<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTER ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 333-33121
LEINER HEALTH PRODUCTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-----------------
DELAWARE 95-3431709
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
901 EAST 233RD STREET, CARSON, CALIFORNIA 90745
(310) 835-8400
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---------- -----------
COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AT FEBRUARY 12, 1998
1,000 SHARES
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<PAGE>
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LEINER HEALTH PRODUCTS INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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PART I. Financial Information. . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations (Unaudited) -
For the three and nine months ended December 31, 1996 and 1997. . 3
Condensed Consolidated Balance Sheets -
As of March 31, 1997 and December 31, 1997 (Unaudited). . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the nine months ended December 31, 1996 and 1997. . . . . . . 5
Notes to Condensed Consolidated Financial Statements (Unaudited). . . 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 10
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURE PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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<PAGE>
PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $104,295 $132,524 $260,502 $338,837
Cost of sales 75,644 95,532 194,741 250,713
-------- -------- -------- ---------
Gross profit 28,651 36,992 65,761 88,124
Marketing, selling and distribution expenses 12,330 17,477 35,524 44,032
General and administrative expenses 4,959 6,809 14,114 20,348
Impairment and closure of OTC facility 1,317 -- 1,317 --
Management reorganization 265 -- 578 --
Expenses related to recapitalization of parent -- 418 -- 33,056
Amortization of goodwill 369 407 1,107 1,243
Other charges 120 430 361 893
-------- -------- -------- ---------
Operating income (loss) 9,291 11,451 12,760 (11,448)
Interest expense, net 1,989 5,897 6,399 13,513
-------- -------- -------- ---------
Income (loss) before income taxes and extraordinary item 7,302 5,554 6,361 (24,961)
Provision (benefit) for income taxes before
extraordinary item 3,176 3,011 2,767 (4,207)
-------- -------- -------- ---------
Income (loss) before extraordinary item 4,126 2,543 3,594 (20,754)
Extraordinary loss on the early extinguishment
of debt, net of income taxes of $761 -- -- -- 1,109
-------- -------- -------- ---------
Net income (loss) $ 4,126 $ 2,543 $ 3,594 $ (21,863)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
Audited Unaudited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,066 $ 1,435
Accounts receivable, net 77,436 63,246
Inventories 86,823 124,808
Income taxes receivable -- 2,457
Deferred income taxes 3,838 3,844
Prepaid expenses and other current assets 2,639 2,350
-------- --------
Total current assets 172,802 198,140
Property, plant and equipment, net 42,367 44,693
Goodwill, net 58,035 56,807
Deferred income taxes -- 3,321
Deferred financing charges 1,875 11,627
Other noncurrent assets 9,485 10,437
-------- --------
TOTAL ASSETS $284,564 $325,025
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Bank checks outstanding, less cash on deposit $ 10,410 $ 11,986
Current portion of long-term debt 3,148 2,017
Accounts payable 61,623 76,874
Customer allowances payable 6,632 11,759
Accrued compensation and benefits 6,233 7,129
Accrued interest expense 870 6,981
Income taxes payable 1,818 --
Other accrued expenses 2,665 1,262
-------- --------
Total current liabilities 93,399 118,008
Long-term debt 102,290 236,389
Deferred income taxes 2,582 2,579
Other noncurrent liabilities 1,425 1,423
Commitments and contingent liabilities
Minority interest in subsidiary 4,718 1,028
Shareholder's equity (deficit):
Common stock 1 1
Capital in excess of par 62,966 1,834
Cumulative translation adjustment (173) (183)
Retained earnings (deficit) net of charges
from recapitalization of parent of
$0 and $31,543 at March 31, 1997 and December 31,
1997, respectively 17,356 (36,054)
-------- --------
Total shareholder's equity (deficit) 80,150 (34,402)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $284,564 $325,025
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1997
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,594 $(21,863)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,866 10,688
Stock option compensation expense 99 8,300
Deferred income taxes -- (3,327)
Extraordinary loss on the early extinguishment
of debt -- 1,870
Translation adjustment -- 10
Changes in operating assets and liabilities:
Accounts receivable 2,213 14,108
Inventories (11,441) (38,185)
Bank checks outstanding, less cash on deposit 1,996 1,606
Accounts payable 9,991 15,281
Customer allowances payable 1,907 5,127
Accrued compensation and benefits (918) 896
Other accrued expenses (1,787) 4,730
Income taxes payable/receivable 1,811 (4,267)
Other (1,548) 289
-------- ---------
Net cash provided by (used in) operating activities 14,783 (4,737)
-------- ---------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment, net (2,781) (8,195)
Increase in other noncurrent assets (1,317) (3,906)
-------- ---------
Net cash used in investing activities (4,098) (12,101)
-------- ---------
FINANCING ACTIVITIES:
Net payments under former bank credit facility (6,803) (100,405)
Borrowings under new bank revolving credit facility -- 44,555
Borrowings under new bank term credit facility -- 85,000
Payments under new bank term credit facility -- (425)
Capital contribution from parent -- 1,834
Repurchase of preferred stock -- (3,599)
Increase in deferred financing charges -- (9,976)
Increase in other long-term debt 1,136 --
Payments on other long-term debt (1,513) (848)
-------- ---------
Net cash provided by (used in) financing activities (7,180) 16,136
-------- ---------
Effect of exchange rate changes -- 71
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,505 (631)
Cash and cash equivalents at beginning of period 1,411 2,066
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,916 $ 1,435
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
===============================================================================
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PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for the
three and nine months ended December 31, 1997 include the accounts of Leiner
Health Products Inc. (the "Company") and its subsidiaries, including Vita Health
Company (1985) Ltd. ("Vita Health") which was acquired January 30, 1997 in a
transaction accounted for as a purchase, and have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the rules of the Securities and
Exchange Commission ("SEC"). Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements.
In the opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been included. Such adjustments consisted
only of normal recurring items, except for adjustments recorded in connection
with the Recapitalization as discussed in Note 3. This report should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended March 31, 1997, which are included in the
Company's Registration Statement on Form S-4, on file with the SEC (Commission
file number 333-33121). The results of operations for the periods indicated
should not be considered as indicative of operations for the full year.
NOTE 2 -- Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1997
---------- -----------
<S> <C> <C>
Raw materials, bulk vitamins
and packaging materials $ 51,488 $ 76,683
Work-in-process 5,849 8,380
Finished products 29,486 39,745
---------- -----------
$ 86,823 $ 124,808
---------- -----------
---------- -----------
</TABLE>
NOTE 3 - The Recapitalization
On June 30, 1997, the Company's ultimate parent, Leiner Health Products Group
Inc. ("Leiner Group") completed a leveraged recapitalization
("Recapitalization"). This transaction was effected through receipt of an
equity investment from North Castle Partners I, L.L.C. ("North Castle"), an
investment fund formed by Mr. Charles F. Baird, Jr. to effect the
Recapitalization. Pursuant to the Recapitalization, Leiner Group repurchased
common stock from its existing shareholders in an amount totaling (together
with equity retained by such shareholders) $211.1 million, issued $80.4
million of new shares of the recapitalized Leiner Group to North Castle,
issued $85 million of Senior Subordinated Notes (the "Notes"), and
established a $210 million senior secured credit facility (the "New Credit
Facility") that provides for both term and revolving credit borrowings.
Immediately upon consummation of the Recapitalization, the obligations of
Leiner Group under the Notes and the New Credit Facility were assigned to and
assumed by the Company. The Recapitalization was accounted for as a
recapitalization of Leiner Group which had no impact on the historical basis
of assets and liabilities as reflected in the Company's consolidated
financial statements.
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<PAGE>
PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(CONTINUED)
In connection with the Recapitalization, the Company deducted $1.1 million of
deferred financing charges, net of income taxes of $0.8 million, from net income
(loss) as an extraordinary loss in the nine months ended December 31, 1997.
Additionally, in connection with the Recapitalization, the Company incurred
expenses of approximately $33.1 million, consisting of expenses of approximately
$12.3 million related to Leiner Group's equity transactions, transaction bonuses
granted to certain management personnel in the aggregate amount of approximately
$5.2 million and compensation expense related to the in-the-money value of stock
options of approximately $15.6 million. The compensation expense represented
the excess of the fair market value of the underlying common stock over the
exercise price of the options cancelled in connection with the Recapitalization.
The assumption of debt and the transfer of excess funds from Leiner Group
related to the Recapitalization consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Assumption of debt from Leiner Group:
Senior Credit Facility $ (149,736)
Subordinated Debt (85,000) $ (234,736)
------------
Funds transferred from Leiner Group 131,928
-----------
Recapitalization of Parent $ (102,808)
-----------
-----------
</TABLE>
The net amount above was first applied against capital in excess of par value
until that was exhausted and then against retained earnings.
NOTE 4 - Long-Term Debt
The New Credit Facility consists of two term loans ("Term Facility") due
December 30, 2004 and December 30, 2005 in the amounts of $45 million and $40
million, respectively, and a revolving credit facility in the amount of $125
million (the "Revolving Facility"), made available in U.S. dollars to the
Company (such portion, the "U.S. Revolving Facility") with a portion denominated
in Canadian dollars made available to Vita Health (such portion, the "Canadian
Revolving Facility"). The unpaid principal amount outstanding on the Revolving
Facility is due and payable on June 30, 2003. The Term Facility requires
quarterly amortization payments of approximately 1% per annum over the next six
years. Amortization payments scheduled during the period January 1, 1998
through December 31, 1998 total $0.85 million. Borrowings under the New Credit
Facility bear interest at floating rates that are based on the lender's base
rate (8.5% at December 31, 1997), the lender's Canadian prime rate (6.0% at
December 31, 1997), LIBOR (5.9% at December 31, 1997) or the lender's banker's
acceptance rate (4.82% at December 31, 1997), as the case may be, plus an
"applicable margin" that is itself based on the Company's leverage ratio. The
leverage ratio is defined generally as the ratio of total funded indebtedness to
the consolidated EBITDA and varies as follows: (a) for revolving credit
borrowings, from 0.75% to 2.5% for LIBOR - or banker's acceptance-based loans,
and from zero to 1.5% for alternate base rate- or Canadian prime rate-based
loans, and (b) for loans under the Term Facility, from 2.375% to 2.875% or 2.5%
to 3.0% for LIBOR-based loans and from 1.375% to 1.875% or 1.5% to 2.0% for
alternate base rate-based loans. As of December 31, 1997, the Company's
interest rates were 8.03% for U.S. borrowings and 6.14% for Canadian borrowings
under the New Credit Facility. In addition to certain agent and up-front fees,
the New Credit Facility requires a commitment fee of up to 0.5% of the average
daily unused portion of the revolving credit facility based on the Company's
leverage ratio.
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PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(CONTINUED)
On July 30, 1997, the Company entered into an interest protection arrangement
covering $29.5 million of its borrowings under the New Credit Facility.
Under this arrangement, the Company obtained a fixed interest rate of 6.17%
for LIBOR instead of the fluctuating rate as described above and pays a fee
of approximately $15.8 thousand per annum. That fee is charged to interest
expense as incurred and payments received as a result of the cap are accrued
as a reduction of interest expense on the floating-rate under the New Credit
Facility. The agreement expires July 30, 2000.
The obligations of the Company under the U.S. Revolving Facility and the Term
Facilities are guaranteed by the direct parent of the Company, PLI Holdings
Inc. ("PLI Holdings") and by any direct or indirect U.S. subsidiaries of the
Company. The obligations of Vita Health under the Canadian Revolving Facility
are guaranteed by the Company, PLI Holdings, the Company's direct or indirect
U. S. subsidiaries, Vita Health and its direct or indirect subsidiaries. The
New Credit Facility also is secured by substantially all the assets of the
Company and any of its direct or indirect U.S. subsidiaries, all of the
capital stock of the Company and any such direct or indirect U.S.
subsidiaries, and 65% of the capital stock of any direct non-U.S.
subsidiaries of the Company and its U.S. subsidiaries. The Canadian
Revolving Facility is also secured by substantially all assets of Vita
Health, its direct and indirect Canadian parents and any direct or indirect
non-U.S. subsidiaries of the Company, and all of the capital stock of any
such direct or indirect non-U.S. subsidiaries. The New Credit Facility
contains financial covenants that require, among other things, the Company to
comply with certain financial ratios and tests, including those that relate
to the maintenance of specified levels of cash flow and stockholder's equity.
The Company was in compliance with all such financial covenants as of
December 31, 1997. As of February 6, 1998, the Company had $37.4 million
available under its New Revolving Facility.
Principal payments on long-term debt as of December 31, 1997 through fiscal
2002 and thereafter are (in thousands):
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR
1998 ........................... $ 627
1999 ........................... 1,614
2000 ........................... 2,402
2001 ........................... 2,321
2002 ........................... 861
Thereafter ........................... 230,581
-----------
Total ........................... $ $238,406
-----------
-----------
</TABLE>
NOTE 5 - Related Party Transactions
Upon consummation of the Recapitalization, Leiner Group's management agreement
with AEA Investors Inc., one of the Company's shareholders, was terminated, and
Leiner Group and the Company entered into a consulting agreement with North
Castle Partners, L.L.C. (the "Sponsor"), an affiliate of North Castle, to
provide the Company with certain business, financial and managerial advisory
services. Mr. Baird acts as the managing member of the Sponsor through Baird
Investment Group, L.L.C. In exchange for such services, Leiner Group and the
Company have agreed to pay the Sponsor an annual fee of $1.5 million, payable
semi-annually in advance, plus the Sponsor's reasonable out-of-pocket expenses.
This fee may be reduced upon completion of an initial public offering of Leiner
Group's shares. The agreement also terminates on June 30, 2007, unless Baird
Investment Group ceases to be the managing member of North Castle, or upon the
earliest of June 30, 2007 or the date that North Castle terminates before that
date. Leiner Group and the Company have also paid the Sponsor a transaction fee
of $3.5 million for services related to arranging, structuring and financing the
Recapitalization, and reimbursed the Sponsor's related out-of-pocket expenses.
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PART I ITEM 1
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LEINER HEALTH PRODUCTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(CONTINUED)
NOTE 6 -- Contingent Liabilities
LITIGATION AND CLAIMS
- ---------------------
The Company has been named in numerous actions brought in federal or state
courts seeking compensatory and, in some cases, punitive damages for alleged
personal injuries resulting from the ingestion of certain products containing
L-Tryptophan. As of January 29, 1998, the Company and/or certain of its
customers, many of whom have tendered their defense to the Company, had been
named in 668 lawsuits of which 660 have been settled.
The Company has entered into an agreement (the "Agreement") with the
Company's supplier of bulk L-Tryptophan, under which the supplier has agreed
to assume the defense of all claims and to pay all settlements and judgments,
other than for certain punitive damages, against the Company arising out of
the ingestion of these L-Tryptophan products. To date, the supplier has
funded all settlements and paid all legal fees and expenses incurred by the
Company related to these matters. No punitive damages have been awarded in
the 660 cases that have been settled.
Of the remaining 8 cases, management does not expect that the Company will be
required to make any material payments in connection with their resolution by
virtue of the Agreement, or, in the event that the supplier ceases to honor the
Agreement, by virtue of the Company's product liability insurance, subject to
deductibles with respect to the 8 currently pending claims not to exceed $1.3
million in the aggregate. Accordingly, no provision has been made in the
Company's consolidated financial statements for any loss that may result from
these remaining actions.
The Company is subject to other legal proceedings and claims which arise in the
normal course of business. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
OTHER
- -----
In August 1997, the FDA announced a proposal to ban the use of yellow
phenolphthalein in laxatives. The FDA reportedly took this action in response
to certain studies which concluded that the administration of very high doses of
yellow phenolphthalein could cause cancer in laboratory animals. The reports
concerning these studies state that the dosages administered substantially
exceeded the dosages commonly used by human beings. In response, the Company
voluntarily discontinued production of its laxative product containing yellow
phenolphthalein and notified its customers that they may return this product.
Accordingly, the Company has provided approximately $0.4 million for estimated
returns and inventory valuation reserves related to this action in the nine
months ended December 31, 1997. The Company reformulated this product and
started shipping the reformulated version in November 1997.
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion explains material changes in the consolidated
results of operations for Leiner Health Products Inc. and its subsidiaries
(the "Company") including Vita Health Company (1985) Ltd. of Canada ("Vita
Health"), a wholly-owned subsidiary acquired January 30, 1997, for the three
months ended December 31, 1997 ("third quarter of fiscal 1998") and the
significant developments affecting its financial condition since March 31,
1997. The following discussion should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for the
year ended March 31, 1997, which are included in the Company's Registration
Statement on Form S-4 ("Registration Statement"), on file with the Securities
Exchange Commission.
SEASONALITY
The Company's business is seasonal, as increased vitamin usage corresponds
with the cough, cold and flu season. A significant portion of the Company's
sales and a more significant portion of the Company's operating income,
therefore, occurs in the second half of the fiscal year as reflected in the
table below (dollars in millions):
<TABLE>
<CAPTION>
NET SALES OPERATING INCOME (LOSS)
------------------- -----------------------
AMOUNT % OF YEAR AMOUNT % OF YEAR
------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Fiscal 1998
First Quarter. . . . . . . $ 94.1 -- $ (28.2)(1) --
Second Quarter . . . . . . 112.2 -- 5.3 --
Third Quarter. . . . . . . 132.5 -- 11.5 --
Fiscal 1997
First Quarter. . . . . . . $ 70.6 18% $ 2.4 9%
Second Quarter . . . . . . 85.6 22 1.1 4
Third Quarter. . . . . . . 104.3 26 9.3 35
Fourth Quarter . . . . . . 132.3 34 13.9 52
------- ----- ----------- -----
$ 392.8 100% $ 26.7 (2) 100%
------- ----- ----------- -----
</TABLE>
(1) Includes expenses of $32.3 million which were incurred in connection
with the Recapitalization. Without these expenses, operating income
would have been $4.1 million.
(2) Includes expenses incurred in connection with the closure of the OTC liquid
pharmaceuticals manufacturing facility, a management reorganization,
non-cash stock compensation expense and the preparation of a registration
statement in connection with a withdrawn initial public offering.
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of operations
as a percentage of net sales for the three and nine months ended December 31,
1996 and 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . . . . . . 72.5 72.1 74.8 74.0
------- ------- ------- -------
Gross profit. . . . . . . . . . . . . . . . . . 27.5 27.9 25.2 26.0
Marketing, selling and distribution expenses. . 11.8 13.2 13.7 13.0
General and administrative expenses . . . . . . 4.8 5.1 5.4 6.0
Impairment and closure of OTC facility. . . . . 1.3 -- 0.5 --
Management reorganization . . . . . . . . . . . 0.2 -- 0.2 --
Expenses related to recapitalization of parent. -- 0.3 -- 9.7
Amortization of goodwill. . . . . . . . . . . . 0.4 0.3 0.4 0.4
Other charges . . . . . . . . . . . . . . . . . 0.1 0.4 0.1 0.3
------- ------- ------- -------
Operating income (loss) . . . . . . . . . . . . 8.9 8.6 4.9 (3.4)
Interest expense, net . . . . . . . . . . . . . 1.9 4.4 2.5 4.0
------- ------- ------- -------
Income (loss) before income taxes and
extraordinary item . . . . . . . . . . . . . . 7.0 4.2 2.4 (7.4)
Provision (benefit) for income taxes
before extraordinary item. . . . . . . . . . . 3.0 2.3 1.0 (1.2)
------- ------- ------- -------
Income (loss) before extraordinary item . . . . 4.0 1.9 1.4 (6.2)
Extraordinary item. . . . . . . . . . . . . . . -- -- -- 0.3
------- ------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . 4.0% 1.9% 1.4% (6.5)%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Net sales for the third quarter of fiscal 1998 were $132.5 million, an
increase of $28.2 million, or 27.1%, versus the third quarter of fiscal 1997.
Sales from Vita Health, which was acquired in January 1997, accounted for
$8.6 million of this increase. Excluding Vita Health net sales, the
Company's net sales increased $19.6 million, or 18.8%, over the comparable
period in fiscal 1997. For the nine months ended December 31, 1997, net sales
increased by $78.3 million, or 30.1%, compared to the comparable period in
fiscal 1997. Excluding Vita Health sales of $23.5 million, the Company's net
sales increased $54.8 million or 21.0%.
The Company's sales growth was primarily attributable to volume growth in
vitamins, which was due primarily to sales growth in the vitamin market.
Excluding Vita Health sales, the Company's vitamin product sales increased by
$21.5 million, or 25.1%, compared to the third quarter of the prior year.
