quarters in the period ended March 31,
1997. In the opinion of the Company, this information is prepared on the same
basis as the financial statements appearing elsewhere in this Prospectus and
reflects all the adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results of operations for those periods.
This quarterly financial data should be read in conjunction with the financial
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<PAGE> 27
statements and notes thereto appearing elsewhere in this Prospectus. The
operating results for any quarter are not indicative of the results of any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH
31, 30, 30, 31, 31, 30, 30, 31, 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $1,597 $1,638 $1,453 $1,429 $2,063 $2,630 $3,607 $4,659 $5,962
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Direct costs.................... 874 852 866 971 1,395 1,781 2,441 2,560 3,376
Selling, general and
administrative................ 434 510 507 323 372 646 818 1,442 1,893
Depreciation and amortization... 39 42 47 40 45 46 51 173 150
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses............... 1,347 1,404 1,420 1,334 1,812 2,473 3,310 4,175 5,419
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations............ 250 234 33 95 251 157 297 484 543
Other expense, net................ 11 17 19 18 16 10 3 26 14
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income........................ $ 239 $ 217 $ 14 $ 77 $ 235 $ 147 $ 294 $ 458 $ 529
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations and growth with cash
flow from operations and borrowings. Investing activities have primarily
consisted of capital expenditures for furniture, fixtures and equipment.
As a result of $3.3 million in cash provided by operating activities and
$0.4 million and $0.8 million cash used by investing and financing activities,
respectively, cash and cash equivalents increased by $2.1 million during the
year ended December 31, 1996. Net cash provided by operating activity resulted
primarily from net income and the net change in working capital items. Most of
the Company's contracts for its services provide for bills to be rendered based
upon the achievement of certain project goals or milestones. These milestones,
while related to the work performed, may provide for installment payments that
are not reflective of work performed for purposes of revenue recognition. As a
result, billings by the Company (and therefore collection of receivables) and
recognition of revenue do not necessarily coincide.
Investing activities for the year ended December 31, 1996 consisted
primarily of capital expenditures of $407,000. Financing activities for the year
ended December 31, 1996 consisted primarily of a net repayment of $320,000 under
the Company's revolving line of credit, the payment of $236,000 on capital lease
obligations and distributions to shareholders of $285,000.
Cash and cash equivalents decreased by $329,000 in 1995 as a result of cash
used by operating, investing and financing activities of $75,000, $166,000 and
$88,000, respectively. The decrease in net cash used by operating activities
resulted primarily from net income offset by the net change in working capital
items.
Investing activities in 1995 consisted of capital expenditures of $166,000.
Financing activities in 1995 consisted of $320,000 in net borrowings under a
revolving line of credit, offset by payments of capital lease obligations of
$156,000 and distributions to shareholders of $253,000.
Cash and cash equivalents decreased by $2.0 million for the three months
ended March 31, 1997 as a result of cash used by operating and investing
activities of $2.3 million and $321,000, respectively, and cash provided by
financing activities of $591,000. Net cash used by operating activities resulted
primarily from net income offset by the net change in working capital items.
Investing activities for the three months ended March 31, 1997 consisted
primarily of capital expenditures of $268,000. Financing activities for the
three months ended March 31, 1997 consisted of distributions to shareholders of
$466,000, payments on capital lease obligations of $107,000 offset by amounts
payable-book overdraft of approximately $1.2 million, which is the result of the
Company's cash management system.
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<PAGE> 28
In connection with the Acquisitions, the Bank has agreed to lend the
Company up to $20 million under a Senior Credit Facility and up to $10 million
under a Subordinated Credit Facility. The Senior Credit Facility bears interest
at a rate equal to either LIBOR plus the Applicable Margin (as defined), or the
higher of the Bank's prime rate or the Federal Funds rate plus 0.50%. All
amounts outstanding thereunder become due and payable in June, 2000. The
Subordinated Credit Facility consists of Series A and B Notes, bearing interest
at 12% and maturing in June, 2002, and the Warrants.
This Bank Credit Facility contains various restrictive financial covenants,
including limitations on senior and total debt levels, capital expenditures and
future acquisitions as well as the maintenance of certain fixed coverage ratios
and minimum net worth levels, and is collateralized by all the assets and shares
of Common Stock held by Dr. Bryan, Mr. Bergen, the Kendle Stock Trust and Hazel
Kendle (which shares will be released as collateral upon consummation of the
Offering) and existing and hereafter acquired material subsidiaries.
On July 1, 1997 the U-Gene Acquisition and related costs were funded with
approximately $9.4 million from the Senior Credit Facility, a promissory note
payable to U-Gene deposited in an escrow account pursuant to the U-Gene purchase
agreement of approximately $1.6 million and $5 million from the Series A Note.
In addition, the Company issued the Warrants to the Bank to purchase 4% of the
outstanding shares of Common Stock of the Company (153,738 shares). If the
Offering is not completed on or before December 1, 1997, the number of shares
which may be purchased upon exercise of the Warrants will be increased to 5%,
and 6% if not completed by March 1, 1998.
Although the Company expects the gmi Acquisition to close simultaneously
with the closing of the Offering, the Company is required, per the gmi
definitive agreement, to consummate the gmi Acquisition not later than September
15, 1997. If the Offering is not completed by September 15, 1997, or a mutually
agreed upon later date, then the Company expects to borrow approximately $4.5
million from the Senior Credit Facility and $5 million from the Series B Note to
fund the cash portion of the gmi Acquisition. In addition, the non-cash portion
of the gmi Acquisition would be funded through the issuance of a subordinated
security by the Company to the gmi shareholders. Upon issuance of the Series B
Note, the Company is required under the Subordinated Credit Facility to issue
Warrants to the Bank for the purchase of an additional 3% of the outstanding
shares of Common Stock of the Company, and 4% if the Offering is not completed
by March 1, 1998. In addition, the Bank has issued a standby letter of credit to
the gmi shareholders to secure the cash portion of the gmi Acquisition price due
to such shareholders.
The Company intends to repay all outstanding Subordinated Promissory Notes
and a portion of the Senior Credit Facility with proceeds from the Offering. The
Warrants will be exercised by the Bank and converted to shares of Common Stock
concurrently with the Offering.
The Company had a revolving line of credit arrangement with a bank totaling
$2.0 million. The line is collateralized by all the Company's assets, other than
assets leased under the Company's capital lease line, and is subject to various
covenants and restrictions relating to, among others, minimum tangible capital
base, other liabilities and indebtedness. Amounts borrowed under the line are
payable upon demand and bear interest at the bank's prime rate or LIBOR plus
2.5% at the discretion of management for each borrowing. There were no
borrowings outstanding under the revolving line of credit at March 31, 1997. The
Company terminated this line of credit in June 1997 and replaced it with the
Bank Credit Facility.
The Company has a $1.5 million computer and a $500,000 furniture lease line
of credit with a bank. Amounts drawn on these lines are payable over a five year
term from the date of funding. These lines expire on December 31, 1997. The
monthly installment payments are equal to 1.80% and 1.71% of the total computer
and furniture draws, respectively. Amounts drawn on these lines of credit
totaled $1,109,000 at March 31, 1997. In April 1997, the Company obtained an
additional $370,000 computer and $130,000 furniture lease line of credit with
the same bank. These lines expire March 31, 1998, with monthly installment
payments equal to 2.23% and 1.76% of the total computer and furniture
borrowings, respectively. Amounts drawn on the computer and furniture lines of
credit are payable over four and five year terms, respectively, from the date of
funding.
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<PAGE> 29
The Company's primary cash needs on both a short-term and long-term basis
are for the payment of salaries and fringe benefits, capital expenditures,
facility-related expenses, business development expenses and travel
expenditures. The Company estimates that during 1997 it will invest
approximately $3.0 million to $4.0 million in capital expenditures related to
its facilities and investments in its information technology. The Company
believes that available cash, together with cash flow from operations,
borrowings under the Bank Credit Facility and other existing lines of credit and
net proceeds from the Offering, will be sufficient to meet foreseeable cash
needs. See "Use of Proceeds."
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 is designed to simplify the existing
computational guidelines for computing earnings per share and provides for the
elimination of primary Earnings Per Share ("EPS") and replacing it with basic
EPS, with the principal difference of common stock equivalents not being
considered in computing basic EPS. SFAS No. 128 is effective for the Company for
the year ending December 31, 1997. Management expects the effect of the adoption
of this statement to have an immaterial impact on the Company's earnings per
share calculation for 1996. The effect on the three months ended March 31, 1997
is to increase earnings per share by approximately 6%.
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<PAGE> 30
BUSINESS
OVERVIEW
The Company is a CRO that provides a broad range of clinical research and
drug development services to the pharmaceutical and biotechnology industries.
Kendle augments the research and development activities of pharmaceutical and
biotechnology companies by offering high quality, value added clinical research
services and proprietary information technology designed to reduce drug
development time and expense. The Company's services include Phase II to Phase
IV clinical trial design and management, clinical data management,
biostatistical analysis, medical writing and regulatory consultation and
representation. Kendle believes that it is one of a small number of CROs capable
of providing a broad range of services within multiple therapeutic areas,
including cardiovascular, central nervous system, gastrointestinal, immunology,
oncology, respiratory, skeletal disease and inflammation.
The Company believes that pharmaceutical and biotechnology companies are
increasingly selecting CROs that have the following capabilities: (i) a broad
range of therapeutic expertise in designing and managing all phases of clinical
trials; (ii) the ability to efficiently collect, edit and analyze data from
thousands of patients with various clinical conditions from many geographically
dispersed sites; (iii) the ability to provide a full range of services to
clients who desire to use fewer CROs to manage their drug development processes;
and (iv) global capabilities that incorporate diverse populations and allow
simultaneous filings of registration packages in several major jurisdictions.
Kendle's strategy is to continue to enhance its reputation as a
high-quality provider of a full range of CRO services. The Company's strategy
consists of the following key elements: (i) continue to expand its broad range
of therapeutic expertise; (ii) offer its clients "one-stop shopping" with a full
range of services that encompass the clinical research process and complement
the research and development departments of its clients; (iii) expedite the drug
development process through innovative information technology offered via the
Company's proprietary TrialWare(SM) software; (iv) continue to build a brand
presence that portrays high quality work; and (v) supplement internal growth
through strategic acquisitions that expand the Company's geographic presence and
add to Kendle's clinical research capabilities in existing or new therapeutic
areas or service offerings.
In furtherance of the Company's strategy to expand its range of services
and international coverage, the Company purchased one European CRO and entered
into an agreement to purchase another European CRO: U-Gene based in Utrecht, the
Netherlands, which provides Phase II to Phase IV clinical trial design and
management, and owns and operates a state-of-the-art 38-bed Phase I testing
unit; and gmi, based in Munich, Germany, which provides Phase II to Phase IV
clinical trial design and management and specializes in the field of
pharmacoeconomic analysis. The Company believes that these two strategic
acquisitions will make Kendle the sixth largest CRO in Europe, based on total
revenues, and enhance its ability to provide customers with a single source for
contract research services throughout North America and Europe.
INDUSTRY TRENDS
The CRO industry provides integrated product development services to the
pharmaceutical and biotechnology industries. In general, CROs derive
substantially all of their revenue from the research and development
expenditures of pharmaceutical and biotechnology companies. The CRO industry has
evolved from providing limited clinical services in the 1970s to a full-service
industry that today encompasses much of the clinical research process (including
pre-clinical evaluations), study design, clinical trial management, data
collection and biostatistical analysis and product registration support. These
services are provided in accordance with government regulations covering
clinical trials and the drug approval process.
According to industry sources, in 1995, worldwide expenditures on research
and development by pharmaceutical and biotechnology companies are estimated to
have been approximately $35.0 billion, of which the Company estimates $22.0
billion was spent on drug development activities of the type offered by the CRO
industry. The Company believes that approximately $2.5 billion of such spending
was outsourced to CROs in 1995.
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<PAGE> 31
The CRO industry is highly fragmented, with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. Although the CRO industry is not capital intensive and there are
few barriers to entry for small, limited-service providers, the Company believes
that there are significant barriers to becoming a full-service CRO. These
barriers include the cost and experience necessary to develop expertise in a
number of therapeutic areas, the ability to manage complex clinical trials, the
experience to prepare regulatory submissions and integrated clinical data
management capabilities. The barriers to becoming a full-service CRO combined
with the expansion of some larger CROs has led to an increased rate of industry
consolidation.
The Company believes that the outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will continue
to increase as these companies strive to enhance revenues through faster drug
development while also dealing with cost containment pressures. The CRO
industry, by specializing in clinical trials management, is often able to
perform the needed services with a higher level of expertise or specialization,
more quickly and at a lower cost than a client could perform the services
internally.
The Company believes that pharmaceutical and biotechnology companies are
increasingly seeking to select CROs that have the following capabilities:
Therapeutic Expertise. Extensive therapeutic expertise is essential
in order to most efficiently design and manage all phases of the clinical
trials. A lack of therapeutic expertise can cause delays and cost overruns
ranging from additional time to recruit the proper investigative sites to
the need to recruit additional patients in order to obtain the necessary
data to support the efficacy of the drug. Thus, the level of therapeutic
expertise has a significant effect on the overall drug development time and
has become one of the leading factors that pharmaceutical and biotechnology
companies evaluate when choosing a CRO.
Broad Range of Services. As pharmaceutical and biotechnology
companies are utilizing fewer CROs to manage their drug development process
more efficiently, these companies are increasingly requiring CROs to
provide a full range of services. CROs must be able to manage a project
from the initial stages of protocol and study design, through clinical
trials management and data management, to regulatory and medical affairs
consulting.
Integrated Clinical Data Management. A key constraint in accelerating
the drug development process is the ability to collect, edit and analyze
the data from up to several thousand patients with various clinical
conditions from many geographically dispersed sites in an efficient manner.
The data must then be standardized and integrated into the client's
computer system prior to submission to the FDA. Currently, there is no
industry standard process for managing the clinical data and there is a
wide range of capabilities among CROs in managing the clinical data.
Pharmaceutical and biotechnology companies are increasingly requiring CROs
to have advanced clinical data management systems that are integrated with
their internal systems in order to reduce drug development time.
Proximity to Clients. Clients and potential clients frequently
consider the proximity of a company as a factor in selecting a CRO for a
project. Kendle currently has four domestic offices and plans either to
acquire or develop additional domestic or international offices where
existing and potential client relationships will be enhanced. Management
believes that the availability of offices that are convenient to clients
will be an increasingly important factor in gaining and retaining client
business.
International Support. To expedite the drug development process,
pharmaceutical and biotechnology companies increasingly require access to
diverse clinical trial participants from various countries. In an effort to
maximize profits of a given drug, such companies are now pursuing
regulatory approvals in multiple countries simultaneously rather than
sequentially as they have in the past. The studies to support such
registration packages may include a combination of multinational and
domestic trials. Pharmaceutical and biotechnology companies may turn to
CROs for assistance with such trials as well as to collect, analyze and
report the data. The Company believes that CROs with an international
presence and management experience in the simultaneous filing of multiple
applications may benefit from these trends.
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<PAGE> 32
COMPANY STRATEGY
The Company's objective is to grow as a high-quality provider of a
full-range of CRO services. Kendle seeks to differentiate itself from its
competitors by focusing on those services that will significantly reduce the
time for drug development.
The Company's strategy consists of the following key elements:
Hiring, Training and Retaining Employees. The Company's success is
based on the quality and dedication of its employees. The Company strives
to hire the best available people in terms of ability, attitude, experience
and fit with the Company's performance philosophy. The Company believes
that it is an industry leader in the thoroughness of its training programs.
The Company trains employees extensively and encourages employees to
upgrade their skill level through internal and external training. As new
technologies develop, employees are equipped with, and trained to make use
of, such technological innovations. The Company also places significant
emphasis on retention of its employees in order to achieve a high degree of
consistency and continuity as it provides services to its clients.
Excellent Client Relationships. The Company invests significant time
and effort in building excellent relationships with its clients. It
accomplishes this through a combination of high quality, timely and cost
effective services that are designed to be highly responsive to its
clients' needs. The Company believes that the relationships developed by
its regional offices have been a key factor in gaining and retaining
certain client business. The Company has four domestic offices and plans to
establish additional domestic or international offices where client
relationships would be enhanced.
Therapeutic Area Expertise. The Company believes that it is better
able to serve its clients' needs by offering therapeutic expertise in
addition to a full range of drug development services. The Company has
expertise in several major therapeutic areas including cardiovascular,
central nervous system, gastrointestinal disease, immunology, oncology,
respiratory, and skeletal disease and inflammation. The Company's
experience in these therapeutic areas, along with the experience of the
Company's therapeutic area strategic business unit ("SBU") directors, has
enabled Kendle to grow its revenues from existing clients and win new
client business. The Company plans to continue to add to its expertise in
its existing therapeutic areas and to develop new areas of expertise by
hiring experienced personnel and by strategic acquisitions.
Full Service Clinical Research. The Company offers a full range of
services that encompasses the clinical research process and complements the
research and development departments of its clients. These services include
clinical trials management, clinical data management, biostatistical
analysis, study design, and regulatory affairs services, including product
registration with regulatory authorities. The Company emphasizes
efficiencies in each phase of clinical trials, data management and
analysis, report writing and report filing, in order to reduce the time and
cost of obtaining regulatory approval for its clients' products. The
Company's breadth of services, along with its process for conducting
clinical trials on a timely basis, have been key factors in the Company's
success in obtaining additional and larger contracts.
Key Acquisitions; Expand Geographic Presence. The Company intends to
supplement its internal growth through strategic acquisitions, including
the acquisitions of U-Gene and gmi, and the opening of regional offices.
The Company believes that significant acquisition opportunities exist due
to the highly fragmented nature of the CRO industry. The Company intends to
focus on acquisitions of businesses that expand its geographic presence,
add to its clinical expertise in existing or new therapeutic areas and
broaden its range of services. In addition, the Company believes that
opening regional offices is invaluable in developing client relationships
and obtaining clients. In 1996, the Company opened offices in Chicago,
Illinois, Los Angeles, California and Princeton, New Jersey.
International Support. As part of the Company's strategy to expand
its geographic presence, the Company recently acquired U-Gene and signed a
definitive agreement to acquire gmi. Following the consummation of the
Acquisitions, the Company will have significant international operations.
On a pro forma basis, assuming the consummation of the Acquisitions as of
January 1, 1996, the Company is the
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sixth largest European CRO, based on total revenues. U-Gene and gmi have
served clients in the Netherlands, Germany, the Czech Republic, the United
Kingdom, Israel and several additional countries in Europe. U-Gene and gmi
will increase both the number and the geographic scope of the clients
served by Kendle, enabling the Company to cross-sell its services and
enhance its relationships with existing clients. The Company will continue
to explore strategic acquisitions that will further enhance its
international capabilities.
Marketing and Brand Name Recognition. Due to the recent growth of the
CRO industry and the highly fragmented nature of the competition, the
Company believes it has been difficult for many CROs to achieve brand name
recognition with potential clients. Kendle's marketing strategy is to
continue to build a brand presence that portrays high quality work. The
Company's brand presence is reinforced through direct mail, professional
exhibits, journal advertising and an experienced sales force. See "Clients
and Marketing."
INFORMATION TECHNOLOGY
The Company believes that superior information technology is essential to
providing its clients with innovative services which expedite the clinical
trials process. The Company offers its clients access to its proprietary,
award-winning TrialWare(SM) software to help reduce the time required for drug
development. The TrialWare(SM) application system consists of state-of-the-art
modules, featuring intuitive graphical user interfaces, which allow scanning of
clinical case report forms ("CRFs") into electronic images, fast database
creation and automated workflow through the clinical data process. The CRF
images can be reviewed on-line and are compatible for inclusion in a Computer
Aided New Drug Application ("CANDA"). The TrialWare(SM) product family includes:
TrialBase, which is a database management system, saves up to 75% of
the time normally required to develop databases supporting the data entry
and clean up of CRFs from clinical trial sites. It also provides improved
data management quality by supporting extensive automated data checking and
quick feedback to study sites. TrialBase has an electronic imaging
component that allows a non-technical user to perform all the activities
necessary to build a clinical database and program data edits.
TrialFax, which enables Kendle personnel to rapidly review CRFs from
trial sites and to immediately resolve data queries. Using a standard fax
machine, CRFs are transmitted to Kendle's computer network and are stored
as an electronic image. These electronic CRF images can then be reviewed
for any problems or discrepancies and queries generated automatically.
Kendle personnel then interact with site personnel via fax or telephone to
resolve any discrepancies.
TriaLine, which uses interactive voice response and touch-tone
telephone entry to enroll, randomize and track patients, as well as
facilitate just-in-time management of test product inventory, thereby
reducing drug waste by up to 30% or more. TriaLine supports multiple
telephone lines for high enrollment trials, and has customized scripting
and multilingual capabilities.
TrialView, which enables Kendle personnel to access CRF images at any
time directly at their desktop computer without having to retrieve the
actual forms from the central file room. This can greatly reduce the amount
of time needed to find key information and enhance Kendle's ability to
respond to client requirements.
TriAlert, which is used to assign standard codes to key textual
parameters from clinical trials. In order to process such variables as
verbatim terms for adverse events, concomitant drug names, diagnoses,
physical exam results and medical history data, these items must be coded
to a standard dictionary of values used by the various regulatory agencies.
TriAlert supports assigning codes for multiple standard dictionaries
including COSTART, WHO-ART, WHO-Drug and ICD9-CM, as well as loading a
client specific dictionary. The system provides greater flexibility in
meeting the client's coding requirements.
TrialStats, which is used by the Company's biostatistics department to
produce data listings, summary tables and analysis tables. The Company uses
TrialStats to accelerate the generation of statistical reports by reducing
the time spent on programming and validation of data listings, tables and
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<PAGE> 34
standard analyses. TrialStats also provides access to data for clinical
data management, report writing and client inquiries while a trial is in
process.
The Company believes that its TrialWare(SM) family of products provides a
competitive advantage by more fully integrating the Company's operations with
the investigative site clinical trial activities. Kendle also has the ability to
meet its clients' computer interfacing needs by utilizing SAS, Oracle, DLB
Recorder and other software.
The Company's Web Site on the Internet includes a description of the
Company and its services, a browser survey and the Company's e-mail address. In
addition, the Web Site provides information about the Company's proprietary
technology, employment opportunities, medical research and opportunities for
patients and investigators. The Company believes the Web Site demonstrates the
Company's commitment to using state-of-the-art technology while also providing
an excellent opportunity to communicate its capabilities on a worldwide basis.
The Web Site address is http://www.kendle.com/.
SERVICES
The Company's services assist its clients in optimizing their research and
development spending through the clinical stages of the drug development
process. The Company provides Phase II to Phase IV clinical trial management,
clinical data management and biostatistical analysis and medical writing and
regulatory services. Following the Acquisitions, the Company will also provide
Phase I clinical trial management. See "The Acquisitions."
Phase II to Phase IV Clinical Trial Management. The core of the Company's
business offerings is a comprehensive package of services to conduct Phase II to
Phase IV clinical trials. The Company has significant experience in the
therapeutic areas of cardiovascular, central nervous system, gastrointestinal
disease, immunology, oncology, respiratory and skeletal disease and inflammation
and has conducted several large clinical trials, including the management of a
10,000 patient heart failure trial at over 2,200 investigational sites and an
approximately 2,000 patient clinical trial at up to 125 investigational sites
relating to the treatment of cardiac arrhythmia.
Through its clinical experience, the Company has developed the expertise to
manage every aspect of clinical trials in Phase II to Phase IV of the drug
development process, including protocol development, CRF design, feasibility
studies, investigator selection, recruitment and training, site initiation and
monitoring, accelerated patient enrollment and development of training materials
for investigators and training of clients' staff. In managing clinical trials,
the Company has adopted standard operating procedures that are intended to
satisfy regulatory requirements and serve as a tool for controlling and
enhancing the quality of its clinical trials. The Company often provides its
clients with one or more of the following core Phase II to Phase IV clinical
trials management services, frequently performed in tandem with one another in
order to accelerate the drug development process.
- Study Design. The Company has broad experience in the preparation of
study protocols and CRFs. The study protocol defines the medical issues
to be examined in evaluating the safety and efficacy of the drug under
study, the number of patients required to produce statistically valid
results, the clinical tests to be performed in the study, the time period
over which the study will be conducted, the frequency and dosage of drug
administration, the exact inclusion and exclusion criteria to be met for
the patients enrolled in the study and the planned data summarization,
statistical analysis and interpretation of the results of the study. The
success of the study depends not only on meeting regulatory requirements,
but also on achieving a coherent fit between the protocol, the other
aspects of the development process and the marketing strategy for the
drug.
- Case Report Form Design. Once the study protocol is finalized, the
Company develops CRFs for investigators to record the desired information
obtained from the clinical studies. The Company organizes all disciplines
involved in the drug development process to assure a design that is
efficient for subsequent data entry, management and reporting. Proper CRF
design is critical for investigators and field monitors to conduct their
respective jobs quickly, accurately and effectively.
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- Site and Investigator Recruitment. The Company solicits the
participation of physicians, also referred to as investigators, who
contract directly with either the Company or its client to supervise the
administration of the drug under development at investigational sites,
including hospitals and clinics or other locations. In order to target
the appropriate physicians, the Company has access to a computerized
database of approximately 3,000 experienced investigators that includes
information regarding the Company's prior experience with these
investigators and their ability to rapidly initiate clinical studies. The
Company believes that its ability to rapidly identify and recruit
investigators who have the appropriate expertise and an adequate base of
patients who satisfy the requirements of the study protocol is critical
to completing trials in a timely manner.
- Study Monitoring. The Company provides study monitoring services that
include investigational site initiation, patient enrollment assistance
and data collection through subsequent site visits. These visits also
serve to assure that data are gathered according to Good Clinical
Practices ("GCP"), the study protocol, the requirements of the client and
applicable regulations.
Since the ability to complete projects on time is generally determined by
meeting deadlines during the first few months of study initiation, the Company
focuses on identifying and quickly completing the critical rate-limiting steps
of screening and selecting investigators, processing pre-study regulatory
paperwork, obtaining institutional review board approvals and scheduling
investigational site initiation visits. As clinical studies progress, the
Company collects data via visits by its field monitors to investigative sites
and by electronic means. The Company must ensure that data from investigative
sites is obtained efficiently, quickly and accurately to speed subsequent data
entry, data management and analysis and report writing.
The Company is currently managing a 10,000 patient heart failure trial that
is evaluating two doses of an ACE-inhibitor for the incidence of cardiovascular
hospitalizations and deaths in congestive heart failure patients. To date over
9,300 patients have been enrolled at over 2,200 investigative sites since the
study began in May 1994, generating 78,000 total pages of clinical case report
forms. In another example, the Company recently began the organization and
management of clinical trials relating to a major New Drug Application ("NDA")
in the treatment of cardiac arrhythmia (irregular heartbeats). These trials
involve approximately 2,000 patients at up to 125 investigational sites.
Patients in both the heart failure and arrhythmia programs are monitored for up
to twelve months. The Company previously had managed an identical program in
cardiac arrhythmia for another major existing client that involved 1,420
patients at 130 investigative sites. Programs of similar size and scope have
been completed in the areas of seasonal allergic rhinitis and asthma.
Clinical Data Management and Biostatistical Analysis.
The Company's data management and biostatistical analysis operations are
managed by professionals with extensive pharmaceutical industry experience in
processing data from local and multinational trials. The Company provides
assistance to clients in all areas of clinical data management and
biostatistical analysis, including study design, sample size determinations, CRF
design and production, fax-based monitoring, database design and construction,
data entry, data assessment for accuracy and consistency (data cleanup) and
statistical analyses. The Company offers data management and biostatistical
services as discrete products and as part of an integrated drug development
program. The Company has the ability to meet client needs by utilizing SAS,
Oracle, DLB Recorder and other software in addition to the Company's proprietary
TrialWare(SM) software. Approximately 58% of the Company's current clients use
TrialWare(SM).
The Company's automated work flow process using the TrialWare(SM) software
system makes possible the rapid development of databases by facilitating data
entry and cleanup of data from clinical trial sites. The first step in this
process is to scan completed CRF pages as they are received. This electronic
image of the CRF page with an overlay mask is the paradigm for data entry. This
significantly decreases the time required to develop databases. After data entry
is completed, the system performs computerized data checks. CRF pages are
available on-line at all stages of the data entry process. Thus, initial data
entry and verification can occur at the same time.
The system provides for multiple levels of automated data checks. All
computerized edit check failures are reviewed on-line to ensure data consistency
and to provide optimum feedback on data quality. The system
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automatically produces the materials that are used to interact with the
investigational site personnel to resolve data issues and maintains an extensive
audit trail of the results of the edit review process and of any updates that
are made to the database. This allows detailed reporting to clients on the
progress of data handling for their trial.
The Company's biostatistics department provides a full range of
biostatistical services and develops sponsor-compatible data sets, data display
and report forms. Additionally, the department is capable of managing all
statistical aspects of clinical trials, including overall clinical development
plans, individual analyses, report preparation of statistical sections of
regulatory dossiers and regulatory liaison and representation. The group has
highly experienced professionals (biostatisticians and statistical programmers)
with a wide therapeutic area background who can work with clients in all phases
of drug development.
Medical Writing and Regulatory Services
The Company provides report writing and regulatory services to its clients
in a manner designed to complement parallel development processes to reduce
overall development time. The Company provides its clients with strategic plan
and protocol design services at the beginning of projects, combined with clear,
concise data presentation, analysis and discussion at the completion of the
project to assist its clients in obtaining regulatory approvals. The Company
fully integrates these services with its other services to assure maximum speed,
quality service and regulatory compliance.
The Company maintains an internal compliance and quality assurance
department to offer its customers in-process monitoring of compliance with GCP.
The Company also offers this service to clients to assess their own trials.
CLIENTS AND MARKETING
The Company has provided services to 12 of the world's largest 20
pharmaceutical companies, as ranked by 1996 research and development spending.
During 1996, the Company provided services under approximately 62 contracts to
approximately 19 clients.
During 1996 and the first three months of 1997, revenues from G.D. Searle &
Co. accounted for approximately 48% and 66%, respectively, of the Company's net
revenues. Other Company clients have, from time to time, accounted for more than
10% of the Company's net revenues, with revenues from The Procter & Gamble
Company and Amgen, Inc. accounting for approximately 19% and 13%, respectively,
of the Company's net revenues in 1996 and revenues from The Procter & Gamble
Company accounting for approximately 13% of the Company's net revenues for the
first three months of 1997. In addition, as of March 31, 1997, G.D. Searle & Co.
accounted for $11.2 million, or approximately 57%, of the Company's backlog. The
CRO industry depends on the research and development efforts of the major
pharmaceutical and biotechnology companies as major clients, and the Company
believes that this dependence will continue. The loss of business from any of
the Company's major clients could have a material adverse effect on the Company.
See "Business -- Clients and Marketing." However, on a pro forma basis assuming
consummation of the Acquisitions as of January 1, 1996, revenues from G.D.
Searle & Co. would have accounted for approximately 19% and 35% of the Company's
net revenues in 1996 and for the first three months of 1997, respectively, and
no other client would have accounted for more than 10% of the Company's net
revenues. Backlog, as of March 31, 1997, on a pro forma combined basis, was
approximately $36.2 million.
The Company has a new business development group made up of 3 components:
sales, proposals and client services and corporate communications. The Company
employs 16 individuals with responsibilities for the marketing and selling
activities within the new business development group. Kendle's salespeople
market to pharmaceutical and biotechnology firms and concentrate primarily on
obtaining business from potential new clients. The Company's sales efforts
helped to increase its non-G. D. Searle & Co. business from $3.6 million in net
revenues in 1995 to $6.7 million in net revenue in 1996, an 86.9% increase.
Since inception, U-Gene has served more than 100 clients, including 19 of
the world's 20 largest pharmaceutical companies. gmi has served more than 80
clients, including 19 of the world's 20 largest pharmaceutical companies.
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CONTRACTUAL ARRANGEMENTS
Most of the Company's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. Generally,
for multi-year contracts involving clinical trials, a portion of the contract
fee is paid at the time the trial is initiated with the balance of the contract
fee payable in installments over the trial duration. The installment payments
are typically performance-based, relating payments to milestone events such as
investigator recruitment, patient enrollment or delivery of databases. Most of
the Company's contracts for the provision of its services are terminable by the
client upon 30 days' notice. Clients terminate or delay contracts for a variety
of reasons, including the failure of a product to satisfy safety requirements,
unexpected or undesired clinical results, insufficient patient enrollment or
investigator recruitment or production problems resulting in shortages of the
drug. Although the contracts typically require payment of certain fees for
winding down the study, the loss or delay of a large contract or the loss of
multiple contracts could have a material adverse effect on the Company. See
"Risk Factors -- Loss or Delay of Large Contracts" and "Risk Factors -- Fixed
Price Nature of Contracts."
BACKLOG
Backlog consists of anticipated net revenues from letter agreements or
contracts that have been signed but not yet realized. Once contracted work
begins, revenues generally are recognized over the life of the contract, which
usually lasts for 12 months or more. In certain cases, the Company begins work
for a client before a contract is signed. Backlog excludes anticipated net
revenues from projects for which the Company has commenced work but for which
the Company does not have a signed letter of intent or contract. Backlog for the
Company at March 31, 1997 was approximately $19.7 million, as compared to
approximately $5.4 million at March 31, 1996.
At March 31, 1997, U-Gene's and gmi's backlog was approximately $9.6
million and $6.9 million, respectively.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to delay or termination upon 30 days' notice by
clients. See "Risk Factors-Loss or Delay of Large Contracts" and "Business --
Contractual Arrangements."
COMPETITION
The Company primarily competes against in-house research and development
departments of pharmaceutical and biotechnology companies, universities,
teaching hospitals and other full-service CROs, many of which possess
substantially greater capital, technical and other resources than the Company.
CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to manage large-scale trials on a global basis, medical
database management capabilities, the ability to provide statistical and
regulatory services, the ability to recruit investigators, the ability to
integrate information technology with systems to improve the efficiency of
contract research, an international presence with strategically located
facilities, financial viability and price.
The CRO industry is highly fragmented with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. The Company's competitors include, among other companies,
ClinTrials Research Inc., Covance, Inc., IBAH, Inc., PAREXEL International
Corporation, Pharmaceutical Product Development, Inc. and Quintiles
Transnational Corporation. See "Risk Factors -- Competition."
POTENTIAL LIABILITY AND INSURANCE
The Company attempts to manage its risk of liability for personal injury or
death to clinical trial participants from administration of products under study
through measures such as contractual indemnification provisions with clients and
through insurance maintained by clients. The contractual indemnifications
generally do not protect the Company against certain of its own actions, such as
negligence. The contractual arrangements are subject to negotiation with clients
and the terms and scope of such indemnification vary from client to client and
from trial to trial. Although most of the Company's clients are large,
well-capitalized companies, the financial performance of these indemnities is
not secured. Therefore, the Company bears the risk that an indemnifying party
may not have the financial ability to fulfill its indemnification obligations.
The
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Company could be materially adversely affected if it were required to pay
damages or incur defense costs in connection with a claim that is beyond the
scope of an indemnity provision or beyond the scope or level of insurance
coverage maintained by the client or where the indemnifying party does not
fulfill its indemnification obligations. The Company does not currently maintain
liability insurance with respect to these risks. See "Risk Factors -- Potential
Liability from Risks of Conducting Clinical Trials."
GOVERNMENT REGULATION
Before a new drug is marketed, it must undergo extensive testing and
regulatory review in order to determine that it is safe and effective. The
development process consists of two stages: preclinical and clinical. The first
stage is the preclinical research, in which the new drug is tested in vitro
(test tube) and in animals, generally over a one-to-three-year period, in order
to determine the basic biological activity and safety of the drug. If the drug
is perceived to be safe for human testing, the drug then undergoes a series of
clinical tests in humans. During the clinical stage, one of the most time
consuming and expensive parts of the drug development process, the drug
undergoes a series of tests in humans, including healthy volunteers and patients
with the targeted disease or condition.
The services provided by the Company are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries is generally less
comprehensive than the regulation present in the United States.
Prior to commencing human clinical trials in the United States, the sponsor
must file an Investigational New Drug ("IND") application with the FDA. In order
to receive IND status, the sponsor of the new drug must provide available
manufacturing data, pre-clinical data, information about any use of the drug in
humans in other countries or in the United States for other purposes, and a
detailed plan for the conduct of the proposed clinical trials. The design of
these trials, also referred to as the study protocols, is essential to the
success of the drug development effort because the protocols must correctly
anticipate the nature of the data to be generated and results that the FDA will
require before approving the drug. In the absence of any FDA comments within 30
days after the IND filing, human clinical trials may begin.
Although there is no statutory definition of the structure or design of
clinical trials, human trials usually start on a small scale to assess safety
and then expand to larger trials to test efficacy. These trials are usually
grouped into the following three phases, with multiple trials generally
conducted within each phase:
- Phase I. Phase I trials involve testing the drug on a limited number of
healthy individuals, typically 20 to 80 people, to determine the drug's
basic safety data relating to tolerance, absorption, metabolization and
excretion as well as other pharmacological indications and actions. This
phase lasts an average of six months to one year.
- Phase II. Phase II trials involve testing a small number of patients,
typically 100 to 200 people who suffer from the targeted disease or
condition, to determine the drug's effectiveness and dose response
relationship. This phase lasts an average of one to two years.
- Phase III. Phase III trials involve testing large numbers of patients,
typically several hundred to several thousand people, to verify efficacy
on a large scale as well as long-term safety. These trials involve
numerous sites and generally last two to three years.
After the successful completion of all three clinical phases, the sponsor
of a new drug in the United States submits an NDA to the FDA requesting that the
product be approved for marketing. The NDA is a comprehensive, multi-volume
filing that includes, among other things, the results of all pre-clinical and
clinical studies, information about the drug's composition and the sponsor's
plans for producing, packaging and labeling the drug. In addition, while the FDA
does not use price as a criterion for approving a new drug, advisory panels of
scientists that help the FDA evaluate new types of therapies have started taking
cost into consideration. The FDA's review of an NDA can last from a few months,
for drugs related to life threatening circumstances, to many years, with the
average review lasting two and one-half years. Drugs that successfully complete
this review may be marketed in the United States, subject to the conditions
imposed by the FDA.
- Phase IV. As a condition to its approval of a drug, the FDA may require
that a sponsor conduct additional clinical trials following receipt of NDA
approval to monitor long-term risks and benefits, study different dosage
levels, or evaluate different safety and efficacy parameters in target
patient
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populations. In recent years the FDA has increased its reliance on these trials,
known as Phase IV trials, which allow new drugs that show early promise to reach
patients without the delay associated with the conventional review process.
Phase IV trials usually involve thousands of patients.
The industry standard for the conduct of clinical research and development
studies is embodied in the regulations for GCP. Although GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar regulatory
authorities in other countries, certain provisions of GCP have been included in
FDA regulations. As a matter of practice, the FDA and many other regulatory
authorities require that test results submitted to such authorities be based on
studies conducted in accordance with GCP. These regulations include: (i)
complying with FDA regulations governing the selection of qualified
investigators; (ii) obtaining specific written commitments from the
investigators; (iii) verifying that patient informed consent is obtained; (iv)
monitoring the validity and accuracy of data; (v) verifying drug or device
accountability; and (vi) instructing investigators to maintain records and
reports. The Company must also maintain reports for each study for specified
periods for inspection by the study sponsor and the FDA during audits. Non-
compliance with GCP can result in the disqualification of data collected during
the clinical trial.
INTELLECTUAL PROPERTY
Kendle has developed certain computer software and related methodologies
that the Company has sought to protect through a combination of contracts,
copyrights and trade secrets. However, the Company would not consider the loss
of exclusive rights to any of this software or methodology to be material to the
Company's business.
EMPLOYEES
At March 31, 1997, the Company had 255 full-time employees, approximately
15 of whom hold Ph.D., M.D., Pharm.D. or N.D. degrees. The Company's performance
depends on its ability to attract, develop, motivate and retain qualified
professional, scientific and technical staff. There is significant competition
for employees with the skills required to perform the services offered by the
Company from other CROs as well as from the in-house research departments of
pharmaceutical and biotechnology companies and other enterprises. None of the
Company's employees are covered by a collective bargaining agreement. The
Company has never experienced any work stoppages or slowdowns and considers its
relationship with its employees to be good. At March 31, 1997, U-Gene and gmi
had 102 and 68 full-time employees, respectively.
FACILITIES
The Company leases all of its facilities. The Company's principal executive
offices are located in Cincinnati, Ohio, where it leases approximately 55,000
square feet under a lease expiring in May 2006. The Company also maintains
offices in Chicago, Illinois, Los Angeles, California, and Princeton, New
Jersey.
U-Gene leases facilities at two sites in Utrecht. Leased space totals
approximately 24,000 square feet, under operating leases expiring in December
1997 and November 1998. U-Gene also maintains offices in London, England and
Milan, Italy. gmi leases its facility in Munich. Leased space totals
approximately 9,000 square feet with the lease expiring in March 2001.
LEGAL PROCEEDINGS
On July 16, 1997, Kendle received a letter from Collaborative Clinical
Research, Inc. ("Collaborative"). The letter communicated Collaborative's
intention to commence legal action in the Netherlands against U-Gene for damages
of at least $1,250,000 based upon an alleged breach by U-Gene and its former
shareholders of a February 7, 1997 letter of intent relating to a proposed
acquisition of U-Gene by Collaborative. Kendle believes that U-Gene has
meritorious defenses to Collaborative's claims. Even if there were to be a
negative outcome in any such legal action, Kendle believes that such outcome
would not have a material effect on its financial position or results of
operations because, among other things, claims of this nature are the subject of
an indemnification from the former U-Gene shareholders.
The letter further alleged that Kendle may have engaged in improper conduct
in its acquisition of U-Gene. Kendle does not believe that it engaged in any
improper conduct that could result in liability to Collaborative.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and other key employees of the Company as
of May 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Candace Kendle Bryan, Pharm.D.(1).... 50 Chairman of the Board and Chief Executive Officer
Christopher C. Bergen(2)............. 47 President, Chief Operating Officer, Secretary and
Member, Board of Directors
Timothy M. Mooney.................... 49 Vice President -- Finance, Chief Financial
Officer, Treasurer and Member, Board of Directors
Philip E. Beekman(1)(2).............. 65 Member, Board of Directors
Charles A. Sanders, M.D.(1)(2)....... 65 Member, Board of Directors
Michael F. Bayer..................... 49 Director, Clinical Services
Peter F. Djuric, Pharm.D............. 48 Director, Clinical Research
Ann Hagen, M.D....................... 39 Director, Safety Surveillance
Jere M. Hardy........................ 52 Director, Clinical Data Management
Lois B. Rosenberger, Ph.D............ 46 Director, Regulatory Affairs
Stephen G. Scheurer.................. 48 Director, Human Resources
William K. Sietsema, Ph.D............ 41 Director, Clinical Research
Mandyam K. Srirama, Ph.D............. 63 Director, Biostatistics
Gary M. Wedig........................ 47 Director, Information Technology
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
CANDACE KENDLE BRYAN, PHARM. D., co-founded the Company in 1981 and has
served as Chief Executive Officer and as a director of Kendle since its
incorporation and has been Chairman of the Board since 1991. From 1979-1981, Dr.
Bryan served as Clinical Assistant Professor of Pediatrics at University of
Pennsylvania School of Medicine; Clinical Assistant Professor at Philadelphia
College of Pharmacy and Sciences and Director, Department of Pharmacy, The
Children's Hospital of Philadelphia. From 1974 to 1978, Dr. Bryan served in a
variety of positions at the University of North Carolina School of Pharmacy and
School of Medicine. Dr. Bryan has published more than 15 scientific articles.
Dr. Bryan is the wife of Christopher C. Bergen, President and Chief Operating
Officer of the Company.
CHRISTOPHER C. BERGEN co-founded the Company in 1981 and has served as
President and Chief Operating Officer of Kendle since 1981 and has served as a
director of the Company since its incorporation. From 1977 through 1981, Mr.
Bergen served in various capacities at The Children's Hospital of Philadelphia,
most recently as Associate Vice President. Mr. Bergen is the husband of Candace
Kendle Bryan, Chief Executive Officer of the Company.
TIMOTHY M. MOONEY joined the Company in May 1996 and was elected to the
Board of Directors in January 1997. Prior to joining Kendle as Vice
President -- Finance, Chief Financial Officer and Treasurer, Mr. Mooney was the
Vice President, Chief Financial Officer and Treasurer of The Future Now, Inc., a
computer reseller. From May 1988 to July 1994, Mr. Mooney served as Senior Vice
President and Chief Financial Officer of Hook-SupeRx, Inc., a retail drugstore
chain. Mr. Mooney was previously a partner with Coopers & Lybrand L.L.P. Mr.
Mooney serves as a director of Winton Financial Corporation, a unitary savings
and loan holding company.
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PHILIP E. BEEKMAN was elected a member of the Board of Directors of the
Company in January 1997. Mr. Beekman is the President of Owl Hollow Enterprises,
a consulting and investment company. Prior to July 1994, Mr. Beekman served as
Chairman of the Board and Chief Executive Officer of Hook-SupeRx, Inc. Mr.
Beekman is a director of Fisher Scientific Inc., a provider of scientific
products and services; MAFCO, Inc., a tobacco products company; the National
Association of Chain Drug Stores; General Chemical Group Inc., a supplier of
soda ash and other chemicals; B.T. Office Products International, a distributor
of commercial office supply products; Linens 'N Things, a retail chain of home
furnishings; the Ladies Professional Golf Association, and the National
Organization on Disability.
CHARLES A. SANDERS, M.D., was elected a member of the Board of Directors of
the Company in January 1997. From 1989 to 1994, Dr. Sanders was Chief Executive
Officer of Glaxo Inc., and he served as Chairman of that company from 1992 to
1995. Prior to joining Glaxo Inc., Dr. Sanders spent eight years with Squibb
Corp. where he held a number of senior positions including Vice Chairman.
Previously, Dr. Sanders was general director of Massachusetts General Hospital
and Professor of Medicine at Harvard Medical School. He is currently a member of
the Institute of Medicine of the National Academy of Sciences, a trustee of the
University of North Carolina at Chapel Hill, chairman of Project HOPE and
chairman of the Commonwealth Fund. Dr. Sanders serves as a director of Magainin
Pharmaceuticals, Inc., a biopharmaceutical company engaged in the development of
medicines for serious diseases; Vertex Pharmaceuticals Incorporated, a company
engaged in the development of small molecule pharmaceuticals for the treatment
of diseases; and StaffMark, Inc., a provider of diversified staffing services to
businesses, healthcare providers and government agencies.
MICHAEL F. BAYER joined Kendle in 1993 as Assistant Director, Clinical
Research and has served as Director, Clinical Services since 1994. From 1973 to
1993, Mr. Bayer served in several capacities at Marion Merrell Dow
Pharmaceuticals, Inc., most recently as Manager, Global Product
Safety/International.
PETER E. DJURIC, PHARM. D., joined Kendle in 1991 as Assistant Director,
Clinical Research and has served as Director, Clinical Research since December
1995. Dr. Djuric is responsible for physical and resource management of large
trials and antiarhythmia compounds as well as the development of new business in
the cardiovascular area.
ANN HAGEN, M.D., joined Kendle as Medical Director/Safety Officer in April
1992 and currently serves as Director, Safety Surveillance. Her responsibilities
include reporting and handling of all serious and nonserious adverse safety
experiences. Prior to joining Kendle, Dr. Hagen spent six years with Marion
Merrell Dow Inc. where she held various positions including: Site Director,
Global Epidemiology Group, Product Safety Assurance; Manager, Clinical Affairs,
Clinical and Medical Research; Associate Project Director, Phase II
Cardiovascular Group, Medical Research; Manager, Medical Drug Experience
Surveillance Center, Global Medical Services; and Associate Group Director,
Medical Drug Experience Surveillance Center, Medical Director and Global Medical
Services.
JERE M. HARDY, joined Kendle in July 1994 as Director, Clinical Data
Management. He has over 20 years of experience in the pharmaceutical industry.
From June 1990 through June 1994, he served as Director, Special Products at
SmithKline Beecham where he provided management and technical support for
Clinical Research and Development computing activities with emphasis on new
technologies. He was also responsible for the development and global
coordination of the implementation of strategic software systems in support of
Clinical Data Management worldwide.
LOIS B. ROSENBERGER, PH.D., joined Kendle as Director, Regulatory Affairs
in September 1996. She has over 20 years of cardiovascular research experience
in both academia and the pharmaceutical industry. From April 1996 to August
1996, she served as President, Comprehensive Regulatory Compliance, Inc., a
provider of consulting services in global regulatory affairs. From November 1994
to March 1996, she served as Director, Regulatory Affairs/Safety for Medisorp
Technologies International, L.P. where she was responsible for all compliance
issues. From September 1991 to March 1994, she held various positions at The
Procter & Gamble Company most recently as Section Head, Regulatory Affairs.
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STEPHEN G. SCHEURER joined Kendle in February 1997 as the Director, Human
Resources. He has over 18 years of human resources experience primarily in the
professional/financial services and retail industries. Prior to joining Kendle,
Mr. Scheurer served as the Vice President Human Resources for Western-Southern
Life Insurance Company from April 1995 to February 1997. From 1988 to 1995, Mr.
Scheurer held various human resource positions with Lazarus Department Stores, a
division of Federated and from 1984 and 1988 Mr. Scheurer was personnel manager
for Coopers & Lybrand L.L.P.
WILLIAM K. SIETSEMA, PH.D., joined Kendle as Assistant Director, Clinical
Research in January 1996 after 12 years in various clinical positions at The
Procter & Gamble Company. His most recent position was Section Head, Bone
Research. He is an expert in bone therapeutics, histology, histomorphometry and
biomechanics. Dr. Sietsema is currently Director, Clinical Research. His
responsibilities include project management and new business development in the
skeletal disease and inflammation area.
MANDYAM K. SRIRAMA, PH.D., joined Kendle as Director of Biostatistics in
January 1995. Dr. Srirama has over 26 years of experience in all biostatistical
aspects of clinical trials. From 1977 to 1994, he was employed at the
Parke-Davis Pharmaceuticals Research Division of Warner-Lambert, where his most
recent position was Director, Biometrics. Prior to such position, he held
various positions in the statistics and biometrics areas at Warner-Lambert. He
is an expert in design, statistical monitoring and analysis of clinical trials.
His therapeutic areas of experience include: central nervous system (Alzheimer's
disease, epilepsy, depression), gastrointestinal, anti-inflammatory (NSAID),
endocrine (reproductive), anti infective, and dermatologics.
GARY M. WEDIG, joined Kendle as Director, Information Technology in
September 1995, after 15 years in developing and managing various information
systems functions supporting pharmaceutical research and development. From 1977
to 1995, he held various positions at Marion Merrell Dow Inc., most recently as
Director, Information Systems Services, in which capacity he provided management
and technical support for Information Systems, Research and Development for
Global Systems & Quality Improvement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following the Offering, the Company's Compensation Committee, composed of
Mr. Beekman (Chairman), Dr. Bryan and Dr. Sanders, will determine the
compensation of the Company's executive officers and will administer the 1997
Stock Option and Stock Incentive Plan. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered in 1996 for
the Company's Chief Executive Officer and each of the Company's executive
officers whose total salary and bonus exceeded $100,000 during 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1)
----------------------------------------- ----------- -------- ----- ---------------
<S> <C> <C> <C> <C>
Dr. Candace Kendle Bryan, Chief Executive
Officer................................ 1996 $122,400 0 $ 3,773
Christopher C. Bergen, President......... 1996 122,400 0
</TABLE>
- ---------------
(1) Other annual compensation represents club membership dues.
PROTECTIVE COMPENSATION ARRANGEMENTS
The Company maintains Protective Compensation and Benefit Agreements with
16 employees, including Dr. Bryan and Mr. Bergen. These agreements and the
employees covered by them are subject to review and approved by the Board of
Directors and expire December 31, 1999. The term of these agreements will be
automatically extended in one year increments. On the first anniversary of the
agreements and with each anniversary thereafter, unless notice of intent not to
so extend any agreement is given by either party at least 60 days before such
anniversary date, the agreements will continue in effect for an additional year.
If a Change
41
<PAGE> 43
of Control (as defined in the agreements) occurs while the agreement is in
effect, such agreement shall not expire before the second anniversary of the
Change of Control. The agreements are intended, in the event of a Change of
Control, to induce key personnel to remain in the employment of the Company.
In the event of a Change of Control, the agreements provide that if the
covered individual is terminated from employment by the Company within 24 months
following the Change of Control (except for Death, Disability or Cause, each as
defined in the agreements) or if the individual resigns for Good Reason (as
defined in the agreements) within 12 months following the Change of Control, the
Company, in addition to those payments to which the individual is otherwise
entitled pursuant to the terms of the Company's benefit plans (other than any
severance pay), will pay to the individual Change of Control Compensation (as
defined in the agreements).
The Change of Control Compensation includes (i) a lump sum cash payment in
an amount equal to two times the individual's annual compensation (base salary
and bonus) in effect immediately prior to his or her termination of employment
or the date of the Change of Control, if greater, and (ii) benefit continuation
for a period of two years. The agreements also provide that the Company shall be
required to make an additional payment to each covered individual to compensate
for the effect of any excise tax under Section 4999 of the Internal Revenue Code
that may be imposed on the Change of Control Compensation and any other payments
received by the individual. At December 31, 1996, the total cost to the Company,
for Dr. Bryan and Mr. Bergen, assuming each became entitled to Change of Control
Compensation as of that date, would be approximately $531,000 excluding payment
for excise taxes, if any. The total cost to the Company for other employees
covered by these agreements, assuming each such individual is entitled to Change
of Control Compensation as of that date, would be approximately $3,000,000,
excluding payment for excise taxes, if any.
The Company also intends to adopt a bonus plan under which each Company
employee may be eligible for merit-based bonuses up to 100% of her or his base
salary.
PROFIT SHARING AND 401(K) PLAN
The Company has a profit sharing and 401(k) plan covering substantially all
full-time employees. Under the plan, an employee must complete one year of
service and attain the age of 18 to be eligible to participate in the plan. To
satisfy the required period of service, an employee must complete at least 1,000
hours of service during a consecutive twelve month period. Eligible employees
may elect to have between 1% and 15% of their before-tax pay contributed to the
plan. The Company's contribution under the profit sharing provision is
determined annually by the Board of Directors. The Company made no profit
sharing contribution in 1994, 1995 or 1996.
STOCK-BASED INCENTIVES
The Company's 1997 Stock Option and Stock Incentive Plan (the "Plan")
provides for the grant of incentive stock options, non-qualified stock options,
stock appreciation rights ("SARs"), restricted stock awards, unrestricted stock
awards and performance unit awards with respect to up to 1,000,000 shares of
Common Stock. The Plan also provides for the grant of options to purchase shares
of Common Stock by non-employee directors of Kendle.
Options, SARs and restricted stock awards may be granted to any employee of
Kendle, or any advisor or consultant to Kendle. Incentive stock options can only
be granted to Kendle employees. The Plan will be administered by the
Compensation Committee, consisting of not less than three members of the Board
of Directors. The Plan provides that all exercise prices for options must equal
at least 95% of market value of the Common Stock on the date of grant. A SAR
entitles the grantee to receive upon exercise cash equal to the excess of the
fair market value of the shares of Common Stock covered by the SAR at the time
of exercise over a base price which shall be established by the Committee in
connection with a particular grant of SARs. Both Options and SARs expire ten
years after the date of grant, though the Committee can provide for a shorter
term for a particular grant. The Compensation Committee has broad discretion in
delineating the terms of the grant of awards under the Plan, subject to the
restrictions outlined above.
42
<PAGE> 44
The Company will grant options to purchase approximately 250,000 shares
concurrently with the closing of the Offering at the initial public offering
price to certain employees, including options for approximately shares
to certain executive officers. Each non-employee director will also receive an
option to purchase 10,000 shares of Common Stock concurrently with the closing
of the Offering at the initial public offering price, and an option to purchase
an additional 5,000 shares of Common Stock after one year of service.
The Company has outstanding options granted in 1995, 1996, and 1997 for ten
year periods under the 1995 Stock Option and Stock Incentive Plan to a total of
39 employees for the purchase of an aggregate of 754,309 shares of Common Stock
at prices ranging from $0.91 to $2.01. Of these options, 3,614 are immediately
exercisable (as of March 31, 1997) at $0.91 per share, while 325,835 options at
prices ranging from $0.91 to $1.21 become immediately exercisable upon the
consummation of the Offering. Neither Dr. Bryan nor Mr. Bergen hold any options.
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors will receive $1,000 for each
meeting of the Board of Directors held. Meeting fees will be paid quarterly, in
arrears, in shares of Common Stock pursuant to the terms of the 1997 Directors'
Compensation Plan. The Common Stock issued under such plan will be valued based
on the average of the closing price of the Common Stock on the Nasdaq National
Market for the ten immediately preceding trading days.
43
<PAGE> 45
CERTAIN TRANSACTIONS
The Company made payments in 1996 of $97,500 to a construction company
owned by a relative of Dr. Bryan for construction and renovations at its
principal executive offices. Such work is continuing. Management believes that
payments to the construction company are on terms no less favorable then those
that could have been negotiated with unaffiliated third parties.
Immediately prior to the Offering, the Company will terminate its S
corporation status. See "Termination of S Corporation Status." In connection
with such termination, the former shareholders of the S corporation, consisting
of Dr. Bryan, Mr. Bergen, a trust for the benefit of their children, and Dr.
Bryan's mother, will receive payments totaling $700,000.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, and as adjusted to reflect the sale of the shares
offered hereby for: (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock; (ii) each of the
Company's executive officers and directors; (iii) all directors and executive
officers of the Company as a group; and (iv) each Selling Shareholder. The
Company believes that each person or entity named below has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such holder, subject to community property laws where
applicable. The Selling Shareholders will bear none of the expenses of the
Offering other than the underwriting commissions applicable to the shares to be
sold by them.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP BENEFICIAL
PRIOR TO OWNERSHIP
OFFERING(1) AFTER OFFERING(1)
------------------- -------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
- --------------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Dr. Candace Kendle Bryan (2)(3).......................... 1,700,900 46.6 1,364,668 19.4
Christopher C. Bergen (2)(3)............................. 1,328,600 36.4 1,064,832 15.1
Kendle Stock Trust(2).................................... 620,500 17.0 620,500 8.8
Timothy M. Mooney(4)..................................... 27,010 * 135,050 1.9
All executive officers and directors as a group (3
persons)(5)............................................ 3,056,510 83.1 2,564,550 35.8
</TABLE>
- ---------------
* less than 1%.
(1) Applicable percentage of ownership prior to this Offering is based upon
3,650,000 shares of Common Stock outstanding as of June 1, 1997. Applicable
percentage ownership after the Offering includes an additional 3,000,000
shares of Common Stock which are being included for sale by the Company in
the Offering as well as the Warrants issued in conjunction with the U-Gene
Acquisition (153,738 shares) and 217,500 shares of the Company's Common
Stock to be issued in connection with the gmi Acquisition (based on an
assumed initial public offering price of $13 per share). Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting and investment power with respect
to the shares shown as beneficially owned. Shares of Common Stock subject to
options currently exercisable or exercisable on or before June 1, 1997 are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Beneficial ownership for Dr. Bryan and Mr. Bergen does not include 620,500
shares held in trust by the Kendle Stock Trust, under which Dr. Bryan's and
Mr. Bergen's children are beneficiaries. Neither Dr. Bryan nor Mr. Bergen
have any voting or dispositive power with respect to these shares.
(3) Individual is considered a Selling Shareholder.
(4) Represents currently outstanding exercisable stock options for the purchase
of shares of Common Stock, of which 108,040 options will immediately vest
upon the Offering.
(5) Includes outstanding exercisable stock options for the purchase of shares of
Common Stock.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the Company's authorized capital
stock will consist of 12,000,000 shares of Common Stock, $.01 par value per
share and 100,000 shares of undesignated preferred stock. The following
description is a summary and is qualified in its entirety by the provisions of
the Company's proposed Amended Articles of Incorporation and Code of Regulations
and by provisions of Ohio law.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Shareholders do not
have the right to cumulate their votes in the election of directors. Subject to
preferences granted to holders of preferred stock, holders of Common Stock are
entitled to share in such dividends as the Board of Directors, in its
discretion, may validly declare from funds legally available. In the event of
liquidation, each outstanding share of Common Stock entitles its holder to
participate ratably in the assets remaining after payment of liabilities and any
preferred stock liquidation preferences. See "Dividend Policy." Shareholders
have no preemptive or other rights to subscribe for or purchase additional
shares of any class of stock or any other securities of the Company. There are
no redemption or sinking fund provisions with regard to the Common Stock. All
outstanding shares of Common Stock are fully paid, validly issued and
non-assessable. The affirmative vote of a majority of all outstanding shares of
Common Stock is required to amend the Articles of Incorporation and to approve
mergers, reorganizations and similar transactions.
PREFERRED STOCK
The Company has authorized 100,000 shares of preferred stock which may be
issued from time to time in series having such designated preferences and
rights, qualifications and limitations as the Board of Directors may determine
without any approval of shareholders. Preferred stock could be given rights
which would adversely affect the equity of holders of Common Stock and could
have preference over Common Stock with respect to dividend and liquidation
rights. The preferred stock could have the effect of acting as an anti-takeover
device to prevent a change of control of the Company.
PROVISIONS AFFECTING BUSINESS COMBINATIONS
Chapter 1704 of the Ohio Revised Code may be viewed as having an
anti-takeover effect. This statute, in general, prohibits an "issuing public
corporation" (the definition of which would include the Company) from entering
into a "Chapter 1704 Transaction" with the beneficial owner (or affiliates of
such beneficial owner) of 10% or more of the outstanding shares of the
corporation (an "interested shareholder") for at least three years following the
date on which the interested shareholder attains such 10% ownership, unless the
board of directors of the corporation approves, prior to such person becoming an
interested shareholder, either the transaction or the acquisition of shares
resulting in a 10% ownership. A "Chapter 1704 Transaction" is broadly defined to
include, among other things, a merger or consolidation with, a sale of
substantial assets to, or the receipt of a loan, guaranty or other financial
benefit (which is not proportionately received by all shareholders) from, the
interested shareholder. Following the expiration of such three-year period, a
Chapter 1704 Transaction with the interested shareholder is permitted only if
either: (i) the transaction is approved by the holders of at least two-thirds of
the voting power of the corporation (or such different proportion as is set
forth in the corporation's articles of incorporation), including a majority of
the outstanding shares, excluding those owned by the interested shareholder; or
(ii) the business combination results in the shareholders other than the
interested shareholder receiving a prescribed "fair price" for their shares. One
significant effect of Chapter 1704 is to cause a person or entity desiring to
become an interested shareholder to negotiate with the board of directors of a
corporation prior to becoming an interested shareholder.
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
45
<PAGE> 47
While the Company believes that these provisions are in its best interests,
potential shareholders should be aware that such provisions could be
disadvantageous to them because the overall effect of these statutes may be to
render more difficult or to discourage the removal of incumbent management or
the assumption of effective control by other persons.
LIABILITY OF DIRECTORS AND EXECUTIVE OFFICERS
Under Ohio law, shareholders are entitled to bring suit, generally in an
action on behalf of the corporation, to recover damages caused by breaches of
the duty of care and the duty of loyalty owed to a corporation and its
shareholders by directors and, to a certain extent, executive officers. Ohio law
has codified the traditional business judgement rule. Ohio law provides that the
business judgement presumption of good faith may only be overcome by clear and
convincing evidence, rather than the preponderance of the evidence standard
applicable in most states.
Further, Ohio law provides specific statutory authority for directors to
consider, in addition to the interests of the corporation's shareholders, other
factors such as the interests of the corporation's employees, suppliers,
creditors and customers; the economy of the state and the nation; community and
societal considerations; the long-term and short-term interests of the
corporation and the shareholders; and the possibility that these interests may
be best served by the continued independence of the corporation.
Directors of Ohio corporations are, unless the corporation's articles or
regulations otherwise provide, liable to the corporation for money damages for
actions taken or failed to be taken as a director only if it is proven by clear
and convincing evidence that the act or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the corporation or
reckless disregard for the best interests of the corporation.
Kendle's Code of Regulations provides that the Company shall indemnify
directors, officers, employees and agents to the fullest extent provided by Ohio
law and shall advance to officers and directors under certain circumstances
funds for expenses and liabilities incurred in connection with defending pending
or threatened suits.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Company's Common Stock is
.
46
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding a total
of 7,350,687 shares of Common Stock, including Warrants issued in the U-Gene
Acquisition and shares to be issued to shareholders of gmi in connection with
the gmi Acquisition. On the date of this Prospectus, the 3,600,000 shares
offered hereby and approximately 3,650,000 shares previously outstanding will be
eligible for sale in the public market without restriction, subject in certain
cases to lock-up agreements as described below. Beginning 90 days later,
approximately additional shares will become eligible for sale in compliance
with Rule 144 and/or 701 promulgated under the Securities Act, subject in
certain cases to lock-up agreements as described below. Approximately 3,650,000
of the above shares are subject to "lock-up" agreements between the Underwriters
and the holders of such shares which will expire 180 days after the date of this
Prospectus (or earlier if the Underwriters agree to release shares from the
"lock-up" agreements). Approximately shares will be eligible for sale
outside the United States under Regulation S one year after the date of this
Prospectus. The remaining approximately shares will become eligible for
sale on various dates thereafter. Approximately of the shares eligible
for sale in the public market 180 days after the date of this Prospectus will be
eligible for sale under Rule 144 only in compliance with the volume, manner of
sale and other restrictions applicable to shares held less than two years or
held by affiliates.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register 1,000,000 shares of Common Stock reserved for
issuance under the Plan. See "Management -- Stock Incentive Plan." Accordingly,
shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the lock-up agreements described above. In conjunction with the closing of
the Offering, the Company will grant options to purchase shares under the
Plan to certain key employees and 10,000 options to purchase 10,000 shares to
each non-employee director.
Rule 144 applies to public sales of restricted shares (shares issued
without registration under the Securities Act) and sales of any shares (whether
or not restricted) by affiliates of the issuer. Under Rule 144, shares that have
been held for at least two years and that are held by non-affiliates may be sold
in the public market at any time beginning on the date of this Prospectus.
Shares that have been held for at least one year may be sold in the public
market beginning 90 days after the date of this Prospectus. In each case, the
holding period of a prior owner may be included, except as to shares purchased
from an affiliate. If the shares have been held for less than two years, or if
the holder is an affiliate of the Company, the sale is subject to the
availability of current public information about the Company, the sale must be
made in a "broker's transaction" or transaction directly with a market maker for
the Common Stock, the seller must file a notice on Form 144 prior to the sale,
and the number of shares sold by the seller in any three-month period must not
exceed the greater of (i) 1% of the then-outstanding shares of the Common Stock
(approximately shares immediately after the Offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which the required notice is filed with the Securities and Exchange
Commission.
Regulation S applies to public sales of restricted shares outside of the
United States. Secondary sales of such shares may be made provided that such
sales are made in offshore transactions (where the offer is made outside the
United States and either the buyer is or is reasonably believed to be abroad or
the transaction is executed in, on or through certain offshore securities
markets) and that such sales are not accompanied by directed selling efforts in
the United States by the seller, an affiliate of the seller or any person acting
on their behalf.
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock. Furthermore, since
certain contractual and legal restrictions on resale described below restrict
the ability of the Company and current shareholders of the Company from selling
shares of Common Stock, sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.
47
<PAGE> 49
UNDERWRITING
The underwriters of the Offering named below (the "Underwriters"), for whom
Lehman Brothers Inc. and J.C. Bradford & Co. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which the Prospectus is a part, to purchase from the
Company, the aggregate number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc................................................................
J.C. Bradford & Co.................................................................
Total..............................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, and that, if any of the foregoing shares of Common
Stock are purchased by the Underwriters pursuant to the Underwriting Agreement,
all of the shares of Common Stock agreed to be purchased by the Underwriters
pursuant to the Underwriting Agreement (other than those covered by the
over-allotment option described below), must be so purchased.
The Company and the Selling Shareholders have been advised that the
underwriters propose to offer the shares of Common Stock directly to the public
initially at the public offering price set forth on the cover page of the
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow a
concession not in excess of $ per share to certain brokers and dealers.
After the initial public offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Representatives.
The Company and the Selling Shareholders have granted to the Underwriters
an option to purchase up to an additional 540,000 shares of Common Stock at the
public offering price, less the aggregate underwriting discounts and commissions
shown on the cover page of the Prospectus, solely to cover over-allotments, if
any. The option may be exercised at any time up to 30 days after the date of the
Underwriting Agreement. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company has agreed that, without the prior written consent of the
Representatives, it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell, contract to sell or otherwise issue or dispose of any
shares of Common Stock or any other capital stock of the Company for 180 days
after the date of the Prospectus. All of the shareholders of the Company,
including the Selling Shareholders, have agreed that, without the prior written
consent of the Representatives, they will not, subject to certain limited
exceptions, directly or indirectly, offer, sell or otherwise dispose of any
shares of Common Stock or any other capital stock of the Company for a period of
180 days after the date of the Prospectus.
48
<PAGE> 50
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Keating, Muething & Klekamp, P.L.L. and for the Underwriters
by Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The balance sheets of the Company, U-Gene and gmi as of December 31, 1995
and 1996, and the statements of operations, shareholders' equity and cash flow
for each of the three years in the period ended December 31, 1996 for the
Company and each of the two years in the period ended December 31, 1996 for
U-Gene and gmi included in this Prospectus have been included herein in reliance
upon the reports of Coopers & Lybrand L.L.P. as relates to the Company, Coopers
& Lybrand N.V. (The Netherlands) as relates to U-Gene, and Coopers & Lybrand
GmbH (Germany) as relates to gmi, independent accountants, given on the
authority of those firms as experts in accounting and auditing.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
KENDLE INTERNATIONAL INC. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996; and March 31, 1997 (Unaudited)..... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996; and
for the three months ended March 31, 1996 and 1997 (Unaudited)................... F-4
Statements of Changes in Shareholders' Equity (Deficit) for the years ended December
31, 1994, 1995 and 1996; and for the three months ended March 31, 1997
(Unaudited)...................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996; and
for the three months ended March 31, 1996 and 1997 (Unaudited)................... F-6
Notes to Financial Statements......................................................... F-7
GMI GESELLSCHAFT FUR ANGEWANDTE MATHEMATIK UND INFORMATIK MBH FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-15
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996; and March 31, 1997 (Unaudited)..... F-16
Statements of Operations for the years ended December 31, 1995 and 1996; and for the
three months ended March 31, 1996 and 1997 (Unaudited)........................... F-17
Statements of Changes in Shareholders' Equity for the years ended December 31, 1995
and 1996; and for the three months ended March 31, 1997 (Unaudited).............. F-18
Statements of Cash Flows for the years ended December 31, 1995 and 1996; and for the
three months ended March 31, 1996 and 1997 (Unaudited)........................... F-19
Notes to Financial Statements......................................................... F-20
U-GENE RESEARCH B.V. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-23
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996; and March 31, 1997
(Unaudited)...................................................................... F-24
Consolidated Statements of Operations for the years ended December 31, 1995 and
1996; and for the three months ended March 31, 1996 and 1997 (Unaudited)......... F-25
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1995 and 1996; and for the three months ended March 31, 1997
(Unaudited)...................................................................... F-26
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1996; and for the three months ended March 31, 1996 and 1997 (Unaudited)......... F-27
Notes to Consolidated Financial Statements............................................ F-28
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Kendle International Inc.
We have audited the accompanying balance sheets of Kendle International
Inc. (formerly Kendle Research Associates, Inc.) as of December 31, 1995 and
1996, and the related statements of operations, changes in shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kendle International Inc. as
of December 31, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
March 21, 1997, except as to
the information presented in Notes 10 and 11,
for which the date is .
***********
The foregoing report is in the form that will be signed by Coopers &
Lybrand L.L.P. upon consummation of the matters on or before the effective date
of the Registration Statement of which this Prospectus is a part as described in
Notes 10 and 11 to the financial statements concerning shares and per share
amounts and assuming that from the date hereof to the effective date no other
events shall have occurred that would affect the accompanying financial
statements.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
July 22, 1997
F-2
<PAGE> 53
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
---------- ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
(NOTE 8)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 15,267 $2,047,476 $ 13,976
Accounts receivable........................... 1,655,289 3,583,210 4,379,115 $ 4,379,115
Unreimbursed investigator and project costs... 88,191 980,597 2,610,224 2,610,224
Other current assets.......................... 37,812 12,806 136,672 136,672
---------- ---------- ----------- ------------
Total current assets.................. 1,796,559 6,624,089 7,139,987 7,126,011
---------- ---------- ----------- ------------
Property and equipment:
Furnishings, equipment and other.............. 770,443 1,177,416 1,447,196 1,447,196
Equipment under capital leases................ 471,716 1,588,135 2,071,974 2,071,974
Less: accumulated depreciation and
amortization............................... (617,008) (930,550) (1,077,745) (1,077,745)
---------- ---------- ----------- ------------
Net property and equipment................. 625,151 1,835,001 2,441,425 2,441,425
---------- ---------- ----------- ------------
Other assets.................................... 9,829 164,020 265,597 265,597
---------- ---------- ----------- ------------
Total assets.......................... $2,431,539 $8,623,110 $ 9,847,009 $ 9,833,033
========== ========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable.................................. $ 320,000 $ 686,024
Current portion of obligations under capital
leases..................................... 129,265 $ 360,203 $ 342,388 342,388
Amounts payable -- book overdraft............. 1,163,789 1,163,789
Trade payables................................ 253,550 913,371 1,923,031 1,923,031
Dividends payable............................. 250,000
Advances against investigator and project
costs...................................... 723,016 776,565 480,185 480,185
Advance billings.............................. 397,235 4,303,809 3,055,139 3,055,139
Accrued compensation and related payroll
withholdings and taxes..................... 79,225 250,758 405,346 405,346
Other accrued liabilities..................... 33,144 62,914 64,369 64,369
---------- ---------- ----------- ------------
Total current liabilities.................. 1,935,435 6,917,620 7,434,247 8,120,271
---------- ---------- ----------- ------------
Obligations under capital leases, less current
portion....................................... 112,041 761,029 1,155,429 1,155,429
Deferred taxes.................................. 25,000
Deferred rent................................... 38,667
---------- ---------- ----------- ------------
Total liabilities.......................... 2,086,143 7,678,649 8,589,676 9,300,700
---------- ---------- ----------- ------------
Shareholders' equity:
Common stock.................................. 75,000 75,000 75,000 75,000
Additional paid-in capital.................... 270,396 270,396 270,396 457,333
Retained earnings............................. 599,065 911,937
---------- ---------- ----------- ------------
Total shareholders' equity................. 345,396 944,461 1,257,333 532,333
---------- ---------- ----------- ------------
Total liabilities and shareholders'
equity.............................. $2,431,539 $8,623,110 $ 9,847,009 $ 9,833,033
========== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 54
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................ $4,431,160 $6,117,679 $12,959,054 $2,063,433 $5,961,576
---------- ---------- ----------- ---------- ----------
Cost and expenses:
Direct costs.............. 2,759,901 3,563,849 8,176,375 1,394,805 3,375,497
Selling, general and
administrative......... 1,067,396 1,775,613 3,277,931 371,666 1,892,872
Depreciation and
amortization........... 126,620 167,769 315,541 45,579 150,066
---------- ---------- ----------- ---------- ----------
3,953,917 5,507,231 11,769,847 1,812,050 5,418,435
---------- ---------- ----------- ---------- ----------
Income from
operations........... 477,243 610,448 1,189,207 251,383 543,141
---------- ---------- ----------- ---------- ----------
Other income (expense):
Interest income........... 23,644 6,276 14,746 1,838 11,803
Interest expense.......... (42,609) (69,361) (65,127) (18,089) (30,932)
Other..................... (4,470) (84) 4,860
---------- ---------- ----------- ---------- ----------
(18,965) (63,085) (54,851) (16,335) (14,269)
---------- ---------- ----------- ---------- ----------
Net income............. $ 458,278 $ 547,363 $ 1,134,356 $ 235,048 $ 528,872
========== ========== =========== ========== ==========
Pro forma (unaudited) (Note
1):
Net income, as reported... $ 458,278 $ 547,363 $ 1,134,356 $ 235,048 $ 528,872
Pro forma income tax
expense................ 183,311 218,945 453,742 94,019 211,549
---------- ---------- ----------- ---------- ----------
Pro forma net income...... $ 274,967 $ 328,418 $ 680,614 $ 141,029 $ 317,323
========== ========== =========== ========== ==========
Pro forma earnings per
share.................. $ 0.07 $ 0.08 $ 0.16 $ 0.03 $ 0.07
========== ========== =========== ========== ==========
Pro forma weighted average
number of shares
outstanding............ 4,031,118 4,079,823 4,239,459 4,161,918 4,263,819
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 55
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- ADDITIONAL RETAINED SHAREHOLDERS'
NUMBER OF PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
--------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994......... 3,650,000 $75,000 $ 515,477 $ (933,060) $ (342,583)
Capital contribution by
shareholders................ 365,630 365,630
Net income..................... 458,278 458,278
Distributions to
shareholders................ (304,067) (304,067)
------- ------- --------- ---------- ----------
Balance, December 31, 1994....... 3,650,000 75,000 577,040 (474,782) 177,258
Net income..................... 547,363 547,363
Distributions to
shareholders................ (306,644) (72,581) (379,225)
------- ------- --------- ---------- ----------
Balance, December 31, 1995....... 3,650,000 75,000 270,396 345,396
Net income..................... 1,134,356 1,134,356
Distributions to
shareholders................ (535,291) (535,291)
------- ------- --------- ---------- ----------
Balance, December 31, 1996....... 3,650,000 75,000 270,396 599,065 944,461
------- ------- --------- ---------- ----------
Net income (unaudited)......... 528,872 528,872
Distributions to shareholders
(unaudited)................. (216,000) (216,000)
------- ------- --------- ---------- ----------
Balance, March 31, 1997
(unaudited).................... 3,650,000 $75,000 $ 270,396 $ 911,937 $1,257,333
======= ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 56
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 458,278 $ 547,363 $ 1,134,356 $ 235,048 $ 528,872
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization................ 126,620 167,769 315,541 45,579 150,066
Changes in:
Accounts receivable.......................... (408,432) (691,144) (1,927,921) (536,826) (795,906)
Other current assets......................... 47,690 (37,812) 25,007 (34,009) (123,866)
Other assets................................. (1,163) 2,191 (116,186) (8,886) (53,664)
Investigator and project costs............... (167,319) 267,927 (838,857) (337,447) (1,926,007)
Trade payables............................... 79,380 94,471 659,821 380,758 1,009,660
Advance billings............................. (294,786) (254,972) 3,906,574 83,795 (1,248,670)
Accrued liabilities.......................... 106,931 (137,834) 201,303 26,737 156,043
Deferred rent................................ (33,143) (33,144) (38,667) (8,285)
---------- ----------- ----------- --------- -----------
Net cash provided by (used in) operating
activities..................................... (85,944) (75,185) 3,320,971 (153,536) (2,303,472)
---------- ----------- ----------- --------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment......... (95,129) (165,928) (406,974) (92,869) (268,025)
Additions to software costs.................... (40,005) (52,538)
---------- ----------- ----------- --------- -----------
Net cash used in investing activities............ (95,129) (165,928) (446,979) (92,869) (320,563)
---------- ----------- ----------- --------- -----------
Cash flows from financing activities:
Borrowings under line of credit................ 1,825,000 4,267,000 715,000
Repayments under line of credit................ (1,505,000) (4,587,000) (330,000)
Net cash advanced to shareholders.............. (121,763)
Distributions to shareholders.................. (304,067) (253,225) (285,291) (466,000)
Payments on capital lease obligations.......... (90,495) (155,238) (236,492) (37,059) (107,254)
Amounts payable -- book overdraft.............. 1,163,789
---------- ----------- ----------- --------- -----------
Net cash provided by (used in) financing
activities..................................... (516,325) (88,463) (841,783) 347,941 590,535
---------- ----------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... (697,398) (329,576) 2,032,209 101,536 (2,033,500)
Cash and cash equivalents:
Beginning of period............................ 1,042,241 344,843 15,267 15,267 2,047,476
---------- ----------- ----------- --------- -----------
End of period.................................. $ 344,843 $ 15,267 $ 2,047,476 $ 116,803 $ 13,976
========== =========== =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest....... $ 42,609 $ 69,361 $ 65,127 $ 18,089 $ 30,932
========== =========== =========== ========= ===========
Supplemental schedule of noncash investing and
financing activities:
Acquisition of equipment under capital
leases....................................... $ 105,523 $ 240,976 $ 1,116,418 $ 483,839
========== =========== =========== ===========
Additional paid-in capital contributions
through reclassification of shareholder notes
payable...................................... $ 365,630
==========
Reclassification of shareholder's advance to
additional paid-in capital................... $ 126,000
===========
Dividends declared and payable................. $ 250,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 57
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Kendle International Inc. (formerly Kendle Research Associates, Inc.) (the
"Company") is a clinical research organization providing a broad range of
integrated product development services to complement the research and
development activities of the pharmaceutical and biotechnology industries. The
Company's services include Phase II-IV clinical trial management, clinical data
management and biostatistical analysis, medical writing and regulatory
consultation and representation. The Company operates primarily in the United
States.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and money market funds
held with a financial institution, with an initial maturity of three months or
less at the date of purchase.
