<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
KING PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
TENNESSEE 2834 54-1684963
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
501 FIFTH STREET, BRISTOL, TENNESSEE 37620, (423) 989-8000
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
JOHN M. GREGORY
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
(423) 989-8001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
COPIES TO:
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<C> <C> <C>
LINDA M. CROUCH, ESQ. JOHN A. A. BELLAMY, ESQ. DAVID J. BEVERIDGE, ESQ.
BAKER, DONELSON, BEARMAN & KING PHARMACEUTICALS, INC. SHEARMAN & STERLING
CALDWELL 501 FIFTH STREET 599 LEXINGTON AVENUE
2000 FIRST TENNESSEE BUILDING BRISTOL, TENNESSEE 37620 NEW YORK, NEW YORK
165 MADISON AVENUE (423) 989-8010 (212) 848-4000
MEMPHIS, TENNESSEE 38103
(901) 577-2262
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=======================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value, including
Preferred Stock Purchase Rights...... 9,200,000 shares $19.50 $179,400,000 $54,364
=======================================================================================================================
</TABLE>
(1) Includes 1,000,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997.
PROSPECTUS
8,200,000 SHARES
[KING PHARMACEUTICALS LOGO]
COMMON STOCK
---------------------
Of the 8,200,000 shares of common stock, no par value per share (the
"Common Stock"), offered hereby, 6,000,000 shares are being sold by King
Pharmaceuticals, Inc. (the "Company") and 2,200,000 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). The Company
will not receive any proceeds from the sale of the shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $16.50 and $19.50 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "KING".
------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3).............. $ $ $ $
==================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting estimated expenses of $1,825,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,000,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts,
Proceeds to Company and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of certificates representing the shares
of Common Stock will be made at the offices of Lehman Brothers Inc. New York,
New York on or about , 1997.
LEHMAN BROTHERS
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
, 1997
<PAGE> 3
Photo on inside Front cover top center: stacked tubes, bottles and boxes of
the Cortosporin(R) pharmaceutical products.
AN EXPANDING PRODUCT LINE
In March 1997 the Company acquired a full line of prescription formulations of
ophthalmic ointments and suspensions, otic solutions and suspensions, and
dermatologic creams and ointments marketed under the brand-name
CORTISPORIN[R]. This topical antibiotic anti-inflammatory prescription product
line, along with U.S. sales and marketing rights, were obtained from Glaxo
Wellcome, Inc.
Photo on inside Front cover mid-page left: two bottles of Thalitone(R) tablets.
In December 1996 the Company acquired the prescription brand-name product
THALITONE[R] (chlorthalidone tablets USP) from Horus Therapeutics, Inc.
Thalitone[R] is a low-dose, hypertension-diuretic. The Company also acquired
the patented formulation technology for the manufacture of this product from
Boehringer Ingelheim Inc.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER THE SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THIS ACTIVITIES, SEE "UNDERWRITING."
Photo on gate-Fold page upper left and continuing onto adjacent page: King
Pharmaceuticals, Inc. building with King Pharmaceuticals (TM) logo on upper
left corner of photo.
A HIGH QUALITY, MULTI-DOSAGE FACILITY
The Company's integrated manufacturing facility consists of approximately
500,000 square foot and includes space for manufacturing, packaging,
laboratories, offices and warehouse space. The Company manufactures and
packages a broad range of dosage formulations, including sterile solutions,
injectables, tablets and capsules, liquids, creams and ointments, suppositories
and powders. The Company believes its integrated manufacturing capabilities and
support systems allowing for higher margins and enhanced ability to acquire and
develop pharmaceutical products.
Monarch Pharmaceuticals (R) logo on bottom left gate-Fold page in blue box
which continues onto adjacent page.
A GROWING, DEDICATED SALES FORCE
Monarch Pharmaceuticals's goal is to aggressively promote acquired branded
pharmaceutical products in order to increase sales. Monarch Pharmaceuticals has
48 sales representatives who market primarily in the southeastern and midwestern
United States. Marketing and sales promotions principally target physicians
through detailing and sampling to encourage physicians to prescribe the
Company's products.
Picture bottom right on gate-Fold page: map of continental United States with
States in which King Sales Force operates highlighted in green and certain
cities designed by circled stars.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus, including information under "Risk
Factors."
THE COMPANY
The Company is an integrated pharmaceutical company that manufactures,
markets and sells branded and generic prescription pharmaceutical products. The
Company seeks to capitalize on niche opportunities in the pharmaceutical
industry created by cost containment initiatives and consolidation among large
global pharmaceutical companies. The Company's strategy is to acquire branded
pharmaceutical products and increase their sales by focused promotion and
marketing, as well as by developing product line extensions and through product
life cycle management.
Since December 1994, the Company has acquired nine branded pharmaceutical
products, developed one product internally, divested one product and introduced
seven product line extensions. In October 1997, the Company entered into Letters
of Intent with Glaxo Wellcome Inc. ("Glaxo Wellcome") to acquire several
additional product lines for a total of $23.0 million. The Company markets its
branded pharmaceutical products through its wholly-owned subsidiary, Monarch
Pharmaceuticals, Inc. ("Monarch Pharmaceuticals"). Monarch Pharmaceuticals' goal
is to aggressively promote acquired branded pharmaceutical products in order to
increase their sales. Monarch Pharmaceuticals has 48 sales representatives who
market primarily in the southeastern and midwestern United States. This sales
force is dedicated to promoting and marketing branded pharmaceutical products
and is supported by telemarketers and customer service representatives who
promote the Company's products in territories not currently covered by field
representatives. The Company expects its sales and marketing staff to grow
significantly as the Company acquires additional branded pharmaceutical
products.
The Company's current branded pharmaceutical products include, among
others, Cortisporin, acquired from Glaxo Wellcome in March 1997, Thalitone,
acquired from Horus Therapeutics, Inc. in December 1996, and Viroptic, acquired
from Glaxo Wellcome in May 1997. Branded pharmaceutical products represented
79.8% of the net sales of the Company for the first nine months ended September
30, 1997, with the Cortisporin product line representing 60.7% of net sales. The
Company acquired its first branded product, Anexsia, and a related generic
product line (the "Anexsia Product Line") for $17.6 million in December 1994.
During the 12 months following its acquisition, the Company significantly
increased annual sales of the Anexsia Product Line through a combination of
product development and marketing. In December 1995, the Company sold the
Anexsia Product Line to Mallinckrodt Chemical, Inc. ("Mallinckrodt"), for $32.0
million in cash and recognized a $13.1 million net gain (these transactions are
hereinafter referred to collectively as the "Anexsia Transaction").
The Company believes its integrated manufacturing capabilities and support
systems allow for higher margins and enhanced ability to acquire and develop
pharmaceutical products. The Company can produce a broad range of dosage
formulations, including sterile solutions, injectables, tablets and capsules,
liquids, creams and ointments, suppositories and powders, and is licensed by the
Drug Enforcement Agency ("DEA") to procure and produce controlled substances.
The Company's manufacturing capability is integrated with its support services,
including quality control, quality assurance, packaging, distribution and
inventory management and purchasing and production planning. These integrated
services enable the Company to maintain high quality standards for its products
as well as provide reliable and timely service to its customers. The Company
currently manufactures certain of its own branded and generic products and uses
its excess manufacturing capacity to contract manufacture for other
pharmaceutical companies.
The Company's product development efforts are currently focused on
developing product line extensions, which allow the Company to enhance product
differentiation, create market exclusivity and minimize sales lost to generic
substitution. To date, the Company has introduced seven line extensions for its
acquired products.
The Company also manufactures and markets a number of generic
pharmaceutical products as well as a comprehensive line of nutritional
supplements for companion animals. The Company markets its generic
pharmaceutical products under the King Pharmaceuticals label and its companion
animal health products under the Royal Vet and Show Winner tradenames.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the Company......... 6,000,000 shares
Common Stock offered by the Selling
Shareholders................................ 2,200,000 shares
Common Stock to be outstanding after the
offering.................................... 34,000,000 shares(1)
Use of proceeds............................. Acquisition of additional
branded products, repayment of
certain indebtedness and for
general corporate purposes
including investments in
facilities to accommodate new
products acquired, development
of branded product line
extensions and generic products
and expansion of sales force.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... KING
- ------------------------------
(1) Excludes 3,500,000 shares of Common Stock available for future grants under
the Company's 1997 Incentive and Nonqualified Stock Option Plan for
Employees. No options are currently outstanding.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $13,311 $25,441 $15,457 $11,310 $33,817
Development revenue(1)......................... -- -- 5,000 2,500 --
------- ------- ------- ------- -------
Total revenue, net................... 13,311 25,441 20,457 13,810 33,817
Costs of sales................................. 9,754 12,130 8,782 7,050 9,538
Selling, general and administrative............ 1,987 8,605 12,106 8,441 13,734
Depreciation and amortization.................. 639 1,777 982 655 1,631
------- ------- ------- ------- -------
Total costs and expenses............. 12,380 22,512 21,870 16,146 24,903
Gain on sale of product line, net(2)........... -- 13,102 -- -- --
------- ------- ------- ------- -------
Other (expenses) income........................ 931 16,031 (1,413) (2,336) 8,914
Non-operating income (loss).................... (515) (1,639) 1,066 1,317 (1,519)
Income tax (benefit) expense................... (501) 5,058 (107) (316) 2,840
------- ------- ------- ------- -------
Net income (loss) before extraordinary gain.... 917 9,334 (240) (703) 4,555
Extraordinary gain(3).......................... -- 528 -- -- --
------- ------- ------- ------- -------
Net income (loss).............................. $ 917 $ 9,862 $ (240) $ (703) $ 4,555
======= ======= ======= ======= =======
Net income (loss) per share(4)................. $ .20 $ .79 $ (.02) $ (.06) $ .18
======= ======= ======= ======= =======
Weighted average number of common and common
stock equivalents(5)......................... 4,538 12,446 13,631 12,572 25,656
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(6)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,392 $ 35 $ 95,137
Working capital...................................... 7,749 83 96,360
Total assets......................................... 39,279 74,253 169,355
Long-term debt (excluding current portion and line of
credit)............................................ 13,980 22,913 20,575
Shareholders' equity................................. 15,693 27,809 126,424
</TABLE>
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(1) In connection with the Anexsia Transaction, the Company agreed to develop
four Abbreviated New Drug Applications ("ANDAs") to be filed with the Food
and Drug Administration ("FDA") on Mallinckrodt's behalf for a maximum of
$2.5 million each due upon FDA approval. In 1996 the FDA approved two of
these ANDAs and as of September 30, 1997, the two additional ANDAs were on
file with the FDA.
(2) In December 1994, the Company acquired the Anexsia Product Line. The Company
sold the Anexsia Product Line to Mallinckrodt in December 1995 for $32.0
million and recorded a $13.1 million net gain.
(3) Reflects gain from early extinguishment of debt in connection with the
disposition of the Anexsia Product Line.
(4) Net income (loss) per share is unchanged on a fully diluted basis for all
periods presented.
(5) Reflects retroactively the effects of the 15.0% stock dividend paid in 1996
and a 2.8 for 1 stock split.
(6) As adjusted to give effect to the sale of 6,000,000 shares of Common Stock
offered hereby, after deducting underwriting discount and offering expenses,
at an assumed initial public offering price of $18.00 per share and the
application of the estimated net proceeds therefrom as set forth in "Use of
Proceeds."
----------------------------------
Except as otherwise noted, all information in this Prospectus reflects a
2.8 for 1 stock split and assumes no exercise of the Underwriters'
over-allotment option. See "Description of Capital Stock," "Underwriting" and
Notes to Consolidated Financial Statements.
5
<PAGE> 7
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the shares of Common
Stock offered hereby.
Dependence on Acquisition of Products. The Company has increased its sales
and net income in the first nine months of 1997 through a series of strategic
acquisitions of branded products and related internal growth initiatives
intended to develop marketing opportunities with respect to the acquired product
lines. The Company's strategy for growth is primarily dependent upon its
continued ability to acquire branded products that can be promoted through
existing marketing and distribution channels and, when appropriate, the
enhancement of such marketing and distribution channels. Because the Company is
not engaged in proprietary research activities leading to the introduction of
new products, it must rely upon the availability for purchase of product lines
of other manufacturers. Other companies, including those with substantially
greater financial, marketing and sales resources, are competing with the Company
for the right to acquire such products. There can be no assurance that the
Company will be able to acquire rights to additional products on acceptable
terms, if at all, or be able to obtain future financing for such acquisitions on
acceptable terms, if at all. The inability to effect such acquisitions would
have a material adverse effect on the Company's future business, financial
condition and results of operations. Furthermore, there can be no assurance that
the Company, once it has obtained rights to a pharmaceutical product and
committed to payment terms, will be able to generate sales sufficient to create
a profit or otherwise avoid a loss. In addition, the Company's marketing
strategy, distribution channels and levels of competition with respect to
acquired products may be different than those of the Company's current products
and there can be no assurance that the Company will be able to compete favorably
in those product categories. See "Business."
Dependence on Cortisporin Sales. The Company acquired the Cortisporin
product line from Glaxo Wellcome in March 1997 and derives a substantial portion
of its revenue from sales of the Cortisporin product line. The Cortisporin
product line accounted for 60.7% of net sales during the nine months ended
September 30, 1997. The Company believes that sales of the Cortisporin product
line will continue to constitute a significant portion of net sales for the
foreseeable future. Accordingly, any factor adversely affecting the Cortisporin
product line sales, including any interruption in the supply of the Cortisporin
product line, would have a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Competition,"
"-- Reliance on Third Party Manufacturers" and "Business -- Products and Product
Development."
Generic Substitution. The Company's branded pharmaceutical products are
subject to competition from generic equivalents and alternate therapies. There
is no proprietary protection for most of the branded pharmaceutical products
sold by the Company and generic and other substitutes for most of its branded
pharmaceutical products are sold by other pharmaceutical companies. In addition,
governmental and other pressure toward the dispensing of generic equivalents
will likely result in generic substitution and competition generally for the
Company's branded pharmaceutical products. Increased competition in the sale of
generic pharmaceutical products may cause a decrease in revenue from the
Company's branded products. While the Company will seek to mitigate the effect
of this substitution through, among other things, creation of strong brand name
recognition and product line extensions for its branded pharmaceutical products,
there can be no assurance that the Company will be successful in these efforts.
See "-- Competition; Uncertainty of Technological Change" and
"Business -- Competition."
Managing Growth of Business. Due to the Company's business strategy to
acquire branded pharmaceutical products, the Company anticipates that the
integration of newly-acquired products will require significant management
attention and expansion of its sales force. The Company's ability to manage
change will require it to continue to implement and improve its operational,
financial and management information systems and to motivate and effectively
manage an increasing number of employees. If the Company's management is unable
to manage such changes effectively, it could materially adversely affect the
Company's business, financial condition and results of operations. See
6
<PAGE> 8
"-- Attraction and Retention of Key Personnel" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Quarterly Fluctuation of Results; Uncertainty of Profitability. The
Company's results of operations may vary from quarter to quarter due to a
variety of factors including acquisitions and sales of branded pharmaceutical
products, expenditures incurred to acquire and promote additional pharmaceutical
products, changing customer base, the availability and cost of raw materials,
interruptions in supply by third-party manufacturers, the introduction of new
products by the Company or its competitors, the mix of products sold by the
Company, seasonality of certain product sales, changes in sales and marketing
expenditures, competitive pricing pressures and general economic and industry
conditions which affect customer demand. These factors could also affect annual
results of operations. The Company experienced operating losses in the year
ended December 31, 1996. There can be no assurance that the Company will be
successful in maintaining or improving its profitability or avoiding losses in
any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Reliance on Third-Party Manufacturers. Certain of the Company's recent
product acquisitions are presently manufactured by third parties until such
products Company's manufacturing facilities. Until such time, the Company's
dependence upon third parties for the manufacture of its proposed products may
adversely affect the Company's profit margins and its ability to develop and
deliver its products on a timely and competitive basis. If for any reason the
Company is unable to obtain or retain third-party manufacturers on commercially
acceptable terms, it may not be able to distribute its products as planned. If
the Company should encounter delays or difficulties with contract manufacturers
in producing or packaging its products, the distribution, marketing and
subsequent sales of such products would be adversely affected and the Company
may have to seek alternative sources of supply or abandon or sell a product line
on unsatisfactory terms. No assurance can be made that the Company will be able
to enter into alternative supply arrangements at commercially acceptable rates,
if at all. No assurance can be made that the manufacturers utilized by the
Company will be able to provide the Company with sufficient quantities of its
products or that the products supplied to the Company will meet the Company's
specifications or delivery and other requirements. See "Business --
Manufacturing."
Third-Party Reimbursement; Pricing Pressures. The Company's commercial
success in producing, marketing and selling generic products will depend, in
part, on the availability of adequate reimbursement from third-party health care
payers, such as government and private health insurers and managed care
organizations. Third-party payers are increasingly challenging the pricing of
medical products and services. There can be no assurance that reimbursement will
be available to enable the Company to achieve market acceptance of its products
or to maintain price levels sufficient to realize an appropriate return on the
Company's investment in product acquisition and development. If adequate
reimbursement levels are not provided, the Company's business, financial
condition and results of operations could be materially adversely effected. The
market for the Company's products may be limited by actions of third-party
payers. For example, many managed health care organizations are now controlling
the pharmaceutical products that are on their formulary lists. The resulting
competition among pharmaceutical companies to place their products on these
formulary lists has created a trend of downward pricing pressure in the
industry. In addition, many managed care organizations are pursuing various ways
to reduce pharmaceutical costs and are considering formulary contracts primarily
with those pharmaceutical companies that can offer a full line of products for a
given therapy sector or disease state. There can be no assurance that the
Company's products will be included on the formulary lists of managed care
organizations or that downward pricing pressures in the industry generally will
not negatively impact the Company's operations. Further, a number of legislative
and regulatory proposals aimed at changing the health care system have been
proposed. While the Company cannot predict whether any such proposals will be
adopted or the effect such proposals may have on its business, the pending
nature of such proposals, as well as the adoption of any proposal, may
exacerbate industry-wide pricing pressures and could have a material adverse
effect on the Company. See "Business -- Government Regulation."
7
<PAGE> 9
Customer Concentration; Consolidation of Distribution Network. The Company
is currently dependent upon a small number of customers. In the first nine
months ended September 30, 1997, approximately 56.9% of the Company's sales were
to four customers and for the year ended December 31, 1996, approximately 69.7%
of the Company's sales were to three customers. These customers are wholesale
drug distributors through which the Company distributes its products. The loss
of any one of these customers could result in a material adverse effect on the
Company's business, financial condition or results of operations. Additionally,
the distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses thereby stimulating product returns to the Company.
Further consolidation or financial difficulties could also cause customers to
reduce their inventory levels, or otherwise reduce purchases of the Company's
products which could result in a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Product
Liability; Product Recall; Product Returns" and "Business -- Sales and
Marketing."
Government Regulation. Virtually all aspects of the Company's activities
are regulated by federal and state statutes and government agencies. The
manufacturing, processing, formulation, packaging, labeling, distribution and
advertising of the Company's products, and disposal of waste products arising
from such activities, are subject to regulation by one or more federal agencies,
including the FDA, the DEA, the Federal Trade Commission ("FTC"), the Consumer
Product Safety Commission, the U. S. Department of Agriculture, the Occupational
Safety and Health Administration ("OSHA") and the U. S. Environmental Protection
Agency ("EPA") and foreign governments. These activities are also regulated by
various agencies of the states and localities in which the Company's products
are sold. The Company believes that its facilities are in substantial compliance
with all provisions of federal and state laws concerning the environment and
does not believe that future compliance with such provisions will have a
material adverse effect on its financial condition or results of operations.
All pharmaceutical manufacturers, including the Company, are subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act ("FDC Act"). All "new drugs" must be the subject of an FDA approved
new drug application ("NDA") before they may be marketed in the United States.
Certain prescription drugs are not currently required to be the subject of an
approved NDA but, rather, may be marketed pursuant to an FDA regulatory
enforcement policy permitting continued marketing of those drugs until the FDA
determines whether they are safe and effective. The FDA has the authority to
withdraw existing NDA approvals and to review the regulatory status of products
marketed under the enforcement policy. The FDA may require an approved NDA for
any drug product marketed under the enforcement policy if new information
reveals questions about the drug's safety or effectiveness. All drugs must be
manufactured in conformity with current good manufacturing practices ("cGMP"),
and drug products subject to an approved NDA must be manufactured, processed,
packaged, held, and labeled in accordance with information contained in the NDA.
The Company and its third party manufacturers are subject to periodic inspection
by the FDA to assure such compliance. Pharmaceutical products must be
distributed, sampled and promoted in accordance with FDA requirements. The FDA
also regulates the advertising of prescription drugs.
Under the FDC Act, the federal government has extensive enforcement powers
over the activities of pharmaceutical manufacturers to ensure compliance with
FDA regulations. Those powers include, but are not limited to, the authority to
initiate court action to seize unapproved or non-complying products, to enjoin
non-complying activities, to halt manufacturing operations that are not in
compliance with cGMP and to seek civil monetary and criminal penalties. The
initiation of any of these enforcement activities, including the restriction or
prohibition on sales of products marketed by the Company, could materially
adversely affect the Company's business, financial condition and results of
operations.
8
<PAGE> 10
While the Company believes that all of its current pharmaceuticals are
lawfully marketed in the United States under current FDA enforcement policies or
have received the requisite agency approvals for manufacture and sale, such
marketing authority is subject to withdrawal by the FDA. In addition,
modifications or enhancements of approved products are in many circumstances
subject to additional FDA approvals which may or may not be received and which
may be subject to a lengthy application process. The Company's and the third
party manufacturers' manufacturing facilities are continually subject to
inspection by such governmental agencies and manufacturing operations could be
interrupted or halted in any such facilities if such inspections prove
unsatisfactory. Any change in the FDA's enforcement policy or any decision by
the FDA to require an approved NDA for a Company product not currently subject
to the approved NDA requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company also manufactures and sells drugs which are "controlled
substances" as defined in the Controlled Substances Act, which establishes,
among other things, certain security and record keeping requirements
administered by the DEA. The Company has not experienced restrictions or fines
for non-compliance with the foregoing regulations but no assurance can be given
that restrictions or fines which could have a material adverse effect upon the
Company's business, financial condition, and results of operations will not be
imposed upon the Company in the future.
The Company may also be subject to fees under The Prescription Drug User
Fee Act of 1992 ("PDUFA"). PDUFA authorizes the FDA to collect three types of
user fees for: (i) certain types of applications and supplements for approval of
drug and biologic products, (ii) certain establishments where such products are
made, and (iii) certain marketed products. Fees for applications,
establishments, and products are determined by the FDA using criteria delineated
in the statute. When certain conditions are met, the FDA may waive or reduce
fees. To date, the Company has not been obligated to pay any such fee. There can
be no assurance, however, that the FDA will not impose such a fee in the future.
The Company cannot determine what effect changes in regulations or statutes
or legal interpretation, when and if promulgated or enacted, may have on its
business in the future. Changes could, among other things, require changes to
manufacturing methods, expanded or different labeling, the recall, replacement
or discontinuance of certain products, additional record keeping and expanded
documentation of the properties of certain products and scientific
substantiation. Such changes, or new legislation, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation" and "Business -- Environmental Matters."
Competition; Uncertainty of Technological Change. The Company competes
with other pharmaceutical companies, including large global pharmaceutical
companies with financial resources substantially greater than those of the
Company, for product and product line acquisitions. There can be no assurance
(i) that the Company will be able to acquire commercially attractive
pharmaceutical products, (ii) that additional competitors will not enter the
market, or (iii) that competition for product and product line acquisitions will
not have a material adverse effect on the Company's business, financial
condition and results of operations. The Company also competes with
pharmaceutical companies in developing, marketing and selling pharmaceutical
products. The selling prices of pharmaceutical products typically decline as
competition increases. Further, other products now in use, under development or
acquired by other pharmaceutical companies, may be more effective or offered at
lower prices than the Company's current or future products. The industry is
characterized by rapid technological change which may render the Company's
products obsolete, and competitors may develop their products more rapidly than
the Company. Competitors may also be able to complete the regulatory process
sooner, and therefore, may begin to market their products in advance of the
Company's products. The Company believes that competition in sales of its
products will be based on, among other things, product efficacy, safety,
reliability, availability and price. See "-- Generic Substitution," and
"Business -- Competition."
9
<PAGE> 11
Product Liability; Product Recall; Product Returns. The Company faces an
inherent business risk of exposure to product liability claims in the event that
the use of its technologies or products is alleged to have resulted in adverse
effects. Such risks will exist even with respect to those products that receive
regulatory approval for commercial sale. While the Company has taken, and will
continue to take, what it believes are appropriate precautions, there can be no
assurance that it will avoid significant product liability exposure. The Company
currently has product liability insurance in the amount of $25.0 million for
aggregate annual claims with a $50,000 deductible per incident and a $500,000
aggregate annual deductible; however, there can be no assurance that the level
or breadth of any insurance coverage will be sufficient to fully cover potential
claims. There can be no assurance that adequate insurance coverage will be
available in the future at acceptable costs, if at all, or that a product
liability claim or recall would not materially and adversely affect the business
or financial condition of the Company. Product recalls may be issued at the
discretion of the Company, the FDA or other government agencies having
regulatory authority for pharmaceutical product sales. Recalls may occur due to
disputed labeling claims, manufacturing issues, quality defects or other
reasons. No assurance can be given that product recalls will not occur in the
future. Any product recall could materially adversely affect the Company's
business, financial condition and results of operations. The Company permits
customers to return unused pharmaceutical products under certain conditions.
Although product returns were less than 4.0% of revenues for the nine months
ended September 30, 1997, there can be no assurance that actual levels of
returns will not increase or significantly exceed the amounts anticipated by the
Company. See "-- Customer Concentration; Consolidation of Distribution Network"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Attraction and Retention of Key Personnel. The Company is highly dependent
on the principal members of its management staff, the loss of whose services
might impede the achievement of acquisition and development objectives. Although
the Company believes that it is adequately staffed in key positions and that it
will be successful in retaining skilled and experienced management, operational
and scientific personnel, there can be no assurance that the Company will be
able to attract and retain such personnel on acceptable terms. The loss of the
services of key scientific, technical and management personnel could have a
material adverse effect on the Company, especially in light of the Company's
recent growth. The Company does not maintain key-person life insurance on any of
its employees. See "Business -- Employees" and "Management."
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active trading market will develop or be
sustained after this offering. The initial public offering price has been
determined by negotiations between the Company and the representatives of the
Underwriters and may not be indicative of the market price after the offering.
See "Underwriting" for the factors considered in determining the initial public
offering price. The stock prices of emerging growth companies, such as the
Company, have historically been volatile. Factors such as the announcements of
technological innovations or new products by the Company, its competitors and
other third parties, as well as variations in the Company's results of
operations, perceptions about market conditions in the pharmaceutical industry,
the impact of various regulatory proposals and general market conditions, many
of which are unrelated to the Company's operating performance, may cause the
market price of the Company's Common Stock to fluctuate significantly.
Shares Eligible for Future Sale. Sales of a substantial number of shares
of the Company's Common Stock in the public market following this offering, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock. Upon completion of this offering, there will be
34,000,000 shares of Common Stock outstanding (35,000,000 shares if the
Underwriters' over-allotment option is exercised in full). Other than the
8,200,000 shares offered hereby, all shares of Common Stock held by the
Company's current shareholders are "restricted securities" within the meaning of
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
and may only be sold subject to the provisions of Rule 144 under the Securities
Act.
10
<PAGE> 12
Of the 34,000,000 shares of Common Stock to be outstanding after the
offering, approximately 22,000,000, or 78.6%, of the outstanding shares of
Common Stock will be subject to lock-up agreements entered into by certain
officers, directors and other shareholders of the Company (the "Lock-up
Agreements"). The Company and its directors, officers and certain other
shareholders have, among other things, agreed not to, directly or indirectly,
offer for sale, sell, pledge or otherwise dispose of or during the term of the
Lock-up Agreement enter into any transaction or device that is designed to, or
could be expected to, result in the disposition by any person at any time in the
future, any Common Stock or securities convertible into or exchangeable for
Common Stock, with certain limited exceptions, or sell or grant options, rights
or warrants with respect to any shares of Common Stock or securities convertible
into or exchangeable for Common Stock, with certain limited exceptions, or enter
into any swap or other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of ownership of such
shares of Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. on behalf
of the Representatives. Of the 12,000,000 shares of Common Stock to be
outstanding after the offering that are not subject to the Lock-up Agreements,
other than the 8,200,000 shares of Common Stock sold in the offering, (i)
approximately 1.8 million shares will be immediately eligible for resale in the
public market without restriction in reliance on Rule 144(k) under the
Securities Act, (ii) approximately 800,000 shares may be sold subject to the
volume and manner of sales restrictions of Rule 144 and (iii) the remaining
approximately 1.2 million shares may not be sold pursuant to Rule 144 prior to
the expiration of their one-year holding period.
Beginning 180 days after the date of this Prospectus, after the Lock-up
Agreements have expired, (i) approximately 10.0 million additional shares of
Common Stock will become eligible for resale into the public market in reliance
on Rule 144(k) and (ii) approximately 12.0 million additional shares may be sold
subject to the volume and manner of sales restrictions of Rule 144. See "Shares
Eligible for Future Sale" and "Underwriting."
Dilution; Absence of Dividends. Investors purchasing shares of Common
Stock in this offering will incur immediate substantial dilution of $15.41 per
share in the net tangible book value of the Common Stock from the initial public
offering price. The Company has never paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all available funds
for use in its business and does not expect to pay any cash dividends in the
foreseeable future. Furthermore, the payment of cash dividends from earnings is
currently restricted by the Company's credit arrangements with a commercial
lender. See "Dilution" and "Dividend Policy."
Concentration of Ownership; Lack of Independent Directors. Following this
offering, the present officers and directors of the Company and their affiliates
will beneficially own approximately 40.2% of the outstanding shares of Common
Stock. Accordingly, they will have the ability to exercise significant influence
over the management and policies of the Company. Following completion of the
offering, independent directors will not constitute a majority of the Board of
Directors and the Company's Board of Directors may not have a majority of
independent directors in the future. In the absence of a majority of independent
directors, the Company's executive officers, who also are principal shareholders
and directors, could establish policies and enter into transactions without
independent review and approval thereof. Transactions without an independent
review could present the potential for a conflict of interest between the
Company and its shareholders generally and the executive officers, shareholders
or directors. See "Management" and "Principal and Selling Shareholders."
Certain Charter, Bylaws and Statutory Provisions; Rights Agreement. The
Company's Second Amended and Restated Charter (the "Charter") and Amended and
Restated Bylaws (the "Bylaws") provide for a classified Board of Directors,
restrict the ability of shareholders to call special meetings and contain
advance notice requirements for shareholder proposals and nominations and
special voting requirements for the amendment of the Company's Charter and
Bylaws. These provisions could delay or hinder the removal of incumbent
directors and could discourage or make more difficult a proposed merger, tender
offer or proxy contest involving the Company or may otherwise have an adverse
effect on the market price of the Common Stock. The Company also is subject to
provisions of
11
<PAGE> 13
Tennessee corporate law that provides that a party owning 10.0% or more of stock
in a "resident domestic corporation" (such party is called an "interested
shareholder") cannot engage in a business combination with the resident domestic
corporation unless the combination (i) takes place at least five years after the
interested shareholder first acquired 10.0% or more of the resident domestic
corporation, and (ii) either (A) is approved by at least two-thirds of the
non-interested voting shares of the resident domestic corporation or (B)
satisfies certain fairness conditions specified in the specific provisions.
There are certain other Tennessee statutes which provide antitakeover protection
for Tennessee corporations. See "Description of Capital Stock -- Certain
Provisions of the Charter and Bylaws and Statutory Provisions."
The Company's Board of Directors has declared a dividend of one preferred
share purchase right (a "Right") for each share of Common Stock outstanding. A
Right will also be attached to each share of Common Stock subsequently issued.
The Rights will have certain anti-takeover effects. If triggered, the Rights
would cause substantial dilution to a person or group of persons (other than
certain exempt persons) that acquires more than 15.0% of the Common Stock on
terms not approved by the Company's Board of Directors. The Rights could
discourage or make more difficult a merger, tender offer or other similar
transaction. See "Description of Capital Stock -- Rights Agreement."
Pursuant to the Charter, shares of preferred stock may be issued in the
future without shareholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine in the exercise of its business judgment. The rights of the holders of
Common Stock are subject to, and may be adversely affected by, any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions,
financings and other corporate transactions, could have the effect of
discouraging, or making more difficult, a third party's acquisition of a
majority of the Company's outstanding voting stock. The Company has no present
plans to issue any shares of preferred stock. See "Description of Capital
Stock -- Preferred Stock."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere, including statements regarding the
anticipated development and expansion of the Company's business; the products
which the Company expects to offer; anticipated development expenditures and
regulatory reform; the intent, belief or current expectations of the Company,
its directors or its officers, primarily with respect to the future operating
performance of the Company; and other statements contained herein regarding
matters that are not historical facts, are "forward-looking" statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995). In
addition, when used in this Prospectus, the words "believe," "anticipate,"
"expects," "intends" and similar expressions are intended to identify
forward-looking statements. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to the factors set forth
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
12
<PAGE> 14
THE COMPANY
The Company was incorporated in the State of Tennessee in 1993. The
Company's executive offices are located at 501 Fifth Street, Bristol, Tennessee
37620. Its telephone number is (423) 989-8000.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock in this offering are estimated to be $98.6 million ($115.3 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discount and estimated offering expenses payable by the Company,
assuming an estimated initial public offering price of $18.00. The net proceeds
of this offering, together with the Company's existing cash and cash
equivalents, will be used for: (i) acquisition of additional branded products,
(ii) repayment of certain indebtedness, and (iii) general corporate purposes,
including investments in facilities to accommodate any newly acquired products,
development of branded product line extensions and internally developed generic
products and expansion of the sales force. The Company is actively pursuing the
acquisition of rights to several products which may require the use of
substantial capital resources. Except for Letters of Intent with Glaxo Wellcome,
there are no present agreements or commitments with respect to any such
acquisition.
A portion of the proceeds will be used to repay the outstanding principal
balance and accrued interest of a promissory note in the aggregate amount of
$1.8 million payable to General Injectables and Vaccines, Inc. ("GIV"). This
note bears interest at the rate of 8.0% and matures on December 31, 1998. In
addition, a portion of the proceeds will be used to repay the outstanding
principal balance and accrued interest of a promissory note in the aggregate
amount of $1.8 million payable to The United Company. This note bears interest
at the rate of 10.0% and matures on April 1, 1999. Proceeds of the loan from The
United Company were used to fund, in part, the acquisition of the Cortisporin
product line from Glaxo Wellcome.
The cost, timing and amount of funds required for all specific uses by the
Company cannot be precisely determined by the Company at this time and is at
management's discretion. The rate of the Company's progress in acquiring new
branded products or acquiring companies with such products, the timing and
nature of regulatory action and the availability of alternative methods of
financing, will also determine the allocation and timing of the Company's use of
the proceeds from this offering. Pending application of the proceeds as
described above, the Company plans to invest the net proceeds of the offering in
short-term marketable securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. Furthermore,
the payment of cash dividends from earnings is currently restricted by the
Company's credit arrangements with a commercial lender. Assuming removal of this
restriction, the payment of cash dividends is subject to the discretion of the
Board of Directors and will be dependent upon many factors, including the
Company's earnings, its capital needs, and its general financial condition. The
Company anticipates that for the foreseeable future, it will retain its
earnings, if any, in order to finance the expansion and development of its
business. See "Risk Factors -- Dilution; Absence of Dividends" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1997, and as adjusted to reflect the sale of 6,000,000 shares
of Common Stock, offered hereby at the assumed public offering price of $18.00
per share and the application of the estimated net proceeds of such sale (after
deducting the underwriting discounts and estimated offering expenses payable by
the Company). See "Use of Proceeds." This table should be read in conjunction
with "Pro Forma Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Consolidated Financial
Statements of the Company and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 35 $ 95,137
======= ========
Current portion of long-term obligations and short term
debt(1)................................................... $ 9,090 $ 7,915
Long-term obligations (excluding current portion of
long-term obligations)(1)................................. 22,913 20,575
Line of credit(1)........................................... 2,282 2,282
Shareholders' equity:
Common Stock, no par value; 150,000,000 shares authorized;
28,000,000 issued and outstanding (actual); 34,000,000
shares outstanding (as adjusted)(2)(3)(4).............. 16,455 115,070
Due from related party...................................... (1,139) (1,139)
Retained earnings........................................... 12,493 12,493
------- --------
Total shareholders' equity........................ 27,809 126,424
------- --------
Total capitalization.............................. $62,094 $157,196
======= ========
</TABLE>
- ------------------------------
(1) For additional information relating to long-term obligations, see Notes 9
and 10 to the Consolidated Financial Statements.
(2) Shareholders of the Company will vote at the November 14, 1997 annual
meeting on a proposal to increase the number of authorized shares of Common
Stock of the Company from 10,000,000 to 150,000,000 shares. The above
assumes such proposal will be effected.
(3) On October 15, 1997, the Board of Directors of the Company approved a 2.8
for 1 stock split.
(4) Excludes 3,500,000 shares of Common Stock available for future grants under
the Company's 1997 Incentive and Nonqualified Stock Option Plan for
Employees. No options are currently outstanding.
14
<PAGE> 16
DILUTION
The net tangible book value of the Company as of September 30, 1997, was
approximately $(10.4) million, or $(.37) per share. "Net tangible book value"
equals the total tangible assets of the Company. The calculation of net tangible
book value on a per share basis is equal to net tangible book value divided by
the aggregate number of shares of Common Stock outstanding. The calculation of
aggregate shares outstanding gives effect to the 2.8 for 1 stock split. After
giving effect to the sale of the 6,000,000 shares of Common Stock offered by the
Company hereby at an assumed Price to Public of $18.00 per share, the pro forma
net tangible book value of the Company as of September 30, 1997 would have been
$88.2 million, or $2.59 per share. This represents an effective net increase in
net tangible book value of $2.96 per share to existing shareholders and an
immediate dilution of $15.41 per share to new investors purchasing shares at the
initial public offering price. The following table illustrates this per share
dilution, after deduction of underwriting discount and offering expenses:
<TABLE>
<S> <C> <C>
Price to Public per share................................... $18.00
Net tangible book value per share before offering(1)...... $ (.37)
Increase per share attributable to price paid by
purchasers in this offering............................ 2.96
------
Pro forma net tangible book value per share after
offering(1)............................................... 2.59
------
Dilution in pro forma net book value per share to new
investors................................................. $15.41
======
</TABLE>
The following table sets forth, on a pro forma as adjusted basis as of
September 30, 1997, the differences between the existing shareholders and the
new investors with respect to the number of shares purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 28,000,000 82% $ 14,613,000 12% $ 0.52
New investors(1)............... 6,000,000 18% 108,000,000 88% 18.00
---------- --- ------------ ---
Total................ 34,000,000 100% $122,613,000 100%
========== === ============ ===
</TABLE>
- ------------------------------
(1) Sales by the Selling Shareholders in the offering will reduce the number of
shares held by the existing shareholders prior to the offering to
25,800,000, or 76% (or 74% if the over-allotment option is exercised in
full), and will increase the number of shares held by new investors of
Common Stock in the offering to 8,200,000, or 24% (9,200,000, or 26% if the
over-allotment option is exercised in full), of the total number of shares
of Common Stock outstanding after the offering. See "Principal and Selling
Shareholders."
The calculations in the tables set forth above do not reflect an aggregate
of 3,500,000 shares of Common Stock available for future grants under the
Company's 1997 Incentive and Nonqualified Stock Option Plan for Employees.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Financial Statements" and the Company's Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus. The consolidated statement of operations data for each of the years
ended December 31, 1994, 1995 and 1996, and the nine months ended September 30,
1997, and the consolidated balance sheet data as of December 31, 1995 and 1996
and September 30, 1997, have been derived from the consolidated financial
statements of the Company that have been audited by Coopers & Lybrand L.L.P. and
included elsewhere in this Prospectus. The consolidated balance sheet data as of
December 31, 1994 have been derived from the consolidated financial statements
of the Company that have been audited by Coopers & Lybrand L.L.P. but not
included in this Prospectus. The consolidated statements of operations for the
nine months ended September 30, 1996 and the consolidated balance sheet data as
of September 30, 1996 have been derived from unaudited consolidated financial
statements prepared on the same basis as the audited consolidated financial
statements. The results of operations for the nine months ended September 30,
1997 are not necessarily indicative of results to be expected for the entire
year ending December 31, 1997 or any future period.
The statement of operations data for the fiscal years ended December 31,
1992 and 1993 and the balance sheet data as of December 31, 1992 and 1993, are
derived from unaudited financial statements of the Predecessor Company (defined
below).
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
------------------- ---------------------------------------------------
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ---------------------
1992(1) 1993(1) 1994 1995 1996 1996 1997
-------- -------- ------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(2)........................... $23,108 $24,637 $13,311 $25,441 $15,457 $11,310 $33,817
Development revenue(3)................. -- -- -- -- 5,000 2,500 --
------- ------- ------- ------- ------- ------- -------
Total revenue, net............ 23,108 24,637 13,311 25,441 20,457 13,180 33,817
Costs of sales......................... 17,913 19,373 9,754 12,130 8,782 7,050 9,538
Selling, general and administrative.... 3,542 6,964 1,987 8,605 12,106 8,441 13,734
Depreciation and amortization.......... 469 489 639 1,777 982 655 1,631
------- ------- ------- ------- ------- ------- -------
Total costs and expenses...... 21,924 26,826 12,380 22,512 21,870 16,146 24,903
Gain on disposition of net assets(4)... -- 10,500 -- -- -- -- --
Sale of product line(2)................ -- -- -- 13,102 -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income (loss)................ 1,184 (8,311) 931 16,031 (1,413) 164 8,914
Gain on sale of investment in
affiliate(5)......................... -- -- -- -- 1,760 1,760 --
Interest expense....................... (116) (96) (1,069) (2,006) (1,272) (850) (1,730)
Other (expenses) income................ 60 (152) 554 367 578 407 212
Net income (loss) before income taxes
and extraordinary gain............... 1,128 8,063 416 14,392 (347) (1,019) 7,395
Income tax (benefit) expense........... 91 516 (501) 5,058 (107) (316) 2,840
------- ------- ------- ------- ------- ------- -------
Net income (loss) before extraordinary
gain................................. 1,037 7,547 917 9,334 (240) (703) 4,555
Extraordinary gain on early
extinguishment of long-term debt, net
of income taxes of $272(6)........... -- -- -- 528 -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ 1,037 $ 7,547 $ 917 $ 9,862 $ (240) $ (703) $ 4,555
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(7)......... N/A N/A $ 0.20 $ 0.79 $ (0.02) $ (0.06) $ 0.18
======= ======= ======= ======= =======
Weighted average number of common and
common stock equivalents(8).......... N/A N/A 4,538 12,446 13,631 12,572 25,656
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ----------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $417 $501 $1,028 $10,568 $1,392 $5,543 $35
Working capital........................ 1,582 2,747 (2,408) 7,599 7,749 7,563 83
Total assets........................... 7,756 11,805 38,447 33,942 39,279 34,244 74,253
Long-term debt (excluding current por-
tion).................................. 630 -- 27,065 9,497 13,980 11,029 22,913
Shareholders' equity................... 3,473 11,021 1,935 11,011 15,693 11,176 27,809
</TABLE>
- ------------------------------
(1) Effective December 31, 1993, the Company acquired certain assets and assumed
certain liabilities of RSR Laboratories, Inc. (the "Predecessor Company").
The 1992 and 1993 financial data of the Predecessor Company is not
comparable to the Company's financial data for 1994 through 1997 since the
1992 and 1993 financial data of the Predecessor Company includes the gross
up of customer supplied materials in net sales and cost of sales. Such gross
up of net sales and cost of sales in 1992 and 1993 was $7.3 million and $7.9
million, respectively. Such costs were not paid by the Company or billed to
the customer and the Company's accounting practice does not include these
costs in net sales or cost of sales.
(2) In December 1994, the Company acquired the Anexsia Product Line. The Company
sold the Anexsia Product Line to Mallinckrodt in December 1995 for $32.0
million and recorded a $13.1 million net gain.
(3) In connection with the Anexsia Transaction, the Company agreed to develop
four ANDAs to be filed with the FDA on Mallinckrodt's behalf for a maximum
of $2.5 million each due upon FDA approval. In 1996 the FDA approved two of
these ANDAs and as of September 30, 1997, the two additional ANDAs were on
file with the FDA.
(4) The Predecessor Company sold the net assets of its over-the-counter human
and animal pharmaceutical and health products business effective December
31, 1993. The net book value of assets sold had a recorded book value of
$3.0 million.
(5) In September 1996, the Company sold its entire 6.0% interest in an
affiliated, privately held pharmaceutical company. See Note 15 to the
Consolidated Financial Statements.
(6) Reflects gain from early extinguishment of debt in connection with the
disposition of the Anexsia Product Line.
(7) Net income (loss) per share is unchanged on a fully diluted basis for all
periods presented.
(8) Reflects retroactively the effects of the 15.0% stock dividend paid in 1996
and a 2.8 for 1 stock split.
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<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. See "Risk Factors" for trends and uncertainties known to the Company
that could cause reported financial information to differ materially from future
results.
OVERVIEW
The Company is an integrated pharmaceutical company that manufactures,
markets and sells branded and generic prescription pharmaceutical products. The
Company seeks to capitalize on niche opportunities in the pharmaceutical
industry created by cost containment initiatives and consolidation among large
global pharmaceutical companies. The Company's strategy is to acquire branded
pharmaceutical products and increase their sales by focused promotion and
marketing, as well as by developing product line extensions and through product
life cycle management.
The Company was founded in December 1993 when it acquired its manufacturing
facility and assumed contracts to manufacture pharmaceutical products and
companion animal health products for pharmaceutical companies. When the Company
was first formed, contract manufacturing made up a significant portion of the
Company's net sales. In December 1994, the Company acquired its first branded
pharmaceutical product line, the Anexsia Product Line, for $17.6 million. The
acquisition was funded by a note payable to the seller (the "Anexsia Note
Payable"). During the 12 months following its acquisition, the Company
significantly increased annual sales of Anexsia through a combination of product
development and marketing. In December 1995, the Company sold the Anexsia
Product Line to Mallinckrodt for $32.0 million in cash and recognized a $13.1
million net gain. In connection with the sale, the Company entered into a
manufacture and supply agreement with Mallinckrodt, with guaranteed minimum
revenues of $4.8 million through 1999, and an agreement to develop four ANDAs on
Mallinckrodt's behalf for a maximum of $2.5 million each due upon FDA approval.
In 1996 the FDA approved two of these ANDAs and, as of September 30, 1997 the
additional two ANDAs were on file.
The Company has used the proceeds from the sale of the Anexsia Product Line
to acquire additional branded pharmaceutical products. Since December 1994, the
Company has acquired nine branded pharmaceutical products, developed one product
internally, divested one product and introduced seven product line extensions
for these. The Company has improved the sales of most of its acquired products.
Branded pharmaceutical products represented approximately 79.8% of the net sales
of the Company for the first nine months ended September 30, 1997, with the
Cortisporin product line representing 60.7% of net sales. As part of its
business strategy, the Company intends to continue to acquire branded
pharmaceutical products and to create value by leveraging its marketing,
manufacturing and product development capabilities.
The Company expects that its strategy of acquiring branded pharmaceutical
products will increase its revenues as a result of sales of such products and
will increase gross margins. In general, margins are higher on the Company's
branded pharmaceutical products than on the Company's other products, making
branded products attractive to the Company. In addition, as soon as practicable
after regulatory requirements are satisfied, the Company expects that using its
manufacturing capability to ultimately produce these acquired pharmaceutical
products will increase the Company's margins because the cost of producing
pharmaceutical products on its own is lower than the cost of having these
products manufactured by third parties.
The Company's strategy is also expected to increase its selling, general
and administrative expenses due to the hiring of additional sales
representatives and increased sampling, advertising and other marketing costs as
a result of more focused marketing efforts. In accordance with its focus on
branded pharmaceutical products, the Company expects that, over time, its
contract manufacturing and generic pharmaceutical and companion animal health
product lines will become a smaller percentage of revenues.
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<PAGE> 20
The following summarizes approximate net revenues by product categories.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1994 1995 1996 1997
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Branded pharmaceuticals............................... $ 305 $ 5,921 $ 2,938 $26,972
Generic pharmaceuticals............................... 1,711 7,492 1,572 1,039
Contract manufacturing................................ 11,295 12,028 10,890 5,090
Companion animal health............................... -- -- 57 716
Development revenues.................................. -- -- 5,000 --
------- ------- ------- -------
Total revenues.............................. $13,311 $25,441 $20,457 $33,817
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues
Net revenues increased $20.0 million, or 144%, to $33.8 million in the nine
months ended September 30, 1997 from $13.8 million in the nine months ended
September 30, 1996. This increase was due primarily to the acquisition of seven
branded products since October 1996. Of these acquired products, the Cortisporin
product line contributed $20.5 million in 1997, or 60.7% of total net sales,
while the Company's additional branded products contributed an additional $6.5
million, or 19.2%. Although there are two additional ANDAs on file with the FDA
in connection with the Anexsia Transaction in 1997, the Company did not
recognize any income in the first nine months ended September 30, 1997 related
to this contract, compared to $2.5 million recognized in the nine months ended
September 30, 1996. Revenues from contract manufacturing decreased $4.4 million,
or 46.3%, to $5.1 million in the nine months ended September 30, 1997 from $9.5
million in the nine months ended September 30, 1996, due primarily to the
expiration of a manufacturing contract.
Operating Costs and Expenses
Total operating costs and expenses increased $8.8 million, or 54.7%, to
$24.9 million in the nine months ended September 30, 1997 from $16.1 million in
the nine months ended September 30, 1996. The increase was due to increases in
the costs of sales, selling, general and administrative expenses and
depreciation and amortization expenses.
Cost of sales increased $2.4 million, or 33.8%, to $9.5 million in the nine
months ended September 30, 1997 from $7.1 million in the nine months ended
September 30, 1996. The increase was due primarily to the costs associated with
the new branded product lines. Cost of sales increased more slowly than sales
because acquired branded product lines generally had higher margins than the
Company's other product lines.
Selling, general and administrative expenses increased $5.3 million, or
63.1%, to $13.7 million in the nine months ended September 30, 1997 from $8.4
million in the nine months ended September 30, 1996. This increase was primarily
attributable to the hiring of additional field sales representatives during late
1996 and early 1997, other additional personnel costs and marketing, promotion
and sampling costs associated with the new branded product lines.
Depreciation and amortization expense increased $976,000, or 149%, to $1.6
million in the nine months ended September 30, 1997 from $655,000 in the nine
months ended September 30, 1996. This increase was primarily attributable to the
amortization of the purchase price of the new branded product lines.
Operating Income
Operating income increased $11.2 million to $8.9 million in the nine months
ended September 30, 1997 from an operating loss of $2.3 million in the nine
months ended September 30, 1996. As a percentage of net revenues operating
income was 26.3% in the nine months ended September 30, 1997.
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<PAGE> 21
This increase was primarily due to increased revenues from the acquisition of
additional branded products.
Gain on Sale of Investment in Affiliate
In September 1996, the Company sold its entire 6.0% interest in an
affiliated, privately held pharmaceutical company, which had been co-founded by
the Company's Chief Executive Officer, for $2.0 million, resulting in a gain of
$1.8 million.
Interest Expense
Interest expense increased $880,000, or 104%, to $1.7 million in the nine
months ended September 30, 1997 from $850,000 in the nine months ended September
30, 1996, as a result of additional term loans used to finance, in part, the
acquisitions of branded product lines.
Income Tax (Benefit) Expense
The effective tax rate in 1997 of 38.4% was higher than the federal
statutory rate of 34.0% due to state income taxes.
Net Income
Due to the factors set forth above, net income increased $5.3 million to
$4.6 million in the nine months ended September 30, 1997 from a net loss of
$703,000 in the nine months ended September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Net revenues decreased $4.9 million, or 19.3%, to $20.5 million in 1996
from $25.4 million in 1995 due primarily to the disposition of the Anexsia
Product Line, which had generated net revenues of $9.6 million in 1995. In
addition, the Company experienced a general decline in revenues from generic
pharmaceutical products as a result of erosion of generic pricing due to
competition as well as a decline in revenues from contract manufacturing as a
result of the expiration of a significant contract offset, in part, by the
addition of new contracts. These revenue decreases were offset by the
recognition of $5.0 million in developmental revenues from the Anexsia
Transaction and revenues from three branded pharmaceutical products acquired in
the fourth quarter of 1996.
Operating Costs and Expenses
Total operating costs and expenses decreased $642,000, or 2.9%, to $21.9
million in 1996 from $22.5 million in 1995. The decrease was due to decreases in
both costs of sales and depreciation and amortization expenses, offset by an
increase in selling, general and administrative expenses.
Cost of sales decreased $3.3 million, or 27.3%, to $8.8 million in 1996
from $12.1 million in 1995. The decrease was due primarily to the sale of the
Anexsia Product Line, offset by the acquisition of a number of smaller product
lines in the fourth quarter of 1996.
Selling, general and administrative expenses increased $3.5 million, or
40.7%, to $12.1 million in 1996 from $8.6 million in 1995. This increase was
primarily attributable to the hiring of additional employees during 1996 and
late 1995 to support the Company's expansion, and increased costs associated
with marketing efforts relating to three branded pharmaceutical products
acquired by the Company in the fourth quarter of 1996 and additional product
development expenses incurred in developing branded and generic pharmaceutical
product reformulations in 1996.
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<PAGE> 22
Depreciation and amortization expense decreased $795,000, or 44.2%, to
$982,000 in 1996 from $1.8 million in 1995. This decrease was primarily
attributable to reduced amortization expense as a result of the disposition of
the Anexsia Product Line.
Operating Income
Operating income decreased $17.4 million to a loss of $1.4 million in 1996
from operating income of $16.0 million in 1995 and decreased as a percentage of
net revenues to (6.9%) from 63.0% in 1995. This decrease was primarily as a
result of greater selling, general and administrative expenses and lost revenues
and a 1995 nonrecurring gain due to the disposition of the Anexsia Product Line,
offset, in part, by an increase in development revenues.
Gain on Sale of Investment in Affiliate
In September 1996, the Company sold its entire 6.0% interest in an
affiliated, privately held pharmaceutical company, which had been co-founded by
the Company's Chief Executive Officer, for $2.0 million, resulting in a gain of
$1.8 million.
Interest Expense
Interest expense decreased $734,000, or 36.7%, to $1.3 million in 1996 from
$2.0 million in 1995, primarily due to the repayment of the Anexsia Note Payable
in December 1995.
Income Tax (Benefit) Expense
The effective tax rate of 31.0% in 1996 and 35.1% in 1995 does not differ
significantly from the federal statutory rate of 34.0%.
Net Income
Due to the factors set forth above, net income decreased $10.1 million, to
a net loss of $240,000 in 1996 from net income of $9.9 million in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Net revenues increased $12.1 million, or 91.0%, to $25.4 million in 1995
from $13.3 million in 1994 due primarily to the acquisition of the Anexsia
Product Line as well as an increase in revenues from generic pharmaceutical
products. The Company also increased revenues from contract manufacturing due to
the renewal of contracts that had expired during 1995 under more favorable
terms.
Operating Costs and Expenses
Total operating costs and expenses increased $10.1 million, or 81.5%, to
$22.5 million in 1995 from $12.4 million in 1994. The increase was due to
increases in the costs of sales, selling, general and administrative expenses
and depreciation and amortization expense.
Cost of sales increased $2.3 million, or 23.5%, to $12.1 million in 1995
from $9.8 million in 1994. The increase was due primarily to costs associated
with the acquisition of the Anexsia Product Line prior to its disposition in
December 1995.
Selling, general and administrative expenses increased $6.6 million, or
330%, to $8.6 million in 1995 from $2.0 million in 1994. This increase was
primarily attributable to increased promotional costs attributable to marketing
efforts relating to branded pharmaceutical products acquired by the Company
during 1995, variable costs commensurate with increased sales volumes, and an
increase in personnel costs attributable to the hiring of additional employees
during 1995.
21
<PAGE> 23
Depreciation and amortization expense increased $1.1 million, or 172%, to
$1.8 million in 1995 from $639,000 in 1994. This increase was primarily
attributable to the amortization of the purchase price of the Anexsia Product
Line.
Operating Income
Operating income increased $15.1 million, or 1,622%, to $16.0 million in
1995 from $931,000 in 1994 and increased as a percentage of net revenues to
63.0% from 7.0% in 1994. This increase was due primarily to increased revenues
from the acquisition of the Anexsia Product Line.
Interest Expense
Interest expense increased $937,000, or 85.2%, to $2.0 million in 1995 from
$1.1 million in 1994, as a result of the Anexsia Note Payable issued in
connection with the purchase of the Anexsia Product Line.
Income Tax (Benefit) Expense
The effective tax rate in 1995 approximated the federal statutory rate. In
1994 the rate was substantially lower than the statutory rate due to the basis
differences on certain assets purchased and the lower level of taxable income.
Net Income
Due to the factors set forth above, as well as the gain of $13.1 million
recognized by the Company as a result of the disposition of the Anexsia Product
Line, net income increased $8.9 million, or 971%, to $9.9 million in 1995 from
$917,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's liquidity requirements arise from net cash used in
operations, payments on outstanding indebtedness and funding of acquisitions of
branded products. The Company has met its cash requirements through 1996
primarily through bank borrowings and the proceeds from the disposition of the
Anexsia Product Line.
The Company's recent cash requirements arose primarily in connection with
the acquisition of branded pharmaceutical products. In 1995 the Anexsia Product
Line was acquired and financed with the Anexsia Note Payable. The Anexsia Note
Payable was repaid upon the completion of the disposition of the Anexsia Product
Line in December 1995. In 1996 the acquisition of two branded pharmaceutical
products for $7.0 million was financed with a combination of cash and seller
financing. In March 1997, the Company raised $23.0 million through a combination
of equity ($8.0 million) and notes payable with banks and borrowing under its
revolving line of credit to finance the acquisition of the Cortisporin product
line. Other product acquisitions in 1997, which totalled $6.6 million, were
financed primarily with notes payable from banks and internally generated funds.
As of September 30, 1997, the Company had available up to $6.2 million
under its revolving line of credit which allows for total borrowing of up to
$8.5 million.
Nine Months Ended September 30, 1997
Net cash provided by operating activities was $5.3 million for the nine
months ended September 30, 1997, which was primarily attributable to increased
operating income. Increases of receivables and inventory of $5.1 million and
$2.5 million, respectively, were offset by $1.6 million of depreciation and
amortization expenses, increases in accounts payable, accrued expenses and
income taxes payable of $2.7 million, $2.8 million and $1.7 million,
respectively.
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<PAGE> 24
Net cash used in investing activities was $32.5 million for the nine months
ended September 30, 1997, which consisted primarily of the purchase of the
Cortisporin product line for $23.7 million, two additional branded products at a
combined cost of $6.7 million, and the purchase of additional property and
equipment for $957,000 and deposit on equipment of $1.3 million.
Net cash provided by financing activities was $25.8 million for the nine
months ended September 30, 1997, which consisted of $13.2 million, $1.3 million
and $15.9 million in proceeds from the revolving line of credit, and additional
short-term and long-term debt to finance branded product acquisitions,
respectively, offset by payments of $10.9 million and $3.3 million on the
revolving line of credit and long-term debt, respectively. Further, the Company
received net proceeds of $8.0 million from the issuance of common shares and
received $2.1 million in payments from officers of the Company on shareholder
notes receivable.
As a result of the factors discussed above, cash and cash equivalents
decreased to $35,000 from $1.4 million as of December 31, 1996.
Year ended December 31, 1996
Net cash used in operating activities was $6.0 million for the year ended
December 31, 1996. The Company's net use of operating cash in 1996 was primarily
a result of a $1.4 million operating loss, excluding the $1.8 million gain on
sale of investment in affiliate, offset by $1.0 million of depreciation and
amortization, an increase in income taxes receivable of approximately $3.6
million resulting from federal and state tax payments made by the Company in
1996, as well as an increase in inventory of $1.9 million due to the acquisition
of three branded pharmaceutical products and the internal development of a
complete generic product line in the fourth quarter of 1996.
Net cash used in investing activities for the year ended December 31, 1996
was $2.4 million and was primarily the result of cash paid of $3.3 million and
$1.0 million for the acquisition of three new branded product lines and costs
associated with generic pharmaceutical products as well as property and
equipment purchases, respectively. Additionally, the Company received $2.1
million from the sale of its 6.0% investment in an affiliated, privately-held
pharmaceutical company.
Net cash used in financing activities was $781,000 for the year ended
December 31, 1996, which was comprised of payments on the revolving line of
credit and other term loans of $3.4 million and $2.8 million, respectively,
offset by proceeds from a $2.5 million term loan used to finance, in part, the
acquisition of certain branded pharmaceutical products and $2.8 million raised
in an employee stock purchase plan.
As a result of the factors discussed above, cash and cash equivalents
decreased from $10.6 million as of December 31, 1995, to $1.4 million as of
December 31, 1996.
Year ended December 31, 1995
Net cash used in operating activities was $2.6 million for the year ended
December 31, 1995. The Company's net use of operating cash in 1995 was primarily
a result of an increase in inventory and receivables of $1.3 million and
$876,000, respectively, due to increased revenues during 1995. Additionally, the
Company decreased its accounts payable and accrued expenses by $288,000 and
$220,000, respectively.
Net cash provided by investing activities was $30.3 million for the year
ended December 31, 1995 which consisted primarily of the $32.0 million in
proceeds received from the disposition of the Anexsia Product Line, offset by
the costs of improvements to the Company's manufacturing facility.
Net cash used in financing activities was $18.1 million for the year ended
December 31, 1995, which primarily was the repayment of the $17.5 million
Anexsia Note Payable. Additionally, the Company had proceeds from its revolving
line of credit and other term loans of $200.8 million and
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<PAGE> 25
$329,000, and made payments on such indebtedness of $198.4 million and $20.1
million, respectively. Further, the Company paid $100,000 to retire preferred
stock and paid $8,000 dividends on such stock.
As a result of the factors discussed above, cash and cash equivalents
increased from $1.0 million at December 31, 1994 to $10.6 million at December
31, 1995.
Year ended December 31, 1994
Net cash provided by operating activities was $672,000 for the year ended
December 31, 1994. Net cash provided by operating activities in 1994 was
primarily a result of net income plus depreciation and amortization of $639,000,
deferred tax expense of $629,000, offset by changes in working capital of
$706,100. Net cash used in investing activities was $890,000, consisting
primarily of purchases of property and equipment.
Net cash provided by financing activities was $927,000 for the year ended
December 31, 1994, which was primarily a result of borrowings on the Company's
revolving line of credit of $12.0 million offset by payments of $11.0 million.
Additionally, the Company received payments from the issuance of $800,000 in
preferred stock, and repaid $346,000 in indebtedness, and received an advance
from an affiliate of $520,000. In December 1994, the Company purchased the
Anexsia Product Line in exchange for the $17.5 million Anexsia Note Payable,
with no cash down.
As a result of the factors discussed above, cash and cash equivalents
increased to $1.0 million as of December 31, 1994 from $319,000 as of December
31, 1993.
Certain Indebtedness and Other Matters
As of September 30, 1997, the Company had outstanding approximately $30.7
million of long-term debt, $1.3 million of short-term debt and $2.3 million in
borrowings under its revolving lines of credit agreements and term loans. Of
these amounts, approximately $12.2 million were at variable rates based on LIBOR
and the remainder at fixed rates. The Company does not believe its exposure to
changes in interest rates under these variable rate agreements will have a
material effect on its financial condition or results of operations. Certain
financing arrangements require the Company to maintain certain minimum net
worth, debt to equity, cash flow and current ratio requirements. The Company has
obtained waivers from its commercial lenders for violations of cash flow and
current ratio covenants.
On October 6, 1997, the Company signed Letters of Intent with Glaxo
Wellcome to acquire certain branded pharmaceutical product lines for $23.0
million. The Company plans to finance this acquisition with a new credit
facility, the terms and conditions of which are currently being negotiated.
The Company plans to use the proceeds from this offering primarily to fund
future acquisitions of branded pharmaceutical products and to repay certain
borrowings. See "Use of Proceeds."
The Company believes that existing credit facilities and cash expected to
be generated from operations are sufficient to finance its current operations
and working capital requirements. However, in the event the Company makes
significant future acquisitions, it may be required to raise funds in addition
to those being raised in this offering, through additional borrowings or the
issuance of additional debt or equity securities. At present, the Company is
actively pursuing the acquisition of additional branded pharmaceutical products
which may require the use of substantial capital resources. There are, however,
no present agreements or commitments with respect to any such acquisitions
except for those described elsewhere in this Prospectus.
Capital Expenditures
Capital expenditures, including capital lease obligations, were $1.0
million for the nine months ended September 30, 1997 and $2.2 million, $1.7
million and $1.1 million in 1996, 1995 and 1994, respectively. The principal
capital expenditures included property and equipment purchases and building
improvements. The Company is anticipating total capital expenditures in the
final three
24
<PAGE> 26
months of 1997 to be approximately $500,000 and total capital expenditures in
1998 to be approximately $3.0 million primarily to fund additional equipment
purchases and building improvements. The Company expects to increase its capital
expenditures over the next few years as a part of its acquisition and growth
strategy.
IMPACT OF INFLATION
The Company has experienced only moderate raw material and labor price
increases in recent years. While the Company has passed some price increases
along to its customers, the Company has primarily benefited from rapid sales
growth negating most inflationary pressures.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, effective
for fiscal periods ending after December 15, 1997. The new standard simplifies
the computation of earnings (loss) per share by replacing primary earnings
(loss) per share with basic earnings (loss) per share. Basic earnings (loss) per
share will not include the effect of any potentially dilutive securities, as
under the current accounting standard, and will be computed by dividing reported
income available to common shareholders by the weighted average number of common
shares outstanding during the period. Fully diluted earnings (loss) per share
will now be called diluted earnings (loss) per share and will reflect the
dilution of all potentially dilutive securities. The adoption of this standard
by the Company will have no impact on the historical reported earnings (loss)
per share amounts since the Company did not have any potentially dilutive
securities. In October 1997, the Board of Directors approved the 1997 Incentive
and NonQualified Stock Option Plan for Employees for which there are currently
no outstanding options.
Statement of Financial Accounting Standards (SFAS) No. 129 ("Statement
129") establishes standards for disclosing information about an entity's capital
structure and is effective for periods ending after December 15, 1997.
Management of the Company does not expect Statement 129 to have a significant
impact, if any, on the Company's Consolidated Financial Statements.
Statement of Financial Accounting Standards (SFAS) No. 130 ("Statement
130") establishes standards for reporting and display of comprehensive income
and its components (revenues, gains, expenses, losses) in a full set of general
purpose financial statements and is effective for fiscal years beginning after
December 15, 1997. Management of the Company does not expect Statement 130 to
have a significant impact, if any, on the Company's Consolidated Financial
Statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information ("Statement
131"). Statement 131 requires public business enterprises to adopt its
provisions for periods beginning after December 15, 1997, and to report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. The Company is evaluating the provisions of Statement 131, but
has not yet determined if additional disclosures will be required.
YEAR 2000 COMPLIANCE
The Company is currently in the process of converting its computer systems
to year 2000 compliant software. The Company does not expect that the cost of
converting such systems will be material to its financial condition or results
of operations. The Company believes it will be able to achieve year 2000
compliance by the end of 1999, and does not currently anticipate any material
disruption in its operations as the result of any failure by the Company to be
in compliance. The Company does not currently have any information concerning
the year 2000 compliance status of its suppliers and customers.
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<PAGE> 27
BUSINESS
COMPANY OVERVIEW
The Company is an integrated pharmaceutical company that manufactures,
markets and sells branded and generic prescription pharmaceutical products. The
Company seeks to capitalize on niche opportunities in the pharmaceutical
industry created by cost containment initiatives and consolidation among large
global pharmaceutical companies. The Company's strategy is to acquire branded
pharmaceutical products and increase their sales by focused promotion and
marketing, as well as by developing product line extensions and through product
life cycle management.
Since December 1994, the Company has acquired nine branded pharmaceutical
products, developed one product internally, divested one product and introduced
seven product line extensions. In October 1997, the Company entered into Letters
of Intent with Glaxo Wellcome to acquire several additional product lines for a
total of $23.0 million. The Company markets its branded pharmaceutical products
through its wholly-owned subsidiary, Monarch Pharmaceuticals. Monarch
Pharmaceuticals' goal is to aggressively promote acquired branded pharmaceutical
products in order to increase their sales. Monarch Pharmaceuticals has 48 sales
representatives who market primarily in the southeastern and midwestern United
States. This sales force is dedicated to promoting and marketing branded
pharmaceutical products and is supported by telemarketers and customer service
representatives who promote the Company's products in territories not currently
covered by field representatives. The Company expects its sales and marketing
staff to grow significantly as the Company acquires additional branded
pharmaceutical products.
The Company's current branded pharmaceutical products include, among
others, Cortisporin, acquired from Glaxo Wellcome in March 1997, Thalitone,
acquired from Horus Therapeutics, Inc. in December 1996, and Viroptic, acquired
from Glaxo Wellcome in May 1997. Branded pharmaceutical products represented
79.8% of the net sales of the Company for the first nine months ended September
30, 1997, with the Cortisporin product line representing 60.7% of net sales. The
Company acquired its first branded product, the Anexsia Product Line for $17.6
million in December 1994. During the 12 months following its acquisition, the
Company significantly increased annual sales of the Anexsia Product Line through
a combination of product development and marketing. In December 1995, the
Company sold the Anexsia Product Line to Mallinckrodt for $32.0 million in cash
and recognized a $13.1 million net gain.
The Company believes its integrated manufacturing capabilities and support
systems allow for higher margins and enhanced ability to acquire and develop
pharmaceutical products. The Company can produce a broad range of dosage
formulations, including sterile solutions, injectables, tablets and capsules,
liquids, creams and ointments, suppositories and powders, and is licensed by the
DEA to procure and produce controlled substances. The Company's manufacturing
capability is integrated with its support services, including quality control,
quality assurance, packaging, distribution and inventory management and
purchasing and production planning. These integrated services enable the Company
to maintain high quality standards for its products as well as provide reliable
and timely service to its customers. The Company currently manufactures certain
of its own branded and generic products and uses its excess manufacturing
capacity to contract manufacture for other pharmaceutical companies.
The Company's product development efforts are currently focused on
developing product line extensions, which allow the Company to enhance product
differentiation, create market exclusivity and minimize sales lost to generic
substitution. To date, the Company has introduced seven line extensions for its
acquired products.
The Company also manufactures and markets a number of generic
pharmaceutical products as well as a comprehensive line of nutritional
supplements for companion animals. The Company markets its generic
pharmaceutical products under the King Pharmaceuticals label and its companion
animal health products under the Royal Vet and Show Winner tradenames.
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INDUSTRY BACKGROUND
Sales of pharmaceutical products in the United States were estimated to be
in excess of $98 billion in 1996. During the past decade, the pharmaceutical
industry has been faced with cost containment initiatives from government and
managed care organizations and has begun to consolidate. Consolidation is being
driven by a desire among pharmaceutical companies to reduce costs through
economies of scale and synergies, to add previously lacking U. S. or European
sales strength or to add promising product pipelines or manufacturing
capabilities in key therapeutic categories.
Industry consolidation and cost containment pressures have increased the
level of sales necessary for an individual product to justify active marketing
and promotion from large pharmaceutical companies. This has led large
pharmaceutical companies to focus their marketing efforts on drugs with high
sales and on newer drugs which have the potential for high sales. In addition,
in certain cases pharmaceutical companies may choose not to market or promote
products actively if such products do not fit with the Company's therapeutic or
marketing priorities. As a result of these factors, sales of certain
pharmaceutical products have stagnated or declined, which has caused large
pharmaceutical companies to consider divesting product lines that are not
strategically important. Because these product lines are generally small and may
not be cost-effective for large pharmaceutical companies, they can be profitable
for smaller companies to manufacture and market.
BUSINESS STRATEGY
The Company's strategy is to identify product opportunities that large
global pharmaceutical companies neglect and create value by leveraging its
marketing, manufacturing and product development capabilities. In order to
execute this strategy, the Company seeks to acquire branded pharmaceutical
products and increase their sales by focused promotion and marketing, as well as
by developing product line extensions and through product life cycle management.
The Company believes that there are substantial opportunities to acquire
branded pharmaceutical products at attractive prices from large global
pharmaceutical companies. The Company generally seeks branded pharmaceutical
products that (i) can benefit from focused marketing efforts in addition to
product development, (ii) complement the Company's existing product lines, and
(iii) have some patent protection or potential for market exclusivity or product
differentiation, such as through a delivery mechanism, as part of a combination
therapy or lack of a therapeutic substitute. Since December 1994, the Company
has acquired nine branded pharmaceutical products, and in October 1997, the
Company entered into Letters of Intent with Glaxo Wellcome to acquire several
additional product lines.
The Company believes that it can increase the sales of its branded
pharmaceutical products through focused promotion and marketing efforts. The
Company's wholly-owned subsidiary, Monarch Pharmaceuticals, has an established
sales force of 48 field representatives. This sales force is dedicated to
promoting and marketing branded pharmaceutical products. These efforts are
supported by telemarketers and customer service representatives who also promote
the Company's products in territories not currently covered by field
representatives by distributing samples to physicians selected using a computer
sampling system developed by the Company. The sales and marketing staff is
expected to grow significantly as the Company continues to acquire more branded
products.
A key component of the Company's strategy is its integrated manufacturing
capabilities and support systems. The Company's ability to manufacture products
enables the Company to capture higher margins and enhances the Company's ability
to acquire and develop products. The Company's plant manufactures a broad range
of dosage forms, including sterile solutions, injectables, tablets and capsules,
liquids and suspensions, creams and ointments, suppositories and powders. The
Company's support systems include quality assurance, quality control, regulatory
compliance, inventory control and packaging which are coordinated by the
Company's management information services. When the Company acquires a product,
it transfers production of such product to its manufacturing facilities as soon
as practicable after regulatory requirements are satisfied.
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The Company also believes it can create value by utilizing its product
development capabilities to enhance product differentiation and to create market
exclusivity for its products. In particular, the Company seeks to develop new
combination therapies in order to broaden product lines and minimize generic
substitution. To date, the Company has introduced seven line extensions for its
acquired products.
PRODUCTS AND PRODUCT DEVELOPMENT
The Company develops, manufactures, packages, markets and distributes
branded and generic pharmaceutical products and companion animal health
products. It also manufactures certain pharmaceutical products for other
pharmaceutical companies.
The Company is focused primarily on the acquisition and development of
branded pharmaceuticals which are marketed through its wholly-owned subsidiary,
Monarch Pharmaceuticals. Since December 1994, the Company has acquired nine
branded pharmaceutical products, developed one product internally and divested
one product. The Company's current line of branded pharmaceutical products
include:
CORTISPORIN, acquired from Glaxo Wellcome in March 1997, includes
combination antibiotic and anti-inflammatory ophthalmic, otic and topical
formulations indicated for eye, ear and skin infections. The Cortisporin
product line represented 60.7% of the Company's net sales in the nine
months ended September 30, 1997.
PEDIOTIC, which is part of the Cortisporin product line, is an ear
infection preparation specially formulated for children.
THALITONE is a hypertension-diuretic which is produced in tablet form
indicated for the management of hypertension and edema associated with
congestive heart failure and renal dysfunction.
VIROPTIC is a sterile solution indicated for the treatment of ocular
herpes simplex virus, idoxuridine-resistant herpes and vidarabine-resistant
herpes.
QUIBRON is a respiratory preparation containing theophylline which is
produced in capsule, tablet and sustained release tablet forms indicated
for the relief and/or prevention of asthma, chronic bronchitis and
emphysema.
PROCTOCORT is a hemorrhoidal preparation which is produced in cream
and an internally developed suppository form.
TUSSEND is an internally developed cough/cold preparation containing
hydrocodone which is produced in syrup, tablet and elixir forms indicated
in the relief of cough and congestion due to colds, acute respiratory
infections, bronchitis and hay fever.
NUCOFED is a dye-free cough/cold preparation containing codeine which
is produced in syrup and capsule forms indicated in the treatment of
coughing and congestion associated with upper respiratory infections,
common cold, bronchitis, influenza and sinusitis.
MONAFED is an internally developed non-narcotic cough/cold preparation
in a sustained release tablet form.
In December 1994, the Company acquired its first branded product line, the
Anexsia Product Line for $17.6 million. Anexsia is a prescription branded
narcotic analgesic for mild to moderate skeletal muscular pain. The acquisition
was funded by the Anexsia Note Payable. During the 12 months following its
acquisition, the Company significantly increased annual sales of Anexsia through
a combination of product development and aggressive marketing. In December 1995,
the Company sold the Anexsia Product Line to Mallinckrodt for $32.0 million in
cash and recognized a $13.1 million net gain. In connection with the sale, the
Company entered into a manufacture and supply agreement with Mallinckrodt that
provided for guaranteed minimum revenues of $4.8 million through 1999 and an
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agreement to develop four ANDAs on Mallinckrodt's behalf for a maximum of $2.5
million each due upon FDA approval. In 1996, the FDA approved two of these ANDAs
and, as of September 30, 1997, the additional two ANDAs were on file.
For the year ended December 31, 1996 and the nine months ended September
30, 1997, branded pharmaceutical products accounted for 19.0% and 79.8%,
respectively, of net sales of the Company.
The Company is engaged in the development, manufacturing, packaging,
marketing, distribution and sale of generic pharmaceutical products sold as
prescription drugs. The Company currently has two generic products on the market
and has five ANDAs on file. The Company will continue to add new development
projects as more pharmaceutical products lose their patent protection. For the
year ended December 31, 1996 and the nine months ended September 30, 1997,
generic products accounted for 10.2% and 3.1%, respectively, of net sales of the
Company.
King Pharmaceuticals Animal Health, a division of the Company, manufactures
and markets a comprehensive line of nutritional supplements for companion
animals which are marketed under the Royal Vet and Show Winner tradenames. The
Company is also developing a comprehensive line of over-the-counter companion
animal health pharmaceutical products. For the year ended December 31, 1996 and
the nine months ended September 30, 1997, companion animal health products
accounted for 0.4% and 2.1%, respectively, of net sales of the Company.
SALES AND MARKETING
The Company's principal marketing focus is on the sales of branded
pharmaceutical products through Monarch Pharmaceuticals. Monarch Pharmaceuticals
has 48 sales representatives who market primarily to the southeastern and
midwestern United States. The Company distributes its branded pharmaceutical
products primarily through wholesale drug distributors. These products are
ordinarily dispensed to the public through pharmacies on the prescription of a
physician. For branded pharmaceutical products, the Company's marketing and
sales promotions principally target physicians through detailing and sampling to
encourage physicians to prescribe more of the Company's products. The Company
markets its products to pharmacists to encourage them to fill prescriptions
using the Company's products. The Company also contacts wholesalers to promote
the Company's products. The sales force is supported and supplemented by
telemarketing and direct mail, as well as through advertising in trade
publications and representations at regional and national medical conventions.
The Company's telemarketing and direct mailing efforts are performed primarily
by using a computer sampling system which the Company developed to distribute
samples to physicians. The Company intends to seek new markets in which to
promote its product lines and will continue expansion of its field sales force
as product acquisitions warrant.
The Company also markets and sells generic pharmaceutical products as well
as companion animal health products. The Company markets and sells its generic
pharmaceutical products primarily to major hospitals and hospital buying groups.
These products are marketed and sold primarily through six additional full-time
sales representatives, telemarketing and by direct mail.
The Company's companion animal health care products are sold to retailers
such as pet store chains, grocery stores and mass merchandisers. The promotion
of its companion animal health care products is focused on obtaining shelf space
in retail outlets through sales representatives and direct mail advertising.
PetsMart Inc., an international operator of pet care superstores, is the
principal purchaser of the Company's companion animal health care products under
the Show Winner label.