Management estimates that the overall U. S. vitamin market grew by over 31%
in the 13 week period ended December 28, 1997. Sales growth among the
Company's products was strongest in herbs and supplements. For the nine
months ended December 31, 1997, the Company's vitamin sales, excluding Vita
Health, were up $57.2 million, or 27.1%, compared to the comparable period in
fiscal 1997 as the Company continues to emphasize higher growth products and
to gain distribution in new channels. Sales of over-the-counter
pharmaceuticals ("OTCs"), excluding Vita Health, decreased by $2.4 million
and $2.7 million for the third quarter and nine month period, respectively,
of fiscal 1998 as compared to the same periods in fiscal 1997, which is
consistent with very low sales growth in the OTC market generally.
Gross profit margin was 27.9% for the third quarter of fiscal 1998, up
slightly from 27.5% in the third quarter of the prior fiscal year. Gross
profit for the third quarter increased by $8.3 million, up 29.1% from $28.7
million to $37.0 million in fiscal 1998. Excluding Vita Health, the increase
in gross profit during the third quarter of fiscal 1998 as compared to the
third quarter of fiscal 1997 was $5.9 million, or 20.8%. The increase in
gross profit during the quarter is primarily attributable to the higher sales
volumes.
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
For the nine months ended December 31, 1997, gross profit increased by $22.4
million, or 34.0%, compared to the same period in fiscal 1997. Excluding
Vita Health, gross profit for the nine months ended December 31, 1997
increased $15.6 million, or 23.6%, versus the comparable period in fiscal
1997. This increase is primarily volume related. Gross profit margin was
26.0%, a 0.8 percentage point increase in the nine months ended December 31,
1997, up from 25.2% in the comparable period in fiscal 1997.
Marketing, selling and distribution expenses together with general and
administrative expenses (collectively, "Operating Expenses") for the third
quarter of fiscal 1998 were 18.3% of net sales, a slightly higher percentage
than the 16.6% in the prior year's comparable quarter. Operating Expenses in
the third quarter of fiscal 1998 increased by $7.0 million, or 40.5%, as
compared to the third quarter in fiscal 1997. Excluding Vita Health,
Operating Expenses increased $5.2 million, or 30.3%. For the nine months
ended December 31, 1997, Operating Expenses were 19.0% of net sales versus
19.1% in the prior year period, reflecting lower spending earlier in the
year. The third quarter increase in Operating Expenses was primarily
attributed to increased sales and marketing expenses and the timing of senior
management bonus accruals. Because of the increased profitability of the
Company (excluding expenses related to the Recapitalization), senior
management bonuses were accrued in the first nine months of fiscal 1998 as
compared with the prior year's bonuses, which were not accrued until the
fourth quarter.
In the first nine months of fiscal 1998, the Company recorded expenses
relating to the Recapitalization of $33.1 million, consisting primarily of
compensation expenses related to the in-the-money value of stock options
issued to certain management personnel of $15.6 million, management bonuses
of $5.2 million, and expenses incurred by Leiner Group in connection with its
capital raising activities of $12.3 million.
In the first nine months of fiscal 1997, the Company reorganized its
management team. Expenses of $0.6 million were incurred relating to
severance for the previous Chief Financial Officer, Vice President of Product
Development and Vice President of Corporate Development, and include hiring
and relocation expenses for the current Chief Financial Officer and other
corporate officers.
Other charges for the third quarter of fiscal 1998 were $0.4 million, which
compares to $0.1 million for the third quarter of fiscal 1997. The increase
was due to the management fee increase of $0.3 million in the third quarter
of fiscal 1998 arising primarily as a result of a consulting agreement
entered into in connection with the Recapitalization.
In the third quarter, operating income was $11.5 million, a 23.2% increase
over the prior year quarter. Excluding Vita Health, operating income
increased by $1.6 million, or 16.8%, over the prior year period, primarily
due to the increase in sales and gross profit as compared to the third
quarter of fiscal 1997. For the nine months ended December 31, 1997, the
Company recognized an operating loss of $11.5 million due to expenses
incurred in connection with the Recapitalization of Leiner Group. Without
these Recapitalization expenses, operating income would have been $21.6
million, an increase of $8.8 million, or 69.3%, over the comparable period in
fiscal 1997.
Net interest expense increased by $3.9 million and $7.1 million during the
third quarter and nine month period, respectively, of fiscal 1998, versus the
comparable periods in fiscal 1997. This increase was due to an increase in
the indebtedness of the Company approximating $85.6 million for the quarter
and $129.8 million for the nine months ended December 31, 1997, as well as
changes in the Company's debt structure and interest rates arising as a result
of the Recapitalization and taking effect at the end of the first quarter of
fiscal 1998.
The provision for income taxes for the third quarter of fiscal 1998 was $3.0
million or $0.2 million less than the third quarter of fiscal 1997. For the
nine months ended December 31, 1997, the company recorded a benefit for
income taxes of $4.2 million, which compares to an income tax provision of
$2.8 million for the prior year period. Based on the latest estimates, the
Company expects its effective tax rate to be approximately 54% for the
remainder of fiscal 1998, and to be higher than the combined federal and
state rate of 40% primarily because of the nondeductibility for income tax
purposes of goodwill amortization, certain Recapitalization related expenses
and certain accruals.
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The extraordinary loss recorded in the first nine months of fiscal 1998
represented the write-off of $1.9 million of deferred financing charges which
had been incurred by the Company when it entered into a credit facility on
January 30, 1997. The income tax effect of that charge was a benefit of $0.8
million.
Primarily as a result of the factors discussed above, net income of $2.5
million was recorded in the third quarter of fiscal 1998 as compared with net
income of $4.1 million in the third quarter of fiscal 1997. For the nine
months ended December 31, 1997, there was a loss of $21.9 million compared to
net income of $3.6 million in the first nine months of fiscal 1997.
Other Information
Earnings before interest, taxes, depreciation, amortization and other
non-cash charges ("EBITDA") totaled $15.0 million for the third quarter of
fiscal 1998, which was $1.6 million higher than the comparable period in
fiscal 1997. Without the recapitalization related expenses that affected cash,
EBITDA was $15.4 million for the third quarter of fiscal 1998, an increase of
$2.0 million over the third quarter of fiscal 1997 EBITDA of $13.4 million.
For the nine months ended December 31, 1997, EBITDA was $6.6 million.
Without the recapitalization related expenses that affected cash, EBITDA was
$31.4 million, or $8.5 million greater than the comparable period in fiscal
1997. The Company believes that EBITDA provides useful information regarding
the Company's debt service ability, but should not be considered in isolation
or as a substitute for the Statements of Operations or Cash Flow data.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash has historically been used to fund capital expenditures,
working capital requirements and debt service. As a result of the
Recapitalization, the Company's liquidity requirements have significantly
increased, primarily due to significantly increased interest expense
obligations. Interest expense, excluding amortization of deferred financing
fees, is estimated to be $21.8 million per year, associated with borrowings
of $159.8 million under the New Credit Facility, $85.0 million under the
Notes, and existing capitalized lease obligations of $4.8 million. In
addition, the Company will be required to repay the $85.0 million in term
loans under the New Credit Facility over the eight and one-half year period
following June 30, 1997, with scheduled principal payments of $850,000
annually for the first six years, $27.4 million in the seventh year, $39.3
million in the eighth year, and $13.2 million in the final six months. The
Company will also be required to apply certain asset sale proceeds, as well
as 50% of its excess cash flow (as defined in the New Credit Facility) unless
a leverage ratio test is met, to prepay the borrowings under the New Credit
Facility. All outstanding revolving credit borrowings under the New Credit
Facility will become due on June 30, 2003.
During the first nine months of fiscal 1998, net cash used in operating
activities totaled $4.7 million. This resulted primarily from the net loss
of $21.9 million for the first nine months offset by non-cash charges of
$17.5 million. The net change in operating assets and liabilities was not
significant. An increase in inventories of $38.2 million was offset by a
decrease in accounts receivable of $14.1 million and an increase in accounts
payable and other liabilities aggregating $23.8 million. These changes
reflect the seasonality of the Company's business and the strategic decision
to increase inventories in order to take advantage of certain opportunities
to increase market share.
Net cash used in investing activities was $12.1 million in the first nine
months of fiscal 1998. This was primarily due to net capital expenditures of
$8.2 million, including $3.8 million in the third quarter. The major capital
expenditures were related to investments in capacity expansion at the Garden
Grove tableting facility and information systems improvements.
Net cash provided by financing activities was $16.1 million in the first nine
months of fiscal 1998. This was primarily the result of the
Recapitalization. In addition, Leiner Group made a capital contribution of
approximately $1.8 million to the Company in December 1997; this amount
represents the net proceeds of an employee stock offering by Leiner Group.
FINANCING ARRANGEMENTS
The New Credit Facility provides for term loan borrowings in an aggregate
principal amount of $85.0 million, consisting of $45.0 million maturing seven
and one-half years following June 30, 1997 and $40.0 million maturing eight
and one-half years following June 30, 1997, and U.S. and Canadian revolving
credit facilities with aggregate availability of $125.0 million, of which
$74.8 million was drawn down in connection with the Recapitalization. As of
February 6, 1998, the Company's unused availability under the New Credit
Facility was approximately $37.4 million. The Revolving Credit Facility will
mature six years after June 30, 1997, and includes letter of credit and
swingline facilities. Borrowings under the New Credit Facility bear interest
at floating rates that are based on LIBOR or on the applicable alternate base
rate (as defined), and accordingly, the Company's financial condition and
performance is and will continue to be affected by changes in interest rates.
The Company has entered into an interest protection arrangement effective
July 30, 1997 with respect to $29.4 million of its indebtedness under the New
Credit Facility that provides a cap of 6.17% for LIBOR. The New Credit
Facility imposes certain restrictions
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
on the Company, including restrictions on its ability to incur additional
debt, enter into sale-leaseback transactions, incur contingent liabilities,
pay dividends or make distributions, incur or grant liens, sell or otherwise
dispose of assets, make investments or capital expenditures, repurchase or
prepay the Notes or other subordinated debt, or engage in certain other
activities. The Company must also comply with certain financial ratios and
tests, including a minimum net worth requirement, a maximum leverage ratio, a
minimum interest coverage ratio and a fixed charge coverage ratio.
On November 12, 1997, the Company's registration statement on Form S-4 was
declared effective in connection with the Company's offer to exchange (the
"Exchange Offer") up to $85,000,000 aggregate principal amount of its 9 5/8%
Senior Subordinated Notes due 2007 registered under the Securities Act of 1933
(the "New Notes") for a like principal amount of the Notes. The Exchange Offer
was consummated on December 16, 1997, when all of the Notes were exchanged for a
like principal amount of New Notes. The Company may be required to purchase the
New Notes upon a Change of Control (as defined) and in certain circumstances
with the proceeds of asset sales. The Notes are subordinated to the
indebtedness under the New Credit Facility. The Indenture imposes certain
restrictions on the Company and its subsidiaries, including restrictions on its
ability to incur additional debt, make dividends, distributions or investments,
sell or otherwise dispose of assets, or engage in certain other activities.
A portion of the outstanding borrowings under the New Credit Facility, amounting
to approximately U.S. $13.6 million as of December 31, 1997, is denominated in
Canadian dollars. All other outstanding borrowings under the New Credit
Facility, and all of the borrowings under the Notes, are denominated in U.S.
dollars.
At December 31, 1997, borrowings under the New Credit Facility bore interest at
a weighted average rate of 7.85% per annum. The Notes bear interest at a rate
of 9.625% per annum.
The Company intends to establish a new packaging and distribution facility in
York County, South Carolina. As this new facility becomes operational, other
facilities located in the midwestern United States may be closed. The Company
expects to incur expenses estimated at approximately $1.9 million annually
through fiscal year 1999 in connection with the establishment of the new
facility and the closure of the midwestern U.S. facilities. The Company will
lease this new facility under a prearranged, assigned purchase and leaseback
facility that will provide the financing for its construction, at an estimated
incremental annual lease expense, net of lease costs for the facilities
currently expected to be closed, of $1.4 million.
The Company currently believes that cash flow from operating activities,
together with revolving credit borrowings available under the New Credit
Facility, will be sufficient to fund the Company's currently anticipated working
capital, capital spending and debt service requirements until the maturity of
the Revolving Credit Facility (June 30, 2003), but there can be no assurance in
this regard. The Company expects that its working capital needs will require it
to obtain new revolving credit facilities at the time that the Revolving Credit
Facility matures, whether by extending, renewing, replacing or otherwise
refinancing the Revolving Credit Facility. No assurance can be given that any
such extension, renewal, replacement or refinancing can be successfully
accomplished.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact) are forward-looking
statements, including statements regarding, without limitation, (i) the
Company's growth strategies; (ii) trends in the Company's business; and (iii)
the Company's future liquidity requirements and capital resources.
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management.
The important factors described elsewhere in this report and in the Company's
Registration Statement on Form S-4 (including, without limitation, those
factors discussed in the "Risk Factors" section thereof), on file with the
Securities and Exchange Commission, could affect (and in some cases
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<PAGE>
PART I ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
have affected) the Company's actual results and could cause such results to
differ materially from estimates or expectations reflected in such
forward-looking statements. In light of these factors, there can be no
assurance that events anticipated by the forward-looking statements contained
in this report will in fact transpire.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its periodic
reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.
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<PAGE>
PART II OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
The information in Note 6 to the Company's Condensed Consolidated Financial
Statements included herein is hereby incorporated by reference.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.1 Stockholders Agreement, dated as of June 30, 1997, among
Leiner Health Products Group Inc., North Castle Partners I,
L.L.C., AEA Investors Inc., and each other person who is or,
becomes a party thereto.
10.2 Stock Purchase Plan of Leiner Health Products Group Inc. as
adopted by the Board of Directors of Leiner Health Products
Group Inc. on November 17, 1997.
Reports on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEINER HEALTH PRODUCTS INC.
By: /s/ WILLIAM B. TOWNE
--------------------------------
William B. Towne
Executive Vice President, Chief
Financial Officer, Director,
Treasurer and Secretary
Date: February 12, 1998
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<PAGE>
EXHIBIT 10.1
================================================================================
LEINER HEALTH PRODUCTS GROUP INC.
STOCKHOLDERS AGREEMENT
Dated as of June 30, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Nominating. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Removal and Replacement of Nominees . . . . . . . . . . . . . . . 2
(c) Chairman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Voting, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Charter and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Board Approval; Notice of Board Meetings. . . . . . . . . . . . . 4
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Restrictions on Disposition; Right of First
Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Restrictions on Disposition . . . . . . . . . . . . . . . . . . . 5
(b) Subsequent Dispositions . . . . . . . . . . . . . . . . . . . . . 7
(c) Right of First Refusal. . . . . . . . . . . . . . . . . . . . . . 7
4. Tag-Along Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Take-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Take-Along Notice . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Conditions to Take-Along . . . . . . . . . . . . . . . . . . . . 10
(c) Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Piggyback Registration Rights . . . . . . . . . . . . . . . . . . . . . 12
7. Registration Upon Request . . . . . . . . . . . . . . . . . . . . . . . 15
8. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10. Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 27
11. Management Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Call Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Termination of Call Option. . . . . . . . . . . . . . . . . . . . 28
(c) Put Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Termination of Put Option . . . . . . . . . . . . . . . . . . . . 29
i
<PAGE>
PAGE
----
12. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
14. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
17. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
20. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
21. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
22. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
23. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . 37
24. Amendment; Waivers, Etc.. . . . . . . . . . . . . . . . . . . . . . . . 37
25. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 38
26. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . 39
27. AEA Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ii
<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of June 30, 1997, among Leiner
Health Products Group Inc., a Delaware corporation (the "COMPANY"), North
Castle Partners I, L.L.C., a Delaware limited liability company ("NORTH
CASTLE"), AEA Investors Inc., a Delaware corporation ("AEA"), and each other
person who is or, becomes party to this Agreement (collectively, with North
Castle, AEA and the Covered Shareholders (as defined below), the
"STOCKHOLDERS"). Capitalized terms used herein without otherwise being
defined herein are defined in Section 14.
W I T N E S S E T H:
WHEREAS, North Castle, AEA and each other Stockholder hold shares
of Common Stock;
WHEREAS, the parties hereto wish to set forth certain rights and
obligations that shall attach to the ownership of Common Stock and other
Covered Equity held by certain of the Stockholders;
WHEREAS, AEA has entered into Covered Shareholder Agreements with
holders (the "COVERED SHAREHOLDERS") of 516,861 shares of Class A Common
Stock, 10,000 shares of Class B Common Stock and 140,731 shares of Class C
Common Stock, which upon consummation of the merger (the "MERGER") described
in the Merger Agreement (as defined below) will be converted into shares of
Common Stock, pursuant to which AEA has been appointed representative of such
shareholders for purposes of this Agreement; and
WHEREAS, it is a condition to the consummation of the Stock
Purchase Agreement and Agreement and Plan of Merger, dated as of May 31, 1997
(the "MERGER AGREEMENT"), between the Company, North Castle and LHP
Acquisition Corp. that the parties enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto hereby agree as follows:
<PAGE>
1. BOARD OF DIRECTORS.
(a) NOMINATING. Until such time as AEA and the Covered
Shareholders have sold or transferred (other than through sales or transfers
to AEA or Covered Shareholders) in excess of 50% of the Common Stock held by
AEA and the Covered Shareholders upon the consummation of the Merger, AEA
shall be entitled to nominate one person for election to the board of
directors (the "BOARD") of the Company. So long as it owns at least 40% of
the Common Stock, North Castle shall be entitled to nominate all other
persons for election to the Board, which shall not exceed ten persons in the
aggregate for so long as AEA is entitled to nominate one individual for
election to the Board pursuant to this Section 1(a). If it owns less than 40%
of the Common Stock, North Castle shall be entitled to nominate a number of
directors bearing the same relationship to the total number of directors on
the Board as the number of shares of Common Stock then held by North Castle
bears to the then outstanding shares of Common Stock. The Company and each
of the other parties hereto agrees to take all steps within their power,
including voting any voting Common Stock owned or controlled by them or any
of their Affiliates, to cause any person so nominated to be elected to the
Board by action of the Stockholders of the Company.
(b) REMOVAL AND REPLACEMENT OF NOMINEES. (i) At any time at which
any party shall have exercised its rights to nominate a director pursuant to
Section 1(a) and such party shall determine to remove one or more of its
nominated directors, with or without cause, the Company and each of the
Stockholders agrees to take all steps within their power, including voting
(or causing ro be voted) any voting Common Stock owned or controlled by them
or any of their Affiliates, to cause such director to be so removed from the
Board by action of the stockholders of the Company. At any time at which any
party shall have exercised its rights to nominate a director pursuant to
Section 1(a) and a vacancy shall be created on any of the Board as a result
of the death, disability, retirement, resignation or removal, with or without
cause, of a director nominated by such party, (x) the Board will request such
party to nominate a candidate to be appointed by the Board to fill such
vacancy or (y) in the event that a candidate to fill such vacancy is to be
elected at the annual meeting of stockholders of the Com-
2
<PAGE>
pany, such party shall have the right to nominate the individual to fill such
vacancy, and the provisions of paragraph 1(a) above shall apply with respect
to the nomination and election of such nominee to fill such vacancy.
(ii) Each of the parties hereto further agrees (x) if a candidate
nominated by any party or parties to fill any vacancy on the Board in
accordance with paragraph (b)(i) above shall not have been appointed to fill
such vacancy within ten Business Days of the Board having been given the name
of such candidate by the nominating party or parties, then each of the
parties hereto (other than the Company) shall act by written consent, or call
a special meeting of stockholders of the Company for the sole purpose of
filling such vacancy, and in such written consent or at such special meeting,
vote or cause to be voted the voting Common Stock of the Company held or
controlled by such party or any Affiliate of such party in favor of the
candidate nominated to fill such vacancy, (y) other than as provided in
Section 1(b)(i), no party hereto shall vote, or give any consent, in favor of
the removal as a director of the Company of any candidate nominated by any
other party, and (z) if, in connection with the election of any candidate
nominated by another party in accordance herewith for election as a director
of the Company any party hereto fails or refuses to vote as required by this
Section 1, or votes or gives any consent or proxy in contravention of this
Section 1, the respective nominating party shall have an irrevocable proxy
(which irrevocable proxy shall revoke any proxy previously given by the
defaulting party in contravention of this Section 1) pursuant to Section
212(e) of the General Corporation Law of the State of Delaware, coupled with
an interest, to vote, all the voting Common Stock of the Company held or
controlled by such party in accordance with this Section 1, and each party
hereto hereby grants such proxy.
(c) CHAIRMAN. The Chairman of the Board shall be selected by
directors from one of North Castle's nominees.
2. VOTING, ETC. (a) STOCKHOLDER APPROVAL. Neither the Certificate
of Incorporation nor the By-Laws of the Company shall contain any provision
requiring a vote of a supermajority of the outstanding shares of Common Stock
for any matter, except as required by law.
3
<PAGE>
(b) CHARTER AND BYLAWS. The parties agree that the provisions of
the Company's certificate of incorporation and bylaws will not (i) conflict
with the terms of this Agreement or (ii) be amended in a manner adversely
effecting any Stockholder which does not adversely affect all Shareholders
without such Stockholder's consent.