The Company maintains its demand deposits with a single financial
institution, the balance of which from time-to-time exceeds the maximum
federally insured amount.
Revenue Recognition
Revenues are earned by performing services primarily under fixed-price
contracts. Revenues are recognized on the percentage of completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. This method is used because management considers total costs
incurred to be the best available measure of progress on these contracts. The
estimated total costs of contracts are reviewed and revised periodically
throughout the lives of the contracts with adjustment to revenues resulting from
such revisions being recorded on a cumulative basis in the period in which the
revisions are made. Hence, the effect of the changes on future periods of
contract performance is recognized as if the revised estimates had been the
original estimates. Because of the inherent uncertainties in estimating costs,
it is at least reasonably possible that the estimates used will change in the
near term and could result in a material change.
Contract costs include direct labor costs and indirect costs related to
contract performance, such as indirect labor, supplies, depreciation, rent and
utilities. Selling, general, and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are
recognized in the period in which such losses become known.
Amendments to contracts resulting in revisions to revenues and costs are
recognized in the period in which the revisions are negotiated. Included in
accounts receivable are unbilled accounts receivable, which represent revenue
recognized in excess of amounts billed. Advance billings represent amounts
billed in excess of revenue recognized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over
estimated useful lives of four to ten years using the straight-line method.
Repairs and maintenance are charged to expense as incurred. Upon disposition,
the asset and the related accumulated depreciation are relieved and any gains or
losses are reflected in operations.
Equipment under capital lease is recorded at the present value of future
minimum lease payments and is amortized over the terms of the related leases.
Accumulated amortization on these leases was $158,072, $352,804 and $459,328
(unaudited) at December 31, 1995 and 1996 and March 31, 1997, respectively.
F-7
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Internally Developed Software
The Company capitalizes costs incurred to develop internally its
proprietary software products used in the Company's clinical trial and data
management, and amortizes these costs on a straight-line basis over the
estimated useful life of the product, generally not to exceed five years.
Accumulated amortization totaled $2,000 and $6,627 (unaudited) at December 31,
1996 and March 31, 1997, respectively.
Investigator and Project Costs
In addition to various contract costs previously described, the Company
incurs costs, in excess of contract amounts, which are reimbursable by its
clients. Such pass-through costs incurred, but not yet reimbursed, are reflected
as a current asset in the accompanying balance sheet. Advances from clients for
such costs not yet incurred are reflected as a current liability. Such costs and
reimbursement for such costs are excluded from direct costs and net revenues and
totaled $2,151,992, $1,983,948 and $3,043,802, $966,763 (unaudited) and
$6,691,344 (unaudited) for years ended December 31, 1994, 1995 and 1996 and the
three months ended March 31, 1996 and 1997, respectively.
Current Liabilities
Under the Company's cash management system, checks issued but not presented
to banks frequently result in overdraft balances for accounting purposes. As a
result, such overdraft balances have been classified as "Amounts payable--book
overdraft" in the accompanying balance sheet.
Income Taxes
The financial statements of the Company for periods prior to the proposed
initial public offering described in Note 11 do not include a provision for
income taxes because taxable income or loss of the Company is included in the
income tax return of the individual shareholders under the S corporation
election. The statements of operations include the pro forma income tax
provision on taxable income for financial reporting purposes using statutory
federal, state and local rates that would have resulted if the Company had filed
corporate tax returns during these periods.
Prior to the effectiveness of a proposed initial public offering of the
Company's common stock described in Note 11, the Company will cease to be
treated as an S corporation for tax purposes and will be subject to federal,
state and local income taxes and will recognize deferred taxes in accordance
with Statement of Financial Accounting Standard No. 109 ("SFAS 109"),
"Accounting for Income Taxes." SFAS 109 requires companies subject to income
taxes to adjust their deferred tax assets and liabilities based on temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Based upon temporary differences existing
as of March 31, 1997, the estimated net deferred tax liabilities would have been
approximately $25,000 (unaudited) had the Company been subject to income taxes
at that date (See Note 8). The establishment of the deferred tax liability will
result in a charge to earnings in 1997 equal to the deferred tax liability at
the time the Company ceases to be an S Corporation.
Stock Options
The Company accounts for stock options issued to employees in accordance
with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees." Under APB No. 25, the Company recognized expense based on
the intrinsic value of the options.
F-8
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Earnings Per Share
Earnings per share are computed based on the weighted average number of
common shares outstanding including common share equivalents. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock options granted by the Company during the twelve months preceding the
anticipated initial public offering have been included in the calculation of
common share equivalents outstanding as if they were outstanding for all periods
presented using the treasury stock method at an assumed initial public offering
price of $13.00 per share.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 is designed to simplify the existing
computational guidelines for computing earnings per share (EPS). It provides for
the elimination of primary EPS, replacing it with basic EPS, with the principal
difference being that common stock equivalents are not considered in computing
basic EPS. SFAS No. 128 is effective for the Company for the year ending
December 31, 1997. Management expects the effect of the adoption of this
statement to have an immaterial impact on the Company's earnings per share
calculation for 1996, 1995 and 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Data
Interim financial information as of March 31, 1997 and for the three month
period ended March 31, 1997 and 1996 is unaudited. In the opinion of management,
this financial information includes all adjustments, consisting solely of normal
recurring adjustments, necessary to fairly present the financial information set
forth. The results for the three months ended March 31, 1997 may not be
indicative of operating results for the full year.
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Billed......................................... $1,133,146 $1,958,436 $2,549,538
Unbilled....................................... 507,927 1,603,154 1,802,234
Travel and other advances...................... 14,216 21,620 27,343
---------- ---------- ----------
$1,655,289 $3,583,210 $4,379,115
========== ========== ==========
</TABLE>
3. DEBT:
The Company has a $2,000,000 demand line of credit with a bank, which
expires July 31, 1997. Interest is charged at prime or LIBOR plus 2.5% at the
discretion of management for each borrowing. Advances under the line are
evidenced by a note which is collateralized by all of the Company's assets other
than assets under the Company's capital lease line of credit (see below), and is
subject to various covenants and restrictions, including, among others,
maintaining a minimum tangible capital base. There were no outstanding
borrowings under the line at December 31, 1996 or March 31, 1997.
F-9
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. DEBT, CONTINUED:
In 1996, the Company entered into two lease lines of credit with a bank.
Amounts drawn on the $1,500,000 computer and $500,000 furniture lines of credit
are payable in equal monthly installments over a five year term, from the date
of the funding. The monthly installment payments are equal to 1.80% and 1.71% of
the total computer and furniture draws, respectively. No amounts can be drawn on
the lines after December 31, 1997. Assets acquired with amounts drawn on these
lines of credit have been accounted for as capital leases, and have been
included in capital lease commitments as detailed in Note 5. Amounts drawn on
these lines of credit totaled approximately $1,109,000 (unaudited) as of March
31, 1997.
In April 1997, the Company obtained an additional $370,000 computer and
$130,000 furniture lease line of credit with the same bank. These lines expire
March 31, 1998, with monthly installment payments equal to 2.23% and 1.76% of
the total computer and furniture borrowings, respectively. Amounts drawn on the
computer and furniture lines of credit are payable over four and five year
terms, respectively, from the date of funding.
4. EMPLOYEE BENEFIT PLANS:
Profit Sharing and 401(k) Plan
The Company has a profit sharing plan covering substantially all full-time
employees who meet certain eligibility requirements. The Company's contribution
is determined annually by the Board of Directors. The Company made no profit
sharing contribution in 1994, 1995 or 1996 or for the three months ended March
31, 1997.
The profit sharing plan also has a 401(k) salary reduction provision, which
allows employees to make voluntary contributions after completing one year of
service.
Incentive Stock Option and Stock Incentive Plan
On January 15, 1995, the Company established a plan that provides for the
grant of up to 3,650,000 qualified and non-qualified stock options (the Plan).
Participation in the Plan is at the discretion of the Board of Directors. The
exercise price of qualified options granted under the Plan must be no less than
the fair market value of the Common Stock, as determined under the Plan
provisions, at the date the option is granted (110 percent of fair market value
for stockholders owning more than 10 percent of the Company's common stock). The
exercise price of non-qualified options must be no less than 85% of the fair
market value of the common stock at the date the option is granted. The Options
granted under the Plan vest in equal increments over a five year period
commencing, for some, on the date of grant, and others, two years after the
employees first anniversary after the date of grant, and expire either 90 days
after termination of employment or ten years after date of grant. No options can
be granted after January 15, 2005.
F-10
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. EMPLOYEE BENEFIT PLANS, CONTINUED:
Incentive Stock Option and Stock Incentive Plan, continued
Aggregate stock option activity during 1995, 1996 and the three months
ended March 31, 1997 (unaudited) was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES EXERCISE PRICE PRICE
-------- -------------- ---------
<S> <C> <C> <C>
Options outstanding, January 1, 1995..............
Granted......................................... 219,219 $ 0.91 $0.91
-------- ---------- -----
Options outstanding, at December 31, 1995......... 219,219 0.91 0.91
Granted......................................... 451,652 1.21 1.21
Canceled........................................ (3,103) 0.91 0.91
-------- ---------- -----
Options outstanding, at December 31, 1996......... 667,768 0.91-1.21 1.12
-------- ---------- -----
Granted (unaudited)............................. 250,609 2.01 2.01
Canceled (unaudited)............................ (153,665) 0.91-1.21 1.21
-------- ---------- -----
Options outstanding, at March 31, 1997
(unaudited)..................................... 764,712 $0.91-2.01 $1.40
======== ========== =====
</TABLE>
Options exercisable:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Year first exercisable:
1997...................................................... 97,236 66,503
1998...................................................... 130,634 99,901
1999...................................................... 133,554 102,821
2000...................................................... 133,554 152,935
2001...................................................... 133,554 152,935
Thereafter................................................ 39,236 189,617
</TABLE>
The weighted average life of the stock options was approximately 9, 8 1/2
and 8 (unaudited) years as of December 31, 1995, 1996 and March 31, 1997,
respectively.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant dates for awards under the plan consistent
with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the
effect on the Company's net income would not have been material for years ended
December 31, 1996 or 1995.
Subsequent Event-Protective Compensation and Benefit Arrangements
The Company has entered into Protective Compensation and Benefit Agreements
with certain employees, including all Executive Officers of the Company. These
Agreements are subject to annual review by the Company's Board of Directors,
expire on December 31, 1999, and will be automatically extended in one year
increments unless canceled by the Company. These Agreements provide for
specified benefits in the event of a change in control, as defined in the
Agreements. At December 31, 1996, the maximum amount which could be required to
be paid under these Agreements, if such events occur, is $3,531,000.
F-11
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. LEASES:
The Company leases facilities, office equipment and computers under
agreements which are classified as capital and operating leases. The leases have
initial terms which range from 3 to 6 1/2 years, with two facility leases that
have provisions to extend the leases for an additional 3 to 5 years. Certain of
the leased equipment is subject to the lease lines of credit as described in
Note 3.
Future minimum payments, by year and in the aggregate, under noncancelable
capital leases and operating leases with initial or remaining terms of one year
or more are as follows at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1997.......................................................... $ 450,728 $1,163,410
1998.......................................................... 349,708 1,163,160
1999.......................................................... 258,642 967,828
2000.......................................................... 165,241 912,732
2001.......................................................... 103,269 879,534
---------- ----------
Total minimum lease payments.................................. 1,327,588 $5,086,664
==========
Amounts representing interest................................. 206,356
----------
Present value of net minimum lease payments................... 1,121,232
Current portion............................................... 360,203
----------
Obligations under capital leases, less current portion........ $ 761,029
==========
</TABLE>
Rental expense for 1994, 1995, 1996 and for the three months ended March
31, 1996 and 1997 was $238,578, $235,852 and $502,628, $78,196 (unaudited) and
$299,148 (unaudited), respectively.
6. MAJOR CLIENTS:
The following sets forth the net revenues from clients who accounted for
more than 10% of the Company's net revenues during each of the periods
presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -----------------------
CLIENTS 1994 1995 1996 1996 1997
------------------ ---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A................. $2,238,608 $2,542,424 $6,274,368 $689,350 $3,936,499
B................. * * 2,468,759 452,251 789,230
C................. * * 1,681,787 * *
D................. * 725,083 * 296,192 *
E................. * 670,005 * * *
</TABLE>
- ---------------
* Net revenues did not exceed 10%
7. SHAREHOLDERS' EQUITY:
At December 31, 1995, there were 200,000 shares authorized and 100 shares
of no par common stock issued and outstanding. During 1996, there was a 999 to 1
stock dividend accounted for as a stock split. As a result, at December 31, 1996
and March 31, 1997, there were 100,000 shares issued and outstanding. Refer to
Note 10 regarding a subsequent stock split.
F-12
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. PRO FORMA FINANCIAL INFORMATION:
In connection with termination of the Company's S corporation election, the
statement of operations include pro forma net income for all periods assuming
the Company was taxable as a C corporation and earnings per share of common
stock based on the pro forma net income divided by the pro forma weighted
average number of common shares outstanding. Pro forma weighted average shares
outstanding assumes the issuance of sufficient shares at $13.00 per share, after
aggregate estimated offering expenses and underwriting discounts, to pay
$700,000 in S corporation distribution as of March 31, 1997.
The pro forma balance sheet as of March 31, 1997 reflects: (i) the
reclassification of S Corporation retained earnings to additional paid-in
capital of $911,937; (ii) a distribution of $700,000 to the shareholders, which
is planned to occur prior to the initial public offering; and (iii) the
establishment of deferred income taxes of $25,000 in connection with the
termination of the Company's S Corporation election.
9. RELATED PARTY TRANSACTION:
The Company made payments in 1996 totaling approximately $97,500 to a
construction company owned by a relative of the Company's primary shareholder,
for construction and renovations at the corporate headquarters.
10. SUBSEQUENT EVENT -- ACQUISITIONS AND FINANCING:
In July 1997, the Company acquired U-Gene Research B.V. ("U-Gene") and
signed a definitive agreement to acquire GMI Gesellschaft fur Angewandte
Mathematik und Informatik mbH ("gmi"). The purchase price for the U-Gene
acquisition ("U-Gene Acquisition") was 30,000,000 Dutch guilders ($15,600,000).
The purchase price for the gmi acquisition ("gmi Acquisition") is 19.5 million
Deutsch marks (total acquisition costs are expected to approximate $9.5 million
in cash and $2.8 million in the Company's Common Stock, with the number of
shares determined by the initial public offering price; calculated using an
exchange rate of 0.58 DM/U.S.$ as of May 1, 1997). These acquisitions will be
accounted for using the purchase method of accounting.
In connection with the acquisitions, NationsBank, N.A. (the "Bank") has
agreed to lend the Company up to $20,000,000 under a senior secured revolving
credit facility (the "Senior Credit Facility") and up to $10,000,000 in
subordinated promissory notes (the "Subordinated Credit Facility").
Outstanding borrowings under the Senior Credit Facility bear interest at a
rate equal to either LIBOR plus the Applicable Margin (as defined), or the
higher of the Banks prime rate or the Federal Funds rate plus 0.50%. All amounts
outstanding thereunder become due and payable in June, 2000. The Subordinated
Credit Facility consists of 12% Subordinated Series A and B Promissory Notes
payable over a five year term (the "Series A Note" and "Series B Note") and
Common Stock Purchase Warrants (the "Warrants").
Covenants
The credit facilities contain various restrictive financial covenants,
including limitations on senior and total debt levels, capital expenditures and
future acquisitions, as well as the maintenance of certain fixed coverage ratios
and minimum net worth levels, and is collateralized by all the assets and shares
of the common stock of the Company (existing shares at the time the Senior and
Subordinated Credit Facilities were executed, (which shares will be released as
collateral upon consummation of the initial public offering) and existing and
hereafter acquired material subsidiaries.
Bank Credit Facility Utilization--U-Gene Acquisition
The U-Gene Acquisition was funded with approximately $9,400,000 from the
Senior Credit Facility, a note payable to an escrow account provided under the
U-Gene purchase agreement of approximately
F-13
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. SUBSEQUENT EVENT -- ACQUISITIONS AND FINANCING, CONTINUED:
$1,600,000 and $5,000,000 from the Series A Note. In connection with the Series
A Note, the Company issued Warrants to the Bank to purchase 4% of the Common
Stock of the Company (153,738 shares). If the initial public offering described
in Note 11 does not occur on or before December 1, 1997, the number of shares
which may be purchased upon exercise of the Warrants will be increased to 5%,
and 6% if not completed by March 1, 1998.
Bank Credit Facility Utilization--gmi Acquisition
Although the Company expects the gmi Acquisition to occur simultaneously
with the closing of the initial public offering, described in Note 11, the
Company is required, per the gmi definitive agreement, to consummate the gmi
Acquisition not later than September 15, 1997. If the initial public offering is
not consummated by September 15, 1997, the Company expects to borrow
approximately $4,500,000 from the Senior Credit Facility and $5,000,000 from the
Series B Note to fund the cash portion of the gmi Acquisition. The Series B Note
includes a requirement to issue Warrants to the Bank for the purchase of 3% of
the Common Stock of the Company, and an additional 1% if the initial public
offering is not completed by March 1, 1998. In addition, the Bank has issued a
standby letter of credit to the gmi shareholders to secure the cash portion of
the gmi Acquisition price due to such shareholders.
Warrants
The Warrants which have been issued in connection with the Series A Note,
provide for purchase of the Company's common stock at $.01 per share and expire
in June 2007. The Warrants contain put rights which may be exercised at any time
after the earliest of June 2002 or the occurrence of other events as defined in
the agreement. The rights provide for a cash payment to the Bank equal to the
ratio of the Warrants to fully diluted shares of common stock multiplied by the
highest of the fair market value, the book value or an amount determined by a
formula specified in the agreement. The put rights expire upon consummation of
the initial public offering.
Repayment
The Company intends to repay all outstanding Subordinated Promissory Notes
and amounts outstanding under the Senior Credit Facility related to the U-Gene
Acquisition with proceeds from the initial public offering. The Warrants will be
exercised and converted to Common Stock concurrent with the initial public
offering.
Litigation
On July 16, 1997, Kendle received a letter from Collaborative Clinical
Research, Inc. ("Collaborative"). The letter communicated Collaborative's
intention to commence legal action in the Netherlands against U-Gene for damages
of at least $1,250,000 based upon an alleged breach by U-Gene and its former
shareholders of a February 7, 1997 letter of intent relating to a proposed
acquisition of U-Gene by Collaborative. Kendle believes that U-Gene has
meritorious defenses to Collaborative's claims. Even if there were to be a
negative outcome in any such legal action, Kendle believes that such outcome
would not have a material effect on its financial position or results of
operations because, among other things, claims of this nature are the subject of
an indemnification from the former U-Gene shareholders.
The letter further alleged that Kendle may have engaged in improper conduct
in its acquisition of U-Gene. Kendle does not believe that it engaged in any
improper conduct that could result in liability to Collaborative.
11. SUBSEQUENT EVENT -- INITIAL PUBLIC OFFERING:
The Company is in the process of filing a registration statement for an
initial public offering which they expect to have completed in September 1997.
Issuance of 3,000,000 shares is planned to raise approximately $35,000,000 in
net proceeds. In conjunction with this transaction, the Company has also
effected a stock split of 36.5 shares for 1 share. All numbers of common shares
and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect this stock split.
F-14
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of GMI Gesellschaft
fur Angewandte Mathematik und Informatik mbH
We have audited the accompanying balance sheets of GMI Gesellschaft fur
Angewandte Mathematik und Informatik mbH (gmi) as of December 31, 1995 and 1996,
and the related statements of operations, changes in shareholders' equity and
cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of gmi as of December 31, 1995 and
1996 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand
Wirtschaftsprufungsgesellschaft GmbH
Munich, Germany
May 7, 1997
F-15
<PAGE> 66
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- ------------
USD USD USD
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................. $1,187,977 $1,667,097 $2,559,613
Accounts receivable................................... 1,553,491 1,770,528 1,597,311
Other current assets.................................. 130,221 58,992 91,143
---------- ---------- ----------
Total current assets............................... 2,871,689 3,496,617 4,248,067
---------- ---------- ----------
Equipment:
Equipment............................................. 615,793 691,919 652,210
Less: accumulated depreciation........................ (455,393) (521,430) (503,085)
---------- ---------- ----------
Net equipment...................................... 160,400 170,489 149,125
---------- ---------- ----------
Total assets $3,032,089 $3,667,106 $4,397,192
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 486,075 $ 413,044 $ 831,310
Advance billings...................................... 701,988 403,267 181,786
Taxes on income....................................... 203,526 860,613 1,160,158
Other accrued liabilities............................. 44,181 165,745 112,164
Other liabilities..................................... 631,132 779,952 683,897
---------- ---------- ----------
Total current liabilities.......................... 2,066,902 2,622,621 2,969,315
---------- ---------- ----------
Deferred tax liability.................................. 238,611
Total liabilities.................................. 2,305,513 2,622,621 2,969,315
---------- ---------- ----------
Shareholders' equity:
Common stock.......................................... 32,283 32,283 32,283
Retained earnings..................................... 664,358 1,051,682 1,515,816
Currency translation adjustments...................... 29,935 (39,480) (120,222)
---------- ---------- ----------
Total shareholders' equity......................... 726,576 1,044,485 1,427,877
---------- ---------- ----------
Total liabilities and shareholders' equity.... $3,032,089 $3,667,106 $4,397,192
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE> 67
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
DECEMBER 31, THREE MONTHS ENDED
------------------------ MARCH 31,
1995 1996 ------------------------
---------- ---------- 1996 1997
USD USD ---------- ----------
USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................... $5,294,434 $6,996,307 $1,425,107 $1,995,182
Cost and expenses:
Direct costs............................. 3,396,801 4,894,183 1,010,540 986,049
Selling, general and administrative...... 551,410 597,132 118,287 118,132
Depreciation............................. 143,898 105,016 28,143 20,112
---------- ---------- ---------- ----------
4,092,109 5,596,331 1,156,970 1,124,293
---------- ---------- ---------- ----------
Income from operations................ 1,202,325 1,399,976 268,137 870,889
---------- ---------- ---------- ----------
Other income (expense):
Interest income.......................... 28,645 48,899 7,455 8,794
Other.................................... (3,285) (4,292) (4,520) (3,958)
---------- ---------- ---------- ----------
25,360 44,607 2,935 4,836
---------- ---------- ---------- ----------
Income before taxes................... 1,227,685 1,444,583 271,072 875,725
---------- ---------- ---------- ----------
Income taxes
Current.................................. 424,610 885,715 356,533 411,591
Deferred................................. 198,767 (227,472) (232,924)
---------- ---------- ---------- ----------
623,377 658,243 123,609 411,591
---------- ---------- ---------- ----------
Net income............................ $ 604,308 $ 786,340 $ 147,463 $ 464,134
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE> 68
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENCY TOTAL
COMMON RETAINED TRANSLATION SHAREHOLDERS'
STOCK EARNINGS ADJUSTMENTS EQUITY
------- ---------- ----------- --------------
USD USD USD USD
<S> <C> <C> <C> <C>
Balance, January 1, 1995................... $32,283 $ 339,029 $ 371,312
Net income............................... 604,308 604,308
Distributions to shareholders............ (278,979) (278,979)
Translation adjustments.................. $ 29,935 29,935
------- ---------- --------- ----------
Balance, December 31, 1995................. 32,283 664,358 29,935 726,576
Net income............................... 786,340 786,340
Distributions to shareholders............ (399,016) (399,016)
Translation adjustments.................. (69,415) (69,415)
------- ---------- --------- ----------
Balance, December 31, 1996................. 32,283 1,051,682 (39,480) 1,044,485
Net income (unaudited)................... 464,134 464,134
Translation adjustments (unaudited)...... (80,742) (80,742)
------- ---------- --------- ----------
Balance, March 31, 1997 (unaudited)........ $32,283 $1,515,816 $(120,222) $1,427,877
======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE> 69
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
USD USD USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income.................................. $ 604,308 $ 786,340 $ 147,463 $ 464,134
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation............................. 143,898 105,016 28,143 20,112
Changes in:
Accounts receivable.................... (411,951) (524,546) 557,679 46,855
Other current assets................... (214,786) 223,927 52,617 (39,361)
Accounts payable....................... (3,747) 42,040 90,529 485,625
Advance billings....................... (23,384) (264,597) (381,095) (207,101)
Accrued taxes.......................... 159,909 729,912 317,054 399,218
Other accrued liabilities.............. 11,807 135,589 40,141 (44,708)
Deferred taxes......................... 184,008 (238,611) (238,611)
Other liabilities...................... 80,631 134,698 (31,787) (41,952)
---------- ---------- ---------- ----------
Net cash provided by operating activities..... 530,693 1,129,768 582,133 1,082,822
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net acquisitions of property and
equipment................................ (174,996) (134,675) (52,513) (11,887)
Proceeds from disposals of fixed assets..... 728
---------- ---------- ---------- ----------
Net cash used in investing activities......... (174,268) (134,675) (52,513) (11,887)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Distributions to shareholders............... (278,979) (399,016) (68,097)
---------- ---------- ----------
Net cash used in financing activities......... (278,979) (399,016) (68,097)
---------- ---------- ----------
Net effect of exchange rate changes on cash
and cash equivalents........................ 53,598 (116,957) (45,323) (178,419)
---------- ---------- ---------- ----------
Net increase in cash and cash equivalents..... 131,044 479,120 416,200 892,516
Cash and cash equivalents:
Beginning of period......................... 1,056,933 1,187,977 1,187,977 1,667,097
---------- ---------- ---------- ----------
End of period............................... $1,187,977 $1,667,097 $1,604,177 $2,559,613
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 70
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
GMI gesellschaft fur Angewandte Mathematik und Informatik mbH ("gmi" or the
"Company"), is an independent contract research organization providing a broad
range of medical, pharmaceutical and biotechnological research activities for
the industry. Its purpose is the planning, carrying out and execution of
clinical trials. The Company's services include design of clinical trials,
monitoring and data management, statistical analyses, quality assurance,
seminars and training, post marketing surveillance as well as pharmaceutical
cost-benefit analyses. The Company's major market is Germany, but it also
operates with customers from other European markets.
Cash and Cash Equivalents
Cash and cash equivalents consist of freely available current accounts and
savings held with a financial institution.
The Company maintains its bank accounts with a single German financial
institution, the Dresdner Bank AG. There is no state insurance coverage on bank
balances in Germany.
Revenue Recognition
Revenues are earned by performing services primarily under fixed-price
contracts. Revenues are recognized on the percentage of completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. This method is used because management considers total costs
incurred to be the best available measure of progress on these contracts. The
estimated total costs of contracts are reviewed and revised periodically
throughout the lives of the contracts with adjustments to costs resulting from
such revisions being recorded on a cumulative basis in the period in which the
revisions are made. Hence, the effect of the changes on future periods of
contract performance is recognized as if the revised estimates had been the
original estimates. Because of the inherent uncertainties in estimating costs,
it is at least reasonably possible that the estimates used will change in the
near term and result in a material change.
Contract costs include direct labor costs and indirect costs related to contract
performance, such as indirect labor, supplies, depreciation, rent and utilities.
Selling, general, and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are recognized in the
period in which such losses become known. Amendments to contracts resulting in
revisions to revenues and costs are recognized in the period in which the
revisions are determined. Included in trade receivables are unbilled accounts
receivable, which represent revenue recognized in excess of amounts billed.
Advance billings represent amounts billed in excess of revenue recognized.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed over the estimated useful lives of the assets, ranging from two to ten
years using the straight-line method and the declining-balance method. Repairs
and maintenance are charged to expenses as incurred. Upon disposition, the asset
and the related accumulated depreciation are relieved and any gains or losses
are reflected in operations.
Investigator and Project Costs
In addition to various contract costs previously described, the Company incurs
costs, in excess of contract amounts, which are reimbursable by its clients.
Such pass-through costs incurred, but not yet reimbursed, are
F-20
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
reflected as a current asset in the accompanying balance sheet. Advances from
clients for such costs not yet incurred are reflected as a current liability.
Reimbursement for such costs is excluded from contract revenues and totaled $2.7
million, $2.1 million and $679,000 (unaudited) for the years ended December 31,
1995 and 1996 and the three months ended March 31, 1997, respectively.
Income taxes
The Company is subject to corporate and trade income tax and recognizes deferred
taxes in accordance with Statement of Financial Accounting Standard No. 109
("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires companies subject
to income taxes to adjust their deferred tax assets and liabilities based on
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
German Corporation Tax Law provides for a regular tax rate of 45% (1996 and
1995: 45%) plus a surtax thereon of 7.5% (1996 and 1995: 7.5%). For dividends
distributed the regular rate is lowered to 30% (1996 and 1995: 30%).
The second component of the provision for taxes on income is the trade tax on
income which is levied at varying rates according to individual municipalities.
In the case of the Company, the applicable rate amounts to 19.35% of the taxable
trade income. This trade tax on income is deductible for corporate income tax
purposes which results in an effective total tax rate of 58.4% (1996 and 1995:
58.4%).
Reconciliations of the statutory German income tax rate to the financial
statement effective tax rates are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- -----------
(UNAUDITED)
% % %
<S> <C> <C> <C>
German statutory tax rate............. 58.4 58.4 58.4
Reduced Tax rate due to
distribution........................ (7.9) (12.9) (11.4)
Non-deductible Expenses............... 0.3 0.1
-------------------------
Effective tax rate.................... 50.8 45.6 47.0
=========================
</TABLE>
The deferred tax liability related to temporary differences between financial
statements and tax accounting for deferred revenue recognition on contracts
during the years 1994 and 1995. The effect has been reversed in the first
quarter of 1996, as deferred recognition is no longer part of the tax planning
strategy of the company.
The reduced tax rate due to distribution at year-end 1996 is based on suggested
distribution of $606,417 (1995: $328,865).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-21
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ----------
1995 1996 1997
---------- ---------- ----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Billed............................ $1,293,921 $1,070,731 $ 597,490
Unbilled.......................... 259,570 699,797 999,821
---------- ---------- ----------
$1,553,491 $1,770,528 $1,597,311
========== ========== ==========
</TABLE>
3. CURRENT LIABILITIES
The following sets forth the portions of the current liabilities which accounted
for more than 5% of the total current liabilities.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1995 1996 1997
--------- --------- ----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Sales tax liabilities............... $ 121,707 $ 174,109 *
Wages and Salaries.................. 352,459 468,290 $ 433,960
Social Security..................... * 88,431 *
</TABLE>
* liability does not exceed 5%
4. MAJOR CLIENTS:
The following sets forth the net revenues from clients who accounted for more
than 10% of the Company's net revenues during each of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------------
CLIENTS 1995 1996 1996 1997
------------------------ ---------- ---------- -------- --------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
A....................... * $1,398,969 * $449,280
B....................... * 1,024,344 * 253,768
C....................... $ 564,893 * * *
D....................... * * $186,573 *
</TABLE>
* Net revenues did not exceed 10%
5. SHAREHOLDERS' EQUITY:
Common stock amounted to $32,283 as of December 31, 1995 and 1996. As the
company takes the legal form of a "GmbH," this common stock is not divided into
individual shares and therefore no earnings per share calculation is possible.
6. RELATED PARTY TRANSACTION:
The Company made payments in 1996 totalling approximately $ 107,069 to a
shareholder under a consulting contract.
7. FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the Deutsche mark.
For US dollars reporting purposes, assets and liabilities have been translated
from Deutsche mark to US dollars at year-end rates and revenues, costs and
dividends have been translated at average rates for the year. Gains and losses
resulting from this translation are accumulated in shareholders' equity.
F-22
<PAGE> 73
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
U-Gene Research B.V.
We have audited the accompanying consolidated balance sheets of U-Gene Research
B.V. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U-Gene Research B.V. as of
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles in the United States of America.
Coopers & Lybrand N.V.
Utrecht, The Netherlands
June 17, 1997
F-23
<PAGE> 74
U-GENE RESEARCH B.V.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 777,005 $2,022,645 $ 878,849
Accounts receivable........................................ 2,994,446 2,899,576 3,539,437
Other current assets....................................... 287,034 405,033 386,412
---------- ---------- ----------
Total current assets............................. 4,058,485 5,327,254 4,804,698
---------- ---------- ----------
Deferred tax asset......................................... 24,000 92,946 72,950
Property and equipment
Furnishings, equipment and other........................... 1,135,760 1,803,492 1,791,664
Less: accumulated depreciation............................. (407,780) (685,426) (718,773)
---------- ---------- ----------
Net property and equipment................................. 727,980 1,118,066 1,072,891
---------- ---------- ----------
Total assets..................................... $4,810,465 $6,538,266 $ 5,950,539
========== ========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Trade payables............................................. $1,519,745 $1,265,114 $ 1,507,584
Dividends payable.......................................... 147,526 266,335 140,193
Advance billings........................................... 841,709 2,076,320 1,554,754
Accrued compensation and related payroll withholdings and
taxes.................................................... 783,529 651,577 632,881
Other accrued liabilities.................................. 538,833 753,576 417,980
---------- ---------- ----------
Total current liabilities........................ 3,831,342 5,012,922 4,253,392
---------- ---------- ----------
Pension liabilities........................................ 95,857 170,777 174,861
---------- ---------- ----------
Total liabilities................................ 3,927,199 5,183,699 4,428,253
---------- ---------- ----------
Shareholders' equity:
Common stock............................................... 172,235 172,235 172,235
Additional paid-in capital................................. 14,448 14,448 14,448
Retained earnings.......................................... 648,406 1,211,029 1,484,489
Accumulated translation adjustment......................... 48,177 (43,145) (148,886)
---------- ---------- ----------
Total shareholders' equity....................... 883,266 1,354,567 1,522,286
---------- ---------- ----------
Total liabilities and shareholders' equity....... $4,810,465 $6,538,266 $ 5,950,539
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 75
U-GENE RESEARCH B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ---------------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
USD USD USD USD
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................. $9,115,192 $12,507,765 $ 3,869,424 $ 3,273,094
---------- ----------- ---------- ----------
Cost and expenses:
Direct costs........................... 5,917,585 8,107,770 2,593,510 2,075,304
Selling, general and administrative.... 2,038,345 2,783,333 588,809 703,235
Depreciation........................... 278,257 319,764 67,735 84,466
---------- ----------- ---------- ----------
8,234,187 11,210,867 3,250,054 2,863,005
---------- ----------- ---------- ----------
Income from operations................... 881,005 1,296,898 619,370 410,089
---------- ----------- ---------- ----------
Other income:
Interest income........................ 6,222 6,623 1,538 11,424
---------- ----------- ---------- ----------
Income before tax........................ 887,227 1,303,521 620,908 421,513
Tax on income............................ 302,735 465,243 220,358 148,053
---------- ----------- ---------- ----------
Net income............................... $ 584,492 $ 838,278 $ 400,550 $ 273,460
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 76
U-GENE RESEARCH B.V.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL CURRENCY TOTAL
NUMBER OF COMMON PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
--------- -------- ---------- ----------- ----------- -------------
USD USD USD USD USD
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994...... 299 $172,235 $ 14,448 $ 348,431 $ 535,114
Net income..................... 584,492 584,492
Distributions to
shareholders................. (284,517) (284,517)
Translation adjustments........ $ 48,177 48,177
--- -------- ------- ---------- ---------- ----------
Balance December 31, 1995...... 299 172,235 14,448 648,406 48,177 883,266
Net income..................... 838,278 838,278
Distributions to
shareholders................. (275,655) (275,655)
Translation adjustments........ (91,322) (91,322)
--- -------- ------- ---------- ---------- ----------
Balance December 31, 1996...... 299 172,235 14,448 1,211,029 (43,145) 1,354,567
Net income (unaudited)......... 273,460 273,460
Translation adjustments
(unaudited).................. (105,741) (105,741)
--- -------- ------- ---------- ---------- ----------
Balance March 31, 1997
(unaudited).................. 299 $172,235 $ 14,448 $ 1,484,489 $ (148,886) $ 1,522,286
=== ======== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 77
U-GENE RESEARCH B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOR THE
DECEMBER 31, THREE MONTHS THREE MONTHS
------------------------- ENDED ENDED
1995 1996 MARCH 31, 1996 MARCH 31, 1997
---------- ---------- -------------- --------------
USD USD USD USD
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 584,492 $ 838,278 $ 400,550 $ 273,460
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation.......................... 278,257 319,764 67,735 84,466
Changes in:
Accounts receivable................... (688,280) 94,870 (85,223) (639,861)
Other current assets.................. 146,613 (117,999) (799,284) 18,621
Advance billings...................... (579,848) 1,234,611 705,067 (521,566)
Trade payables........................ 1,007,664 (254,631) (746,868) 242,470
Accrued liabilities and dividends
payable............................. 828,344 201,600 194,063 (480,434)
Pension liability..................... 74,920 4,084
Deferred taxes........................ (312,672) (68,946) (674) 19,996
---------- ---------- --------- -----------
Net cash provided by (used in)
operating activities................ 1,264,570 2,322,467 (264,634) (998,764)
---------- ---------- --------- -----------
Cash flows from investing activities
in tangible fixed assets:
Additions............................. (474,786) (709,850) (318,959) (39,292)
Disposals............................. 132,476
---------- ---------- --------- -----------
Net cash used in investing
activities.......................... (342,310) (709,850) (318,959) (39,292)
---------- ---------- --------- -----------
Cash flows from financing activities:
Distributions to shareholders......... (284,517) (275,655)
---------- ----------
Net cash used in financing
activities.......................... (284,517) (275,655)
---------- ----------
Net effect of exchange rate changes on
cash and cash equivalents........... 48,177 (91,322) 21,666 (105,740)
---------- ---------- --------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 685,920 1,245,640 (561,927) (1,143,796)
Cash and cash equivalents:
Beginning of period................... 91,085 777,005 777,005 2,022,645
---------- ---------- --------- -----------
End of period......................... $ 777,005 $2,022,645 $ 215,078 $ 878,849
========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 78
U-GENE RESEARCH B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
U-Gene Research B.V., (the "Company") is a clinical research organization
providing a broad range of integrated product development services to complement
the research and development activities of the pharmaceutical and biotechnology
industries. The Company's services include Phase-II-IV clinical trial
management, clinical data management and biostatistical analysis, medical
writing and regulatory consultation and representation. The Company is based in
Utrecht, The Netherlands, and has local offices in London, United Kingdom, and
since April 1, 1997, Milan, Italy.
Principles of consolidation
The consolidated financial statements include the financial information of
U-Gene Research B.V. and its wholly-owned subsidiaries U-Gene Clinical Research
B.V. and U-Gene Research Biotechnology B.D., both based in Utrecht, The
Netherlands.
Foreign currency translation
The Company's functional currency is the Dutch guilder. Assets and
liabilities denominated in other currencies have been converted into Dutch
guilders at year-end rates. Exchange differences are charged or credited to the
statements of operations.
For US dollars reporting purposes, assets and liabilities have been
translated from Dutch guilders to US dollars at year-end rates and revenues,
costs and dividends have been translated at average rates for the year. Gains
and losses resulting from this translation are accumulated in shareholders'
equity.
Cash and cash equivalents
Cash and cash equivalents consist of freely available current accounts and
savings accounts held with a financial institution.
The Company maintains its bank accounts with a single Dutch financial
institution, the Crediet-en Effectenbank N.V., a subsidiary of the ING-Bank.
There is no state insurance coverage on bank balances in The Netherlands.
Revenue recognition
Revenues are earned by performing services primarily under fixed-price
contracts. Revenues are recognized on the percentage of completion method,
primarily measured by the percentage of costs incurred to date to estimated
total costs for each contract. This method is used because management considers
total costs incurred to be the best available measure of progress on these
contracts. The estimated total costs of contracts are reviewed and revised
periodically throughout the lives of the contracts with adjustment to revenues
resulting from such revisions being recorded on a cumulative basis in the period
in which the revisions are made. Hence, the effect of the changes on future
periods of contract performance is recognized as if the revised estimates had
been the original estimates. Because of the inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates used will change in
the near term and could result in a material change.
Contract costs include direct labor costs, investigator costs, other direct
costs and indirect costs related to contract performance, such as indirect
labor, supplies and utilities. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recognized in the period in which such losses become known.
F-28
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Revenue Recognition, continued
Amendments to contracts resulting in revisions to revenues and costs are
recognized in the period in which the revisions are negotiated. Included in
accounts receivable are unbilled accounts receivable, which represent revenue
recognized in excess of amounts billed. Advance billings represent amounts
billed in excess of revenue recognized.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed over
estimated useful lives of three to eight years using the straight-line method.
Repairs and maintenance are charged to expense as incurred. Upon disposition,
the asset and the related accumulated depreciation are relieved and any gains or
losses are reflected in operations.
Income taxes
The company is subject to corporate income tax and recognizes deferred
taxes in accordance with Statement of Financial Accounting Standard No. 109,
("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires companies subject
to income taxes to adjust their deferred tax assets and liabilities based on
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Dutch Corporation Tax Law provides for a
tax rate of 35%.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ------------
1995 1996 1997
---------- ---------- ------------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Billed...................................... $1,522,952 $1,346,515 $1,400,124
Unbilled.................................... 1,471,494 1,553,061 2,139,313
---------- ---------- ----------
$2,994,446 $2,899,576 $3,539,437
========== ========== ==========
</TABLE>
3. DEBT
The Company has a USD 573,000 (NLG 1 million) overdraft facility with a
bank. The Company's receivables serve as collateral. There were no outstanding
borrowings at December 31, 1995, 1996 and March 31, 1997 (unaudited).
4. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering nearly all of its
employees and two directors in The Netherlands. The plan benefits are based on
years of service and compensation levels at the time of retirement.
F-29
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. EMPLOYEE BENEFIT PLANS, CONTINUED
The pension arrangements are single employer plans as defined in SFAS No.
87, "Employers' Accounting for Pensions."
The company's funding policy is to fund amounts as are necessary on an
actuarial basis to provide for vested benefits.
Plan assets of the single employer plans are participating annuity
contracts as defined in SFAS No. 87.
Two other directors have defined contribution pension plans. The annual
contribution to each of these plans is USD 8,876.
Net periodic pension expense of single employer plans included the
following components in thousands:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ -------------
USD USD
(UNAUDITED)
<S> <C> <C>
Service cost-benefits earned during the year............... $ 92 $ 30
Interest cost on the projected benefit obligations......... 19 8
Actual return on plan assets............................... (27) (10)
Net total of other components.............................. 35 8
---- ----
Net periodic pension cost.................................. $119 $ 36
==== ====
</TABLE>
The actuarial present value of benefit obligations and funded status for
the Company's single employer plans were as follows in thousands:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR YEAR THREE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ -------------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested........................................ $128 $ 210 $ 250
Accumulated................................... 123 201 240
Projected..................................... 217 375 410
Plan assets at fair value..................... 42 120 160
---- ----- -----
Plan assets less than projected benefit
obligation.................................. (175) (255) (250)
Unrecognized transition obligation............ 79 61 52
Unrecognized net loss......................... 23 23
---- ----- -----
Accrued pension cost.......................... $(96) $(171) $(175)
==== ===== =====
Weighted average discount rates............... 6.2% 5.6% 5.6%
Expected long-term rate of return on assets... 4.0 4.0 4.0
Assumed rate of increase in future
compensation................................ 4.0 4.0 4.0
</TABLE>
F-30
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LEASES
Lease contracts
U-Gene Research B.V. leases a number of cars under operating lease
contracts. The lease contracts have a term of four years or a certain number of
kilometers, usually 150,000. The estimated costs per year amount to USD 250,000.
A lease contract has been concluded for a photocopier under an operational lease
contract for a term of five years.
Lease contract for premises
With effect from December 1, 1992 an operating lease contract for the main
premises at Bolognalaan 40 was entered into with S.F.A.R. for a period of three
years. The lessee has a right to renew the lease for two option periods of three
years, commencing on December 1, 1995 and December 1, 1998. The current rent is
USD 232,000 excluding VAT, to be paid in advance in quarterly installments
amounting to USD 58,000 each. The lessee is also obliged to pay service costs of
USD 10,000 every three months in advance. The rent is adjusted annually on July
1. A bank guarantee has been given to S.F.A.R. of USD 82,000 for an indefinite
period.
With effect from January 1, 1996 an operating lease contract for the
offices located Einsteindreef 129-131 was entered into with Verwaltung IFU
Immobilienfonds GmbH & Co. K.G. for a period of two years. The lessee has a
right to renew the lease for two option periods of three years, commencing on
January 1, 1998 for a period of one year and January 1, 1999 for a period of two
years. The current rent is USD 115,000, excluding VAT, to be paid in advance in
quarterly installments amounting to USD 28,750 each. The lessee is also obliged
to pay service costs of USD 3,500 every three months in advance. A bank
guarantee has been given to Verwaltung IFU Immobilienfonds GmbH & Co. K.G. of
USD 37,800 for an indefinite period.
Commitments under operating lease contracts can be summarized as follows:
<TABLE>
<CAPTION>
USD
--------
<S> <C>
1997.............................................. $488,000
1998.............................................. 459,500
1999.............................................. 125,000
2000.............................................. 62,500
</TABLE>
6. GEOGRAPHICAL SEGMENT INFORMATION
The following sets forth net revenues from customers in the following
geographical areas:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31,
1995 1996 1997
--- --- -------------
% % %
(UNAUDITED)
<S> <C> <C> <C>
The Netherlands........................................... 62 40 32
Other European Community countries........................ 26 28 14
Other (mainly USA)........................................ 12 32 54
--- --- ---
100 100 100
=== === ===
</TABLE>
F-31
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. MAJOR CLIENTS
The following sets forth the net revenues from clients who accounted for
more than 10% of the Company's net revenues during each of the periods
presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------- MARCH 31,
CLIENTS 1995 1996 1997
----------------------------------------------- -------- ---------- -----------
USD USD USD
(unaudited)
<S> <C> <C> <C>
A.............................................. $933,288 $2,114,293 $ 935,686
B.............................................. 980,204 2,041,000 *
C.............................................. * 1,925,683 *
D.............................................. * 1,516,039 *
</TABLE>
* Net revenues did not exceed 10%.
8. GRANTS
For 1995 and 1996 costs are stated net of Dutch wage tax credits for R&D
work amounting to USD 156,000 and USD 191,000 respectively.
This wage tax credit facility may not necessarily be available for the
Company in 1997 and following years.
9. TAXES
Reconciliations of the statutory income tax rate to the effective tax rates
shown in the financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
1995 1996 MARCH 31, 1996 MARCH 31, 1997
---- ---- -------------- --------------
% % % %
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
The Netherlands statutory tax rate....... 35.0 35.0 35.0 35.0
Permanent differences.................... (0.9) 0.6 0.5 0.1
---- ---- ---- ----
34.1 35.6 35.5 35.1
==== ==== ==== ====
</TABLE>
Permanent differences comprise partly deductible entertaining expenses and
permanent deductions in relation to capital expenditures.
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
1995 1996 MARCH 31, 1996 MARCH 31, 1997
--------- -------- -------------- --------------
USD USD USD USD
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current tax..................... $ 615,407 $534,189 $221,032 $128,057
Deferred tax (benefit).......... (312,672) (68,946) (674) 19,996
-------- -------- -------- --------
$ 302,735 $465,243 $220,358 $148,053
======== ======== ======== ========
</TABLE>
The deferred tax asset relates to temporary differences mainly relating to
the recognition of pension costs.
10. SHAREHOLDERS' EQUITY:
At December 31, 1995, 1996 and March 31, 1997 (unaudited) there were 1,000
shares authorized with a par value of NLG 1,000, each of which 299 shares were
issued and outstanding.
F-32
<PAGE> 83
======================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Information................ 2
Prospectus Summary.................... 3
The Company........................... 3
Acquisitions.......................... 4
The Offering.......................... 5
Summary Financial and Operating
Data................................ 6
Risk Factors.......................... 7
The Acquisitions...................... 12
Bank Credit Facility.................. 13
Use of Proceeds....................... 14
Termination of S Corporation Status... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Unaudited Pro Forma Condensed
Consolidated Financial Statements... 17
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 39
Certain Transactions.................. 44
Principal and Selling Shareholders.... 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 47
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS AN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
3,600,000 SHARES
[KENDLE LOGO]
KENDLE
INTERNATIONAL INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
LEHMAN BROTHERS
J.C. BRADFORD & CO.
======================================================
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following estimated costs and expenses in connection with the issuance
and distribution of the securities being registered hereby are being paid by the
Registrant. Underwriting discounts and commissions are being paid by the
Registrant and the Selling Shareholders based on the pro rata number of shares
sold by each.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.......... $ 17,940
NASD filing fee.............................................. 5,880
The Nasdaq Stock Market listing fee.......................... 27,000
Printing and engraving costs................................. 100,000
Legal fees and expenses...................................... 110,000
Accounting fees and expenses................................. 180,000
Blue sky filing fees and expenses............................ 15,000
Transfer Agent and Registrar fees and expenses............... 5,000
Miscellaneous expenses....................................... 39,180
--------
TOTAL...................................................... $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by the Registrant to any person made or threatened to be made a
party to any proceedings, other than a proceeding by or in the right of the
Registrant, by reason of the fact that he is or was a director, officer,
employee or agent of the Registrant, against expenses, including judgments and
fines, if he acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the Registrant and, with respect to
criminal actions, in which he had no reasonable cause to believe that his
conduct was unlawful. Similar provisions apply to actions brought by or in the
right of the Registrant, except that no indemnification shall be made in such
cases when the person shall have been adjudged to be liable for negligence or
misconduct to the Registrant unless determined by the court. The right to
indemnification is mandatory in the case of a director or officer who is
successful on the merits or otherwise in defense of any action, suit or
proceeding or any claim, issue or matter therein. Permissive indemnification is
to be made by a court of competent jurisdiction, the majority vote of a quorum
of disinterested directors, the written opinion of independent counsel or by the
shareholders.
The Registrant's Code of Regulations provides that the Registrant shall
indemnify its directors and officers to the fullest extent permitted by law.
The Registrant maintains director and officer liability insurance which
provides coverage against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
As of March 31, 1997, the Registrant had outstanding 764,712 options to
purchase shares of Common Stock. Of these, options to purchase 219,219 shares
were granted in 1995 at $0.91 per share; options to purchase 451,652 shares were
granted in 1996 at $1.21 per share; and options to purchase 250,609 shares were
granted in 1997 at $2.01 per share. Options cancelled during those periods
totalled 156,768.
In addition, the Registrant issues promissory notes, guarantees of
indebtedness and other commercial paper in the ordinary course of its business.
II-1
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
1 -- Form of Underwriting Agreement***
2.1 -- Stock Purchase Agreement dated July 1, 1997 by and among the Company and
Shareholders of U-Gene**
2.2 -- Stock Purchase Agreement dated July 2, 1997 by and among the Company and
Shareholders of gmi***
3.1 -- Form of Amended and Restated Articles of Incorporation***
3.2 -- Amended and Restated Code of Regulations***
4 -- Specimen Common Stock Certificate***
5 -- Opinion of Keating, Muething & Klekamp, P.L.L.***
10.1 -- Amended and Restated Shareholders' Agreement dated June 26, 1997*
10.2 -- Revolving Credit Loan Agreement, dated August 9, 1996 by and between the Company
and Star Bank, N.A., as amended on November 27, 1996 and February 13, 1997*
10.3 -- Promissory Note dated August 9, 1996 made by the Company in favor of Star Bank,
N.A. in the principal amount of $2,000,000*
10.4 -- Master Lease Agreement dated November 27, 1996 by and between the Company and
Bank One Leasing Corporation, as amended on April 18, 1997*
10.5 -- Master Equipment Lease dated January 31, 1995 by and between the Company and Star
Bank, N.A.*
10.6 -- Master Equipment Lease dated August 16, 1996 by and between the Company and The
Fifth Third Leasing Company*
10.7 -- Lease Agreement dated December 9, 1991 by and between the Company and Carew
Realty, Inc., as amended on December 30, 1991, March 18, 1996, October 8, 1996 and
January 29, 1997*
10.8 -- Indemnity Agreement dated June 21, 1996 by and between the Company and Candace
Kendle Bryan*
10.9 -- Indemnity Agreement dated June 21, 1996 by and between the Company and
Christopher C. Bergen*
10.10 -- Indemnity Agreement dated June 21, 1996 by and between the Company and Timothy M.
Mooney*
10.11 -- Credit Agreement by and between the Company and NationsBank, N.A. dated June 26,
1997**
10.12 -- Investment Agreement by and between the Company and NationsBank, N.A. Investment
Corporation dated June 26, 1997**
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
10.13 -- 1995 Stock Option and Stock Incentive Plan*
10.14 -- 1995 Stock Option and Stock Incentive Plan -- Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.13)*
10.15 -- 1997 Stock Option and Stock Incentive Plan***
10.16 -- Form of Protective Compensation and Benefit Agreement*
11 -- Statement Regarding Computation of Earnings Per Share*
21 -- List of Subsidiaries***
23.1 -- Consent of Coopers & Lybrand L.L.P.**
23.2 -- Consent of Coopers & Lybrand N.V.**
23.3 -- Consent of Coopers & Lybrand GmbH**
</TABLE>
II-2
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
23.4 -- Consent of Keating, Muething & Klekamp, P.L.L. (contained in Exhibit 5)***
24 -- Powers of Attorney (contained in Signature Page)*
27.1 -- Financial Data Schedule for year ended December 31, 1996*
27.2 -- Financial Data Schedule for quarter ended March 31, 1997*
</TABLE>
- ---------------
* Previously filed
** Filed herewith
*** To be filed by an amendment
ITEM 17. UNDERTAKINGS.
(f) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Cincinnati, State of Ohio,
on the 23rd day of July, 1997.
KENDLE INTERNATIONAL INC.
BY: /s/ CANDACE KENDLE BRYAN
------------------------------------
Candace Kendle Bryan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. The persons whose names are marked with
an asterisk (*) below hereby designate Candace Kendle Bryan or Timothy M. Mooney
to sign all amendments, including post-effective amendments, to this
Registration Statement as well as any related registration statement (or
amendment thereto) filed pursuant to Rule 462(b) promulgated under the
Securities Act of 1933.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
* /s/ CANDACE KENDLE BRYAN Chairman of the Board of Directors July 23, 1997
- ---------------------------------------- and Chief Executive Officer
Candace Kendle Bryan (principal executive officer)
* /s/ CHRISTOPHER C. BERGEN President, Chief Operating Officer, July 23, 1997
- ---------------------------------------- Secretary and Director
Christopher C. Bergen
* /s/ TIMOTHY M. MOONEY Vice President -- Finance, Chief July 23, 1997
- ---------------------------------------- Financial Officer, Treasurer,
Timothy M. Mooney Assistant Secretary (principal
financial officer and principal
accounting officer) and Director
* /s/ PHILIP E. BEEKMAN Director July 23, 1997
- ----------------------------------------
Philip E. Beekman
* /s/ CHARLES A. SANDERS Director July 23, 1997
- ----------------------------------------
Charles A. Sanders
</TABLE>
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
1 -- Form of Underwriting Agreement***
2.1 -- Stock Purchase Agreement dated July 1, 1997 by and among the Company and
Shareholders of U-Gene**
2.2 -- Stock Purchase Agreement dated July 2, 1997 by and among the Company and
Shareholders of gmi***
3.1 -- Form of Amended and Restated Articles of Incorporation***
3.2 -- Amended and Restated Code of Regulations***
4 -- Specimen Common Stock Certificate***
5 -- Opinion of Keating, Muething & Klekamp, P.L.L.***
10.1 -- Amended and Restated Shareholders' Agreement dated June 26, 1997*
10.2 -- Revolving Credit Loan Agreement, dated August 9, 1996 by and between the Company
and Star Bank, N.A., as amended on November 27, 1996 and February 13, 1997*
10.3 -- Promissory Note dated August 9, 1996 made by the Company in favor of Star Bank,
N.A. in the principal amount of $2,000,000*
10.4 -- Master Lease Agreement dated November 27, 1996 by and between the Company and
Bank One Leasing Corporation, as amended on April 18, 1997*
10.5 -- Master Equipment Lease dated January 31, 1995 by and between the Company and Star
Bank, N.A.*
10.6 -- Master Equipment Lease dated August 16, 1996 by and between the Company and The
Fifth Third Leasing Company*
10.7 -- Lease Agreement dated December 9, 1991 by and between the Company and Carew
Realty, Inc., as amended on December 30, 1991, March 18, 1996, October 8, 1996 and
January 29, 1997*
10.8 -- Indemnity Agreement dated June 21, 1996 by and between the Company and Candace
Kendle Bryan*
10.9 -- Indemnity Agreement dated June 21, 1996 by and between the Company and
Christopher C. Bergen*
10.10 -- Indemnity Agreement dated June 21, 1996 by and between the Company and Timothy M.
Mooney*
10.11 -- Credit Agreement by and between the Company and NationsBank, N.A. dated June 26,
1997**
10.12 -- Investment Agreement by and between the Company and NationsBank, N.A. Investment
Corporation dated June 26, 1997**
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
10.13 -- 1995 Stock Option and Stock Incentive Plan*
10.14 -- 1995 Stock Option and Stock Incentive Plan -- Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.13)*
10.15 -- 1997 Stock Option and Stock Incentive Plan***
10.16 -- Form of Protective Compensation and Benefit Agreement*
11 -- Statement Regarding Computation of Earnings Per Share*
21 -- List of Subsidiaries***
23.1 -- Consent of Coopers & Lybrand L.L.P.**
23.2 -- Consent of Coopers & Lybrand N.V.**
23.3 -- Consent of Coopers & Lybrand GmbH**
23.4 -- Consent of Keating, Muething & Klekamp, P.L.L. (contained in Exhibit 5)***
24 -- Powers of Attorney (contained in Signature Page)*
27.1 -- Financial Data Schedule for year ended December 31, 1996*
27.2 -- Financial Data Schedule for quarter ended March 31, 1997*
</TABLE>
- ---------------
* Previously filed
** Filed herewith
*** To be filed by an amendment
<PAGE> 1
EXHIBIT 2.1
-----------
STOCK PURCHASE
AGREEMENT
--------------
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made June 27, 1997 among
KENDLE INTERNATIONAL INC., an Ohio corporation with its principal place of
business in Cincinnati, Ohio, U.S.A. or a wholly owned subsidiary thereof
("Kendle"), BIO-MEDICAL RESEARCH HOLDINGS B.V., UTRECHTSE
PARTICIPATIEMAATSCHAPPIJ B.V., P.J. MORRISON, T.S. SCHWARZ, I.M. HOEPELMAN, Ph.
K. PETERSON, J. REMINGTON, M. ROZENBERG-ARSKA and L.G.W. STERKMAN (collectively,
the "Sellers").
R E C I T A L S:
----------------
A. Sellers own all of the issued and paid up capital stock of U-GENE
RESEARCH B.V., a Netherlands corporation with its registered office in Utrecht
("U-Gene").
B. Kendle desires to purchase from Sellers, and Sellers desire to sell
and assign to Kendle, all of their shares of U-Gene capital stock.
THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties agree as follows:
ARTICLE 1
SALE AND PURCHASE OF THE U-GENE SHARES
1.1 Shares Being Sold and Assigned.
Subject to the terms and conditions of this Agreement, at the
Closing each of the Sellers shall sell and assign, at the price and on the terms
set forth herein, all of its, his or her shares of U-Gene capital stock to
Kendle's subsidiary, Kendle U.K. Inc. The ownership of the shares is set forth
on Schedule 1.2.
At the Closing, Kendle shall accept this sale and assignment of shares
of U-Gene capital stock. The transfer of the U-Gene Shares shall be effected by
execution at Closing of the notarial deed of transfer of which an agreed draft
is attached hereto and Schedule 1.1 and the acknowledgment of such transfer by
U-Gene as provided thereon.
<PAGE> 2
- 2 -
1.2 Consideration.
In full payment for the shares of U-Gene capital stock
("U-Gene Shares") to be sold and assigned to Kendle under Article 1.1, Kendle
shall deliver, or cause to be delivered, a purchase price of NLG 30,000,000 (the
"Purchase Price"). Of the Purchase Price, NLG 27,000,000 (the "Cash Component")
shall be paid to the Sellers in immediately available funds at Closing. The
remaining NLG 3,000,000 of the Purchase Price shall be deposited by Kendle at
Closing in the form of a Promissory Note in the amount of NLG 3,000,000 in an
escrow account established at Keating, Muething & Klekamp, P.L.L. (the "Escrow
Agent"), to be held and disbursed by the Escrow Agent in accordance with the
terms of the Escrow Agreement (the "Escrow Agreement"). The form of the
Promissory Note and Escrow Agreement are attached hereto and incorporated herein
as Exhibit A. The Purchase Price shall be allocated among the Sellers as set
forth on Schedule 1.2.
1.3 Closing.
(a) The transfer and assignment of the U-Gene Shares
("Closing") shall occur on the date of the signing of
this Agreement. Upon Closing, Kendle shall pay the
Cash Component to the Sellers in accordance with
Article 1.2 and shall deposit the NLG 3,000,000
Promissory Note with the Escrow Agent pursuant to the
Escrow Agreement and the Sellers shall transfer the
U-Gene Shares to Kendle in accordance with Article
1.1.
(b) Each party shall bear the costs and expenses of its
own legal, tax and other advisers. Without limiting
the generality of the foregoing, all fees and
expenses charged or chargeable by Technomark
Consulting Services Ltd. relating to the sale of
U-Gene and the U-Gene Subsidiaries shall be borne and
paid solely by Sellers (and not by U-Gene).
(c) Sellers shall use their best endeavors to obtain or
to assist Kendle in obtaining all necessary approvals
or consents to transfer of licenses, permits or
qualifications of governmental authorities and all
required consents of any other relevant third
parties, both in and outside the Netherlands (if
any).
ARTICLE 2
WARRANTIES AND REPRESENTATIONS OF SELLERS
2.1 Warranties and Representations with Respect to the U-Gene
Shares and the Sellers
As an inducement to Kendle and recognizing Kendle's reliance
thereupon, the Sellers, severally and not jointly and in proportion to the
purchase price actually received by each Seller in accordance with Article 1.2,
warrant and represent to Kendle with respect to the U-Gene Shares that:
<PAGE> 3
- 3 -
(a) each Seller has and will have full power and
authority to enter into and perform this Agreement,
which constitutes a binding obligation on it, him or
her in accordance with its terms;
(b) there is no lien, encumbrance or security interest
("Security Interests") on, over or affecting the
U-Gene Shares being sold and assigned by such Seller
to Kendle hereunder and there is no agreement or
arrangement to give or create any such Security
Interest; and
(c) each Seller is entitled to transfer the full legal
and beneficial ownership of the U-Gene Shares owned
by such Seller to Kendle on the terms of this
Agreement without the consent of any third party.
2.2 Warranties and Representations With Respect to U-Gene and the
U-Gene Subsidiaries
As an inducement to Kendle and recognizing Kendle's reliance
thereupon, the Sellers, severally and not jointly, warrant and represent to
Kendle with respect to U-Gene and the U-Gene Subsidiaries (as defined in Article
2.2(aa)) (U-Gene and the U-Gene Subsidiaries collectively, the "U-Gene
Companies") that:
(a) U-Gene is a corporation duly organized and validly
existing under the laws of the Netherlands. U-Gene
has full corporate power and authority to own its
assets and to carry on its contract research
organization business specifically including all
Phase I activities, whether conducted through
U-Gene's Clinical Research Unit or otherwise ("CRO
Business"), as now being conducted. U-Gene is duly
qualified or licensed to do business as a foreign
corporation in each jurisdiction in which the present
conduct of its CRO Business requires such
qualification or licensing.
(b) The authorized capital shares of U-Gene consist of
One Thousand (1,000) registered shares of NLG 1,000
(One Thousand) nominal value per share, of which Two
Hundred Ninety-Nine (299) shares are issued and paid
up and constitute the U-Gene Shares. The U-Gene
Shares have been duly authorized and are validly
issued, fully paid up and non-assessable. The U-Gene
Shares constitute the whole of the issued and paid up
share capital of U-Gene. No person other than the
Sellers has any contractual, statutory or other right
to acquire shares of capital stock of U-Gene or
securities or other instruments exchangeable for or
convertible into such shares of capital stock. None
of the U-Gene Shares was issued in violation of any
law, regulation or ordinance pertaining to the
issuance of securities or of any preemptive rights
under U-Gene's statutes or under any contract binding
upon U-Gene or any of the Sellers. U-Gene does not
own, and has no contractual or other right
<PAGE> 4
- 4 -
or obligation to acquire, any equity securities or
other securities of any other corporation, limited
partnership, joint venture or other entity other than
the U-Gene Subsidiaries or any direct or indirect
equity or other ownership interest in any other
business other than the businesses conducted by the
U- Gene Subsidiaries. When received by Kendle, the
U-Gene Shares will be received free and clear of any
and all liens, pledges, encumbrances, charges or
other liens of any kind and no share transfer tax
will be due or payable by Kendle.
(c) Each of the U-Gene Subsidiaries is a corporation duly
organized and validly existing under the laws of the
Netherlands. Each of the U-Gene Subsidiaries has full
corporate power and authority to own its respective
assets and to carry on its respective CRO Business as
now being conducted. Each of the U-Gene Subsidiaries
is duly qualified or licensed to do business as a
foreign corporation in each jurisdiction in which the
present conduct of its respective CRO Business
requires such qualification or licensing.
(d) The authorized equity securities of UCR (as defined
in Article 2.2(aa))consist of Two Hundred (200)
registered shares of NLG One Thousand (1,000) nominal
value per share, of which Forty (40) shares are
issued and paid up and all of which are owned
beneficially and of record by U-Gene. All of said
shares of UCR capital stock ("UCR Shares") have been
duly authorized and are validly issued, fully paid up
and non-assessable. None of the UCR Shares was issued
in violation of any law, regulation or ordinance
pertaining to the issuance of securities or of any
preemptive rights under UCR's statutes or under any
contract binding upon UCR or U-Gene or any of the
Sellers. No person or entity other than U-Gene has
any contractual, statutory or other right to acquire
shares of UCR capital stock or securities or other
instruments exchangeable or convertible into shares
of UCR capital stock.
(e) The authorized equity securities of URB (as defined
in Article 2.2(aa)) consist of Two Hundred (200)
registered shares of NLG One Thousand (1,000) nominal
value per share, of which Forty (40) shares are
issued and paid up and all of which are owned
beneficially and of record by U-Gene. All of said
shares of URB capital stock ("URB Shares") have been
duly authorized and are validly issued, fully paid up
and non-assessable. None of the URB Shares was issued
in violation of any law, regulation or ordinance
pertaining to the issuance of securities or of any
preemptive rights under URB's statutes or under any
contract binding upon URB or U-Gene or any of the
Sellers. No person or entity other than U-Gene has
any contractual, statutory or other right to acquire
shares of URB capital stock or securities or other
instruments exchangeable or convertible into shares
of URB capital stock.
<PAGE> 5
- 5 -
(f) The copies of the statutes of the U-Gene Companies as
currently in effect, previously delivered to Kendle,
are complete and correct. Each of the U- Gene
Companies has properly registered with the Trade
Register in the district in which it has its
corporate seat and has made all necessary filings
with such Trade Register.
(g) Sellers have delivered to Kendle audited consolidated
balance sheets of U- Gene as at December 31 in each
of years 1994, 1995 and 1996 and the related
consolidated statements of income, changes in
stockholders' equity and cash flow for each of the
fiscal years then ended, together with the report
thereon of Moret Ernst & Young Accountants,
independent certified public accountants; and an
unaudited consolidated balance sheet of U-Gene as at
March 31, 1997 and the related unaudited consolidated
statements of income, changes in stockholders' equity
and cash flow for the three (3) months then ended,
including in each case the notes thereto
(collectively, the "U-Gene Financial Statements").
The U-Gene Financial Statements fairly present in all
material respects the consolidated financial
condition and consolidated results of operations,
changes in stockholders' equity and cash flow of U-
Gene and the U-Gene Subsidiaries as at the respective
dates of and for the periods referred to in such
U-Gene Financial Statements, all in accordance with
accounting principles generally accepted in the
Netherlands and in compliance with the financial
reporting requirements included in Part 9, Book 2 of
the Netherlands Civil Code.
Seller has also delivered to Kendle true, complete
and correct copies of all management letters from
U-Gene's independent certified public accountants
with respect to years 1994, 1995 and 1996 and of all
written responses of U- Gene's management to such
letters.
(h) Except as set forth in Schedule 2.2(h), none of the
U-Gene Companies has any liabilities or obligations
of any nature (whether known or unknown and whether
absolute, accrued, inchoate, contingent or otherwise)
except for liabilities reflected or reserved against
in the U-Gene Financial Statements and current
liabilities incurred since March 31, 1997 in the
Ordinary Course of Business consistent with past
custom and practice (including with respect to
quantity and frequency) ("Ordinary Course of
Business"). Without limiting the generality of the
foregoing, except for liabilities reflected or
reserved against in the U-Gene Financial Statements
or as incurred in the Ordinary Course of Business,
none of the U-Gene Companies has any liability or
obligation for or with respect to any law, regulation
or ordinance relating to the environment or to worker
or public safety or health.
<PAGE> 6
- 6 -
(i) All accounts receivable of the U-Gene Companies that
are reflected on the U-Gene Financial Statements or
on the accounting records of the U-Gene Companies as
of the Closing (collectively, the "Accounts
Receivable") represent or will represent valid
obligations arising from sales actually made or
services actually performed in the ordinary course of
the U-Gene Companies' CRO Business. Unless paid prior
to the Closing, the Accounts Receivable are or will
be as of the Closing current and collectible net of
the reserves on the U-Gene Financial Statements and
reserves established in the Ordinary Course of
Business between the date of the most recent U-Gene
Financial Statements and the Closing. Subject to such
reserves, each of the Accounts Receivable either has
been or will be collected in full, without any
set-off, within ninety (90) days after the day on
which it first becomes due and payable. There is no
contest, claim or right of set-off under any
contracts or arrangement with any obligor of an
Account Receivable relating to the amount or validity
of such Accounts Receivable. Schedule 2.2(i) contains
a complete and accurate list of all Accounts
Receivable as of March 31, 1997, which list sets
forth the aging of such Accounts Receivable.
(j) The work in progress line items reflected on the
U-Gene Financial Statements or on the accounting
records of the U-Gene Companies as of the Closing
accurately allocate or will accurately allocate
income and costs, at historical cost, to bona fide
projects conducted for unaffiliated parties for the
periods to which the U-Gene Financial Statements or
the accounting records pertain and make adequate
provision for any expected losses on such projects.
(k) Schedule 2.2(k) contains a complete and accurate list
of all leasehold and other interests in real property
owned by the U-Gene Companies. Sellers have delivered
or made available to Kendle true, complete and
correct copies of all leases or other instruments by
which the U-Gene Companies acquired such interests in
real property (collectively, the "Real Property
Leases"). None of the U-Gene Companies has received
any notice of default with respect to, and is not in
default under, any of the Real Property Leases. The
facilities leased by the U-Gene Companies pursuant to
the Real Property Leases comply with all applicable
zoning, land use, health and safety laws and are
adequate for the conduct of the U-Gene Companies' CRO
Business as currently conducted and as planned to be
conducted.
(l) Each of the U-Gene Companies has good and marketable
title to the assets, tangible or intangible, real,
personal or mixed, utilized in its respective CRO
Business, free and clear of all liens, pledges,
encumbrances, charges, easements, restrictions or
rights or other interests of any kind, except as set
forth on Schedule 2.2(l).
<PAGE> 7
- 7 -
All equipment and inventory used for or in the
conduct of the U-Gene Companies' CRO Business are
either owned by U-Gene or the U-Gene Subsidiaries or
can be used according to valid agreements to which
U-Gene or a U-Gene Subsidiary is a party. The
tangible personal property of the U-Gene Companies
is, as of the signing of this Agreement, in working
condition and adequate and suitable for the U-Gene
Companies' CRO Business, except for ordinary wear and
tear, and will be maintained under U-Gene's regular
maintenance policy until Closing.
(m) U-Gene has filed or caused to be filed on a timely
basis all income, property and other tax returns that
are or were required to be filed by U-Gene or the
U-Gene Subsidiaries, either separately or as a member
of a group of corporations, pursuant to applicable
legal requirements. U-Gene has paid, or has made
provision for the payment of, all taxes of any
nature, including income, property and other taxes,
that have or may have become due pursuant to those
tax returns or otherwise, or pursuant to any
assessment received by the Sellers or the U-Gene
Companies excepting only such taxes, if any, listed
on Schedule 2.2(m), as are being contested in good
faith and as to which adequate reserves (determined
in accordance with Netherlands generally accepted
accounting principles) have been provided on the
U-Gene Financial Statements. Schedule 2.2(m) also
sets forth a complete and accurate list of all tax
audits since 1991, including all ongoing tax audits,
of or relating to the U-Gene Companies, including a
reasonably detailed description of the nature and
outcome of each audit. All deficiencies proposed as a
result of any such audit have been paid, reserved
against or settled. There is no tax sharing agreement
that will require any payment by the U-Gene Companies
after the date of this Agreement.
(n) The U-Gene Companies have duly withheld or collected,
and to the extent required, paid to the proper
governmental authority or other person all taxes,
including all VAT and social insurance taxes, that
the U-Gene Companies are legally required to
withhold, collect and pay.