The Company is currently dependent upon a small number of customers. In the
nine months ended September 30, 1997, approximately 56.9% of the Company's sales
were attributable to four customers and for the year ended December 31, 1996,
approximately 69.7%% of the Company's sales were attributable to three
customers. The loss of any one of these customers could result in a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, the distribution network for pharmaceutical products
has in recent years been subject to increasing
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consolidation. As a result, a few large wholesale distributors control a
significant share of the market. In addition, the number of independent drug
stores and small chains has decreased as retail consolidation has occurred.
Further consolidation among, or any financial difficulties of, distributors or
retailers could result in the combination or elimination of warehouses, thereby
stimulating product returns to the Company. Further consolidation or financial
difficulties could also cause customers to reduce their inventory levels, or
otherwise reduce purchases of the Company's products which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Customer Concentration;
Consolidation of Distribution Network."
MANUFACTURING
The Company's approximately 500,000 square foot facilities include
manufacturing, packaging, laboratory, office and warehouse space. The Company
manufactures its products in accordance with cGMP requirements and is licensed
by the DEA to procure and produce controlled substances. The Company
manufactures certain of its own branded and generic pharmaceutical products and
companion animal health products as well as products owned by other
pharmaceutical companies under manufacture and supply contracts which expire
over periods ranging from one to three years.
The Company can produce a broad range of dosage formulations, including
sterile solutions, injectables, tablets and capsules, liquids, creams and
ointments, suppositories, and powders. The Company believes its manufacturing
capability allows it to capture higher margins and pursue product line
extensions more efficiently. The Company, however, cannot immediately begin
manufacturing the products it acquires. Currently four of its products,
including Cortisporin, are manufactured in the same facilities in which they
were previously manufactured. The Company intends to transfer production of
newly acquired branded pharmaceutical products and their product line extensions
to its manufacturing facilities as soon as practicable after regulatory
requirements are satisfied.
In addition to manufacturing, the Company has fully integrated
manufacturing support systems including quality assurance, quality control,
regulatory compliance, inventory control, and packaging. These support systems
enable the Company to maintain high standards of quality for its products and
simultaneously deliver reliable services and goods to its customers on a timely
basis. Companies that do not have such support systems in-house must out source
these services.
The Company currently has manufacturing contracts with, among others,
Mallinckrodt, Roberts Pharmaceutical Corporation, SmithKline Beecham Corporation
("SmithKline Beecham"), Novartis Animal Health US, Inc. and Milex Products, Inc.
These contracts represented in the aggregate approximately 70.0% and 12.3% of
the total revenues of the Company for the year ended December 31, 1996, and the
nine months ended September 30, 1997, respectively. In 1995, in conjunction with
the Anexsia Transaction, the Company entered into a manufacture and supply
contract with Mallinckrodt for the manufacture of the Anexsia Product Line,
which provides for a guaranteed minimum manufacturing fee of $4.8 million
through 1999 and annual renewals thereafter at the option of Mallinckrodt for up
to an additional four years.
The Company requires a supply of quality raw materials and components to
manufacture and package drug products for itself and for third parties with
which it has contracted. While the Company generally has not had difficulty
obtaining raw materials and components from suppliers in the past, there can be
no assurance that such raw materials and components will continue to be
available on commercially acceptable terms in the future. Currently, the Company
relies on approximately 100 suppliers to deliver the necessary raw materials and
components. The loss of any one of these suppliers is not expected to have a
material adverse effect on the Company's ability to acquire raw materials and
components. Although the Company has no reason to believe it will be unable to
procure adequate supplies of raw materials and components on a timely basis, if
for any reason the Company is unable to obtain sufficient quantities of any of
the raw materials or components required to produce and package its products, it
may not be able to distribute its products as planned, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.
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BACKLOG
As of September 30, 1997, the Company had no material backlog.
RESEARCH AND DEVELOPMENT
At the present time, the Company is not engaged in substantial clinical
research activities. The Company, however, is involved in product development
and continually seeks to develop extensions to its product lines and to improve
the quality, efficiency and cost-effectiveness of its manufacturing processes.
The Company's laboratories and product development scientists have produced
several product line extensions to existing branded pharmaceutical products and
secured several ANDA approvals from the FDA. The Company currently has five ANDA
applications pending with the FDA.
GOVERNMENT REGULATION
The manufacture, testing, packaging, labeling, distribution and marketing
of the Company's products and its ongoing product development activities are
subject to extensive and rigorous regulation at both the federal and state
levels. At the federal level, the Company is principally regulated by the FDA as
well as by the DEA, the Consumer Product Safety Commission, the FTC, the U.S.
Department of Agriculture and the EPA. The FDC Act, the regulations promulgated
thereunder, and other federal and state statutes and regulations, govern, among
other things, the development, testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of the
Company's products and those manufactured by and for third parties. Product
development and approval within this regulatory framework requires a number of
years and involves the expenditure of substantial resources.
The Company believes that it or its contract customers have the proper FDA
approvals or other marketing authority for the drugs that the Company currently
produces. When the Company acquires the right to market an existing approved new
drug, both it and the former application holder are required to submit certain
information to the FDA. The former application holder must submit a letter
stating that all rights to the application have been transferred to the Company.
Simultaneously, the Company submits a form acknowledging the transfer of the
application under which the drug product is manufactured and packaged, and
committing to honor the agreements, promises and conditions made by the former
application holder as contained in the application. The Company is also required
to advise the FDA about any changes in certain conditions in the approved
application as set forth in the FDA's regulations. The Company's strategy
focuses on acquiring branded pharmaceutical products and transferring their
manufacturing into the Company's manufacturing facilities as soon as practicable
after regulatory requirements are satisfied. In order to transfer manufacturing
of the acquired branded products, the Company must demonstrate, by filing
information with the FDA, that it can manufacture the product in accordance with
the specifications and conditions of the approved NDA. With the recent FDA
guidelines on Scale-Up and Post-Approval Changes ("SUPAC") guidelines, the
regulatory filing and approval timelines on transfer of products from the former
application holder's facilities into the Company's facilities have been
shortened. The FDA has published SUPAC guidelines for immediate release and
modified release, solid oral dosage forms and semi-solid products. Guidelines
for sterile aqueous dosage forms exist only in draft format. These guidances
provide recommendations to holders of drug applications who intend, during the
post-approval period, to change: (i) the components or composition of a drug
product under an approved application; (ii) the site of manufacture; (iii) the
scale-up or scale-down of manufacture; and/or (iv) the manufacturing processes
or equipment used in an approved application. Federal regulations permit the
Company to make changes to an approved application in accordance with a
guideline, notice, or regulation published in the Federal Register that provides
for a less burdensome notification of the change.
The FDA regulatory regime applicable to the Company's generic
pharmaceutical products depends, on whether the branded drug is the subject of
an approved NDA or is marketed pursuant to the FDA's enforcement policy. If the
pharmaceutical product to be offered as a generic version of a
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branded product is the subject of an approved NDA, the generic product must be
the subject of an ANDA and must be approved by the FDA prior to marketing.
Pharmaceutical products produced by any manufacturer and marketed in accordance
with the FDA's enforcement policy, are not subject to ANDA filings and approval
prior to replication and introduction to the market.
The FDA also mandates that drugs be manufactured, packaged and labeled in
conformity with cGMP. In complying with cGMP regulations, manufacturers must
continue to expend time, money and effort in production, record keeping and
quality control to ensure that the product meets applicable specifications and
other requirements to ensure product safety and efficacy. The FDA periodically
inspects drug manufacturing facilities to ensure compliance with applicable cGMP
requirements. Failure to comply with the statutory and regulatory requirements
subjects the manufacturer to possible legal or regulatory action, such as
suspension of manufacturing, seizure of product or voluntary recall of a
product. Adverse experiences with the product must be reported to the FDA and
could result in the imposition of market restrictions through labeling changes
or in product removal. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems concerning safety or
efficacy of the product occur following approval.
The federal government has extensive enforcement powers over the activities
of pharmaceutical manufacturers, including authority to withdraw product
approvals, commence actions to seize and prohibit the sale of unapproved or
non-complying products, to halt manufacturing operations that are not in
compliance with cGMP, and to impose civil monetary penalties and seek criminal
penalties. Such a restriction or prohibition on sales or withdrawal of approval
of products marketed by the Company could materially adversely affect the
Company's business, financial condition and results of operation.
While the Company believes that all of its current pharmaceuticals are
legally marketed under applicable FDA enforcement policies or have received
requisite government approvals for manufacture and sale, such marketing
authority is subject to revocation by the applicable government agencies. In
addition, modifications or enhancements of approved products are in many
circumstances subject to additional FDA approvals which may or may not be
received and which may be subject to a lengthy application process. The
Company's manufacturing facilities are continually subject to inspection by such
governmental agencies and manufacturing operations could be interrupted or
halted in any such facilities if such inspections prove unsatisfactory.
The Company also manufactures and sells drug products which are "controlled
substances" as defined in the Controlled Substances Act, which establishes
certain security and record keeping requirements administered by the DEA, a
division of the Department of Justice. The DEA has a dual mission -- law
enforcement and regulation. The former deals with the illicit aspects of the
control of abusable substances and the equipment and raw materials used in
making them. The DEA shares enforcement authority with the Federal Bureau of
Investigation, another division of the Department of Justice. The DEA's
regulatory responsibilities are concerned with the control of licensed handlers
of controlled substances, and with the substances themselves, equipment and raw
materials used in their manufacture and packaging, in order to prevent such
articles from being diverted into illicit channels of commerce. The Company has
not experienced restrictions or fines for non-compliance with the foregoing
regulations but no assurance can be given that restrictions or fines which could
have a material adverse effect upon the Company's business, financial condition
and results of operations will not be imposed upon the Company in the future.
State law generally controls the determination of who will be entitled to
registration under the Controlled Substances Act. In most cases, the DEA is
required by the Controlled Substances Act to register an entity to handle
controlled substances if the entity is licensed by a state to practice a
profession involving the possession or manufacture of controlled substances. The
Company maintains a State of Tennessee Board of Pharmacy License in order to
engage in pharmaceutical development, manufacturing and distribution.
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The Company is licensed by the DEA to manufacture and distribute controlled
substances in Schedules II-V. The Schedules are used to classify substances by
various criteria. The Controlled Substances Act lists the following criteria for
Schedule II substances; (i) a high potential for abuse; (ii) a currently
accepted medical use in treatment in the United States or a currently accepted
medical use with severe restrictions; and (iii) abuse of the drug may lead to
severe psychological or physical dependence. Schedule III substances are
characterized by: (i) a potential for abuse less than substances in Schedules I
and II; (ii) currently accepted medical use for treatment in the United States;
and (iii) abuse of the drug may lead to moderate or low physical dependence or
high psychological dependence. Schedules IV, and V continue to use the same
criteria in decreasing order of potential for abuse or misuse.
In connection with the use of sampling of pharmaceutical products to
prescribing physicians, the Company's activities are subject to the Prescription
Drug Marketing Act ("PDMA") which permits regulation of such activities at both
the federal and state level. Under PDMA and its implementing regulations, states
are permitted to require registration of manufacturers and distributors who
provide sample pharmaceuticals even if such manufacturers or distributors have
no place of business within the state and states are also permitted to adopt
regulations limiting the distribution of sample products to licensed
practitioners. PDMA also imposes extensive licensing, personnel record keeping,
packaging, quantity, labeling product handling and facility storage and security
requirements intended to prevent sale of sampled pharmaceutical products or
other diversions from their intended use.
The Company may also be subject to fees under The Prescription Drug User
Fee Act of 1992 ("PDUFA"). PDUFA authorizes the FDA to collect three types of
user fees for: (i) certain types of applications and supplements for approval of
drug and biologic products, (ii) certain establishments where such products are
made, and (iii) certain marketed products. Fees for applications,
establishments, and products are determined by the FDA using criteria delineated
in the statute. When certain conditions are met, the FDA may waive or reduce
fees. To date, the Company has not been obligated to pay any such fee. There can
be no assurance, however, that the FDA will not impose such a fee in the future.
The Company cannot determine what effect changes in regulations or legal
interpretations, when and if promulgated, may have on its business in the
future. Changes could, among other things, require expanded or different
labeling, the recall or discontinuance of certain products, additional record
keeping and expanded documentation of the properties of certain products and
scientific substantiation. Such changes, or new legislation, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Government Regulation."
ENVIRONMENTAL MATTERS
The Company's operations are subject to substantial and evolving federal,
state and local environmental laws and regulations concerning, among other
things, the generation, handling, storage, transportation, treatment and
disposal of toxic and hazardous substances. The Company believes that its
facilities are in substantial compliance with all provisions of federal, state
and local laws concerning the environment and does not believe that future
compliance with such provisions will have a material adverse effect on its
financial condition or results of operations. In response to change in
environmental laws, the Company's environmental capital expenditures and costs
for environmental compliance may increase in the future.
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), the EPA has the authority to impose joint and several liability
for the remediation of contaminated properties upon generators of waste, current
and former site owners and operators, transporters and other potentially
responsible parties, regardless of fault or the legality of the original
disposal activity. Many states, including Tennessee, have statutes and
regulatory authorities similar to CERCLA and to the EPA. The Company has a
hazardous waste hauling agreement with licensed third parties to properly
dispose of its hazardous substances. There can be no assurance, however, that
the Company will not be found to be potentially responsible under CERCLA for the
costs of undertaking a
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clean up at a site to which its waste products were transported. See "Risk
Factors -- Government Regulation."
COMPETITION
The Company competes with other pharmaceutical companies for product and
product line acquisitions. These competitors include Jones Medical Industries,
Inc., Dura Pharmaceuticals, Inc., Medicis Pharmaceutical Corporation, Forest
Laboratories, Inc., Watson Pharmaceuticals, Inc. and other companies which also
acquire branded pharmaceutical product lines from other pharmaceutical
companies. Additionally, since the Company's products are generally established
and commonly sold, they are subject to competition from products with similar
qualities. The Company's branded pharmaceutical products may be subject to
competition from alternate therapies during the period of patent protection and
thereafter from generic equivalents. The manufacturers of generic products
typically do not bear the related research and development costs and
consequently are able to offer such products at considerably lower prices than
the branded equivalents. There are, however, a number of factors which enable
products to remain profitable once patent protection has ceased. These include
the establishment of a strong brand image with the prescriber or the consumer,
supported by the development of a broader range of alternative formulations than
the manufacturers of generic products typically supply. As is the case for the
pharmaceutical industry in general, the introduction of new products and
processes by competitors may affect pricing levels or result in product
replacement for existing products, and there can be no assurance that any of the
Company's products may not become outmoded, notwithstanding patent or trademark
protection. In addition, increasing governmental and other pressure towards the
dispensing of generic pharmaceutical products in substitution for branded
pharmaceutical products may increase competition for products no longer covered
by patents. The Company's branded pharmaceutical products compete primarily with
products of other pharmaceutical companies, including large global
pharmaceutical companies. These competitors have substantially greater
financial, technical, research and other resources and larger, more established
marketing, sales, distribution and service organizations than the Company.
Moreover, such competitors may offer broader product lines and have greater name
recognition than the Company. There can be no assurance that the Company's
competitors will not acquire branded pharmaceutical products which the Company
desires or will not develop or market products that are more effective or
commercially attractive than the Company's current or future products or that
would render the Company's products obsolete. There can be no assurance that the
Company will have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully. See "Risk
Factors -- Competition; Uncertainty of Technological Change."
PATENTS, TRADEMARKS AND PROPRIETARY PROPERTY
The Company considers the protection of discoveries in connection with its
development activities important to its business. The Company intends to seek
patent protection in the U.S. and selected foreign countries where deemed
appropriate. The Company owns a U.S. Patent for Novel Chlorthalidone Process and
Product which expires in 2007, covering the raw materials used in the
manufacture of Thalitone. Monarch also has a paid-up and non-exclusive license
to certain other patent rights owned or controlled by Bristol-Myers Squibb which
is used in the manufacture of Quibron. The Company has also applied for patents
for an analysis test and a certain manufacturing process for products other than
Quibron. There can be no assurance that the issued patent or subsequent patents,
if issued, will adequately protect the Company's design or that such patents
will provide protection against infringement claims by competitors. There can be
no assurance that additional patents will be obtained covering the Company's
products or that, if issued or licensed to the Company, the patents covering the
Company's products will provide substantial protection or be of commercial
benefit to the Company. The Company also relies upon trade secrets, unpatented
proprietary know-how and continuing technological innovation, where patent
protection is not believed to be appropriate or attainable, to develop its
competitive position. The Company enters into confidentiality agreements with
certain of its employees pursuant to which such employees agree to
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assign to the Company any inventions relating to the Company's business made by
them while employed by the Company, as well as certain confidentiality
agreements related to the acquisition of its product lines. There can be no
assurance, however, that any confidentiality agreement entered into by the
Company with employees or third parties will not be breached, that the Company
will have adequate remedies for any breach, that others may not acquire or
independently develop similar technology or, if patents are not issued with
respect to products arising from research, that the Company will be able to
maintain information pertinent to such research as proprietary technology or
trade secrets.
There can be no assurance that the Company's technology does not infringe
upon any valid claims of patents owned by others. If the Company were found to
be infringing on a patent held by another, the Company might have to seek a
license to use the patented technology. There can be no assurance that, if
required, the Company would be able to obtain such a license on terms acceptable
to the Company, if at all. If a legal action were to be brought against the
Company, or its licensors, the Company could incur substantial costs in
defending itself, and there can be no assurance that such action would be
resolved in the Company's favor. If such a dispute were to be resolved against
the Company, the Company would be subject to significant damages and the
testing, manufacturing or sale of one or more of the Company's products or
proposed products, if developed, could be enjoined.
No assurance can be given as to the degree of protection any patents will
afford, whether patents will be issued or whether the Company will be able to
avoid violating or infringing upon patents issued to others. Despite the use of
confidentiality agreements, which themselves may be of limited effectiveness, if
may be difficult for the Company to protect its trade secrets.
The branded products sold by the Company are sold under a variety of
trademarks. While the Company believes that it or its wholly-owned subsidiary,
Monarch Pharmaceuticals, has valid proprietary interests in all currently used
trademarks, only certain of the trademarks are registered with the U.S.
government, including Cortisporin, Thalitone, Tussend, Nucofed, Quibron,
Pediotic, Vita Care(R), Royal Vet, Accudose(R) and Viroptic. Additionally,
trademark applications for Proctocort, Virtopic(TM), Monarchpharm(TM),
Petrin(TM), Arthose Chews(TM), Show Winner and Monahist(TM) are pending. The
Company also owns the registered service mark Secure-A-Sample(R).
EMPLOYEES
As of September 30, 1997, the Company employed 312 full-time and 8
part-time persons, including 86 in sales and marketing, 68 in manufacturing, 33
in Quality Assurance and 25 in finance and administration. None of the Company's
employees is covered by a collective bargaining agreement, and the Company
believes its employee relations are good. The Company employs a full-time
Chaplain and offers as part of its employee benefits package access to
additional counseling services.
LITIGATION
The Company is not a party to litigation or other legal proceedings which
the Company believes could reasonably be expected to have a material adverse
effect on the Company's business, financial condition and results of operations.
PROPERTIES
The Company owns its approximately 500,000 square foot facility in Bristol,
Tennessee. This facility includes space for manufacturing, packaging,
laboratories, offices and warehouse. The Company believes such facility is
adequate for the conduct of its operations.
35
<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
John M. Gregory(2).......... 44 Chairman of the Board of Directors and Chief Executive
Officer
Jefferson J. Gregory........ 42 President and Chief Operating Officer of King
Pharmaceuticals, Inc. and Director
Joseph R. Gregory(1)........ 43 President and Chief Operating Officer of Monarch
Pharmaceuticals and Director
Brian G. Shrader............ 29 Chief Financial Officer
James E. Gregory............ 46 Executive Vice President, Production/Administration
R. Henry Richards, M.D. .... 52 Executive Vice President, Medical Affairs
J. Fred Pruden.............. 51 Executive Vice President, Manufacturing
John P. McCoy............... 49 Executive Vice President, Quality
Terri D. White-Gregory...... 34 Executive Vice President, Business Development
John A. A. Bellamy.......... 35 Executive Vice President, Legal Affairs and General
Counsel
Ronald C. Siegfried......... 55 Executive Vice President, Development
Michael R. Hilton........... 50 Vice President, Sales and Marketing
Thomas K. Rogers, III....... 44 Senior Director, Regulatory Affairs (Applications)
Norman T. Miller............ 64 Senior Director, Regulatory Affairs (Compliance)
Ernest C. Bourne............ 56 Director
Lois A. Clarke(3)........... 52 Director
Frank De Friece,
Jr.(1)(2)(3).............. 76 Director
Greg Rooker(1)(2)(3)........ 50 Director
Ted G. Wood................. 59 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee.
John M. Gregory has served as Chairman of the Board of Directors since the
Company's inception in 1993 and Chief Executive Officer since 1994. He
previously co-founded GIV and served as President of GIV from 1984 through 1994.
Prior to co-founding GIV, he was the owner and registered pharmacist of a
pharmacy located in Bastian, Virginia. He graduated from the University of
Maryland School of Pharmacy with a B.S. in Pharmacy in 1976.
Jefferson J. Gregory has served as President and Chief Operating Officer of
King Pharmaceuticals, Inc., since 1993, and has served as a Director since 1995.
He was formerly the Director of Regulatory Affairs and Product Information for
GIV from 1991 to 1993 and was a consultant to the pharmaceutical industry from
1989 to 1991. He formerly served as a registered pharmacist in retail pharmacies
in the Washington D.C. and Baltimore, Maryland metropolitan areas. He graduated
from the University of Maryland School of Law with a Juris Doctor in 1985,
University of Maryland School of Pharmacy with a B.S. in Pharmacy in 1979, and
Montgomery College with an Associate of Arts in 1976.
Joseph R. Gregory has served as President and Chief Operating Officer of
Monarch Pharmaceuticals since 1994, and has served as a Director since 1993.
Prior to joining the Company, he was the Chief Operating Officer of GIV from
1987 to 1994 and also served as the President of Insource/Williams, Inc., a GIV
subsidiary, from 1989 to 1994. He previously served as President of The Buying
Group Network/A Service of Pharmacist Shared Services. He graduated from the
University of Maryland School of Business with a B.S. in Business Administration
in 1977.
36
<PAGE> 38
Brian G. Shrader, CPA, has served as Chief Financial Officer since 1993. He
was formerly the Manager of Accounting for GIV from 1990 to 1993. He is a
current member of the Virginia Society of CPA's. He graduated from the Virginia
Polytechnic Institute and State University with a B.S. in Accounting in 1990 and
a Masters of Accountancy in 1991.
James E. Gregory has served as Executive Vice President of
Production/Administration since February 1995. Previously, he was the Deputy
Executive Officer of the Washington D.C. Court system from 1990 through 1995 and
a senior administrator with that court from 1987 to 1990. He was responsible for
managing all business affairs for another major urban court system in Phoenix,
Arizona from 1982 to 1985 and was the Deputy County Recorder for Maricopa County
(Phoenix) from 1985 to 1987. Through management consulting firms, he provided
administrative systems consulting services to various state court systems from
1973 to 1982. He graduated from American University with a Masters of Public
Administration in 1979 and the University of Maryland with a B.A. in History in
1973.
R. Henry Richards, M.D. has served as Executive Vice President of Medical
Affairs since 1994. He also was the Medical Director/Director of Managed Care
for GIV during 1993. He served as the Vice President Medical Director for
Medical Dimensions, Inc. from 1991 to 1993, after having served as a M.D. in
private practice (Internal Medicine, Hypertension and Nephrology) since 1976. He
was also the Medical Director for the Hypertension Medical Clinic of San Jose
and Review Services Inc., Resource Consultant for Health Strategies in San Jose,
was associated with Samaritan Kidney Medical Associates, San Jose and Medical
Director, Hospital Private Review in Campbell, California. Dr. Richards
graduated from the University of Maryland with a M.D. in 1971, the Atlantic
Christian College with a B.S. in Biology in 1966, and Montgomery College with an
Associate of Arts in 1963.
J. Fred Pruden has served as Executive Vice President of Manufacturing
since 1995. He previously served as General Manager for Novo Nordisk
Pharmaceuticals, Inc., from 1988 to 1995, Vice President Operations for Fujisawa
U.S.A. from 1983 to 1988, Plant Manager for Sterling Drug from 1979 to 1983, and
served as Production Manager, Materials Manager and Process Engineering for
Abbott Laboratories for 8 years. During this time, he helped Abbott Laboratories
build a new manufacturing facility in Puerto Rico. He graduated from the
University of North Carolina in 1969 with a B.A. in Mathematics.
John P. McCoy has served as Executive Vice President of Quality since 1994.
He previously served as the Director of Total Quality
Management/Marketing/Logistics, Material Management and Planning for Connaught
Laboratories in Swiftwater, Pennsylvania from 1986 to 1993. He was the Group
Manager, Logistics Services Manager and Manufacturing Planner for McNeil
Pharmaceuticals from 1982 to 1986; Distribution Planning Manager from 1979 to
1982; and Manager, Marketing/Sales Systems, Distribution Center Manager and
Traffic Manager from 1971 to 1979. He graduated from Pennsylvania State
University with a B.S. in Business in 1970, and he also completed graduate work
at the University of Pennsylvania from 1983 to 1986.
Terri D. White-Gregory, CPA, has served as Executive Vice President of
Business Development since 1996. She served as a financial analyst for
Westinghouse Electric in 1995 and as a consultant and sole proprietor in public
accounting from 1993 to 1996. From 1988 to 1993, she was an audit manager and
supervisor in the Emerging Business Services Group of Coopers & Lybrand L.L.P.,
in Washington D.C. and Roanoke, Virginia and was a senior associate on the audit
staff of Ernst & Young LLP in Columbia, South Carolina from 1985 to 1988. She
graduated from The Ohio State University with a B.S. in Business Administration
in 1985.
John A. A. Bellamy has served as Executive Vice President of Legal Affairs
and General Counsel since February 1995. He was formerly a corporate attorney
with the law firm of Hunter, Smith & Davis in Kingsport, Tennessee from 1990 to
1995. He graduated from the University of Tennessee College of Law with a J.D.
with Honors in 1990, and graduated Summa Cum Laude with Honors in Independent
Study from King College in 1984 with a B. A. degree in Classics and English. He
is a member of the Licensing Executive Society.
37
<PAGE> 39
Ronald C. Siegfried has served as Executive Vice President of Development,
Vice President of Development, Technical Services and Manufacturing since
December 1993. He previously served as Director of Manufacturing for RSR
Laboratories, Inc. ("RSR Laboratories"), from 1990 to 1993, was the Manager of
Manufacturing and a Product Development Chemist for Beecham Laboratories from
1972 to 1990, and was a Product Development Chemist for Bristol Laboratories, a
division of Bristol-Myers Squibb from 1964 to 1972. He graduated from the
Rochester Institute of Technology with a B.S. in Chemistry in 1964.
Michael R. Hilton has served as Vice President of Sales and Marketing and
Director of Marketing since July 1995. From 1991 to 1995, he served in the
capacity of Vice President -- Marketing and Business Development and marketing
director for Richwood Pharmaceuticals, KV Pharmaceuticals and RSR Laboratories.
From 1973 to 1990 he served in various sales and marketing and public relations
positions with Beecham Laboratories. He graduated from Ferris State University
with a B.S. in Marketing in 1970.
Thomas K. Rogers, III has served as Senior Director, Regulatory Affairs
(Applications), since April 1997. He previously served as Director of Regulatory
Affairs from 1995 to 1997 and as Manager of Regulatory Affairs from 1994 to
1995. Prior to joining the Company, he served RSR Laboratories as Manager of
Scientific Development from 1991 to 1993, and Manager of Quality Assurance from
1990 to 1991. He served Beecham Laboratories as Manager of Quality Assurance
from 1988 to 1990 and as Microbiologist from 1979 to 1988. He graduated from
East Tennessee State University with a M.S. in Microbiology in 1977 and from
Milligan College with a B.S. in Biology in 1975.
Norman T. Miller has served as Senior Director, Regulatory Affairs
(Compliance), since December 1993. He previously served as a Research Compliance
Specialist and as acting Director of Compliance for Beecham Laboratories from
1988 to 1990. From 1990 to 1993 he served as Manager of Regulatory Affairs for
RSR Laboratories. Prior to 1988, he served as Resident-in-Charge, Senior
Investigator and Inspector for the FDA for 28 years. He graduated from South
Dakota State University with a M.S. in Animal Science-Biochemistry minor in 1960
and a B.S. in Animal Husbandry in 1958.
Ernest C. Bourne has served as a Director since October, 1997. He has been
employed since 1968 with Bourne & Co., Inc., an investment banking firm, where
he currently serves as President.
Lois A. Clarke has served as a Director of the Company since April 1997.
Presently she is Executive Vice President and Chief Financial Officer of The
United Company in Bristol, Virginia, one of the Company's principal
shareholders. She also serves as President of United Investment Corporation, a
registered investment advisor, and an affiliate of The United Company. Ms.
Clarke has been with The United Company since 1971 and has been responsible for
financial matters of the Company. She is a graduate of McClains College with a
degree in Accounting.
Frank W. De Friece, Jr. has served as a Director of the Company since
October 1997. He has served as President, Vice President, Fund Administrator and
Board member of the Massengill De Friece Foundation, Inc. since 1950. Since 1946
he served in various capacities with the S.E. Massengill Company. He served as
President of the S.E. Massengill Company from 1960 to 1971 when the company was
purchased by Beecham, Inc. From 1971 to 1973, he served as Board Member Vice
Chairman of Beecham, Inc. He graduated from Roanoke College with a B.S. in
Chemistry in 1946.
Greg Rooker has served as a Director of the Company since October 1997. Mr.
Rooker is the owner and President of Family Community Newspapers of Southwest
Virginia, Inc., Wytheville, Virginia ("FCN"). FCN consists of five community
newspapers and a national monthly motor sports magazine. Mr. Rooker is a
graduate of Northwestern University with a degree in Journalism.
Ted G. Wood has been a Director of the Company since April 1997. Presently,
he is affiliated with The United Company in Bristol, Virginia, one of the
Company's principal shareholders. He was formerly President of Boehringer
Mannheim Pharmaceutical Corporation in Rockville, Maryland from 1992 to 1994.
From 1975 to 1991, he was employed by SmithKline Beecham where he served as
President of Beecham Laboratories from 1988 to 1989 and Executive Vice President
of SmithKline
38
<PAGE> 40
Beecham from 1990 to 1991. He served as account supervisor at Frank J. Corbett,
Inc. in Chicago, Illinois from 1972 to 1974. From 1962 to 1971, he held various
sales and marketing management positions with The Dow Chemical Company. He
graduated from the University of Kentucky with a B.S. in Commerce in 1960. In
1986 he completed the Advanced Management Program at Harvard University.
Messrs. John, Joseph, Jefferson, and James Gregory, and R. Henry Richards,
M.D., are brothers. Ms. Terri D. White-Gregory is the spouse of Jefferson
Gregory.
COMPENSATION OF DIRECTORS
Directors of the Company do not currently receive any fees for serving in
such capacity.
CLASSIFICATION OF BOARD OF DIRECTORS
Pursuant to the Company's Bylaws, the Board of Directors is divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class are elected to serve three-year
terms and approximately one-third of the directors sit for election at each
annual meeting of the Company's shareholders. A classified board of directors
may have the effect of deterring or delaying any attempt by any group to obtain
control of the Company by a proxy contest since such third party would be
required to have its nominees elected at two separate meetings of the Board of
Directors in order to elect a majority of the member of the Board of Directors.
See "Risk Factors -- Certain Charter, Bylaws and Statutory Provisions; Rights
Agreement."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has appointed an Audit Committee, a Compensation
Committee and a Stock Option Committee.
Audit Committee. The Audit Committee, which currently consists of Joseph
R. Gregory, Greg Rooker and Frank DeFriece, Jr., has the authority and
responsibility to hire one or more independent public accountants to audit the
Company's books, records and financial statements and to review the Company's
systems of accounting (including its systems of internal control); to discuss
with such independent accountants the results of such audit and review; to
conduct periodic independent reviews of the systems of accounting (including
systems of internal control); and to make reports periodically to the Board of
Directors with respect to its findings.
Compensation Committee. The Compensation Committee, which currently
consists of John M. Gregory, Frank DeFriece, Jr. and Greg Rooker, is responsible
for reviewing and approving compensation for the executive officers.
Stock Option Committee. The Stock Option Committee, which currently
consists of Lois A. Clarke, Frank DeFriece, Jr. and Greg Rooker, is responsible
for administering, and determining awards under, the Company's 1997 Incentive
and Nonqualified Stock Option Plan for Employees.
DIRECTORS AND OFFICERS' INSURANCE
The Company maintains liability insurance for its directors and officers in
the aggregate amount of $8.0 million, subject to a $25,000 deductible loss per
occurrence payable by the Company. Upon the consummation of this offering, the
Company intends to increase its liability insurance for its directors and
officers up to an aggregate amount of $15.0 million.
39
<PAGE> 41
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to each of the Company's four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 for services rendered in all capacities to the Company during the year
ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($)(1)
- --------------------------- ---- ---------- --------- ------------------
<S> <C> <C> <C> <C>
John M. Gregory................................... 1996 360,000 -0- 9,500
Chairman of the Board and Chief Executive
Officer
Jefferson J. Gregory.............................. 1996 240,001 -0- 7,200
President and Chief Operating Officer,
King Pharmaceuticals, Inc.
Joseph R. Gregory................................. 1996 240,001 -0- 7,200
President and Chief Operating Officer,
Monarch Pharmaceuticals
James E. Gregory.................................. 1996 200,005 -0- 6,000
Executive Vice President
Production/Administration
R. Henry Richards, M.D............................ 1996 200,004 -0- 6,000
Executive Vice President
Medical Affairs
</TABLE>
- ------------------------------
(1) All Other Compensation reflects the Company's matching contributions to the
Company's 401(k) plan.
INCENTIVE STOCK OPTION PLAN
In October 1997, the Company adopted the 1997 Incentive and Nonqualified
Stock Option Plan for Employees (the "Plan") pursuant to which a committee of
the Board of Directors ("Stock Option Committee") may grant incentive stock
options (within the meaning of the Internal Revenue Code of 1986, as amended
(the "Code")) and nonqualified options (collectively, the "Options") to
employees of the Company for the purchase of Common Stock. The Plan is intended
to provide incentives to, and rewards for employees of the Company who have
contributed and will continue to contribute to the success of the Company. The
option prices are determined by the Stock Option Committee, but option prices
may not be less than 100% of the fair market value of the Common Stock on the
date the option is granted. An aggregate of 3,500,000 shares of Common Stock has
been reserved for issuance under the Plan subject to appropriate adjustments for
stock splits, dividends and other transactions or events as described in the
Plan. All options may be exercised at such times and in such amounts as may be
determined at the time of the granting of the options by the Stock Option
Committee; provided, however, that no options may be exercised later than ten
years after the date upon which they were granted.
Options may be exercised within 30 days, or such longer period as the Stock
Option Committee may determine, after retirement, resignation, or termination of
the option holder's employment or service with the Company, but only to the
extent that they had become exercisable at retirement, resignation or
termination. Any unexercised options shall expire in the event of an option
holder's retirement or dismissal or otherwise as described above. Under certain
circumstances involving change of control of the Company, the Board of Directors
may accelerate the exercisability and termination of the option. No awards can
be made under the Plan after October 2007.
40
<PAGE> 42
The Board of Directors may, at any time, amend, modify, suspend or
terminate the Plan; provided however, that no amendment, suspension or
termination of the Plan may alter or impair any rights or obligations under any
Option already granted except with the consent of the holder of the Option, and
no action of the Stock Option Committee or the Board of Directors may increase
the limit on the maximum number of shares which may be issued upon exercise of
Options, reduce the minimum option price requirements or extend the limit on the
period during which Options may be granted, without approval by the Company's
shareholders given within 12 months before or after such action by the Board of
Directors or the Stock Option Committee.
An employee to whom an incentive stock option ("ISO") which qualifies under
Section 422 of the Code is granted will not recognize income at the time of
grant or exercise of such Option. However, upon the exercise of an ISO, any
excess in the fair market price of the Common Stock over the option price
constitutes a tax preference item which may have alternative minimum tax
consequences for the employee. If the employee sells such shares more than one
year after the date of transfer of such shares and more than two years after the
date of grant of such ISO, the employee will generally recognize a long-term
capital gain or loss equal to the difference, if any, between the sale prices of
such shares and the option price. The Company will not be entitled to a federal
income tax deduction in connection with the grant or exercise of the ISO. If the
employee does not hold such shares for the required period, when the employee
sells such shares, the employee will recognize ordinary compensation income and
possibly capital gain or loss (long-term or short-term depending on the holding
period of the stock sold) in such amounts as are prescribed by the Code and the
regulations thereunder and the Company will generally be entitled to a Federal
income tax deduction in the amount of such ordinary compensation income
recognized by the employee.
An employee to whom a nonqualified stock option ("NSO") is granted will not
recognize income at the time of grant of such Option. When such employee
exercises such NSO, the employee will recognize ordinary compensation income
equal to the excess, if any, of the fair market value, as of the date of Option
exercise, of the shares the employee receives upon such exercise over the option
price paid. The tax basis of such shares to such employee will be equal to the
option price paid plus the amount, if any, includible in the employee's gross
income, and the employee's holding period for such shares will commence on the
date on which the employee recognizes taxable income in respect of such shares.
Gain or loss upon a subsequent sale of any Common Stock received upon the
exercise of a NSO generally would be taxed as capital gain or loss (long-term or
short-term, depending upon the holding period of the stock sold). Subject to the
applicable provisions of the Code and regulations thereunder, the Company will
generally be limited to a Federal income tax deduction in respect of a NSO in an
amount equal to the ordinary compensation income recognized by the employee.
This deduction will, in general, be allowed for the taxable year of the Company
in which the participant recognizes such ordinary income.
Currently there are no outstanding options granted under the Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors appointed the Compensation Committee in October
1997. For the year ended December 31, 1996, Messrs. John M., Jefferson J.,
Joseph R., James E. Gregory and Dr. Henry Richards, M.D. participated in
deliberations of the Board of Directors concerning executive officer
compensation.
41
<PAGE> 43
CERTAIN TRANSACTIONS
King Pharmaceuticals Benevolent Fund, Inc. (the "Benevolent Fund") is a
nonprofit corporation organized under the laws of the Commonwealth of Virginia
and is exempt from taxation under sec. 501(c)(3) of the Internal Revenue Code.
The Board of Directors of the Benevolent Fund includes certain executive
officers of the Company. In the past, the Company has paid the salaries of
Benevolent Fund employees and certain of its operational expenses. The Company
has a secured receivable from the Benevolent Fund in the amount of approximately
$1.1 million, as of September 30, 1997. After the offering, the Benevolent Fund
will be independent of the Company and maintain its own accounting records.
The United Company, a Virginia corporation, and certain of its
shareholders, officers, directors and employees are the beneficial owners of
approximately 30.5% of the Common Stock of the Company (the "United Company
Shares"). Currently, two members of the Company's Board of Directors are
affiliates of The United Company. As part of the sale of stock to The United
Company on March 17, 1997, the Company executed a Promissory Note in the amount
of $1.8 million payable to The United Company. The Promissory Note provides for
quarterly payments of interest, at a rate of 10.0% per annum, commencing on July
1, 1997, together with a single payment of principal and any accrued unpaid
interest on April 1, 1999. The Company is entitled to prepay the principal and
any accrued interest without penalty. Proceeds of the loan from The United
Company were used to fund, in part, the acquisition of the Cortisporin and
Pediotic product lines from Glaxo Wellcome.
In the past, pursuant to the terms of an Employee Stock Purchase Plan
adopted by the Company on January 1, 1996, and as later amended on October 1,
1996, employees and existing shareholders were permitted to purchase shares of
the Common Stock of the Company through either cash payments or regular payroll
deductions. Additionally, certain beneficial owners of more than 5.0% of the
Company's Common Stock were permitted to execute promissory notes payable to the
Company. All such beneficial owners have paid their notes in full. There are no
outstanding promissory notes payable to the Company for the purchase of Common
Stock and the Company has no obligation to sell any shares of its Common Stock
to any person or entity. The Employee Stock Purchase Plan has since been
terminated.
The Company has entered into an agreement for consulting services with Mr.
Bourne, a director. The agreement provides that Mr. Bourne will receive upon
consummation of the offering a fee equal to 1.0% of the net proceeds. The
agreement is for a one-year term which began August 1, 1997 and provides for a
monthly retainer fee of $10,000 for the term of the agreement. The 1.0% fee
resulting from this offering will be offset by the amount of the monthly
retainer paid prior to the consummation of the offering. See "Underwriting."
In addition, as of September 30, 1997, the Company had paid Mr. Bourne
approximately $743,000 and $58,000 for his advisory services in the acquisition
of the Cortisporin product line and consulting services, respectively.
42
<PAGE> 44
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of September 30, 1997, and as adjusted to reflect the
sale of the shares of the Common Stock offered hereby by the Company and the
Selling Shareholders, for (i) each person who will beneficially own more than 5%
of the Common Stock, (ii) each director and executive officer of the Company,
(iii) all executive officers and directors of the Company as a group, and (iv)
each of the Selling Shareholders.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR TO COMMON STOCK AFTER THE
OFFERING(1) OFFERING(1)
------------------------ ------------------------
PERCENTAGE NUMBER OF PERCENTAGE
EXECUTIVE OFFICERS, DIRECTORS NUMBER OF OUTSTANDING SHARES TO BE NUMBER OF OUTSTANDING
AND 5% SHAREHOLDERS SHARES SHARES OFFERED SHARES SHARES
----------------------------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
John M. Gregory(2)................. 8,805,531 31.4% 287,137(3) 8,518,394 25.1%
Joseph R. Gregory(4)............... 2,943,150 10.5 60,000 2,883,150 8.5
Jefferson J. Gregory............... 1,101,635 3.9 50,000 1,051,635 3.1
James E. Gregory................... 196,048 * 50,000 146,048 *
R. Henry Richards, M.D............. 256,141 * 35,000 221,141 *
Brian G. Shrader................... 572,510 2.0 65,000 507,510 1.5
J. Fred Pruden..................... 3,220 * -0- 3,220 *
John P. McCoy...................... 42,826 * -0- 42,826 *
Terri D. White-Gregory(5).......... -- -- -- -- --
John A. A. Bellamy................. 38,643 * -0- 38,643 *
Ernest C. Bourne................... 138,000 * -0- 138,000 *
Lois A. Clarke(6).................. 95,200 * -0- 95,200 *
Ted G. Wood(6)..................... 28,000 * -0- 28,000 *
All executive officers and
directors as a group (13
persons)......................... 14,220,904 50.8 547,137 13,676,767 40.2
The United Company(7).............. 5,172,594 18.5 -0- 5,172,594 15.2
OTHER SELLING SHAREHOLDERS
King Pharmaceuticals Benevolent
Fund, Inc.(8).................... 186,246 * 175,000 11,246 *
Mary Ann and Herschel P.
Blessing(9)...................... 477,965 1.7 90,000 387,965 1.1
Mary and Fred Jarvis(10)........... 115,806 * 29,000 86,806 *
Randal J. Kirk(11)................. 1,358,863 4.9 1,358,863 -0- --
---------
Total shares sold by
Selling Shareholders... 2,200,000
=========
</TABLE>
- ------------------------------
* Less than 1%.
(1) Based on 28,000,000 shares of Common Stock outstanding prior to and
34,000,000 shares outstanding after the offering.
(2) Includes 6,855,660 shares jointly owned with Mr. Gregory's spouse;
1,852,539 shares owned by S.J., LLC, a limited liability company, the
primary members of which are Mr. Gregory's children; 84,000 shares
registered in the name of The Lazarus Foundation, Inc., a private
foundation controlled by John M. Gregory, 13,332 shares held in trusts for
the benefit of Martha Rachel Richards and for Erin Spinner Richards, for
which Mr. Gregory serves as trustee. Mr. Gregory's address is 501 Fifth
Street, Bristol, Tennessee 37620.
(3) Includes 212,137 shares to be sold by Mr. Gregory and his spouse and 75,000
shares to be sold by The Lazarus Foundation, Inc.
(4) Mr. Gregory's address is 501 Fifth Street, Bristol, Tennessee 37620.
(5) Ms. White-Gregory and Jefferson J. Gregory jointly beneficially own
1,045,523 of the shares shown above.
(6) Ms. Clark and Mr. Wood are affiliates of The United Company.
(7) The United Company along with certain of its affiliates beneficially own in
the aggregate 8,532,595 representing approximately 30.5% of the outstanding
shares of the Company. The address of The United Company is 1005 Glenway
Avenue, Bristol, Virginia 24201.
(8) King Pharmaceuticals Benevolent Fund, Inc., is a nonprofit charitable
organization. See "Certain Transactions."
(9) Ms. Blessing is a sister to Messrs. John M., Joseph R., Jefferson J. and
James E. Gregory, and to R. Henry Richards, M.D. She resigned from the
Board of Directors in March 1997.
(10) Ms. Jarvis is the mother of Messrs. John M., Joseph R., Jefferson J. and
James E. Gregory, and of R. Henry Richards, M.D.
(11) Includes 161,000 shares owned by Kirkfield, L.L.C., 42,151 shares owned by
Rahn Labs, 322,000 shares owned by RJK, L.L.C, 748 shares owned by the
estate of Carol Kirk, 3,220 shares owned by Joseph L. Kirk and 5,474 shares
owned by Julian Kirk, all of which are affiliates of Mr. Kirk. Mr. Kirk was
the co-founder with John M. Gregory of GIV.
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Messrs. John M. Gregory, Joseph R. Gregory, Jefferson J. Gregory, James E.
Gregory, Richards, Shrader and Ms. White-Gregory, each of whom is a Selling
Shareholder, serve as executive officers of the Company. Messrs. John M.
Gregory, Joseph R. Gregory and Jefferson J. Gregory also serve as directors of
the Company. See "Management."
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DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The total amount of authorized capital stock of the Company consists of
150,000,000 shares of Common Stock, no par value per share, and 15,000,000
shares of preferred stock, no par value per share (the "Preferred Stock"). Upon
consummation of the offering, 34,000,000 shares of Common Stock will be issued
and outstanding and no shares of Preferred Stock will be outstanding. The
following summary of certain provisions of the Company's capital stock describes
certain material provisions of, but does not purport to be complete and is
subject to and qualified in its entirety by, the Charter and the Bylaws of the
Company that are included as exhibits to the Registration Statement of which
this Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
The issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Subject to the prior rights of any Preferred Stock, the
holders of outstanding shares of Common Stock are entitled to receive dividends
out of assets legally available therefor at such times and in such amounts as
the Board of Directors may from time to time determine. See "Dividend Policy."
The shares of Common Stock are not redeemable or convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata the assets of the
Company which are legally available for distribution after payment of all debts
and other liabilities and subject to the prior rights of any holders of
Preferred Stock then outstanding. Each outstanding share of Common Stock is
entitled to one vote on all matters submitted to a vote of shareholders. The
Company has applied for listing of its Common Stock on the Nasdaq National
Market under the symbol "KING."
PREFERRED STOCK
The Board of Directors, without further action by the Company's
shareholders, from time to time, may authorize the issuance of shares of
Preferred Stock in series, and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by holders of a large block of the Company's securities or
the removal of incumbent management. See "Risk Factors -- Certain Charter,
Bylaws and Statutory Provisions; Rights Agreement." The Board of Directors,
without shareholder approval, may issue shares of Preferred Stock with voting
and conversion rights which could adversely affect the holders of shares of
Common Stock. Currently, there are no shares of Preferred Stock outstanding, and
the Company has no present intention to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE CHARTER AND BYLAWS AND STATUTORY PROVISIONS
The Charter provides that the Board of Directors will be divided into three
classes, with each class serving for three years, and one class being elected
each year. A majority of the remaining directors then in office, though less
than a quorum, will be empowered to fill any vacancy on the Board of Directors
that arises during the term of a director. The provision for a classified board
may be amended, altered or repealed only upon the affirmative vote of the
holders of at least 80.0% of the outstanding shares of the voting stock of the
Company. The classification of the Board of Directors may discourage a third
party from making a tender offer or otherwise attempting to gain control of the
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Company and may have the effect of maintain the incumbency of the Board of
Directors. See "Risk Factors -- Certain Charter, Bylaws and Statutory
Provisions; Rights Agreement" and "Management."
The Bylaws provide that special meetings of the shareholders of the Company
be called only by a majority of the entire Board of Directors or by certain
officers. In addition, the Bylaws provide that shareholders seeking to bring
business before or to nominate directors at any annual meeting of shareholders
must provide timely notice thereof in writing. To be timely, the shareholders'
notice must be delivered to, or mailed and received at, the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to such
meeting or, if less than 70 days' notice was given for the meeting, within 10
days following the date on which such notice was given. The Bylaws also specify
certain requirements for a shareholders' notice to be in proper written form.
These provisions restrict the ability of shareholders to bring matters before
the shareholders or to make nominations for directors at meetings of
shareholders.
The Company is subject to certain antitakeover provisions provided under
Tennessee law.
Business Combination Statute. Tennessee's Business Combination Act
provides that a party owning 10.0% or more of stock in a "resident domestic
corporation" (such party is called an "interested shareholder") cannot engage in
a business combination with the resident domestic corporation unless the
combination (i) takes place at least five years after the interested shareholder
first acquired 10.0% or more of the resident domestic corporation, and (ii)
either (A) is approved by at least two-thirds of the non-interested voting
shares of the resident domestic corporation or (B) satisfies certain fairness
conditions specified in the Business Combination Act.
These provisions apply unless one of two events occurs. A business
combination with an entity can proceed without delay when approved by the target
corporation's board of directors before that entity becomes an interested
shareholder, or the resident corporation may enact a charter amendment or bylaw
to remove itself entirely from the Business Combination Act. This charter
amendment or bylaw must be approved by a majority of the shareholders who have
held shares for more than one year prior to the vote. It may not take effect for
at least two years after the vote. The Company has not adopted a charter or
bylaw amendment removing the Company from coverage under the Business
Combination Act.
The Business Combination Act further provides an exemption from liability
for officers and directors of resident domestic corporations who do not approve
proposed business combinations or charter amendments and bylaws removing their
corporations from the Business Combination Act's coverage as long as the
officers and directors act in "good faith belief" that the proposed business
combination would adversely affect their corporation's employees, customers,
suppliers, or the communities in which their corporation operates and such
factors are permitted to be considered by the board of directors under the
charter.
Control Share Acquisition Act. The Tennessee Control Share Acquisition Act
("TCSAA") strips a purchaser's shares of voting rights any time an acquisition
of shares in a covered Tennessee corporation brings the purchaser's voting power
to one-fifth, one-third or a majority of all voting power. The purchaser's
voting rights can be established only by a majority vote of the other
shareholders. The purchaser may demand a meeting of shareholders to conduct such
a vote. The purchaser can demand such a meeting before acquiring a control share
only if it holds at least 10.0% of outstanding shares and announces a good faith
intention to make the control share acquisition. A target corporation may or may
not redeem the purchaser's shares if the shares are not granted voting rights.
Investor Protection Act. Tennessee's Investor Protection Act ("TIPA")
applies to tender offers directed at corporations (called "offeree companies")
that have "substantial assets" in Tennessee and that are either incorporated in
or have a principal office in Tennessee. The TIPA requires an offeror making a
tender offer for an offeree company to file with the Commissioner of Commerce
and Insurance (the "Commissioner") a registration statement. When the offeror
intends to gain control of
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the offeree company, the registration statement must indicate any plans the
offeror has for the offeree. The Commissioner may require additional information
material to the takeover offer and may call for hearings. The TIPA does not
apply to an offer that the offeree company's board of directors recommends to
shareholders.
In addition to requiring the offeror to file a registration statement with
the Commissioner, the TIPA requires the offeror and the offeree company to
deliver to the Commissioner all solicitation materials used in connection with
the tender offer. The TIPA prohibits "fraudulent, deceptive, or manipulative
acts or practices" by either side, and gives the Commissioner standing to apply
for equitable relief to the Chancery Court of Davidson County, Tennessee, or to
any other chancery court having jurisdiction whenever it appears to the
Commissioner that the offeror, the offeree company, or any of its respective
affiliates has engaged in or is about to engage in a violation of the TIPA. Upon
proper showing, the Chancery Court may grant injunctive relief. The TIPA further
provides civil and criminal penalties for violations.
Authorized Corporation Protection Act. The Tennessee Authorized
Corporation Protection Act ("TACPA") is the vehicle through which the Tennessee
statutes attempt to permit the Business Combination Act and the TCSAA to govern
foreign corporations. The TACPA provides that an authorized corporation can
adopt a bylaw or a charter provision electing to be subject to the operative
provisions of the Business Combination Act and the TCSAA, which then become
applicable "to the same extent as such provisions apply to a resident domestic
corporation." Authorized corporations are those that are required to obtain a
Certificate of Authority from the Tennessee Secretary of State and that satisfy
any two of the following tests: having its principal place of business located
in Tennessee; having a significant subsidiary located in Tennessee; having a
majority of such corporation's fixed assets located in Tennessee; having more
than 10.0% of the beneficial owners of the voting stock or more than 10.0% of
such corporation's shares of voting stock beneficially owned by residents of
Tennessee; employing more than 250 individuals in Tennessee or having an annual
payroll paid to residents of Tennessee that is in excess of $5.0 million;
producing goods and/or services in Tennessee that result in annual gross
receipts in excess of $10.0 million; or having physical assets and/or deposits
located within Tennessee that exceed $10.0 million in value.
The U. S. Court of Appeals for the Sixth Circuit, however, has held the
TACPA unconstitutional as it applies to target corporations organized under the
laws of states other than Tennessee.
Greenmail Act. The Tennessee Greenmail Act ("TGA") applies to any
corporation chartered under the laws of Tennessee which has a class of voting
stock registered or traded on a national securities exchange or registered with
the Securities and Exchange Commission pursuant to Section 12(g) of the Exchange
Act. The TGA provides that it is unlawful for any corporation or subsidiary to
purchase, either directly or indirectly, any of its shares at a price above the
market value, as defined in the TGA, from any person who holds more than 3.0% of
the class of the securities purchased if such person has held such shares for
less than two years, unless either the purchase is first approved by the
affirmative vote of a majority of the outstanding shares of each class of voting
stock issued or the corporation makes an offer of at least equal value per share
to all holders of shares of such class.
RIGHTS AGREEMENT
The Company's Board of Directors has declared a dividend of one Right for
each share of Common Stock outstanding. The holders of any additional Common
Stock subsequently issued before the earliest of the Distribution Date, as
hereinafter defined, the redemption of the Rights, the exchange of the Rights or
the expiration of the Rights also will be entitled to one Right for each such
additional share. Such Rights entitle the registered holder under certain
circumstances to purchase from the Company one-thousandth of a share of Junior
Participating Preferred Stock, Series A, (the "Preferred Stock") at a price of
$60 per one-thousandth of a share of Preferred Stock (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
the Rights Agreement.
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The Rights will be evidenced by the Common Stock certificates and not by
separate certificates until the earlier of (i) the day following the first date
of public disclosure that a person or group other than an "Exempt Person" (the
"Acquiring Person"), together with persons affiliated, or associated with such
Acquiring Person (other than Exempt Persons), has acquired, or obtained the
right to acquire, beneficial ownership of 15.0% of the outstanding Common Stock
(the "Stock Acquisition Date") and (ii) the tenth business day after the date of
commencement or public disclosure of an intention to commence a tender offer or
exchange offer by a person other than an Exempt Person, the Company and certain
related entities if, upon consummation of the offer, such person or group,
together with persons affiliated or associated with it (other than those that
are Exempt Persons) would acquire beneficial ownership of 15.0% or more of the
outstanding Common Stock (the earlier of such dates being called the
"Distribution Date"). Until the Distribution Date (or earlier redemption,
exchange, or expiration of the Rights), (i) the Rights will be transferable only
with the Common Stock (except with redemption of the Rights); (ii) Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference; and (iii) the surrender for transfer of any certificates for Common
Stock will also constitute the transfer of the Right associated with the Common
Stock represented by such certificate. For purposes of the Rights Agreement
"Exempt Persons" is defined to include Messrs. John M., Joseph R. and Jefferson
J. Gregory (the "Gregory Entities").
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date. From and after the Distribution Date, such separate Rights
Certificates alone will evidence the Rights.
The Rights will become exercisable on or after the Distribution Date
(unless sooner redeemed or exchanged). The Rights will expire at the close of
business on the tenth anniversary of the date of initial issuance (the
"Expiration Date") unless earlier redeemed or exchanged by the Company as
described below.
The Purchase Price payable and the number of shares of Preferred Stock or
other securities, cash or other property issuable upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend or distribution on, or a subdivision or combination of, or
reclassification of the Preferred Stock, (ii) upon the grant to holders of the
Preferred Stock of certain rights, options, or warrants to subscribe for
Preferred Stock or securities convertible into Preferred Stock at less than the
current market price of the Preferred Stock, or (iii) upon the distribution to
holders of the Preferred Stock of other securities, cash (excluding regular
periodic cash dividends), property, evidences of indebtedness, or assets.
If a person becomes an Acquiring Person, the Rights will "flip-in" and
entitle each holder of a Right, except as provided below, to purchase, upon
exercise at the then-current Purchase Price, that number of shares of Common
Stock having a market value of two times such Purchase Price. In addition,
following a "flip-in," the Board has the option of exchanging all or part of the
Rights, except as provided below, for Common Stock.
In the event that, following a "flip-in," the Company is acquired in a
merger or other business combination in which the Common Stock does not remain
outstanding or is exchanged or 50% or more of its consolidated assets or earning
power is sold, leased, exchanged, mortgaged, pledged or otherwise transferred or
disposed of (in one transaction or a series of related transactions), the Rights
will "flip-over" and entitle each holder (other than the Acquiring Person and
certain related persons or transferees) of a Right to purchase, upon the
exercise of the Right at the then-current Purchase Price, that number of shares
of common stock of the acquiring company (or, in certain circumstances, one of
its affiliates) which at the time of such transaction would have a market value
of two times such Purchase Price.
Any Rights beneficially owned at any time on or after the earlier of the
Distribution Date and the Stock Acquisition Date by an Acquiring Person or an
affiliate or associate (other than an exempt person) of an Acquiring Person
(whether or not such ownership is subsequently transferred) will
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become null and void upon the occurrence of a "Triggering Event," and any such
holder of such Rights will have no right to exercise such Rights or have such
Rights exchanged as provided above. A "Triggering Event" will be deemed to occur
in the event that any person becomes an Acquiring Person.
The number of outstanding Rights and the number of one-thousandths of a
share of Preferred Stock issuable upon exercise of each right and the Purchase
Price are subject to adjustment in the event of a stock dividend on the Common
Stock payable in Common Stock or subdivision or combination of the Common Stock
occurring, in any such case, prior to the Distribution Date.
At any time prior to the earlier of the Stock Acquisition Date and the
Expiration Date, the Company may redeem the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive the dividends or distributions.
At any time prior to the Stock Acquisition Date, a majority of the
Continuing Directors (as defined in the Rights Agreement) may, without the
approval of an holder of the Rights (except, in certain circumstances, an Exempt
Person), supplement or amend any provision of the Rights Agreement (including
the date on which the Distribution Date will occur after announcement of
commencement of a tender offer). Thereafter, the Rights Agreement may be amended
by a majority of the Continuing Directors without the approval of any holder of
the Rights only to cure ambiguities, to correct defective or inconsistent
provisions, or in ways that do not adversely affect the Rights holders.
Notwithstanding the foregoing, the Rights Agreement may not be amended to change
the Purchase Price, the number of shares of Preferred Stock, other securities,
cash or other property obtainable upon exercise of a Right, the redemption price
or the Expiration Date.
The Rights have certain anti-takeover effects. The Right may cause
substantial dilution to a person or group other than an Exempt Person that
attempts to acquire the Company on terms not approved by the Board, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors prior to the time a person or
group other than an Exempt Person has acquired beneficial ownership of 15.0% or
more of the Common Stock, because until such time the Rights may be redeemed by
the Company at $.01 per Right.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement (a copy of the
form of which is filed as an exhibit to the Registration Statement), including
the definitions therein of certain terms.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Charter limits the liability of directors to the fullest extent
permitted by the Tennessee Business Corporation Act. In addition, the Charter
provides that the Company shall indemnify directors and officers of the Company
to the fullest extent permitted by such law.
TRANSFER AGENT, REGISTRAR, RIGHTS AGENT AND CUSTODIAN
The transfer agent, registrar and Rights Agent for the Company's Common
Stock and the Preferred Stock Purchase Rights and the custodian for the Selling
Shareholders is Union Planters National Bank, Memphis, Tennessee.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company. Sales of a substantial number of shares of the Company's
Common Stock in the public market following this offering, or the perception
that such sales could occur, could adversely affect the market price of the
Common Stock. Upon completion of this offering, there will be 34,000,000 shares
of Common Stock outstanding. Other than the 8,200,000 shares offered hereby, all
shares of Common Stock held by the Company's current shareholders are
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"), and may only be sold subject to the
provisions of Rule 144 under the Securities Act.
Of the 34,000,000 shares of Common Stock to be outstanding after the
offering, approximately 22,000,000 or 78.6%, of the outstanding shares of Common
Stock will be subject to lock-up agreements entered into by certain offers,
directors and other shareholders of the Company (the "Lock-up Agreements"). The
Company and its directors, officers and certain other shareholders have, among
other things, agreed not to, directly or indirectly, offer for sale, sell,
pledge or otherwise dispose of (or during the term of the Lock-up Agreement
enter into any transaction or device that is designed to, or could be expected
to, result in the disposition by any person at any time in the future of), any
Common Stock or securities convertible into or exchangeable for Common Stock,
with certain exceptions, or sell or grant options, rights or warrants with
respect to any shares of Common Stock or securities convertible into or
exchangeable for Common Stock, with certain limited exceptions, or enter into
any swap or other derivatives transaction that transfers to another, in whole or
in part, any of the economic benefits or risk of ownership of such shares of
Common Stock, for a period of 180 days after the date of this Prospectus without
the prior written consent of Lehman Brothers Inc. on behalf of the
Representatives. Of the 12,000,000 shares of Common Stock to be outstanding
after the Offering that are not subject to the Lock-up Agreements, other than
the 8,200,000 shares of Common Stock sold in the Offering, (i) approximately 1.8
million shares will be immediately eligible for resale in the public market
without restriction in reliance on Rule 144(k) under the Securities Act, (ii)
approximately 800,000 shares may be sold subject to the volume and manner of
sales restrictions of Rule 144 and (iii) the remaining 1.2 million shares may
not be sold pursuant to Rule 144 prior to the expiration of their one-year
holding period.
Beginning 180 days after the date of this Prospectus, after the Lock-up
Agreements have expired, approximately (i) 10.0 million additional shares of
Common Stock will become eligible for resale into the public market in reliance
of Rule 144(k)and (ii) approximately 12.0 million additional shares may be sold
subject to the volume and manner of sales restrictions of Rule 144. See
"Underwriting."
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including affiliates, who has beneficially owned
shares for at least one year (including holding periods of prior owners other
than affiliates) is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Company's Common Stock (approximately 34,000,000
shares immediately after this offering) or (ii) the average weekly trading
volume in the Company's Common Stock during the four calendar weeks preceding
such sale. A person (or persons whose shares are aggregated) who is not deemed
to be an affiliate of the Company and who has beneficially owned shares for at
least two years (including holding periods of prior owners other than
affiliates) is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above.
The Company intends to file a registration statement under the Securities
Act on Form S-8 covering 3,500,000 shares of Common Stock reserved for issuance
under its Plan. See "Management -- Incentive Stock Option Plan." Such
registration statement is expected to be filed as soon as practicable after the
date of this Prospectus and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by
"Non-U.S. Holders." In general, a "Non-U.S. Holder" is an individual or entity
other than: (i) a citizen or resident of the United States; (ii) a corporation
or partnership created or organized in the United States or under the laws of
the United States or of any state; (iii) an estate, the income of which is
includible in gross income for U.S. federal income tax purposes regardless of
its source; or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust. This discussion does not address all aspects of U.S. federal income and
estate taxation and does not deal with foreign, state and local consequences
that may be relevant to Non-U.S. Holders in light of their personal
circumstances, or to certain types of Non-U.S. Holders which may be subject to
special treatment under U.S. federal income tax laws (for example, insurance
companies, tax-exempt organizations, financial institutions and broker-dealers).
Furthermore, this discussion is based on provisions of the Internal Revenue Code
of 1986, amended (the "Code"), existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, all as of
the date hereof, and all of which are subject to change, possibly with
retroactive effect. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
DIVIDENDS
The Company does not expect to pay any cash dividends in the foreseeable
future. See "Dividend Policy." In the event, however, that dividends are paid on
shares of Common Stock, dividends paid to a Non-U.S. Holder will generally be
subject to U.S. withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States and the Non-U.S. Holder provides the payor with proper documentation, as
discussed below, or (ii) if certain income tax treaties apply, attributable to a
permanent establishment in the United States maintained by the Non-U.S. Holder.
Dividends effectively connected with such a U.S. trade or business or
attributable to such a U.S. permanent establishment generally will not be
subject to withholding tax (if the Non-U.S. Holder files certain forms,
including, currently, Internal Revenue Service ("IRS") Form 4224, with the payor
of the dividend) and generally will be subject to U.S. federal income tax on a
net income basis, in the same manner as if the Non-U.S. Holder were a resident
of the United States. In the case of a Non-U.S. Holder that is a corporation,
dividend income so connected or attributable may also be subject to the branch
profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States of its effectively connected earnings and
profits subject to certain adjustments) at a 30% rate (or a lower rate
prescribed by an applicable income tax treaty). For purposes of determining
whether tax is to be withheld at a 30% rate or at a lower rate as prescribed by
an applicable tax treaty, current law permits the Company to presume that
dividends paid prior to January 1, 1999 to an address in a foreign country are
paid to a resident of such country absent knowledge that such presumption is not
warranted. However, under newly issued regulations, in the case of dividends
paid after December 31, 1998, a Non-U.S. Holder generally would be subject to
U.S. withholding tax at a 31% rate under the backup withholding rates described
below, rather than at a 30% rate or at a reduced rate under an income tax
treaty, unless certain certification procedures (or, in the case of payments
made outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with. Further, in order to claim
the benefit of an applicable tax treaty rate for dividends paid after December
31, 1998, a Non-U.S. Holder must comply with certain certification requirements.
Certain certification and disclosure requirements must be complied with in order
to be exempt from withholding under the effectively connected income exemption.
The new regulations also provide special rules for dividend payments made to
foreign
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intermediaries, U.S. or foreign wholly owned entities that are disregarded for
U.S. federal income tax purposes and entities that are treated as fiscally
transparent in the United States, the applicable income tax treaty jurisdiction,
or both. Prospective investors should consult with their own tax advisors
concerning the effect, if any, of the adoption of these new regulations on an
investment in the Common Stock.
A Non-U.S. Holder that is eligible for a reduced rate of U.S. withholding
tax pursuant to an income tax treaty may obtain a refund of any excess amounts
currently withheld by filing an appropriate claim for refund with the IRS.
SALE OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax on any gain recognized upon the disposition of Common Stock unless: (i) the
gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or, alternatively, if certain tax
treaties apply, attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder (and in either such case, the branch profits
tax may also apply if the Non-U.S. Holder is a corporation); (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual and holds shares of
stock as a capital asset, such individual is present in the United States for
183 days or more in the taxable year of disposition, and certain other
conditions are met; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain U.S. expatriates; or (iv) the
Company is or has been a United States real property holding corporation (a
"USRPHC") for United States federal income tax purposes at any time within the
shorter of the five-year period preceding such disposition or such Non-U.S.
Holder's holding period. A corporation is a USGPHC if the fair market value of
the U.S. real property interests held by the corporation is 50% or more of the
aggregate fair market value of certain assets of the corporation. The Company
believes that it has not been and is not currently a USRPHC. If the Company were
or were to become a USRPHC, gains realized upon a disposition of Common Stock by
a Non-U.S. Holder which did not directly or indirectly own more than 5% of the
Common Stock during the shorter of the periods described above generally would
not be subject to U.S. federal income tax so long as the Common Stock is
"regularly traded" on an established securities market.
If a Non-U.S. Holder who is an individual falls under clause (i) above,
such individual generally will be taxed on the net gain derived from a sale of
Common Stock under regular graduated U.S. federal income tax rates. If an
individual Non-U.S. Holder falls under clause (ii) above, such individual
generally will be subject to a flat 30% tax on the gain derived from a sale,
which may be offset by certain U.S. capital losses (notwithstanding the fact
that such individual is not considered a resident alien of the United States).
Thus, individual Non-U.S. Holders who have spent (or expect to spend) more than
a del minimis period of time in the United States in the taxable year in which
they contemplate a sale of Common Stock are urged to consult their tax advisors
prior to the sale as to the U.S. tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated U.S.
federal income tax rates and, in addition, will be subject to the branch profits
tax equal to 30% of its "effectively connected earnings and profits," within the
meaning of the code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable tax treaty.
ESTATE TAX
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise, and therefore may be subject to U.S. federal estate
tax.
52
<PAGE> 54
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
not required because the dividends were effectively connected with a U.S. trade
or business of the Non-U.S. Holder or reduced or eliminated by an applicable tax
treaty. Copies of this information also may be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides or is established.
Under current rules, United States backup withholding (which generally is
imposed at the rate of 31% on certain payments to persons that fail to furnish
the information required under the U.S. information reporting requirements) and
information reporting generally will not apply (i) to dividends paid on Common
Stock to a Non-U.S. Holder that is subject to withholding at the 30% rate (or
that is subject to withholding at a reduced rate under an applicable treaty) or
(ii) before January 1, 1999, to dividends paid to a Non-U.S. Holder at an
address outside the United States. However, under newly issued regulations, in
the case of dividends paid after December 31, 1997, a Non-U.S. Holder generally
will be subject to backup withholding at a 31% rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with.
The payment of proceeds from the disposition of Common Stock to or through
a U.S. office of a broker will be subject to information reporting and backup
withholding unless the owner, under penalties of perjury, certifies, among other
things, its status as a Non-U.S. Holder, or otherwise establishes an exception.
The payment of proceeds from the disposition of Common Stock to or through a
non-U.S. office of a broker generally will not be subject to backup withholding
and information reporting. Before January 1, 1999, however, in the case of
proceeds from the disposition of Common Stock effected at a non-U.S. office of a
broker that is: (i) a U.S. person; (ii) a "controlled foreign corporation" for
U.S. federal income tax purposes or (iii) a foreign person 50% or more of whose
gross income from certain periods is effectively connected with a U.S. trade or
business, such payments will not be subject to backup withholding but will be
subject to information reporting, unless (a) such broker has documentary
evidence in its files that the owner is a Non-U.S. Holder and certain other
conditions are met, or (b) the beneficial owner otherwise establishes an
exemption. Further, after December 31, 1998, under the newly issued regulations
referred to above, information reporting and backup withholding may apply to
payments of the gross proceeds from the sale or redemption of Common Stock
effected through foreign offices of brokers having any of a broader class of
connections with the United States unless certain certification requirements are
complied with. Prospective investors should consult with their own tax advisors
regarding these regulations, and in particular with respect to whether the use
of a particular broker would subject the investor to these rules.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the IRS.
53
<PAGE> 55
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1997 (the "Underwriting Agreement"), among the
Company, the Selling Shareholders and the underwriters named below (the
"Underwriters") for whom Lehman Brothers Inc., Credit Suisse First Boston
Corporation and Hambrecht & Quist LLC are acting as representatives (the
"Representatives"), the Underwriters have severally agreed to purchase from the
Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite the name of each such Underwriter
below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Lehman Brothers Inc. .......................................
Credit Suisse First Boston Corporation......................
Hambrecht & Quist LLC.......................................
---------
Total............................................. 8,200,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the offering price
set forth on the cover page hereof, and to certain dealers at such public
offering price less a selling concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other Underwriters or to certain other
brokers or dealers. After the offering to the public, the offering price and
other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, including the condition that no stop order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the Securities and
Exchange Commission and that there has been no material adverse change or
development involving a prospective material adverse change in the condition of
the Company from that set forth in the Registration Statement otherwise than as
set forth or contemplated in this Prospectus, and that certain certificates,
opinions and letters have been received from the Company and its counsel, the
Selling Shareholders and their counsel and independent auditors. The
Underwriters are obligated to take and pay for all of the above shares of Common
Stock if any such shares are taken.
The Underwriters and each of the Company and the Selling Shareholders have
agreed in the Underwriting Agreement to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
The Company has granted to the Underwriters an option to purchase up to an
additional 1,000,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the public offering price, less the underwriting discounts
and commissions shown on the cover page of this Prospectus. Such option may be
exercise at any time until 30 days after the date of the Underwriting Agreement.
To the extent that the option is exercised, each Underwriter will be committed
to purchase a number of additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the table above.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Shareholders of the Company, including directors and officers, beneficially
owning an aggregate of approximately 22,000,000, or 78.6%, of the outstanding
shares of Common Stock prior to giving effect to the offering have agreed not
to, directly or indirectly, offer for sale, sell, pledge or otherwise dispose of
(or enter into any transaction or device that is designed to, or could be
expected to, result in the
54
<PAGE> 56
disposition by any person at any time on the future of) any shares of Common
Stock or securities convertible into or exchangeable for Common Stock, or sell
or grant options, rights or warrants with respect to any Shares of Common Stock
or securities convertible into or exchangeable for Common Stock, or enter into
any swap or other derivatives transaction that transfers to another, in whole or
in part, any of the economic benefits or risks of ownership of such shares of
Common Stock, for a period of 180 days after the date of this Prospectus without
the prior written consent of Lehman Brothers Inc. on behalf of the
Representatives. Except for the Common Stock to be sold in the offering, the
Company has agreed not to offer for sale, sell, pledge or otherwise dispose of
(or enter into any transaction or device that is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or securities convertible into or exchangeable
for Common Stock or other capital stock, with certain limited exceptions, or
sell or grant options, rights or warrants with respect to any shares of Common
Stock or securities convertible into or exchangeable for Common Stock, with
certain limited exceptions, or enter into any swap or other derivations
transactions that transfers to another in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock prior to the
expiration of 180 days from the date of this Prospectus without the prior
written consent of Lehman Brothers Inc. on behalf of the Representatives.
Prior to this offering, there has been no public market for the Common
Stock. The public offering price will be negotiated between the Company and the
Representatives. The material factors considered in determining the public
offering price of the Common Stock, in addition to the prevailing market
conditions, were the Company's historical performance, capital structure,
estimates of the business potential, revenues and earnings prospects of the
Company, an assessment of the Company's management and consideration of the
above factors in relation to the market values of companies in related
businesses.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
55
<PAGE> 57
The Company has agreed to pay Ernest C. Bourne, a director, upon
consummation of this offering, a fee equal to 1.0% of the net proceeds. The
agreement is for a one-year term which began August 1, 1997 and provides for a
monthly retainer fee of $10,000 for the term of the agreement. The 1.0% fee
resulting from the offering will be offset by the amount of the monthly retainer
paid prior to the consummation of the offering.
The Company has applied for listing on the Nasdaq National Market under the
symbol "KING."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Baker, Donelson, Bearman & Caldwell, P.C., Memphis, Tennessee.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1997 and for each of the three years in the period ended December 31, 1996 and
the nine months ended September 30, 1997 included in this Prospectus have been
audited by Coopers & Lybrand L.L.P., independent auditors, as stated in their
reports appearing herein and are included in reliance upon such reports given
upon the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto) under the Securities Act of 1933, as
amended, with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement or the documents incorporated into the Prospectus by
reference, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by the Company's independent accountants
and to make available to its shareholders quarterly reports for the first three
quarters of each fiscal year containing unaudited interim financial information.
56
<PAGE> 58
CONTENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
King Pharmaceuticals, Inc.
Report of Independent Accountants......................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and
1996 and September 30, 1997........................... F-3
Consolidated Statements of Operations for the years
ended December 31, 1994, 1995 and 1996 and for the
nine months ended September 30, 1996 (unaudited) and
1997.................................................. F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1995 and 1996 and for the
nine months ended September 30, 1996 (unaudited) and
1997.................................................. F-5
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1994, 1995 and
1996 and the nine months ended September 30, 1997..... F-6
Notes to Consolidated Financial Statements................ F-7
Cortisporin Product Line
Report of Independent Accountants......................... F-20
Statement of Gross Profit................................. F-21
Notes to Financial Statement.............................. F-22
Pro Forma Financial Statements.............................. F-23
Pro Forma Statement of Operations for the year ended
December 31, 1996...................................... F-24
Pro Forma Statement of Operations for the nine months
ended September 30, 1997............................... F-25
Notes to Pro Forma Statements of Operations................. F-26
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
King Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of King
Pharmaceuticals, Inc. as of December 31, 1995 and 1996 and September 30, 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
King Pharmaceuticals, Inc. as of December 31, 1995 and 1996 and September 30,
1997, and the consolidated results of their operations and their cash flows for
the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1997, in conformity with generally accepted accounting principles.
Greensboro, North Carolina
October 22, 1997
- ---------------
The foregoing report is in the form that will be signed by Coopers & Lybrand
L.L.P. upon consummation of the matters, on or before the effective date of the
Registration Statement of which this Prospectus is a part, as described in Notes
15 and 17 to the consolidated financial statements and assuming that from the
date hereof to the effective date no other events shall have occurred that would
affect the accompanying consolidated financial statements.
/s/ Coopers & Lybrand L.L.P.