(c) BOARD APPROVAL; NOTICE OF BOARD MEETINGS. All actions
requiring the approval of the Board shall be approved by a majority of the
directors present at any duly convened Board meeting or without a meeting by
written consent of a majority of the members of the Board, in each case in
accordance with the provisions of the Delaware General Corporation Law. The
Company agrees to give any director nominated by AEA no less than three
Business Days' prior notice of any meeting of the Board or, in the case of a
telephonic Board meeting, two Business Days' prior notice.
(d) CONFIDENTIALITY. Each of the Stockholders agrees to keep
confidential and not to disclose to any Person any Information provided to it
by or on behalf of the Company or any of its Subsidiaries, or obtained by the
Stockholder; PROVIDED that nothing contained herein shall prevent any
Stockholder from disclosing such Information to (i) any of the other
Stockholders, (ii) any of its Representatives, PROVIDED that such Stockholder
(w) informs each of its Representatives receiving any such Information of its
confidential nature and of this provision and its terms, (x) uses its
reasonable best efforts to cause its Representatives to treat such
Information confidentially in accordance herewith, and otherwise to comply
herewith as if parties hereto, and (iii) any member of the Board. If any
Stockholder or any of its Representatives is requested to disclose any such
Information by any Governmental Entity, such Stockholder will promptly notify
the Company to permit it to seek a protective order or take other action that
the Company in its discretion deems appropriate, and such Stockholder will
cooperate in any such efforts to obtain a protective order or other
reasonable assurance that confidential treatment will be accorded such
Information. If, in the absence of a protective order, such Stockholder or
any of its Representatives is compelled as a matter of law to disclose any
such Information in any proceeding or pursuant to legal process, such
Stockholder may disclose to the party compelling disclosure only the part of
such
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Information as is required by law to be disclosed (in which case, prior to
such disclosure, such Stockholder will advise and consult with the Company
and its counsel as to such disclosure and the nature and wording of such
disclosure) and such Stockholder will use its reasonable best efforts to
obtain confidential treatment therefor.
3. RESTRICTIONS ON DISPOSITION; RIGHT OF FIRST REFUSAL.
(a) RESTRICTIONS ON DISPOSITION. Prior to a Public Offering, no
Stockholder may sell, transfer, pledge, encumber or otherwise dispose of any
Covered Equity to any Person (other than the Company) except, at any time
after the earlier of (A) the consummation of the Exchange Offer and (B) the
date 180 days after consummation date of the Merger, as follows (a "PERMITTED
TRANSFER"):
(i) to any Specified Affiliate of such Stockholder, PROVIDED that such
Specified Affiliate agrees in writing to become a party to this Agreement
and PROVIDED FURTHER that such Specified Affiliate delivers to the Company
(x) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company, to the effect that the transfer is not a
Prohibited Transfer, and (y) a certificate of the transferor and the
transferee, to the effect that the transferee is a Specified Affiliate of
the transferor;
(ii) to any other Stockholder, PROVIDED that such transferee
Stockholder delivers an opinion of counsel to the Company, which opinion
and counsel shall be reasonably satisfactory to the Company, to the effect
that the transfer is not a Prohibited Transfer;
(iii) any transfer of Common Stock in a public offering if such
stock has been registered pursuant to Section 6 or 7;
(iv) any transfer of Common Stock pursuant to Sections 4 and 5; and
(v) following the first anniversary of the date hereof, any transfer
of Common Stock to a person who is not a Stockholder or a Specified
Affiliate of the
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transferor, subject to compliance with the right of first refusal provided
in Section 3(c), PROVIDED that the transferee (x) agrees in writing to
become a party to this Agreement and (y) delivers an opinion of counsel to
the Company, which opinion shall be reasonably satisfactory to the
Company, to the effect that the transfer is not a Prohibited Transfer;
Each Stockholder shall give the Company at least 15 days prior notice of any
proposed disposition of any Covered Equity pursuant to a Permitted Transfer
described in this Section 3(a), and prompt notice of any such actual
disposition. Any sale, transfer, pledge, encumbrance or other disposition of
any Covered Equity other than pursuant to a Permitted Transfer shall be void
and of no effect. The Company agrees to provide such certificates with
respect to factual matters involving the Company as may be reasonably
requested by a Stockholder or its counsel in connection with a proposed
Permitted Transfer. Notwithstanding the foregoing, no Management Stockholder
may effect any Permitted Transfer (except of the type described in clauses
(i), (iii) and (iv) of this Section 3.1(a)) until the earlier to occur of (x)
the fifth anniversary of this Agreement and (y) the termination of such
Management Stockholder's employment with the Company.
(b) SUBSEQUENT DISPOSITIONS. Following any Public Offering, any
Stockholder may transfer Common Stock to any Person, PROVIDED that, except
with respect to a transfer of the type described in Sections 3(a)(iii) and
(iv), the transferee must deliver to the Company an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to the Company, to the
effect that such transfer is not required to be registered under the
Securities Act.
(c) RIGHT OF FIRST REFUSAL. If a Stockholder other than North
Castle (a "SELLING HOLDER") desires to make a Permitted Transfer pursuant to
clause (v) of Section 3(a) following an offer (which offer must be in
writing, be irrevocable by its terms for at least 15 Business Days and be a
bona fide offer) from any prospective purchaser to purchase all or any part
of the Common Stock owned by such Selling Holder, such Selling Holder shall
give notice (the "NOTICE OF OFFER") in writing to the Board and to North
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Castle (i) designating the number of shares of Common Stock that such Selling
Holder proposes to sell (the "OFFERED SHARES"), (ii) naming the prospective
purchaser thereof (the "DESIGNATED PURCHASER") and (iii) specifying the price
(the "OFFER PRICE") and terms (the "OFFER TERMS") upon which such Selling
Holder desires to sell the same. During the 15 Business Day period following
receipt of such notice by the Company and North Castle (the "REFUSAL PERIOD")
such Selling Holder shall not be permitted to accept such offer, but may
submit a new Notice of Offer in respect of any revised offer in accordance
with and subject to this Section 3(c). During the Refusal Period, North
Castle or any Affiliate of North Castle, including any pooled investment
vehicle organized by the managing member of North Castle or by any of its
Affiliates shall have the right to purchase from the Selling Holder at the
Offer Price and on the Offer Terms all, but not less than all, of the Offered
Shares. The right provided hereunder shall be exercised by written notice to
the Selling Holder and the Company given at any time during the Refusal
Period. If such right is exercised, North Castle or its Affiliate shall
deliver to the Selling Holder payment of the Offer Price in accordance with
the Offer Terms, against delivery of appropriately endorsed certificates or
other instruments representing the Offered Shares. If North Castle fails to
subscribe for the Offered Shares during the Refusal Period, the Selling
Holder may sell to the Designated Purchaser the Offered Shares at the Offer
Price and on the Offer Terms.
4. TAG-ALONG RIGHTS. If any of North Castle or its Affiliates or
successors desires to make a Permitted Transfer pursuant to clauses (ii) and
(v) of Section 3(a), which transfer, together with all prior transfers by
North Castle or its Affiliates or successors involves more than 5% of the
Common Stock owned by North Castle on the date hereof, following an offer
(which offer must be in writing, be irrevocable by its terms for at least 35
Business Days and be a bona fide offer) from any prospective purchaser to
purchase all or any part of the Common Stock owned by North Castle, North
Castle shall give a Notice of Offer in writing to the Board and the other
Stockholders (i) designating the number of Offered Shares, (ii) naming the
Designated Purchaser and (iii) specifying the Offer Price and Offer Terms.
During the 20 Business Day period following receipt of such notice by the
Company and the other Stockholders,
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the other Stockholders shall have the right (a "TAG-ALONG RIGHT") exercised
by delivery of a written notice to North Castle and the Company, to
participate in such sale to the Designated Purchaser at the Offer Price and
on the Offer Terms on a PRO RATA basis determined as the quotient determined
by dividing (A) the percentage of Common Stock held by each Stockholder so
electing to sell (each such Person, an "ACCEPTING STOCKHOLDER") by (B) the
aggregate percentage of Common Stock represented by the Common Stock then
held by all of the Accepting Stockholders and North Castle. The Company
shall notify each Accepting Stockholder at least ten Business Days prior to
the closing of the proposed sale by North Castle of the number of Offered
Shares which each such Accepting Stockholder may sell and such Accepting
Stockholder shall deliver into trust, three or more Business Days prior to
the closing certificates or other instruments representing the Offered Shares
duly endorsed for transfer or duly executed stock powers for release against
payment to such Accepting Stockholder of such Accepting Stockholder's net
proceeds paid for the shares of such Stockholder at the closing of such sale.
5. TAKE-ALONG RIGHTS.
(a) TAKE-ALONG NOTICE. If North Castle intends to effect a sale (a
"TAKE-ALONG SALE") of all of its shares of Common Stock to a non-Affiliate
third party (a "100% BUYER") prior to a Public Offering and elects to
exercise its rights under this Section 5, North Castle shall deliver written
notice (a "TAKE-ALONG NOTICE") to the Company and the other Stockholders,
which notice shall (i) state (w) that North Castle wishes to exercise its
rights under this Section 5 with respect to such transfer, (x) the name and
address of the 100% Buyer, (y) the per share amount and form of consideration
North Castle proposes to receive for its shares of Common Stock and (z)
drafts of purchase and sale documentation setting forth the terms and
conditions of payment of such consideration and all other material terms and
conditions of such transfer (the "DRAFT SALE AGREEMENT"), (ii) contain an
offer (the "TAKE-ALONG OFFER") by the 100% Buyer to purchase from the other
Stockholders all of their shares of Common Stock, on and subject to the same
price, terms and conditions offered to North Castle and (iii) state the
anticipated time and place of the closing of such transfer (a "SECTION 5
CLOSING"), which (subject to
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such terms and conditions) shall occur not fewer than 15 days nor more than
90 days after the date such Take-Along Notice is delivered, PROVIDED that if
such Section 5 Closing shall not occur prior to the expiration of such 90-day
period, North Castle shall be entitled to deliver another Take-Along Notice
with respect to such Take-Along Offer. Upon request of North Castle, the
Company shall provide North Castle with a current list of the names and
addresses of the other Stockholders.
(b) CONDITIONS TO TAKE-ALONG. Upon delivery of a Take-Along
Notice, each of the other Stockholders shall have the obligation to transfer
all of its shares of Common Stock pursuant to the Take-Along Offer, as such
offer may be modified from time to time, PROVIDED that North Castle transfers
all of its shares of Common Stock to the 100% Buyer at the Section 5 Closing
and that all shares of Common Stock held by North Castle and the other
Stockholders are sold to the 100% Buyer at the same price, and on the same
terms and conditions PROVIDED FURTHER that a Stockholder shall only be
required to make, in connection with a Take-Along Sale, representations and
warranties that survive the closing of such Sale with respect to its
authority, its title to its Common Stock, certain conflicts, approvals and
litigation relating to it, and shall not be required to make any
representations or warranties with respect to the Company or its business
that survive that Closing of such Sale or with respect to any other
Stockholder. Within five Business Days prior to the closing contemplated by
the Take-Along Notice, each of the other Stockholders shall (i) deliver to
North Castle certificates representing such other Stockholder's shares of
Common Stock, duly endorsed for transfer or accompanied by duly executed
stock powers, and (ii) execute and deliver to North Castle a power of
attorney and a letter of transmittal and custody agreement in favor of North
Castle, and in form and substance reasonably satisfactory to North Castle
appointing North Castle as the true and lawful attorney-in-fact and custodian
for such other Stockholder, with full power of substitution, and authorizing
North Castle to execute and deliver a purchase and sale agreement
substantially in the form of the Draft Sale Agreement and otherwise in
accordance with the terms of this Section 5(b) and to take such actions as
North Castle may reasonably deem necessary or appropriate to effect the sale
and transfer of the shares of Common Stock
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to the 100% Buyer, upon receipt of the purchase price therefor set forth in
the Take-Along Notice at the Section 5 Closing, free and clear of all
security interests, liens, claims, encumbrances, options, and voting
agreements of whatever nature, together with all other documents delivered
with such Notice and required to be executed in connection with the sale
thereof pursuant to the Take-Along Offer. North Castle shall hold such
shares and other documents in trust for such other Stockholder for release
against payment to such Stockholder of such Stockholder's net proceeds in
accordance with the contemplated transaction. If, within 15 days after
delivery to North Castle, North Castle has not completed the sale of all of
the shares of Common Stock owned by North Castle and the other Stockholders
to the 100% Buyer and another Take-Along Notice with respect to such
Take-Along Offer has not been sent to the other Stockholders, North Castle
shall return to each other Stockholder all certificates representing the
shares and all other documents that such other Stockholder delivered in
connection with such sale. North Castle shall be permitted to send only two
Take-Along Notices with respect to any one Take-Along Offer. Promptly after
the Section 5 Closing, North Castle shall furnish such other evidence of the
completion and time of completion of such sale and the terms thereof as may
reasonably be requested by any of the other Stockholders.
(c) REMEDIES. Each of the Other Stockholders acknowledges that
North Castle would be irreparably damaged in the event of a breach or a
threatened breach by such other Stockholder of any of its obligations under
this Section 5 and each of the other Stockholders agrees that, in the event
of a breach or a threatened breach by such other Stockholder of any such
obligation, North Castle shall, in addition to any other rights and remedies
available to it in respect of such breach, be entitled to an injunction from
a court of competent jurisdiction (without any requirement to post bond)
granting it specific performance by such other Stockholder of its obligations
under this Section 5. In the event that North Castle shall file suit to
enforce the covenants contained in this Section 5 (or obtain any other remedy
in respect of any breach thereof), the prevailing party in the suit shall be
entitled to recover, in addition to all other damages to which it may be
entitled, the costs
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incurred by such party in conducting the suit, including reasonable
attorney's fees and expenses.
6. PIGGYBACK REGISTRATION RIGHTS. (a) If the Company at any time
proposes to register any shares of Common Stock under the Securities Act of
1933, as amended (the "SECURITIES ACT"), whether or not for sale for its own
account (other than pursuant to a Special Registration and the registration
form to be used may also be used for the registration of Registrable
Securities (as defined below) owned by the Stockholders, the Company shall
notify the Stockholders at least 45 days prior to the filing of the first
registration statement in connection therewith. Upon the receipt of a
written request of any Stockholder made within 20 days after such notice
(which request shall specify the Registrable Securities intended to be
disposed of by such Stockholder and the intended method of disposition
thereof), the Company will, subject to the other provisions of this Section
8, include in such registration all Registrable Securities with respect to
which the Company has received a written request for inclusion (a "PIGGYBACK
REGISTRATION"). Each such request shall also contain an undertaking from the
applicable Stockholder to provide all such information and material and to
take all actions as may be reasonably required by the Company in order to
permit the Company to comply with all applicable federal and state securities
laws.
"REGISTRABLE SECURITIES" shall mean any shares of Common Stock held
by a Stockholder other than those not acquired from the Company, an Affiliate
thereof or another Stockholder. As to any particular Registrable Securities
once issued, such securities shall cease to be Registrable Securities when
(i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement,
(ii) they shall have been distributed to the public pursuant to Rule 144, or
(iii) they shall have ceased to be outstanding.
(b) Each selling Stockholder shall pay all sales commissions or
other similar selling charges with respect to Registrable Securities sold by
such Stockholder pursuant to a Piggyback Registration. The Company shall pay
all regi-
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stration and filing fees, fees and expenses of compliance with
federal and state securities laws, printing expenses, messenger and delivery
expenses, fees and disbursements of counsel and accountants for the Company,
and reasonable fees and disbursements of one counsel for all selling
stockholders who shall be selected, if the Piggyback Registration is also a
Demand Registration, as provided in Section 7(b)(i), unless the applicable
state securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and disbursements,
in which case each Stockholder participating in the registration shall pay
its PRO RATA share of all such fees, expenses and disbursements based on its
PRO RATA share of the total number of shares being registered.
(c) If a Piggyback Registration is an underwritten registration,
only Registrable Securities which are to be distributed by the underwriters
may be included in the registration. If the managing underwriters or, if the
Piggyback Registration is not an underwritten registration, the Company's
investment bankers, advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering or will have a material adverse
effect on the price of the Registrable Securities to be sold, the Company
will include in such registration (i) if it is not a Demand Registration (as
defined below), the securities proposed to be sold by the Company for its own
account, and then Registrable Securities proposed to be sold by Stockholders
making a Piggyback Registration Request or, (ii) if such registration is a
Demand Registration, the securities proposed to be sold by the Company for
its own account, and then Registrable Securities for which registration has
been requested pursuant to Section 7(a)(i) or 7(a)(ii), in each case which
Registrable Securities shall be included in such registration in proportion
(as nearly as practicable) to the amount of Registrable Securities of the
Company owned by each such holder of Registrable Securities to the total
amount of Registrable Securities as to which a Piggyback Registration and/or
a Demand Registration request has been made. Notwithstanding the foregoing,
if the managing underwriters or, if the registration is not an underwritten
registration, the Company's investment bankers, advise the Company in
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writing that in their opinion, the inclusion in a Piggyback Registration of
Common Stock held by Management Stockholders will have a material adverse
effect on the offering, the Company will not include such Common Stock in
such registration.
(d) Notwithstanding the foregoing, if at any time after giving
written notice to the Stockholders of its intention to register any shares of
Common Stock pursuant to subsection (a) of this Section 6 and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to each Stockholder and thereupon shall be relieved of its
obligation to register Registrable Securities as part of such terminated
registration (but not from its obligation to pay expenses in connection
therewith as provided in subsection (b) above). If a registration pursuant
to this Section 6 involves an underwritten public offering and a Stockholder
requests to be included in such registration, such Stockholder may elect, in
writing prior to the effective date of the registration statement filed in
connection with such registration, not to participate in such registration.
(e) Each Stockholder agrees not to sell or offer for public sale or
distribution, including pursuant to Rule 144, any of such Stockholder's Common
Stock within 15 days prior to or 180 days after the effective date of any
registration (except as part of such registration other than a Special
Registration) with respect to which piggyback registration rights are available
pursuant to this Section 6.
7. REGISTRATION UPON REQUEST. (a) REQUEST FOR REGISTRATION. Upon
the written request of North Castle (the "INITIATING HOLDER") at any time
after the date hereof requesting that the Company effect pursuant to this
Section 7 the registration (a "DEMAND REGISTRATION") of any of such
Initiating Holders' Registrable Securities under the Securities Act (which
request shall specify the Registrable Securities so requested to be
registered, the proposed amounts thereof, and the intended method of
disposition by the Initiating Holder), the Company shall promptly give
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written notice of such requested registration to all Stockholders, and
thereupon the Company will, as expeditiously as reasonably possible, use its
commercially reasonable efforts to effect the registration under the
Securities Act of
(i) the Registrable Securities which the Company has been so requested
to register, for disposition in accordance with the intended method of
disposition stated in such request, and
(ii) all other Registrable Securities owned by Stockholders, the
holders of which shall have made a written request to the Company for
registration thereof (which request shall specify such Registrable
Securities and the proposed amounts thereof) within 30 days after the
receipt of such written notice from the Company,
all to the extent requisite to permit the disposition by the holders of the
securities constituting Registrable Securities so to be registered, PROVIDED
that the Company shall not be required to effect any registration pursuant to
this Section 7 if it is a registration with respect to which the Company is
not required to pay expenses pursuant to Section 7(b)(i) unless the Company
shall have received assurances satisfactory to it that North Castle will bear
the expenses of registration and PROVIDED, FURTHER, that each other
Stockholder proposing to register securities as part of such Demand
Registration shall agree in writing to pay its PRO RATA share of such
expenses.