(o) U-Gene has paid, or has made provision for the
payment of, all social insurance, pension, deferred
compensation and other employee benefit payments
required to be made by the U-Gene Companies with
respect to their employees and agents. The
consummation of the transactions contemplated by this
Agreement will not result in the payment, vesting or
acceleration of any benefit available to the
employees of the U-Gene Companies under any plan of
social insurance or pension or other employee benefit
plan or under any employment contracts or other
arrangements.
<PAGE> 8
- 8 -
(p) The conduct and operation of the U-Gene Companies'
CRO Business have been and are in conformity with all
applicable laws and regulations (including, without
limitation, laws and regulations relating to the
environment or to public or worker safety or health),
and none of the U-Gene Companies or any of their
respective employees has received any notice
asserting or suggesting any failure, or potential
failure, to comply with or conform to any such laws
or regulations. The U-Gene Companies or their
respective employees possess all licenses, permits
and qualifications ("Permits") required for the
conduct of the U-Gene Companies' CRO Business as
currently conducted and as planned to be conducted.
All such Permits are valid and in full force and
effect and neither the U-Gene Companies nor any of
their respective employees has received any notice of
any cancellation, suspension, revocation or
non-renewal of any such Permit.
(q) Excepting only as set forth on Schedule 2.2(q), to
the best knowledge, after due inquiry, of the members
of the management team of U-Gene, none of the U-Gene
Companies have entered into any enforceable
contracts, agreements or other arrangements or
otherwise committed to make any capital expenditures,
including (without limitation) capital expenditures
to construct or expand facilities for the conduct of
the U-Gene Companies' CRO Business. For purposes of
this Agreement, "the members of the management team
of U-Gene" means T. S. Schwarz, P. J. Morrison,
L.G.W. Sterkman and Jenny Wakelin.
(r) To the best knowledge, after due inquiry, of the
members of the management team of U-Gene, none of the
U-Gene Companies is in violation of or has breached
any licensing agreement with respect to patents,
trademarks, copyrights or other intellectual
property. To the best knowledge, after due inquiry,
of the members of the management team of U-Gene, all
of the patents, trademarks, copyrights and other
intellectual property used by the U-Gene Companies
in the conduct of their respective CRO Business are
either owned by the U-Gene Companies or can be used
according to valid licensing agreements to which the
U-Gene Companies are party. To the best knowledge,
after due inquiry, of the members of the management
team of U-Gene, none of the patents, trademarks,
copyrights or other intellectual property utilized by
the U-Gene Companies in the conduct of their CRO
Business infringes on the intellectual property
rights of any third party;
(s) Other than the Real Property Leases, each contract,
agreement, commitment or understanding to which
U-Gene or a U-Gene Subsidiary is a party that is: (i)
material to U-Gene's or that U-Gene Subsidiary's CRO
Business; or (ii) involves the payment by, or to,
U-Gene or either U-Gene Subsidiary of more than NLG
50,000 in any twelve (12) month period; or (iii) was
entered into
<PAGE> 9
- 9 -
with any of the Sellers or any affiliate of any of
the Sellers; or (iv) was entered into other than in
the ordinary course of U-Gene's or that U-Gene
Subsidiary's CRO Business, is listed on Schedule
2.2(s) (collectively, the "Material Contracts");
PROVIDED, HOWEVER, with respect to contracts entered
into with customers, only a standard contract form is
listed on Schedule 2.2(s), and Sellers represent that
such contract form is the standard form customers
enter into. None of the U-Gene Companies has received
notice of default with respect to and none of the
U-Gene Companies is in default under any of the
Material Contracts, including all customer contracts.
(t) To the best knowledge, after due inquiry, of the
members of the management team of U-Gene, none of the
U-Gene Companies has entered into any agreements,
undertakings or commitments which would in any
material way prevent or restrict its CRO Business in
continuing or further developing its business
currently conducted in the Netherlands or any other
country where any of the U-Gene Companies has
conducted its CRO Business during the last two (2)
years or would legally prevent or restrict its
ability to compete with other companies.
(u) Unless otherwise listed in Schedule 2.2(u), no law
suits with a value of NLG 50,000 or more,
administrative proceedings or investigations against
any of the U-Gene Companies or the U-Gene Companies'
CRO Businesses has been initiated, notified, or to
the best knowledge of Sellers threatened to, any of
the U-Gene Companies or the U-Gene Companies' CRO
Businesses, nor are any material circumstances known
to the board of management of U-Gene that would make
the initiation of any such law suits, administrative
proceedings or investigations appear likely to occur.
(v) Since December 31, 1996, to the best knowledge, after
due inquiry, of the members of the management team of
U-Gene, there has not been any material adverse
change in the business, operations, properties,
prospects, assets or condition, financial or
otherwise, of the U-Gene Companies, taken as a whole,
and no event has occurred or circumstance exists that
may result in such a material adverse change.
(w) None of the information concerning the U-Gene
Companies or their CRO Business or the Sellers that
U-Gene or the Sellers will supply Kendle for use in
the registration statement (a copy of such
information is attached as Schedule 2.2 (w)) Kendle
intends to file with the U.S. Securities and Exchange
Commission will contain any untrue statement of a
material fact or omit to state a material fact
necessary in order to make the statements made
therein, in light of the circumstances under which
they will be made, not misleading.
<PAGE> 10
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(x) Schedule 2.2(x) contains a complete and accurate list
of the following information for each employee or
director of U-Gene or the U-Gene Subsidiaries,
including each employee on leave of absence or layoff
status: name; job title; professional qualifications;
Permits held; current compensation paid or payable
and any change in compensation since January 1, 1996;
vacation accrued; service credited for purposes of
eligibility and vesting under any social insurance or
employee benefit plan or under any employment
contracts or other arrangements and the employment
contracts for members of management.
(y) No representation or warranty of Sellers in this
Agreement and no statement in any Schedule or Exhibit
hereto omits to state a material fact necessary to
make the statements herein or therein, in light of
the circumstances in which they were made, not
misleading. None of the Sellers knows of any
information which is, or which may reasonably be
regarded as, material to an accurate appraisal of the
CRO Business, assets, liabilities and affairs of the
U-Gene Companies and which has not been disclosed to
Kendle.
(z) Neither Kendle nor any of the U-Gene Companies shall
have any liability to Collaborative Clinical
Research, Inc. ("CCR") or other party claiming by or
through CCR for or with respect to a claim that the
transactions contemplated by this Agreement violate
or require a payment to be made to CCR pursuant to
the terms of any agreement or understanding between
CCR and any of the U-Gene Companies or any of the
Sellers.
(aa) The transaction contemplated by this Agreement
requires no governmental approvals or consents to
transfer of licenses, permits or qualifications from
any country in which U-Gene or its subsidiaries,
U-Gene Clinical Research B.V. ("UCR") and U-Gene
Research Biotechnology B.V. ("URB") (collectively,
the "U-Gene Subsidiaries"), is active or markets its
products and services, including the Netherlands, the
United Kingdom, Italy, Germany, the Czech Republic
and Israel.
(bb) To the best knowledge, after due inquiry, of the
members of the management team of U-Gene and review
of at least five of the largest customer contracts,
there are no contracts, leases or other agreements
that contain a change of control provision except as
set forth on Schedule 2.2(bb).
(cc) Schedule 2.2(cc) contains a complete and accurate
list of all customer contracts in excess of NLG
1,500,000.
2.3 Breach of Warranty or Representation Reduces Purchase Price
<PAGE> 11
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The amount of any successful claim against the Sellers under
this Agreement for breach of warranty or representation shall be deemed to
constitute a reduction in the Purchase Price with each Purchaser being liable in
proportion to the Purchase Price such Purchaser actually received.
2.4 No Warranties and Representations Other than as Contained in
Agreement
No representations or warranties, express or implied,
statutory or otherwise, made by the Sellers or their professional advisers on
their behalf to Kendle in connection with, or arising out of, the acquisition of
the U-Gene Shares and which are not contained in this Agreement, shall give rise
to any liability on the part of the Sellers and Kendle acknowledges that it has
not entered into this Agreement in reliance upon any representation or promise
other than those in this Agreement.
ARTICLE 3
WARRANTIES AND REPRESENTATIONS OF KENDLE
3.1 Warranties and Representations of Kendle
As an inducement to the Sellers and recognizing the Sellers'
reliance thereupon, Kendle warrants and represents to the Sellers that:
(a) Kendle is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Ohio, U.S.A. Kendle has full power and
authority to own its assets and to carry on its
contract research organization business as now being
conducted. Kendle is duly qualified or licensed to do
business as a foreign corporation in all
jurisdictions in which the present conduct of its
business requires such qualification or licensing.
(b) The copy of the Articles of Incorporation and
Regulations of Kendle as currently in effect,
previously delivered to the Sellers, is complete and
correct.
(c) The execution, delivery and performance of this
Agreement by Kendle has been authorized by all
necessary corporate action. This Agreement
constitutes the legal, valid and binding obligation
of Kendle, enforceable against Kendle in accordance
with its terms. Kendle has the absolute and
unrestricted right, power, authority and capacity to
execute and deliver this Agreement and the other
documents to be delivered by Kendle hereunder and to
perform its obligations under this Agreement and such
other documents.
<PAGE> 12
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(d) No representation or warranty of Kendle in this
Agreement and no statement in any Schedule or Exhibit
hereto omits to state a material fact necessary to
make the statements herein or therein, in light of
the circumstances in which they were made, not
misleading.
3.2 No Warranties and Representations Other than as Contained in
Agreement
No representations or warranties, express or implied,
statutory or otherwise, made by Kendle or its professional advisers on its
behalf to the Sellers in connection with, or arising out of, the acquisition of
the U-Gene Shares and which are not contained in this Agreement, shall give rise
to any liability on the part of Kendle and the Sellers acknowledge that they
have not entered into this Agreement in reliance upon any representation or
promises other than those in this Agreement.
ARTICLE 4
OPERATION OF U-GENE'S CRO BUSINESS PENDING THE CLOSING
Except as set forth on Schedule 4, from April 15, 1997 through
the Closing Date Sellers have caused U-Gene to operate the U-Gene Companies' CRO
Business strictly in the Ordinary Course of Business and as previously
conducted, have caused U-Gene to use its best efforts to keep available to
Kendle the services of U-Gene's and the U-Gene Subsidiaries' present key
employees and have caused the U-Gene Companies to preserve for Kendle the
goodwill of the U-Gene Companies' suppliers, clients and others having business
relations with the U-Gene Companies. Sellers did not cause U-Gene and the U-Gene
Subsidiaries to do any of the following without written disclosure to Kendle.
(a) made any changes in employee compensation, bonuses or
benefits, other than customary annual adjustments;
(b) created, assumed, incurred, paid or discharged any
claim, lien, encumbrance or liability other than in
the ordinary course of business;
(c) purchased, sold, assigned, leased, exchanged or
otherwise disposed of assets other than in the
ordinary course of business;
(d) entered into, renewed, extended, modified,
terminated, waived any right under or incurring any
additional liability under any Material Contract
(other than in the Ordinary Course of Business);
(e) except for dividends with respect to 1996 in amounts
not to exceed NLG 264,755, declared or paid any
dividends or other distributions to Sellers or
purchased or redeemed any of its shares of capital
stock;
<PAGE> 13
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(f) made any investment in or loan to Sellers or any of
their affiliates or any third party;
(g) made any expenditure for, or incurred any obligations
in respect of fixed assets, fixtures and other
capital items (except those expenditures and
obligations (and in the accounts) listed on Schedule
2.2(q));
(h) entered in to any consulting agreement;
(i) entered into licensing or purchase or sale agreements
with respect to any inventions, know-how or other
intellectual property.
ARTICLE 5
SELLERS' OBLIGATION TO KENDLE AT CLOSING
5.1 Opinion of Counsel to the Sellers
At Closing, Kendle's bank shall have received the legal
opinion of counsel to the Sellers in the form customarily given in this type of
transaction.
5.2 Termination of Consulting or Other Agreements With Supervisory
Board Members
As of the Closing Date, the U-Gene Companies shall have
terminated, without cost to any of the U-Gene Companies, each of the consulting
or other agreements with supervisory board members of the U-Gene Companies,
except for (i) the agreement with Prof. dr J. Verhoef and (ii) those contracts
and agreements listed on Schedule 5.2.
ARTICLE 6
INDEMNIFICATION AND OTHER REMEDIES
6.1 Survival of Representations and Warranties
The representations and warranties of each party contained
herein shall be true as of the Closing Date (except for representations and
warranties that are made as of a specific date [which shall have been true as of
such date])and shall survive until December 31, 1998; provided that in respect
of the representations regarding taxes in Articles 2.2(m), 2.2(n) and 2.2(o) the
expiry date shall not be until 6 months after the period for assessments or
audits by the respective governmental authority has expired.
<PAGE> 14
- 14 -
The aforementioned expiry dates are deadlines within which the
party making a claim must have sent a written notification of the claims
explaining the grounds herefor in reasonable detail.
6.2 Notice of claims
Upon discovery of any misrepresentation contained in any of
the Articles of this Agreement, Kendle shall give Sellers written notice of such
claims and a statement in reasonable detail of the reasons therefor, provided,
however, that failure to notify Sellers shall not release Sellers from their
obligations under this Agreement with respect to such misrepresentation, but
Kendle shall be fully responsible for any damages to Sellers caused by any such
failure to so notify Sellers as required above.
6.3 Indemnities
(a) By the Sellers
Sellers agree, severally and not jointly and in
proportion to the purchase price received by each
Seller in accordance with Article 1.2, to indemnify
and hold Kendle harmless from and against any and all
claims, demands, losses, costs, expenses,
obligations, liabilities, actions, suits, damages,
including without limitation, interest and penalties,
counsel fees (all such claims, demands, losses,
costs, expenses, etc., being referred to herein
collectively as "Claims") and all amounts paid in
settlement of any such Claims which may be asserted
against Kendle or which Kendle shall incur or suffer,
and which arise out of or result from the breach of
any representation, warranty or agreement of Sellers
contained herein or from any claim for compensation
or for reimbursement of expenses made by Technomark
Consulting Services Ltd. relating to the transactions
contemplated by this Agreement or from any claim for
damages, compensation or reimbursement of expenses,
including under any theory, in contract or in tort,
asserted by CCR or any party claiming by or through
CCR. In determining the quantum of damages under this
Article, appropriate adjustments shall be made for
tax benefits.
Any compensation in relation to breach of warranties shall be
settled as instructed by Kendle. Kendle shall ensure that the
U-Gene Companies do not acknowledge any liability or reach a
settlement with respect to a fact or circumstance which may
lead or has led to a breach of a warranty without Sellers'
prior written consent.
<PAGE> 15
- 15 -
(b) By Kendle
Kendle agrees to indemnify and hold Sellers (and each
of them) harmless from and against any and all
claims, demands, losses, costs, expenses,
obligations, liabilities, actions, suits, damages,
including without limitation, interest and penalties,
counsel fees (all such claims, demands, losses,
costs, expenses, etc., being referred to herein
collectively as "Claims") and all amounts paid in
settlement of any such Claims, which may be asserted
against Sellers or which Sellers shall incur or
suffer, and which arise out of or result from the
breach of any representation, warranty or agreement
of Kendle contained herein, or from the operation of
U-Gene or the U-Gene Subsidiaries after Closing.
(c) Defense of All Claims
Promptly after receipt of notice of the commencement
of any action, or the assertion by any third party of
any Claim with respect to which Kendle or Sellers are
entitled to indemnification, the party receiving the
notice shall promptly notify the other party in
writing of the commencement of such action or the
assertion of such Claims, provided however, that
failure to so notify shall not relieve the
indemnifying party of its obligation to indemnify but
shall make the other party fully responsible for any
damages caused by any such failure to the
indemnifying party. The indemnifying party, at its
option, may elect to take charge of and control the
defense of any Claim, provided that the indemnifying
party shall agree to pursue the defense of such Claim
in good faith by appropriate actions or proceedings
promptly taken or instituted and diligently pursued
and has acknowledged liability under Article 6.3 in
writing. The indemnifying party has to give
reasonable consideration to the legitimate business
interest of the other party and their business. If
the indemnifying party elects to assume the defense
of any such action in accordance with the second
preceding sentence, the indemnified party shall be
nevertheless entitled to participate (at its own
expense) in said defense. In all cases, the parties
shall at all times reasonably cooperate with each
other in the defense of a Claim and shall make their
respective personnel and relevant records reasonably
available to the other for purposes of defense of a
Claim.
6.4 Liability Limitation
In no event, shall any party be responsible under this
Agreement to any other for indirect and consequential damage except with respect
to breaches or violations of Article 9 hereof.
<PAGE> 16
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No party hereto shall have an obligation towards the others
under a warranty or related statutory claim unless and until the aggregate
amount of such claims against such party exceeds NLG 450,000, or the equivalent
in any other currency, and if so, then the entire amount in excess of NLG
450,000 shall be payable to the other party.
The total aggregate liability of the Sellers, on the one hand,
or of Kendle, on the other, in respect of any matter arising in connection with
this Agreement shall not exceed an amount of NLG 22,500,000.
Kendle has no right to invoke a breach of a warranty or a
related statutory claim (a "Breach") in the event:
(a) the fact, the circumstance or the event which was the
cause of the Breach is contained or referred to in
reasonable detail in this Agreement or in the
Schedule attached to this Agreement;
(b) the Breach would not have occurred without an
amendment in the legislation, regulations or in case
law which occurred after the date of this Agreement;
(c) the Breach is a result of a change after Closing in
the accounting principles and methods, applied by the
U-Gene Companies;
(d) the Breach would not have occurred without an act or
a failure to act by Kendle or the U-Gene Companies
after Closing, or by a person whose act or failure to
act after Closing may be attributed to Kendle or the
U-Gene Companies.
6.5 Escrow
To secure Seller's obligations under this Article 6, the
Promissory Note shall be held under the Escrow Agreement and Kendle shall first
apply its claims to the Promissory Note before seeking recourse against the
Sellers.
ARTICLE 7
INDEMNIFICATION OF KENDLE
FOR CLAIM BY CCR
Under Article 2.2(z) Sellers made certain representations and
warranties with respect to CCR. As an inducement to Kendle and recognizing
Kendle's reliance thereupon, Sellers agree, severally and not jointly and in
proportion to their respective ownership of the U-Gene Shares as follows:
<PAGE> 17
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(a) Sellers agree, severally and not jointly and in
proportion to the purchase price received by each
Seller in accordance with Article 1.2, to indemnify
and hold Kendle, U-Gene and the U-Gene Subsidiaries
harmless from and against any and all claims,
demands, losses, costs, expenses, obligations,
liabilities, actions, suits, damages, including
without limitation, interest and penalties, counsel
fees (all such claims, demands, losses, costs,
expenses, etc., being referred to herein collectively
as "Claims") and all amounts paid in settlement of
any such Claims which may be asserted against Kendle,
U-Gene or the U-Gene Subsidiaries or which Kendle,
U-Gene or the U-Gene Subsidiaries shall incur or
suffer, and which arise out of or result from the
breach of any representation, warranty or agreement
of Sellers contained herein or from any claim for
damages, compensation or reimbursement of expenses,
including under any theory, in contract or in tort,
asserted by CCR or any party claiming by or through
CCR as a result of the termination of U-Gene's
Agreement with CCR. In determining the quantum of
damages under this Article, appropriate adjustments
shall be made for tax benefits.
Kendle shall ensure that the U-Gene Companies do not acknowledge any
liability or reach a settlement with respect to a fact or circumstance which may
lead or has led to a breach of a warranty without Sellers' prior written
consent.
(b) Defense of All Claims
Promptly after receipt of notice of the commencement
of any action, or the assertion by any third party of
any Claim with respect to which Kendle is entitled to
indemnification, Kendle shall promptly notify the
Sellers in writing of the commencement of such action
or the assertion of such Claims, provided however,
that failure to so notify shall not relieve the
Sellers of their obligation to indemnify. Sellers at
their option, may elect to take charge of and control
the defense of any Claim, provided that Sellers shall
agree to pursue the defense of such Claim in good
faith by appropriate actions or proceedings promptly
taken or instituted and diligently pursued and has
acknowledged liability under Article 8A in writing.
Sellers have to give reasonable consideration to the
legitimate business interest of Kendle and their
business. If Sellers elect to assume the defense of
any such action in accordance with the second
preceding sentence, Kendle shall be nevertheless
entitled to participate (at its own expense) in said
defense. In all cases, the parties shall at all times
reasonably cooperating with each other in the defense
of a Claim and shall make their respective personnel
and relevant records reasonably available to the
other for purposes of defense of a Claim.
(c) Liability Limitation
<PAGE> 18
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Kendle and Sellers agree that Sellers shall have full
liability with respect to this CCR indemnity and this
CCR indemnity shall not be limited by Section 6.4 and
shall be in addition to any right Kendle may have
under Article 6.
(d) Bank Guaranty
The Seller shall deliver to Kendle a bank guaranty,
in the form attached hereto and incorporated herein
as Exhibit C, in the amount of NLG 1,000,000 to
secure Sellers' obligation under this indemnity. The
bank guaranty shall remain effective until June 30,
1998.
(e) Survival of Representations.
The representation and warranty under Article 2.2(z)
shall survive the Closing and shall not expire.
ARTICLE 8
INSURANCE
Sellers warrant that certain insurable risks of U-Gene or the U-Gene
Subsidiaries are covered as of the date hereof through Closing by insurance
policies, as shown on Schedule 8. Any payments received from insurance companies
by Sellers after the Closing in respect of insured risks of U-Gene or the U-Gene
Subsidiaries shall be passed on to U-Gene.
ARTICLE 9
NON-COMPETE UNDERTAKING
Until December 31, 1999, Sellers, and Prof. dr. J. Verhoef (since he is
a shareholder of Bio-Medical Research Holdings B.V.) shall neither directly nor
indirectly be engaged, interested or concerned (whether as shareholder or
director) in any business that competes with U-Gene or the U-Gene Subsidiaries
in the Netherlands, Germany, Belgium, France, Italy, the United Kingdom, the
Czech Republic or Israel in the field of clinical contract research for the
pharmaceutical industry. Until December 31, 1999, Sellers and Prof. dr. J.
Verhoef shall not solicit any employees or clients of U-Gene or the U-Gene
Subsidiaries without the prior written consent of Kendle. Notwithstanding the
foregoing: (i) drs I.M. Hoepelman, Ph.K. Peterson M.D., J.S. Remington M.D., dr
M. Rozenberg and Prof. dr. J. Verhoef are professors and medical doctors at
University Hospitals and therefore they are permitted to continue all activities
that are in the ordinary course of their duties (consistent with their
activities prior to the date of this Agreement), which includes participation in
clinical research projects for the pharmaceutical industry, (ii) Sellers and
Prof. dr. J. Verhoef are
<PAGE> 19
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permitted to invest in publicly traded contract research organizations provided
such investment is as a passive investor and does not amount to more than Five
Percent (5%) of the stock of such public traded contract research organization
and (iii) the non-compete provisions of this Article 9 shall only apply to T. S.
Schwarz until December 31, 1997. Sellers agree to cause Jenny Wakelin to sign
and deliver at Closing an agreement containing non-compete undertakings similar
to the undertakings under this Article 10 which shall apply until December 31,
1998, a copy of which is attached as Article 9. The provisions of this Article 9
shall not modify or change any employment agreement or other contract currently
in effect between any Seller and U-Gene and the U-Gene Subsidiaries.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Further Assurances
Each party agrees to make its best effort to cause the
conditions herein set forth to be satisfied at or prior to Closing. Each of the
parties agree to execute and deliver any and all further agreements, documents
or instruments necessary to effectuate this Agreement and the transactions
referred to herein or contemplated hereby or reasonably requested by the other
party to perfect or evidence their rights hereunder. Each party further agrees
to make all reasonable efforts to cooperate with the other in post-Closing
matters that may arise in regard to taxes and the like and to provide U-Gene
with the benefits of all contracts or permits which may be affected by the
change of control of U-Gene.
Sellers shall use its best efforts to assist and to cause
U-Gene's independent auditors to assist (and render the audit opinion on the
financial statements described below) Kendle in preparation of such audited
financial statements for U-Gene as are necessary to enable Kendle to comply with
the reporting requirements promulgated under the Securities and Exchange Act of
1934, as amended, in the United States. Kendle shall be responsible and pay for
all reasonable fees to U-Gene's independent auditors for such assistance;
provided, however, that to the extent that U-Gene's independent auditors
efforts in respect of the above financial statements are also applicable to the
preparation and certification of U-Gene's regular year end financial statements,
such efforts shall be for the account of and shall be paid by Sellers.
10.2 Notices
All notices made pursuant to this Agreement shall be valid
only if made by a person authorized to receive notices as per below by Kendle or
the Sellers, as the case may be, and sent by registered mail, return receipt
requested or facsimile, to the parties at the addresses set forth below, or as
set forth in any notice of change of address given in writing in the manner
prescribed herein to all other parties.
<PAGE> 20
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If to Kendle: KENDLE INTERNATIONAL INC.
700 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
Attention: Timothy M. Mooney
Chief Financial Officer
with a required copy to: KEATING, MUETHING & KLEKAMP, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: William J. Keating, Jr., Esq.
If to Sellers: Bio-Medical Research Holdings B.V.
Attention: Prof. dr. J. Verhoef
Aristoteleslaan 36
3707 EM Zeist
Utrechtse ParticipatieMaatschappij B.V.
Attention: Mr.H. Bujak
Galileilaan 35
3584 BC Utrecht
P.J. Morrison, Pharm. D.
Valeriusstraat 298
1075 GD Utrecht
Drs. T.S. Schwarz
Da Costalaan 2
3723 DV Bilthoven
Dr. I.M. Hoepelman
Prins Hendriklaan 33
3583 EC Utrecht
Mr. Ph.K. Peterson, M.D.
4822 Russell Avenue South
Minneapolis, Minnesota 55410
USA
Mr. J.S. Remington, M.D.
860 Bryant Street
Palo Alto, California 94301
USA
<PAGE> 21
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Dr. M. Rozenberg-Arska
Sweelincklaan 41
3723 JB Bitlthoven
L.G.W. Sterkman, M.D.
Griffensteynselaan 77
3703 AD Zeist
10.3 Choice of Law
This Agreement shall be governed by and construed in
accordance with the substantive laws of the Netherlands.
10.4 Assignment
This Agreement may not be assigned by any party without the
prior written consent of the other party; PROVIDED, however, that Kendle may
assign its rights hereunder to a wholly owned subsidiary (it being understood
that Kendle shall, notwithstanding such assignment, remain fully liable to
Sellers with respect to the performance of its obligations hereunder) and may
also collaterally assign its rights hereunder to its bank lenders.
10.5 Waiver
No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or be construed as a further or continuing waiver of any such
term, provision or condition or as a waiver of any other terms, provisions or
conditions of this Agreement.
10.6 Severability
The invalidity or unenforceability of any provision of this
Agreement in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction or any other provision herein. Any invalid
or unenforceable provision shall be replaced by such reasonable provision as
comes closest to what the parties wanted or would have wanted to apply in
accordance with the meaning and purpose of this Agreement if they had considered
such invalidity or unenforceability when entering into this transaction. This
shall also apply to the identification of an obligation in terms of amount or
time (period or date). The parties further agree that they will lay down in
writing and in a proper form the rule applicable pursuant to the foregoing
sentences by formally amending this Agreement.
<PAGE> 22
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10.7 Announcements
Kendle and Sellers shall cooperate in the preparation of any
announcements regarding the transaction contemplated by this Agreement. Except
as required by applicable law (in which case such announcing party shall prior
thereto advise the other party), no party shall issue any announcement regarding
the transactions contemplated hereby without the prior consent of the other,
which consent shall not be unreasonably withheld.
10.8 Entire Agreement
This Agreement (including all attachments) constitutes the
entire understanding between the parties with respect to the subject matter
hereof, supersede all negotiations, prior discussions and preliminary
agreements. Neither party gives any warranty or accepts any liability in
addition to those expressly stated in this Agreement. This Agreement may not be
changed except by written instrument executed by all parties. The headings of
this Agreement are not a part of this Agreement but are for convenience purposes
only.
10.9 Jurisdiction; Venue
The parties hereto irrevocably submit and consent exclusively
to the jurisdiction of the courts in Utrecht, Netherlands with respect to any
proceeding instituted by any party to this Agreement to enforce or to interpret
the provisions of this Agreement. The parties hereto further irrevocably agree
that venue in any of such courts shall be proper and covenant that they shall
not object to such venue or seek to transfer venue by motion for forum
inconveniens or otherwise.
(remainder of page intentionally blank)
<PAGE> 23
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IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands effective as of the date and year first above written.
KENDLE INTERNATIONAL INC.
By: /s/ Timothy M. Mooney
--------------------------------------
Name: Timothy M. Mooney
Title: V.P. - CFO
BIO-MEDICAL RESEARCH HOLDINGS B.V.
By: /s/ Prof. Dr. J. Verhoef
--------------------------------------
Name: Prof. Dr. J. Verhoef
Title: Director
UTRECHTSE PARTICIPATIEMAATSCHAPPIJ B.V.
By: /s/ H.N.V. Middendorp
--------------------------------------
Name: H.N.V. Middendorp
Title: Director
/s/ P. J. Morrison
------------------------------------------
P.J. MORRISON
/s/ T. S. Schwarz
------------------------------------------
T.S. SCHWARZ
<PAGE> 24
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/S/ I. M. Hoepelman
------------------------------------------
I.M. HOEPELMAN
/S/ Ph. K. Peterson
------------------------------------------
Ph.K. PETERSON
/S/ J. Remington
------------------------------------------
J. REMINGTON
/S/ M. Rozenberg-Arska
------------------------------------------
M. ROZENBERG-ARSKA
/S/ L. G. W. Sterkman
------------------------------------------
L.G.W. STERKMAN
<PAGE> 1
EXHIBIT 10.11
-------------
================================================================================
CREDIT AGREEMENT
Dated as of June 26, 1997
among
KENDLE INTERNATIONAL INC.,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
AND
NATIONSBANK, N.A.,
as Agent and Issuing Lender
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION 1 DEFINITIONS.......................................................................................... 1
1.1 Definitions................................................................................... 1
1.2 Computation of Time Periods................................................................... 29
1.3 Accounting Terms.............................................................................. 29
1.4 Terms Generally............................................................................... 30
SECTION 2 CREDIT FACILITIES.................................................................................... 30
2.1 Revolving Loans............................................................................... 30
2.2 Letter of Credit Subfacility.................................................................. 32
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES....................................................... 37
3.1 Default Rate.................................................................................. 37
3.2 Extension and Conversion...................................................................... 38
3.3 Prepayments................................................................................... 39
3.4 Termination and Reduction of Commitments...................................................... 41
3.5 Fees.......................................................................................... 41
3.6 Increased Cost and Reduced Return............................................................. 42
3.7 Limitation on Types of Loans.................................................................. 44
3.8 Illegality.................................................................................... 44
3.9 Treatment of Affected Loans................................................................... 44
3.10 Taxes......................................................................................... 45
3.11 Compensation.................................................................................. 47
3.12 Pro Rata Treatment............................................................................ 47
3.13 Sharing of Payments........................................................................... 48
3.14 Payments, Computations, Etc................................................................... 48
3.15 Evidence of Debt.............................................................................. 50
SECTION 4 CONDITIONS........................................................................................... 51
4.1 Closing Conditions............................................................................ 51
4.2 Conditions to Extension of Credit for Purchase of U-Gene...................................... 56
4.3 Conditions to Extension of Credit for Purchase of gmi......................................... 57
4.4 Conditions to all Extensions of Credit........................................................ 60
SECTION 5 REPRESENTATIONS AND WARRANTIES....................................................................... 61
5.1 Financial Condition........................................................................... 61
5.2 No Material Change............................................................................ 62
5.3 Organization and Good Standing................................................................ 62
5.4 Power; Authorization; Enforceable Obligations................................................. 63
5.5 No Conflicts.................................................................................. 63
5.6 No Default.................................................................................... 63
5.7 Ownership of Assets........................................................................... 63
5.8 Indebtedness.................................................................................. 64
5.9 Litigation.................................................................................... 64
5.10 Taxes......................................................................................... 64
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.11 Compliance with Law........................................................................... 64
5.12 ERISA......................................................................................... 64
5.13 Subsidiaries.................................................................................. 65
5.14 Governmental Regulations, Etc................................................................. 66
5.15 Purpose of Loans and Letters of Credit........................................................ 66
5.16 Environmental Matters......................................................................... 67
5.17 Intellectual Property......................................................................... 68
5.18 Solvency...................................................................................... 69
5.19 Investments................................................................................... 69
5.20 Location of Collateral........................................................................ 69
5.21 Disclosure.................................................................................... 69
5.22 No Burdensome Restrictions; Material Agreements............................................... 69
5.23 Labor Matters................................................................................. 70
5.24 Nature of Business............................................................................ 70
5.25 Representations and Warranties from Other Agreements.......................................... 70
5.26 Security Documents............................................................................ 71
5.27 Transactions with Affiliates.................................................................. 72
5.28 Ownership..................................................................................... 72
5.29 Insurance..................................................................................... 72
5.30 Certain Transactions.......................................................................... 73
SECTION 6 AFFIRMATIVE COVENANTS................................................................................ 73
6.1 Information Covenants......................................................................... 73
6.2 Preservation of Existence and Franchises...................................................... 76
6.3 Books and Records............................................................................. 76
6.4 Compliance with Law........................................................................... 76
6.5 Payment of Taxes and Other Indebtedness....................................................... 76
6.6 Insurance; Certain Proceeds................................................................... 77
6.7 Maintenance of Property....................................................................... 78
6.8 Performance of Obligations.................................................................... 78
6.9 Use of Proceeds............................................................................... 78
6.10 Audits/Inspections............................................................................ 79
6.11 Additional Credit Parties..................................................................... 79
6.12 Pledged Assets................................................................................ 80
6.13 Life Insurance................................................................................ 80
6.14 Payment of Indebtedness....................................................................... 81
SECTION 7 NEGATIVE COVENANTS................................................................................... 81
7.1 Indebtedness.................................................................................. 81
7.2 Liens......................................................................................... 82
7.3 Nature of Business............................................................................ 82
7.4 Consolidation, Merger, Dissolution, etc....................................................... 82
7.5 Asset Dispositions............................................................................ 84
7.6 Investments; Acquisitions..................................................................... 84
7.7 Restricted Payments........................................................................... 84
7.8 Prepayments of Indebtedness, etc.............................................................. 85
7.9 Transactions with Affiliates.................................................................. 85
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.10 Fiscal Year; Organizational Documents......................................................... 86
7.11 Limitation on Restricted Actions.............................................................. 86
7.12 Ownership of Subsidiaries: Limitations on Borrower............................................ 86
7.13 Sale Leasebacks............................................................................... 87
7.14 Capital Expenditures.......................................................................... 87
7.15 No Further Negative Pledges................................................................... 87
7.16 Impairment of Security Interests.............................................................. 87
7.17 Sales of Receivables.......................................................................... 87
7.18 Financial Covenants........................................................................... 87
SECTION 8 EVENTS OF DEFAULT.................................................................................... 89
8.1 Events of Default............................................................................. 89
8.2 Acceleration; Remedies........................................................................ 92
SECTION 9 AGENCY PROVISIONS.................................................................................... 93
9.1 Appointment, Powers and Immunities............................................................ 93
9.2 Reliance by Agent............................................................................. 94
9.3 Defaults...................................................................................... 94
9.4 Rights as Lender.............................................................................. 95
9.5 Indemnification............................................................................... 95
9.6 Non-Reliance on Agent and Other Lenders....................................................... 95
9.7 Resignation of Agent.......................................................................... 96
SECTION 10 MISCELLANEOUS....................................................................................... 96
10.1 Notices....................................................................................... 96
10.2 Right of Set-Off.............................................................................. 97
10.3 Benefit of Agreement.......................................................................... 98
10.4 No Waiver; Remedies Cumulative................................................................100
10.5 Expenses; Indemnification.....................................................................100
10.6 Amendments, Waivers and Consents..............................................................101
10.7 Counterparts..................................................................................103
10.8 Headings......................................................................................103
10.9 Survival......................................................................................103
10.10 Governing Law; Submission to Jurisdiction; Venue..............................................103
10.11 Severability..................................................................................104
10.12 Entirety......................................................................................104
10.13 Binding Effect; Termination...................................................................104
10.14 Confidentiality...............................................................................105
10.15 Source of Funds...............................................................................105
10.16 Conflict......................................................................................106
</TABLE>
iii
<PAGE> 5
SCHEDULES
---------
Schedule 1.1A Investments
Schedule 1.1B Liens
Schedule 1.1C Existing Option Holders
Schedule 2.1(a) Commitments
Schedule 5.1 Liabilities
Schedule 5.4 Required Consents, Authorizations, Notices and Filings
Schedule 5.9 Litigation
Schedule 5.12 ERISA
Schedule 5.13 Subsidiaries
Schedule 5.16 Environmental Disclosures
Schedule 5.17 Intellectual Property
Schedule 5.20(a) Real Property Locations
Schedule 5.20(b) Collateral Locations
Schedule 5.20(c) Chief Executive Offices/Principal Places of Business
Schedule 5.22 Material Contracts
Schedule 5.23 Labor Matters
Schedule 5.26 Filing Locations
Schedule 5.28(a) Outstanding Warrants
Schedule 5.28(b) List of Shareholders of the Borrower
Schedule 7.1(b) Indebtedness
EXHIBITS
--------
Exhibit A Form of Pledge Agreement
Exhibit B Form of Security Agreement
Exhibit C Form of Indemnity, Subrogation and Contribution Agreement
Exhibit D Form of Intercompany Note
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Guarantee Agreement
Exhibit G Form of Notice of Borrowing
Exhibit H Form of Revolving Note
Exhibit I Form of Notice of Extension/Conversion
Exhibit J Form of Depository Bank Agreement
Exhibit K Form of Officer's Compliance Certificate
Exhibit L Form of Joinder Agreement
Exhibit M Form of Perfection Certificate
Exhibit N-1 Form of Opinion of General Counsel
Exhibit N-2 Form of Opinion of Foreign Counsel
Exhibit O Form of Permitted Tax Distribution Agreement
iv
<PAGE> 6
CREDIT AGREEMENT dated as of June 26, 1997 (as amended, modified,
restated or supplemented from time to time, this "AGREEMENT"), among KENDLE
INTERNATIONAL INC., an Ohio corporation (the "BORROWER"), the Lenders (as
defined herein) and NATIONSBANK, N. A., as Agent for the Lenders (in such
capacity, the "AGENT").
The Borrower has requested that the Lenders provide a credit facility
to the Borrower in the aggregate principal amount of up to $20,000,000 for the
purposes set forth in this Agreement below. The Lenders have agreed to make the
requested credit facility available to the Borrower on the terms and subject to
the conditions set forth in this Agreement below. Accordingly, the Borrower, the
Lenders and the Agent agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings specified below:
"ACQUIRING SUBSIDIARY" shall have the meaning assigned to that term in
Section 4.2(a).
"ACQUISITION AGREEMENTS" shall mean the U-Gene Acquisition Agreement
and the gmi Acquisition Agreement, or either of them.
"ADDITIONAL GUARANTOR" shall mean each Person that becomes a Domestic
Subsidiary of the Borrower after the Closing Date.
"ADJUSTED BASE RATE" shall mean the Base Rate PLUS 0.00%.
"ADJUSTED EURODOLLAR RATE" shall mean the Eurodollar Rate PLUS the
Applicable Percentage.
"AFFECTED LOANS" shall have the meaning assigned to that term in
Section 3.9.
"AFFECTED TYPE" shall have the meaning assigned to that term in Section
3.9.
"AFFILIATE" shall mean (a) with respect to any Person (including the
Credit Parties), any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such Person and
(b) with respect to the Credit Parties, any Person directly or indirectly owning
or holding five percent (5%) or more of the equity interest in such Person. For
purposes of this definition, "control" when used with respect to any Person
shall mean the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
<PAGE> 7
"AGENCY SERVICES ADDRESS" shall mean NationsBank, N.A., NC1-001-15-04,
101 North Tryon Street, Charlotte, North Carolina 28255, Attn: Agency Services,
or such other address as may be identified by written notice from the Agent to
the Borrower.
"AGENT" shall have the meaning assigned to that term in the heading
hereof, together with its successors.
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each
Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof or such
other office of such Lender (or an Affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower by written notice in
accordance with the terms hereof as the office by which its Loans of such Type
are to be made and maintained.
"APPLICABLE PERCENTAGE" shall mean, for purposes of calculating (i) the
applicable interest rate for any day for any Eurodollar Loan, (ii) the
applicable rate of the Facility Fee for any day for purposes of Section 3.5(b)
and (iii) the applicable rate of the Standby Letter of Credit Fee for any day
for purposes of Section 3.5(c)(i), the appropriate applicable percentage set
forth in the table below corresponding to the Total Leverage Ratio as of the
most recent Calculation Date:
<TABLE>
<CAPTION>
Applicable Applicable Percentage
Pricing Total Percentage For For Standby Letter of Applicable Percentage
Level Leverage Ratio Eurodollar Loans Credit Fees For Facility Fees
<S> <C> <C> <C> <C>
I Less than = 2.75 to 1.0 1.125% 1.125% 0.375%
II Less than = 3.75 to 1.0 but 1.625% 1.625% 0.375%
Greater than 2.75 to 1.0
III Less than = 4.75 to 1.0 but 2.000% 2.000% 0.500%
Greater than 3.75 1.0
IV Less than = 5.75 to 1.0 but 2.250% 2.250% 0.500%
Greater than 4.75 to 1.0
V Less than 5.75 to 1.0 2.375% 2.375% 0.625%
</TABLE>
Each Applicable Percentage shall be determined and adjusted quarterly on the
date (each a "CALCULATION DATE") five (5) Business Days after the date by which
the Borrower is required to provide an officer's certificate in accordance with
the provisions of Section 6.1(c) for the most recently ended fiscal quarter of
the Borrower; PROVIDED, THAT (a) the Applicable Percentages to be used for the
period from the Closing Date through the Agent's receipt of the officer's
certificate in accordance with the provisions of Section 6.1(c) for the
Borrower's fiscal quarter ending June 30, 1997, shall be based on Pricing Level
IV (as shown above) and, thereafter, the Pricing Level shall be determined by
the Total Leverage Ratio as of the last day of the most recently ended fiscal
quarter of the Borrower preceding the applicable Calculation Date, and (b) if
the Borrower fails to provide the officer's certificate to the Agency Services
Address as required by Section 6.1(c) for the most recently ended fiscal
2
<PAGE> 8
quarter of the Borrower preceding the applicable Calculation Date, the
Applicable Percentage from such Calculation Date shall be based on Pricing Level
V (as shown above) until such time as an appropriate officer's certificate is
provided, whereupon the Pricing Level shall be determined by the Total Leverage
Ratio as of the last day of the most recently ended fiscal quarter of the
Borrower preceding such Calculation Date. Each Applicable Percentage shall be
effective from one Calculation Date until the next Calculation Date. Any
adjustment in the Applicable Percentages shall be applicable to all Loans then
existing or subsequently made or issued.
"ASSET DISPOSITION" shall mean the disposition of any or all of the
assets of any Credit Party (including the Capital Stock of a Subsidiary),
whether by sale, lease (including any Sale and Leaseback Transaction), transfer,
Casualty, Condemnation or otherwise; PROVIDED THAT, the foregoing definition
shall not be deemed to imply that any such Asset Disposition is permitted under
this Agreement. The term "Asset Disposition" shall not include any Equity
Issuance.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance
entered into by a Lender and its assignee in the form of EXHIBIT E or such other
similar form as shall be approved by the Agent and the Borrower.
"BANKRUPTCY CODE" shall mean the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from time to
time.
"BANKRUPTCY EVENT" shall mean, with respect to any Person, the
occurrence of any of the following with respect to such Person: (a) a court or
governmental agency having jurisdiction in the premises shall enter a decree or
order for relief in respect of such Person in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any substantial part of
its Property or ordering the winding up or liquidation of its affairs; or (b)
there shall be commenced against such Person an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any case, proceeding or other action for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or for the
winding up or liquidation of its affairs, and such involuntary case or other
case, proceeding or other action shall remain undismissed, undischarged or
unbonded for a period of sixty (60) consecutive days; or (c) such Person shall
commence a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of an order for
relief in an involuntary case under any such law, or consent to the appointment
or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any substantial part of
its Property or make any general assignment for the benefit of creditors; or (d)
such Person shall be unable to, or shall admit in writing its inability to, pay
its debts generally as they become due.
"BASE RATE" shall mean, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one percent
(0.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due to a
change in the Prime Rate or the Federal
3
<PAGE> 9
Funds Rate shall be effective on the effective date of such change in the Prime
Rate or Federal Funds Rate.
"BASE RATE LOAN" shall mean any Loan bearing interest at a rate
determined by reference to the Base Rate.
"BORROWER" shall mean the Person identified as such in the heading
hereof, together with its permitted successors and assigns.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or New York, New York
are authorized or required by law to close; EXCEPT, THAT, when used in
connection with a Eurodollar Loan, such day shall also be a day on which
dealings between banks are carried on in U.S. dollar deposits in London,
England.
"CALCULATION DATE" shall have the meaning assigned to that term in the
definition of "Applicable Percentage" set forth in this Section 1.1.
"CAPITAL LEASE" shall mean, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CAPITAL STOCK" shall mean (a) in the case of a corporation, capital
stock, (b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (c) in the case of a partnership, partnership interests (whether
general or limited), (d) in the case of a limited liability company, membership
interests, (e) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person and (f) all rights to purchase, warrants, options
and other securities exercisable for, exchangeable for or convertible into any
of the foregoing.
"CASH EQUIVALENTS" shall mean (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve (12) months from the date of acquisition, (b) U.S. dollar
denominated certificates of deposit of (i) any Lender, (ii) any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500,000,000 or (iii) any bank whose short-term commercial paper rating from S&P
is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "APPROVED BANK"), in each case with
maturities of not more than 270 days from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Bank
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or
better by S&P or P-1 (or the equivalent thereof) or better by Moody's and
maturing within six (6) months of the date of acquisition, (d) repurchase
agreements with a bank or trust company (including any of the Lenders) or
recognized securities dealer having capital and surplus in excess of
$500,000,000 for direct obligations issued by or fully guaranteed by the United
States of
4
<PAGE> 10
America in which the Borrower or any Subsidiary shall have a perfected first
priority security interest (subject to no other Liens) and having, on the date
of purchase thereof, a fair market value of at least 100% of the amount of the
repurchase obligations and (e) Investments, classified in accordance with GAAP
as current assets, in money market investment programs registered under the
Investment Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $500,000,000 and the
portfolios of which are limited to Investments of the character described in the
foregoing subdivisions (a) through (d).
"CASUALTY" shall mean any casualty or other loss, damage or destruction
of any Property of any Credit Party.
"CHIEF FINANCIAL OFFICER" of any company shall mean the chief financial
officer, principal accounting officer or similar officer of such company.
"CHANGE OF CONTROL" shall mean any of the following events:
(a) prior to the successful consummation of a Qualified Initial
Public Offering: (i) any person or "group" (within the meaning
of Rule 13d-5 under the Securities and Exchange Act of 1934,
as amended), together with its Affiliates, other than the
Permitted Holders, shall beneficially own, directly or
indirectly, an amount of the outstanding Capital Stock of the
Borrower entitled to fifteen percent (15%) or more of the
Total Voting Power of the Borrower, (ii) the Permitted Holders
together cease to own shares of Capital Stock of the Borrower
representing at least eight-five percent (85%) of the Total
Voting Power of the Borrower or (iii) Candace Kendle Bryan and
Christopher C. Bergen together cease to own shares of Capital
Stock of the Borrower representing at least 75% percent of the
Total Voting Power of the Borrower; and
(b) after the successful consummation of a Qualified Initial
Public Offering: (i) any person or "group" (within the meaning
of Rule 13d-5 under the Securities and Exchange Act of 1934,
as amended), together with its Affiliates, other than the
Permitted Holders, shall beneficially own, directly or
indirectly, an amount of Capital Stock of the Borrower
entitled to fifteen percent (15%) or more of the Total Voting
Power of the Borrower; (ii) the Permitted Holders collectively
cease to own shares of Capital Stock of the Borrower
representing at least thirty-three and one-third percent
(331/3%) of the Total Voting Power of the Borrower; (iii)
Candace Kendle Bryan and Christopher C. Bergen together cease
to own shares of Capital Stock of the Borrower representing at
least 25% percent of the Total Voting Power of the Borrower;
or (iv) the Continuing Directors in office at any time shall
not constitute a majority of the Board of Directors of the
Borrower. For purposes of the foregoing, the term "Continuing
Directors" shall mean, at any date, an individual (A) who is a
member of the Board of Directors of the Borrower on the
Closing Date, or (B) who has been nominated to fill a vacancy
on the Board of Directors of the Borrower by a majority of the
Continuing Directors then in office.
5
<PAGE> 11
"CLOSING DATE" shall mean the date on which this Agreement is executed
and delivered by the parties hereto and the first Loans are made in accordance
with Section 4.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, as interpreted by the rules and regulations
issued thereunder, in each case as in effect from time to time. References to
sections of the Code shall be construed also to refer to any successor sections.
"COLLATERAL" shall mean all the collateral which is identified in, and
at any time is purported to be covered by, the Collateral Documents.
"COLLATERAL DOCUMENTS" shall mean the Security Agreement, the Pledge
Agreement, the Perfection Certificate, the Depository Bank Agreements, the
Permitted Tax Distribution Agreements, the Life Insurance Assignment, and such
other documents executed and delivered in connection with the attachment and
perfection of the Agent's security interests and liens arising thereunder,
including UCC financing statements, patent and trademark filings and, with
respect to property acquired after the Closing Date and pledged by the Borrower
to the Agent pursuant to Section 6.11 or 6.12, such other additional security
documents as the Agent shall reasonably request (including, without limitation,
mortgages, deeds of trust and related documentation to the extent necessary to
perfect liens on real property interests as may be required pursuant to Section
6.11 or 6.12, all in form and substance reasonably acceptable to the Agent and
the Required Lenders).
"COMMITMENT" shall mean (a) with respect to each Lender, the Revolving
Commitment of such Lender and (b) with respect to the Issuing Lender, the LOC
Commitment.
"CONDEMNATION" shall mean any taking of Property, or any part thereof
or interest therein, for public or quasi-public use under the power of eminent
domain, by reason of any public improvement or condemnation proceeding, or in
any other similar manner.
"CONDEMNATION AWARD" shall mean all proceeds of any Condemnation or
transfer in lieu thereof.
"CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any period, the sum
of all amounts, in accordance with GAAP, that are included as additions to
property, plant and equipment and other capital expenditures on a consolidated
statement of cash flows for the Borrower and its Consolidated Subsidiaries
during such period (excluding the amounts under any Capital Lease).
Notwithstanding the foregoing, the term "Consolidated Capital Expenditures"
shall not include (a) capital expenditures in respect of the reinvestment of
Insurance Proceeds and Condemnation Awards received by the Borrower and its
Subsidiaries to the extent that such reinvestment is permitted under the Credit
Documents and (b) capital expenditures for Permitted Acquisitions.
"CONSOLIDATED CASH DIVIDENDS" shall mean, for any period, the aggregate
amount of all dividends or distributions paid in cash in respect of Capital
Stock by the Borrower during such period (other than Permitted Tax
Distributions).
6
<PAGE> 12
"CONSOLIDATED CASH TAXES" shall mean (i) for any period that the
Borrower is an "S Corporation" treated as a pass-through entity for United
States federal income tax purposes, all Permitted Tax Distributions to the
extent the same are distributed in cash by the Borrower to the holders of its
Capital Stock during such period, and (ii) for any period from and after the
consummation of a Qualified Initial Public Offering or other effective
conversion of the Borrower to "C Corporation" status for United States federal
income tax purposes, the aggregate amount of all Federal, state, local and
foreign income, value added and similar taxes based upon income of the Borrower
and its Consolidated Subsidiaries, determined on a consolidated basis in
accordance with GAAP, to the extent the same are paid in cash by the Borrower or
any of its Consolidated Subsidiaries during such period.
"CONSOLIDATED EBITDAR" shall mean, for any period, the sum of (a)
Consolidated Net Income for such period, PLUS (b) an amount which, in the
determination of Consolidated Net Income for such period, has been deducted for
(i) Consolidated Interest Expense (other than an extraordinary one-time charge
not to exceed $2,500,000 resulting from early extinguishment of Indebtedness
evidenced by the Subordinated Notes as permitted hereunder), (ii) Consolidated
Cash Taxes; (iii) depreciation and amortization expense, and (iv) Consolidated
Rent Expense MINUS (c) an amount which, in the determination of Consolidated Net
Income for such period, has been added for (i) interest income and (ii) any
non-cash income or non-cash gains, all as determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, the gross
amount of interest expense of the Borrower and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, during such period,
including (a) the portion of any payments or accruals with respect to Capital
Leases that are allocable to interest expense in accordance with GAAP, (b) net
costs under Interest Rate Protection Agreements during such period and (c) all
fees, charges, discounts and other costs recognized in Borrower's Consolidated
Net Income in respect of Indebtedness during such period, but, in each case;
PROVIDED, THAT (i) all non-cash interest expense shall be excluded and (ii) any
interest on Indebtedness of another Person that is guaranteed by the Borrower or
any of its Consolidated Subsidiaries or secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) a Lien on, or payable out of the proceeds of the sale of or production from,
assets of the Borrower or any of its Consolidated Subsidiaries (whether or not
such guarantee or Lien is called upon) shall be included.
"CONSOLIDATED NET INCOME" shall mean, for any period, net income (or
loss) after taxes for such period of the Borrower and its Consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, for
such period; PROVIDED, THAT, there shall be excluded from such calculation of
net income (or loss) (a) the income of any Person in which any other Person
(other than the Borrower or any of its Subsidiaries) has any interest, except to
the extent of the amount of dividends or other distributions actually paid to
the Borrower or any of its Subsidiaries by such Person during such period, (b)
the income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with the Borrower
or any of its Subsidiaries or the date such Person's assets are acquired by the
Borrower or any of its Subsidiaries, (c) the income of any Subsidiary of the
Borrower to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary of that income is not at the time permitted by
operation of
7
<PAGE> 13
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary, (d)
except for purposes of Section 7.18(d), any after-tax gains attributable to
sales of assets out of the ordinary course of business and (e) except for
purposes of Section 7.18(d), to the extent not included in clauses (a) through
(d) above, any non-cash extraordinary gains or non-cash extraordinary losses.
"CONSOLIDATED NET WORTH" shall mean, as of any date, shareholders'
equity or net worth of the Borrower and its Consolidated Subsidiaries, as
determined on a consolidated basis in accordance with GAAP, excluding amounts
attributable to Disqualified Stock and the cumulative translation adjustment
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED RENT EXPENSE" shall mean, for any period, the aggregate
amount of fixed and contingent rentals payable by the Borrower and the
Subsidiaries, determined on a consolidated basis in accordance with GAAP, for
such period with respect to Operating Leases.
"CONSOLIDATED SCHEDULED FUNDED DEBT PAYMENTS" shall mean, for any
period, with respect to the Borrower and its Consolidated Subsidiaries on a
consolidated basis, the sum of all scheduled payments of principal on Funded
Indebtedness for such period (including the principal component of payments due
on Capital Leases during such period); PROVIDED, THAT, Consolidated Scheduled
Funded Debt Payments shall not include voluntary prepayments of Funded
Indebtedness, mandatory prepayments required pursuant to Section 3.3 or other
mandatory prepayments of Funded Indebtedness.
"CONSOLIDATED SUBSIDIARIES" of any Person shall mean all subsidiaries
of such Person consolidated with such Person for financial reporting purposes in
accordance with GAAP.
"CREDIT DOCUMENTS" shall mean a collective reference to this Agreement,
the Notes, the LOC Documents, each Joinder Agreement, the Fee Letter, the
Collateral Documents, the Guarantee Agreement, the Indemnity, Subrogation and
Contribution Agreement, the Intercompany Notes, and all other related agreements
and documents issued or delivered hereunder or thereunder or pursuant hereto or
thereto (in each case as the same may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time), and "CREDIT
DOCUMENT" shall mean any one of them.
"CREDIT OBLIGATIONS" shall mean, without duplication, (a) all of the
obligations of the Credit Parties to the Lenders, the Issuing Lender and the
Agent, whenever arising, whether monetary or otherwise, under this Agreement,
the Notes, the Collateral Documents, the Guarantee Agreement or any of the other
Credit Documents (including, without limitation, principal obligations, interest
obligations (including any interest accruing after the occurrence of a
Bankruptcy Event with respect to any Credit Party, regardless of whether such
interest is an allowed claim under the Bankruptcy Code) and all fees, expenses,
indemnities and expense reimbursement obligations) and (b) all liabilities and
obligations, whenever arising, owing from the Borrower to any Lender, or any
Affiliate of a Lender, arising under any Lender Hedging Agreement.
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<PAGE> 14
"CREDIT PARTIES" shall mean the Borrower and its Subsidiaries, and
"CREDIT PARTY" shall mean any one of them.
"DEBT ISSUANCE" shall mean the issuance of any Indebtedness for
borrowed money by any Credit Party; PROVIDED, THAT, the foregoing definition
shall not be deemed to imply that any such Debt Issuance is permitted under this
Agreement.
"DEFAULT" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"DEPOSITORY BANK AGREEMENTS" shall mean each agreement between any
Credit Party and any bank or other depository institution in substantially the
form of EXHIBIT J hereto.
"DISQUALIFIED STOCK" of any Person shall mean (a) any Capital Stock of
such Person which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable), upon the happening
of any event or otherwise (i) matures or is mandatorily redeemable or subject to
any mandatory repurchase requirement, pursuant to a sinking fund obligation or
otherwise, (ii) is convertible into or exchangeable or exercisable for
Indebtedness or Disqualified Stock, (iii) is redeemable or subject to any
repurchase requirement exercisable at the option of the holder thereof, in whole
or in part, in each case on or prior to the first anniversary of the Maturity
Date (or, if earlier, the first anniversary of the date on which all the Credit
Obligations have been indefeasibly paid in full in cash and the Commitments have
been terminated) and (b) if such Person is a Subsidiary of the Borrower, any
Preferred Stock of such Person.
"DOLLARS" and "$" shall mean dollars in lawful currency of the United
States of America.
"DOMESTIC SUBSIDIARY" shall mean, with respect to any Person, any
Subsidiary of such Person which is incorporated or organized under the laws of
any State of the United States or the District of Columbia.
"ELIGIBLE ASSIGNEE" shall mean: (a) any Lender; (b) any Affiliate of a
Lender; and (c) any other commercial bank, financial institution or "accredited
investor" (as defined in Regulation D under the Securities Act of 1933, as
amended) approved by the Agent and, unless an Event of Default has occurred and
is continuing at the time any assignment is effected in accordance with Section
10.3(b), the Borrower, such approval not to be unreasonably withheld or delayed
by the Borrower and such approval to be deemed given by the Borrower if no
objection from the Borrower is received by the assigning Lender and the Agent
within five Business Days after notice of such proposed assignment has been
provided by the assigning Lender to the Borrower; PROVIDED, THAT, neither the
Borrower, any Affiliate of the Borrower nor any direct competitor of the
Borrower in the Borrower's business shall qualify as an Eligible Assignee.
"ENVIRONMENTAL LAWS" shall mean any and all applicable Federal, state,
local and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses, agreements
or other governmental restrictions
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<PAGE> 15
relating to the environment or to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment, including, ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes.
"EQUITY ISSUANCE" shall mean any issuance by any Credit Party of any
Capital Stock to any Person or the receipt by any such Person of a capital
contribution from any other Person, including the issuance of any of its Capital
Stock pursuant to the exercise of options or warrants or upon the conversion of
any debt securities to equity; PROVIDED, THAT, the foregoing definition shall
not be deemed to imply that any such issuance is permitted under this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute thereto, including the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA AFFILIATE" shall mean an entity which is under common control
with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is
a member of a group which includes any Credit Party and which is treated as a
single employer under Sections 414(b) or (c) of the Code.
"ERISA EVENT" shall mean (a) with respect to any Plan, the occurrence
of a Reportable Event or the substantial cessation of operations (within the
meaning of Section 4062(e) of ERISA); (b) the withdrawal by any Credit Party or
any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a substantial employer (as such term is defined in Section 4001(a)(2) of
ERISA), or the termination of a Multiple Employer Plan; (c) the distribution of
a notice of intent to terminate or the actual termination of a Plan pursuant to
Section 4041(a)(2) or 4041A of ERISA; (d) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section 4042 of
ERISA; (e) any event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; (f) the complete or partial withdrawal of any Credit Party
or any ERISA Affiliate from a Multiemployer Plan; (g) the conditions for
imposition of a lien under Section 302(f) of ERISA exist with respect to any
Plan; or (h) the adoption of an amendment to any Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA.
"EURODOLLAR LOANS" shall mean any Loan bearing interest at a rate
determined by reference to the Eurodollar Rate.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest
Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by the Agent to be equal to the quotient obtained by dividing
(a) the Interbank Offered Rate for such Eurodollar Loan for such Interest Period
by (b) 1 minus the Reserve Requirement for such Eurodollar Loan for such
Interest Period.
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<PAGE> 16
"EVENT OF DEFAULT" shall have the meaning assigned to that term in
Section 8.1.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED ASSET DISPOSITIONS" shall mean (a) any Asset Disposition by
any Credit Party to the Borrower or any Guarantor if (i) the Credit Parties
shall cause to be executed and delivered such documents, instruments and
certificates as the Agent may request so as to cause the Credit Parties to be in
compliance with Section 6.12 after giving effect to such Asset Disposition and
(ii) after giving effect to such Asset Disposition, no Default or Event of
Default exists, (b) the liquidation of Cash Equivalents for the account of the
Borrower, (c) the disposition of worn-out, damaged or obsolete tangible assets,
so long as the fair market value (based on the good faith judgment of the
Borrower without the requirement of a third party appraisal) of all property
disposed of pursuant to this clause (c) does not exceed $250,000 in the
aggregate in any fiscal year, and (d) Asset Dispositions in the nature of
non-material Casualties that do not result in insurance proceeds or damage to
Collateral in excess of $250,000 in the aggregate in any fiscal year.
"FACILITY FEE" shall have the meaning assigned to that term in Section
3.5(b).
"FACILITY FEE CALCULATION PERIOD" shall have the meaning assigned to
that term in Section 3.5(b).
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; PROVIDED, THAT (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate charged to
the Agent (in its individual capacity) on such day on such transactions as
determined by the Agent.
"FEE LETTER" shall have the meaning assigned to that term in Section
3.5.
"FEES" shall mean all fees payable pursuant to Section 3.5.
"FIXED CHARGE COVERAGE RATIO" shall mean, as of any reporting day, the
ratio of (a) Consolidated EBITDAR for the period of four consecutive fiscal
quarters of the Borrower ending on, or most recently preceding, such day, MINUS
Consolidated Capital Expenditures for such period, MINUS Consolidated Cash
Dividends for such period, to (b) the sum of (i) Consolidated Interest Expense
for such period PLUS, (ii) Consolidated Rent Expense for such period, PLUS (iii)
Consolidated Scheduled Funded Debt Payments for such period.
"FOREIGN SUBSIDIARY" shall mean, with respect to any Person, any
Subsidiary of such Person which is not a Domestic Subsidiary of such Person.
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<PAGE> 17
"FUNDED INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (a) all Indebtedness of such Person other than Indebtedness of the
types referred to in clause (f), (g), (i), (k) and (l) of the definition of
"Indebtedness" set forth in this Section 1.1, (b) all Indebtedness of another
Person of the type referred to in clause (a) above secured by (or for which the
holder of such Funded Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the proceeds of
production from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (c) all Guaranty Obligations of
such Person with respect to Indebtedness of the type referred to in clause (a)
above of another Person and (d) Indebtedness of the type referred to in clause
(a) above of any partnership or unincorporated joint venture in which such
Person is general partner or for which such Person is otherwise legally
obligated or has a reasonable expectation of being liable with respect thereto.
"GAAP" shall mean generally accepted accounting principles in the
United States applied on a consistent basis, subject to the terms of Section
1.3.
"GMI" shall mean Gesellschaft fur angewandte Mathematik und Informatik
mbh, a company based in Munich, Germany and organized under the laws of the
Federal Republic of Germany.
"GMI ACQUISITION" shall mean the acquisition of gmi by the Borrower in
accordance with the terms of the gmi Acquisition Agreement.
"GMI ACQUISITION AGREEMENT" shall mean the Share Purchase Agreement
dated June 26, 1997, between the Borrower and the gmi Shareholders.
"GMI LETTERS OF CREDIT" shall mean one or more Letters of Credit issued
hereunder in favor of the gmi Shareholders in an aggregate principal amount not
to exceed $8,500,000 and which have an expiry date of September 30, 1997.
"GMI SHAREHOLDERS" shall mean the owners and holders of 100% of the
issued and outstanding Capital Stock of gmi.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local or
foreign court or governmental agency, commission, board, bureau, authority,
instrumentality or judicial or regulatory body or entity.
"GUARANTEE AGREEMENT" shall mean the Guarantee Agreement dated as of
the Closing Date in the form of EXHIBIT F to be executed in favor of the Agent
by the Guarantors, as amended, modified, restated or supplemented from time to
time.
"GUARANTOR" shall mean all Domestic Subsidiaries of the Borrower
existing on the Closing Date and each Additional Guarantor which may thereafter
execute a Joinder Agreement, together with their successors and permitted
assigns.
"GUARANTY OBLIGATIONS" shall mean, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of
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<PAGE> 18
negotiable instruments for deposit or collection) guaranteeing or intended to
guarantee any Indebtedness of any other Person in any manner, whether direct or
indirect, and including any obligation, whether or not contingent, (a) to
purchase any such Indebtedness or any Property constituting security therefor,
(b) to advance or provide funds or other support for the payment or purchase of
any such Indebtedness or to maintain working capital, solvency or other balance
sheet condition of such other Person (including keep well agreements,
maintenance agreements, comfort letters or similar agreements or arrangements)
for the benefit of any holder of Indebtedness of such other Person, (c) to lease
or purchase Property, securities or services primarily for the purpose of
insuring the holder of such Indebtedness against loss in respect thereof or (d)
to otherwise assure or hold harmless the holder of such Indebtedness against
loss in respect thereof. For purposes hereof, the amount of any Guaranty
Obligation shall (subject to any limitations set forth therein) be deemed to be
an amount equal to the outstanding principal amount (or maximum principal
amount, if larger) of the Indebtedness in respect of which such Guaranty
Obligation is made.
"INDEBTEDNESS" of any Person shall mean (a) all obligations of such
Person for borrowed money, (b) all obligations of such Person evidenced by
bonds, debentures, letters of credit (other than the gmi Letters of Credit),
notes or similar instruments, or upon which interest payments are customarily
made, (c) all obligations of such Person under conditional sale or other title
retention agreements relating to Property purchased by such Person (other than
customary reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations of such
Person issued or assumed as the deferred purchase price of Property or services
purchased by such Person (other than trade debt incurred in the ordinary course
of business and due within six (6) months of the incurrence thereof) which would
appear as liabilities on a balance sheet of such Person, (e) all obligations of
such Person under take-or-pay or similar arrangements or under commodities
agreements, (f) all Indebtedness of others secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on, or payable out of the proceeds of production from,
Property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Guaranty Obligations of such Person,
(h) the principal portion of all obligations of such Person under Capital
Leases, (i) all net obligations of such Person under Interest Rate Protection
Agreements or foreign currency exchange agreements, (j) the maximum amount of
all standby letters of credit issued or bankers' acceptances facilities created
for the account of such Person and, without duplication, all drafts drawn
thereunder (to the extent unreimbursed), (k) all Disqualified Stock of such
Person, and (l) the Indebtedness of any partnership or unincorporated joint
venture in which such Person is a general partner or a joint venturer.
"INDEMNIFIED PARTY" shall have the meaning assigned to that term in
Section 10.5(b).
"INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT" shall mean the
Indemnity, Subrogation and Contribution Agreement dated as of the Closing Date
in the form of EXHIBIT C to be executed by the Guarantors, as amended, modified,
restated or supplemented from time to time.
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<PAGE> 19
"INSURANCE PROCEEDS" shall mean all insurance proceeds (other than
business interruption insurance proceeds), damages, awards, claims and rights of
action with respect to any Casualty.
"INTELLECTUAL PROPERTY" shall have the meaning assigned to that term in
Section 5.17.
"INTERBANK OFFERED RATE" shall mean, for any Eurodollar Loan for any
Interest Period, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "Interbank Offered Rate" shall mean, for any
Eurodollar Loan for any Interest Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; PROVIDED, THAT, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates (rounded upwards, if necessary,
to the nearest 1/100 of 1%).
"INTERCOMPANY NOTES" shall mean the promissory notes issued as
contemplated by clause (g) of the definition of Permitted Investments, in the
form attached hereto as EXHIBIT D.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor and
Subordination Agreement between the Borrower, the Agent, the Lenders and the
Subordinated Noteholders dated as of the Closing Date, as amended, modified,
restated or supplemented from time to time.
"INTEREST PAYMENT DATE" shall mean (a) as to Base Rate Loans, the last
Business Day of each March, June, September and December of each year during the
term of this Agreement and (b) as to Eurodollar Loans, the last day of each
applicable Interest Period for any such Loan and the Maturity Date, and in
addition, where the applicable Interest Period for any such Loan is greater than
three months, the date three months from the beginning of the Interest Period
and each three months thereafter and (c) as to all Loans, the Maturity Date of
such Loans.
"INTEREST PERIOD" shall mean as to Eurodollar Loans, a period of one
(1), two (2), three (3), six (6) or twelve (12) months' duration, as the
Borrower may elect (subject to availability) commencing, in each case, on the
date of the borrowing (including conversions and extensions thereof); PROVIDED,
THAT, (a) if any Interest Period would end on a day which is not a Business Day,
such Interest Period shall be extended to the next succeeding Business Day
(except that in the case of Eurodollar Loans where the next succeeding Business
Day falls in the next succeeding calendar month, then on the next preceding
Business Day), (b) no Interest Period for any Loan shall extend beyond the
Maturity Date for such Loan and (c) in the case of Eurodollar Loans, where an
Interest Period begins on a day for which there is no numerically corresponding
day in the calendar month in which the Interest Period is to end, such Interest
Period shall end on the last Business Day of such calendar month.
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<PAGE> 20
"INTEREST RATE PROTECTION AGREEMENT" shall mean any interest rate swap,
collar, cap or other arrangement requiring payments contingent upon interest
rates.
"INVESTMENT" in any Person shall mean (a) the acquisition (whether for
cash, Property, services, assumption of Indebtedness, securities or otherwise)
of assets, shares of Capital Stock, bonds, notes, debentures, partnership, joint
venture or other ownership interests or other securities of such other Person or
(b) any deposit with, or advance, loan or other extension of credit to, such
Person (other than deposits made in connection with the purchase of equipment or
other assets in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including any Guaranty Obligations
(including any support for a letter of credit issued on behalf of such Person)
incurred for the benefit of such Person.
"ISSUING LENDER" shall mean NationsBank, in its capacity as the issuer
of Letters of Credit, and its successors in such capacity.
"ISSUING LENDER FEES" shall have the meaning assigned to such term in
Section 3.5(c)(iii).
"JOINDER AGREEMENT" shall mean a Joinder Agreement substantially in the
form of EXHIBIT L hereto, executed and delivered by an Additional Guarantor in
accordance with the provisions of Section 6.11.
"LENDER" shall mean any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which may become a Lender by way of
assignment in accordance with the terms hereof, together with their successors
and permitted assigns. Unless the context clearly indicates otherwise, the term
"Lenders" shall include the Issuing Lender.
"LENDER HEDGING AGREEMENTS" shall mean any Interest Rate Protection
Agreement or foreign currency exchange agreement between the Borrower or any of
its Subsidiaries and any Lender (or any Affiliate of a Lender).
"LENDING PARTY" shall have the meaning assigned to that term in Section
10.14.
"LETTER OF CREDIT" shall mean any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the terms of
Section 2.2.
"LIEN" shall mean any mortgage, deed of trust, pledge, hypothecation,
easement, assignment, deposit arrangement, restriction, restrictive covenant,
lease, sublease, option, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any agreement
to give any of the foregoing, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the Uniform
Commercial Code as adopted and in effect in the relevant jurisdiction or other
similar recording or notice statute, and any lease in the nature thereof).
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<PAGE> 21
"LIFE INSURANCE ASSIGNMENT" shall mean an assignment of the Life
Insurance Policy, in form and substance satisfactory to the Agent, to be
executed in favor of the Agent for the benefit of the Secured Parties, as
amended, modified, restated or supplemented from time to time.
"LIFE INSURANCE POLICY" shall mean a life insurance policy covering the
life of Christopher C. Bergen, to be paid after he is deceased, maintained at
all times on terms reasonably satisfactory to the Agent and the Required Lenders
and in a minimum amount equal to the lesser of (a) at least $10,000,000.00 and
(b) the then effective Revolving Committed Amount.
"LOAN" or "LOANS" shall mean the Revolving Loans, which may also be
referred to by Type as either Base Rate Loans or Eurodollar Loans. As the
context requires, a "Loan" of a particular Type refers to a portion of the total
outstanding Loans of such Type as to which a single Interest Period is in
effect.
"LOC COMMITMENT" shall mean the commitment of the Issuing Lender to
issue Letters of Credit in an aggregate face amount at any time outstanding
(together with the amounts of any unreimbursed drawings thereon) of up to the
LOC Committed Amount.
"LOC COMMITTED AMOUNT" shall have the meaning assigned to that term in
Section 2.2.
"LOC DOCUMENTS" shall mean, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in connection
therewith, any application therefor, and any agreements, instruments, guarantees
or other documents (whether general in application or applicable only to such
Letter of Credit) governing or providing for (a) the rights and obligations of
the parties concerned or at risk or (b) any collateral security for such
obligations.
"LOC OBLIGATIONS" shall mean the Borrower's reimbursement obligations
hereunder (actual or contingent) arising from drawings under Letters of Credit.
The amount of the LOC Obligations outstanding at any time equals the sum of (a)
the maximum aggregate amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding, assuming
compliance with all requirements for drawings referred to in such Letters of
Credit, PLUS (b) the aggregate amount of all drawings under Letters of Credit
honored by the Issuing Lender but not theretofore reimbursed by the Borrower.
The LOC Obligations of any Lender at any time shall mean its Revolving
Commitment Percentage of the aggregate LOC Obligations at such time.
"MANDATORY REDEEMABLE PREFERRED STOCK" shall mean Preferred Stock
issued to the gmi Shareholders pursuant to the terms of the gmi Acquisition
Agreement that is convertible to common stock of the Borrower or Indebtedness of
the Borrower, in accordance with its terms.
"MATERIAL ADVERSE CHANGE" shall mean a material adverse change in (a)
the condition (financial or otherwise), operations, business, assets,
liabilities (actual or contingent),
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<PAGE> 22
historical or projected revenues or cash flows, material relationships or
management of the Credit Parties taken as a whole, (b) the ability of any Credit
Party to perform any material obligation under the Credit Documents to which it
is a party or (c) the material rights and remedies of the Lenders under the
Credit Documents. In determining whether any individual event or occurrence of
the foregoing types would result in a Material Adverse Change, notwithstanding
that a particular event or occurrence does not itself have constitute such a
change, a Material Adverse Change shall be deemed to have occurred if the
cumulative effect of such event or occurrence and all other events or
occurrences of the foregoing types which have occurred would result in a
Material Adverse Change.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the condition (financial or otherwise), operations, business, assets,
liabilities (actual or contingent), historical or projected revenues or cash
flows, material relationships or management of the Credit Parties taken as a
whole, (b) the ability of any Credit Party to perform any material obligation
under the Credit Documents to which it is a party or (c) the material rights and
remedies of the Lenders under the Credit Documents. In determining whether any
individual event or occurrence of the foregoing types would result in a Material
Adverse Effect, notwithstanding that a particular event or occurrence does not
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event or occurrence and all other
events or occurrences of the foregoing types which have occurred would result in
a Material Adverse Effect.
"MATERIAL CONTRACTS" shall have the meaning assigned to that term in
Section 5.22.
"MATERIALS OF ENVIRONMENTAL CONCERN" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous, toxic, radioactive or explosive substances, materials or wastes,
defined or regulated as such in or under any Environmental Laws, including
asbestos, polychlorinated biphenyls and ureaformaldehyde insulation and all
other substances or wastes of any nature regulated pursuant to any Environmental
Law.
"MATURITY DATE" shall mean June 26, 2000.
"MOODY'S" shall mean Moody's Investors Service, Inc., or any successor
to such company in the business of rating securities.
"MULTIEMPLOYER PLAN" shall mean a Plan which is a multiemployer plan as
defined in Section 3(37) or 4001(a)(3) of ERISA.
"MULTIPLE EMPLOYER PLAN" shall mean a Plan which any Credit Party or
any ERISA Affiliate and at least one employer other than any Credit Party or any
ERISA Affiliate are contributing sponsors.
"NATIONSBANK" shall mean NationsBank, N. A. and its successors.