Greensboro, North Carolina
October 22, 1997
F-2
<PAGE> 60
KING PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,568 $ 1,392 $ 35
Accounts receivable, net of allowance for doubtful
accounts of $93, $93 and $493, respectively............ 2,772 2,305 7,393
Inventories............................................... 4,202 6,097 8,622
Marketable securities..................................... -- 209 --
Deferred income taxes..................................... 308 499 1,135
Income taxes receivable................................... -- 652 --
Shareholder notes receivable.............................. -- 2,093 --
Prepaid expenses and other assets......................... 303 638 533
------- ------- -------
Total current assets.............................. 18,153 13,885 17,718
------- ------- -------
Property, plant and equipment, net.......................... 15,439 16,691 17,006
Investment in affiliated company............................ 292 -- --
Intangible assets, net...................................... 58 8,703 38,204
Other assets................................................ -- -- 1,325
------- ------- -------
Total assets...................................... $33,942 $39,279 $74,253
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 3,403 $ -- $ 1,325
Current portion of long-term debt......................... 2,155 4,031 7,765
Accounts payable.......................................... 927 844 3,503
Accrued expenses.......................................... 1,098 1,261 4,027
Income taxes payable...................................... 2,971 -- 1,015
------- ------- -------
Total current liabilities......................... 10,554 6,136 17,635
------- ------- -------
Line-of Credit.............................................. -- -- 2,282
Long-term debt.............................................. 9,497 13,980 22,913
Deferred income taxes....................................... 2,880 3,470 3,614
------- ------- -------
Total liabilities................................. 22,931 23,586 46,444
------- ------- -------
Commitments
Shareholders' equity:
Common stock, no par value, 150,000,000 shares authorized,
12,320,000 19,467,406 and 28,000,000 shares issued and
outstanding, respectively.............................. 926 8,448 16,455
Retained earnings......................................... 10,763 7,938 12,493
Due from related party.................................... (678) (677) (1,139)
Unrealized loss on marketable securities, net of tax...... -- (16) --
------- ------- -------
Total shareholders' equity........................ 11,011 15,693 27,809
------- ------- -------
Total liabilities and shareholders' equity........ $33,942 $39,279 $74,253
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 61
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net sales...................... $ 13,311 $ 25,441 $ 15,457 $ 11,310 $ 33,817
Development revenues........... -- -- 5,000 2,500 --
---------- ----------- ----------- ----------- -----------
Total revenues, net.... 13,311 25,441 20,457 13,810 33,817
---------- ----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales.................. 9,754 12,130 8,782 7,050 9,538
Selling, general and
administrative.............. 1,987 8,605 12,106 8,441 13,734
Depreciation and
amortization................ 639 1,777 982 655 1,631
---------- ----------- ----------- ----------- -----------
Total operating costs
and expenses......... 12,380 22,512 21,870 16,146 24,903
GAIN ON SALE OF PRODUCT LINE,
NET............................ -- 13,102 -- -- --
---------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS).......... 931 16,031 (1,413) (2,336) 8,914
---------- ----------- ----------- ----------- -----------
OTHER (EXPENSES) INCOME:
Gain on sale of investment in
affiliate................... -- -- 1,760 1,760 --
Interest expense............... (1,069) (2,006) (1,272) (850) (1,730)
Other income, net.............. 554 367 578 407 211
---------- ----------- ----------- ----------- -----------
Total other (expenses)
income............... (515) (1,639) 1,066 1,317 (1,519)
---------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN......... 416 14,392 (347) (1,019) 7,395
Income tax (benefit) expense... (501) 5,058 (107) (316) 2,840
---------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN............. 917 9,334 (240) (703) 4,555
Extraordinary gain on early
extinguishment of long-term
debt, net of income taxes of
$272........................ -- 528 -- -- --
---------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)................ $ 917 $ 9,862 $ (240) $ (703) $ 4,555
========== =========== =========== =========== ===========
Income (loss) per common stock
before extraordinary gain... $ .20 $ .75 $ (.02) $ (.06) $ .18
Extraordinary gain, net........ -- .04 -- -- --
---------- ----------- ----------- ----------- -----------
Net income (loss) per share.... $ .20 $ .79 $ (.02) $ (.06) $ .18
========== =========== =========== =========== ===========
Weighted average number of
common and common stock
equivalents (Note 2)........ 4,537,555 12,445,993 13,630,813 12,572,103 25,655,881
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 62
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------
1994 1995 1996 1996 1997
-------- -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 917 $ 9,862 $ (240) $ (703) $ 4,555
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 639 1,777 982 655 1,631
Loss on sale of marketable securities................... -- -- 1 1 32
Extraordinary gain on early extinguishment of long-term
debt.................................................. -- (800) -- -- --
Gain on sale of product line............................ -- (15,608) -- -- --
Gain on sale of property and equipment.................. -- -- (54) (54) --
Gain on sale of investment in affiliate................. -- -- (1,760) (1,760) --
Income from equity in earnings of affiliated company.... -- (166) -- -- --
Gain on conversion of accounts payable to long-term
debt.................................................. (25) -- -- -- --
Employee salaries and other benefits paid by
affiliate............................................. 250 -- -- -- --
Accrued interest added to amount due to affiliate....... 226 -- -- -- --
Deferred income taxes................................... (629) 2,193 410 447 (501)
Changes in operating assets and liabilities:
Accounts receivable..................................... (608) (876) 467 828 (5,088)
Inventories............................................. (770) (1,326) (1,895) (792) (2,525)
Prepaid expenses and other current assets............... (227) 12 (335) (695) 105
Accounts payable........................................ 209 (288) (83) (364) 2,659
Accrued expenses and other.............................. 690 (220) 163 (106) 2,766
Income taxes (receivable) payable....................... -- 2,855 (3,624) (3,896) 1,667
-------- -------- ------- ------- --------
Net cash provided by (used in) operating
activities........................................ 672 (2,585) (5,968) (6,439) 5,301
-------- -------- ------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (890) (1,672) (1,069) (705) (957)
Deposit on equipment...................................... -- (1,325)
Purchase of intangible assets............................. -- (60) (3,275) (1,153) (30,406)
Purchases of marketable securities........................ -- -- (307) (307) --
Proceeds from sales of marketable securities.............. -- -- 72 25 203
Proceeds from sale of product line........................ -- 32,000 -- -- --
Proceeds from sale of investment in affiliated company.... -- -- 2,052 2,052 --
Proceeds from sale of property and equipment.............. -- -- 100 100 --
-------- -------- ------- ------- --------
Net cash (used in) provided by investing
activities........................................ (890) 30,268 (2,427) 12 (32,485)
-------- -------- ------- ------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit.................... 12,039 200,847 -- 72,142 13,219
Payments on revolving line of credit...................... (11,078) (198,405) (3,403) (72,402) (10,937)
Proceeds from issuance of preferred shares................ 800 -- -- --
Proceeds from issuance of common shares................... -- -- 2,844 190 8,007
Payments to retire 8% cumulative common shares............ -- (100) -- -- --
Repayment on shareholder notes receivable................. -- -- -- -- 2,093
Proceeds from short-term debt............................. -- -- -- -- 1,325
Proceeds from long-term debt.............................. -- 329 2,549 2,549 15,924
Payments on long-term debt and capital lease
obligations............................................. (346) (20,127) (2,772) (1,152) (3,342)
Dividends on preferred shares............................. (8) (8) -- -- --
Due from affiliate........................................ -- (679) 1 75 (462)
Advances from affiliate................................... 520 -- -- -- --
Payment of affiliated note payable........................ (1,000) -- -- -- --
-------- -------- ------- ------- --------
Net cash provided by (used in) financing
activities........................................ 927 (18,143) (781) 1,402 25,827
-------- -------- ------- ------- --------
Increase (decrease) in cash................................. 709 9,540 (9,176) (5,025) (1,357)
Cash and cash equivalents, beginning of period.............. 319 1,028 10,568 10,568 1,392
-------- -------- ------- ------- --------
Cash and cash equivalents, end of period.................... $ 1,028 10,568 $ 1,392 $ 5,543 $ 35
======== ======== ======= ======= ========
Supplemental disclosure of cash paid for:
Interest............................................ $ 439 $ 2,505 $ 1,170 $ 484 $ 1,059
======== ======== ======= ======= ========
Taxes............................................... $ 12 $ 283 $ 3,078 $ 3,078 $ 1,675
======== ======== ======= ======= ========
</TABLE>
F-5
<PAGE> 63
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
Supplemental schedule of non-cash investing and financing activities:
During 1996 the Company issued 699,711 common shares for $2,093 in notes
receivable from shareholders. These notes were paid in full in 1997.
For the year ended December 31, 1996 and the nine months ended September
30, 1996 and 1997, the Company entered into capital leases totaling $1,082, $935
and $85, respectively.
The Company purchased intangible assets financed by the seller of $5,500
during 1996 and $750 during the nine months ended September 30, 1997.
The Company converted its 40,000 shares of Series B Preferred Stock into
400,000 common shares during 1995.
In 1994, the Company's acquisition of the exclusive right to manufacture
and distribute the product Anexsia was recorded as follows:
<TABLE>
<S> <C>
Intangible asset............................................ $17,600
Inventory................................................... 600
-------
$18,200
=======
Note payable................................................ $17,500
Other liabilities........................................... 700
-------
$18,200
=======
</TABLE>
During 1994, accounts payable of $313 were converted into a note payable to
vendor after reducing the payable by $120 for return of inventory to the vendor.
In 1994, the Company issued 2,660,000 common shares with a carryover basis
of $126 in exchange for common shares of an affiliated Company.
In 1994, certain equipment amounting to $161 was acquired on behalf of the
Company by an affiliate in exchange for a note payable that is included in due
to affiliate.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 64
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DUE
COMMON PREFERRED UNREALIZED FROM TOTAL
-------------------- ---------------- RETAINED LOSS ON RELATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS SECURITIES PARTY EQUITY
---------- ------- ------- ------ -------- ---------- ------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock granted at
formation................... 1,340,000 $ -- -- $ -- $ -- $ -- $ -- $ --
Exchange of King stock for
shares of an affiliated
Company..................... 2,660,000 126 -- -- -- -- -- 126
Issuance of preferred stock... -- -- 40,000 800 -- -- -- 800
Issuance of 8% preferred
stock....................... -- -- 10,000 100 -- -- -- 100
Dividends on preferred
stock....................... -- -- -- -- (8) -- -- (8)
Net income.................... -- -- -- -- 917 -- -- 917
---------- ------- ------- ----- ------- ---- ------- -------
Balance, December 31, 1994...... 4,000,000 126 50,000 900 909 -- -- 1,935
Conversion of Series B
preferred stock to common
stock....................... 400,000 800 (40,000) (800) -- -- -- --
Repurchase of 8% cumulative
preferred stock............. -- -- (10,000) (100) -- -- -- (100)
Dividends on preferred
stock....................... -- -- -- -- (8) -- -- (8)
Advances to Benevolent fund... -- -- -- -- -- -- (678) (678)
Net income.................... -- -- -- -- 9,862 -- -- 9,862
---------- ------- ------- ----- ------- ---- ------- -------
Balance, December 31, 1995...... 4,400,000 926 -- -- 10,763 -- (678) 11,011
Issuance of common stock...... 1,386,230 4,159 -- -- -- -- -- 4,159
Issuance of common stock under
employee stock purchase
plan........................ 259,532 778 -- -- -- -- -- 778
15% Stock Dividend............ 906,883 2,585 -- -- (2,585) -- -- --
Unrealized loss on securities,
net of tax.................. -- -- -- -- -- (16) -- (16)
Payments from Benevolent
Fund........................ -- -- -- -- -- -- 1 1
Net income (loss)............. -- -- -- -- (240) -- -- (240)
---------- ------- ------- ----- ------- ---- ------- -------
Balance, December 31, 1996...... 6,952,645 8,448 -- -- 7,938 (16) (677) 15,693
Issuance of common stock, net
of $743 of expenses......... 3,047,355 8,007 -- -- -- -- -- 8,007
Realized loss on securities... -- -- -- -- -- 16 -- 16
Advances to Benevolent Fund... -- -- -- -- -- -- (462) (462)
2.8 to 1 common stock split
(Note 17)................... 18,000,000 -- -- -- -- -- -- --
Net income.................... -- -- -- -- 4,555 -- -- 4,555
---------- ------- ------- ----- ------- ---- ------- -------
Balance, September 30, 1997..... 28,000,000 $16,455 -- $ -- $12,493 $ -- $(1,139) $27,809
========== ======= ======= ===== ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 65
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. THE COMPANY
King Pharmaceuticals, Inc. ("King" or the "Company") is an integrated
pharmaceutical company that manufactures, acquires, markets and sells branded
and generic form products. The Company also develops and markets
over-the-counter veterinary products. These products are marketed throughout the
United States to pharmaceutical wholesalers, retail pharmacies, and chain drug
stores. The Company also manufactures similar products for others on a contract
basis. Management of the Company believes that the unaudited information at
September 30, 1996, and for the nine months then ended contains all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of such consolidated financial statements.
These consolidated financial statements include the accounts of King and
its wholly owned subsidiaries, Monarch Pharmaceuticals, Inc. (formerly a
division of King) and King Pharmaceuticals of Nevada, Inc. All intercompany
transactions and balances have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. Assets, liabilities, revenues and
expenses, and disclosure of contingent assets and liabilities are affected by
such estimates and assumptions. Actual results could differ from those
estimates. The most significant estimates in the consolidated financial
statements relate to receivables, inventory, self-insurance and revenues.
Revenue Recognition -- Sales are reported net of an estimate for returns
and allowances and an estimate for chargebacks. Chargebacks and returns and
allowances are included in sales when goods are shipped to the customer.
Development revenue is recognized upon approval of the product from the FDA.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents. The Company's cash and cash equivalents are placed in large
domestic banks which limit the amount of credit exposure.
Marketable Securities -- Marketable securities consisted of stock in
another pharmaceutical company, which management had classified as
available-for-sale in the accompanying consolidated financial statements. Such
securities were carried at fair value with the unrealized gains and losses
reported net of tax as a separate component of shareholders' equity. The
unrecognized loss on these securities at December 31, 1996 was $25 ($16, net of
tax). The Company sold these securities at a loss in 1997.
Inventories -- Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
Income Taxes -- Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see Note 12).
Financial Instruments -- The fair value of financial instruments are
determined by reference to various market data or other valuation techniques as
appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values (Note 11).
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Maintenance and repairs are expensed as incurred. Depreciation is
computed over the estimated useful lives of the related assets using the
straight-line method for financial statement purposes and accelerated methods
for income tax purposes. Retirements, sales and disposals of assets are recorded
by removing the cost and accumulated depreciation with any resulting gain or
loss reflected in income.
F-8
<PAGE> 66
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the event that facts and circumstances indicate that the cost of
property, plant and equipment may be impaired, evaluation of recoverability is
performed using the estimated future undiscounted cash flows associated with the
asset compared to the asset's carrying amount to determine if a writedown is
required.
Intangible Assets -- Intangible assets are stated at cost, net of
accumulated amortization. Amortization is computed over the estimated useful
lives of 10 to 25 years using the straight-line method.
The Company continually reevaluates the propriety of the carrying amount of
intangibles as well as the related amortization period to determine whether the
current events and circumstances warrant adjustments to the carrying values
and/or revised estimates of useful lives. This evaluation is performed using the
estimated projected future undiscounted cash flows associated with the asset
compared to the asset's carrying amount to determine if a writedown is required.
To the extent such projection indicates that undiscounted cash flow is not
expected to be adequate to recover the carrying amounts the assets are written
down to discounted cash flows.
Other Assets -- Other assets includes a deposit of $1,325 for equipment
that will be leased back to the Company under an operating lease (Note 10).
Gain on Sale of Product Line/Development Revenue -- In December 1995, the
Company sold the Anexsia brand product line and related Abbreviated New Drug
Applications ("ANDA's"), both approved and in the process of development, for
$32,000, which resulted in a net gain of $13,102. As part of the agreement, the
Company entered into a manufacture and supply agreement with the purchaser, with
guaranteed minimum revenues of $4,750 over 4 years. Additionally, the Company
agreed to develop four ANDA's with the Food and Drug Administration ("FDA") on
the purchaser's behalf, for a maximum of $2,500 each, due upon FDA approval. In
1996, the Company recognized $5,000 as development revenue under this agreement.
In connection with the gain on the transaction, the Company incurred
certain non-recurring costs related to employee bonuses and charitable
contributions of $2,506.
Self-Funded Health Insurance -- The Company is self-insured with respect to
its health care benefit program. The Company contributes estimated amounts to a
third-party administrator on a monthly basis which are used to pay health care
claims during the year. Under the plan, the Company pays a minimum amount
annually and has an aggregate stop-loss limit based upon the number of
participants and their insured status. Self-insured costs are accrued based upon
reported claims and an estimated liability for claims incurred but not reported.
Research and Development -- The Company incurs research and development
costs that are expensed as incurred. These costs were approximately $543, $682,
$1,298, $704 and $660, for the years ended December 31, 1994, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997, respectively.
Advertising and Promotion -- The Company expenses advertising and promotion
costs as incurred and these costs are included as selling, general and
administrative expenses.
Income (Loss) Per Share -- Income (loss) per share is calculated by
dividing net income (loss), after deducting preferred stock dividends, by the
weighted average number of common shares outstanding during the period. The
weighted average shares outstanding includes the effects of the stock dividend
paid in December 1996 and the stock split in October 1997 for all periods on a
retroactive basis.
Statement of Accounting Standards Not Yet Adopted -- In February 1997, the
Financial Accounting Standards Board issued Statement Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share,
F-9
<PAGE> 67
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
effective for fiscal periods ending after December 15, 1997. The new standard
simplifies the computation of earnings (loss) per share by replacing primary
earnings (loss) per share with basic earnings (loss) per share. Basic earnings
(loss) per share will not include the effect of any potentially dilutive
securities, as under the current accounting standard, and will be computed by
dividing reported income available to common shareholders by the weighted
average number of common shares outstanding during the period. Fully diluted
earnings (loss) per share will now be called diluted earnings (loss) per share
and will reflect the dilution of all potentially dilutive securities. Companies
will be required to restate all prior period earnings (loss) per share data. The
adoption of this standard by the Company will have no impact on the historical
reported earnings (loss) per share amounts since, prior to September 30, 1997,
there were no potentially dilutive securities.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires public business enterprises to adopt its provisions for periods
beginning after December 15, 1997, and to report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
The Company is evaluating the provisions of SFAS No. 131, but has not yet
determined if additional disclosures will be required.
Reclassifications -- Certain amounts from the prior consolidated financial
statements have been reclassified to conform to the presentation adopted in
1997.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
A significant portion of the Company's sales are to customers in the
pharmaceuticals industry. Approximately 54%, 34% and 33% of accounts receivable
at December 31, 1995 and 1996 and September 30, 1997, respectively were due from
one customer. At December 31, 1995 and 1996 and September 30, 1997, an
additional 27%, 39% and 35%, respectively, were due from two other customers.
The Company monitors the extension of credit to customers and has not
experienced significant credit losses. Furthermore, the majority of sales are
made to large well-established companies.
The following table represents a summary of sales to significant customers
as a percentage of the Company's total revenues:
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS MONTHS
ENDED DECEMBER 31, ENDED
-------------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Customer A.................................... 66.6% 27.0% 18.1% n/a
Customer B.................................... n/a n/a 36.7 n/a
Customer C.................................... n/a 11.8 14.9 n/a
Customer D.................................... n/a 18.1 n/a n/a
Customer E.................................... n/a n/a n/a 19.5
Customer F.................................... n/a n/a n/a 13.4
Customer G.................................... n/a n/a n/a 13.1
Customer H.................................... n/a n/a n/a 10.9
</TABLE>
n/a -- sales were less than 10% for the period.
F-10
<PAGE> 68
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Land.............................................. $ 169 $ 306 $ 319
Buildings and improvements........................ 13,006 13,407 13,563
Machinery and equipment........................... 2,960 3,380 4,059
Equipment under capital lease..................... 406 1,488 1,573
Construction in progress.......................... 140 189 298
------- ------- -------
16,681 18,770 19,812
Less accumulated depreciation..................... (1,242) (2,079) (2,806)
------- ------- -------
$15,439 $16,691 $17,006
======= ======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1994, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997
was $541, $701, $853, $639, and $728 respectively.
5. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Finished goods.................................. $1,603 $3,176 $5,239
Work-in-process................................. 675 525 646
Raw materials................................... 1,924 2,396 2,737
------ ------ ------
$4,202 $6,097 $8,622
====== ====== ======
</TABLE>
6. ACQUISITIONS/INTANGIBLE ASSETS
On May 15, 1997, the Company acquired the rights, title and interest in the
United States to the Viroptic(R) product line for $5,100, plus the assumption of
an estimated liability of $129 for returns of products shipped prior to the
acquisition. The entire purchase price was allocated to intangible assets and is
being amortized over its estimated useful life of 25 years. The purchase price
was financed from internally generated cash funds and borrowings under its
revolving line of credit agreement.
On March 21, 1997, the Company acquired the rights, title and interest in
the United States to the Cortisporin(R) product line for $22,845, plus the
assumption of an estimated $849 for returns of products shipped prior to the
acquisition. The entire purchase price was allocated to intangible assets and is
being amortized over its estimated useful life of 25 years. The purchase price
was financed principally through the raising of equity (Note 15), notes payable
to certain banks and borrowings under the Company's revolving line of credit
agreement.
On January 22, 1997, the Company acquired the rights, title and interest to
the Proctocort(TM) product line for approximately $1,500. The entire purchase
was allocated to intangible assets and is being amortized over its estimated
useful life of 20 years. The acquisition was financed with a note payable to a
bank.
On December 17, 1996, the Company acquired the rights, title and interests
to the Thalitone(R) product line for $1,000, including inventory valued at $268.
The remaining $832 was allocated to
F-11
<PAGE> 69
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
intangible assets and is being amortized over 10 years, the estimated remaining
useful life of its patent. The acquisition was financed with a note payable to a
bank.
On October 2, 1996, the Company acquired the rights, titles and interest to
the Nucofed(R) and Quibron(R) (United States only) product lines for $7,000,
plus the assumptions of an estimated $301 for returns of products shipped prior
to the acquisition. The entire purchase price was allocated to intangible assets
and is being amortized over its estimated useful life of 20 years. The purchase
price was financed by the seller for $5,500 and borrowings under the Company's
revolving line of credit.
The following unaudited pro forma summary presents net sales information as
if the above acquisitions had occurred on January 1, 1996. These pro forma
results have been prepared for comparative purposes and do not purport to be
indicative of what would have occurred had the acquisitions been made on January
1, 1996, nor is it indicative of future results.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED NINE MONTHS
DECEMBER 31, ENDED
1996 SEPTEMBER 30, 1997
------------ ------------------
<S> <C> <C>
Net sales......................................... $33,484 $40,402
======= =======
</TABLE>
Historical cost data prior to the acquisition was not available, therefore
proforma net income amounts and per share amounts have not been disclosed.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
---- ------ -------------
<S> <C> <C> <C>
Cortisporin........................................ $-- $ -- $23,694
Viroptic........................................... -- -- 5,229
Nucofed/Quibron.................................... -- 7,301 7,301
Proctocort......................................... -- -- 1,483
Thalitone.......................................... -- 832 832
Other.............................................. 60 702 702
--- ------ -------
60 8,835 39,241
Less accumulated amortization...................... (2) (132) (1,037)
--- ------ -------
$58 $8,703 $38,204
=== ====== =======
</TABLE>
Amortization expense for the years ended December 31, 1994, 1995, and 1996
and for the nine months ended September 30, 1996 and 1997 was $98, $1,076, $129,
$2, and $905, respectively.
7. LEASE OBLIGATIONS
The Company leases certain office and manufacturing equipment under
noncancelable operating leases with terms from one to five years. Estimated
future minimum lease payments, as of September 30, 1997 for leases with initial
or remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998...................................................... $116
1999...................................................... 97
2000...................................................... 77
2001...................................................... 17
2002...................................................... 2
</TABLE>
F-12
<PAGE> 70
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for the years ended December 31, 1994, 1995 and 1996, and for
the nine months ended September 30, 1996 and 1997 was approximately $131, $111,
$196, $131, and $148, respectively.
Additionally, the Company leases office space in its building to tenants
under agreements ranging from one to twenty years. Such leases are accounted for
as operating leases. Rental income for the years ended December 31, 1994, 1995
and 1996 and for the nine months ended September 30, 1996 and 1997 was
approximately $201, $87, $86, $68, and $33, respectively. As of September 30,
1997 estimated future minimum rental payments to be received are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998...................................................... $ 18
1999...................................................... 18
2000...................................................... 16
2001...................................................... 16
2002...................................................... 16
Thereafter................................................ 189
</TABLE>
Capital lease obligations for certain equipment as of September 30, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................ $ 404
1999........................................................ 385
2000........................................................ 366
2001........................................................ 332
2002........................................................ 49
------
Total minimum lease payments................................ 1,536
Less imputed interest....................................... (257)
------
Present value of minimum lease payments..................... 1,279
------
Less current maturities..................................... (295)
------
$ 984
======
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Payroll and outside personnel services................ $ 275 $ 346 $ 304
Returns and allowances and chargebacks................ 570 351 1,678
Accrued interest...................................... 7 110 803
Franchise taxes....................................... 52 24 47
Due to seller of Proctocort........................... -- -- 750
Incurred but not reported medical claims.............. 112 108 314
Other................................................. 82 322 131
------ ------ ------
$1,098 $1,261 $4,027
====== ====== ======
</TABLE>
F-13
<PAGE> 71
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Notes payable to former owners, due in equal annual
installments of principal and interest (at a rate
of 6%) of $1,226 through December 2003............ $ 7,611 $ 6,842 $ 6,842
Note payable to pharmaceutical company, due in 5
annual installments of principal and interest (at
a rate of 8%) of $1,378 through October 2, 2001,
collateralized by certain intangible assets....... -- 5,500 5,500
Note payable, due in semiannual installments of
$588, through December 1998, plus monthly interest
at 8%............................................. 3,525 2,350 1,763
Note payable to a bank, due in monthly installments
of $69 through May 15, 1999 with interest at a
rate of LIBOR plus 1.75%, collateralized by
accounts receivable, inventory, contract rights
and certain intangible assets..................... -- 2,014 1,389
Note payable to a bank, due in monthly installments
of $42 through April 1, 2000 with interest at a
rate of 8.25%, collateralized by various equipment
and machinery, accounts receivable, furniture and
intangibles....................................... -- -- 1,250
Note payable to a bank, due in monthly installments
of $49 through January 31, 2000 with interest at a
rate of LIBOR plus 1.75%, collateralized by the
Proctocort product line and associated rights..... -- -- 1,361
Note payable to a bank, due in monthly installments
of $49 through January 21, 2000 with interest at a
rate of LIBOR plus 1.75%, collateralized by the
Thalitone product line and associated rights...... -- -- 1,361
Note payable to a bank, due in monthly installments
of $139 through March 31, 2000 with interest at a
rate of LIBOR plus 1.75%, collateralized by the
Cortisporin product line and associated rights.... -- -- 4,167
Note payable to a bank, due in monthly installments
of $28 through August 1, 2000 with interest at a
rate of LIBOR plus 1.75%, collateralized by a
first deed of trust on a building................. -- -- 968
Note payable to a bank, due August 20, 2000 with
interest at a rate of LIBOR plus 1.75%,
collateralized by a first deed of trust on a
building.......................................... -- -- 2,975
Note payable to shareholder with quarterly interest
payments (interest rate of 10%) through January 1,
1999 with remaining principal due April 1, 1999,
collateralized by real estate of the Company...... -- -- 1,750
</TABLE>
F-14
<PAGE> 72
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Various capital leases with interest rates ranging
from 8.3% to 12.7% and maturing at various times
through 2002...................................... 320 1,237 1,279
Other notes payable................................. 196 68 73
------- ------- -------
11,652 18,011 30,678
Less current portion...................... 2,155 4,031 7,765
------- ------- -------
$ 9,497 $13,980 $22,913
======= ======= =======
</TABLE>
The notes payable to former owners are personally guaranteed by the
Company's Chairman of the Board and CEO.
During December 1995, a fixed rate term note payable of $17,500 to a
pharmaceutical company was retired in advance of maturity due to the sale of the
Anexsia product line. The gain associated with the retirement of the note
amounted to $800 ($528 net of taxes) and was recorded as an extraordinary gain
in the Consolidated Statements of Operations.
Certain financing arrangements of the Company require the Company to
maintain certain minimum net worth, debt to equity, cash flow and current ratio
requirements. As of September 30, 1997, the Company was in violation of the
current ratio requirements, however waivers have been obtained from the
appropriate lending institutions.
The aggregate maturities of long-term debt (including capital lease
obligations -- Note 7) at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<S> <C>
1998.................................... $ 7,470
1999.................................... 8,465
2000.................................... 6,752
2001.................................... 2,159
2002.................................... 2,305
Thereafter.............................. 2,248
-------
$29,399
=======
</TABLE>
10. LINE OF CREDIT AND SHORT-TERM DEBT
On April 30, 1996, the Company entered into a $3,500 revolving line of
credit facility with a bank. This line of credit was extended and increased to
$8,500 in September 1997. At September 30, 1997 $2,282 was outstanding under
this line of credit. At December 31, 1996 there were no borrowings outstanding
under this line of credit. The principal is due May 1999 and interest is payable
monthly at a rate of LIBOR plus 1.75%. Borrowings under the agreement are
limited to 85% of eligible accounts receivable and 60% of eligible inventory as
defined in the agreement. Collateral consists of accounts receivable, inventory,
and certain intangible assets.
The weighted average interest rate for this line of credit was 8.51% for
the nine months ended September 30, 1997.
During 1997, the Company entered into a financing arrangement to make
certain payments for machinery and equipment. As of September 30, 1997, the
Company had a demand note payable plus interest at prime plus .33% with $1,325
outstanding. The Company intends to refinance this obligation under an operating
lease (Note 14).
F-15
<PAGE> 73
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair values of financial
instruments are made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." The estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies.
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable -- The
carrying amounts of these items are a reasonable estimate of their fair values.
Long-Term Debt, Line of Credit and Short-Term Debt -- The carrying amounts
of the Company's line of credit and short-term debt approximates fair value. The
fair value of the Company's long-term debt including the current portion at
December 31, 1995 and 1996 and September 30, 1997 is estimated to be
approximately $11.1 million, $17.6 million and $30.6 million, respectively using
discounted cash flow analyses and based on the Company's incremental borrowing
rates for similar types of borrowing arrangements.
12. INCOME TAXES
The net income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- ---------------------
1994 1995 1996 1996 1997
----- ------ ----- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................................ $ 128 $2,865 $(635) $(763) $3,332
Deferred............................... (629) 2,193 528 447 (492)
----- ------ ----- ----- ------
Total (benefit) expense...... $(501) $5,058 $(107) $(316) $2,840
===== ====== ===== ===== ======
</TABLE>
A reconciliation of the difference between the federal statutory tax rate
and the effective income tax rate as a percentage of income (loss) before income
taxes and extraordinary item is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory tax rate..... (34.0)% 35.0% (34.0)% (34.0)% 34.0%
State income taxes, net of
federal benefit.............. 4.0 3.3 -- -- 4.0
Permanent differences.......... 1.0 (1.3) 2.3 .4 .6
Decrease in valuation
allowance.................... (89.3) -- -- -- --
Other.......................... (1.7) (1.9) .9 2.6 (.2)
------- ------ ------ ------ ------
Effective tax rate............. (120.0)% 35.1% (30.8)% (31.0)% 38.4%
======= ====== ====== ====== ======
</TABLE>
F-16
<PAGE> 74
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Allowance for doubtful accounts................. $ 35 $ 35 $ 35
Uniform cost capitalization..................... -- -- 36
Accrued expenses................................ 79 225 1,108
Intangible assets............................... 1,350 -- --
State net operating loss carryforward........... 65 261 431
------- ------- -------
Total deferred tax assets............. 1,529 521 1,610
------- ------- -------
Property, plant and equipment................... (4,023) (2,997) (3,825)
Miscellaneous................................... (78) (495) (264)
------- ------- -------
Total deferred tax liabilities........ (4,101) (3,492) (4,089)
------- ------- -------
Net deferred tax liability............ $(2,572) $(2,971) $(2,479)
======= ======= =======
</TABLE>
The Company's state net operating loss carryforward of approximately $13.0
million expires in 2011. Management has determined, based on both their ability
to carryback earnings to prior years and existing deferred tax liabilities, it
is more likely than not that the deferred tax assets will be realizable and no
valuation allowance has been recorded.
13. BENEFIT PLANS
The Company maintains a defined contribution employee benefit plan which
covers all employees over 21 years of age. The plan allows for employees' salary
deferrals, which are matched by the Company up to a specific amount under
provisions of the plan. The plan also provides for discretionary profit-sharing
contributions by the Company. Company contributions during the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended September 30,
1996 and 1997 were $92, $197, $278, $197, and $155, respectively.
From January 1996 through October 1996, in connection with the Company's
Employee Stock Purchase Plan adopted in January 1996, the Company offered
275,000 and sold 259,532 common shares to employees of the Company. The selling
price was $3 per share. The Plan was terminated in October 1996.
14. COMMITMENTS
As of September 30, 1997 the Company has entered into a firm commitment to
obtain financing for capital expenditures under an operating lease of
approximately $3,500 for machinery and equipment.
15. RELATED PARTY TRANSACTIONS
AFFILIATED COMPANY
The Company owned a 6% interest in a privately held, affiliated
pharmaceutical company. In 1996, the Company sold its investment for $2,052,
resulting in a gain of $1,760. The Company's share of earnings in this
affiliated company was not material and was included in other income in the
consolidated statement of operations.
In connection with the Company's initial acquisition in 1993, 10,000 shares
of Preferred 8% Cumulative Stock were issued to the affiliated company for $100.
The shares were redeemed by the Company at the issue price during 1995.
F-17
<PAGE> 75
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE UNITED COMPANY
In connection with its purchase of Cortisporin in 1997, the Company
received $8,750 from The United Company for 3,047,355 common shares. The common
share purchase agreement states that if the Company has not effected a public
offering by April 1, 1999 or has not achieved certain forecasted results, The
United Company can redeem the shares at an aggregate redemption price of $8,750
plus 10% interest per year from the date of the issuance of the shares or an
equivalent amount of convertible debt.
OTHER
Certain management and employees of the Company sit on the board of
directors of a private foundation. The Company made contributions to this
foundation and expensed approximately $52, $417, $245, $233, and $108 for the
years ended December 31, 1994, 1995 and 1996 and the nine months ended September
30, 1996 and 1997, respectively. At December 31, 1995 and 1996 and September 30,
1997, the Company had receivables from this foundation of approximately $678,
$677, and $1,139, respectively, for advances made by the Company on their
behalf. The receivables are collateralized by common shares of the Company held
by the foundation and are included in shareholders' equity.
On October 1, 1997 the Company appointed a new member to its' Board of
Directors. For the nine months ended September 30, 1997, the Company paid $743
and $58 to this director's company for assistance in raising capital for the
Cortisporin product line acquisition and consulting services, respectively.
In 1996, the Company issued 699,711 common shares which were financed by
notes receivable of approximately $2,100 from shareholders and members of
management. At December 31, 1996, the Company had notes receivable outstanding
of $2,093. As of August 5, 1997 these notes were paid in full.
The Company paid a certain shareholder $180 and $160 for consulting fees
during the years ended December 31, 1995 and 1996, respectively.
During 1995, the Company paid $70 to the members of its Board of Directors.
In December 1994, a shareholder of the Company contributed $800 of cash in
exchange for 40,000 shares of Series B Preferred Stock. The Series B Preferred
Stock was converted into 400,000 common shares during 1995.
16. STOCK DIVIDEND
The Company paid a 15% stock dividend on all common shares issued and
outstanding as of November 1, 1996. Common shares of 906,883 were distributed.
The dividend was charged to retained earnings in the amount of $2,585, which was
based on a recent common share purchase price of $3 per share. The weighted
average shares and all per share amounts included in the accompanying
consolidated financial statements and notes are based on the increased number of
shares giving retroactive effect to the stock dividend.
17. SUBSEQUENT EVENTS
Product Acquisition: On October 6, 1997, the Company signed letters of
intent to acquire the pharmaceutical rights, interest and title in the United
States to certain product lines. The purchase price is expected to approximate a
total of $23 million. The Company is currently pursuing additional financing to
fund this acquisition.
F-18
<PAGE> 76
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Initial Public Offering: The Company intends to file a Registration
Statement with the Securities and Exchange Commission for an initial public
offering (the "Offering") of 6,000,000 common shares. The Company's Offering is
scheduled for closing on or before December 15, 1997.
On October 15, 1997, the Board approved the following matters to be voted
upon and/or effective at The Company's Annual Meeting of the Shareholders on
November 14, 1997.
- The authorization of a new class of preferred shares, with preference
terms and rights to be determined by the Board of Directors.
- An amendment to the Company's Articles of Incorporation to increase the
number of authorized common shares from 10 million shares of no par value
to 150 million shares of no par value.
- A stock split of 2.8 common shares for each share of the Company's common
shares outstanding. The stock split has been reflected in the average
shares outstanding, shares outstanding and income (loss) per share amounts
in the balance sheets, statements of operations and changes in
shareholders' equity. All other per share information included in the
footnotes do not reflect the affect of the stock split.
- A dividend of one preferred share purchase right (a "Right") for each
common share outstanding. Such rights entitle the registered holder under
certain circumstances to purchase from the Company one-thousandth of a
share of a newly created series of the Company's preferred shares, at a
price of $60 per one-thousandth shares of Preferred Stock, subject to
adjustment.
- A stock-option plan (the "Plan") for employees of the Company. The
aggregate number of shares which may be issued under the Plan shall not
exceed 3,500,000. The vesting of incentive stock options and nonqualified
stock options will be determined by the Board on an individual basis. The
Company plans to account for stock option grants to employees under the
intrinsic method, which does not result in compensation expense when the
option price is equal to the fair value of the shares at the date of
grant.
F-19
<PAGE> 77
CORTISPORIN PRODUCT LINE
STATEMENT OF GROSS PROFIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
F-20
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Glaxo Wellcome, Inc. and King Pharmaceuticals, Inc.:
We have audited the accompanying Statement of Gross Profit of the
Cortisporin Product Line of Glaxo Wellcome Inc. ("Glaxo Wellcome") for the years
ended December 31, 1995 and 1996. The Statement of Gross Profit is the
responsibility of Glaxo Wellcome management. Our responsibility is to express an
opinion on this special purpose statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Gross Profit is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement of Gross Profit. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Statement of Gross Profit. We believe that our audit provides a reasonable
basis for our opinion.
The operations covered by the Statement of Gross Profit referred to above
have no separate legal status or existence. The accompanying statement was
prepared as described in Note 1 to present the Cortisporin Product Line and is
not intended to be a complete presentation of the Cortisporin Product Line.
Accordingly, the resulting statement is not necessarily indicative of the costs
and expenses that would have resulted if the Cortisporin Product Lines had been
operated as a separate entity.
In our opinion, the statement referred to above presents fairly, in all
material respects, the Statement of Gross Profit of the Cortisporin Product Line
for the years ended December 31, 1995 and 1996 in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
October 20, 1997
F-21
<PAGE> 79
CORTISPORIN PRODUCT LINE
STATEMENT OF GROSS PROFIT
(NOTE 1)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $14,083 $11,562
Cost of sales............................................... 2,376 1,445
------- -------
Gross profit...................................... $11,707 $10,117
======= =======
</TABLE>
The accompanying notes are an integral part of
the Statement of Gross Profit
F-22
<PAGE> 80
CORTISPORIN PRODUCT LINE
NOTES TO THE FINANCIAL STATEMENT
1. OWNERSHIP/BASIS OF PRESENTATION
The Cortisporin Product Line includes all rights, title and interest of
seven products within the United States. Effective March 21, 1997 Glaxo Wellcome
Inc. ("Glaxo Wellcome") sold the rights, title and interest of this Product Line
to Monarch Pharmaceuticals, Inc. ("Monarch"), a subsidiary of King
Pharmaceuticals Inc. Glaxo Wellcome continued to manufacture these products
until July 1997, at which point the facility was sold and Monarch was able to
negotiate an agreement with the buyer for which Monarch is charged an agreed
upon contractual amount.
Historically, financial statements were not prepared for the Cortisporin
Product Lines. These statements have been developed from the historical
accounting records of Glaxo Wellcome. All of estimates in the financial
statements, as described in Note 2, are based on the assumptions that Glaxo
Wellcome management believes are reasonable. However, these estimates are not
necessarily indicative of the net sales and costs that would have resulted if
the Cortisporin Product Line had been operated as a separate entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME RECOGNITION
Sales and related cost of sales are included in income when goods are
shipped to the customer.
NET SALES
Net sales include the sales price, net of allowances specifically
identified by product, less an allocation of Glaxo Wellcome's returns and
chargebacks and other miscellaneous sales adjustments based on sales of the
Cortisporin Product Line to total sales of Glaxo Wellcome.
COST OF GOODS SOLD
Elements in cost of sales include raw materials, direct labor and plant
overhead. Certain of these costs are specifically identifiable to specific
brands, and the remaining costs are allocated based on sales for business
relative to total sales for Glaxo Wellcome.
Inventory from period to period was determined using the first-in,
first-out (FIFO) method of valuation.
Depreciation of plant facilities is computed using the straight-line method
based on estimated useful lives ranging from 5 to 40 years.
3. SIGNIFICANT CUSTOMER
Net sales to 4 customers represented approximately 56% and 57% of net sales
in 1995 and 1996, respectively.
4. ESTIMATES
The preparation of the financial statement of Gross Profit in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect certain reported amounts of gross profit
for the years ended December 31, 1995 and 1996. Actual results could differ from
those estimates.
F-23
<PAGE> 81
PRO FORMA FINANCIAL STATEMENTS
The following Pro Forma Financial Statements of Operations have been
prepared to give effect to the acquisition ("Cortisporin Acquisition") of the
Cortisporin product line ("Cortisporin Product Line") as if such acquisition had
occurred January 1, 1996. A pro forma balance sheet as of September 30, 1997 is
not presented because the Cortisporin Acquisition is reflected in the September
30, 1997 historical balance sheet of King Pharmaceuticals, Inc. (the "Company")
included elsewhere in this Prospectus.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. Pro forma adjustments are
applied to the historical combined financial statements of the Company and the
Cortisporin Product Line to account for the Cortisporin Acquisition under the
purchase method of accounting. Under purchase accounting, the total purchase
cost will be allocated to the assets and liabilities acquired and assumed,
respectively, based on their relative fair value. The entire purchase price of
$22.8 million was allocated to intangible assets since no tangible assets were
purchased.
The Pro Forma Financial Statements should be read in conjunction with the
Company's historical Consolidated Financial Statements and related Notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations and other Financial information included elsewhere in this
Prospectus. The Pro Forma Financial Statements and related notes are provided
for information purposes only and do not purport to be indicative of the results
which would have actually been obtained had the Cortisporin Acquisition been
completed on the dates indicated or which may be expected to occur in the
future.
F-24
<PAGE> 82
KING PHARMACEUTICALS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORTISPORIN
PRODUCT LINE
THE COMPANY FOR THE FISCAL
FOR THE YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA
1996 1996 ADJUSTMENTS PRO FORMA
------------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues, net........... $ 20,457 $11,562 $ -- $ 32,019
Cost of sales................. 8,782 1,445 -- 10,227
---------- ------- ------- ----------
Gross profit........ 11,675 10,117 -- 21,792
Selling, general and
administrative.............. (12,106) -- (5,550)(1) (17,656)
Depreciation and
amortization................ (982) -- (948)(2) (1,930)
---------- ------- ------- ----------
Operating income (loss)....... (1,413) 10,117 (6,498) 2,206
Gain on sale of investment in
affiliate................... 1,760 -- -- 1,760
OTHER (EXPENSES) INCOME:
Interest expense.............. (1,272) -- (1,109)(3) (2,381)
Other income, net............. 578 -- -- 578
---------- ------- ------- ----------
Income (loss) before income
taxes....................... (347) 10,117 (7,607) 2,163
Income tax (benefit)
expense..................... (107) -- 773(4) 666
---------- ------- ------- ----------
Net income (loss)............. $ (240) $10,117 $(8,380) $ 1,497
========== ======= ======= ==========
Net income (loss) per common
and common stock
equivalents................. $ (.02) $ .11
========== ==========
Weighted average number of
common and common stock
equivalents................. 13,630,813 13,630,813
========== ==========
</TABLE>
See Notes to Pro Forma Statements of Operations
F-25
<PAGE> 83
KING PHARMACEUTICALS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORTISPORIN
PRODUCT LINE
THE COMPANY JANUARY 1, 1997
FOR THE YEAR ENDED THROUGH PRO FORMA
SEPTEMBER 30, 1997 MARCH 20, 1997 ADJUSTMENTS PRO FORMA
------------------ --------------- ----------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues, net.......... $ 33,817 $4,262 $ -- $ 38,079
Cost of sales................ 9,538 1,699 -- 11,237
---------- ------ ------- ----------
Gross profit....... 24,279 2,563 -- 26,842
Selling, general and
administrative............. (13,734) -- (1,390)(1) (15,124)
Depreciation and
amortization............... (1,631) -- (237)(2) (1,868)
---------- ------ ------- ----------
Operating income (loss)...... 8,914 2,563 (1,627) 9,850
OTHER (EXPENSES) INCOME:
Interest expense............. (1,730) -- (270)(3) (2,000)
Other income, net............ 211 -- -- 211
---------- ------ ------- ----------
Income (loss) before income
taxes...................... 7,395 2,563 (1,897) 8,061
Income tax (benefit)
expense.................... 2,840 -- 255(4) 3,095
---------- ------ ------- ----------
Net income (loss)............ $ 4,555 $2,563 $(2,152) $ 4,966
========== ====== ======= ==========
Net income (loss) per common
and common stock
equivalents................ $ .18 $ .19
========== ==========
Weighted average number of
common and common stock
equivalents................ 25,655,881 25,655,881
========== ==========
</TABLE>
See Notes to Pro Forma Statements of Operations
F-26
<PAGE> 84
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(1) The prior owners of the Cortisporin Product Line did not directly
allocate selling, general and administrative, including distribution costs,
expenses to the Cortisporin Product Line. Selling, general and administrative
expenses resulting from the Cortisporin Product Line are estimated to be $5,550
and $1,390 for the year ended December 31, 1996 and the period January 1, 1997
through March 20, 1997, respectively.
(2) Includes amortization of intangible assets over 25 years resulting from
the Cortisporin Acquisition.
(3) Assumes the additional interest costs on approximately $14.0 million of
additional indebtedness, from several lending institutions, incurred on the
Cortisporin Acquisition at estimated interest rates ranging from 7.25% to 10.0%.
(4) Assumes the effective tax rate of 30.8% and 38.4% in for the year ended
December 31, 1996 and the nine months ended September 30 1997, respectively.
F-27
<PAGE> 85
Photo inside back cover top center: pharmaceutical laboratory with lab
technicians performing various functions.
AN EXPERIENCED PRODUCT DEVELOPMENT TEAM
The Company's laboratories and experienced product development scientists focus
on product line extensions to existing branded products. The Company has filed a
number of abbreviated new drug applications with the FDA, several of which have
been approved.
<PAGE> 86
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER, OR ANY
OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, STOCK TO ANY PERSON IN ANY JURISDICTION WHERE
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 7
Cautionary Statement Regarding
Forward-Looking Statements.......... 7
The Company...........................
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 28
Management............................ 38
Certain Transactions.................. 43
Principal and Selling Shareholders.... 44
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 50
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 52
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 57
Additional Information................ 57
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
8,200,000 SHARES
[KING PHARMACEUTICALS]
COMMON STOCK
-------------------------
PROSPECTUS
, 1997
-------------------------
LEHMAN BROTHERS
CREDIT SUISSE
FIRST BOSTON
HAMBRECHT & QUIST
======================================================
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 54,364
NASD Filing Fee............................................. 18,440
Nasdaq National Market Listing Fee.......................... 1,000
Transfer Agent's Fee........................................ 15,000
Blue Sky Fees and Expenses.................................. 10,000
Printing and Engraving...................................... 125,000
Accounting Fees and Expenses................................ 175,000
Legal Fees and Expenses..................................... 150,000
Advisor Fees................................................ 1,260,000
Miscellaneous............................................... 16,196
----------
Total....................................................... $1,825,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Tennessee Code Annotated Sections 48-18-501 through 48-18-509 authorize a
corporation to provide for the indemnification of officers, directors, employees
and agents in terms sufficiently broad to permit indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended. The Company has adopted
the provisions of the Tennessee statute pursuant to Paragraph 9 of its Amended
and Restated Charter. Also, the Company will have upon consummation of the
offering a "Directors' and Officers' Liability Insurance Policy" which provides
coverage sufficiently broad to permit indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information reflects sales by the Company of unregistered
securities within the past three years. Share amounts and designations have been
adjusted for the stock split effected October 1997. The issuance by the Company
of the securities sold in the transactions referenced below were not registered
under the Securities Act of 1933, pursuant to the exemption contemplated in
Section 4(2) thereof, for transactions not involving a public offering. The
consideration paid to the Company in respect of each issuance was cash, unless
otherwise indicated.
In November 1994, an aggregate of 7,448,000 shares of the Company's Common
Stock was issued to Randall J. Kirk, Jefferson J. Gregory, C.B.B., L.L.C., A.
Willard Lester, John M. Gregory and Joseph R. Gregory in exchange for 76,000
shares of General Injectables and Vaccines, Inc. These securities were issued
pursuant to the exemption available under Section 4(2) of the Securities Act of
1933 (the "1933 Act").
In October 1995, an aggregate of approximately 1.1 million shares of the
Company's Common Stock was issued to John M. Gregory in exchange for 40,000
shares of the Company's Preferred Stock originally purchased for $800,000.00.
These securities were issued pursuant to the exemption available under Section
4(2) of the 1933 Act.
From January through October 1996, an aggregate of approximately 727,000
shares of the Company's Common Stock was issued to approximately 200 employees
of the Company under the Company's Employee Stock Purchase Plan. All such shares
were issued for $1.07 cash per share. These securities were issued pursuant to
the exemption available under Section 4(2) of the 1933 Act.
II-1
<PAGE> 88
In December 1996, the Company issued an additional approximately 2,500,000
shares of its Common Stock pursuant to a 15.0% stock dividend. These securities
were issued pursuant to the exemption available under Section 4(2) of the 1933
Act.
In October 1996, certain members of management and other existing
shareholders purchased approximately 3.9 million shares of the Company's Common
Stock for a purchase price of $1.07 per share. These securities were issued
pursuant to the exemption available under Section 4(2) of the 1933 Act.
In March 1997, 8,532,594 shares of the Company's Common Stock were issued
to The United Company in exchange for $8,750,000 in cash ($1.03 per share).
These securities were issued pursuant to the exemption available under Section
4(2) of the 1933 Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
*1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Charter of King Pharmaceuticals, Inc.
3.1(a) -- Proposed Second Amended and Restated Charter of King
Pharmaceuticals, Inc.
3.2 -- Bylaws of King Pharmaceuticals, Inc., as amended.
3.2(a) -- Proposed Amended and Restated Bylaws of King
Pharmaceuticals, Inc.
4.1 -- Specimen Common Stock Certificate.
4.2 -- Form of Rights Agreement by and between King
Pharmaceuticals, Inc. and Union Planters National Bank.
5.1 -- Form of Opinion of Baker, Donelson, Bearman & Caldwell, P.C.
10.1 -- Promissory Note between RSR Acquisition Corporation
(predecessor to King Pharmaceuticals, Inc.) and RSR
Laboratories, Inc., dated December 28, 1993, in the amount
of $3,500,000.
10.2 -- Promissory Note between King Pharmaceuticals, Inc., and
General Injectables and Vaccines, Inc., dated October 6,
1994, in the amount of $4,700,000.
10.3 -- Loan Agreement between King Pharmaceuticals, Inc., and First
Tennessee Bank National Association, dated April 30, 1996;
associated Master Note in the amount of $3,500,000;
associated Promissory Note in the amount of $2,500,000.
10.4 -- Promissory Note between Monarch Pharmaceuticals, Inc. and
Roberts Laboratories, Inc., dated October 2, 1996, in the
amount of $5,500,000.
10.5 -- Loan Agreement by and among Monarch Pharmaceuticals, Inc.,
King Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated January 21, 1997; associated
Promissory Note in the amount of $1,750,000.
10.6 -- Loan Agreement by and among Monarch Pharmaceuticals, Inc.,
King Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated January 29, 1997; associated
Promissory Note in the amount of $1,750,000.
10.7 -- Promissory Note between King Pharmaceuticals, Inc., and
Signet Bank in the amount of $1,500,000, dated March 19,
1997.
10.8 -- Promissory Note between King Pharmaceuticals, Inc., and The
United Company, dated March 17, 1997, in the amount of
$1,750,000.
10.9 -- Loan Agreement by and among Monarch Pharmaceuticals, Inc.,
King Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated March 20, 1997; associated
Promissory Note in the amount of $5,000,000.
10.10 -- Loan and Security Agreement by and between King
Pharmaceuticals, Inc. and First American National Bank,
dated August 21; associated Revolving Credit Note in the
principal amount of $2,975,000; and associated Term
Promissory Note in the principal amount of $1,025,000.
</TABLE>
II-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.11 -- Loan Agreement by and among King Pharmaceuticals, Inc.,
Monarch Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated September 10, 1997; associated
Promissory Note in the amount of $8,500,000.
10.12 -- Asset Purchase Agreement by and among King Pharmaceuticals,
Inc., King Pharmaceuticals of Nevada, Inc. and Mallinckrodt
Chemical, Inc. for the disposition of the Anexsia Product
Line, dated December 13, 1995.
10.13 -- Agreement between King Pharmaceuticals, Inc. and Ernest C.
Bourne dated July 30, 1997.
10.14 -- 1997 Incentive and Nonqualified Stock Option Plan for
Employees of King Pharmaceuticals, Inc.
11.1 -- Statement regarding Computation of Per Share Earnings
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Baker, Donelson, Bearman & Caldwell, P.C.
(included as Exhibit 5.1)
23.2 -- Consent of Coopers & Lybrand, L.L.P.
24.1 -- Powers of Attorney (included on the signature page of this
Registration Statement).
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------------------
* To be filed by amendment.
(b) Financial Statement Schedules -- Not applicable
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant for expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(iii) It will provide to the underwriters at the closing(s) specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-3
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Bristol,
State of Tennessee on October , 1997.
KING PHARMACEUTICALS, INC.
By: /s/
------------------------------------
John M. Gregory,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitute and appoints John M. Gregory or Joseph R. Gregory, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Chairman of the Board and October 24, 1997
- ----------------------------------------------------- Chief Executive Officer
John M. Gregory (principal executive
officer)
/s/ Chief Financial Officer October 24, 1997
- ----------------------------------------------------- (principal financial and
Brian G. Shrader accounting officer)
/s/ Director October 24, 1997
- -----------------------------------------------------
Joseph R. Gregory
/s/ Director October 24, 1997
- -----------------------------------------------------
Jefferson J. Gregory
/s/ Director October 24, 1997
- -----------------------------------------------------
Ernest C. Bourne
/s/ Director October 24, 1997
- -----------------------------------------------------
Lois A. Clarke
Director October , 1997
- -----------------------------------------------------
Greg Rooker
/s/ Director October 24, 1997
- -----------------------------------------------------
Ted G. Wood
</TABLE>
II-4
<PAGE> 91
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
*1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Charter of King Pharmaceuticals, Inc.
3.1(a) -- Proposed Second Amended and Restated Charter of King
Pharmaceuticals, Inc.
3.2 -- Bylaws of King Pharmaceuticals, Inc., as amended.
3.2(a) -- Proposed Amended and Restated Bylaws of King
Pharmaceuticals, Inc.
4.1 -- Specimen Common Stock Certificate.
4.2 -- Form of Rights Agreement by and between King
Pharmaceuticals, Inc. and Union Planters National Bank.
5.1 -- Form of Opinion of Baker, Donelson, Bearman & Caldwell, P.C.
10.1 -- Promissory Note between RSR Acquisition Corporation
(predecessor to King Pharmaceuticals, Inc.) and RSR
Laboratories, Inc., dated December 28, 1993, in the amount
of $3,500,000.
10.2 -- Promissory Note between King Pharmaceuticals, Inc., and
General Injectables and Vaccines, Inc., dated October 6,
1994, in the amount of $4,700,000.
10.3 -- Loan Agreement between King Pharmaceuticals, Inc., and First
Tennessee Bank National Association, dated April 30, 1996;
associated Master Note in the amount of $3,500,000;
associated Promissory Note in the amount of $2,500,000.
10.4 -- Promissory Note between Monarch Pharmaceuticals, Inc. and
Roberts Laboratories, Inc., dated October 2, 1996, in the
amount of $5,500,000.
10.5 -- Loan Agreement by and among Monarch Pharmaceuticals, Inc.,
King Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated January 21, 1997; associated
Promissory Note in the amount of $1,750,000.
10.6 -- Loan Agreement by and among Monarch Pharmaceuticals, Inc.,
King Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated January 29, 1997; associated
Promissory Note in the amount of $1,750,000.
10.7 -- Promissory Note between King Pharmaceuticals, Inc., and
Signet Bank in the amount of $1,500,000, dated March 19,
1997.
10.8 -- Promissory Note between King Pharmaceuticals, Inc., and The
United Company, dated March 17, 1997, in the amount of
$1,750,000.
10.9 -- Loan Agreement by and among Monarch Pharmaceuticals, Inc.,
King Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated March 20, 1997; associated
Promissory Note in the amount of $5,000,000.
10.10 -- Loan and Security Agreement by and between King
Pharmaceuticals, Inc. and First American National Bank,
dated August 21; associated Revolving Credit Note in the
principal amount of $2,975,000; and associated Term
Promissory Note in the principal amount of $1,025,000.
10.11 -- Loan Agreement by and among King Pharmaceuticals, Inc.,
Monarch Pharmaceuticals, Inc., and First Tennessee Bank
National Association, dated September 10, 1997; associated
Promissory Note in the amount of $8,500,000.
10.12 -- Asset Purchase Agreement by and among King Pharmaceuticals,
Inc., King Pharmaceuticals of Nevada, Inc. and Mallinckrodt
Chemical, Inc. for the disposition of the Anexsia Product
Line, dated December 13, 1995.
10.13 -- Agreement between King Pharmaceuticals, Inc. and Ernest C.
Bourne dated July 30, 1997.
10.14 -- 1997 Incentive and Nonqualified Stock Option Plan for
Employees of King Pharmaceuticals, Inc.
11.1 -- Statement regarding Computation of Per Share Earnings
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Baker, Donelson, Bearman & Caldwell, P.C.
(included as Exhibit 5.1)
23.2 -- Consent of Coopers & Lybrand, L.L.P.
24.1 -- Powers of Attorney (included on the signature page of this
Registration Statement).
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
STATE OF TENNESSEE
* * * * *
AMENDED AND RESTATED CHARTER OF
KING PHARMACEUTICALS, INC.
Pursuant to the provisions of Section 48-20-107 of the Tennessee
Business Corporation Act, Tennessee Code Annotated, the undersigned Corporation
hereby adopts the following Amended and Restated Charter:
1. Name. The name of the Corporation (previously known as "RSR
Acquisition Corp.") is:
KING PHARMACEUTICALS, INC.
2. Authorized Shares. The Corporation is authorized to issue 10,000,000
shares of common stock, having no par value, which shares shall have unlimited
voting rights and full and equal rights to share in the profits of the
Corporation and its net assets upon dissolution.
3. Registered Office. The address of the Corporation's registered
office in the State of Tennessee shall be:
501 Fifth Street
Bristol, Tennessee 37620
Sullivan County
4. Registered Agent. The name of the registered agent at that office is
John A.A. Bellamy.
1
<PAGE> 2
5. Principal Office. The address of the principal office of the
Corporation is:
501 Fifth Street
Bristol, Tennessee 37620
Sullivan County
6. Incorporator. The name and address of the original incorporator
was:
Kenneth D. Hale
c/o Penn, Stuart, Eskridge & Jones
306 Piedmont Avenue
Post Office Box 2009
Bristol, Virginia 24203
7. For Profit; Duration. The Corporation is for profit and its
duration shall be perpetual.
8. Director Liability. No director of the Corporation shall have or
owe any personal liability to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director; provided, that such
provision shall not eliminate or limit the liability of a director:
a. For any breach of the director's duty of loyalty to the
Corporation or its Shareholders;
b. For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
c. Under Tennessee Code Annotated ss.48-18-304.
9. Indemnification. Each director, officer, and employee of the
Corporation shall be entitled to all indemnification rights and protections now
or hereafter available under applicable Tennessee law.
10. These amendments were adopted on the 11th day of October, 1996.
2
<PAGE> 3
11. These amendments shall be effective as of the filing of this
Amended and Restated Charter.
12. This restatement does not contain an amendment requiring
shareholder approval and these amendments were duly adopted by the unanimous
approval of the Board of Directors of the Corporation.
The undersigned submits this Amended and Restated Charter of King
Pharmaceuticals, Inc. to the State of Tennessee with the rights, powers and
privileges herein declared.
Dated: October 11, 1996.
KING PHARMACEUTICALS, INC.
By:/s/ John A. A. Bellamy
---------------------------------------
Title: Vice President and General Counsel
------------------------------------
3
<PAGE> 4
CERTIFICATE OF AMENDED AND RESTATED CHARTER
Pursuant to the provisions of Tennessee Code Annotated ss.48-20-107,
the undersigned, does hereby submit the attached Amended and Restated Charter of
King Pharmaceuticals, Inc. (the "Corporation") for filing on behalf of the
Corporation and does hereby certify as follows:
1. The name of the Corporation (previously known as RSR Acquisition
Corp.) is: KING PHARMACEUTICALS, INC.
2. The Amended and Restated Charter contains amendments to the Charter
which do not require shareholder approval. The Amended and Restated Charter
amends the Charter by deleting Article 2 in its entirety and substituting in
lieu thereof the following:
2. Authorized Shares. The Corporation is authorized to issue
10,000,000 shares of common stock, having no par value, which shares
shall have unlimited voting rights and full and equal rights to share
in the profits of the Corporation and its net assets upon dissolution.
3. The Amended and Restated Charter further amends the Charter by
adding new Articles 8 and 9 as follows:
8. Director Liability. No director of the Corporation shall
have or owe any personal liability to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a
director; provided, that such provision shall not eliminate or limit
the liability of a director:
a. For any breach of the director's duty of loyalty to the
Corporation or its Shareholders;
b. For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
c. Under Tennessee Code Annotated ss.48-18-304.
9. Indemnification. Each director, officer, and employee of
the Corporation shall be entitled to all indemnification rights and
protections now or hereafter available under applicable Tennessee law.
4
<PAGE> 5
4. The Amendments were duly adopted by the Board of Directors of the
Corporation at a duly called meeting held on October 11, 1996.
KING PHARMACEUTICALS, INC.
By: /s/ John M. Gregory
----------------------------------
Title: Chairman of the Board
-------------------------------
5
<PAGE> 1
EXHIBIT 3.1(a)
STATE OF TENNESSEE
* * * * *
SECOND AMENDED AND RESTATED CHARTER OF
KING PHARMACEUTICALS, INC.
Pursuant to the provisions of Section 48-20-107 of the Tennessee
Business Corporation Act, Tennessee Code Annotated, the undersigned Corporation
hereby adopts the following Second Amended and Restated Charter:
1. Name. The name of the Corporation is: KING PHARMACEUTICALS, INC.
2. Authorized Shares. (a)The total number of shares of common stock
that the Corporation shall have authority to issue is 150,000,000, no par value
(the "Common Stock"). The total number of shares of preferred stock that the
Corporation shall have authority to issue is 15,000,000, no par value per share
(the "Preferred Stock").
(b) The common Stock shall rank junior to the Preferred Stock in right
of payment of dividends and upon liquidation and is subject to all the powers,
rights, privileges, preferences and priorities of the Preferred Stock as
provided herein or in any resolutions or resolutions or adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of
subparagraph (c) of this Paragraph 2.
(c) Authority is hereby expressly vested in the Board of Directors of
the Corporation, subject to the provisions of this Paragraph 2 and to the
limitations prescribed by law, to authorize the issuance from time to time of
one or more series of Preferred Stock. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the directors then in
office:
(i) The designation of such series;
(ii) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes or series of the
Corporation's capital stock, and whether such dividends shall be cumulative or
noncumulative;
(iii) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other corporation by
the Corporation, or upon the happening of a specified event, and, if made
subject to any such redemption, the times or events, prices, rates, adjustments
and other terms and conditions of such redemptions;
<PAGE> 2
(iv) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(v) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the Corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series of the same or any other class or classes of the
Corporation's capital stock, and, if provision be made for conversion or
exchange, the times or events, prices, rates, adjustments and other terms and
conditions of such conversions or exchanges;
(vi) The restrictions, if any, on the issue or reissue of any
additional series of Preferred Stock;
(vii) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(viii) The provisions as to voting, optional and/or other
special rights and preferences, if any, including, without limitation, the right
to elect one or more directors.
3. Registered Office. The address of the Corporation's registered
office in the State of Tennessee shall be 501 Fifth Street, Bristol, Tennessee
37620, Sullivan County.
4. Registered Agent. The name of the registered agent at that office is
John A.A. Bellamy.
5. Principal Office. The address of the principal office of the
Corporation is 501 Fifth Street, Bristol, Tennessee 37620, Sullivan County.
6. Board of Directors. The number of directors shall be fixed by
resolution of the Board of Directors. The directors of the Corporation shall be
divided into three classes: Class I, Class II and Class III. Membership in such
classes shall be as nearly equal in number as possible. The term of office of
the initial Class I directors shall expire at the annual election of directors
by shareholders of the Corporation in 1998, the term of office of the initial
Class II directors shall expire at the annual election of directors by
shareholders of the Corporation in 1999, the term of office of the initial
Class III directors shall expire at the annual election of directors by
shareholders of the Corporation in 2000, or thereafter when their respective
successors in each case are elected by the shareholders and qualified, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office with or without cause. At each succeeding annual election of
directors by the shareholders of the Corporation beginning in 1997, the
directors chosen to succeed those whose terms then expire shall be identified
as being of the same class as the directors they succeed and shall be elected
for a term expiring at the third succeeding annual election of directors by the
shareholders of the Corporation, or thereafter when their respective successors
in each case are elected by the shareholders and qualified. If the number of
directors is changed, any increase or decrease shall be
<PAGE> 3
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director.
7. For Profit; Duration. The Corporation is for profit and its duration
shall be perpetual.
8. Director Liability. No director of the Corporation shall have or owe
any personal liability to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director; provided, that such
provision shall not eliminate or limit the liability of a director:
a. For any breach of the director's duty of loyalty to the
Corporation or its shareholders;
b. For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
c. Under Tennessee Code Annotated Section 48-18-304, as such
provision may be amended from time to time.
9. Indemnification. Each director, officer, and employee of the
Corporation shall be entitled to all indemnification rights and protections now
or hereafter available under applicable Tennessee law.
10. Section 6 and this Section 10 of this Second Amended and Restated
Charter and Sections 2 and 6 of Article I and Section 3 of Article II of the
Amended and Restated Bylaws of the Corporation shall not be altered, amended or
repealed by, and no provision inconsistent therewith shall be adopted by, the
shareholders without the affirmative vote of the holders of at least 80% of the
Common Stock, voting together as a single class.
11. These amendments shall be effective as of the filing of this Second
Amended and Restated Charter.
12. This restatement contains amendments requiring shareholder approval
and these amendments were duly adopted by the shareholders at a meeting duly
called on the 14th day of November, 1997.
<PAGE> 4
The undersigned submits this Second Amended and Restated Charter of
King Pharmaceuticals, Inc., to the State of Tennessee with the right, powers and
privileges herein declared.
Dated: November 14, 1997
KING PHARMACEUTICALS, INC.
By:
-----------------------------------------
John A. A. Bellamy
Executive Vice President and General
Counsel
<PAGE> 5
CERTIFICATE OF AMENDED AND RESTATED CHARTER
Pursuant to the provisions of Tennessee Code Annotated ss.48-20-107,
the undersigned, does hereby submit the attached Second Amended and Restated
Charter of King Pharmaceuticals, Inc. (the "Corporation") for filing on behalf
of the Corporation and does hereby certify as follows:
1. The name of the Corporation is: KING PHARMACEUTICALS, INC.
2. The Second Amended and Restated Charter contains amendments to the
Charter which were approved by the shareholders of the Corporation at a duly
called meeting on November 14, 1997. The Second Amended and Restated Charter
amends the Charter by deleting Article 2 in its entirety and substituting in
lieu thereof the following:
2. Authorized Shares. (a)The total number of shares of common
stock that the Corporation shall have authority to issue is
150,000,000, no par value (the "Common Stock"). The total number of
shares of preferred stock that the Corporation shall have authority to
issue is 15,000,000, no par value per share (the "Preferred Stock").
(b) The Common Stock shall rank junior to the Preferred Stock
in right of payment of dividends and upon liquidation and is subject to
al the powers, rights, privileges, preferences and priorities of the
Preferred Stock as provided herein or in any resolutions or resolutions
or adopted by the board of directors pursuant to authority expressly
vested in it by the provisions of subparagraph (c) of this Paragraph 2.
(c) Authority is hereby expressly vested in the board of
directors of the Corporation, subject to the provisions of this
Paragraph 2 and to the limitations prescribed by law, to authorize the
issuance from time to time of one or more series of Preferred Stock.
The authority of the board of directors with respect to each series
shall include, but not be limited to, the determination or fixing of
the following by resolution or resolutions adopted by the affirmative
vote of a majority of the total number of the directors then in office:
(i) The designation of such series;
(ii) The dividend rate of such series, the conditions and
dates upon which such dividends shall be payable, the relation which
such dividends shall bar to the dividends payable on any other class or
classes or series of the Corporation's capital stock, and whether such
dividends shall be cumulative or noncumulative;
(iii) Whether the shares of such series shall be subject to
redemption for cash, property or rights, including securities of any
other corporation, by the Corporation, or upon
<PAGE> 6
the happening of a specified event, and, if made subject to any such
redemption, the times or events, prices, rates, adjustments and other
terms and conditions of such redemptions;
(iv) The terms and amount of any sinking fund provided for
the purchase or redemption of the shares of such series;
(v) Whether or not the shares of such series shall be
convertible into, or exchangeable for, at the option of either the
holder or the corporation or upon the happening of a specified event,
shares of any other class or classes or of any other series of the same
or any other class or classes of the corporation's capital stock, and,
if provision be made for conversion or exchange, the times or events,
prices, rates, adjustments and other terms and conditions of such
conversions or exchanges;
(vi) The restrictions, if any, on the issue or reissue of
any additional Preferred Stock;
(vii) The rights of the holders of the shares of such series
upon the voluntary or involuntary liquidation, dissolution or winding
up of the corporation; and
(viii) The provisions as to voting, optional and/or other
special rights and preferences, if any, including, without limitation,
the right to elect one or more directors.
3. The Second Amended and Restated Charter further amends the Charter
by adding the following:
6. Board of Directors. The number of directors shall be fixed
by resolution of the Board of Directors. The directors of the
Corporation shall be divided into three classes: Class I, Class II and
Class III. Membership in such classes shall be as nearly equal in
number as possible. The term of office of the initial Class I directors
shall expire at the annual election of directors by shareholders of the
Corporation in 1998, the term of office of the initial Class II
directors shall expire at the annual election of directors by
shareholders of the Corporation in 1999, the term of office of the
initial Class III directors shall expire at the annual election of
directors by shareholders of the Corporation in 2000, or thereafter
when their respective successors in each case are elected by the
shareholders and qualified, subject, however, to prior death,
resignation, retirement, disqualification or removal from office with
or without cause. At each succeeding annual election of directors by
the shareholders of the Corporation beginning in 1997, the directors
chosen to succeed those whose terms then expire shall be identified as
being of the same class as the directors they succeed and shall be
elected for a term expiring at the third succeeding annual election of
directors by the shareholders of the Corporation, or thereafter when
their respective successors in each case are elected by the
shareholders and qualified. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to
maintain the number of
<PAGE> 7
directors in each class as nearly equal as possible, and any additional
director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director.
4. The Second Amended and Restated Charter further amends the Charter
by adding the following:
10. Section 6 and this Section 10 of this Second Amended and
Restated Charter and Sections 2 and 6 of Article I and Section 3 of
Article II of the Amended and Restated Bylaws of the Corporation shall
not be altered, amended or repealed by, and no provision inconsistent
therewith shall be adopted by, the shareholders without the affirmative
vote of the holders of at least 80% of the Common Stock, voting
together as a single class.
5. The Amendments were duly adopted by the Board of Directors of the
Corporation at a duly called meeting held on October 15, 1997 and by the
shareholders at a duly called meeting on November 14, 1997.
KING PHARMACEUTICALS, INC.
By:
-----------------------------------------
John A.A. Bellamy
Executive Vice President and
General Counsel
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
KING PHARMACEUTICALS, INC.
ARTICLE I
MEETING OF SHAREHOLDERS
1. Annual Meeting. The annual meeting of the shareholders shall be held
at such time and place, either within or without this State, as may be
designated from time to time by the directors.
2. Special Meeting. Special meetings of the shareholders may be called
by the President, a majority of the Board of Directors, or by the holders of not
less than ten percent (10%) of all the shares entitled to vote at such meeting.
The place of said meeting shall be designated by the directors.
3. Notice of Shareholder Meetings. Written notice stating the date,
time, and place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered either
personally, or by mail, by or at the direction of the President, Secretary,
officer, or person calling the meeting to each shareholder entitled to vote at
the meeting. Such notice shall be delivered not less than ten (10) days nor more
than two (2) months before the date of the meeting, and shall be deemed to be
delivered when deposited in the United States mail postpaid and correctly
addressed (if mailed), or upon actual receipt (if hand delivered). The person
giving such notice shall certify that the notice required by this paragraph has
been given.
1
<PAGE> 2
4. Quorum Requirements. A majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. Once a share is represented
for any purpose at a meeting, it shall be deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for that adjourned meeting.
5. Voting and Proxies. If a quorum exists, action on a matter (other
than the election of directors) shall be approved if the votes favoring the
action exceed the votes opposing the action. A shareholder may vote his or her
shares either in person or by written proxy, which proxy is effective when
received by the Secretary or other person authorized to tabulate votes. No proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy.
ARTICLE II
BOARD OF DIRECTORS
1. Qualification and Election. Directors need not be shareholders or
residents of this State. They shall be elected by a plurality of the votes cast
at a meeting at which a quorum is present. Each director shall hold office until
the expiration of the term for which the director is elected, and thereafter
until a successor has been elected and qualified.
2. Number. The number of directors shall be eight (8) unless another
number is fixed by the Board of Directors.
3. Meetings. The Board of Directors may hold such regular and special
meetings as it from time to time decides. These meetings may be either in person
or by conference call. Special
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<PAGE> 3
meetings may be called at any time by the Chairman of the Board, President, or
any two (2) directors.
4. Notice of Directors' Meetings. All regular board meetings may be
held without notice. Special meetings shall be preceded by at least two (2)
days' notice of the date, time and place of the meeting. Notice of an adjourned
meeting need not be given if the time and place to which the meeting is
adjourned are fixed at the meeting at which the adjournment is taken, and if the
period of adjournment does not exceed one (1) month in any one adjournment.
5. Quorum and Vote. The presence of a majority of the directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the board.
6. Board Committees. The Board of Directors, by a resolution adopted by
a majority of its members, may create one or more committees, consisting of one
or more directors, and may delegate to such committee or committees any and all
such authority as is permitted by law.
ARTICLE III
OFFICERS
1. Numbers. The Corporation shall have a President, a Secretary, a
Chairman of the Board of Directors or a Chief Executive Officer, and such other
officers as the Board of Directors shall from time to time deem necessary. Any
two or more offices may be held by the same person with the exception of the
President and the Secretary.
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<PAGE> 4
2. Election and Term. The officers shall be elected by the Board of
Directors. Each officer shall serve at the pleasure of the Board until such
officer's resignation or removal.
3. Duties. All officers shall have such authority and perform such
duties in the management of the Corporation as are normally incident to their
offices and as the Board of Directors may from time to time provide.
ARTICLE IV
RESIGNATION, REMOVALS AND VACANCIES
1. Resignations. Any officer or director may resign at any time by
giving notice to the Chairman of the Board, the President, or the Secretary. Any
such resignation shall take effect at the time specified therein, or, if no time
is specified, then upon its delivery.
2. Removal of Officers. Any officer may be removed by the Board or its
designate at any time with or without cause.
3. Removal of Directors. Any or all of the directors may be removed
either with or without cause by a proper vote of the shareholders.
4. Vacancies. Newly created directorships resulting from an increase in
the number of directors, and vacancies occurring in any office or directorship
for any reason, including removal of an officer or director, may be filled by
the vote of a majority of the directors then in office, even if less than a
quorum exists.
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ARTICLE V
CAPITAL STOCK
1. Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the corporation in such form as
may be prescribed by the Board of Directors. Unless otherwise decided by the
Board, such certificates shall be signed by the President and the Secretary of
the Corporation.
2. Transfer of Shares. Shares of stock may be transferred on the books
of the Corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.
3. Loss of Certificates. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the Board of Directors shall prescribe.
ARTICLE VI
ACTION BY CONSENT
Whenever the shareholders or directors are required or permitted to
take any action by vote, such action may be taken without a meeting on written
consent, setting forth the action so taken, signed by all the persons or
entities entitled to vote thereon. The affirmative vote of the number of
shares or directors that would be necessary to take such action at a meeting
shall be the act of the shareholders or directors, as the case may be.
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<PAGE> 6
ARTICLE VII
INDEMNIFICATION
With respect to claims of liabilities arising out of service as a
director or officer of the Corporation, the Corporation shall indemnify and
advance expenses to each present and future director or officer (and his or her
estate, heirs, and personal representatives) to the fullest extent allowed by
the laws of the State of Tennessee, both as now in effect and as hereafter
adopted or amended. In the event that the Corporation indemnifies or makes any
advance of expenses under this provision, the Secretary shall, in writing,
report such action to the shareholders with or before the notice of the next
shareholder's meeting.
ARTICLE VIII
AMENDMENT OF BYLAWS
These Bylaws may be amended, added to, or repealed either by the
shareholders or the Board of Directors as provided by statute. Any change in the
Bylaws made by the Board of Directors, however, may be amended or repealed by
the shareholders.
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<PAGE> 7
CERTIFICATION
I certify that these initial Bylaws for the Corporation were duly
adopted by the Unanimous Written Consent of the Board of Directors as of the
28th day of October 1996.
/s/ John A. A. Bellamy
----------------------------------
John A. A. Bellamy
Vice-President and General Counsel
7
<PAGE> 1
EXHIBIT 3.2(a)
AMENDED AND RESTATED BYLAWS
OF
KING PHARMACEUTICALS, INC.
ARTICLE I
MEETING OF SHAREHOLDERS
1. Annual Meeting. The annual meeting of the shareholders shall be held
at such time and place, either within or without this State, as may be
designated from time to time by the Board of Directors.
2. Special Meeting. Special meetings of the shareholders may be called
by the Chairman of the Board and Chief Executive Officer, the President or a
majority of the Board of Directors. The place of said meeting shall be
designated by the directors.
3. Notice of Shareholder Meetings. Written notice stating the date,
time, and place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered either
personally, or by mail, by or at the direction of Chairman of the Board and
Chief Executive Officer, the President, Secretary, officer, or person calling
the meeting to each shareholder entitled to vote at the meeting. Such notice
shall be delivered not less than ten (10) days nor more than two (2) months
before the date of the meeting, and shall be deemed to be delivered when
deposited in the United States mail postpaid and correctly addressed (if
mailed), or upon actual receipt (if hand delivered). The person giving such
notice shall certify that the notice required by this paragraph has been given.
4. Quorum Requirements. A majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. Once a share is represented
for any purpose at a meeting, it shall be deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for that adjourned meeting.
5. Voting and Proxies. If a quorum exists, action on a matter (other
than the election of directors) shall be approved if the votes favoring the
action exceed the votes opposing the action. A shareholder may vote his or her
shares either in person or by written proxy, which proxy is effective when
received by the Secretary or other person authorized to tabulate votes. No proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy.
6. Business Brought Before a Meeting. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) brought
before the
1
<PAGE> 2
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less than sixty (60)
days nor more than ninety (90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the tenth (10) day following the date on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Corporation's books, of the shareholder
proposing such business, (c) the class and number of shares of the Ccorporation
which are beneficially owned by the shareholder, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in these bylaws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedure set forth in this Section 6 of Article I. The
presiding officer of an annual meeting shall, if the facts warrant, determine
that the business was not properly brought before the meeting and in accordance
with the provisions of this Section 6 of Article I; and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
ARTICLE II
BOARD OF DIRECTORS
1. Qualification and Election. Directors need not be shareholders or
residents of this State. They shall be elected by a plurality of the votes cast
at a meeting at which a quorum is present. Each director shall hold office until
the expiration of the term for which the director is elected, and thereafter
until a successor has been elected and qualified.
2. Number. The number of directors shall be eight (8) unless another
number is fixed by the Board of Directors.
3. Nominations.
(a) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of shareholders (i) by or at the direction of the Board
of Directors or (ii) by any shareholder of the Corporation who was a shareholder
of record at the time of giving of notice provided for in these Bylaws, who is
entitled to vote for the
2
<PAGE> 3
election of directors at the meeting and who shall have complied with the notice
procedures set forth below in Section (b) of this Article II.
(b) In order for a shareholder to nominate a person for
election to the Board of Directors of the Corporation at a meeting of
shareholders, such shareholder shall have delivered timely notice of such
shareholder's intent to make such nomination in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation (i) in
the case of an annual meeting, not less than sixty (60) nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
shareholder to be timely must be so received not later than the close of
business on the tenth (10) day following the earlier of the day on which notice
of the date of the meeting was mailed or public disclosure of the meeting was
made, and (ii) in the case of a special meeting at which directors are to be
elected, not later than the close of business on the tenth (10) day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting was made. Such shareholder's notice shall set
forth (i) as to each person whom the shareholder proposes to nominate for
election as a director at such meeting, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (ii) as to this shareholder giving the notice
(A) the name and address, as they appear on the Corporation's books, of such
shareholder and (B) the class and number of shares of the Corporation which are
beneficially owned by such shareholder and also which are owned of record by
such shareholder; and (iii) as to the beneficial owner, if any, on whose behalf
the nomination is made, (A) the name and address of such person and (B) the
class and number of shares of the Corporation which are beneficially owned by
such person. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3 of Article II. The chairman of the meeting shall, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed by this Section 6 of Article II, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded. A shareholder seeking to nominate a person to serve as a
director must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 3 of Article II.