(b) LIMITATIONS ON REGISTRATIONS. The registration rights granted
to Initiating Holder pursuant to this Section 7 are subject to the following
limitations:
(i) Each selling Stockholder shall pay all sales commissions or other
similar selling charges with respect to the Registrable Securities sold by
such Stockholder pursuant to a Demand Registration. In connection with
four Demand Registrations pursuant to this Section 7, the Company shall pay
all registration and filing fees, fees and expenses of compliance with
federal and state securities laws, printing expenses, messenger and
delivery expenses, fees and disbursements
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of counsel and accountants for the Company and fees and expenses of one
counsel, selected by the Initiating Holder, for all selling Stockholders
in connection with a Demand Registration, unless the applicable state
securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and
disbursements, in which case each Stockholder participating in the
registration shall pay its pro rata share of all such fees, expenses and
disbursements based on its pro rata share of the total number of shares
being registered, PROVIDED that if a Demand Registration involves,
pursuant to Section 6(c) hereof, a cutback of the number of Registrable
Securities which may be sold such that the Initiating Holder is not
permitted to register at least 50% of the Registrable Securities which
it requests to register, then such Demand Registration shall not be deemed
one of the Initiating Holder's Demand Registrations with respect to which
expenses will be paid by the Company. In all other instances, the selling
Stockholders shall pay all expenses of a Demand Registration;
(ii) the Initiating Holder shall determine the method of distribution
of the securities to be registered in a Demand Registration and if an
underwritten offering, shall select the managing underwriter of such
offering;
(iii) the Company shall not be obligated to file a registration
statement under this Section 7 unless the total number of shares of
Registrable Securities requested to be included in such offering by the
Initiating Holder equals or exceeds 5% of the number of shares of Common
Stock outstanding on a fully diluted basis;
(iv) the Company shall be entitled to postpone for a reasonable time
not exceeding 90 days the filing of any registration statement under this
Section 7 if, at the time it receives a request for a Demand Registration
pursuant thereto, the Board shall determine in good faith that such
offering will interfere with a pending financing, merger, sale of assets,
recapitalization or other similar corporation
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action which the Company is actively pursuing and is material to the
business of the Company; and
(v) a registration statement that does not become effective or does
not remain effective for the period specified in Section 8(b) shall be
deemed not to constitute a registration statement filed pursuant to this
Section 7, PROVIDED that, if such registration statement does not become
effective or does not remain effective for such period solely by reason of
the Initiating Holder's refusal to proceed, it shall be deemed to
constitute a registration statement filed pursuant to Section 7 unless the
Initiating Holder shall have elected to pay all expenses in connection with
such registration as aforesaid.
(c) Each Stockholder agrees not to sell or offer for public sale or
distribution including, pursuant to Rule 144, any of such Stockholder's
Common Stock within 15 days prior to or 180 days after the effective date of
any Demand Registration (except as part of such registration).
(d) The Company agrees not to effect any sale or distribution of
any of its equity securities or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (other
than such sale or distribution of such securities in connection with any
merger or consolidation by the Company or any subsidiary of the Company or
the acquisition by the Company or a subsidiary of the Company of the capital
stock or substantially all the assets of any other Person or in connection
with an employee stock ownership or other benefit plan) during the 15 days
prior to, and during the 180 day period which begins on, the effective date
of a registration statement filed in connection with a Demand Registration
(except as part of such registration).
8. REGISTRATION PROCEDURES. If and whenever the Company is
required to use its commercially reasonable efforts to effect the
registration of any Registrable Securities under the Securities Act as
provided in this Agreement, the Company will promptly:
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(a) prepare and file with the Securities and Exchange Commission
(the "COMMISSION") a registration statement with respect to such securities
and use its commercially reasonable efforts to cause such registration
statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement, but in no event for a
period of more than six months after such registration statement becomes
effective;
(c) at least five business days before filing with the Commission,
furnish to counsel (if any) to the selling Stockholders such registration
copies of all documents proposed to be filed with the Commission in
connection with such registration, which documents will be subject to the
review of such counsel;
(d) furnish to each seller of securities such number of conformed
copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits, except that the Company shall
not be obligated to furnish any seller of securities with more than two
copies of such exhibits), such number of copies of the prospectus comprised
in such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request in order
to facilitate the disposition of the securities owned by such seller;
(e) use its commercially reasonable efforts to register or qualify
all securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each seller shall request, and do any
and all other acts and things which may be necessary or advisable to enable
such seller to consummate the disposi-
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tion in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified, or to consent to general service of process in any
such jurisdiction;
(f) in connection with an underwritten offering only, use its
commercially reasonable efforts to furnish to each seller copies of
(i) an opinion of counsel for the Company, dated the effective date of
the registration statement, and
(ii) a "comfort" letter signed by the independent public accountants
who have certified the Company's financial statements included in the
registration statement,
each covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountant's letters delivered to the underwriters in
underwritten public offerings of securities;
(g) notify each seller of any securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller prepare
and furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated
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therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least 12 months, but not more than 18 months, beginning with
the first month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(i) use its commercially reasonable efforts to list the Registrable
Securities covered by such registration statement on any securities exchange
(including NASDAQ), if such securities are not already so listed and if such
listing is then permitted under the rules of such exchange, and to provide a
transfer agent and registrar for such Registrable Securities not later than
the effective date of such registration statement;
(j) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(k) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities (including, without limitation, effecting a
stock split or a combination of shares);
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification
of any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order.
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The Company may require each seller of any securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing in order to permit the
Company to comply with all applicable federal and state securities laws.
The Company shall make available for inspection by any seller of
securities as to which any registration is being effected, any underwriter
participating in any disposition pursuant to the related registration
statement, and any attorney, accountant or other agent retained by any such
seller or any such underwriter (collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries, if any, as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and shall cause
the Company's and its subsidiaries' officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by
any such Inspector in connection with such registration statement.
Each Stockholder hereby agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
8(g), such holder will promptly discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 8(g), and, if so
directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such holder's
possession of the prospectus covering such Registrable Securities current at
the time of receipt of such notice. In the event the Company shall give such
notice, the period mentioned in Section 8(b) shall be extended by the number
of days during the period from and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received such notice to but not including the date when each such seller
receives copies of the supplemented or amended prospectus contemplated by
Section 8(g).
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9. INDEMNIFICATION. (a) The Company agrees to indemnify, to the
extent permitted by law, each Stockholder participating in a registration
pursuant to this Agreement, the officers and directors of such Stockholder
and each Person that controls such Stockholder (within the meaning of the
Securities Act) against any and all losses, claims, damages, liabilities and
expenses, including all reasonable legal fees incurred therewith, arising out
of, based upon or resulting from any untrue statement or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances then existing or any violation or
alleged violation by the Company of any federal, state, foreign or common law
rule or regulation applicable to the Company and relating to action required
of or inaction by the Company in connection with any such registration,
except insofar as the same result from or are contained in any information
furnished in writing to the Company by such Stockholder and stated to be
specifically for use therein or, in the case of an underwritten offering
only, from such Stockholder's failure to deliver a copy of the registration
statement, prospectus or preliminary prospectus or any amendments thereof or
supplements thereto.
(b) Each Stockholder participating in a registration pursuant to
this Agreement agrees to indemnify, to the extent permitted by law, the
Company, its directors and officers and each Person that controls the Company
(within the meaning of the Securities Act) against any and all losses,
claims, damages, liabilities and expenses, including all reasonable legal
fees incurred in connection therewith, arising out of, based upon or
resulting from any untrue statement or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, 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 in light
of the circumstances then existing, but only to the extent that such untrue
statement or (as to the matters set forth in such information or affidavit)
omission is con-
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tained in any information or affidavit furnished to the Company in writing by
such Stockholder and stated to be expressly for use therein and except
insofar as the same result from the Company's failure to deliver a copy of
the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, PROVIDED that such Stockholder's
obligations hereunder shall be limited to an amount equal to the proceeds to
such Stockholder of the Registrable Securities sold pursuant to such
registration statement.
(c) In connection with an underwritten offering, the Company and
each Stockholder participating in the related registration will indemnify the
underwriter(s), their officers and directors and each Person who controls
such underwriter(s) (within the meaning of the Securities Act) to the same
extent as provided in subsections (a) and (b), respectively, above.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subsections of this Section 9, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, PROVIDED
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the
preceding subsections of this Section 9, except to the extent that the
indemnifying party is actually and materially prejudiced by such failure to
give notice. In any case in which any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory (taking into account, among other factors, any potential
exposure of the indemnified party to criminal liability) to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
unless, in the reasonable judgment of any such indemnified party, a
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conflict of interest may exist between such indemnified party and any
indemnifying party or any other of such indemnified parties, in which case
the indemnifying party shall be liable to such indemnified party for any
reasonable legal or other expenses incurred in defending such action. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. Notwithstanding the
foregoing, and without limiting any of the rights set forth above, in any
event any party will have the right to retain, at its own expense, counsel
with respect to the defense of a claim.
(e) If for any reason the foregoing indemnity is unavailable, then
the indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (I) in such proportion as is appropriate to reflect the relative
benefits (which relative benefits with respect to such offering shall be
deemed to be in the same proportion as the respective net proceeds received
from such offering by the Company and the Stockholders determined as set
forth on the table on the cover page of the prospectus) received by the
indemnifying party on the one hand and the indemnified party on the other or
(ii) if the allocation provided by subdivision (i) above is not permitted by
applicable law or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnifying party on
the one hand and the indemnified party on the other but also the relative
fault of the indemnifying party and the indemnified party (which relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Stockholders, the intent of the parties and their relative
knowledge, access to information and opportunity to prevent or correct such
statement or omission) as well as any other relevant equitable consideration.
Notwithstanding the foregoing, (A) no holder of Registrable Securities shall
be required to contribute any amount in excess of the amount such holder
would have been required to
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pay to an indemnified party if the indemnity under subsection (b) of this
Section 9 was available and (B) no underwriter, if any, shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this Section 9 shall be several in
proportion to their respective underwriting commitments and not joint.
(f) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this Section 9 to
or for the account of the indemnified party from time to time promptly upon
receipt of bills or invoices relating thereto or when otherwise due and
payable.
10. AFFILIATE TRANSACTIONS. The Company will not engage in any
transaction or series of related transactions (other than Exempted
Transactions) with North Castle or any of North Castle's Affiliates and any
successor to any such person unless (i) the transaction (or series of related
transactions) is on terms and conditions no less favorable than would be
obtainable by the Company in an arm's-length transaction and the Chief
Financial Officer of the Company delivers to the Board and to AEA a
certificate to such effect and (ii) if the transaction (or series of related
transactions) involves an amount more than $1 million, a majority of the
members of the Board who are not officers, employees or managing members of
the Company, North Castle or an Affiliate of North Castle shall have approved
such transactions in writing or at a duly convened meeting of the Board.
11. MANAGEMENT STOCKHOLDERS.
(a) CALL OPTION. In the event of a Management Stockholder's
termination of employment at the Company for
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any reason other than for death or permanent disability, the Company shall
have an option (a "Call Option") to purchase from the Management Stockholder
all (but not less than all) of the Management Stockholder's Covered Equity at
a price equal to the fair market value of the Covered Equity determined as of
the date of repurchase by the Board of Directors of the Company in its sole
discretion. If the Company desires to exercise the Call Option, it shall
give written notice thereof to the Management Stockholder within 60 days of
the occurrence of the event giving rise to such Call Option. Such Call
Option shall expire if such notice is not given within such 60-day period.
The Management Stockholder shall deliver to the Company certificates
representing the Covered Equity, free and clear of all claims, liens, or
encumbrances, together with blank stock powers, duly executed with all
signature guarantees at a closing at the principal office of the Company on
the third business day after notice has been given to the Management
Stockholder, or at such other place and time and in such manner as may be
mutually agreed to by the Management Stockholder and the Company. The net
proceeds from the purchase of the Covered Equity pursuant to the Call Option
(the "Call Option Proceeds") shall be paid by a check, which shall be
delivered to the Management Stockholder at the closing of such purchase.
(b) TERMINATION OF CALL OPTION. All rights and obligations
created pursuant to Section 11(a) shall be extinguished upon the earlier of
(i) the fifth anniversary of this Agreement or (ii) a Public Offering.
(c) PUT OPTIONS. In the event of (i) the permanent disability of
the Management Stockholder so that he is unable substantially to perform his
services as an employee of the Company for an aggregate of 180 days during
any twelve-month period or (ii) the death of the Management Stockholder, the
Management Stockholder or, in the event of death, the deceased Management
Stockholder's administrator or executor, shall have the option (the "Put
Option"), exercisable by the giving of notice thereof to the Company within
120 days of the occurrence of the event giving rise to such Put Option,
which, in the case of permanent disability, shall mean the 180th day of
inability to perform services as an employee of the Company, to sell to the
Company, and the Company upon exercise of such Put Option
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shall buy from the Management Stockholder or the deceased Management
Stockholder's administrator or executor, as the case may be, all (but not
less than all) of the Management Stockholder's Covered Equity, at a price per
share equal to the fair market value of the Covered Equity determined as of
the date of repurchase by the Board of Directors of the Corporation in its
sole discretion. Such Put Option shall expire if such notice is not given
within such 120-day period. The Management Stockholder, or the deceased
Management Stockholder's administrator or executor, shall deliver to the
Company certificates representing the Covered Equity, free and clear of all
claims, liens, or encumbrances, together with blank stock powers, duly
executed with all signature guarantees at a closing at the principal office
of the Company on the third business day after notice has been given to the
Company or at such other place and time and in such manner as may be mutually
agreed to by the Management Stockholder, or the deceased Management
Stockholder's administrator or executor, and the Company. The net proceeds
from the purchase of the Covered Equity pursuant to the Management
Stockholder Option (the "Put Option Proceeds") shall be paid by a check,
which shall be delivered to the Management Stockholder at the closing of such
purchase. The obligations of the Company to purchase the Management
Stockholder's Covered Equity pursuant to this Section 11(c) shall be deferred
during any period in which such purchase would not be permitted by applicable
law or could cause the Company to be in default under any agreement to which
it or its Subsidiaries are a party.
(d) TERMINATION OF PUT OPTION. All rights and obligations created
pursuant to Section 11(c) shall be extinguished upon the earlier of (i) the
fifth anniversary of this Agreement or (ii) a Public Offering.
12. SEVERABILITY. If any provision of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstance shall not have
the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision or provisions herein contained invalid, inoperative or
unenforceable to any extent whatsoever. The invalidity of any one or more
phrases, sentences, clauses, Sections or subsections of this Agreement shall
not affect the remaining portions of this Agreement.
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13. INFORMATION. (a) Each of the Stockholders agrees that, from
the date of this Agreement and for so long as it shall own any Covered
Equity, it will furnish the Company such necessary information and reasonable
assistance as the Company may reasonably request (x) in connection with the
consummation of the transactions contemplated by this Agreement, (y) in
connection with the preparation and filing of any reports, filings,
applications, consents or authorizations with any Governmental Entity under
any Applicable Laws and (z) in order for the Company to determine, from time
to time, whether it is a "personal holding company" within the meaning of
Section 542 of the Code. Each Stockholder proposing to make a transfer
pursuant to Section 4(a) shall provide the Company with any information
reasonably requested in order for the Company to determine whether the
proposed transfer would be a Prohibited Transaction.
(b) Within 90 days of the end of each fiscal year, the Company
shall mail to each Stockholder a report setting forth an audited balance
sheet as at the end of such fiscal year and audited statements of income,
common shareholders' equity and cash flows for such fiscal year of the
Company and its Subsidiaries on a consolidated basis, and any other
information the Company deems necessary or desirable. The Company will
furnish quarterly financial statements to Stockholders as requested.
(c) The Company also will furnish to AEA such other information as
AEA may from time to time reasonably request on behalf of itself or the other
Covered Shareholders.
14. CERTAIN DEFINITIONS.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly Controlling, Controlled by or under common Control
with such first Person.
"APPLICABLE LAWS" means all applicable provisions of (i)
constitutions, treaties, statutes, laws (including the common law), rules,
regulations, ordinances, codes or orders of any Governmental Entity, (ii) any
consents or approvals of any Governmental Entity and (iii) any orders,
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decisions, injunctions, judgments, awards, decrees of or agreements with any
Governmental Entity.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required to
close.
"CHANGE OF CONTROL" means any transaction or series transaction,
the result of which is that North Castle no longer has the right to nominate
a majority of the members of the Board.
"CODE" means the Internal Revenue Code of 1986, as amended.
COMMON STOCK" means all shares of any class common stock of the
Company, whether voting or non-voting, outstanding from time to time.
"CONTROL" means the power to direct the affairs of a Person by
reason of ownership of voting securities, by contract or otherwise.
"COVERED EQUITY" means all of the shares of Common Stock, preferred
stock or other equity interest in the Company, and any other security,
warrant or other right that is or may allow the holder thereof to receive
Common Stock or preferred stock or other equity interest, owned from time to
time by any of the Stockholders.
"COVERED SHAREHOLDERS AGREEMENTS" means the agreements between AEA
and the Covered Shareholders pursuant to which the Covered Shareholders have
appointed AEA as their representative and have granted AEA a proxy to vote
their Common Stock in accordance with the provisions of this Agreement.
"EXCHANGE OFFER" means the exchange offer for the Company's senior
subordinated notes due 2007 to be made by the Leiner Health Products Inc.
("Leiner") in accordance with the registration rights agreement among Leiner,
Merrill Lynch Pierce, Fenner & Smith incorporated, Salomon Brothers Inc and
Scotia Capital Markets (USA) Inc.
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"EXEMPTED TRANSACTIONS" means (i) the investment banking services
provided by North Castle Partners, L.L.C. (the "Sponsor") in connection with
the recapitalization of the Company consummated as of the date hereof, in
consideration of which the Company has agreed to pay the Sponsor a fee of
$3.5 million and (ii) the ongoing monitoring and management services to be
provided to the Company, in consideration of which the Company has agreed to
pay the Sponsor an annual fee of $1.5 million.
"GOVERNMENTAL ENTITY" means any federal, state, local or foreign
court, legislative, executive or regulatory authority or agency.
"INFORMATION" means all information about the Company or any of its
subsidiaries (whether written or oral or in electronic or other form and
whether prepared by the Company, its advisers or otherwise), that is or has
been furnished to any Stockholder or any of its Representatives by or on
behalf of the Company or any of its subsidiaries, or any of their respective
Representatives, together with all written or electronically stored
documentation prepared by such Stockholder or its Representatives based on or
reflecting, in whole or in part, such information, PROVIDED that the term
"Information" does not include any information that (X) is or becomes
generally available to the public through no action or omission by any
Stockholder or its Representatives or (y) is or becomes available to such
Stockholder on a nonconfidential basis from a source, other than the Company
or any of its subsidiaries, or any of their respective Representatives, that
to the best of such Stockholder's knowledge, after reasonable inquiry, is not
prohibited from disclosing such portions to such investor by a contractual,
legal or fiduciary obligation.
"MANAGEMENT STOCKHOLDER" means any stockholder who is as of the
date hereof or later becomes, a consultant to or an officer or employee of
the Company other than Michael Leiner and David Brubaker.
"PERSON" means any natural person, firm, individual, partnership,
joint venture, business trust, trust, association, corporation, company or
unincorporated entity.
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"PROHIBITED TRANSFER" means any transfer of Covered Equity to a
Person which (u) may not be effected without registering the securities
involved under the Securities Act, (v) would result in the assets of the
Company constituting Plan Assets as such term is defined in the Department of
Labor regulations promulgated under the Employer Retirement Income Security
Act of 1974, as amended, (x) would cause the Company to be, be Controlled by
or under common Control with an "investment company" for purposes of the
Investment Company Act of 1940, as amended, or (y) would require any
securities of the Company to be registered under the Securities and Exchange
Act of 1934, as amended.
"PUBLIC OFFERING" means any sale of Common Stock to the public
pursuant to an effective registration statement under the Securities Act
underwritten by an underwriter of national standing other than a Special
Registration.
"REPRESENTATIVES" means with respect to any Person, any of such
Person's directors, officers, employees, general partners, affiliates,
attorneys, accountants, financial and other advisers, and other agents and
representatives, including in the case of any Stockholder any person
nominated to the Board by such Stockholder.
"RULE 144" means Rule 144 (or any successor provision) under the
Securities Act.
"SPECIAL REGISTRATION": (a) The registration of shares of equity
securities and/or options or other rights in respect thereof to be offered to
Management Stockholders or (b) the registration of equity securities and/or
options or other rights in respect thereof solely on Form S-4 or S-8 or any
successor form.
"SPECIFIED AFFILIATE" means (a) with respect to any Person, any
other Person directly or indirectly Controlling, Controlled by or under
common Control with such first person solely by virtue of having the power to
direct the affairs of the Person by reason of ownership, directly or
indirectly, of at least 75% of the outstanding voting securities of such
Person, (b) with respect to any Management Stockholder, Michael Leiner, David
Brubaker or Charles F. Baird, Jr., a Specified Affiliate shall include
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(i) a spouse or any lineal ancestor or descendant, and (ii) the trustee or
trustees of a trust or trusts at any time established for the primary benefit
of the Stockholder or the spouse or any lineal ancestor or descendant of the
Stockholder to whom such Management Stockholder or Charles F. Baird, Jr.
proposes to transfer its Common Stock and who has agreed to be bound by this
Agreement, and (c) with respect to AEA and the Covered Shareholders, any
current or future employee, shareholder, director or officer of AEA, any
spouse, issue, parents or other relatives of any of the foregoing or of any
Covered Shareholder or (i) trusts for the benefit of any of such Persons,
(ii) entities controlling or controlled by any of such Persons and (iii) in
the event of the death of any such individual Person, heirs or testamentary
legatees of such Person, in each case to whom AEA or a Covered Shareholder
has proposed to transfer its Common Stock and who has entered into a Covered
Shareholders Agreement and thereby or otherwise agrees to be bound by this
Agreement.