"NET CASH PROCEEDS" shall mean (a) with respect to any Asset
Disposition, (i) the gross amount of cash proceeds (including Insurance Proceeds
and Condemnation Awards in
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<PAGE> 23
the case of any Casualty or Condemnation except to the extent and for as long as
such Insurance Proceeds or Condemnation Awards are Reinvestment Funds or unless
such Insurance Proceeds or Condemnation Awards are to be used for repair,
restoration or replacement pursuant to plans approved by the Required Lenders)
actually paid to or actually received by any Credit Party in respect of such
Asset Disposition (including cash proceeds subsequently received at any time in
respect of such Asset Disposition from non-cash consideration initially received
or otherwise), LESS (ii) the sum of (A) the amount, if any, of all taxes (other
than income taxes) and the Borrower's good-faith best estimate of all income
taxes or the amount of Permitted Tax Distributions relating thereto, as the case
may be (to the extent that such amount shall have been set aside for the purpose
of paying such taxes when due), and customary fees, brokerage fees, commissions,
costs and other expenses (other than those payable to any Credit Party or any
Affiliate of any such Person) that are incurred in connection with such Asset
Disposition and are payable by the seller or the transferor of the assets or
Property to which such Asset Disposition relates, but only to the extent not
already deducted in arriving at the amount referred to in clause (a)(i) above,
(B) appropriate amounts that must be set aside as a reserve in accordance with
GAAP against any liabilities associated with such Asset Disposition and (C) if
applicable, the amount of Indebtedness secured by a Permitted Lien that has been
repaid or refinanced as required in accordance with its terms with the proceeds
of such Asset Disposition; and (b) with respect to any Equity Issuance or Debt
Issuance, the gross amount of cash proceeds paid to or received by any Credit
Party in respect of such Equity Issuance or Debt Issuance, as the case may be
(including cash proceeds subsequently received at any time in respect of such
Equity Issuance or Debt Issuance from non-cash consideration initially received
or otherwise), net of underwriting discounts and commissions or placement fees,
investment banking fees, legal fees, consulting fees, accounting fees and other
customary fees and expenses directly incurred by any Credit Party in connection
therewith (other than those payable to any Credit Party or any Affiliate of any
such Person).
"NOTE" or "NOTES" shall mean the Revolving Notes.
"NOTICE OF BORROWING" shall mean a written notice of borrowing in
substantially the form of EXHIBIT G, as required by Section 2.1(b)(i).
"NOTICE OF EXTENSION/CONVERSION" shall mean the written notice of
extension or conversion in substantially the form of EXHIBIT I, as required by
Section 3.2.
"OPERATING LEASE" shall mean, as applied to any Person, any lease
(including leases which may be terminated by the lessee at any time) of any
Property (whether real, personal or mixed) by that Person as lessee which is not
a Capital Lease.
"OPERATIVE DOCUMENTS" shall mean the Credit Documents, the Acquisition
Agreements, the Intercreditor Agreement, and the Subordinated Note Documents.
"OTHER TAXES" shall have the meaning assigned to such term in Section
3.10(b).
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"PARTICIPATION INTEREST" shall mean a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in Section 2.2
or in any Loans or other obligations as provided in Section 3.13.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"PERFECTION CERTIFICATE" shall mean a certificate from the Credit
Parties substantially in the form of EXHIBIT M hereto.
"PERMITTED ACQUISITION" shall mean (a) the U-Gene Acquisition;
PROVIDED, THAT, the terms of Section 4.2 have been met; (b) the gmi Acquisition;
PROVIDED, THAT, the terms of Section 4.3 have been met; and (c) if the
acquisitions described in clauses (a) and (b) of this definition and a Qualified
Initial Public Offering have been consummated, then an acquisition by the
Borrower or any Wholly Owned Domestic Subsidiary of the Borrower of the Capital
Stock or all or substantially all of the Property of another Person (including
by merger or consolidation or by incorporation of a new Subsidiary) for up to
the fair market value of the Capital Stock or Property acquired, PROVIDED, THAT,
(i) the Capital Stock or Property acquired in such acquisition relates directly
to the business of the Borrower or any of its Subsidiaries as existing on the
Closing Date, (ii) the liabilities (determined in accordance with GAAP and in
any event including contingent obligations) acquired by the Borrower and its
Subsidiaries on a consolidated basis in such acquisition and any Indebtedness
issued, incurred or assumed by the Borrower and its Subsidiaries on a
consolidated basis from such acquisition (as permitted hereunder) shall not in
the aggregate exceed $2,500,000, (iii) the Agent shall have received all items
in respect of the Capital Stock or Property acquired in such acquisition (and/or
the seller thereof) required to be delivered by the terms of Section 6.11 and/or
Section 6.12, (iv) in the case of an acquisition of the Capital Stock of another
Person, (A) except in the case of the incorporation of a new Subsidiary, the
board of directors (or other comparable governing body) of such other Person
shall have duly approved such acquisition and (B) the Capital Stock acquired
shall constitute 100% of the Total Voting Power and ownership interest of the
issuer thereof, (v) no Default or Event of Default shall have occurred and be
continuing immediately before or immediately after giving effect to such
acquisition and the Borrower shall have delivered to the Agent a Pro Forma
Compliance Certificate demonstrating that, upon giving effect to such
acquisition on a Pro Forma Basis, the Borrower shall be in compliance with all
of the financial covenants set forth in Section 7.18 as of the last day of the
most recent period of four consecutive fiscal quarters of the Borrower which
precedes or ends on the date of such acquisition and with respect to which the
Agent has received the Required Financial Information, (vi) the representations
and warranties made by the Credit Parties in each Credit Document shall be true
and correct in all material respects as of the date of such acquisition (as if
made on such date after giving effect thereto) 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 in all
material respects at and as of such earlier date), (vii) after giving effect to
such acquisition, the Revolving Committed Amount shall be at least $1,500,000
greater than the sum of all Revolving Loans outstanding PLUS all LOC Obligations
outstanding and (viii) the aggregate consideration (including cash, assumption
of indebtedness and non-cash consideration) for any single acquisition (or
series of related acquisitions) shall not exceed $4,000,000 and the
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aggregate consideration (including cash, assumption of indebtedness and non-cash
consideration) for all such acquisitions occurring during any fiscal year of the
Borrower during the term hereof shall not exceed $15,000,000.
"PERMITTED DIVIDENDS" shall mean (i) for so long as the Borrower
remains a "S Corporation" for Federal income tax purposes, Permitted Tax
Distributions, (ii) for so long as the Borrower remains a "S Corporation" for
Federal income tax purposes, (A) the aggregate sum of $400,000 distributed to
the Permitted Holders during the first calendar quarter of 1997, (B) the
aggregate sum of $150,000 distributed or to be distributed to the Permitted
Holders during the second calendar quarter of 1997, and (C) an aggregate sum not
to exceed $150,000 to be distributed to the Permitted Holders during each
calendar quarter after the Closing Date, as long as such distributions are made
from Consolidated Net Income, less Permitted Tax Distributions, for such
quarterly period and (iii) at the time of a Qualified Initial Public Offering,
dividends in the aggregate sum not in excess of $700,000 to be distributed to
the Permitted Holders for the purpose of distributing earnings of the Borrower
on which the Permitted Holders have theretofore paid Stockholder Taxes. For
purposes of clause (ii)(C) above, the net earnings from which the quarterly
distribution may be made shall be computed on a cumulative basis each calendar
year, and any payment not permitted in an early quarter because of the earnings
limitations, may be made in a later quarter when and if cumulative earnings for
the current year are sufficient.
"PERMITTED HOLDERS" shall mean Candace Kendle Bryan, Christopher C.
Bergen, Hazel Kendle, William J. Keating, Jr., as Trustee of the Kendle stock
trust and the Persons listed on Schedule 1.1C.
"PERMITTED INVESTMENTS" shall mean Investments which consist of (a)
cash held in a deposit account with the Agent or any other reputable bank or
other depository institution which has executed and delivered a Depository Bank
Agreement with the Agent; (b) Cash Equivalents subject to a perfected first
priority security interest of the Agent in favor of the Secured Parties; (c)
trade accounts receivable (and related notes and instruments) arising in the
ordinary course of business in accordance with customary trade terms; (d)
Investments existing as of the Closing Date and set forth in SCHEDULE 1.1A; (e)
Guaranty Obligations permitted by Section 7.1; (f) advances or loans to
directors, officers, employees, agents, customers or suppliers that do not
exceed $250,000 in the aggregate at any one time outstanding for all of the
Borrower and its Subsidiaries; (g) Investments by the Borrower or any
Wholly-Owned Subsidiary in Subsidiaries of the Borrower or by any Subsidiary in
the Borrower evidenced by Intercompany Notes pledged to the Agent for the
benefit of the Secured Parties; PROVIDED, THAT, (i) the aggregate principal
amount of such Intercompany Notes issued by Foreign Subsidiaries of the Borrower
to the Borrower or to any Domestic Subsidiary of the Borrower and outstanding at
any time shall not exceed $2,500,000 in the aggregate, (ii) no Investments shall
be made in the Capital Stock of any Foreign Subsidiary except as a Permitted
Acquisition; and (iii) Investments in a Wholly Owned Subsidiary are permitted
only so long as such person remains a Wholly Owned Subsidiary; or (h) Permitted
Acquisitions.
"PERMITTED LIENS" shall mean (a) Liens in favor of the Agent on behalf
of the Secured Parties; (b) Liens (other than Liens created or imposed under
ERISA) for taxes or other
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governmental charges, assessments or levies which are not yet due or being
contested in good faith by appropriate proceedings diligently pursued and for
which adequate reserves determined in accordance with GAAP have been established
(and as to which the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof); (c) statutory Liens of landlords
and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and
other Liens imposed by law or pursuant to customary reservations or retentions
of title arising in the ordinary course of business, PROVIDED, THAT, such Liens
secure only amounts which are not yet due and payable (or, if due and payable,
are unfiled and no other action has been taken to enforce the same) or are being
contested in good faith by appropriate proceedings diligently pursued and for
which adequate reserves determined in accordance with GAAP have been established
(and as to which the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof); (d) Liens (other than Liens
created or imposed under ERISA) incurred or deposits made by the Borrower or any
of its Subsidiaries in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of Indebtedness);
(e) Liens in connection with attachments or judgments (including judgment or
appeal bonds); PROVIDED, THAT, the judgments secured shall, within thirty (30)
days after the entry thereof, have been discharged or execution thereof stayed
pending appeal (and shall have been discharged within thirty (30) days after the
expiration of any such stay); (f) easements, rights-of-way, restrictions
(including zoning restrictions), minor defects or irregularities in title and
other similar charges or encumbrances not, in any material respect, impairing
the use of the encumbered Property for its intended purposes; (g) Liens on
Property securing purchase money Indebtedness (including Capital Leases) to the
extent permitted under Section 7.1(c), PROVIDED, THAT, (i) any such Indebtedness
is incurred and such Lien attaches to such Property concurrently with or within
ninety (90) days after the acquisition thereof and (ii) such Indebtedness is not
secured by a Lien on any other assets; (h) any interest of title of a lessor
under, and Liens arising from UCC financing statements (or equivalent filings,
registrations or agreements in foreign jurisdictions) relating to, leases
(excluding Capital Leases) permitted by this Agreement; (i) Liens existing as of
the Closing Date and set forth on SCHEDULE 1.1B; PROVIDED, THAT (A) no such Lien
shall at any time be extended to or cover any Property other than the Property
subject thereto on the Closing Date and (B) the principal amount of the
Indebtedness secured by such Liens shall not be extended, renewed, refunded or
refinanced; and (j) the second priority Liens held by the Subordinated
Noteholders as subject to the terms of the Intercreditor Agreement.
"PERMITTED TAX DISTRIBUTION AGREEMENT" shall mean an agreement between
the Borrower and a holder of Capital Stock of the Borrower substantially in the
form of EXHIBIT O attached hereto (as amended, modified, extended, renewed,
restated or replaced from time to time in accordance with its terms).
"PERMITTED TAX DISTRIBUTIONS" shall mean distributions by the Borrower
to the holders of its Capital Stock for Stockholder Taxes; PROVIDED, THAT, no
distribution for Stockholder Taxes shall be deemed permitted for purposes hereof
(A) unless and until each holder of Capital Stock of the Borrower shall have
executed and delivered to the Borrower a Permitted
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Tax Distribution Agreement and (B) after the occurrence of any Bankruptcy Event
relating to the Borrower.
"PERMITTED WARRANT NOTES" shall mean the promissory notes issuable
pursuant to the terms of the Warrants; PROVIDED, THAT, the terms of each such
promissory note shall provide that (a) interest will be payable solely in
additional notes of the same tenor and not in cash, (b) the stated maturity will
be at least one (1) year following the payment in full of all Credit
Obligations, (c) such note will be subordinated in right of payment to all
Credit Obligations pursuant to the Intercreditor Agreement, (d) such note, and
related agreements or instruments, shall not contain any financial covenants,
affirmative covenants, negative covenants or mandatory prepayment events or any
representations and warranties as to financial performance or operations, (e)
except for (i) cross-acceleration to the Subordinated Note Purchase Agreement
and (ii) default in payment at maturity, such note and other agreements and
instruments shall not contain any events of default and (f) all other terms of
such note or any related agreements or instruments shall be satisfactory to the
Required Lenders.
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated) or any Governmental Authority or any other entity.
"PLAN" shall mean any employee benefit plan (as defined in Section 3(3)
of ERISA) which is covered by ERISA and with respect to which any Credit Party
or any ERISA Affiliate is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of
Section 3(5) of ERISA.
"PLEDGE AGREEMENT" shall mean the Pledge Agreement dated as of the
Closing Date in the form of EXHIBIT A to be executed by the Permitted Holders
(other than those Permitted Holders that are listed on Schedule 1.1C hereto) in
favor of the Agent for the benefit of the Secured Parties, as amended, modified,
restated or supplemented from time to time.
"PRIME RATE" shall mean the per annum rate of interest established from
time to time by NationsBank as its prime rate, which rate may not be the lowest
rate of interest charged by NationsBank to its customers.
"PREFERRED STOCK", as applied to the Capital Stock of any person, shall
mean Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over the Capital Stock of any other class of
such person.
"PRO FORMA BASIS" shall mean that, for purposes of calculating
compliance in respect of any transaction with each of the financial covenants
set forth in Section 7.18 such transaction (and any other transaction which
occurred during the relevant four-fiscal quarter period) shall be deemed to have
occurred as of the first day of the most recent period of four consecutive
fiscal quarters of the Borrower preceding the date of such transaction with
respect to which the Agent has received the Required Financial Information. As
used in this
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definition, "transaction" shall mean (i) any incurrence or assumption of
Indebtedness (and the concurrent retirement of any other Indebtedness) as
referred to in Section 7.1(h)(i), (ii) any merger or consolidation as referred
to in Section 7.4(c), (iii) any Asset Disposition of a business or business unit
as referred to in Section 7.5(a) or (iv) any Permitted Acquisition referred to
in Section 7.6. With respect to any transaction of the type described in clause
(i) above regarding Indebtedness which has a floating or formula rate, the
implied rate of interest for such Indebtedness for the applicable period for
purposes of this definition shall be determined by utilizing the rate which is
or would be in effect with respect to such Indebtedness as at the relevant date
of determination. With respect to any transaction of the type described in
clause (ii) or (iv) above, any Indebtedness incurred by the Borrower or any of
its Subsidiaries in order to consummate such transaction (and any other
transaction which occurred during the relevant four-fiscal quarter period) (A)
shall be deemed to have been incurred on the first day of the relevant four
fiscal-quarter period and (B) if such Indebtedness has a floating or formula
rate, then the implied rate of interest for such Indebtedness for the applicable
period for purposes of this definition shall be determined by utilizing the rate
which is or would be in effect with respect to such Indebtedness as at the
relevant date of determination. In connection with any calculation of the
financial covenants set forth in Section 7.18 upon giving effect to a
transaction on a Pro Forma Basis for purposes of Section 7.1(h)(i), Section
7.4(c), Section 7.5 or Section 7.6, as applicable:
(A) for purposes of any such calculation in respect of any
incurrence or assumption of Indebtedness (and to the concurrent
retirement of any other Indebtedness) as referred to in Section
7.1(h)(i), any such Indebtedness which is retired shall be excluded and
deemed to have been retired as of the first day of the relevant four
fiscal quarter period;
(B) for purposes of any such calculation in respect of any
Asset Disposition of a business or business unit as referred to in
Section 7.5, (1) income statement items (whether positive or negative)
attributable to the Property disposed of in such Asset Disposition
shall be excluded to the extent relating to any period prior to the
date of such transaction and (2) any Indebtedness which is retired in
connection with such Asset Disposition shall be excluded and deemed to
have been retired as of the first day of the relevant four
fiscal-quarter period; and
(C) for purposes of any such calculation in respect of any
merger or consolidation as referred to in Section 7.4(c) or any
Permitted Acquisition as referred to in Section 7.6, (1) any
Indebtedness incurred by the Borrower or any of its Subsidiaries in
connection with such transaction shall be deemed to have been incurred
as of the first day of the relevant four fiscal-quarter period and (2)
income statement items (whether positive or negative) attributable to
the Property acquired in such transaction or to the Investment
comprising such transaction, as applicable, shall be included to the
extent relating to the relevant four fiscal-quarter period.
"PRO FORMA COMPLIANCE CERTIFICATE" shall mean a certificate of the
chief financial officer of the Borrower (as to which there shall be no
individual, as opposed to corporate, liability) delivered to the Agent in
connection with (a) any incurrence or assumption of Indebtedness (and the
concurrent retirement of any other Indebtedness) as referred to in
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Section 7.1(h)(i), (b) any merger or consolidation as referred to in Section
7.4(c), (c) any Asset Disposition as referred to in Section 7.5(a) or (d) any
Permitted Acquisition as referred to in Section 7.6, as applicable, and
containing reasonably detailed calculations, upon giving effect to the
applicable transaction on a Pro Forma Basis, of the Fixed Charge Coverage Ratio,
Senior Leverage Ratio and the Total Leverage Ratio as of the last day of the
most recent period of four consecutive fiscal quarters of the Borrower which
precede or end on the date of the applicable transaction and with respect to
which the Agent shall have received the Required Financial Information.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"QUALIFIED INITIAL PUBLIC OFFERING" shall mean an initial registered
public offering pursuant to an effective registration statement under the
Securities Act of 1933 covering the offer and sale of common stock of the
Borrower to the public of no more than 50% of the common stock of the Borrower,
underwritten by a nationally recognized investment banking firm, at a price per
share greater than or equal to $7.50, that generates gross cash proceeds to the
Borrower of at least $25,000,000.00.
"RECEIVABLES" shall mean all accounts receivable, receivables, and
obligations for payment created or arising from the sale of inventory or the
rendering of services in the ordinary course of business.
"REGISTER" shall have the meaning assigned to such term in Section
10.3(c).
"REGULATION G, T, U OR X" shall mean Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof.
"REINVESTMENT FUNDS" shall mean, with respect to any Insurance Proceeds
from a Casualty or any Condemnation Award from a Condemnation, that portion of
such funds as shall, according to a certificate of a Responsible Officer of the
Borrower delivered to the Agent within thirty (30) days after the occurrence of
such Casualty or Condemnation (and in any case prior to the receipt thereof by
any Credit Party), be reinvested in the repair, restoration or replacement of
the properties and assets that were the subject of such Casualty or
Condemnation; PROVIDED, THAT (a) the aggregate amount of such proceeds with
respect to any such event or series of related events shall not exceed
$5,000,000, (b) such certificate shall be accompanied by evidence reasonably
satisfactory to the Agent that any Property subject to such Casualty or
Condemnation has been or will be repaired, restored or replaced to its condition
immediately prior to such Casualty or Condemnation, (c) pending such
reinvestment, the entire amount of such proceeds shall be deposited in an
account with the Agent for the benefit of the Secured Parties, over which the
Agent shall have sole control and exclusive right of withdrawal, (d) from and
after the date of delivery of such certificate, the Borrower shall diligently
proceed, in a commercially reasonable manner, to complete the repair,
restoration or replacement of the Properties and assets that were the subject of
such Casualty or Condemnation as described in such certificate and (e) no
Default or Event of Default shall have occurred and be continuing; and PROVIDED
FURTHER that, if any of the
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<PAGE> 30
foregoing conditions shall cease to be satisfied at any time, such funds shall
no longer be deemed Reinvestment Funds and such funds shall immediately be
applied to prepayment of the Credit Obligations in accordance with Section
3.3(b).
"RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles containing any Materials of Environmental Concern).
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice requirement has
been waived by regulation.
"REQUIRED FINANCIAL INFORMATION" shall mean, with respect to any
period, the financial statements of the Borrower with respect to such period as
required pursuant to Section 6.1(a) and 6.1(b).
"REQUIRED LENDERS" shall mean, at any time, Lenders which are then in
compliance with their obligations hereunder (as determined by the Agent) and
holding in the aggregate more than fifty-one percent (51%) of the total of the
Revolving Commitments held by all such Lenders (or, if the Revolving Commitments
have been terminated in whole, the outstanding Revolving Loans and Participation
Interests in outstanding Letters of Credit). For purposes of the foregoing, (A)
the interest of any Lender holding a Loan in which any other Lender has a
Participation Interest pursuant to Section 3.13 shall be calculated net of all
such Participation Interests of other Lenders and (B) the Participation Interest
of any Lender pursuant to Section 3.13 in a Loan held by any other Lender shall
be counted as if such Lender holding such Participation Interest held a
proportionate part of the related Loan directly.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation order, writ, judgment, injunction,
decree, permit or determination of an arbitrator or a court or other
Governmental Authority or other restriction imposed by any Governmental
Authority, in each case applicable to or binding upon such Person or to which
any of its Property is subject.
"RESERVE REQUIREMENT" shall mean, at any time, the maximum rate at
which reserves (including any marginal, special, supplemental, or emergency
reserves) are required to be maintained under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any successor)
by member banks of the Federal Reserve System against "Eurocurrency Liabilities"
(as such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by such member banks with respect to (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate is
to be determined or (b) any category of extensions of credit or other assets
which include Eurodollar Loans. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement.
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"RESPONSIBLE OFFICER" shall mean, as to any Person, the president,
chief executive officer, chief operating officer, any financial officer, any
vice president, the Director of Mergers and Acquisitions, or the general counsel
of such Person (or, in the case of a partnership, of the managing general
partner of such Person). It is understood that any certificate delivered to the
Agent or the Lenders hereunder by a Responsible Officer shall be given by the
Person in his or her capacity an officer, and not in any individual capacity
that imparts personal liability to such Person.
"RESTRICTED PAYMENT" shall mean (i) any dividend or other distribution,
direct or indirect, on account of any class of Capital Stock of any Credit
Party, now or hereafter outstanding, (ii) any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any class of Capital Stock of any Credit Party, now or hereafter
outstanding, (iii) any payment made to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire any class of
Capital Stock of any Credit Party, now or hereafter outstanding, and (iv) any
payment or prepayment of principal of, premium, if any, or interest on,
redemption, purchase, retirement, defeasance, sinking fund or similar payment
with respect to, the Subordinated Notes and the Permitted Warrant Notes.
"REVOLVING COMMITMENT" shall mean, with respect to any Lender, the
commitment of such Lender, in an aggregate principal amount at any time
outstanding of up to such Lender's Revolving Commitment Percentage of the
Revolving Committed Amount, to (a) make Revolving Loans in accordance with the
provisions of Section 2.1(a) and (b) purchase Participation Interests in Letters
of Credit in accordance with the provisions of Section 2.2(c).
"REVOLVING COMMITMENT PERCENTAGE" shall mean, for any Lender, the
percentage, if any, identified as its Revolving Commitment Percentage on
SCHEDULE 2.1(a) (or in the Assignment and Acceptance pursuant to which such
Lender assumed its Revolving Commitment), as such percentage may be modified in
connection with any assignment made in accordance with the provisions of this
Agreement.
"REVOLVING COMMITTED AMOUNT" shall have the meaning assigned to that
term in Section 2.1(a).
"REVOLVING LOANS" shall have the meaning assigned to that term in
Section 2.1(a).
"REVOLVING NOTE" or "REVOLVING NOTES" shall mean the promissory notes
of the Borrower in favor of each of the applicable Lenders evidencing the
Revolving Loans provided pursuant to Section 2.1(e), individually or
collectively, as appropriate, as such promissory notes may be amended, modified,
restated, supplemented, extended, renewed or replaced from time to time.
"S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor or assignee of the business of such division in the
business of rating securities.
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<PAGE> 32
"SALE AND LEASEBACK TRANSACTION" shall mean any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to any Credit Party of any Property, whether owned by any Credit
Party as of the Closing Date or later acquired, which has been or is to be sold
or transferred by any Credit Party to such Person or to any other Person from
whom funds have been, or are to be, advanced by such Person on the security of
such Property.
"SECURED PARTIES" shall mean (a) the Lenders, (b) the Agent, in its
capacity as such under each Credit Document, (c) each Lender or Affiliate
thereof with which the Borrower or any of its Subsidiaries enters into a Lender
Hedging Agreement as permitted hereunder, in its capacity as a party to such
Lender Hedging Agreement, (d) the beneficiaries of each indemnification
obligation undertaken by any Credit Party under any Credit Document and (e) the
successors and permitted assigns of the foregoing.
"SECURITY AGREEMENT" shall mean the Pledge and Security Agreement dated
as of the Closing Date in the form of EXHIBIT B to be executed in favor of the
Agent for the benefit of the Secured Parties by each of the Domestic
Subsidiaries, as amended, modified, restated or supplemented from time to time.
"SELLER" shall mean each of the sellers under Acquisition Agreements.
"SENIOR LEVERAGE RATIO" shall mean, as of any reporting day, the ratio
of (a) the sum of (i) Funded Indebtedness of the Borrower and its Consolidated
Subsidiaries on a consolidated basis as of the last day of the period of four
(4) consecutive fiscal quarters of the Borrower ending on, or most recently
preceding, such day, less all outstanding and unpaid Indebtedness evidenced by
the Subordinated Note Documents as of such day, PLUS (ii) an amount equal to
Consolidated Rent Expense for such period multiplied by 8, to (b) Consolidated
EBITDAR for such period.
"SINGLE EMPLOYER PLAN" shall mean any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"SHAREHOLDER AGREEMENT" shall mean the Amended and Restated Kendle
Stockholder Agreement dated June 25, 1997 and entered into by and among the
Permitted Holders (other than those Permitted Holders listed on Schedule 1.1C)
and the Subordinated Noteholders.
"SOLVENT" or "SOLVENCY" shall mean, with respect to any Person as of a
particular date, that on such date (i) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (ii) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities as
they mature in their ordinary course, taking into account the timing of and
amounts of cash to be received by such Person and the timing of and amounts of
cash to be payable on or in respect of debts and liabilities of such Person,
(iii) such Person is not engaged in a business or a transaction, and is not
about to engage in a business or a transaction, for which such Person's Property
would constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such Person is engaged or is to
engage,
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(iv) the fair value of the Property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person and (v)
the present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts and liabilities as they become absolute and matured. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"STANDBY LETTER OF CREDIT FEE" shall have the meaning assigned to such
term in Section 3.5(c)(i).
"STOCKHOLDER TAXES" shall mean, so long as the Borrower remains an "S
Corporation" treated as a pass-through entity for United States Federal income
tax purposes, taxes for the holders of the Capital Stock of the Borrower arising
from their share of taxable income of the Borrower (excluding income from
dividends and distributions), calculated on a combined effective basis, as if
all stockholders were residents of Cincinnati, Ohio, so long as Candace Kendle
Bryan is a resident of Cincinnati, Ohio. However, during any period when Candace
Kendle Bryan is not a resident of Cincinnati, Ohio, taxes for the stockholders
of the Borrower shall be calculated at the highest applicable combined effective
Federal, state and local rates for any stockholder of the Borrower (the "HIGHEST
APPLICABLE EFFECTIVE RATE"); PROVIDED, THAT, the applicable combined effective
rate for Candace Kendle Bryan is at least 90% of the Highest Applicable
Effective Rate (or if not, at the lesser of (i) 120% of the applicable combined
effective rate for Candace Kendle Bryan and (ii) the Highest Applicable
Effective Rate). The rate or rates applied in the foregoing calculations shall
reflect whether any portion of the stockholders' share of taxable income is
ordinary income or capital gains.
"SUBORDINATED NOTE PURCHASE AGREEMENT" shall mean the Investment
Agreement dated as of June 26, 1997, by and among the Borrower and the
purchasers named therein, as in effect on the Closing Date.
"SUBORDINATED NOTES" shall mean the senior subordinated notes issued by
the Borrower in favor of the Subordinated Noteholders pursuant to the
Subordinated Note Purchase Agreement, as such Subordinated Notes may be amended,
modified, restated or supplemented and in effect from time to time.
"SUBORDINATED NOTE DOCUMENTS" shall mean the Subordinated Notes, the
Subordinated Note Purchase Agreement, the Warrants and the Permitted Warrant
Notes.
"SUBORDINATED NOTEHOLDERS" shall mean the holders from time to time of
the Subordinated Notes, or any of them.
"SUBSIDIARY" shall mean, as to any Person, (a) any corporation more
than 50% of whose Capital Stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly
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or indirectly through Subsidiaries, and (b) any partnership, association, joint
venture, limited liability company or other business entity in which such Person
directly or indirectly through Subsidiaries has more than 50% of the interest at
any time.
"TAXES" shall have the meaning assigned to such term in Section
3.10(a).
"TOTAL LEVERAGE RATIO" shall mean, as of any reporting day, the ratio
of (a) the sum of (i) Funded Indebtedness of the Borrower and its Consolidated
Subsidiaries on a consolidated basis as of the last day of the period of four
(4) consecutive fiscal quarters of the Borrower ending on, or most recently
preceding, such day, PLUS (ii) an amount equal to Consolidated Rent Expense for
such period multiplied by 8, PLUS (iii) to the extent not included in clause (i)
of this definition, an amount equal to the greater of (A) the liquidation value
of the Mandatory Redeemable Preferred Stock as of such day or (B) the aggregate
principal amount of Indebtedness that is issuable on conversion of such
Mandatory Redeemable Preferred Stock, to (b) Consolidated EBITDAR for such
period.
"TOTAL VOTING POWER" with respect to any Person on any date shall mean
the total number of votes which may be cast in the election of directors of such
Person at any meeting of stockholders of such Person if all securities entitled
to vote in the election of directors of such Person (on a fully diluted basis,
assuming the exercise, conversion or exchange of all rights, warrants, options
and securities outstanding on such date which are or may thereafter become
exercisable for, exchangeable for or convertible into, such voting securities)
were present and voted at such meeting (other than votes that may be cast only
upon the happening of a contingency).
"TYPE", with respect to a Loan, refers to whether such Loan is a
Eurodollar Loan or a Base Rate Loan.
"U-GENE" shall mean U-Gene Research B.V., a company based in Utrecht,
The Netherlands.
"U-GENE ACQUISITION AGREEMENT" shall mean the Stock Purchase Agreement
among the Borrower and the owners and holder of 100% of the issued and
outstanding Capital Stock of U-Gene.
"WARRANTS" shall mean the warrants issued pursuant to the Warrant
Agreement.
"WHOLLY OWNED SUBSIDIARY" of any Person shall mean any Subsidiary 100%
of whose Capital Stock (on a fully diluted basis) is at the time owned by such
Person directly or indirectly through other Wholly Owned Subsidiaries.
1.2 COMPUTATION OF TIME PERIODS. For purposes of computation of periods
of time hereunder, the word "from" shall mean "from and including" and the words
"to" and "until" each mean "to but excluding."
1.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein,
all accounting terms used herein shall be interpreted, and all financial
statements and certificates
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and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with the most recent annual or
quarterly financial statements delivered pursuant to Section 6.1 (or, prior to
the delivery of the first financial statements pursuant to Section 6.1.
consistent with the financial statements as at December 31, 1996); PROVIDED,
THAT, if (i) the Borrower shall object to determining such compliance on such
basis at the time of delivery of such financial statements due to any change in
GAAP or the rules promulgated with respect thereto after the Closing Date or
(ii) the Agent or the Required Lenders shall so object in writing within ninety
(90) days after delivery of such financial statements, then such calculations
shall be made on a basis consistent with the most recent financial statements
delivered by the Borrower to the Lenders as to which no such objection shall
have been made.
1.4 TERMS GENERALLY. The definitions in Section 1.1 shall apply equally
to both the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". All references herein to
Sections, Exhibits and Schedules shall be deemed references to Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless otherwise expressly provided herein, the word "day" means a
calendar day.
SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS. (a) REVOLVING COMMITMENT. Subject to the terms and
conditions hereof and in reliance upon the representations and warranties set
forth herein, each Lender severally agrees to make available to the Borrower
such Lender's Revolving Commitment Percentage of revolving credit loans
requested by the Borrower in Dollars ("REVOLVING LOANS") from time to time from
the Closing Date until the Maturity Date, or such earlier date as the Revolving
Commitments shall have been terminated as provided herein; PROVIDED, THAT, the
sum of the aggregate principal amount of outstanding Revolving Loans PLUS the
aggregate amount of outstanding LOC Obligations shall not at any time exceed an
amount equal to the difference between (i) TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00) and (ii) the amount of Indebtedness that is outstanding and
unpaid from time to time pursuant to Section 7.1(g) (as such aggregate maximum
amount may be reduced from time to time as provided in Section 3.4, the
"REVOLVING COMMITTED AMOUNT"); PROVIDED, FURTHER, with regard to each Lender
individually, that such Lender's outstanding Revolving Loans PLUS Participation
Interests in outstanding LOC Obligations shall not at any time exceed such
Lender's Revolving Commitment Percentage of the Revolving Committed Amount.
Revolving Loans may consist of Base Rate Loans or Eurodollar Loans, or a
combination thereof, as the Borrower may request, and may be repaid and
reborrowed in accordance with the provisions hereof; PROVIDED, THAT, no more
than six Eurodollar Loans shall be outstanding under this Agreement at any time.
For
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purposes hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same date,
although borrowings of Eurodollar Loans may, in accordance with the provisions
hereof, be combined through extensions or conversions at the end of existing
Interest Periods to constitute a single new Eurodollar Loan with the same
Interest Period. Revolving Loans hereunder may be repaid and reborrowed in
accordance with the provisions of this Agreement.
(b) REVOLVING LOAN BORROWINGS.
(i) NOTICE OF BORROWING. The Borrower shall request a
Revolving Loan borrowing by written notice (or telephonic notice
promptly confirmed in writing), in the form of a Notice of Borrowing
attached hereto as EXHIBIT G, to the Agent not later than 12:00 Noon
(Charlotte, North Carolina time) on the Business Day on the date of the
requested borrowing in the case of Base Rate Loans, and on the third
Business Day prior to the date of the requested borrowing in the case
of Eurodollar Loans. Each such request for borrowing shall be
irrevocable and shall specify (A) that a Revolving Loan is requested,
(B) the date of the requested borrowing (which shall be a Business
Day), (C) the aggregate principal amount to be borrowed and (D) whether
the borrowing shall be comprised of Base Rate Loans, Eurodollar Loans
or a combination thereof, and if Eurodollar Loans are requested, the
Interest Period(s) therefor. If the Borrower shall fail to specify in
any such Notice of Borrowing (y) an applicable Interest Period in the
case of a Eurodollar Loan, then such notice shall be deemed to be a
request for an Interest Period of one month, or (z) the Type of
Revolving Loan requested, then such notice shall be deemed to be a
request for a Base Rate Loan hereunder. The Agent shall give notice to
each Lender promptly upon receipt of each Notice of Borrowing pursuant
to this Section 2.1(b)(i), the contents thereof and each such Lender's
share of any borrowing to be made pursuant thereto.
(ii) MINIMUM AMOUNTS. Each Eurodollar Loan that comprises part
of the Revolving Loans shall be in a minimum aggregate principal amount
(for the applicable Lenders, collectively) of $500,000 and integral
multiples of $100,000 in excess thereof (or the then remaining amount
of the Revolving Committed Amount, if less). Each Base Rate Loan that
comprises part of the Revolving Loans shall be in a minimum aggregate
principal amount (for the applicable Lenders, collectively) of $100,000
and integral multiples of $100,000 in excess thereof (or the then
remaining amount of the Revolving Committed Amount if less).
(iii) ADVANCES. Each Lender will make its Revolving Commitment
Percentage of each Revolving Loan borrowing available to the Agent for
the account of the Borrower at the office of the Agent specified in
SCHEDULE 2.1(a), or in such other manner as the Agent may designate in
writing, by 3:00 P.M. (Charlotte, North Carolina time) on the date
specified in the applicable Notice of Borrowing in Dollars and in funds
immediately available to the Agent. Such borrowing will then be made
available to the Borrower by the Agent by crediting the account of the
Borrower on the books of such office with the aggregate of the amounts
made available to the Agent by the Lenders and in like funds as
received by the Agent.
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(c) REPAYMENT. The principal amount of all Revolving Loans shall be due
and payable in full on the Maturity Date, unless accelerated pursuant to Section
8.2.
(d) INTEREST. Subject to the provisions of Section 3.1,
(i) BASE RATE LOANS. During such periods as Revolving Loans
shall be comprised in whole or in part of Base Rate Loans, such Base
Rate Loans shall bear interest at a per annum rate equal to the
Adjusted Base Rate.
(ii) EURODOLLAR LOANS. During such periods as Revolving Loans
shall be comprised in whole or in part of Eurodollar Loans, such
Eurodollar Loans shall bear interest at a per annum rate equal to the
Adjusted Eurodollar Rate.
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (and at such other times as may be specified herein).
(e) REVOLVING NOTES. The Revolving Loans made by each Lender shall be
evidenced by a duly executed promissory note of the Borrower to such Lender in
substantially the form of EXHIBIT H and in a principal amount equal to such
Lender's Revolving Commitment Percentage of the Revolving Committed Amount.
2.2 LETTER OF CREDIT SUBFACILITY. (a) ISSUANCE. Subject to the terms
and conditions hereof and of the LOC Documents, if any, and any other terms and
conditions which the Issuing Lender may reasonably require and in reliance upon
the representations and warranties set forth herein, the Issuing Lender agrees
to issue, and each Lender severally agrees to participate on the terms set forth
in this Section 2.2 in the issuance by the Issuing Lender of, standby Letters of
Credit in Dollars from time to time from the Closing Date until the Maturity
Date as the Borrower may request, in a form acceptable to the Issuing Lender;
PROVIDED, THAT (i) the LOC Obligations outstanding shall not at any time exceed
NINE MILLION AND NO/100 DOLLARS ($9,000,000.00) (as reduced pursuant to Section
3.4(b)(ii)), the "LOC COMMITTED AMOUNT") and (ii) the sum of the aggregate
principal amount of outstanding Revolving Loans, PLUS the aggregate amount of
outstanding LOC Obligations outstanding shall not at any time exceed the
Revolving Committed Amount. No Letter of Credit shall (x) have an original
expiry date more than one year from the date of issuance or (y) as originally
issued or as extended, have an expiry date extending beyond the Maturity Date.
Each Letter of Credit shall comply with the related LOC Documents. The issuance
and expiry dates of each Letter of Credit shall each be a Business Day.
(b) NOTICE AND REPORTS. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the Issuing Lender at least three
(3) Business Days prior to the requested date of issuance. The Issuing Lender
will, at least quarterly and more frequently upon request, disseminate to each
of the affected Lenders a detailed report specifying the Letters of Credit which
are then issued and outstanding and any activity with respect thereto which may
have occurred since the date of the most recent prior report, and including
therein, among other things, the beneficiary, the face amount and the expiry
date, as well as any payments or expirations which may have occurred.
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(c) PARTICIPATION. Each Lender, upon issuance of a Letter of Credit,
shall be deemed to have purchased without recourse from the Issuing Lender a
Participation Interest in such Letter of Credit and the obligations arising
thereunder and any collateral relating thereto, in each case in an amount equal
to its Revolving Commitment Percentage of the obligations under such Letter of
Credit and shall absolutely, unconditionally and irrevocably assume and be
obligated to pay to the Issuing Lender and discharge when due its Revolving
Commitment Percentage of the obligations arising under such Letter of Credit.
Without limiting the scope and nature of each Lender's Participation Interest in
any Letter of Credit, to the extent that the Issuing Lender has not been
reimbursed as required hereunder or under any such Letter of Credit, each such
Lender shall pay to the Issuing Lender its Revolving Commitment Percentage of
such unreimbursed drawing pursuant to subsection (d) below. The obligation of
each Lender to so reimburse the Issuing Lender shall be absolute and
unconditional and shall not be affected by the occurrence of a Default, an Event
of Default or any other occurrence or event. Any such reimbursement shall not
relieve or otherwise impair the obligation of the Borrower to reimburse the
Issuing Lender under any Letter of Credit, together with interest as hereinafter
provided.
(d) REIMBURSEMENT. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. The Borrower
promises to reimburse the Issuing Lender on the day of drawing under any Letter
of Credit (either with the proceeds of a Revolving Loan obtained as provided in
subsection (e) below or with funds from other sources) in same day funds. Unless
the Borrower shall immediately notify the Issuing Lender that the Borrower
intends to reimburse the Issuing Lender for such drawing from other sources of
funds, the Borrower shall be deemed to have requested that the Lenders make a
Revolving Loan as provided in subsection (e) below in the amount of the drawing
on the related Letter of Credit and the proceeds of such Loan will be used to
reimburse the Issuing Lender for such drawing. If the Borrower shall fail to
reimburse the Issuing Lender as provided hereinabove, the unreimbursed amount of
such drawing shall bear interest at a per annum rate equal to the Adjusted Base
Rate PLUS 2%. The Borrower's reimbursement obligations hereunder shall be
absolute and unconditional under all circumstances irrespective of any rights of
setoff, counterclaim or defense to payment the Borrower may claim or have
against the Issuing Lender, the Agent, the Lenders, the beneficiary of the
Letter of Credit drawn upon or any other Person, including any defense based on
any failure of the Borrower or any other Credit Party to receive consideration
or the legality, validity, regularity or unenforceability of the Letter of
Credit. The Issuing Lender will promptly notify the other affected Lenders of
the amount of any unreimbursed drawing and each Lender shall promptly pay to the
Agent for the account of the Issuing Lender, in Dollars and in immediately
available funds, the amount of such Lender's Revolving Commitment Percentage of
such unreimbursed drawing. Such payment shall be made on the day such notice is
received by such Lender from the Issuing Lender if such notice is received at or
before 2:00 P.M. (Charlotte, North Carolina time) and otherwise such payment
shall be made at or before 12:00 Noon (Charlotte, North Carolina time) on the
Business Day next succeeding the day such notice is received. If such Lender
does not pay such amount to the Issuing Lender in full upon such request, such
Lender shall, on demand, pay to the Agent for the account of the Issuing Lender
interest on the unpaid amount during the period from the date of such drawing
until such Lender pays such amount to the Issuing Lender in full at a rate per
annum equal to, if paid within two (2) Business Days of the date that such
Lender is required to
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make payment of such amount pursuant to the preceding sentence, the Federal
Funds Rate and, if paid, thereafter, the Base Rate. Each Lender's obligation to
make such payment to the Issuing Lender, and the right of the Issuing Lender to
receive the same, shall be absolute and unconditional, shall not be affected by
any circumstance whatsoever, shall be satisfied without regard to the
termination of this Agreement or the Commitments hereunder, the existence of a
Default or Event of Default or the acceleration of the obligations of the
Borrower hereunder and shall be made without any offset, abatement, withholding
or reduction whatsoever. Simultaneously with the making of each such payment by
a Lender to the Issuing Lender, such Lender shall, automatically and without any
further action on the part of the Issuing Lender or such Lender, acquire a
Participation Interest in an amount equal to such payment (excluding the portion
of such payment constituting interest owing to the Issuing Lender) in the
unreimbursed drawn portion of the related Letter of Credit, in the interest on
the LOC Obligations in respect thereof and the related LOC Documents, and shall
have a claim against the Borrower with respect thereto.
(e) REPAYMENT WITH REVOLVING LOANS. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan advance
to reimburse a drawing under a Letter of Credit, the Agent shall give notice to
the affected Lenders that a Revolving Loan has been requested or deemed
requested by the Borrower to be made in connection with a drawing under a Letter
of Credit, in which case a Revolving Loan advance comprised of Base Rate Loans
(or Eurodollar Loans to the extent the Borrower has complied with the procedures
of Section 2.1(b)(i) with respect thereto) shall be immediately made to the
Borrower by all Lenders (notwithstanding any termination of the Commitments
pursuant to Section 8.2) pro rata based on the respective Revolving Commitment
Percentages of the Lenders (determined before giving effect to any termination
of the Commitments pursuant to Section 8.2) and the proceeds thereof shall be
paid directly to the Issuing Lender for application to the related LOC
Obligations. Each such Lender hereby irrevocably agrees to make its Revolving
Commitment Percentage of each such Revolving Loan immediately upon any such
request or deemed request in the amount, in the manner and on the date specified
in the preceding sentence notwithstanding (i) the amount of such borrowing may
not comply with the minimum amount for advances of Revolving Loans otherwise
required hereunder, (ii) whether any conditions specified in Section 4 are then
satisfied, (iii) whether a Default or an Event of Default then exists, (iv)
failure of any such request or deemed request for a Revolving Loan to be made by
the time otherwise required hereunder, (v) whether the date of such borrowing is
a date on which Revolving Loans are otherwise permitted to be made hereunder or
(vi) any termination of the Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any Revolving Loan
cannot for any reason be made on the date otherwise required above (including as
a result of the commencement of a proceeding under the Bankruptcy Code with
respect to the Borrower or any other Credit Party), then each such Lender hereby
agrees that it shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the Issuing
Lender such Participation Interests in the outstanding LOC Obligations as shall
be necessary to cause each such Lender to share in such LOC Obligations ratably
based upon the respective Revolving Commitment Percentages of the Lenders
(determined before giving effect to any termination of the Commitments pursuant
to Section 8.2), PROVIDED that at the time any purchase of Participation
Interests pursuant to this sentence is actually made, the
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purchasing Lender shall be required to pay to the Issuing Lender, to the extent
not paid to the Issuing Lender by the Borrower in accordance with the terms of
subsection (d) above, interest on the principal amount of Participation
Interests purchased for each day from and including the day upon which such
borrowing would otherwise have occurred to but excluding the date of payment for
such Participation Interests, at the rate equal to, if paid within two (2)
Business Days of the date on which the Revolving Loan advance was required, the
Federal Funds Rate, and, if paid thereafter, the Base Rate.
(f) DESIGNATION OF SUBSIDIARIES AS ACCOUNT PARTIES. Notwithstanding
anything to the contrary set forth in this Agreement, including Section 2.2(a),
a Letter of Credit issued hereunder may contain a statement to the effect that
such Letter of Credit is issued for the account of a Subsidiary of the Borrower,
PROVIDED that notwithstanding such statement, the Borrower shall be the actual
account party for all purposes of this Agreement for such Letter of Credit and
such statement shall not affect the Borrower's reimbursement obligations
hereunder with respect to such Letter of Credit.
(g) RENEWAL, EXTENSION. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as the
issuance of a new Letter of Credit hereunder.
(h) UNIFORM CUSTOMS AND PRACTICES. The Issuing Lender may have the
Letters of Credit be subject to The Uniform Customs and Practices for
Documentary Credits, as published as of the date of issue by the International
Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated
therein and deemed in all respects to be a part thereof.
(i) INDEMNIFICATION; NATURE OF ISSUING LENDER'S DUTIES.
(i) In addition to its other obligations under this Section
2.2, the Borrower hereby agrees to pay, and protect, indemnify and save
each Lender harmless from and against, any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that such Lender may incur or be subject to
as a consequence, direct or indirect, of (A) the issuance of any Letter
of Credit or (B) the failure of such Lender to honor a drawing under a
Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein called
"GOVERNMENT ACTS").
(ii) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary thereof.
No Lender (including the Issuing Lender) shall be responsible: (A) for
the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) for the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer
or assign any Letter of Credit or the rights or benefits thereunder or
proceeds
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thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be written; (D) for
any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (E) for any consequences arising from causes
beyond the control of such Lender, including any Government Acts. None
of the above shall affect, impair, or prevent the vesting of the
Issuing Lender's rights or powers hereunder.
(iii) In furtherance and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any
Lender (including the Issuing Lender) under or in connection with any
Letter of Credit or the related certificates, if taken or omitted in
good faith, shall not put such Lender under any resulting liability to
the Borrower or any other Credit Party. It is the intention of the
parties that this Agreement shall be construed and applied to protect
and indemnify each Lender (including the Issuing Lender) against any
and all risks involved in the issuance of the Letters of Credit, all of
which risks are hereby assumed by the Borrower (on behalf of itself and
each of the other Credit Parties), including any and all Government
Acts. No Lender (including the Issuing Lender) shall, in any way, be
liable for any failure by such Lender or anyone else to pay any drawing
under any Letter of Credit as a result of any Government Acts or any
other cause beyond the control of such Lender.
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d)
above. The obligations of the Borrower under this subsection (i) shall
survive the termination of this Agreement. No act or omission of any
current or prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Lenders (including the Issuing
Lender) to enforce any right, power or benefit under this Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (i), the Borrower shall have no obligation to indemnify any
Lender (including the Issuing Lender) in respect of any liability
incurred by such Lender (A) arising out of the gross negligence or
willful misconduct of such Lender, or (B) caused by such Lender's
failure to pay under any Letter of Credit after presentation to it of a
request strictly complying with the terms and conditions of such Letter
of Credit, as determined by a court of competent jurisdiction, unless
such payment is prohibited by any law, regulation, court order or
decree or such failure to pay is a result of any Government Act.
(j) RESPONSIBILITY OF ISSUING LENDER. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the Lenders are
only those expressly set forth in this Agreement and that the Issuing Lender
shall be entitled to assume that the conditions precedent set forth in Section 4
have been satisfied unless it shall have acquired actual knowledge that any such
condition precedent has not been satisfied; PROVIDED, THAT, nothing set forth in
this Section 2.2 shall be deemed to prejudice the right of any Lender to recover
from the Issuing Lender any amounts made available by such Lender to the Issuing
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Lender pursuant to this Section 2.2 in the event that it is determined by a
court of competent jurisdiction that the payment with respect to a Letter of
Credit constituted gross negligence or willful misconduct on the part of the
Issuing Lender.
(k) CONFLICT WITH LOC DOCUMENTS. In the event of any conflict between
this Agreement and any LOC Document (including any letter of credit
application), this Agreement shall control.
(l) CASH COLLATERAL. In the event that the Borrower is required
pursuant to the terms of this Agreement or any other Credit Document to cash
collateralize any LOC Obligations, the Borrower shall deposit in an account with
the Agent an amount in cash equal to 100% of such LOC Obligations. Such deposit
shall be held by the Agent as collateral for the payment and performance of the
LOC Obligations. The Agent shall have exclusive dominion and control, including
the exclusive right of withdrawal, over such account. The Agent will, at the
request of the Borrower, invest amounts on deposit in such account in Cash
Equivalents that mature prior to the last day of the applicable Interest Periods
of any Eurodollar Loans to be prepaid; PROVIDED, THAT (i) the Agent shall not be
required to make any investment that, in its sole judgment, would require or
cause the Agent to be in, or would result in any, violation of any law, statute,
rule or regulation (ii) such Cash Equivalents shall be subjected to a first
priority perfected security interest in favor of the Agent and (iii) if an Event
of Default shall have occurred and be continuing, the selection of such
investments shall be in the sole discretion of the Agent. The Borrower shall
indemnify the Agent for any losses relating to such investments. Other than any
interest or profits earned on such investments, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate in
such account. Moneys in such account shall be applied by the Agent to reimburse
the Issuing Lender immediately for drawings under Letters of Credit and, if the
maturity of the Loans has been accelerated, to satisfy the LOC Obligations. If
the Borrower is required to provide an amount of cash collateral hereunder as a
result of an Event of Default, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three (3) Business Days
after all Events of Default have been cured or waived. If the Borrower is
required to provide an amount of cash collateral hereunder pursuant to Section
3.3(b)(i), such amount (to the extent not applied as aforesaid) shall be
returned to the Borrower upon demand; PROVIDED, THAT, after giving effect to
such return, (i) the sum of the aggregate amount of outstanding LOC Obligations,
PLUS the aggregate principal amount of outstanding Revolving Loans, shall not
exceed the aggregate Revolving Committed Amount and (ii) no Default or Event of
Default shall have occurred and be continuing. The Borrower hereby pledges and
assigns to the Agent, for its benefit and the benefit of the Lenders, the cash
collateral accounts established hereunder (and all monies and investments held
therein) to secure the Credit Obligations.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 DEFAULT RATE. Upon the occurrence, and during the continuance, of
an Event of Default, the principal of and, to the extent permitted by law,
interest on the Loans and any other amounts owing hereunder or under the other
Credit Documents shall bear interest,
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payable on demand, at a per annum rate equal to (a) in the case of principal of
any Loan, the rate applicable to such Loan during such period pursuant to
Section 2, PLUS 2.00%, (b) in the case of interest on any Loan, the Adjusted
Base Rate for such Loan during such period PLUS 2.00% and (c) in the case of any
other amount, the Adjusted Base Rate for Revolving Loans during such period PLUS
2.00%.
3.2 EXTENSION AND CONVERSION. Subject to the terms of Section 4.4, the
Borrower shall have the option, on any Business Day, to extend existing Loans
into a subsequent permissible Interest Period or to convert Loans into Loans of
another Type; PROVIDED, THAT (i) except pursuant to in Section 3.8, Eurodollar
Loans may be converted into Base Rate Loans only on the last day of the Interest
Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate
Loans may be converted into Eurodollar Loans, only if no Default or Event of
Default is in existence on the date of extension or conversion, (iii) Loans
extended as, or converted into, Eurodollar Loans shall be subject to the terms
of the definition of "Interest Period" set forth in Section 1.1 and shall be in
such minimum amounts as provided in Section 2.1(b)(ii), (iv) the total number of
Eurodollar Loans outstanding at any time shall be no greater than the maximum
number provided in Section 2.1(a) (it being understood that, for purposes
hereof, Eurodollar Loans with different Interest Periods shall be considered as
separate Eurodollar Loans, even if they begin on the same date, although
borrowings may, in accordance with the provisions hereof, be combined through
extensions or conversions at the end of existing Interest Periods to constitute
a single new Eurodollar Loan with the same Interest Period) and (v) any request
for extension or conversion of a Eurodollar Loan which shall fail to specify an
Interest Period shall be deemed to be a request for an Interest Period of one
(1) month. Each such extension or conversion shall be effected by the Borrower
by giving a Notice of Extension/Conversion in the form of EXHIBIT I hereto (or
telephonic notice promptly confirmed in writing) to the office of the Agent
specified in specified in SCHEDULE 2.1(a), or at such other office as the Agent
may designate in writing, prior to 12:00 Noon (Charlotte, North Carolina time)
on the Business Day of, in the case of the conversion of a Eurodollar Loan into
a Base Rate Loan, and on the third Business Day prior to, in the case of the
extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a
Eurodollar Loan, the date of the proposed extension or conversion, specifying
the date of the proposed extension or conversion, the Loans to be so extended or
converted, the Types of Loans into which such Loans are to be converted and, if
appropriate, the applicable Interest Periods with respect thereto. Each request
for extension or conversion shall be irrevocable and shall constitute a
representation and warranty by the Borrower of the matters specified in Section
4.4. In the event the Borrower fails to request an extension or conversion of
any Eurodollar Loan in accordance with this Section 3.2, or any such requested
conversion or extension is not permitted by this Agreement, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Agent shall give each Lender notice as
promptly as practicable of any such proposed extension or conversion of any
Loan. Each extension or conversion shall be effected by each Lender and the
Agent by recording for the account of such Lender the new Loan of such Lender
resulting from such extension or conversion and reducing the Loan (or portion
thereof) of such Lender being extended or converted by an equivalent principal
amount. Accrued interest on a Loan (or portion thereof) being extended or
converted shall be paid by the Borrower (A) with respect to any Base Rate Loan
being converted to a
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Eurodollar Loan, on the last day of the first fiscal quarter of the Borrower
ending on or after the date of conversion and (B) otherwise, on the date of
extension or conversion.
3.3 PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. The Borrower shall have the
right to prepay Loans in whole or in part from time to time, subject to Section
3.11 but otherwise without premium or penalty; PROVIDED, THAT (i) each partial
prepayment of Eurodollar Loans shall be in a minimum principal amount of
$500,000 and integral multiples of $100,000 and each prepayment of Base Rate
Loans shall be in a minimum principal amount of $100,000 and integral multiples
of $100,000, and (ii) the Borrower shall have given prior written or telecopy
notice (or telephone notice promptly confirmed by written or telecopy notice) to
the Agent, in the case of a Base Rate Loan, by 12:00 Noon (Charlotte, North
Carolina time), on the date of prepayment and, in the case of a Eurodollar Loan,
by 11:00 A.M. (Charlotte, North Carolina time), at least three (3) Business Days
prior to the date of prepayment. Each notice of prepayment shall specify the
prepayment date, the principal amount to be prepaid, whether the Loan to be
prepaid is a Eurodollar Loan or Base Rate Loan and, in the case of a Eurodollar
Loan, the Interest Period of such Loan. Each notice of prepayment shall be
irrevocable and shall commit the Borrower to prepay such Loan by the amount
stated therein on the date stated therein. Subject to the foregoing terms,
amounts prepaid under this Section 3.3(a) shall be applied as the Borrower may
elect; PROVIDED, THAT, if the Borrower fails to specify the application of a
voluntary prepayment then such prepayment shall be applied first to Base Rate
Loans and then to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments under this Section 3.3(a) shall be subject to
Section 3.11.
(b) MANDATORY PREPAYMENTS.
(i) REVOLVING COMMITTED AMOUNT. If at any time, the sum of the
aggregate principal amount of outstanding Revolving Loans, PLUS the
aggregate amount of the outstanding LOC Obligations shall exceed the
Revolving Committed Amount, the Borrower immediately shall prepay,
within one day of such occurrence, the Revolving Loans and/or cash
collateralize the LOC Obligations pursuant to Section 2.2(l), in an
aggregate amount sufficient to eliminate such excess. Any payments
pursuant to this Section 3.3(b)(i) shall be applied as set forth in
clause (iv) below.
(ii) ASSET DISPOSITIONS. Immediately upon the occurrence of
any Asset Disposition (other than any Excluded Asset Disposition), the
Borrower shall prepay the Loans and/or cash collateralize the LOC
Obligations pursuant to Section 2.2(l) in an aggregate amount equal to
75% of the Net Cash Proceeds of the related Asset Disposition. Any
payments pursuant to this Section 3.3(b)(ii) shall be applied as set
forth in clause (iv) below).
(iii) DEBT ISSUANCES. Immediately upon the occurrence of any
Debt Issuance (other than Indebtedness permitted by Section 7.1(a)
through (g) inclusive), the Borrower shall prepay the Loans and/or cash
collateralize the LOC Obligations pursuant to Section 2.2(l) in an
aggregate amount equal to 75% of the Net Cash Proceeds of such Debt
Issuance. Any payments pursuant to this Section 3.3(b)(iii) shall be
applied as set forth in clause (iv) below.
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(iv) APPLICATION OF MANDATORY PREPAYMENTS. Prepayments shall
be applied first to Base Rate Loans and then, subject to subsection (v)
below, to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments under this Section 3.3(b) shall be subject
to Section 3.11. All prepayments under this Section 3.3(b) shall be
accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
(v) PREPAYMENT ACCOUNTS. Amounts to be applied as provided in
subsection (iv) above to the prepayment of Loans shall be applied first
to reduce outstanding Base Rate Loans. Any amounts remaining after each
such application shall, at the option of the Borrower, be applied to
prepay Eurodollar Loans immediately and/or shall be deposited in a
separate Prepayment Account (as defined below) for the Loans. The Agent
shall apply any cash deposited in the Prepayment Account for any Loans
to prepay Eurodollar Loans on the last day of their respective Interest
Periods (or, at the direction of the Borrower, on any earlier date)
until all outstanding Loans have been prepaid or until all the
allocable cash on deposit in the Prepayment Account has been exhausted.
For purposes of this Agreement, the term "PREPAYMENT ACCOUNT" for any
Loans shall mean an account established by the Borrower with the Agent
and over which the Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal for application in
accordance with this subsection. The Agent will, at the request of the
Borrower, invest amounts on deposit in the Prepayment Account for any
Loans in Cash Equivalents that mature prior to the last day of the
applicable Interest Periods of the Eurodollar Loans to be prepaid;
PROVIDED, THAT (i) the Agent shall not be required to make any
investment that, in its sole judgment, would require or cause the Agent
to be in, or would result in any, violation of any law, statute, rule
or regulation (ii) such Cash Equivalents shall be subjected to a first
priority perfected security interest in favor of the Agent and (iii) if
an Event of Default shall have occurred and be continuing, the
selection of such investments shall be in the sole discretion of the
Agent. The Borrower shall indemnify the Agent for any losses relating
to the investments so that the amount available to prepay Eurodollar
Loans on the last day of the applicable Interest Periods is not less
than the amount that would have been available had no investments been
made pursuant thereto. Other than any interest or profits earned on
such investments, the Prepayment Accounts shall not bear interest.
Interest or profits, if any, on the investments in any Prepayment
Account shall accumulate in such Prepayment Account. If the maturity of
the Loans has been accelerated pursuant to Section 8.2, the Agent may,
in its sole discretion, apply all amounts on deposit in the Prepayment
Account for any Loans to satisfy any of the Credit Obligations related
to such Loans. The Borrower hereby pledges and assigns to the Agent,
for its benefit and the benefit of the Lenders, each Prepayment Account
established hereunder to secure the Credit Obligations related to such
Loans.
(vi) NOTICE. The Borrower shall give to the Agent and the
Lenders at least five (5) Business Days' prior written or telecopy
notice of each and every event or occurrence requiring a prepayment
under Section 3.3(b)(ii) and (iii), including the amount of Net Cash
Proceeds expected to be received therefrom and the expected schedule
for receiving such proceeds; PROVIDED, that in the case of any
prepayment
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event consisting of a Casualty or Condemnation, the Borrower shall give
such notice within five (5) Business Days after the occurrence of such
event.
3.4 TERMINATION AND REDUCTION OF COMMITMENTS. (a) VOLUNTARY REDUCTIONS.
The Borrower may from time to time permanently reduce or terminate the Revolving
Committed Amount in whole or in part (in minimum aggregate amounts of $500,000
or in integral multiples of $100,000 in excess thereof (or, if less, the full
remaining amount of the then applicable Revolving Committed Amount)) upon five
(5) Business Days' prior written or telecopy notice to the Agent; PROVIDED,
THAT, no such termination or reduction shall be made which would cause the sum
at any time of the aggregate principal amount of outstanding Revolving Loans,
PLUS the aggregate amount of outstanding LOC Obligations to exceed the Revolving
Committed Amount as so terminated or reduced, unless, concurrently with such
termination or reduction, the Revolving Loans are repaid and, after the
Revolving Loans have been paid in full, the LOC Obligations are cash
collateralized to the extent necessary to eliminate such excess. The Agent shall
promptly notify each affected Lender of the receipt by the Agent of any notice
from the Borrower pursuant to this Section 3.4(a).
(b) MANDATORY REDUCTIONS.
(i) On any date that the Revolving Loans are required to be
prepaid and/or LOC Obligations are required to be cash collateralized
pursuant to the terms of Sections 3.3(b)(ii) or (iii) (or would be so
required if any Revolving Loans or LOC Obligations were outstanding),
the Revolving Committed Amount shall be automatically and permanently
reduced by the total amount of such required prepayments and cash
collateral (and, in the event that the amount of any payment referred
to in Sections 3.3(b)(ii) or (iii) which is allocable to the Credit
Obligations exceeds the amount of all outstanding Credit Obligations,
the Revolving Committed Amount shall be further reduced by 100% of such
excess).
(ii) On the date that is the earlier to occur of (A) September
30, 1997, (B) the occurrence of a Qualified Initial Public Offering,
(C) the closing of the gmi Acquisition and (D) any drawing on the gmi
Letters of Credit, the LOC Commitments and LOC Committed Amount shall
automatically and permanently be reduced to TWO MILLION AND No/100
DOLLARS ($2,000,000) and in connection therewith, the Borrower shall,
if necessary, cash collateralize LOC Obligations as required by Section
3.3(b)(i).
(c) MATURITY DATE. The Revolving Commitments of the Lenders and the LOC
Commitment of the Issuing Lender shall automatically terminate on the Maturity
Date.
(d) GENERAL. The Borrower shall pay to the Agent for the account of the
Lenders in accordance with the terms of Section 3.5(b), on the date of each
termination or reduction of the Revolving Committed Amount, the Facility Fee
accrued through the date of such termination or reduction on the amount of the
Revolving Committed Amount so terminated or reduced.
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3.5 FEES. (a) AGENT FEES. The Borrower agrees to pay to the Agent, for
its own account, the fees set forth in the fee letter dated June 5, 1997, as
amended by letter of even date herewith, among the Agent and the Borrower and in
the applicable provisions of the Commitment Letter dated June 5, 1997 among such
parties (together, the "FEE LETTER") in the amounts and on the dates provided in
the Fee Letter. Such fees shall be in addition to reimbursement of the Agent's
reasonable out-of-pocket expenses pursuant to Section 10.5 hereof.
(b) FACILITY FEE. In consideration of the Revolving Commitments of the
Lenders hereunder, the Borrower agrees to pay to the Agent for the account of
each Lender a fee (the "FACILITY FEE") on such Lender's Revolving Commitment
Percentage of the Revolving Committed Amount computed for each day during the
applicable Facility Fee Calculation Period at a per annum rate equal to the
Applicable Percentage in effect from time to time. The Facility Fee shall
commence to accrue on the Closing Date and shall be due and payable in arrears
on the last business day of each March, June, September and December (and any
date that the Revolving Committed Amount is reduced as provided in Section
3.4(a) or (b) and the Maturity Date) for the immediately preceding quarter or
portion thereof (each such quarter or portion thereof being herein referred to
as an "FACILITY FEE CALCULATION PERIOD"), beginning with the first of such dates
to occur after the Closing Date.
(c) LETTER OF CREDIT FEES.
(i) STANDBY LETTER OF CREDIT ISSUANCE FEE. In consideration of
the issuance of Letters of Credit hereunder, the Borrower promises to
pay to the Agent for the account of each Lender a fee (the "STANDBY
LETTER OF CREDIT FEE") on such Lender's Revolving Commitment Percentage
of the average daily maximum amount available to be drawn under each
such standby Letter of Credit computed at a per annum rate for each day
from the date of issuance to the date of expiration equal to the
Applicable Percentage. The Standby Letter of Credit Fee will be payable
quarterly in arrears on the last Business Day of each March, June,
September and December for the immediately preceding quarter (or
portion thereof), beginning with the first of such dates to occur after
the Closing Date.
(ii) ISSUING LENDER FEES. In addition to the Standby Letter of
Credit Fee payable pursuant to clause (i) above, the Borrower promises
to pay to the Issuing Lender for its own account without sharing by the
other Lenders the letter of credit fronting and negotiation fees agreed
to by the Borrower and the Issuing Lender from time to time and the
customary charges from time to time of the Issuing Lender with respect
to the issuance, amendment, transfer, administration, cancellation and
conversion of, and drawings under, such Letters of Credit
(collectively, the "ISSUING LENDER FEES").
3.6 INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof,
the adoption of any applicable law, rule, or regulation, or any change in any
applicable law, rule, or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Applicable Lending Office)
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with any request or directive (whether or not having the force of law) of any
such governmental authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to any
Eurodollar Loans, any of its Notes, or its obligation to make
Eurodollar Loans, or change the basis of taxation of any amounts
payable to such Lender (or its Applicable Lending Office) under this
Agreement or any of its Notes in respect of any Eurodollar Loans (other
than franchise taxes and taxes imposed on the overall net income, gross
receipts or revenues of such Lender by the jurisdiction in which such
Lender has its principal office or such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, compulsory loan, or similar requirement
(other than the Reserve Requirement utilized in the determination of
the Adjusted Eurodollar Rate) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities or
commitments of, such Lender (or its Applicable Lending Office),
including any of the Commitments of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending
Office) or on the London interbank market any other condition affecting
this Agreement or any of its Notes or any of such extensions of credit
or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, converting into, extending, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Agreement or any of
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.6, the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
extend Loans of the Type with respect to which such compensation is requested,
or to convert Loans of any other Type into Loans of such Type, until the event
or condition giving rise to such request ceases to be in effect (in which case
the provisions of Section 3.9 shall be applicable); PROVIDED, THAT, such
suspension shall not affect the right of such Lender to receive the compensation
so requested.
(b) If, after the date hereof, any Lender shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from
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time to time upon demand the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender for such reduction.
(c) Each Lender shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section 3.6 and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section 3.6 shall furnish to the Borrower and the Agent
a statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
3.7 LIMITATION ON TYPES OF LOANS. If on or prior to the first day of
any Interest Period for any Eurodollar Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(b) the Required Lenders determine (which determination shall
be conclusive) and notify the Agent that the Adjusted Eurodollar Rate
will not adequately and fairly reflect the cost to the Lenders of
funding Eurodollar Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof specifying the
relevant amounts or periods, and so long as such condition remains in effect,
the Lenders shall be under no obligation to make additional Eurodollar Loans,
extend Eurodollar Loans or to convert Base Rate Loans into Eurodollar Loans and
the Borrower shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Eurodollar Loans, either prepay such Loans or convert such
Loans into Base Rate Loans in accordance with the terms of this Agreement.
3.8 ILLEGALITY. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to make, maintain, or fund Eurodollar Loans hereunder, then such Lender
shall promptly notify the Borrower thereof and such Lender's obligation to make
or extend Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.9 shall be
applicable).
3.9 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to
make Eurodollar Loans or to extend, or to convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 3.6 or 3.8 hereof (Loans
of such Type being herein called "AFFECTED LOANS" and such Type being herein
called the "AFFECTED TYPE"), such Lender's Affected Loans shall be automatically
converted into Base Rate Loans on the last day(s) of the then current Interest
Period(s) for Affected Loans (or, in the case of a Conversion required by
Section 3.8 hereof, on such earlier date as such Lender may specify to the
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Borrower with a copy to the Agent) and, unless and until such Lender gives
notice as provided below that the circumstances specified in Section 3.6 or 3.8
hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Affected Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or extended by such
Lender as Loans of the Affected Type shall be made or extended instead
as Base Rate Loans, and all Loans of such Lender that would otherwise
be converted into Loans of the Affected Type shall be converted instead
into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.6 or 3.8 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 3.9 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective Commitments.
3.10 TAXES. (a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Credit Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, EXCLUDING, in the case of each Lender and
the Agent, taxes imposed on its income, gross receipts and revenues and
franchise taxes imposed on it, by the jurisdiction under the laws of which such
Lender (or its Applicable Lending Office) or the Agent (as the case may be) is
organized or any political subdivision thereof (all such non-excluded taxes,
duties, levies, imposts, deductions, charges, withholdings, and liabilities
being hereinafter referred to as "TAXES"). If the Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable under this
Agreement or any other Credit Document to any Lender or the Agent, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 3.10) such Lender or the Agent receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower shall
make such deductions, (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law, and (iv) the Borrower shall furnish to the Agent, at the office of the
Agent specified in SCHEDULE 2.1(A), the original or a certified copy of a
receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies (including mortgage recording taxes and similar taxes)
which arise from any payment made
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under this Agreement or any other Credit Document or from the execution or
delivery of, or otherwise with respect to, this Agreement or any other Credit
Document (hereinafter referred to as "OTHER TAXES").
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed
or asserted by any jurisdiction on amounts payable under this Section 3.10) paid
by such Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect thereto.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
or the Agent (but only so long as such Lender remains lawfully able to do so),
shall provide the Borrower and the Agent with (i) Internal Revenue Service Form
1001 or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the rate
of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States, (ii) Internal Revenue Service Form
W-8 or W-9, as appropriate, or any successor form prescribed by the Internal
Revenue Service, and (iii) any other form or certificate required by any taxing
authority (including any certificate required by Sections 871(h) and 881(c) of
the Internal Revenue Code), certifying that such Lender is entitled to an
exemption from or a reduced rate of tax on payments pursuant to this Agreement
or any of the other Loan Documents.
(e) For any period with respect to which a Lender has failed to provide
the Borrower and the Agent with the appropriate form pursuant to Section 3.10(d)
(unless such failure is due to a change in treaty, law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under Section 3.10(a) or
3.10(b) with respect to Taxes imposed by the United States; PROVIDED, THAT,
should a Lender, which is otherwise exempt from or subject to a reduced rate of
withholding tax, become subject to Taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 3.10, then such Lender will agree
to use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change, in the reasonable judgment of such Lender, is
not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
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(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 3.10 shall survive the termination of the Commitments and the
payment in full of the Notes.
3.11 COMPENSATION. Upon the request of any Lender, the Borrower shall
pay to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense (including loss of anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or extension of a Eurodollar Loan
for any reason (including the acceleration of the Loans pursuant to
Section 8.2) on a date other than the last day of the Interest Period
for such Loan; or
(b) any failure by the Borrower for any reason (including the
failure of any condition precedent specified in Section 4 to be
satisfied) to borrow, convert, extend, or prepay a Eurodollar Loan on
the date for such borrowing, conversion, extension, or prepayment
specified in the relevant notice of borrowing, prepayment, extension,
or conversion under this Agreement; or
(c) any breakage costs, charges or fees incurred by any Lender
during the period from the Closing Date through and including the date
that is 180 days from the Closing Date in respect of any Eurodollar
Loan on account to any sale or assignment of any portion of the Loans
on the Commitments to a financial institution such that the financial
institution is or will become a Lender hereunder.
3.12 PRO RATA TREATMENT. Except to the extent otherwise provided
herein:
(a) LOANS. Each Loan, each payment or prepayment of principal
of any Loan or reimbursement obligations arising from drawings under
Letters of Credit, each payment of interest on the Loans or
reimbursement obligations arising from drawings under Letters of
Credit, each payment of Facility Fees, each payment of the Standby
Letter of Credit Fee, each reduction of the Revolving Committed Amount
and each conversion or extension of any Loan, shall be allocated pro
rata among the Lenders in accordance with the respective principal
amounts of their outstanding Loans and Participation Interests.
(b) ADVANCES. No Lender shall be responsible for the failure
or delay by any other Lender in its obligation to make its ratable
share of a borrowing hereunder; PROVIDED, THAT, the failure of any
Lender to fulfill its obligations hereunder shall not relieve any other
Lender of its obligations hereunder. Unless the Agent shall have been
notified by any Lender prior to the date of any requested borrowing
that such Lender does not intend to make available to the Agent its
ratable share of such borrowing to be made on such date, the Agent may
assume that such Lender has made such amount available to the Agent on
the date of such borrowing, and the Agent in reliance upon such
assumption, may (in its sole discretion but without any obligation to
do so) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent, the
Agent shall be
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able to recover such corresponding amount from such Lender. If such
Lender does not pay such corresponding amount forthwith upon the
Agent's demand therefor, the Agent will promptly notify the Borrower,
and the Borrower shall immediately pay such corresponding amount to the
Agent (and such payment by the Borrower shall be without prejudice to
Borrower's rights and remedies in respect to the defaulting Lenders).
The Agent shall also be entitled to recover from the Lender or the
Borrower, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made
available by the Agent to the Borrower to the date such corresponding
amount is recovered by the Agent at a per annum rate equal to (i) from
the Borrower, the applicable rate for the applicable borrowing pursuant
to the Notice of Borrowing and (ii) from a Lender, if paid within two
(2) Business Days of the date such corresponding amount was made
available by the Agent to the Borrower, the Federal Funds Rate and, if
paid thereafter, the Base Rate.
3.13 SHARING OF PAYMENTS. The Lenders agree among themselves that, in
the event that any Lender shall obtain payment in respect of any Loan, LOC
Obligation or any other obligation owing to such Lender under this Agreement
through the exercise of a right of setoff, banker's lien or counterclaim, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means (whether voluntarily or
involuntarily by set-off or otherwise), in excess of its pro rata share of such
payment as provided for in this Agreement, such Lender shall promptly purchase
from the other Lenders a Participation Interest in such Loan, LOC Obligation or
other obligation in such amounts, and make such other adjustments from time to
time, as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall have shared the benefit of
such payment shall, by repurchase of a Participation Interest theretofore sold,
return its share of that benefit (together with its share of any accrued
interest payable with respect thereto) to each Lender whose payment shall have
been rescinded or otherwise restored. The Borrower agrees that any Lender so
purchasing such a Participation Interest pursuant to this Section 3.13 may, to
the fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such Participation
Interest as fully as if such Lender were a holder of such Loan, LOC Obligations
or other obligation in the amount of such Participation Interest. Except as
otherwise expressly provided in this Agreement, if any Lender or the Agent shall
fail to remit to the Agent or any other Lender an amount payable by such Lender
or the Agent to the Agent or such other Lender pursuant to this Agreement on the
date when such amount is due, such payments shall be made together with interest
thereon for each date from the date such amount is due until the date such
amount is paid to the Agent or such other Lender at a rate per annum equal to
the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a setoff to which
this Section 3.13 applies, such Lender shall, to the extent practicable,
exercise its
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rights in respect of such secured claim in a manner consistent with the rights
of the Lenders under this Section 3.13 to share in the benefits of any recovery
on such secured claim.
3.14 PAYMENTS, COMPUTATIONS, ETC. (a) Except as otherwise specifically
provided herein, all payments hereunder shall be made to the Agent in Dollars in
immediately available funds, without offset, deduction, counterclaim or
withholding of any kind, at the Agent's office specified in SCHEDULE 2.1(a) not
later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due.