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<PAGE> 4
4. Meetings. The Board of Directors may hold such regular and special
meetings as it from time to time decides. These meetings may be either in person
or by conference call. The actions of any person participating by way of
telephone or other electronic means shall be as effective as if the person were
physically present at the meeting. Special meetings may be called at any time by
the Chairman of the Board, President, or any two (2) directors.
5. Notice of Directors' Meetings. All regular meetings of the Board of
Directors may be held without notice. Special meetings shall be preceded by at
least two (2) days' notice of the date, time and place of the meeting. Notice of
an adjourned meeting need not be given if the time and place to which the
meeting is adjourned are fixed at the meeting at which the adjournment is taken,
and if the period of adjournment does not exceed one (1) month in any one
adjournment.
6. Quorum and Vote. The presence of a majority of the directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
7. Board Committees. The Board of Directors, by a resolution adopted by
a majority of its members, may create one or more committees, consisting of one
or more directors, and may delegate to such committee or committees any and all
such authority as is permitted by law.
ARTICLE III
OFFICERS
1. Numbers. The Corporation shall have a President, a Secretary, an
Assistant Secretary, a Chairman of the Board of Directors or a Chief Executive
Officer, and such other officers as the Board of Directors shall from time to
time deem necessary. Any two or more offices may be held by the same person with
the exception of the President and the Secretary.
2. Election and Term. The officers shall be elected by the Board of
Directors. Each officer shall serve at the pleasure of the Board until such
officer's resignation or removal.
3. Duties. All officers shall have such authority and perform such
duties in the management of the Corporation as are normally incident to their
offices and as the Board of Directors may from time to time provide.
ARTICLE IV
RESIGNATION, REMOVALS AND VACANCIES
1. Resignations. Any officer or director may resign at any time by
giving notice to the Chairman of the Board, the President, or the Secretary. Any
such resignation shall take effect at the time specified therein, or, if no time
is specified, then upon its delivery.
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<PAGE> 5
2. Removal of Officers. Any officer may be removed by the Board or its
designate at any time with or without cause.
3. Removal of Directors. Any or all of the directors may be removed
either with or without cause by a proper vote of the shareholders.
4. Vacancies. Newly created directorships resulting from an increase in
the number of directors, and vacancies occurring in any office or directorship
for any reason, including removal of an officer or director, may be filled by
the vote of a majority of the directors then in office, even if less than a
quorum exists.
ARTICLE V
CAPITAL STOCK
1. Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the Corporation in such form as
may be prescribed by the Board of Directors. Unless otherwise decided by the
Board, such certificates shall be signed by the President and the Secretary of
the Corporation.
2. Transfer of Shares. Shares of stock may be transferred on the books
of the Corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.
3. Loss of Certificates. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the Board of Directors shall prescribe.
ARTICLE VI
ACTION BY CONSENT
Whenever the directors are required or permitted to take any action by
vote, such action may be taken without a meeting on written consent, setting
forth the action so taken. The affirmative vote of the number of directors that
would be necessary to take such action at a meeting shall be the act of the
directors.
ARTICLE VII
INDEMNIFICATION
With respect to claims of liabilities arising out of service as a
director or officer of the Corporation, the Corporation shall indemnify and
advance expenses to each present and future director or officer (and his or her
estate, heirs, and personal representatives) to the fullest extent allowed by
the laws of the State of Tennessee, both as now in effect and as hereafter
adopted or
5
<PAGE> 6
amended. In the event that the Corporation indemnifies or makes any advance of
expenses under this provision, the Secretary shall, in writing, report such
action to the shareholders with or before the notice of the next shareholder's
meeting.
ARTICLE VIII
AMENDMENT OF BYLAWS
These Bylaws may be amended, added to, or repealed either by the
shareholders or the Board of Directors as provided by statute or the Charter of
the Corporation, as amended from time to time. Any change in the Bylaws made by
the Board of Directors, however, may be amended or repealed by the shareholders
as provided in the Charter of the Corporation, as amended from time to time, or
as allowed by applicable laws of the State of Tennessee.
CERTIFICATION
I certify that these Amended and Restated Bylaws for the Corporation
were duly adopted by the Board of Directors as of the 14th day of November,
1997.
--------------------------------------------
John A. A. Bellamy
Executive Vice President and General Counsel
6
<PAGE> 1
Exhibit 4.1
Specimen Stock Certificate
COMMON STOCK NO PAR VALUE
Incorporated under the laws of the State of Tennessee
KING PHARMACEUTICALS, INC. CUSIP 195582 10 8
See Reverse Side for Certain Definitions
This Certificate is transferable in New York, NY, or Memphis, TN.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
King Pharmaceuticals, Inc. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized Attorney upon surrender of this
certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Countersigned and Registered
Union Planters National Bank, Memphis, Tennessee
Transfer Agent
and Registrar
By /s/ John M. Gregory
President
Authorized Signature
/s/ Joseph R. Gregory
Secretary
<PAGE> 2
KING PHARMACEUTICALS, INC.
King Pharmaceuticals, Inc. will furnish without charge to each shareholder
who so requests the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof of the corporation, and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to the
corporation or the transfer agent.
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between King Pharmaceuticals, Inc.
and Union Planters Bank National Bank, as Rights Agent, dated as of ,
1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive offices
of King Pharmaceuticals, Inc. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. King Pharmaceuticals, Inc. will
mail to the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain circumstances,
as set forth in the Rights Agreement, Rights that were, are or become
beneficially owned by Acquiring Persons or their Associates or Affiliates (as
such terms are defined in the Rights Agreement) may become null and void and the
holder of such Rights (including any subsequent holder) shall not have any right
to exercise such Rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - us tenants in common UNIF GIFT MIN ACT -
Custodian
------------------------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.....................
in common (State)
COM PROP - as community property UNIF TRF MIN ACT -....Custodian
(until age.......)
(Cust)
.........under Uniform Transfers
(Minor)
to Minors Act ..................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------
<PAGE> 3
- ---------------------
- ------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------
- --------------------------------------------------------
Shares
- --------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- --------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated,
---------------
X
---------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
- ----------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE 17AD-15.
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
KING PHARMACEUTICALS, INC.
and
UNION PLANTERS NATIONAL BANK
Rights Agent
RIGHTS AGREEMENT
Dated as of ____________, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1 Certain Definitions ............................................................ -1-
Section 2 Appointment of Rights Agent .................................................... -8-
Section 3 Issuance of Rights Certificates ................................................ -8-
Section 4 Form of Rights Certificates .................................................... -10-
Section 5 Execution. Countersignature and Registration ................................... -11-
Section 6 Transfer, Division, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates .................................. -11-
Section 7 Exercise of Rights. Purchase Price; Expiration Date of Rights .................. -12-
Section 8 Cancellation and Destruction of Rights Certificates ............................ -14-
Section 9 Reservation and Availability of Preferred Stock ................................ -15-
Section 10 Preferred Stock Record Date .................................................... -16-
Section 11 Adjustments to Purchase Price. Number of Shares or Number of Rights ............ -17-
Section 12 Certification of Adjustments ................................................... -25-
Section 13 Consolidation. Merger or Sale or Transfer of Assets or Earning Power ........... -25-
Section 14 Fractional Rights and Fractional Shares ........................................ -28-
Section 15 Rights of Action ............................................................... -29-
Section 16 Agreement of Rights Holders Concerning Transfer and Ownership of Rights ........ -30-
Section 17 Rights Holder Not Deemed a Stockholder ......................................... -30-
Section 18 Concerning the Rights Agent .................................................... -31-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 19 Merger or Consolidation or Change of Name of Rights Agent ...................... -31-
Section 20 Duties of Rights Agent ......................................................... -32-
Section 21 Change of Rights Agent ......................................................... -33-
Section 22 Issuance of New Rights Certificates ............................................ -34-
Section 23 Redemption and Termination ..................................................... -35-
Section 24 Notice of Certain Events ....................................................... -36-
Section 25 Notices ........................................................................ -36-
Section 26 Supplements and Amendments ..................................................... -37-
Section 27 Successors ..................................................................... -38-
Section 28 Benefits of this Agreement; Determinations and Actions by the Board of Directors -38-
Section 29 Severability ................................................................... -39-
Section 30 Governing Law .................................................................. -39-
Section 31 Counterparts ................................................................... -39-
Section 32 Descriptive Headings ........................................................... -39-
Section 33 Grammatical Construction ....................................................... -39-
EXHIBIT A Certificate of Designation, Preferences and Rights of
Junior Participating Preferred Stock, Series A ................................. A-1
EXHIBIT B Form of Rights Certificate ..................................................... B-1
</TABLE>
-ii-
<PAGE> 4
RIGHTS AGREEMENT
Rights Agreement dated as of ________ __, 1997, between King
Pharmaceuticals, Inc. a Tennessee corporation (the "Company") and Union Planters
National Bank, a national banking association (the "Rights Agent").
RECITALS
The Board of Directors of the Company has authorized and declared the
payment of a dividend of one preferred share purchase right (the "Right") for
each share of Common Stock (as defined in Section 1) outstanding at the Close of
Business on the Record Date (as defined in Section 1) and has authorized the
issuance of one Right for each share of Common Stock issued between the Record
Date and the Distribution Date (as defined in Section 1), and, in certain cases
following the Distribution Date. Each Right represents, as of the Close of
Business on the Record Date, the right to purchase one one-thousandth of a share
of Preferred Stock (as defined in Section 1) upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth in this Agreement, the parties hereby agree as follows
Section 1. Certain Definitions For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" means any Person who or which, together with all
Affiliates and Associates of such Person, is (or has previously been, at any
time after the date of this Agreement, whether or not such Person(s) continues
to be) the Beneficial Owner of 15% or more of the Common Stock then outstanding,
(determined without taking into account any securities exercisable or
exchangeable for, or convertible into, Common Stock, other than any such
securities beneficially owned by the Acquiring Person and Affiliates and
Associates of such Person). In any case, an Exempt Person, so long as such
Person remains an Exempt Person, is not an Acquiring Person and an acquisition
of Common Stock by an Exempt Person is not a Triggering Event, so long as such
acquisition is an Exempt Event.
A Person does not become an "Acquiring Person" solely as the result of
(i) an acquisition of Common Stock by the Company which, by reducing the number
of shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Stock then outstanding as
determined above, or (ii) such Person becoming the Beneficial Owner of 15% or
more of the Common Stock then outstanding as determined above solely as a result
of an Exempt Event; provided, however, that if a Person becomes the Beneficial
Owner of 15% or more of the Common Stock then outstanding as determined above
solely by reason of such a share acquisition by the Company or the occurrence of
such an Exempt Event and such Person shall, after
<PAGE> 5
becoming the Beneficial Owner of such Common Stock, become the Beneficial Owner
of any additional shares of Common Stock by any means whatsoever (other than as
a result of the subsequent occurrence of an Exempt Event, a share acquisition by
the Company, a stock dividend or a subdivision of the Common Stock into a larger
number of shares or a similar transaction), then such Person shall be deemed to
be an "Acquiring Person."
(b) "Affiliate" of a Person has the meaning given to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement; provided that, for purposes of this Agreement,
the term "Affiliate" shall not include any Person that is an Exempt Person.
(c) "Associate" of a Person has the meaning given to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement, provided that, for purposes of this Agreement,
the term "Associate" shall not include any Person that is an Exempt Person.
(d) Except as provided below, a Person is the "Beneficial Owner" of,
and "beneficially owns," any securities:
(i) which such Person or any Affiliate or Associate of such
Person beneficially owns, directly or indirectly;
(ii) which such Person or any Affiliate or Associate of such
Person has, directly or indirectly, the right or obligation (whether or
not then exercisable or effective) to acquire pursuant to any
agreement, arrangement or understanding (whether or not in writing), or
upon the exercise of conversion rights, exchange rights, rights (other
than these Rights), warrants or options, or otherwise; provided,
however, that a Person will not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any Affiliate or
Associate of such Person until such tendered securities are accepted
for purchase or exchange, and provided further, that prior to the
occurrence of a Triggering Event, a Person will not be deemed the
Beneficial Owner of, or to beneficially own, securities obtainable upon
exercise of the Rights;
(iii) which such Person or any Affiliate or Associate of such
Person has, directly or indirectly, the right (whether or not then
exercisable) to vote, or to direct the voting of, pursuant to any
agreement, arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security pursuant to this clause
(iii) if the agreement, arrangement or understanding to vote, or to
direct the voting of, such security (A) arises solely from a revocable
proxy or consent given in response to a public proxy or consent
solicitation made
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<PAGE> 6
pursuant to, and in accordance with, the Exchange Act and applicable
rules and regulations thereunder and (B) is not also then reportable
under Item 6 (or any comparable or successor item) of Schedule 13D
under the Exchange Act (or any comparable or successor schedule or
report);
(iv) which such Person or any Affiliate or Associate of such
Person has "beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act or
any successor provision); or
(v) which are beneficially owned, directly or indirectly, by
any other Person or any Affiliate or Associate of such other Person
with whom such Person or any Affiliate or Associate of such Person has
any agreement, arrangement or understanding (whether or not in writing)
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in subparagraph (iii) of this Section 1
(d)) or disposing of any securities of the Company.
Nothing in this Section 1 (d) causes a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such Person's participation in good faith
in a firm commitment underwriting until the expiration of 40 days after the date
of such acquisition.
Notwithstanding anything in this Agreement to the contrary, for
purposes of this Agreement, in the absence of a written agreement entered into
for the purpose of acquiring, holding, voting or disposing of any securities of
the Company, no Person is to be treated as the "Beneficial Owner" of, or to
"beneficially own," any securities owned by any other Person that is an Exempt
Person, and no Exempt Person shall be treated as the "Beneficial Owner" of, or
to "beneficially own" any securities owned by any other Person (other than an
Associate of such Exempt Person).
(e) "Business Combination" has the meaning set forth in Section 13 of
this Agreement.
(f) "Business Day" means any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of Tennessee are authorized or
obligated by law or executive order to close.
(g) "Close of Business" on any given date means 5:00 p.m. Eastern Time,
on such date; provided, however, that if such date is not a Business Day it
shall mean 5:00 p.m. Eastern Time, on the next succeeding Business Day.
(h) "Common Stock" when used in any context applicable prior to a
Business Combination means the Common Stock, no par value per share, of the
Company (as the same may be changed by reason of any combination, subdivision or
reclassification of the Common Stock).
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<PAGE> 7
"Common Stock" when used with reference to any Person (other than the Company
prior to a Business Combination) means shares of capital stock of such Person
(if such Person is a corporation) of any class or series, or units of equity
interests in such Person (if such Person is not a corporation) of any class or
series, the terms of which shares or units do not limit (as a fixed amount and
not merely in proportional terms) the amount of dividends or income payable or
distributable on such shares or units or the amount of assets distributable on
such shares or units upon any voluntary or involuntary liquidation, dissolution
or winding up of such Person and do not provide that such shares or units are
subject to redemption at the option of such Person, or any shares of capital
stock or units of equity interests into which the foregoing shall be
reclassified or changed; provided, however, that if at any time there are more
than one such class or series of capital stock of or equity interests in such
Person, "Common Stock" of such Person will include all such classes and series
substantially in the proportion of the total number of shares or other units of
each such class or series outstanding at such time.
(i) "Continuing Director" means (i) any member of the Board of
Directors of the Company, while such Person is a member of the Board of
Directors of the Company, who is not an Acquiring Person (as defined herein), or
an Affiliate or Associate of an Acquiring Person or a representative, designee
or nominee of an Acquiring Person or of any such Affiliate or Associate, and who
was a member of the Board of Directors of the Company on the date of this
Agreement, and (ii) any Person who becomes a member of the Board of Directors of
the Company after the date of this Agreement, while such Person is a member of
the Board of Directors of the Company, who is not an Acquiring Person, or an
Affiliate or Associate of an Acquiring Person, or a representative, designee or
nominee of an Acquiring Person or of any such Affiliate or Associate, if such
Person's nomination for election, or election, to the Board of Directors of the
Company is recommended or approved by a majority of the Continuing Directors.
(j) "Current Market Price" per share of Common Stock, Preferred Stock
or Equivalent Shares on any date is the average of the daily closing prices per
share of such Common Stock, Preferred Stock or Equivalent Shares for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date for the purpose of any computation under this Agreement except
computations made pursuant to Section 11(a)(iv), and for the Trading Day
immediately prior to such date for the purpose of any computation under Section
11(a)(iv); provided, however, that in the event that the Current Market Price
per share of Common Stock, Preferred Stock or Equivalent Shares is determined
during a period following the announcement by the issuer of such Common Stock,
Preferred Stock or Equivalent Shares of (i) a dividend or distribution on such
Common Stock, Preferred Stock or Equivalent Shares other than a regular
quarterly cash dividend, or (ii) any subdivision, combination or
reclassification of such Common Stock, Preferred Stock or Equivalent Shares, and
prior to the expiration of 30 Trading Days after the "ex-dividend" date for such
dividend or distribution or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "Current Market Price" must
be appropriately adjusted to take into account such dividend, distribution,
subdivision, combination or reclassification. The closing price
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<PAGE> 8
for each Trading Day shall be the last sale price, regular way, on such day, or,
in case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, on such day, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock, Preferred Stock or Equivalent Shares are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction repourities listed on the principal United States
national securities exchange on which the Common Stock, Preferred Stock or
Equivalent Shares are listed or admitted to trading or, if the Common Stock,
Preferred Stock or Equivalent Shares are not listed or admitted to trading on
any United States national securities exchange, the last quoted sale price on
such day or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market on such days as reported by the Nasdaq National
Market ("Nasdaq") or such other system then in use. If on such day the Common
Stock, Preferred Stock or Equivalent Shares are not quoted by any such
organization, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in the Common Stock,
Preferred Stock or Equivalent Shares selected by a majority of the Continuing
Directors (or if no Continuing Directors are then in office, the Board of
Directors of the Company) shall be used. If no such market maker is making a
market, the fair market value of such shares on such day as determined in good
faith by a majority of the Continuing Directors (or if no Continuing Directors
are then in office, the Board of Directors of the Company) or the Board of
Directors of the issuer of such Common Stock, Preferred Stock or Equivalent
Shares must be used, which determination must be described in a statement filed
with the Rights Agent and is binding and conclusive for all purposes. The term
"Trading Day" means a day on which the principal United States national
securities exchange on which the Common Stock, Preferred Stock or Equivalent
Shares are listed or admitted to trading is open for the transaction of business
or, if the Common Stock, Preferred Stock or Equivalent Shares are not listed or
admitted to trading on any United States national securities exchange, but are
traded in the over-the-counter market and reported by Nasdaq, then any day for
which Nasdaq reports the high bid and low asked prices in the over-the-counter
market, or if the Common Stock, Preferred Stock or Equivalent Shares are not
traded in the over-the-counter market and reported by Nasdaq, then a Business
Day. If the Common Stock, Preferred Stock or Equivalent Shares have not been so
listed or admitted to trading for 30 or more Trading Days or traded in the
over-the-counter market and reported by Nasdaq for 30 or more Trading Days,
"Current Market Price" per share means the fair market value per share as
determined in good faith by a majority of the Continuing Directors (or, if no
Continuing Directors are then in office, the Board of Directors of the Company),
whose determination must be described in a statement filed with the Rights Agent
and will be final, binding and conclusive for all purposes.
(k) "Distribution Date" means the earlier of (i) the day after the
Company's right to redeem the Rights pursuant to Section 23(a)(i) expires and
(ii) the tenth Business Day after commencement or public disclosure of an
intention to commence (including, without limitation, any such commencement or
public disclosure which occurs on or after the date of this Agreement and prior
to the issuance of the Rights) a tender offer or exchange offer by a Person if,
after acquiring
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<PAGE> 9
the maximum number of securities sought pursuant to such offer, such Person, or
any Affiliate or Associate of such Person, would be an Acquiring Person. If
there is at least one Continuing Director then in office, the Board of Directors
of the Company, with the concurrence of a majority of the Continuing Directors
then in office, may defer the date set forth in clause (ii) of the preceding
sentence to a specified later date or to an unspecified later date to be
determined by a subsequent action or event.
(l) "Equivalent Shares" means any class or series of capital stock of
the Company, other than the Preferred Stock, which is entitled to participate on
a proportional basis with the Preferred Stock in dividends and other
distributions, including distributions upon the liquidation, dissolution or
winding up of the Company. In calculating the number of any class or series of
Equivalent Shares for purposes of Section 11, the number of shares, or fractions
of a share, of such class or series of capital stock that is entitled to the
same dividend or distribution as a whole share of Preferred Stock shall be
deemed to be one share.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor statute.
(n) "Exchange Date" means the time at which the Rights are exchanged
pursuant to Section 11(a)(iv) .
(o) "Exempt Event" means (i) the acquisition of additional Common Stock
by an Exempt Person, so long as such Person does not cease to be an Exempt
Person under clause (p) below, or (ii) with respect to any Person, the
acquisition by such Person of Beneficial Ownership of Common Stock solely as a
result of the occurrence of a Triggering Event and the effect of such Triggering
Event on the last proviso of clause (ii) of the definition of Beneficial Owner,
other than a Triggering Event in which such Person becomes an Acquiring Person.
(p) "Exempt Person" means (i) the Company, (ii) any Subsidiary of the
Company, (iii) John M. Gregory, Joseph R. Gregory and Jefferson J. Gregory,
their respective spouses or issue, any trust of which any of them and/or their
respective spouses are the grantor or of which any of them or their respective
spouses, his issue or any charity is a beneficiary, (iv) any employee benefit
plan of the Company or of any Subsidiary of the Company, and (v) any Person
holding Common Stock for any such employee benefit plan or for employees of the
Company or of any Subsidiary of the Company pursuant to the terms of any such
employee benefit plan.
(q) "Expiration Date" means the Close of Business on the tenth
anniversary of the Record Date.
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<PAGE> 10
(r) "Person" means any individual firm, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity, and
shall include any "group" as that term is used in Rule 13d-5(b) under the
Exchange Act (or any successor provision).
(s) "Preferred Stock" means the Company's Junior Participating
Preferred Stock, Series A, no par value per share, having the rights and
preferences set forth in the Certificate of Designation, Preferences and Rights
of Junior Participating Preferred Stock, Series A, attached hereto as Exhibit A
(t) "Principal Party" means (i) in the case of any Business Combination
described in clause (i), (ii) or (iii) of the first sentence of Section 13(a),
(A) the Person that is the issuer of any securities into which shares of Common
Stock of the Company are converted or for which they are exchanged in such
Business Combination or, if there is more than one such issuer, the issuer of
the Common Stock which has the greatest aggregate market value or (B) if no
securities are so issued, the Person that survives or results from the Business
Combination or, if there is more than one such Person, the Person the Common
Stock of which has the greatest aggregate market value, and (ii) in the case of
any Business Combination described in clause (iv) of the first sentence in
Section 13(a), the Person that receives the greatest portion of the assets or
earning power transferred pursuant to such Business Combination or, if each
Person that is a party to such Business Combination receives the same portion of
the assets or earning power so transferred or if the Person receiving the
greatest portion of the assets or earning power cannot reasonably be determined,
whichever of such Persons is the issuer of the Common Stock which has the
greatest aggregate market value; provided, however, that in any such case, if
the Common Stock of such Person is not at such time and has not been
continuously over the preceding 12-month period registered under Section 12 of
the Exchange Act and such Person is a direct or indirect Subsidiary of one or
more other Persons, then (x) "Principal Party" refers to whichever of such other
Persons has Common Stock that is and has been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, (y) if the
Common Stocks of two or more of such other Persons are and have been so
registered, "Principal Party" refers to whichever of such other Persons is the
issuer of the Common Stock which has the greatest aggregate market value, or (z)
if the Cr Persons has been so registered, "Principal Party" refers to whichever
of such other Persons (other than an individual) is the Person which has the
equity securities with the greatest aggregate market value. In case such Person
is owned, directly or indirectly, by a joint venture formed by two or more
Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth above apply to each of the chains of ownership having an
interest in such joint venture as if such Person were a Subsidiary of both or
all of such joint venturers and the Principal Parties in each such chain shall
bear the obligations set forth in Section 13 in the same ratio as their direct
or indirect interests in such Person bear to the total of such interests.
(u) "Purchase Price" with respect to each Right is initially $60 per
one one-thousandth of a share of Preferred Stock, shall be subject to adjustment
from time to time as provided in
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<PAGE> 11
Sections 11 and 13, and shall be payable in lawful money of the United States of
America in cash or by certified check or bank draft payable to the order of the
Company.
(v) "Record Date" means the date which is four Business Days after the
date on which the registration of the Common Stock under the Securities Act
becomes effective.
(w) "Redemption Date" means the time at which the Rights are scheduled
to be redeemed as provided in Section 23.
(x) "Redemption Price" has the meaning given to such term in Section
23.
(y) "Securities Act" means the Securities Act of 1933, as amended, and
any successor statute.
(z) "Stock Acquisition Date" means the first date (including, without
limitation, any such date which is on or after the date of this Agreement and
prior to the issuance of the Rights) of public disclosure by the Company or an
Acquiring Person that an Acquiring Person has become such.
(aa) "Subsidiary" has the meaning given to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on the
date of this Agreement.
(bb) "Triggering Event" means a Person becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date: (i) the Rights shall be issued in
respect of and shall be evidenced by the certificates representing the shares of
Common Stock issued and outstanding on the Record Date and shares of Common
Stock issued after the Record Date and prior to the earliest of the Distribution
Date, the Redemption Date, the Exchange Date or the Expiration Date (which
certificates for Common Stock shall be deemed to also be certificates evidencing
the Rights), and not by separate certificates, (ii) the registered holders of
such shares of Common Stock shall also be the registered holders of the Rights
associated with such shares, and (iii) the Rights shall be transferable only in
connection with the transfer of shares of Common Stock, and the surrender for
transfer of any certificate for such shares of Common Stock shall also
constitute the surrender for transfer of the Rights associated with such shares.
As soon as practicable after the Company has notified the Rights Agent of the
occurrence of the Distribution Date, the Rights Agent shall mail,
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<PAGE> 12
by first-class, insured, postage prepaid mail, to each record holder of the
Common Stock as of the Close of Business on the Distribution Date. as shown by
the records of the Company, at the address of such holder shown on such records,
one or more certificates evidencing the Rights ("Rights Certificates"), in
substantially the form of Exhibit B hereto, evidencing one Right (as adjusted
from time to time pursuant to this Agreement) for each share of Common Stock so
held. From and after the Distribution Date, the Rights will be evidenced solely
by such Rights Certificates. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11 (o) of
this Agreement, at the time of distribution of the Rights Certificates, the
Company may make the necessary and appropriate adjustments (in accordance with
Section 14(a) of this Agreement) so that Rights Certificates representing only
whole numbers of nd cash is paid in lieu of any fractional Rights.
(b) Rights shall be issued in respect of all shares of Common Stock
which are issued or sold by the Company after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date, the Exchange Date and
the Expiration Date. In addition, in connection with the issuance or sale of
Common Stock by the Company following the Distribution Date and prior to the
earliest of the Redemption Date, the Exchange Date and the Expiration Date, the
Company shall, with respect to Common Stock so issued or sold pursuant to (i)
the exercise of stock options issued prior to the Distribution Date or under any
employee plan or arrangement created prior to the Distribution Date, or (ii)
upon the exercise conversion or exchange of securities issued by the Company
prior to the Distribution Date, issue Rights and Rights Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (x) no such Rights and Rights Certificate shall
be issued if, and to the extent that, the Company shall be advised by counsel
that such issuance would create a significant risk of material adverse tax
consequences to the Company or the Person to whom such Rights Certificate would
be issued and (y) no such Rights and Rights Certificates shall be issued, if,
and to the extent that, appropriate adjustment shall otherwise have been made in
lieu of the issuance thereof. Certificates issued after the Record Date
representing shares of Common Stock outstanding on the Record Date or shares of
Common Stock issued after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date, the Exchange Date and the Expiration
Date shall have impressed, printed, or written on, or otherwise affixed to them
a legend substantially in the following form:
This certificate also evidences and entitles the
holder hereof to certain Rights as set forth in a
Rights Agreement between King Pharmaceuticals, Inc.
and Union Planters National Bank, as Rights Agent,
dated as of ________ __, 1997 (the "Rights
Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which
is on file at the principal executive offices of King
Pharmaceuticals, Inc. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no
longer be evidenced by this certificate. King
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<PAGE> 13
Pharmaceuticals, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor.
Under certain circumstances, Rights that were, are or
become beneficially owned by Acquiring Persons or
their Associates or Affiliates (as such terms are
defined in the Rights Agreement) may become null and
void and the holder of any of such Rights (including
any subsequent holder) shall not have any right to
exercise such Rights.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the form of election to purchase
shares and form of assignment to be printed on the reverse thereof) shall be in
substantially the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of this Agreement, the
Rights Certificates, whenever issued, shall be dated as of the Distribution
Date, and on their face shall entitle the holders thereof to purchase such
number of shares of Preferred Stock as shall be set forth therein at the
Purchase Price set forth therein, but the number of such securities and the
Purchase Price shall be subject to adjustment as provided in this Agreement.
(b) Notwithstanding any other provision of this Agreement, (i) any
Rights Certificate issued pursuant to this Agreement that represents Rights
beneficially owned or formerly beneficially owned, on or after the earlier of
the Distribution Date and the Stock Acquisition Date, by a Person known by the
Company to be: (A) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (B) a direct or indirect transferee of an Acquiring Person (or
of an Associate or Affiliate of such Acquiring Person) who becomes or becomes
entitled to be a transferee after the Acquiring Person becomes such, or (C) a
direct or indirect transferee of an Acquiring Person (or of an Associate or
Affiliate of such Acquiring Person) who becomes or becomes entitled to be a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (x) a direct or indirect transfer
(whether or not for consideration) from the Acquiring Person (or from an
Associate or Affiliate of such Acquiring Person) to holders of equity interests
in such Acquiring Person (or to holders of equity interests in an Associate or
Affiliate of such Acquiring Person) or to any Person with whom such Acquiring
Person (or an Associate or Affiliate of such Acquiring Person) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (y) a direct or indirect transfer which a majority of the Continuing
Directors (or, if no Continuing Directors are then in office, the Board of
Directors of the Company) has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of Section
7(e) of this Agreement, or (ii) any Rights Certificate issued pursuant to this
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<PAGE> 14
Agreement upon transfer, exchange, replacement or adjustment of any other Rights
Certificate beneficially owned by a Person referred to in this Section 4(b),
shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are
or were beneficially owned by a Person who was or
became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this
Rights Certificate and the Rights represented hereby
may become null and void in the circumstances
specified in Section 7(e) of the Rights Agreement.
Section 5. Execution. Countersignature and Registration.
(a) Each Rights Certificate shall be executed on behalf of the Company
by the Company's Chairman of the Board and Chief Executive Officer, President or
any Vice President, either manually or by facsimile signature, and shall have
affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Company's Secretary or an Assistant Secretary, either manually
or by facsimile signature. Each Rights Certificate shall be countersigned by the
Rights Agent either manually or, if permitted by the Company, by facsimile
signature and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed a Rights Certificate shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Rights Certificate
nevertheless may be countersigned by the Rights Agent and issued and delivered
with the same force and effect as though the Person who signed such Rights
Certificate had not ceased to be such officer of the Company, and any Rights
Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent shall keep or
cause to be kept, at its principal corporate trust office, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced by each Rights Certificate, and the
certificate number and the date of issuance of each Rights Certificate.
Section 6. Transfer, Division, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 14, at any time after the
Close of Business on the Distribution Date and at or prior to the Close of
Business on the earliest of the Redemption Date, the
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<PAGE> 15
Exchange Date and the Expiration Date, any Rights Certificate or Rights
Certificates may be transferred, divided, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of shares of Preferred Stock (or other securities, cash
or other property, following a Triggering Event or a Business Combination, as
the case may be) as the Rights Certificate or Rights Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, divide, combine or exchange any Rights Certificate shall make such
request in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, divided, combined or
exchanged at the principal corporate office of the Rights Agent. Thereupon the
Rights Agent shall countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so requested.
As a condition to such transfer, division, combination or exchange, the Company
may require payment by the surrendering holder of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection therewith. Neither
the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have duly completed and executed
the form of assignment on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or such former or proposed Beneficial Owner) thereof or such Beneficial Owner's
Affiliates or Associates as the Company shall reasonably request
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will make and deliver a new Rights Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights. Purchase Price; Expiration Date of
Rights
(a) Each Right shall entitle (except as otherwise provided in this
Agreement) the registered holder thereof, upon the exercise thereof as provided
in this Agreement, to purchase, for the Purchase Price, at any time after the
Distribution Date and prior to the earliest of the Expiration Date, the Exchange
Date and the Redemption Date, one one-thousandth (1/1000) of a share of
Preferred Stock, subject to adjustment from time to time as provided in Sections
11 and 13.
(b) The registered holder of any Rights Certificate may exercise the
Rights evidenced thereby (except as otherwise provided in this Agreement) in
whole or in part (except that no fraction of a Right may be exercised) at any
time on or after the Distribution Date and prior to the earliest of the
Expiration Date, the Exchange Date and the Redemption Date, by surrendering the
Rights Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the
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<PAGE> 16
Rights Agent at the principal corporate trust office of the Rights Agent,
together with payment of the Purchase Price for each one one-thousandth of a
share of Preferred Stock (or other securities, cash or other assets, as the case
may be) as to which the Rights are exercised
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for each one one-thousandth of a share of
Preferred Stock (or, following a Triggering Event or a Business Combination,
other securities, cash or other assets, as the case may be) to be purchased and
an amount in cash, certified bank check or bank draft payable to the order of
the Company equal to any applicable transfer tax required to be paid by the
surrendering holder pursuant to Section 9(d), the Rights Agent shall, subject to
the provisions of this Agreement, thereupon promptly (i)(A) requisition from any
transfer agent for the Preferred Stock (or make available, if the Rights Agent
is the transfer agent for such shares) certificates for the total number of one
one-thousandths of a share of Preferred Stock (or other securities, as the case
may be) to be purchased (and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests), or (B) if the Company shall
have elected to deposit the total number of shares of Preferred Stock (or other
securities, as the case may be) issuable upon exercise of the Rights with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a share of Preferred Stock
(or other securities, as the case may be) as are to be purchased (in which case
certificates for the Preferred Stock (or other securities, as the case may be)
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company shall direct the depositary agent to comply
with such request, (ii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, and (iii) if appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 of this Agreement and, promptly after receipt
thereof, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate. In the event that the Company is obligated to
issue other securities (including shares of Common Stock) of the Company, pay
cash and/or distribute other property pursuant to this Agreement, the Company
will make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and when
appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Rights
Certificate or to his duly authorized assigns, subject to the provisions of
Section 6 and Section 14.
(e) Notwithstanding anything in this Agreement to the contrary, any
Rights that are or were formerly beneficially owned on or after the earlier of
the Distribution Date or the Stock
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Acquisition Date by (i) an Acquiring Person or any Associate or Affiliate of an
Acquiring Person, (ii) a direct or indirect transferee of an Acquiring Person
(or of an Associate or Affiliate of such Acquiring Person) who becomes or
becomes entitled to be a transferee after the Acquiring Person becomes such, or
(iii) a direct or indirect transferee of an Acquiring Person (or of an Associate
or Affiliate of such Acquiring Person) who becomes or becomes entitled to be a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a direct or indirect transfer
(whether or not for consideration) from the Acquiring Person (or from an
Associate or Affiliate of such Acquiring Person) to holders of equity interests
in such Acquiring Person (or to holders of equity interests in any Associate or
Affiliate of such Acquiring Person) or to any Person with whom the Acquiring
Person (or an Associate or Affiliate of such Acquiring Person) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a direct or indirect transfer which a majority of the Continuing
Directors (or, if no Continuing Directors are then in office, the Board of
Directors of the Company) determines is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall, immediately upon the occurrence of a Triggering Event and
without any further action, be null and void and no holder of such Rights shall
have any rights whatsoever with respect to such Rights whether under this
Agreement or otherwise, provided, however, that, in the case of transferees
under clause (ii) or clause (iii) above, any Rights beneficially owned by such
transferee shall be null and void only if and to the extent such Rights were
formerly beneficially owned by a Person who was, at the time such Person
beneficially owned such Rights, or who later became, an Acquiring Person or an
Affiliate or Associate of such Acquiring Person. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) are complied with, but shall have no liability to any holder of a
Rights Certificate or to any other Person as a result of the Company's failure
to make, or any delay in making (including any such failure or delay by the
Continuing Directors and/or the Board of Directors of the Company) any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to the registered holder of a Rights Certificate upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former or proposed Beneficial Owner)
thereof or the Affiliates or Associates of such Beneficial Owner (or former or
proposed Beneficial Owner) as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, division,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
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Certificates shall be issued in lieu thereof except as expressly permitted by
the provisions of this Agreement. The Company shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available at all times out of its authorized and unissued shares of
Preferred Stock or its authorized and issued shares of Preferred Stock held in
its treasury (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares of Common Stock and/or other securities held in
its treasury) free from preemptive rights or any right of first refusal, a
sufficient number of shares of Preferred Stock (and, following the occurrence of
a Triggering Event, shares of Common Stock and/or other securities) to permit
the exercise in full of all Rights from time to time outstanding.
(b) The Company further covenants and agrees, so long as the Preferred
Stock (and, following the occurrence of a Triggering Event, shares of Common
Stock and/or other securities) issuable upon the exercise of Rights may be
listed on any United States national securities exchange, to use its best
efforts to cause, from and after the time that the Rights become exercisable all
such shares and/or other securities reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.
(c) The Company further covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (and,
following the occurrence of a Triggering Event or a Business Combination, shares
of Common Stock and/or other securities) delivered upon the exercise of Rights
shall, at the time of delivery of the certificates for such shares and/or such
other securities (subject to payment of the Purchase Price), be duly and validly
authorized and issued, fully paid, nonassessable, freely tradeable, not subject
to liens or encumbrances, and free of preemptive rights, rights of first
refusal, or any other restrictions or limitations on the transfer or ownership
thereof, of any kind or nature whatsoever.
(d) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the original issuance or delivery of the Rights
Certificates or of any certificates for shares of Preferred Stock (or Common
Stock and/or other securities, as the case may be) upon the exercise of Rights.
The Company shall not, however be required to (i) pay any transfer tax which may
be payable in respect of any transfer involved in the issuance or delivery of
any Rights Certificates or the issuance or
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<PAGE> 19
delivery of any certificates for shares of Preferred Stock (or Common Stock
and/or other securities as the case may be) to a Person other than, or in a name
other than that of, the registered holder of the Rights Certificate evidencing
Rights surrendered for exercise or (ii) transfer or deliver any Rights
Certificate or issue or deliver any certificates for shares of Preferred Stock
(or Common Stock and/or other securities as the case may be) upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Rights Certificate at the time of surrender) or
until it has been established to the Company's satisfaction that no such tax is
due.
(e) The Company shall use its best efforts (i) as soon as practicable
following a Triggering Event (provided the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) of this Agreement), or as soon as is required by law
following the Distribution Date, as the case may be, to prepare and file a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) to cause
such registration statement to become effective as soon as practicable after
such filing, and (iii) to cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which Rights are no longer exercisable
for such securities and (B) the Expiration Date. The Company shall also use its
best efforts to take such action as may be necessary or appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the various states
in connection with the exercise of the Rights. The Company may temporarily
suspend, for a period of time not to exceed 90 days after the date of a
Triggering Event described in clause (i) of the first sentence of this paragraph
of Section 9, the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall make a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
has been declared effective.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for shares of Preferred Stock (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Stock (or Common Stock and/or other securities, as the case may be) represented
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (and/or such other securities, as the
case may be) on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Stock (or Common Stock and/or other
securities, as the case may be) transfer books of the Company are open.
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<PAGE> 20
Section 11. Adjustments to Purchase Price. Number of Shares or Number
of Rights. The Purchase Price, the number and kind of securities, cash and other
property obtainable upon exercise of each Right and the number of Rights
outstanding shall be subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event the Company shall at any time on or after
the date of this Agreement (A) pay a dividend or make a distribution on
the Preferred Stock payable in shares of Preferred Stock, (B) subdivide
(by a stock split or otherwise) the outstanding Preferred Stock into a
larger number of shares, (C) combine (by a reverse stock split or
otherwise) the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any securities in a reclassification of the
Preferred Stock (including any such reclassification in connection with
a consolidation or merger in which the Company is the surviving
corporation), then in each such event the Purchase Price and the
Redemption Price set forth in Section 23, as each is in effect at the
time of the record date for such dividend or distribution, or of the
effective date of such subdivision, combination or reclassification,
shall be proportionately adjusted by multiplying the Purchase Price and
such Redemption Price by a fraction the numerator of which shall be the
total number of shares of Preferred Stock outstanding immediately prior
to the occurrence of such event and the denominator of which shall be
the total number of shares of Preferred Stock outstanding immediately
following the occurrence of such event. If an event occurs which would
require an adjustment under both this Section 11( a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall
be in addition to, and shall be made prior to any adjustment required
pursuant to Section 11(a)(ii).
(ii) Upon the first occurrence of a Triggering Event, proper
provision shall be made so that each holder of a Right, except as
otherwise provided in this Agreement, shall thereafter have the right
to receive, and the Company shall issue, upon exercise thereof at the
then-current Purchase Price required to be paid in order to exercise a
Right in accordance with the terms of this Agreement, in lieu of the
number of one one-thousandths of a share of Preferred Stock or other
securities receivable upon exercise of a Right prior to the occurrence
of the Triggering Event such number of shares of Common Stock of the
Company as shall equal the result obtained by (x) multiplying the
then-current Purchase Price by the number of one one-thousandths of a
share of Preferred Stock or other securities for which a Right was then
exercisable (without giving effect to such Triggering Event) and (y)
dividing that product by 50% of the Current Market Price per share of
Common Stock on the date of the occurrence of the Triggering Event
(such number of shares being referred to as the "Adjustment Shares");
provided, however, that if the transaction or event that would
otherwise give rise to the foregoing adjustment is also subject to the
provisions of Section 13 of this Agreement, then only the provisions of
Section 13 of this Agreement shall apply and no adjustment shall be
made pursuant to this Section 11(a)(ii). Upon the occurrence of such
Triggering Event, the Purchase Price required to be paid in order to
exercise a Right shall be unchanged, and the Purchase Price shall be
appropriately adjusted to reflect, and
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<PAGE> 21
shall thereafter mean, the amount required to be paid per share of
Common Stock upon exercise of a Right
(iii) In lieu of issuing shares of Common Stock in accordance
with Section 11 (a)(ii), the Company may, if a majority of the
Continuing Directors (or if no Continuing Directors are then in office,
the Board of Directors of the Company) determine that such action is
necessary or appropriate and not contrary to the interests of holders
of Rights (and, in the event that the number of shares of Common Stock
which are authorized by the Company's charter, but which are not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights, are not sufficient to permit the exercise in
full of the Rights in accordance with Section 11(a)(ii), the Company
shall) take one or more of the following actions (A) reduce the
Purchase Price required to be paid in order to exercise a Right by any
amount (the "Reduction Amount"), in which event the number of
Adjustment Shares and/or the amount of any Substitute Consideration (as
hereinafter defined) issuable in respect of each Right (the Adjustment
Shares, if any, and the Substitute Consideration, if any, issuable in
respect of a Right are herein collectively referred to as the "Total
Consideration") shall be reduced so that the aggregate value of the
Total Consideration issuable in respect of each Right is equal to the
Current Value (as hereinafter defined) less the Reduction Amount
(herein the "Adjusted Current Value"), and/or (B) make adequate
provision with respect to each Right to substitute for all or part of
the Adjustment Shares otherwise obtainable upon exercise of a Right:
(1) cash, (2) other equity securities of the Company (including without
limitation, shares, or units of shares, of preferred stock which a
majority of the Continuing Directors (or if no Continuing Directors are
then in office, the Board of Directors of the Company) have determined
to have the same value as shares of Common Stock (such shares or units
of preferred stock being referred to as "Common Stock Equivalents")),
(3) debt securities of the Company, (4) other assets, or (5) any
combination of the foregoing (collectively, "Substitute
Consideration"), having an aggregate value which, when added to the
value of the Adjustment Shares (if any) in respect of which no
substitution is being made, is equal to the Adjusted Current Value. If
a majority of the Continuing Directors (or if no Continuing Directors
are then in office, the Board of Directors) determine to issue or
deliver any equity securities (other than Common Stock or Common Stock
Equivalents), debt securities and/or other assets pursuant to this
Section 11(a)(iii), the value of such securities and/or assets shall be
determined by a majority of the Continuing Directors (or if no
Continuing Directors are then in office, the Board of Directors of the
Company) based upon the advice of a nationally recognized investment
banking firm selected by a majority of the Continuing Directors (or if
no Continuing Directors are then in office, the Board of Directors of
the Company). If the Company is required to make adequate provision to
deliver value pursuant to the first sentence of this Section 11
(a)(iii) and the Company shall not have made such adequate provision to
deliver value within ninety (90) days following the first occurrence of
a Triggering Event (the "Substitution Period"), then notwithstanding
any provision of Section 11(a)(ii) or this Section 11(a)(iii) to the
contrary, the Company shall be
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<PAGE> 22
obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common Stock
(to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the excess of the Current
Value over the Purchase Price. If both Common Stock and cash are to be
delivered pursuant to the preceding sentence, amounts of both Common
Stock and cash shall be delivered upon surrender of each Right in a
ratio of Common Stock to cash that bears the same ratio as the total
value of all Common Stock to be delivered (as determined pursuant to
this Section 11(a)(iii)) bears to the total value of all cash to be
delivered; provided, however, that the Company may adjust such ratio to
avoid issuing any fractional shares of Common Stock so long as the
method of adjustment is applied consistently to each holder of Rights
entitled to receive value thereon pursuant to this Section 11(a)(iii).
To the extent that the Company determines that some action is to be
taken pursuant to the first and/or third sentences of this Section
11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights but in no
event to a time later than the expiration of the Substitution Period.
In the event of any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. Upon any change in the
Adjustment Shares obtainable upon exercise of a Right pursuant to this
Section 11(a)(iii), the Purchase Price shall thereafter mean the
amount, if any, required to be paid upon exercise of a Right for the
Adjustment Shares, if any, and the Substitute Consideration, if any,
then issuable or deliverable upon exercise of a Right, and a majority
of the Continuing Directors (or if no Continuing Directors are then in
office, the Board of Directors of the Company) shall make any necessary
provisions to ensure that the provisions of Section 11(e) shall
thereafter apply as appropriate to the Total Consideration. For
purposes of this Section 11(a)(iii), (A) "Current Value" shall be the
product derived by multiplying (x) the number of Adjustment Shares
issuable in respect of each Right determined under Section 11(a)(ii),
by (y) the Current Market Price per share of Common Stock on the date
of the Triggering Event, and (B) the value of each share of Common
Stock and each share or unit of any "Common Stock Equivalent" shall be
deemed conclusively to be equal to the Current Market Price per share
of the Common Stock on the date of the Triggering Event.
(iv) A majority of the Continuing Directors (or if no
Continuing Directors are then in office, the Board of Directors of the
Company) may, at their option at any time and from time to time after
the first occurrence of a Triggering Event, cause the Company to
exchange, for all or part of the then-outstanding and exercisable
Rights (which shall not include Rights that have become void pursuant
to the provisions of Section 7(e) hereof), shares of Common Stock or
Common Stock Equivalents at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date of this
Agreement (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Any partial exchange shall be effected on a pro rata
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<PAGE> 23
basis based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) hereof) held by
each holder of Rights.
Immediately upon the action of a majority of the Continuing Directors
(or if no Continuing Directors are then in office the Board of Directors of the
Company) ordering the exchange of any Rights pursuant to this Section 11(a)(iv)
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of shares of Common Stock and/or Common
Stock Equivalents equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange and in addition, the Company shall promptly mail a notice
of any such exchange to all of the holders of such Rights in accordance with
Section 25 of this Agreement; provided, however, that the failure to give, any
delay in giving or any defect in, such notice shall not affect the validity of
such exchange. Each such notice of exchange will state the method by which the
exchange of the Common Stock or Common Stock Equivalents for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. In the event that the number of shares of Common Stock which
is authorized but not outstanding or reserved for issuance for a purpose other
than exercise of the Rights is not sufficient to permit any exchange of Rights
as contemplated in accordance with this Section 11(a)(iv), the Board of
Directors of the Company shall take all such action within its power as may be
necessary to authorize additional shares of Common Stock for issuance upon
exchange of the Rights. The Company shall not be required to issue fractions of
shares of Common Stock or Common Stock Equivalents or to distribute certificates
which evidence fractional shares of Common Stock or Common Stock Equivalents. In
lieu of such fractional shares of Common Stock or Common Stock Equivalents, the
Company shall pay to the registered holders of the Rights Certificates with
regard to which such fractional shares of Common Stock or Common Stock
Equivalents would otherwise be issuable an amount in cash equal to the product
derived by multiplying (x) the subject fraction, by (y) the last sale price of
the Company's Common Stock on the fifth Trading Day following the public
announcement of the exchange by the Company, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices on such day,
in either case on a when issued basis (taking into account the exchange), as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange (or,
if the Company's Common Stock is not so listed or traded, then as determined in
the manner provided under the definition of "Current Market Price," adjusted to
take into account the exchange). For the purposes of this Section 11(a)(iv) the
value of any Common Stock Equivalent on any date shall be the same as the value
of the Common Stock, as determined pursuant to the previous sentence, on such
date.
(b) If the Company shall at any time on or after the date of this
Agreement fix a record date for the issuance of rights, options or warrants to
holders of Preferred Stock entitling them to subscribe for or purchase Preferred
Stock or Equivalent Shares (or securities convertible into Preferred Stock or
Equivalent Shares) at a price per share of Preferred Stock or Equivalent Shares
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<PAGE> 24
(or, in the case of a convertible security, having a conversion price per share
of Preferred Stock or Equivalent Shares) less than the Current Market Price per
share of Preferred Stock on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Preferred Stock and Equivalent Shares (if
any) outstanding on such record date, plus the number of shares of Preferred
Stock or Equivalent Shares, as the case may be, which the aggregate exercise
and/or conversion price for the total number of shares of Preferred Stock or
Equivalent Shares, as the case may be, which are obtainable upon exercise and/or
conversion of such rights, options, warrants or convertible securities would
purchase at such Current Market Price, and the denominator of which shall be the
number of shares of Preferred Stock and Equivalent Shares (if any) outstanding
on such record date, plus the number of additional shares of Preferred Stock or
Equivalent Shares, as the case may be, which may be obtained upon exercise
and/or conversion of such rights, options, warrants or convertible securities.
In case such subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such consideration shall
be as determined in good faith by a majority of the Continuing Directors (or, if
no Continuing Directors are then in office, by the Board of Directors of the
Company), whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent. Preferred Stock and
Equivalent Shares owned by or held for the account of the Company or any
Subsidiary of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not issued following such adjustment, the Purchase Price shall be readjusted to
be the Purchase Price which would have been in effect if such record date had
not been fixed.
(c) In case the Company shall at any time after the date of this
Agreement fix a record date for the making of a distribution to holders of
Preferred Stock (including any such distribution made in connection with a
reclassification of the Preferred Stock or a consolidation or merger in which
the Company is the surviving corporation) of securities (other than Preferred
Stock and rights, options or warrants referred to in Section 11 (b)), cash
(other than a regular periodic cash dividend at an annual rate not in excess of
(x) 125% of the annual rate of the regular cash dividend paid on the Preferred
Stock during the immediately preceding fiscal year (or, if the Preferred Stock
was not outstanding during such preceding fiscal year, then 125% of the annual
rate of the regular cash dividend paid on the Common Stock during such year), or
(y) in the event that a regular cash dividend was not paid on the Preferred
Stock (or Common Stock) during such preceding fiscal year, 5% of the Current
Market Value of the Preferred Stock on the date such regular cash dividend was
first declared), property, evidences of indebtedness, or assets, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price per share of
Preferred Stock on such record date, less the fair market value (as determined
in good faith by a majority of the Continuing Directors (or if no Continuing
Directors are then in office, by the Board of Directors of the Company) whose
determination shall be described in a statement filed with the
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<PAGE> 25
Rights Agent) of such securities, cash, property, evidences of indebtedness or
assets to be so distributed in respect of one share of Preferred Stock, and the
denominator of which shall be such Current Market Price per share of Preferred
Stock on such record date. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not made
following such adjustment, the Purchase Price shall be readjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed
(d) Except as provided below, no adjustment in the Purchase Price shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent to the nearest
ten-thousandth of a share of Common Stock, or to the nearest ten-millionth of a
share of Preferred Stock, as the case may be. Notwithstanding the first sentence
of this Section 11(d), any adjustment required by this Section 11 shall be made
no later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the Expiration Date.
(e) If, as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) of this Agreement, the holder of any Right thereafter exercised
shall become entitled to receive any securities of the Company other than shares
of Preferred Stock, thereafter the Purchase Price and the number of such other
securities so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of Preferred Stock
contained in this Section 11 and the provisions of Sections 7, 9, 10, 12, 13, 14
and 24 with respect to the shares of Preferred Stock shall apply on like terms
to any such other securities.
(f) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Preferred
Stock or other securities, cash or other property purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided in this Agreement.
(g) Unless the Company shall have exercised its election as provided in
Section 11(h), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11 (a)(i), 11 (b) and 11 (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock (calculated to the nearest one
ten-millionth of a share of Preferred Stock) obtained by (i) multiplying the
number of one one-thousandths of a share of Preferred Stock covered by a Right
immediately prior to adjustment pursuant to this Section 11(g) by the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii)
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dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(h) The Company may elect, on or after the date of any adjustment of
the Purchase Price or any adjustment to the number of shares of Preferred Stock
for which a Right may be exercised, to adjust the number of Rights, in lieu of
an adjustment in the number of one one-thousandths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right outstanding prior
to such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to such adjustment by the Purchase
Price in effect immediately after such adjustment. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and. if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter but if the Rights Certificates have been
issued, shall be at least 10 days after the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(h) the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Rights Certificates
on such record date a new Rights Certificate evidencing, subject to Section 14,
the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be distributed
to such holders of record, in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment and upon
surrender thereof (if required by the Company), new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment Rights Certificates to be so distributed shall be issued, executed
and countersigned in the manner provided for in this Agreement (and may bear, at
the option of the Company, the adjusted Purchase Price) and shall be registered
in the names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(i) Irrespective of any adjustment or change in the Purchase Price or
the number or kind of shares issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-thousandth of a share of Preferred Stock and the
number of shares of Preferred Stock which were expressed in the initial Rights
Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of one one-thousandth of a
share of Preferred Stock issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable one one-thousandth shares of such Preferred Stock at such adjusted
Purchase Price.
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(k) In any case in which this Section 11 shall require that an
adjustment be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event the issuance to
the holder of any Right exercised after such record date the shares of Preferred
Stock and other securities, cash or property of the Company, if any, issuable
upon such exercise over and above the shares of Preferred Stock and other
securities, cash or property of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or other securities, cash or property upon the
occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any combination or subdivision of the Preferred Stock, issuance
wholly for cash of any Preferred Stock at less than the Current Market Price,
issuance wholly for cash of Preferred Stock or securities which by their terms
are convertible into or exchangeable or exercisable for Preferred Stock, stock
dividends or issuance of rights, options or warrants referred to in this Section
11, hereafter made by the Company to holders of its Preferred Stock, shall not
be taxable to such stockholders.
(m) The Company covenants and agrees that it shall not (i) consolidate
with, (ii) merge with or into, or (iii) directly or indirectly sell, lease, or
otherwise transfer or dispose of (in one transaction or a series of related
transactions) assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries taken as a whole, to any other
Person if (A) at the time of or immediately after such consolidation, merger,
sale, lease, transfer or disposition there are any rights, warrants, securities
or other instruments outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (B) prior to, simultaneously with or immediately after
such consolidation, merger, sale, lease, transfer or disposition the
stockholders (or equity holders) of the Person who constitutes, or would
constitute, the Principal Party in such transaction shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
or Associates or (C) the form or nature of organization of the Principal Party
would preclude or limit the exercisability of the Rights. The Company shall not
consummate any such consolidation, merger, sale, lease, transfer or disposition
unless prior thereto the Company and such other Person shall have executed and
delivered to the Rights Agent a supplemental agreement evidencing compliance
with this Section 11 (m).
(n) The Company covenants and agrees that, after the Stock Acquisition
Date it will not, except as permitted by Section 11(a)(iv), 26 or 29(b) of this
Agreement, take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such
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action will, directly or indirectly, diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
(o) Anything in this Agreement to the contrary notwithstanding, if the
Company shall at any time prior to the Distribution Date (i) pay a dividend or
distribution on the outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares then the number of
Rights associated with each share of Common Stock then outstanding, or issued or
delivered thereafter but prior to the Distribution Date, and the Purchase Price
under, and the number of one one-thousandths of a share of Preferred Stock
issuable in respect of, the Rights, shall be proportionately adjusted, so that
following such event one Right (with the Purchase Price and the number of one
one-thousandths of a share proportionately adjusted thereunder) shall thereafter
be associated with each share of Common Stock then outstanding, or issued or
delivered thereafter but prior to the Distribution Date For example, if the
Company effects a two-for-one stock split at a time when each Right (if it
becomes exercisable) would entitle the holder to purchase one one-thousandth of
a share of Preferred Stock for a Purchase Price of $"Z", then following such
stock split each previous Right would be split into two current Rights and
thereafter each current Right, upon becoming exercisable would (subject to
further adjustment) entitle the holder to purchase one two thousandth of a share
of Preferred Stock at a Purchase Price of 1/2 X $"Z".
Section 12. Certification of Adjustments. Whenever an adjustment is
made as provided in Sections 11 and 13, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Stock a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Rights Certificate (or, if no
Rights Certificates have been issued, to each holder of a certificate
representing shares of Common Stock) in accordance with Section 2.
Notwithstanding the foregoing sentence, the failure of the Company to give such
notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment. Any adjustment to be made pursuant to Sections
11 and 13 of this Agreement shall be effective as of the date of the event
giving rise to such adjustment.
Section 13. Consolidation. Merger or Sale or Transfer of Assets or
Earning Power.
(a) A "Business Combination" shall be deemed to occur in the event
that, in or following a Triggering Event (i) the Company shall. directly or
indirectly, consolidate with, or merge with and into, any other Person (other
than a Subsidiary of the Company in a transaction that complies with Section
11(m) and Section 11(n) of this Agreement) in a transaction in which the Company
is not the continuing, resulting or surviving corporation of such merger or
consolidation, (ii) any Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(m) and Section 11(n) of this
Agreement) shall, directly or indirectly, consolidate with the Company, or shall
merge with and into the Company, in a transaction in which the Company is the
continuing, resulting
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<PAGE> 29
or surviving corporation of such merger or consolidation and, in connection with
such merger or consolidation, all or part of the Common Stock shall be changed
(including, without limitation, any conversion into or exchange for securities
of the Company or of any other Person, cash or any other property), (iii) the
Company shall, directly or indirectly, effect a share exchange in which all or
part of the Common Stock shall be changed (including, without limitation, any
conversion into or exchange for securities of any other Person, cash or any
other property) or (iv) the Company shall, directly or indirectly, sell, lease,
exchange, mortgage, pledge or otherwise transfer or dispose of (or one or more
of its Subsidiaries shall directly or indirectly sell, lease, exchange,
mortgage, pledge or otherwise transfer or dispose of), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person (other than the Company or any of its Subsidiaries
in one or more transactions each and all of which comply with Section 11 (m) and
Section 11 (n) of this Agreement).
In the event of a Business Combination, proper provision shall be made
so that each holder of a Right (except as otherwise provided in this Agreement)
shall thereafter have the right to receive, upon the exercise thereof at the
Purchase Price immediately prior to the first occurrence of a Triggering Event
multiplied by the number of one one-thousandths of a share of Preferred Stock
for which a Right was exercisable immediately prior to the first occurrence of a
Triggering Event (without giving effect to the Triggering Event) in accordance
with the terms of this Agreement, such number of shares of Common Stock of the
Principal Party as shall be equal to the result obtained by (x) multiplying the
Purchase Price immediately prior to the first occurrence of a Triggering Event
by the number of one one-thousandths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Triggering
Event (without giving effect to the Triggering Event), and (y) dividing that
product by 50% of the Current Market Price per share of the Common Stock of such
Principal Party immediately prior to the consummation of such Business
Combination All shares of Common Stock of any Person for which any Right may be
exercised after consummation of a Business Combination as provided in this
Section 13(a) shall. when issued upon exercise thereof in accordance with this
Agreement, be duly and validly authorized and issued fully paid, nonassessable,
freely tradeable, not subject to liens or encumbrances, and free of preemptive
rights, rights of first refusal or any other restrictions or limitations on the
transfer or ownership thereof of any kind or nature whatsoever.
(b) After consummation of any Business Combination, (i) the Principal
Party shall be liable for. and shall assume, by virtue of such Business
Combination and without the necessity of any further act, all the obligations
and duties of the Company pursuant to this Agreement, (ii) the term "Company" as
used in this Agreement shall thereafter be deemed to refer to such Principal
Party, and (iii) such Principal Party shall take all steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common Stock
in accordance with Section 9) in connection with such Business Combination as
necessary to ensure that the provisions of this Agreement shall
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thereafter be applicable, as nearly as reasonably may be, in relation to the
shares of its Common Stock thereafter deliverable upon the exercise of the
Rights.
(c) The Company shall not consummate any Business Combination unless
prior thereto (i) the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance (other than shares reserved for issuance pursuant to this Agreement to
the holders of Rights) to permit the exercise in full of the Rights in
accordance with this Section 13, (ii) the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the fulfillment of the Principal Party's obligations and the terms
as set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable on or after the date of such Business Combination,
the Principal Party, at its own expense, shall (A) prepare and file, if
necessary, a registration statement on an appropriate form under the Securities
Act with respect to the Rights and the securities purchasable upon exercise of
the Rights, (B) use its best efforts to cause such registration statement to
become effective as soon as practicable after such filing and remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date, (C) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act, (D) use its best efforts to qualify or
register the Rights and the securities purchasable upon exercise of the Rights
under the state securities or "blue sky" laws of such jurisdictions as may be
necessary or appropriate, (E) use its best efforts to list the Rights and the
securities purchasable upon exercise of the Rights on a United States national
securities exchange, and (F) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Stock of the Principal Party subject
to purchase upon exercise of outstanding Rights, (iii) the Company and the
Principal Party shall have furnished to the Rights Agent an opinion of
independent counsel stating that such supplemental agreement is a legal, valid
and binding agreement of the Principal Party enforceable against the Principal
Party in accordance with its terms, and (iv) the Company and the Principal Party
shall have filed with the Rights Agent a certificate of a nationally recognized
firm of independent accountants setting forth the number of shares of Common
Stock of such issuer which may be purchased upon the exercise of each Right
after the consummation of such Business Combination
(d) The provisions of this Section 13 shall similarly apply to
successive Business Combinations. In the event a Business Combination shall be
consummated at any time after the occurrence of a Triggering Event, the Rights
which have not theretofore been exercised shall thereafter be exercisable for
the consideration and in the manner described in Section 13(a) Following a
Business Combination, the provisions of Section 11(a)(ii) of this Agreement
shall be of no effect.
(e) Notwithstanding any other provision of this Agreement, no
adjustment to the number of shares of Preferred Stock (or fractions of a share)
or other securities, cash or other property for
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which a Right is exercisable or the number of Rights outstanding or associated
with each share of Common Stock or any similar or other adjustment shall be made
or be effective if such adjustment would have the effect of reducing or limiting
the benefits the holders of the Rights would have had absent such adjustment,
including, without limitation, the benefits under Sections 11 and 13, unless the
terms of this Agreement are amended so as to preserve such benefits.
(f) The Company covenants and agrees that it shall not effect any
Business Combination if at the time of, or immediately after such Business
Combination, there are any rights, options, warrants or other instruments
outstanding which would diminish or otherwise eliminate the benefits intended to
be afforded by the Rights.
(g) Without limiting the generality of this Section 13, in the event
the nature of the organization of any Principal Party shall preclude or limit
the acquisition of Common Stock of such Principal Party upon exercise of the
Rights as required by Section 13(a) as a result of a Business Combination, it
shall be a condition to such Business Combination that such Principal Party
shall take such steps (including, but not limited to, a reorganization) as may
be necessary to ensure that the benefits intended to be derived under this
Section 13 upon the exercise of the Rights are assured to the holders thereof.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractional Rights or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company may at its option pay to the registered holders
of the Rights Certificates with respect to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of a Right
for the Trading Day immediately prior to the date on which such fractional
Rights otherwise would have been issuable. The closing price for any Trading Day
shall be the last sale price on such day, regular way or in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, on such day, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal United States national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any United States national securities exchange the last
quoted sale price on such day or, if not so quoted, the average of the high bid
and low asked prices on such day in the over-the-counter market, as reported by
Nasdaq or such other system then in use or, if on such day the Rights are not
quoted by any such system, the average of the closing bid and asked prices on
such day as furnished by a professional market maker making a market in the
Rights selected by a majority of the Continuing Directors (or if no Continuing
Directors are then in office,
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the Board of Directors of the Company). If on such day no such market maker is
making a market in the Rights, the current market value of the Rights on such
day shall be determined in good faith by a majority of the Continuing Directors
(or if no Continuing Directors are then in office, the Board of Directors of the
Company), whose determination shall be described in a statement filed with the
Rights Agent and shall be binding and conclusive for all purposes.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). Fractions of shares of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock. In lieu of fractional
shares of Preferred Stock that are not integral multiples of one one-thousandth
of a share of Preferred Stock, the Company may at its option (i) issue scrip or
warrants in registered form (either represented by a certificate or
uncertificated) or in bearer form (represented by a certificate) which shall
entitle the holder to receive a full one one-thousandth of a share of Preferred
Stock upon the surrender of such scrip or warrants aggregating a full one
one-thousandth of a share of Preferred Stock, or (ii) pay to the registered
holders of Rights Certificates at the time such Rights Certificates are
exercised as provided in this Agreement an amount in cash equal to the same
fraction of the current market value of a share of Preferred Stock. For purposes
of this Section 14(b), the current market value of a share of Preferred Stock
shall be the closing price of a share of Preferred Stock (as determined pursuant
to the second sentence of the definition of "Current Market Price" in Section 1)
for the Trading Day immediately prior to the date of such exercise
(c) The Company shall not be required to issue fractions of shares of
Common Stock or Common Stock Equivalents or to distribute certificates which
evidence fractional shares of Common Stock or Common Stock Equivalents. In lieu
of such fractional shares of Common Stock or Common Stock Equivalents the
Company shall pay to the registered holders of the Rights Certificates with
regard to which such fractional shares of Common Stock or Common Stock
Equivalents would otherwise be issuable an amount in cash equal to the product
derived by multiplying (x) the subject fraction, by (y) Current Market Price of
the Company's Common Stock
(d) The holder of a Right by his acceptance thereof expressly waives
any right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as otherwise provided in this Agreement)
Section 15. Rights of Action. Except as otherwise provided, all rights
of action in respect of this Agreement are vested in the respective registered
holders of the Rights Certificates (and, prior
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to the Distribution Date, any registered holders of associated Common Stock),
and any registered holder of any Rights Certificate (or, prior to the
Distribution Date, any share of associated Common Stock), without the consent of
the Rights Agent or of the holder of any other Right, may, on his own behalf and
for his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
rights pursuant to this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders Concerning Transfer and
Ownership of Rights. Every holder of a Right by accepting the same consents and
agrees with the Company and the Rights Agent and with every other holder of a
Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates will be
transferable on the registry books of the Rights Agent only if surrendered at
the principal corporate trust office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name a Rights Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Rights Certificate or the associated Common Stock certificate
made by anyone other than the Company, the transfer agent for the Common Stock
or the Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary.
Section 17. Rights Holder Not Deemed a Stockholder. No holder, as such,
of any Rights Certificate shall be entitled to vote or to receive dividends or
distributions or shall be deemed for any purpose the holder of Preferred Stock
or any other securities, cash or other property which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained in this Agreement or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company, including, without limitation, any right (i) to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, (ii) to give or withhold consent to any corporate action,
(iii) to receive notice of meetings or other actions affecting stockholders
(except as provided in Section 24), (iv) to receive dividends, distributions or
subscription rights, (v) to institute, as a holder of Preferred Stock or other
securities issuable on exercise of the Rights represented by any Rights
Certificate any derivative
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action on behalf of the Company, or otherwise, until and only to the extent that
the Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions of this Agreement.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith, willful misconduct or breach of this Agreement on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Rights Certificate or
certificate for Preferred Stock or Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document reasonably believed by it to be genuine and to be signed,
executed and, when necessary, verified or acknowledged, by the proper Person or
Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the corporate trust
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any document or any further act on the part of any of the parties
hereto, provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Rights Certificate so countersigned,
and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificate either in the name of the predecessor Rights Agent or in the name of
the successor Rights Agent, and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
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In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or the determination of Current
Market Price) be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be specifically prescribed in this Agreement) may be deemed to
be conclusively proved and established by a certificate signed by the Chairman
of the Board and Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company and delivered to the Rights Agent, and
such certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for the gross
negligence, bad faith, willful misconduct or breach of this Agreement by it or
its attorneys or agent.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution and delivery of this Agreement by the Rights
Agent) or in respect of the validity or execution of any Rights Certificate
(except its countersignature thereof), nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Rights Certificate;
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<PAGE> 36
nor shall it be responsible for any change or adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Sections
3, 11, 13 or 23 or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any change or adjustment
is required), nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Preferred Stock, Common Stock or other securities to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any shares of
Preferred Stock, Common Stock or other securities will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performance by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board and Chief Executive Officer, the President, any Vice
President, the Secretary or the Treasurer of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though the Rights Agent were not
serving as such under this Agreement. Nothing in this Agreement shall preclude
the Rights Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause I and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock or Preferred Stock by
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registered or certified mail, and to the holders of the Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock or Preferred Stock by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. Notwithstanding any other
provision of this Agreement, in no event shall the resignation or removal of a
Rights Agent be effective until a successor Rights Agent shall have been
appointed and have accepted such appointment. If the Company shall fail to make
such appointment within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by any holder of a Rights Certificate (who shall,
with such notice submit his Rights Certificate for inspection by the Company),
then the incumbent Rights Agent or the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court shall be a corporation organized and doing business
under the laws of the United States or of the State of Tennessee (or of any
other state of the United States so long as such corporation is authorized to
conduct a corporate trust or banking business in the State of Tennessee) in good
standing, which is authorized under such laws to exercise corporate trust powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed, but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for such purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock or Preferred Stock and mail a notice thereof in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights Certificates to the contrary,
the Company may, at its option, issue new Rights Certificates evidencing new
Rights in such form as may be approved by a majority of the Continuing Directors
(or if no Continuing Directors are then in office, by the Board of Directors of
the Company) to reflect any adjustment or change in the Purchase Price per share
and the number or kind or class of securities, cash or other property
purchasable under the Rights Certificates made in accordance with the provisions
of this Agreement.
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Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the Stock Acquisition Date and (ii) the
Expiration Date, redeem all but not less than all of the then-outstanding Rights
at a redemption price of $.01 per Right (the "Redemption Price") appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date of this Agreement. The Company may, at its option, pay
the Redemption Price in cash, shares (including fractional shares) of Common
Stock (based on the Current Market Price of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board
of Directors.
(b) At the time and date of effectiveness set forth in any resolution
of the Board of Directors of the Company ordering the redemption of the Rights,
without any further action and without any further notice the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price; provided, however, that such
resolution of the Board of Directors of the Company may be revoked, rescinded or
otherwise modified at any time prior to the time and date of effectiveness set
forth in such resolution, in which event the right to exercise will not
terminate at the time and date originally set for such termination by the Board
of Directors of the Company. As soon as practicable after the action of the
Board of Directors of the Company ordering the redemption of the Rights, the
Company shall give notice of such redemption to the Rights Agent and to the
holders of the then-outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the issuance of Rights Certificates, on the registry
books of the transfer agent for the Common Stock. Any notice which is mailed in
the manner provided in this Agreement shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made In any case, failure
to give such notice by mail, or any defect in the notice, to any particular
holder of Rights shall not affect the sufficiency of the notice to other holders
of Rights. In the case of a redemption permitted under this Section 23, the
Company may, at its option, discharge all of its obligations with respect to the
Rights by (i) issuing a press release announcing the manner of redemption of the
Rights and (ii) mailing payment of the Redemption Price to the registered
holders of the Rights at their last addresses as they appear on the registry
books of the Rights Agent or, prior to the issuance of the Rights Certificates,
on the registry books of the transfer agent for the Common Stock, and upon such
action, all outstanding Rights Certificates shall be null and void without any
further action by the Company. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23, and other
than in connection with the purchase of shares of Common Stock prior to the
earlier of the Distribution Date and the Expiration Date.
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<PAGE> 39
Section 24. Notice of Certain Events. In case the Company, on or after
the Distribution Date, shall propose to (a) pay any dividend payable in stock of
any class to the holders of its Preferred Stock or to make any other
distribution to the holders of its Preferred Stock (other than a regular
periodic cash dividend at an annual rate not in excess of 125% of the annualized
rate of the cash dividend paid on the Preferred Stock during the immediately
preceding fiscal year), or (b) offer to the holders of its Preferred Stock
rights, options, or warrants to subscribe for or to purchase any additional
shares of Preferred Stock or shares of stock of any class or any other
securities, rights or options, or (c) effect any reclassification of the
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock, a change in the par value of such
Preferred Stock or a change from par value to no par value), or (d) directly or
indirectly effect any consolidation or merger into or with, or effect any sale,
lease, exchange, or other transfer or disposition (or to permit one or more of
its Subsidiaries to effect any sale, lease, exchange or other transfer or
disposition), in one transaction or a series of related transactions, of more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to, any other Person, or (e) effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right, in accordance with Section 25, a notice of
such proposed action, which shall specify any record date for the purposes of
such stock dividend or distribution of rights, or the date on which such
reclassification, consolidation, merger, sale, lease, exchange, transfer,
disposition, liquidation, dissolution, or winding up is to take place and if
such holders will or may participate therein, the date of participation therein
by the holders of Common Stock and/or Preferred Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least 20 days prior to the record date for
determining holders of the Preferred Stock for purposes of such action, and in
the case of any such other action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein, if any, by
the holders of Preferred Stock, whichever shall be the earlier. The failure to
give notice as required by this Section 24 or any defect therein shall not
affect the legality or validity of the action taken by the Company or the vote
upon any such action.
In case any Triggering Event or Business Combination shall occur, then,
in any such case, the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, in accordance with Section 25, notice of
the occurrence of such Triggering Event or Business Combination, which shall
specify the Triggering Event or Business Combination and include a description
of the consequences of such event to holders of Rights under Section 11(a)(ii)
or 13.
Section 25. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agreement) as follows:
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<PAGE> 40
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: Chief Executive Officer
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Union Planters National Bank
Corporate Trust Department
PO Box 387
Memphis, Tennessee 38147
Attention: Account Officer
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company (or, if no Rights Certificates have been issued, if sent by
first-class mail, postage prepaid, addressed to each holder of a certificate
representing shares of Common Stock at the address of such holder as shown on
the Company's Common Stock registry books).
Section 26. Supplements and Amendments
(a) At any time prior to the Stock Acquisition Date, a majority of the
Continuing Directors (or, if no Continuing Directors are then in office, the
Board of Directors of the Company) may, except as provided in Section 26(c), and
the Rights Agent shall, if so directed, supplement or amend any provision of
this Agreement without the approval of any holders of Rights; provided, however,
that no amendment shall adversely affect the rights of any Exempt Person without
the written consent of such Person
(b) From and after the Stock Acquisition Date, a majority of the
Continuing Directors (or, if no Continuing Directors are then in office, the
Board of Directors of the Company) may, except as provided in Section 26(c), and
the Rights Agent shall, if so directed, amend this Agreement without the
approval of any holders of Rights Certificates (i) to cure any ambiguity, (ii)
to correct or supplement any provision contained in this Agreement which may be
defective or inconsistent with any other provision of this Agreement, or (iii)
to change or supplement the provisions hereunder in any manner which the Company
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person).
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<PAGE> 41
(c) No supplement or amendment to this Agreement shall be made which
changes the Purchase Price, the number of shares of Preferred Stock, other
securities, cash or other property for which a Right is then exercisable or the
Redemption Price or provides for an earlier Expiration Date.
(d) Immediately upon the action of a majority of the Continuing
Directors (or, if no Continuing Directors are then in office, the Board of
Directors) providing for any amendment or supplement pursuant to this Section
26, and without any further action and without notice, such amendment or
supplement shall be deemed effective. Promptly following the adoption of any
amendment or supplement pursuant to this Section 26, the Company shall deliver
to the Rights Agent a copy, certified by the Secretary or any Assistant
Secretary of the Company, of resolutions of a majority of the Continuing
Directors (or, if no Continuing Directors are then in office, the Board of
Directors of the Company) adopting such amendment or supplement. Upon such
delivery, the amendment or supplement shall be administered by the Rights Agent
as part of this Agreement in accordance with the terms of this Agreement as so
amended or supplemented
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Benefits of this Agreement; Determinations and Actions by
the Board of Directors. Nothing in this Agreement shall be construed to give to
any Person other than the Company, the Rights Agent, an Exempt Person and the
registered holders of Rights any legal or equitable right, remedy or claim under
this Agreement, it being understood that each Exempt Person has relied, and will
continue to rely, on the exemption set forth herein, and, except as set forth
above this Agreement shall be for the sole and exclusive benefit of the Company,
the Rights Agent and the registered holders of the Rights.
For purposes of this Agreement any calculation of the number of shares
of Common Stock outstanding at any particular time shall be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act (or any successor provision); provided,
however, that any such calculation made for purposes of determining the
particular percentage of outstanding shares of Common Stock of which any Person
is the Beneficial Owner shall also include any such other securities not then
actually issued and outstanding which such Person would be deemed to be the
Beneficial Owner of, or to "beneficially own," pursuant to Section l(d) of this
Agreement The Board of Directors of the Company (or, where specifically provided
for herein, a majority of the Continuing Directors) shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Continuing Directors, the Board of Directors
of the Company or the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination
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<PAGE> 42
to redeem or not redeem the Rights, to exchange or not exchange the Rights for
Common Stock or other securities of the Company, or to amend or supplement this
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board of Directors of the Company (or,
where specifically provided for herein, a majority of the Continuing Directors)
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other Persons, and (y) not
subject the Board of Directors of the Company or the Continuing Directors to any
liability to the holders of the Rights.
Section 29. Severability.
(a) If any term, provision, covenant or restriction of this Agreement
or the application thereof to any Person or to any circumstance is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) If legal counsel to the Company delivers to the Company a written
opinion to the effect that, as a result of changes in federal law or Tennessee
law, any term, provision, covenant or restriction of this Agreement may be
invalid, void, or unenforceable, then, notwithstanding any other provision of
this Agreement, the Company and the Rights Agent may amend this Agreement to
modify, revise or delete such term, provision, covenant or restriction to the
extent necessary to comply with such law as so changed.
Section 30. Governing Law. This Agreement and each Rights Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Tennessee and for all purposes shall be governed by and construed in
accordance with the internal laws of such state applicable to contracts to be
made and performed entirely within such State.
Section 31. Counterparts. This Agreement may be executed in
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and both such counterparts shall together constitute but one and
the same instrument.
Section 32. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions of this
Agreement.
Section 33. Grammatical Construction. Throughout this Agreement, where
such meanings would be appropriate, (a) any pronouns used herein shall include
the corresponding masculine, feminine or neuter forms (e g., references to "he"
shall also include "she" and "it" and references to "who" and "whom" shall also
include "which"), and (b) the plural form of nouns and
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<PAGE> 43
pronouns shall include the singular and vice-versa (e g., references to
"Continuing Directors" shall also mean "Continuing Director" if there be only
one Continuing Director at the relevant time).