15. NOTICES. All notices and other communications made in
connection with this Agreement shall be in writing. Any notice or other
communication in connection herewith shall be deemed duly given to any party
(a) two Business Days after it is sent by express, registered or certified
mail, return receipt requested, postage prepaid or (b) one Business Day after
it is sent by overnight courier guaranteeing next day delivery, in each case,
addressed as follows or, to such other address as may be specified in writing
to the other parties hereto:
(i) if to the Company:
Leiner Health Products Group Inc.
901 E. 233rd Street
Carson, CA 90745
Facsimile: (310) 952-7766
Telephone: (310) 835-8400
Attention: Robert M. Kaminski
(ii) if to North Castle:
North Castle Partners I, L.L.C.
11 Meadowcroft Lane
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Greenwich, CT 06830
Attention: Charles F. Baird, Jr.
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Facsimile: (212) 909-6836
Telephone: (212) 909-6000
Attention: Franci J. Blassberg, Esq.
(iii) if to the other Stockholders, at the addresses set forth on the
signature pages hereto
Any party may give any notice or other communication in connection herewith
using any other means (including, but not limited to, personal delivery,
messenger service, facsimile, telex or ordinary mail), but no such notice or
other communication shall be deemed to have been duly given unless and until
it is actually received by the individual for whom it is intended.
16. TERM. This Agreement shall be effective as of the date hereof
and shall terminate and be of no further force and effect upon the earliest
to occur of (i) the tenth anniversary of the date hereof, (ii) the
termination of this Agreement by the unanimous written consent of the
Stockholders, (iii) the establishment of a Public Market for the Common Stock
or (iv) a Change of Control except that the registration rights provided in
Section 6 and Section 7 will survive until AEA and the Covered Shareholders
(as a group) and North Castle each owns Common Stock representing less than
5% of the Company's outstanding Common Stock. A "PUBLIC MARKET" for the
Common Stock shall be deemed to have been established at such time as 20% of
the Common Stock (on a fully diluted basis) shall have been sold to the
public pursuant to an effective registration statement under the Securities
Act other than a Special Registration.
17. HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
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18. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter
hereof. Without limiting the foregoing, the Company and each Stockholder who
is party to a Participants' Subscription Agreement or a Management
Subscription Agreement hereby agree that such agreement is hereby terminated
and superseded by this Agreement.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute one and the same instrument.
20. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and performed within such State.
21. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors
and permitted assigns.
22. ASSIGNMENT. This Agreement shall not be assignable by any
party without the prior written consent of the other parties.
23. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
confer any rights upon any Person other than the parties hereto and each such
party's respective heirs, successors and permitted assigns.
24. AMENDMENT; WAIVERS, ETC. If AEA and Covered Shareholders own
5% or more of the outstanding Common Stock, then AEA must consent in writing
to any amendment hereto. If AEA and Covered Shareholders own less than 5% of
the outstanding Common Stock, 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 have obtained the
written consent to such amendment, action or omission to act, of the holder
or holders of at least 66 2/3% of the shares of Common Stock outstanding as of
the date hereof, PROVIDED that this Agreement may not be amended in a manner
adversely affecting any Stockholder which does not adversely affect all
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Stockholders without the consent of such Stockholder PROVIDED, FURTHER, that
in no event may the provisions of this agreement with respect to the Piggy
Back Registration Rights (including the Company's obligations thereunder) or
the Tag-Along Rights be amended without the consent in writing of AEA. No
amendment, modification or discharge of this Agreement, and no waiver
hereunder, shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment,
modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in
such writing and shall in no way impair the rights of the party granting such
waiver in any other respect or at any other time.
25. CONSENT TO JURISDICTION. Each party irrevocably submits to the
exclusive jurisdiction of (A) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern
District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated
hereby (and agrees not to commence any such suit, action or other proceeding
except in such courts). Each party further agrees that service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth or referred to in Section 14 shall be effective
service of process for any such suit, action or other proceeding. Each party
irrevocably and unconditionally waives any objection to the laying of venue
of any such suit, action or other proceeding in (i) the Supreme Court of the
State of New York, New York County, and (ii) the United States District Court
for the Southern District of New York, that any such suit, action or other
proceeding brought in any such court has been brought in an inconvenient
forum.
26. WAIVER OF JURY TRIAL. Each party hereby waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury
in respect of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each party (a) certifies
that no representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (b) acknowledges that it
and the other parties have been induced to enter
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into the Agreement by, among other things, the mutual waivers and
certifications in this Section 25.
27. AEA AUTHORITY. AEA hereby represents and warrants to each
other party hereto that, pursuant to the Covered Shareholders Agreements, it
has been duly authorized to execute this Agreement, and to exercise all
rights and perform all obligations hereunder, on behalf of each Covered
Shareholder.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement by their authorized representatives as of the date first above
written.
LEINER HEALTH PRODUCTS GROUP INC.
By:______________________________
Name:
Title:
NORTH CASTLE PARTNERS I, L.L.C.
By: Baird Investment Group, L.L.C.,
its managing member
By: Charles F. Baird, Jr.,
its managing member
_________________________
AEA INVESTORS INC.
For itself and on behalf of the
Covered Shareholders
By:________________________________
Christine J. Smith
General Counsel
35
<PAGE>
STOCKHOLDER
By:_____________________________
Name:
(Please Print)
Address of the Stockholder:
Telephone:_______________________
Telecopy: _______________________
Date of execution: December __ , 1977
36
<PAGE>
AEA INVESTORS INC.
By:_______________________________
Name:
65 East 55th Street
27th Floor
New York, New York 10022
Telephone: (212) 644-5900
Telecopy: (212) 888-1459/1457
37
<PAGE>
EXHIBIT 10.2
LEINER HEALTH PRODUCTS GROUP INC.
STOCK PURCHASE PLAN
Section 1. PURPOSE. The purpose of this Leiner Health Products
Group Inc. Stock Purchase Plan is to foster and promote the long-term
financial success of the Company and its Subsidiaries and to increase
materially stockholder value by (a) motivating superior performance by
participants in the Plan, (b) providing participants in the Plan with an
ownership interest in the Company and (c) enabling the Company and the
Subsidiaries to attract and retain the services of an outstanding management
team upon whose judgment, interest and special effort the successful conduct
of its operations is largely dependent.
Section 2. DEFINITIONS.
2.1. DEFINITIONS. Whenever used herein, the following terms shall
have the respective meanings set forth below:
(1) "Board" means the Board of Directors of the Company.
(2) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(3) "Company" means Leiner Health Products Group Inc., a Delaware
corporation, and any successor thereto.
(4) "Employee" means any director, executive, senior officer or
other key employee of the Company or any Subsidiary and includes an
individual retirement account (IRA) established by any such Employee.
(5) "Participant" means any Employee designated by the Board to
participate in the Plan.
(6) "Plan" means this Leiner Health Products Group Inc. Stock
Purchase Plan, as the same may be amended from time to time.
(7) "Shares" means the shares of Common Stock acquired by a
Participant pursuant to the Plan.
<PAGE>
(8) "Subscription Agreement" means a stock subscription agreement
between the Company and the Participant embodying the terms of any stock
purchase made pursuant to the Plan.
(9) "Subsidiary" means any corporation a majority of whose
outstanding voting securities is owned, directly or indirectly, by the
Company.
2.2. GENDER AND NUMBER. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
Section 3. ELIGIBILITY AND PARTICIPATION. Participants in the
Plan shall be those Employees selected by the Board to participate in the
Plan. The selection of an Employee as a Participant shall neither entitle
such Employee to nor disqualify such Employee from participation in any other
award or incentive plan.
Section 4. POWERS OF THE BOARD.
4.1. POWER TO GRANT. Except as otherwise provided hereby, the
Board shall determine the Participants to whom offers to purchase Common
Stock under the Plan shall be made and the terms and conditions of any and
all such offers made to Participants.
4.2. ADMINISTRATION. The Board shall be responsible for the
administration of the Plan. Any authority exercised by the Board under the
Plan shall be exercised by the Board in its sole discretion. Subject to the
terms of the Plan, the Board, by majority action thereof, is authorized to
prescribe, amend and rescind rules and regulations relating to the
administration of the Plan, to provide for conditions and assurances deemed
necessary or advisable to protect the interests of the Company and the
Subsidiaries, and to make all other determinations necessary or advisable for
the administration and interpretation of the Plan in order to carry out its
provisions and purposes. Determinations, interpretations or other actions
made or taken by the Board pursuant to the provisions of the Plan shall be
final, binding and conclusive for all purposes and upon all persons.
4.3 DELEGATION BY THE BOARD. All of the powers, duties and
responsibilities of the Board specified in the Plan may, to the full extent
permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to
exercise and perform such powers, duties and responsibilities.
2
<PAGE>
Section 5. SHARES OF COMMON STOCK SUBJECT TO PLAN.
5.1. NUMBER. Subject to the provisions of Section 5.2, the maximum
number of shares of Common Stock subject to offers made under the Plan may
not exceed 20,000. The shares of Common Stock to be delivered upon the
purchase of any Common Stock under the Plan may consist, in whole or in part,
of treasury Common Stock or authorized but unissued Common Stock, not
reserved for any other purpose.
5.2. ADJUSTMENT IN CAPITALIZATION. The number, class and purchase
price of shares of Common Stock available for issuance under the Plan may be
adjusted by the Board, in its sole discretion, if it shall deem such an
adjustment to be necessary or appropriate to reflect any Common Stock
dividend, stock split or share combination or any recapitalization, merger,
consolidation, exchange of shares, liquidation or dissolution of the Company,
PROVIDED, that as required by applicable California law, the Board must make
such adjustment in the event the Board shall have specified a number of
Shares that an Employee is permitted to acquire but the Employee shall not
yet have purchased such Shares.
Section 6. TERMS OF OFFERS TO PURCHASE COMMON STOCK.
6.1. OFFERS TO PURCHASE COMMON STOCK. Offers to purchase Common
Stock may be made to Participants at such time or times upon or following the
date hereof as shall be determined by the Board. Each purchase of Common
Stock by a Participant shall be made pursuant to a Subscription Agreement
that shall include customary representations, warranties, covenants and other
terms and conditions with respect to securities law matters and such other
terms and conditions consistent with the Plan as the Board shall determine.
Each Participant purchasing Shares shall execute and deliver a Stockholders
Agreement (the "Stockholders Agreement"), in the form of the stockholders
agreement, dated June 30, 1997, among the shareholders of the Company, the
terms of which are hereby incorporated by reference.
6.2. PURCHASE PRICE. The purchase price per share of Common Stock
to be purchased under the Plan shall be determined by the Board, PROVIDED,
that, as required by applicable California law, in no event shall such
purchase price be less than 85% of the fair market value of such Shares at
the time the Shares are offered to, or purchased by, a Participant.
Section 7. AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN.
The Board at any time may terminate or suspend the Plan, and from time to
time may amend or modify the Plan. No amendment, modification, termination
or suspension of the Plan shall in any manner adversely affect the rights of
any Participant with respect
3
<PAGE>
to any Shares purchased hereunder by such Participant prior to such action
unless such Participant consents. Shareholder approval of any such
amendment, modification, termination or suspension shall be obtained to the
extent mandated by applicable law, or if otherwise deemed appropriate by the
Board.
Section 8. MISCELLANEOUS PROVISIONS.
8.1. NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the
Plan or in any Subscription Agreement shall interfere with or limit in any
way the right of the Company or any Subsidiary to terminate any Participant's
employment or membership on the Board at any time, or confer upon any
Participant any right to continue in the employ of the Company or any
Subsidiary or as a member of the Board. No Employee shall have a right to be
selected as a Participant or, having been so selected, to receive any offers
to purchase Common Stock under the Plan.
8.2. INDEMNIFICATION. Each person who is or shall have been a
member of the Board or any committee of the Board shall be indemnified and
held harmless by the Company to the fullest extent permitted by law from and
against any and all losses, costs, liabilities and expenses (including any
related attorneys' fees and advances thereof) in connection with, based upon
or arising or resulting from any claim, action, suit or proceeding to which
he may be made a party or in which he may be involved by reason of any action
taken or failure to act under the Plan and from and against any and all
amounts paid by him in settlement thereof, with the Company's approval, or
paid by him in satisfaction of any judgment in any such action, suit or
proceeding against him, PROVIDED that he shall give the Company an
opportunity, at its own expense, to defend the same before he undertakes to
defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive and shall be independent of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or By-laws, by contract, as a matter of law, or
otherwise.
8.3. NO LIMITATION ON COMPENSATION. Nothing in the Plan shall be
construed to limit the right of the Company or any Subsidiary to establish
other plans or to pay compensation to its employees or directors, in cash or
property, in a manner that is not expressly authorized under the Plan.
8.4. REQUIREMENTS OF LAW. The offer, sale and issuance of shares
of Common Stock pursuant to the Plan shall be subject to all applicable laws,
rules and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required. No such offers or sales
shall be made under the Plan, and no shares of Common Stock shall be issued
under the Plan, if such offer, sale or
4
<PAGE>
issuance would result in a violation of applicable law, including the federal
securities laws and any applicable state or foreign securities laws.
8.5. FREEDOM OF ACTION. Subject to Section 7, nothing in the Plan
or any Subscription Agreement shall be construed as limiting or preventing
the Company or any Subsidiary from taking any action that it deems
appropriate or in its best interest.
8.6. TERM OF PLAN. The Plan shall be effective as of the date
hereof and shall continue in effect, unless sooner terminated pursuant to
Section 7, until the earlier of the tenth anniversary of the date hereof and
the date on which all shares of Common Stock to be offered pursuant to
Section 7 of the Plan have been issued.
8.7. NO VOTING RIGHTS. Except as otherwise required by law, no
Participant under the Plan shall have any right to vote on any matter
submitted to the Company's stockholders until such time as he has purchased
shares of Common Stock under the Plan and become a stockholder of the Company.
8.8. GOVERNING LAW. The Plan, and all agreements hereunder, shall
be governed by and construed in accordance with the laws of the State of
Delaware, regardless of the law that might be applied under principles of
conflict of laws.
8.9. NONTRANSFERABILITY RIGHTS. No Participant may transfer or
assign his rights or obligations under this Plan or any Subscription
Agreement, except by way of testamentary or intestate decent and distribution
and in compliance with the Stockholders Agreement. Subject to the terms of
the Stockholders Agreement, the foregoing shall in no way limit the right of
any Participant to transfer any Shares acquired by such Participant.
8.10. SHAREHOLDER VOTE. As required by applicable California law,
the Board shall submit this Plan to the shareholders of the Company for
approval no later than the one-year anniversary of the date hereof. If this
Plan shall not be approved by the shareholders of the Company, any purchase
and sale of Common Stock pursuant hereto shall be rescinded.
8.11. FINANCIAL INFORMATION. The Company will distribute or cause
to be distributed to each Participant that holds Shares acquired pursuant
hereto the financial statements of the Company as of the end of each fiscal
year.
5
<PAGE>
EXHIBIT A
[Form of Stock Subscription Agreement]
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
STOCK SUBSCRIPTION AGREEMENT, dated as of December __, 1997,
between Leiner Health Products Group Inc., a Delaware corporation (the
"COMPANY"), and the Purchaser whose name appears on the signature page
hereof (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, to foster and promote the long-term financial success of
the Company, the Company wishes to provide for the acquisition of ownership
interests in the Company by executives, senior officers and other key
employees of the Company and its direct and indirect subsidiaries;
WHEREAS, to such end, the Board of Directors of the Company has
adopted the Leiner Health Products Group Inc. Stock Purchase Plan (the
"Stock Purchase Plan");
WHEREAS, the Company will issue and sell up to an aggregate of
20,000 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), to certain purchasers who are directors, executives, senior
officers or other key employees of the Company or one of its direct or
indirect subsidiaries (each, an "Employee"), pursuant to the Stock Purchase
Plan;
WHEREAS, pursuant to a Confidential Offering Memorandum, dated
November 17, 1997 (the "Offering Memorandum"), a copy of which has been
furnished to the Purchaser, the Purchaser has been offered the opportunity to
purchase Common Stock;
WHEREAS, the Purchaser desires to subscribe for and purchase, and
the Company desires to sell to the Purchaser, the aggregate number of shares
of Common Stock set forth on the signature page hereof (each a "Share" and,
collectively, the "Shares");
NOW, THEREFORE, to implement the foregoing and in consideration of
the mutual agreements contained herein, the parties hereto hereby agree as
follows:
<PAGE>
1. PURCHASE AND SALE OF COMMON STOCK.
(a) PURCHASE OF COMMON STOCK. Subject to all of the terms and
conditions of this Agreement, the Purchaser hereby subscribes for and shall
purchase, and the Company shall sell to the Purchaser, the number of Shares
set forth on the signature page hereof (or, if the Company delivers a Cutback
Notice (as defined below) to the Purchaser, the number of shares specified
therein), at a purchase price of $100.00 per Share, at the Closing provided
for in Section 2(a) hereof. Notwithstanding anything in this Agreement to
the contrary, the Company shall have no obligation to sell any Common Stock
to (i) any person who will not be an Employee of the Company or of a direct
or indirect subsidiary of the Company immediately following the Closing at
which such Common Stock is to be sold or (ii) any person who is a resident of
a jurisdiction in which the sale of Common Stock to him would constitute a
violation of the securities, "blue sky" or other laws of such jurisdiction.
(b) CUTBACK NOTICE. In the event the Company receives Stock
Subscription Agreements from Employees subscribing for an aggregate number of
Shares in excess of 20,000, the Company will have the right, in its sole
discretion, to deliver a notice (the "Cutback Notice") to the Purchaser,
setting forth the number of Shares (not to exceed the number set forth on the
signature page hereof) that the Purchaser shall purchase. The Company shall
deliver any Cutback Notice to the Purchaser no later than two business days
prior to the Closing (as defined below).
(c) CONSIDERATION. Subject to all of the terms and conditions of
this Agreement, the Purchaser shall deliver to the Company at the Closing
referred to in Section 2(a) hereof a check in an amount equal to $100.00
multiplied by the number of Shares to be purchased by the Purchaser, as
determined pursuant to paragraphs (a) and (b) of this Section 1.
2. CLOSING.
(a) TIME AND PLACE. Except as otherwise agreed by the Company and
the Purchaser, the closing (the "Closing") of the transaction contemplated
by this Agreement shall be held at the offices of the Company, 901 East 233rd
Street, Carson, California 90745-6204 at 10:00 a.m. (local time) on December
19, 1997.
(b) DELIVERY BY THE COMPANY. At the Closing the Company shall
deliver to the Purchaser a stock certificate registered in such Purchaser's
name and representing the Shares, which certificate shall bear the legends
set forth in Section 3(b).
2
<PAGE>
(c) DELIVERY BY THE PURCHASER. At the Closing the Purchaser shall
deliver to the Company (i) the consideration referred to in Section 1(c)
hereof and (ii) a Stockholders Agreement (the "Stockholders Agreement"),
executed by the Purchaser, in the form attached as Exhibit D to the Offering
Memorandum.
3. PURCHASER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) INVESTMENT INTENTION. The Purchaser represents and warrants
that he (or it in the case of an IRA) is acquiring the Shares solely for his
(or its, as the case may be) own account for investment and not with a view
to or for sale in connection with any distribution thereof. The Purchaser
agrees that he or it will not, directly or indirectly, offer, transfer, sell,
pledge, hypothecate or otherwise dispose of any of the Shares (or solicit any
offers to buy, purchase or otherwise acquire or take a pledge of any Shares),
except in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder, and in compliance with
applicable state and foreign securities or "blue sky" laws. The Purchaser
further understands, acknowledges and agrees that none of the Shares may be
transferred, sold, pledged, hypothecated or otherwise disposed of unless the
provisions of the Stockholders Agreement shall have been complied with or
have expired.
(b) LEGENDS. The Purchaser acknowledges that the certificate or
certificates representing the Shares shall bear an appropriate legend, which
will include, without limitation, the following language:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF
(EACH, A "TRANSFER") UNLESS AND UNTIL REGISTERED UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS SUCH TRANSFER IS (A)
EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT
AND SUCH LAWS IN THE OPINION OF COUNSEL TO THE STOCKHOLDER, WHICH
COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE,
REASONABLY SATISFACTORY TO THE ISSUER AND (B) IN COMPLIANCE WITH THE
STOCKHOLDERS AGREEMENT OF THE ISSUER, DATED AS OF
3
<PAGE>
JUNE 30, 1997, AND ANY AMENDMENTS, "STOCKHOLDERS AGREEMENT").
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER SET FORTH IN THE STOCKHOLDERS AGREEMENT,
COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
COMPANY. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF
THE COMPANY, AND SUCH TRANSFER SHALL BE VOIDABLE, UNLESS ACCOMPANIED
BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT."