Payments received after such time shall be deemed to have been received on the
next succeeding Business Day. The Agent may (but shall not be obligated to)
debit the amount of any such payment which is not made by such time to any
ordinary deposit account of the Borrower maintained with the Agent (with notice
to the Borrower). The Borrower shall, at the time it makes any payment under
this Agreement, specify to the Agent the Loans, LOC Obligations, Fees, interest
or other amounts payable by the Borrower hereunder to which such payment is to
be applied (and in the event that it fails so to specify, or if such application
would be inconsistent with the terms hereof, the Agent shall distribute such
payment to the Lenders in such manner as the Agent may determine to be
appropriate in respect of obligations owing by the Borrower hereunder, subject
to the terms of Section 3.12(a)). The Agent will distribute such payments to
such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte,
North Carolina time) on a Business Day in like funds as received prior to the
end of such Business Day and otherwise the Agent will distribute such payment to
such Lenders on the next succeeding Business Day. Whenever any payment hereunder
shall be stated to be due on a day which is not a Business Day, the due date
thereof shall be extended to the next succeeding Business Day (subject to
accrual of interest and Fees for the period of such extension), except that in
the case of Eurodollar Loans, if the extension would cause the payment to be
made in the next following calendar month, then such payment shall instead be
made on the next preceding Business Day. Except as expressly provided otherwise
herein, all computations of interest and Fees shall be made on the basis of
actual number of days elapsed over a year of 360 days. Interest shall accrue
from and include the date of borrowing, but shall exclude the date of payment.
(b) ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT. Notwithstanding any
other provisions of this Agreement to the contrary, after the occurrence and
during the continuance of an Event of Default, all amounts collected or received
by the Agent or any other Lender on account of the Credit Obligations or any
other amounts outstanding under any of the Credit Documents or in respect of the
Collateral shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including reasonable attorneys' fees but excluding the
allocated cost of internal counsel) of the Agent in connection with
enforcing the rights of the Secured Parties under the Credit Documents
and any protective advances made by the Agent with respect to the
Collateral under or pursuant to the terms of the Collateral Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs
and expenses (including reasonable attorneys' fees but excluding the
cost of internal counsel) of
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each of the Lenders in connection with enforcing its rights under the
Credit Documents or otherwise with respect to the Credit Obligations
owing to such Lender;
FOURTH, to the payment of all of the Credit Obligations
consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of
the Credit Obligations (including the payment or cash collateralization
of the outstanding LOC Obligations);
SIXTH, to all other Credit Obligations and other obligations
which shall have become due and payable under the Credit Documents or
otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH"
above; and
SEVENTH, to the payment of the surplus, if any, to whomever
may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive an amount equal to
its pro rata share (based on the proportion that the then outstanding Loans and
Participation Interest in LOC Obligations held by such Lender bears to the
aggregate amount of the then outstanding Loans and Participation Interests in
LOC Obligations) of amounts available to be applied pursuant to clauses "THIRD",
"FOURTH", "FIFTH" and "SIXTH" above; and (iii) to the extent that any amounts
available for distribution pursuant to clause "FIFTH" above are attributable to
the issued but undrawn amount of outstanding Letters of Credit, such amounts
shall be held by the Agent in a cash collateral account pursuant to Section
2.2(l) and applied (A) first, to reimburse the Issuing Lender from time to time
for any drawings under such Letters of Credit and (B) then, following the
expiration of all Letters of Credit, to all other obligations of the types
described in clauses "FIFTH" and "SIXTH" above in the manner provided in this
Section 3.14(b). Notwithstanding the foregoing provisions of this Section
3.14(b), amounts on deposit in a cash collateral account pursuant to Section
2.2(l) upon the occurrence of any such Event of Default shall be applied, first,
to reimburse the Issuing Lender from time to time for any drawings under any
Letters of Credit and, second, following the expiration of all Letters of
Credit, to the other Credit Obligations in the manner provided in this Section
3.14(b).
3.15 EVIDENCE OF DEBT. (a) Each Lender shall maintain an account or
accounts evidencing each Loan made by such Lender to the Borrower from time to
time, including the amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement. Each Lender will make reasonable
efforts to maintain the accuracy of its account or accounts and to promptly
update its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section 10.3(c),
and a subaccount for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount, type and Interest Period of each
such Loan hereunder, (ii) the
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amount of any principal or interest due and payable or to become due and payable
to each Lender hereunder and (iii) the amount of any sum received by the Agent
hereunder from or for the account of the Borrower and each Lender's share
thereof. The Agent will make reasonable efforts to maintain the accuracy of the
subaccounts referred to in the preceding sentence and to promptly update such
subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent
with the entries of the Agent, subsection (a)) shall be prima facie evidence of
the existence and amounts of the obligations of the Borrower therein recorded;
PROVIDED, THAT, the failure of any Lender or the Agent to maintain any such
account, such Register or such subaccount, as applicable, or any error therein,
shall not in any manner affect the obligation of the Borrower to repay the Loans
made by such Lender in accordance with the terms hereof.
SECTION 4
CONDITIONS
4.1 CLOSING CONDITIONS. The obligations of the Lenders to make the
initial Loans under this Agreement and of the Issuing Lender to issue the
initial Letter of Credit (including, without limitation, the gmi Letters of
Credit) shall be subject to satisfaction of the following conditions (in form
and substance acceptable to the Agent and the Lenders):
(a) EXECUTED CREDIT DOCUMENTS. The Agent shall have received
duly executed copies of (i) this Agreement; (ii) the Notes; (iii) the
Collateral Documents and (iv) all other Operative Documents, each in
form and substance reasonably acceptable to the Lenders.
(b) CORPORATE DOCUMENTS. The Agent shall have received the
following:
(i) CHARTER DOCUMENTS. Copies of the articles or
certificates of incorporation or other charter documents of
each Credit Party certified to be true and complete as of a
recent date by the appropriate Governmental Authority of the
state or other jurisdiction of its incorporation and certified
by a secretary or assistant secretary of such Credit Party to
be true and correct as of the Closing Date.
(ii) BYLAWS. A copy of the bylaws or regulations of
each Credit Party certified by a secretary or assistant
secretary of such Credit Party to be true and correct as of
the Closing Date.
(iii) RESOLUTIONS. Copies of resolutions of the Board
of Directors of each Credit Party approving and adopting the
Credit Documents to which it is a party, the transactions
contemplated therein and authorizing the execution, delivery
and performance thereof, certified by a secretary or assistant
secretary of such Credit Party to be true and correct and in
full force and effect as of the Closing Date.
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(iv) GOOD STANDING. Copies of (A) certificates of
good standing, existence or the equivalent with respect to
each Credit Party certified as of a recent date by the
appropriate Governmental Authority of its state or other
jurisdiction of incorporation and each other jurisdiction in
which the failure to be qualified to do business and in good
standing could have a Material Adverse Effect and (B) to the
extent available, a certificate indicating payment of all
corporate franchise taxes certified as of a recent date by the
appropriate governmental taxing authority of its state or
other jurisdiction of incorporation and each other
jurisdiction referred to in clause (A) above.
(v) INCUMBENCY. A certificate of each Credit Party as
to the incumbency and specimen signature of each officer
executing any Credit Document or any other document delivered
in connection herewith on behalf of such Credit Party,
certified by a secretary or assistant secretary of such Credit
Party to be true and correct as of the Closing Date.
(c) FINANCIAL STATEMENTS. The Agent and the Lenders shall have
received and, in each case, be satisfied with (i) the consolidated
financial statements of the Borrower, U-Gene and gmi, including balance
sheets as of, and income statements and cash flow statements for the
fiscal years ended on, December 31 of each of 1995 and 1996, audited by
independent public accountants of recognized national standing and
prepared in conformity with GAAP, (ii) the consolidating unaudited
financial statements of the Borrower, its Subsidiaries, U-Gene and gmi,
including balance sheets as of, and income statements and cash flow
statements for the fiscal years ended on, December 31 of each of 1995
and 1996, (iii) the consolidated unaudited financial statements of the
Borrower, U-Gene and gmi, including balance sheets as of, and income
statements and cash flow statements for the fiscal quarter ended on,
March 31, 1997, (iv) interim unaudited quarterly financial statements
of the Borrower, its Subsidiaries, U-Gene and gmi for the period since
the last audited financial statements referred to in clause (i) above
through the last month prior to the Closing Date for which financial
information is available, (v) quarterly working capital detail for the
first projected year after the Closing Date, (vi) a pro forma
consolidated balance sheet of the Borrower and its Subsidiaries as of
the last month prior to the Closing Date for which financial
information is available giving effect to the transactions contemplated
by the Acquisition Agreements, and reflecting estimated purchase price
accounting adjustments, (vii) projections of the Borrower and its
Subsidiaries for each 12-month period through the 12-month period
ending December 31, 2000 and (viii) such other information relating to
the Borrower, its Subsidiaries, U-Gene and gmi as the Agent or the
Lenders may reasonably require in connection with the structuring and
syndication of credit facilities of the type described herein.
(d) OPINIONS OF COUNSEL. The Agent shall have received, in
each case dated as of the Closing Date:
(i) a legal opinion of Keating, Muething & Klekamp
P.L.L., general counsel for the Credit Parties, substantially
in the form of EXHIBIT N-1; and
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(ii) copies of the opinions to be delivered by
counsel to the Borrower pursuant to the Operative Documents
and the opinions to be delivered by counsel, including foreign
counsel, to any party to the Acquisition Agreements,
accompanied in each case by a letter from such counsel stating
that the Agent and the Lenders are entitled to rely on such
opinions as if they were addressed to the Agent.
(e) FEES AND EXPENSES. The Credit Parties shall have paid all
Fees and other fees and expenses owed by them to the Agent or any
Lender including payment to the Agent of the fees and reimbursement of
the expenses as set forth in the Fee Letter.
(f) PERSONAL PROPERTY COLLATERAL. The Agent shall have
received:
(i) searches of Uniform Commercial Code filings in
the jurisdiction of the chief executive office of each Credit
Party and each jurisdiction where any Collateral is located or
where a filing would need to be made in order to perfect the
Agent's security interest in the Collateral, copies of the
financing statements on file in such jurisdictions and
evidence that no Liens exist other than Permitted Liens;
(ii) duly executed financing statements (Form UCC-1)
for each appropriate jurisdiction as is necessary, in the
Agent's sole discretion, to perfect the Agent's security
interest in the Collateral;
(iii) appropriate duly executed termination
statements (Form UCC-3) signed by all Persons disclosed as
secured parties in the jurisdictions referred to in clause (i)
above in form for filing under the Uniform Commercial Code of
such jurisdictions, except that no termination statement shall
be required as to any Permitted Liens;
(iv) searches of ownership of Intellectual Property
in the appropriate governmental offices;
(v) all stock certificates evidencing the Capital
Stock pledged to the Agent pursuant to the Security Agreement,
together with duly executed in blank undated stock powers
attached thereto (unless, with respect to the pledged Capital
Stock of any Foreign Subsidiary, such stock powers are deemed
unnecessary by the Agent in its sole discretion under the law
of the jurisdiction of incorporation of such Person);
(vi) such patent, trademark and copyright filings as
requested by the Agent in order to perfect the Agent's
security interest in the Collateral;
(vii) all instruments and chattel paper in the
possession of any of the Credit Parties, together with such
assignments as may be necessary or appropriate to perfect the
Agent's security interest in the Collateral;
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(viii) Depository Bank Agreements from each bank
where any Credit Party maintains a deposit account;
(ix) in the case of each lease of material personal
property under which any Credit Party is lessee, such estoppel
letters, consents and waivers from the lessors of such
personal property as may be required by the Agent, which
instruments shall be in form and substance satisfactory to the
Agent; and
(x) duly executed consents as are necessary, in the
Agent's sole discretion, to perfect the security interest of
the Secured Parties in the Collateral.
(g) PRIORITY OF LIENS. The Agent, on behalf of the Secured
Parties, shall hold a perfected, first priority Lien, subject to no
other Liens other than Permitted Liens, on all Collateral (except as
contemplated by Section 6.13).
(h) EVIDENCE OF INSURANCE. The Agent shall have received (i) a
report from the Borrower's independent insurance consultant, in form
and substance satisfactory to the Agent, to the effect that insurance
satisfying the requirements set forth in the Credit Documents is in
effect and (ii) satisfactory evidence of such insurance and the
endorsement thereof in accordance with the Credit Documents, including
a "standard" or "New York" lender's loss payable endorsement in the
name of the Agent on Accord Form 27.
(i) CORPORATE STRUCTURE. The ownership, capital, corporate,
tax, organizational and legal structure (including articles of
incorporation and bylaws, shareholder agreements and management) of the
Credit Parties shall be reasonably satisfactory to the Lenders.
(j) SUBORDINATED DEBT. (i) The Borrower and the Subordinated
Noteholders shall have executed, delivered and otherwise entered into
the Subordinated Note Documents on terms that are satisfactory to the
Agent, (ii) the Agent shall have received a copy, certified by a
Responsible Officer of the Borrower as true and complete, of the
Subordinated Note Documents so executed and delivered, (iii) no
amendment, waiver or modification thereof shall have been entered into
on or prior to the Closing Date which shall not have been approved by
each of the Lenders, and (iv) the Borrower, the Agent, the Lenders and
the Subordinated Noteholders shall have entered into an Intercreditor
Agreement on terms that are satisfactory to the Agent and the Lenders,
which terms include, among others, the unconditional obligation of the
Subordinated Noteholders to purchase the $5,000,000 of Subordinated
Notes of the Borrower relating to the gmi Acquisition upon and in the
event of a drawing on the gmi Letters of Credit.
(k) CONSENTS AND APPROVALS. The Borrower and the other Credit
Parties shall have obtained all governmental, shareholder and third
party consents and approvals necessary or, in the reasonable opinion of
the Agent, desirable in
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connection with the execution, delivery and performance of this
Agreement and the other Operative Documents (including the exercise of
remedies under the Collateral Documents), the other related financings
and transactions contemplated hereby and the continuing operations of
the Borrower and its Subsidiaries following the Closing Date, and all
applicable waiting periods (including any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976) shall
have expired, in each case without any action being taken by any
authority that could restrain, prevent or impose any material adverse
condition on the Credit Parties taken as a whole or such transactions
or that could seek or threaten any of the foregoing, and no law or
regulation shall be applicable which in the judgment of the Agent could
have such effect.
(l) MATERIAL ADVERSE EFFECT. From December 31, 1996 to the
Closing Date, nothing shall have occurred (and neither the Lenders nor
the Agent shall have become aware of any facts or circumstances not
previously known) which has, or could reasonably be expected to have, a
Material Adverse Effect.
(m) LITIGATION. There shall not exist any order, decree,
judgment, ruling or injunction or any pending or threatened action,
suit, investigation or proceeding that purports to affect the
transactions contemplated by the Acquisition Agreements, the Credit
Facilities or the other related financings or that could have a
Material Adverse Effect.
(n) OTHER INDEBTEDNESS. The Credit Parties shall have no
material liabilities (actual or contingent) or Preferred Stock other
than (i) the Indebtedness under the Credit Documents, (ii) Indebtedness
created and evidenced by the Subordinated Note Documents, (iii)
Indebtedness that is set forth on SCHEDULE 7.1(B) and satisfactory to
the Lenders, (iv) as disclosed in the most recent interim balance sheet
referred to in Section 5.1(a) and on SCHEDULE 5.1, and (v) for accounts
payable incurred in the ordinary course of business consistent with
past practice since the date of the most recent interim balance sheet
referred to in Section 5.1(a).
(o) EMPLOYMENT CONTRACTS. The Agent shall have received
employment contracts and/or noncompete agreements executed by Candace
Kendle Bryan and Christopher C. Bergen, to be assigned for the benefit
of the Lenders.
(p) SOLVENCY OPINION. The Agent shall have received a
certificate of the Borrower in form and substance satisfactory to the
Agent, from the Chief Financial Officer of the Borrower, as to the
financial condition and solvency of each of the Borrower and its
Subsidiaries after giving effect to the transactions contemplated by
the Acquisition Agreements and the incurrence of the indebtedness and
guarantees related thereto (subject, in the case of each such
Subsidiary, to a guarantee limitation satisfactory to the Agent).
(q) CHANGE IN MARKET. There shall not exist any material
disruption of, or a material adverse change in, the market for
syndicated bank credit facilities or financial, banking or capital
market conditions.
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(r) OFFICER'S CERTIFICATES. The Agent shall have received a
certificate or certificates executed by a Responsible Officer of the
Borrower as of the Closing Date stating that (A) each Credit Party is
in compliance with all existing financial obligations, (B) conditions
set forth in subsections 4.1(e), (i),(j), (k), (l), (m) and (n) shall
have been satisfied, certified by a Responsible Officer of the Borrower
to be true and correct as of the Closing Date.
(s) OTHER. The Lenders shall have received such other
documents, instruments, agreements or information as reasonably
requested by any Lender, including information regarding litigation,
investigations and other proceedings, compliance with applicable laws,
regulations and consent orders, tax matters, accounting matters, labor
agreements and other employee-related matters, insurance coverage,
pension liabilities (actual or contingent) and other employee benefits,
real estate leases, material contracts and relationships, debt
agreements, transactions with Affiliates and former Affiliates,
property ownership, Capital Leases, trademarks, other proprietary
rights and related licenses, capital stock, options and warrants, and
contingent liabilities of the Credit Parties, U-Gene and gmi.
4.2 CONDITIONS TO EXTENSION OF CREDIT FOR PURCHASE OF U-GENE. The
obligations of each Lender to make any Loan or of the Issuing Lender to issue
any Letter of Credit for the acquisition of U-Gene are subject, in addition to
the satisfaction on the Closing Date of the conditions set forth in Section 4.1
and Section 4.4, to satisfaction of the following conditions:
(a) ACQUISITION AGREEMENT. A Wholly-Owned Domestic Subsidiary
of the Borrower (the "Acquiring Subsidiary") and U-Gene shall have
entered into the UGene Acquisition Agreement on terms satisfactory to
the Agent and the Lenders and there shall not have been any
modification, amendment, supplement or waiver to the U-Gene Acquisition
Agreement without the prior written consent of the Agent, including any
modification, amendment, supplement or waiver relating to the amount or
type of consideration to be paid in connection with the transactions
contemplated by the U-Gene Acquisition Agreement or the contents of any
disclosure schedules and exhibits. The conditions set forth in the
U-Gene Acquisition Agreement to the obligations of the Acquiring
Subsidiary shall have been satisfied (without any waiver or amendment
thereof) and the transactions contemplated by the U-Gene Acquisition
Agreement shall have been (or contemporaneously will be) consummated in
accordance with the terms of the U-Gene Acquisition Agreement and in
compliance with applicable laws, regulations and regulatory approvals
thereunder. The aggregate consideration paid by the Acquiring
Subsidiary (including purchase price, refinancing of existing
Indebtedness, and all transaction fees and expenses) shall not exceed
$16,500,000, and the Agent shall have received a final U-Gene
Acquisition Agreement, together with all exhibits and schedules
thereto, certified by an officer of the Borrower and the Acquiring
Subsidiary.
(b) OPINIONS OF COUNSEL. The Agent shall have received (i) an
opinion of counsel of each party to the U-Gene Acquisition Agreement,
accompanied by a letter from such counsel stating that the Agent and
the Lenders are entitled to rely on such opinion as if it were
addressed to the Agent, and (ii) a legal opinion of special foreign
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counsel to the Borrower and the Acquiring Subsidiary in The Netherlands
covering the pledge of the Capital Stock of U-Gene to be pledged
pursuant to the Security Agreement, Intercompany Notes to be pledged
pursuant to the Security Agreement and the Guarantee Agreement to be
executed on behalf of U-Gene pursuant to Section 6.11, which opinion
shall be substantially in the form of Exhibit N-2.
(c) MATERIAL COMPLIANCE. The Borrower and its Subsidiaries
shall be in compliance with all existing material financial obligations
after giving effect to the UGene Acquisition. The Borrower and U-Gene
shall have fully complied with the terms of Section 6.11.
(d) SUBORDINATED NOTES. The Borrower shall have received Net
Cash Proceeds from the sale of Subordinated Notes in an aggregate
principal amount of $5,000,000.00.
(e) GOVERNMENT CONSENTS. The Borrower and the other Credit
Parties shall have obtained all governmental, shareholder and third
party consents and approvals necessary or, in the reasonable opinion of
the Agent, desirable in connection with the transactions contemplated
by the U-Gene Acquisition Agreement and the related financings
(including the Credit Documents to be delivered by the Borrower, the
Acquiring Subsidiary and U-Gene pursuant to Section 6.11) and all
applicable waiting periods (including any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976) shall
have expired without any action being taken by any authority that could
restrain, prevent or impose any material adverse condition on the
Credit Parties taken as a whole or such transactions or that could seek
or threaten any of the foregoing, and no law or regulation shall be
applicable which in the judgment of the Agent could have such effect.
(f) MATERIAL ADVERSE EFFECT. No material adverse change shall
have occurred or become known since the date of the financial
statements relating to UGene and delivered to the Agent pursuant to
Section 4.1(c) in the condition (financial or otherwise), business,
assets, liabilities (actual or contingent), historical or projected
revenues or cash flows, operations, material relationships, management
or prospects of U-Gene or in the facts and information regarding U-Gene
as represented to the date hereof.
(g) OFFICER'S CERTIFICATE. The Agent shall have received a
certificate executed by a Responsible Officer of the Borrower stating
that: (i) the conditions set forth in the U-Gene Acquisition Agreement
shall have been satisfied (without any waiver or amendment thereof) and
the transactions contemplated by the U-Gene Acquisition Agreement have
been consummated in accordance with the terms thereof and (ii)
immediately after giving effect to the U-Gene Acquisition (A) each of
the Credit Parties is Solvent, (B) no Default or Event of Default
exists, (C) all representations and warranties contained herein and in
the other Credit Documents are true and correct in all material
respects, and (4) the Credit Parties are in compliance with each of the
financial covenants set forth in Section 7.18.
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4.3 CONDITIONS TO EXTENSION OF CREDIT FOR PURCHASE OF GMI. (a) The
obligations of the Issuing Lender to issue the gmi Letters of Credit are
subject, in addition to the satisfaction of the conditions set forth in Section
4.1 and Section 4.4, to satisfaction of the following conditions:
(i) ACQUISITION AGREEMENT. The Acquiring Subsidiary and gmi
shall have entered into the gmi Acquisition Agreement on terms
satisfactory to the Agent and the Lenders and there shall not have been
any modification, amendment, supplement or waiver to the gmi
Acquisition Agreement without the prior written consent of the Agent,
including any modification, amendment, supplement or waiver relating to
the amount or type of consideration to be paid in connection with the
transactions contemplated by the gmi Acquisition Agreement or the
contents of any disclosure schedules and exhibits.
(ii) MATERIAL ADVERSE EFFECT. No material adverse change shall
have occurred or become known since the date of the financial
statements relating to gmi and delivered to the Agent pursuant to
Section 4.1(c) in the condition (financial or otherwise), business,
assets, liabilities (actual or contingent), historical or projected
revenues or cash flows, operations, material relationships, management
or prospects of gmi or in the facts and information regarding gmi as
represented to the date hereof.
(b) The obligations of each Lender to make any Loan or of the Issuing
Lender to issue any Letter of Credit (other than the gmi Letters of Credit), for
the purchase of gmi, are subject, in addition to the satisfaction of the
conditions set forth in Section 4.1 and 4.4, to satisfaction of the following
conditions:
(i) ACQUISITION AGREEMENT. The Acquiring Subsidiary and gmi
shall have entered into the gmi Acquisition Agreement on terms
satisfactory to the Agent and the Lenders and there shall not have been
any modification, amendment, supplement or waiver to the gmi
Acquisition Agreement without the prior written consent of the Agent,
including any modification, amendment, supplement or waiver relating to
the amount or type of consideration to be paid in connection with the
transactions contemplated by the gmi Acquisition Agreement or the
contents of any disclosure schedules and exhibits. The conditions set
forth in the gmi Acquisition Agreement to the obligations of the
Acquiring Subsidiary shall have been satisfied (without any waiver or
amendment thereof) and the transactions contemplated by the gmi
Acquisition Agreement shall have been consummated in accordance with
the terms of the gmi Acquisition Agreement and in compliance with
applicable laws, regulations and regulatory approvals thereunder. The
aggregate consideration paid by the Acquiring Subsidiary (including
purchase price, refinancing of existing Indebtedness, and all
transaction fees and expenses) shall not exceed $13,500,000, and the
Agent shall have received a final gmi Acquisition Agreement, together
with all exhibits and schedules thereto, certified by an officer of the
Borrower and the Acquiring Subsidiary.
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(ii) OPINION OF COUNSEL. The Agent shall have received (i) an
opinion of counsel of each party to the gmi Acquisition Agreement,
accompanied by a letter from such counsel stating that the Agent and
the Lenders are entitled to rely on such opinion as if it were
addressed to the Agent, and (ii) a legal opinion of special foreign
counsel to the Borrower and the Acquiring Subsidiary in Germany
covering the pledge of the Capital Stock of gmi to be pledged pursuant
to the Security Agreement, Intercompany Notes to be pledged pursuant to
the Security Agreement and the Guarantee Agreement to be executed on
behalf of gmi pursuant to Section 6.11, which opinion shall be
substantially in the form of Exhibit N-2.
(iii) MATERIAL COMPLIANCE. The Borrower and its Subsidiaries
shall be in compliance with all existing material financial obligations
after giving effect to the gmi Acquisition. The Borrower and gmi shall
have fully complied with the terms of Section 6.11.
(iv) QIPO. Unless a Qualified Initial Public Offering has
occurred prior to or concurrently with the gmi Acquisition, the
Borrower shall have received Net Cash Proceeds from the sale of
Subordinated Notes in an aggregate principal amount of $5,000,000.00
(in addition to the Indebtedness evidenced by Subordinated Notes
incurred by the Borrower in connection with the U-Gene Acquisition if
the U-Gene Acquisition has been previously consummated).
(v) GOVERNMENT CONSENTS. The Borrower and the other Credit
Parties shall have obtained all governmental, shareholder and third
party consents and approvals necessary or, in the reasonable opinion of
the Agent, desirable in connection with the transactions contemplated
by the gmi Acquisition Agreement and the related financings (including
the Credit Documents to be delivered by the Borrower, the Acquiring
Subsidiary and gmi pursuant to Section 6.11) and all applicable waiting
periods (including any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976) shall have
expired without any action being taken by any authority that could
restrain, prevent or impose any material adverse condition on the
Credit Parties taken as a whole or such transactions or that could seek
or threaten any of the foregoing, and no law or regulation shall be
applicable which in the judgment of the Agent could have such effect.
(vi) MATERIAL ADVERSE EFFECT. No material adverse change shall
have occurred or become known since the date of the financial
statements relating to gmi and delivered to the Agent pursuant to
Section 4.1(c) in the condition (financial or otherwise), business,
assets, liabilities (actual or contingent), historical or projected
revenues or cash flows, operations, material relationships, management
or prospects of gmi or in the facts and information regarding gmi as
represented to the date hereof.
(vii) OFFICER'S CERTIFICATE. The Agent shall have received a
certificate executed by a Responsible Officer of the Borrower stating
that: (i) the conditions set forth in the gmi Acquisition Agreement
shall have been satisfied (without any waiver or amendment thereof) and
the transactions contemplated by the gmi Acquisition
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Agreement have been consummated in accordance with the terms thereof
and (ii) immediately after giving effect to the gmi Acquisition (A)
each of the Credit Parties is Solvent, (B) no Default or Event of
Default exists, (C) all representations and warranties contained herein
and in the other Credit Documents are true and correct in all material
respects, and (4) the Credit Parties are in compliance with each of the
financial covenants set forth in Section 7.18.
(viii) AVAILABILITY. After giving effect to the Loans made and
Letters of Credit issued hereunder, the U-Gene Acquisition and the gmi
Acquisition, the Revolving Committed Amount LESS the sum of (i) the
aggregate principal amount of outstanding Revolving Loans and (ii) the
aggregate principal amount of outstanding LOC Obligations, shall be
equal to at least $1,500,000.
4.4 CONDITIONS TO ALL EXTENSIONS OF CREDIT. The obligations of each
Lender to make any Loan (including the initial Loans), convert any existing Loan
into a Loan of another Type or extend any existing Loan into a subsequent
Interest Period and of the Issuing Lender to issue or extend any Letter of
Credit are subject, in addition to satisfaction on the Closing Date of the
conditions set forth in Section 4.1, to satisfaction on the date such Loan is
made, converted or extended or the date such Letter of Credit is issued or
extended, as applicable, to satisfaction of the following conditions:
(a) The Borrower shall have delivered (i) in the case of any
Revolving Loan, an appropriate Notice of Borrowing or Notice of
Extension/Conversion or (ii) in the case of any Letter of Credit, the
Issuing Lender shall have received an appropriate request for issuance
or extension in accordance with the provisions of Section 2.2(b);
(b) The representations and warranties set forth in Section 5
shall be true and correct in all material respects as of such date
(except for those which expressly relate to an earlier date, in which
case such representations and warranties shall be true and correct in
all material respects on and as of such earlier date);
(c) There shall not have been commenced against any Credit
Party an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or any case,
proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
for the winding up or liquidation of its affairs, which involuntary
case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded;
(d) No Default or Event of Default shall exist and be
continuing either prior to the making, conversion or extension of such
Loan or the issuance or extension of such Letter of Credit or after
giving effect thereto; and
(e) Immediately after giving effect to the making, conversion
or extension of such Loan (and the application of the proceeds thereof)
or to the issuance or extension of such Letter of Credit, as
applicable, the aggregate principal amount of
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outstanding Revolving Loans and the aggregate principal amount of
outstanding LOC Obligations shall not exceed the limitations applicable
thereto set forth in Section 2.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for the issuance or extension of a Letter of Credit pursuant to
Section 2.2(b) shall constitute a representation and warranty by the Borrower of
the correctness of the matters specified in subsections (b), (c), (d) and (e)
above.
SECTION 5
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents to the Agent and each Lender that:
5.1 FINANCIAL CONDITION. (a) The audited consolidated and unaudited
consolidating balance sheets of the Borrower and its Subsidiaries as of December
31, 1996, and the audited consolidated and unaudited consolidating statements of
earnings and statements of cash flows of the Borrower and its Subsidiaries for
the years ended December 31, 1995 and December 31, 1996 have heretofore been
furnished to each Lender. Such financial statements (including the notes
thereto) (i) with respect to the consolidated statements only, have been audited
by a nationally recognized accounting firm reasonably acceptable to the Agent,
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods covered thereby and (iii) present fairly in all material respects
(on the basis disclosed in the footnotes to such financial statements) the
consolidated and consolidating financial condition, results of operations and
cash flows of the Borrower and its Subsidiaries as of such dates and for such
periods. The unaudited interim balance sheets of the Borrower and its
Subsidiaries as at the end of, and the related unaudited interim statements of
earnings and of cash flows for, each quarterly period ended after March 31, 1997
and prior to the Closing Date for which financial information is available have
heretofore been furnished to each Lender. Such interim financial statements for
each such period (i) have been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, except for the absence of
footnotes, and (ii) present fairly in all material respects the consolidated and
consolidating financial condition, results of operations and cash flows of the
Borrower and its Subsidiaries as of such dates and for such periods, except for
recurring annual audit adjustments. During the period from December 31, 1996 to
and including the Closing Date, there has been no sale, transfer or other
disposition by any Credit Party of any material part of the business or property
of the Credit Parties, taken as a whole, and no purchase or other acquisition by
any of them of any business or property (including any capital stock of any
other Person) material in relation to the consolidated financial condition of
the Credit Parties, taken as a whole, in each case, which, is not reflected in
the foregoing financial statements or in the notes thereto. Except as disclosed
in SCHEDULE 5.1, the balance sheets and the notes thereto included in the
foregoing financial statements disclose all material liabilities, actual or
contingent, of the Borrower and its Subsidiaries as of the dates thereof.
(b) As of the Closing Date, the Credit Parties do not have any material
liabilities, actual or contingent, or Preferred Stock except (i) as disclosed in
the most recent interim balance sheet referred to in subsection (a) above, (ii)
for items disclosed in SCHEDULE 5.1,
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(iii) for accounts payable incurred in the ordinary course of business
consistent with past practice since the date of the most recent interim balance
sheet referred to in subsection (a) above and not in violation of the
Acquisition Agreements, (iv) Indebtedness under the Credit Documents and (v)
Indebtedness set forth on Schedule 7.1(b).
(c) The consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of the most recent fiscal quarter prior to the Closing Date for
which financial information is available, prepared on a pro forma basis giving
effect to the consummation of the transactions contemplated by the Acquisition
Agreements, have heretofore been furnished to each Lender. Such pro forma
balance sheet has been prepared in good faith by the Borrower (based on (i)
assumptions which are believed by the Borrower on the date hereof and on the
Closing Date to be reasonable and (ii) the best information available to the
Borrower as of the date of delivery thereof) accurately reflect all material
adjustments required to be made to give effect to the transactions contemplated
by the Acquisition Agreements, including estimated purchase price accounting
adjustments, and presents fairly on a pro forma basis the estimated consolidated
financial position of the Borrower and its Subsidiaries as of March 31, 1997,
assuming that the transactions contemplated by the Acquisition Agreements had
actually occurred on that date. None of the Credit Parties has any reason to
believe that such pro forma balance sheet is misleading in any material respect
in light of the circumstances existing at the time of the preparation thereof.
(d) The financial statements delivered to the Lenders pursuant to
Section 6.1(a) and (b), (i) have been prepared in accordance with GAAP (except
as may otherwise be permitted under Section 6.1(a) and (b)) and (ii) present
fairly (on the basis disclosed in the footnotes to such financial statements, if
any) the consolidated and consolidating financial condition, results of
operations and cash flows of the Borrower and its Subsidiaries as of the
respective dates thereof and for the respective periods covered thereby.
5.2 NO MATERIAL CHANGE. Since December 31, 1996, (a) there has been no
development or event relating to or affecting a Credit Party which has had or
could reasonably be expected to have a Material Adverse Effect and (b) except
for Permitted Dividends, no dividends or other distributions have been declared,
paid or made upon the Capital Stock of any Credit Party nor has any of the
Capital Stock of any Credit Party been redeemed, retired, purchased or otherwise
acquired for value.
5.3 ORGANIZATION AND GOOD STANDING. Each of the Credit Parties (a) is
duly organized, validly existing and is in good standing (or the local law
equivalent, in the case of Foreign Subsidiaries) under the laws of the
jurisdiction of its incorporation or organization, (b) has the corporate or
other necessary power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged and (c) is duly qualified as a foreign
entity and in good standing (or the local law equivalent, in the case of Foreign
Subsidiaries) under the laws of each jurisdiction where its ownership, lease or
operation of Property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not reasonably be expected to have a
Material Adverse Effect.
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5.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of the Credit
Parties has the corporate or other necessary power and authority, and the legal
right, to execute, deliver and perform the Operative Documents to which it is a
party, and in the case of the Borrower, to obtain extensions of credit
hereunder, and each Credit Party has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Agreement and to authorize the execution, delivery and
performance of the Operative Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with the borrowings or
other extensions of credit hereunder or with the execution, delivery,
performance, validity or enforceability of the Operative Documents to which such
Credit Party is a party, except for (i) consents, authorizations, notices and
filings disclosed in SCHEDULE 5.4, all of which have been (or will as of the
Closing Date) obtained or made, and (ii) filings to perfect the Liens created by
the Collateral Documents. This Agreement has been, and each other Operative
Document to which any Credit Party is a party will be, duly executed and
delivered on behalf of such Credit Party. This Agreement constitutes, and each
other Operative Document to which any Credit Party or Seller is a party when
executed and delivered will constitute, a legal, valid and binding obligation of
such Credit Party and, to the knowledge of the Credit Parties, of the Seller,
enforceable against such Person in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
5.5 NO CONFLICTS. Neither the execution and delivery by each Credit
Party of the Operative Documents to which it is a party, nor the consummation of
the transactions contemplated therein, nor performance of and compliance with
the terms and provisions thereof by such Credit Party, nor the exercise of
remedies by the Secured Parties under the Credit Documents, will (a) violate or
conflict with any provision of its articles or certificate of incorporation or
bylaws or other organizational or governing documents of such Person, (b)
violate, contravene or conflict with any Requirement of Law (including
Regulation U or Regulation X), applicable to it or its Properties, (c) violate,
contravene or conflict with contractual provisions of, cause an event of default
under, or give rise to material increased, additional, accelerated or guaranteed
rights of any Person under, any indenture, loan agreement, mortgage, deed of
trust, contract or other agreement or instrument to which it is a party or by
which it may be bound, or (d) result in or require the creation of any Lien
(other than the Lien of the Collateral Documents) upon or with respect to its
Properties.
5.6 NO DEFAULT. No Credit Party is in default in any respect under any
loan agreement, indenture, mortgage, security agreement or other agreement
relating to Indebtedness or any other contract, lease, agreement or obligation
to which it is a party or by which any of its Properties is bound which default
could reasonably be expected to have a Material Adverse Effect. No Default or
Event of Default has occurred or exists.
5.7 OWNERSHIP OF ASSETS. Each Credit Party is the owner of, and has
good and marketable title to, all of its respective assets, and none of such
assets is subject to any Lien other than Permitted Liens.
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5.8 INDEBTEDNESS. Except as permitted under Section 7.1, the Credit
Parties have no Indebtedness.
5.9 LITIGATION. Except as disclosed in SCHEDULE 5.9, there are no
actions, suits, investigations or legal, equitable, arbitration or
administrative proceedings pending for which service of process or other written
notice has been received or, to the knowledge of any Credit Party, threatened
against or affecting any Credit Party which could reasonably be expected to have
a Material Adverse Effect or which are pending or threatened as of the Closing
Date.
5.10 TAXES. Each Credit Party has filed, or caused to be filed, all
material tax returns (including Federal, state, local and foreign tax returns)
required to be filed and paid (a) all amounts of taxes shown thereon to be due
(including interest and penalties) and (b) all other material taxes, fees,
assessments and other governmental charges (including mortgage recording taxes,
documentary stamp taxes and intangibles taxes) owing by it, except for such
taxes (i) which are not yet delinquent or (ii) that are being contested in good
faith and by proper proceedings diligently pursued, and against which adequate
reserves are being maintained in accordance with GAAP. No Credit Party knows as
of the Closing Date of any pending investigation of such party by any taxing
authority or proposed tax assessments against it or any other Credit Party.
5.11 COMPLIANCE WITH LAW. Each Credit Party is in compliance with all
Requirements of Law (including Environmental Laws) applicable to it or to its
Properties, except for any such failure to comply which could not reasonably be
expected to have a Material Adverse Effect. No Requirement of Law could
reasonably be expected to cause a Material Adverse Effect. To the knowledge of
the Credit Parties, as of the Closing Date, none of the Credit Parties or any of
their respective material Properties or assets is subject to or in default with
respect to any judgment, writ, injunction, decree or order of any court or other
Governmental Authority. None of the Credit Parties has received any written
communication prior to the Closing Date from any Governmental Authority that
alleges that any of the Credit Parties is not in compliance in any material
respect with any Requirement of Law, except for allegations that have been
satisfactorily resolved and are no longer outstanding.
5.12 ERISA. Except as disclosed in SCHEDULE 5.12:
(a) During the five-year period prior to the date on which
this representation is made or deemed made: (i) no ERISA Event has
occurred, and, to the knowledge of the Credit Parties, no event or
condition has occurred or exists as a result of which any ERISA Event
could reasonably be expected to occur, with respect to any Plan; (ii)
no "accumulated funding deficiency," as such term is defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived, has
occurred with respect to any Plan; (iii) each Plan has been maintained,
operated, and funded in compliance with its own terms and in material
compliance with the provisions of ERISA, the Code, and any other
applicable Federal or state laws, and (iv) no Lien in favor of the PBGC
or a Plan has arisen or is reasonably likely to arise on account of any
Plan.
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(b) The actuarial present value of all "benefit liabilities"
(as defined in Section 4001(a)(16) of ERISA), whether or not vested,
under each Single Employer Plan, as of the last annual valuation date
prior to the date on which this representation is made or deemed made
(determined, in each case, utilizing the actuarial assumptions used in
such Plan's most recent actuarial valuation report), did not exceed as
of such valuation date the fair market value of the assets of such
Plan.
(c) Neither any Credit Party nor any ERISA Affiliate has
incurred, or, to the knowledge of the Credit Parties, could be
reasonably expected to incur, any withdrawal liability under ERISA to
any Multiemployer Plan or Multiple Employer Plan. Neither any Credit
Party nor any ERISA Affiliate would become subject to any withdrawal
liability under ERISA if any Credit Party or any ERISA Affiliate were
to withdraw completely from all Multiemployer Plans and Multiple
Employer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. Neither any Credit
Party nor any ERISA Affiliate has received any notification that any
Multiemployer Plan is in reorganization (within the meaning of Section
4241 of ERISA), is insolvent (within the meaning of Section 4245 of
ERISA), or has been terminated (within the meaning of Title IV of
ERISA), and no Multiemployer Plan is, to the knowledge of the Credit
Parties, reasonably expected to be in reorganization, insolvent, or
terminated.
(d) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or may subject any Credit Party or any ERISA Affiliate to any liability
under Section 406, 409, 502(i) or 502(1) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which
any Credit Party or any ERISA Affiliate has agreed or is required to
indemnify any Person against any such liability.
(e) Neither any Credit Party nor any ERISA Affiliate has any
material liability with respect to "expected post-retirement benefit
obligations" within the meaning of the Financial Accounting Standards
Board Statement 106.
5.13 SUBSIDIARIES. SCHEDULE 5.13 sets forth a complete and accurate
list of all Subsidiaries of the Borrower, discloses the jurisdiction of
incorporation of each such Subsidiary, the number of authorized shares of each
class of Capital Stock of each such Subsidiary, the number of outstanding shares
of each class of Capital Stock, the number and percentage of outstanding shares
of each class of Capital Stock of each such Subsidiary owned (directly or
indirectly) by any Person, and the number and effect, if exercised, of all
outstanding options, warrants, rights of conversion or purchase and all other
similar rights with respect to Capital Stock of each such Subsidiary. All the
outstanding Capital Stock of each such Subsidiary is validly issued, fully paid
and non-assessable and is owned by the Borrower, directly or indirectly, free
and clear of all Liens (other than those arising under the Collateral
Documents). Other than as disclosed in SCHEDULE 5.13, no Credit Party has
outstanding any securities convertible into or exchangeable for its Capital
Stock nor does any such Person have outstanding any rights to subscribe for or
to purchase or any options for
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the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its Capital Stock.
5.14 GOVERNMENTAL REGULATIONS, ETC. (a) No part of the Letters of
Credit or proceeds of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying any "margin stock" within the meaning of
Regulation G or Regulation U, or for the purpose of purchasing or carrying or
trading in any securities. If requested by any Lender or the Agent, the Borrower
will furnish to the Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in Regulation U. No
indebtedness being reduced or retired out of the proceeds of the Loans was or
will be incurred for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U or any "margin security" within the meaning
of Regulation T. "margin stock" within the meaning of Regulation U does not
constitute more than 25% of the value of the consolidated assets of the Credit
Parties. None of the transactions contemplated by this Agreement (including the
direct or indirect use of the proceeds of the Loans) will violate or result in a
violation of the Securities Act of 1933, as amended, or the Exchange Act or
regulations issued pursuant thereto, or Regulation G, T, U or X.
(b) No Credit Party is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment Company Act
of 1940, each as amended. In addition, no Credit Party is (i) an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, (ii) controlled by such a company, or (iii) a "holding
company", a "subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal holder of Capital Stock
of any Credit Party is a director, executive officer or principal shareholder of
any Lender. For the purposes hereof the terms "director", "executive officer"
and "principal shareholder" (when used with reference to any Lender) have the
respective meanings assigned thereto in Regulation O issued by the Board of
Governors of the Federal Reserve System.
(d) Each Credit Party has obtained and holds in full force and effect
all material franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals which are necessary for the ownership of its respective
Property and to the conduct of its respective businesses as presently conducted.
(e) Each Credit Party is current with all material reports and
documents, if any, required to be filed with any state or Federal securities
commission or similar agency and is in full compliance in all material respects
with all applicable rules and regulations of such commissions.
5.15 PURPOSE OF LOANS AND LETTERS OF CREDIT. The proceeds of the
Revolving Loans made on or after the Closing Date will be used to provide for:
(a) working capital requirements of the Borrower and its Subsidiaries; (b)
permitted Consolidated Capital
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Expenditures; (c) Permitted Acquisitions; and (d) for the general corporate
purposes of the Borrower and its Subsidiaries (including the payment of
reasonable expenses incurred in connection with the U-Gene Acquisition and the
gmi Acquisition and the satisfaction of existing Indebtedness on the Closing
Date).
5.16 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 5.16:
(a) Each of the facilities and properties owned, leased or
operated by the Credit Parties (the "COMPANY PROPERTIES") and all
operations at the Company Properties are in compliance in all material
respects with all applicable Environmental Laws, and there is no
violation of any Environmental Law with respect to the Company
Properties or the businesses operated by the Credit Parties (the
"BUSINESSES"), and there are no conditions or circumstances relating to
the Businesses or Company Properties or any former facilities,
properties or businesses of the Credit Parties that could give rise to
liability of any Credit Party under any applicable Environmental Laws
or under any agreement or other instrument pursuant to which any Credit
Party has agreed or is required to indemnify any Person against any
such liability.
(b) None of the Company Properties contains, or has previously
contained, any Materials of Environmental Concern at, on or under the
Company Properties in amounts or concentrations that constitute or
constituted a violation of, or could give rise to liability of any
Credit Party under, Environmental Laws or under any agreement or other
instrument pursuant to which any Credit Party has agreed or is required
to indemnify any Person against any such liability.
(c) No Credit Party has received any written or verbal notice
of, or inquiry from any Governmental Authority regarding, any
violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Company Properties or the
Businesses, nor does any Credit Party have knowledge or reason to
believe that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Company Properties, or generated,
treated, stored or disposed of at, on or under any of the Company
Properties or any other location, in each case by or on behalf of any
Credit Party in violation of, or in a manner that could give rise to
liability of any Credit Party under, any applicable Environmental Law
or under any agreement or other instrument pursuant to which any Credit
Party has agreed or is required to indemnify any Person against any
such liability.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the best knowledge of any Credit Party,
threatened, under any Environmental Law to which any Credit Party is or
will be named as a party, nor are there any consent decrees, consent
orders, administrative orders, other decrees or orders or other
administrative or judicial requirements outstanding under any
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Environmental Law with respect to the Credit Parties, the Company
Properties or the Businesses.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Company Properties,
or arising from or related to the operations (including disposal) of
any Credit Party in connection with the Company Properties or otherwise
in connection with the Businesses, in violation of or in amounts or in
a manner that could give rise to liability under Environmental Laws or
under any agreement or other instrument pursuant to which any Credit
Party has agreed or is required to indemnify any Person against any
such liability.
5.17 INTELLECTUAL PROPERTY. Except as disclosed in SCHEDULE 5.17:
(a) Each Credit Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, service marks, proprietary techniques,
patents, patent applications, trade secrets, technology, know-how and processes
(the "INTELLECTUAL PROPERTY") necessary for each of them to conduct its business
as currently conducted except for those the failure to own or have such legal
right to use could not reasonably be expected to have a Material Adverse Effect.
SCHEDULE 5.17 sets forth a complete and accurate list of all material
Intellectual Property owned by each Credit Party ("MATERIAL OWNED INTELLECTUAL
PROPERTY") and a separate list of all material Intellectual Property that any
Credit Party has the right to use, but not ownership of ("MATERIAL LICENSED
INTELLECTUAL PROPERTY" and together with the Material Owned Intellectual
Property, the "MATERIAL INTELLECTUAL PROPERTY"). None of the Credit Parties has
granted any options, licenses or agreements of any kind relating to Material
Intellectual Property.
(b) No claim has been asserted and is pending by any Person challenging
or questioning the use, ownership or enforceability of any Material Intellectual
Property or the validity or effectiveness of any Material Intellectual Property,
nor does any Credit Party know of any such claim, and to the Credit Parties'
knowledge the use of the Material Intellectual Property by any Credit Party does
not infringe on the rights of any Person. None of the Credit Parties is in
breach of any material provision of any license, sublicense or other agreement
which relates to any of the Material Licensed Intellectual Property, and none of
the Credit Parties has taken any action which would impair or otherwise
adversely affect its rights in any of the Material Intellectual Property. All
the Material Owned Intellectual Property is valid and enforceable, except that,
with respect to the applications to register any unregistered Intellectual
Property (but not with respect to the underlying Intellectual Property rights
that are the subject of such applications), the Credit Parties only represent
and warrant (to Borrower's knowledge only with respect to Intellectual Property
it licenses) that such applications are pending and in good standing all without
challenge of any kind.
(c) The Material Owned Intellectual Property has been maintained in
confidence in accordance with protection procedures customarily used to protect
rights of like importance. No former or current members of management and key
personnel of each Credit Party, including all former and current employees,
agents, consultants and independent contractors who have contributed to or
participated in the conception and development of any of the Material Owned
Intellectual Property (collectively, "PERSONNEL"), have any claim against the
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Credit Parties in connection with such Person's involvement in the conception
and development of any Intellectual Property and no such claim has been asserted
or is threatened. None of the current officers and employees of any of the
Credit Parties has any patents issued or applications pending for any device,
process, design or invention of any kind now used or needed by any of the Credit
Parties in the furtherance of its business operations, which patents or
applications have not been assigned to the Credit Parties, with such assignment
duly recorded in the United States Patent Office. SCHEDULE 5.17 may be updated
from time to time by the Borrower by giving written notice thereof to the Agent.
5.18 SOLVENCY. Each Credit Party is and, after consummation of the
transactions contemplated by this Agreement (including the transactions
contemplated by the Acquisition Agreements), will be Solvent.
5.19 INVESTMENTS. All Investments of each Credit Party are Permitted
Investments.
5.20 LOCATION OF COLLATERAL. SCHEDULE 5.20(a) sets forth a complete and
accurate list of (i) all real property owned by the Credit Parties and (ii) all
real property leased by the Credit Parties for which annual rental payments
exceed $10,000 with respect to each such property, in each case with street
address, county, state and country where located. Set forth on SCHEDULE 5.20(b)
is a list of all locations where any tangible personal property of a Credit
Party (with a collective value in excess of $10,000) is located, including
county and state where located (including without limitation all depository
accounts of the Credit Parties). Set forth on SCHEDULE 5.20(c) is the chief
executive office and principal place of business of each Credit Party. SCHEDULE
5.20(a), 5.20(b) and 5.20(c) may be updated from time to time by the Borrower
giving written notice thereof to the Agent.
5.21 DISCLOSURE. Neither this Agreement nor any financial statements
delivered to the Lenders pursuant hereto nor any other document, certificate or
statement furnished to the Lenders by or on behalf of any Credit Party in
connection with the transactions contemplated hereby (other than final
projections) contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained therein or
herein not misleading. All financial projections that have been made available
to the Agent or the Lenders by any Credit Party or any representatives thereof
in connection with the transactions contemplated hereby have been prepared in
good faith based upon assumptions believed by the Credit Parties to be
reasonable.
5.22 NO BURDENSOME RESTRICTIONS; MATERIAL AGREEMENTS. No Credit Party
is a party to any agreement or instrument or subject to any other obligation or
any charter or corporate restriction or any provision of any applicable law,
rule or regulation which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. SCHEDULE 5.22 sets forth a complete
and accurate list of each agreement, contract, lease, license, commitment,
commercial arrangement or other instrument to which any Credit Party is a party
or by which it or any of its properties or assets are or may be bound as of the
Closing Date, after giving effect to the transactions contemplated by the
Acquisition Agreements, the loss of which could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect
(collectively, the "MATERIAL CONTRACTS").
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(b) Except as set forth in SCHEDULE 5.22, after giving effect to the
transactions contemplated by the Acquisition Agreements, each Material Contract
will be in all material respects valid, binding and in full force and effect and
will be enforceable by the Borrower or the Subsidiary of the Borrower which is a
party thereto in accordance with its terms, except as affected by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting creditors' rights generally and general equitable principles (whether
in equity or at law). Except as set forth in SCHEDULE 5.22, after giving effect
to the transactions contemplated by the Acquisition Agreements, each of the
Borrower and the Subsidiaries will have performed in all material respects all
obligations required to be performed by it to date under the Material Contracts
and it will not be (with or without the lapse of time or the giving of notice,
or both) in breach or default in any material respect thereunder and, to the
knowledge of the Credit Parties, no other party to any of the Material Contracts
will be (with or without the lapse of time or the giving of notice, or both) in
breach or default in any material respect thereunder. After giving effect to the
transactions contemplated by the Acquisition Agreements, neither the Borrower
nor any of the Subsidiaries, nor, to the knowledge of the Borrower, any other
party to any Material Contract, will have given notice of termination of, or
taken any action inconsistent with the continuation of, any Material Contract.
Except as disclosed in SCHEDULE 5.22, none of such other parties will have any
presently exercisable right to terminate any Material Contract nor will any such
other party have any right to terminate any Material Contract on account of the
execution, delivery or performance of the Operative Documents, the collateral
assignment of such Material Contract to the Agent on behalf of the Lenders or
the consummation of the transactions contemplated by the Acquisition Agreements.
5.23 LABOR MATTERS. Except as disclosed in SCHEDULE 5.23, there are no
collective bargaining agreements or Multiemployer Plans covering the employees
of a Credit Party as of the Closing Date and none of the Credit Parties has
suffered any strike, walkout, work stoppage, unfair labor practice complaint or
other material labor difficulty within the five years prior to the Closing Date.
To the knowledge of the Credit Parties, as of the Closing Date, no union
representation question exists with respect to the employees of the Credit
Parties and no union organizing activities are taking place. The hours worked by
and payments made to employees of the Credit Parties have not been in violation
in any material respect of the Fair Labor Standards Act or any other applicable
Federal, state, local or foreign law dealing with such matters. All payments due
from any Credit Party, or for which any claim may be made against any Credit
Party, on account of wages, employee health and welfare insurance or other
benefits, have been paid or accrued as a liability on the books of the Credit
Parties. The consummation of the transactions contemplated by the Acquisition
Agreements will not give rise to any right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which any Credit Party is bound.
5.24 NATURE OF BUSINESS. As of the Closing Date, the Credit Parties are
engaged in the business of providing outsourced and clinical research and
products development services to pharmaceutical and biotechnology companies.
5.25 REPRESENTATIONS AND WARRANTIES FROM OTHER AGREEMENTS. As of the
Closing Date, each of the representations and warranties made in the Acquisition
Agreements by the
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parties thereto is true and correct in all material respects (to the knowledge
of the Borrower only, with respect to gmi and U-Gene shareholder representations
and warranties) and each of the representations and warranties made by any
Credit Party in the Operative Documents is true and correct in all material
respects.
5.26 SECURITY DOCUMENTS. (a) The Pledge Agreement is effective to
create in favor of the Agent, for the ratable benefit of the Secured Parties, a
legal, valid and enforceable security interest in 100% of the issued and
outstanding Capital Stock of the Borrower (on a fully diluted basis), and, when
such Collateral is delivered to the Agent, the Pledge Agreement will constitute
a fully perfected first priority Lien on, and security interest in, all right,
title and interest of the pledgors thereunder in such Collateral, in each case
prior and superior in right to any other Person. If, at any time prior to a
Qualified Initial Public Offering, any Permitted Holder that is listed on
Schedule 1.1C hereto shall exercise any option to purchase Capital Stock of the
Borrower, then contemporaneously with such exercise, the Borrower shall cause
such Permitted Holders to execute and deliver to the Agent, for the benefit of
the Secured Parties, a pledge agreement in substantially the form of Exhibit A
hereto from such exercising Permitted Holders so that the Agent, for the benefit
of the Secured Parties, at all times prior to a Qualified Initial Public
Offering holds 100% of the issued and outstanding Capital Stock of the Borrower
on a fully diluted basis.
(b) The Security Agreement is, and upon the Borrower's compliance with
Section 6.13, the Life Insurance Assignment will be, effective to create in
favor of the Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable first priority security interest in the Collateral (as
defined in the Security Agreement) and in the Life Insurance Policy,
respectively, and, when financing statements in appropriate form are filed in
the offices specified on Schedule 6 to the Perfection Certificate delivered
pursuant to the Security Agreement and the Pledged Securities are delivered to
the Agent, the Security Agreement and the Life Insurance Assignment shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the grantors thereunder in such of the Collateral in which a
security interest can be perfected under Article 8 or 9 of the Uniform
Commercial Code and in the Life Insurance Policy, respectively, in each case
prior and superior in right to any other Person, other than with respect to
Permitted Liens.
(c) When the Assignment of Patents and Trademarks, substantially in the
form of Exhibit A to the Security Agreement, is filed in the United States
Patent and Trademark Office and the Assignment of copyrights, substantially in
the form of Exhibit B to the Security Agreement is filed in the United States
Copyright Office, the Security Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the grantors
thereunder in the Intellectual Property covered in the Security Agreement, in
each case prior and superior in right to any other Person (it being understood
that subsequent recordings in the United States Patent and Trademark Office and
the United States Copyright Office may be necessary to perfect a lien on
registered trademarks, trademark applications and copyrights acquired by the
grantors after the Closing Date).
(d) The Agent, for the ratable benefit of the Secured Parties, will at
all times have the Liens provided for in the Collateral Documents and, subject
to the filing by the Agent of continuation statements to the extent required by
the Uniform Commercial Code, the
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Collateral Documents will at all times constitute a valid and continuing lien of
record and first priority perfected security interest in all the Collateral
referred to therein, except as priority may be affected by Permitted Liens. No
filings or recordings are required in order to perfect the security interests
created under the Collateral Documents, except for filings or recordings listed
on SCHEDULE 5.26. All such listed filings and recordings will have been made on
or prior to the Closing Date.
5.27 TRANSACTIONS WITH AFFILIATES. Except for agreements and
arrangements among the Borrower and its Wholly Owned Subsidiaries or among
Wholly Owned Subsidiaries of the Borrower, neither the Borrower nor any of its
Subsidiaries is, or will be immediately after giving effect to the transactions
contemplated by the Acquisition Agreements, a party to or engaged in any
transaction with, and none of the properties and assets of the Borrower or any
of its Subsidiaries is, or will be immediately after giving effect to the
transactions contemplated by the Acquisition Agreements, subject to or bound by,
(a) any Affiliate of any Credit Party or (b) any Seller or any of its
Affiliates.
5.28 OWNERSHIP. (a) The authorized Capital Stock of the Borrower
consists of 200,000 shares of the common stock, no par value, of which 100,000
shares are issued and outstanding on Closing Date. All of the outstanding shares
of the common stock of the Borrower have been duly and validly authorized and
issued, are fully paid and nonassessable, and were not issued in violation of
the preemptive rights of any stockholder. Except as set forth on SCHEDULE
5.28(a), there are no existing options, warrants, calls or commitments relating
to, or any securities or rights convertible into, exercisable for or
exchangeable for, any common stock of the Borrower. Other than lock-up
agreements to be entered into in connection with the Qualified Initial Public
Offering, the Shareholder's Agreement and the Warrants, there are no
shareholders agreements or other agreements pertaining to the ownership of the
common stock of the Borrower, including any agreement that would restrict the
right to dispose of such common stock and/or its right to vote such common
stock.
(b) SCHEDULE 5.28(b) sets forth a true and accurate list, as of the
Closing Date, of each holder of Capital Stock of the Borrower, indicating the
name of each such holder and the Capital Stock held by each such Person.
5.29 INSURANCE. The Credit Parties maintain policies of fire and
casualty, liability, business interruption and other forms of insurance in such
amounts, with such deductibles and against such risks and losses as are in
accordance with normal industry practice for the business and assets of the
Credit Parties. All such policies are in full force and effect, all premiums due
and payable thereon have been paid (other than retroactive or retrospective
premium adjustments that are not yet, but may be, required to be paid with
respect to any prior period under comprehensive general liability and workmen's
compensation insurance policies), and no notice of cancellation or termination
has been received with respect to any such policy which has not been replaced on
substantially similar terms prior to the date of such cancellation. The
activities and operations of the Credit Parties have been conducted in a manner
so as to conform in all material respects to all applicable provisions of such
insurance policies.
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5.30 CERTAIN TRANSACTIONS. On the Closing Date, (i) the Acquisition
Agreements shall not have been amended or modified, nor any condition thereof
waived by the Borrower, without the prior written consent of the Agent, (ii) all
conditions to the obligations of the Borrower to consummate the transactions
contemplated by the U-Gene Acquisition Agreement shall have been satisfied,
(iii) all funds advanced and Letters of Credit issued on the Closing Date by the
Lenders will be used in accordance with Section 5.15, (iv) all funds advanced by
the Subordinated Noteholders will be used to consummate the U-Gene Acquisition
and (v) the transactions contemplated by the U-Gene Acquisition Agreement will
be consummated in accordance with the U-Gene Acquisition Agreement and all
applicable Requirements of Law. On the Closing Date, the Operative Documents
shall not have been amended or modified, nor any condition thereof waived by the
Borrower in a manner adverse in any material respect to the rights or interests
of the Lenders.
SECTION 6
AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that so long as this Agreement
is in effect or any amounts payable hereunder or under any other Credit Document
shall remain outstanding and until all of the Commitments hereunder shall have
terminated and all Letters of Credit shall have expired or been cancelled:
6.1 INFORMATION COVENANTS. The Borrower will furnish, or cause to be
furnished, to the Agent and each of the Lenders:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within ninety (90) days after the end of each fiscal year of
the Borrower, an audited consolidated and unaudited consolidating
balance sheet and income statement of the Borrower and its Consolidated
Subsidiaries, as of the end of such fiscal year, together with related
consolidated and consolidating statements of operations and retained
earnings and of cash flows for such fiscal year, setting forth in
comparative form consolidated and consolidating figures for the
preceding fiscal year, all such financial statements to be in
reasonable form and detail and, with respect to the consolidated
statements only, audited by independent certified public accountants of
recognized national standing reasonably acceptable to the Agent and
accompanied by, with respect to the consolidated statements, an opinion
of such accountants (which shall not be qualified or limited in any
material respect), and, with respect to the consolidating statement, a
certificate of the chief financial officer of the Borrower (as to which
certificate there shall be no individual, as opposed to corporate,
liability), to the effect that such financial statements have been
prepared in accordance with GAAP and fairly present in all material
respects the consolidated financial position and consolidated results
of operations and cash flows of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP consistently applied (except for
changes with which such accountants concur).
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and
in any event within forty-five (45) days after the end of each of the
first three fiscal quarters in
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each fiscal year of the Borrower, a consolidated and consolidating
balance sheet of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal quarter, together with related consolidated and
consolidating statements of operations and retained earnings and of
cash flows for such fiscal quarter and the then elapsed portion of the
fiscal year, setting forth in comparative form consolidated and
consolidating figures for the corresponding period of the preceding
fiscal year, all such financial statements to be in reasonable form and
detail and reasonably acceptable to the Agent, and accompanied by a
certificate of the chief financial officer of the Borrower (as to which
certificate there shall be no individual, as opposed to corporate,
liability) to the effect that such quarterly financial statements have
been prepared in accordance with GAAP and fairly present in all
material respects the consolidated financial position and consolidated
results of operations and cash flows of the Borrower and its
Consolidated Subsidiaries in accordance with GAAP consistently applied,
subject to changes resulting from normal year-end audit adjustments.
(c) OFFICER'S CERTIFICATE. At the time of delivery of the
financial statements provided for in Sections 6.1(a) and 6.1(b) above,
a certificate of the chief financial officer of the Borrower (as to
which certificate there shall be no individual, as opposed to
corporate, liability) substantially in the form of EXHIBIT K (i)
demonstrating compliance with the financial covenants contained in
Section 7.18 by calculation thereof as of the end of each such fiscal
period, (ii) stating that no Default or Event of Default exists, or if
any Default or Event of Default does exist, specifying the nature and
extent thereof and what action the Borrower proposes to take with
respect thereto and (iii) stating whether, since the date of the most
recent financial statements delivered hereunder, there has been any
material change in the GAAP applied in the preparation of the financial
statements of the Borrower and its Consolidated Subsidiaries, and, if
so, describing such change.
(d) ANNUAL BUSINESS PLAN, BUDGETS AND PROJECTIONS. At least
ninety (90) days after the end of each fiscal year of the Borrower,
beginning with the fiscal year ending December 31, 1997, an annual
budget of the Borrower and its Consolidated Subsidiaries for the
current year. As of December 31 of each year, updated projected
financial statements (including balance sheets, income statements and
statements of cash flows) for the next three (3) fiscal years.
(e) COMPLIANCE WITH CERTAIN PROVISIONS OF THIS AGREEMENT.
Within ninety (90) days after the end of each fiscal year of the
Borrower, a certificate containing information regarding the amount of
Net Cash Proceeds from Asset Dispositions (other than Excluded Asset
Dispositions), Debt Issuances and Equity Issuances that were made
during the prior fiscal year.
(f) ACCOUNTANT'S CERTIFICATE. Within the period for delivery
of the annual financial statements provided for in Section 6.1(a), a
certificate of the accountants conducting the annual audit stating that
they have reviewed this Agreement and stating further whether, in the
course of their audit, they have become aware of any Default or Event
of Default and, if any such Default or Event of Default exists,
specifying the nature and extent thereof.
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(g) AUDITOR'S REPORTS. Promptly upon receipt thereof, a copy
of any other report or "management letter" submitted by independent
accountants to any Credit Party in connection with any annual, interim
or special audit of the books of such Credit Party.
(h) REPORTS. Promptly upon transmission or receipt thereof,
(i) copies of all filings and registrations with, and reports to or
from, the Securities and Exchange Commission, or any successor agency,
and copies of all financial statements, proxy statements, notices and
reports as any Credit Party shall send to its shareholders or to a
holder of any Indebtedness owed by any Credit Party in its capacity as
such a holder and (ii) upon the request of the Agent or the Required
Lenders, all reports and written information to and from the United
States Environmental Protection Agency, or any state or local agency
responsible for environmental matters, the United States Occupational
Health and Safety Administration, or any state or local agency
responsible for health and safety matters, or any successor agencies or
authorities concerning environmental, health or safety matters.
(i) NOTICES. Upon obtaining knowledge thereof, the Borrower
will give written notice to the Agent immediately of (i) the occurrence
of any event or condition consisting of a Default or Event of Default,
specifying the nature and existence thereof and what action the
Borrower proposes to take with respect thereto, and (ii) the occurrence
of any of the following with respect to any Credit Party: (A) the
pendency or commencement of any litigation, arbitral or governmental
proceeding against such Person which if adversely determined could
reasonably be expected to have a Material Adverse Effect and (B) the
institution of any proceedings against such Person with respect to, or
the receipt of notice by such Person of potential liability or
responsibility (direct or indirect) for violation, or alleged violation
of any Federal, state or local law, rule or regulation, including
Environmental Laws, the violation of which could have a Material
Adverse Effect.
(j) ERISA. The Borrower will give written notice to the Agent
promptly (and in any event within five (5) Business Days after any
officer of any Credit Party obtains knowledge thereof) of: (i) any
event or condition, including any Reportable Event, that constitutes,
or might reasonably lead to, an ERISA Event; (ii) with respect to any
Multiemployer Plan, the receipt of notice as prescribed in ERISA or
otherwise of any withdrawal liability assessed against the Borrower or
any of its ERISA Affiliates, or of a determination that any
Multiemployer Plan is in reorganization or insolvent (both within the
meaning of Title IV of ERISA); (iii) the failure to make full payment
on or before the due date (including extensions) thereof of all amounts
which any Credit Party or any ERISA Affiliate is required to contribute
to each Plan pursuant to its terms and as required to meet the minimum
funding standard set forth in ERISA and the Code with respect thereto;
or (iv) any change in the funding status of any Plan that could have a
Material Adverse Effect, together with a description of any such event
or condition or a copy of any such notice and a statement by the chief
financial officer of the Borrower briefly setting forth the details
regarding such event, condition or notice and the action, if any, which
has been or is being taken or is proposed to be taken by the Borrower
with respect thereto. Promptly upon request,
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the Credit Parties shall furnish the Agent and the Lenders with such
additional information concerning any Plan as may be reasonably
requested, including copies of each annual report/return (Form 5500
series), as well as all schedules and attachments thereto required to
be filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA and the Code, respectively, for each "plan
year" (within the meaning of Section 3(39) of ERISA).
(k) ADDITIONAL PATENTS AND TRADEMARKS. At the time of delivery
of the financial statements and reports provided for in Section 6.1(a),
a report signed by the chief financial officer of the Borrower (as to
which certificate there shall be no individual, as opposed to
corporate, liability) setting forth (i) a list of registration numbers
for all patents, trademarks, service marks, tradenames and copyrights
awarded to any Credit Party since the last day of the immediately
preceding fiscal year of the Borrower and (ii) a list of all patent
applications, trademark applications, service mark applications, trade
name applications and copyright applications submitted by any Credit
Party since the last day of the immediately preceding fiscal year and
the status of each such application, all in such form as shall be
reasonably satisfactory to the Agent.
(l) OTHER INFORMATION. With reasonable promptness upon request
therefor, such other information regarding the business, properties or
financial condition of any Credit Party as the Agent or the Required
Lenders may reasonably request.
6.2 PRESERVATION OF EXISTENCE AND FRANCHISES. Except as a result of or
in connection with a dissolution, merger or disposition of a Subsidiary
permitted under Section 7.4 or Section 7.5 and the contemplated conversion of
the Borrower from an "S Corporation" to a "C Corporation" for Federal income tax
purposes, each of the Credit Parties will do all things necessary to preserve
and keep in full force and effect its existence, rights, franchises and
authority.
6.3 BOOKS AND RECORDS. Each of the Credit Parties will keep complete
and accurate books and records of its transactions in accordance with good
accounting practices on the basis of GAAP (including the establishment and
maintenance of appropriate reserves).
6.4 COMPLIANCE WITH LAW. Each of the Credit Parties will comply with
all Requirements of Law applicable to it and its Property to the extent that
noncompliance with any such Requirement of Law could reasonably be expected to
have a Material Adverse Effect.
6.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Each of the Credit Parties
will pay and discharge (a) all material taxes, assessments and other
governmental charges or levies imposed upon it, or upon its income or profits,
or upon any of its Properties, before they shall become delinquent, (b) all
material lawful claims (including claims for labor, materials and supplies)
which, if unpaid, might give rise to a Lien upon any of its Properties, and (c)
except as prohibited hereunder, all of its other Indebtedness as it shall become
due; PROVIDED, THAT, no Credit Party shall be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings
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diligently pursued and as to which adequate reserves therefor have been
established in accordance with GAAP, unless the failure to make any such payment
(i) could give rise to an immediate right to foreclose on a Lien securing such
amounts or (ii) could reasonably be expected to have a Material Adverse Effect.
6.6 INSURANCE; CERTAIN PROCEEDS. (a) Each of the Credit Parties will at
all times maintain in full force and effect insurance (including domestic
worker's compensation insurance, liability insurance, casualty insurance and
business interruption insurance) in such amounts, covering such risks and
liabilities and with such deductibles or self-insurance retentions as are in
accordance with normal industry practice (or as are otherwise required by the
Collateral Documents). The Agent shall be named as loss payee or mortgagee, as
its interest may appear, with respect to all such property and casualty policies
and an additional insured with respect to all such other policies (other than
workers' compensation and employee health policies), and each provider of any
such insurance shall agree, by endorsement upon the policy or policies issued by
it or by independent instruments furnished to the Agent, that if the insurance
carrier shall have received written notice from the Agent of the occurrence of
an Event of Default, the insurance carrier shall pay all proceeds otherwise
payable to the Credit Parties under such policies directly to the Agent (which
agreement shall be evidenced by a "standard" or "New York" lender's loss payable
endorsement in the name of the Agent on Accord Form 27) and that it will give
the Agent thirty (30) days' prior written notice before any such policy or
policies shall be altered or canceled, and that no act or default of any Credit
Party or any other Person shall affect the rights of the Agent or the Lenders
under such policy or policies.
(b) In case of any Casualty or Condemnation with respect to any
Property of any Credit Party or any part thereof, the Borrower shall promptly
give written notice thereof to the Agent generally describing the nature and
extent of such damage, destruction or taking. In such case the Borrower shall,
or shall cause such Credit Party to, promptly repair, restore or replace the
Property of such Credit Party which was subject to such Casualty or Condemnation
at such Credit Party's cost and expense, whether or not Insurance Proceeds or a
Condemnation Award, if any, received on account of such event shall be
sufficient for that purpose; PROVIDED, THAT, such Property need not be repaired,
restored or replaced to the extent the failure to make such repair, restoration
or replacement (i)(A) is desirable to the proper conduct of the business of such
Credit Party in the ordinary course and otherwise in the best interest of such
Credit Party and (B) would not materially impair the rights and benefits of the
Agent or the Secured Parties under the Collateral Documents or any other Credit
Document or (ii) the failure to repair, restore or replace the Property is
attributable to the application of the Insurance Proceeds from such Casualty or
the Condemnation Award from such Condemnation to payment of the Credit
Obligations in accordance with the provisions of Section 3.3(b). In the event a
Credit Party shall receive any Insurance Proceeds or Condemnation Awards, such
Credit Party will immediately pay over such proceeds to the Agent, for payment
on the Credit Obligations in accordance with Section 3.3(b) or, if such funds
constitute Reinvestment Funds, to be held by the Agent. The Agent agrees to
release such Insurance Proceeds or Condemnation Awards to the Borrower as needed
from time to time to pay for the replacement or restoration of the portion of
the Property subject to the Casualty or Condemnation, if, but only if, the
conditions set forth in the definition of "Reinvestment Funds" are satisfied at
the time of such request.
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(c) In connection with the covenants set forth in this Section 6.6, it
is understood and agreed that:
(i) none of the Agent, the Lenders or their respective agents
or employees shall be liable for any loss or damage insured by the
insurance policies required to be maintained under this Section 6.6, it
being understood that (A) the Credit Parties shall look solely to their
insurance companies or any other parties other than the aforesaid
parties for the recovery of such loss or damage and (B) such insurance
companies shall have no rights of subrogation against the Agent, the
Lenders or their agents or employees. If, however, the insurance
policies do not provide waiver of subrogation rights against such
parties, as required above, then each Credit Party hereby agrees, to
the extent permitted by law, to waive its right of recovery, if any,
against the Agent, the Lenders and their agents and employees;
(ii) Upon the occurrence of an Event of Default, the Credit
Parties will permit an insurance consultant retained by the Agent, at
the expense of the Borrower, to review from time to time the insurance
policies maintained by the Credit Parties; and
(iii) Upon the occurrence of an Event of Default, the Required
Lenders shall have the right to require the Credit Parties to keep
other insurance in such form and amount as the Agent or the Required
Lenders may reasonably request; PROVIDED, THAT, such insurance shall be
obtainable on commercially reasonable terms; and PROVIDED FURTHER,
THAT, the designation of any form, type or amount of insurance coverage
by the Agent or the Required Lenders under this Section 6.6 shall in no
event be deemed a representation, warranty or advice by the Agent or
the Lenders that such insurance is adequate for the purposes of the
business of the Credit Parties or the protection of their properties.
6.7 MAINTENANCE OF PROPERTY. Each of the Credit Parties will maintain
and preserve its properties and equipment material to the conduct of its
business in good repair, working order and condition, normal wear and tear and
Casualty and Condemnation excepted, and will make, or cause to be made, as to
such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as may
be needed or proper, to the extent and in the manner customary for companies in
similar businesses.
6.8 PERFORMANCE OF OBLIGATIONS. Each of the Credit Parties will perform
in all material respects all of its obligations under the terms of all material
agreements, indentures, mortgages, security agreements or other debt instruments
to which it is a party or by which it is bound.
6.9 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans
and will use the Letters of Credit solely for the purposes set forth in Section
5.15.
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6.10 AUDITS/INSPECTIONS. Upon reasonable notice and during normal
business hours, the Borrower will, and will cause each of its Subsidiaries to,
permit representatives appointed by the Agent or the Required Lenders, including
independent accountants, agents, employees, attorneys and appraisers, to visit
and inspect its Property, including its books and records, its accounts
receivable and inventory, its facilities and its other business assets, and to
make photocopies or photographs thereof and to write down and record any
information such representatives obtain and shall permit the Agent or such
representatives to investigate and verify the accuracy of information provided
to the Lenders and to discuss all such matters with the officers, employees,
independent accountants, attorneys and representatives of the Credit Parties.
The Borrower agrees that the Agent, and its representatives, may conduct an
annual audit of the Collateral, at the expense of the Borrower upon the
occurrence of an Event of Default. The Borrower will direct all accountants and
auditors employed by it at any time during the term of this Agreement to exhibit
and deliver to the Agent and the Lenders, upon request, copies of any of the
financial statements, trial balances or other accounting records of any sort of
the Credit Parties in the accountant's or auditor's possession, and to disclose
to the Agent and the Lenders any information they may have concerning the
financial status and business operation of the Credit Parties. Upon request of
the Agent or the Required Lenders, the Borrower will authorize all Federal,
state and municipal authorities to furnish to the Lenders copies of reports or
examinations relating to the Credit Parties, whether made by any Credit Party or
otherwise.