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
KING PHARMACEUTICALS, INC.
By:
-------------------------
Title:
----------------------
UNION PLANTERS NATIONAL BANK
By:
-------------------------
Title:
----------------------
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<PAGE> 44
EXHIBIT "A"
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A
OF
KING PHARMACEUTICALS, INC.
Pursuant to the Tennessee Business Corporation Act
I, John M. Gregory, Chairman of the Board and Chief Executive Officer
of King Pharmaceuticals, Inc., a corporation organized and existing under the
laws of the State of Tennessee, in accordance with the provisions thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Second Amended and Restated Charter, the Board of Directors on ___________
__, 1997, adopted the following resolution creating a series of 50,000 shares of
Preferred Stock designated as Junior Participating Preferred Stock, Series A:
RESOLVED, that pursuant to the authority vested in the Board by Section
2 of the Second Amended and Restated Charter, a series of Preferred Stock of the
Corporation be, and it hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Junior Participating Preferred Stock, Series A" (the "Series A
Preferred Stock") and the number of shares constituting such series shall be
50,000.
Section 2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock and of
any other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the fifteenth day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred
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<PAGE> 45
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $25.00 or (b) the Adjustment Number (as defined below) times the
aggregate per share amount of all cash dividends, and the Adjustment Number
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. The "Adjustment Number" shall initially be 1000. In
the event the Corporation shall at any time after ___________ __, 1997 (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock into a greater number of shares or
(iii) combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per share on
the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
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<PAGE> 46
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each share of Series A Preferred Stock shall entitle the holder
thereof to a number of votes equal to the Adjustment Number (as adjusted from
time to time pursuant to Section 2A hereof) on all matters submitted to a vote
of the stockholders of the Corporation.
(b) Except as otherwise provided herein, in the Second Amended and
Restated Charter or bylaws, as amended, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of the Corporation.
(c) (i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of
a period (herein called a "default period") that shall extend until
such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly period on all
shares of Series A Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period,
(1) the number of Directors shall be increased by two, effective as of
the time of election of such Directors as herein provided, and (2) the
holders of Series A Preferred Stock and the holders of other Preferred
Stock upon which these or like voting rights have been conferred and
are exercisable (the "Voting Preferred Stock") with dividends in
arrears equal to six quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect such two
Directors.
(ii) During any default period, such voting right of the
holders of Series A Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that such voting right shall not be
exercised unless the holders of at least one-third in number of the
shares of Voting Preferred Stock outstanding shall be present in person
or by proxy. The absence of a quorum of the holders of Common Stock
shall not affect the exercise by the holders of Voting Preferred Stock
of such voting right.
(iii) Unless the holders of Voting Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than 10%
of the total number of shares of Voting Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Voting Preferred Stock, which meeting shall thereupon
be called by the Chairman of the Board, the President, a Vice President
or the Secretary of the Corporation. Notice of such meeting and of any
annual
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<PAGE> 47
meeting at which holders of Voting Preferred Stock are entitled to vote
pursuant to this paragraph (C)(iii) shall be given to each holder of
record of Voting Preferred Stock by mailing a copy of such notice to
him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or, in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than 10%
of the total number of shares of Voting Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, after the holders of Voting
Preferred Stock shall have exercised their right to elect Directors
voting as a class, (x) the Directors so elected by the holders of
Voting Preferred Stock shall continue in office until their successors
shall have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may be
filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class or classes of stock which elected
the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class
or classes of stock shall include Directors elected by such Directors
to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Voting Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the
holders of Voting Preferred Stock as a class shall terminate and (z)
the number of Directors shall be such number as may be provided for in
the Amended and Restated Certificate of Incorporation or Amended and
Restated By-Laws irrespective of any increase made pursuant to the
provisions of paragraph (C) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or
in the Amended and Restated Certificate of Incorporation or Amended and
Restated By-Laws). Any vacancies in the Board of Directors effected by
the provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(d) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and
A-4
<PAGE> 48
unpaid dividends and distributions, whether or not declared, on shares
of Series A Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled:
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
A-5
<PAGE> 49
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received the greater of (i) $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, and (ii) an aggregate amount per
share, equal to the Adjustment Number (as adjusted from time to time pursuant to
Section 2A hereof) times the aggregate amount to be distributed per share to
holders of Common Stock, or (B) to the holders of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Section 7. Consolidation, Merger. etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock then outstanding shall at the same time be similarly
exchanged or changed in an amount per share equal to the Adjustment Number (as
adjusted from time to time pursuant to Section 2A hereof) times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Amendment. The Second Amended and Restated Charter of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this ______ day
of _______, 1997.
-------------------------------------------------
Chairman of the Board and Chief Executive Officer
A-6
<PAGE> 50
EXHIBIT "B"
[Form of Rights Certificate]
Certificate No. R- __________Rights
NOT EXERCISABLE AFTER DECEMBER _, 2007 OR EARLIER IF NOTICE
OF REDEMPTION OR EXCHANGE IS GIVEN. THE RIGHTS ARE SUBJECT TO
REDEMPTION OR EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON
(AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT. ]
Rights Certificate
KING PHARMACEUTICALS, INC.
This certifies that ____________________________, or registered
assigns. is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of _______ ___, 1997 (the "Rights
Agreement") between King Pharmaceuticals, Inc., a Tennessee corporation (the
"Company"). and Union Planters National Bank, a national banking corporation
(the "Agent"), unless notice of redemption shall have been previously given by
the Company, to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M.
(Eastern Time) on December ___, 2007, at the principal corporate trust office of
the Rights Agent, or at the office of its successor as Rights Agent, one
one-thousandth of a fully paid nonassessable share of the Junior Participating
Preferred Stock, Series A, no par value per share, of the Company (the
"Preferred Stock"), at a purchase price (the "Purchase Price") of $.01 per one
one-thousandth share, upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase duly executed. The Purchase Price may be
paid in cash or by certified bank check or bank draft payable to the order of
the Company
As provided in the Rights Agreement, the Purchase Price and the number
of shares of Preferred Stock or other securities, cash or other property which
may be purchased upon the exercise
B-1
<PAGE> 51
of the Rights evidenced by this Rights Certificate are subject to modification
and adjustment upon the happening of certain events.
If the Rights evidenced by this Rights Certificate are or were formerly
beneficially owned, on or after the earlier of the Distribution Date and the
Stock Acquisition Date, by (i) an Acquiring Person or any Associate or Affiliate
of an Acquiring Person, or (ii) a direct or indirect transferee of an Acquiring
Person (or of any Associate or Affiliate of an Acquiring Person), such Rights
may become null and void, in which event the holder of any such Right (including
any subsequent holder) shall not have any right with respect to such Right.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates Capitalized
terms used but not defined in this Rights Certificate that are defined in the
Rights Agreement shall have the same meanings ascribed to them in the Rights
Agreement Copies of the Rights Agreement are on file at the principal executive
offices of the Company and the above-mentioned office of the Rights Agent.
This Rights Certificate with or without other Rights Certificates, upon
surrender at the principal corporate trust office of the Rights Agent, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like aggregate
number of shares of Preferred Stock or other property as the Rights evidenced by
the Rights Certificate or Rights Certificates surrendered entitled such holder
to purchase If this Rights Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Rights Certificate or
Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (a) may be redeemed by the Board of Directors of the Company
at its option at a redemption price of $. 01 per Right subject to adjustment,
payable, at the election of the Company in cash or shares (including fractional
shares) of Common Stock or such other consideration as the Board of Directors
may determine, at any time prior to the earlier of (i) 12:00 a m. (midnight,
Eastern Time) on the Stock Acquisition Date, and (ii) the Expiration Date, or,
(b) may be exchanged after the Stock Acquisition Date by the Board of Directors
of the Company at its option in whole or in part for shares of the Company's
Common Stock or other Company securities.
No fractional shares of Preferred Stock (other than fractions that are
integral multiples of one one-thousandth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depository receipts) are
required to be issued upon the exercise of any Right or Rights evidenced hereby,
but in lieu thereof the Company may elect to (i) evidence fractional shares by
depositary receipts, (ii) issue scrip or warrants in registered form (either
represented by a certificate
B-2
<PAGE> 52
or uncertificated) or in bearer form (represented by a certificate) which shall
entitle the holder to receive a full share upon the surrender of such scrip or
warrants aggregating a full share, or (iii) make a cash payment, as provided in
the Rights Agreement
No holder of this Rights Certificate, as such, shall be entitled to
vote or to receive dividends on, or shall be deemed for any purpose the holder
of, Preferred Stock or of any other securities, cash or property which may at
any time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or this Certificate be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company, including,
without limitation, any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or to institute, as a holder of
Preferred Stock or other securities issuable on the exercise of the Rights
represented by this Certificate, any derivative action, or otherwise, until and
only to the extent the Right or Rights evidenced by this Rights Certificate
shall have been exercised as provided in the Rights Agreement
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent
* * * * *
B-3
<PAGE> 53
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _________________,________.
KING PHARMACEUTICALS, INC.
By:
--------------------------
Countersigned:
By:
-------------------------------
Authorized Signature
B-4
<PAGE> 54
[Form of Reverse Side of Rights Certificate]
FORM OF ASSlGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED the undersigned _______________________________
hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
____________ Rights evidenced by this Rights Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _________________ Attorney, to transfer the said Rights and a Rights
Certificate evidencing such Rights on the books of King Pharmaceuticals, Inc.,
with full power of substitution.
A new Rights Certificate evidencing the remaining balance, if any, of
such Rights not hereby sold, assigned and transferred shall be mailed to and
registered in the name of the undersigned unless such person requests that such
Rights Certificate be registered in the name of and mailed to (complete only if
a Rights Certificate evidencing any remaining balance of Rights is to be
registered in a name other than the undersigned).
Please insert Social Security or
other identifying number of transferee: _________________________________
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
<PAGE> 55
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
1. this Rights Certificate or any Rights evidenced hereby [ ] are [ ]
are not being sold, assigned and transferred by or on behalf of a Person who
is or was an Acquiring Person or an Affiliate or Associate of an Acquiring
Person (as such terms are defined in the Rights Agreement);
2. after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire any of the Rights evidenced by this
Rights Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ___________________________ -----------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
NOTICE
The signature on the foregoing Form of Assignment must correspond to
the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment is not completed, the Company will deem the beneficial owner of the
Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the
case of an assignment or other transfer of this Rights Certificate or any Rights
evidenced hereby, will affix a legend to that effect on any Rights Certificate
issued in whole or partial exchange for this Rights Certificate.
<PAGE> 56
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
the Rights represented by this Rights Certificate)
To: KING PHARMACEUTICALS, INC.
The undersigned hereby irrevocably elects to exercise _________________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock or other securities, cash or other property issuable upon the
exercise of such Rights and requests that certificates for such shares or other
securities be issued in the name of, and such cash or other property be paid to:
Please insert social security
or other identifying number: ________________________
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
A new Rights Certificate evidencing the remaining balance, if any, of
such Rights not hereby exercised shall be mailed to and registered in the name
of the undersigned unless such person requests that such Rights Certificate be
registered in the name of and mailed to (complete only if Rights Certificate
evidencing any remaining balance of Rights is to be registered in a name other
than the undersigned):
Please insert social security
or other identifying number. _________________________
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
<PAGE> 57
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
1. the Rights evidenced by this Rights Certificate are not being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such terms are defined in the
Rights Agreement);
2. after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ___________________________ -----------------------------
Signature
Signature Guaranteed
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
NOTICE
The signature on the foregoing Form of Election to Purchase must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever
In the event the certification set forth above in the Form of Election
to Purchase is not completed, the Company will deem the beneficial owner of the
Rights evidenced by this Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the
case of an assignment or other transfer of this Rights Certificate or any Rights
evidenced hereby, will affix a legend to that effect on any Rights Certificate
issued in whole or partial exchange for this Rights Certificate.
<PAGE> 1
EXHIBIT 5.1
[BAKER DONELSON LETTERHEAD]
October 21, 1997
Board of Directors
King Pharmaceuticals, Inc.
501 Fifth Street
Re: Registration Statement on Form S-1
Dear Board of Directors:
We have acted as counsel to King Pharmaceuticals, Inc., a Tennessee
corporation (the "Company"), in connection with the registration of 9,200,000
shares of Common Stock (the "Common Stock") of the Company. The Company has
filed a Registration Statement on Form S-1 pursuant to the Securities Act of
1933, as amended (the "Registration Statement").
We have acted as counsel for the Company in connection with the
proposed transaction and have assisted with the preparation of the Registration
Statement and various corporate documents related thereto. We have examined and
relied upon the following documents and instruments for the purpose of giving
this opinion, which, to our knowledge and in our judgment, are all of the
documents and instruments that are necessary for us to examine for such purpose:
1. The Registration Statement, the prospectus filed therewith (the
"Prospectus") and all exhibits thereto;
2. A copy of the Company's Charter certified by the Tennessee
Secretary of State and a copy of the proposed Form of Second
Amended and Restated Charter;
3. A copy of the Company's Bylaws certified by the Secretary of the
Company and a copy of the proposed Form of Amended and Restated
Bylaws;
4. The minute book of the Company; and
<PAGE> 2
Board of Directors
October 21, 1997
Page 2
5. The stock records of the Company.
In giving our opinion, we have assumed without investigation the
authenticity of any document or instrument submitted to us as an original, the
conformity to the authentic original of any document or instrument submitted to
us as a certified, conformed or photostatic copy and the genuineness of all
signatures on such originals or copies.
Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that (i) the Company
is a corporation duly incorporated and validly existing under the laws of the
State of Tennessee and (ii) the Common Stock, when issued in accordance with the
Registration Statement, will be validly issued, fully paid and nonassessable.
Our opinion is subject to the following qualifications and limitations:
i. The opinions expressed herein are subject to the effect of
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights and equitable principles limiting the
availability of equitable remedies on the enforceability of contracts,
agreements and instruments.
ii. Members of our firm are qualified to practice law in the State of
Tennessee and nothing contained herein shall be deemed to be an opinion as to
any law, rule or regulation other than the law of the State of Tennessee and the
federal law of the United States.
iii. The opinions set forth herein are expressed as of the date hereof
and, except during the time prior to the effectiveness of the Registration
Statement filed with the Securities and Exchange Commission, we disclaim any
undertaking to advise you of any changes which may subsequently be brought to
our attention in the facts and the law upon which such opinions are based.
This opinion is intended to be used as an exhibit to the Registration
Statement filed with the Securities and Exchange Commission. Except for such
use, neither this opinion nor copies hereof may be relied upon by, delivered to,
or quoted in whole or in part without our prior written consent.
We consent to the reference of our firm name under the caption LEGAL
MATTERS in the Prospectus and to the use of our opinion as an exhibit to the
Registration Statement. In giving these consents, we do not admit that we come
within the category of persons whose consent is
<PAGE> 3
Board of Directors
October 21, 1997
Page 3
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
$3,500,000.00 Bristol, Tennessee
December 28, 1993
FOR VALUE RECEIVED, RSR Acquisition Corporation, a Tennessee
corporation ("Maker"), unconditionally promises to pay to the order of RSR
Laboratories, Inc. ("Payee"), at Payee's office in 501 Fifth Street, Bristol, TN
37620, or at such other place as the holder hereof may designate in writing, the
principal sum of
Three Million Five Hundred Thousand And No/100 Dollars
($3,500,000.00)
and to pay simple interest at the rate of six percent (6%) per annum on the
principal balance hereof from time to time remaining unpaid prior to maturity
(whether by acceleration or otherwise, "Maturity") in ten (10) equal annual
installments of principal and interest, the first annual installment being due
and payable on the 28th day of December, 1994, and consecutive annual
installments being due and payable thereafter on the 28th day of each succeeding
December with the final installment at Maturity.
1. Prepayment. This Note may be prepaid in whole or in part at any time and
from time to time without premium or penalty. All prepayments shall be applied
first to accrued interest and thereafter to unpaid principal.
2. Collateral. This Note is given to evidence a debt for a portion of the
purchase price for certain assets purchased by Maker from Payee, including
certain real property and improvements located at 501 Fifth Street, Bristol,
Tennessee (the "Real Estate"), and is secured by a Deed of Trust for the Real
Estate, executed by Maker in favor of Payee.
3. Default. The occurrence of any one or more of the following events shall
constitute a default (an "Event of Default") under this Note: (a) Maker or
guarantor of this Note shall (i) apply for or consent to the appointment of a
receiver, trustee, or liquidator of itself, or of all or a substantial part of
its assets, (ii) be unable, or admit in writing its inability to pay its debts
as they fall due, (iii) make a general assignment for the benefit of its
creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any insolvency law or an
answer admitting the material allegations of a petition filed against it in any
bankruptcy, reorganization, or insolvency proceeding, or any corporate action
shall be taken by it for the purpose of
<PAGE> 2
effecting any of the foregoing; (b) an order, judgment or decree shall be
entered, without the application, consent or approval of Maker, by any court of
competent jurisdiction, approving a petition seeking reorganization of Maker or
appointing a receiver, trustee, or liquidator of Maker or of all or a
substantial part of its assets and such order, judgment or decree shall continue
unstayed and in effect for any period of more than thirty (30) consecutive days;
or (c) Maker shall fail to make payment of any installment within ten (10) days
of the date such installment is due.
4. Standstill. The holder of this Note shall not exercise any remedy
provided hereunder for a period of not less than one hundred (100) days
following any Event of Default.
5. Right of Offset. Maker, Payee, and/or Harold A. Robinson, John A.
Robinson, and Jack A. Sitgreaves (individually or collectively, as appropriate)
are parties to a Closing Memorandum, dated December 28, 1993, and other
agreements referenced in such Closing Memorandum (the "Agreements"). Maker, from
time to time, may offset against amounts due under this Note in accordance with
the terms and conditions of any or all of the Agreements.
6. Remedies. If an Event of Default shall occur, and be then continuing,
the holder of this Note, at its option, may declare immediately due and payable
the entire unpaid principal balance of, and all accrued interest on, this Note,
and exercise any other right or remedy provided at law or in equity.
7. Escrow. This Note is being placed in escrow pursuant to an Escrow
Agreement, of even date herewith between Maker, Payee, Harold A. Robinson, John
A. Robinson, and Jack A. Sitgreaves, and Gentry Locke, Rakes & Moore ("Escrow
Agent"). Notwithstanding anything in this Note to the contrary, no payment shall
be due hereunder until this Note is released from escrow by the Escrow Agent in
accordance with the provisions of such Escrow Agreement.
8. No Waiver. No delay in the exercise of any power or right under this
Note shall operate as a waiver thereof, nor shall a single or partial exercise
of any power or right preclude other or further exercise thereof or the exercise
of any other power or right.
9. Attorneys' Fees. If any action is taken to enforce any provision of this
Note whether by legal proceedings or through a bankruptcy court, the prevailing
party in such action shall be paid its reasonable attorneys' fees and collection
fees by the other party.
10. Governing Law. This Note shall be construed in accordance with and
governed by laws of the State of Tennessee and of the United States applicable
to the State of Tennessee.
<PAGE> 3
11. Headings. The headings of the sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part hereof.
12. Notices. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered on the date received whether delivered in person
or by United States mail at the address set forth below (or at such other
address as a party may supply by written notice to the other parties); or on the
date a facsimile transmission is confirmed as to content by a writing deposited
on the same day in the U.S. mail, postage prepaid, registered or certified mail,
return receipt requested:
If to the Payee:
RSR Laboratories, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: Mr. John S. Robinson
If to the Maker: RSR Acquisition Corporation
501 Fifth Street
Bristol, TN 37620
Attention: Mr. John M. Gregory
IN WITNESS WHEREOF, THE MAKER HAS EXECUTED THIS NOTE AS OF THE DATE AND
YEAR FIRST ABOVE WRITTEN.
RSR Acquisition Corporation
By: /s/ Randal J. Kirk
---------------------------
Randal J. Kirk
President
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
$4,700,000.00 Bastian, Virginia
October 6, 1994
FOR VALUE RECEIVED, King Pharmaceuticals, Inc., a Tennessee
corporation ("Maker"), unconditionally promises to pay to the order of General
Injectables & Vaccines, Inc., a Virginia corporation ("Payee"), at Payee's
office in Bastian, Virginia, or at such other place as the holder hereof may
designate in writing, the principal sum of
Four Million Seven Hundred Thousand And No/100 Dollars
($4,700,000.00)
and to pay simple interest at the rate of eight percent (8%) per annum on the
principal balance hereof from time to time remaining unpaid prior to maturity
(whether by acceleration or otherwise, "Maturity") as follows:
(a) interest shall be paid monthly in arrears on or before the
tenth (10th) day of each month until Maturity, with the first
payment of interest due in December, 1994; and
(b) principal shall be paid in eight (8) equal annual
installments of Five Hundred Eighty-Seven Thousand Five
Hundred and No/100 Dollars ($587,500.00), with the first
annual installment being due and payable on the 31st day of
December, 1995, and consecutive annual installments being due
and payable thereafter on the 31st day of each succeeding
December until Maturity.
1. Prepayment. This Note may be prepaid in whole or in part at
any time and from time to time without premium or penalty. All prepayments
shall be applied first to accrued interest and thereafter to unpaid principal.
2. Default . The occurrence of any one or more of the following
events shall constitute a default (an "Event of Default") under this Note: (a)
Maker shall (i) apply for or consent to the appointment of a receiver, trustee,
or liquidator of itself, or of all or a substantial part of its assets, (ii) be
unable, or admit in writing its inability to pay its debts as they fall due,
(iii)
<PAGE> 2
make a general assignment for the benefit of its creditors, (iv) be adjudicated
a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization or an arrangement with creditors
or to take advantage of any insolvency law or an answer admitting the material
allegations of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or any corporate action shall be taken by it for the
purpose of effecting any of the foregoing; (b) an order, judgment or decree
shall be entered, without the application, consent or approval of Maker, by any
court of competent jurisdiction, approving a petition seeking reorganization of
Maker or appointing a receiver, trustee, or liquidator of Maker or of all or a
substantial part of its assets and such order, judgment or decree shall
continue unstayed and in effect for any period of more than thirty (30)
consecutive days; or (c) Maker shall fail to make payment of any installment
within ten (10) days of the date such installment is due.
3. Standstill. The holder of this Note shall not exercise any
remedy provided hereunder for a period of not less than one hundred (100) days
following any Event of Default.
4. Remedies. If an Event of Default shall occur, and be then
continuing, the holder of this Note, at its option, may declare immediately due
and payable the entire unpaid principal balance of, and all accrued interest
on, this Note, and exercise any other right or remedy provided at law or in
equity.
5. No Waiver. No delay in the exercise of any power or right
under this Note shall operate as a waiver thereof, nor shall a single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right.
6. Attorneys' Fees. If any action is taken to enforce any
provision of this Note whether by legal proceedings or through a bankruptcy
court, the prevailing party in such action shall he paid its reasonable
attorneys' fees and collection fees by the other party.
<PAGE> 3
7. Governing Law. This Note shall be construed in accordance
with and governed by the laws of the Commonwealth of Virginia and of the United
States applicable to the Commonwealth of Virginia.
8. Headings. The headings of the sections of this Note are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
9. Notice . Any notice required or permitted to be delivered
hereunder shall be deemed to be delivered on the date received whether
delivered in person or by United States mail at the address set forth below (or
at such other address as a party may supply by written notice to the other
parties); or on the date a facsimile transmission is confirmed as to context by
a writing deposited on the same day in the U.S. mail, postage prepaid,
registered or certified mail, return receipt requested:
If to the Payee: General Injectables and Vaccines, Inc.
U.S. Hwy. 52 South
P.O. Box 9
Bastian. VA 24314-0009
Attn: General Counsel
Fax: 703-688-4060
If to the Maker: King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
Attn: General Counsel
Fax: 615-989-6282
IN WITNESS WHEREOF, the maker has executed this Note as of the date
and year first above written.
King Pharmaceuticals, Inc.
By: /s/ John M. Gregory
----------------------------------
John M. Gregory
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.3
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made this 30th day of April,
1996, by and between KING PHARMACEUTICALS INC., a Tennessee corporation whose
address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Borrower"), and
FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association
organized and existing under the statutes of the United States of America, whose
address is P. O. Box 3189, Bristol, Tennessee 37625 (the "Bank").
Recitals of Fact
The Borrower has requested that the Bank commit to make loans and
advances to it on a revolving credit basis in an amount not to exceed at any one
time outstanding the principal sum of Three Million Five Hundred Thousand and
No/100 Dollars $3,500,000.00 The Borrower will use the revolving credit funds to
provide working capital and the Bank has agreed to make such loan and advances
on the terms and conditions herein set forth.
Furthermore, the Borrower has requested that the Bank commit to loan the
Borrower the principal sum of Two Million Five Hundred Thousand and No/100
Dollars ($2,500,000.00), with said extension of credit to be structured as a
term loan. The proceeds of the term loan shall be used by the Borrower to
finance bioequivalence studies as part of the development of generic drug
products.
NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in
consideration of the mutual agreements herein contained, the parties agree as
follows:
AGREEMENTS
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the
following terms shall have the following meanings (such meanings to be
applicable equally to both the singular and plural forms of such terms) unless
the context otherwise requires:
"Borrowing Base Certificate" means that certain certificate that is
attached hereto as Exhibit "B".
"Closing Date" means the date set out in the first paragraph of this Loan
Agreement.
"Collateral" means the tangible and intangible personal property of the
Borrower that is intended to secure the loans contemplated under this Loan
Agreement, said personal property being specifically described in Section 4.1 of
this Loan Agreement
"Contra Accounts" means Borrower's accounts receivable from a third party
that are offset by the Borrower's accounts payable owed to said third party.
"Event of Default" has the meaning assigned to that phrase in Section 9
of this Loan Agreement.
"Loan Agreement" means this Loan Agreement between the Borrower and the
Bank.
<PAGE> 2
"Revolving Credit Advances" means advances of principal on the Revolving
Credit Loan by the Bank under the terms of this Loan Agreement to the Borrower
during the term of the Revolving Credit Loan.
"Revolving Credit Loan" means the Borrower's revolving credit
indebtedness to the Bank pursuant to Section 2 of this Loan Agreement.
"Revolving Credit Note" means the promissory note described in Section
2.3 of this Loan Agreement.
"Security Agreement" means the Security Agreement described in Section
4.2 of this Loan Agreement.
"Termination Date of the Revolving Credit Loan" shall mean May 15, 1997
or, in the event that the Bank and the Borrower shall hereafter mutually agree
in writing that the Revolving Credit Loan and the Bank's commitment hereunder
shall be extended to another date, and the Note shall be modified or amended to
reflect such extension, such other date mutually agreed upon between the Bank
and the Borrower to which Bank's commitment shall have been extended.
"Term Loan" means the Borrower's term indebtedness to the Bank pursuant
to Section 3 of this Loan Agreement.
"Term Note" means the promissory note as described in Section 3.2 of this
Loan Agreement.
"Working Capital" means the amount by which the Borrower's current assets
exceed the Borrower's current liabilities, all as determined in accordance with
generally accepted accounting principles applied on a consistent basis.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent to those applied in the preparation of the financial
statements required to be delivered from time to time pursuant to Section 7.5 of
this Loan Agreement.
SECTION 2: COMMITMENT, FUNDING AND TERMS OF REVOLVING CREDIT LOAN.
2.1 THE COMMITMENT. Subject to the terms and conditions herein set out,
the Bank agrees and commits to make loan advances or commitments under letters
of credit to the Borrower from time to time, from the Closing Date until the
Termination Date of the Revolving Credit Note, in aggregate principal amounts
not to exceed at any one time outstanding Three Million Five Hundred Thousand
and No/100 Dollars ($3,500,000.00)
2.2 FUNDING THE LOAN. Revolving Credit Advances shall be made (i) by
automated transfer, as described in that certain agreement by and between the
Borrower and the Bank entitled "Automated Transfer Facility Including Automated
Principal Reduction", or (ii) upon the oral request, followed by immediate
written or fax confirmation, or the written request of the Borrower to the Bank
and to the attention of:
Kevin L. Jessee
Senior Vice President
First Tennessee Bank National Association
P.0. Box 3189
Bristol, TN 37625
(423) 968-5308
(423) 968-5612 FAX
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<PAGE> 3
All Revolving Credit Advances shall be made by depositing the same to a checking
account in the name of the Borrower. All written confirmations shall be sent to
the address set forth in this Section 2.2. All fax confirmations shall be sent
to the fax number set forth in is Section 2.2.
2.3 THE NOTE AND INTEREST. The Revolving Credit Loan shall be evidenced
by the Revolving Credit Note of the Borrower, payable to the order of the Bank
in the principal amount of Three Million Five Hundred Thousand and No/100
dollars ($3,500,000.00) The entire principal amount of the loan (including
outstanding commitments under letters of credit) shall be due and payable on the
Termination Date of the Revolving Credit Loan. The unpaid principal balances of
the Revolving Credit Note shall bear interest on disbursed and unpaid principal
balances at the rates specified in the Revolving Credit Note and shall be
payable as provided in the Revolving Credit Note.
2.4 PRE-PAYMENTS OR TERMINATION OF THE REVOLVING CREDIT NOTE. So long as
no Event of Default exists, the Borrower may, at its option, from time to time,
subject to the terms and conditions hereof, without penalty, borrow, repay, and
reborrow amounts under the Revolving Credit Note. By notice to the Bank in
writing, the Borrower shall be entitled to terminate the Bank's commitment to
make further advances on the Revolving Credit Note.
2.5 CONDITIONS PRECEDENT TO CLOSING AND FUNDING REVOLVING CREDIT NOTE.
The obligation of the Bank to fund the initial advance under the Revolving
Credit Note is subject to the conditions precedent set forth in Section 5.1 of
this Loan Agreement.
2.6 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT NOTE ADVANCES. The
obligation of the Bank to make the Revolving Credit Advances pursuant hereto
(including the initial advance on the Closing Date) shall be subject to the
following additional conditions precedent:
(a) The Borrower shall have furnished to the Bank each of the items
referred to in Section 5.1 of this Loan Agreement, all of which shall
remain in full force and effect as of the date of such Revolving Credit
Advance (notwithstanding that the Bank may not have required any such
item to be furnished prior to the Closing Date).
(b) An Event of Default shall not have occurred.
(c) Each of the warranties and representations of Borrower, as set out in
Section 6 of this Loan Agreement shall remain true and correct in all
material respects.
(d) The aggregate Revolving Credit Advances do not exceed 85% of the
Borrower's accounts receivable that are less than 90 days from the date
of invoice, less Contra Accounts, plus 60% of the Borrower's raw
materials and finished goods inventory (the "Borrowing Base") The
Borrowing Base shall be determined using the Borrowing Base Certificate,
as determined once per month, beginning on the Closing Date and on the
first day of each and every month thereafter until the Termination Date
of the Revolving Credit Loan.
2.7 BORROWING BASE CERTIFICATE. On the closing date and on the first day
of each and every month thereafter until the Termination Date of the Revolving
Credit Loan, Borrower shall complete and provide to the Bank the Borrowing Base
Certificate that is attached hereto as Exhibit "B".
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<PAGE> 4
SECTION 3: COMMITMENT, FUNDING AND TERMS OF TERM LOAN.
3.1 THE COMMITMENT. Subject to the terms and condition herein set out,
the Bank agrees and commits to loan the Borrower the principal sum of Two
Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) to be used for
the purpose of financing bioequivalence studies as part of the development of
generic drug products.
3.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidenced by the
Term Note of Borrower, payable to the order of the Bank, in the principal amount
of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) The
unpaid principal balance of the Term Note shall bear interest at the rate
specified in the Term Note and shall be payable as provided in the Term Note.
3.3 ACCELERATION OF TERM NOTE. In the event Borrower begins financing
all or a portion of its working capital by borrowing from a source other than
the Bank, the Term Note shall automatically accelerate and all sums owing
thereon shall be immediately due and payable.
SECTION 4. COLLATERAL,
4.1 DESCRIPTION OF COLLATERAL. The Revolving Credit Note and the Term
Note shall be secured by a first lien on the Borrower's accounts receivable,
inventory, contract rights, and general intangibles. The Bank's lien against
Borrower's contract rights shall not extend to any contract where such lien
would result in a breach of that contract by the Borrower.
4.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide
the Bank with the security contemplated by Section 4.1 of this Loan Agreement,
the Borrower shall execute a security agreement granting the Bank a security
interest in the Collateral and Borrower shall execute such financing statements
as may be necessary to perfect said security interest. The Security Agreement
and the financing statements shall be in a form acceptable to the Bank.
4.3 LOCKBOX. On the closing date, the Borrower shall establish a lockbox
to be administered by the Bank. All of the Borrower's accounts receivable
received on or after the Closing Date shall be deposited into the lockbox. In
order to facilitate the deposit of all the Borrower's accounts receivable into
the lockbox, the Borrower shall instruct all of its customers, now and in the
future, to mail their payments to the lockbox address. The Borrower will notify
the Bank of any payment on the Borrower's accounts receivable received directly
by the Borrower. The Borrower shall give the Bank such notice within one (1)
business day of the receipt of any such payment.
SECTION 5. CONDITIONS OF LENDING.
5.1 CONDITION PRECEDENT TO FUNDING THE REVOLVING CREDIT NOTE AND THE TERM
NOTE. The obligation of the Bank to fund the Term Note and initial Revolving
Credit Note advance is subject to the following conditions precedent that the
Bank shall have received in a form and substance satisfactory to the Bank:
(a) This Loan Agreement.
(b) The Revolving Credit Note.
(c) The Term Note.
(d) The Security Agreement, together with such financing statements as
the Bank may require to perfect its security interest in the Collateral.
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<PAGE> 5
(e) UCC lien searches from such recording offices as the Bank shall
specify, evidencing the priority of the Bank's lien under the Security
Agreement.
(f) Audited financial statements for the year ending December 31,
1995 indicating no material change from the internally prepared
statements.
(g) A breakdown of current inventory and aging of accounts receivable.
(h) Certified corporate resolutions of the Borrower, authorizing this
Loan Agreement, the Revolving Credit Note, the Term Note, and the
Security Agreement.
(i) Certificate(s) of good standing for the Borrower from the state of
its incorporation and such other states as the Bank shall require.
(j) Such other information and documentation as the Bank shall deem to
be necessary or desirable in connection with the funding of the Revolving
Credit Note and/or Term Note.
(k) The opinion of the Borrower's counsel that the transactions herein
contemplated have been duly authorized by all requisite corporate
authority, that this Loan Agreement and the other instruments and
documents herein referred to have been duly authorized, validly executed
and are in full force and effect, and pertaining to such other matters as
the Bank may require.
SECTION 6: REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
6.1 INCORPORATION. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee; it has the power
and authority to own its properties and assets and is duly qualified to carry on
its business in every jurisdiction wherein such qualification is necessary.
6.2 POWER AND AUTHORITY. The execution, delivery and performance of this
Loan Agreement, the Revolving Credit Note, the Term Note, and the Security
Agreement have been duly authorized by all requisite action and will not violate
any provision of law, any order of any court or other agency of government, the
Charter and By-Laws of the Borrower, any provision of any indenture, agreement
or other instrument to which the Borrower is a party, or by which the Borrower's
respective properties or assets are bound, or be in conflict, result in a breach
of, or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Borrower.
6.3 FINANCIAL CONDITION. The balance sheets of the Borrower, copies of
each of which are attached hereto, are correct and complete and fairly present
the financial condition of the Borrower as of the date of said balance sheets
and the results of its operations for said periods and as of the Closing Date in
all material respects. All such financial statements have been prepared in
accordance with generally accepted accounting principles, applies on a
consistent basis, maintained through the period involved.
6.4 TITLE TO ASSETS. Borrower has good and marketable title to all its
properties and assets reflected on the balance sheet referred to in Section 6.3
of this Loan Agreement.
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<PAGE> 6
6.5 LITIGATION. There is no action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or other agency now
pending, or, to the knowledge of the Borrower, threatened against or affecting
the Borrower, or any properties or rights of the Borrower, which, if adversely
determined, would materially adversely affect the financial or any other
condition of the Borrower.
6.6 TAXES. Borrower has filed or caused to be filed all federal, state or
local tax returns which are required to be filed, and has paid all taxes in
connection therewith.
6.7 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. is not a party to any
agreement or instrument or subject to any charter or other corporate
restrictions materially adversely affecting its business, properties or assets,
operations or conditions (financial or otherwise) taken as a whole.
6.8 NO DEFAULT. Borrower is not in material default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
if not cured would materially and substantially affect the financial condition,
property or operations of the Borrower.
SECTION 7: AFFIRMATIVE COVENANTS OF BORROWER.
The Borrower covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the indebtedness evidenced
by the Revolving Credit Note and Term Note, unless the Bank shall otherwise in
its sole discretion consent in writing, the Borrower will:
7.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and franchises,
comply with all laws applicable to it and continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar years.
7.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material
leases, franchises, and trade names and preserve all the remainder of its
properties used or useful in the conduct of its business substantially as
conducted and operated during the present and preceding fiscal year.
7.3 INSURANCE. At all times maintain with insurance companies rated "A"
or better or otherwise acceptable to the Borrower and the Bank, hazard insurance
and such other insurance, for such amounts as is customarily maintained by
companies in the same or substantially similar business. The Bank shall be named
as loss payee on the Borrower's principle hazard insurance policies and any
policy covering inventory.
7.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
7.5 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of the Borrower, an unqualified audit as of the close of such fiscal year
of the Borrower, including a balance sheet and statement of income and surplus
of the Borrower together with the unqualified audit report and opinion of an
independent Certified Public Accountant reasonably acceptable to the Bank,
showing the financial condition of the Borrower at the close of such year and
the results of operations during such year; (b)
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<PAGE> 7
within forty-five (45) days after the end of each fiscal quarter, except the
last fiscal quarter of the year, financial statements similar to those described
above for the Borrower, not audited but certified as to accuracy and content by
the Chief Financial Officer or President or Controller of the Borrower (the
"Certifying Officer"), such balance sheets to be as of the end of such quarter
and such statements of income and surplus to be for the period from the
beginning of said year to the end of such quarter, in each case subject only to
audit and year-end adjustment.
7.6 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end
of each calendar quarter a Compliance Certificate, in the form of Exhibit "A"
attached hereto.
7.7 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or
notice furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or lapse
of time or both would constitute an Event of Default under the terms of this
Loan Agreement.
7.8 ADDITIONAL INFORMATION. Furnish such other relevant information
regarding the operations, business affairs and financial condition of the
Borrower as the Bank may reasonably request, including but not limited to
written confirmation of requests for loan advances, true and exact copies of
Borrower's books of account and tax returns and all information furnished to
shareholders or any governmental authority, and permit the copying of the same.
7.9 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the
Bank's expense, to visit and inspect any of the properties, books and financial
reports of the Borrower and to discuss its affairs, finances and accounts with
its principal officers, at all such reasonable tunes and on reasonable advance
notice and as often as the Bank may reasonably request.
7.10 MINIMUM NET WORTH. Maintain a minimum net worth of Ten Million Eight
Hundred Thousand and No/100 Dollars ($10,800,000.00) as determined by generally
accepted accounting principles including intangible assets, with assets valued
at historical costs less allowances taken for depreciation and depletion.
7.11 DEBT TO EQUITY RATIO. Maintain a maximum debt to equity ratio of
2.50 (total debt divided by total equity).
7.12 CASH FLOW-TO-DEBT SERVICE RATIO. Maintain a ratio of cash
flow-to-debt service of not less than 1.25 (total cash flow divided by total
debt service) to be measured annually based on the audited financial statements
required by Section 7.5(a). For purposes of this requirement, "Cash Flow" shall
be defined as net profits plus allowances for depreciation, interest and equity
injections consisting of cash; and "Debt Service" shall be defined as all
scheduled payments of principal, interest and equipment lease financing payable
by the Borrower within the next 365 calendar days.
7.13 CURRENT RATIO. Maintain a current redo of 1.20. For purposes of this
Section, "Current Ratio" shall be defined as current assets divided by current
liabilities.
7.14 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens
against the Borrower's tangible and intangible personal assets. If any other
such liens exist that have not been released of record, Borrower will obtain the
immediate release of any such liens.
7.15 FINANCIAL CONDITION. Maintain a financial condition, at all times,
acceptable to the Bank.
7.16 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the
Bank.
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<PAGE> 8
SECTION 8: NEGATIVE COVENANTS OF BORROWER.
8.1 The Borrower covenants and agrees that at all times from and after
the closing date, unless the Bank shall otherwise consent in writing, which
consent shall not be unreasonably withheld, it will not, either directly or
indirectly, sell, lease, transfer, (except within the Borrower's own
organization) or dispose (other than in the normal course of business) of all or
a substantial part of its business or assets.
8.2 The Borrower covenants and agrees that at all times from and after
the Closing Date, it will not grant anyone other than the Bank a lien against
any of Borrower's assets. Borrower shall be permitted, however, to grant
purchase money liens for the purpose of financing assets acquired after the
Closing Date, which shall include the acquisition of product lines (any such
lien shall not extend to accounts or inventory). Furthermore, this provision
shall not impair the ability of the Borrower to acquire property after the
Closing Date (other than inventory) by mesas of leases, or sale and lease back
transactions.
SECTION 9: EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following shall occur:
9.1 PAYMENT OF PRINCIPAL, INTEREST. The Borrower defaults in the prompt
payment as and when due of principal or interest on the Revolving Credit Note or
Term Note or any fees due under said notes, this Loan Agreement or the Security
Agreement; or in the prompt payment when due of any other indebtedness,
liabilities, or obligations to the Bank, whether now existing or hereafter
created or arising; direct or indirect, absolute or contingent; or
9.2 OTHER OBLIGATIONS. The Borrower defaults with respect to any other
material agreement to which it is a party or with respect to any other material
indebtedness when due or the performance of any other obligation incurred in
connection with any material indebtedness for borrowed money ("material" as used
herein meaning indebtedness or obligations in excess of $50,000.00) if the
effect of such default is to accelerate the maturity of such indebtedness, or if
the effect of such default is to permit the holder thereof to cause such
indebtedness to become due prior to its stated maturity and the holder has not
waived its right to accelerate payment of such indebtedness; or
9.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by
the Borrower herein, or in any report, certificate, financial statement or other
writing furnished in connection with or pursuant to this Loan Agreement shall
prove to be false, misleading or incomplete in any material respect on the date
as of which made; or
9.4 BANKRUPTCY, ETC. The Borrower shall make an assignment for the
benefit of creditors, file a petition in bankruptcy, petition or apply to any
tribunal for the appointment of a custodian, receiver or any trustee for it or a
substantial part of its assets, or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against the Borrower, in which an
order for relief is entered or which remains undismissed for a period of sixty
(60) days or more; or the Borrower by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition, application or
proceeding or order for relief or the appointment of a custodian, receiver or
any trustee for it or any substantial part of any of its properties, or shall
suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of sixty (60) days or more; or Borrower shall
generally not pay its debts as such debts become due; or
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<PAGE> 9
9.5 CONCEALMENT OF PROPERTY, ETC. The Borrower shall have concealed,
removed, or permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them, or made any
bankruptcy, fraudulent conveyance or similar law; or shall have made any
transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a lien upon any of its
property through legal proceedings or distraint which is not vacated within
sixty (60) days from the date thereof; or
9.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership
that results in John M. Gregory owning fifty percent (50%) or less of the
capital stock of the Borrower, or fifty percent (50%) or less of the voting
power related to the capital stock; or
9.7 COVENANTS. The Borrower defaults in the performance or observance of
any other covenant, agreement or undertaking on its part to be performed or
observed, contained herein, or in any other instrument or document which now or
hereafter evidences or secures all or any part of the Revolving Credit Loan
and/or Term Loan.
9.8 REMEDY. Upon the occurrence of any Event of Default, as specified
herein, and the expiration of any applicable cure period, the Bank shall, at its
option, be relieved of any obligation to make further Revolving Credit Advances
under this Loan Agreement or the Revolving Credit Note; and the Bank may, at its
option, thereupon declare the entire unpaid principal balance of the Revolving
Credit Note and/or Term Note, all interest accrued and unpaid thereon and all
other amounts payable under this Loan Agreement to be immediately due and.
payable for all purposes, and may exercise all rights and remedies available to
it under any other instrument or document which evidences or secures the
Revolving Credit Note and/or Term Note, or available at law or in equity,
including the right to the appointment of a receiver to take possession of the
Borrower's property.
SECTION 10: MISCELLANEOUS
10.1 AMENDMENTS. The provisions of this Loan Agreement, the Revolving
Credit Note, or the Term Note, or any instrument or document executed pursuant
hereto or securing the indebtednesses, may be amended or modified only by an
instrument in writing signed by the parties hereto.
10.2 NOTICES. All notices and other communications provided for hereunder
shall be in writing and shall be mailed, certified mail, return receipt
requested, or delivered. Any such notices and other communications to the
Borrower shall be addressed as follows:
John M. Gregory
Chairman of the Board, President & CEO
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and other communications to the Bank shall be addressed as
follows:
Kevin L. Jessee
Senior Vice President
First Tennessee Bank National Association
P. O. Box 3189
1155 Volunteer Parkway, Suite 201
Bristol, TN 37625,
or as to any such person at such other address as shall be designated by such
person in a written notice to the other parties hereto complying as to the
delivery with the terms of this
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Section 10.2. All such notices and other communications shall be effective (i)
if mailed, when received or three (3) business days after mailing, whichever is
earlier; or (ii) if delivered, upon delivery.
10.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Bank, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege, preclude any other or further exercise there or
the exercise of any other right, power or privilege. The rights and remedies
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
10.4 INDEMNIFICATION. The Borrower agrees to indemnify the Bank from and
against any and all claims, losses and liabilities, including, without
limitation, reasonable attorneys' fees and expenses, growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from the Bank's negligence or willful misconduct. The indemnification provided
for in this Section shall survive the payment in full of the Revolving Credit
Note and the Term Note.
10.5 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of the Revolving Credit Note
and the Term Note. This Loan Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns,
except that Borrower shall not have the right to assign its rights hereunder or
any interest therein.
10.6 GOVERNING LAW. This Loan Agreement shall be governed and construed
in accordance with the laws of the State of Tennessee.
10.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
10.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this
Loan Agreement, whether used in the masculine, feminine, or neuter gender, shall
include all other genders; the singular shall include the plural, and vice
versa. Section headings are for convenience only and neither limit nor amplify
the provisions of this Loan Agreement.
10.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the
provisions of this Loan Agreement be determined to be illegal or unenforceable,
all other provisions, nevertheless, shall remain effective and binding on the
parties hereto.
10.10 NON-CONTROL. In no event shall the Bank's rights hereunder be
deemed to indicate that the Bank is in control of the business, management or
properties of the Borrower or has power over the daily management functions and
operating decisions made by the Borrower.
10.11 FEE AND EXPENSES. Except as otherwise expressly provided herein,
the Borrower agrees to reimburse the Bank for all legal fees and expenses, and
recording fees and taxes incurred by the Bank in connection with the loans
contemplated by this Loan Agreement. Furthermore, the Borrower agrees to pay, or
reimburse the Bank for, the actual out-of-pocket expenses, including but not
limited to counsel fees and expenses, court costs, accountants fees and
expenses, and fees and expenses of similar experts as deemed necessary by the
Bank, incurred by the Bank in connection with the enforcement of, or the
preservation of any rights under this Loan Agreement, the Revolving Credit Note,
the Term Note, and any instrument or document now or hereafter securing any of
said notes.
10
<PAGE> 11
10.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the
revolving credit note, term note, and the other instruments and documents
executed and delivered in connection herewith.
10.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default
as specified above, the Bank may apply any and all deposits (general or special,
matured or unmatured) and other credits of the Borrower against any and all
indebtednesses of the Borrower to the Bank. The Borrower acknowledges the Bank's
legal and equitable rights to setoff, appropriate.
10.14 VENUE OF ACTIONS. As an integral part of the consideration for the
making of this Loan Agreement, it is expressly understood and agreed that no
suit or action shall be commenced by the Borrower, or by any successor, personal
representative or assignee with respect to the Revolving Credit Note, Term Note,
or this Loan Agreement or any other document or instrument which now or
hereafter evidences or secures all or any part of said loans, other than in a
state court of competent jurisdiction in Sullivan County Tennessee, or in the
United States District Court for the Eastern District of Tennessee, and not
elsewhere. Nothing in this paragraph contained shall prohibit the Bank from
instituting suit in any court of competent jurisdiction for the enforcement of
its rights hereunder or in any other document or instrument which evidences the
loans contemplated by this Loan Agreement.
10.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
10.16 ENTIRE AGREEMENT. This written agreement, the related written
documents referred to herein, and any other agreements executed
contemporaneously herewith set forth the complete and exclusive statement of the
terms of the agreement between the Borrower and the Bank with respect to the
loans contemplated by this Loan Agreement. Therefore, no prior written
agreements or contemporaneous or prior oral agreements between the parties shall
be of any effect with respect to the loans contemplated by this Loan Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Loan
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.
KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory
----------------------------
John M. Gregory
Chairman of the Board
President & CEO
FIRST TENNESSEE BANK
NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee
---------------------------
Kevin L. Jessee
Senior Vice President
12
<PAGE> 13
STATE OF TENNESSEE
COUNTY SULLIVAN
Before me, John Andrew Allen Bellamy of the state and county mentioned,
personally appeared John M. Gregory, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged such person to be the Chairman of the Board, President & CEO of
King Pharmaceuticals, Inc. the within named bargainor, a corporation, and that
as such Chairman of the Board, President & CEO, executed the foregoing
instrument for the purpose therein contained, by personally signing the name of
King Pharmaceuticals, Inc.
Witness my hand and seal, at office in this 30th day of April, 1996
/s/ John Andrew Allen Bellamy
--------------------------------------
Notary Public
My commission expires January 24, 1999
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, John Andrew Allen Bellamy of the state and county mentioned,
personally appeared Kevin I. Jessee, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged such person to be the Senior Vice President of First Tennessee Bank
National Association, the within named bargainor, and that as such Senior Vice
President, executed the foregoing instrument for the purpose therein contained,
by personally signing the name of First Tennessee Bank National Association.
Witness my hand and seal, at office in this 30th day of April, 1996
/s/ John Andrew Allen Bellamy
--------------------------------------
Notary Public
My commission expires January 24, 1999
13
<PAGE> 14
MASTER NOTE
------------------------
APPROVAL
BRISTOL , TENNESSEE
-------------------------
APRIL 30 , 1996
-------------------------
FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one)
promise(s) to pay to the order of First Tennessee Bank National Association
(hereinafter referred to as the "Bank") at any lending office in the state
mentioned above or at such other place as the holder hereof may designate in
writing, in current local funds, the sum of up to
THREE MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100******************Dollars
($3,500,000.00), or so much thereof as may be advanced hereunder prior to
maturity, together with interest on the unpaid principal balance from
day-to-day remaining, computed from the day of advance until maturity at the
following rate:
[ ] FIXED RATE:______% per annum,
[X] VARIABLE RATE: A variable rate per annum ("Variable Rate")
which shall be equal to the lesser of (a) the maximum rate of
interest ("Maximum Rate") which Bank may lawfully charge, or
(b) a rate which is______% per annum higher than the base
commercial rate of interest ("Base Rate") established from time
to time by Bank. Each change in the Variable Rate which
results from a change in the Maximum Rate shall become
effective, without notice to the undersigned, on the same date
that the Maximum Rate changes. Each change in the Variable
Rate which results from a change in the Base Rate shall become
effective, without notice to the undersigned, on [ ] the same
date that the Base Rate changes; [ ] the first day of the
calender month following any change in the Base Rate; [ ] the
first day of the calendar quarter following any change in the
Base Rate; [ ] other _________________________. The Base Rate
is one of several interest rate indices employed by the Bank.
The undersigned acknowledge(s) that the Bank has made, and may
hereafter make, loans bearing interest at rates which are
higher or lower than the Base Rate.
Such principal and interest shall be payable as shown below:
[X] SINGLE PRINCIPAL PAYMENT: One single principal payment of the
balance, due on May 15, 1997 plus interest payable.
[ ] at maturity.
[X] beginning June 15, 1996 and continuing on the same day of
each successive [X] monthly or [ ] quarterly calendar
period, except that the final interest installment shall
be payable on the date the principal is due.
[ ] Other:
------------------------------------------------------
------------------------------------------------------------
SECURITY: Except as otherwise provided herein, as of the date hereof,
[ ] This Note is secured by a mortgage(s) or deed(s) of trust dated
---------------------------------------------------------------
[X] This Note is secured by security agreement(s) dated
April 30, 1996.
---------------------------------------------------------------
COMMITMENT FEE: The undersigned agrees to pay an annual loan
commitment fee of $ N/A , due and payable at the time of execution of this
Note, and each year thereafter on the anniversary date thereof.
Other Terms and Conditions: Unless otherwise provided herein, all payments
shall be applied first to pay the accrued interest to date on the unpaid
balance and next to the unpaid principal of the indebtedness.
As used herein, "other parties liable hereon" shall include, but not be
limited to, any and all guarantors, endorsers, sureties and co-makers.
Any payment not made when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the maximum effective
contract rate of interest which the Bank may lawfully charge on the date such
payment became due.
The undersigned acknowledges and agrees that any commitment fees payable
hereunder are bona fide commitment fees and are intended as reasonable
compensation to Bank for committing to make funds available to undersigned and
for no other purpose.
Subject to the terms and conditions herein set forth, Bank agrees to
advance funds upon the request of and as directed by the undersigned from time
to time beginning on the date hereof and terminating upon maturity. Within the
limits set forth herein, the undersigned may borrow, repay and reborrow each
advance. Notwithstanding the principal amount of the this Note, as stated on the
face hereof, the amount of principal actually owing at any given time shall be
the aggregate of all advances made, less all payments of principal actually
received by Bank.
Bank's obligation to make advances hereunder shall be subject to the
following conditions: (a) there has been no material adverse change in the
undersigned's financial condition, or the financial condition of any other
parties liable hereon, since execution of this Note; (b) each advance shall
constitute a representation and warranty by the undersigned and other parties
liable hereon that all representations and warranties contained herein or in
any other document pertaining to this credit facility are true and correct on
and as of the date of the advance, and that the undersigned and other parties
liable hereon are in strict compliance with all terms and conditions herein and
pertaining hereto; (c) the undersigned and other parties liable hereon will
furnish, from time to time, at Bank's option and at Bank's request, statements
of financial condition in a form satisfactory to Bank including independently
certified and audited statements prepared in accordance with generally accepted
accounting principles and auditing standards. The undersigned and other
parties liable hereon hereby authorizes Bank to charge an interest rate equal
to one-half percent (.5%) per annum higher than the interest rate agreed to
herein, or as modified hereafter, should the undersigned or other parties
liable hereon fail to deliver a financial statement in the form requested by
Bank within 10 days of Bank's request; (d) the undersigned and other parties
liable hereon will execute and deliver to Bank all other instruments and take
such other actions as Bank may reasonably request during the term hereof in
order to carry out the provisions and intent hereof.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect any security given for its payment, or to
enforce its collection, the undersigned will pay all the costs of collection and
litigation, together with a reasonable attorney's fee, all of which shall be
secured by any collateral pledged as security herefor. The undersigned also
agrees to pay any and all actual expenses including reasonable attorney's fees
incurred by Bank in (i) successfully defending any action or inaction in
connection with any aspect of the transaction evidenced by this instrument, or
(ii) any action, whether or not successful, taken to protect or enforce Bank's
rights in any collateral related to the transaction evidenced by this
instrument.
The undersigned and all other parties liable hereon waive protest,
demand, presentment, and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such
extensions, or the period or periods thereof, and without notice to or further
assent from them, all of whom will remain bound upon this Note notwithstanding
any such extension(s); and further agree that all or any collateral given, now
or hereafter, as security herefor may be released (with or without
substitution) without notice and without affecting their liability hereon; and
that additional makers, endorsers, guarantors, or sureties may become parties
hereto, and that any present or future party may be released from liability
hereunder, without notice, and without affecting the liability of any other
maker, or other parties liable hereon.
In the event of any default in the prompt and punctual payment, when
due, of this Note (or any installment hereof) or any bankruptcy, insolvency,
receivership, or similar proceeding instituted by or against the undersigned or
other parties liable hereon or his/her or their property or assets, or in the
event that the undersigned or other parties liable hereon become insolvent,
however defined, or make an assignment for the benefit of creditors, or if a
judgment be entered against the undersigned, or other parties liable hereon, or
upon the issuance of any writ, levy or process, valid or invalid, which purports
to restrict the undersigned or other parties liable hereon with respect to any
of his/her or their funds or property on deposit with or in the possession or
custody or under the control of the Bank, or upon the death or dissolution of
the undersigned or other parties liable hereon or in the event of any default
in the prompt and punctual payment when due, of any other indebtedness or
obligation to the Bank owed, now or hereafter, by the undersigned or other
parties liable hereon, or upon any default in any deed of trust, mortgage,
security agreement, assignment or other security document given, now or
hereafter, to secure the indebtedness evidenced hereby, or if any
representation or warranty made by the unsigned or other parties liable hereon
pertaining to this credit shall prove to be false, untrue, or materially
misleading, or in the event of termination of any guaranty executed in
connection with this Note, or in the event that the Bank shall deem itself
insecure, then and in any of such events, this Note shall, at Bank's option,
without notice or demand for payment (the same being expressly waived), be and
become immediately due, payable and enforceable for all purposes, and Bank
shall be under no obligation to make further advances.
Any money or other property at any time in the possession of the Bank
belonging to the undersigned or any other parties liable hereon, and any
deposits or other sums at any time credited by or due from the Bank to the
undersigned or any other parties liable hereon, may at all times, at the option
of the Bank, be held and treated as collateral security for the payment of this
Note or any other liability of any of the undersigned, or any other party liable
hereon to the Bank, whether due or not due. The Bank may, at any time, at its
option, and without notice, set off the amount due or to become due hereon
against the claim of any of said parties against the Bank. To affect these
rights, the undersigned and all other parties liable hereon agree, upon request
by the Bank immediately to endorse, sign and execute all necessary instruments,
and do hereby appoint the Bank (acting through any then officer thereof) as
attorney-in-fact for them with authority to endorse any instrument requiring
endorsement and to effect any transfer, and this appointment shall be
irrevocable as long as the undersigned, or any other party liable hereon, shall
be indebted to the Bank.
In the event of any renewal or extension of the loan indebtedness
evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank
shall have the right to charge interest at the highest of the following rates:
(i) the maximum rate permissible at the time the contract to make the loan was
executed; or (ii) the maximum rate permissible at the time the load was made; or
(iii) the maximum rate permissible at the time of such renewal or extension; or
(iv) the maximum rate permitted by applicable federal law; it being intended
that those statutes and laws, state or federal, from time to time in effect,
which permit the charging of the high rate of interest shall govern the maximum
rate which may be charged hereunder. In the event that for any reason the
foregoing provisions hereof shall not contain a valid, enforceable designation
of a rate of interest prior to the maturity or method of determining the same,
then the indebtedness hereby evidenced shall bear interest prior to the maturity
at the maximum effective rate which may be lawfully charged by the Bank under
applicable law.
Regardless of any provision herein, or in any other document executed
in connection herewith, the holder hereof shall never be entitled to receive,
collect, or apply, as interest hereon, any amount in excess of the maximum
contract rate which may be lawfully charged by the holder hereof under
applicable law; and in the event the holder hereof ever receives, collect, or
applies as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and, if the principal hereof is paid in full, any remaining excess
shall forthwith be paid to the undersigned. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the maximum
lawful contract rate, the undersigned and the holder hereof shall, to the
maximum extent permitted by applicable law, (a) characterize any non-principal
payment as a reasonable loan charge, rather than as interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate,
allocate, and spread, in equal parts, the total amount of interest throughout
the entire contemplated term hereof, so that the interest accrued or to accrue
throughout the entire term contemplated hereby shall at no time exceed the
maximum lawful contract rate.
THE UNDERSIGNED JOINTLY AND SEVERALLY WAIVE(S) ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
(OR WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION HEREWITH OR ARISING FROM
ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT. THE
UNDERSIGNED AGREE(S) THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
KING PHARMACEUTICALS, INC.
- ---------------------------- --------------------------
BY: /s/ John M. Gregory
- ---------------------------- --------------------------
President and CEO
- ---------------------------- --------------------------
<PAGE> 15
ADDENDUM TO PROMISSORY NOTE
VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal
to the lessor of (a) the maximum rate of interest ("Maximum Rate") which Bank
may lawful charge, or (b) a rate which is 1.75% per annum higher than the 90
day London Interbank Offered Rate ("LIBOR"). The 90 Day LIBOR will be that rate
so published as the Three Month LIBOR in the Money Rates section of the Wall
Street Journal in the edition dated the last business day of the calendar
quarter. Each change in the Variable Rate which results from a change in the
Maximum Rate shall become effective, without notice to the undersigned, on the
same date that the Maximum Rate changes. Each change in the Variable Rate which
results from a change in the LIBOR shall become effective, without notice to
the undersigned, on the first day of the calendar quarter following any change
in the LIBOR. LIBOR is one of several interest rate indices employed by the
Bank. The undersigned acknowledges(s) that the Bank has made and may hereafter
make loans bearing interest at rates which are higher or lower than the LIBOR.
Dated this 30th day of April, 1996.
------ --------
King Pharmaceuticals, Inc.
By: /s/ John M. Gregory
--------------------------------
President & CEO
--------------------------------
<PAGE> 16
PROMISSORY NOTE
(Business or Commercial Loan)
------------------------------------
Approval
$2,500,000.00 BRISTOL , Tennessee
- ------------------------ ------------------------------------
APRIL 30 , 1996
------------------------------------
FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one)
promise(s) to pay to the order of First Tennessee Bank National Association
(hereinafter referred to as the "Bank") at any lending office in the state
mentioned above or at such other place as the holder hereof may designate in
writing, in current local funds, the sum of TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS AND NO/100******************************************************Dollars
[ ] DISCOUNTED: Including interest, due on __________, 19 ____.
[X] INTEREST BEARING: Plus interest from date until maturity on
the unpaid principal balance of this Note at the rate of:
[ ] FIXED RATE: __% per annum,
[X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which
shall be equal to the lesser of (a) the maximum rate of
interest ("Maximum Rate") which Bank may lawfully charge, or
(b) a rate which is ___% per annum higher than the base
commercial rate of interest ("Base Rate") established from time
to time by Bank. Each change in the Variable Rate which results
from a change in the Maximum Rate shall become effective,
without notice to the undersigned, on the same date that the
Maximum Rate changes. Each change in the Variable Rate which
results from a change in the Base Rate shall become effective,
without notice to the undersigned, on [ ] the same date that the
Base Rate changes; [ ] the first day of the calendar month
following any change in the Base Rate; [ ] the first day of the
calendar quarter following any change in the Base Rate; [ ]
other ______________. The Base Rate is one of several interest
rate indices employed by the Bank. The undersigned
acknowledge(s) that the Bank has made, and may hereafter make,
loans bearing interest at rates which are higher or lower than
the Base Rate.
Such principal and interest shall be payable as shown below:
[ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the
balance, due on _______________________________________, 19__
plus interest payable
[ ] at maturity.
[ ] beginning ______________, 19 __ and continuing on the same
day of each successive [ ] monthly or
[ ] quarterly calendar period, except that the final interest
installment shall be payable on the date the principal is due.
[X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $69,444.44 each,
plus a final payment for the balance then owing, beginning June
15, 1996, and continuing on the same day of each successive [X]
monthly or [ ] quarterly calendar period. Accrued interest is
[ ] included in each of the above payments; or [X] payable in
addition to such payments on the above payment dates.
[ ] OTHER:
---------------------------------------------------------
---------------------------------------------------------------
SECURITY: Except as otherwise provided herein, as of the date hereof,
[ ] This Note is secured by a mortgage(s) or deed(s) of trust dated
---------------------------------------------------------------
[X] This Note is secured by security agreements(s) dated April 30,
1996
-----------------------------------------------------------
---------------------------------------------------------------
OTHER TERMS AND CONDITIONS: Unless otherwise provided herein, all payments shall
be applied first to pay the accrued interest to date on the unpaid balance and
next to the unpaid principal of the indebtedness.
Any payment not made when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the maximum effective contract
rate of interest which the Bank may lawfully charge on the date such payment
became due.
If this Note is placed in the hands of an attorney for collection, by suit
or otherwise, or to protect any security given for its payment, or to enforce
its collection, the undersigned will pay all the costs of collection and
litigation, together with a reasonable attorney's fee, all of which shall be
secured by any collateral pledged as security herefor. The undersigned also
agrees to pay any and all actual expenses including reasonable attorney's fees
incurred by Bank in (i) successfully defending any action or inaction in
connection with any aspect of the transaction evidenced by this instrument, or
(ii) any action, whether or not successful, taken to protect or enforce Bank's
rights in any collateral related to the transaction evidenced by this
instrument.
The maker(s) and any endorsers or guarantors hereof waive protest, demand,
presentment, and notice of dishonor, and agree that this Note may be extended,
in whole or in part, without limit as to the number of such extensions, or the
period or periods thereof, and without notice to or further assent from them or
any other party liable hereon, all of whom will remain bound upon this Note
notwithstanding any such extension(s); and further agree that all or any
collateral given, now or hereafter, as security herefor may be released (with or
without substitution) without notice and without affecting their liability
hereon, and that additional makers, endorsers, guarantors, or sureties may
become parties hereto, and that any present or future party may be released from
liability hereunder, without notice, and without affecting the liability of any
other maker, endorser, or guarantor.
In the event of any default in the prompt and punctual payment, when due,
of this Note (or any installment hereof, whether of principal, interest, or
principal and interest), or if the undersigned, or any other party liable
hereon, should become insolvent (as defined in the Uniform Commercial Code), or
if a petition in bankruptcy be filed by or against any of the undersigned or any
other party liable hereon, or if a receiver be appointed for any part of the
property or assets of the undersigned or any other party liable hereon, or if
any assignment for the benefit of creditors be made by the undersigned or any
other party liable hereon, or if a judgment be entered against the undersigned,
or any other party liable hereon, or upon the issuance of any writ, levy or
process, valid or invalid which purports to restrict the undersigned or any
other party liable hereon, with respect to any of his/her or their funds
property on deposit with or in the possession or custody or under the control of
the Bank, or upon the death or dissolution of any party hereon, or in the event
of any default in the prompt and punctual payment when due, or any other
indebtedness or obligation to the Bank owed, now or hereafter, by any party
liable hereon, or upon any default in any deed of trust, mortgage, security
agreement, assignment or other security document given, now or hereafter, to
secure the indebtedness evidenced hereby, or if any representation or warranty
made by the undersigned pertaining to this credit shall prove to be false,
untrue, or materially misleading, or in the event that the Bank shall deem
itself insecure, then and in any of such events, this Note shall, without notice
or demand for payment (the same being expressly waived), be and become
immediately due and payable for all purposes, at the option of the Bank.
Any money or other property at any time in the possession of the Bank
belonging to any party liable hereon, and any deposits or other sums at any time
credited by or due from the Bank to any party liable hereon, may at all
times, at the option of the Bank, be held and treated as collateral security for
the payment of this Note or any other liability of any of the undersigned, or
any other party in any manner liable hereon to the Bank, whether due or not due.
The Bank may, at any time, at its option, and without notice, set off the amount
due or to become due hereon against the claim of any of said parties against the
Bank. To effect these rights, the undersigned and all parties liable hereon
agree, upon request by the Bank, immediately to endorse, sign, and execute all
necessary instruments, and do hereby appoint the Bank (acting through any then
officer thereof) as attorney-in-fact for them with authority to endorse any
instrument requiring endorsement and to effect any transfer, and this
appointment shall be irrevocable as long as the undersigned, or any other party
liable hereon, shall be indebted to the Bank.
The undersigned agrees to furnish a current financial statement upon the
request of Bank from time to time, and further agrees to execute and deliver
all other instruments and take such other actions as Bank may from time to time
reasonably request in order to carry out the provision and intent hereof.
In the event of any renewal or extension of the loan indebtedness
evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank
shall have the right to charge interest at the highest of the following rates:
(i) the maximum rate permissible at the time the contract to make the loan was
executed; or (ii) the maximum rate permissible at the time the loan was made;
or (iii) the maximum rate permissible at the time of such renewal or extension;
or (iv) the maximum rate permitted by applicable federal law; it being intended
that those statutes and laws, state or federal, from time to time in effect,
which permit the charging of the higher rate of interest shall govern the
maximum rate which may be charged hereunder. In the event that for any reason
the foregoing provisions hereof shall not contain a valid, enforceable
designation of a rate of interest prior to maturity or method of determining
the same, then (unless this Note is discounted, single-payment note) the
indebtedness hereby evidenced shall bear interest prior to maturity at the
maximum effective rate which may be lawfully charged by the Bank under
applicable law.
Regardless of any provision herein, or in any other document executed in
connection herewith, the holder hereof shall never be entitled to receive,
collect, or apply, as interest hereon, any amount in excess of the maximum
contract rate which may be lawfully charged by the holder hereof under
applicable law; and in the event the holder hereof ever receives, collects, or
applies as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated
hereunder as such; and, if the principal hereof is paid in full, any remaining
excess shall forthwith be paid to the undersigned. In determining whether or
not the interest paid or payable, under any specific contingency, exceeds the
maximum lawful contract rate, the undersigned and the holder hereof shall, to
the maximum extent permitted by applicable law, (a) characterize any
non-principal payment as a reasonable loan charge, rather than as interest; (b)
exclude voluntary prepayments and the effects thereof; and (c) amortize,
prorate, allocate, and spread, in equal parts, the total amount of interest
throughout the entire contemplated term hereby shall at no time exceed
the maximum lawful contract rate.
The undersigned jointly and severally waive(s) any right to a trial by
jury in any action or proceeding to enforce or defend any rights under this
agreement or under any amendment, instrument, document or agreement delivered
(or which may in the future be delivered) in connection herewith or arising
from any banking relationship existing in connection with this agreement. The
undersigned agree(s) that any such action or proceeding shall be tried before a
court and not before a jury.
KING PHARMACEUTICALS, INC.
-------------------------------------
BY: /s/ John M. Gregory
----------------------------------
President & CEO
----------------------------------
First Tennessee Bank National Association, Member FDIC Registered Service Mark
owned and licensed by First Tennessee National Corporation.
<PAGE> 17
ADDENDUM TO PROMISSORY NOTE
VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal
to the lessor of (a) the maximum rate of interest ("Maximum Rate") which Bank
may lawful charge, or (b) a rate which is 1.75% per annum higher than the 90
day London Interbank Offered Rate ("LIBOR"). The 90 Day LIBOR will be that rate
so published as the Three Month LIBOR in the Money Rates section of the Wall
Street Journal in the edition dated the last business day of the calendar
quarter. Each change in the Variable Rate which results from a change in the
Maximum Rate shall become effective, without notice to the undersigned, on the
same date that the Maximum Rate changes. Each change in the Variable Rate which
results from a change in the LIBOR shall become effective, without notice to
the undersigned, on the first day of the calendar quarter following any change
in the LIBOR. LIBOR is one of several interest rate indices employed by the
Bank. The undersigned acknowledges(s) that the Bank has made and may hereafter
make loans bearing interest at rates which are higher or lower than the LIBOR.
Dated this 30th day of April, 1996.
------ --------
King Pharmaceuticals, Inc.
By:/s/ John M. Gregory
--------------------------------
President & CEO
--------------------------------
<PAGE> 1
EXHIBIT 10.4
PROMISSORY NOTE
Dated: October 2, 1996 At: Bristol, Tennessee
--
FOR VALUE RECEIVED, the undersigned MONARCH PHARMACEUTICALS, INC., a
Tennessee corporation with its principal place of business located at 355
Beecham Street, Bristol, Tennessee 37620 ("Maker"), promises to pay to the
order of ROBERTS LABORATORIES, INC., a New Jersey corporation with its
principal place of business located at Meridian Center II; Four Industrial Way
West, Eatontown, New Jersey 07724-2274 ("Lender"), the principal sum of Five
Million, Five Hundred Thousand Dollars ($5,500,000.00) (the "Principal Sum"),
with interest thereon at the rate of Eight percent (8%) per annum from the date
set forth above, to be paid in lawful money of the United States of America, at
Lender's address set forth above or such other place as Lender may from time to
time designate in writing. All references to Lender in this Note shall be
deemed to mean and include any subsequent holder hereof.
1. Payment of Principal and Interest. The indebtedness evidenced
hereby shall be repaid in five equal annual installments of principal and
interest in the amount of One Million, Three Hundred Seventy Seven Thousand,
Five Hundred Ten Dollars and 50/100 ($1,377,510.50) each, commencing on
October 2, 1997, and on every anniversary of October 2nd thereafter until
October 2, 2001 at which time the final payment hereunder shall comprise the
entire principal balance then outstanding, all accrued and unpaid interest and
all other applicable fees, costs and charges if any.
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2. Security. This Note and all the obligations of Maker hereunder are
secured by the security interests granted in the Security Agreement of even
date herewith executed by Maker (the "Security Agreement"). This Note, and the
Security Agreement, together with all other documents now or at any time
hereafter creating, evidencing or securing the indebtedness evidenced by this
Note, are herein referred to collectively as the "Loan Documents."
3. Application of Proceeds. Maker is giving this Note to Lender
pursuant to an Asset Purchase agreement of even date herewith between Maker and
Lender (the "Asset Purchase Agreement") to purchase the Purchased Assets (as
that term is defined in the Asset Purchase Agreement).
4. Prepayment Rights. Maker shall have the right to prepay at any time
and from time to time all or any portion of the entire principal balance of
this Note and interest thereon, together with all other indebtedness evidenced
hereby, without penalty, provided that Lender shall have received at least ten
(10) days prior written notice of prepayment and Maker shall pay all accrued
and unpaid interest thereon and all other fees and costs, if any, due to Lender
under this note. Any partial prepayment will be applied first against any fees
or charges due under the Loan Documents, if applicable, and then against
accrued and unpaid interest and then against the principal of this Note. No
partial prepayment will excuse any future payment of principal or interest as
long as any amounts remain unpaid.
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<PAGE> 3
5. Default Provisions. The occurrence of any one or more of the
following events shall constitute a default under this Note: (a) failure of
Maker to pay when due any amount required to be paid by Maker hereunder or
under any of the Loan Documents; (b) the filing of any petition under the
Bankruptcy Code or any similar Federal or State statute by or against Maker;
(c) the occurrence of a general assignment for the benefit of creditors by
Maker; (d) the insolvency of Maker; (e) the appointment of a receiver for Maker
or its assets; or (f) any default under the Security Agreement. Whenever there
is a default under this Note, Lender may, at its option, declare the unpaid
balance of the principal amount, together with all accrued and unpaid interest
and all other indebtedness evidenced hereby, to be immediately due and payable,
and exercise any and all rights and remedies available to Lender hereunder,
under applicable laws and under any of the other Loan Documents, all of which
rights and remedies are cumulative.
6. Payment of Collection Costs. If Lender requires the services of an
attorney to enforce the payment of this Note or the performance of the other
Loan Documents, or if this Note is collected through any lawsuit, bankruptcy,
or other proceeding, Maker agrees to pay Lender an amount equal of reasonable
attorneys' fees and other actual collection costs.
7. Waiver of Certain Rights of Maker. As to this Note and the Security
Agreement, and all other Loan documents, the undersigned waives all applicable
exemption rights, whether under any State Constitution or otherwise, and also
waives
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valuation and appraisement, presentment, protest and demand, notice of protest,
demand and dishonor and nonpayment of this Note, and expressly agrees that the
maturity of this Note, or any payment hereunder, may be extended from time to
time without in any way affecting the liability of Maker.
8. Non-Waiver of Certain Rights of Holder. Any failure by the holder
hereof to insist upon the strict performance of any of the terms and provisions
of this Note or of any of the other Loan Documents shall not be deemed to be a
waiver of any of the terms and provisions hereof and the holder hereof,
notwithstanding any such failure, shall have the right thereafter to insist
upon the strict performance by Maker of any and all of the terms and provisions
of this Note and the other Loan Documents.
9. Invalidity of Provisions. In the event that any one or more of the
provisions contained in this Note or any of the other Loan Documents shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note or any of the other Loan Documents, and each term and provision of
this Note and the other Loan Documents shall be valid and enforceable to the
fullest extent permitted by law.
10. Usurious Interest. In the event the operation of any provision of
this Note or of any of the Loan Documents results in an effective rate of
interest exceeding the limit of the usury law applicable to the loan evidenced
hereby, all sums in excess of those lawfully collectible as interest in the
period in question shall, without further agreement
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or notice be applied to the unpaid principal balance of this Note immediately
upon receipt of such monies by the holder hereof, with the same force and
effect as though Maker had specifically designated such extra sums to be so
applied to the unpaid principal balance of this Note and notwithstanding any
other provision contained herein as though Lender had agreed to accept such
extra payment(s) as a prepayment of the outstanding principal balance of this
Note without premium or penalty.
11. Indebtedness is for Business Purposes. Maker represents and
warrants that the indebtedness evidenced by this Note is being made and
transacted solely for the purpose of carrying on or acquiring a business or
commercial investment.
12. Relationship of Lender and Maker. Nothing herein shall be
construed to constitute Maker and Lender or any other holder hereof as partners
or joint venturers. They are and intend to be debtor and creditor.
13. Amendments Must Be in Writing. This Note may not be changed
orally, but only by an agreement in writing signed by Maker.
14. Governing Law. This Note is to be construed according to the laws
of the State of Tennessee and shall be binding upon and inure to the benefit of
Maker and Lender and their respective successors and assigns. Maker agrees that
any action or proceeding brought by Lender under this Note (a) will be
litigated under the laws of the State of Tennessee and agrees to be subject to
the jurisdiction of the United States District
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Court of the Eastern District of Tennessee, (b) that service of process of any
summons and complaint in any such action or proceeding may be made by
registered or certified mail directed to Maker at the address set forth above,
Maker waiving personal service thereof, and (c) within forty-five (45) days
after summons and complaint, and should the Maker so served fail to appear or
answer within said forty-five (45) day period, Maker shall be deemed in default
and judgment entered against Maker for the amount demarked in any summons and
complaint so served.
15. Captions. The captions of this Note are for convenience only and
shall neither limit nor enlarge the provisions hereof.
Executed as of the day and year first above written.
MONARCH PHARMACEUTICALS, INC.
By:/s/ Joseph R. Gregory
--------------------------
Title: President and C.E.O.
-----------------------
Date: 10/2/96
------------------------
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<PAGE> 1
EXHIBIT 10.5
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made this 21st day of January,
1997, by and between MONARCH PHARMACEUTICALS, INC., a Tennessee corporation
whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the "Borrower"),
KING PHARMACEUTICALS, INC., a Tennessee corporation whose address is 501 Fifth
Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE BANK
NATIONAL ASSOCIATION, a national banking association organized and existing
under the statutes of the United States of America, whose address is P.O. Box
3189, Bristol, Tennessee 37625 (the "Bank").
Recitals of Fact
The Borrower has requested that the Bank commit to loan the Borrower the
principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars
($1,750,000.00), with said extension of credit to be structured as a term loan.
The proceeds of the term loan shall be used by the Borrower to finance the
acquisition, development and marketing of the Thalitone(R) Product Line.
Furthermore, the Guarantor desires that the Bank commit to loan the Borrower
the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars
($1,750,000.00) for the purposes recited hereinabove. In consideration of Bank's
commitment, the Guarantor has agreed to guarantee repayment of the loan
contemplated by this Loan Agreement.
NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in
consideration of the mutual agreements herein contained, the parties agree as
follows:
AGREEMENTS
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following
terms shall have the following meanings (such meanings to be applicable equally
to both the singular and plural forms of such terms) unless the context
otherwise requires:
"ANDA" shall mean an Abbreviated New Drug Application as described in the
Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated
thereunder.
"Closing Date" means the date set out in the first paragraph of this Loan
Agreement.
"Collateral" means the tangible and/or intangible personal property of the
Borrower that is intended to secure the loan contemplated under this Loan
Agreement, said personal property being specifically described in Section 3.1 of
this Loan Agreement.
"Contingent Assignment" means the Contingent Assignment described in Section
3.2 of this Loan Agreement.
"Event of Default" has the meaning assigned to that phrase in Section 14 of
this Loan Agreement.