(c) SECURITIES LAW MATTERS. The Purchaser acknowledges receipt of
advice from the Company that (i) the Shares have not been registered under
the Securities Act or any state or foreign securities or "blue sky" laws,
(ii) it is not anticipated that there will be any public market for the
Shares, (iii) the Shares must be held indefinitely and the Purchaser must
continue to bear the economic risk of the investment in the Shares unless the
Shares are subsequently registered under the Securities Act and such state or
foreign laws or an exemption from registration is available, (iv) Rule 144
promulgated under the Securities Act ("Rule 144") is not presently
available with respect to sales of securities of the Company and the Company
has made no covenant to make Rule 144 available, (v) when and if the Shares
may be disposed of without registration in reliance upon Rule 144, such
disposition can generally be made only in limited amounts in accordance with
the terms and conditions of such Rule, (vi) the Company does not plan to file
reports with the Commission or make information concerning the Company
publicly available unless required to do so by applicable law or pursuant to
its financing documents, (vii) if the exemption afforded by Rule 144 is not
available, sales of the Shares may be difficult to effect because of the
absence of public information concerning the Company, (viii) a restrictive
legend in the form heretofore set forth shall be placed on the certificates
representing the Shares and, pursuant to the Stockholders Agreement, the
Shares will be subject to restrictions on transfers and to rights of third
parties with respect thereto and (ix) a notation shall be made in the
appropriate records of the Company indicating that the Shares are subject to
restrictions on transfer set forth in the Stockholders Agreement and, if the
Company should in the future engage the services of a stock transfer agent,
appropriate stop-transfer restrictions will be issued to such transfer agent
with respect to the Shares.
(d) COMPLIANCE WITH RULE 144. If any of the Shares are to be
disposed of in accordance with Rule 144, the Purchaser shall transmit to the
Company an executed copy of Form 144 (if required by Rule 144) no later than
the time such form
4
<PAGE>
is required to be transmitted to the Commission for filing and such other
documentation as the Company may reasonably require to assure compliance with
Rule 144 in connection with such disposition. The Purchaser understands that
the Stockholders Agreement provides and the Purchaser hereby agrees that, in
general, in the event the Company files a registration statement, the
Purchaser may not effect any public offer or sale of Shares (including under
Rule 144) within 15 days prior or 180 days after the effective date of the
registration (except as part of such registration).
(e) ACCESS TO INFORMATION. The Purchaser represents and warrants
that (i) such Purchaser has carefully reviewed the Offering Memorandum
(including the Debt Registration Statement attached as Exhibit B thereto),
the Stock Purchase Plan and the other materials furnished to him or it in
connection with the transaction contemplated hereby and (ii) he or it has
been granted the opportunity to ask questions of, and receive answers from,
representatives of the Company concerning the terms and conditions of the
purchase of the Shares and to obtain any additional information that he deems
necessary to verify the accuracy of the information contained in the Offering
Memorandum and such other materials.
(f) TAX MATTERS. The Purchaser acknowledges that he or it will be
solely responsible for any and all tax liabilities payable by him or it in
connection with his or its receipt, ownership and disposition of the Shares.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Purchaser that (a) the Company has been duly
incorporated and is an existing corporation in good standing under the laws
of the State of Delaware, (b) this Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and legally
binding obligation of the Company enforceable against the Company in
accordance with its terms, and (c) the Shares, when issued, delivered and
paid for in accordance with the terms hereof, will be duly and validly
issued, fully paid and nonassessable, and free and clear of any liens or
encumbrances other than those created pursuant to this Agreement, or
otherwise in connection with the transactions contemplated hereby.
5. STOCKHOLDERS AGREEMENT. The Purchaser hereby acknowledges and
agrees that, for all purposes of the Stockholders Agreement, with respect to
the Purchaser the date of the Stockholders Agreement shall be the date of
this Agreement.
6. PURCHASE BY IRA. The Purchaser may, by so indicating where
provided on the signature page hereof, direct the Company to issue the Shares
to an individual retirement account ("IRA") established for the benefit of
the Purchaser. In such event, (i) the IRA shall be considered the Purchaser
for purposes of Section 2(c)(i)
5
<PAGE>
hereof, (ii) the Purchaser agrees to cause the Shares to be voted in
accordance with the terms of the Stockholders Agreement, and (iii) the IRA
shall be considered a Management Investor for the purposes of the
Stockholders Agreement, PROVIDED that, for purposes of determining the rights
and obligations created by Sections 11(a) and (c) of the Stockholders
Agreement, the Purchaser shall be deemed to be the owner of the Shares.
7. NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
made by hand delivery, by telecopier (PROVIDED that receipt is confirmed by
telephone or a copy is sent by overnight courier), by registered or certified
mail, postage prepaid, return receipt requested, or by overnight courier
addressed as follows:
(i) if to the Company, to the address for notices set forth in the
Stockholders Agreement; and
(ii) if to the Purchaser, to the address set forth on the signature
page hereof.
All such notices and communications shall be deemed to have been received on
the date of delivery if delivered personally, on the date of confirmation if
delivered by telecopier, or on the third business day after the mailing
thereof.
8. BINDING EFFECT; BENEFITS; This Agreement shall be binding upon
the parties to this Agreement and their respective successors and assigns and
shall inure to the benefit of the parties to this Agreement and their
respective successors and assigns.
9. WAIVER; AMENDMENT.
(a) WAIVER. Any party hereto or beneficiary hereof may by written
notice to the other parties (i) extend the time for the performance of any of
the obligations or other actions of the other parties under this Agreement,
(ii) waive compliance with any of the conditions or covenants of the other
parties contained in this Agreement and (iii) waive or modify performance of
any of the obligations of the other parties under this Agreement. Except as
provided in the preceding sentence no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf
of any party or beneficiary shall be deemed to constitute a waiver by the
party or beneficiary taking such action of compliance with any
representations, warranties, covenants or agreements contained herein. The
waiver by any party hereto or beneficiary hereof of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by a
6
<PAGE>
party to exercise any right or privilege hereunder shall be deemed a waiver
of such party's or beneficiary's rights or privileges hereunder or shall be
deemed a waiver of such party's or beneficiary's rights to execute the same
at any subsequent time or times hereunder.
(b) AMENDMENT. This Agreement may not be amended, modified or
supplemented orally, but only by a written instrument executed by the
Purchaser and the Company.
10. ASSIGNABILITY. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or the Purchaser without the prior written consent
of the other party.
11. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
12. SECTION AND OTHER HEADINGS, ETC. The section and other
headings contained in this Agreement for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the date first above written.
LEINER HEALTH PRODUCTS GROUP INC.
By:________________________________
Name:
Title:
THE PURCHASER:
By:________________________________
Name:
(Please Print)
___________________________________
___________________________________
Address of the Purchaser:
Total Number of Shares of
Common Stock to be
Purchased: ___________________________________
I wish to have the Shares issued to my
individual retirement account:
___ ___
Yes No
If yes, title of account: ________________________
8
<PAGE>
EXHIBIT B
[Form of Stockholders Agreement]
<PAGE>
================================================================================
LEINER HEALTH PRODUCTS GROUP INC.
STOCKHOLDERS AGREEMENT
Dated as of June 30, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Nominating. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Removal and Replacement of Nominees . . . . . . . . . . . . . . . 2
(c) Chairman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Voting, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Charter and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Board Approval; Notice of Board Meetings. . . . . . . . . . . . . 4
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Restrictions on Disposition; Right of First
Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Restrictions on Disposition . . . . . . . . . . . . . . . . . . . 5
(b) Subsequent Dispositions . . . . . . . . . . . . . . . . . . . . . 7
(c) Right of First Refusal. . . . . . . . . . . . . . . . . . . . . . 7
4. Tag-Along Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Take-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Take-Along Notice . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Conditions to Take-Along . . . . . . . . . . . . . . . . . . . . 10
(c) Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Piggyback Registration Rights . . . . . . . . . . . . . . . . . . . . . 12
7. Registration Upon Request . . . . . . . . . . . . . . . . . . . . . . . 15
8. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10. Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 27
11. Management Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Call Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Termination of Call Option. . . . . . . . . . . . . . . . . . . . 28
(c) Put Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Termination of Put Option . . . . . . . . . . . . . . . . . . . . 29
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PAGE
----
12. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
14. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
17. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
20. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
21. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
22. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
23. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . 37
24. Amendment; Waivers, Etc.. . . . . . . . . . . . . . . . . . . . . . . . 37
25. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 38
26. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . 39
27. AEA Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ii
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STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of June 30, 1997, among Leiner
Health Products Group Inc., a Delaware corporation (the "COMPANY"), North
Castle Partners I, L.L.C., a Delaware limited liability company ("NORTH
CASTLE"), AEA Investors Inc., a Delaware corporation ("AEA"), and each other
person who is or, becomes party to this Agreement (collectively, with North
Castle, AEA and the Covered Shareholders (as defined below), the
"STOCKHOLDERS"). Capitalized terms used herein without otherwise being
defined herein are defined in Section 14.
W I T N E S S E T H:
WHEREAS, North Castle, AEA and each other Stockholder hold shares
of Common Stock;
WHEREAS, the parties hereto wish to set forth certain rights and
obligations that shall attach to the ownership of Common Stock and other
Covered Equity held by certain of the Stockholders;
WHEREAS, AEA has entered into Covered Shareholder Agreements with
holders (the "COVERED SHAREHOLDERS") of 516,861 shares of Class A Common
Stock, 10,000 shares of Class B Common Stock and 140,731 shares of Class C
Common Stock, which upon consummation of the merger (the "MERGER") described
in the Merger Agreement (as defined below) will be converted into shares of
Common Stock, pursuant to which AEA has been appointed representative of such
shareholders for purposes of this Agreement; and
WHEREAS, it is a condition to the consummation of the Stock
Purchase Agreement and Agreement and Plan of Merger, dated as of May 31, 1997
(the "MERGER AGREEMENT"), between the Company, North Castle and LHP
Acquisition Corp. that the parties enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto hereby agree as follows:
<PAGE>
1. BOARD OF DIRECTORS.
(a) NOMINATING. Until such time as AEA and the Covered
Shareholders have sold or transferred (other than through sales or transfers
to AEA or Covered Shareholders) in excess of 50% of the Common Stock held by
AEA and the Covered Shareholders upon the consummation of the Merger, AEA
shall be entitled to nominate one person for election to the board of
directors (the "BOARD") of the Company. So long as it owns at least 40% of
the Common Stock, North Castle shall be entitled to nominate all other
persons for election to the Board, which shall not exceed ten persons in the
aggregate for so long as AEA is entitled to nominate one individual for
election to the Board pursuant to this Section 1(a). If it owns less than 40%
of the Common Stock, North Castle shall be entitled to nominate a number of
directors bearing the same relationship to the total number of directors on
the Board as the number of shares of Common Stock then held by North Castle
bears to the then outstanding shares of Common Stock. The Company and each
of the other parties hereto agrees to take all steps within their power,
including voting any voting Common Stock owned or controlled by them or any
of their Affiliates, to cause any person so nominated to be elected to the
Board by action of the Stockholders of the Company.
(b) REMOVAL AND REPLACEMENT OF NOMINEES. (i) At any time at which
any party shall have exercised its rights to nominate a director pursuant to
Section 1(a) and such party shall determine to remove one or more of its
nominated directors, with or without cause, the Company and each of the
Stockholders agrees to take all steps within their power, including voting
(or causing ro be voted) any voting Common Stock owned or controlled by them
or any of their Affiliates, to cause such director to be so removed from the
Board by action of the stockholders of the Company. At any time at which any
party shall have exercised its rights to nominate a director pursuant to
Section 1(a) and a vacancy shall be created on any of the Board as a result
of the death, disability, retirement, resignation or removal, with or without
cause, of a director nominated by such party, (x) the Board will request such
party to nominate a candidate to be appointed by the Board to fill such
vacancy or (y) in the event that a candidate to fill such vacancy is to be
elected at the annual meeting of stockholders of the Com-
2
<PAGE>
pany, such party shall have the right to nominate the individual to fill such
vacancy, and the provisions of paragraph 1(a) above shall apply with respect
to the nomination and election of such nominee to fill such vacancy.
(ii) Each of the parties hereto further agrees (x) if a candidate
nominated by any party or parties to fill any vacancy on the Board in
accordance with paragraph (b)(i) above shall not have been appointed to fill
such vacancy within ten Business Days of the Board having been given the name
of such candidate by the nominating party or parties, then each of the
parties hereto (other than the Company) shall act by written consent, or call
a special meeting of stockholders of the Company for the sole purpose of
filling such vacancy, and in such written consent or at such special meeting,
vote or cause to be voted the voting Common Stock of the Company held or
controlled by such party or any Affiliate of such party in favor of the
candidate nominated to fill such vacancy, (y) other than as provided in
Section 1(b)(i), no party hereto shall vote, or give any consent, in favor of
the removal as a director of the Company of any candidate nominated by any
other party, and (z) if, in connection with the election of any candidate
nominated by another party in accordance herewith for election as a director
of the Company any party hereto fails or refuses to vote as required by this
Section 1, or votes or gives any consent or proxy in contravention of this
Section 1, the respective nominating party shall have an irrevocable proxy
(which irrevocable proxy shall revoke any proxy previously given by the
defaulting party in contravention of this Section 1) pursuant to Section
212(e) of the General Corporation Law of the State of Delaware, coupled with
an interest, to vote, all the voting Common Stock of the Company held or
controlled by such party in accordance with this Section 1, and each party
hereto hereby grants such proxy.
(c) CHAIRMAN. The Chairman of the Board shall be selected by
directors from one of North Castle's nominees.
2. VOTING, ETC. (a) STOCKHOLDER APPROVAL. Neither the Certificate
of Incorporation nor the By-Laws of the Company shall contain any provision
requiring a vote of a supermajority of the outstanding shares of Common Stock
for any matter, except as required by law.
3
<PAGE>
(b) CHARTER AND BYLAWS. The parties agree that the provisions of
the Company's certificate of incorporation and bylaws will not (i) conflict
with the terms of this Agreement or (ii) be amended in a manner adversely
effecting any Stockholder which does not adversely affect all Shareholders
without such Stockholder's consent.
(c) BOARD APPROVAL; NOTICE OF BOARD MEETINGS. All actions
requiring the approval of the Board shall be approved by a majority of the
directors present at any duly convened Board meeting or without a meeting by
written consent of a majority of the members of the Board, in each case in
accordance with the provisions of the Delaware General Corporation Law. The
Company agrees to give any director nominated by AEA no less than three
Business Days' prior notice of any meeting of the Board or, in the case of a
telephonic Board meeting, two Business Days' prior notice.
(d) CONFIDENTIALITY. Each of the Stockholders agrees to keep
confidential and not to disclose to any Person any Information provided to it
by or on behalf of the Company or any of its Subsidiaries, or obtained by the
Stockholder; PROVIDED that nothing contained herein shall prevent any
Stockholder from disclosing such Information to (i) any of the other
Stockholders, (ii) any of its Representatives, PROVIDED that such Stockholder
(w) informs each of its Representatives receiving any such Information of its
confidential nature and of this provision and its terms, (x) uses its
reasonable best efforts to cause its Representatives to treat such
Information confidentially in accordance herewith, and otherwise to comply
herewith as if parties hereto, and (iii) any member of the Board. If any
Stockholder or any of its Representatives is requested to disclose any such
Information by any Governmental Entity, such Stockholder will promptly notify
the Company to permit it to seek a protective order or take other action that
the Company in its discretion deems appropriate, and such Stockholder will
cooperate in any such efforts to obtain a protective order or other
reasonable assurance that confidential treatment will be accorded such
Information. If, in the absence of a protective order, such Stockholder or
any of its Representatives is compelled as a matter of law to disclose any
such Information in any proceeding or pursuant to legal process, such
Stockholder may disclose to the party compelling disclosure only the part of
such
4
<PAGE>
Information as is required by law to be disclosed (in which case, prior to
such disclosure, such Stockholder will advise and consult with the Company
and its counsel as to such disclosure and the nature and wording of such
disclosure) and such Stockholder will use its reasonable best efforts to
obtain confidential treatment therefor.
3. RESTRICTIONS ON DISPOSITION; RIGHT OF FIRST REFUSAL.
(a) RESTRICTIONS ON DISPOSITION. Prior to a Public Offering, no
Stockholder may sell, transfer, pledge, encumber or otherwise dispose of any
Covered Equity to any Person (other than the Company) except, at any time
after the earlier of (A) the consummation of the Exchange Offer and (B) the
date 180 days after consummation date of the Merger, as follows (a "PERMITTED
TRANSFER"):
(i) to any Specified Affiliate of such Stockholder, PROVIDED that such
Specified Affiliate agrees in writing to become a party to this Agreement
and PROVIDED FURTHER that such Specified Affiliate delivers to the Company
(x) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company, to the effect that the transfer is not a
Prohibited Transfer, and (y) a certificate of the transferor and the
transferee, to the effect that the transferee is a Specified Affiliate of
the transferor;
(ii) to any other Stockholder, PROVIDED that such transferee
Stockholder delivers an opinion of counsel to the Company, which opinion
and counsel shall be reasonably satisfactory to the Company, to the effect
that the transfer is not a Prohibited Transfer;
(iii) any transfer of Common Stock in a public offering if such
stock has been registered pursuant to Section 6 or 7;
(iv) any transfer of Common Stock pursuant to Sections 4 and 5; and
(v) following the first anniversary of the date hereof, any transfer
of Common Stock to a person who is not a Stockholder or a Specified
Affiliate of the
5
<PAGE>
transferor, subject to compliance with the right of first refusal provided
in Section 3(c), PROVIDED that the transferee (x) agrees in writing to
become a party to this Agreement and (y) delivers an opinion of counsel to
the Company, which opinion shall be reasonably satisfactory to the
Company, to the effect that the transfer is not a Prohibited Transfer;
Each Stockholder shall give the Company at least 15 days prior notice of any
proposed disposition of any Covered Equity pursuant to a Permitted Transfer
described in this Section 3(a), and prompt notice of any such actual
disposition. Any sale, transfer, pledge, encumbrance or other disposition of
any Covered Equity other than pursuant to a Permitted Transfer shall be void
and of no effect. The Company agrees to provide such certificates with
respect to factual matters involving the Company as may be reasonably
requested by a Stockholder or its counsel in connection with a proposed
Permitted Transfer. Notwithstanding the foregoing, no Management Stockholder
may effect any Permitted Transfer (except of the type described in clauses
(i), (iii) and (iv) of this Section 3.1(a)) until the earlier to occur of (x)
the fifth anniversary of this Agreement and (y) the termination of such
Management Stockholder's employment with the Company.
(b) SUBSEQUENT DISPOSITIONS. Following any Public Offering, any
Stockholder may transfer Common Stock to any Person, PROVIDED that, except
with respect to a transfer of the type described in Sections 3(a)(iii) and
(iv), the transferee must deliver to the Company an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to the Company, to the
effect that such transfer is not required to be registered under the
Securities Act.
(c) RIGHT OF FIRST REFUSAL. If a Stockholder other than North
Castle (a "SELLING HOLDER") desires to make a Permitted Transfer pursuant to
clause (v) of Section 3(a) following an offer (which offer must be in
writing, be irrevocable by its terms for at least 15 Business Days and be a
bona fide offer) from any prospective purchaser to purchase all or any part
of the Common Stock owned by such Selling Holder, such Selling Holder shall
give notice (the "NOTICE OF OFFER") in writing to the Board and to North
6
<PAGE>
Castle (i) designating the number of shares of Common Stock that such Selling
Holder proposes to sell (the "OFFERED SHARES"), (ii) naming the prospective
purchaser thereof (the "DESIGNATED PURCHASER") and (iii) specifying the price
(the "OFFER PRICE") and terms (the "OFFER TERMS") upon which such Selling
Holder desires to sell the same. During the 15 Business Day period following
receipt of such notice by the Company and North Castle (the "REFUSAL PERIOD")
such Selling Holder shall not be permitted to accept such offer, but may
submit a new Notice of Offer in respect of any revised offer in accordance
with and subject to this Section 3(c). During the Refusal Period, North
Castle or any Affiliate of North Castle, including any pooled investment
vehicle organized by the managing member of North Castle or by any of its
Affiliates shall have the right to purchase from the Selling Holder at the
Offer Price and on the Offer Terms all, but not less than all, of the Offered
Shares. The right provided hereunder shall be exercised by written notice to
the Selling Holder and the Company given at any time during the Refusal
Period. If such right is exercised, North Castle or its Affiliate shall
deliver to the Selling Holder payment of the Offer Price in accordance with
the Offer Terms, against delivery of appropriately endorsed certificates or
other instruments representing the Offered Shares. If North Castle fails to
subscribe for the Offered Shares during the Refusal Period, the Selling
Holder may sell to the Designated Purchaser the Offered Shares at the Offer
Price and on the Offer Terms.