6.11 ADDITIONAL CREDIT PARTIES. As soon as practicable and in any event
within thirty (30) days after any Person becomes a direct or indirect Domestic
Subsidiary of any Credit Party, the Borrower shall provide the Agent with
written notice thereof setting forth information in reasonable detail describing
all of the assets of such Person and shall (a) cause such Person to execute a
Joinder Agreement in substantially the same form as EXHIBIT L, (b) cause 100% of
the Capital Stock of such Person to be delivered to the Agent (together with
undated stock powers signed in blank) and to be subject at all times to a first
priority, perfected Lien in favor of the Agent pursuant to the Collateral
Documents, subject only to Permitted Liens, and (c) cause such Person to (i) if
such Person owns or leases any real property located in the United States of
America or, to the extent deemed to be material by the Agent or the Required
Lenders in its or their sole reasonable discretion, located elsewhere, deliver
to the Agent with respect to such real property documents, instruments and other
items deemed necessary by the Agent and the Required Lenders to create and
perfect mortgage liens thereon, all in form, content and scope satisfactory to
the Agent, and (ii) deliver such other documentation as the Agent may reasonably
request in connection with the foregoing, including appropriate UCC-1 financing
statements, real estate title insurance policies, environmental reports,
landlord's waivers, certified resolutions and other organizational and
authorizing documents of such Person, favorable opinions of counsel to such
Person (which shall cover, among other things, the legality, validity, binding
effect and enforceability of the documentation referred to above and the
perfection of the Agent's liens thereunder, all in form, content and scope
reasonably satisfactory to the Agent. As soon as practical and in any event
within thirty (30) days after any Person becomes a direct Foreign Subsidiary of
the Borrower or any Domestic Subsidiary of the Borrower, the Borrower or such
Domestic Subsidiary shall provide the Agent with written notice thereof and
shall cause sixty-five percent (65%) of such Person's Capital Stock (for so long
as the pledge of any greater percentage would have adverse tax consequences to
the Credit Parties), to be
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delivered to the Agent (together with undated stock powers signed in blank
unless such stock powers are deemed unnecessary by the Agent in its reasonable
discretion under the law of the jurisdiction of incorporation of such Person)
and to be subject at all times to a first priority, perfected Lien in favor of
the Agent pursuant to the Collateral Documents, subject only to Permitted Liens
and shall further deliver such other documentation as the Agent may reasonably
request in connection with the foregoing including appropriate UCC-1 financing
statements, certified resolutions and other organizational and authorizing
documents of such Person, favorable opinions of counsel to such Person which
cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above and the perfection of the
Agent's liens thereunder, and shall include, without limitation, opinions of
counsel to the Borrower in The Netherlands and Germany related to U-Gene and gmi
to the extent reasonably required by the Agent), all in form, content and scope
reasonably satisfactory to the Agent.
6.12 PLEDGED ASSETS. (a) The Borrower will cause (i) all of its and its
Domestic Subsidiaries' owned and leased real properties, to the extent deemed to
be material by the Agent or the Required Lenders in its or their reasonable
discretion, and located in the United States and (ii) all of its and its
Domestic Subsidiaries' personal property located in the United States
(including, without limitation, all depository accounts), to be subject at all
times to first priority, perfected and, in the case of real property (whether
leased or owned), title insured Liens in favor of the Agent pursuant to the
Collateral Documents, subject in each case only to Permitted Liens. In
furtherance of the foregoing terms of this Section 6.12, the Borrower agrees to
promptly provide the Agent with written notice of the acquisition by, or the
entering into a lease by, the applicable Credit Party of any real property
having a market value greater than $100,000, setting forth in reasonable detail
the location and a description of the asset(s) so acquired. Without limiting the
generality of the above, the Credit Parties will cause 100% of the Capital Stock
in each of their direct or indirect Domestic Subsidiaries and 65% of the Capital
Stock in each of their direct Foreign Subsidiaries (for so long as the pledge of
any greater percentage would have adverse tax consequences to the Credit
Parties) to be subject at all times to a first priority, perfected Lien in favor
of the Agent pursuant to the terms and conditions of the Collateral Documents.
(b) If, subsequent to the Closing Date, a Credit Party (other than a
Foreign Subsidiary) shall (i) acquire any Intellectual Property, securities,
instruments, chattel paper or other personal property required to be delivered
to the Agent as Collateral hereunder or under any of the Collateral Documents or
(ii) acquire or lease any real property, the Borrower shall promptly (and in any
event within three (3) Business Days after any officer of such Credit Party
acquires knowledge of the same) notify the Agent of the same. Each of the Credit
Parties shall adhere to the covenants regarding the location of personal
property as set forth in the Security Agreement.
6.13 LIFE INSURANCE. The Borrower will maintain the Life Insurance
Policy at all times during the term of this Agreement and shall cause, within 30
days of the Closing Date, the same to be assigned to the Agent for the benefit
of the Secured Parties in a manner reasonably satisfactory to the Agent
(including, without limitation, the execution and delivery of the Life Insurance
Assignment).
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6.14 PAYMENT OF INDEBTEDNESS. Upon the consummation of the Qualified
Initial Public Offering, and as long as no Default or Event of Default shall
then exist, the Borrower shall use a portion of the proceeds thereof to repay
and prepay in its entirety the Indebtedness (i) evidenced and created by the
Subordinated Note Documents (other than Indebtedness that is or may be evidenced
by the Permitted Warrant Notes) and (ii) if then outstanding, the Indebtedness
created on conversion of the Mandatory Redeemable Preferred Stock.
SECTION 7
NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, so long as this
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding and until all of the Commitments
hereunder shall have terminated and all Letters of Credit shall have expired or
been cancelled:
7.1 INDEBTEDNESS. None of the Credit Parties will contract, create,
incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Agreement and the other
Credit Documents;
(b) Indebtedness of the Borrower and its Subsidiaries in
existence on the Closing Date to the extent disclosed in Schedule
7.1(b) (but not including any renewal, refinancing or extension
thereof);
(c) purchase money Indebtedness (including Capital Leases)
incurred by the Borrower or any of its Subsidiaries after the Closing
Date to finance the purchase of fixed assets acquired after the Closing
Date; PROVIDED, THAT (i) the total of all such Indebtedness for the
Borrower and its Subsidiaries taken together shall not exceed an
aggregate principal amount of $3,000,000 at any time outstanding; (ii)
such Indebtedness when incurred shall not exceed the purchase price of
the asset(s) financed; and (iii) such Indebtedness is issued and any
Liens securing such Indebtedness are created at the time of, or within
ninety (90) days after, the acquisition of such assets and such
Indebtedness is not secured by a Lien on any other assets;
(d) obligations of the Borrower or any of its Subsidiaries in
respect of Lender Hedging Agreements entered into in order to limit
exposure to floating rate indebtedness or foreign currency fluctuation
and exchange rate risk of the Borrower or any of its Subsidiaries, and
not for speculative purposes;
(e) Intercompany Indebtedness arising out of loans and
advances permitted under Section 7.6;
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(f) Indebtedness arising under the Subordinated Note Documents
(but not any renewal, refinancing or extension thereof);
(g) Indebtedness incurred in connection with escrow
obligations related to the U-Gene Acquisition in a principal amount not
to exceed $1,700,000;
(h) in addition to the Indebtedness otherwise permitted by
this Section 7.1,
(i) other Indebtedness incurred after the Closing
Date by the Borrower or any of its Subsidiaries; PROVIDED,
THAT, (A) the loan documentation with respect to such
Indebtedness shall not contain covenants or default provisions
relating to any Credit Party that are more restrictive than
the covenants and default provisions contained in the Credit
Documents, (B) no Default or Event of Default shall have
occurred and be continuing immediately before or immediately
after giving effect to such incurrence and the Borrower shall
have delivered to the Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect on a Pro Forma Basis to
the incurrence of such Indebtedness and to the concurrent
retirement of any other Indebtedness of any Credit Party, the
Credit Parties shall be in compliance with all of the
financial covenants set forth in Section 7.18 and (C) the
aggregate principal amount of such Indebtedness PLUS the
aggregate principal amount of Indebtedness permitted pursuant
to clauses 7.1(b) and 7.1(c) above shall not exceed $4,500,000
at any time outstanding; and
(ii) Guaranty Obligations of any Credit Party (other
than the Borrower) with respect to any Indebtedness of the
Borrower permitted under this Section 7.1 (other than this
subparagraph (h)); and
(i) Indebtedness created on conversion of the Mandatory
Redeemable Preferred Stock; PROVIDED, THAT, (i) such Indebtedness is
unsecured, (ii) such Indebtedness does not exceed an aggregate
principal amount of $3,000,000, (iii) no portion of the principal
amount thereof is, by its terms, required to be paid, repaid or prepaid
prior to a date that is 60 days after the maturity date of the
Subordinated Notes, and (iv) such Indebtedness is fully subordinated to
the Credit Obligations pursuant to a written subordination agreement
that is in form and substance reasonably satisfactory to the Agent and
the Required Lenders.
7.2 LIENS. None of the Credit Parties will contract, create, incur,
assume or permit to exist any Lien with respect to any of its Property, whether
now owned or hereafter acquired, except for Permitted Liens.
7.3 NATURE OF BUSINESS. None of the Credit Parties will substantively
alter the character or conduct of the business conducted by such Person as of
the Closing Date.
7.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC. Except in connection with
an Asset Disposition permitted by the terms of Section 7.5, none of the Credit
Parties will enter into any transaction of merger or consolidation or liquidate,
wind up or dissolve itself (or suffer
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any liquidation or dissolution); PROVIDED, THAT, notwithstanding the foregoing
provisions of this Section 7.4:
(a) the Borrower may merge or consolidate with any of its
Wholly Owned Subsidiaries; PROVIDED, THAT (i) the Borrower shall be the
continuing or surviving corporation in such merger or consolidation,
(ii) the Credit Parties shall cause to be executed and delivered such
documents, instruments and certificates as the Agent may request so as
to cause the Credit Parties to be in compliance with the terms of
Section 6.12 after giving effect to such transaction and (iii) no
Default or Event of Default shall have occurred and be continuing
immediately before or immediately after giving effect to such
transaction;
(b) any Wholly Owned Subsidiary of the Borrower may merge or
consolidate with any other Wholly Owned Subsidiary of the Borrower;
PROVIDED, THAT (i) the Credit Parties shall cause to be executed and
delivered such documents, instruments and certificates as the Agent may
request so as to cause the Credit Parties to be in compliance with the
terms of Section 6.12 after giving effect to such transaction, (ii) no
Default or Event of Default shall have occurred and be continuing
immediately before or immediately after giving effect to such
transaction and (iii) no merger or consolidation shall be permitted by
this clause (b) if a Foreign Subsidiary is the survivor of a merger or
consolidation between a Domestic and a Foreign Subsidiary;
(c) any Subsidiary of the Borrower may merge with any Person
other than a Credit Party in connection with a Permitted Acquisition if
(i) such Subsidiary shall be the continuing or surviving corporation in
such merger or consolidation, (ii) the Credit Parties shall cause to be
executed and delivered such documents, instruments and certificates as
the Agent may request so as to cause the Credit Parties to be in
compliance with the terms of Section 6.12 after giving effect to such
transaction, (iii) no Default or Event of Default shall have occurred
and be continuing immediately before or immediately after giving effect
to such transaction and (iv) the Borrower shall have delivered to the
Agent a Pro Forma Compliance Certificate demonstrating that, upon
giving effect on a Pro Forma Basis to such transaction, the Credit
Parties shall be in compliance with all of the financial covenants set
forth in Section 7.18 as of the last day of the most recent period of
four consecutive fiscal quarters of the Borrower which precedes or ends
on the date of such acquisition and with respect to which the Agent has
received the Required Financial Information; and
(d) any Wholly Owned Subsidiary of the Borrower may dissolve,
liquidate or wind up its affairs at any time; PROVIDED, THAT (i) the
Credit Parties shall cause to be executed and delivered such documents,
instruments and certificates as the Agent may request to cause the
Credit Parties to be in compliance with the terms of Section 6.12 after
giving effect to such transaction and (ii) no Default or Event of
Default shall have occurred and be continuing immediately before or
after giving effect to such transaction.
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7.5 ASSET DISPOSITIONS. (a) None of the Credit Parties will make any
Asset Disposition; PROVIDED, THAT, the foregoing provisions of this Section 7.5
shall not prohibit the following:
(i) any Asset Disposition by any Credit Party to the Borrower or any
Guarantor if (i) the Credit Parties shall cause to be executed and delivered
such documents, instruments and certificates as the Agent may request so as to
cause the Credit Parties to be in compliance with the terms of Section 6.12
after giving effect to such Asset Disposition and (ii) after giving effect such
Asset Disposition, no Default or Event of Default exists;
(ii) the sale of inventory in the ordinary course of business;
(iii) the liquidation or sale of Cash Equivalents for the account of
the Borrower;
(iv) the disposition of damaged, worn out or obsolete tangible assets,
so long as the fair market value (based on the good faith judgment of the
Borrower without the requirement of a third party appraisal) of all property
disposed of pursuant to this clause (iv) does not exceed $250,000 in the
aggregate in any fiscal year of the Borrower;
(v) any other Asset Disposition; provided that (A) the consideration
therewith is cash or Cash Equivalents; (B) if such transaction is a Sale and
Leaseback Transaction, such transaction is permitted by the terms of Section
7.13; (C) if such Asset Disposition is a Casualty or Condemnation, the Net Cash
Proceeds resulting therefrom are applied as required by this Agreement; (D) such
transaction does not involve the sale or other disposition of an equity interest
in any Credit Party; (E) the aggregate net book value of all of the assets sold
or otherwise disposed of by the Credit Parties in all such transactions in
reliance on this paragraph shall not exceed $250,000 in any fiscal year of the
Borrower during the term of this Agreement; and (F) no Default or Event of
Default shall have occurred and be continuing immediately before or immediately
after giving effect to such transaction; and
(b) Upon consummation of an Asset Disposition permitted by this Section
7.5, the Agent shall (to the extent applicable) deliver to the Borrower, upon
the Borrower's request and at the Borrower's expense, such documentation as is
reasonably necessary to evidence the release of the Agent's security interest,
if any, in the assets being disposed of, including amendments or terminations of
UCC financing statements, if any, the return of stock certificates, if any, and
the release of such Subsidiary from all of its obligations, if any, under the
Credit Documents.
7.6 INVESTMENTS; ACQUISITIONS. None of the Credit Parties will make any
Investment in, to or for the benefit of any Person or to purchase, lease or
otherwise acquire (in one transaction or a series of transactions) all or any
substantial part of the assets of any other Person; PROVIDED, THAT, any Credit
Party may purchase inventory in the ordinary course of business and may make
Permitted Investments.
7.7 RESTRICTED PAYMENTS. None of the Credit Parties will, directly or
indirectly, declare, order, make or set apart any sum for or pay any Restricted
Payment, except
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(a) dividends payable solely in common stock of such Person, (b) dividends or
other distributions payable to the Borrower or any Wholly Owned Subsidiary of
the Borrower, (c) repurchases of common stock of the Borrower from any employee
of the Credit Parties upon the termination of employment of such employee;
PROVIDED, THAT, the aggregate amount paid in all such repurchases shall not
exceed $100,000 in any fiscal year of the Borrower during the term of this
Agreement, (d) Permitted Dividends, (e) to make interest payments in respect of
the Subordinated Notes, and (f) upon consummation of the Qualified Initial
Public Offering, the prepayments required by Section 6.14; PROVIDED, THAT, in
each case as set forth in clauses (a) through (f) above, no Default or Event of
Default has occurred and is continuing at such time or would exist after giving
effect to such payment on a pro forma basis as if it had been made on the first
day of the most recently completed period of four consecutive fiscal quarters of
the Borrower.
7.8 PREPAYMENTS OF INDEBTEDNESS, ETC. None of the Credit Parties will
(a) after the issuance thereof, amend, waive or modify (or permit the amendment,
waiver or modification of) any of the terms, agreements, covenants or conditions
of or applicable to any Indebtedness issued by such Credit Party if such
amendment, waiver or modification would add or change any terms, agreements,
covenants or conditions in a manner adverse to any Credit Party, or shorten the
final maturity or average life to maturity or require any payment to be made
sooner than originally scheduled or increase the interest rate applicable
thereto or change any subordination provision thereof, (b) if any Default or
Event of Default has occurred and is continuing or would exist after giving
effect to such payment on a pro forma basis as if it had been made on the first
day of the most recently completed period of four consecutive fiscal quarters of
the Borrower, directly or indirectly redeem, purchase, pay or prepay, retire,
defease or otherwise acquire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness (other than Credit
Obligations), or set aside any funds for such purpose, whether such redemption,
purchase, prepayment, retirement or acquisition is made at the option of any
Credit Party or at the option of the holder thereof, and whether or not any such
redemption, purchase, prepayment, retirement or acquisition is required under
the term and conditions applicable thereto (including, without limitation, any
Indebtedness arising under the Subordinated Note Documents and Indebtedness, if
outstanding, created on conversion of the Mandatory Redeemable Preferred Stock),
(c) at any time prior to the consummation of a Qualified Initial Public
Offering, except to the extent permitted pursuant to Section 7.7(e), directly or
indirectly redeem, purchase, pay or prepay, retire, defease or otherwise acquire
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness (other than Credit Obligations), or set aside any
funds for such purpose, whether such redemption, purchase, prepayment,
retirement or acquisition is made at the option of any Credit Party or at the
option of the holder thereof, and whether or not any such redemption, purchase,
prepayment, retirement or acquisition is required under the term and conditions
applicable thereto (including, without limitation, any Indebtedness arising
under the Subordinated Note Documents and Indebtedness, if outstanding, created
on conversion of the Mandatory Redeemable Preferred Stock), or (d) release,
cancel, compromise or forgive in whole or in part the Indebtedness evidenced by
the Intercompany Notes.
7.9 TRANSACTIONS WITH AFFILIATES. None of the Credit Parties will enter
into or permit to exist any transaction or series of transactions with (a) any
officer, director,
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shareholder, Subsidiary or Affiliate of any Credit Party or (b) any Affiliate of
any such officer, director, shareholder, Subsidiary or Affiliate, other than (i)
transfers of assets to any Credit Party permitted by Section 7.5, (ii)
transactions expressly permitted by Section 7.1, Section 7.4, Section 7.5,
Section 7.6 or Section 7.7, (iii) normal compensation and reimbursement of
reasonable expenses of officers and directors, and (iv) other transactions which
are entered into in the ordinary course of such Person's business on terms and
conditions as favorable to such Person as would be obtainable by it in a
comparable arms'-length transaction with an independent, unrelated third party.
7.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS. None of the Credit Parties
will (a) change its fiscal year or (b) amend, modify or change its articles of
incorporation (or corporate charter or other similar organizational document) in
any respect or amend, modify or change its bylaws (or other similar document) in
any manner adverse in any respect to the rights or interests of the Lenders or
(c) enter into any amendment, modification or waiver that is adverse in any
respect to the Lenders to (i) any Material Contract as in effect on the Closing
Date, (ii) the Acquisition Agreements as in effect on the Closing Date, (iii)
the Shareholder Agreement as in effect on the Closing Date or (iv) the Operative
Documents as in effect on the Closing Date. The Borrower will cause the Credit
Parties to promptly provide the Lenders with copies of all proposed amendments
to the foregoing documents and instruments as in effect as of the Closing Date.
7.11 LIMITATION ON RESTRICTED ACTIONS. None of the Credit Parties will,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Person to
(a) pay dividends or make any other distributions to any Credit Party on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness or other obligation owed to
any Credit Party, (c) make loans or advances to any Credit Party, (d) sell,
lease or transfer any of its properties or assets to any Credit Party or (e) act
as a Guarantor and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Agreement
and the other Credit Documents, (ii) Operative Documents, (iii) applicable law,
(iv) any document or instrument governing Indebtedness incurred pursuant to
Section 7.1(c); PROVIDED, THAT, any such restriction contained therein relates
only to the asset or assets constructed or acquired in connection therewith (and
any renewals, refinancings, exchanges, refundings or extensions thereof, so long
as the terms of such encumbrances or restrictions are no more onerous than those
with respect to such Indebtedness upon the original incurrence thereof) or (v)
customary non-assignment provisions in any lease governing a leasehold interest.
7.12 OWNERSHIP OF SUBSIDIARIES: LIMITATIONS ON BORROWER.
Notwithstanding any other provisions of this Agreement to the contrary, the
Borrower will not (i) permit any Person (other than the Borrower or any Wholly
Owned Domestic Subsidiary of the Borrower) to own any Capital Stock of any
Subsidiary of the Borrower, (ii) permit any Subsidiary of the Borrower to issue
Capital Stock to any Person, except (A) the Borrower or any Wholly Owned
Domestic Subsidiary of the Borrower or (B) to qualify directors where required
by applicable law or to satisfy other requirements of applicable law with
respect to
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the ownership of Capital Stock of Foreign Subsidiaries or (iii) issue or permit
any Subsidiary of the Borrower to issue any shares of Disqualified Stock or
Preferred Stock other than the Mandatory Redeemable Preferred Stock.
7.13 SALE LEASEBACKS. None of the Credit Parties will, directly or
indirectly, become or remain liable as lessee or as guarantor or other surety
with respect to any lease, whether an Operating Lease or a Capital Lease, of any
Property (whether real or personal or mixed), whether now owned or hereafter
acquired, (a) which such Credit Party has sold or transferred or is to sell or
transfer to a Person which is not a Credit Party or (b) which such Credit Party
intends to use for substantially the same purpose as any other Property which
has been sold or is to be sold or transferred by such Credit Party to another
Person which is not a Credit Party in connection with such lease.
7.14 CAPITAL EXPENDITURES. The Borrower will not permit Consolidated
Capital Expenditures for any fiscal year of the Borrower to exceed
$4,500,000.00; PROVIDED, THAT, upon consummation of the Qualified Initial Public
Offering, this Section 7.14 shall no longer be effective.
7.15 NO FURTHER NEGATIVE PLEDGES. None of the Credit Parties will enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of any
security for such obligation if security is given for some other obligation,
except (a) pursuant to this Agreement and the other Credit Documents, (b)
pursuant to the Subordinated Note Documents and (c) pursuant to any document or
instrument governing Indebtedness incurred pursuant to Section 7.1(c), PROVIDED
that any such restriction contained therein relates only to the asset or assets
constructed or acquired in connection therewith.
7.16 IMPAIRMENT OF SECURITY INTERESTS. None of the Credit Parties will
take or omit to take any action, which action or omission might or would have
the result of materially impairing the security interests in favor of the Agent
on behalf of the Secured Parties with respect to the Collateral, and none of the
Credit Parties will grant to any Person (other than the Secured Parties pursuant
to the Collateral Documents) any interest whatsoever in the Collateral, except
for Permitted Liens.
7.17 SALES OF RECEIVABLES. None of the Credit Parties will sell with
recourse, discount or otherwise sell or dispose of its notes or accounts
receivable.
7.18 FINANCIAL COVENANTS.
(a) FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the Fixed
Charge Coverage Ratio, as of the last day of any fiscal quarter of the Borrower,
to be less than the ratio specified for such fiscal quarter in the table set
forth below:
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<TABLE>
<CAPTION>
Fixed Charge
From To and Including Coverage Ratio
---- ---------------- --------------
<S> <C> <C>
Closing Date June 30, 1997 1.15 to 1.00
July 1, 1997 September 30, 1997 1.10 to 1.00
October 1, 1997 Maturity Date 1.05 to 1.00
</TABLE>
(b) TOTAL LEVERAGE RATIO. The Borrower will not permit the Total
Leverage Ratio, as of the last day of any fiscal quarter of the Borrower, to be
greater than the ratio specified for such fiscal quarter in the table set forth
below:
<TABLE>
<CAPTION>
Total
From To and Including Leverage Ratio
---- ---------------- --------------
<S> <C> <C>
Closing Date June 30, 1997 6.40 to 1.00
July 1, 1997 December 31, 1997 5.40 to 1.00
January 1, 1998 December 31, 1998 5.25 to 1.00
January 1, 1999 June 30, 1999 4.75 to 1.00
July 1, 1999 Maturity Date 4.50 to 1.00
</TABLE>
Notwithstanding the foregoing, at any time after the consummation of a Qualified
Initial Public Offering, the Borrower will not permit the Total Leverage Ratio,
as of the last day of any fiscal quarter of the Borrower, to be greater than
3.75 to 1.00.
(c) SENIOR LEVERAGE RATIO. The Borrower will not permit the Senior
Leverage Ratio as of the last day of any fiscal quarter of the Borrower, to be
greater than the ratio specified for such fiscal quarter in the table set forth
below:
<TABLE>
<CAPTION>
Senior
From To and Including Leverage Ratio
---- ---------------- --------------
<S> <C> <C>
Closing Date June 30, 1997 5.35 to 1.00
July 1, 1997 December 31, 1997 4.25 to 1.00
January 1, 1998 December 31, 1998 4.00 to 1.00
January 1, 1999 June 30, 1999 3.75 to 1.00
July 1, 1999 Maturity Date 3.50 to 1.00
</TABLE>
(d) CONSOLIDATED NET WORTH. The Borrower will not permit the
Consolidated Net Worth as of the last day of any fiscal quarter of the Borrower
after giving pro forma effect to the transaction contemplated hereby, to be less
than the "Minimum Compliance Level". The Minimum Compliance Level shall be, on
the Closing Date, an amount equal to $1,068,735 and shall be increased (A) as of
the last day of each fiscal quarter of the Borrower ending after the Closing
Date, commencing with the fiscal quarter ending June 30, 1997, by an amount
equal to the sum of (i) 50% of Consolidated Net Income (if positive) of the
Borrower for such fiscal quarter, and (ii) 95% of the Net Cash Proceeds of any
Equity Issuance (including a Qualified Initial Public Offering) by any Credit
Party during such fiscal quarter and (B) upon the consummation of the U-Gene
Acquisition and the gmi Acquisition, 95% of the Consolidated Net Worth (if any)
of each of U-Gene and gmi, respectively. The foregoing increases in the Minimum
Compliance Level shall be fully cumulative and no reduction in the Minimum
Compliance Level shall be made to reflect negative Net Income for any period.
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SECTION 8
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. An Event of Default shall exist upon the
occurrence of any of the following specified events (each an "EVENT OF
DEFAULT"):
(a) PAYMENT. Any Credit Party shall:
(i) default in the payment when due of any principal
of any of the Loans or of any reimbursement obligations
arising from drawings under Letters of Credit when and as the
same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise; or
(ii) default, and such default shall continue
unremedied for three (3) or more Business Days, in the payment
when due of any interest on the Loans or on any reimbursement
obligations arising from drawings under Letters of Credit, or
of any Fees or other Credit Obligations or other amounts owing
hereunder, under any of the other Credit Documents or in
connection herewith or therewith;
(b) REPRESENTATIONS. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the
other Credit Documents or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove to have
been false or misleading in any material respect on the date as of
which it was made, deemed to have been made or delivered; or
(c) COVENANTS. Any Credit Party shall
(i) default in the due performance or observance of
any term, covenant or agreement contained in Sections 6.1(a),
(b), (c), (d), (f), (g) or (j), Sections 6.2, 6.9, 6.11, 6.13,
6.14 or Sections 7.1 through 7.18, inclusive;
(ii) default in the due performance or observance of
any term, covenant or agreement contained in Sections 6.1(e),
(h), (i), (k) and (l) and such default shall continue
unremedied for a period of at least five (5) Business Days
after the earlier of a Responsible Officer of a Credit Party
becoming aware of such default or notice thereof by the Agent
or the Required Lenders; or
(iii) default in the due performance or observance by
it of any term, covenant or agreement (other than those
referred to in subsections (a), (b), (c)(i) or (c)(ii) of this
Section 8.1) contained in this Agreement, any of the other
Credit Documents or any Lender Hedging Agreements and such
default shall continue unremedied for a period of fifteen (15)
Business Days after the earlier of a Responsible Officer of a
Credit Party becoming aware of such default or notice thereof
by the Agent or the Required Lenders;
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(d) OTHER CREDIT DOCUMENTS. Except as applicable to a
Subsidiary of the Borrower as a result of or in connection with a
dissolution, merger or disposition of such Subsidiary permitted under
this Agreement, any Credit Document shall fail to be in full force and
effect or to give the Agent or any other Secured Party the Liens,
rights, powers and privileges purported to be created thereby, or any
Credit Party or any Person acting by or on behalf of any Credit Party
shall so state in writing;
(e) GUARANTEES. The Guarantee Agreement or any provision
thereof shall cease to be in full force and effect as to any Guarantor,
as applicable, and the Borrower or such Guarantor shall fail, within
thirty (30) days of notice by the Agent or the Required Lenders, to
replace such Guarantee Agreement or provision thereof with another
credit support agreement or acceptable substitute collateral reasonably
satisfactory to the Agent and the Required Lenders, or any Guarantor or
any Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor's obligations under any such guarantee
agreement, except as the result of a dissolution, merger or disposition
of such Guarantor permitted under this Agreement, or any Guarantor
shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant
to any such guarantee agreement;
(f) BANKRUPTCY, ETC. Any Bankruptcy Event shall occur with
respect to any Credit Party;
(g) DEFAULTS UNDER OTHER AGREEMENTS.
(i) Any Credit Party shall default in the performance
or observance (beyond the applicable grace period with respect
thereto, if any) of any material obligation or condition of
any contract, lease or other agreement material to the Credit
Parties, taken as a whole;
(ii) With respect to any Indebtedness (other than
Indebtedness outstanding under the Credit Documents) in excess
of $500,000 in the aggregate for the Credit Parties taken as a
whole, (A) any Credit Party shall default in any payment
(beyond the applicable grace period with respect thereto, if
any) with respect to any such Indebtedness, (B) any Credit
Party shall default in the observance or performance of any
other term, covenant, condition or agreement relating to such
Indebtedness or contained in any instrument or agreement
evidencing or securing such Indebtedness or relating thereto,
or any other event or condition shall occur or condition
exist, the effect of which default or other event or condition
is to cause, or permit the holder or holders of such
Indebtedness (or trustee or agent on behalf of such holders)
to cause (determined without regard to whether any notice or
lapse of time is required), any such Indebtedness (or any
portion thereof) to become due prior to its stated maturity,
(C) any such Indebtedness (or any portion thereof) shall be
declared due and payable, or shall be required to be prepaid
(other than by a regularly scheduled required payment) prior
to the stated maturity thereof or (D) any Credit Party shall
be required by the terms of such Indebtedness to offer to
prepay or
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repurchase such Indebtedness (or any portion thereof) prior to
the stated maturity thereof (except as contemplated by Section
6.14);
(h) JUDGMENTS. One or more judgments or decrees shall be
entered against one or more of the Credit Parties involving a liability
of $500,000 or more in the aggregate (to the extent not paid or fully
covered by insurance provided by a carrier which has acknowledged
coverage and has the ability to perform) and any such judgments or
decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within forty-five (45) days from the entry thereof, or
any action shall be legally taken by a judgment creditor to levy upon
assets or properties of any Credit Party to enforce any such judgment;
(i) ERISA. Any of the following events or conditions, if such
event or condition, together with all other such events or conditions,
could have a Material Adverse Effect: (i) any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, shall exist with
respect to any Plan, or any lien shall arise on the assets of any
Credit Party or any ERISA Affiliate in favor of the PBGC or a Plan;
(ii) an ERISA Event shall occur with respect to a Single Employer Plan,
which is, in the opinion of the Agent or the Required Lenders, likely
to result in the termination of such Plan for purposes of Title IV of
ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer
Plan or Multiple Employer Plan, which is, in the opinion of the Agent
or the Required Lenders, likely to result in (A) the termination of
such Plan for purposes of Title IV of ERISA or (B) any Credit Party or
any ERISA Affiliate incurring any liability in connection with a
withdrawal from, reorganization of (within the meaning of Section 4241
of ERISA), or insolvency of (within the meaning of Section 4245 of
ERISA) such Plan; (iv) any prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility shall occur which may subject any Credit Party
or any ERISA Affiliate to any liability under Section 406, 409, 502(i)
or 502(1) of ERISA or Section 4975 of the Code or under any agreement
or other instrument pursuant to which any Credit Party or any ERISA
Affiliate has agreed or is required to indemnify any Person against any
such liability or (v) any other event or condition out of the ordinary
course of business shall occur or exist with respect to any Plan;
(j) OPERATIVE DOCUMENTS. There shall occur and be continuing
under any Operative Document any Event of Default (as defined therein);
(k) CHANGE OF CONTROL. There shall occur any Change of
Control;
(l) MATERIAL CONTRACTS. Any Material Contract shall be
declared by any Governmental Authority to be invalid or unenforceable
in whole or in part or shall for any other reason not be, or shall be
reasonably asserted by any Credit Party or any Person acting by or on
behalf of any Credit Party not to be, in full force and effect and
enforceable in accordance with its terms and such event or condition,
together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect;
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(m) ENVIRONMENTAL MATTERS. Either (i) any Credit Party shall
be liable, whether directly, indirectly through required
indemnification of any Person or otherwise, for the costs of
investigation and/or remediation of any Materials of Environmental
Concern originating from or affecting any property or properties,
whether or not owned, leased or operated by any Credit Party, which
liability, together with all other such liabilities, could reasonably
be expected to exceed $500,000 in the aggregate or require payments
exceeding $500,000 in any fiscal year of the Borrower or (ii) any
Federal, state, regional, local or other environmental regulatory
agency or authority shall commence an investigation or take any other
action that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect; or
(n) MATERIAL ADVERSE CHANGE. There shall occur any Material
Adverse Change; PROVIDED, THAT, this clause 8.1(n) shall become
ineffective, for purposes of this Agreement, upon the consummation of a
Qualified Initial Public Offering.
(o) GMI ACQUISITION. Any drawing under the gmi Letters of
Credit shall occur or Revolving Loans hereunder shall be deemed made
pursuant to the terms hereof and the conditions set forth in Section
4.3(b) have not been satisfied at the time thereof.
8.2 ACCELERATION; REMEDIES. Upon the occurrence of an Event of Default,
and at any time thereafter unless and until such Event of Default has been
waived by the requisite Lenders (pursuant to the voting requirements of Section
10.6) or cured to the satisfaction of the requisite Lenders (pursuant to the
voting requirements of Section 10.6), the Agent may, and upon the request and
direction of the Required Lenders shall (subject to Section 9.1), by written
notice to the Borrower, take any or all of the following actions (without
prejudice to the rights of the Agent or any Lender to enforce its claims against
the Credit Parties, except as otherwise expressly provided for in this
Agreement):
(a) TERMINATION OF COMMITMENTS. Declare the Commitments
terminated, whereupon the Commitments shall be immediately terminated.
(b) ACCELERATION. Declare the unpaid principal of all Loans,
any reimbursement obligations arising from drawings under Letters of
Credit, all accrued interest in respect thereof, all accrued and unpaid
Fees and other Credit Obligations and any and all other indebtedness or
obligations of any and every kind owing by any Credit Party to the
Agent and/or any of the Secured Parties under the Credit Documents to
be due whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived.
(c) CASH COLLATERAL. Direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 8.1(f), it will
immediately pay) to the Agent additional cash, to be held by the Agent,
in a cash collateral account pursuant to Section 2.2(l), in an amount
equal to the LOC Obligations (including the maximum aggregate amount
which is, or at any time thereafter may become, available to be drawn
under all Letters of Credit then outstanding) and terminate any Letter
of Credit which may be terminated in accordance with its terms.
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(d) ENFORCEMENT OF RIGHTS. Enforce any and all rights and
interests created and existing under the Credit Documents including all
rights and remedies existing under the Collateral Documents, all rights
and remedies against the Guarantors and all rights of set-off.
Notwithstanding the foregoing, if (x) an Event of Default specified in Section
8.1(f) or Section 8.1(k) shall occur, then the Commitments shall automatically
terminate and all Loans, all reimbursement obligations arising from drawings
under Letters of Credit, all accrued interest in respect thereof, all accrued
and unpaid Fees and other Credit Obligations and any and all other indebtedness
or obligations owing to the Agent and/or any of the Secured Parties under the
Credit Documents automatically shall immediately become due and payable without
the giving of any notice or other action by the Agent or the Lenders, and (y)
upon the request and at the direction of Lenders holding a majority of the
Credit Obligations, the Agent shall take the actions specified in Section 8.2(a)
and/or 8.2(c).
In case any one or more of the covenants and/or agreements set forth in this
Agreement or any other Credit Document shall have been breached by any Credit
Party, then the Agent may proceed to protect and enforce the Lenders' rights
either by suit in equity and/or by action at law, including an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement or such other
Credit Document. Without limitation of the foregoing, the Borrower agrees that
failure to comply with any of the covenants contained herein will cause
irreparable harm and that specific performance shall be available in the event
of any breach thereof. The Agent acting pursuant to this paragraph shall be
indemnified by the Borrower against all liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
and accounting fees and expenses but excluding the fees and expenses of internal
legal counsel) in accordance with and subject to the limitations in Section
10.5.
SECTION 9
AGENCY PROVISIONS
9.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably
appoints and authorizes the Agent to act as its administrative agent under this
Agreement and the other Credit Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the other
Credit Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 9.5 and
the first two sentences of Section 9.6 hereof shall include its Affiliates and
its own and its Affiliates' officers, directors, employees, and agents): (a)
shall not have any duties or responsibilities except those expressly set forth
in this Agreement and the other Credit Documents and shall not be a trustee or
fiduciary for any Lender or other Secured Party; (b) shall not be responsible to
the Secured Parties for any recital, statement, representation or warranty
(whether written or oral) made in or in connection with any Credit Document or
any certificate or other document referred to or provided for in, or received by
any of them under, any Credit Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of any Credit
Document, or any other document referred to or provided for therein or for any
failure by any Credit Party or any other Person to perform any of its
obligations
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thereunder; (c) shall not be responsible for or have any duty to ascertain,
inquire into or verify the performance or observance of any covenants or
agreements by any Credit Party or the satisfaction of any condition or the use
of the proceeds of the Loans or the use of the Letters of Credit or the
existence or possible existence of any Default or Event of Default or to inspect
the property (including the books and records) of any Credit Party or any of its
Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any
litigation or collection proceedings under any Credit Document; and (e) shall
not be responsible for any action taken or omitted to be taken by it under or in
connection with any Credit Document, except for its own gross negligence or
willful misconduct. The Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Without limiting the
generality of the foregoing, the Agent is hereby expressly authorized to execute
any and all documents (including releases) with respect to the Collateral and
the rights of the Lenders with respect thereto, as contemplated by and in
accordance with the provisions of this Agreement and the Collateral Documents.
The provisions of this Section 9 are solely for the benefit of the Agent and the
Lenders and none of the Credit Parties shall have any rights as a third party
beneficiary of the provisions hereof. In performing its functions and duties
under this Agreement and the other Credit Documents, the Agent shall act solely
as agent of the Lenders and does not assume and shall not be deemed to have
assumed any obligation or relationship of agency or trust with or for any Credit
Party or any of their respective Affiliates.
9.2 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any
certification, notice, instrument, writing or other communication (including any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 10.3 hereof. As to
any matters not expressly provided for by this Agreement and the other Credit
Documents, the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders (or to the extent specifically provided in Section 10.6,
all the Lenders), and such instructions shall be binding on all of the Lenders;
PROVIDED, HOWEVER, that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to any Credit
Document or applicable law or unless it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking any such action.
9.3 DEFAULTS. The Agent shall not be deemed to have knowledge or notice
of the occurrence of a Default or Event of Default unless the Agent has received
written notice from a Lender or the Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice of the occurrence of a Default or Event of
Default, the Agent shall give prompt notice thereof to the Lenders. The Agent
shall (subject to Section 9.2 hereof) take such action with respect to such
Default or Event of Default as shall reasonably be directed by the Required
Lenders, PROVIDED THAT, unless and until the Agent shall have received such
directions, the Agent may (but shall not
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be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
9.4 RIGHTS AS LENDER. With respect to its Commitments and the Loans
made by it, NationsBank (and any successor acting as Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. NationsBank (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to, make investments in, provide
services to, and generally engage in any kind of lending, trust or other
business with any Credit Party or any of its Subsidiaries or Affiliates as if it
were not acting as Agent, and NationsBank (and any successor acting as Agent)
and its Affiliates may accept fees and other consideration from any Credit Party
or any of its Subsidiaries or Affiliates for services in connection with this
Agreement or otherwise without having to account for the same to the Secured
Parties.
9.5 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the
extent not reimbursed under Section 10.5 hereof, but without limiting the
obligations of the Borrower under Section 10.5) ratably in accordance with their
respective Commitments (or, if the Commitments have expired or been terminated,
in accordance with the respective principal amounts of outstanding Loans and
Participation Interests of the Lenders), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees) or disbursements of any kind and nature
whatsoever that may at any time (including at any time following the final
payment of all of the obligations of the Borrower hereunder and under the other
Credit Documents) be imposed on, incurred by or asserted against the Agent
(including by any Lender) in any way relating to or arising out of any Credit
Document or the transactions contemplated thereby or any action taken or omitted
by the Agent under any Credit Document; PROVIDED, THAT, no Lender shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any costs or expenses payable by the
Borrower under Section 10.5, to the extent that the Agent is not promptly
reimbursed for such costs and expenses by the Borrower. The agreements contained
in this Section 9.5 shall survive payment in full of the Loans, the LOC
Obligations and all other amounts payable under the Credit Documents and the
termination of the Commitments hereunder.
9.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that the Agent has not made any representations or warranties to it
and that no act by the Agent hereinafter taken, including any review of the
affairs of any Credit Party or any of their respective Affiliates, shall be
deemed to constitute any representation or warranty by the Agent to any Secured
Party. Each Lender agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Credit Parties and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under the Credit
Documents. Except for notices, reports and other documents and information
expressly required
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to be furnished to the Lenders by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of any
Credit Party or any of their Affiliates that may come into the possession of the
Agent or any of its Affiliates.
9.7 RESIGNATION OF AGENT. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a commercial bank
organized under the laws of the United States of America having combined capital
and surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 9 shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
SECTION 10
MISCELLANEOUS
10.1 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications shall have been duly given and shall be
effective (a) when delivered, (b) when transmitted via telecopy (or other
facsimile device) to the number set forth below, (c) on the Business Day
following the day on which the same has been delivered prepaid to a reputable
national overnight air courier service or (d) on the fifth Business Day
following the day on which the same is sent by certified or registered mail,
postage prepaid, in each case to the respective parties at the address, in the
case of the Borrower and the Agent, set forth below, and, in the case of the
Lenders, set forth on SCHEDULE 2.1(A), or at such other address as such party
may specify by written notice to the other parties hereto:
if to the Borrower:
Kendle International Inc.
700 Carew Tower
5th & Vine Streets
Cincinnati, Ohio 45202
Attn: Mr. Timothy M. Mooney
Telephone: (800) 733-1572
Telecopy: (513) 381-5870
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with a copy to:
Keating, Muething & Klekamp P.L.L.
1800 Provident Tower
One East 4th Street
Cincinnati, Ohio 45202
Attn: William J. Keating, Jr., Esq.
Telephone: (513) 579-6400
Telecopy: (513) 579-6457
if to the Agent:
NationsBank, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 388-3916
Telecopy: (704) 386-9923
with a copy to:
Fennebresque, Clark, Swindell & Hay
NationsBank Corporate Center
100 North Tryon Street, Suite 2900
Charlotte, NC 28255
Attn: Marvin L. Rogers, Esq.
Telephone: (704) 347-3800
Telecopy: (704) 347-3838
10.2 RIGHT OF SET-OFF. Upon the occurrence and during the continuance
of an Event of Default, each Lender (and each of its Affiliates) is authorized
at any time and from time to time, to the fullest extent permitted by law,
without presentment, demand, protest or other notice of any kind (all of which
rights being hereby expressly waived), to set-off and to appropriate and apply
any and all deposits (general or special, time or demand, provisional or final)
and any other indebtedness at any time held or owing by such Lender (including
branches, agencies or Affiliates of such Lender wherever located) to or for the
credit or the account of any Credit Party against obligations and liabilities of
such Person to such Lender (and its Affiliates) hereunder, under the Notes,
under the other Credit Documents or otherwise, irrespective of whether such
Lender (or Affiliate) shall have made any demand hereunder and although such
obligations, liabilities or claims, or any of them, may be contingent or
unmatured. Any such set-off shall be deemed to have been made immediately upon
the occurrence of an Event of Default even though such charge is made or entered
on the books of such Lender subsequent thereto. Each Lender agrees promptly to
notify the Borrower after any such set-off and application made by such Lender
(or any of its Affiliates); PROVIDED, HOWEVER, that the failure to give such
notice shall not affect the validity of such set-off and application. Any Person
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purchasing a Participation Interest in the Loans and Commitments hereunder
pursuant to Section 2.5(c), 3.13 or 10.3(d) may exercise all rights of setoff
with respect to its Participation Interest as fully as if such Person were a
Lender hereunder. The rights of each Lender (and its Affiliates) under this
Section 10.2 are in addition to (and not in limitation of) any other rights and
remedies (including other rights of set-off) that such Lender may have under
applicable law or otherwise.
10.3 BENEFIT OF AGREEMENT. (a) GENERALLY. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; PROVIDED, that, the Borrower may
not assign or transfer any of its interests and obligations without prior
written consent of all the Lenders (and any such purported assignment or
transfer without such consent shall be void); PROVIDED FURTHER that the rights
of each Lender to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section 10.3.
(b) ASSIGNMENTS. Each Lender may assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Loans, its Notes and its Commitments);
PROVIDED, HOWEVER, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) each such assignment shall be in an amount at least equal
to $5,000,000, except in the case of an assignment to another Lender or
any Affiliate of a Lender or an assignment of all of a Lender's rights
and obligations under this Agreement;
(iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under
this Agreement and the other Credit Documents; and
(iv) the parties to such assignment shall execute and deliver
to the Agent for its acceptance an Assignment and Acceptance, together
with any Notes subject to such assignment and a processing fee of
$2,500 to be paid by the parties to such assignment.
Upon the later of (A) the execution, delivery and acceptance of such Assignment
and Acceptance and (B) the effective date specified in such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the extent
of such assignment, have the obligations, rights and benefits of a Lender under
this Agreement and the other Credit Documents and the assigning Lender shall, to
the extent of such assignment, relinquish its rights and be released from its
obligations under this Agreement and the other Credit Documents. Upon the
consummation of any assignment pursuant to this Section 10.3(b), the assignor,
the Agent and the Borrower shall make appropriate arrangements so that, if
required, new promissory notes reflecting such assignment are issued to the
assignor and the assignee in the amount of their respective interests and in
substantially the form of the original Notes (but with notation thereon that
such new Notes are given in substitution for and replacement of the original
Notes or any replacements thereof). If the assignee is not incorporated under
the laws of the United States of America or a state thereof, it shall deliver to
the Borrower and the Agent certification as to exemption from deduction or
withholding of Taxes in accordance with Section 3.10.
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(c) REGISTER. The Agent shall maintain at its address referred to in
SCHEDULE 2.1(A) a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitments of, and principal amounts and Interest Periods
of the Loans of each Type owing to, each Lender from time to time (the
"REGISTER"). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice. Upon its receipt of an Assignment and
Acceptance executed by the parties thereto, together with any Notes subject to
such assignment and payment of the processing fee, the Agent shall, if such
Assignment and Acceptance has been completed and is in accordance with the
applicable requirements hereof, (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give prompt
notice thereof to the parties thereto.
(d) PARTICIPATIONS. Each Lender may sell participations to one or more
Persons in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitments and its Loans); PROVIDED,
HOWEVER, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the provisions contained in Sections 3.6, 3.9, 3.10
and 3.11 and the right of set-off contained in Section 10.2 on the same basis as
if it were a Lender, (iv) the Borrower shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and such Lender shall retain the sole right to
enforce the obligations of the Borrower relating to its Loans, its Notes and its
Commitments (except for the obligations to such participant referred to in the
foregoing clause (iii)) and to approve any amendment, modification or waiver of
any provision of this Agreement (other than amendments, modifications or waivers
decreasing the amount of principal of or the rate at which interest is payable
on such Loans or Notes in which such participant is participating, extending any
scheduled principal payment date or scheduled interest payment date in respect
of such Loans or Notes in which such participant is participating, extending
such Commitments in which such participant is participating or, except as
expressly provided in the Credit Documents, releasing all or substantially all
the Collateral from the lien of the Collateral Documents or all or substantially
all the Guarantors from the Guarantee Agreement) (v) subparticipations by any
participant shall be prohibited, and (vi) each such participation shall be in an
amount at least equal to $5,000,000 except in the case of a participation to
another Lender or any Affiliate of a Lender or a participation of all of a
Lender's rights and obligations under this Agreement.
(e) REGULATORY MATTERS. Notwithstanding any other provision set forth
in this Agreement, any Lender may at any time assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by such
Federal Reserve Bank. No such assignment shall release the assigning Lender from
its obligations hereunder.
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(f) CONFIDENTIALITY. Any Lender may furnish any information concerning
any Credit Party or any of its Subsidiaries or other Affiliates in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants), subject, however, to the
provisions of Section 10.14 hereof.
10.4 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
the Agent or any other Secured Party in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
the Agent or any other Secured Party and any of the Credit Parties shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or under any other Credit Document preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder or thereunder. The rights and remedies of the Agent and the
other Secured Parties hereunder and under the other Credit Documents are
cumulative and not exclusive of any rights or remedies which the Agent or any
other Secured Party would otherwise have at law or otherwise. No notice to or
demand on any Credit Party in any case shall entitle the Borrower or any other
Credit Party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Agent or the other
Secured Parties to any other or further action in any circumstances without
notice or demand except where notice or demand is required under the Credit
Documents.
10.5 EXPENSES; INDEMNIFICATION. (a) The Borrower agrees to pay within 5
business days all reasonable costs and expenses of the Agent actually incurred
in connection with the syndication, preparation, execution, delivery,
administration, modification and amendment of this Agreement, the other Credit
Documents and the other documents to be delivered hereunder, including the
reasonable fees and expenses of counsel for the Agent (but specifically
excluding the cost of internal counsel) with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under the Credit
Documents. The Borrower further agrees to pay within five (5) business days
after demand all costs and expenses of the Agent and the Lenders, if any
(including reasonable attorneys' fees and expenses but specifically excluding
the cost of internal counsel) actually incurred in connection with (i) the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Credit Documents and the other documents to be delivered hereunder and (ii)
any claim in respect of any of the Credit Obligations in any bankruptcy or
insolvency proceeding relating to any Credit Party.
(b) The Borrower agrees to indemnify and hold harmless the Agent and
each Lender and each of their Affiliates and their respective officers,
directors, employees, agents and advisors (each, an "INDEMNIFIED PARTY") from
and against any and all claims, damages, losses, liabilities, reasonable costs
and expenses (including reasonable attorneys' fees) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of (including in connection with any
investigation, litigation or proceeding or preparation of defense in connection
therewith but specifically excluding the cost of internal counsel) (i) the
Credit Documents, any of the transactions contemplated herein or the actual or
proposed use of the proceeds of the Loans or of the Letters of Credit but
specifically excluding, except as otherwise expressly provided herein, any fees
or expenses by Lender in the participation of any of the Loans or (ii) the
presence or Release of any Materials of Environmental Concern at, under or from
any Property owned, operated or leased by any Credit Party, or the failure by
any Credit Party to comply with any Environmental Law, except
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to the extent such claim, damage, loss, liability, cost or expense results from
or is attributable to such Indemnified Party's gross negligence or willful
misconduct. In the case of an investigation, litigation or other proceeding to
which the indemnity in this Section 10.5(b) applies, such indemnity shall be
effective whether or not such investigation, litigation or proceeding is brought
by any Credit Party, its directors, shareholders or creditors or an Indemnified
Party or any other Person or any Indemnified Party is otherwise a party thereto
and whether or not the transactions contemplated hereby are consummated. The
Borrower agrees not to assert any claim against the Agent, any Lender, any other
Secured Party, any of their Affiliates or any of their respective directors,
officers, employees, attorneys, agents and advisers, on any theory of liability,
for special, indirect, consequential or punitive damages arising out of or
otherwise relating to the Credit Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans or of the
Letters of Credit.
(c) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 10.5 shall survive the payment in full of the Loans and all other
amounts payable under this Agreement.
10.6 AMENDMENTS, WAIVERS AND CONSENTS. Neither this Agreement nor any
other Credit Document nor any of the terms hereof or thereof may be amended,
modified or waived, unless such amendment, modification or waiver is in writing
entered into by, or approved in writing by, the Required Lenders and the
Borrower, PROVIDED, THAT, no such amendment, modification or waiver shall:
(a) extend the final maturity of any Loan or the time of payment of any
reimbursement obligation (or any portion thereof) arising from a drawing under a
Letter of Credit, without the prior written consent of each Lender holding a
Participation Interest in any such Letter of Credit;
(b) reduce the rate of interest applicable to any Credit Obligation
(other than as a result of waiving the applicability of any post-default
increase in interest rates), extend the time of payment of any interest thereon
(other than as a result of waiving any mandatory prepayment), reduce any Fees
payable hereunder or extend the time of payment of any Fees hereunder, without
the prior written consent of each Lender to whom such interest, Credit
Obligation or Fee is owed;
(c) reduce or waive the principal amount of any Loan or of any
reimbursement obligation (or any portion thereof) arising from a drawing under a
Letter of Credit, without the prior written consent of each Lender holding such
Loan or a Participation interest in such Letter of Credit;
(d) increase the Commitment of a Lender over the amount thereof in
effect or extend the date fixed for the termination of the Commitment of a
Lender (it being understood and agreed that a waiver of any Default or Event of
Default of any mandatory reduction in the Commitments shall not constitute an
increase in the terms of any Commitment of any Lender), without the prior
written consent of such Lender,
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(e) release all or substantially all of the Collateral from the Lien of
the Collateral Documents (except as expressly provided in the Credit Documents),
without the prior written consent of each Lender;
(f) release the Borrower or, except as expressly provided in the Credit
Documents, all or substantially all of the Guarantors from its or their
obligations under the Credit Documents, without the prior written consent of
each Lender;
(g) amend, modify or waive any provision of this Section 10.6 or
Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 8.1(a), 10.2, 10.3, 10.5 or
10.9, without the prior written consent of each Lender;
(h) reduce any percentage specified in, or otherwise modify, the
definition of Required Lenders, or otherwise change the percentage of the
Commitments, the percentage of the aggregate unpaid principal amount of the
Notes or the number of Lenders which shall be required for the Lenders or any of
them to take action under any provision of this Agreement or any other Credit
Document, without the prior written consent of each Lender;
(i) consent to the assignment or transfer by the Borrower or any
Guarantor of any of its rights and obligations under or in respect of the Credit
Documents (except as expressly provided in the Credit Documents), without the
prior written consent of each Lender;
(j) increase the total Commitments or otherwise increase the aggregate
principal amount of obligations which are secured by the Collateral, without the
prior written consent of each Lender;
(k) effect any waiver of the conditions to funding any Revolving Loan
or to issuing any Letter of Credit, without the prior written consent of Lenders
having in the aggregate at least a 66-2/3% of the outstanding principal amount
of Revolving Loans, LOC Obligations and Unused Revolving Credit Commitments;
(l) effect any waiver, amendment or modification of Section 7.8(a) with
respect to the subordination provisions of any Indebtedness, without the prior
written consent of each Lender;
(m) amend any provision of Section 9 or otherwise affect any rights or
duties of the Agent, without the prior written consent of the Agent; or
(n) amend any provision of Section 2.2 or otherwise affect any rights
or duties of the Issuing Lender, without the prior written consent of the
Issuing Lender.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any bankruptcy reorganization plan that affects the
Loans, and each Lender acknowledges that the provisions of Section 1126(c) of
the Bankruptcy Code supersedes the unanimous consent provisions set forth herein
and (y) the Required Lenders may consent to allow a Credit Party to use cash
collateral in the context of a bankruptcy or insolvency proceeding. The various
requirements of this
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Section 10.6 are cumulative. Each Lender and each holder of a Note shall be
bound by any waiver, amendment or modification authorized by this Section 10.6
regardless of whether its Note shall have been marked to make reference thereto,
and any consent by any Lender or holder of a Note pursuant to this Section 10.6
shall bind any Person subsequently acquiring a Note from it, whether or not such
Note shall have been so marked.
10.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart for each of the parties hereto. Delivery by facsimile by
any of the parties hereto of an executed counterpart of this Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered,
but the failure to deliver a manually executed counterpart shall not affect the
validity, enforceability or binding effect of this Agreement.
10.8 HEADINGS. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
10.9 SURVIVAL. All indemnities set forth herein, including in Sections
2.2(i), 3.6, 3.10, 3.11, 9.5 and 10.5 and the undertakings set forth in Section
10.14, shall survive the execution and delivery of this Agreement, the making of
the Loans, the issuance of the Letters of Credit, the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder, and all representations and warranties
made by the Borrower and by the Lenders in Section 10.15 herein shall survive
delivery of the Notes, the making of the Loans hereunder and the issuance of the
Letters of Credit hereunder.
10.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND OTHER
THAN AS EXPRESSLY SET FORTH IN SUCH OTHER CREDIT DOCUMENTS) AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 500 AND, AS TO MATTERS NOT GOVERNED BY SUCH UNIFORM CUSTOMS, THE
LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect
to this Agreement or any other Credit Document may be brought in the courts of
the State of North Carolina in Mecklenburg County, or of the United States for
the Western District of North Carolina, and, by execution and delivery of this
Agreement, the Borrower hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the nonexclusive jurisdiction of
such courts. The Borrower further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of
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copies thereof by registered or certified mail, postage prepaid, to it at the
address set forth for notices pursuant to Section 10.1, such service to become
effective five (5) days after such mailing. Nothing herein shall affect the
right of the Agent or any Lender to serve process in any other manner permitted
by law or to commence legal proceedings or to otherwise proceed against any
Credit Party in any other jurisdiction.
(b) The Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in subsection (a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS AND
THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF
THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.11 SEVERABILITY. If any provision of any of the Credit Documents is
judicially determined to be illegal, invalid or unenforceable, such provision
shall be fully severable and the remaining provisions shall remain in full force
and effect and shall be construed without giving effect to the illegal, invalid
or unenforceable provisions. In such event, the parties hereto shall endeavor in
good-faith negotiations to replace any such invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
10.12 ENTIRETY. This Agreement, the other Credit Documents and the
Lender Hedging Agreements, if any, represent the entire agreement of the parties
hereto and thereto regarding the subject matter hereof and thereof and supersede
all prior agreements and understandings, oral or written, if any (including any
commitment letters or correspondence) relating to such subject matters. Nothing
in this Agreement or any other Credit Document, expressed or implied, is
intended to confer upon any party (other than the parties hereto and thereto and
the other Secured Parties) any rights, remedies, obligations or liabilities
under or by reason of this Agreement and the other Credit Documents.
10.13 BINDING EFFECT; TERMINATION. (a) This Agreement shall become
effective at such time on or after the Closing Date when it shall have been
executed by the Borrower and the Agent, and the Agent shall have received copies
hereof (telefaxed or otherwise) which, when taken together, bear the signatures
of each Lender, and thereafter this Agreement shall be binding upon and inure to
the benefit of the Borrower, the Agent and each Lender and their respective
permitted successors and assigns.
(b) The term of this Agreement shall be until no Loans, LOC Obligations
or any other amounts payable hereunder or under any of the other Credit
Documents shall remain outstanding, no Letters of Credit shall be outstanding,
all of the Credit Obligations have been
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irrevocably satisfied in full and all of the Commitments hereunder shall have
expired or been terminated.
10.14 CONFIDENTIALITY. Each of the Agent and the Lenders (each, a
"LENDING PARTY") agrees, during the term of this Agreement and at all times
thereafter, to keep confidential any information furnished or made available to
it by any Credit Party pursuant to this Agreement that is marked confidential or
that is disclosed pursuant to written instructions from the Credit Party that
the confidentiality of such information must be maintained by the Lending
Parties; PROVIDED that nothing herein shall prevent any Lending Party from
disclosing such information (a) to any other Lending Party or any Affiliate of
any Lending Party, or any officer, director, employee, agent or advisor of any
Lending Party or Affiliate of any Lending Party, (b) as required by any law,
rule or regulation, (c) upon the order of any court or administrative agency,
(d) upon the request or demand of any regulatory agency or authority, (e) that
is or becomes available to the public or that is or becomes available to any
Lending Party other than as a result of a disclosure by any Lending Party
prohibited by this Agreement, (f) in connection with any litigation to which
such Lending Party or any of its Affiliates may be a party, (g) to the extent
necessary in connection with the exercise of any remedy under this Agreement or
any other Credit Document, (h) subject to provisions substantially similar to
those contained in this Section 10.14, to any actual or proposed participant or
assignee and (i) to the extent that the Borrower shall have consented in writing
to such disclosure. Nothing set forth in this Section 10.14 shall obligate the
Agent or any Lender to return any materials furnished by the Credit Parties.
10.15 SOURCE OF FUNDS. Each of the Lenders hereby represents and
warrants to the Borrower that at least one of the following statements is an
accurate representation as to the source of funds to be used by such Lender in
connection with the financing hereunder:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee
benefit plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes
assets allocated to any separate account maintained by such Lender,
such Lender has disclosed to the Borrower the name of each employee
benefit plan whose assets in such account exceed 10% of the total
assets of such account as of the date of such purchase (and, for
purposes of this subsection (b), all employee benefit plans maintained
by the same employer or employee organization are deemed to be a single
plan);
(c) to the extent that any part of such funds constitutes
assets of an insurance company's general account, such insurance
company has complied with all of the requirements of the regulations
issued under Section 401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific
benefit plans which such Lender has identified in writing to the
Borrower.
As used in this Section 10.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
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10.16 CONFLICT. To the extent that there is a conflict or inconsistency
between any provision hereof, on the one hand, and any provision of any other
Credit Document, on the other hand, this Agreement shall control.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
BORROWER: KENDLE INTERNATIONAL INC.
- -------- an Ohio corporation
By:/S/ Timothy M. Mooney
--------------------------------------
Name:Timothy M. Mooney
------------------------------------
Title:Treasurer and CFO
-----------------------------------
LENDERS: NATIONSBANK, N. A.,
- ------- individually in its capacity as a
Lender and in its capacity as Agent and
Issuing Lender
By:/S/ Walker L. Poole
--------------------------------------
Name:Walker L. Poole
------------------------------------
Title:Senior VP
-----------------------------------
Applicable Lending Office:
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EXHIBIT 10.12
INVESTMENT AGREEMENT
--------------------
THIS INVESTMENT AGREEMENT (the "AGREEMENT") is made and entered
into as of this 26th day of June, 1997, by and among KENDLE INTERNATIONAL INC.,
an Ohio corporation (the "COMPANY"), and NATIONSBANC INVESTMENT CORPORATION, a
Delaware corporation (the "PURCHASER").
STATEMENT OF PURPOSE
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1. The Company and its Subsidiaries (as defined below) are
engaged in the business of providing clinical research and drug development
services to the pharmaceutical and biotechnological industries.
2. The Company has entered into a stock purchase agreement with
the stockholders of U-Gene Research B.V., a Netherlands corporation ("U-GENE"),
providing for the purchase of all the stock of such sellers (the acquisition
covered by such stock purchase agreement is referred to as the "U-GENE
ACQUISITION" and the stock purchase agreement, together with all related
agreements, exhibits, documents and schedules, are collectively referred to as
the "U-GENE ACQUISITION DOCUMENTS").
3. The Company also contemplates entering into a stock purchase
agreement with the stockholders of Gesellschaft fur Angewandte Mathematik und
Informatik mbh, a German corporation ("GMI"), providing for the purchase of all
the stock of such sellers (the acquisition covered by such stock purchase
agreement is referred to as the "GMI ACQUISITION" and the stock purchase
agreement, together with all related agreements, exhibits, documents and
schedules, are collectively referred to as the "GMI ACQUISITION DOCUMENTS").
4. In order to obtain funds for the payment of the purchase price
for the U-Gene Acquisition and the gmi Acquisition, the Company proposes to
enter into (a) a credit agreement, dated as of the date hereof (as amended or
otherwise modified from time to time in accordance with Section 7(p), the
"CREDIT AGREEMENT"), among the lenders named therein (the "LENDERS"),
NationsBank, N.A., acting for itself and as agent for the Lenders, and the
Company and certain of its Subsidiaries, to obtain a $20,000,000 senior secured
revolving credit facility and (b) this Agreement providing for the issuance by
the Company of its Series A Note and Series B Note, each in the original
aggregate principal amount of $5,000,000, and each of which shall be accompanied
by common stock purchase warrants.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
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SECTION 1 DEFINITIONS.
(a) DEFINITIONS. As used in this Agreement and unless the
context otherwise requires, the following terms have the meanings
indicated:
"ACQUIRED COMPANIES" means U-Gene and gmi.
"ACQUISITIONS" means, collectively, the U-Gene Acquisition
and the gmi Acquisition.
"ACQUISITION DOCUMENTS" means, collectively, the U-Gene
Acquisition Documents and the gmi Acquisition Documents.
"AFFILIATE" means, with respect to any Person, a Person
(other than a Wholly Owned Subsidiary) (i) which directly or
indirectly controls, or is controlled by, or is under common
control with, such Person, (ii) which owns 5% or more of the
equity interests of such Person, (iii) 5% or more of the voting
stock of which is owned by such Person (or in the case of a
Person which is not a corporation, 5% or more of the equity
interests of which are owned by such Person) or (iv) any
director or executive officer of such Person. The term "CONTROL"
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by
contract or otherwise.
"AGREEMENT" has the meaning set forth in the Preamble.
"AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT" has the
meaning set forth in Section 4A(h)(i)4(H)(I).
"BIG SIX ACCOUNTING FIRM" means any of Arthur Andersen &
Co., KPMG Peat Marwick, Coopers & Lybrand, Ernst & Young,
Deloitte & Touche or Price Waterhouse or any of their respective
successors.
"BOARD OF DIRECTORS" shall mean the board of directors of
the Company elected in accordance with the Company's
Regulations.
"CAPITALIZED LEASES" means, as applied to any Person, any
lease of any property (whether real, personal or mixed) by that
Person as lessee which, in accordance with GAAP, is accounted
for as a capital lease on the balance sheet of that Person.
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"CHANGE OF CONTROL" has the meaning set forth in Section
1.1 of the Credit Agreement in effect as of the date hereof.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings
issued thereunder.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, no par
value per share.
"CONSOLIDATED CAPITAL EXPENDITURES" has the meaning set
forth in Section 1.1 of the Credit Agreement.
"CONTRACTUAL OBLIGATION" means, with respect to a Person,
any provision of (i) any security issued by such Person,
including provisions contained in the articles or certificate of
incorporation or regulations or other organizational or
governing documents of such Person, or (ii) any agreement,
franchise, license, permit, undertaking, contract, indenture,
mortgage, deed of trust or other instrument or understanding to
which such Person is a party or by which it or any of its assets
or property is bound.
"CREDIT AGREEMENT" has the meaning set forth in the
Statement of Purpose.
"DEFAULT" means any Event of Default or any event that
would constitute an Event of Default but for the requirement
that notice be given or time elapse or both.
"DISQUALIFIED STOCK" has the meaning set forth in Section
1.1 of the Credit Agreement in effect as of the date hereof.
"ENVIRONMENTAL CLAIMS" has the meaning set forth in 7(K).
"ENVIRONMENTAL LAW" has the meaning set forth in Section
7(k)7(K).
"ENVIRONMENTAL NOTICE" has the meaning set forth in Section
7(k)7(K).
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
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"ERISA AFFILIATE" means any trade, business or Person
(whether or not incorporated) that is a member of a group of
which the Company is a member and that is treated as a single
employer under Section 414 of the Code.
"ERISA EVENT" with respect to any Person means (i) the
occurrence of a reportable event, within the meaning of Section
4043 of ERISA, with respect to any Plan of such Person or any of
its ERISA Affiliates unless the 30-day notice requirement with
respect to such event has been waived by the PBGC; (ii) the
provision by the administrator of any Plan of such Person or any
of its ERISA Affiliates of a notice of intent to terminate such
Plan, pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (iii) the cessation of operations at
a facility of such Person or any of its ERISA Affiliates in the
circumstances described in Section 4068(f) of ERISA; (iv) the
failure by such Person or any of its ERISA Affiliates to make a
payment to a Plan required under Section 302(f)(1) of ERISA; (v)
the adoption of an amendment to a Plan of such Person or any of
its ERISA Affiliates requiring the provision of security to such
Plan, pursuant to Section 307 of ERISA; or (vi) the institution
by the PBGC of proceedings to terminate a Plan of such Person or
any of its ERISA Affiliates, pursuant to Section 4042 of ERISA,
or the occurrence of any event or condition described in Section
4042 of ERISA that could constitute grounds for the termination
of, or the appointment of a trustee to administer, such Plan.
"EVENT OF DEFAULT" has the meaning set forth in the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission
thereunder.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4A(g)4(G).
"FIXED CHARGE COVERAGE RATIO" has the meaning set forth in
Section 1.1 of the Credit Agreement.
"GAAP" means generally accepted United States accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination but subject
to the provisions of Section 1.1(b).
"GMI" has the meaning set forth in the Statement of
Purpose.
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"GMI ACQUISITION" has the meaning set forth in the
Statement of Purpose.
"GMI ACQUISITION DOCUMENTS" has the meaning set forth in
the Statement of Purpose.
"GMI CLOSING" has the meaning set forth in Section
3(c)(ii)3(C)(II).
"GMI CLOSING DATE" means the date on which the gmi Closing
occurs.
"GOVERNMENTAL AUTHORITY" means the government of any
nation, state, county or parish, city, locality or other
political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or
other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"HAZARDOUS DISCHARGE" has the meaning set forth in Section
5(t)5(T).
"HAZARDOUS MATERIALS" has the meaning set forth in Section
7(k)7(K).
"INDEBTEDNESS" of any Person shall mean (i) all obligations
of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, letters of credit (other
than the gmi Letters of Credit (as defined in the Credit
Agreement), notes or similar instruments, or upon which interest
payments are customarily made, (iii) all obligations of such
Person under conditional sale or other title retention
agreements relating to property purchased by such Person (other
than customary reservations or retentions of title under
agreements with suppliers entered into in the ordinary course of
business), (iv) all obligations of such Person issued or assumed
as the deferred purchase price of property or services purchased
by such Person (other than trade debt incurred in the ordinary
course of business and due within six months of the incurrence
thereof) which would appear as liabilities on a balance sheet of
such Person, (v) all obligations of such Person under
take-or-pay or similar arrangements or under commodities
agreements, (vi) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or
payable out of the proceeds of production from, property owned
or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (vii) all guaranty
obligations of such Person, (viii) the principal portion of all
obligations of such Person under Capitalized Leases, (ix) all
net obligations of such Person under interest rate protection
agreements or foreign currency exchange agreements, (x) the
maximum amount of all standby letters of credit issued or
bankers' acceptances facilities created for the account of such
Person and, without duplication, all drafts drawn thereunder (to
the extent unreimbursed), (xi) all Disqualified Stock of such
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Person, and (xii) the Indebtedness of any partnership or
unincorporated joint venture in which such Person is a general
partner or a joint venturer.
"INDEMNIFIED PARTY" has the meaning set forth in Section
7(j)7(J).
"INTELLECTUAL PROPERTY" means all technology, know-how and
trade secrets relating to or used in the business of the Company
and its Subsidiaries, including (i) the computer programs and
software relating to or used in the business of the Company and
its Subsidiaries, together with the operating codes, source
codes, updates, upgrades, modifications, enhancements and any
user and technical documentation or utilities with respect
thereto, (ii) all patents, patent licenses and patent
applications, copyrights and copyright applications, trade
secrets, property information, proposals and rights and other
intellectual proprietary rights relating to the business of the
Company and its Subsidiaries and (iii) all trademarks, trade
names, service marks and logos (including any registration and
any application for registration of any of the foregoing),
relating to or used in the business of the Company and its
Subsidiaries.
"INTELLECTUAL PROPERTY LICENSES" has the meaning set forth
in Section 5(y)5(Y).
"LATEST BALANCE SHEET" has the meaning set forth in Section
5(n)5(N).
"LENDERS" has the meaning set forth in the Statement of
Purpose.
"LIENS" shall mean any mortgage, deed of trust, pledge,
hypothecation, easement, assignment, deposit arrangement,
restriction, restrictive covenant, lease, sublease, option,
security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any financing or similar
statement or notice filed under the Uniform Commercial Code as
adopted and in effect in the relevant jurisdiction or other
similar recording or notice statute, and any lease in the nature
thereof).
"LOSSES" has the meaning set forth in Section 7(j)7(J).
"MATERIAL CONTRACTS" has the meaning set forth in Section
5(p)5(P).
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NOTES" has the meaning set forth in Section 22.
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"ORGANIC CHANGE" means (i) the sale, assignment, transfer,
pledge or other disposition by the Company of any of equity
interests of any Subsidiary or the authorization or issuance by
any Subsidiary of any equity securities or interests which
results in a dilution of the Company's ownership of such
Subsidiary; (ii) except as permitted under Section 7.5 of the
Credit Agreement in effect as of the date hereof, any sale,
lease or exchange of all or substantially all the property and
assets of the Company or any Subsidiary (it being understood
that the sale, lease, exchange or disposition of more than 25%
of the assets of the Company shall be deemed to be a sale,
lease, exchange or disposition of a substantial part of the
Company's assets) whether or not in the ordinary course of
business and whether directly or through the sale of equity
securities or interests of any Subsidiary or Subsidiaries; (iii)
except as permitted by Section 7(g)7(G) of this Agreement, the
issuance by the Company of any equity securities or interests;
(iv) any merger, consolidation, liquidation or dissolution to
which the Company or any Subsidiary is a party (other than (A)
the merger of the Company or of a Wholly Owned Subsidiary into
the Company or another Wholly Owned Subsidiary, (B) the merger
of a Wholly Owned Subsidiary into another Person so long as the
Wholly Owned Subsidiary shall be the continuing or surviving
Person in such merger or (C) the liquidation or dissolution of a
Wholly Owned Subsidiary or (v) a Change of Control.
"OWNED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 5(y)5(Y).
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereof.
"PERMITTED INDEBTEDNESS" means: (i) Indebtedness
outstanding or permitted under this Agreement, the Notes and
Section 7.1 of the Credit Agreement; (ii) Indebtedness
outstanding as of the date hereof reflected on the Latest
Balance Sheet or disclosed on SCHEDULE 5 (z); (iii) Indebtedness
secured by a Permitted Lien; and (iv) Indebtedness in respect to
deferred taxes.
"PERMITTED INVESTMENTS" has the meaning given such term in
Section 1.1 of the Credit Agreement in effect as of the date
hereof.
"PERMITTED LIENS" has the meaning given such term in
Section 1.1 of the Credit Agreement in effect as of the date
hereof.
"PERSON" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency
or political subdivision thereof.
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"PLAN" means any pension plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code which is maintained for employees of the Company
or any of its ERISA Affiliates.
"PLEDGE AGREEMENT" has the meaning set forth in Section
3(d)3(D).
"PROJECTIONS" has the meaning given such term in Section
5(m)5(M).
"PROPERTIES" has the meaning given such term in Section
7(k)7(K).
"PURCHASER" has the meaning set forth in the Preamble.
"QUALIFIED INITIAL PUBLIC OFFERING" means an initial
registered public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale
of common stock of the Company to the public of no more than 50%
of the common stock of the Company and which has been
underwritten by a nationally recognized investment banking firm
or firms at a price per share greater than or equal to $7.50
that generates gross proceeds to the Company of at least
$25,000,000 and pays all principal, interest and premium under
the outstanding Notes.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth
in Section 4A(h)(ii)4(H)(II).
"RELATED PARTY" or "RELATED PARTIES" means spouses, lineal
ancestors or descendants, natural or adopted, and spouses of
lineal ancestors or descendants, or trusts for the sole benefit
of any of such persons.
"REQUIREMENT OF LAW" means, with respect to a Person, the
articles or certificate of incorporation bylaws, regulations or
other organizational or governing documents of such Person, and
any law, treaty, rule, regulation, order, right, privilege,
qualification, writ, judgment, injunction, decree, permit,
license or franchise or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to
which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or
referred to herein.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission
thereunder.
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"SECURITY AGREEMENT" means the Security Agreement made by
the Company and each of its Subsidiaries in favor of the
Purchaser, as the same may be amended, supplemented or otherwise
modified from time to time.
"SENIOR LEVERAGE RATIO" has the meaning set forth in
Section 1.1 of the Credit Agreement.
"SERIES A NOTE" has the meaning set forth in Section 22.
"SERIES A WARRANT" has the meaning set forth in Section 22.
"SERIES B NOTE" has the meaning set forth in Section 22.
"SERIES B WARRANT" has the meaning set forth in Section 22.
"SUBORDINATION AGREEMENT" has the meaning set forth in
Section 4A(h)(iii)4(H)(III).
"SUBSIDIARY" means, as to any Person, (i) any corporation
more than 50% of whose capital stock or any class or classes
having by the terms thereof ordinary voting power to elect a
majority of the directors of the Company (irrespective of
whether or not at the time, any class or classes of such
corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such
Person directly or indirectly through Subsidiaries, and (ii) any
partnership, limited liability company or other Person in which
the Person directly or indirectly through Subsidiaries has more
than 50% of the equity interests at any time. For purposes of
this Agreement, each of the Acquired Companies shall be deemed
to be a Subsidiary of the Company.
"TOTAL LEVERAGE RATIO" has the meaning set forth in Section
1.1 of the Credit Agreement.