"FDA" means the Food and Drug Administration, a agency of the government of
the United States of America.
<PAGE> 2
"Guaranty" means the guaranty agreement described in Section 4.2 of this Loan
Agreement.
"Horus" means Horus Therapeutics, Inc.
"Horus Asset Purchase Agreement" shall mean that certain contract dated
December 17, 1996, by and between Horus and Borrower, entitled Asset Purchase
Agreement, whereby Borrower acquired Horus' interest in the Thalitone(R) Product
Line.
"Loan Agreement" means this Loan Agreement between the Borrower and the Bank.
"NDA" shall mean a New Drug Application as described in the Federal Food, Drug
and Cosmetic Act, as amended, and regulations promulgated thereunder.
"Security Agreement" means the Security Agreement described in Section 3.2 of
this Loan Agreement.
"Term Loan" means the Borrower's term indebtedness to the Bank pursuant to
Section 2 of this Loan Agreement.
"Term Note" means the promissory note as described in Section 2.2 of this Loan
Agreement.
"Thalitone(R) Product Line" shall refer to Thalitone(R) tablets (15 mg., 25
mg. and all other presentation sizes) and all other chlorthalidone dosage forms,
along with all product codes and strengths associated with Borrower's NDA
#19-574, which has been consolidated with ANDA #88-051, and, any and all
changes, amendments, periodic reports, supplements, authorizations,
documentation, or permits relative thereto.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles
consistent to those applied in the preparation of the financial statements
required to be delivered from time to time pursuant to Section 11.1 of this Loan
Agreement.
SECTION 2: COMMITMENT, FUNDING AND TERMS OF TERM LOAN.
2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the
Bank agrees and commits to loan the Borrower the principal sum of One Million
Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00), to be used for
the purpose of financing the borrower's acquisition, development and marketing
of the Thalitone(R) Product Line.
2.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidenced by the Term
Note of Borrower, payable to the order of the Bank, in the principal amount of
One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00). The
unpaid principal balance of the Term Note shall bear interest at the rate
specified in the Term Note and shall be payable as provided in the Term Note.
SECTION 3. COLLATERAL.
3.1 DESCRIPTION OF COLLATERAL. The Term Note shall be secured by a first lien
on the following:
(a) The Thalitone(R) Product Line, and the goodwill associated therewith, as
well as any registered patents, trademarks or service marks (or applications
therefor) or any tradenames, trade dress, trade secrets, service
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marks, proprietary data, or other intellectual property rights of any nature
associated or used therewith, along with all presentations, product codes,
strengths, and formulations associated with the Thalitone(R) Product Line and
Borrower's NDA #19-574, which has been consolidated with ANDA #88-051, as well
as any future ANDA's or NDA's related to the Thalitone(R) Product Line, and
any other present or future regulatory filing wheresoever occurring, whether
issued or pending, and any and all changes, amendments, periodic reports,
supplements, authorizations, documentation, or permits relative thereto, for
the production of the Thalitone(R) Product Line, including without limitation,
ANDA's and NDA's, formulations, annual product reviews, copies of completed
batch records, copies of all manufacturing and packaging control procedures
and specifications, all validation and protocol reports, stability protocols
and reports, dose ranging study reports and protocols, product complaint files
and protocols, adverse drug experience reports and protocols, supplier audit
reports and protocols, and field alert reports. Registered trademarks include,
but are not limited to, the trademarks Thalitone(R) and the kidney-shaped
tablet that are subject to United States Registration No. 1,216,341, dated
November 16, 1982, and No. 1,350,257, dated July 23, 1985. Patents include,
but are not limited to U.S. Patent No. 4,933,360, issue date June 12, 1990,
expiration date June 12, 2007, together with any improvements or change
reflected in continuations or separate filings;
(b) (i) Any and all customer lists, marketing information, documentation,
data, clinical data, research and development, or other information, from any
source whatsoever, related solely or primarily to the Thalitone(R) Product
Line, (ii) any and all punches, and dies related to the production of the
Thalitone(R) Product Line; (iii) any and all production technology or know-how
including batch records, protocols, validation and analytical methods and
methodology, stability protocol and procedures, Standard Operating Procedures
related to the production, manufacturing, packaging, release, sale or
distribution of the Thalitone(R) Product Line, (iv) any and all ANDA and NDA
documentation for all product codes and strengths and all other regulatory
filings related to the Thalitone(R) Product Line, and (v) any and all data,
documents, charts, information and records (whether written or electronically
or magnetically archived) related to any of the foregoing in subsections (i)
through (iv) inclusive;
(c) Borrower's contract rights under the Horus Asset Purchase Agreement;
(d) The right to use names, logos, and trademarks used by Borrower on the
Thalitone(R) Product Line and the packaging thereof, and in connection with
the sale and distribution of the Thalitone(R) Product Line to wholesale and
retail distributors; provided that the Thalitone(R) Product Line shall not be
manufactured bearing any such name and logos after eighteen months from the
date this interest is sold to enforce the security interest created under the
Security Agreement;
(e) Manufacturing technology consisting of all information, technical data or
other know-how used in or related to the manufacture of the Thalitone(R)
Product Line, including but not limited to the specifications, manufacturing
and quality control data, test methods and validation data; and all products
and proceeds of the foregoing.
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3.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide the
Bank with the security contemplated by Section 3.1 of this Loan Agreement, the
Borrower shall execute a security agreement granting the Bank a security
interest in the Collateral and Borrower shall execute such financing statements
as the Bank deems necessary to perfect said security interest. The Security
Agreement and the financing statements shall be in a form acceptable to the
Bank. For the purpose of further perfecting the Bank's security interest in
the Collateral, the Borrower shall execute a Contingent Assignment referencing
the security interest created by the Security Agreement, which Contingent
Assignment shall be filed with the United States Patent and Trademark office,
together with such other documents as necessary for that purpose. The
Contingent Assignment shall be in a form satisfactory to the Bank. Furthermore,
the Borrower shall execute such other documents as the Bank deems necessary to
perfect its security interest in and lien against the Collateral under both the
laws of the United States of America, State of Tennessee, and any other state
or locality the bank deems necessary.
SECTION 4. GUARANTY.
4.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment of all
sums at any time owing to the Bank under this Loan Agreement, the Term Note,
and/or Security Agreement.
4.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty
contemplated by Section 4.1 of this Loan Agreement, the Guarantor shall execute
the guaranty agreement that is attached hereto as Exhibit "A".
4.3 SECURITY FOR GUARANTY. The Guarantor acknowledges that the security
interest created by means of that certain Security Agreement dated April 30,
1996, whereby Guarantor granted the Bank a security interest securing the
payment of certain promissory notes of even date therewith and any other
indebtedness then existing or thereafter arising, due or to become due, absolute
or contingent, and whether several, joint, or joint and several, of the
Guarantor to the Bank secures, and was intended to secure the Term Loan and the
obligations of the Guarantor under this Loan Agreement.
SECTION 5. CONDITIONS OF LENDING.
5.1 CONDITIONS PRECEDENT TO FUNDING THE TERM NOTE. The obligation of the Bank
to fund the Term Note is subject to the following conditions precedent that the
Bank shall have received in a form and substance satisfactory to the Bank:
(a) This Loan Agreement.
(b) The Term Note.
(c) The Security Agreement, together with the Contingent Assignment, and such
financing statements and other documents as the Bank deems necessary to
perfect its security interest in and lien against the Collateral.
(d) Lien searches from such recording offices as the Bank shall specify,
evidencing the priority of the Bank's lien under the Security Agreement.
(e) Opinion letter from Jon L. Roberts, Roberts & Brownell, L.L.C. to the Bank
providing that (i) he has reviewed the records of the United States Patent and
Trademark Office, (ii) Borrower is the owner of the registered trademarks
Thalitone(R) and the kidney-shaped tablet that are subject to United States
Registration No. 1,216,341, dated November 16, 1982, and No. 1,350,257, dated
July 23, 1985, and U.S. Patent No. 4,933,360, issue date June 12, 1990,
expiration date June 12, 2007, together with any
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improvements or change reflected in continuations or separate filings, (iii)
said trademarks and patent are presently in full force and effect, (iv)
Borrower's right to said trademarks and patent and their exclusive use is not
presently subject to any challenges, and (v) the Bank has a first lien on said
trademarks and patent.
(f) The Guaranty.
(g) Certified corporate resolutions of the Borrower, authorizing this Loan
Agreement, the Term Note, and the Security Agreement.
(h) Certified corporate resolutions of the Guarantor, authorizing this Loan
Agreement and the Guaranty.
(i) Certificate(s) of good standing for the Borrower from the state of its
incorporation and such other states as the Bank shall require.
(j) Certificate(s) of good standing for the Guarantor from the state of its
incorporation and such other states as the Bank shall require.
(k) Written proof satisfactory to the Bank that 21 CFR 314.72(a)(1) has been
fully complied with respect to the assets acquired by the Borrower under the
Horus Asset Purchase Agreement.
(1) Such other information and documentation as the Bank shall reasonably
require in connection with the funding of the Term Note.
(m) The opinion of the Borrower's counsel that (i) the Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee; it has the power and authority to own its
properties and assets and is duly qualified to carry on its business in every
jurisdiction wherein such qualification is necessary; (ii) the transactions
herein contemplated have been duly authorized by all requisite corporate
authority, (iii) this Loan Agreement and the other instruments and documents
herein referred to have been duly authorized, validly executed and are in full
force and effect, (iv) the execution, delivery and performance of this Loan
Agreement, the Term Note, and the Security Agreement have been duly authorized
by all requisite action and will not violate any provision of law, any order
of any court or other agency of government, the Charter and By-Laws of the
Borrower, any provision of any indenture, agreement or other instrument to
which the Borrower is a party, or by which the Borrower's respective
properties or assets are bound, or be in conflict, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of the properties or assets of the Borrower, (v) the Borrower is a wholly
owned subsidiary of the Guarantor, and (vi) pertaining to such other matters
as the Bank may reasonably require.
(n) The opinion of the Guarantor's counsel that (i) the Guarantor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee; it has the power and authority to own its
properties and assets and is duly qualified to carry on its business in every
jurisdiction wherein such qualification is necessary; (ii) the guaranty herein
contemplated has been duly authorized by all requisite corporate authority
and is fully enforceable against the Guarantor under the laws of the State of
Tennessee, (iii) this Loan Agreement, the Guaranty and any other instrument
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and document herein referred to have been duly authorized, validly executed
and are in full force and effect, (iv) the execution, delivery and performance
of this Loan Agreement and the Guaranty have been duly authorized by all
requisite action and will not violate any provision of law, any order of any
court or other agency of government, the Charter and By-Laws of the Borrower,
any provision of any indenture, agreement or other instrument to which the
Borrower is a party, or by which the Borrower's respective properties or
assets are bound, or be in conflict, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Borrower, (v) the Borrower is a wholly owned
subsidiary of the Guarantor, and (vi) pertaining to such other matters as the
Bank may reasonably require.
The obligation of the Bank to fund the Term Note is further subject to each of
the warranties and representations of Borrower and Guarantor set out in Sections
6, 7 and 8 of this Loan Agreement being and remaining true and correct in all
material respects.
SECTION 6: BORROWER'S REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
6.1 INCORPORATION. It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee; it has the power and
authority to own its properties and assets and is duly qualified to carry on its
business in every jurisdiction wherein such qualification is necessary.
6.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan
Agreement, the Term Note, and the Security Agreement have been duly authorized
by all requisite action and will not violate any provision of law, any order of
any court or other agency of government, the Charter and By-Laws of the
Borrower, any provision of any indenture, agreement or other instrument to which
the Borrower is a party, or by which the Borrower's respective properties or
assets are bound, or be in conflict, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Borrower.
6.3 LITIGATION. There is no suit, claim, action, cause or proceeding now
pending or, to the knowledge of Borrower, threatened before any court,
administrative, or regulatory body, arbitrator, or any governmental agency, or
any grounds therefor which may result in any judgment, order, decree, liability,
or other determination which will, or could, have a materially adverse effect
upon the Thalitone(R) Product Line, or Borrower's compliance with and
performance under the terms of this Loan Agreement, the Term Note or the
Security Agreement. No such judgment, order, or decree has been entered or any
such liability incurred which has or could have such effect. No party has
tendered to Borrower, nor has Borrower accepted the tender of the defense of any
claim, action, or proceeding which has or could have such effect.
6.4 TAXES. Borrower has filed or caused to be filed all federal, state or
local tax returns which are required to be filed, and has paid all taxes due and
owing to all such taxing authorities.
6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Borrower is not a party to
any agreement or instrument or subject to any charter or other corporate
restrictions
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materially adversely affecting its business, properties or assets, operations or
conditions (financial or otherwise) taken as a whole.
6.6 NO DEFAULT. Borrower is not in materiel default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
if not cured would materially and substantially affect the financial condition,
property or operations of the Borrower.
6.7 21 CFR 314.72(a)(i). All requirements of 21 CFR 314.72(a)(1) that relate
to the transfer of assets to Borrower by Horus under the Horus Asset Purchase
Agreement have been satisfied.
6.8 WITHDRAWAL. There exists no set of facts which could reasonably be
expected to furnish a basis for the total withdrawal of the Thalitone(R) Product
Line from the market or the suspension of said products registration, product
license, manufacturing license, wholesale dealers license, export license or
other governmental license, approval or consent of any governmental regulatory
agency with respect to the Thalitone(R) Product Line.
6.9 NO VIOLATION OF LAW. Neither the Borrower or any of it employees with
respect to the Thalitone(R) Product Line is or has been in violation of or in
default with respect to any applicable law, rule, regulation, order, writ, or
decree of any court or any governmental commission, board, bureau, agency, or
instrumentality, which violation or default might have a materially adverse
effect on the Thalitone(R) Product Line, the Thalitone(R) Product Line business,
or Borrower's compliance with and performance under the terms of this Loan
Agreement, the Term Note, or Security Agreement.
6.11 TITLE TO COLLATERAL. Borrower has good and marketable title to all of the
Collateral, free and clear of all mortgages, liens, security interests, charges,
claims, restrictions, and other encumbrances of every kind, wheresoever situated
other than the liens and security interests contemplated by this loan agreement
to secure the obligations of Borrower to the Bank.
6.12 PATENTS AND TRADEMARKS. The registered trademarks Thalitone(R) and the
kidney-shaped tablet that are subject to United States Registration No.
1,216,341, dated November 16, 1982, and No. 1,350,257, dated July 23, 1985 (the
"Trademarks") and U.S. Patent No. 4,933,360, issue date June 12, 1990,
expiration date June 12, 2007, together with any improvements or change
reflected in continuations or separate filings (the "Patent") are presently in
full force and effect. Furthermore, the Trademarks and Patents are subject to
the sole use and control of Borrower and its licensees. Borrower is not aware of
any state of facts that indicate a possible present infringement of the
Trademarks and/or Patent.
SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES
Guarantor represents and warrants that:
7.1 INCORPORATION. It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee; it has the power and
authority to own its properties and assets and is duly qualified to carry on its
business in every jurisdiction wherein such qualification is necessary.
7.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan
Agreement and the Guaranty have been duly authorized by all requisite action and
will not violate any provision of law, any order of any court or other agency of
government, the Charter and By-Laws of the Guarantor, any provision of any
indenture, agreement or other
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instrument which the Guarantor is a party, or by which the Guarantor's
respective properties or assets are bound, or be in conflict, result in a breach
of, or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Guarantor.
7.3 LITIGATION. There is no action, suit or proceeding at law or in equity or
by or before any governmental instrumentality or other agency now pending, or,
to the knowledge of the Guarantor, threatened against or affecting the
Guarantor, or any properties or rights of the Guarantor, which, if adversely
determined, would materially adversely affect the financial or any other
condition of the Guarantor.
7.4 TAXES. Guarantor has filed or caused to be filed all federal, state or
local tax returns which are required to be filed, and has paid all taxes due and
owing to all such taxing authorities.
7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a party to
any agreement or instrument or subject to any charter or other corporate
restrictions materially adversely affecting its business, properties or assets,
operations or conditions (financial or otherwise) taken as a whole.
7.6 NO DEFAULT. Guarantor is not in material default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
if not cured would materially and substantially affect the financial condition,
property or operations of the Guarantor.
7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not extend the
Term Loan to the Borrower but for the Guaranty, Guarantor's execution of the
Guaranty is in the best interest of the Guarantor.
SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES.
Borrower and Guarantor represent and warrant that:
8.1 FINANCIAL CONDITION. The consolidated financial statements of the
Guarantor and its wholly owned subsidiaries, copies of which are attached
hereto, are correct and complete and fairly present the financial condition of
the Guarantor and its subsidiaries as of the date of said financial statements
and the results of their operations for said periods and as of the Closing Date
in all material respects. All such financial statements have been prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, maintained through the period involved.
8.2 TITLE TO ASSETS. Guarantor and its subsidiaries, have good and marketable
title to all their properties and assets as reflected on the balance sheet which
is a part of the financial statements referred to in Section 8.1 of this Loan
Agreement.
8.3 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of Borrower
and Guarantor, neither this Loan Agreement nor any schedule or exhibit hereto
(including without limitation the Term Note, Security Agreement and Guaranty),
nor any written statement or certificate furnished in connection herewith or any
of the transactions contemplated hereby, contain or will contain an untrue
statement of a fact or omits or will omit to state a fact that is necessary in
order to make the statements contained herein and therein, in the light of the
circumstances under which they are made, not materially misleading.
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8.4 BORROWER SUBSIDIARY OF GUARANTOR. The Borrower is a wholly owned
subsidiary of the Guarantor.
SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER.
The Borrower covenants and agrees that from the date hereof and until payment
in full of the principal of and interest on the indebtedness evidenced by the
Term Note, unless the Bank shall otherwise in its sole discretion consent in
writing, the Borrower will:
9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and franchises,
comply with all laws applicable to it and continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar years.
9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases,
franchises, patents, trademarks, trade names, and copyrights, and preserve all
the remainder of its properties used or useful in the conduct of its business
substantially as conducted and operated during the present and preceding fiscal
year. As part of this obligation, Borrower shall take all action necessary to
respond to and satisfy any issues raised by any FDA Form 483 or other notice of
a governmental agency so as to prevent any action which could result in the
withdrawal of the Thalitone(R) Product Line, or the suspension of said product's
registration, product license, manufacturing license, wholesale dealers license,
export license or other governmental license, approval or consent of any
governmental regulatory agency with respect to the Thalitone(R) Product Line or
any facility manufacturing said product. Furthermore, Borrower shall comply with
all reporting requirements of any governmental agency related to the
Thalitone(R) Product Line.
9.3 INSURANCE. At all times maintain with insurance companies rated "A" or
better or otherwise acceptable to the Borrower and the Bank, hazard insurance
and such other insurance, for such amounts as is customarily maintained by
companies in the same or substantially similar business. The Bank shall be named
as loss payee on the Borrower's principle hazard insurance policies and any
policy covering the Collateral.
9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of
each calendar quarter a Compliance Certificate, in the form of Exhibit "B"
attached hereto.
9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or
notice, furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or lapse
of time or both would constitute an Event of Default under the terms of this
Loan Agreement.
9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against
the Collateral. If any other such liens exist that have not been released of
record, Borrower will obtain the immediate release of any such liens.
9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank.
9.9 RIGHT TO REIMBURSEMENT. Borrower shall commence performance of the Dose
Response Study or reasonably act to initiate same before December 17, 1997, as
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contemplated Section 3.4 of the Horus Asset Purchase and take any such
other action necessary to preserve Its right to reimbursement under Section 3.4
of said agreement. In the event Borrower becomes entitled to exercise its right
to reimbursement under Section 3.4 of the Horus Asset Purchase Agreement, it
shall take all steps necessary to exercise that right. Furthermore, Borrower
shall apply any and all proceeds from that right to reimbursement toward payment
of sums owing under the Term Note, Security Agreement and this Loan Agreement,
said proceeds being applied to no other purpose until all sums owing under said
note and agreements have been fully satisfied. Since said right to reimbursement
represents a portion of the Collateral, Borrower shall execute such documents as
counsel for the Bank deems reasonably necessary to put Horus on notice of the
Bank's right to receive any such reimbursement that may come due.
SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR.
The Guarantor covenants and agrees that from the date hereof and until payment
in full of the principal of and interest on the indebtedness evidenced by the
Term Note, unless the Bank shall otherwise in its sole discretion consent in
writing, the Guarantor will:
10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and franchises,
comply with all laws applicable to it and continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar years.
10.2 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
10.3 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of
each calendar quarter a Compliance Certificate, in the form of Exhibit "C"
attached hereto.
10.4 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or
notice, furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or lapse
of time or both would constitute an Event of Default under the terms of this
Loan Agreement.
10.5 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the
Bank.
SECTION 11: JOINT AFFIRMATIVE COVENANTS.
The Borrower and Guarantor, jointly and severally, covenant and agree that
from the date hereof and until payment in full of the principal of and interest
on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise
in its sole discretion consent in writing, the Borrower and Guarantor will:
11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of the Guarantor, an unqualified audit of the Guarantor's and its wholly
owned subsidiaries' consolidated financial statements as of the close of such
fiscal year of the Guarantor, which financial statements shall including a
consolidated balance sheet and consolidated statement of income and surplus of
the Guarantor and its subsidiaries, together with the unqualified audit report
and opinion of an independent Certified Public Accountant reasonably acceptable
to the Bank, showing the financial condition of the Guarantor and its
subsidiaries at the close of such year and the results of operations during such
year; (b)
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within forty-five (45) days after the end each fiscal quarter, except the last
fiscal quarter of the year, financial statements similar to those described
above for the Guarantor and its subsidiaries, not audited but certified as to
accuracy and content by the Chief Financial Officer or President or Controller
of the Guarantor (the "Certifying Officer"), such consolidated balance sheets to
be as of the end of such quarter and such consolidated statements of income and
surplus to be for the period from the beginning of said year to the end of such
quarter, in each case subject only to audit and year-end adjustment.
11.2 ADDITIONAL INFORMATION. Furnish such other relevant information regarding
the operations, business affairs and financial condition of the Guarantor and
its subsidiaries as the Bank may reasonably request, including but not limited
to true and exact copies of Guarantor's and its subsidiaries' books of account
and tax returns, and all information furnished to shareholders or any
governmental authority, and permit the copying of the same.
11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the
Bank's expense, to visit and inspect any of the properties, books and financial
reports of the Guarantor and its subsidiaries and to discuss its affairs,
finances and accounts with the principal officers of the Guarantor and its
subsidiaries, at all such reasonable times during regular business hours of the
Bank and on reasonable advance notice and as often as the Bank may reasonably
request. This right of inspection shall include, but not be limited to, the
right to inspect all premises, properties, books, records, contracts, and
documents related to the Thalitone(R) Product Line (including, without
limitation, access to raw data in support of product lost approvals and
stability reports) and such other information concerning the Thalitone(R)
Product Line as may be relevant to the protection of the Bank's rights and
interests in and to the Thalitone(R) Product Line. The Bank shall keep
confidential any information it or its agents obtain as a result of this right
of inspection. However, if the Bank enforces it security interest under the
Security Agreement it shall be free to share any such information that is
related to its Collateral with such persons it deems necessary for purposes of
liquidating or selling the Collateral. Furthermore, the Bank and its agents may
disclose any such information as required by a subpoena or order of any court of
law.
11.4 MINIMUM NET WORTH. The Guarantor and its wholly owned subsidiaries shall
maintain a minimum consolidated net worth of Fourteen Million Eight Hundred
Thousand and No/100 Dollars ($14,800,000.00), as determined by generally
accepted accounting principles including intangible assets, with assets valued
at historical costs less allowances taken for depreciation and depletion. The
minimum consolidated net worth to be maintained by the Guarantor and its wholly
owned subsidiaries shall increase at the end of each fiscal quarter, beginning
with the quarter ending December 31, 1996, by an amount equal to Fifty Percent
(50%) of the consolidated net profit for that fiscal quarter. There shall,
however, be no adjustment to the minimum consolidated net worth requirement in
the event of a net loss for a fiscal quarter.
11.5 DEBT TO EQUITY RATIO. The Guarantor and its wholly owned subsidiaries
shall maintain a maximum consolidated debt to equity ratio (total debt divided
by total equity) as established by this section. The maximum debt to equity
ratio as of the Closing Date shall be 1.75. Thereafter, the maximum debt to
equity ratio shall be redetermined at the end of each of Guarantor's fiscal
quarters based on the following formula:
(a) In the event the Guarantor's and its wholly owned subsidiaries'
consolidated net worth is less than Eighteen Million Five Hundred Thousand
No/100 Dollars ($18,500,000.00), the maximum debt to equity ratio shall be
1.75;
(b) In the event the Guarantor's and its wholly owned subsidiaries'
consolidated net worth is equal to or greater than Eighteen Million Five
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Hundred Thousand and No/100 Dollars ($18,500,000.00), but is less than Twenty
Million and No/100 Dollars ($20,000,000.00), the maximum debt to equity ratio
shall be 1.65; and
(c) In the event the Guarantor's and its wholly owned subsidiaries'
consolidated net worth is equal to or greater than Twenty Million and No/100
Dollars ($20,000,000.00), the maximum debt to equity ratio shall be 1.55
11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Guarantor and its wholly owned
subsidiaries shall maintain a consolidated ratio of cash flow-to-debt service of
not less than 1.25 (total cash flow divided by total debt service) to be
measured quarterly based on the consolidated audited financial statements
required by Section 11. l(a). For purposes of this requirement, "Cash Flow"
shall be defined as Guarantor's and its wholly owned subsidiaries' consolidated
net profits plus consolidated allowances for depreciation, interest and equity
injections consisting of cash for the past 365 calendar days; and "Debt Service"
shall be defined as all scheduled payments of principal, interest and equipment
lease financing payable by the Guarantor and its wholly owned subsidiaries
within the next 365 calendar days.
11.7 CURRENT RATIO. The Guarantor and its wholly owned subsidiaries shall
maintain a consolidated current ratio of 1.50. For purposes of this Section,
"Current Ratio" shall be defined as the Guarantor's and its wholly owned
subsidiaries' consolidated current assets divided by their consolidated current
liabilities.
SECTION 12: NEGATIVE COVENANTS OF BORROWER.
12.1 The Borrower covenants and agrees that at all times from and after the
closing date, unless the Bank shall otherwise consent in writing, which consent
shall not be unreasonably withheld, it will not, either directly or indirectly,
sell, lease, transfer, (except within the Borrower's own organization) or
dispose (other than in the normal course of business) of all or a substantial
part of its business or assets.
12.2 The Borrower covenants and agrees that at all times from and after the
Closing Date, it will not grant anyone other than the Bank a lien against any of
Borrower's assets. Borrower shall be permitted, however, to grant purchase money
liens for the purpose of financing assets acquired after the Closing Date, which
may include the acquisition of product lines (any such lien shall not extend to
the Collateral). Furthermore, this provision shall not impair the ability of the
Borrower to acquire property after the Closing Date by means of leases, or sale
and lease back transactions.
SECTION 13: NEGATIVE COVENANTS OF GUARANTOR.
13.1 The Borrower covenants and agrees that at all times from and after the
closing date, unless the Bank shall otherwise consent in writing, which consent
shall not be unreasonably withheld, it will not, either directly or indirectly,
sell, lease, transfer, (except within the Borrower's own organization) or
dispose (other than in the normal course of business) of all or a substantial
part of its business or assets.
13.2 The Guarantor covenants and agrees that at all times from and after the
Closing Date, it will not grant anyone other than the Bank a lien against any of
Guarantor's assets. Guarantor shall be permitted, however, to grant purchase
money liens for the purpose of financing assets acquired after the Closing Date,
which may include the acquisition of product lines (any such lien shall not
extend to the Collateral). Furthermore, this provision shall not impair the
ability of the Guarantor to acquire property after the closing Date by means of
leases, or sale and lease back transactions.
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SECTION 14: EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following shall occur:
14.1 PAYMENT OF PRINCIPAL, Interest. The Borrower defaults in the prompt
payment as and when due of principal or interest on the Term Note or any fees
due under said note, this Loan Agreement or the Security Agreement; or in the
prompt payment when due of any other indebtedness, liabilities, or obligations
to the Bank, whether now existing or hereafter created or arising; direct or
indirect, absolute or contingent (including but not limited to that certain loan
to the Borrower presently being contemplated in connection with the Borrower's
acquisition of the Proctocort product line); or
14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with respect to any
other material agreement to which it is a party or with respect to any other
material indebtedness when due or the performance of any other obligation
incurred in connection with any material indebtedness for borrowed money
("material" as used herein meaning indebtedness or obligations in excess of
$50,000.00) if the effect of such default is to accelerate the maturity of such
indebtedness, or if the effect of such default is to permit the holder thereof
to cause such indebtedness to become due prior to its stated maturity and the
holder has not waived its right to accelerate payment of such indebtedness; or
14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by the
Borrower and/or Guarantor herein, or in any report, certificate, financial
statement or other writing furnished in connection with or pursuant to this Loan
Agreement shall prove to be false, misleading or incomplete in any material
respect on the date as of which made; or
14.4 BANKRUPTCY. ETC. The Borrower and/or Guarantor shall make an assignment
for the benefit of creditors, file a petition in bankruptcy, petition or apply
to any tribunal for the appointment of a custodian, receiver or any trustee for
it or a substantial part of its assets, or shall commence any proceeding under
any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against the Borrower and/or
Guarantor, in which an order for relief is entered or which remains undismissed
for a period of sixty (60) days or more; or the Borrower and/or Guarantor by any
act or omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or any trustee for it or any substantial
part of any of its properties, or shall suffer any such custodianship,
receivership or trusteeship to continue undischarged for a period of sixty (60)
days or more; or Borrower and/or Guarantor shall generally not pay its debts as
such debts become due; or
14.5 CONCEALMENT OF PROPERTY. ETC. The Borrower and/or Guarantor shall have
concealed, removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any of them,
or made any bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a lien upon any of its
property through legal proceedings or distraint which is not vacated within
sixty (60) days from the date thereof; or
14.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership that
results in John M Gregory, Joseph R. Gregory and Jefferson J. Gregory owning a
combined fifty percent (50%) or less of the capital stock of the Guarantor, or
fifty percent (50%) or less of the voting power related to the capital stock.
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14.7 COVENANTS. Borrower and/or Guarantor defaults in the performance or
observance of any other covenant, agreement or undertaking on its or their part
to be performed or observed, contained herein, or in any other instrument or
document which now or hereafter evidences or secures all or any part of the Term
Loan.
14.8 WITHDRAWAL OR SUSPENSION. The total withdrawal of the Thalitone(R)
Product Line from the market, or the suspension of said product's registration,
product license, manufacturing license, wholesale dealers license, export
license or other governmental license, the approval or consent of any
governmental regulatory agency with respect to the Thalitone(R) Product Line.
14.9 REMEDY. Upon the occurrence of any Event of Default, as specified herein,
and the expiration of any applicable cure period, the Bank shall, at its option,
thereupon declare the entire unpaid principal balance of the Term Note, all
interest accrued and unpaid thereon and all other amounts payable under this
Loan Agreement to be immediately due and payable for all purposes, and may
exercise all rights and remedies available to it under any other instrument or
document which evidences, secures or guaranties the Term Note, or available at
law or in equity, including the right to the appointment of a receiver to take
possession of the Borrower's and/or Guarantor's property.
SECTION 15: MISCELLANEOUS
15.1 AMENDMENTS. The provisions of this Loan Agreement, the Term Note, or any
instrument or document executed pursuant hereto or securing or guarantying the
indebtednesses, may be amended or modified only by an instrument in writing
signed by the parties to said document or instrument. Guarantor need only be a
party to an amendment of the Guaranty, and waives notice of any amendment,
modification or renewal of the Term Note, this Loan Agreement, or any other
instrument or document executed pursuant hereto other than the Guaranty.
15.2 NOTICES. All notices and other communications provided for hereunder
shall be in writing and shall be mailed, certified mail, return receipt
requested, or delivered by hand. Any such notices and other communications to
the Borrower shall be addressed as follows:
John M. Gregory
Chairman of the Board & CEO
Monarch Pharmaceuticals, Inc.
355 Beecham Street
Bristol, TN 37620
WITH A COPY TO:
---------------
John A. A. Bellamy
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and other communications to the Guarantor shall be addressed
as follows:
John M. Gregory
Chairman of the Board & CEO
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
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WITH A COPY TO:
John A. A. Bellamy
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and other communications to the Bank shall be addressed as
follows:
Kevin L. Jessee
Community Bank President
First Tennessee Bank National Association
P.O. Box 3189
1155 Volunteer Parkway, Suite 201
Bristol, TN 37625,
or as to any such person at such other address as shall be designated by such
person in a written notice to the other parties hereto complying as to the
delivery with the terms of this Section 10.2. All such notices and other
communications shall be effective (i) if mailed, when received or three (3)
business days after mailing, whichever is earlier; or (ii) if delivered by hand,
upon delivery.
15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising, on the part of the Bank , any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
15.4 INDEMNIFICATION. The Borrower and Guarantor agree to indemnify the Bank
from and against any and all claims, losses and liabilities, including, without
limitation, reasonable attorneys' fees and expenses, growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from the Bank's negligence or willful misconduct. The indemnification provided
for in this Section shall survive the payment in full of the Term Note.
15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties
made herein shall survive the delivery of the Term Note. This Loan Agreement
shall be binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns, except that Borrower shall not have the right
to assign its rights hereunder or any interest therein.
15.6 GOVERNING LAW. This Loan Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
15.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
15.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this Loan
Agreement, whether used in the masculine, feminine, or neuter gender, shall
include all other genders; the singular shall include the plural, and vice
versa. Section headings are for convenience only and neither limit nor amplify
the provisions of this Loan Agreement.
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15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions of
this Loan Agreement be determined to be illegal or unenforceable, all other
provisions, nevertheless, shall remain effective and binding on the parties
hereto.
15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be deemed to
indicate that the Bank is in control of the business, management or properties
of the Borrower and/or Guarantor or has power over the daily management
functions and operating decisions made by the Borrower and/or Guarantor.
15.11 FEES AND EXPENSES. Except as otherwise expressly provided herein, the
Borrower agrees to reimburse the Bank for all legal fees and expenses, and
recording fees and taxes incurred by the Bank in connection with the loan
contemplated by this Loan Agreement. Furthermore, the Borrower agrees to pay, or
reimburse the Bank for, the actual out-of-pocket expenses, including but not
limited to counsel fees and expenses, court costs, accountants fees and
expenses, and fees and expenses of similar experts as deemed necessary by the
Bank, incurred by the Bank in connection with the enforcement of, or the
preservation of any rights under this Loan Agreement, the Term Note, and any
instrument or document now or hereafter securing or guarantying said note. The
Guaranty shall guaranty the obligations of the Borrower set forth in this
section, in addition to the other obligations that may be owing under the terms
of this Loan Agreement, the Term Note and the Security Agreement.
15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the Term
Note, and the other instruments and documents executed and delivered in
connection herewith.
15.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default as
specified above, the Bank may apply any and all deposits (general or special,
matured or unmatured) and other credits of the Borrower against any and all
indebtednesses of the Borrower to the Bank. The Borrower acknowledges the Bank's
legal and equitable rights to setoff, appropriate. Furthermore, upon the
occurrence of any Event of Default as specified above, the Bank may apply any
and all deposits (general or special, matured or unmatured) and other credits of
the Guarantor against any and all indebtednesses of the Borrower to the Bank
covered by the Guaranty. The Guarantor acknowledges the Bank's legal and
equitable rights to setoff, appropriate.
15.14 VENUE OF ACTIONS. As an integral part of the consideration for the
making of this Loan Agreement, it is expressly understood and agreed that no
suit or action shall be commenced by the Borrower, or by any successor, personal
representative or assignee with respect to the Term Note, or this Loan Agreement
or any other document or instrument which now or hereafter evidences, secures or
guaranties all or any part of the Term Loan, other than in a state court of
competent jurisdiction in Sullivan County, Tennessee, or in the United States
District Court for the Eastern District of Tennessee, and not elsewhere. As a
further integral part of the consideration for the making of this Loan
Agreement, it is expressly understood and agreed that no suit or action shall be
commenced by the Guarantor, or by any successor, personal representative or
assignee with respect to the this Loan Agreement, or any other document or
instrument which now or hereafter evidences, secures or guaranties all or any
part of the Term Loan, other than in a state court of competent jurisdiction in
Sullivan County, Tennessee, or in the United States District Court for the
Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph
contained shall prohibit the Bank from instituting suit in any court of
competent jurisdiction for the enforcement of its rights hereunder or in any
other document or instrument which evidences, secures or guaranties the
obligations of Borrower and/or Guarantor contemplated by this Loan Agreement.
15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
16
<PAGE> 17
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING AND EACH PARTY HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
15.16 ENTIRE AGREEMENT. This written agreement, the related written documents
referred to herein, and any other agreements executed contemporaneously herewith
set forth the complete and exclusive statement of the terms of the agreement
between the Borrower, Guarantor and the Bank with respect to the loans
contemplated by this Loan Agreement. Therefore, no prior written agreements or
contemporaneous or prior oral agreements between the parties shall be of any
effect with respect to the loan contemplated by this Loan Agreement.
IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this Loan
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.
MONARCH PHARMACEUTICALS, INC.
By /s/ John M. Gregory
----------------------------------------
John M. Gregory
Chairman of the Board & CEO
KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory
----------------------------------------
John M. Gregory
Chairman of the Board & CEO
FIRST TENNESSEE BANK,
NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee
----------------------------------------
Kevin L. Jessee
Community Bank President
17
<PAGE> 18
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, /s/ Kenneth D. Hale of the state and county mentioned,
personally appeared John M. Gregory, with whom I am personally acquainted (or
proved to me on the of satisfactory evidence), and who, upon oath, acknowledged
such person to be the Chairman of the Board & CEO of Monarch Pharmaceuticals,
Inc. the within named bargainor, a corporation, and that as such Chairman of
the Board & CEO, executed the foregoing instrument for the purpose therein
contained, by personally signing the name of Monarch Pharmaceuticals, Inc.
Witness my hand and seal, at office in this 21st day of January, 1997.
/s/ Kenneth D. Hale
-------------------------------
Notary Public
My commission expires 7-20-99
----------
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, /s/ Kenneth D. Hale of the state and county mentioned, personally
appeared John M. Gregory, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Chairman of the Board & CEO of King Pharmaceuticals, Inc. the
within named bargainor, a corporation, and that as such Chairman of the Board &
CEO, executed the foregoing instrument for the purpose therein contained, by
personally signing the name of King Pharmaceuticals, Inc.
Witness my hand and seal, at office in this 21st day of January, 1997.
/s/ Kenneth D. Hale
-------------------------------
Notary Public
My commission expires 7-20-99
-----------
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, /s/ Kenneth D. Hale of the state and county mentioned, personally
appeared Kevin L. Jessee, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Community Bank President of First Tennessee Bank National
Association, the within named bargainor, and that as such Community Bank
President, executed the foregoing instrument for the purpose therein contained,
by personally signing the name of First Tennessee Bank National Association.
Witness my hand and seal, at office in this 21st day of January, 1997.
/s/ Kenneth D. Hale
-------------------------------
Notary Public
My commission expires 7-20-99
-----------
18
<PAGE> 19
PROMISSORY NOTE
(BUSINESS OR COMMERCIAL LOAN) _______________________
Approval
$1,750,000.00 BRISTOL, TENNESSEE
JANUARY 21, 1997
FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one)
promise(s) to pay to the order of First Tennessee Bank National Association
(hereinafter referred to as the "Bank") at any lending office in the state
mentioned above or at such other place as the holder hereof may designate in
writing, in current local funds, the sum of ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND DOLLARS AND NO/100 Dollars.
[ ] DISCOUNTED: Including interest, due on __________, 19 ____.
[X] INTEREST BEARING: Plus interest from date until maturity on the unpaid
principal balance of this Note at the rate of:
[ ] FIXED RATE: __% per annum
[X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which
shall be equal to the lesser of (a) the maximum rate of interest
("Maximum Rate") which Bank may lawfully charge, or (b) a rate
which is ___% per annum higher than the base commercial rate of
interest ("Base Rate") established from time to time by Bank.
Each change in the Variable Rate which results from a change in
the Maximum Rate shall become effective, without notice to the
undersigned, on the same date that the Maximum Rate changes. Each
change in the Variable Rate which results from a change in the
Base Rate shall become effective, without notice to the
undersigned, on [ ] the same date that the Base Rate changes;[ ]
the first day of the calendar month following any change in the
Base Rate;[ ] the first day of the calendar quarter following any
change in the Base Rate; [ ] other _____________________________
The Base Rate is one of several interest rate indices employed by
the Bank. The undersigned acknowledge(s) that the Bank has made,
and may hereafter make, loans bearing interest at rates which are
higher or lower than the Base Rate.
Such principal and interest shall be payable as shown below:
[ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the
balance, due on _____, 19__ plus interest payable
[ ] at maturity.
[ ] beginning _____, 19 __ and continuing on the same day of
each successive [ ] monthly or [ ] quarterly calendar period,
except that the final interest installment shall be payable on the
date the principal is due.
[X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $48,611.11 each, plus a
final payment for the balance then owing, beginning last day of
february, 1997, and continuing on the same day of each successive
[X] monthly or [ ] quarterly calendar period. Accrued interest is
[ ] included in each of the above payments; or [X] payable in
addition to such payments on the above payment dates.
[ ] OTHER: ___________________________________________________________
__________________________________________________________________
SECURITY: Except as otherwise provided herein, as of the date
hereof,
[ ] This Note is secured by a mortgage(s) or deed(s) of trust
dated___
__________________________________________________________________
[X] This Note is secured by security agreements(s) dated January
21, 1997
__________________________________________________________________
Other Terms and Conditions: Unless otherwise provided herein, all payments shall
be applied first to pay the accrued interest to date on the unpaid balance and
next to the unpaid principal of the Indebtedness.
Any payment not made when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the maximum effective contract
rate of interest which the Bank may lawfully charge on the date such payment
became due.
If this Note is placed in the hands of an attorney for collection, by suit
or otherwise, or to protect any security given for its payment, or to enforce
its collection, the undersigned will pay all the costs of collection and
litigation, together with a reasonable attorney's fee, all of which shall be
secured by any collateral pledged as security herefor. The undersigned also
agrees to pay any and all actual expenses including reasonable attorney's fees
incurred by Bank in (i) successfully defending any action or inaction in
connection with any aspect of the transaction evidenced by this instrument, or
(ii) any action, whether or not successful, taken to protect or enforce Bank's
rights in any collateral related to the transaction evidenced by this
instrument.
The maker(s) and any endorsers or guarantors hereof waive protest, demand,
presentment, and notice of dishonor, and agree that this Note may be extended,
in whole or in part, without limit as to the number of such extensions, or the
period or periods thereof, and without notice to or further assent from them or
any other party liable hereon, all of whom will remain bound upon this Note
notwithstanding any such extension(s); and further agree that all or any
collateral given, now or hereafter, as security herefor may be released (with or
without substitution) without notice and without affecting their liability
hereon; and that additional makers, endorsers, guarantors, or sureties may
become parties hereto, and that any present or future party may be released from
liability hereunder, without notice, and without affecting the liability of any
other maker, endorser, or guarantor.
In the event of any default in the prompt and punctual payment, when due, of
this Note (or any installment hereof, whether of principal, interest, or
principal and interest), or if the undersigned, or any other party liable
hereon, should become insolvent (as defined in the Uniform Commercial Code),
or if a petition in bankruptcy be filed by or against any of the undersigned or
any other party liable hereon, of if a receiver be appointed for any part of
the property of assets of the undersigned or any other party liable hereon, or
if any assignment for the benefit of creditors be made by the undersigned or
any other party liable hereon, or if a judgment be entered against the
undersigned, or any other party liable hereon, or upon the issuance of any
writ, levy or process, valid or invalid which purports to restrict the
undersigned of any other party liable hereon, with respect to any of his/her or
their funds or property on deposit with or in the possession or custody or
under the control of the Bank, or upon the death or dissolution of any party
liable hereon, or in the event of any default in the prompt and punctual
payment when due, of any other indebtedness or obligation to the Bank owed, now
or hereafter, by any party liable hereon, or upon any default in any deed of
trust, mortgage, security agreement, assignment or other security document
given, now or hereafter, to secure the indebtedness evidenced hereby, or if any
representation or warranty made by the undersigned pertaining to this credit
shall prove to be false, untrue, or materially misleading, or in the event that
the Bank shall deem itself insecure, then and in any such events, this Note
shall, without notice or demand for payment (the same being expressly waived),
be and become immediately due and payable for all purposes, at the option of
the Bank.
Any money or other property at any time in the possession of the Bank
belonging to any party liable hereon, and any deposits or other sums at any time
credited by or due from the Bank to party liable hereon, may at all times, at
the option of the Bank, be held and treated as collateral security for the
payment of this Note or any other liability of any of the undersigned, or any
other party in any manner liable hereon to the Bank, whether due or not due. The
Bank may, at any time, at its option, and without notice, set off the amount due
or to become due hereon against the claim of any of said parties against the
Bank. To effect these rights, the undersigned and all parties liable hereon
agree, upon request by the Bank, immediately to endorse, sign, and execute all
necessary instruments, and do hereby appoint the Bank (acting through any then
officer thereof) as attorney-in-fact for them with authority to endorse any
instrument requiring endorsement and to effect any transfer, and this
appointment shall be irrevocable as long as the undersigned, or any other party
liable hereon, shall be indebted to the Bank.
The undersigned agrees to furnish a current financial statement upon the
request of Bank from time to time, and further agrees to execute and deliver
all other instruments and take such other actions as Bank may from time to time
reasonably request in order to carry out the provisions and intent hereof.
In the event of any renewal or extension of the loan indebtedness evidenced
hereby, unless the parties otherwise agree to a lower rate, the Bank shall have
the right to charge interest at the highest of the following rates: (i) the
maximum rate permissible at the time the contract to make the loan was executed;
or (ii) the maximum rate permissible at the time the loan was made; or (iii) the
maximum rate permissible at the time of such renewal or extension; or (iv) the
maximum rate permitted by applicable federal law; it being intended that those
statutes and laws, state or federal, from time to time in effect, which permit
the charging of the higher rate of interest shall govern the maximum rate which
may be charged hereunder. In the event that for any reason the foregoing
provisions hereof shall not contain a valid, enforceable designation of a rate
of interest prior to maturity or method of determining the same, then (unless
this Note is a discounted, single-payment note) the indebtedness hereby
evidenced shall bear interest prior to maturity at the maximum effective rate
which may be lawfully charged by the Bank under applicable law.
Regardless of any provision herein, or in any other document executed in
connection herewith, the holder hereof shall never be entitled to receive,
collect, or apply, as interest hereon, any amount in excess of the maximum
contract rate which may be lawfully charged by the holder hereof under
applicable law; and in the event the holder hereof ever receives, collects, or
applies as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and, if the principal hereof is paid in full, any remaining excess
shall forthwith be paid to the undersigned. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the maximum
lawful contract rate, the undersigned and the holder hereof shall, to the
maximum extent permitted by applicable law, (a) characterize any non-principal
payment as a reasonable loan charge, rather than as interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate,
allocate, and spread, in equal parts, the total amount of interest throughout
the entire contemplated term hereof, so that the interest accrued or to accrue
throughout the entire term contemplated hereby shall at no time exceed the
maximum lawful contract rate.
The undersigned jointly and severally waive(s) any right to a trial by jury
in any action or proceeding to enforce or defend any rights under this
agreement or under any amendment, instrument, document or agreement delivered
(or which may in the future be delivered) in connection herewith or arising
from any banking relationship existing in connection with this agreement. The
undersigned agree(s) that any such action or proceeding shall be tried before a
court and not before a jury.
MONARCH PHARMACEUTICALS, INC.
-----------------------------------
BY: /S/ John M. Gregory
-----------------------------------
CHAIRMAN & CEO
-----------------------------------
First Tennessee Bank National Association, Member FDIC, "Registered Service
Mark owned and Licensed by First Tennessee National Corporation.
<PAGE> 1
EXHIBIT 10.6
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made this 29th day of
January, 1997, by and between MONARCH PHARMACEUTICALS, INC., a Tennessee
corporation whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the
"Borrower"), KING PHARMACEUTICALS, INC., a Tennessee corporation whose address
is 501 Fifth Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST
TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized
and existing under the statutes of the United States of America, whose address
is P. O. Box 3189, Bristol, Tennessee 37625 (the "Bank").
Recitals of Fact
The Borrower has requested that the Bank commit to loan the Borrower
the principal sum of One Million Seven Hundred Fifty Thousand and No/100
Dollars ($1,750,000.00), with said extension of credit to be structured as a
term loan. The proceeds of the term loan shall be used by the Borrower to
finance the acquisition, development and marketing of the PROCTOCORT(TM)
Product Line.
Furthermore, the Guarantor desires that the Bank commit to loan the
Borrower the principal sum of One Million Seven Hundred Fifty Thousand and
No/100 Dollars ($1,750,000.00) for the purposes recited hereinabove. In
consideration of Bank's commitment, the Guarantor has agreed to guarantee
repayment of the loan contemplated by this Loan Agreement.
NOW, THEREFORE, incorporating the Recitals of Fact set forth above and
in consideration of the mutual agreements herein contained, the parties agree
as follows:
AGREEMENTS
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the
following terms shall have the following meanings (such meanings to be
applicable equally to both the singular and plural forms of such terms) unless
the context otherwise requires:
"ANDA" shall mean an Abbreviated New Drug Application as described in
the Federal Food, Drug and Cosmetic Act, as amended, and regulations
promulgated thereunder.
"Closing Date" means the date set out in the first paragraph of this
Loan Agreement.
"Collateral" means the tangible and/or intangible personal property of
the Borrower that is intended to secure the loan contemplated under this Loan
Agreement, said personal property being specifically described in Section 3.1
of this Loan Agreement.
"Conditional PROCTOCORT(TM) Assignment" means the conditional or
contingent Assignment described in Section 3.3 of this Loan Agreement.
"Equipment" means collectively two (2) 1965 Kalix-Dupuy Tube Fillers
(Kalix Fillers), model number KX60 with serial numbers 2391 and 3123.
"Event of Default" has the meaning assigned to that phrase in Section
14 of this Loan Agreement.
<PAGE> 2
"FDA" means the Food and Drug Administration, a agency of the
government of the United States of America.
"Guaranty" means the guaranty agreement described in Section 4.2 of
this Loan Agreement.
"Loan Agreement" means this Loan Agreement between the Borrower,
Guarantor and the Bank.
"NDA" shall mean a New Drug Application as described in the Federal
Food, Drug and Cosmetic Act, as amended, and regulations promulgated
thereunder.
"PROCTOCORT(TM) Product Line" shall refer to the preparation
PROCTOCORT(TM) (Hydrocortisone Cream, USP) 1%, as well as any enhancements,
extensions, variations or improvements in said preparation, its manufacture,
packaging or use developed or owned by Borrower, all applications and dosage
forms, and any other products that make use of the PROCTOCORT(TM) tradename
and/or trademark, or any variation thereof whether or not it is registered or
pending with the United States Patent and Trademark Office or a common law
trademark or tradename.
"Security Agreement" means the Security Agreement described in Section
3.2 of this Loan Agreement.
"Solvay" means Solvay Pharmaceuticals, Inc.
"Solvay Agreement" shall mean that certain contract dated January 22,
1997, by and between Solvay and Borrower, entitled Asset Disposition and
Royalty Agreement, hereby Borrower acquired Solvay's interest in
PROCTOCORT(TM).
"Solvay Supply Agreement" shall mean that certain contract dated
January 22, 1997, by and between Solvay and Borrower, entitled Supply Agreement
pertaining to the manufacture of PROCTOCORT(TM) (Hydrocortisone Cream, USP) 1%.
"Term Loan" means the Borrower's term indebtedness to the Bank
pursuant to Section 2 of this Loan Agreement,
"Term Note" means the promissory note as described in Section 2.2 of
this Loan Agreement.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent to those applied in the preparation of the financial
statements required to be delivered from time to time pursuant to Section 11.1
of this Loan Agreement.
SECTION 2: COMMITMENT, FUNDING AND TERMS OF TERM LOAN.
2.1 THE COMMITMENT. Subject to the terms and conditions herein set
out, the Bank agrees and commits to loan the Borrower the principal sum of One
Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00), to be
used for the purpose of financing the borrower's acquisition, development and
marketing of PROCTOCORT(TM).
2.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidenced by
the Term Note of Borrower, payable to the order of the Bank, in the principal
amount of One Million Seven Hundred Fifty Thousand and No/100 Dollars
($1,750,000.00). The unpaid principal balance of the Term Note shall bear
interest at the rate specified in the Term Note and shall be payable as
provided in the Term Note.
2
<PAGE> 3
SECTION 3. COLLATERAL.
3.1 DESCRIPTION OF COLLATERAL. The Term Note shall be secured by a
first lien on the following:
(a) The PROCTOCORT(TM) Product Line, and the goodwill associated
therewith, as well as any patents; trademarks or service marks (or
applications therefor) or any tradenames, trade dress, trade secrets,
service marks, proprietary data, or other intellectual property rights
of any nature associated or used therewith, along with all
presentations, product codes, strengths, and formulations associated
with the PROCTOCORT(TM) Product Line and Borrower's ANDA #83-011, as
well as any future ANDA's or NDA's related to the PROCTOCORT(TM)
Product Line, and any other present or future regulatory filing
wheresoever occurring, whether issued or pending, and any and all
changes, amendments, periodic reports, supplements, authorizations,
documentation, or permits relative thereto, for the production of all
or a portion of the PROCTOCORT(TM) Product Line, including without
limitation, ANDA's and NDA's, formulations, annual product reviews.
FDA annual reports, copies of completed batch records, copies of all
manufacturing and packaging control procedures and specifications, all
validation and protocol reports, stability protocols and reports, dose
ranging study reports and protocols, product complaint files and
protocols, adverse drug experience reports and protocols, supplier
audit reports and protocols, field alert reports, and all other
registrations, certifications, approvals, records, reports or
correspondence, from or to the FDA or any other governmental
authorities in the U.S, or elsewhere which relate in any way to the
PROCTOCORT(TM) Product Line or to any related ANDA or NDA. Any
registered trademark shall include, but is not limited to, the
trademark, together with any improvements or change reflected in
continuations or separate filings:
(b) (i) Any and all customer lists, marketing information,
documentation, data, clinical data, research and development, or other
information, from any source whatsoever, related solely or primarily
to the PROCTOCORT(TM) Product Line, including, but not limited to all
information relating to the sales or sampling of the PROCTOCORT(TM)
Product Line, all available records in any format pertaining to
wholesalers, distributors and other customers who have purchased or
sampled all or any portion of the PROCTOCORT(TM) Product Line in the
past or who have placed unfilled purchase orders, records pertaining
to suppliers of the PROCTOCORT(TM) Product Line components and labels
and to manufacturers of all or any portion of the PROCTOCORT(TM)
Product Line, and reports and information regarding past and current
litigation relating to the PROCTOCORT(TM) Product Line; (ii) any and
all production technology or know-how including batch records,
protocols, validation and analytical methods and methodology,
stability protocol and procedures, Standard Operating Procedures
related to the production, manufacturing, packaging, release, sale or
distribution of all or any portion of the PROCTOCORT(TM) Product Line,
(iii) any and all ANDA and NDA documentation for all product codes and
strengths and all other regulatory filings related to all or any
portion of the PROCTOCORT(TM) Product Line, and (iv) any and all data,
documents, charts, information and records (whether written or
electronically or magnetically archived) related to any of the
foregoing in subsections (i) through (iii) inclusive;
(c) Borrower's contract rights under the Solvay Agreement and the
Solvay Supply Agreement;
3
<PAGE> 4
(d) In addition to the trademark PROCTOCORT(TM), the right to use any
names, logos, and trademarks used by Borrower on all or any portion of
the PROCTOCORT(TM) Product Line and the packaging thereof, and in
connection with the sale and distribution of all or any portion of the
PROCTOCORT(TM) Product Line to wholesale and retail distributors;
provided that the PROCTOCORT(TM) Product Line shall not be
manufactured bearing any such name and logos other than PROCTOCORT(TM)
after eighteen months from the date this interest is sold to enforce
the security interest created under the Security Agreement;
(e) Manufacturing technology consisting of all current and future
know-how, trade secrets, processes, formulae (secret or otherwise),
supplier audit reports, specifications, molds or forms and technical
data directly relating to or usable in the manufacture, packaging,
marketing, distribution, sale or use of the PROCTOCORT(TM) Product
Line, including but not limited to the specifications, manufacturing
and quality control data, test methods and validation data;
(f) Any and all agreements of Borrower, whether oral or written, that
relate to the Collateral (including, without exception and without
limitation, all contracts or agreements with any customer for the
purchase of the PROCTOCORT(TM) Product Line products or any agreements
with any party relative to the manufacture, marketing or distribution
of all or any portion of the PROCTOCORT(TM) Product Line);
(g) The Equipment; and
all products and proceeds of the foregoing.
3.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide
the Bank with the security contemplated by Section 3.1 of this Loan Agreement,
the Borrower shall execute a security agreement granting the Bank a security
interest in the Collateral and Borrower shall execute such financing statements
as the Bank deems reasonably necessary to perfect said security interest. The
Security Agreement and the financing statements shall be in a form acceptable
to the Bank. Furthermore, so long as the Borrower continues to owe any sum
whatsoever under this Loan Agreement, the Term Note or Security Agreement, the
Borrower shall execute such other documents as the Bank From time to time
reasonably deems necessary to perfect and maintain the perfection of its
security interest in and lien against the Collateral under both the laws of the
United States of America, State of Tennessee, and any other state or locality
the bank deems reasonably necessary.
3.3 PROCTOCORT(TM) TRADEMARK. Section 9.10 of this Loan Agreement
contemplates that the Borrower will be filing an application for registration
of the trademark PROCTOCORT(TM) with the United States Patent and Trademark
Office. For the purpose of further perfecting the Bank's security interest in
the Collateral, the Borrower shall execute a conditional assignment of the
trademark covered by said application referencing the security interest created
by the Security Agreement. Said conditional assignment shall be in a form
substantially similar to that which is attached hereto as Exhibit "A". Said
conditional assignment shall be executed with the application number and the
date the application was filed left blank. The Bank or its designee is
authorize to fill in the application number and the date the application was
filed when that information becomes available. The conditional assignment may
be filed with the United States Patent and Trademark office, together with such
other documents as necessary for the purpose of perfecting the Bank's security
interest in said trademark with a notice and copy to the Borrower. Within one
week after said conditional assignment has been filed with the United States
Patent and Trademark Office, the Borrower shall cause Jon L. Roberts,
4
<PAGE> 5
Roberts & Brownell, L.L.C. to deliver to the Bank his opinion letter which
shall provide that (i) he has reviewed the records of the United States Patent
and Trademark Office, (ii) the Borrower has filed an application for
registration of the trademark PROCTOCORT(TM), (iii) the Borrower's right to
said trademark and its exclusive use is not presently subject to any
challenges, and (iv) the Bank has a first lien on said trademark.
3.4 PATENTS AND TRADEMARKS GENERALLY. The Collateral includes certain
patents and trademarks which may presently be pending or registered with the
United States Patent and Trademark Office or may come to be pending or
registered with that office at some time in the future. In order to provide the
Bank with the security contemplated by Section 3.1 of this Loan Agreement and
so long as the Borrower continues to owe any sum whatsoever under this Loan
Agreement, the Term Note or Security Agreement, the Borrower shall execute such
conditional or contingent assignments as the Bank may from time to time
reasonably request for the purpose of perfecting its security interest in said
patents and trademarks in the United States Patent and Trademark Office. The
Borrower's obligations under this section are in addition to those set out in
Sections 3.2 and 3.3 of this Loan Agreement.
SECTION 4. GUARANTY.
4.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment
of all sums at any time owing to the Bank under this Loan Agreement, the Term
Note, and/or Security Agreement.
4.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty
contemplated by Section 4.1 of this Loan Agreement, the Guarantor shall execute
the guaranty agreement that is attached hereto as Exhibit "B".
4.3 SECURITY FOR GUARANTY. The Guarantor acknowledges that the
security interest created by means of that certain Security Agreement dated
April 30, 1996, whereby Guarantor granted the Bank a security interest securing
the payment of certain promissory notes of even date therewith and any other
indebtedness then existing or thereafter arising, due or to become due,
absolute or contingent, and whether several, joint, or joint and several, of
the Guarantor to the Bank secures, and was intended to secure the Term Loan,
the obligations of the Guarantor under this Loan Agreement, as well as other
obligations.
SECTION 5. CONDITIONS OF LENDING.
5.1 CONDITIONS PRECEDENT TO FUNDING THE TERM NOTE. The obligation of
the Bank to fund the Term Note is subject to the following conditions precedent
that the Bank shall have received in a form and substance satisfactory to the
Bank:
(a) This Loan Agreement.
(b) The Term Note.
(c) The Security Agreement, together with such financing statements
and other documents as the Bank deems necessary to perfect its
security interest in and lien against the Collateral.
(d) The Conditional PROCTOCORT(TM) Assignment.
(e) Lien searches from such recording offices as the Bank shall
specify, evidencing the priority of the Bank's lien under the Security
Agreement.
(f) The Guaranty.
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(g) Certified corporate resolutions of the Borrower, authorizing this
Loan Agreement, the Term Note, and the Security Agreement.
(h) Certified corporate resolutions of the Guarantor, authorizing this
Loan Agreement and the Guaranty.
(i) Certificate(s) of good standing for the Borrower from the state of
its incorporation and such other states as the Bank shall require.
(j) Certificate(s) of good standing for the Guarantor from the state
of its incorporation and such other states as the Bank shall require.
(k) Written proof satisfactory to the Bank that 21 CFR 314.72(a)(1)
has been fully complied with respect to the assets acquired by the
Borrower under the Solvay Agreement.
(l) Such other information and documentation as the Bank shall
reasonably require in connection with the funding of the Term Note.
(m) The opinion of the Borrower's counsel that (i) the Borrower is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee; it has the power and
authority to own its properties and assets and is duly qualified to
carry on its business in every jurisdiction wherein such qualification
is necessary; (ii) the transactions herein contemplated have been duly
authorized by all requisite corporate authority, (iii) this Loan
Agreement and the other instruments and documents herein referred to
have been duly authorized, validly executed and are in full force and
effect. (iv) the execution, delivery and performance of this Loan
Agreement, the Term Note, and the Security Agreement have been duly
authorized by all requisite action and will not violate any provision
of law, any order of any court or other agency of government, the
Charter and By-Laws of the Borrower, any provision of any indenture,
agreement or other instrument to which the Borrower is a party, or by
which the Borrower's respective properties or assets are bound, or be
in conflict, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Borrower, (v) the Borrower is a wholly
owned subsidiary of the Guarantor, and (vi) pertaining to such other
matters as the Bank may reasonably require.
(n) The opinion of the Guarantor's counsel that (i) the Guarantor is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee; it has the power and
authority to own its properties and assets and is duly qualified to
carry on its business in every jurisdiction wherein such qualification
is necessary: (ii) the guaranty herein contemplated has been duly
authorized by all requisite corporate authority and is fully
enforceable against the Guarantor under the laws of the State of
Tennessee, (iii) this Loan Agreement, the Guaranty and any other
instrument and document herein referred to have been duly authorized,
validly executed and are in full force and effect, (iv) the execution,
delivery and performance of this Loan Agreement and the Guaranty have
been duly authorized by all requisite action and will not violate any
provision of law, any order of any court or other agency of
government, the Charter and By-Laws of the Borrower, any provision of
any indenture, agreement or other instrument to which the Borrower is
a party, or by which the Borrower's respective properties or assets
are bound, or be in conflict, result in a breach of, or
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constitute (with due notice or lapse of time or both) a default under
any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the
Borrower, (v) the Borrower is a wholly owned subsidiary of the
Guarantor, and (vi) pertaining to such other matters as the Bank may
reasonably require.
The obligation of the Bank to fund the Term Note is further subject to each of
the warranties and representations of Borrower and Guarantor set out in
Sections 6, 7 and 8 of this Loan Agreement being and remaining true and correct
in all material respects.
SECTION 6: BORROWER'S REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
6.1 INCORPORATION. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee; it has
the power and authority to own its properties and assets and is duly qualified
to carry on its business in every jurisdiction wherein such qualification is
necessary.
6.2 POWER AND AUTHORITY. The execution, delivery and performance of
this Loan Agreement, the Term Note, and the Security Agreement have been duly
authorized by all requisite action and will not violate any provision of law,
any order of any court or other agency of government, the Charter and By-Laws
of the Borrower, any provision of any indenture, agreement or other instrument
to which the Borrower is a party, or by which the Borrower's respective
properties or assets are bound, or be in conflict, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Borrower.
6.3 LITIGATION. There is no suit, claim, action, cause or proceeding
now pending or, to the knowledge of Borrower, threatened before any court,
administrative, or regulatory body, arbitrator, or any governmental agency, or
any grounds therefor which may result in any judgment, order, decree,
liability, or other determination which will, or could, have a materially
adverse effect upon all or any portion of the PROCTOCORT(TM) Product Line, or
Borrower's compliance with and performance under the terms of this Loan
Agreement, the Term Note or the Security Agreement. No such judgment, order, or
decree has been entered or any such liability incurred which has or could have
such effect. No party has tendered to Borrower, nor has Borrower accepted the
tender of the defense of any claim, action, or proceeding which has or could
have such effect.
6.4 TAXES. Borrower has filed or caused to be filed all federal, state
or local tax returns which are required to be filed, and has paid all taxes due
and owing to all such taxing authorities.
6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Borrower is not a
party to any agreement or instrument or subject to any charter or other
corporate restrictions materially adversely affecting its business, properties
or assets, operations or conditions (financial or otherwise) taken as a whole.
6.6 NO DEFAULT. Borrower is nor in material default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party,
which default if not cured would materially and substantially affect the
financial condition, property or operations of the Borrower.
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6.7 21 CFR 314.72(A)(i). All requirements of 21 CFR 314.72(a)(1) that
relate to the transfer of assets to Borrower by Solvay under the Solvay
Agreement have been satisfied.
6.8 WITHDRAWAL. There exists no set of facts which could reasonably be
expected to furnish a basis for the total withdrawal of all or any portion of
the PROCTOCORT(TM) Product Line from the marker or the suspension of said
products registration, product license, manufacturing license, wholesale
dealers license, export license or other governmental license, approval or
consent of any governmental regulatory agency with respect to all or any
portion of the PROCTOCORT(TM) Product Line.
6.9 NO VIOLATION OF LAW. Neither the Borrower or any of its employees
with respect to all or any portion of the PROCTOCORT(TM) Product Line is or has
been in violation of or in default with respect to any applicable law, rule,
regulation, order, writ, or decree of any court or any governmental commission,
board, bureau, agency, or instrumentality, which violation or default might
have a materially adverse effect on all or any portion of the PROCTOCORT(TM)
Product Line, the PROCTOCORT(TM) Product Line business, or Borrower's
compliance with and performance under the terms of this Loan Agreement, the
Term Note, or Security Agreement.
6.10 TITLE TO COLLATERAL. Borrower has good and marketable title to
all of the Collateral, free and clear of all mortgages, liens, security
interests, charges, claims, restrictions, and other encumbrances of every kind,
wheresoever situated other than the liens and security interests contemplated
by this loan agreement to secure the obligations of Borrower to the Bank.
6.11 PATENTS AND TRADEMARKS. The trademark PROCTOCORT(TM) is subject
to the sole use and control of Borrower and its licensees. Borrower is not
aware of any state of facts that indicate a possible present use or
infringement of the trademark PROCTOCORT(TM) by any party other than Borrower,
not including any third parties using the trademark PROCTOCORT(TM) under
license from the Borrower.
SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES
Guarantor represents and warrants that:
7.1 INCORPORATION. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee; it has
the power and authority to own its properties and assets and is duly qualified
to carry on its business in every jurisdiction wherein such qualification is
necessary.
7.2 POWER AND AUTHORITY. The execution, delivery and performance of
this Loan Agreement and the Guaranty have been duly authorized by all requisite
action and will not violate any provision of law, any order of any court or
other agency of government, the Charter and By-Laws of the Guarantor, any
provision of any indenture, agreement or other instrument to which the
Guarantor is a party, or by which the Guarantor's respective properties or
assets are bound, or be in conflict, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Guarantor.
7.3 LITIGATION. There is no action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or other agency now
pending, or, to the knowledge of the Guarantor, threatened against or affecting
the Guarantor, or any properties or rights of the Guarantor, which, if
adversely determined, would materially adversely affect the financial or any
other condition of the Guarantor.
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7.4 TAXES. Guarantor has filed or caused to be filed all federal,
state or local tax returns which are required to be filed, and has paid all
taxes due and owing to all such taxing authorities.
7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a
party to any agreement or instrument or subject to any charter or other
corporate restrictions materially adversely affecting its business, properties
or assets, operations or conditions (financial or otherwise) taken as a whole.
7.6 NO DEFAULT. Guarantor is not in material default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party,
which default if not cured would materially and substantially affect the
financial condition, property or operations of the Guarantor.
7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not
extend the Term Loan to the Borrower but for the Guaranty, Guarantor's
execution of the Guaranty is in the best interest of the Guarantor.
SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES.
Borrower and Guarantor represent and warrant that:
8.1 FINANCIAL CONDITION. The consolidated financial statements of the
Guarantor and its wholly owned subsidiaries, copies of which are attached
hereto, are correct and complete and fairly present the financial condition of
the Guarantor and its subsidiaries as of the date of said financial statements
and the results of their operations for said periods and as of the Closing Date
in all material respects. All such financial statements have been prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, maintained through the period involved.
8.2 TITLE TO ASSETS. Guarantor and its subsidiaries, have good and
marketable title to all their properties and assets as reflected on the balance
sheet which is a part of the financial statements referred to in Section 8.1 of
this Loan Agreement.
8.3 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of
Borrower and Guarantor, neither this Loan Agreement nor any schedule or exhibit
hereto (including without limitation the Term Note, Security Agreement and
Guaranty), nor any written statement or certificate furnished in connection
herewith or any of the transactions contemplated hereby, contain or will
contain an untrue statement of a fact or omits or will omit to state a fact
that is necessary in order to make the statements contained herein and therein,
in the light of the circumstances under which they are made, not materially
misleading.
8.4 BORROWER SUBSIDIARY OF GUARANTOR. The Borrower is a wholly owned
subsidiary of the Guarantor.
SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER.
The Borrower covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the indebtedness evidenced
by the Term Note, unless the Bank shall otherwise in its sole discretion
consent in writing, the Borrower will:
9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and
franchises, comply with all laws applicable to it and continue to conduct and
operate its business substantially as conducted and operated during the present
and preceding calendar years.
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9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material
leases, franchises, patents, trademarks, trade names, and copyrights, and
preserve all the remainder of its properties used or useful in the conduct of
its business substantially as conducted and operated during the present and
preceding fiscal year. As part of this obligation, Borrower shall take all
action necessary to respond to and satisfy any issues raised by any FDA Form
483 or other notice of a governmental agency so as to prevent any action which
could result in the withdrawal of all or any portion of the PROCTOCORT(TM)
Product Line, or the suspension of said product's registration, product
license, manufacturing license, wholesale dealers license, export license or
other governmental license, approval or consent of any governmental regulatory
agency with respect to all or any portion of the PROCTOCORT(TM) Product Line or
any facility manufacturing any of said product. Furthermore, Borrower shall
comply with all reporting requirements of any governmental agency related to
all or any portion of the PROCTOCORT(TM) Product Line.
9.3 INSURANCE. At all times maintain with insurance companies rated
"A" or better or otherwise acceptable to the Borrower and the Bank, hazard
insurance and such other insurance, for such amounts as is customarily
maintained by companies in the same or substantially similar business. The Bank
shall be named as loss payee on the Borrower's principle hazard insurance
policies and any policy covering the Collateral.
9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the
end of each calendar quarter a Compliance Certificate, in the form of Exhibit
"C" attached hereto.
9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge
or notice, furnish the Bank with written notice of the occurrence of any event
or the existence of any condition which constitutes or upon written notice or
lapse of time or both would constitute an Event of Default under the terms of
this Loan Agreement.
9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens
against the Collateral. If any other such liens exist that have not been
released of record, Borrower will obtain the immediate release of any such
liens.
9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with
the Bank.
9.9 SUPPLY. The Borrower shall at all times during the term of this
Loan Agreement secure and maintain a ready source of supply, whether by means
of manufacture or inventory, of PROCTOCORT(TM) (Hydrocortisone Cream, USP) 1%
sufficient to meet reasonably anticipated market demand for said product for a
one year period of time.
9.10 REGISTRATION OF TRADEMARK. The Borrower shall diligently pursue
all steps necessary to register the trademark PROCTOCORT(TM) with the United
States Patent and Trademark Office, which steps shall include but not be
limited to the preparation of an application for registration of said trademark
(the "Application"). Within four weeks from the closing Date, the Borrower
shall file the Application with the United States Patent and Trademark Office.
The Borrower shall provide the Bank with a copy of the Application as filed.
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SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR.
The Guarantor covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the indebtedness evidenced
by the Term Note, unless the Bank shall otherwise in its sole discretion
consent in writing, the Guarantor will:
10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary
to preserve and keep in full force and effect its existence, rights and
franchises, comply with all laws applicable to it and continue to conduct and
operate its business substantially as conducted and operated during the present
and preceding calendar years.
10.2 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
10.3 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the
end of each calendar quarter a Compliance Certificate, in the form of Exhibit
"D" attached hereto.
10.4 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge
or notice, furnish the Bank with written notice of the occurrence of any event
or the existence of any condition which constitutes or upon written notice or
lapse of time or both would constitute an Event of Default under the terms of
this Loan Agreement.
10.5 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with
the Bank.
SECTION 11: JOINT AFFIRMATIVE COVENANTS.
The Borrower and Guarantor, jointly and severally, covenant and agree
that from the date hereof and until payment in full of the principal of and
interest on the indebtedness evidenced by the Term Note, unless the Bank shall
otherwise in its sole discretion consent in writing, the Borrower and Guarantor
will:
11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as
soon as available and in any event within ninety (90) days after the end of
each fiscal year of the Guarantor, an unqualified audit of the Guarantor's and
its wholly owned subsidiaries' consolidated financial statements as of the
close of such fiscal year of the Guarantor, which financial statements shall
including a consolidated balance sheet and consolidated statement of income and
surplus of the Guarantor and its subsidiaries, together with the unqualified
audit report and opinion of an independent Certified Public Accountant
reasonably acceptable to the Bank, showing the financial condition of the
Guarantor and its subsidiaries at the close of such year and the results of
operations during such year: (b) within forty-five (45) days after the end of
each fiscal quarter, except the last fiscal quarter of the year, financial
statements similar to those described above for the Guarantor and its
subsidiaries, not audited but certified as to accuracy and content by the Chief
Financial Officer or President or Controller of the Guarantor (the "Certifying
Officer"), such consolidated balance sheets to be as of the end of such quarter
and such consolidated statements of income and surplus to be for the period
from the beginning of said year to the end of such quarter, in each case
subject only to audit and year-end adjustment.
11.2 ADDITIONAL INFORMATION. Furnish such other relevant information
regarding the operations, business affairs and financial condition of the
Guarantor and its subsidiaries as the Bank may reasonably request, including
but not limited to true and exact copies of
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Guarantor's and its subsidiaries' books of account and tax returns, and all
information furnished to shareholders or any governmental authority, and permit
the copying of the same.
11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at
the Bank's expense, to visit and inspect any of the properties, books and
financial reports of the Guarantor and its subsidiaries and to discuss its
affairs, finances and accounts with the principal officers of the Guarantor and
its subsidiaries, at all such reasonable times during regular business hours of
the Bank and on reasonable advance notice and as often as the Bank may
reasonably request. This right of inspection shall include, but not be limited
to, the right to inspect all premises, properties, books, records, contracts,
and documents related to all or any portion of the PROCTOCORT(TM) Product Line
(including, without limitation, access to raw data in support of product lost
approvals and stability reports) and such other information concerning all or a
portion of the PROCTOCORT(TM) Product Line as may be relevant to the protection
of the Bank's rights and interests in and to the PROCTOCORT(TM) Product Line.
The Bank shall keep confidential any information it or its agents obtain as a
result of this right of inspection. However, if the Bank enforces it security
interest under the Security Agreement it shall be free to share any such
information that is related to its Collateral with such persons it deems
necessary for purposes of liquidating or selling the Collateral. Furthermore,
the Bank and its agents may disclose any such information as required by a
subpoena or order of any court of law.
11.4 MINIMUM NET WORTH. The Guarantor and its wholly owned
subsidiaries shall maintain a minimum consolidated net worth of Fourteen
Million Eight Hundred Thousand and No/100 Dollars ($14,800,000.00), as
determined by generally accepted accounting principles including intangible
assets, with assets valued at historical costs less allowances taken for
depreciation and depletion. The minimum consolidated net worth to be maintained
the Guarantor and its wholly owned subsidiaries shall increase at the end of
each fiscal quarter, beginning with the quarter ending December 31, 1996, by an
amount equal to Fifty Percent (50%) of the consolidated net profit for that
fiscal quarter. There shall, however, be no adjustment to the minimum
consolidated net worth requirement in the event of a net loss for a fiscal
quarter.
11.5 DEBT TO EQUITY RATIO. The Guarantor and its wholly owned
subsidiaries shall maintain a maximum consolidated debt to equity ratio (total
debt divided by total equity) as established by this section. The maximum debt
to equity ratio as of the Closing Date shall be 1.75. Thereafter, the maximum
debt to equity ratio shall be redetermined at the end of each of Guarantor's
fiscal quarters based on the following formula:
(a) In the event the Guarantor's and its wholly owned subsidiaries'
consolidated net worth is less than Eighteen Million Five Hundred
Thousand No/100 Dollars ($18,500,000.00), the maximum debt to equity
ratio shall be 1.75;
(b) In the event the Guarantor's and its wholly owned subsidiaries'
consolidated net worth is equal to or greater than Eighteen Million
Five Hundred Thousand and No/100 Dollars ($18,500,000.00), but is less
than Twenty Million and No/100 Dollars ($20,000,000.00), the maximum
debt to equity ratio shall be 1.65; and
(c) In the event the Guarantor's and its wholly owned subsidiaries'
consolidated net worth is equal to or greater than Twenty Million and
No/100 Dollars ($20,000,000.00), the maximum debt to equity ratio
shall be 1.55.
11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Guarantor and its wholly
owned subsidiaries shall maintain a consolidated ratio of cash flow-to-debt
service of not less than
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1.25 (total cash flow divided by total debt service) to be measured quarterly
based on the consolidated audited financial statements required by Section
11.1(a). For purposes of this requirement, "Cash Flow" shall be defined as
Guarantor's and its wholly owned subsidiaries' consolidated net profits plus
consolidated allowances for depreciation, interest and equity injections
consisting of cash for the past 365 calendar days; and "Debt Service" shall be
defined as all scheduled payments of principal, interest and equipment lease
financing payable by the Guarantor and its wholly owned subsidiaries within the
next 365 calendar days.
11.7 CURRENT RATIO. The Guarantor and its wholly owned subsidiaries
shall maintain a consolidated current ratio of 1.50. For purposes of this
Section, "Current Ratio" shall be defined as the Guarantor's and its wholly
owned subsidiaries' consolidated current assets divided by their consolidated
current liabilities.
SECTION 12: NEGATIVE COVENANTS OF BORROWER.
12.1 The Borrower covenants and agrees that at all times from and
after the closing date, unless the Bank shall otherwise consent in writing,
which consent shall not be unreasonably withheld, it will not, either directly
or indirectly, sell, lease, transfer, (except within the Borrower's own
organization) or dispose (other than in the normal course of business) of all
or a substantial part of its business or assets.
12.2 The Borrower covenants and agrees that at all times from and
after the Closing Date, it will not grant anyone other than the Bank a lien
against any of Borrower's assets. Borrower shall be permitted, however, to
grant purchase money liens for the purpose of financing assets acquired after
the Closing Date, which may include the acquisition of product lines (any such
lien shall not extend to the Collateral). Furthermore, this provision shall not
impair the ability of the Borrower to acquire property after the Closing Date
by means of leases, or sale and lease back transactions.