4. TAG-ALONG RIGHTS. If any of North Castle or its Affiliates or
successors desires to make a Permitted Transfer pursuant to clauses (ii) and
(v) of Section 3(a), which transfer, together with all prior transfers by
North Castle or its Affiliates or successors involves more than 5% of the
Common Stock owned by North Castle on the date hereof, following an offer
(which offer must be in writing, be irrevocable by its terms for at least 35
Business Days and be a bona fide offer) from any prospective purchaser to
purchase all or any part of the Common Stock owned by North Castle, North
Castle shall give a Notice of Offer in writing to the Board and the other
Stockholders (i) designating the number of Offered Shares, (ii) naming the
Designated Purchaser and (iii) specifying the Offer Price and Offer Terms.
During the 20 Business Day period following receipt of such notice by the
Company and the other Stockholders,
7
<PAGE>
the other Stockholders shall have the right (a "TAG-ALONG RIGHT") exercised
by delivery of a written notice to North Castle and the Company, to
participate in such sale to the Designated Purchaser at the Offer Price and
on the Offer Terms on a PRO RATA basis determined as the quotient determined
by dividing (A) the percentage of Common Stock held by each Stockholder so
electing to sell (each such Person, an "ACCEPTING STOCKHOLDER") by (B) the
aggregate percentage of Common Stock represented by the Common Stock then
held by all of the Accepting Stockholders and North Castle. The Company
shall notify each Accepting Stockholder at least ten Business Days prior to
the closing of the proposed sale by North Castle of the number of Offered
Shares which each such Accepting Stockholder may sell and such Accepting
Stockholder shall deliver into trust, three or more Business Days prior to
the closing certificates or other instruments representing the Offered Shares
duly endorsed for transfer or duly executed stock powers for release against
payment to such Accepting Stockholder of such Accepting Stockholder's net
proceeds paid for the shares of such Stockholder at the closing of such sale.
5. TAKE-ALONG RIGHTS.
(a) TAKE-ALONG NOTICE. If North Castle intends to effect a sale (a
"TAKE-ALONG SALE") of all of its shares of Common Stock to a non-Affiliate
third party (a "100% BUYER") prior to a Public Offering and elects to
exercise its rights under this Section 5, North Castle shall deliver written
notice (a "TAKE-ALONG NOTICE") to the Company and the other Stockholders,
which notice shall (i) state (w) that North Castle wishes to exercise its
rights under this Section 5 with respect to such transfer, (x) the name and
address of the 100% Buyer, (y) the per share amount and form of consideration
North Castle proposes to receive for its shares of Common Stock and (z)
drafts of purchase and sale documentation setting forth the terms and
conditions of payment of such consideration and all other material terms and
conditions of such transfer (the "DRAFT SALE AGREEMENT"), (ii) contain an
offer (the "TAKE-ALONG OFFER") by the 100% Buyer to purchase from the other
Stockholders all of their shares of Common Stock, on and subject to the same
price, terms and conditions offered to North Castle and (iii) state the
anticipated time and place of the closing of such transfer (a "SECTION 5
CLOSING"), which (subject to
8
<PAGE>
such terms and conditions) shall occur not fewer than 15 days nor more than
90 days after the date such Take-Along Notice is delivered, PROVIDED that if
such Section 5 Closing shall not occur prior to the expiration of such 90-day
period, North Castle shall be entitled to deliver another Take-Along Notice
with respect to such Take-Along Offer. Upon request of North Castle, the
Company shall provide North Castle with a current list of the names and
addresses of the other Stockholders.
(b) CONDITIONS TO TAKE-ALONG. Upon delivery of a Take-Along
Notice, each of the other Stockholders shall have the obligation to transfer
all of its shares of Common Stock pursuant to the Take-Along Offer, as such
offer may be modified from time to time, PROVIDED that North Castle transfers
all of its shares of Common Stock to the 100% Buyer at the Section 5 Closing
and that all shares of Common Stock held by North Castle and the other
Stockholders are sold to the 100% Buyer at the same price, and on the same
terms and conditions PROVIDED FURTHER that a Stockholder shall only be
required to make, in connection with a Take-Along Sale, representations and
warranties that survive the closing of such Sale with respect to its
authority, its title to its Common Stock, certain conflicts, approvals and
litigation relating to it, and shall not be required to make any
representations or warranties with respect to the Company or its business
that survive that Closing of such Sale or with respect to any other
Stockholder. Within five Business Days prior to the closing contemplated by
the Take-Along Notice, each of the other Stockholders shall (i) deliver to
North Castle certificates representing such other Stockholder's shares of
Common Stock, duly endorsed for transfer or accompanied by duly executed
stock powers, and (ii) execute and deliver to North Castle a power of
attorney and a letter of transmittal and custody agreement in favor of North
Castle, and in form and substance reasonably satisfactory to North Castle
appointing North Castle as the true and lawful attorney-in-fact and custodian
for such other Stockholder, with full power of substitution, and authorizing
North Castle to execute and deliver a purchase and sale agreement
substantially in the form of the Draft Sale Agreement and otherwise in
accordance with the terms of this Section 5(b) and to take such actions as
North Castle may reasonably deem necessary or appropriate to effect the sale
and transfer of the shares of Common Stock
9
<PAGE>
to the 100% Buyer, upon receipt of the purchase price therefor set forth in
the Take-Along Notice at the Section 5 Closing, free and clear of all
security interests, liens, claims, encumbrances, options, and voting
agreements of whatever nature, together with all other documents delivered
with such Notice and required to be executed in connection with the sale
thereof pursuant to the Take-Along Offer. North Castle shall hold such
shares and other documents in trust for such other Stockholder for release
against payment to such Stockholder of such Stockholder's net proceeds in
accordance with the contemplated transaction. If, within 15 days after
delivery to North Castle, North Castle has not completed the sale of all of
the shares of Common Stock owned by North Castle and the other Stockholders
to the 100% Buyer and another Take-Along Notice with respect to such
Take-Along Offer has not been sent to the other Stockholders, North Castle
shall return to each other Stockholder all certificates representing the
shares and all other documents that such other Stockholder delivered in
connection with such sale. North Castle shall be permitted to send only two
Take-Along Notices with respect to any one Take-Along Offer. Promptly after
the Section 5 Closing, North Castle shall furnish such other evidence of the
completion and time of completion of such sale and the terms thereof as may
reasonably be requested by any of the other Stockholders.
(c) REMEDIES. Each of the Other Stockholders acknowledges that
North Castle would be irreparably damaged in the event of a breach or a
threatened breach by such other Stockholder of any of its obligations under
this Section 5 and each of the other Stockholders agrees that, in the event
of a breach or a threatened breach by such other Stockholder of any such
obligation, North Castle shall, in addition to any other rights and remedies
available to it in respect of such breach, be entitled to an injunction from
a court of competent jurisdiction (without any requirement to post bond)
granting it specific performance by such other Stockholder of its obligations
under this Section 5. In the event that North Castle shall file suit to
enforce the covenants contained in this Section 5 (or obtain any other remedy
in respect of any breach thereof), the prevailing party in the suit shall be
entitled to recover, in addition to all other damages to which it may be
entitled, the costs
10
<PAGE>
incurred by such party in conducting the suit, including reasonable
attorney's fees and expenses.
6. PIGGYBACK REGISTRATION RIGHTS. (a) If the Company at any time
proposes to register any shares of Common Stock under the Securities Act of
1933, as amended (the "SECURITIES ACT"), whether or not for sale for its own
account (other than pursuant to a Special Registration and the registration
form to be used may also be used for the registration of Registrable
Securities (as defined below) owned by the Stockholders, the Company shall
notify the Stockholders at least 45 days prior to the filing of the first
registration statement in connection therewith. Upon the receipt of a
written request of any Stockholder made within 20 days after such notice
(which request shall specify the Registrable Securities intended to be
disposed of by such Stockholder and the intended method of disposition
thereof), the Company will, subject to the other provisions of this Section
8, include in such registration all Registrable Securities with respect to
which the Company has received a written request for inclusion (a "PIGGYBACK
REGISTRATION"). Each such request shall also contain an undertaking from the
applicable Stockholder to provide all such information and material and to
take all actions as may be reasonably required by the Company in order to
permit the Company to comply with all applicable federal and state securities
laws.
"REGISTRABLE SECURITIES" shall mean any shares of Common Stock held
by a Stockholder other than those not acquired from the Company, an Affiliate
thereof or another Stockholder. As to any particular Registrable Securities
once issued, such securities shall cease to be Registrable Securities when
(i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement,
(ii) they shall have been distributed to the public pursuant to Rule 144, or
(iii) they shall have ceased to be outstanding.
(b) Each selling Stockholder shall pay all sales commissions or
other similar selling charges with respect to Registrable Securities sold by
such Stockholder pursuant to a Piggyback Registration. The Company shall pay
all regi-
11
<PAGE>
stration and filing fees, fees and expenses of compliance with
federal and state securities laws, printing expenses, messenger and delivery
expenses, fees and disbursements of counsel and accountants for the Company,
and reasonable fees and disbursements of one counsel for all selling
stockholders who shall be selected, if the Piggyback Registration is also a
Demand Registration, as provided in Section 7(b)(i), unless the applicable
state securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and disbursements,
in which case each Stockholder participating in the registration shall pay
its PRO RATA share of all such fees, expenses and disbursements based on its
PRO RATA share of the total number of shares being registered.
(c) If a Piggyback Registration is an underwritten registration,
only Registrable Securities which are to be distributed by the underwriters
may be included in the registration. If the managing underwriters or, if the
Piggyback Registration is not an underwritten registration, the Company's
investment bankers, advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering or will have a material adverse
effect on the price of the Registrable Securities to be sold, the Company
will include in such registration (i) if it is not a Demand Registration (as
defined below), the securities proposed to be sold by the Company for its own
account, and then Registrable Securities proposed to be sold by Stockholders
making a Piggyback Registration Request or, (ii) if such registration is a
Demand Registration, the securities proposed to be sold by the Company for
its own account, and then Registrable Securities for which registration has
been requested pursuant to Section 7(a)(i) or 7(a)(ii), in each case which
Registrable Securities shall be included in such registration in proportion
(as nearly as practicable) to the amount of Registrable Securities of the
Company owned by each such holder of Registrable Securities to the total
amount of Registrable Securities as to which a Piggyback Registration and/or
a Demand Registration request has been made. Notwithstanding the foregoing,
if the managing underwriters or, if the registration is not an underwritten
registration, the Company's investment bankers, advise the Company in
12
<PAGE>
writing that in their opinion, the inclusion in a Piggyback Registration of
Common Stock held by Management Stockholders will have a material adverse
effect on the offering, the Company will not include such Common Stock in
such registration.
(d) Notwithstanding the foregoing, if at any time after giving
written notice to the Stockholders of its intention to register any shares of
Common Stock pursuant to subsection (a) of this Section 6 and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to each Stockholder and thereupon shall be relieved of its
obligation to register Registrable Securities as part of such terminated
registration (but not from its obligation to pay expenses in connection
therewith as provided in subsection (b) above). If a registration pursuant
to this Section 6 involves an underwritten public offering and a Stockholder
requests to be included in such registration, such Stockholder may elect, in
writing prior to the effective date of the registration statement filed in
connection with such registration, not to participate in such registration.
(e) Each Stockholder agrees not to sell or offer for public sale or
distribution, including pursuant to Rule 144, any of such Stockholder's Common
Stock within 15 days prior to or 180 days after the effective date of any
registration (except as part of such registration other than a Special
Registration) with respect to which piggyback registration rights are available
pursuant to this Section 6.
7. REGISTRATION UPON REQUEST. (a) REQUEST FOR REGISTRATION. Upon
the written request of North Castle (the "INITIATING HOLDER") at any time
after the date hereof requesting that the Company effect pursuant to this
Section 7 the registration (a "DEMAND REGISTRATION") of any of such
Initiating Holders' Registrable Securities under the Securities Act (which
request shall specify the Registrable Securities so requested to be
registered, the proposed amounts thereof, and the intended method of
disposition by the Initiating Holder), the Company shall promptly give
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written notice of such requested registration to all Stockholders, and
thereupon the Company will, as expeditiously as reasonably possible, use its
commercially reasonable efforts to effect the registration under the
Securities Act of
(i) the Registrable Securities which the Company has been so requested
to register, for disposition in accordance with the intended method of
disposition stated in such request, and
(ii) all other Registrable Securities owned by Stockholders, the
holders of which shall have made a written request to the Company for
registration thereof (which request shall specify such Registrable
Securities and the proposed amounts thereof) within 30 days after the
receipt of such written notice from the Company,
all to the extent requisite to permit the disposition by the holders of the
securities constituting Registrable Securities so to be registered, PROVIDED
that the Company shall not be required to effect any registration pursuant to
this Section 7 if it is a registration with respect to which the Company is
not required to pay expenses pursuant to Section 7(b)(i) unless the Company
shall have received assurances satisfactory to it that North Castle will bear
the expenses of registration and PROVIDED, FURTHER, that each other
Stockholder proposing to register securities as part of such Demand
Registration shall agree in writing to pay its PRO RATA share of such
expenses.
(b) LIMITATIONS ON REGISTRATIONS. The registration rights granted
to Initiating Holder pursuant to this Section 7 are subject to the following
limitations:
(i) Each selling Stockholder shall pay all sales commissions or other
similar selling charges with respect to the Registrable Securities sold by
such Stockholder pursuant to a Demand Registration. In connection with
four Demand Registrations pursuant to this Section 7, the Company shall pay
all registration and filing fees, fees and expenses of compliance with
federal and state securities laws, printing expenses, messenger and
delivery expenses, fees and disbursements
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of counsel and accountants for the Company and fees and expenses of one
counsel, selected by the Initiating Holder, for all selling Stockholders
in connection with a Demand Registration, unless the applicable state
securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and
disbursements, in which case each Stockholder participating in the
registration shall pay its pro rata share of all such fees, expenses and
disbursements based on its pro rata share of the total number of shares
being registered, PROVIDED that if a Demand Registration involves,
pursuant to Section 6(c) hereof, a cutback of the number of Registrable
Securities which may be sold such that the Initiating Holder is not
permitted to register at least 50% of the Registrable Securities which
it requests to register, then such Demand Registration shall not be deemed
one of the Initiating Holder's Demand Registrations with respect to which
expenses will be paid by the Company. In all other instances, the selling
Stockholders shall pay all expenses of a Demand Registration;
(ii) the Initiating Holder shall determine the method of distribution
of the securities to be registered in a Demand Registration and if an
underwritten offering, shall select the managing underwriter of such
offering;
(iii) the Company shall not be obligated to file a registration
statement under this Section 7 unless the total number of shares of
Registrable Securities requested to be included in such offering by the
Initiating Holder equals or exceeds 5% of the number of shares of Common
Stock outstanding on a fully diluted basis;
(iv) the Company shall be entitled to postpone for a reasonable time
not exceeding 90 days the filing of any registration statement under this
Section 7 if, at the time it receives a request for a Demand Registration
pursuant thereto, the Board shall determine in good faith that such
offering will interfere with a pending financing, merger, sale of assets,
recapitalization or other similar corporation
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<PAGE>
action which the Company is actively pursuing and is material to the
business of the Company; and
(v) a registration statement that does not become effective or does
not remain effective for the period specified in Section 8(b) shall be
deemed not to constitute a registration statement filed pursuant to this
Section 7, PROVIDED that, if such registration statement does not become
effective or does not remain effective for such period solely by reason of
the Initiating Holder's refusal to proceed, it shall be deemed to
constitute a registration statement filed pursuant to Section 7 unless the
Initiating Holder shall have elected to pay all expenses in connection with
such registration as aforesaid.
(c) Each Stockholder agrees not to sell or offer for public sale or
distribution including, pursuant to Rule 144, any of such Stockholder's
Common Stock within 15 days prior to or 180 days after the effective date of
any Demand Registration (except as part of such registration).
(d) The Company agrees not to effect any sale or distribution of
any of its equity securities or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (other
than such sale or distribution of such securities in connection with any
merger or consolidation by the Company or any subsidiary of the Company or
the acquisition by the Company or a subsidiary of the Company of the capital
stock or substantially all the assets of any other Person or in connection
with an employee stock ownership or other benefit plan) during the 15 days
prior to, and during the 180 day period which begins on, the effective date
of a registration statement filed in connection with a Demand Registration
(except as part of such registration).
8. REGISTRATION PROCEDURES. If and whenever the Company is
required to use its commercially reasonable efforts to effect the
registration of any Registrable Securities under the Securities Act as
provided in this Agreement, the Company will promptly:
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(a) prepare and file with the Securities and Exchange Commission
(the "COMMISSION") a registration statement with respect to such securities
and use its commercially reasonable efforts to cause such registration
statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement, but in no event for a
period of more than six months after such registration statement becomes
effective;
(c) at least five business days before filing with the Commission,
furnish to counsel (if any) to the selling Stockholders such registration
copies of all documents proposed to be filed with the Commission in
connection with such registration, which documents will be subject to the
review of such counsel;
(d) furnish to each seller of securities such number of conformed
copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits, except that the Company shall
not be obligated to furnish any seller of securities with more than two
copies of such exhibits), such number of copies of the prospectus comprised
in such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request in order
to facilitate the disposition of the securities owned by such seller;
(e) use its commercially reasonable efforts to register or qualify
all securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each seller shall request, and do any
and all other acts and things which may be necessary or advisable to enable
such seller to consummate the disposi-
17
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tion in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified, or to consent to general service of process in any
such jurisdiction;
(f) in connection with an underwritten offering only, use its
commercially reasonable efforts to furnish to each seller copies of
(i) an opinion of counsel for the Company, dated the effective date of
the registration statement, and
(ii) a "comfort" letter signed by the independent public accountants
who have certified the Company's financial statements included in the
registration statement,
each covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountant's letters delivered to the underwriters in
underwritten public offerings of securities;
(g) notify each seller of any securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller prepare
and furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated
18
<PAGE>
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least 12 months, but not more than 18 months, beginning with
the first month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(i) use its commercially reasonable efforts to list the Registrable
Securities covered by such registration statement on any securities exchange
(including NASDAQ), if such securities are not already so listed and if such
listing is then permitted under the rules of such exchange, and to provide a
transfer agent and registrar for such Registrable Securities not later than
the effective date of such registration statement;
(j) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(k) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities (including, without limitation, effecting a
stock split or a combination of shares);
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification
of any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order.
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<PAGE>
The Company may require each seller of any securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing in order to permit the
Company to comply with all applicable federal and state securities laws.
The Company shall make available for inspection by any seller of
securities as to which any registration is being effected, any underwriter
participating in any disposition pursuant to the related registration
statement, and any attorney, accountant or other agent retained by any such
seller or any such underwriter (collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries, if any, as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and shall cause
the Company's and its subsidiaries' officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by
any such Inspector in connection with such registration statement.
Each Stockholder hereby agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
8(g), such holder will promptly discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 8(g), and, if so
directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such holder's
possession of the prospectus covering such Registrable Securities current at
the time of receipt of such notice. In the event the Company shall give such
notice, the period mentioned in Section 8(b) shall be extended by the number
of days during the period from and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received such notice to but not including the date when each such seller
receives copies of the supplemented or amended prospectus contemplated by
Section 8(g).
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<PAGE>
9. INDEMNIFICATION. (a) The Company agrees to indemnify, to the
extent permitted by law, each Stockholder participating in a registration
pursuant to this Agreement, the officers and directors of such Stockholder
and each Person that controls such Stockholder (within the meaning of the
Securities Act) against any and all losses, claims, damages, liabilities and
expenses, including all reasonable legal fees incurred therewith, arising out
of, based upon or resulting from any untrue statement or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances then existing or any violation or
alleged violation by the Company of any federal, state, foreign or common law
rule or regulation applicable to the Company and relating to action required
of or inaction by the Company in connection with any such registration,
except insofar as the same result from or are contained in any information
furnished in writing to the Company by such Stockholder and stated to be
specifically for use therein or, in the case of an underwritten offering
only, from such Stockholder's failure to deliver a copy of the registration
statement, prospectus or preliminary prospectus or any amendments thereof or
supplements thereto.
(b) Each Stockholder participating in a registration pursuant to
this Agreement agrees to indemnify, to the extent permitted by law, the
Company, its directors and officers and each Person that controls the Company
(within the meaning of the Securities Act) against any and all losses,
claims, damages, liabilities and expenses, including all reasonable legal
fees incurred in connection therewith, arising out of, based upon or
resulting from any untrue statement or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, 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 in light
of the circumstances then existing, but only to the extent that such untrue
statement or (as to the matters set forth in such information or affidavit)
omission is con-
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<PAGE>
tained in any information or affidavit furnished to the Company in writing by
such Stockholder and stated to be expressly for use therein and except
insofar as the same result from the Company's failure to deliver a copy of
the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, PROVIDED that such Stockholder's
obligations hereunder shall be limited to an amount equal to the proceeds to
such Stockholder of the Registrable Securities sold pursuant to such
registration statement.