"TRANSACTION DOCUMENTS" means this Agreement, the Notes,
the Warrants, the Amended and Restated Shareholders' Agreement,
the Registration Rights Agreement, the Subordination Agreement,
the Pledge Agreement, the Security Agreement, the Credit
Agreement, the Acquisition Documents and all other agreements,
exhibits, documents and schedules related thereto.
"U-GENE" has the meaning set forth in the Statement of
Purpose.
"U-GENE ACQUISITION" has the meaning set forth in the
Statement of Purpose.
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"U-GENE ACQUISITION DOCUMENTS" has the meaning set forth in
the Statement of Purpose.
"U-GENE CLOSING" has the meaning set forth in Section
3(c)(i)3(C)(I).
"U-GENE CLOSING DATE" means the date on which the U-Gene
Closing occurs.
"WARRANTS" has the meaning set forth in Section 22.
"WHOLLY OWNED SUBSIDIARY" shall mean any Subsidiary of the
Company 100% of whose equity securities and interests (on a
fully diluted basis) are owned directly or indirectly by the
Company or another Wholly Owned Subsidiary.
(b) ACCOUNTING TERMS; FINANCIAL STATEMENTS. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as
to financial matters required to be delivered to the Purchaser hereunder
shall be prepared, in accordance with GAAP applied on a consistent basis.
All calculations made for the purposes of determining compliance with this
Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section
7.1(b) (or, prior to the delivery of the first financial statements
pursuant to Section 7.1(b), consistent with the financial statements as at
December 31, 1996); PROVIDED, THAT, if (i) the Company shall object to
determining such compliance on such basis at the time of delivery of such
financial statements due to any change in GAAP or the rules promulgated
with respect thereto after the Closing Date or (ii) the Purchaser shall so
object in writing within 90 days after delivery of such financial
statements, then calculations shall be made on a basis consistent with the
most recent financial statements delivered by the Company to the Purchaser
as to which no such objection shall have been made. If any changes in
accounting principles are hereafter occasioned by promulgation of rules,
regulations, pronouncements or opinions of or are otherwise required by,
the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants (or successors thereto or agencies with
similar functions), and any of such changes results in a change in the
method of calculation of, or affects the results of such calculation of,
any of the financial covenants, standards or terms found herein, then the
parties hereto agree to enter into and diligently pursue negotiations in
order to amend such financial covenants, standards or terms so as to
reflect fairly and equitably such changes, with the desired result that
the criteria for evaluating the Company's financial condition and results
of operations shall be the same after such changes as if such changes had
not been made.
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SECTION 2 AUTHORIZATION OF ISSUANCE OF THE NOTES AND THE WARRANTS. The
Company has authorized the issuance to the Purchaser of the Company's Series A
Senior Subordinated Promissory Note (the "SERIES A NOTE") and the Company's
Series B Senior Subordinated Promissory Note (the "SERIES B NOTE") (the Series
A Note and the Series B Note are collectively referred to herein as the
"NOTES"), each in the original principal amount of $5,000,000 and in
substantially the form of EXHIBIT 2(a) and EXHIBIT 2(b), respectively. The
Series A Note shall be accompanied by a common stock purchase warrant, in
substantially the form of EXHIBIT 2(c), entitling the holders thereof to
purchase in the aggregate 4,212 shares of Common Stock, representing 4% of the
issued and outstanding shares of the Company's Common Stock on the U-Gene
Closing Date, determined on a fully diluted basis, subject to adjustment as
provided therein (the "SERIES A WARRANT"). The Series B Note shall be
accompanied by a common stock purchase warrant, in substantially the form of
EXHIBIT 2(d), entitling the holders thereof to purchase in the aggregate shares
of Common Stock representing 3% of the issued and outstanding shares of the
Company's Common Stock on the gmi Closing Date, determined on a fully diluted
basis, subject to adjustment as provided therein (the "SERIES B WARRANT") (the
Series A Warrant and the Series B Warrant are collectively referred to herein
as the "WARRANTS").
SECTION 3 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE AND SALE. Subject to the terms and conditions herein set
forth, and in reliance upon the representations and warranties of the
Company contained herein, the Company shall sell to the Purchaser and the
Purchaser shall purchase from the Company the Notes and the Warrants for
an aggregate purchase price of $10,000,000. The Series A Note and the
Series B Note being purchased by the Purchaser pursuant hereto shall be
accompanied by the Series A Warrant and the Series B Warrant,
respectively.
(b) ORIGINAL ISSUE DISCOUNT.
(i) The Company and the Purchaser hereby acknowledge and agree
that the Series A Note and the Series A Warrant to be issued are part
of an investment unit within the meaning of Section 1273(c)(2) of the
Code. The Company and the Purchaser hereby further acknowledge and
agree that, for United States federal income tax purposes, the
aggregate issue price of the Series A Note within the meaning of
Section 1273(b) of the Code, which issue price was determined
pursuant to Section 1.1273-2(h)(1) of the Treasury Regulations, is
equal to $1,000,000. The Company and the Purchaser agree to use the
foregoing issue price and allocation for all income tax purposes with
respect to the issuance of the Series A Note and the Series A
Warrant.
(ii) The Company and the Purchaser hereby acknowledge and agree
that the Series B Note and the Series B Warrant to be issued are part
of an investment unit within the meaning of Section 1273(c)(2) of the
Code. The Company and the
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Purchaser hereby further acknowledge and agree that, for United
States federal income tax purposes, the aggregate issue price of the
Series B Note within the meaning of Section 1273(b) of the Code,
which issue price was determined pursuant to Section 1.1273-2(h)(1)
of the Treasury Regulations, is equal to $1,500,000. The Company and
the Purchaser agree to use the foregoing issue price and allocation
for all income tax purposes with respect to the issuance of the
Series B Note and the Series B Warrant.
(c) CLOSINGS.
(i) The closing of the issuance, purchase and sale of the Series
A Note and the Series A Warrant (the "U-GENE CLOSING") shall take
place at the time and place of the closing under the U-Gene
Acquisition Documents, or at such other time and place as may be
mutually agreed upon in writing by the Company and the Purchaser;
PROVIDED, HOWEVER, that the U-Gene Closing shall take place no later
than July 3, 1997. At the U-Gene Closing, the Company will issue,
sell and deliver to the Purchaser the Series A Note and the Series A
Warrant in the amounts set forth above and the Purchaser will pay to
the Company the purchase price therefor by wire transfer of
immediately available funds pursuant to written instructions
delivered to the Purchaser by the Company prior to the U-Gene
Closing.
(ii) The closing of the issuance, purchase and sale of the
Series B Note and the Series B Warrant (the "GMI CLOSING") shall take
place at the time and place of the closing under the gmi Acquisition
Documents, or at such other time and place as may be mutually agreed
upon in writing by the Company and the Purchaser; PROVIDED, HOWEVER,
that the gmi Closing shall take place no later than September 30,
1997. At the gmi Closing, the Company will issue, sell and deliver to
the Purchaser the Series B Note and the Series B Warrant in the
amounts set forth above and the Purchaser will pay to the Company the
purchase price therefor by wire transfer of the immediately available
funds pursuant to written instruction delivered to the Purchaser by
the Company prior to the gmi Closing.
(d) PLEDGE OF COLLATERAL. The repayment of the Indebtedness owing
under the Notes shall be secured by (i) the Pledge Agreement among the
parties thereto in favor of the Purchaser, in the form of EXHIBIT
4A(h)(iv) (the "PLEDGE AGREEMENT") and (ii) that certain Security
Agreement among the parties thereto in favor of the Purchaser, in the form
of EXHIBIT 4A(h)(v) (the "SECURITY AGREEMENT"), in each case in accordance
with the provisions of Section 7(r)7(R).
SECTION 4A. CONDITIONS OF U-GENE CLOSING. The Purchaser's obligation to
purchase and pay for the Series A Note and the Series A Warrant at the U-Gene
Closing is subject to the Purchaser determining, in its sole discretion, that
the following conditions have been satisfied
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(or the Purchaser waiving in writing the conditions that it has determined have
not been satisfied), on or before the U-Gene Closing Date:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Company contained in Section 55 shall be true and
correct at and as of the U-Gene Closing Date with the same force and
effect as if such representations and warranties had been made as of the
U-Gene Closing Date. In addition, the Company shall have performed all
agreements, obligations and covenants required herein to be performed by
it on or prior to the U-Gene Closing.
(b) INSPECTION OF PROPERTY. The Company and U-Gene will have
permitted representatives of the Purchaser to visit and inspect their
respective properties, to examine the organizational, business and
financial records of the Company, U-Gene and their respective
Subsidiaries, and make copies thereof or extracts therefrom, and to
discuss the affairs, finances and accounts of the Company, U-Gene and
their respective Subsidiaries with the directors, managers, officers,
shareholders, members, partners, key employees and independent accountants
of the Company, U-Gene and their respective Subsidiaries; PROVIDED,
HOWEVER, that the Purchaser agrees to hold all such information
confidential in accordance with Section 8(k)8(K).
(c) CONSUMMATION OF THE U-GENE ACQUISITION. The Company shall have
consummated the U-Gene Acquisition on terms and conditions reasonably
satisfactory to the Purchaser.
(d) ADVANCES UNDER CREDIT AGREEMENT. The Company shall have entered
into he Credit Agreement and such Credit Agreement shall be in full force
and effect. At the U-Gene Closing, the Lenders thereunder shall
concurrently with the purchase hereunder make the advances required to be
made at the U-Gene Closing in the full amount contemplated therein in
connection with the U-Gene Acquisition, all on terms and conditions
reasonably satisfactory to the Purchaser.
(e) CONSENT OF THIRD PARTIES, ETC. The Company shall have presented
evidence reasonably satisfactory to the Purchaser to the effect that (i)
all consents, waivers and amendments required in connection with the
consummation of the transactions related to this Agreement and the
purchase contemplated hereby have been obtained, (ii) the transactions
related to this purchase shall not violate, or constitute or trigger the
occurrence of an event of default with respect to, any Contractual
Obligations of the Company, or any of their respective Subsidiaries and
(iii) neither the Company, U-Gene nor any of their respective
Subsidiaries is in violation of or default under or with respect to any
Contractual Obligations.
<PAGE> 14
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(f) NO ADVERSE CHANGE. Prior to the U-Gene Closing, no change shall
have occurred or be anticipated in the condition (financial or otherwise),
properties, proposed business operations, management, potential
competition or any other matter affecting the Company, U-Gene or any of
their respective Subsidiaries or their business prospects, which is
reasonably likely to be materially adverse.
(g) FINANCIAL INFORMATION. The Company shall have provided the
Purchaser with such financial information relative to the Company's and
U-Gene's financial condition which may be reasonably requested by the
Purchaser, which information shall include, at a minimum, the financial
statements listed on SCHEDULE 4A(g) (collectively, the "FINANCIAL
STATEMENTS").
(h) CERTAIN AGREEMENTS. The following agreements shall have been
entered into by the appropriate parties and shall be in full force and
effect:
(i) the Amended and Restated Kendle Shareholder Agreement, in
the form of EXHIBIT 4A(h)(i) (the "AMENDED AND RESTATED SHAREHOLDER
AGREEMENT"), among the Company, the Purchaser and each other holder
of the Company's capital stock;
(ii) the Registration Rights Agreement, in the form of EXHIBIT
4A(h)(ii) (the "REGISTRATION RIGHTS AGREEMENT"), between the Company
and the Purchaser;
(iii) the Subordination and Intercreditor Agreement, in the form
of EXHIBIT 4A(h)(iii) (the "SUBORDINATION AGREEMENT"), among the
Company, the Purchaser, and the Lenders and NationsBank, N.A., as
agent for the Lenders;
(iv) the Pledge Agreement, in the form of EXHIBIT 4A(h)(iv)
(except as provided in Section 7(r)7(R); and
(v) the Security Agreement, in the form of EXHIBIT 4A(h)(v)
(except as provided in Section 7(r)7(R)).
(i) OPINIONS OF COUNSEL. The Purchaser shall have received (i) from
Keating, Muething & Klekamp, P.L.L., legal counsel for the Company, a
favorable opinion as of the U-Gene Closing Date, substantially in the form
of EXHIBIT 4A(i)(i), and (ii) from Loeff Claeys Verbeke, legal counsel for
U-Gene, a favorable opinion, on which the Purchaser shall have the express
right to rely, dated as of the U-Gene Closing Date, substantially in the
form of EXHIBIT 4A(i)(ii), as to the U-Gene Acquisition, which opinion
shall be satisfactory to the Purchaser in scope and substance.
<PAGE> 15
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(j) DELIVERY OF CLOSING DOCUMENTS. The Purchaser shall have received
the following closing documents, in form and substance satisfactory to the
Purchaser, and all of which shall, except as specified below, be fully
executed originals:
(i) this Agreement;
(ii) the Series A Note;
(iii) the Series A Warrant;
(iv) a copy of the Credit Agreement, certified by the secretary
of the Company to be true, correct and complete;
(v) a copy of the U-Gene Acquisition Documents, certified by the
secretary of the Company to be true, correct and complete;
(vi) certificates of the Secretary of State (or the foreign
local law equivalent) of the jurisdictions of incorporation,
formation or organization of the Company, U-Gene and each of their
respective Subsidiaries as to the good standing (or the foreign local
law equivalent) of the Company, U-Gene and each of their respective
Subsidiaries in such jurisdictions as of a date within ten business
days prior to the U-Gene Closing Date;
(vii) certificates of the Secretary of State (or the foreign
local law equivalent) of each jurisdiction in which the Company,
U-Gene and each of their respective Subsidiaries are qualified to do
business as to their good standing (or their foreign local law
equivalent) in such jurisdictions and, where available, certificates
of the relevant state taxing authorities as to the payment by such
Person of all taxes in such jurisdictions;
(viii) certificate, dated as of the U-Gene Closing Date, of the
(A) president and chief operating officer and (B) chief financial
officer and treasurer of the Company, substantially in the form of
EXHIBIT 4A(j)(viii), stating that the conditions specified in Section
4 have been fully satisfied;
(ix) certificates, dated as of the U-Gene Closing Date,
substantially in the form of EXHIBIT 4A(j)(ix), of the respective
secretaries of the Company and each of its Subsidiaries certifying (A)
that the copies of the certificate or articles of incorporation,
formation or organization and bylaws, regulations or other
organizational and governing documents of the Company and each of its
Subsidiaries, attached thereto and as amended to date, are true,
complete and correct, (B) that the copies of the resolutions of the
directors, managers, partners, members
<PAGE> 16
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and shareholders of the Company, authorizing the transactions
contemplated by this Agreement and each of the Transaction Documents
(including the issuance of the Series A Note and the Warrants and
reserving shares of Common Stock issuable upon exercise of the Series
A Warrant) attached thereto are true, complete and correct, (C) as to
the incumbency of each Person executing this Agreement and each of
the Transaction Documents on behalf of the Company or any of its
Subsidiaries, and (D) as to any other matters reasonably requested by
the Purchaser.
(x) copies of the consents, waivers and amendments to be
obtained by the Company and U-Gene pursuant to the provisions of
Section 4(e)4(E), 4(D), the Financial Statements to be provided by
the Company pursuant to the provisions of Section 4(g)4(G) and the
insurance policies to be maintained by the Company pursuant to the
provisions of Section 7(n)7(N);
(xi) to the extent not provided for herein, true, complete and
correct copies of all Transaction Documents; and
(xii) any and all other documents, certificates, and assurances
which may be reasonably requested by the Purchaser in connection with
its commitments as set forth herein.
(k) PAYMENT OF FUNDING FEE AND EXPENSES. The Company shall have paid
all expenses of the Purchaser pursuant to Section 8(b)8(B), including
attorneys' fees and expenses (but excluding the cost of "in-house"
counsel).
(l) LEGALITY OF OFFERING. On the U-Gene Closing Date, the sale and
issuance of the Series A Note and the Series A Warrant shall be legally
permitted by all laws and regulations to which each of the Purchaser and
the Company are subject.
(m) NAME CHANGE. The Company shall have presented evidence
satisfactory to the Purchaser that the name of the Company has been
changed from "Kendle Research Associates, Inc." to "Kendle International
Inc."
SECTION 4B. CONDITIONS OF GMI CLOSING. The Purchaser's obligation to
purchase and pay for the Series B Note and the Series B Warrant at the gmi
Closing is subject to the Purchaser determining, in its sole discretion, that
the following conditions have been satisfied (or the Purchaser waiving in
writing the conditions that it has determined have not been satisfied), on or
before the gmi Closing Date:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Company contained in Section 5 shall be true and
correct at and as of the gmi Closing Date with the same force and effect
as if such representations and warranties
<PAGE> 17
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had been made as of the gmi Closing Date. In addition, the Company shall
have performed all agreements, obligations and covenants required herein
to be performed by it on or prior to the gmi Closing. The Company shall
have the ability to update its schedules to this Agreement which shall be
in form and substance satisfactory to the Purchaser.
(b) INSPECTION OF PROPERTY. The Company and gmi will have permitted
representatives of the Purchaser to visit and inspect their respective
properties, to examine the organizational, business and financial records
of the Company, gmi and their respective Subsidiaries, and make copies
thereof or extracts therefrom, and to discuss the affairs, finances and
accounts of the Company, gmi and their respective Subsidiaries with the
directors, managers, officers, shareholders, members, partners, key
employees and independent accountants of the Company, gmi and their
respective Subsidiaries; PROVIDED, HOWEVER, that the Purchaser agrees to
hold all such information confidential in accordance with Section
8(k)8(K).
(c) CONSUMMATION OF THE GMI ACQUISITION. The Company shall have
consummated the gmi Acquisition on terms and conditions reasonably
satisfactory to the Purchaser.
(d) CONSENT OF THIRD PARTIES, ETC. The Company shall have presented
evidence reasonably satisfactory to the Purchaser to the effect that (i)
all consents, waivers and amendments required in connection with the
consummation of the transactions related to this Agreement and the
purchase contemplated hereby have been obtained, (ii) the transactions
related to this purchase shall not violate, or constitute or trigger the
occurrence of an event of default with respect to, any Contractual
Obligations of the Company, or any of their respective Subsidiaries and
(iii) neither the Company, gmi nor any of their respective Subsidiaries is
in violation of or default under or with respect to any material
Contractual Obligations.
(e) NO ADVERSE CHANGE. Prior to the gmi Closing, no change shall have
occurred or be anticipated in the condition (financial or otherwise),
properties, proposed business operations, management, potential
competition or any other matter affecting the Company, gmi or any of their
respective Subsidiaries or their business prospects, which is reasonably
likely to be materially adverse.
(f) NO EVENT OF DEFAULT. There shall be no Default or Event of
Default under this Agreement or any of the Transaction Documents.
(g) OPINIONS OF COUNSEL. The Purchaser shall have received (i) from
Keating, Muething & Klekamp, P.L.L., legal counsel for the Company, a
favorable opinion as of the gmi Closing Date, substantially in the form of
EXHIBIT 4A(i)(i) and (ii) from legal counsel for gmi, a favorable opinion,
on which the Purchaser shall have the express right to rely,
<PAGE> 18
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dated as of the gmi Closing Date, substantially in the form of EXHIBIT
4A(i)(ii), as to the gmi Acquisition, which opinion shall be satisfactory
to the Purchaser in scope and substance.
(h) DELIVERY OF CLOSING DOCUMENTS. The Purchaser shall have received
the following closing documents, in form and substance satisfactory to the
Purchaser, and all of which shall, except as specified below, be fully
executed originals:
(i) the Series B Note;
(ii) the Series B Warrant;
(iii) a copy of the gmi Acquisition Documents, certified by the
secretary of the Company to be true, correct and complete;
(iv) certificates of the Secretary of State (or the foreign
local law equivalent) of the jurisdictions of incorporation,
formation or organization of the Company, gmi and each of their
respective Subsidiaries as to the good standing (or the foreign local
law equivalent) of the Company, gmi and each of their respective
Subsidiaries in such jurisdictions as of a date within five business
days prior to the gmi Closing Date;
(v) certificates of the Secretary of State (or the foreign local
law equivalent) of each jurisdiction in which the Company, gmi and
each of their respective Subsidiaries are qualified to do business as
to their good standing (or the foreign local law equivalent) in such
jurisdictions and, where available, certificates of the relevant
state taxing authorities as to the payment by such Person of all
taxes in such jurisdictions;
(vi) certificate, dated as of the gmi Closing Date, of the (A)
president and chief operating officer and (B) chief financial officer
and treasurer of the Company, substantially in the form of EXHIBIT
4A(j)(viii), stating that the conditions specified in Section 44 have
been fully satisfied;
(vii) certificates, dated as of the gmi Closing Date,
substantially in the form of EXHIBIT 4A(j)(ix), of the respective
secretaries of the Company and each of its Subsidiaries certifying
(A) that the copies of the certificate or articles of incorporation,
formation or organization and bylaws, regulations or other
organizational and governing documents of the Company and each of its
Subsidiaries, attached thereto and as amended to date, are true,
complete and correct, (B) that the copies of the resolutions of the
directors, managers, partners, members and shareholders of the
Company, authorizing the transactions contemplated by this Agreement
and each of the Transaction Documents (including the issuance of the
<PAGE> 19
- 19 -
Notes and the Warrants and reserving shares of Common Stock issuable
upon exercise of the Series B Warrant attached thereto are true,
complete and correct, (C) as to the incumbency of each Person
executing this Agreement and each of the Transaction Documents on
behalf of the Company or any of its Subsidiaries, and (D) as to any
other matters reasonably requested by the Purchaser; and
(viii) copies of the consents, waivers and amendments to be
obtained by the Company and gmi pursuant to the provisions of Section
4B(d)13, 17 and the insurance policies to be maintained by the
Company pursuant to the provisions of Section 7(n)40.
(i) LEGALITY OF OFFERING. On the gmi Closing Date, the sale and
issuance of the Series B Note and the Series B Warrant shall be legally
permitted by all laws and regulations to which each of the Purchaser and
the Company are subject.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser that, before and after giving
effect to the Acquisitions and the other transactions contemplated by this
Agreement and the other Transaction Documents, as of the date hereof:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and
each of its Subsidiaries are corporations duly incorporated, formed or
organized, validly existing and in good standing (or foreign local law
equivalent) under the laws of their respective jurisdictions of
incorporation, formation or organization. The Company and each of its
Subsidiaries are qualified and authorized to do business in, and are in
good standing (or foreign local law equivalent) as foreign or alien
corporations in, all other jurisdictions in which such qualification or
authorization is necessary for the conduct of the businesses in which the
Company and each of its Subsidiaries are now engaged, except where the
failure to be so qualified would not have a material adverse effect on the
financial condition, operating results, assets, operations or business
prospects of the Company or its Subsidiaries. SCHEDULE 5(a) lists with
respect to each of the Company and its Subsidiaries (i) its jurisdiction
of incorporation, formation or organization, (ii) all jurisdictions in
which it is qualified to do business and (iii) all licenses and permits of
Governmental Authorities held by it. Neither the Company nor any of its
Subsidiaries owns or leases property or has employees in any jurisdiction
in which it is not qualified to do business. The licenses and permits
listed on SCHEDULE 5(a) constitute all the material licenses and permits
required for each of the Company and its Subsidiaries to carry on its
business as now conducted and as proposed to be conducted.
(b) SUBSIDIARIES AND INVESTMENTS. Neither the Company nor its
Subsidiaries has any Subsidiaries, other than the Subsidiaries listed on
SCHEDULE 5(b). Except for such Subsidiaries listed or disclosed on
SCHEDULE 5(b), neither the Company nor its Subsidiaries
<PAGE> 20
- 20 -
(i) owns or controls any securities or owns other investments in any
Person or (ii) is a participant in any joint venture, partnership or
similar arrangement.
(c) AUTHORIZED AND ISSUED CAPITAL. The authorized capitalization of
the Company and each of its Subsidiaries is set forth on SCHEDULE 5(c).
Except as set forth on SCHEDULE 5(c), there are no further subscriptions,
contracts or agreements for the issuance or purchase of any other or
additional equity interest in the Company or any of its Subsidiaries,
either in the form of options, agreements, warrants, calls, convertible
securities or other similar rights, other than the Warrants. Set forth on
SCHEDULE 5(C) is a listing of all directors, managers, officers, partners,
members and shareholders (including the number of shares of each class or
percentage partnership interest, as the case may be, owned by each such
Person) of the Company and each of its Subsidiaries and of the holders of
all outstanding options, agreements, warrants, calls, convertible
securities and other rights relating to the issuance of equity securities
of, or interests in, the Company and each of its Subsidiaries. The number
of shares of the Company's capital stock reserved for issuance as set
forth on SCHEDULE 5(c) is not subject to adjustment by reason of the
issuance of the Warrants or the shares of Common Stock issuable upon the
exercise thereof. Neither the Company nor any of its Subsidiaries is a
party to any "phantom stock", employee stock option plan, other
equity-based incentive plan or similar agreement, except as set forth on
SCHEDULE 5(x). Except as set forth on SCHEDULE 5(c), (i) there are no
preemptive or similar rights to purchase or otherwise acquire equity
securities of, or interests in, the Company or any of its Subsidiaries
pursuant to any Requirement of Law or Contractual Obligation applicable to
the Company or any of its Subsidiaries and (ii) no registration rights
under the Securities Act have been granted by the Company or any of its
Subsidiaries with respect to its equity securities or interests (other
than the registration rights granted or to be granted pursuant to the gmi
Acquisition Documents).
(d) AUTHORIZATION. The execution and delivery by the Company of this
Agreement and each Transaction Document to which it is a party, the
performance by the Company of its obligations hereunder and thereunder,
and the issuance to the Purchaser of the Notes and the Warrants, as herein
provided, have been duly authorized by all necessary corporate action of
the Company and the Board of Directors and shareholders so that when
issued and delivered (i) the Notes and the Warrants will each constitute
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance or other similar law of general
applicability relating to or affecting the enforcement of creditors'
rights generally or by general equitable principles; (ii) the Common Stock
to be issued upon the exercise of the Warrants will be validly authorized,
have been duly reserved for issuance and, when issued upon due exercise of
the Warrants, will be fully paid and nonassessable; (iii) this Agreement
and each of the Transaction Documents to which it is a party will
constitute the legal, valid and binding agreements of the Company,
enforceable against it in accordance with their
<PAGE> 21
- 21 -
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent conveyance or other similar law of general applicability
relating to or affecting the enforcement of creditors' rights generally or
by general equitable principles; and (iv) neither the execution and
delivery of this Agreement and each of the Transaction Documents to which
it is a party, and the performance by the Company of its obligations
hereunder and thereunder, nor the issuance of the Notes and the Warrants,
will be in contravention of any Requirement of Law applicable to the
Company or any of its Subsidiaries or any Contractual Obligation to which
the Company or any of its Subsidiaries may be subject.
(e) LITIGATION. There is no litigation or proceeding before any
Governmental Authority pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries, or
any of their officers, directors, managers, partners, members or
shareholders, which involves the possibility of any judgment or liability
which is reasonably likely to materially and adversely affect any of the
property and assets of the Company or any of its Subsidiaries, or the
right of the Company or any of its Subsidiaries to conduct its or their
businesses as now conducted or as proposed to be conducted.
(f) TAX MATTERS. Each of the Company and each of its Subsidiaries has
filed all tax returns which it is required to file pursuant to any
Requirement of Law and all such returns are complete and correct in all
material respects. Each of the Company and each of its Subsidiaries has
paid all taxes due and owing by it and has withheld and paid over all
taxes which it is obligated to withhold from amounts paid or owing to any
employee, partner, creditor or other third party. Neither the Company nor
any of its Subsidiaries has waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to a tax
assessment or deficiency. Except as set forth on SCHEDULE 5(f), the
federal income tax returns of the Company and its Subsidiaries have never
been audited and no federal, state or local tax audits are pending or
being conducted with respect to the Company or any of its Subsidiaries, no
information related to tax matters has been requested by any federal,
state or local taxing authority, and no notice indicating an intent to
open an audit or other review has been received by the Company or any of
its Subsidiaries from any federal, state or local taxing authority.
(g) ORGANIZATIONAL AND GOVERNING DOCUMENTS. The certificates or
articles of incorporation, formation or organization, partnership or
operating agreements and regulations of the Company and each of its
Subsidiaries furnished to the Purchaser pursuant to Section 4A(j)15 and
4B(h)18, as the case may be, are in full force and effect, without further
changes, amendments or modification.
(h) GOVERNMENT APPROVALS; CONSENTS. Assuming the accuracy of the
representations and warranties of the Purchaser contained in Section 628
hereof, the Company is not required to obtain any order, consent, approval
or authorization of, or make
<PAGE> 22
- 22 -
any declaration or filing with, any Governmental Authority or other Person
in connection with (i) the negotiation, execution, delivery and
performance of this Agreement or any of the other Transaction Documents,
(ii) the offer, issuance, sale and delivery to the Purchaser of the Notes
and the Warrants or (iii) the consummation of any other transaction
contemplated by this Agreement or any of the Transaction Documents.
(i) REPRESENTATIONS AND WARRANTIES IN OTHER AGREEMENTS. The
representations and warranties made by the Company, its Subsidiaries and
the Acquired Companies in the Credit Agreement, the U-Gene Acquisition
Documents, the gmi Acquisition Documents, the Transaction Documents, and
in any other agreements, instruments or certificates delivered pursuant
hereto or thereto, are true and correct in all material respects (except
where any such representation and warranty is stated as being true only as
of a specific date, in which case such representation and warranty was
true and correct in all material respects on such date).
(j) DISCLOSURE. Neither this Agreement or any of the other
Transaction Documents, nor any other written statement or materials
furnished by or on behalf of the Company or its Subsidiaries to the
Purchaser in connection with this Agreement and the transactions
contemplated hereby, contains any untrue statement of any material fact,
or omits to state any material fact that is necessary in order to make the
statements contained herein or therein, in the light of the circumstances
under which they were made, complete and not misleading.
(k) COMPLIANCE WITH SECURITIES LAWS. Assuming the accuracy of the
representations and warranties of the Purchaser contained in Section 628
hereof, the offer and sale of the Notes and the Warrants, and the Common
Stock to be issued upon exercise of the Warrants, are not required to be
registered pursuant to the provisions of Section 519 of the Securities Act
or any state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Notes and the Warrants,
and the Common Stock to be issued upon exercise of the Warrants, to any
Person so as to bring the sale of Notes and the Warrants, and the Common
Stock to be issued upon exercise of the Warrants, by the Company within
the registration provisions of the Securities Act or any state securities
laws. Except as set forth on SCHEDULE 5(k), all prior offerings and sales
of securities of the Company and its Subsidiaries were in compliance with
all applicable federal and state securities laws.
(l) NO BROKERS. The Company has not dealt with any broker, finder,
commission agent or other similar person in connection with the offer and
sale of the Notes and the Warrants by the Company to the Purchaser or the
transactions contemplated by this Agreement, and the Company is not under
any obligation to pay any broker's fee, finder's fee or commission in
connection with such transactions.
<PAGE> 23
- 23 -
(m) FINANCIAL STATEMENTS.
(i) The audited Financial Statements, complete and correct copies
of which have previously been furnished to the Purchaser by the
Company, present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of
the Company, the Acquired Companies and their respective Subsidiaries
in accordance with GAAP, consistently applied, as of the dates and for
the periods set forth therein. The unaudited Financial Statements,
complete and correct copies of which have previously been furnished to
the Purchaser by the Company, present fairly, in all material
respects, the financial condition and results of operations of the
Company, the Acquired Companies and their respective Subsidiaries as
of the dates and for the periods set forth therein, subject to the
lack of footnote disclosure and changes resulting from normal year-end
adjustments, none of which, alone or in the aggregate, would be
materially adverse to the financial condition, operating results,
assets, operations or business prospects of the Company, the Acquired
Companies or their respective Subsidiaries. Since December 31, 1996,
there has been no material adverse change in the financial condition,
operating results, assets, operations or business prospects of the
Company, the Acquired Companies and their respective Subsidiaries,
taken as a whole.
(ii) As an inducement to the Purchaser to enter into this
Agreement and the other Transaction Documents, the Company has caused
to be provided to the Purchaser the projections listed on SCHEDULE
4A(g) (the "PROJECTIONS") prepared by the Company. The Company
represents and warrants that, after a good faith review of information
currently available: (A) the assumptions underlying the Projections
are reasonable; (B) the Projections are based upon good faith and
reasonably diligent estimates of the anticipated operating results and
consummation of the Investment; and (C) no event has occurred and no
circumstance has arisen since the date of the Projections which would
render the Projections or the assumptions underlying the Projections
materially misleading or no longer reasonable.
(n) ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor any
of its Subsidiaries has any material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise, whether or not
known to the Company, whether due or to become due and regardless of when
asserted), other than (i) liabilities set forth on the unaudited balance
sheet of the Company and its Subsidiaries on a consolidated basis as of
March 31, 1997 (the "LATEST BALANCE SHEET") (including any notes thereto),
(ii) liabilities and obligations which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business and which do not
individually or in the aggregate materially and adversely affect the
financial condition or operation of the Company and its Subsidiaries,
taken as a whole, and (iii) obligations expressly disclosed in the other
schedules and exhibits attached to this Agreement.
<PAGE> 24
- 24 -
(o) TITLE TO PROPERTIES AND ASSETS. Each of the Company and each of
its Subsidiaries has good and marketable title in fee simple (or its
equivalent under applicable law) to all real property owned by it. Each of
the Company and each of its Subsidiaries has good and valid title to, or a
valid leasehold interest in, all other properties and assets used by it,
located on its premises or shown on the Latest Balance Sheet or acquired
thereafter, free and clear of all Liens, other than for (i) properties and
assets disposed of in the ordinary course of business since the date of
the Latest Balance Sheet, (ii) Liens disclosed on the Latest Balance Sheet
(including the notes thereto) or (iii) Permitted Liens. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company or any of its Subsidiaries are in good
operating condition and repair (other than ordinary wear and tear) and are
reasonably fit and usable for the purposes for which they are being used.
The Affiliates of the Company do not own or lease any properties or assets
that are used by the Company or any of its Subsidiaries except as set
forth on SCHEDULE 5(s).
(p) CONTRACTS AND COMMITMENTS. Set forth on SCHEDULE 5(p) is a list
of each material existing and proposed Contractual Obligation to which the
Company or any of its Subsidiaries is or may be a party or by which any of
their assets or property is bound (collectively, the "MATERIAL
CONTRACTS"), including, without limitation, all Material Contracts (i)
involving any Contractual Obligations representing liabilities in excess
of $500,000, (ii) relating to any Indebtedness of, or payable to, the
Company or any of its Subsidiaries, (iii) containing any Contractual
Obligations limiting the ability of the Company or any of its Subsidiaries
to engage in any line of business or compete with any Person and (iv)
containing any Contractual Obligation relating to indemnification by or of
the Company or any of its Subsidiaries. Each of the Material Contracts is
valid, binding and enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance or other similar laws of
general applicability relating to or affecting creditors' rights generally
or by general equitable principles. Neither the Company or any of its
Subsidiaries nor, to the Company's best knowledge, any of the other
Parties thereto is in default under any of the Material Contracts, and no
such default is currently threatened. Except as listed on SCHEDULE 5(p),
neither the Company nor any of its Subsidiaries is a party to any
contract, agreement or instrument that is material to the Company's
business or financial condition.
(q) EMPLOYEES. Set forth on SCHEDULE 5(q) is a complete list of all
employment agreements between the Company or any of its Subsidiaries, on
the one hand, and any officer and/or senior level management employee of
the Company or any of its Subsidiaries, on the other hand. Except as set
forth on SCHEDULE 5(q), the Company is not aware that any executive or key
employee of the Company or any of its Subsidiaries or any group of
employees of the Company or any of its Subsidiaries has any plans to
terminate employment with the Company or any of its Subsidiaries. Neither
the Company, any of its Subsidiaries nor, to the Company's best knowledge,
any of its or their employees, is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar
agreement
<PAGE> 25
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relating to, affecting or in conflict with, the present or proposed
business activities of the Company or any of its Subsidiaries or any such
Person's right to participate in the affairs of the Company or any of its
Subsidiaries.
(r) COMPLIANCE WITH LAWS. Neither the Company nor any of its
Subsidiaries has violated any Requirement of Law, which violation would
reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business
prospects of the Company and of its Subsidiaries, taken as a whole, and
neither the Company nor any of its Subsidiaries has received notice of any
such violation.
(s) TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5(s), there are no Contractual Obligations of the Company or any of its
Subsidiaries to any of the officers, directors, managers, shareholders,
members, employees, Affiliates, or their respective Affiliates or Related
Parties of the Company or any of its Subsidiaries other than (i) for
payment of salary for services rendered, (ii) reimbursement for reasonable
expenses incurred on behalf of the Company or its Subsidiaries, (iii) for
standard employee benefits made generally available to all employees of
the Company (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company), (iv)
pursuant to any of the Transaction Documents and (v) distributions or
payments of actual S corporation taxes of the shareholders pursuant to the
Code of the Company in the form of dividends or distributions. Except as
set forth in SCHEDULE 5(s), none of the officers, directors, managers,
shareholders, members, employees, Affiliates, or their respective
Affiliates or Related Parties, of the Company or any of its Subsidiaries
has incurred Indebtedness to the Company or has any direct or indirect
ownership interest in any Person with which the Company is affiliated or,
to the Company's best knowledge, with which the Company or any of its
Subsidiaries has a business relationship except that such Person may own
stock in publicly traded companies. Except as set forth in SCHEDULE 5(s),
no officer, director, manager, shareholder, member, employee, Affiliate,
or any of their respective Affiliates or Related Parties, of the Company
or any of its Subsidiaries, is, directly or indirectly, interested in any
material Contractual Obligation with the Company. Except as may be
expressly disclosed in notes to the Financial Statements, the Company is
not a guarantor or indemnitor of any Indebtedness of any other Person.
(t) HAZARDOUS AND TOXIC MATERIALS. Neither the Company nor any of its
Subsidiaries has received any complaint, order, citation or notice with
regard to air emissions, Hazardous Discharges (as defined below) or other
environmental, health or safety matters affecting any of the premises
owned or leased by the Company or any of its Subsidiaries or the
businesses therein conducted. There has been no spill, discharge, release
or cleanup of any Hazardous Material with respect to such premises (except
spills, discharges or releases in the ordinary course of business and
permitted by applicable Environmental Law (as defined below)) ("HAZARDOUS
DISCHARGE"), and, accordingly, such properties are clean of all such
Hazardous Materials in accordance with applicable
<PAGE> 26
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Environmental Law. To the extent the premises owned or leased by the
Company or any of its Subsidiaries are used for the handling, storage,
transportation or disposal of Hazardous Materials, such use is in
accordance with applicable Environmental Law and the Company and its
Subsidiaries has obtained all necessary permits, licenses and approvals in
connection with applicable Environmental Law. Except as set forth on
SCHEDULE 5(t), no underground or above-ground storage tanks or surface
impoundments are located on any of the premises owned or leased by the
Company or any of its Subsidiaries.
(u) CERTAIN FEDERAL REGULATIONS. Neither the Company nor any Person
controlling, controlled by or under common control with the Company is an
"investment company" within the meaning of the Investment Company Act of
1940, as amended. The Company is not engaged principally or as one of its
activities in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" (as each such term is
defined or used in Regulations G and U of the Board of Governors of the
Federal Reserve System). No part of the proceeds of the Notes will be used
for purchasing or carrying margin stock or for any purpose which violates,
or which would be inconsistent with, the provisions of Regulations G, T, U
or X of such Board of Governors.
(v) ACQUISITION AND SENIOR LOAN DOCUMENTS. The U-Gene Acquisition
Documents, the gmi Acquisition Documents and Credit Agreement delivered to
the Purchaser pursuant to Section 4A(j)15 and 4B(h)18 comprise a full and
complete copy of all agreements between the parties thereto with respect
to the subject matter thereof and all transactions related thereto, and
there are no agreements or understandings, oral or written, or side
agreements not contained therein that relate to or modify the substance
thereof.
(w) USE OF PROCEEDS. The proceeds from the issuance of the Notes will
be used for the purposes set forth on SCHEDULE 5(w) and, in furtherance of
such purposes, shall be disbursed to the Persons (including, without
limitation, Subsidiaries of the Company) listed on such SCHEDULE 5(w) in
the amounts set forth opposite their respective names.
(x) EMPLOYEE BENEFIT PLANS. Each of the Company and its ERISA
Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published interpretations
thereunder. No ERISA Event has occurred as to which the Company or any
ERISA Affiliate was required to file a report with the PBGC, and the
present value of all benefit liabilities under each Plan (based on those
assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed the value of the assets of such
Plan. The Company and its ERISA Affiliates are not required to make, or
accrue an obligation to make, contributions to any Multiemployer Plan and,
during the past five years, neither the Company nor any ERISA Affiliate
has made, has been required to make, or accrued an obligation to make, any
contribution to any Multiemployer Plan. SCHEDULE 5(x) lists and describes
each Plan and Multiemployer Plan of the Company and its Subsidiaries.
<PAGE> 27
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(y) INTELLECTUAL PROPERTY.
(i) SCHEDULE 5(y) sets forth a complete and correct list of all
Intellectual Property that is owned by the Company and its
Subsidiaries (the "OWNED INTELLECTUAL PROPERTY"). The Owned
Intellectual Property constitutes all Intellectual Property used by,
and necessary for the conduct of the business of, the Company and its
Subsidiaries. The Owned Intellectual Property does not infringe the
rights of any other Person in respect of any Intellectual Property,
and to the Company's best knowledge after due inquiry, none of the
Owned Intellectual Property is being infringed in any material
respect by any other Person. SCHEDULE 5(y) lists all Owned
Intellectual Property which has been duly registered with, filed in
or issued by, as the case may be, the United States Patent and
Trademark Office and United States Copyright Office or other filing
offices, domestic or foreign, and identifies the office with which
such filing was made. Each Owned Intellectual Property registration
and filing listed in SCHEDULE 5(y) is in full force and effect.
(ii) SCHEDULE 5(y) sets forth a complete and correct list of all
material Contractual Obligations (A) pursuant to which the use by any
Person of Intellectual Property is licensed or permitted by the
Company or any of its Subsidiaries and (B) pursuant to which the use
by the Company or any of its Subsidiaries of Intellectual Property is
licensed or permitted by any other Person (collectively, the
"INTELLECTUAL PROPERTY LICENSES"). All Intellectual Property Licenses
(A) are in full force and effect in accordance with their terms, and
(B) are free and clear of any Liens (other than Permitted Liens).
Neither the Company or any of its Subsidiaries nor, to the Company's
best knowledge, any of the other Parties thereto is in default under
any of the Intellectual Property Licenses, and to the Company's best
knowledge after due inquiry, no such default is currently threatened.
There is no claim or demand of any Person pertaining to, or any
proceeding which is pending or, to the best knowledge of the Company,
threatened, that challenges the rights of the Company or any of its
Subsidiaries in respect of any Intellectual Property, Owned
Intellectual Property or any of the Intellectual Property Licenses.
None of the Owned Intellectual Property or any Intellectual Property
Licenses is subject to any outstanding order, ruling, decree,
judgment or stipulation by or with any court, tribunal, arbitrator or
other Governmental Authority.
(z) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 5(z), since the date of the Latest Balance Sheet, the Company and
each of its Subsidiaries has conducted its business only in the ordinary
course consistent with its past practices, and neither the Company nor any
of its Subsidiaries has (i) incurred, or agreed to incur, Indebtedness,
(ii) experienced any damage, destruction or loss that, to the extent not
covered by insurance, has had or reasonably would be expected to have a
material adverse effect on
<PAGE> 28
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the Company and its Subsidiaries, taken as a whole, (iii) declared, set
aside or paid any dividend or other distribution (whether in cash, equity
securities, interests or property) in respect of its equity securities,
(iv) entered into any material Contractual Obligation involving any
director, officer, manager, shareholder, member, employee, Affiliate or
their respective Affiliate or Related Parties of the Company or any of its
Subsidiaries, (v) granted or committed to grant to any director, officer,
manager, member, employee or Affiliate of the Company or any of its
Subsidiaries any material increase in compensation or benefits (other than
in the ordinary course of business), (vi) granted or committed to grant to
any director, officer, manager, employee or Affiliate of the Company or
any of its Subsidiaries any increase in or right to severance or
termination pay or any other compensation or benefits payable upon a
change in control of any such entity or (vii) taken any action that, if
taken after the U-Gene Closing Date hereof, reasonably would be expected
to constitute a breach of any of the covenants set forth in Section 729.
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company as follows:
(a) It is an "ACCREDITED INVESTOR" as that term is defined in Rule
501 of the Securities Act and that, in making the purchases contemplated
herein, it is specifically understood and agreed that the Purchaser is
acquiring the Notes and the Warrants for the purpose of investment and not
with a view towards the sale or distribution thereof within the meaning of
the Securities Act; PROVIDED, HOWEVER, that the disposition of the
Purchaser's property shall at all times be and remain within its control.
(b) It understands that the Notes and the Warrants will not be
registered under the Securities Act, by reason of their issuance by the
Company in a transaction exempt from the registration requirements of the
Securities Act, and that it must hold the Notes and the Warrants
indefinitely unless a subsequent disposition thereof is registered under
the Securities Act and applicable state securities laws or is exempt from
registration.
(c) It understands that the exemption from registration afforded by
Rule 144 (the provisions of which are known to the Purchaser) promulgated
by the Commission under the Securities Act depends on the satisfaction of
various conditions, including the requirement that the Company has been
subject to the reporting requirements of Section 13 or Section 15 of the
Exchange Act for at least 90 days, and that, if applicable, Rule 144
affords the basis for sales only in limited amounts and that the Company
does not now qualify under Rule 144 and may not ever qualify.
(d) It has not employed any broker or finder in connection with the
transactions contemplated by this Agreement.
<PAGE> 29
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(e) It has been furnished with or has had access to the information
it has requested from the Company and has had an opportunity to discuss
with management of the Company the business and financial affairs of the
Company and its Subsidiaries, and has generally such knowledge and
experience in business and financial matters and with respect to
investments in securities or privately held companies so as to enable it
to understand and evaluate the risks of such investment and form an
investment decision with respect thereto; PROVIDED, HOWEVER, that the
foregoing shall in no way affect, diminish or derogate from the
representations and warranties made by the Company hereunder or the right
of the Purchaser to rely thereon and to seek indemnification hereunder.
(f) The execution and delivery of this Agreement and the other
Transaction Documents to which it is a party have been duly authorized by
all necessary action of the Purchaser, do not conflict with or result in a
breach of any of the Purchaser's governing documents or any Contractual
Obligation or any Requirement of Law and constitute legal, valid and
binding agreements of the Purchaser enforceable against it in accordance
with their respective terms except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance or other similar laws of general
applicability relating to or affecting the enforcement of creditors'
rights generally or by general equitable principles.
SECTION 7 COVENANTS.
(a) PAYMENT OF NOTES. The Company will duly and punctually pay the
principal of, and interest and any premium on, any Notes when the same
become due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise).
(b) FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company will
furnish to the Purchaser:
(i) (A) Not later than 30 days prior to the last day of each
fiscal year, simple capital and operating expense budget for the
Company on a consolidated basis for each quarter of the next
succeeding year, all itemized in reasonable detail and prepared by
the Company and (B) within the first 90 days of each fiscal year,
capital and operating expense budgets, projections of sources and
applications of funds and profit and loss projections (prepared in
accordance with GAAP, consistently applied) for the Company (and each
of the Subsidiaries with which it prepares consolidated financial
statements) on a consolidated basis for each month of that fiscal
year, all itemized in reasonable detail and prepared by the Company.
Any material revisions made in such budgets or projections shall be
furnished promptly to the Purchaser.
<PAGE> 30
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(ii) As soon as available and in any event within 90 days after
the end of each fiscal year, audited financial statements of the
Company (and the Subsidiaries with which it prepares consolidated
financial statements) on a consolidated and consolidating basis,
including a balance sheet as at the end of such fiscal year,
statements of income and retained earnings and a related statement of
cash flows for such fiscal year and the figures for the preceding
year, together with all notes thereto, prepared in reasonable detail
and in accordance with GAAP consistently applied and accompanied by
the report thereof of Coopers & Lybrand or such other Big Six
Accounting Firm as may be selected by the Company, stating, among
other things, that in the course of their audit, nothing has come to
their attention suggesting that a condition or event has occurred
that constitutes a Default or an Event of Default (or if there was
such a condition or event, specifying the same).
(iii) As soon as available and in any event within 45 days after
the end of each fiscal quarter, unaudited financial statements of the
Company (and the Subsidiaries with which it prepares consolidated
financial statements) on a consolidated and consolidating basis,
including a balance sheet as at the end of the preceding fiscal
quarter, statements of income and retained earnings and a related
statement of cash flows for such quarter (prepared in accordance with
GAAP, consistently applied), such figures for the corresponding
fiscal quarter of the preceding fiscal year and comparisons to the
budget for such fiscal quarter. Such financial statements shall be
certified by the chief financial officer of the Company to be
complete and accurate, to fairly present, in all material respects,
the financial condition of the Company and its Subsidiaries and to be
prepared in accordance with GAAP, consistently applied.
(iv) As soon as available and in any event within 30 days after
the end of each month, monthly financial reports and other
operational data of the Company (and the Subsidiaries with which it
prepares consolidated financial statements) on a consolidated basis,
including a balance sheet as at the end of the preceding calendar
month and statements of income and retained earnings and a related
statement of cash flows for such month (prepared in accordance with
GAAP, consistently applied), such figures for the corresponding month
of the preceding fiscal year and comparisons to the budget for such
month. Such financial statements shall be certified by the chief
financial officer of the Company to be complete and accurate, to
fairly present, in all material respects, the financial condition of
the Company and its Subsidiaries and to be prepared in accordance
with GAAP, consistently applied.
(v) Promptly, and in no event more than ten business days after
receipt thereof, copies of all audit reports, so-called "management
letters" and other communications and reports submitted to the
Company or any of its Subsidiaries by
<PAGE> 31
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independent certified public accountants in connection with each
interim or special audit of the Company or any of its Subsidiaries
made by such accountants.
(vi) Promptly, but in any event within ten business days after
the Company or any of its Subsidiaries has actual knowledge thereof,
(A) written notice of any actual or anticipated material adverse
change in the operations or financial condition of the Company or any
of its Subsidiaries, (B) written notice of any condition or
circumstance that makes the environmental warranties contained in
this Agreement incomplete or inaccurate in any material respect and
(C) copies of any report of any Person or Governmental Authority with
respect to the condition of the Company or any Subsidiary citing any
material adverse condition at the Company or such Subsidiary.
(vii) With each report pursuant to Section 7(b)(ii)30,
7(b)(iii)30 or 7(b)(iv)30 hereof, a certificate of the principal
financial officer of the Company, substantially in the form attached
as EXHIBIT 7(b).
(viii) Promptly and in any event within ten business days after
the Company or any of its ERISA Affiliates knows or has reason to
know that any ERISA Event has occurred, a statement of the chief
financial officer of the Company describing such ERISA Event and the
action, if any, that the Company or such ERISA Affiliate has taken
and proposes to take with respect thereto.
(ix) Promptly and in any event within ten business days after
receipt thereof by the Company or any of its ERISA Affiliates, copies
of each notice from the PBGC stating its intention to terminate any
Plan or to have a trustee appointed to administer any Plan.
(x) Simultaneously with delivery to the Lenders, copies of all
financial statements, information and notices delivered to the
Lenders under the Credit Agreement which are not otherwise delivered
to the Purchaser pursuant to this Section 729.
(xi) Promptly after receipt of any request therefor from the
Purchaser, such information as the Purchaser shall reasonably request
in order for the Purchaser to deliver or make all reports or filings
required to be made by the Purchaser or any of its Affiliates with
any Governmental Authority.
(c) INFORMATION AND INSPECTION. As often as the Purchaser shall
reasonably request, the Company shall furnish to the Purchaser with
reasonable promptness full information pertinent to any covenant,
provision or condition hereof or to any matter in connection with the
business of the Company or any of its Subsidiaries. In addition, during
<PAGE> 32
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normal business hours upon reasonable notice, the Company shall permit any
authorized representative designated by the Purchaser to visit (at its own
expense) and inspect any properties of the Company or any of its
Subsidiaries, including its books and records (and to make extracts
therefrom), and to discuss its affairs, finances and accounts with the
officers, accountants and attorneys of the Company and each of its
Subsidiaries subject to the confidentiality provisions of Section 8(k)38.
(d) ADDITIONAL ADVICE. Promptly, and in any event within ten days
after the discovery or receipt of notice of (i) the existence of any
default in the performance by the Company or any of its Subsidiaries under
any covenant or agreement contained in this Agreement, the other
Transaction Documents to which the Company or any of its Subsidiaries is a
party or any other Contractual Obligations to which the Company or any of
its Subsidiaries is subject or by which the Company or any of its
Subsidiaries is bound or (ii) any pending or threatened litigation or
proceeding against the Company or any of its Subsidiaries (A) in which the
amount in controversy could exceed $100,000 or (B) which involves the
possibility of any judgment or liability that is reasonably likely to
materially and adversely affect any of the property and assets of the
Company or any of its Subsidiaries, or the right of the Company or any of
its Subsidiaries to conduct its or their businesses, the Company shall
give written notice to the Purchaser specifying the nature and period of
existence thereof and what actions the Company or such Subsidiary has
taken and proposes to take with respect thereto.
(e) AFFIRMATIVE COVENANTS. Unless the Purchaser shall otherwise
consent in writing, the Company shall, and shall cause each of its
Subsidiaries to:
(i) maintain in full force and effect all franchises, permits,
licenses, easements and other rights necessary to the operation of
its business;
(ii) maintain its corporate existence (except as permitted under
Section 7(g)35) and its business and all properties which are
reasonably necessary for the conduct of its business, now or
hereafter owned by it, in good repair, working order and condition,
reasonable wear and tear excepted, and make any replacements of
properties necessary for the successful operation of its business;
(iii) maintain on all insurable properties now or hereafter
owned by it insurance against loss or damage by fire or other
casualty (including business interruption coverage) to the extent
customary with respect to similar properties of companies conducting
business similar to that conducted by it, and to maintain public
liability and workers' compensation insurance covering it to the
extent customary with respect to companies conducting business
similar to that conducted by it;
<PAGE> 33
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(iv) comply in all respects with this Agreement, the other
Transaction Documents to which it is a party and in all material
respects with all other Contractual Obligations to which it is now or
hereafter subject or by which it or any of its properties and assets
are now or hereafter bound, unless and to the extent that the same
are being contested in good faith and by appropriate proceedings and
adequate reserves have been established on its books with respect
thereto in accordance with GAAP, consistently applied;
(v) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income
or profits therefrom (in each case before the same becomes delinquent
and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid might by law become a Lien upon
any of its properties, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with GAAP,
consistently applied) have been established on its books with respect
thereto;
(vi) comply with all applicable Requirements of Law, such
compliance to include, without limitation, compliance with federal
and state antitrust laws, ERISA, Environmental Laws and the Racketeer
Influenced and Corrupt Organizations Chapter of the organized Crime
Control Act of 1970, the violation of which might reasonably be
expected to have material adverse effect upon its financial
condition, operating results or business prospects; and
(vii) maintain proper books of record and account which fairly
represent its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves
as in each case are required in accordance with GAAP, consistently
applied.
(f) FINANCIAL COVENANTS.
(i) The Company will not permit the Fixed Charge Coverage Ratio,
as of the last day of any fiscal quarter of the Company, to be less
than the ratio specified for such fiscal quarter in the table set
forth below:
<TABLE>
<CAPTION>
From To and Including Fixed Charge Ratio
---- ---------------- ------------------
<S> <C> <C>
U-Gene Closing Date June 30, 1997 1.05 to 1.00
July 1, 1997 September 30, 1997 1.00 to 1.00
October 1, 1997 December 31, 1997 1.00 to 1.00
January 1, 1998 and thereafter 1.00 to 1.00
</TABLE>
<PAGE> 34
- 34 -
(ii) The Company will not permit the Total Leverage Ratio, as of
the last day of any fiscal quarter of the Company, to be greater than
the ratio specified for such fiscal quarter in the table set forth
below:
<TABLE>
<CAPTION>
Total
From To and Including Leverage Ratio
---- ---------------- --------------
<S> <C> <C>
U-Gene Closing Date June 30, 1997 6.90 to 1.00
July 1, 1997 December 31, 1997 5.90 to 1.00
January 1, 1998 December 31, 1998 5.75 to 1.00
January 1, 1999 and thereafter 5.25 to 1.00
</TABLE>
(iii) The Company will not permit the Senior Leverage Ratio as
of the last day of any fiscal quarter of the Company, to be greater
than the ratio specified for such fiscal quarter in the table set
forth below:
<TABLE>
<CAPTION>
Senior
From To and Including Leverage Ratio
---- ---------------- --------------
<S> <C> <C>
U-Gene Closing Date June 30, 1997 5.85 to 1.00
July 1, 1997 December 31, 1997 4.75 to 1.00
January 1, 1998 December 31, 1998 4.50 to 1.00
January 1, 1999 June 30, 1999 4.25 to 1.00
July 1, 1999 and thereafter 4.25 to 1.00
</TABLE>
(iv) The Company will not permit the Consolidated Net Worth as
of the last day of any fiscal quarter of the Company, after giving
pro forma effect to the transaction contemplated by the Credit
Agreement, to be less than the Minimum Compliance Level. The "MINIMUM
COMPLIANCE LEVEL" shall be, on the U-Gene Closing Date, an amount
equal to $943,000 as of March 31, 1997, and shall be increased (A) as
of the last day of each fiscal quarter of the Company ending after
the U-Gene Closing Date, commencing with the fiscal quarter ending
June 30, 1997, by an amount equal to the sum of (i) 50% of
Consolidated Net Income (if positive) of the Company for such fiscal
quarter, and (ii) 95% of the Net Cash Proceeds of any Equity Issuance
(including a Qualified Initial Public Offering) by any Credit Party
during such fiscal quarter and (B) upon the consummation of the
U-Gene Acquisition and the gmi Acquisition, 95% of the Consolidated
Net Worth (if any) of each of U-Gene and gmi, respectively. The
foregoing increases in the Minimum Compliance Level shall be fully
cumulative and no reduction in the Minimum Compliance Level shall be
made to reflect negative Net Income for any period. Other than the
terms "Company" and "Credit Agreement," all capitalized terms used in
this Section 7(f)33 shall have the meanings given such terms in the
Credit Agreement.
<PAGE> 35
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(v) The Company will not permit Consolidated Capital
Expenditures for any fiscal year of the Company to exceed $4,500,000.
(g) NEGATIVE COVENANTS. Without the prior written consent of the
Purchaser, the Company shall not, and shall cause each of its Subsidiaries
not to:
(i) enter into or amend any Contractual Obligation, either
directly or indirectly, or other transaction with any of its
officers, directors, managers, shareholders, members, Affiliates or
their respective Affiliates or Related Parties, except as approved by
a majority of the members of the compensation committee of the Board
of Directors of the Company which shall be on terms and conditions as
favorable to the Company as would be obtainable by it in a comparable
arms' length transaction with an independent unrelated third party;
(ii) enter into any material amendment of, or waive any covenant
or other right with respect to any Contractual Obligation, if such
amendment would by its terms restrict the Company's performance of
its obligations to the Purchaser hereunder or under the Notes, the
Warrants or any other agreement or instrument relating hereto or
contemplated hereby, except in accordance with Section 7(p)40 of this
Agreement with respect to the Credit Agreement;
(iii) enter into any agreement providing for or resulting in an
Organic Change;
(iv) incur any Indebtedness, except Permitted Indebtedness;
(v) make loans or advances to or guarantees for the benefit of
any Person, except for advances or guarantees given to suppliers in
the ordinary course of business and advances to employees in an
amount not to exceed $10,000 per employee pursuant to normal
employment practices;
(vi) purchase, redeem or otherwise acquire or retire for value
any of its equity securities or interests or declare or make any
dividend or other distribution with respect to any of its equity
securities or interests, except the payment of dividends to
distribute (A) actual S corporation taxes of the shareholders of the
Company in accordance with the Code, (B) an aggregate sum not to
exceed $150,000 to be distributed to the Company's shareholders
during each calendar quarter after the U-Gene Closing Date until
December 31, 1997, and (C) the amounts in the Accumulated Adjustments
Accounts (as defined in the Code) immediately prior to the
consummation of a Qualified Initial Public Offering of the Company
immediately at the time of the Company's conversion from an S
corporation to a C corporation in an amount not to exceed in the
aggregate $700,000;
<PAGE> 36
- 36 -
(vii) acquire any material interest in any Person (whether by a
purchase of assets or securities, merger, joint venture, partnership,
loan or otherwise), except for Permitted Investments;
(viii) (A) amend its certificate or articles of incorporation,
formation or organization, partnership agreement, operating
agreement, bylaws or regulations, (B) issue any of its equity
securities or interests (other than (w) to the former gmi
stockholders in connection with the gmi Acquisition, (x) pursuant to
a Qualified Initial Public Offering, (y) to qualify directors where
required by applicable law or (z) pursuant to the Plans or
Multiemployer Plans) or (C) create any Subsidiaries (other than
Wholly Owned Subsidiaries);
(ix) issue any profit participation or stock appreciation, or
adopt any phantom stock plan, employee stock option plan or other
equity-based incentive plan, except pursuant to the Plans and
Multiemployer Plans in effect as of the date hereof described on
SCHEDULE 5(x); or
(x) create, assume, incur or permit to exist, any Lien on any of
its assets or properties other than (A) Liens arising pursuant to the
Credit Agreement or (B) Permitted Liens.
(h) USE OF PROCEEDS. The Company will use the proceeds of the sale of
the Notes and the Warrants solely for the purposes set forth on SCHEDULE
5(w).
(i) COMPLIANCE WITH AGREEMENTS. The Company will perform and observe,
and will cause each of its Subsidiaries to perform and observe, all of its
material obligations to the Purchaser, and the holders of the Notes and
the Warrants, and the Common Stock issued upon exercise of the Warrants,
set forth in this Agreement, the Notes, the Warrants and the other
Transaction Documents to which it is a party and the certificate or
articles of incorporation, formation or organization and regulations or
other organizational and governing documents of the Company or any of its
Subsidiaries.
(j) INDEMNIFICATION.
(i) The Company, without limitation as to time, will defend and
indemnify the Purchaser and its officers, directors, managers,
employees, attorneys and agents (each, an "INDEMNIFIED PARTY")
against, and hold each Indemnified Party harmless from, all losses,
claims, damages, liabilities, costs (including the costs of
preparation and attorneys' fees and expenses) (collectively, the
"LOSSES") incurred pursuant to any investigation or proceeding
against the Company or any Indemnified Party and arising out of or in
connection with this Agreement, any other Transaction Document or any
other document or instrument executed herewith or pursuant hereto
<PAGE> 37
- 37 -
or thereto, whether or not the transactions contemplated by this
Agreement are consummated, which investigation or proceeding requires
the participation of, or is commenced or filed against, any
Indemnified Party because of this Agreement, any other Transaction
Document or such other documents and the transactions contemplated
hereby or thereby, other than any Losses resulting from action on the
part of such Indemnified Party which is finally determined in such
proceeding to be primarily and directly a result of such party's
gross negligence or willful misconduct. The Company agrees to
reimburse each Indemnified Party promptly for all such Losses as they
are incurred by such Indemnified Party in connection with the
investigation of, preparation for or defense of any pending or
threatened claim or any action or proceeding arising therefrom. The
Purchaser agrees to reimburse the Company for any payments made by
the Company to the Purchaser pursuant to this paragraph for Losses
which are finally determined in such proceeding to primarily and
directly result from the gross negligence or willful misconduct of
the Purchaser. The obligations of the Company under this paragraph
will survive any transfer of the Notes, the Warrants or the Common
Stock issued upon exercise of the Warrants by the Purchaser and the
termination of this Agreement. In the event that the foregoing
indemnity is unavailable or insufficient to hold an Indemnified Party
harmless, then the Company will contribute to amounts paid or payable
by such Indemnified Party in respect of such Indemnified Party's
Losses in such proportions as appropriately reflect the relative
benefits received by and fault of the Company and such Indemnified
Party in connection with the matters as to which such Losses relate
and other equitable considerations.
(ii) If any action, proceeding or investigation is commenced, as
to which any Indemnified Party proposes to demand such
indemnification, it shall notify the Company with reasonable
promptness; PROVIDED, HOWEVER, that any failure by such Indemnified
Party to notify the Company shall not relieve the Company from its
obligations hereunder except to the extent the Company is prejudiced
thereby. The Company shall be entitled to assume the defense of any
such action, proceeding or investigation, including the employment of
counsel and the payment of all fees and expenses. The Indemnified
Party shall have the right to employ separate counsel in connection
with any such action, proceeding or investigation and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be paid by the Indemnified Party, unless (A) the Company has
failed to assume the defense and employ counsel as provided herein,
(B) the Company has agreed in writing to pay such fees and expenses
of separate counsel or (C) an action, proceeding, or investigation
has been commenced against the Indemnified Party and the Company and
representation of both the Company and the Indemnified Party by the
same counsel would be inappropriate because of actual or potential
conflicts of interest between the parties. In the case of any
circumstance described in clauses (A), (B) or (C) of the immediately
preceding sentence, the Company shall be responsible for
<PAGE> 38
- 38 -
the reasonable fees and expenses of such separate counsel; PROVIDED,
HOWEVER, that the Company shall not in any event be required to pay
the fees and expenses of more than one separate counsel (and, if
deemed necessary by such separate counsel, appropriate local counsel
who shall report to such separate counsel) for all Indemnified
Parties. The Company shall be liable only for settlement of any claim
against an Indemnified Party made with the Company's written consent.
(k) ENVIRONMENTAL MATTERS.
(i) Upon the Purchaser's receipt of any order, notice, permit,
application or other communication or report alleging a violation of
any applicable Environmental Law at any facility of the Company or
any Subsidiary (an "ENVIRONMENTAL NOTICE"), the Company or any of its
Subsidiaries shall at its expense, at the request of the Purchaser,
obtain an environmental site assessment or environmental audit report
or an update of any of the foregoing from an independent
environmental consultant satisfactory to the Purchaser with respect
to the premises identified in the Environmental Notice, all in form
and content satisfactory to Purchaser.
(ii) The conduct of the business operations of the Company and
its Subsidiaries will not violate, in any material respect, any
Environmental Law and the Company and each of its Subsidiaries will
not use or permit any other party to use any Hazardous Materials on
any of their respective properties, whether owned or leased (the
"PROPERTIES"), at any of their respective places of business except
such materials as are incidental to the Company and its Subsidiaries'
normal course of business, maintenance and repairs. The Company and
its Subsidiaries shall provide the Purchaser, its representatives,
contractors and employees with access to and copies of any and all
data and documents relating to or dealing with any Hazardous
Materials used, generated, manufactured, stored or disposed of on,
under or about the Properties or by the Company or any of its
Subsidiaries' business operations within five days of the request
therefor.
(iii) Without limiting the provisions of Section 7(j)36 hereof,
the Company agrees to defend, protect, indemnify and hold harmless
the Purchaser and each of its officers, directors, employees,
managers, attorneys and agents (collectively called the
"INDEMNITEES") from and against all liabilities, obligations
(including removal and remedial actions), losses, damages (including
foreseeable and unforeseeable consequential damages and punitive
damages), penalties, actions, judgments, suits, claims, costs,
expenses and disbursements (including reasonable attorneys' and
consultants' fees and disbursements) of any kind or nature whatsoever
that may at any time be incurred by, imposed on or asserted against
such indemnitees directly or indirectly based on, or arising or
resulting from, (A) the actual or alleged presence
<PAGE> 39
- 39 -
of Hazardous Materials (as defined below) on any property now,
previously or hereafter owned, leased or otherwise held by the
Company or any of its Subsidiaries, (B) any Environmental Claim (as
defined below) relating to the Company, its Subsidiaries or any of
their operations or (C) the exercise of the Purchaser's rights under
any of the provisions of this Section 7(k)38 (the "INDEMNIFIED
MATTERS") regardless of when such indemnified matters arise.
(iv) As used herein "HAZARDOUS MATERIALS" means (A) any
petroleum or petroleum products, radioactive materials, asbestos in
any form that is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric
fluid containing levels of polychlorinated biphenyls, and radon gas;
(B) any chemicals, materials or substances (including, without
limitation, human blood and blood products, pathological wastes,
sharps, body parts, contaminated bedding, surgical wastes and other
disposable medical equipment and material that may pose a risk to the
public health, welfare or the marine environment) defined as or
included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes",
"medical wastes", "biological wastes", "laboratory wastes",
"restricted hazardous wastes", "toxic substances", "toxic
pollutants", "contaminants" or "pollutants", or words of similar
import, under any applicable Environmental Law; and (C) any other
chemical, material or substance exposure to which is prohibited,
limited or regulated by any Governmental Authority. "ENVIRONMENTAL
LAW" means any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now or
hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the
environment, health, safety or Hazardous Materials, including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 ET SEQ.; the Marine Protection, Research and Sanctuaries Act of
1972, as amended, 33 U.S.C. Section 1401 ET SEQ.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 ET
SEQ.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
Section 1251 ET SEQ.; the Toxic Substances Control Act, 15 U.S.C.
Section 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. Section 7401 ET
SEQ.; the Safe Drinking Water Act, 42 U.S.C. Sections 201 & 300f ET
SEQ.; the Occupational Safety and Health Act, 29 U.S.C. Section 651
ET SEQ.; and their counterparts under applicable state and local
laws. "ENVIRONMENTAL CLAIMS" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of non-compliance or violation, investigations
or proceedings relating in any way to any Environmental Law or any
permit issued under any such Environmental Law, including without
limitation (x) any and all Environmental Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages, fines or penalties pursuant to
any applicable Environmental Law, and (y) any and all Environmental
Claims by any
<PAGE> 40
- 40 -
third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
(l) ERISA. The Company shall, and shall cause each of its
Subsidiaries to comply in all material respects with the applicable
provisions of ERISA and neither the Company nor any of its ERISA
Affiliates will make, or will accrue an obligation to make, any
contribution to any Multiemployer Plan.
(m) BROKERAGE. The Company shall pay, and hold the Purchaser harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses but excluding costs
of internal in-house counsel) arising in connection with any claim against
the Company, or arising as a result of actions taken by the Company or any
of its officers, directors, employees or agents, for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement.
(n) LIFE INSURANCE. The Company will comply with the provisions of
Section 6.13 of the Credit Agreement.
(o) MEETINGS; REPRESENTATION. The Company will have regular meetings
of its Board of Directors at least every calendar quarter and its
shareholders at least once a year, as provided for in the Company's
regulations, and minutes of such meetings shall be prepared and maintained
as a part of the permanent records of the Company. The Company will
provide the Purchaser with written notice of all proposed agendas (which
shall not, however, limit the matters which may be acted upon in the event
a majority of the directors or shareholders, as appropriate, present vote
to discuss or act upon any other matter) for all meetings of the directors
or shareholders, as appropriate, of the Company at least five business
days in advance (except in the case of special meetings of the Board of
Directors or meetings of the executive committee, in which case such
notice shall be as prompt as practicable) and at least one representative
of the Purchaser will be permitted to attend such meetings, at the expense
of the Company prior to the consummation of a Qualified Initial Public
Offering. After the consummation of a Qualified Initial Public Offering,
one representative of the Purchaser shall be permitted to attend meetings
of the Board of Directors or meetings of the executive committee at their
own expense.
(p) MODIFICATIONS TO CREDIT AGREEMENT. The Company shall not amend or
otherwise modify the Credit Agreement (i) to increase the Indebtedness
under the Credit Agreement by more than $5,000,000, (ii) to increase the
interest rate with respect to the Indebtedness under the Credit Agreement
by more than 50 basis points, (iii) to extend the maturity of the
Indebtedness under the Credit Agreement beyond December 31, 2000, (iv) to
shorten the time of payment with respect to the Indebtedness under the
Credit Agreement
<PAGE> 41
- 41 -
or (v) to amend any financial covenant of the Company with respect to the
Indebtedness under the Credit Agreement to make such covenant more
restrictive; PROVIDED, HOWEVER, that it being understood and agreed that
waivers of conditions precedent, covenants, defaults or events of default
shall not constitute an amendment or modification).
(q) TERMINATION OF COVENANTS. All covenants contained in this Section
7 shall continue until the Purchaser ceases to own any of the Notes, the
Warrants, or any shares of Common Stock underlying such Warrants;
PROVIDED, HOWEVER, that (i) upon payment of all principal, interest and
other amounts under the Notes, the covenants set forth in Sections 7(f),
7(h), 7(n) and 7(p) shall terminate and (ii) upon the consummation of a
Qualified Initial Public Offering by the Company, (A) all covenants set
forth in Section 729 (other than the covenants set forth in Sections
7(j)36, 7(k)(iii)38 and 7(o)40) shall terminate, and (B) the Company shall
provide to the Purchaser, in lieu of the information set forth in Sections
7(b)(ii), 7(b)(iii), 7(b)(iv) and 7(b)(viii), copies of all annual,
quarterly and current reports on Forms 10-K, 10-Q and 8-K, or any
successor forms thereto, within five days after the date such reports are
filed with the Commission.
(r) FURTHER ASSURANCES. The Company agrees that, promptly upon the
request of the Purchaser and in any event no later than 30 days after the
U-Gene Closing Date, the Company will, at its expense, execute and
deliver, and cause each of its Subsidiaries to execute and deliver, to the
Purchaser (i) the Pledge Agreement and (ii) the Security Agreement;
PROVIDED, HOWEVER, that each of the Pledge Agreement and Security
Agreement shall be subordinate and junior in right of payment to the prior
payment of all Senior Debt (as defined in the Subordination Agreement).
The Company agrees that from time to time, at its expense, the Company
will, and will cause each of its Subsidiaries to, promptly execute and
deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Purchaser may
request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby or by the
Pledge Agreement and Security Agreement, or to enable the Purchaser to
exercise and enforce its rights and remedies hereunder or thereunder with
respect to any collateral. Without limiting the generality of the
foregoing, the Company will, at the time of delivery of the Pledge
Agreement and the Security Agreement and from time to time thereafter,
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Purchaser may request, in order to perfect and
preserve the pledge, assignment and security interest granted or purported
to be granted hereby or by the Pledge Agreement and Security Agreement.
SECTION 8 GENERAL. As further and special provisions set forth under this
Agreement, the parties hereto further warrant, covenant, contract and agree
each with the other as follows:
<PAGE> 42
- 42 -
(a) ENTIRE AGREEMENT. This Agreement, the Transaction Documents and
other documents referred to herein and therein constitute the entire
understanding among the parties as to the subject matter specifically
referred to herein or therein.
(b) REIMBURSEMENT OF EXPENSES. The Company agrees to reimburse the
Purchaser for all reasonable costs and out-of-pocket expenses, including
"due-diligence" investigation, of the Purchaser and related travel and
out-of-pocket expenses and reasonable attorneys' fees and expenses
(excluding in-house counsel), incurred in connection with the preparation,
execution and delivery of this Agreement, and other related documentation,
and any subsequent amendments, modifications or supplements thereto, and
all reasonable expenses (including reasonable attorneys' fees and expenses
(excluding in-house counsel)) incurred by the Purchaser in the collection
of any amounts owed by the Company to the Purchaser following a breach.
All payments to be made by the Company shall be made no later than 30 days
following presentation to the Company of a statement for such expenses.
(c) SURVIVAL OF AGREEMENTS AND REPRESENTATIONS AND WARRANTIES. All
agreements and all representations and warranties contained herein or made
in writing by the Company in connection herewith, to the extent
applicable, shall survive the execution and delivery of this Agreement and
other documents referred to herein and shall continue until the Purchaser
ceases to own any Notes, the Warrants or any shares of Common Stock.
(d) NO WAIVER. No delay by or on behalf of the Purchaser in
exercising any rights conferred hereunder, and no course of dealing
between the Purchaser and the Company shall operate as a waiver of any
right granted hereunder, unless expressly waived in writing by the party
whose waiver is alleged.
(e) BINDING EFFECT. All covenants, representations, warranties and
other stipulations in this Agreement and other documents referred to
herein, given by or on behalf of any of the parties hereto, shall bind and
inure to the benefit of the respective successors, heirs, personal
representatives and assigns of the parties hereto.
(f) INITIAL HOLDER. The Company shall be entitled to treat and deal
with the Purchaser, and shall not be required to recognize any other
Person as the holder of the Notes or the Warrants, except after production
of such Notes or the Warrants duly endorsed for transfer, together with
such documentation as the Company may reasonably require concerning
compliance with federal or state securities laws, or after receipt by the
Company of written notice from the Person theretofore entitled to be
treated as the holder advising the Company of the transfer of such Notes
or the Warrants to such other Person and stating the latter's address,
together with such documentation as the Company may reasonably require
concerning compliance with federal or state securities laws.
<PAGE> 43
- 43 -
(g) CUMULATIVE POWERS. No remedy herein conferred upon the Purchaser
or any holder of the Notes or the Warrants is intended to be exclusive of
any other remedy, and each such remedy shall be cumulative and in addition
to every other remedy given hereunder or now or hereafter existing at law,
or in equity or by statute or otherwise.