SECTION 13: NEGATIVE COVENANTS OF GUARANTOR.
13.1 The Borrower covenants and agrees that at all times from and
after the closing date, unless the Bank shall otherwise consent in writing,
which consent shall not be unreasonably withheld, it will not, either directly
or indirectly, sell, lease, transfer, (except within the Borrower's own
organization) or dispose (other than in the normal course of business) of all
or a substantial part of its business or assets.
13.2 The Guarantor covenants and agrees that at all times from and
after the Closing Date, it will not grant anyone other than the Bank a lien
against any of Guarantor's assets. Guarantor shall be permitted, however, to
grant purchase money liens for the purpose of financing assets acquired after
the Closing Date, which may include the acquisition of product lines (any such
lien shall not extend to the Collateral). Furthermore, this provision shall not
impair the ability of the Guarantor to acquire property after the Closing Date
by means of leases, or sale and lease back transactions.
SECTION 14: EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following shall occur:
14.1 PAYMENT OF PRINCIPAL, INTEREST. The Borrower defaults in the
prompt payment as and when due of principal or interest on the Term Note or any
fees due under said note, this Loan Agreement or the Security Agreement; or in
the prompt payment when due of any other indebtedness, liabilities, or
obligations to the Bank, whether now existing or hereafter created or arising;
direct or indirect, absolute or contingent; or
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14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with
respect to any other material agreement to which it is a party or with respect
to any other material indebtedness when due or the performance of any other
obligation incurred in connection with any material indebtedness for borrowed
money ("material" as used herein meaning indebtedness or obligations in excess
of $50,000.00) if the effect of such default is to accelerate the maturity of
such indebtedness, or if the effect of such default is to permit the holder
thereof to cause such indebtedness to become due prior to its stated maturity
and the holder has not waived its right to accelerate payment of such
indebtedness; or
14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made
by the Borrower and/or Guarantor herein, or in any report, certificate,
financial statement or other writing furnished in connection with or pursuant
to this Loan Agreement shall prove to be false, misleading or incomplete in any
material respect on the date as of which made; or
14.4 BANKRUPTCY, ETC. The Borrower and/or Guarantor shall make an
assignment for the benefit of creditors, file a petition in bankruptcy,
petition or apply to any tribunal for the appointment of a custodian, receiver
or any trustee for it or a substantial part of its assets, or shall commence
any proceeding under any bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or if there shall have been filed any such petition
or application, or any such proceeding shall have been commenced against the
Borrower and/or Guarantor, in which an order for relief is entered or which
remains undismissed for a period of sixty (60) days or more; or the Borrower
and/or Guarantor by any act or omission shall indicate its consent to, approval
of or acquiescence in any such petition, application or proceeding or order for
relief or the appointment of a custodian, receiver or any trustee for it or any
substantial part of any of its properties, or shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) days or more; or Borrower and/or Guarantor shall generally
not pay its debts as such debts become due; or
14.5 CONCEALMENT OF PROPERTY, ETC. The Borrower and/or Guarantor shall
have concealed, removed, or permitted to be concealed or removed, any part of
its property, with intent to hinder, delay or defraud its creditors or any of
them, or made or suffered a transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall
have made any transfer of its property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid; or shall have
suffered or permitted, while insolvent, any creditor to obtain a lien upon any
of its property through legal proceedings or distraint which is not vacated
within sixty (60) days from the date thereof; or
14.6 CHANGE IN OWNERSHIP. There shall occur any change in the
ownership that results in John M. Gregory, Joseph R. Gregory and Jefferson J.
Gregory owning a combined fifty percent (50%) or less of the capital stock of
the Guarantor, or fifty percent (50%) or less of the voting power related to
the capital stock.
14.7 COVENANTS. The Borrower and/or Guarantor defaults in the
performance or observance of any other covenant, agreement or undertaking on
its or their part to be performed or observed, contained herein, or in any
other instrument or document which now or hereafter evidences or secures all or
any part, of the Term Loan.
14.8 WITHDRAWAL OR SUSPENSION. The total withdrawal of the
PROCTOCORT(TM) Product Line from the market, or the suspension of said
product's registration, product license, manufacturing license, wholesale
dealers license, export license or other governmental license, the approval or
consent of any governmental regulatory agency with respect to the
PROCTOCORT(TM) Product Line.
14
<PAGE> 15
14.9 REMEDY. Upon the occurrence of any Event of Default, as specified
herein, and the expiration of any applicable cure period, the Bank shall, at
its option, thereupon declare the entire unpaid principal balance of the Term
Note, all interest accrued and unpaid thereon and all other amounts payable
under this Loan Agreement to be immediately due and payable for all purposes,
and may exercise all rights and remedies available to it under any other
instrument or document which evidences, secures or guaranties the Term Note, or
available at law or in equity, including the right to the appointment of a
receiver to take possession of the Borrower's and/or Guarantor's property.
SECTION 15: MISCELLANEOUS
15.1 AMENDMENTS. The provisions of this Loan Agreement, the Term Note,
or any instrument or document executed pursuant hereto or securing or
guarantying the indebtednesses, may be amended or modified only by an
instrument in writing signed by the parties to said document or instrument.
Guarantor need only be a party to an amendment of the Guaranty, and waives
notice of any amendment, modification or renewal of the Term Note, this Loan
Agreement, or any other instrument or document executed pursuant hereto other
than the Guaranty.
15.2 NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be mailed, certified mail, return
receipt requested, or delivered by hand. Any such notices and other
communications to the Borrower shall be addressed as follows:
John M. Gregory
Chairman of the Board & CEO
Monarch Pharmaceuticals, Inc.
355 Beecham Street
Bristol, TN 37620
WITH A COPY TO:
John A. A. Bellamy
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and other communications to the Guarantor shall be addressed
as follows:
John M. Gregory
Chairman of the Board & CEO
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
With a copy to:
John A. A. Bellamy
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
15
<PAGE> 16
All such notices and other communications to the Bank shall be addressed as
follows:
Kevin L. Jessee
Community Bank President
First Tennessee Bank National Association
P. O. Box 3189
1155 Volunteer Parkway, Suite 201
Bristol, TN 37625,
or as to any such person at such other address as shall be designated by such
person in a written notice to the other parties hereto complying as to the
delivery with the terms of this Section 15.2. All such notices and other
communications shall be effective (i) if mailed when received or three (3)
business days after mailing, whichever is earlier; or (ii) if delivered by
hand, upon delivery.
15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
15.4 INDEMNIFICATION. The Borrower and Guarantor agree to indemnify
the Bank from and against any and all claims, losses and liabilities,
including, without limitation, reasonable attorneys' fees and expenses, growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
solely and directly from the Bank's negligence or willful misconduct. The
indemdification provided for in this Section shall survive the payment in full
of the Term Note.
15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of the Term Note. This Loan
Agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their respective successors and assigns, except that Borrower shall
not have the right to assign its rights hereunder or any interest therein.
15.6 GOVERNING LAW. This Loan Agreement shall be governed and
construed in accordance with the laws of the State of Tennessee.
15.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together shall constitute
but one and the same instrument.
15.8 TERMINOLOGY: SECTION HEADINGS. All personal pronouns used in this
Loan Agreement, whether used in the masculine, feminine, or neuter gender,
shall include all other genders; the singular shall include the plural, and
vice versa. Section headings are for convenience only and neither limit nor
amplify the provisions of this Loan Agreement.
15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the
provisions of this Loan Agreement be determined to be illegal or unenforceable,
all other provisions, nevertheless, shall remain effective and binding on the
parties hereto.
15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be
deemed to indicate that the Bank is in control of the business, management or
properties of the Borrower and/or Guarantor or has power over the daily
management functions and operating decisions made by the Borrower and/or
Guarantor.
16
<PAGE> 17
15.11 FEES AND EXPENSES. Except as otherwise expressly provided
herein, the Borrower agrees to reimburse the Bank for all legal fees and
expenses, and recording fees and taxes incurred by the Bank in connection with
the loan contemplated by this Loan Agreement. Furthermore, the Borrower agrees
to pay, or reimburse the Bank for, the actual out-of-pocket expenses, including
but not limited to counsel fees and expenses, court costs, accountants fees and
expenses, and fees and expenses of similar experts as deemed necessary by the
Bank, incurred by the Bank in connection with the enforcement of, or the
preservation of any rights under this Loan Agreement, the Term Note, and any
instrument or document now or hereafter securing or guarantying said note. The
Guaranty shall guaranty the obligations of the Borrower set forth in this
section, in addition to the other obligations that may be owing under the terms
of this Loan Agreement, the Term Note and the Security Agreement.
15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement
the Term Note, and the other instruments and documents executed and delivered
in connection herewith.
15.13 LIENS: SETOFF OF BANK. Upon the occurrence of any Event of
Default as specified above, the Bank may apply any and all deposits (general or
special, matured or unmatured) and other credits of the Borrower against any
and all indebtednesses of the Borrower to the Bank. The Borrower acknowledges
the Bank's legal and equitable rights to setoff, appropriate. Furthermore, upon
the occurrence of any Event of Default as specified above, the Bank may apply
any and all deposits (general or special, matured or unmatured) and other
credits of the Guarantor against any and all indebtednesses of the Borrower to
the Bank covered by the Guaranty. The Guarantor acknowledges the Bank's legal
and equitable rights to setoff, appropriate.
15.14 VENUE OF ACTIONS. As an integral part of the consideration for
the making of this Loan Agreement, it is expressly understood and agreed that
no suit or action shall be commenced by the Borrower, or by any successor,
personal representative or assignee with respect to the Term Note, or this Loan
Agreement or any other document or instrument which now or hereafter evidences,
secures or guaranties all or any part of the Term Loan, other than in a state
court of competent jurisdiction in Sullivan County, Tennessee, or in the United
States District Court for the Eastern District of Tennessee, and not elsewhere.
As a further integral part of the consideration for the making of this Loan
Agreement, it is expressly understood and agreed that no suit or action shall
be commenced by the Guarantor, or by any successor, personal representative or
assignee with respect to the this Loan Agreement, or any other document or
instrument which now or hereafter evidences, secures or guaranties all or any
part of the Term Loan, other than in a state court of competent jurisdiction in
Sullivan County, Tennessee, or in the United States District Court for the
Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph
contained shall prohibit the Bank from instituting suit in any court of
competent jurisdiction for the enforcement of its rights hereunder or in any
other document or instrument which evidences, secures or guaranties the
obligations of Borrower and/or Guarantor contemplated by this Loan Agreement.
15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
17
<PAGE> 18
WHETHER NOW EXISTING OR HEREAFTER ARISING AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
15.16 ENTIRE AGREEMENT. This written agreement, the related written
documents referred to herein, and any other agreements executed
contemporaneously herewith set forth the complete and exclusive statement of
the terms of the agreement between the Borrower, Guarantor and the Bank with
respect to the loans contemplated by this Loan Agreement. Therefore, no prior
written agreements or contemporaneous or prior oral agreements between the
parties shall be of any effect with respect to the loan contemplated by this
Loan Agreement.
IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this
Loan Agreement to be executed by their duly authorized officers, all as of the
day and year first above written.
MONARCH PHARMACEUTICALS, INC.
By /s/ John M. Gregory
---------------------------------------
John M. Gregory
Chairman of the Board & CEO
KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory
---------------------------------------
John M. Gregory
Chairman of the Board & CEO
FIRST TENNESSEE BANK,
NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee
---------------------------------------
Kevin L. Jessee
Community Bank President
18
<PAGE> 19
PROMISSORY NOTE
(Business or Commercial Loan)
/s/ Kevin L. Jessee
------------------------------------
Approval
$1,750,000.00 BRISTOL , Tennessee
- --------------------- -------------------------
JANUARY 29 , 19 97
------------------------- -------
FOR VALUE RECIEVED, the undersigned (jointly and severally, if more than one)
promise(s) to pay to the order of First Tennessee Bank National Association
(hereinafter referred to as the "Bank") at any lending office in the state
mentioned above or at such other place as the holder hereof may designate in
writing, in current local funds, the sum of: ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND DOLLARS AND NO/100*********************************************Dollars
[ ] DISCOUNTED: Including interest, due on __________, 19 ____.
[X] INTEREST BEARING: Plus interest from date until maturity on the unpaid
principal balance of this Note at the rate of:
[ ] FIXED RATE: ____% per annum
[X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which
shall be equal to the lesser of (a) the maximum rate of
interest ("Maximum Rate") which Bank may lawfully charge, or (b) a
rate which is ___% per annum higher than the base commercial rate of
interest ("Base Rate") established from time to time by Bank. Each
change in the Variable Rate which results from a change in the
Maximum Rate shall become effective, without notice to the
undersigned, on the same date that the Maximum Rate changes. Each
change in the Variable Rate which results from a change in the Base
Rate shall become effective, without notice to the undersigned, on [ ]
the same date that the Base Rate changes; [ ] the first day of the
calendar month following any chagne in the Base Rate; [ ] the first
day of the calendar quarter following any change in the Base Rate; [ ]
other The Base Rate is one of several interst rate indices employed
by the Bank. The undersigned acknowledge(s) that the Bank has made,
and may hereafter make, loans bearing interest at rates which are
higher or lower than the Base Rate.
Such principal and interst shall be payable as shown below:
[ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the
balance, due on ____________________________________, 19_____
plus interest payable
[ ] at maturity.
[ ] at beginning _____________, 19 __ an dcontinuing on the same
day of each successive [ ] monthly or [ ] quarterly calendar
period, except that the final interest installment shall be
payable on the date the principal is due.
[X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $48,611.11 each,
plus a final payment for the balance then owing, beginning LAST
DAY OF FEBRUARY, 1997, and continuing on the same day of each
successive [X] monthly or [ ] quarterly calendar period. Accrued
interest is [ ] included in each of the above payments; or X
payable in addition to such payments on the above payment dates.
[ ] OTHER:
---------------------------------------------------------
---------------------------------------------------------------
SECURITY: Except as otherwise provided herein, as of the date hereof,
[ ] This Note is secured by a mortgage(s) or deed(s) of trust dated
----------------------------------------------------------------
[X] This Note is secured by security agreements(s) dated JANUARY 29,
1997
----------------------------------------------------------------
Other Terms and Conditions: Unless otherwise provided herein, all payments shall
be applied first to pay the accrued interest to date on the unpaid balance and
next to the unpaid principal of the Indebtedness.
Any payment not made when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the maximum effective contract
rate of Interest which the Bank may lawfully charge on the date such payment
became due.
If this Note is placed in the hands of an attorney for collection, by suit
or otherwise, or to protect any security given for its payment, or to enforce
its collection, the undersigned will pay all the costs of collection and
litigation, together with a reasonable attorney's fee, all of which shall be
secured by any collateral pledged as security herefor. The undersigned also
agrees to pay any and all actual expenses including reasonable attorney's fees
incurred by Bank in (i) successfully defending any action or inaction in
connection with any aspect of the transaction evidenced by this instrument, or
(ii) any action, whether or not successful, taken to protect or enforce Bank's
rights in any collateral related to the transaction evidenced by this
instrument.
The maker(s) and any endorsers or guarantors hereof waive protest, demand,
presentment, and notice of dishonor, and agree that this Note may be extended,
in whole or in part, without limit as to the number of such extensions, or the
period or periods thereof, and without notice to or further assent from them or
any other party liable hereon, all of whom will remain bound upon this Note
notwithstanding any such extension(s); and further agree that all or any
collateral given, now or hereafter, as security herefor may be released (with or
without substitution) without notice and without affecting their liability
hereon; and that additional makers, endorsers, guarantors, or sureties may
become parties hereto, and that any present or figure party may be released from
liability hereunder, without notice, and without affecting the liability hereon;
and that additional maker, endorser, or guarantor.
In the event of any default in the prompt and punctual payment, when due,
of this Note (or any installment hereof) whether of principal, interest, or
principal and interest), or if the undersigned, or any other party libale
hereon, should become insolvent,(as defined in the Uniform Commercial Code), or
if a petition in bankruptcy be filed by or against any of the undersigned or
any other party liable hereon, or if a reciver be appointed for any part of the
property or assets of the undersigned or any other party liable hereon, or if
any assignment for the benefit of creditor(s) be made by the undersigned or any
other party liable hereon, however defined, or make an assignment for the
benefit of creditors, or if a judgment be entered against the undersigned or
other parties liable hereon, or upon the issuance of any writ, levy or process,
valid or invalid which purports to restrict the undersigned or other parties
liable hereon, with respect to any of his/her or their funds of property on
deposit with or in the possession or custody or under the control of the Bank,
or upon the death or dissolution of any party liable hereon, or in the event of
any default in the prompt and punctual payment when due, or any other
indebtedness or obligation to the Bank owed, now or hereafter, by any party
liable hereon, or upon any default in any deed of trust, mortgage, security
agreement, assignment or other security document given, now or hereafter, to
secure the indebtedness evidenced hereby, or if any representation or warranty
made by the undersigned or other parties pertaining to this credit shall prove
to be false, untrue, or materially misleading, or in the event of termination
or any or in the event that the Bank shall deem itself insecure, then and in
any of such events, this Note shall, at Bank's option, without notice or demand
for payment (the same being expressly waived), be and become immediately due,
payable and enforceable for all purposes, of the option of the Bank.
Any money or other property at any time in the possession of the Bank
belonging to parties liable hereon, and any deposits or other sums at any time
credited by or due from the Bank to the undersigned or any other parties liable
hereon, may at all times, at the option of the Bank, be held and treated as
collateral security for the payment of this Note or any other liability of any
of the undersigned, or any other party in any manner liable hereon to the Bank,
whether due or not due. The Bank may, at any time, at its option, and without
notice, set off the amount due or to become due hereon against the claim of any
of said parties against the Bank. To effect these rights, the undersigned and
all other parties liable heron agree, upon request by the Bank, immediately to
endorse, sign, and execute all necessary instruments, and do hereby appoint the
Bank (acting through any then officer thereof) as attorney-in-fact for them with
authority to endorse any instrument requiring endorsement and to effect any
transfer, and this appointment shall be irrevocable as long as the undersigned,
or any other party liable hereon, shall be indebted to the Bank.
The undersigned agrees to furnish a current financial statement upon the
request of Bank from time to time, and further agrees to execute and deliver all
other instruments and take such other actions as Bank may from time to time
reasonably request in order to carry out the provision and intent hereof.
In the event of any renewal or extension of the loan indebtedness evidenced
hereby, unless the parties otherwise agree to a lower rate, the Bank shall have
the right to charge interest at the highest of the following rates: (i) the
maximum rate permissible at the time the contract to make the loan was executed;
or (ii) the maximum rate permissible at the time the loan was made; or (iii) the
maximum rate permissible at the time of such renewal or extension; or (iv) the
maximum rate permitted by applicable federal law; it being intended that those
statutes and laws, state or federal, from time to time in effect, which permit
the charging of the higher rate of interest shall govern the maximum rate which
may be charged hereunder. In the event that for any reason the foregoing
provisions hereof shall not contain a valid, enforceable designation for a rate
of interest prior to maturity or method of determining the same, then (unless
this Note is a discounted, single-payment note) the indebtedness hereby
evidenced shall bear interest prior to maturity at the maximum effective rate
which may be lawfully charged by the Bank under applicable law.
Regardless of any provision herein, or in any other document executed in
connection herewith, the holder hereof shall never be entitled to receive,
collect, or apply, as interest hereon, any amount in excess of the maximum
contract rate which may be lawfully charged by the holder hereof under
applicable law; and in the event the holder hereof ever receives, collect, or
applies as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and, if the principal hereof is paid in full, any remaining excess
shall forthwith be paid to the undersigned. In determining whether or not the
interest paid of payable, under any specific contingency, exceeds the maximum
lawful contract rate, the undersigned and the holder hereof shall, to the
maximum extent permitted by applicable law, (a) characterize any non-principal
payment as a reasonable loan charge, rather than as interest; (b) exclude
voluntary repayments and the effects thereof; and (c) amortize, prorate,
allocate, and spread, in equal parts, the total amount of interest throughout
the entire contemplated term hereof, so that the Interest accrue throughout the
entire term contemplated hereby shall at no time exceed the maximum lawful
contract rate.
The undersigned jointly and severally waive(s) any right to a trial by jury
in any action or proceeding to enforce or defend any rights under this agreement
or under any amendment, instrument, document or agreement delivered (or which
may in the future be delivered) in connection herewith or arising from any
banking relationship existing in connection with this agreement. The undersigned
agree(s) that any such action or proceeding shall be tried before a court and
not before a jury.
KING PHARMACEUTICALS, INC.
-------------------------------------
BY: /s/ John M. Gregory
----------------------------------
Chairman and CEO
----------------------------------
<PAGE> 20
ALLONGE TO PROMISSORY NOTE DATED JANUARY 29, 1997
IN THE AMOUNT OF $1,750,000.00 (THE "NOTE") EXECUTED BY THE UNDERSIGNED
TO THE ORDER OF FIRST TENNESSEE BANK NATIONAL ASSOCIATION ("BANK")
(FOR USE WITH BLUE, GREEN AND WHITE NOTES ONLY - NEW LOAN)
1. The undersigned understands and agrees that the terms of the Note
relating to the interest rate shall be modified by deleting the paragraph of the
Note entitled Variable Rate in its entirety and replacing it with the following:
[X] Variable Rate: A variable rate per annum ("Variable Rate")
based on a [ ] three hundred and sixty (360) [X] three hundred and
sixty-five (365) day year which shall be equal to the lesser of (i)
the maximum rate of interest ("Maximum Rate") which Bank may lawfully
charge, or (ii) a rate which is 1.75 percent (1.75%) per annum higher
than the LIBOR Rate (as hereinafter defined), adjusted and determined
as of the opening of business on January 29, 1997 (the "Initial
Pricing Date") and on the 29 day of every third month hereafter (each
an "Interest Rate Change Date"). The LIBOR Rate shall mean the London
Interbank Offered Rate of interest for an interest period of three (3)
months, as reported in The Wall Street Journal published on each
Interest Rate Change Date. Each change in the Variable Rate which
results from a change in the LIBOR Rate shall become effective,
without notice to the undersigned, on each Interest Rate Change Date;
provided, however, that if The Wall Street Journal is not published on
such date, the LIBOR Rate shall be determined by reference to The Wall
Street Journal last published immediately preceding such date. In the
event that at any time prior to maturity the rate of interest
specified in clause (ii) above (determined as of the dates when
changes become effective above) shall exceed the Maximum Rate, Bank
may, at its option and without notice to the undersigned, charge
interest at the Maximum Rate for the entire term of the loan and all
unpaid interest then accrued at said Maximum Rate shall be due and
payable ten (10) days following the date upon which Bank notifies the
undersigned of the amount of such accrued but unpaid interest. (The
three (3) month LIBOR Rate quoted in The Wall Street Journal published
on the Initial Pricing Date is 5.5625 percent ( __%) per annum.)
The privilege is reserved to prepay this Note in whole or in
part, prior to maturity, without premium or penalty.
Notwithstanding any other provisions herein, if any Change in Law
(as hereinafter defined) shall make it unlawful for the Bank to make
or maintain a LIBOR Rate loan as contemplated by this Note, the
principal outstanding hereunder shall, if required by law and if the
Bank so requests, be converted on the date required to make the loan
evidenced by this Note legal to a loan accruing interest at the lesser
of the Maximum Rate or the base commercial rate of interest ("Base
Rate") established from time to time by the Bank. Each change in the
Base Rate shall become effective, without notice to the undersigned,
on the same date that the Base Rate changes. The undersigned hereby
agrees promptly to pay the Bank, upon demand, any costs incurred by
the Bank in making any conversion in accordance with this paragraph,
including any interest or fees payable by the Bank to lenders of funds
obtained by it in order to maintain its LIBOR Rate loans.
The undersigned acknowledges that the Base Rate is one of several
interest rate indices employed by the Bank and that the Bank has made,
and may hereafter make, loans bearing interest at rates which are
higher or lower than the Base Rate.
The undersigned hereby indemnifies the Bank and holds the Bank
harmless from any loss or expense which the Bank may sustain or incur
as a consequence of (i) a default by the undersigned in payment of the
principal amount of or interest on the loan evidenced hereby,
including any such loss or expense arising from interest or fees
payable by the Bank to lenders of funds obtained by it in order to
make or maintain its LIBOR Rate loans, or (ii) a Change in Law that
results in the imposition on the Bank of reserve requirements in
connection with LIBOR Rate loans made by the Bank. The undersigned
will make any payments under this indemnity to Bank, upon demand. The
undersigned further agrees to enter into a modification of this Note,
at the request of the Bank, to bring this Note into compliance with
any Change in Law.
"Change in Law" shall mean the adoption of any law, rule,
regulation, policy, guideline or directive (whether or not having the
force of law) or any change therein or in the interpretation or
application thereof, in all cases by any Governmental Authority having
jurisdiction over the Bank, in each case after the date hereof.
<PAGE> 21
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
regulatory functions of or pertaining to government.
2. The provisions hereof shall be binding upon the undersigned,
his/her heirs, executors, administrators, personal representatives, successors
and assigns, and shall inure to the benefit of the Bank, its successors and
assigns.
----------------------------------------
INDIVIDUAL BORROWER
MONARCH PHARMACEUTICAL, INC.
By: /s/ John M. Gregory
-------------------------------------
Title: CHAIRMAN & CEO
----------------------------------
BUSINESS ENTITY BORROWER
<PAGE> 1
EXHIBIT 10.7
SIGNET(R) BANK
PROMISSORY NOTE
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,500,000.00 03-19-1997 04-01-2000 300 KPI 11641
- -------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: KING PHARMACEUTICALS, INC. LENDER: SIGNET BANK
501 FIFTH STREET MAIN STREET (CAPITAL)
BRISTOL, TN 37620 7 NORTH 8TH STREET
RICHMOND, VA 23219
================================================================================
IMPORTANT NOTICE Funded 3/20/97
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
================================================================================
<TABLE>
<S> <C> <C>
PRINCIPAL AMOUNT: $1,500,000.00 INITIAL RATE: 8.250% DATE OF NOTE: MARCH 19, 1997
</TABLE>
PROMISE TO PAY. KING PHARMACEUTICALS, INC. ("BORROWER") PROMISES TO PAY TO
SIGNET BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION FIVE HUNDRED THOUSAND & 00/100
DOLLARS ($1,500,000.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE
FROM MARCH 19, 1997, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN IN 35 PRINCIPAL PAYMENTS OF $41,667.00 EACH AND ONE
FINAL PRINCIPAL AND INTEREST PAYMENT OF $41,950.92. BORROWER'S FIRST PRINCIPAL
PAYMENT IS DUE MAY 1, 1997, AND ALL SUBSEQUENT PRINCIPAL PAYMENTS ARE DUE ON THE
SAME DAY OF EACH MONTH AFTER THAT. IN ADDITION, BORROWER WILL PAY REGULAR
MONTHLY PAYMENTS OF ALL ACCRUED UNPAID INTEREST DUE AS OF EACH PAYMENT DATE.
BORROWER'S FIRST INTEREST PAYMENT IS DUE MAY 1, 1997, AND ALL SUBSEQUENT
INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. BORROWER'S
FINAL PAYMENT DUE APRIL 1, 2000, WILL BE FOR ALL PRINCIPAL, ACCRUED INTEREST,
AND ALL OTHER APPLICABLE FEES, COSTS AND CHARGES, IF ANY, NOT YET PAID. Interest
on this Note is computed on a 365/360 simple interest basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate of interest announced from time to time by Lender as
its "Prime Rate." Borrower and each other party liable under this Note in any
capacity, whether as maker, endorser, surety, guarantor or otherwise,
acknowledge and agree that the Prime Rate is a reference used by Lender in
determining interest rates on certain loans and is not intended to be the lowest
rate of interest charged on any extension of credit to any customer. Lender will
tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE EQUAL TO THE INDEX, RESULTING
IN AN INITIAL RATE OF 8.250% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
the failure of any "Party" (which term shall mean and include each Borrower,
endorser, surety and guarantor of this Note) to make any payment on this Note or
on any other indebtedness due Lender when due; (b) if any asset(s) of a Party
are attached, levied upon, seized or repossessed or if any asset(s) of a Party
should come into the possession of a receiver, trustee, custodian or assignee
for the benefit of creditors, or if a Party makes an assignment for the benefit
of creditors; (c) the failure of a Party to observe or perform any obligation or
covenant contained in any agreement, document or instrument furnished in
connection herewith or in any other agreement between a Party and Lender; (d)
any representation or warranty at any time made by a Party to Lender in
connection herewith or in any other agreement between a Party and Lender, or in
any document or instrument delivered to Lender in connection herewith or
pursuant to such other agreement, shall have been materially false at the time
it was made; (e) the termination or withdrawal of a Party's guaranty with
respect to any indebtedness due Lender; (f) any Party files a petition in
bankruptcy, petitions or applies to any tribunal for any receiver or any trustee
of a Party or any substantial part of its property, or commences any proceeding
relating to such party under any insolvency, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; (g) if, within 30 days after
the filing of a petition in bankruptcy against a Party or the commencement of
any proceeding against a Party seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such petition or proceeding shall
not have dismissed, or, if, within 30 days after the appointment, without the
consent or acquiescence of a Party, or any trustee, receiver or liquidator of
such Party or of all or any substantial part of the properties of the such
Party, such appointment shall not have been vacated; (h) the application for the
appointment of a receiver for a party or for property of a Party; (i) the making
or sending of a notice of an intended bulk sale by a Party; (j) commencement of
any foreclosure, levy, seizure or forfeiture proceeding, whether by judicial,
self-help, repossession, or any other method, by any creditor of a Party, any
creditor of the owner of any collateral securing this Note, or by any
governmental agency with respect to a Party or such collateral; (k) if any event
occurs which is or, with the passage of time and/or the giving of notice, could
be a default under or breach of the terms of any instrument or document
evidencing a debt or obligation of a Party to any third party and is not cured
within five (5) days after the occurrence thereof; (l) any judgment against a
Party or any attachment against it or its property remains unpaid, undischarged,
unbonded or undismissed for a period of 30 days, unless and to the extent that
such judgment is appealed in good faith in a court of higher jurisdiction and
such appeal remains pending; (m) if any proceeding is filed for the dissolution
or liquidation of a Party; (n) if any Party shall be enjoined or restrained in
any manner from conducting its business in whole or in part, and such injunction
shall not be dismissed or dissolved within thirty (30) days after the filing
thereof; (o) if any tax lien or notice thereof is filed against a Party or any
of the assets of a Party and remains undismissed, unpaid or unbonded for a
period of thirty (30) days; (p) if, without Lender's prior written consent, any
Party which is not a natural person enters into or becomes a party to any
merger, consolidation or share exchange or if any Party sells, transfers,
conveys or leases, except in the ordinary course of business, substantially all
of its assets or properties or (if not a natural person) significantly alters
its capital structure, business activities or scope of operations; (q) if,
without Lender's prior written consent, there is a sale, exchange or transfer of
the voting control or any significant portion of the stock or ownership
interests of any Party which is not a natural person; (r) if any Party who is a
natural person shall die or become incompetent; or (s) the good faith
determination by Lender that a material adverse change in the financial
condition of a Party has occurred since the date hereof or that Lender's
prospect of payment hereunder has been materially impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest, together with
<PAGE> 2
PROMISSORY NOTE
(CONTINUED)
================================================================================
all other applicable fees, costs and charges, if any, immediately due and
payable, without notice, and then Borrower will pay that amount. Upon default,
including failure to pay upon final maturity, Lender, at its option, may also,
if permitted under applicable law, increase the variable interest rate on this
Note to 3,000 percentage points over the Index. The interest rate will not
exceed the maximum rate permitted by applicable law. Furthermore, subject to any
limits under applicable law, upon default, Borrower also agrees to pay Lender's
attorney fees equal to 25.000% of the principal balance due on the Note, and all
of Lender's other collection expenses, whether or not there is a lawsuit and
including without limitation legal expenses for bankruptcy proceedings. This
Note shall be governed by, construed and enforced in accordance with the laws of
the Commonwealth of Virginia. Lender and Borrower hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either party
against the other.
CONFESSION OF JUDGMENT. Upon a default in payment of the Indebtedness at
maturity, whether by acceleration or otherwise, Borrower hereby irrevocably
authorizes and empowers Thomas L. Hotchkiss or Donald E. Miles as Borrower's
attorney-in-fact to appear in the City of Richmond clerk's office and to
confess judgment against Borrower for the unpaid amount of this Note as
evidenced by an affidavit signed by an officer of Lender setting forth the
amount then due, plus attorneys' fees as provided in this Note, plus costs of
suit, and to release all errors, and waive all rights of appeal. If a copy of
this Note, verified by an affidavit, shall have been filed in the proceeding,
it will not be necessary to file the original as a warrant of attorney.
Borrower waives the right to any stay of execution and the benefit of all
exemption laws now or hereafter in effect. No single exercise of the foregoing
warrant and power to confess judgment will be deemed to exhaust the power,
whether or not any such exercise shall be held by any court to be invalid,
voidable, or void; but the power will continue undiminished and may be
exercised from time to time as Lender may elect until all amounts owing on this
Note have been paid in full.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Borrower given to Lender by
law, Lender shall have, with respect to Borrower's obligations to Lender under
this Note and to the extent permitted by law, a contractual possessory security
interest in and a right of setoff against, and Borrower hereby assigns,
conveys, delivers, pledges, and transfers to Lender all of Borrower's right,
title, and interest in and to all deposits, moneys, securities, and other
property of Borrower now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Borrower. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to
exercise such right of setoff or to enforce such security interest or by any
delay in so doing. Every right of setoff and security interest shall continue
in full force and effect until such right of setoff or security interest is
specifically waived or released by an instrument in writing executed by Lender.
LATE CHARGE. Borrower agrees to pay to Lender or demand a late charge not to
exceed 5% of the amount of any payment of principal or interest, or both, that
is more than ten (10) days past due.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.
BORROWER:
KING PHARMACEUTICALS, INC.
BY: John M. Gregory (SEAL)
---------------------------
John M. Gregory - CEO
================================================================================
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$1,750,000.00 Bristol, Tennessee
March 17, 1997
FOR VALUE RECEIVED, the undersigned, KING PHARMACEUTICALS, INC. a
Tennessee corporation (the "Maker"), promises to pay to the order of THE UNITED
COMPANY, a Virginia corporation (the "Holder"), the principal sum of ONE MILLION
SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($1,750,000.00), together with interest
from date until maturity, upon the unpaid principal balance, at the rate
hereinafter specified, said principal and interest being payable as follows:
Interest only on the unpaid principal balance hereof shall be paid
quarterly commencing on July 1, 1997, and the unpaid principal balance
hereof and any accrued and unpaid interest thereon shall be payable on
April 1, 1999.
Subject to the limitations hereinafter set forth, the unpaid principal
balance of the indebtedness hereby evidenced shall bear interest prior to
maturity at a fixed rate per annum equal to ten percent (10%) per annum.
Any amounts not paid when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the lesser of (a) twenty
percent (20%) per annum or (b) the maximum effective variable contract rate
which may be charged by the Holder under applicable law from time to time in
effect.
All installments of interest, and the principal hereof, are payable at
the office of The United Company, P.O. Box 1280, Bristol, Virginia 24203-1280,
Attention: Finance Department, or at such other place as the holder may
designate in writing, in lawful money of the United States of America, which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment.
If the Maker shall fail to make payment of any installment of interest
or the principal balance and unpaid accrued interest, as above provided, then
and in any such event, the entire unpaid principal balance of the indebtedness
evidenced hereby, together with all interest then accrued, shall, at the
absolute option of the holder hereof, at once become due and payable, without
demand or notice, said demand or notice being expressly waived.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect the security for its payment, or to enforce its
collection, or to represent the
<PAGE> 2
rights of the Holder in connection with any loan documentation executed in
connection herewith, or to defend successfully against any claim, cause of
action or suit brought by the Maker against the Holder, the Maker shall pay on
demand all costs of collection and litigation (including court costs), together
with a reasonable attorney's fee.
The Maker and any endorsers or guarantors hereof waive protest, demand,
presentment, and notice of dishonor, and agree that this Note may be extended,
in whole or in part, without limit as to the number of such extensions or the
period or periods thereof, without notice to them and without affecting their
liability thereon.
This Note shall be governed and construed according to the statutes and
laws of the Commonwealth of Virginia from time to time in effect.
Upon three (3) business days' prior written notice to Holder, Maker
shall have the right to prepay the indebtedness evidenced hereby in whole, but
not in part, by paying one hundred percent (100%) of the principal amount plus
accrued interest without any prepayment penalty.
This Note is secured by a Deed of Trust, dated March 17, 1997.
KING PHARMACEUTICALS, INC.
By: /s/ John M. Gregory
-------------------------------
Title: CEO
----------------------------
2
<PAGE> 1
EXHIBIT 10.9
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made this 20th day of March,
1997, by and between MONARCH PHARMACEUTICALS INC., a Tennessee corporation
whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the "Borrower")
KING PHARMACEUTICALS, INC., a Tennessee corporation whose address is 501 Fifth
Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE BANK
NATIONAL ASSOCIATION, a national banking association organized and existing
under the statutes of the United States of America, whose address P. O. Box
3189, Bristol, Tennessee 37625 (the "Bank").
RECITALS OF FACT
The Borrower has requested that the Bank commit to loan the Borrower the
principal sum of Five Million No/100 Dollars ($5,000,000.00), with said
extension of credit to be structured as a term loan. The proceeds of the term
loan shall be used by the Borrower to finance the acquisition, of the
Cortisporin(R) and Pediotic(R) Product Lines.
Furthermore, the Guarantor desires that the Bank commit to loan the
Borrower the principal sum of Five Million and No/100 Dollars ($5,000,000.00)
for the purposes recited hereinabove. In consideration of Bank's commitment,
the Guarantor has agreed to guarantee repayment of the loan contemplated by
this Loan Agreement
NOW, THEREFORE, incorporating the Recitals of Fact set forth above and
consideration of the mutual agreements herein contained, the parties agree as
follows:
AGREEMENTS
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the
following terms shall have the following meanings (such meanings to be
applicable equally to both the singular and plural forms of such terms) unless
the context otherwise requires:
"AADA" shall mean an Abbreviated Antibiotic Drug Application as described
in the Federal Food, Drug and Cosmetic Act, as amended, and regulations
promulgated thereunder.
"Agreement for Purchase and Sale of Assets" shall mean that certain
contract by and between GW and Borrower whereby Borrow acquired GW's interest
in the Cortisporin(R) Product Line and the Pediotic(R) Product Line.
"ANDA" shall mean an Abbreviated New Drug Application as described in the
Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated
thereunder.
"Closing Date" means the date set out in the first paragraph of this Loan
Agreement.
"Collateral" means the tangible and/or intangible personal property of
the Borrower that is intended to secure the loan contemplated under this Loan
Agreement, said personal property being specifically described in Section 3.1
of this Loan Agreement.
"Conditional Assignment" means the Conditional Assignment of Registered
Trademarks pursuant to 37 C.F.R. Section 3.56, which conditional assignment
shall be in a form substantially similar to that which is attached hereto as
Exhibit "A".
<PAGE> 2
"Cortisporin(R) Product Line" shall refer to the following:
<TABLE>
<CAPTION>
PRODUCT NAME NDA/AADA NDC
- ------------ -------- ---
<S> <C> <C>
Cortisporin Otic Solution 1% 10ml NDA 50-479 0173-0199-92
Cortisporin Otic Suspension 1% 10 ml AADA 60-613 0173-0198-92
Cortisporin Ophthalmic Suspension 7.5 ml NDA 50-169 0173-0193-02
Cortisporin Ophthalmic Ointment 1/8 oz NDA 50-416 0173-0197-86
Cortisporin Cream 7.5 gm tube NDA 50-218 0173-0185-98
Cortisporin Ointment 1/2 oz. Tube NDA 50-168 0173-0196-88
</TABLE>
and all other presentations and dosage forms, along with all product codes and
strengths associated with NDA Nos. 50-479, 50-169, 50-416, 50-218, and
50-168 and AADA No. 60-613, and any and all changes, amendments, periodic
reports, supplements, authorizations, documentation, or permits relative
thereto.
"Event of Default" has the meaning assigned to that phrase in Section 14
of this Loan Agreement.
"Existing Loan Agreements" shall refer to the following agreements
collectively.
(a) Loan Agreement dated April 30, 1996, by and between Guarantor and
the Bank, covering a $3,500,000 revolving line of credit and a
$2,500,000 term loan used to finance bioequivalence studies;
(b) Loan Agreement dated January 21, 1997, by and between Borrower,
Guarantor and the Bank, pertaining to the acquisition of the
Thalitone(R) Product Line (the "Thalitone Loan Agreement"); and
(c) Loan Agreement dated January 29, 1997, by and between Borrower,
Guarantor and the Bank, pertaining to the acquisition of the
Proctocort(R) Product Line (the "Proctocort Loan Agreement").
"FDA" means the Food and Drug Administration an agency of the government
of the United States of America.
"Guaranty" means the guaranty agreement described in Section 4 2 of this
Loan Agreement.
"GW" means Glaxo Wellcome, Inc., a corporation existing under the laws of
the State of North Carolina, having a principle place of business at Five Moore
Drive, Research Triangle Park, North Carolina 27709.
"King Loan Agreement" shall refer to that certain Loan Agreement dated
April 30, 1996, by and between Guarantor and the Bank, covering a $3,500,000
revolving line of credit and a $2,500,000 term loan used to finance
bioequivalence studies.
"Loan Agreement" means this Loan Agreement between the Borrower and the
Bank.
"NDA" shall mean a New Drug Application as described in the Federal Food,
Drug and Cosmetic Act, as amended, and regulations promulgated thereunder.
"NDC" means National Drug Control number. All NDCs used in this Loan
Agreement shall refer to NDCs used by GW.
"Pediotic(R) Product Line" shall refer to the following:
2
<PAGE> 3
<TABLE>
<CAPTION>
PRODUCT NAME AADA NDC
- ------------ ---- ---
<S> <C> <C>
Pediotic 1% 7.5ml AADA 62-822 0173-0199-92
</TABLE>
and all other presentations and dosage forms, along with all product codes and
strengths associated with AADA No. 62-822, and any and all changes, amendments,
periodic reports, supplements, authorizations, documentation, or permits
relative thereto.
"Registered Trademarks" shall refer to the Cortisportin(R) and Pediotic(R)
trademarks that are specifically described in Section 3.1(a) of this Loan
Agreement.
"Security Agreement" means the Security Agreement described in Section
3.2 of this Loan Agreement.
"Term Loan" means the Borrower's term indebtedness to the Bank pursuant
to Section 2 of this Loan Agreement.
"Term Note" means the promissory note as described in Section 2.2 of this
Loan Agreement.
"Third Party Financing Arrangements" shall refer to all agreements and
related documents pertaining to financing being provided by parties other than
the Bank in connection with the Borrower's acquisition of the Cortisporin(R)
Product Line and the Pediotic(R) Product Line. The Third Party Financing
Arrangements may involve either or both the Borrower and the Guarantor.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent to those applied in the preparation of the financial
statements required to be delivered time to time pursuant to Section 11.1 of
this Loan Agreement.
SECTION 2: COMMITMENT, FUNDING AND TERMS OF TERM LOAN.
2.1 THE COMMITMENT. Subject to the terms and conditions herein set out,
the Bank agrees and commits to loan the Borrower the principal sum of Five
Million and No/100 Dollars ($5,000,000.00), to be used for the purpose of
financing the borrower's acquisition of the Cortisporin(R) Product Line and
the Pediotic(R) Product Line.
2.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidence by the
Term Note of Borrower, payable to the order of the Bank, in the principal
amount of Five Million and No/100 Dollars ($5,000,000.00). The unpaid principal
balance of the Term Note shall bear interest at the rate specified in the Term
Note and shall be payable as provided in the Term Note.
2.3 TERM NOTE PROCEEDS. The proceeds of the Term Note shall be applied
directly toward the payment of the purchase price set forth in Section 1.02 of
the Agreement for Purchase and Sale of Assets.
SECTION 3. COLLATERAL.
3.1 DESCRIPTION OF COLLATERAL. The Term Note shall be secured by a first
lien on the following:
(a) All right, title and interest in the United States of America, its
territories and possessions (the "Territory") in and to the
Cortisporin(R) Product Line and the Pediotic(R) Product Line, and the
goodwill associated therewith, as well as any registered patents,
trademarks or service marks (or applications
3
<PAGE> 4
therefor) or any tradenames, trade dress, trade secrets, service marks,
proprietary data, or other intellectual property rights of any nature associated
or used therewith, along with all presentations, product codes, strengths, and
formulations associated with the Cortisporin(R) Product Line and the Pediotic(R)
Product Line and NDA Nos. 50-479, 50-169, 50-416, 50-218 and 50-168, and AADA
Nos. 60-613 and 62-822, as well as any future ANDA's, AADA's or NDA's,
supplements, records, and reports that are required to be kept under 21 C.F.R.
Section 314.81, whether issued, pending or in draft form, together with any
correspondence to or from the FDA related to the Cortisporin(R) Product Line and
the Pediotic(R) Product Line, and any other present or future regulatory filing
wheresoever occurring and pertaining to the manufacture, sale, and use of said
products in the Territory, whether issued or pending, and any and all changes,
amendments, periodic reports, supplements, authorizations, documentation, or
permits relative thereto, for the production of the Cortisporin(R) Product Line
and the Pediotic(R) Product Line, including without limitation, ANDA's, AADA's
and NDA's, formulations, annual product reviews, copies of completed batch
records, copies of all manufacturing and packaging control procedures and
specifications, all validation and protocol reports, stability protocols and
reports, dose ranging study reports and protocols, product complaint files and
protocols, adverse drug experience reports and protocols, supplier audit reports
and protocols, and field alert reports. Registered trademarks include, but are
not limited to, the following trademarks:
<TABLE>
<CAPTION>
TRADEMARK REGISTRATION NUMBER REGISTRATION DATE
- --------- -------------------- -----------------
<S> <C> <C>
Cortisporin 0,616,775 November 29, 1955
Pediotic 1,498,288 August 2, 1988
</TABLE>
together with any improvements or change reflected in continuations or
separate filings;
(b) (i) Any and all customer lists, marketing information, documentation, data,
clinical data, research and development, or other information, from any source
whatsoever owned or in the possession of Monarch, related to the Cortisporin(R)
Product Line and the Pediotic(R) Product Line; (ii) any and all production
technology or know-how including batch records, protocols, validation and
analytical methods and methodology, stability protocol and procedures, technical
data, Standard Operating Procedures related to the production, manufacturing,
packaging, release, sale or distribution of the Cortisporin(R) Product Line and
the Pediotic(R) Product Line owned or in the possession of Monarch, including
but not limited to the specifications, manufacturing and quality control data,
test methods, validation data, and the know-how set forth on Schedule 1.01(b) of
the Agreement for Purchase and Sale of Assets; (iii) any and all ANDA, AADA and
NDA documentation for all product codes and strengths and all other regulatory
filings related to the manufacture, sale and use of Cortisporin(R) Product Line
and the Pediotic(R) Product Line in the Territory, and (iv) any and all data,
documents, charts, information and records (whether written or electronically or
magnetically archived) owned or in the possession of Monarch that is related to
any of the foregoing in subsections (i) through (iii) inclusive;
(c) Borrower's contract rights under me Agreement for Purchase and Sale
of Assets;
(d) The right to use names, logos, and trademarks used by Borrower on the
Cortisporin(R) Product Line and the Pediotic(R) Product Line and the
4
<PAGE> 5
packaging thereof, and in connection with the sale and distribution of
the Cortisporin(R) Product Line and the Pediotic(R) Product Line to
wholesale and retail distributors; provided that the Cortisporin(R)
Product Line and the Pediotic(R) Product Line shall not be manufactured
bearing any such name and logos after eighteen months from the date this
interest is sold to enforce the security interest created under the
Security Agreement; and
all products and proceeds of the foregoing.
3.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide
the Bank with the security contemplated by Section 3.1 of this Loan Agreement,
the Borrower shall execute a security agreement granting the Bank a security
interest in the Collateral and Borrower shall execute such financing statements
as the Bank deems necessary to perfect said security interest. The Security
Agreement and the financing statements shall be in a form acceptable to the
Bank. For the purpose of further perfecting the Bank's security interest in the
Collateral, the Borrower shall execute the Conditional Assignment. Furthermore,
the Borrower shall execute such other documents as the Bank may from time to
time deem necessary to perfect and maintain the perfection of its security
interest in and lien against the Collateral under the laws of the United States
of America, State of Tennessee, and any other state or locality the bank deems
necessary.
SECTION 4. GUARANTY.
4.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment
of all sums at any time owing to the Bank under this Loan Agreement, the Term
Note, and/or Security Agreement.
4.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty
contemplated by Section 4.1 of this Loan Agreement, the Guarantor shall execute
the guaranty agreement that is attached hereto as Exhibit "B".
4.3 SECURITY FOR GUARANTY. The Guarantor acknowledges that the security
interest created by means of that certain Security Agreement dated April 30,
1996, whereby Guarantor granted the Bank a security interest securing the
payment of certain promissory notes of even date therewith and any other
indebtedness then existing or thereafter arising, due or to become due,
absolute or contingent, and whether several, joint, or joint and several, of
the Guarantor to the Bank secures, and was intended to secure the Term Loan and
the obligations of the Guarantor under this Loan Agreement
SECTION 5. CONDITIONS OF LENDING.
5.1 DOCUMENTS. The obligation of the Bank to fund the Term Note is
subject to the following conditions precedent that the Bank shall have received
in a form and substance satisfactory to and with such signatures as may be
required by the Bank:
(a) This Loan Agreement.
(b) The Term Note.
(c) The Security Agreement, together with the Conditional Assignment, and
such financing statements and other documents as the Bank deems necessary
to perfect its security interest in and lien against the Collateral.
(d) Lien searches from such recording offices as the Bank shall specify,
evidencing the priority of the Bank's lien under the Security Agreement.
5
<PAGE> 6
(e) Opinion letter from Jon L. Roberts, Roberts & Brownell, L.L.C. in
the form attached hereto as Exhibit "C"
(f) The Guaranty.
(g) Certified corporate resolutions of the Borrower, authorizing this
Loan Agreement, the Term Note, and the Security Agreement.
(h) Certified corporate resolutions of the Guarantor, authorizing this
Loan Agreement and the Guaranty.
(i) Certificate(s) of good standing for the Borrower from the state of
its incorporation and such other states as the Bank shall require
(j) Certificate(s) of good standing for the Guarantor from the state of
its incorporation and such other states as the Bask shall require
(k) The opinion of the Borrower's counsel that (i) the Borrower is a
corporation duly organized validly existing and in good standing under
the laws of the State of Tennessee; it has the power and authority to own
its properties and assets and is duly qualified to carry on its business
in every jurisdiction wherein such qualification is necessary; (ii) the
transactions herein contemplated have been duly authorized by all
requisite corporate authority, (iii) this Loan Agreement and the other
instruments and documents herein referred to have been duly authorized,
validly executed and are in full force and effect, (iv) the execution,
delivery and performance of this Loan Agreement, the Term Note, and the
Security Agreement have been duly authorized by all requisite action and
will not violate any provision of law, any order of any court or other
agency of government, the Charter and By-Laws of the Borrower, any
provision of any indenture, agreement or other instrument to which the
Borrower is a party, or by which the Borrower's respective properties or
assets are bound, or be in conflict, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets of the Borrower, (v) the Borrower is
a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such
other matters as the Bank may reasonably require.
(1) The opinion of the Guarantor's counsel that (i) the Guarantor is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Tennessee; it has the power and authority to own
its properties and assets and is duly qualified to carry on its business
in every jurisdiction wherein such qualification is necessary; (ii) the
guaranty herein contemplated has been duly authorized by all requisite
corporate authority and is fully enforceable against the Guarantor under
the laws of the State of Tennessee, (iii) this Loan Agreement, the
Guaranty and any other instrument and document herein referred to have
been duly authorized, validly executed and are in full force and effect,
(iv) the execution, delivery and performance of this Loan Agreement and
the Guaranty have been duly authorized by all requisite action and will
not violate any provision of law, any order of any court or other agency
of government, the Charter and By-Laws of the Borrower, any provision of
any indenture, agreement or other instrument to which the Borrower is a
party, or by which the Borrower's respective properties or assets are
bound, or be in conflict, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or results in the creation or
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imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets of the Borrower, (v) the Borrower is
a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such
other matters as the Bank may reasonably require
(m) A copy of the fully executed Agreement for Purchase and Sale of
Assets.
(n) A copy of the fully executed Bill of Sale that is attached as Exhibit
"A" to the Agreement for Purchase and Sale of Assets
(o) A copy of the fully executed Assignment of Trademarks that attached
as Exhibit "B" to the Agreement for Purchase and Sale of Assets.
(p) Proof that the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, has been fully complied with as required by Section 1.11 of
the Agreement for Purchase and Sale of Assets.
(q) Such other information and documentation as the Bank shall reasonably
require in connection with the funding of the Term Note.
5.2 GENERAL CONDITIONS PRECEDENT. The obligation of the Bank to fund
the Term Note is further subject to the following conditions precedent:
(a) Each of the warranties and representations of Borrower and Guarantor
set out in Sections 6, 7 and 8 of this Loan Agreement being and remaining
true and correct in all material respects.
(b) The Bank's review and approval of the terms and conditions of all
Third Party Financing Arrangements.
SECTION 6: BORROWER'S REPRESENTATION AND WARRANTIES.
Borrower represents and warrants that:
6.1 INCORPORATION. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee; it has the power
and authority to own its properties and assets and is duly qualified to carry
on its business in every jurisdiction wherein such qualification is necessary.
6.2 POWER AND AUTHORITY. The execution, delivery and performance of this
Loan Agreement, the Term Note, and the Security Agreement have been duly
authorized by all requisite action and will not violate any provision of law,
any order of any court or other agency of government, the Charter and By-Laws of
the Borrower, any provision of any indenture, agreement or other instrument to
which the Borrower is a party, or by which the Borrower's respective properties
or assets are bound, or be in conflict, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Borrower.
6.3 LITIGATION. There is no suit, claim, action, cause or proceeding now
pending or, to the knowledge of Borrower, threatened before any court,
administrative, or regulatory body, arbitrator, or any governmental agency, or
any grounds therefor which may result in any judgment, order, decree,
liability, or other determination which will, or
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could, have a materially adverse effect upon the Cortisporin(R) Product Line the
Pediotic(R) Product Line, or Borrower's compliance with and performance under
the terms of this Loan Agreement, the Term Note or the Security Agreement. No
such judgment, order, or decree has been entered or any such liability incurred
which has or could have such effect. No party has tendered to Borrower, nor has
Borrower accepted the tender of the defense of any claim, action, or proceeding
which has or could have such effect.
6.4 TAXES. Borrower has filed or caused to be filed all federal, state or
local tax returns which are required to be filed, and has paid all taxes due
and owing to all such taxing authorities.
6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Borrower is not a party
to any agreement or instrument or subject to any charter or other corporate
restrictions materially adversely affecting its business, properties or assets,
operations or conditions (financial or otherwise) taken as a whole.
6.6 NO DEFAULT. Borrower is not in material default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
if not cured would materially and substantially affect financial condition,
property or operations of the Borrower.
6.7 WITHDRAWAL. There exists no set of facts which could reasonably be
expected to furnish a basis for the total withdrawal of the Cortisporin(R)
Product Line and/or the Pediotic(R) Product Line from the market or the
suspension of said products registration, product license, manufacturing
license, wholesale dealers license, export license or other governmental
license, approval or consent of any governmental regulatory agency with respect
to the Cortisporin(R) Product Line and the Pediotic(R) Product Line.
6.8 NO VIOLATION OF LAW. Neither the Borrower or any of is employees with
respect to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line
is or has been in violation of or in default with respect to any applicable law,
rule, regulation, order, writ, or decree of any court or any governmental
commission, board, bureau, agency, or instrumentally, which violation or default
might have a materially adverse effect on the Cortisporin(R) Product Line and/or
the Pediotic(R) Product Line, the Cortisporin(R) Product Line and/or the
Pediotic(R) Product Line business, or Borrower's compliance with and performance
under the terms of this Loan Agreement, the Term Note, or Security Agreement.
6.9 TITLE TO COLLATERAL. Borrower has good and marketable title to all of
the Collateral, free and clear of all mortgages, liens, security interests,
charges, claims, restrictions, and other encumbrances of every kind,
wheresoever situated other than the liens and security interests contemplated
by this loan agreement to secure the obligations of Borrower to the Bank.
6.10 PATENTS AND TRADEMARKS. The Registered Trademarks are presently in
full force and effect. Furthermore, the Registered Trademarks are subject to the
sole use and control of Borrower and its licensees, unless otherwise provided
in the Agreement for Purchase and Sale of Assets. Borrower is not aware of any
state of facts that indicate a possible present infringement of the Registered
Trademarks.
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SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES
Guarantor represents and warrants that:
7.1 INCORPORATION. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee; it has the power
and authority to own its properties and as sets and is duly qualified to carry
on its business in every jurisdiction wherein such qualification is necessary.
7.2 POWER AND AUTHORITY. The execution, delivery and performance of this
Loan Agreement and the Guaranty have been duly authorized by all requisite
action and will not violate any provision of law, any order of any court or
other agency of government, the Charter and By-Laws of the Guarantor, any
provision of any indenture, agreement or other instrument to which the
Guarantor is a party, or by which the Guarantor's respective properties or
assets are bound, or be in conflict, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Guarantor.
7.3 LITIGATION. There is no action, suit or proceeding at law or in equity
or by or before any governmental instrumentality or other agency now pending
or, to the knowledge of the Guarantor, threatened against or affecting the
Guarantor, or any properties or rights of the Guarantor, which, if adversely
determined, would materially adversely affect the financial or any other
condition of the Guarantor
7.4 TAXES. Guarantor has filed or caused to be filed all federal, state
or local tax returns which are required to be filed, and has paid all taxes due
and owing to all such taxing authorities.
7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a
party to any agreement or instrument or subject to any charter or other
corporate restrictions materially adversely affecting its business, properties
or assets, operations or conditions (financial or otherwise) taken as a whole.
7.6 NO DEFAULT. Guarantor is not in material default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
if not cured would materially and substantially affect the financial condition,
property or operations of the Guarantor.
7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not
extend the Term Loan to the Borrower but for the Guaranty, Guarantor's
execution of the Guaranty is in the best interest of the Guarantor.
SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES
Borrower and Guarantor represent and warrant that:
8.1 FINANCIAL CONDITION. The consolidated financial statements of the
Guarantor and its wholly owned subsidiaries, copies of which are attached
hereto as Exhibit "D", are correct and complete and fairly present the
financial condition of the Guarantor and its subsidiaries as of the date of
said financial statements and the results of their operations for said periods
and as of the Closing Date in all material respects. All such financial
statements have been prepared in accordance with generally accepted accounting
principles, applied on a consistent basis, maintained through the period
involved.
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8.2 TITLE TO ASSETS. Guarantor and its subsidiaries, have good and
marketable title to all their properties and assets as reflected on the balance
sheet which is a part of the financial statements referred to in Section 8.1 of
this Loan Agreement.
8.3 THIRD PARTY FINANCING DOCUMENTS. Attached hereto as Exhibit "E" is a
complete list of all agreements pertaining to Third Party Financing Arrangements
(the "Third Party Documents"). Complete copies of the Third Party Documents have
been provided to the Bank and its legal counsel, the law firm of Green & Hale.
Pursuant to the Third Party Documents, the Borrower and/or Guarantor grants
certain liens. Pursuant to the Existing Loan Agreements, the Borrower and
Guarantor cannot grant said liens without the consent of the Bank. The Bank has
reviewed the Third Party Documents and hereby consents to all liens granted
pursuant to said documents and no others.
8.4 BORROWER SUBSIDIARY OF GUARANTOR. The Borrower is a wholly owned
subsidiary of the Guarantor.
8.5 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of
Borrower and Guarantor, neither this Loan Agreement nor any schedule or exhibit
hereto (including without limitation the Term Note, Security Agreement and
Guaranty), nor any written statement or certificate furnished in connection
herewith or any of the transactions contemplated hereby, contain or will
contain an untrue statement of a fact or omits or will omit to state a fact
that is necessary in order to mane the statements contained herein and therein,
in the light of the circumstances under which they are made, not materially
misleading.
SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER.
The Borrower covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the indebtedness evidenced
by the Term Note, unless the Bank shall otherwise in its sole discretion consent
in writing, the Borrower will:
9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and
franchises, comply with all laws applicable to it and continue to conduct and
operate its business substantially as conducted and operated during the present
and preceding calendar years.
9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material
leases, franchises, patents, trademarks, trade names, and copyrights, and
preserve all the remainder of its properties used or useful in the conduct of
its business substantially as conducted and operated during the present and
preceding fiscal year. As part of this obligation, Borrower shall take all
action necessary to respond to and satisfy any issues raised by any FDA Form 483
or other notice of a governmental agency so as to prevent any action which could
result in the withdrawal of the Cortisporin(R) Product Line and/or the
Pediotic(R) Product Line, or the suspension of said product's registration,
product license, manufacturing license, wholesale dealers license, export
license or other governmental license, approval or consent of any governmental
regulatory agency with respect to the Cortisporin(R) Product Line and/or the
Pediotic(R) Product Line or any facility manufacturing said product.
Furthermore, Borrower shall comply with all reporting requirements of any
governmental agency related to the Cortisporin(R) Product Line and/or the
Pediotic(R) Product Line.
9.3 INSURANCE. At all times maintain with insurance companies rated "A"
or better or otherwise acceptable to the Borrower and the Bank, hazard
insurance and such other insurance, for such amounts as is customarily
maintained by companies in the same or substantially similar business. The Bank
shall be named as loss payee on the Borrower's principle hazard insurance
policies and any policy covering the Collateral.
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9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end
of each calendar quarter a Compliance Certificate, in the form of Exhibit "F"
attached hereto.
9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or
notice, furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or
lapse of time or both would constitute an Event of Default under the terms of
this Loan Agreement.
9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens
against the Collateral. If any other such liens exist that have not been
released of record, Borrower will obtain the immediate release of any such
liens.
9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the
Bank.
9.9 PRODUCTION AND MARKETING. Borrower shall use its reasonable best
efforts to produce and market the Cortisporin(R) Product Line and the
Pediotic(R) Product Line.
9.10 COMPLIANCE WITH 21 C.F.R. 314.72. All requirements of 21 CFR
314.72(a)(1) that relate to the transfer of assets to Borrower by GW under the
Agreement for Purchase and Sale of Assets shall be satisfied within forty-five
(45) days of the closing date. Furthermore, any and all filing requirements of
the FDA that arise as a result of or are necessary to effectuate the transfer to
the Borrower of all information pertaining to the transfer of AADA's and NDA's
related to the Cortisporin(R) Product Line and the Pediotic(R) Product Line
shall be complied with. Documentary evidence of compliance with 21 C.F.R.
314.72(a)(1) and any other filing requirements of the FDA shall be provided to
the Bank and its counsel, the law firm of Green & Hale.
SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR.
The Guarantor covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the indebtedness evidence
by the Term Note, unless the Bank shall otherwise its sole discretion consent
in writing, the Guarantor will:
10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and
franchises, comply with all laws applicable to it and continue to conduct and
operate its business substantially as conducted and operated during the present
and preceding calendar years.
10.2 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
10.3 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end
of each calendar quarter a Compliance Certificate, in the form of Exhibit "G"
attached hereto.
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10.4 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or
notice, furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or
lapse of time or both would constitute an Event of Default under the terms of
this Loan Agreement.
10.5 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the
Bank.
SECTION 11: JOINT AFFIRMATIVE COVENANTS.
The Borrower and Guarantor, jointly and severally, covenant and agree
that from the date hereof and until payment in full of the principal of and
interest on the indebtedness evidenced by the Term Note, unless the Bank shall
otherwise in its sole discretion consent in writing, the Borrower and Guarantor
will:
11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon
as available and in any event within ninety (90) days after the end of each
fiscal year of the Guarantor, an unqualified audit of the Guarantor's and its
wholly owned subsidiaries' consolidated financial statements as of the close of
such fiscal year of the Guarantor, which financial statements shall include a
consolidated balance sheet and consolidated statement of income and surplus of
the Guarantor and its subsidiaries, together with the unqualified audit report
and opinion of an independent Certified Public Accountant reasonably acceptable
to the Bank showing the financial condition of the Guarantor and its
subsidiaries at the close of such year and the results of operations during
such year; (b) within forty-five (45) days after the end of each fiscal
quarter, except the last fiscal quarter of the year, financial statements
similar to those described above for the Guarantor and its subsidiaries, not
audited but certified as to accuracy and content by the Chief Financial Officer
or President or Controller of the Guarantor (the "Certifying Officer"), such
consolidated balance sheets to be as of the end of such quarter and such
consolidated statements of income and surplus to be for the period from the
beginning of said year to the end of such quarter, in each case subject only to
audit and year end adjustment.
11.2 ADDITIONAL INFORMATION. Furnish such other relevant information
regarding the operations, business affairs and financial condition of the
Guarantor and its subsidiaries as the Bank may reasonably request, including
but not limited to true and exact copies of Guarantor's and its subsidiaries'
books of account and tax returns, and all information furnished to shareholders
or any governmental authority, and permit the copying of the same.
11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the
Bank's expense, to visit and inspect any of the properties, books and financial
reports of the Guarantor and its subsidiaries and to discuss its affairs,
finances and accounts with the principal officers of the Guarantor and its
subsidiaries, at all such reasonable times during regular business hours of the
Bank and on reasonable advance notice and as often as the Bank may reasonably
request. This right of inspection shall include, but not be limited to, the
right to inspect all premises, properties, books, records, contracts, and
documents related to the Cortisporin(R) Product Line and/or the Pediotic(R)
Product Line (including, without limitation, access to raw data in support of
production lot approvals and stability reports) and such other information
concerning the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line
as may be relevant to the protection of the Bank's rights and interests in and
to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line. The Bank
shall keep confidential any information it or its agents obtain as a result of
this right of inspection. However, if the Bank enforces its security
interest under the Security Agreement it shall be free to share any such
information that is related to its Collateral with such persons it deems
necessary for purposes of liquidating or selling the Collateral. Furthermore the
Bank and its agents may disclose any such information as required by a subpoena
or order of any court of law.
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11.4 MINIMUM NET WORTH. The Guarantor and its wholly owned subsidiaries
shall maintain a minimum consolidated net worth of Twenty-five Million and
No/100 Dollars ($25,000,000.00), as determined by generally accepted accounting
principles including intangible assets, with assets valued at historical costs
less allowances taken for depreciation, amortization and depletion. The minimum
consolidated net worth to be maintained by the Guarantor and its wholly owned
subsidiaries shall increase at the end of each fiscal quarter, beginning with
the quarter ending June 30, 1997, by an amount equal to Fifty Percent (50%) of
the consolidated net profit for that fiscal quarter. There shall, however, be
no adjustment to the minimum consolidated net worth requirement in the event of
a net loss for a fiscal quarter.
11.5 DEBT TO EQUITY RATIO. The Guarantor and its wholly owned
subsidiaries shall maintain a maximum consolidated debt to equity ratio (total
debt divided by total equity) of 1.55.
11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Guarantor and its wholly owned
subsidiaries shall maintain a consolidated ratio of cash flow-to-date service
of not less than 1.25 (total cash flow divided by total debt service) to be
measured quarterly based on the consolidated financial statements required by
Section 11.1(a) For purposes of this requirement, "Cash Flow" shall be defined
as Guarantor's and its wholly owned subsidiaries' consolidated net profits plus
consolidated allowances for depreciation, interest and equity injections
consisting of cash for the past 365 calendar days; and "Debt Service" shall be
defined as all scheduled payments of principal, interest and equipment lease
financing payable by the Guarantor and its wholly owned subsidiaries within the
next 365 calendar days.
11.7 CURRENT RATIO. The Guarantor and its wholly owned subsidiaries shall
maintain a consolidated current ratio of 1.25. For purposes of this Section,
"Current Ratio" shall be defined as the Guarantor's and its wholly owned
subsidiaries' consolidated current assets divided by their consolidated current
liabilities.
11.8 AMENDMENT OF EXISTING LOAN AGREEMENTS. The Borrower and the
Guarantor shall execute the documents necessary to effectuate the following
amendments to the Existing Loan Agreements:
(a) The Minimum Net Worth, Debt to Equity Ratio, Cash Flow-to-Debt
Service Ratio, and Current Ratio financial covenants set forth in the
Existing Loan Agreements shall be amended so as to income the same terms
set forth in each of the Sections 11.4, 11.5, 11.6 and 11.7 of this Loan
Agreement;
(b) The King Loan Agreement shall be amended to reflect that the
financial statements required under Section 7.5 of that agreement are the
consolidated financial statements of the Guarantor and its wholly owned
subsidiaries; and
(c) The King Loan Agreements shall be amended so as to require Borrower
to execute a security agreement, plus any documents the bank deems
necessary to perfect the security interest granted, pledging as
collateral its inventory, accounts, contract rights, and general
intangibles. Said security agreement shall contain the same terms as the
security agreement executed by Guarantor pursuant to the King Loan
Agreement.
(d) The King Loan Agreement shall be amended to reflect that the
Borrowing Base Certificate required by Section 2.7 of said loan agreement
shall be completed using the consolidated accounts receivable and
inventory of the Borrower and the Guarantor.
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(e) Section 9.6 of the King Loan Agreement, Section 14.6 of the Thalitone
Loan Agreement and Section 14.6 of the Proctocort Loan Agreement shall be
amended so that the terms of each of those sections is identical to the
terms set forth in Section 14.6 of this Loan Agreement.
(f) Paragraph no. 9 of the security agreement referred to in the
Thalitone Loan Agreement and the security agreement referred to in the
Proctocort Loan Agreement shall be amended by deleting the second
sentence.
These amendments shall be effectuated by such documentation as the Bank may
reasonably require.
11.9 THE AMENDED KING LOAN AGREEMENT. The King Loan Agreement as amended
shall be executed by the Borrower and Guarantor. Borrower shall execute the
security agreement that it will be required to provide under the terms of the
King Loan Agreement as amended.
SECTION 12: NEGATIVE COVENANTS OF BORROWER.
12.1 The Borrower covenants and agrees that at all times from and after
the closing date, unless the Bank shall otherwise consent in writing, which
consent shall not be unreasonably withheld, it will not, either directly or
indirectly, sell, lease, transfer, (except within the Borrower's own
organization) or dispose (other than in the normal course of business) of all
or a substantial part of its business or assets.
12.2 The Borrower covenants and agrees that at all times from and after
the Closing Date, it will not grant anyone other than the Bank a lien against
any of Borrower's assets. Borrower shall be permitted, however, to grant
purchase money liens for the purpose of financing assets acquired after the
Closing Date, including security interests arising from any Lease Line of
Credit, which may include the acquisition of product lines (any such lien shall
not extend to the Collateral). Furthermore, this provision shall not impair the
ability of the Borrower to acquire property after the Closing Date by means of
leases, or sale and lease back transactions.
SECTION 13: NEGATIVE COVENANTS OF GUARANTOR.
13.1 The Borrower covenants and agrees that at all times from and after
the closing date, unless the Bank shall otherwise consent in writing, which
consent shall not be unreasonably withheld, it will not, either directly or
indirectly, sell, lease, transfer, (except within the Borrower's own
organization) or dispose (other than in the normal course of business) of all
or a substantial part of its business or assets.
13.2 The Guarantor covenants and agrees that at all times from and after
the Closing Date, it will not grant anyone other than the Bank a lien against
any of Guarantor's assets. Guarantor shall be permitted, however, to grant
purchase money liens for the purpose of financing assets acquired after the
Closing Date, including security interests arising from any Lease Line of
Credit, which may include the acquisition of product lines (any such lien shall
not extend to the Collateral). Furthermore, this provision shall not impair the
ability of the Guarantor to acquire property after the Closing Date by means of
leases, or sale and lease back transactions.
SECTION 14: EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following shall occur:
14.1 PAYMENT OF PRINCIPAL INTEREST. The Borrower defaults in the prompt
payment as and when due of principal or interest on the Term Note or any fees
due under
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said note, this Loan Agreement or the Agreement; or in the prompt payment when
due of any other indebtedness, liabilities, or obligations to the Bank, whether
now existing or hereafter created or arising; direct or indirect, absolute or
contingent (including but not limited to Borrower's obligations under the
Existing Loan Agreements and any amendments thereto); or
14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with respect
to any other material agreement to which it is a party or with respect to any
other material indebtedness when due or the performance of any other obligation
incurred in connection with any material indebtedness for borrowed money
("material" as used herein meaning indebtedness or obligations in excess of
$50,000.00) if the effect of such default is to accelerate the maturity of such
indebtedness, or if the effect of such default is to permit the holder thereof
to cause such indebtedness to become due prior to its stated maturity and the
holder has not waived its right to accelerate payment of such indebtedness; or
14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by
the Borrower and/or Guarantor herein, or in any report, certificate, financial
statement or other writing furnished in connection with or pursuant to this
Loan Agreement shall prove to be false, misleading or incomplete in any
material respect on the date as of which made; or
14.4 BANKRUPTCY, ETC. The Borrower and/or Guarantor shall make an
assignment for the benefit of creditors, file a petition in bankruptcy,
petition or apply to any tribunal for the appointment of a custodian, receiver
or any trustee for it or a substantial part of its assets, or shall commence
any proceeding under any bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or if there shall have been filed any such petition
or application or any such proceeding shall have been commenced against the
Borrower and/or Guarantor, in which an order for relief is entered or which
remains undismissed for a period of sixty (60) days or more; or the Borrower
and/or Guarantor by any act or omission shall indicate its consent to, approval
of or acquiescence in any such petition, application or proceeding or order for
relief or the appointment of a custodian, receiver or any trustee for it or any
substantial part of any of its properties or shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) days or more; or Borrower and/or Guarantor shall generally
not pay its debts as such debts become due; or
14.5 CONCEALMENT OF PROPERTY, ETC. The Borrower and/or Guarantor shall
have concealed, removed, or permitted to be concealed or removed, any part of
its property with intent to hinder, delay or defraud its creditors or any of
them, or made any bankruptcy, fraudulent conveyance or similar law; or shall
have made any transfer of its property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid; or shall have
suffered or permitted, while insolvent, any creditor to obtain a lien upon any
of its property through legal proceedings or distraint which is not vacated
within sixty (60) days from the date thereof; or
14.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership
that results in the Gregory Family owning a combined fifty percent (50%) or
less of the capital stock of the Guarantor, or fifty percent (50%) or less of
the voting power related to the capital stock. For purposes of this section the
Gregory Family shall consist of John M. Gregory, Joan P. Gregory, Jefferson J.
Gregory, Tern D. White-Gregory, Joseph R. Gregory, Herschel P. Blessing, Mary
Ann Blessing, James E. Gregory, Dr. R. Henry Richards, Jeanie Richards, Fred
Jarvis, Mary Gregory-Jarvis, S.J. L.L.C., and Kingsway L.L.C., their spouses,
lineal descendants (including legally adopted children), heirs, and any trust,
foundation or not-for-profit corporation organized and existing for the benefit
of any of the foregoing.
15
<PAGE> 16
14.7 COVENANTS. Borrower and/or Guarantor defaults in the performance or
observance of any other covenant, agreement or undertaking on its or their part
to be performed or observed, contained herein, or in any other instrument or
document which now or hereafter evidences or secures all or any part of the
Term Loan.
14.8 WITHDRAWAL OR SUSPENSION. The total withdrawal of the Cortisporin(R)
Product Line and/or the Pediotic(R) Product Line from the market, or the
suspension of said product's registration, product license, manufacturing
license, wholesale dealers license, export license or other governmental
license, the approval or consent of any governmental regulatory agency with
respect to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line.
14.9 REMEDY. Upon the occurrence of any Event of Default, as specified
herein, and the expiration of any applicable cure period, the Bank shall, at
its option, thereupon declare the entire unpaid principal balance of the Term
Note, all interest accrued and unpaid thereon and all other amounts payable
under this Loan Agreement to be immediately due and payable for all purposes,
and may exercise all rights and remedies available to it under any other
instrument or document which evidences, secures or guaranties the Term Note, or
available at law or in equity, including the right to the appointment of a
receiver to take possession of the Borrower's and/or Guarantor's property.
SECTION 15: MISCELLANEOUS
15.1 AMENDMENTS. The provisions of this Loan Agreement, the Term Note, or
any instrument or document executed pursuant hereto or securing or guarantying
the indebtednesses, may be amended or modified only by an instrument in writing
signed by the parties to said document or instrument. Guarantor need only be a
party to an amendment of the Guaranty, and waives notice of any amendment,
modification or renewal of the Term Note, this Loan Agreement, or any other
instrument or document executed pursuant hereto other than the Guaranty.
15.2 NOTICES. All notices and other communications provided for hereunder
shall be in writing and shall be mailed, certified mail, return receipt
requested, or delivered by hand. Any such notices and other communications to
the Borrower shall be addressed as follows:
John M. Gregory
Chairman of the Board & CEO
Monarch Pharmaceuticals, Inc.
355 Beecham Street
Bristol, TN 37620
WITH A COPY TO:
John A. A. Bellamy
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and other communications to the Guarantor shall be addressed
as follows:
John M. Gregory
Chairman of the Board & CEO
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol. TN 37620
16
<PAGE> 17
WITH A COPY TO:
John A. A. Bellamy
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and other communications to the Bank shall be addressed as
follows:
Kevin L. Jessee
Community Bank President
First Tennessee Bank National Association
P. O. Box 3189
1155 Volunteer Parkway, Suite 201
Bristol, TN 37625,
or as to any such person at such other address as shall be designated by such
person in a written notice to the other parties hereto complying as to the
delivery with the terms of this Section 10.2. All such notices and other
communications shall be effective (i) if mailed, when received or three (3)
business days after mailing, whichever is earlier; or (ii) if delivered by
hand, upon delivery.
15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
15.4 INDEMNIFICATION. The Borrower and Guarantor agree to indemnify the
Bank from and against any and all claims, losses and liabilities, including,
without limitation, reasonable attorneys' fees and expenses, growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting solely and
directly from the Bank's negligence or willful misconduct. The indemnification
provided for in this Section shall survive the payment in full of the Term
Note.
15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of the Term Note. This Loan
Agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their respective successors and assigns, except that Borrower shall
not have the right to assign its rights hereunder or any interest therein.
15.6 GOVERNING LAW. This Loan Agreement shall be governed and construed
in accordance with the laws of the State of Tennessee.
15.7 EXECUTION IN COUNTERPARTS. This Loan agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together shall constitute
but one and the same instrument.
15.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this
Loan Agreement, whether used in the masculine, feminine, or neuter gender,
shall include all other genders; the singular shall include the plural, and
vice versa. Section headings are for convenience only and neither limit nor
amplify the provisions of this Loan Agreement.
17
<PAGE> 18
15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions
of this Loan Agreement be determined to be illegal or unenforceable, all other
provisions, nevertheless, shall remain effective and binding on the parties
hereto.
15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be
deemed to indicate that the Bank is in control of the business, management or
properties of the Borrower and/or Guarantor or has power over the daily
management functions and operating decisions made by the Borrower and/or
Guarantor.
15.11 FEES AND EXPENSES. Except as otherwise expressly provided herein,
the Borrower agrees to reimburse the Bank for all legal fees and expenses, and
recording fees and taxes incurred by the Bank in connection with the loan
contemplated by this Loan Agreement, including but not limited to such fees and
expenses incurred in connection with preparation of amendments to the Existing
Loan Agreements and related documentation. Furthermore, the Borrower agrees to
pay, or reimburse the Bank for, the actual out-of-pocket expenses, including
but not limited to counsel fees and expenses, court costs, accountants fees and
expenses, and fees and expenses of similar experts as deemed necessary by the
Bank, incurred by the Bank in connection with the enforcement of, or the
preservation of any rights under this Loan Agreement, the Term Note, and any
instrument or document now or hereafter securing or guarantying said note. The
Guaranty shall guaranty the obligations of the Borrower set forth in this
section, in addition to the other obligations that may be owing under the terms
of this Loan Agreement, the Term Note and the Security Agreement.