(c) In connection with an underwritten offering, the Company and
each Stockholder participating in the related registration will indemnify the
underwriter(s), their officers and directors and each Person who controls
such underwriter(s) (within the meaning of the Securities Act) to the same
extent as provided in subsections (a) and (b), respectively, above.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subsections of this Section 9, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, PROVIDED
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the
preceding subsections of this Section 9, except to the extent that the
indemnifying party is actually and materially prejudiced by such failure to
give notice. In any case in which any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory (taking into account, among other factors, any potential
exposure of the indemnified party to criminal liability) to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
unless, in the reasonable judgment of any such indemnified party, a
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<PAGE>
conflict of interest may exist between such indemnified party and any
indemnifying party or any other of such indemnified parties, in which case
the indemnifying party shall be liable to such indemnified party for any
reasonable legal or other expenses incurred in defending such action. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. Notwithstanding the
foregoing, and without limiting any of the rights set forth above, in any
event any party will have the right to retain, at its own expense, counsel
with respect to the defense of a claim.
(e) If for any reason the foregoing indemnity is unavailable, then
the indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (I) in such proportion as is appropriate to reflect the relative
benefits (which relative benefits with respect to such offering shall be
deemed to be in the same proportion as the respective net proceeds received
from such offering by the Company and the Stockholders determined as set
forth on the table on the cover page of the prospectus) received by the
indemnifying party on the one hand and the indemnified party on the other or
(ii) if the allocation provided by subdivision (i) above is not permitted by
applicable law or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnifying party on
the one hand and the indemnified party on the other but also the relative
fault of the indemnifying party and the indemnified party (which relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Stockholders, the intent of the parties and their relative
knowledge, access to information and opportunity to prevent or correct such
statement or omission) as well as any other relevant equitable consideration.
Notwithstanding the foregoing, (A) no holder of Registrable Securities shall
be required to contribute any amount in excess of the amount such holder
would have been required to
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<PAGE>
pay to an indemnified party if the indemnity under subsection (b) of this
Section 9 was available and (B) no underwriter, if any, shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this Section 9 shall be several in
proportion to their respective underwriting commitments and not joint.
(f) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this Section 9 to
or for the account of the indemnified party from time to time promptly upon
receipt of bills or invoices relating thereto or when otherwise due and
payable.
10. AFFILIATE TRANSACTIONS. The Company will not engage in any
transaction or series of related transactions (other than Exempted
Transactions) with North Castle or any of North Castle's Affiliates and any
successor to any such person unless (i) the transaction (or series of related
transactions) is on terms and conditions no less favorable than would be
obtainable by the Company in an arm's-length transaction and the Chief
Financial Officer of the Company delivers to the Board and to AEA a
certificate to such effect and (ii) if the transaction (or series of related
transactions) involves an amount more than $1 million, a majority of the
members of the Board who are not officers, employees or managing members of
the Company, North Castle or an Affiliate of North Castle shall have approved
such transactions in writing or at a duly convened meeting of the Board.
11. MANAGEMENT STOCKHOLDERS.
(a) CALL OPTION. In the event of a Management Stockholder's
termination of employment at the Company for
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any reason other than for death or permanent disability, the Company shall
have an option (a "Call Option") to purchase from the Management Stockholder
all (but not less than all) of the Management Stockholder's Covered Equity at
a price equal to the fair market value of the Covered Equity determined as of
the date of repurchase by the Board of Directors of the Company in its sole
discretion. If the Company desires to exercise the Call Option, it shall
give written notice thereof to the Management Stockholder within 60 days of
the occurrence of the event giving rise to such Call Option. Such Call
Option shall expire if such notice is not given within such 60-day period.
The Management Stockholder shall deliver to the Company certificates
representing the Covered Equity, free and clear of all claims, liens, or
encumbrances, together with blank stock powers, duly executed with all
signature guarantees at a closing at the principal office of the Company on
the third business day after notice has been given to the Management
Stockholder, or at such other place and time and in such manner as may be
mutually agreed to by the Management Stockholder and the Company. The net
proceeds from the purchase of the Covered Equity pursuant to the Call Option
(the "Call Option Proceeds") shall be paid by a check, which shall be
delivered to the Management Stockholder at the closing of such purchase.
(b) TERMINATION OF CALL OPTION. All rights and obligations
created pursuant to Section 11(a) shall be extinguished upon the earlier of
(i) the fifth anniversary of this Agreement or (ii) a Public Offering.
(c) PUT OPTIONS. In the event of (i) the permanent disability of
the Management Stockholder so that he is unable substantially to perform his
services as an employee of the Company for an aggregate of 180 days during
any twelve-month period or (ii) the death of the Management Stockholder, the
Management Stockholder or, in the event of death, the deceased Management
Stockholder's administrator or executor, shall have the option (the "Put
Option"), exercisable by the giving of notice thereof to the Company within
120 days of the occurrence of the event giving rise to such Put Option,
which, in the case of permanent disability, shall mean the 180th day of
inability to perform services as an employee of the Company, to sell to the
Company, and the Company upon exercise of such Put Option
25
<PAGE>
shall buy from the Management Stockholder or the deceased Management
Stockholder's administrator or executor, as the case may be, all (but not
less than all) of the Management Stockholder's Covered Equity, at a price per
share equal to the fair market value of the Covered Equity determined as of
the date of repurchase by the Board of Directors of the Corporation in its
sole discretion. Such Put Option shall expire if such notice is not given
within such 120-day period. The Management Stockholder, or the deceased
Management Stockholder's administrator or executor, shall deliver to the
Company certificates representing the Covered Equity, free and clear of all
claims, liens, or encumbrances, together with blank stock powers, duly
executed with all signature guarantees at a closing at the principal office
of the Company on the third business day after notice has been given to the
Company or at such other place and time and in such manner as may be mutually
agreed to by the Management Stockholder, or the deceased Management
Stockholder's administrator or executor, and the Company. The net proceeds
from the purchase of the Covered Equity pursuant to the Management
Stockholder Option (the "Put Option Proceeds") shall be paid by a check,
which shall be delivered to the Management Stockholder at the closing of such
purchase. The obligations of the Company to purchase the Management
Stockholder's Covered Equity pursuant to this Section 11(c) shall be deferred
during any period in which such purchase would not be permitted by applicable
law or could cause the Company to be in default under any agreement to which
it or its Subsidiaries are a party.
(d) TERMINATION OF PUT OPTION. All rights and obligations created
pursuant to Section 11(c) shall be extinguished upon the earlier of (i) the
fifth anniversary of this Agreement or (ii) a Public Offering.
12. SEVERABILITY. If any provision of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstance shall not have
the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision or provisions herein contained invalid, inoperative or
unenforceable to any extent whatsoever. The invalidity of any one or more
phrases, sentences, clauses, Sections or subsections of this Agreement shall
not affect the remaining portions of this Agreement.
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13. INFORMATION. (a) Each of the Stockholders agrees that, from
the date of this Agreement and for so long as it shall own any Covered
Equity, it will furnish the Company such necessary information and reasonable
assistance as the Company may reasonably request (x) in connection with the
consummation of the transactions contemplated by this Agreement, (y) in
connection with the preparation and filing of any reports, filings,
applications, consents or authorizations with any Governmental Entity under
any Applicable Laws and (z) in order for the Company to determine, from time
to time, whether it is a "personal holding company" within the meaning of
Section 542 of the Code. Each Stockholder proposing to make a transfer
pursuant to Section 4(a) shall provide the Company with any information
reasonably requested in order for the Company to determine whether the
proposed transfer would be a Prohibited Transaction.
(b) Within 90 days of the end of each fiscal year, the Company
shall mail to each Stockholder a report setting forth an audited balance
sheet as at the end of such fiscal year and audited statements of income,
common shareholders' equity and cash flows for such fiscal year of the
Company and its Subsidiaries on a consolidated basis, and any other
information the Company deems necessary or desirable. The Company will
furnish quarterly financial statements to Stockholders as requested.
(c) The Company also will furnish to AEA such other information as
AEA may from time to time reasonably request on behalf of itself or the other
Covered Shareholders.
14. CERTAIN DEFINITIONS.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly Controlling, Controlled by or under common Control
with such first Person.
"APPLICABLE LAWS" means all applicable provisions of (i)
constitutions, treaties, statutes, laws (including the common law), rules,
regulations, ordinances, codes or orders of any Governmental Entity, (ii) any
consents or approvals of any Governmental Entity and (iii) any orders,
27
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decisions, injunctions, judgments, awards, decrees of or agreements with any
Governmental Entity.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required to
close.
"CHANGE OF CONTROL" means any transaction or series transaction,
the result of which is that North Castle no longer has the right to nominate
a majority of the members of the Board.
"CODE" means the Internal Revenue Code of 1986, as amended.
COMMON STOCK" means all shares of any class common stock of the
Company, whether voting or non-voting, outstanding from time to time.
"CONTROL" means the power to direct the affairs of a Person by
reason of ownership of voting securities, by contract or otherwise.
"COVERED EQUITY" means all of the shares of Common Stock, preferred
stock or other equity interest in the Company, and any other security,
warrant or other right that is or may allow the holder thereof to receive
Common Stock or preferred stock or other equity interest, owned from time to
time by any of the Stockholders.
"COVERED SHAREHOLDERS AGREEMENTS" means the agreements between AEA
and the Covered Shareholders pursuant to which the Covered Shareholders have
appointed AEA as their representative and have granted AEA a proxy to vote
their Common Stock in accordance with the provisions of this Agreement.
"EXCHANGE OFFER" means the exchange offer for the Company's senior
subordinated notes due 2007 to be made by the Leiner Health Products Inc.
("Leiner") in accordance with the registration rights agreement among Leiner,
Merrill Lynch Pierce, Fenner & Smith incorporated, Salomon Brothers Inc and
Scotia Capital Markets (USA) Inc.
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"EXEMPTED TRANSACTIONS" means (i) the investment banking services
provided by North Castle Partners, L.L.C. (the "Sponsor") in connection with
the recapitalization of the Company consummated as of the date hereof, in
consideration of which the Company has agreed to pay the Sponsor a fee of
$3.5 million and (ii) the ongoing monitoring and management services to be
provided to the Company, in consideration of which the Company has agreed to
pay the Sponsor an annual fee of $1.5 million.
"GOVERNMENTAL ENTITY" means any federal, state, local or foreign
court, legislative, executive or regulatory authority or agency.
"INFORMATION" means all information about the Company or any of its
subsidiaries (whether written or oral or in electronic or other form and
whether prepared by the Company, its advisers or otherwise), that is or has
been furnished to any Stockholder or any of its Representatives by or on
behalf of the Company or any of its subsidiaries, or any of their respective
Representatives, together with all written or electronically stored
documentation prepared by such Stockholder or its Representatives based on or
reflecting, in whole or in part, such information, PROVIDED that the term
"Information" does not include any information that (X) is or becomes
generally available to the public through no action or omission by any
Stockholder or its Representatives or (y) is or becomes available to such
Stockholder on a nonconfidential basis from a source, other than the Company
or any of its subsidiaries, or any of their respective Representatives, that
to the best of such Stockholder's knowledge, after reasonable inquiry, is not
prohibited from disclosing such portions to such investor by a contractual,
legal or fiduciary obligation.
"MANAGEMENT STOCKHOLDER" means any stockholder who is as of the
date hereof or later becomes, a consultant to or an officer or employee of
the Company other than Michael Leiner and David Brubaker.
"PERSON" means any natural person, firm, individual, partnership,
joint venture, business trust, trust, association, corporation, company or
unincorporated entity.
29
<PAGE>
"PROHIBITED TRANSFER" means any transfer of Covered Equity to a
Person which (u) may not be effected without registering the securities
involved under the Securities Act, (v) would result in the assets of the
Company constituting Plan Assets as such term is defined in the Department of
Labor regulations promulgated under the Employer Retirement Income Security
Act of 1974, as amended, (x) would cause the Company to be, be Controlled by
or under common Control with an "investment company" for purposes of the
Investment Company Act of 1940, as amended, or (y) would require any
securities of the Company to be registered under the Securities and Exchange
Act of 1934, as amended.
"PUBLIC OFFERING" means any sale of Common Stock to the public
pursuant to an effective registration statement under the Securities Act
underwritten by an underwriter of national standing other than a Special
Registration.
"REPRESENTATIVES" means with respect to any Person, any of such
Person's directors, officers, employees, general partners, affiliates,
attorneys, accountants, financial and other advisers, and other agents and
representatives, including in the case of any Stockholder any person
nominated to the Board by such Stockholder.
"RULE 144" means Rule 144 (or any successor provision) under the
Securities Act.
"SPECIAL REGISTRATION": (a) The registration of shares of equity
securities and/or options or other rights in respect thereof to be offered to
Management Stockholders or (b) the registration of equity securities and/or
options or other rights in respect thereof solely on Form S-4 or S-8 or any
successor form.
"SPECIFIED AFFILIATE" means (a) with respect to any Person, any
other Person directly or indirectly Controlling, Controlled by or under
common Control with such first person solely by virtue of having the power to
direct the affairs of the Person by reason of ownership, directly or
indirectly, of at least 75% of the outstanding voting securities of such
Person, (b) with respect to any Management Stockholder, Michael Leiner, David
Brubaker or Charles F. Baird, Jr., a Specified Affiliate shall include
30
<PAGE>
(i) a spouse or any lineal ancestor or descendant, and (ii) the trustee or
trustees of a trust or trusts at any time established for the primary benefit
of the Stockholder or the spouse or any lineal ancestor or descendant of the
Stockholder to whom such Management Stockholder or Charles F. Baird, Jr.
proposes to transfer its Common Stock and who has agreed to be bound by this
Agreement, and (c) with respect to AEA and the Covered Shareholders, any
current or future employee, shareholder, director or officer of AEA, any
spouse, issue, parents or other relatives of any of the foregoing or of any
Covered Shareholder or (i) trusts for the benefit of any of such Persons,
(ii) entities controlling or controlled by any of such Persons and (iii) in
the event of the death of any such individual Person, heirs or testamentary
legatees of such Person, in each case to whom AEA or a Covered Shareholder
has proposed to transfer its Common Stock and who has entered into a Covered
Shareholders Agreement and thereby or otherwise agrees to be bound by this
Agreement.
15. NOTICES. All notices and other communications made in
connection with this Agreement shall be in writing. Any notice or other
communication in connection herewith shall be deemed duly given to any party
(a) two Business Days after it is sent by express, registered or certified
mail, return receipt requested, postage prepaid or (b) one Business Day after
it is sent by overnight courier guaranteeing next day delivery, in each case,
addressed as follows or, to such other address as may be specified in writing
to the other parties hereto:
(i) if to the Company:
Leiner Health Products Group Inc.
901 E. 233rd Street
Carson, CA 90745
Facsimile: (310) 952-7766
Telephone: (310) 835-8400
Attention: Robert M. Kaminski
(ii) if to North Castle:
North Castle Partners I, L.L.C.
11 Meadowcroft Lane
31
<PAGE>
Greenwich, CT 06830
Attention: Charles F. Baird, Jr.
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Facsimile: (212) 909-6836
Telephone: (212) 909-6000
Attention: Franci J. Blassberg, Esq.
(iii) if to the other Stockholders, at the addresses set forth on the
signature pages hereto
Any party may give any notice or other communication in connection herewith
using any other means (including, but not limited to, personal delivery,
messenger service, facsimile, telex or ordinary mail), but no such notice or
other communication shall be deemed to have been duly given unless and until
it is actually received by the individual for whom it is intended.
16. TERM. This Agreement shall be effective as of the date hereof
and shall terminate and be of no further force and effect upon the earliest
to occur of (i) the tenth anniversary of the date hereof, (ii) the
termination of this Agreement by the unanimous written consent of the
Stockholders, (iii) the establishment of a Public Market for the Common Stock
or (iv) a Change of Control except that the registration rights provided in
Section 6 and Section 7 will survive until AEA and the Covered Shareholders
(as a group) and North Castle each owns Common Stock representing less than
5% of the Company's outstanding Common Stock. A "PUBLIC MARKET" for the
Common Stock shall be deemed to have been established at such time as 20% of
the Common Stock (on a fully diluted basis) shall have been sold to the
public pursuant to an effective registration statement under the Securities
Act other than a Special Registration.
17. HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
32
<PAGE>
18. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter
hereof. Without limiting the foregoing, the Company and each Stockholder who
is party to a Participants' Subscription Agreement or a Management
Subscription Agreement hereby agree that such agreement is hereby terminated
and superseded by this Agreement.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute one and the same instrument.
20. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and performed within such State.
21. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors
and permitted assigns.
22. ASSIGNMENT. This Agreement shall not be assignable by any
party without the prior written consent of the other parties.
23. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
confer any rights upon any Person other than the parties hereto and each such
party's respective heirs, successors and permitted assigns.
24. AMENDMENT; WAIVERS, ETC. If AEA and Covered Shareholders own
5% or more of the outstanding Common Stock, then AEA must consent in writing
to any amendment hereto. If AEA and Covered Shareholders own less than 5% of
the outstanding Common Stock, 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 have obtained the
written consent to such amendment, action or omission to act, of the holder
or holders of at least 66 2/3% of the shares of Common Stock outstanding as of
the date hereof, PROVIDED that this Agreement may not be amended in a manner
adversely affecting any Stockholder which does not adversely affect all
33
<PAGE>
Stockholders without the consent of such Stockholder PROVIDED, FURTHER, that
in no event may the provisions of this agreement with respect to the Piggy
Back Registration Rights (including the Company's obligations thereunder) or
the Tag-Along Rights be amended without the consent in writing of AEA. No
amendment, modification or discharge of this Agreement, and no waiver
hereunder, shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment,
modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in
such writing and shall in no way impair the rights of the party granting such
waiver in any other respect or at any other time.
25. CONSENT TO JURISDICTION. Each party irrevocably submits to the
exclusive jurisdiction of (A) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern
District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated
hereby (and agrees not to commence any such suit, action or other proceeding
except in such courts). Each party further agrees that service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth or referred to in Section 14 shall be effective
service of process for any such suit, action or other proceeding. Each party
irrevocably and unconditionally waives any objection to the laying of venue
of any such suit, action or other proceeding in (i) the Supreme Court of the
State of New York, New York County, and (ii) the United States District Court
for the Southern District of New York, that any such suit, action or other
proceeding brought in any such court has been brought in an inconvenient
forum.
26. WAIVER OF JURY TRIAL. Each party hereby waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury
in respect of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each party (a) certifies
that no representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (b) acknowledges that it
and the other parties have been induced to enter
34
<PAGE>
into the Agreement by, among other things, the mutual waivers and
certifications in this Section 25.
27. AEA AUTHORITY. AEA hereby represents and warrants to each
other party hereto that, pursuant to the Covered Shareholders Agreements, it
has been duly authorized to execute this Agreement, and to exercise all
rights and perform all obligations hereunder, on behalf of each Covered
Shareholder.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement by their authorized representatives as of the date first above
written.
LEINER HEALTH PRODUCTS GROUP INC.
By:______________________________
Name:
Title:
NORTH CASTLE PARTNERS I, L.L.C.
By: Baird Investment Group, L.L.C.,
its managing member
By: Charles F. Baird, Jr.,
its managing member
_________________________
AEA INVESTORS INC.
For itself and on behalf of the
Covered Shareholders
By:________________________________
Christine J. Smith
General Counsel
35
<PAGE>
STOCKHOLDER
By:_____________________________
Name:
(Please Print)
Address of the Stockholder:
Telephone:_______________________
Telecopy: _______________________
Date of execution: December __ , 1977
36
<PAGE>
AEA INVESTORS INC.
By:_______________________________
Name:
65 East 55th Street
27th Floor
New York, New York 10022
Telephone: (212) 644-5900
Telecopy: (212) 888-1459/1457
37
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,435
<SECURITIES> 0
<RECEIVABLES> 67,402
<ALLOWANCES> 4,156
<INVENTORY> 124,808
<CURRENT-ASSETS> 198,140
<PP&E> 69,873
<DEPRECIATION> 25,180
<TOTAL-ASSETS> 325,025
<CURRENT-LIABILITIES> 118,008
<BONDS> 236,389
0
0
<COMMON> 1
<OTHER-SE> (34,402)
<TOTAL-LIABILITY-AND-EQUITY> 325,025
<SALES> 338,837
<TOTAL-REVENUES> 338,837
<CGS> 250,713
<TOTAL-COSTS> 250,713
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,513
<INCOME-PRETAX> (24,961)
<INCOME-TAX> (4,207)
<INCOME-CONTINUING> (20,754)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,109)
<CHANGES> 0
<NET-INCOME> (21,863)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