(h) LOSS OF SECURITIES; REISSUE OF SECURITIES IN LESSER
DENOMINATIONS. Upon:
(i) receipt of evidence satisfactory to the Company of loss,
theft, mutilation or destruction of (A) any of the Notes or (B) any
of the Warrants, and
(ii) in the case of any such loss, theft or destruction, upon
delivery of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon
surrender and cancellation of such Notes or any of the Warrants,
the Company will make and deliver a new Note or Warrant of like tenor, in
lieu of such lost, stolen, mutilated or destroyed Note or Warrant. In
addition, upon request of any holder of a Note, Warrant or other
securities of the Company now or hereafter issued by the Company to the
Purchaser, and upon surrender of such Note, Warrant or other securities to
the Company and compliance with any restrictive legends, the Company will,
subject to applicable federal and state securities laws, reissue, in
lesser denominations to parties designated by such holder, new
certificates, warrants or other securities in the equivalent amounts of
such other securities surrendered.
(i) COMMUNICATIONS. All communications and notices provided for
hereunder shall be sent by personal delivery, nationally recognized
overnight courier, facsimile or registered or certified mail, to the
Purchaser and the Company at their respective addresses set forth on
SCHEDULE 8(i), or to such other address with respect to any party as such
party shall notify the other parties hereto in writing. Any notice
required to be given hereunder by one party to another shall be deemed to
have been received (i) when delivered, if personally delivered or sent via
facsimile, or (ii) one day following delivery to a nationally recognized
overnight courier or (iii) on the third business day following the date on
which the piece of mail containing such communication is posted, if sent
by certified or registered mail. Except as otherwise provided for herein,
all reasonable requests for disclosure or other provision of information
to be made or otherwise given by the Company shall be completed no later
than seven business days following the receipt by the Company of a written
request therefor in the manner described in this Section.
(j) LEGEND.
(i) Each of the Notes, each of the Warrants and each
certificate, if any, representing the Common Stock issued upon
exercise of the Warrants will bear a
<PAGE> 44
- 44 -
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
TRANSFERRED UNLESS THE COMPANY HAS RECEIVED A WRITTEN OPINION
FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY
STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
(ii) The Warrants and each certificate, if any, representing
Common Stock issued upon exercise of the Warrants will bear a legend
in substantially the following form:
THE TRANSFER OF SECURITIES REPRESENTED BY THIS CERTIFICATE OR
INSTRUMENT IS SUBJECT TO TRANSFER RESTRICTIONS, OBLIGATIONS AND
OTHER CONDITIONS SPECIFIED IN THE AMENDED AND RESTATED
SHAREHOLDER AGREEMENT DATED AS OF JUNE 26, 1997 AND AS AMENDED
FROM TIME TO TIME, AMONG THE COMPANY AND ITS SECURITYHOLDERS.
(k) CONFIDENTIALITY. The Purchaser shall not make public disclosure
of any information designated by the Company in writing as confidential,
including financial terms and financial and organizational information
contained in any documents, statements, certificates, materials or
information furnished, or to be furnished, by the Company in connection
with the transactions contemplated by this Agreement; PROVIDED, HOWEVER,
that the foregoing shall not be construed, now or in the future, to apply
to any information reflected in any recorded document, information which
is independently developed by the Purchaser, information obtained from
sources other than the Company or information that is or becomes in the
public domain, nor shall it be construed to prevent the Purchaser from (i)
making any disclosure of any information (A) if required to do so by any
Requirement of Law, (B) to any Governmental Authority having or claiming
authority to regulate or oversee any aspect of the Purchaser's business or
that of the corporate parent or affiliates of the Purchaser in connection
with the exercise of such authority or claimed authority, or (C) pursuant
to subpoena; or (ii) to the extent the Purchaser or its counsel deems
necessary or appropriate to do so to effect or preserve its security for
any applicable investment or financing or to enforce any remedy provided
herein or in any applicable investment or financing documents or otherwise
available by law; or (iii) making, on a confidential basis, such
disclosures as the Purchaser deems necessary or appropriate to such
Purchaser's legal
<PAGE> 45
- 45 -
counsel or accountants (including outside auditors); or (iv) making such
disclosures as the Purchaser reasonably deems necessary or appropriate to
any bank or financial institution or other entity, and/or counsel to or
other representatives of such bank or financial institution or other
entity, to which the Purchaser in good faith desires to sell an interest
in any applicable investment or financing; PROVIDED, HOWEVER, that such
bank, financial institution or other entity or counsel to or
representative thereof, agrees to take reasonable steps to maintain the
confidentiality of such disclosures.
(l) GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of North Carolina.
(m) HEADINGS. The descriptive section headings herein have been
inserted for convenience only and shall not be deemed to limit or
otherwise affect the construction of any provisions hereof.
(n) MULTIPLE ORIGINALS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original,
and it shall not be necessary in making proof of this Agreement to produce
or account for more than one such counterpart.
(o) AMENDMENT OR WAIVER. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the
prior written consent of the Purchaser to such amendment, action or
omission to act. Each holder of the Notes or the Warrants, at the time or
times thereafter outstanding, shall be bound by any consent authorized by
this Section, whether or not the Notes or the Warrants shall have been
marked to indicate such consent.
<PAGE> 46
- 46 -
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the day and year first above written.
KENDLE INTERNATIONAL INC.,
an Ohio corporation
By:/S/ Anthony L. Forcellini
----------------------------------------
Anthony L. Forcellini
Director, Mergers and Acquisitions and
Assistant Secretary
NATIONSBANC INVESTMENT CORPORATION
a Delaware corporation
By:/S/ WALKER L. POOLE
-----------------------------------------
Walker L. Poole
Senior Vice President
<PAGE> 47
- 1 -
SCHEDULE 3(a)
PURCHASE AND SALE OF SECURITIES
<TABLE>
<CAPTION>
Purchaser Note Warrant Purchase Price
- --------- ---- ------- --------------
<S> <C> <C> <C>
NationsBanc 12% Series A Series A Warrant $5,000,000
Investment Senior Subordinated representing 4% of
Corporation Note for $5,000,000 the fully diluted
due June 26, 2002 common stock of
the Company
NationsBanc 12% Series B Series B Warrant $5,000,000
Investment Senior Subordinated representing 3% of
Corporation Note for $5,000,000 the fully diluted
due _______, 200__ common stock of
the Company
</TABLE>
<PAGE> 48
- 1 -
SCHEDULE 4A(a)
FINANCIAL INFORMATION
1 Unaudited pro forma consolidated financial statements for the Company, its
Subsidiaries and each Acquired Company as of, and for the period ended,
March 31, 1997, certified by the chief financial officer of the Company.
2 Unaudited consolidated financial statements for the Company, its
Subsidiaries and each Acquired Company as of, and for the period ended,
March 31, 1997, certified by the chief financial officer of each Acquired
Company.
3 Audited financial statements for the Company, its Subsidiaries and each
Acquired Company for fiscal years 1995 and 1996, accompanied by an audit
report from Coopers & Lybrand, such report to be in customary form and
unqualified.
4 Financial projections for the Company for each fiscal year after the
U-Gene Closing Date through fiscal 2000, giving effect to the
Acquisitions, in form and substance reasonably satisfactory to the
Purchaser.
5 Such other financial information relating to the Company, the
Subsidiaries, the Acquired Companies or the Acquisitions as the Purchaser
may reasonably request.
<PAGE> 49
- 1 -
SCHEDULE 5(a)
ORGANIZATIONAL MATTERS
A. Organization
------------
Jurisdiction of Jurisdictions in
Name of Company Organization Which Qualified
--------------- --------------- ----------------
[to be completed by Company counsel]
B. Licenses and Permits
--------------------
Name of Company Licenses and Permits
-------------- --------------------
[to be completed by Company counsel]
<PAGE> 50
- 1 -
SCHEDULE 5(a)
SUBSIDIARIES AND INVESTMENTS
[to be completed by Company counsel]
<PAGE> 51
- 1 -
SCHEDULE 5(c)
CAPITALIZATION
I. Pre-Closing Capitalization of the Company and the Sellers
---------------------------------------------------------
A. Authorized Capital
------------------
Name of Company Authorized Capital
----------------------------------------
[to be completed by Company counsel]
B. Subscriptions, Contracts and Agreements
---------------------------------------
[to be completed by Company counsel]
C. Directors, Officers, Partners and Security Holders
--------------------------------------------------
Number or Percent of Equity
Interests Issuable upon
Exercise or Conversion of
Number or Percent Type of Equity Options, Warrants or
Name of Equity Interests Interest Convertible Securities
------------------------- -------------- -----------------------
[to be completed by Company counsel]
D. Preemptive and Registration Rights
----------------------------------
[to be completed by Company counsel]
<PAGE> 52
- 2 -
II. Post-Closing Capitalization of the Company and the Sellers
----------------------------------------------------------
A. Authorized Capital
------------------
Name of Company Authorized Capital
---------------- ------------------
[to be completed by Company counsel]
B. Subscriptions, Contracts And Agreements
---------------------------------------
[to be completed by Company counsel]
C. Directors, Officers, Partners and Security Holders
--------------------------------------------------
Number or Percent of Equity
Interests Issuable upon
Exercise or Conversion of
Number or Percent Type of Equity Options, Warrants or
Name of Equity Interests Interest Convertible Securities
- --------------------------------------------------------------------------------
[to be completed by Company counsel]
D. Preemptive and Registration Rights
----------------------------------
[to be completed by Company counsel]
<PAGE> 53
- 3 -
SCHEDULE 5(f)
TAX MATTERS
[to be completed by Company counsel]
<PAGE> 54
- 4 -
SCHEDULE 5(k)
COMPLIANCE WITH SECURITIES LAWS
[to be completed]
<PAGE> 55
- 5 -
SCHEDULE 5(p)
MATERIAL CONTRACTS
[to be completed by Company counsel]
<PAGE> 56
- 6 -
SCHEDULE 5(q)
EMPLOYEES
A. Employment Arrangements:
------------------------
Name of Employee Description of Agreement
---------------------------------------------------
[to be completed by Company counsel]
B. Departing Employees:
--------------------
Name of Employee Description Of Severance Benefits
-------------------------------------------------------------
[to be completed by Company counsel]]
<PAGE> 57
- 7 -
SCHEDULE 5(s)
AFFILIATE CONTRACTS
Name of Affiliate Description Of Contract
----------------------------------------------------------
[to be completed by Company counsel]
<PAGE> 58
- 8 -
SCHEDULE 5(t)
ENVIRONMENTAL MATTERS
[to be completed by Company counsel]
<PAGE> 59
- 9 -
SCHEDULE 5(w)
USE OF PROCEEDS
The proceeds from the issuance of the Notes will be used to finance the
Acquisitions, to refinance existing debt, to pay fees and expenses incurred in
connection with the Acquisitions, to provide for working capital requirements
and for general corporate purposes.
The proceeds will be disbursed to the following Persons in the amounts set
forth opposite their respective names:
Disbursement List
-----------------
[Name of Person] $_____________
<PAGE> 60
- 10 -
SCHEDULE 5(x)
EMPLOYEE BENEFIT PLANS
<PAGE> 61
- 11 -
SCHEDULE 5(y)
INTELLECTUAL PROPERTY
[to be completed by Company counsel]
<PAGE> 62
- 12 -
SCHEDULE 5(z)
ABSENCE OF CERTAIN CHANGES OR EVENTS
[to be completed by Company counsel]
<PAGE> 63
- 13 -
SCHEDULE 8(i)
ADDRESSES FOR NOTICES
If to the Company, to:
Kendle International Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Telecopy No.: (513) 381-5870
Attention: Mr. Timothy M. Mooney, Chief Financial Officer
with a copy (which shall not
constitute notice) to:
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower, One East Fourth Street
Cincinnati, Ohio 45202
Telecopy No.: (513) 579-6457
Attention: William J. Keating, Esq.
If to the Purchaser, to:
NationsBanc Investment Corporation
NationsBank Corporate Center
100 North Tryon Street, 10th Floor
Charlotte, North Carolina 28255
Telecopy No.: (704) 386-6432
Attention: Mr. Walker L. Poole
with a copy (which shall not
constitute notice) to:
Fennebresque, Clark, Swindell & Hay
NationsBank Corporate Center
100 North Tryon Street, Suite 2900
Charlotte, North Carolina 28202
Telecopy No.: (704) 347-3838
Attention: Jeffrey S. Hay, Esq.
<PAGE> 64
- 14 -
EXHIBIT 2(a)
FORM OF SERIES A NOTE
[attached]
<PAGE> 65
- 1 -
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED UNLESS THE COMPANY HAS
RECEIVED A WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
KENDLE INTERNATIONAL INC.
12% SENIOR SUBORDINATED SERIES A PROMISSORY NOTE
DUE JUNE 26, 2002
$5,000,000 Charlotte, North Carolina
June 26, 1997
FOR VALUE RECEIVED, the undersigned, KENDLE INTERNATIONAL INC., an Ohio
corporation (the "COMPANY"), promises to pay to the order of NATIONSBANC
INVESTMENT CORPORATION, or its registered assigns (the "HOLDER"), the principal
sum of Five Million And No/100 Dollars ($5,000,000) on June 26, 2002, with
interest thereon from time to time as provided herein.
1 INVESTMENT AGREEMENT. This 12% Senior Subordinated Series A
Promissory Note (this "NOTE") is the Series A Note issued pursuant to the
Investment Agreement, dated as of the date hereof (as the same may be amended,
supplemented or otherwise modified from time to time, the "INVESTMENT
AGREEMENT"), between the Company and the purchaser named therein, and the Holder
is subject to the terms and entitled to the benefits of this Note and the
Investment Agreement and may enforce the agreements of the Company contained
herein and therein and exercise the remedies provided for hereby and thereby or
otherwise available in respect hereto and thereto. Capitalized terms used herein
without definition have the meanings assigned thereto in the Investment
Agreement.
2 INTEREST. Subject to the terms and conditions hereof, the Company
promises to pay interest on the principal amount of this Note at the rate of 12%
per annum, payable quarterly on the last day of each September, December, March,
and June of each year (each date upon which interest shall be so payable, an
"INTEREST PAYMENT DATE"), beginning on September 30, 1997. Interest on this Note
shall accrue from the date of issuance until repayment of the principal and
payment of all accrued interest and premium in full, shall be computed on the
basis of a 365-day and shall be paid by wire transfer of immediately available
funds to an account designated by the Holder. Notwithstanding the foregoing
provisions of this Section 24, but subject to applicable law, upon the
occurrence and during the continuance of an Event of Default, the principal of
and overdue interest
<PAGE> 66
- 2 -
on this Note shall bear interest, from the date of the occurrence of such Event
of Default until such Event of Default is cured or waived, payable on demand in
immediately available funds, at the rate of 14% per annum.
3 OPTIONAL PREPAYMENT.
(a) Upon notice given to the Holder as provided in Section
3(b)2, the Company, at its option, may at any time prepay all or any
portion of this Note, PRO RATA with the prepayment of all other Notes
issued pursuant to the Investment Agreement, by paying an amount equal
to the outstanding principal amount of this Note, or the portion of
this Note called for prepayment, together with interest accrued and
unpaid thereon to the date fixed for prepayment, and all other amounts
due under this Note and the Investment Agreement.
(b) The Company shall give written notice of prepayment of
this Note or any portion thereof pursuant to Section 3(a)2 not less
than 10 nor more than 60 days prior to the date fixed for such
prepayment. Upon the giving of notice of prepayment by the Company, the
Company covenants and agrees that it will prepay, on the date therein
fixed for prepayment, this Note or the portion hereof so called for
prepayment, by paying an amount equal to the outstanding principal
amount hereof or the portion hereof so called for prepayment together
with interest accrued and unpaid thereon to the date fixed for such
prepayment, and all other amounts due under this Note and the
Investment Agreement.
(c) In the event the Holder gives notice to the Company
pursuant to Section 8(f)42 of the Investment Agreement of its intent to
transfer this Note (the "TRANSFER NOTICE"), the Company may, upon
notice given to the Holder within 10 days following the sending by the
Holder of the Transfer Notice, prepay this Note in whole (or, if this
Note is being transferred in part, in part). Upon the giving of notice
of prepayment by the Company as provided in this Section 3(c)2, the
Company covenants and agrees that it will prepay, no later than the
20th day following the giving of such notice of prepayment, this Note
(or the portion hereof being transferred by the Holder), by paying an
amount equal to the outstanding principal amount of this Note (or the
portion hereof being so transferred), together with interest accrued
and unpaid thereon to the date of prepayment and all other amounts due
under this Note and the Investment Agreement.
(d) All optional prepayments under Section 32 of this Note
shall be applied first to all costs, expenses, indemnities and other
amounts payable hereunder and under the Investment Agreement, then to
payment of default interest, if any, then to payment of premium, if
any, then to payment of accrued interest and thereafter to payment of
principal in the inverse order of the scheduled maturities thereof.
2
<PAGE> 67
- 3 -
4 MANDATORY PREPAYMENTS.
(a) If, at any time while this Note is outstanding, any of the
following events occurs (each such event, a "MANDATORY PREPAYMENT
EVENT"), then, at the option of the Holder, the Company shall make a
mandatory prepayment of this Note in whole or in part at the time of
such Mandatory Prepayment Event:
(i) the consummation of any Organic Change; or
(ii) the occurrence of (A) an Event of Default under
the Credit Agreement or the occurrence of an event of default
under any credit facility replacing in whole or in part the
Credit Agreement and (B) the expiration of 15 days after such
Event of Default or event of default; or
(iii) the consummation of a public offering of equity
or debt securities by the Company which is not a Qualified
Initial Public Offering.
(b) The Company shall give written notice of each of the
transactions described in Section 4(a)3 not less than 10 nor more than
60 days prior to the proposed closing date thereof describing in
reasonable detail such transaction and the proposed closing date. Upon
receipt of such notice, the Holder shall have a period of ten days in
which to notify the Company of the principal amount of this Note or
portion thereof to be prepaid. Upon receipt of such notice from the
Holder, the Company covenants and agrees it will prepay, on the closing
date of such transaction, this Note or the portion thereof subject to
prepayment by paying an amount equal to the outstanding principal
amount hereof or the portion hereof subject to prepayment together with
interest accrued and unpaid thereon. Each such payment shall be applied
as provided in Section 3(d)2 hereof.
5 DEFAULTS AND REMEDIES.
(a) EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall occur
hereunder if:
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due
and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note, when and as the same
shall become due and payable, and such default shall continue
for a period of three business days; or
(iii) the Company shall default in the due observance
or performance of any covenant, condition or agreement on the
part of the Company to be observed
3
<PAGE> 68
- 4 -
or performed pursuant to Section 7 of the Investment
Agreement, and such default shall continue for a period of
five business days; or
(iv) the Company shall default in the due observance
or performance of any covenant, condition or agreement on the
part of the Company to be observed or performed pursuant to
the terms hereof or pursuant to the terms of the Investment
Agreement (other than those referred to in clauses (i), (ii)
or (iii) of this Section 5(a)3), and such default is not
remedied or waived within 30 days after receipt by the Company
of notice from the Holder of such default; or
(v) any representation, warranty, certification or
statement made by or on behalf of the Company in the
Investment Agreement, the Notes, or in any certificate or
other document delivered pursuant hereto or thereto shall have
been incorrect in any material respect when made; or
(vi) the Company shall default (as principal or
guarantor) in the payment of any Indebtedness (other than the
Note) in an amount, individually or in the aggregate, in
excess of $500,000 when and as the same shall become due and
payable whether at stated or scheduled maturity, by
acceleration or otherwise, or the Company shall default in the
performance or observance of any covenant, condition or
agreement contained in any such Indebtedness, if, in each
case, the effect of such failure to pay or perform or observe
is to cause or permit the holder or holders thereof to cause
such Indebtedness to become or be declared due prior to its
stated maturity, whether or not such default is waived by such
holder or holders; or
(vii) an involuntary proceeding shall be commenced or
an involuntary petition shall be filed in a court of competent
jurisdiction seeking (A) relief in respect of the Company or
of a substantial part of its property or assets, under Title
11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (B) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or a
similar official for the Company or for a substantial part of
its property or assets, or (C) the winding up or liquidation
of the Company; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or
ordering any of the foregoing shall be entered; or
(viii) the Company shall (A) voluntarily commence any
proceeding or file any petition seeking relief under Title 11
of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (B) consent to the
institution of, or fail to contest in a timely and appropriate
manner, any proceeding for the filing of any petition
described in paragraph (vii) of this Section 5(a)3, (C) apply
for or consent
4
<PAGE> 69
- 5 -
to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company,
or for a substantial part of its property or assets, (D) file
an answer admitting the material allegations of a petition
filed against it in any such proceeding, (E) make a general
assignment for the benefit of creditors, (F) become unable,
admit in writing its inability or fail generally to pay its
debts as they become due or (G) take any action for the
purpose of effecting any of the foregoing; or
(ix) one or more judgments for the payment of money
in an aggregate amount in excess of $500,000 (to the extent
not covered by insurance) shall be rendered against the
Company and the same shall remain undischarged for a period of
45 days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of the Company to
enforce any such judgment; or
(x) any ERISA Event shall have occurred with respect
to a Plan of the Company and the sum (determined as of the
date of occurrence of such ERISA Event) of the amount of its
unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA (the "INSUFFICIENCY") of such Plan, and
the Insufficiency of any and all other Plans of the Company
with respect to which an ERISA Event shall have occurred and
then exist (or the liability of the Company and its ERISA
Affiliates related to such ERISA Event) exceeds $500,000; or
(xi) an Organic Change occurs.
(b) ACCELERATION. If an Event of Default occurs under Section
5(a)(vii)4 or (viii)4, then the outstanding principal of and interest
and premium on this Note shall automatically become immediately due and
payable, without presentment, demand, protest or notice of any kind,
all of which are expressly waived. If any other Event of Default occurs
and is continuing, the Holder by written notice to the Company, may
(subject to Section 65 hereof) declare the principal of and interest
and premium on this Note to be due and payable immediately. Upon any
such declaration of acceleration, such principal, interest and premium
shall become immediately due and payable and, subject to Section 65
hereof, the Holder shall be entitled to exercise all of its rights and
remedies hereunder and under the Investment Agreement whether at law or
in equity.
6 SUBORDINATION. The Company, for itself and its successors and
assigns, covenants and agrees, and each Holder of this Note, by its acceptance
hereof, shall be deemed to have agreed, that the payment from whatever source of
the indebtedness of the Company evidenced by this Note, including the principal
hereof and interest and premium hereon, shall be subordinate and junior in right
of payment to the prior payment in full of all Indebtedness under the Credit
Agreement to the Lenders of the Company as more particularly described in the
Subordination and Intercreditor
5
<PAGE> 70
- 6 -
Agreement, dated the date hereof and as amended, supplemented or otherwise
modified from time to time, among the Company, NationsBanc Investment
Corporation, as the original Holder of the Notes, and the Lenders and
NationsBank, N.A., as Agent for the Lenders.
7 SUITS FOR ENFORCEMENT. Subject to Section 65, upon the occurrence of
any one or more Events of Default, the Holder may proceed to protect and enforce
its rights and remedies hereunder by suit in equity, action at law or by other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in the Investment Agreement or this Note or in aid of the
exercise of any power granted in the Investment Agreement or this Note, or may
proceed to enforce the payment of the Notes, or to enforce any other legal or
equitable right of the holders of the Notes.
8 REMEDIES CUMULATIVE. No remedy herein conferred upon the Holder is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. To the extent permitted by applicable law, the Company and the Holder
waive presentment for payment, demand, protest and notice of dishonor.
9 HOLDER; TRANSFER.
(a) The term "HOLDER" as used herein shall also include any
transferee of this Note whose name has been recorded by the Company in
the register referred to in Section 9(b)6. Each transferee of this Note
acknowledges that this Note has not been registered under the
Securities Act, and may be transferred only upon receipt by the Company
of an opinion of counsel, which opinion shall be satisfactory in form
and substance to the Company, stating that this Note may be transferred
without registration under the Securities Act in reliance on an
exemption therefrom.
(b) The Company shall maintain a register in its office for
the purpose of registering the Notes and any transfer thereof, which
register shall reflect and identify, at all times, the ownership of any
interest in the Notes. Upon the issuance of this Note, the Company
shall record the name of the initial purchaser of this Note in such
register as the first Holder. Thereafter, the Company shall duly record
the name of a transferee on such register promptly after receipt of the
opinion referred to in Section 9(a)6 above.
10 PAYMENTS. All payments and prepayments of principal of and interest
and premium on this Note shall be made in lawful money of the United States of
America.
11 COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements contained in this Note by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
6
<PAGE> 71
- 7 -
12 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of North Carolina.
13 VARIATION IN PRONOUNS. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
14 HEADINGS. The headings in this Note are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
7
<PAGE> 72
- 8 -
IN WITNESS WHEREOF, this Note has been executed by the Company by its
duly authorized officer as of the day and year first above written.
KENDLE INTERNATIONAL INC.
By:/S/ ANTHONY L. FORCELLINI
----------------------------
Anthony L. Forcellini
Director, Mergers and Acquisitions and
Assistant Secretary
8
<PAGE> 73
- 1 -
EXHIBIT 2(b)
FORM OF SERIES B NOTE
[attached]
<PAGE> 74
- 2 -
EXHIBIT 2(c)
FORM OF SERIES A WARRANT
[attached]
<PAGE> 75
- 1 -
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
TRANSFERRED UNLESS THE COMPANY HAS RECEIVED A WRITTEN OPINION FROM COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSFER IS
BEING MADE IN COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO
TRANSFER RESTRICTIONS, OBLIGATIONS AND OTHER CONDITIONS SPECIFIED IN THE AMENDED
AND RESTATED SHAREHOLDER AGREEMENT DATED AS OF JUNE 26, 1997, AS AMENDED FROM
TIME TO TIME, AMONG THE COMPANY AND ITS SECURITYHOLDERS.
NO. W-1
COMMON STOCK PURCHASE WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
KENDLE INTERNATIONAL INC.
THIS CERTIFIES that, for value received, NATIONSBANC INVESTMENT
CORPORATION, a Delaware corporation ("NATIONSBANC"), or registered permitted
assigns, is the owner of 4212 Warrants (subject to adjustment in accordance with
the provisions hereof), each of such Warrants entitling such Holder to subscribe
for and purchase from KENDLE INTERNATIONAL INC., an Ohio corporation (the
"COMPANY"), at the price of $0.01 per share (the "EXERCISE PRICE"), at any time
commencing on an Exercise Event (as defined below) until 5:00 p.m., Charlotte,
North Carolina, time, on June 26, 2007 (the "EXERCISE PERIOD"), one fully paid
and nonassessable share of the Company's Common Stock, no par value per share
(the "COMMON STOCK") (subject to adjustment as noted below) (the "EXERCISE
RATE"). This Common Stock Purchase Warrant shall be referred to herein as the
"COMMON STOCK PURCHASE WARRANT," and the Warrants represented by this Common
Stock Purchase Warrant shall be referred to herein as "WARRANTS."
This Common Stock Purchase Warrant is subject to the following
provisions, terms and conditions:
1 DEFINITIONS. Unless otherwise defined herein, capitalized terms used
herein shall have the meaning given such terms below. Capitalized terms used
herein and not defined shall have the meanings set forth in the Investment
Agreement (as defined below) between the Company and NationsBanc.
<PAGE> 76
- 2 -
"ADDITIONAL SHARES OF COMMON STOCK" shall mean the following
but shall not include the Excluded Shares: (i) all Common Stock of the
Company, (ii) any additional class of stock having the right to
dividends or distributions on liquidation (other than preferred stock
the redemption right of which is limited to the repayment of the
purchase price therefor and reasonable dividends thereon), which may be
authorized in the future by amendment to the Company's certificate of
incorporation, (iii) any debt or equity security which has or may be
issued in lieu of or in substitution or exchange for any of the
foregoing or which has or may be issued upon the exercise, exchange or
conversion of any of the foregoing by its terms, and (iv) any debt or
equity security which has or may be issued by a third party in lieu of
or in substitution for any of the foregoing as a result of any merger
of the Company into such third party.
"APPRAISED MARKET VALUE" shall mean the market value of the
Common Stock as agreed by the Company and the Holder hereof, or if the
Company and the Holder cannot agree, as determined by a valuation by an
investment banking company suitable to the Company and the Holder. In
the event the parties cannot agree on an investment banking company to
perform the valuation described above, the Company and the Holder shall
each select an investment banking company and the two investment
banking companies so selected shall select a third investment banking
company which shall determine the market value. In determining the
Appraised Market Value of the Common Stock, no discount shall be
applied because the shares of Common Stock held by the Holders (i) have
not been registered under the 1933 Act, or (ii) represent a minority
interest in the Company. The fees and expenses of the investment
banking companies shall be borne by the Company.
"BOOK VALUE" shall mean the net book value of the Common Stock
as set forth in the Company's most recent audited Financial Statements
for the preceding fiscal year.
"COMMISSION" shall mean the Securities and Exchange
Commission.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration, for
Additional Shares of Common Stock.
"CREDIT AGREEMENT" shall have the meaning set forth in the
Investment Agreement.
"EXCLUDED SHARES" shall mean shares of Common Stock (i) issued
upon exercise of the Warrants issued to the Purchaser and represented
by this Common Stock Purchase Warrant or (ii) issued in accordance with
Section 7(g)(viii)(B) of the Investment Agreement.
"EXERCISE EVENT" shall mean the period commencing on the
earliest to occur of the following events: (i) the termination or
cessation of the Company's S corporation status under the Code; (ii) an
Organic Change; (iii) the occurrence of (A) an Event of Default under
the Credit Agreement (or any event of default under any credit facility
replacing in whole or in part the Credit Agreement) that remains
uncured and unwaived for a period of 15 days
2
<PAGE> 77
- 3 -
following such Event of Default or event of default or (B) an Event of
Default under the Notes; (iv) the acceleration of the maturity of
Indebtedness under (A) the Credit Agreement (or any credit facility
replacing in whole or in part the Credit Agreement) or (B) the Notes;
(v) the Company shall default in the due observance or performance of
any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to Section 7 of the Investment
Agreement, and such default shall continue for a period of five
business days; (vi) a Change of Control; or (vii) the consummation of
an initial public offering pursuant to an effective registration
statement under the Securities Act covering the sale of equity or debt
securities.
"HOLDER" shall mean NationsBanc and any registered permitted
assignee hereof.
"INVESTMENT AGREEMENT" shall mean that certain Investment
Agreement by and among the Company and NationsBanc dated as of June 26,
1997.
"MARKET PRICE" of a share of Common Stock on any day shall
mean the average closing price of a share of Common Stock for the 30
consecutive trading days preceding such day on the principal national
securities exchange or NASDAQ National Market System on which the
shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the
average of the reported closing bid and asked prices during such 30
trading day period in the over-the-counter market as furnished by the
National Quotation Bureau, Inc., or, if the shares of Common Stock are
not publicly traded, the Appraised Market Value; PROVIDED, HOWEVER,
that the "Market Price" for a share of Common Stock sold pursuant to a
public offering by the Company shall be deemed to be the price received
by the Company for such share; and PROVIDED FURTHER that in no event
shall "Market Price" be deemed to be less than 237.42 per share
(subject to proportional adjustment upon the occurrence of any event
specified in subparagraph 2(b)(i) or 2(b)(ii)).
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"NOTES" shall have the meaning set forth in the Investment
Agreement.
"NOTICE OF EXERCISE" shall mean a notice which states (i) the
number of Warrants a Holder intends to exercise, (ii) the persons (who
must be permitted assigns) (the "RECIPIENTS") who shall receive the
shares of stock represented by the Warrants to be exercised, (iii) the
addresses of Recipients, and (iv) the number of certificates to be
issued to represent the shares of stock issued as a result of the
exercise of Warrants.
"PUT" shall have the meaning set forth in paragraph 3(a).
"PUT NOTICE" shall have the meaning set forth in paragraph 3
(a).
3
<PAGE> 78
- 4 -
"PUT PERIOD" shall mean the period commencing on the earliest
to occur of the following events and continuing until the Company
consummates a Qualified Initial Public Offering: (i) June 26, 2002;
(ii) an Organic Change; (iii) the occurrence of an event of default
under (A) the Credit Agreement (or any credit facility replacing in
whole or in part the Credit Agreement) or (B) the Notes that remains
uncured and unwaived for a period of 45 days immediately following such
event of default; (iv) acceleration of the maturity of indebtedness
under (A) the Credit Agreement (or any credit facility replacing in
whole or in part the Credit Agreement) or (B) the Notes; or (v) the
consummation of an initial public offering pursuant to an effective
Registration Statement under the Securities Act covering the sale of
equity or debt securities made by the Company which is not a Qualified
Initial Public Offering.
"PUT PRICE" shall mean a price equal to (i) a fraction, the
numerator of which shall be the number of shares of Common Stock
(whether issued or issuable upon exercise of this Common Stock Purchase
Warrant) being put to the Company and the denominator of which shall be
the number of shares of Common Stock outstanding (including Excluded
Shares), whether issued or issuable upon conversion or exercise of any
outstanding convertible securities, warrants, options or other rights,
MULTIPLIED by (ii) the highest of (A) the Put Value, (B) the Appraised
Market Value and (C) the Book Value.
"PUT VALUE" shall be equal to (i) eight MULTIPLIED by the sum
of (A) the consolidated net earnings before interest and taxes ("EBIT")
for the Company and its Subsidiaries during the 12-month period ended
immediately prior to the date the Put Notice is given, and (B) all
non-cash charges to such EBIT for such 12-month period, including
depreciation and amortization, PLUS (ii) cash and cash equivalents
MINUS (iii) funded debt as of the end of such 12-month period.
"QUALIFIED INITIAL PUBLIC OFFERING" means an initial
registered public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of
common stock of the Company to the public of no more than 50% of the
common stock of the Company and which has been underwritten by a
nationally recognized investment banking firm or firms at a price per
share greater than or equal to $7.50 that generates gross proceeds to
the Company of at least $25,000,000 and pays all principal, interest
and premium under the outstanding Notes.
2 EXERCISE OF WARRANTS.
(a) The Warrants represented by this Common Stock Purchase
Warrant may be exercised by the Holder hereof, in whole or in part from
time to time, by the surrender of this Common Stock Purchase Warrant
at, and delivery of a Notice of Exercise to, the offices of the Company
at the address set forth in paragraph 8 hereof, or such other office
or agency of the Company in the United States as the Company may
designate by notice in writing to the Holder hereof at any time during
the Exercise Period, accompanied by payment to the Company of the
Exercise Price for the number of shares for which Warrants are then
being
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- 5 -
exercised. The Exercise Price shall be payable, at the option of the
Holder, (i) by certified or bank check, (ii) by the surrender of Notes
or portion thereof having an outstanding principal balance equal to the
Exercise Price or (iii) by the surrender of Warrants having a Market
Price equal to the Exercise Price. The Company agrees that the shares
so purchased shall be deemed to be issued to the Holder hereof, or the
Recipients, as the record owner of such shares as of the close of
business on the date on which this Common Stock Purchase Warrant shall
have been surrendered and payment made for such shares. Duly executed
certificates for the shares of stock so purchased shall be delivered to
the Holder hereof, or the Recipients, within five business days after
the Warrants shall have been so exercised, and, unless this Common
Stock Purchase Warrant has expired or been exercised in full, a
notation on this Common Stock Purchase Warrant stating the number of
shares, if any, with respect to which this Common Stock Purchase
Warrant shall not then have been exercised shall be made by the Company
and this Common Stock Purchase Warrant shall then be returned to the
Holder hereof within such time. The issuance of certificates for shares
of Common Stock upon the exercise of this Common Stock Purchase Warrant
shall be made without charge to the Holder of this Common Stock
Purchase Warrant for any cost or expense (including any original issue
or transfer tax) in respect of the issuance of such certificates or
shares and any such cost or expense shall be paid by the Company.
(b) The Exercise Price and Exercise Rate shall be subject to
the following adjustments:
(i) If, at any time during the Exercise Period, the
Company shall declare and pay on Common Stock a dividend or
other distribution payable in shares of Common Stock, the
Exercise Rate in effect at the time of taking of a record for
such dividend shall be proportionately increased so that the
Holder of Warrants thereafter surrendered for exercise shall
be entitled to receive the number of shares of Common Stock
which such Holder would have owned or been entitled to receive
after the declaration and payment of such dividend or other
distribution if the Warrants had been exercised immediately
prior to the record date for the determination of stockholders
entitled to receive such dividend or other distribution, and
the Exercise Price shall be proportionately decreased so that
the aggregate Exercise Price payable upon exercise in full of
the Warrants shall remain the same.
(ii) If the Company shall subdivide the outstanding
shares of Common Stock into a greater number of shares, or
combine the outstanding shares of Common Stock into a lesser
number of shares, or issue by reclassification of its shares
of Common Stock any shares of the Company's capital stock, the
Exercise Rate in effect immediately prior thereto shall be
proportionately adjusted so that the Holder of the Warrants
thereafter surrendered for exercise shall be entitled to
receive the number of shares of Common Stock or such other
shares which such Holder would have owned or been entitled to
receive after the happening of any of the events described
above if the Warrants had been exercised immediately prior to
the happening of such event on the day upon which such
subdivision, combination or
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reclassification, as the case may be, becomes effective, and
the Exercise Price shall be proportionately adjusted so that
the aggregate Exercise Price payable upon exercise in full of
the Warrants represented by this Common Stock Purchase Warrant
shall remain the same.
(iii) If the Company shall issue (other than as
provided in subparagraph 2(b)(i) or 2(b)(ii) and other than
Excluded Shares) or sell any Additional Shares of Common Stock
for a consideration per share less than the Market Price, then
at the time of such issuance or sale the Exercise Rate shall
be adjusted to the number determined by multiplying the
Exercise Rate in effect immediately prior to such issuance or
sale by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding (including Excluded
Shares), whether issued or issuable upon conversion or
exercise, immediately prior to the issuance or sale of such
Additional Shares of Common Stock plus the number of such
Additional Shares of Common Stock so issued or sold, and the
denominator of which shall be the number of shares of Common
Stock outstanding (including Excluded Shares), whether issued
or issuable upon conversion or exercise, immediately prior to
the issuance or sale of such Additional Shares of Common Stock
plus the number of shares of Common Stock which the aggregate
consideration for such Additional Shares of Common Stock so
issued or sold would purchase at a consideration per share
equal to the Market Price. The Exercise Price shall be
appropriately adjusted by multiplying the Exercise Price at
the close of business on the date of such issuance or sale by
the reciprocal of the fraction described above.
(iv) If the Company shall issue (other than as
provided in subparagraph 2(b)(i) or 2(b)(ii) and other than
Excluded Shares) or sell any warrants, options or other rights
entitling the holders thereof to subscribe for or purchase
either Additional Shares of Common Stock or Convertible
Securities, and the consideration per share for which
Additional Shares of Common Stock may at any time thereafter
be issuable pursuant to such warrants, options or other rights
or such Convertible Securities (when added to the
consideration per share of Common Stock, if any, received for
such warrants, options or other rights), shall be less than
the Market Price, then the Exercise Rate shall be adjusted to
the number determined by multiplying the Exercise Rate in
effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding (including Excluded Shares),
whether issued or issuable upon conversion or exercise,
immediately prior to the issuance or sale of such warrants,
options or other rights plus the number of additional
shares of Common Stock issuable upon the exercise of such
warrants, options or other rights, and of which the
denominator shall be the number of shares of Common Stock
outstanding (including Excluded Shares), whether issued or
issuable upon conversion or exercise, immediately prior to the
issuance or sale of such warrants, options or other rights
plus the number of shares which the aggregate offering price
of the total number of Additional Shares of Common Stock so
offered (when added to the consideration per share of Common
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- 7 -
Stock, if any, received for such warrants, options or other
rights) would purchase at the Market Price. The Exercise Price
shall be appropriately adjusted by multiplying the Exercise
Price at the close of business on the date of such issuance or
sale by the reciprocal of the fraction described above.
(v) If the Company shall issue (other than as
provided in subparagraph 2(b)(i) or 2(b)(ii) and other than
Excluded Shares) or sell Convertible Securities and the
consideration per share for which Additional Shares of Common
Stock may at any time thereafter be issuable pursuant to the
terms of such Convertible Securities shall be less than the
Market Price, then the Exercise Rate shall be adjusted to the
number determined by multiplying the Exercise Rate in effect
immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the number of shares of Common
Stock outstanding (including Excluded Shares), whether issued
or issuable upon conversion or exercise, immediately prior to
the issuance or sale of such Convertible Securities plus the
number of Additional Shares of Common Stock issuable upon the
exercise of such Convertible Securities, and of which the
denominator shall be the number of shares of Common Stock
outstanding (including Excluded Shares), whether issued or
issuable upon conversion or exercise, immediately prior to the
issuance or sale of such Convertible Securities plus the
number of shares which the aggregate conversion or exercise
price of the total number of Additional Shares of Common Stock
so offered would purchase at the Market Price. The Exercise
Price shall be appropriately adjusted by multiplying the
Exercise Price at the close of business on the date of such
issuance or sale by the reciprocal of the fraction described
above. No adjustment of the Exercise Rate shall be made under
this subparagraph 2(b)(v) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any
warrants, options or other rights, if such adjustment shall
previously have been made upon the issuance of such warrants,
options or other rights pursuant to subparagraph 2(b)(iv).
(vi) For the purposes of subparagraphs 2(b)(iii),
2(b)(iv) and 2(b)(v), the date as of which the Market Price
shall be computed shall be the earlier of (x) the date on
which the Company shall enter into a firm contract for the
issuance of such Additional Shares of Common Stock, warrants,
options or other rights or Convertible Securities, and (y) the
date of the actual issuance of such Additional Shares of
Common Stock, warrants, options or other rights or Convertible
Securities.
(vii) No adjustment of the Exercise Rate shall be
made under subparagraph 2(b)(iii) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other rights or
pursuant to the conversion of Convertible Securities, if such
adjustment shall previously have been made upon the issuance
of such warrants, options or other rights or Convertible
Securities, pursuant to subparagraphs 2(b)(iv) or 2(b)(v).
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(viii) If any warrants, options or other rights (or
any portion thereof) which shall have given rise to an
adjustment pursuant to subparagraph 2(b)(iv) or conversion or
exchange rights pursuant to Convertible Securities which shall
have given rise to an adjustment pursuant to subparagraph
2(b)(v) shall have expired or terminated without the exercise
thereof, or if by reason of the terms of such warrants,
options or other rights or Convertible Securities there shall
have been an increase or increases, with the passage of time
or otherwise, in the exercise or conversion price thereof,
then the Exercise Rate hereunder shall be readjusted (but to
no greater extent than originally adjusted) on the basis of
(x) eliminating from the computation of any Additional Shares
of Common Stock shares of Common Stock attributable to such
warrants, options or other rights or conversion or exchange
rights as shall have expired or terminated, and (y) treating
the Additional Shares of Common Stock, if any, actually issued
pursuant to the previous exercise of such warrants, options or
other rights or conversion or exchange rights pursuant to any
Convertible Securities as having been issued for the
consideration actually received and receivable therefor. In
the event of any such readjustment, an appropriate adjustment
shall be made to the Exercise Price.
(ix) A. In any such case covered by this paragraph
2(b), in determining the amount of consideration
received by the Company as a result of the issuance
of Additional Shares of Common Stock, Convertible
Securities or warrants, options or other rights to
purchase any such Additional Shares of Common Stock,
if the consideration is in whole or in part
consideration other than cash, the amount of the
consideration shall be deemed to be the fair value of
such consideration as reasonably determined by the
Board of Directors of the Company. If Additional
Shares of Common Stock shall be issued as part of a
unit with warrants, options or other rights, then the
amount of consideration for the warrants, options or
other rights shall be deemed to be the amount
reasonably determined by the Board of Directors of
the Company.
B. In case any Additional Shares of Common
Stock, Convertible Securities or any options,
warrants or other rights to purchase such Additional
Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger or
consolidation in which the Company is the surviving
corporation, the amount of consideration
therefor shall be deemed to be the fair value, as
reasonably determined by the Board of Directors of
the Company, of such portion of the assets and
business of the nonsurviving corporation or
corporations as the Board shall determine to be
attributable to such Additional Shares of Common
Stock, Convertible Securities or warrants, options or
other rights to purchase such Additional Shares of
Common Stock or Convertible Securities.
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(x) In case the Company shall effect a
reorganization, shall merge with or consolidate into another
corporation, or shall sell, transfer or otherwise dispose of
all or substantially all its property, assets or business and,
pursuant to the terms of such reorganization, merger,
consolidation or disposition of assets, shares of stock or
other securities, property or assets of the Company, successor
or transferee or other third party or cash are to be received
by or distributed to the holders of Common Stock, then the
Holder of this Common Stock Purchase Warrant shall have the
right thereafter to receive, upon subsequent exercise of the
Warrants represented by this Common Stock Purchase Warrant,
the number of shares of stock or other securities, property or
assets of the Company, successor or transferee or other third
party thereof or cash receivable upon or as a result of such
reorganization, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock equal to
the number of shares of Common Stock issuable to the Holder of
this Common Stock Purchase Warrant, if the Warrants
represented by this Common Stock Purchase Warrant had been
exercised immediately prior to such event. The provisions of
this subparagraph 2(b)(x) shall similarly apply to successive
reorganizations, mergers, consolidations or dispositions of
assets.
(xi) If a purchase, tender or exchange offer is made
to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, the Company shall not
effect any consolidation, merger or sale with the person
having made such offer or with any affiliate of such person,
unless prior to the consummation thereof the Holder of this
Common Stock Purchase Warrant shall have been given a
reasonable opportunity to elect to receive, upon exercise or
exchange of the Warrants represented by this Common Stock
Purchase Warrant, either the stock, securities, cash or assets
then issuable with respect to the Common Stock or the stock,
securities, cash or assets issued to previous holders of the
Common Stock in accordance with such offer, or the equivalent
thereof.
(xii) If a state of facts shall occur which, without
being specifically controlled by the provisions of this
paragraph 2(b), would not fairly protect the exercise rights
of the Holder of this Common Stock Purchase Warrant in
accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Company shall
make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to
protect such exercise rights.
(xiii) Whenever the Exercise Rate and Exercise Price
shall be adjusted pursuant to this paragraph 2(b), the Company
shall deliver to the Holder of this Common Stock Purchase
Warrant a written notice setting forth in reasonable detail
the event requiring the adjustment and the method by which
such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company
determined the fair value of any consideration other than cash
pursuant to subparagraph 2(b)(ix)) and specifying the new
Exercise Rate and Exercise Price.
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All calculations under this paragraph 2(b) shall be made to
the nearest one-one hundredth of a share. In the case referred
to in subparagraph 2(b)(x), such notice shall be issued
describing the amount and kind of stock, securities, property
or assets or cash which shall be receivable upon exercise of
this Common Stock Purchase Warrant after giving effect to the
provisions of such subparagraph 2(b)(x).
(xiv) The Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized
but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrants represented by this
Common Stock Purchase Warrant, the full number of shares of
Common Stock then deliverable upon the exercise of the
Warrants, and each holder thereof agrees to vote any of its
shares of Common Stock that it may own from time to time in
order to enable the Company to do so. The Company shall take
at all times such corporate action as shall be necessary in
order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the
exercise of the Warrants in accordance with the provisions
hereof, free from all taxes, liens, charges and security
interests with respect to the issue thereof. The Company
represents to the Holder of this Common Stock Purchase Warrant
that the shares of Common Stock issuable upon the exercise of
the Warrants will, when issued, be duly authorized, validly
issued, fully paid and nonassessable. The Company will, at its
expense, use its best efforts to cause such shares to be
listed (subject to issuance or notice of issuance) on all
stock exchanges, if any, on which the Company's Common Stock
may become listed.
(xv) No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issued
upon any exercise of this Common Stock Purchase Warrant, but,
in lieu thereof, there shall be paid an amount in cash equal
to the same fraction of the Market Price of a whole share of
Common Stock on the business day preceding the day of
exercise.
3 ADJUSTMENT TO NUMBER OF WARRANTS.
(a) In the event that the Company does not consummate a
Qualified Initial Public Offering on or before December 1, 1997, then
the number of shares issuable upon exercise of the Warrants shall be
automatically increased, without action by the Company or the Holder,
to an amount equal to the number of shares of Common Stock representing
5% of the issued and outstanding shares of Common Stock, determined on
a fully diluted basis (assuming (i) exercise of this Warrant and (ii)
exercise of all options which have vested and are exercisable), on
December 1, 1997, subject to adjustment as provided herein.
(b) In the event that the Company does not consummate a
Qualified Initial Public Offering on or before March 1, 1998, then the
number of shares issuable upon exercise of the Warrants shall be
automatically increased, without action by the Company or the Holder,
to an amount equal to the number of shares of Common Stock representing
6% of the issued
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and outstanding shares of Common Stock, determined on a fully diluted
basis (assuming (i) exercise of this Warrant and (ii) exercise of all
options which have vested and are exercisable), on March 1, 1998,
subject to adjustment as provided herein.
4 PUT OPTION.
(a) Subject to the provisions of paragraph 4(b) below, at any
time during the Put Period, on at least 60 days' written notice to the
Company (the "PUT NOTICE"), the Holder of this Common Stock Purchase
Warrant or the Common Stock issued pursuant to the exercise of the
Warrants shall have the option of requiring the Company (i) to purchase
all or a portion of the Common Stock issued pursuant to the Warrants,
at a price determined as of the date upon which the Put Notice is given
to the Company equal to the Put Price, or (ii) in the event this Common
Stock Purchase Warrant has not been exercised in full, to purchase all
or a portion of the Common Stock Purchase Warrant, at a price equal to
the Put Price determined as of the date upon which the Put Notice is
given to the Company for all shares of Common Stock that are then
issuable upon exercise of the Common Stock Purchase Warrant MINUS the
Exercise Price per share therefor (any such purchase pursuant to this
paragraph 4(a) being a "PUT").
(b) The Company shall not be required to purchase shares of
Common Stock or Common Stock Purchase Warrants pursuant to any exercise
of the rights set forth in paragraph 4(a) above to the extent that the
Company (or any successor) is unable to purchase such securities from
an available source of funds from which it can legally (including
without limitation, pursuant to the general corporation law of the
State of Ohio) pay such Put Price; PROVIDED, HOWEVER, that the Company
(or any successor) shall use all legally permissible methods in
obtaining such legal source of funds, including, without limitation,
the reduction of capital and the revaluation of its assets, including
by appraisal. In such event, the Company shall pay the Put Price to the
extent that it is able to do so in compliance with the terms of this
paragraph 4(b) in cash in immediately available funds with the balance,
if any, to be paid by the delivery to the Holder or Holders hereof of a
Promissory Note of the Company dated the date of the applicable Put
closing, having a term of one year from the date thereof, providing for
a single payment of principal at the end of its term and bearing
interest at a rate per annum (computed for the actual number of days
elapsed on the base of a 360-day year) equal to 15%. The Promissory
Note shall provide for quarterly interest payments and for prepayment
at any time without premium or penalty. In the event the Company is
unable to purchase the securities in compliance with the terms hereof,
the Company shall purchase such securities to the extent that it is
able to do so in compliance with the terms of this paragraph 3(b) on
each three month anniversary of the Put closing.
5 DIVIDENDS AND DISTRIBUTIONS. For so long as any part of this Common
Stock Purchase Warrant remains outstanding and unexercised, the Company will,
upon the declaration of a cash dividend upon its Common Stock or other
distribution to the holders of its Common Stock (except distributions pursuant
to subparagraph 2(b)(x) hereof) and at least 30 days prior to the record date,
notify the Holder hereof of such declaration, which notice will contain, at a
minimum, the
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following information: (a) the date of the declaration of the dividend or
distribution, (b) the amount of such dividend or distribution, (c) the record
date of such dividend or distribution, (d) the payment date or distribution date
of such dividend or distribution, and (e) the Company's best estimate of the
frequency and amount of cash dividends or other distributions to be paid or made
in each of the succeeding three years. In the event dividends are paid by the
Company on any share of Common Stock in cash or cash equivalents after December
31, 1997, a dividend shall be paid by the Company with respect to all Warrants
in an amount equal per share in cash or cash equivalents (on an as-if-exercised
to Common Stock basis) to the amount paid or set aside in cash or cash
equivalents for each share of Common Stock. The provisions of this subparagraph
2(b)(vi) shall not, however, apply to dividends made in accordance with Section
7(g)(vi) of the Investment Agreement.
6 TRANSFER OF WARRANTS. This Common Stock Purchase Warrant and all
rights hereunder are transferable to permitted assigns pursuant to the Amended
and Restated Shareholder Agreement, in whole or in part, at the office or agency
of the Company referred to in paragraph 9 hereof, by the Holder hereof in person
or his duly authorized attorney, upon surrender of this Common Stock Purchase
Warrant properly endorsed.
7 EXCHANGES OF WARRANTS. This Common Stock Purchase Warrant is
exchangeable, upon the surrender hereof by the Holder hereof at the office or
agency of the Company referred to in paragraph 9 hereof, for new Common Stock
Purchase Warrants of like tenor representing in the aggregate the right to
subscribe for and purchase the number of shares which may be subscribed for and
purchased hereunder, each of such new Common Stock Purchase Warrant to represent
the right to subscribe for and purchase such number of shares as shall be
designated by the Holder hereof at the time of such surrender.
8 REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Common Stock Purchase Warrant in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Common Stock Purchase Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
9 NONVOTING STOCK. The Company agrees and acknowledges that the Holder
of this Common Stock Purchase Warrant may be subject to regulatory and legal
restrictions which prohibit the Holder from acquiring Common Stock or other
voting securities of the Company (the "RESTRICTIONS"). In the event the Holder
is subject to the Restrictions at the time of exercise of the Common Stock
Purchase Warrant, the Company covenants and agrees to create a class of common
stock of the Company having the identical rights, privileges and characteristics
of the Common Stock, except that such common stock shall (i) not have the right
to vote with respect to matters submitted to a vote of the Company's
shareholders and (ii) be convertible to Common Stock at any time at the option
of the Holder to the extent permitted under the Restrictions.
10 NOTICES. Except as otherwise provided herein, any notices hereunder
shall be deemed to have been received (a) when delivered, if personally
delivered or sent via facsimile, or (b) one day following delivery to a
nationally recognized overnight courier or (c) on the third business day
following the date on which the piece of mail containing such communication is
posted, if sent by
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certified or registered mail, return receipt requested, in each case addressed,
if given to the Company, to the principal office of the Company, Attention:
President, or, if given to a Holder of this Common Stock Purchase Warrant,
addressed to such Holder at his address as the same shall appear on the books of
the Company.
11 MISCELLANEOUS. This Common Stock Purchase Warrant and any term
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by both the Company and the Holder hereof. This Common Stock
Purchase Warrant shall be construed and enforced in accordance with, and
governed by the laws of, the State of North Carolina, regardless of conflicts of
law principles. The headings in this Common Stock Purchase Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
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IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant to be signed by one of its duly authorized officers under its corporate
seal and this Common Stock Purchase Warrant to be dated as of June 26, 1997.
KENDLE INTERNATIONAL INC.
By:/S/ ANTHONY L. FORCELLINI
----------------------------------------
Anthony L. Forcellini
Director, Mergers and Acquisitions and
Assistant Secretary
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EXHIBIT 2(d)
FORM OF SERIES B WARRANT
[attached]
<PAGE> 90
- 1 -
EXHIBIT 4A(h)(i)
FORM OF AMENDED AND RESTATED SHAREHOLDER AGREEMENT
[attached]
<PAGE> 91
- 2 -
EXHIBIT 4A(h)(ii)
FORM OF REGISTRATION RIGHTS AGREEMENT
[attached]
<PAGE> 92
- 1 -
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), is made and
entered into as of June 26, 1997, by and between KENDLE INTERNATIONAL INC., an
Ohio corporation (the "COMPANY"), and NATIONSBANC INVESTMENT CORPORATION, a
Delaware corporation (the "PURCHASER").
WHEREAS, pursuant to the terms of that certain Investment Agreement of
even date herewith by and between the Company and the Purchaser (the "INVESTMENT
AGREEMENT"), the Purchaser is purchasing the Company's Series A Note (as defined
therein) and Series B Note (as defined therein) (the "SERIES A NOTE"), in the
original principal amount of $5,000,000 and accompanied by warrants to purchase
shares (subject to adjustment) of the Company's Common Stock, no par value per
share (the "COMMON STOCK"), evidenced by the Series A Warrant (as defined
therein) (the "WARRANTS"); and
WHEREAS, in order to induce the Purchaser to purchase the Series A Note
and the Warrants from the Company, the Company desires to grant registration
rights to the Purchaser for the shares of Common Stock issuable upon the
exercise of the Warrants;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
1 DEFINITIONS. As used herein, the following defined terms shall have
the respective meanings given such terms below. Capitalized terms used herein
and not defined shall have the meanings set forth in the Investment Agreement.
"CAPITAL STOCK" means the Company's Common Stock and any other
class of common stock created by the Company in the future.
"COMMON STOCK" has the meaning set forth in the Recitals.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE ACT REGISTRATION STATEMENT" means a registration
statement filed with the SEC pursuant to the Exchange Act.
"HOLDERS" means any holder or holders of shares of Capital
Stock issued to the Purchaser pursuant to the Investment Agreement, the
Amended and Restated Shareholder Agreement, the Warrants and all other
agreements executed in connection with the Investment Agreement.
"INDEMNIFIED PARTY" has the meaning set forth in subparagraph
6(c).
"INDEMNIFYING PARTY" has the meaning set forth in subparagraph
6(c).
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Securities Act or the
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Exchange Act and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRABLE SECURITIES" means all shares of Capital Stock of
the Company which are Shares.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means all shares of Capital Stock of the Company held
by the Purchaser or which the Holders shall have acquired by or through
the Purchaser (including such shares as may represent stock dividends
or a stock split or those acquired pursuant to any conversion right or
preemptive right of purchase in the Investment Agreement, the Amended
and Restated Shareholder Agreement, the Warrants or any other agreement
executed in connection therewith, if any).
2 REQUESTED REGISTRATION.
(a) If at any time following the consummation of an initial
public offering of Capital Stock, the Company receives from the Holders
a written request that the Company effect a registration under the
Securities Act with respect to Registrable Securities, the Company
will, as expeditiously as possible, notify in writing all the Holders
of such request and use its diligent best efforts to effect all such
registrations (including, without limitation, the execution of an
undertaking to file post-effective amendments and appropriate
qualifications and approvals under the laws and regulations applicable
to the Company of any applicable governmental agencies and authorities,
including the applicable blue sky or other state securities laws) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of the Registrable Securities as
are specified in such request, together with any Registrable Securities
held by the other Holders who may desire to participate in such
registrations; PROVIDED, HOWEVER, that a Holder's request may not be
made within six months following the effectiveness of any registered
public offering of Capital Stock; and PROVIDED FURTHER, that before
filing any such registration statement or any amendments or supplements
thereto, the Company will (x) furnish to the Holders of Registrable
Securities which are to be included in such registration copies of all
such documents proposed to be filed, which documents will be subject to
the review of such Holders and their counsel, and (y) give the Holders
of Registrable Securities to be included in such registration statement
and their representatives the opportunity to conduct a reasonable
investigation of the records and business of the Company and to
participate in the preparation of any such registration statement or
any amendments or supplements thereto; and PROVIDED FURTHER, that the
Company shall not be obligated to take any action pursuant to this
subparagraph 2(a) if the Holders request the Company to register an
amount of Shares representing less than 33% of their Shares; and
PROVIDED FURTHER, that the Company shall not be obligated to take any
action to effect any such registration pursuant to this subparagraph
2(a) after the Company has effected one such registration pursuant to
this subparagraph 2(a) at the request of the Holders and such
registration has been declared or ordered effective. With respect to
any registration requested pursuant to this subparagraph 2(a), the
Company may include in such registration any other shares of Capital
Stock, subject to the restrictions
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set forth in subparagraph 2(c) only upon the written consent of the
Holders of a majority of the shares of Registrable Securities being
registered in the registration.
(b) Subject to subparagraph 2(a) above and the other terms and
conditions contained herein, the Company shall file a registration
statement covering the Registrable Securities so requested to be
registered as soon as practicable, but in any event within 90 days
after (i) receipt of the request or requests of the Holders or (ii) the
date on which the Purchaser agrees, pursuant to subparagraph 2(c), on
the terms and conditions of an underwriting, if applicable, as
evidenced by its acceptance of a letter of intent describing such terms
and conditions, whichever is later; PROVIDED, HOWEVER, that if the
Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be materially detrimental to the Company
and its stockholders for such registration statement to be filed at the
date filing would be required hereunder and it is therefore essential
to defer the filing of such registration statement, the Company shall
have an additional period of not more than 60 days within which to file
such registration statement (which additional period may be extended to
90 days if such deferral will materially reduce the expenses of such
registration due to the elimination of the need for any special audits
to be performed in connection with such registration).
(c) If the Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to
subparagraph 2(a). In such event, if so requested in writing by the
Company, the Holders shall negotiate in good faith with a nationally
recognized underwriter or underwriters, or major regional underwriter
or underwriters acceptable to the Holders, selected by the Company and
reasonably satisfactory to the Holders with regard to the underwriting
of such requested registration; PROVIDED, HOWEVER, that if the Holders
have not agreed with such underwriter(s), in their discretion, as to
the terms and conditions of such underwriting within 30 days following
commencement of such negotiations, the Holders may select an
underwriter of their choice. The right of the Holders to registration
pursuant to this Paragraph 2 shall be conditioned upon the Holder's
participation in such underwriting to the extent provided herein. The
Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected pursuant to this Paragraph 2. Notwith standing any other
provision of this Paragraph 2, if the underwriter advises the Company
in writing with a copy to the Holders that marketing factors require a
limitation of the number of shares to be underwritten, the Company
shall so advise all Holders, and the Company will include in such
registration up to the maximum allowed by such underwriter (x) first,
as many shares as possible of Registrable Securities requested to be
included by the applicable Holders, which shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities entitled to inclusion in
such registration held by such Holders at the time of filing the
registration statement and (y) second, shares to be sold by the Company
or other holders of Capital Stock, if any. If any Holder of Registrable
Securities disapproves of the terms of the underwriting, he may elect
to withdraw therefrom by written notice to the Company, the underwriter
and the other Holders. In the event of any such withdrawal, the Company
will include in any such registration in lieu thereof any additional
shares of Registrable Securities which were requested to be included by
a Holder and which were excluded pursuant to the above-described
underwriter limitation up to the maximum set by such underwriter.
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(d) The Company will use its best efforts to do any and all
other acts which may be necessary or advisable to enable each selling
Holder to dispose of the Registrable Securities being sold including,
without limitation, furnishing to each such seller (x) the number of
copies of the registration statement and of the exhibits and the
prospectus contained therein reasonably requested by each such Holder,
and (y) signed counterparts, addressed to each such Holder, of an
opinion of the Company's counsel and a "cold comfort" letter of the
Company's independent certified public accountants with respect to the
matters customarily covered in such documents delivered to underwriters
in underwritten public offerings.
3 COMPANY REGISTRATION.
(a) If at any time or from time to time after the consummation
of an initial public offering of Capital Stock, the Company shall
determine to register any of its securities, either for its own account
or the account of a security holder or holders, in a registration
statement covering the sale of Capital Stock to the general public
pursuant to an underwritten public offering (except with respect to any
registration filed on Form S- 8, Form S-4 or any successor forms
thereto), the Company will: (i) give to each Holder written notice
thereof at least 45 days before filing if such registration is a
subsequent registration; PROVIDED, HOWEVER, in the case of a
Registration Statement on Form S-3, the Company shall be required to
give each Holder written notice of the proposed filing thereof promptly
after a decision to make such filing has been made and in no event less
than ten business days prior to filing; and (ii) use its best efforts
to include in such registration (and any related qualification under
blue sky laws) and in any underwriting involved therein, all the
Registrable Securities specified in a written request or requests, made
within 30 days after receipt of such written notice from the Company,
or, in the case of a Registration Statement on Form S-3, within seven
business days after receipt of such written notice, by any Holder or
Holders, except as set forth in subparagraph 3(b) below. The notice
referred to in this subparagraph shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities
laws.
(b) The right of any Holder to registration pursuant to this
Paragraph 2 shall be conditioned upon such Holder's participation in
the underwriting to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company, and may, at their option, require that any
or all the representations and warranties by, and the covenants and
other agreements on the part of, the Company to and for the benefit of
such underwriter shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriter
other than those relating to such Holders, their Shares and their
intended methods of distribution and information about such Holders
provided by such Holders for use in the registration statement. If
requested by the underwriter, the Holders will agree, for themselves
and their affiliates, not to sell or offer to sell any shares of their
Capital Stock for a reasonable period of time (not to exceed 90 days)
after the effective date of the registration statement. Notwithstanding
any other provision of this Paragraph 2, if the underwriter determines
that marketing factors require a limitation of the number of shares to
be underwritten, the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten
pursuant hereto, and the Company shall
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include in such registration, prior to the inclusion of any securities
that are not Registrable Securities, the number of shares of
Registrable Securities requested to be included in the registration,
which in the opinion of such underwriter can be sold, PRO RATA among
all Holders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at
the time of filing the registration statement, with further
proportional allocations among the Holders and Other Holders if any
such Holder has requested less than all such Registrable Securities it
is entitled to register.
4 EXPENSES OF REGISTRATION. All expenses incurred in connection with
any registration or qualification pursuant to this Agreement, including, without
limitation, all registration, filing and qualification fees, printing expenses,
fees and disbursements of counsel for the Company, and expenses and fees of any
special audits incidental to or required by such registration, shall be borne by
the Company; PROVIDED, HOWEVER, that the Company shall not be required to pay
fees of legal counsel, investment advisors and accountants of the Holders, or
underwriters' discounts or commissions relating to Registrable Securities (such
underwriters' fees, discounts or commissions to be borne by the Holders, on a
PRO RATA basis, based on the number of shares of Registrable Securities sold by
each of them).
5 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of such
registration (and any state qualifications) and as to the completion thereof.
6 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable
Securities, each of the Holder's officers, directors, partners and
employees, and each person controlling such Holder, with respect to
such registration or qualification effected pursuant to this Agreement
and in which Registrable Securities of the Holders are included,
against all claims, losses, damages, and liabilities (or actions in
respect thereto) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, registration statement or other document incident to any
such registration or qualification, or based on 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 any violation by the Company of any rule or regulation
promulgated pursuant to any Federal, state or common law rule or
regulation including, without limitation, the Securities Act,
applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification
or compliance and will reimburse each such Holder, each of the Holder's
officers, directors, partners and employees, and each person
controlling such Holder, for any legal and any other reasonable
expenses incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, including reasonable
attorneys' fees and expenses; PROVIDED, HOWEVER, that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement
or omission based upon and in conformity with written information
furnished to the Company by such Holder in a signed document. Such
indemnity shall be effective notwithstanding any investigation made by
or on behalf of any Holder or any such officer, director, partner,
employee, or controlling person and shall survive any transfer by the
same of the Registrable Securities.
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(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration or qualification is being effected, indemnify the Company,
each of its directors, officers and employees, each person who controls
the Company, and each other such Holder, each of such other Holder's
officers, directors, partners and employees, and each person
controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereto) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus or other
document, or 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, and will reimburse the Company, such
Holders, such directors, officers, partners, employees or persons for
any legal or any other reasonable expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, including reasonable attorneys' fees and expenses, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in
such registration statement, prospectus or other document in reliance
upon and in conformity with written information furnished to the
Company by such Holder. Notwithstanding the foregoing, the liability of
any such Holder shall not exceed an amount equal to the proceeds
realized by each such Holder of Registrable Securities sold as
contemplated herein. Such indemnity shall be effective notwithstanding
any investigation made by or on behalf of the Company, any such
director, officer, partner, employee, or controlling person and shall
survive the transfer of such securities by such Holder.
(c) Each party entitled to indemnification under this
Paragraph 6 (the "INDEMNIFIED PARTY") shall give notice to the party
required to provide indemnification (the "INDEMNIFYING PARTY") promptly
after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought. Unless in the reasonable judgment of the
Indemnified Party a conflict of interest may exist between the
Indemnifying Party and the Indemnified Party, the Indemnifying Party
shall be permitted to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that in any event
counsel for the Indemnifying Party or Indemnified Party who shall
conduct the defense of such claim or litigation as provided above shall
be approved by the other Party (which approval shall not be
unreasonably withheld), and such other Party may participate in such
defense at such Party's expense; PROVIDED, FURTHER, that the failure of
any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Paragraph
6 unless such failure shall have had a material adverse effect on the
Indemnifying Party's ability to defend such claim.
(d) The Indemnified Party shall make no settlement of any
claim or litigation which would give rise to liability on the part of
the Indemnifying Party under any indemnity contained in this Paragraph
6 without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed, and no Indemnifying
Party shall make any settlement of any such claim or litigation without
the consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If a firm offer is made to settle a
claim or litigation defended by the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party in writing that the
Indemnified Party desires to accept and agree to such offer, but the
Indemnifying Party elects not to accept or agree to such offer within
ten days after receipt of written notice from the Indemnified Party of
the terms of such offer, then, in such event, the Indemnified Party
shall continue to contest or defend such
6
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claim or litigation and, if such claim or litigation is within the
scope of the Indemnifying Party's indemnity contained in this Paragraph
6, the Indemnified Party shall be indemnified pursuant to the terms
hereof. If a firm offer is made to settle a claim or litigation
defended by the Indemnifying Party and the Indemnifying Party notifies
the Indemnified Party in writing that the Indemnifying Party desires to
accept and agree to such offer, but the Indemnified Party elects not to
accept or agree to such offer within ten days after receipt of written
notice from the Indemnifying Party of the terms of such offer, then, in
such event, the Indemnified Party may continue to contest or defend
such claim or litigation and, in such event, the total maximum
liability of the Indemnifying Party to indemnify or otherwise reimburse
the Indemnified Party in accordance with this Agreement with respect to
such claim or litigation shall be limited to and shall not exceed the
amount of such settlement offer, plus reasonable out-of-pocket costs
and expenses (including reasonable fees and disbursements of counsel)
to the date of notice that the Indemnifying Party desired to accept
such settlement offer.
(e) The indemnification payments required pursuant to this
Paragraph 6 for expenses of the investigation or defense of a claim or
lawsuit shall be made from time to time during the course of the
investigation or defense, as the case may be, upon submission of
reasonably sufficient documentation that any such expenses have been
incurred.
7 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
written information regarding such Holder or Holders and the distribution
proposed by such Holder or Holders as the Company may reasonably request in
writing and as shall be required in connection with any registration or
qualification referred to in this Agreement. The Company agrees to include in
any such registration statement all information concerning the Holders and their
distribution which the Holders shall reasonably request.
8 FILING OF REPORTS UNDER THE EXCHANGE ACT. The Company shall give
prompt notice to the Holders of (a) the filing of any Exchange Act Registration
Statement relating to any class of equity securities of the Company, and (b) the
effectiveness of such Exchange Act Registration Statement, in order to enable
the Holders to comply with any reporting requirements under the Exchange Act or
the Securities Act. The Company shall, at any time after the Company shall
register any shares of Common Stock under the Securities Act and upon the
written request of the Holders, file an Exchange Act Registration Statement
relating to any class of equity securities of the Company then held by the
Holders or issuable upon conversion or exercise of any class of debt or equity
securities or warrants or options of the Company then held by the Holders,
whether or not the class of equity securities with respect to which such request
is made shall be held by at least the number of persons which would require the
filing of a registration statement under Section 12(g)(1) of the Exchange Act.
9 RULE 144 REPORTING. With a view to making available to the Holders
benefits of certain rules and regulations of the SEC which may permit the sale
of the Shares to the public without registration, after the completion of any
registration pursuant to Paragraph 2 or 3 above, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, or any successor provision
thereto, at all times;
7
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(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act;
(c) so long as a Holder owns any Shares (or other securities
of the Company), to furnish to such Holder forthwith upon its request a
written statement by the Company as to the Company's compliance with
the reporting requirements of Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the
Company as such Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing such Holder to sell any such
securities without registration; and
(d) take any further action reasonably requested by a Holder
to enable such Holder to sell its Registrable Securities without
registration under Rule 144, under any successor provision, or any
similar rule or regulation promulgated by the SEC from time to time.
10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities that are granted by the Company under Paragraphs
2 and 3 may be assigned by a Holder to a transferee or assignee of any of its
Registrable Securities; PROVIDED, HOWEVER, that the Company is given written
notice by the Holder at the time of or within a reasonable time after the
transfer, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned. Subject to the foregoing provision, this Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns; PROVIDED, FURTHER, that the registration
rights granted in this Agreement shall not be transferred to persons who
received Registrable Securities pursuant to a registration statement under the
Securities Act or pursuant to a transaction under Rule 144 or any successor
provision thereto.
11 CHANGES. The terms and provisions of this Agreement may not be
modified or amended, except that they may be modified or amended with the
written consent of (a) the Company and (b) the Holders of a majority of the
Shares outstanding. None of the terms and provisions of this Agreement may be
waived except in writing by the person so waiving.
12 GRANTING OF REGISTRATION RIGHTS. The Company shall not, without the
prior written consent of Holders of 75% of the Shares then outstanding which
have not already been registered, grant any rights to any persons to register
any shares of Capital Stock or other securities of the Company if such rights
could reasonably be expected to conflict with, or be on parity with, the rights
of the Holders of the Shares; PROVIDED, HOWEVER, that the granting of (i) one
demand registration right exercisable upon the earlier of (A) 12 months after
the gmi Closing Date and (B) six months after the right of the Holders to
exercise their rights set forth in Paragraph 2 and (ii) unlimited piggyback
rights shall not require the written consent of the Holders.
13 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
14 NOTICE. All notices and other communications required or permitted
to be given in respect of this Agreement shall be sent by personal delivery,
nationally recognized overnight courier, facsimile or certified or registered
mail, to the following parties at the following addresses,
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or, in each case, at such other address or addresses as any party shall
hereafter specify by written notice to the others:
(i) If to the Company, to:
Kendle International Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Telecopy No.: (513) 381-5870
Attention: Mr. Timothy M. Mooney, Chief Financial Officer
with a copy (which shall not constitute notice) to:
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower, One East Fourth Street
Cincinnati, Ohio 45202
Telecopy No.: (513) 579-6457
Attention: William J. Keating, Esq.
(ii) If to the Purchaser, to:
NationsBanc Investment Corporation
NationsBank Corporate Center
100 North Tryon Street, 10th Floor
Charlotte, North Carolina 28255
Telecopy No.: (704) 386-6432
Attention: Mr. Walker L. Poole
with a copy (which shall not constitute notice) to:
Fennebresque, Clark, Swindell & Hay
NationsBank Corporate Center
100 North Tryon Street, Suite 2900
Charlotte, North Carolina 28202
Telecopy No.: (704) 347-3838
Attention: Jeffrey S. Hay, Esq.
Any notice required to be given hereunder by one party to another shall be
deemed to have been received (a) when delivered, if personally delivered or sent
via facsimile, (b) one day following delivery to a nationally recognized
overnight courier or (c) on the third business day following the date on which
the piece of mail containing such communication is posted, if sent by certified
or registered mail.
15 TERMINATION. This Agreement shall terminate with respect to any
Holder on the later of (a) the date on which the Holder may sell the Shares
pursuant to Rule 144(k) under the Securities Act and (b) the date that such
Holder's ownership of Shares falls below 1% of the issued and outstanding shares
of Capital Stock.
9
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16 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute a
single agreement.
17 HEADINGS. The headings of the Paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
18 SEVERABILITY. If any provision or any portion of any provision of
this Agreement shall be held to be void or unenforceable, the remaining portions
of this Agreement shall continue in full force and effect.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their authorized officers as of the day and year first above
written.
KENDLE INTERNATIONAL INC.,
an Ohio corporation
By:/S/ ANTHONY L. FORECELLINI
---------------------------------------
Anthony L. Forcellini
Director, Mergers and Acquisitions and
Assistant Secretary
NATIONSBANC INVESTMENT CORPORATION
a Delaware corporation
By:/S/ WALKER L. POOLE
---------------------------------------
Walker L. Poole
Senior Vice President
478441.1
11
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EXHIBIT 4A(h)(iii)
FORM OF SUBORDINATION AGREEMENT
[attached]
<PAGE> 104
- 1 -
EXHIBIT 4A(h)(iv)
FORM OF PLEDGE AGREEMENT
[attached]
<PAGE> 1
CONSENT-COOPERS & LYBRAND L.L.P.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-30581) filed on July 23, 1997 of our report to be dated March 21, 1997 on
our audit of the financial statements of Kendle International Inc. which report
will be signed upon consummation of the matters described in Notes 10 and 11 to
such financial statements. We also consent to the reference to our firm under
the caption "Experts" and "Selected Financial Data".
/s/ Coopers & Lybrand LLP
Cincinnati, Ohio
July 22, 1997
<PAGE> 1
CONSENT-COOPERS & LYBRAND N.V.
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated June 17, 1997 on our audit of the consolidated financial statements
of U-Gene Research B.V. We also consent to the reference to our firm under the
caption "Experts" and "Selected Financial Data".
/s/ Coopers & Lybrand N.V.
Coopers & Lybrand N.V.
Utrecht, The Netherlands
July 22, 1997
<PAGE> 1
CONSENT-COOPERS & LYBRAND GmbH
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated May 7, 1997 on our audit of the financial statements of
gesellschaft fur angewandte mathematik und informatik mbH. We also consent to
the reference to our firm under the caption "Experts" and "Selected Financial
Data".
/s/ Coopers & Lybrand GmbH
Coopers & Lybrand
Wirtschaftsprufungsgesellschaft GmbH
Munich, Germany
July 22, 1997