15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the
Term Note, and the other instruments and documents executed and delivered in
connection herewith.
15.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default
as specified above, the Bank may apply any and all deposits (general or
special, matured or unmatured) and other credits of the Borrower against any
and all indebtednesses of the Borrower to the Bank. The Borrower acknowledges
the Bank's legal and equitable rights to setoff, appropriate. Furthermore, upon
the occurrence of any Event of Default as specified above, the Bank may apply
any and all deposits (general or special, matured or unmatured and other
credits of the Guarantor against any and all indebtednesses of the Borrower to
the Bank covered by the Guaranty. The Guarantor acknowledges the Bank's legal
and equitable rights to setoff, appropriate.
15.14 VENUE OF ACTIONS. As an integral part of the consideration for the
making of this Loan Agreement, it is expressly understood and agreed that no
suit or action shall be commenced by the Borrower, or by any successor,
personal representative or assignee with respect to the Term Note, or this Loan
Agreement or any other document or instrument which now or hereafter evidences,
secures or guaranties all or any part of the Term Loan, other than in a state
court of competent jurisdiction in Sullivan County, Tennessee, or the United
States District Court for the Eastern District of Tennessee, and not elsewhere.
As a further integral part of the consideration for the making of this Loan
Agreement, it is expressly understood and agreed that no suit or action shall be
commenced by the Guarantor, or by any successor, personal representative or
assignee with respect to the this Loan Agreement, or any other document or
instrument which now or hereafter evidences, secures or guaranties all or any
part of the Term Loan, other than in a state court of competent jurisdiction in
Sullivan County, Tennessee, or in the United States District Court for the
Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph
contained shall prohibit the Bank from instituting suit in any court of
competent jurisdiction for the enforcement of its rights hereunder or in any
other comment or instrument which evidences, secures or guaranties the
obligations of borrower and/or Guarantor contemplated by this Loan Agreement.
18
<PAGE> 19
15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
15.16 ENTIRE AGREEMENT. This written agreement, the related written
documents referred to herein, and any other agreements executed
contemporaneously herewith set forth the complete and exclusive statement of
the terms of the agreement between the Borrower, Guarantor and the Bank with
respect to the loans contemplated by this Loan Agreement. Therefore, no prior
written agreements or contemporaneous or prior oral agreements between the
parties shall be of any effect with respect to the loan contemplated by this
Loan Agreement.
IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this
Loan Agreement to be executed by their duly authorized officers, all as of the
day and year first above written.
MONARCH PHARMACEUTICALS INC.
By:/s/ John M. Gregory
-------------------------------
John M. Gregory
Chairman of the Board & CEO
KING PHARMACEUTICALS, INC.
By:/s/ John M. Gregory
-------------------------------
John M. Gregory
Chairman of the Board & CEO
FIRST TENNESSEE BANK,
NATIONAL ASSOCIATION
By:/s/ Kevin L. Jessee
-------------------------------
Kevin L. Jessee
Community Bank President
19
<PAGE> 20
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, Jane Cartwright, of the state and county mentioned, personally
appeared John M. Gregory, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Chairman of the Board & CEO of Monarch Pharmaceuticals Inc. the
within named bargainor, a corporation, and that as such Chairman of the Board &
CEO, executed the foregoing instrument for the purpose therein contained, by
personally signing the name of Monarch Pharmaceuticals, Inc..
Witness my hand and seal, at office in this 20th day of March, 1997.
/s/ Jane Cartwright
----------------------------------
Notary Public
My commission expires 1-12-99
-------------
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, Jane Cartwright, of the state and county mentioned, personally
appeared John M. Gregory, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Chairman of the Board & CEO of King Pharmaceuticals, Inc. the
within named bargainor, a corporation, and that as such Chairman of the Board &
CEO, executed the foregoing instrument for the purpose therein contained, by
personally signing the name of King Pharmaceuticals Inc..
Witness my hand and seal, at office in this 20th day of March, 1997.
/s/ Jane Cartwright
----------------------------------
Notary Public
My commission expires 1-12-99
-------------
STATE 0F TENNESSEE
COUNTY OF SULLIVAN
Before me, Jane Cartwright, of the state and county mentioned, personally
appeared Kevin L. Jessee, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Community Bank President of First Tennessee Bank National
Association, the within named bargainor, and that as such Community Bank
President, executed the foregoing instrument for the purpose therein contained,
by personally signing the name of First Tennessee Bank National Association.
Witness my hand and seal, at office in this 20th day of March, 1997.
/s/ Jane Cartwright
----------------------------------
Notary Public
My commission expires 1-12-99
-------------
20
<PAGE> 21
PROMISSORY NOTE
(Business or Commercial Loan)
------------------------
Approval
$5,000,000.00 Bristol, Tennessee
March 20, 1997
FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one)
promise(s) to pay to the order of First Tennessee Bank National Association
(hereinafter referred to as the "Bank") at any lending office in the state
mentioned above or at such other place as the holder hereof may designate in
writing, in current local funds, the sum of: Five Million and no/00****Dollars
[ ] DISCOUNTED: Including interest, due on __________, 19 ____.
[X] INTEREST BEARING: Plus interest from date until maturity on the unpaid
principal balance of this Note at the rate of:
[ ] FIXED RATE: __% per annum,
[X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which
shall be equal to the lesser of (a) the maximum rate of interest
("Maximum Rate") which Bank may lawfully charge, or (b) a rate which
is ___% per annum higher than the base commercial rate of interest
("Base Rate") established from time to time by Bank. Each change in
the Variable Rate which results from a change in the Maximum Rate
shall become effective, without notice to the undersigned, on the same
date that the Maximum Rate changes. Each change in the Variable Rate
which results from a change in the Base Rate shall become effective,
without notice to the undersigned, on [ ] the same date that the Base
Rate changes; [ ] the first day of the calendar month following any
change in the Base Rate; [ ] the first day of the calendar quarter
following any change in the Base Rate; [ ] other __________________.
The Base Rate is one of several interest rate indices employed by the
Bank. The undersigned acknowledge(s) that the Bank has made, and may
hereafter make, loans bearing interest at rates which are higher or
lower than the Base Rate.
Such principal and interest shall be payable as shown below:
[ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance,
due on _____, 19__ plus interest payable
[ ] at maturity.
[ ] beginning _____, 19 __ and continuing on the same day of each
successive [ ] monthly or
[ ] quarterly calendar period, except that the final interest
installment shall be payable on the date the principal
is due.
[X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $138,888.89
each, plus a final payment for the balance then owing, beginning last day
of April, 1997, and continuing on the same day of each successive [x]
monthly or [ ] quarterly calendar period. Accrued interest is [ ] included
in each of the above payments; or [X] payable in addition to such payments
on the above payment dates.
[ ] OTHER:
------------------------------------------------------------------
------------------------------------------------------------------------------
SECURITY: Except as otherwise provided herein, as of the date hereof,
[ ] This Note is secured by a mortgage(s) or deed(s) of trust dated
---------
------------------------------------------------------------------------------
[X] This Note is secured by security agreements(s) dated March 20, 1997
--------------------------------------------------------------------------
OTHER TERMS AND CONDITIONS: Unless otherwise provided herein, all payments shall
be applied first to pay the accrued interest to date on the unpaid balance and
next to the unpaid principal of the indebtedness.
Any payment not made when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the maximum effective contract
rate of interest which the Bank may lawfully charge on the date such payment
became due.
If this Note is placed in the hands of an attorney for collection, but
suit or otherwise, or to protect any security given for its payment, or to
enforce its collection, the undersigned will pay all the costs of collection
and litigation, together with a reasonable attorney's fee, all of which shall
be secured by any collateral pledged as security herefor. The undersigned also
agrees to pay any and all actual expenses including reasonable attorney's fees
incurred by Bank in (i) successfully defending any action or inaction in
connection with any aspect of the transaction evidenced by this instrument, or
(ii) any action, whether or not successful, taken to protect or enforce Bank's
rights in any collateral related to the transaction evidenced by this
instrument.
The maker(s) and any endorsers or guarantors hereof waive protest,
demand, presentment, and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such
extensions, or the period or periods thereof, and without notice to or further
assent from them or any other party liable hereon, all of whom will remain
bound upon this Note notwithstanding any such extension(s); and further agree
that all or any collateral given, now or hereafter, as security herefor may be
released (with or without substitution) without notice and without affecting
their liability hereon; and that additional makers, endorsers, guarantors, or
sureties may become parties hereto, and that any present or future party may be
released from liability hereunder, without notice, and without affecting the
liability of any other maker, endorser, or guarantor.
In the event of any default in the prompt and punctual payment, when due, of
this Note (or any installment hereof, whether of principal, interest, or
principal and interest), or if the undersigned, or any other party liable
hereon, should become insolvent (as defined in the Uniform Commercial Code), or
if a petition in bankruptcy be filed by or against any of the undersigned or
any other party liable hereon, or if a receiver be appointed for any part of
the property or assets of the undersigned or any party liable hereon, or if any
assignment for the benefit of creditors be made by the undersigned, or any
other party liable hereon, or if a judgment be entered against the undersigned,
or any other party liable hereon, or upon the issuance of any writ, levy or
process, valid or invalid which purports to restrict the undersigned or any
other party liable hereon, with respect to any of his/her or their funds of
property on deposit with or in the possession or custody or under the control
of the Bank, or upon the death or dissolution of any party liable hereon, or in
the event of any default in the prompt and punctual payment when due, or any
other indebtedness or obligation to the Bank owed, now or hereafter, by parties
liable hereon, or upon any default in any deed of trust, mortgage, security
agreement, assignment of other security document given, now or hereafter, to
secure the indebtedness evidenced hereby, or if any representation or warranty
made by the undersigned pertaining to this credit shall prove to be false,
untrue, or materially misleading, or in the event that the Bank shall deem
itself insecure, then and in any of such events, this Note shall, without
notice or demand for payment (the same being expressly waived), be and become
immediately due and payable for all purposes, at the option of the Bank.
Any money or other property at any time in the possession of the Bank
belonging to any party liable hereon, and any deposits or other sums at any
time credited by or due from the Bank to any other party liable hereon, may at
all times, at the option of the Bank, be held and treated as collateral
security for the payment of this Note or any other liability of any of the
undersigned, or any other party in any manner liable hereon to the Bank,
whether due or not due. The Bank may, at any time, at its option, and without
notice, set off the amount due or to become due hereon against the claim of any
of said parties against the Bank. To effect these rights, the undersigned and
all other parties liable hereon agree, upon request by the Bank, immediately to
endorse, sign, and execute all necessary instruments, and do hereby appoint the
Bank (acting through any then officer thereof) as attorney-in-fact for them
with authority to endorse any instrument requiring endorsement and to effect
any transfer, and this appointment shall be irrevocable as long as the
undersigned, or any other party liable hereon, shall be indebted to the Bank.
The undersigned agrees to furnish a current financial statement upon
the request of Bank from time to time, and further agrees to execute and
deliver all other instruments and take such other actions as Bank may from time
to time reasonably request in order to carry out the provisions and intent
hereof.
In the event of any renewal or extension of the loan indebtedness
evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank
shall have the right to charge interest at the highest of the following rates:
(i) the maximum rate permissible at the time the contract to make the loan was
executed; or (ii) the maximum rate permissible at the time the loan was made;
or (iii) the maximum rate permissible at the time of such renewal or extension;
or (iv) the maximum rate permitted by applicable federal law; it being intended
that those statutes and laws, state or federal, from time to time in effect,
which permit the charging of the higher rate of interest shall govern the
maximum rate which may be charged hereunder. In the event that for any reason
the foregoing provisions hereof shall not contain a valid, enforceable
designation of a rate of interest prior to maturity or method of determining
the same, then (unless this Note is a discounted, single-payment note) the
indebtedness hereby evidenced shall bear interest prior to maturity at the
maximum effective rate which may be lawfully charged by the Bank under
applicable law.
Regardless of any provision herein, or in any other document executed
in connection herewith, the holder hereof shall never be entitled to receive,
collect, or apply, as interest hereon, any amount in excess of the maximum
contract rate which may be lawfully charged by the holder hereof under
applicable law; and in the event the holder hereof ever receives, collects, or
applies as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated
hereunder as such; and, if the principal hereof is paid in full, any remaining
excess shall forthwith be paid to the undersigned. In determining whether or
not the interest paid of payable, under any specific contingency, exceeds the
maximum lawful contract rate, the undersigned and the holder hereof shall, to
the maximum extent permitted by applicable law, (a) characterize any
non-principal payment as a reasonable loan charge, rather than as interest; (b)
exclude voluntary prepayments and the effects thereof; and (c) amortize,
prorate, allocate, and spread, in equal parts, the total amount of interest
throughout the entire contemplated term hereof, so that the interest accrued or
to accrue throughout the entire term contemplated hereby shall at no time
exceed the maximum lawful contract rate.
The undersigned jointly and severally waive(s) any right to a trial by
jury in any action or proceeding to enforce or defend any rights under this
agreement or under any amendment, instrument, document or agreement delivered
(or which may in the future be delivered) in connection herewith or arising
from any banking relationship existing in connection with this agreement. The
undersigned agree(s) that any such action or proceeding shall be tried before a
court and not before a jury.
Monarch Pharmaceuticals, Inc.
-----------------------------
By: /s/ John M. Gregory
-----------------------------
Chairman & CEO
-----------------------------
<PAGE> 22
ALLONGE TO PROMISSORY NOTE DATED MARCH 20, 1997
IN THE AMOUNT OF $5,000,000.00 (THE "NOTE") EXECUTED BY THE UNDERSIGNED
TO THE ORDER OF FIRST TENNESSEE BANK NATIONAL ASSOCIATION ("BANK")
(FOR USE WITH BLUE, GREEN AND WHITE NOTES ONLY - NEW LOAN)
1. The undersigned understands and agrees that the terms of the Note
relating to the interest rate shall be modified by deleting the paragraph of the
Note entitled Variable Rate in its entirety and replacing it with the following:
[X] Variable Rate: A variable rate per annum ("Variable Rate") based
on a [ ] three hundred and sixty (360) [X] three hundred and sixty-five
(365) day year which shall be equal to the lesser of (i) the maximum rate
of interest ("Maximum Rate") which Bank may lawfully charge, or (ii) a rate
which is 1.75 percent (1.75%) per annum higher than the LIBOR Rate (as
hereinafter defined), adjusted and determined as of the opening of business
on March 20, 1997 (the "Initial Pricing Date") and on the 20th day of every
third month hereafter (each an "Interest Rate Change Date"). The LIBOR Rate
shall mean the London Interbank Offered Rate of interest for an interest
period of three (3) months, as reported in The Wall Street Journal
published on each Interest Rate Change Date. Each change in the Variable
Rate which results from a change in the LIBOR Rate shall become effective,
without notice to the undersigned, on each Interest Rate Change Date;
provided, however, that if The Wall Street Journal is not published on such
date, the LIBOR Rate shall be determined by reference to The Wall Street
Journal last published immediately preceding such date. In the event that
at any time prior to maturity the rate of interest specified in clause (ii)
above (determined as of the dates when changes become effective above)
shall exceed the Maximum Rate, Bank may, at its option and without notice
to the undersigned, charge interest at the Maximum Rate for the entire term
of the loan and all unpaid interest then accrued at said Maximum Rate shall
be due and payable ten (10) days following the date upon which Bank
notifies the undersigned of the amount of such accrued but unpaid interest.
(The three (3) month LIBOR Rate quoted in The Wall Street Journal published
on the Initial Pricing Date is 5.64 percent (__%) per annum.)
The privilege is reserved to prepay this Note in whole or in part,
prior to maturity, without premium or penalty.
Notwithstanding any other provisions herein, if any Change in Law (as
hereinafter defined) shall make it unlawful for the Bank to make or
maintain a LIBOR Rate loan as contemplated by this Note, the principal
outstanding hereunder shall, if required by law and if the Bank so
requests, be converted on the date required to make the loan evidenced by
this Note legal to a loan accruing interest at the lesser of the Maximum
Rate or the base commercial rate of interest ("Base Rate") established from
time to time by the Bank. Each change in the Base Rate shall become
effective, without notice to the undersigned, on the same date that the
Base Rate changes. The undersigned hereby agrees promptly to pay the Bank,
upon demand, any costs incurred by the Bank in making any conversion in
accordance with this paragraph, including any interest or fees payable by
the Bank to lenders of funds obtained by it in order to maintain its LIBOR
Rate loans.
The undersigned acknowledges that the Base Rate is one of several
interest rate indices employed by the Bank and that the Bank has made, and
may hereafter make, loans bearing interest at rates which are higher or
lower than the Base Rate.
The undersigned hereby indemnifies the Bank and holds the Bank
harmless from any loss or expense which the Bank may sustain or incur as a
consequence of (i) a default by the undersigned in payment of the principal
amount of or interest on the loan evidenced hereby, including any such loss
or expense arising from interest or fees payable by the Bank to lenders of
funds obtained by it in order to make or maintain its LIBOR Rate loans, or
(ii) a Change in Law that results in the imposition on the Bank of reserve
requirements in connection with LIBOR Rate loans made by the Bank. The
undersigned will make any payments under this indemnity to Bank, upon
demand. The undersigned further agrees to enter into a modification of this
Note, at the request of the Bank, to bring this Note into compliance with
any Change in Law.
"Change in Law" shall mean the adoption of any law, rule, regulation,
policy, guideline or directive (whether or not having the force of law) or
any change therein or in the interpretation or application thereof, in all
cases by any Governmental Authority having jurisdiction over the Bank, in
each case after the date hereof.
<PAGE> 23
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
regulatory functions of or pertaining to government.
2. The provisions hereof shall be binding upon the undersigned, his/her
heirs, executors, administrators, personal representatives, successors and
assigns, and shall inure to the benefit of the Bank, its successors and assigns.
----------------------------------------
INDIVIDUAL BORROWER
MONARCH PHARMACEUTICALS, INC.
----------------------------------------
By: /s/ John M. Gregory
-------------------------------------
Title: CHAIRMAN AND CEO
----------------------------------
BUSINESS ENTITY BORROWER
<PAGE> 1
EXHIBIT 10.10
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
KING PHARMACEUTICALS, INC., AS BORROWER
AND
FIRST AMERICAN NATIONAL BANK, AS LENDER
$4,000,000
AUGUST 21, 1997
<PAGE> 2
TABLE OF CONTENTS
LOAN AND SECURITY AGREEMENT
<TABLE>
<S> <C> <C>
ARTICLE I - DEFINITION OF TERMS
Section 1.01. Definitions ........................................... 1
Section 1.02. Other Definitional Provisions ......................... 6
ARTICLE II - CREDIT FACILITIES
Section 2.01 Revolving Commitments.................................. 7
Section 2.02 Manner of Borrowing.................................... 7
(a) Authorization to make Advances......................... 7
(b) Notice Irrevocable..................................... 7
(c) Funding................................................ 7
Section 2.03 Fees................................................... 7
Section 2.04 Extension of Commitment Period......................... 8
Section 2.05 Term Loan.............................................. 8
Section 2.06 Use of Proceeds........................................ 8
ARTICLE III - NOTES AND NOTE PAYMENTS
Section 3.01 Revolving Credit Notes................................. 8
Section 3.02 Interest Rates......................................... 8
Section 3.03 Calculation of Interest Rates.......................... 9
Section 3.04 Manner and Application of Payments..................... 9
Section 3.05 Term Promissory Note................................... 9
ARTICLE IV - CONDITIONS PRECEDENT
Section 4.01 Initial Advances....................................... 9
(a) Revolving Credit Note..................................... 9
(b) Term Promissory Note...................................... 9
(c) Opinion of Borrower's Counsel............................. 9
(d) Officers' Certificate..................................... 9
(e) Resolutions of Borrower................................... 10
(f) Incumbency Certificate of Borrower........................ 10
(g) Certificates.............................................. 10
(h) Charter and Bylaws........................................ 10
(i) Operating Budget.......................................... 10
(j) Financial Information..................................... 10
(k) Collateral Documents...................................... 10
(l) Litigation................................................ 10
(m) Insurance................................................. 11
(n) Additional Information.................................... 11
Section 4.02 All Advances
(a) No Defaults............................................... 11
(b) Compliance with Agreement................................. 11
(c) No Material Adverse Change................................ 11
(d) Representations and Warranties............................ 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(e) Financial Statements.......................................... 11
(f) Bankruptcy Proceedings........................................ 11
ARTICLE V - SECURITY INTERESTS
Section 5.01 Grant of Security Interests................................ 12
Section 5.02 Filings.................................................... 12
ARTICLE VI - REPRESENTATIONS AND WARRANTIES
Section 6.01 Organization and Good Standing............................. 13
Section 6.02 Authorization and Power.................................... 13
Section 6.03 No Conflicts or Consents................................... 13
Section 6.04 Enforceable Obligations.................................... 13
Section 6.05 No Liens................................................... 13
Section 6.06 Financial Condition........................................ 13
Section 6.07 Full Disclosure............................................ 14
Section 6.08 No Default................................................. 14
Section 6.09 Material Agreements........................................ 14
Section 6.10 No Litigation.............................................. 14
Section 6.11 Burdensome Contracts....................................... 14
Section 6.12 Regulatory Defects......................................... 14
Section 6.13 Use of Proceeds; Margin Stock.............................. 14
Section 6.14 No Financing of Corporate Takeovers........................ 14
Section 6.15 Taxes...................................................... 15
Section 6.16 Principal Office, Etc...................................... 15
Section 6.17 ERISA...................................................... 15
Section 6.18 Compliance with Law........................................ 15
Section 6.19 Government Regulation...................................... 15
Section 6.20 Insider.................................................... 15
Section 6.21 Subsidiaries............................................... 15
Section 6.22 Fair Labor Standards Act................................... 16
Section 6.23 Casualties................................................. 16
Section 6.24 Investment Company Act..................................... 16
Section 6.25 Sufficiency of Capital..................................... 16
Section 6.26 Hazardous Substances....................................... 16
Section 6.27 Collateral Documents; Description of Assets................ 16
Section 6.28 Corporate Name............................................. 16
Section 6.29 Representations and Warranties............................. 16
Section 6.30 Survival of Representations and Warranties................. 17
ARTICLE VII - AFFIRMATIVE COVENANTS
Section 7.01 Financial Statements, Reports and Documents................ 17
(a) Quarterly Statements.......................................... 17
(b) Annual Statements............................................. 17
(c) Audit Reports................................................. 17
(d) Other Reports................................................. 18
(e) Compliance Certificate........................................ 18
(f) Accountants Certificates...................................... 18
(g) Other Information............................................. 18
Section 7.02 Payment of Taxes and Other Indebtedness.................... 18
Section 7.03 Maintenance of Existence and Rights; Conduct of Business... 18
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.04 Notice of Default.............................................................. 19
Section 7.05 Other Notices ................................................................. 19
Section 7.06 Compliance with Loan Documents................................................. 19
Section 7.07 Compliance with Material Agreements............................................ 19
Section 7.08 Operations and Properties...................................................... 19
Section 7.09 Books and Records; Access...................................................... 19
Section 7.10 Compliance with Law............................................................ 19
Section 7.11 Insurance...................................................................... 19
Section 7.12 Authorizations and Approvals................................................... 19
Section 7.13 ERISA Compliance............................................................... 19
Section 7.14 Further Assurances............................................................. 20
Section 7.17 Minimum Net Worth.............................................................. 20
Section 7.18 Indemnity by Borrower.......................................................... 20
ARTICLE VIII - NEGATIVE COVENANT
Section 8.01 Limitation on Indebtedness..................................................... 21
Section 8.02 Negative Pledge................................................................ 21
Section 8.03 Restrictions on Dividends...................................................... 21
Section 8.04 Limitation on Investments...................................................... 21
Section 8.05 Limitation on Sale of Properties............................................... 22
Section 8.06 Name, Fiscal Year and Accounting Method........................................ 22
Section 8.07 Current Ratio.................................................................. 22
Section 8.08 Debt to Net Worth Ratio........................................................ 22
Section 8.09 Cash Flow Coverage............................................................. 22
Section 8.10 Liquidation, Mergers, Consolidations and Dispositions of
Substantial Assets............................................................. 22
Section 8.11 Lines of Business.............................................................. 22
Section 8.12 No Amendments.................................................................. 22
Section 8.13 Purchase of Substantial Assets................................................. 22
ARTICLE IX - EVENTS OF DEFAULT
Section 9.01 Events of Default.............................................................. 22
Section 9.02 Remedies Upon Event of Default................................................. 24
Section 9.03 Performance by Lender.......................................................... 24
ARTICLE IX - MISCELLANEOUS
Section 10.01 Modification................................................................... 25
Section 10.02 Accounting Terms and Reports................................................... 25
Section 10.03 Waiver......................................................................... 25
Section 10.04 Payment of Expenses............................................................ 25
Section 10.05 Notices........................................................................ 25
Section 10.06 Governing Law.................................................................. 26
Section 10.07 Waiver of Jury Trial; Choice of Forum; Consent to Service of
Process and Jurisdiction....................................................... 27
Section 10.08 Invalid Provisions............................................................. 27
Section 10.09 Maximum Interest Rate.......................................................... 27
Section 10.10 Confidentiality................................................................ 27
Section 10.11 Nonliability of Lender......................................................... 28
Section 10.12 Offset......................................................................... 28
Section 10.13 Binding Effect................................................................. 28
Section 10.14 Entirety....................................................................... 28
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 10.15 Headings................................................................. 28
Section 10.16 Survival................................................................. 28
Section 10.17 No Third Party Beneficiary............................................... 28
Section 10.18 Multiple Counterparts.................................................... 28
Exhibit A................................................................................. 31
Exhibit A2................................................................................ 34
Exhibit B................................................................................. 36
Exhibit C................................................................................. 38
Exhibit D................................................................................. 39
Exhibit E................................................................................. 40
Exhibit F................................................................................. 41
Exhibit G................................................................................. 42
Exhibit H................................................................................. 43
</TABLE>
iv
<PAGE> 6
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is hereby made and
entered into on this the 21st day of August, 1997 by and between KING
PHARMACEUTICALS, INC., a Tennessee corporation (hereinafter called "Borrower"),
and FIRST AMERICAN NATIONAL BANK (hereinafter called "Lender").
WITNESSETH:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans to
Borrower; and
WHEREAS, Lender is willing to make such loans to Borrower upon the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITION OF TERMS
SECTION 1.01. Definitions. For the purposes of this Agreement, unless
the context otherwise requires, the following terms shall have the respective
meanings assigned to them in this ARTICLE I or in the Section or recital
referred to below:
"Accounts" shall have the meaning assigned to such term in Section
9-106 of the Uniform Commercial Code.
"Advance" shall mean a loan (except the Term Loan made hereunder) made
from time to time by Lender to Borrower pursuant to the Loan Documents;
"Advances" shall mean all of such loans.
"Affiliate" of any Person shall mean any other Person directly or
indirectly, controlling, controlled by, or under common control with, such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of Voting Shares or
by contract or otherwise.
"Agreement" shall have the meaning assigned to such term in the
preamble hereof.
"Borrower" shall mean King Pharmaceuticals, Inc., a Tennessee
corporation and any permitted successors and assigns.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which Lender is normally and customarily closed.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 7
"Collateral" shall mean all of the property which is subject or is to
be subject to the Liens as provided in ARTICLE V, of this Agreement.
"Collateral Documents" shall mean all mortgages, deeds of trust,
security agreements, pledge agreements, guaranty agreements, notes, financing
statements, fixture filings and any other agreements, documents or instruments
executed or delivered to evidence and/or secure repayment of the Obligation or
any part thereof.
"Commitment" shall mean the obligation of Lender to extend credit to
Borrower under this Agreement in an aggregate principal amount not to exceed
Lender's Committed Sum.
"Commitment Period" shall mean the period beginning on the date hereof
and ending on the earlier of (i) the Commitment Termination Date, or (ii) the
date on which Lender terminates its Commitments after the occurrence of an Event
of Default.
"Committed Sum" shall mean the sum of exactly Two Million Nine Hundred
Seventy Five Thousand Dollars ($2,975,000).
"Commitment Termination Date" shall mean August 20, 2000 or, if such
date is not a Business Day, the Business Day next preceding such date.
"Current Assets" shall mean, as of any date, the current assets which
would be reflected on the balance sheet of Borrower prepared as of such date in
accordance with Generally Accepted Accounting Principles, but excluding (i) all
Accounts in respect of products, goods and/or services which were delivered or
performed by Borrower more than one hundred and twenty (120) days prior to such
date, and (ii) intangible assets.
"Current Liabilities" shall mean, as of any date, the current
liabilities which would be reflected on the balance sheet of Borrower prepared
as of such date in accordance with Generally Accepted Accounting Principles.
"Controlled Group" shall mean (i) the controlled group of corporations
as defined in Code Section 1563, or (ii) the group of trades or businesses under
common control as defined in Code Section 414(c) of which Borrower is a part or
may become a part.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar laws from time to time in effect affecting the rights of creditors
generally.
"Default" shall mean any of the events specified in ARTICLE IX of this
Agreement, regardless of whether there shall have occurred any passage of time
or giving of notice or both that would be necessary in order to constitute such
event an Event of Default.
"Dividends" shall mean (i) cash distributions or any other
distributions on, or in respect of, any class of capital stock of Borrower,
except for distributions made solely in shares of stock of the same class, and
(ii) any and all funds, cash or other payments made in respect of the
redemption, repurchase or acquisition of such stock, unless such stock shall be
redeemed or acquired through the exchange of such stock with stock of the same
class.
"Dollars" and the sign "$" shall refer to currency of the United States
of America.
2
<PAGE> 8
"Earnings Before Interest Taxes Depreciation and Amortization" shall
mean for any period, the sum of (i) the income (or deficit) of Borrower before
provision for income taxes for such period, plus (ii) interest expense for such
period, plus (iii) all amounts in respect of depreciation and amortization for
such period.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, together with all regulations issued pursuant thereto.
"Event of Default" shall have the meaning assigned to such term in
SECTION 9.01 of this Agreement
"Generally Accepted Accounting Principles" shall mean those generally
accepted accounting principles and practices which are recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods after the date hereof so as to properly reflect the financial
condition, and the results of operations and changes in financial position, of
Borrower, except that any accounting principle or practice required to be
changed by the said Accounting Principles Board or Financial Accounting
Standards Board (or other appropriate board or committee of the said Boards) in
order to continue as a generally accepted accounting principle or practice may
so be changed. In the event of a change in Generally Accepted Accounting
Principles, Lender and Borrower will thereafter negotiate in good faith to
revise any covenants of this Agreement affected thereby in order to make such
covenants consistent with Generally Accepted Accounting Principles then in
effect.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any of its business,
operations or properties.
"Indebtedness" shall mean all indebtedness, obligations and liabilities
of Borrower, including without limitation (i) all "liabilities" which would be
reflected on a balance sheet of Borrower, prepared in accordance with Generally
Accepted Accounting Principles, (ii) all obligations of Borrower in respect of
any guaranty, (iii) all obligations of Borrower in respect of any capital lease,
(iv) all obligations, indebtedness and liabilities secured by any lien or any
security interest on any property or assets of such Person, and (v) all
redeemable preferred stock of Borrower valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends.
"Lender" shall mean First American National Bank.
"LIBOR" shall mean, for each interest period, the rate per annum
offered to the Lender (at approximately 11:00 A.M. London time, on the date two
Business Days in London prior to the first day of such interest period) by prime
banks in the London Interbank Market for deposits of Dollars for a period equal
to the length of such interest period and in an amount of the Advances which
have been made (or will be made) by Lender to Borrower hereunder and are
scheduled to be outstanding during such interest period. Each determination of
the LIBOR by Lender shall, in the absence of manifest error, be conclusive and
binding.
"Lien" shall mean any lien, mortgage, deed of trust, security interest,
tax lien, pledge, encumbrance, conditional sale or title retention arrangement,
or any other interest in property
3
<PAGE> 9
designed to secure the repayment of Indebtedness, whether arising by agreement
or under any statute or law, or otherwise
"Loan Documents" shall mean this Agreement, the Revolving Credit Note
(including any renewals, extensions and refundings thereof), the Term Promissory
Note, the Collateral Documents and any agreements or documents (and with respect
to this Agreement, and such other agreements and documents, any amendments or
supplements thereto or modifications thereof) executed or delivered pursuant to
the terms of this Agreement.
"Material Adverse Effect" means any (i) material adverse effect
whatsoever upon the validity, performance or enforceability of any Loan
Documents, (ii) material adverse effect upon the financial condition or business
operations of Borrower, (iii) material adverse effect upon the ability of
Borrower to fulfill its obligations under the Loan Documents, or (iv) causes an
Event of Default or any event which, with notice or lapse of time or both, could
become an Event of Default.
"Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day that at any time, or
from time to time, may be contracted for, taken, reserved, charged or received
on the Indebtedness evidenced by the Revolving Credit Note and/or Term
Promissory Note under the laws which are presently in effect of the United
States of America and the State of Tennessee applicable to the holders of the
Revolving Credit Note and/or Term Promissory Note and such Indebtedness or, to
the extent permitted by law, under such applicable laws of the United States of
America and the State of Tennessee which may hereafter be in effect and which
allow a higher maximum nonusurious interest rate than applicable laws now allow.
"Net Worth" shall mean, as of any date, the total shareholders' equity
(including capital stock, additional paid-in capital and retained earnings after
deducting treasury stock) which would appear on the balance sheet of Borrower
and prepared as of such date in accordance with Generally Accepted Accounting
Principles.
"Notice of Borrowing" shall mean any telephonic or other instructions
received from any person purporting to an officer of Borrower or other
authorized person.
"Obligation" shall mean
(i) all present and future indebtedness, obligations and liabilities
of Borrower to Lender arising pursuant to this Agreement, regardless of whether
such indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, joint, several, or joint and several;
(ii) all present and future indebtedness, obligations and liabilities
of Borrower to Lender arising pursuant to or represented by the Revolving Credit
Note and/or Term Promissory Note and all interest accruing thereon, and
attorneys' fees incurred in the enforcement or collection thereof;
(iii) all present and future indebtedness, obligations and liabilities
of Borrower evidenced by or arising pursuant to any of the Loan Documents'
(iv) all costs incurred by Lender to obtain, preserve, perfect and
enforce the liens and security interests securing payment of such indebtedness,
liabilities and obligations, and to maintain, preserve and collect the property
in which Lender have been granted a Lien to secure
4
<PAGE> 10
payment of the Loans, or any part thereof, including but not limited to, taxes,
assessments, insurance premiums, repairs, reasonable attorneys' fees and legal
expenses, rent, storage charges, advertising costs, brokerage fees and expenses
of sale; and
(v) all renewals, extensions and modifications of the indebtedness
referred to in the foregoing clauses, or any part thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Permitted Liens" shall mean: (i) Liens (if any) granted to Lender to
secure the Obligation, (ii) Liens described on EXHIBIT H attached hereto, (iii)
pledges or deposits made to secure payment of worker's compensation insurance
(or to participate in any fund in connection with worker's compensation
insurance), unemployment insurance, pensions or social security programs, (iv)
Liens imposed by mandatory provisions of law such as for materialmen's,
mechanics', warehousemen's and other like Liens arising in the ordinary course
of business, securing Indebtedness whose payment is not yet due, (v) Liens for
taxes, assessments and governmental charges or levies imposed upon a Person or
upon such Person's income or profits or property, if the same are not yet due
and payable or if the same are being contested in good faith and as to which
adequate cash reserves have been provided, (vi) Liens arising from good faith
deposits in connection with tenders, leases, real estate bids or contracts
(other than contracts involving the borrowing of money), pledges or deposits to
secure public or statutory obligations and deposits to secure (or in lieu of)
surety, stay, appeal or customs bonds and deposits to secure the payment of
taxes, assessments, customs duties or other similar charges, or (vii)
encumbrances consisting of zoning restrictions, easements, or other restrictions
on the use of real property, provided that such items do not impair the use of
such property for the purposes intended, and none of which is violated by
existing or proposed structures or land use.
"Person" shall include an individual, a corporation (including without
limitation Borrower), a joint venture, a general or limited partnership, a
trust, an unincorporated organization or a government or any agency or political
subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and covered by Title IV of ERISA, or subject
to the minimum funding standards under Section 412 of the Code of 1954, as
amended
"Process Agent" shall mean John A. Bellamy whose address is 501 Fifth
Street, Bristol, Tennessee 37620.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System 12 C.F.R. Part 204, or any successor or other regulation
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 207, or any successor or other
regulation relating to reserve requirements applicable to member banks of the
Federal Reserve System.
"Regulation U" shall mean Regulation U promulgated by the Board
of Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any successor
or other regulation hereafter
5
<PAGE> 11
promulgated by said Board to replace the prior Regulation U and having
substantially the same function.
"Regulation X" shall mean Regulation X promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any successor
or other regulation hereafter promulgated by said Board to replace the prior
Regulation X and having substantially the same function.
"Reportable Event" shall have the meaning assigned to such term in
Title IV of ERISA.
"Revolving Credit Note" shall mean the note executed by Borrower and
delivered pursuant to the terms of this Agreement, together with any renewals,
extensions or modifications thereof.
"Solvent" means, with respect to any Person on a particular date, that
on such date (i) the fair value of the property of such Person is greater than
the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair salable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Term Loan" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrower as provided in SECTION 2.05 hereof.
"Term Promissory Note" shall mean that certain Term Promissory Note
dated of even date herewith by Borrower in favor of Lender in the original
principal amount of One Million Twenty Five Thousand Dollars ($1,025,000).
"Voting Shares" of any corporation shall mean shares of any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of Directors (or other governing
bodies) of such corporation, other than shares having such power only by reason
of the happening of a contingency.
SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Revolving Credit Note, Term Promissory Note or any
Loan Documents, certificate, report or other document made or delivered pursuant
to this Loan Agreement, unless the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
ant vice-versa.
6
<PAGE> 12
(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement
ARTICLE II
CREDIT FACILITIES
SECTION 2.01. Revolving Commitments. Subject to the terms and
conditions of this Agreement (and on reliance upon the representations and
warranties made hereunder), Lender agrees to lend to Borrower on a revolving
basis in one or more Advances from time to time during the Commitment Period an
aggregate principal amount not to exceed the Committed Sum. In the event that
the outstanding principal of Advances shall at any time exceed the limitations
herein, all such Advances shall nonetheless be secured by the Collateral and
shall be entitled to all the benefits of this Agreement. Within the limits of
this Section 2.01 and subject to the other terms and conditions of this
Agreement, during the Commitment Period Borrower may borrow, repay and reborrow
in accordance with the terms and conditions of this Agreement.
SECTION 2.02. Manner of Borrowing.
(a) Authorization to make Advances. Lender is authorized to make the
Advances based upon any Notice of Borrowing or, at the discretion of Lender, if
such Advances are necessary to satisfy any Obligation. All Notice of Borrowing
hereunder shall specify the date on which the requested Advance is to be made
(which day shall be a Business Day) and the amount of the requested Advances.
Any Notice of Borrowing received after 11:00 A.M. Kingsport, Tennessee time on
any day shall be deemed to have been made as of the opening of business on the
immediately following Business Day. All Advances under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
(b) Notice Irrevocable. Each Notice of Borrowing shall be irrevocable
and binding on Borrower, and Borrower shall indemnify Lender against any cost,
loss or expense incurred by Lender as a result of any failure to fulfill, on or
before the date specified for an Advance, the conditions to such Advance set
forth herein, including without limitation, any cost, loss or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by Lender to fund the Advance to be made by Lender.
(c) Funding. After receiving a Notice of Borrowing in the manner
provided herein, Lender shall, before 7:00 p.m. Kingsport, Tennessee time on
the date an Advance is requested as specified in a Notice of Borrowing, deposit
in the account(s) designated by Borrower, pursuant to the terms and conditions
of this Agreement, such Advance in immediately available funds.
SECTION 2.03. Fees. Borrower shall pay an unused credit fee for the
Commitment Period computed at a rate per annum (based on a year of 365 or 366
days, as the case may be) equal to (a) one quarter percent (.25%) on the average
daily unborrowed amount of Lender's Committed Sum in effect during the period
for which payment is made. Such commitment fees
7
<PAGE> 13
shall be payable quarterly in arrears on the last day of each March, June,
September and December during the Commitment Period, on the date of termination
of the Commitment of Lender hereunder, and on the Commitment Termination Date.
SECTION 2.04. Extension of Commitment Period. The Commitment Period
shall expire automatically unless Borrower makes a written request to Lender
not later than thirty (30) days prior to the expiration of the Commitment
Period and such request is approved in writing by Lender prior to the expiration
of the Commitment Period. The right of Lender not to extend the Commitment
Period shall be unconditional and within its sole discretion, notwithstanding
that no Event of Default exists under this Agreement and the Loan Documents and
regardless of the adequacy of the Collateral for Borrower's performance of its
obligations hereunder and thereunder.
SECTION 2.05. Term Loan. Lender is making a Term Loan to Borrower in
the original principal amount of One Million Twenty Five Thousand Dollars
($1,025,000). The Term Loan is (i) evidenced by a Term Promissory Note in such
original principal amount duly executed and delivered by Borrower to Lender
concurrently herewith; (ii) to be repaid, together with interest and other
amounts, in accordance with this Agreement, the Term Promissory Note, and the
other Collateral Documents and (iii) secured by a deed of trust on the
collateral subordinate only to the deed of trust securing the Advances made
pursuant to this Agreement. Notwithstanding anything herein to the contrary, the
Term Loan, together with all interest thereon, shall become immediately due and
payable from the proceeds of any public offering made by Borrower. ,
SECTION 2.06. Use of Proceeds. Subject to this Agreement and the Loan
Documents, the proceeds of each Advance and the Term Loan shall be used to
assist in the acquisition of the "Cortisporin" product line and for the general
corporate purposes of Borrower.
ARTICLE III
NOTES AND NOTE PAYMENTS
SECTION 3.01. Revolving Credit Note. The Advances made under SECTION
2.01 hereof by Lender shall be evidenced by a promissory note ("Revolving Credit
Note") executed by Borrower, which Revolving Credit Note shall (i) be dated the
date hereof, (ii) be in the amount of Lender's Committed Sum, (iii) be payable
to the order of Lender at its office in Kingsport, Tennessee, (iv) bear interest
in accordance with SECTION 3.02 hereof, and (v) be in the form of EXHIBIT A
attached hereto, and which is incorporated fully herein by this reference, with
blanks appropriately completed in conformity herewith. Notwithstanding the
principal amount of the Revolving Credit Note as stated on the face thereof, the
amount of principal actually owing on such Revolving Credit Note at any given
time shall be the aggregate of the principal amount of all Advances theretofore
made to Borrower hereunder, less all payments of principal theretofore actually
received hereunder by Lender.
SECTION 3.02. Interest Rates. Interest shall accrue on average daily
outstanding principal balance of Advances at a rate per annum equal to the sum
of ninety (90) days LIBOR plus one and three quarters percent (1.75%) for such
day. Interest shall be paid by Borrower monthly in arrears on the first day of
each month and shall be paid by Lender charging Borrower's Advance account. The
final payment of all accrued and unpaid interest shall be due and payable on the
date the outstanding principal amount of the Advances is paid or due and payable
in full. In the event of a Default, the Advances shall bear interest on the
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outstanding principal amount thereof, for each day from the date of the Default
until the Advances are paid, at a rate equal to the Maximum Rate.
SECTION 3.03. Calculation of Interest Rates. Interest for Advances
hereunder shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed (including the first day but excluding the
last day).
SECTION 3.04. Manner and Application of Payments. Absent a Default or
an Event of Default, the outstanding principal amount of the Advances (together
with accrued and unpaid interest and expenses and any other obligations that may
be due to the Lender under this Agreement or the Loan Documents) shall be due
and payable by Borrower to Lender on the earlier of (i) the Commitment
Termination Date; or (ii) the termination of this Agreement by Lender or
Borrower in accordance with terms of this Agreement. All payments by Borrower
shall be made to Lender at its address set forth herein in lawful money of the
United States of America and in immediately available funds. Whenever any
payment to be made hereunder shall be due on a day which is not a Business Day,
such payment shall be made on the first Business Day thereafter, and such
extension of time shall in such case be included in the computation of interest
hereunder. As payments become due and payable, Lender may and is hereby
authorized by Borrower, as set forth in SECTION 2.02 (a), to charge Borrower's
account in a manner to effect any such payments that are due.
SECTION 3.05. Term Promissory Note. The Term Loan made under SECTION
2.05 hereof by Lender shall be evidenced by a the Term Promissory Note
{substantially in form presented in EXHIBIT A2 attached hereto and incorporated
fully herein by this reference) executed by Borrower, which Term Promissory Note
shall (i) be dated the date hereof, (ii) be in the original principal amount of
One Million Twenty Five Thousand Dollars ($1,025,000) (iii) be payable to the
order of Lender at its office in Kingsport, Tennessee, and (iv) bear interest
equal per annum to the sum of ninety (90) days LIBOR plus one and three quarters
percent (1.75%).
CONDITIONS PRECEDENT
SECTION 4.01. Initial Advances. The obligation of Lender to make its
initial Advance and Term Loan hereunder is subject to the condition precedent
that, on or before the date of such Advance and Term Loan, Lender shall have
received from Borrower the following in form and substance satisfactory to
Lender:
(a) Revolving Credit Note. A duly executed Revolving Credit Note,
payable to the order of Lender, in the form of EXHIBIT A attached hereto and
incorporated herein fully by this reference with appropriate insertions.
(b) Term Promissory Note. A duly executed Term Promissory Note payable
to the order of Lender, in the form of EXHIBIT A2 with appropriate insertions.
(c) Opinion of Borrower's Counsel. A favorable opinion of corporate
counsel for Borrower.
(d) Officers Certificate. A certificate signed by a duly authorized
officer of Borrower, stating that (to the best knowledge and belief of such
officer, after reasonable and due
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investigation and review of matters pertinent to the subject matter of such
certificate): (i) all of the representations and warranties contained in ARTICLE
VI hereof and the Loan Documents are true and correct as of the date of the
Advance and Term Loan; and (ii) no event has occurred and is continuing, or
would result from the Advance and Term Loan, which constitutes a Default or an
Event of Default.
(e) Resolutions of Borrower. Resolutions of Borrower approving the
execution, delivery and performance of this Agreement, the Revolving Credit
Note, the Term Promissory Note, the Loan Documents and the transactions
contemplated herein and therein, duly adopted by Borrower's Board of Directors
and accompanied by a certificate of the Secretary or Assistant Secretary of
Borrower stating that such resolutions are true and correct, have not been
altered or repealed and are in full force and effect.
(f) Incumbency Certificate of Borrower. A signed certificate of the
Secretary or Assistant Secretary of Borrower which shall certify the names of
the officers of Borrower authorized to sign each of the Loan Documents to be
executed by such Person and the other documents or certificates to be delivered
by such Person pursuant to the Loan Documents. Lender may conclusively rely on
the certificate of Borrower until Lender shall receive a further certificate of
the Secretary or Assistant Secretary of Borrower canceling or amending the prior
certificate, provided such certificate does not retroactively void the prior
certificate.
(g) Certificates. Certificates of good standing (or other similar
instruments) for Borrower by the Secretary of State of the state of
incorporation of Borrower, and certificates of qualification and good standing
(or other similar instruments) for Borrower issued by the Secretary of State of
each of the states wherein Borrower is qualified to do business as a foreign
corporation, each dated no more than thirty (30) days prior to the execution of
this Agreement.
(h) Charter and Bylaws. A copy of the charter/articles of incorporation
of Borrower, and all amendments thereto, certified by the Secretary or Assistant
Secretary of Borrower, and dated as of the date of the execution of this
Agreement and a copy of the bylaws of Borrower and, and all amendments thereto,
certified by the Secretary or Assistant Secretary of Borrower, as being true,
correct and complete as of the date of such certification.
(i) Operating Budget. Projections of the cash flow and the operating
budget for Borrower for the fiscal year ending December 31, 1997.
(j) Financial Information. Copies of the financial statements referred
to in SECTION 7.01.
(k) Collateral Documents. Each of the Collateral Documents duly
executed by the parties thereto. Each document (including, without limitation,
any UCC financing statement, fixture filing and deed of trust) required by the
Collateral Documents or under law or requested by Lender to be filed, registered
or recorded in order to create, in favor of Lender for the benefit of Lender, a
perfected first Lien on the collateral described therein shall have been
properly filed, registered or recorded in each jurisdiction in which the filing
registration or recordation thereof is so required or requested, and Lender
shall have received an acknowledgement copy, or other evidence satisfactory to
it, of each such filing, registration or recordation and satisfactory evidence
of the payment of any necessary fee, tax or expense relating thereto.
(1) Litigation. A certificate signed by a duly authorized officer of
Borrower stating that no litigation, investigation or proceeding before or by an
abitrator or Governmental Authority
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is continuing or threatened against Borrower or any of its officers, directors
or affiliates (i) with respect to this Agreement, the Revolving Credit Note, the
Term Promissory Note, the Collateral Documents, any other Loan Documents or any
of the transactions contemplated hereby or thereby, or (ii) which could have a
Material Adverse Effect. Lender shall also receive either a summary and analysis
of all litigation in which Borrower or any of its officers, directors or
affiliates is involved or an opinion of counsel, in form and substance
acceptable to Lender, to the effect that no litigation in which Borrower or any
of its officers, directors or affiliates is involved would, in the event of an
adverse determination, have a Material Adverse Effect.
(m) Insurance. Evidence satisfactory to Lender that Borrower has
obtained and have in full force the insurance policies required by this
Agreement or the Collateral Documents.
(n) Additional Information. Such other information and documents as may
reasonably be required by Lender and Lender's legal counsel.
SECTION 4.02. Advances and Term Loan. The obligation of Lender to make
any Advance or Term Loan under this Agreement (including the initial Advance)
shall be subject to the following conditions precedent:
(a) No Defaults. As of the date of the making of such Advance or Term
Loan there exists no Default or Event of Default.
(b) Compliance with Agreement. Borrower shall have performed and
complied with all agreements and conditions contained herein and in each of the
Loan Documents which are required to be performed or complied with by Borrower
before or on the date of such Advance or Term Loan.
(c) No Material Adverse Change. As of the date of making such Advance
or Term Loan, no change that would cause a Material Adverse Effect has occurred
since the date of the financial statements referenced in SECTION 6.06.
(d) Representations and Warranties. The representations and warranties
contained in ARTICLE VI hereof and in each of the Loan Documents shall be true
in all respects on the date of making of such Advance or Term Loan, with the
same force and effect as though made on and as of that date.
(e) Financial Statements. The most recent financial statements of
Borrower delivered to Lender pursuant to SECTION 7.01 are true and correct,
fairly represent the financial condition of Borrower and have been prepared in
accordance with Generally Accepted Accounting Principles applied on a basis
consistent with that of prior periods; as of the date of such Advance and Term
Loan, there are no obligations, liabilities or Indebtedness (including
contingent and indirect liabilities and obligations or unusual forward or
long-term commitments) of Borrower which are (separately or in the aggregate)
material and are not reflected in such financial statements.
(f) Bankruptcy Proceedings. No proceeding or case under the United
States Bankruptcy Code shall have been commenced by or against Borrower.
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ARTICLE V
SECURITY INTERESTS
SECTION 5.01 Grant of Security Interests. To secure the due and
punctual payment of all Obligations, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or hereafter existing or
due or to become due, in accordance with the terms hereof and to secure the due
and punctual performance of all of the obligations of Borrower contained in the
other Loan Documents and in any other documents or instruments to which Borrower
and Lender are parties and in order to induce Lender to enter into this
Agreement and to make Advances and Term Loan Borrower does hereby mortgage,
pledge and assign to Lender (all of which are herein collectively called the
"Collateral"):
(a) All of the land in the county of Sullivan, State of Tennessee,
described more particularly in the attached EXHIBIT B, which is by this
reference fully incorporated herein (referred to hereinafter sometimes as the
"Property"), to have and to hold the same, together with all the improvements
now or hereafter erected on such Property and all fixtures now or hereafter
attached thereto, together with each and every tenements, hereditaments,
easements, rights, powers, privileges, immunities and appurtenances thereunto
belonging or in anywise appertaining and the reversion and reversions, remainder
and remainders, and also all the estate, right, title, interest, homestead,
property, possession and claim whatsoever in law as well as in equity of
Borrower of, in and to the same in every part and parcel thereof unto Lender in
fee simple.
(b) Together with a security interest in all fixtures affixed to or
located on the Property.
(c) Together with all rents, issues, profits, revenue, income and other
benefits from the Property to be applied to the Obligation secured by the Loan
Documents provided however, that permission is hereby given to Borrower so long
as no default has occurred hereunder, to collect, receive, and use such benefits
from the Property as they become due and payable, but not in advance thereof.
Provided always, that if Borrower shall pay to Lender the Obligations
at the times and in the manner stipulated by this Agreement, the Revolving
Credit Note, the Term Promissory Note and in all other instruments securing the
Obligation, including renewals, extension or modification thereof, and in this
Agreement and in all other instruments securing the Obligations, to be kept,
performed or observed by Borrower, then the herein described security interest
in the Collateral, shall cease and be void, but shall otherwise remain in full
force and effect.
SECTION 5.02 Filings. To further evidence the security interests of
Lender in the Collateral, Borrower shall executed and deliver to Lender, in a
form satisfactory to Lender, a deed of trust(s), and any other documents or
instruments reasonably deemed necessary or advisable (including any
modifications or extensions thereof), at any time by Lender.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce Lender to make Advances and the Term Loan hereunder, Borrower
represents and warrants to Lender that:
SECTION 6.01. Organization and Good Standing. Borrower is a corporation
duly organized and existing in good standing under the laws of the state of its
incorporation, is duly qualified as a foreign corporation and in good standing
in all states in which it is doing business and has the corporate power and
authority to own its properties and assets and to transact the business in which
it is engaged and is or will be qualified in those states wherein it proposes to
transact business in the future.
SECTION 6.02. Authorization and Power. Borrower has the corporate power
and requisite authority to execute, deliver and perform the Loan Documents to be
executed by it. Borrower is duly authorized to, and has taken all corporate
action necessary to authorize it to, execute, deliver and perform the Loan
Documents executed by it. Borrower is and will continue to be duly authorized to
perform the Loan Documents executed by it.
SECTION 6.03. No Conflicts or Consents. Neither the execution and
delivery of the Loan Documents, nor the consummation of any of the transactions
therein contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any provision of law, statute or
regulation to which Borrower is subject or any judgment, license, order or
permit applicable to Borrower, or any indenture, loan agreement, mortgage, deed
of trust, or other agreement or instrument to which Borrower is a party or by
which Borrower may be bound, or to which Borrower may be subject, or violate any
provision of the charter or bylaws of Borrower. No consent, approval,
authorization or order of any court or governmental authority or third party is
required in connection with the execution and delivery by Borrower of the Loan
Documents or to consummate the transactions contemplated hereby or thereby.
SECTION 6.04. Enforceable Obligations. The Loan Documents have been
duly executed and delivered by Borrower and are the legal and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as limited by Debtor Laws.
SECTION 6.05. No Liens. Except for Permitted Liens, the Collateral is
free and clear of all Liens and other adverse claims of any nature, and Borrower
has good and marketable title to the Collateral.
SECTION 6.06. Financial Condition. Borrower has delivered to Lender
copies of the consolidated and consolidating balance sheet of Borrower as of
December 31, 1996, and the related consolidated and consolidating statements of
income, stockholders' equity and changes in financial position for the year
ended such date, certified by independent certified public accountants; such
financial statements are true and correct, fairly represent the financial
condition of Borrower as of such date and have been prepared in accordance with
Generally Accepted Accounting Principles applied on a basis consistent with that
of prior periods; as of the date hereof, there are no obligations, liabilities
or Indebtedness (including contingent and indirect liabilities and obligations)
of Borrower which are (separately or in the aggregate) material and are not
reflected in such financial statements; no changes having a Material Adverse
Effect have occurred since the date of such financial statements.
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SECTION 6.07. Full Disclosure. There is no material fact that Borrower
has not disclosed to Lender which could have a Material Adverse Effect on the
properties, business, prospects or condition (financial or otherwise) of
Borrower. Neither the financial statements referenced in SECTION 6.06 hereof,
nor any certificate or statement delivered herewith or heretofore by Borrower
to Lender in connection with negotiations of this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary to
keep the statements contained herein or therein from being misleading.
SECTION 6.08. No Default. No event has occurred and is continuing which
constitutes a Default or an Event of Default.
SECTION 6.09. Material Agreements. Borrower is not in default in any
material respect under any contract, lease, loan agreement, indenture, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound.
SECTION 6.10. No Litigation. Except as disclosed on EXHIBIT C, there
are no actions, suits or legal, equitable, arbitration or administrative
proceedings pending, or to the knowledge of Borrower threatened, against
Borrower that could, if adversely determined, have a Material Adverse Effect.
There has been no change since the date of this Agreement in the status of any
of the actions, suits, investigations, litigation or proceedings referred to in
the litigation disclosed to Lender pursuant to EXHIBIT C that is materially
adverse to Borrower or to any transactions contemplated by any Loan Document.
SECTION 6.11. Burdensome Contracts. Borrower is not a party to, or
bound by, any contract which is a burdensome contract having a Material Adverse
Effect.
SECTION 6.12. Regulatory Defects. As of the date hereof, Borrower has
advised Lender, in writing, of all regulatory defects which could cause a
Material Adverse Effect of which Borrower has been advised or has actual
knowledge.
SECTION 6.13. Use of Proceeds; Margin Stock. The proceeds of the
Advances and the Term Loan hereunder will be used by Borrower solely for the
purposes herein specified. None of such proceeds will be used for the purpose
of purchasing or carrying any "margin stock" as defined in Regulation U,
Regulation X, or Regulation G or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry a "margin stock"
or for any other purpose which might constitute this transaction a "purpose
credit" within the meaning of such Regulation U, Regulation X, or Regulation G.
Borrower is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stocks. Neither Borrower nor any Person acting on
behalf of Borrower has taken or will take any action which might cause the
Advances, Term Loan, or any of the other Loan Documents, including this
Agreement, to violate Regulation U, Regulation X, or Regulation G or any other
regulations of the Board of Governors of the Federal Reserve System or to
violate Section 8 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. Borrower owns no "margin stock."
SECTION 6.14. No Financing of Corporate Takeovers. No proceeds of the
Advances and Term Loan hereunder will be used to acquire any security in any
transaction which is subject to Sections 13 or 14 of the Securities Exchange Act
of 1934, including particularly (but without limitation) Sections 13(d) and 14
(d)thereof.
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SECTION 6.15. Taxes. All tax returns required to be filed by Borrower
in any jurisdiction have been filed and all taxes (including mortgage recording
taxes), assessments, fees and other governmental charges upon Borrower or upon
any of its properties, income or franchises have been paid prior to the time
that such taxes could give rise to a lien thereon. There is no proposed tax
assessment against Borrower and there is no basis for such assessment.
SECTION 6.16. Principal Office, Etc. The principal office, chief
executive office and principal place of business of Borrower is at 501 Fifth
Street, Bristol, Tennessee. Borrower maintains its principal records and books
at such address
SECTION 6.17. ERISA. (a) No Reportable Event has occurred and is
continuing with respect to any Plan; (b) PBGC has not instituted proceedings
to terminate any Plan; (c) neither the Borrower, any member of the Controlled
Group, nor any duly-appointed administrator of a Plan (i) has incurred any
liability to PBGC with respect to any Plan other than for premiums not yet due
or payable, or (ii) has instituted or intends to institute proceedings to
terminate any Plan under Sections 4041 or 4041A of ERISA or withdraw from any
Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA); (d) each Plan of Borrower has been maintained and funded in all
material respects in accordance with its terms and with all provisions of ERISA
and the Code applicable thereto; (e) Borrower and all members of any Controlled
Group have complied with all applicable minimum funding requirements of ERISA
and the Code with respect to each Plan; (f) no member of any Controlled Group
has been required to contribute to a Multi-Employer Pension Plan since
September 2, 1974 except as set forth on EXHIBIT D; (g) there are no unfunded
benefit liabilities (as defined in Section 4001(a)(18) of ERISA) with respect
to any Plan of Borrower or any member of the Controlled Group which pose a risk
of causing a lien to be created in in the of of Borrower, and (h) no material
prohibited transaction under the Code or ERISA has occurred with respect to any
Plan of Borrower or a member of the Controlled Group.
SECTION 6.18. Compliance with Law. Borrower is in compliance with all
laws, rules, regulations, orders and decrees which are applicable to Borrower
or its properties.
SECTION 6.19. Government Regulation. Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as
any of the preceding acts have been amended), or any other law (other than
Regulation X) which regulates the incurring by Borrower of Indebtedness,
including but not limited to laws relating to common contract carriers or the
sale of electricity, gas, steam, water, or other public utility services.
SECTION 6.20. Insider. Borrower is not, and no Person having "control"
(as that term is defined in 12 U.S.C. Section 375(b)(5) or in regulations
promulgated pursuant thereto) of Borrower is, an "executive officer",
"director", or "principal shareholder" (as those terms are defined in 12
U.S.C. Section 375(b) or in regulations promulgated pursuant thereto) of
Lender, of a bank holding company of which Lender may be a subsidiary, or of
any subsidiary of a bank holding company of which Lender may be a subsidiary,
or of any bank at which Lender maintains a "correspondent account" (as such
term is defined in such statute or regulations), or of any bank which maintains
a correspondent account with Lender.
SECTION 6.21. Subsidiaries. Set forth on EXHIBIT E hereto is a complete
and accurate list of all subsidiaries as of the date hereof, showing as of such
date (as to each such
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subsidiary) the jurisdiction of its incorporation. All of the outstanding
capital stock of all subsidiaries has been validly issued, is fully paid and
non-assessable and is owned by Borrower free and clear of all Liens other than
the security interests under the Collateral Documents.
SECTION 6.22. Fair Labor Standards Act. Borrower has complied with, and
will continue to comply with, the provisions of the Fair Labor Standards Act of
1938, 29 U.S.C. Section 200, et seq., as amended from time to time (the
"FSLA"), including specifically, but without limitation 29 U.S.C. Section
215(a). This representation and warranty, and each re-confirmation hereof,
shall constitute written assurance from Borrower, given as of the date hereof
and as of the date of each re-confirmation that Borrower has complied with the
requirements of the FSLA, in general, and SECTION 15(a)(1), 29 U.S.C. Section
15(a)(1), thereof, in particular.
SECTION 6.23. Casualties. Neither the business nor the properties of
Borrower are affected by any environmental hazard, fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or other casualty (whether or not covered by insurance),
which could have a Material Adverse Effect.
SECTION 6.24. Investment Company Act. Borrower is not an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, and is not controlled by such a company.
SECTION 6.25. Sufficiency of Capital. Borrower is, and after
consummation of this Agreement and after giving effect to all Indebtedness
incurred and Liens created by Borrower in connection herewith will be, Solvent.
SECTION 6.26. Hazardous Substances. Except as disclosed on EXHIBIT F the
land described in the Loan Documents, including, but not limited to, the deed of
trust, is free from "hazardous substances" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq., as amended, and the regulations promulgated pursuant
thereto, and no portion of such land is subject to federal, state or local
regulation or liability because of the presence of stored, leaked or spilled
petroleum products, waste materials or debris, "PCB's" or PCB items (as
defined in 40 C.F.R. Section 761.3), underground storage tanks, "asbestos" (as
defined in 40 C.F.R. Section 763.63) or the past or present accumulation,
spillage or leakage of any such substance.
SECTION 6.27. Collateral Documents; Description of Assets. The
Collateral Documents contain a description of all of the assets and properties
Borrower, sufficient to grant to Lender perfected Liens therein pursuant to
applicable law. Upon the filing by Lender of the required documents and
instruments, including, but not limited to, deeds of trust and fixture filings.
Lender will have a perfected first priority Lien in the Collateral and the
properties and assets described in the Collateral Documents. Lender has
obtained an independent survey of the Collateral described in EXHIBIT B hereof
and is relying in part, on such survey.
SECTION 6.28 Corporate Name. Borrower has not, during the preceding
five (5) years, been known as or used any other corporate, fictitious or
tradenames except as disclosed on EXHIBIT G. Except as set forth on EXHIBIT G,
Borrower has not, during the preceding five (5) years, been the surviving
corporation of a merger or consolidation or acquired all or substantially all
of the assets of any Person.
SECTION 6.29. Representations and Warranties. Each Notice of Borrowing
shall constitute, without the necessity of specifically containing a written
statement, a representation
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and warranty by Borrower that no Default or Event of Default exists and that
all representations and warranties contained in this ARTICLE VI or in any other
Loan Document are true and correct on and as of the date the requested Advance
is to be made.
SECTION 6.30. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties by Borrower herein shall survive delivery of the
Revolving Credit Note and the Term Promissory Note, and the making of the
Advance and Term Loan, respectively, and any investigation at any time made by
or on behalf of Lender shall not diminish Lender's right to rely thereon.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Advances and the Term Loan
hereunder, and until payment in full of the Revolving Credit Note, Term
Promissory Note, and the performance of the Obligation, Borrower agrees that:
SECTION 7.01. FINANCIAL STATEMENTS, Reports and Documents. Borrower
shall deliver to Lender each of the following:
(a) QUARTERLY STATEMENTS. As soon as available, and in any event within
forty-five (45) days after the end of each quarterly fiscal period (except the
last) of each fiscal year of Borrower, copies of the quarterly Form 10-Q
Statements (if applicable), any and all filings with the SEC (if applicable),
copies of the consolidated and consolidating balance sheet of Borrower as of
the end of such quarterly fiscal period, and statements of income and retained
earnings and changes in financial position of Borrower for that quarterly
fiscal period and for the portion of the fiscal year ending with such period,
in each case setting forth in comparative form the figures of the corresponding
period of the preceding fiscal year, all in reasonable detail, and certified by
the chief financial officer of Borrower as being true and correct and as having
been prepared in accordance with Generally Accepted Accounting Principals,
subject to year-end audit adjustments;
(b) ANNUAL STATEMENTS. As soon as available and in any event within
one hundred twenty days (120) days after the close of each fiscal year of
Borrower, copies of the consolidated and consolidating balance sheet of
Borrower as of the close of such fiscal year and statements of income and
retained earnings and changes in financial position of Borrower for such fiscal
year, in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied by an opinion
thereon (which shall not be qualified by reason of any limitation imposed by
Borrower) of Coopers & Lybrand, LLP or of other independent public
accountants of recognized national standing selected by Borrower and
satisfactory to Lender, to the effect that such consolidated financial
statements have been prepared in accordance with Generally Accepted Accounting
Principles consistently maintained and applied (except for changes in which
such accountants concur) and that the examination of such accounts in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, includes such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each
written report submitted to Borrower by independent accountants any annual,
quarterly or special audit
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made, it being understood and agreed that all audit reports which are furnished
to Lender pursuant to this ARTICLE VII shall be treated as confidential, but
nothing herein contained shall limit or impair Lender's right to disclose such
reports to any appropriate Governmental Authority, or to use such information
to the extent pertinent to an evaluation of the Obligation, or to enforce
compliance with the terms and conditions of this Agreement, or to take any
lawful action which Lender deems necessary to protect its interests under this
Agreement;
(d) OTHER REPORTS. Promptly upon its becoming available, one copy of
each financial statement and any order issued by any Governmental Authority in
any proceeding to which Borrower is a party;
(e) COMPLIANCE CERTIFICATE. Within thirty (30) days after the end of
each fiscal quarter of Borrower hereafter, a certificate executed by the chief
financial officer or chief executive officer of Borrower, stating that a review
of the activities of Borrower during such fiscal quarter has been made under his
supervision and that Borrower has observed, performed and fulfilled each and
every obligation and covenant contained herein and is not in default under any
of the same or, if any such default shall have occurred, specifying the nature
and status thereof;
(f) ACCOUNTANTS CERTIFICATES. Within the period provided in paragraph
(b) above, a certificate of the accountants who render an opinion with respect
to such financial statements, stating that they have reviewed this Agreement and
stating further whether, in making their audit, such accountants have become
aware of any condition or event which would constitute a Default or an Event of
Default under any of the terms or provisions of this Agreement (insofar as any
such terms or provisions pertain to accounting matters) and, if any such
condition or event then exists, specifying the nature and period of existence
thereof; and
(g) OTHER INFORMATION. Such other information concerning the business,
properties or financial condition of Borrower as Lender shall reasonably, from
time to time request.
SECTION 7.02. PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Borrower shall
pay and discharge (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any property belonging
to it, before delinquent, (ii) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, might give rise to a Lien upon any
of its property, and (iii) all of its other Indebtedness, except as prohibited
hereunder; provided, however, that Borrower shall not be required to pay any
such tax, assessment, charge or levy if and so long as the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings and appropriate accruals and cash reserves therefor
have been established in accordance with Generally Accepted Accounting
Principles.
SECTION 7.03. MAINTENANCE OF EXISTENCE AND RIGHTS. Conduct of Business.
Borrower shall preserve and maintain its corporate existence and all of its
rights, privileges and franchises necessary or desirable in the normal conduct
of its business, and conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all valid
regulations and orders of any Governmental Authority.
SECTION 7.04. NOTICE OF DEFAULT. Borrower shall furnish to Lender
immediately upon becoming aware of the existence of any condition or event
which constitutes a Default or would become a Default or an Event of Default,
written notice specifying the nature and period of existence thereof and the
action which Borrower is taking or proposes to take with respect thereto.
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SECTION 7.05. OTHER NOTICES. Borrower shall promptly notify Lender of
(i) any material adverse change in its financial condition or its business,
(ii) any default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any Indebtedness owing by Borrower, (iii) any
material adverse claim against or affecting Borrower or any of its properties,
and (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any Governmental
Authority which could have a Material Adverse Effect or result in an Event of
Default.
SECTION 7.06. COMPLIANCE WITH LOAN DOCUMENTS. Borrower shall promptly
comply with any and all covenants and provisions of the Loan Documents executed
by it.
SECTION 7.07. COMPLIANCE WITH MATERIAL AGREEMENTS. Borrower shall
comply in all material respects with all material agreements, indentures,
mortgages or documents binding on it or affecting its properties or business.
SECTION 7.08. OPERATIONS AND PROPERTIES. Borrower shall act prudently
and in accordance with customary industry standards in managing or operating
its assets, properties, business and investments. Borrower shall keep in good
working order and condition, ordinary wear and tear excepted, all of its assets
and properties which are necessary to the conduct of its business.
SECTION 7.09. BOOKS AND RECORDS; ACCESS. Borrower shall give any
representative of Lender access during all business hours to, and permit such
representative to examine, copy or make excerpts from, any and all books,
records and documents in the possession of Borrower and relating to its
affairs, and to inspect any of the properties of Borrower. Borrower shall
maintain complete and accurate books and records of its transactions in
accordance with good accounting practices.
SECTION 7.10. COMPLIANCE WITH LAW. Borrower shall comply with all
applicable laws, rules, regulations, and all orders of any Governmental
Authority applicable to it or any of its property, business operations or
transactions, a breach of which could have a Material Adverse Effect.
SECTION 7.11. INSURANCE. Borrower shall maintain worker's compensation
insurance, liability insurance and insurance on its properties, assets and
business, now owned or hereafter acquired, against such casualties, risks and
contingencies, and in such types and amounts, as are consistent with customary
practices and standards of companies engaged in similar businesses.
SECTION 7.12. AUTHORIZATIONS AND APPROVALS. Borrower shall promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Loan Documents.
SECTION 7.13. ERISA COMPLIANCE. Borrower shall (i) at all times, make
prompt payment of all contributions required under all Plans and required to
meet the minimum funding standard set forth in ERISA with respect to its Plans,
(ii) within thirty (30) days after the filing thereof, furnish to Lender copies
for each Lender of each annual report/return (Form 5500 Series), as well as all
schedules and attachments required to be filed with the Department
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of Labor and/or the Internal Revenue Service pursuant to ERISA, and the
regulation promulgated thereunder, in connection with each of its Plans for each
Plan year, (iii) notify Lender immediately of any fact, including, but not
limited to, any Reportable Event arising in connection with any of its Plans,
which might constitute grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer such Plan, together with a statement, if requested by Lender, as to
the reason therefor and the action, if any, proposed to be taken with respect
thereto, and (iv) furnish to Lender, upon its request, such additional
information concerning any of its Plans as may be reasonably requested.
SECTION 7.14. FURTHER ASSURANCES. Borrower shall, make, execute or
endorse, and acknowledge and deliver or file or cause the same to be done, all
such vouchers, invoices, notices, certifications and additional agreements,
undertakings, conveyances, deeds of trust, mortgages, transfers, assignments,
financing statements or other assurances, and take any and all such other
action, as Lender may, from time to time, deem reasonably necessary or proper
in connection with any of the Loan Documents, the obligations of Borrower
thereunder, or for better assuring and confirming unto Lender all or any part
of the security for any of such obligations, or for granting to Lender any
security for the Obligation which Lender may request from time to time.
SECTION 7.15. MINIMUM NET WORTH. Borrower shall, as of August 21, 1997
and each date, determined quarterly, thereafter, maintain a minimum Net Worth
of Twenty Five Million Dollars ($25,000,000) plus fifty percent (50%) of
Borrower's coinciding fiscal year earnings.
SECTION 7.16. INDEMNITY BY BORROWER. Borrower shall indemnify, save,
and hold harmless Lender and its directors, officers, agents, attorneys, and
employees (collectively, the "Indemnities" from and against: (i) any and
all claims, demands, actions, or causes of action that are asserted against any
Indemnitee by any Person if the claim, demand, action, or cause of action
directly or indirectly relates to a claim, demand, action, or cause of action
that the Person asserts or may assert against Borrower, any Affiliate of
Borrower or any officer, director or shareholder of Borrower, (ii) any and all
claims, demands, actions or causes of action that are asserted against any
Indemnitee if the claim, demand, action or cause of action directly or
indirectly relates to the Commitments, the use of proceeds of the Advances, or
the relationship of Borrower and Lender under this Agreement or any transaction
contemplated pursuant to this Agreement, (iii) any administrative or
investigative proceeding by any Governmental Authority directly or indirectly
related to a claim, demand, action or cause of action described in clauses (i)
or (ii) above, and (iv) any and all liabilities, losses, costs, or expenses
(including attorneys' fees and disbursements) that any Indemnitee suffers or
incurs as a result of any of the foregoing; provided, however, that Borrower
shall have no obligation under this Section to Lender with respect to any of
the foregoing arising out of the gross negligence or willful misconduct of
Lender or the breach by Lender of this Agreement or from the transfer or
disposition of any the Revolving Credit Note by Lender. If any claim, demand,
action or cause of action is asserted against any Indemnitee, such Indemnitee
shall promptly notify Borrower, but the failure to so promptly notify Borrower
shall not affect Borrower's obligations under this Section unless such failure
materially prejudices Borrower's right to participate in the contest of such
claim, demand, action or cause of action, as hereinafter provided. If requested
by Borrower in writing and so long as no Default or Event of Default shall have
occurred and be continuing, such Indemnitee shall in good faith contest the
validity, applicability and amount of such claim, demand, action or cause of
action and shall permit Borrower to participate in such contest. Any Indemnitee
that proposes to settle or compromise any claim or proceeding for which
Borrower may be liable for payment of indemnity hereunder shall give Borrower
written
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notice of the terms of such proposed settlement or compromise reasonably in
advance of settling or compromising such claim or proceeding and shall obtain
Borrower's concurrence thereto which concurrence shall not be unreasonably
withheld. Each Indemnitee is authorized to employ counsel in enforcing its
rights hereunder and in defending against any claim, demand, action, or cause
of action covered by this Section; provided, however, that each Indemnitee
shall endeavor, but shall not be obligated, in connection with any matter
covered by this Section which also involves other Indemnitees, to use
reasonable efforts to avoid unnecessary duplication of effort by counsel for
all Indemnitees. Any obligation or liability of Borrower to any Indemnitee
under this Section shall survive the expiration or termination of this
Agreement and the repayment of the Obligation.
ARTICLE VIII
NEGATIVE COVENANT
So long as Lender has any commitment to make Advances and the Term Loan
hereunder, and until payment in full of the Revolving Credit Note and the
performance of the Obligation, Borrower agrees that:
SECTION 8.01. LIMITATION ON INDEBTEDNESS. Borrower shall not incur,
create, contract, waive, assume, have outstanding, guarantee or otherwise be or
become, directly or indirectly, liable in respect of any Indebtedness, if such
Indebtedness would cause an Event of Default or a Material Adverse Effect
except (i) Indebtedness arising out of this Agreement, (ii) Indebtedness
secured by the Permitted Liens, (iii) current liabilities for taxes and
assessments incurred in the ordinary course of business, (iv) Indebtedness in
respect of current accounts payable or accrued (other than for borrowed funds
or purchase money obligations) and incurred in the ordinary course of business,
provided that all such liabilities, accounts and claims shall be promptly paid
and discharged when due or in conformity with customary trade terms, and (v)
Indebtedness of Borrower as reflected in the audited consolidated financial
statement of Borrower as of December 31,1996.
SECTION 8.02. NEGATIVE PLEDGE. Borrower shall not create, incur, permit
or suffer to exist any Lien upon any of the Collateral, now owned or hereafter
acquired, except for Permitted Liens.
SECTION 8.03. RESTRICTIONS ON DIVIDENDS. Borrower shall not directly or
indirectly declare or make, or incur any liability to make, any Dividend, if
such Dividend would cause a Material Adverse Effect or Event of Default, or if
Borrower is in Default, without the prior written consent of Lender, which
consent may not be unreasonably withheld.
SECTION 8.04. LIMITATION ON INVESTMENTS. Borrower shall not make or
have outstanding any investments in any Person which would result in a Material
Adverse Effect or Event of Default.
SECTION 8.05. LIMITATION ON SALE OF PROPERTIES. Borrower shall not (i)
sell, assign, convey, exchange, lease or otherwise dispose of any of its
properties, rights, assets or business, whether now owned or hereafter acquired
if such sale, assignment, conveyance, exchange, lease or other disposition
would result in a Material Adverse Effect or Event of Default, or (ii) sell,
assign or discount any Accounts, if such sale, assignment or discount would
result in a Material Adverse Effect or Event of Default.
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SECTION 8.06. Name, fiscal year and Accounting Method. Borrower shall
not change its name, fiscal year or method of accounting except in accordance
with Generally Accepted Accounting Principles; provided, however, Borrower may
change its name if Borrower has given Lender sixty (60) days prior written
notice of such name change and taken such actions as Lender deems necessary to
continue the perfection of the Liens securing payment of the Obligation.
SECTION 8.07. CURRENT RATIO. Borrower shall not permit the ratio of
current assets to current liabilities, as of any date, to be less than one and
one quarter (1.25) (Calculation: Current assets divided by current liabilities)
SECTION 8.08. DEBT TO NET WORTH RATIO. Borrower shall not permit the
ratio of liabilities to Net Worth, as of any date, to be more than one and one
half (1.5) (Calculation: total liabilities divided by Net Worth).
SECTION 8.09. CASH FLOW COVERAGE. Borrower shall not, as of any date,
permit the cash flow coverage to be less than one and one quarter (1.25)
(Calculation: Earnings Before Interest, Taxes, Depreciation and Amortization
divided by current maturities of long term debt plus interest expense).
SECTION 8.10. LIQUIDATION, MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF
SUBSTANTIAL ASSETS. Borrower shall not dissolve or liquidate, or become a party
to any merger or consolidation, or acquire by purchase, lease or otherwise all
or substantially all of the assets or capital stock of any Person, or sell,
transfer, lease or otherwise dispose of all or any substantial part of its
property or assets or business without the prior written consent of Lender,
which consent may not be reasonably withheld.
SECTION 8.11. LINES OF BUSINESS. Borrower shall not directly or
indirectly, engage in any business other than those in which it is presently
engaged, or substantially alter its method of doing business.
SECTION 8.12. NO AMENDMENTS. Borrower shall not amend its certificate
of incorporation or bylaws.
SECTION 8.13. PURCHASE OF SUBSTANTIAL ASSETS. Borrower shall not
purchase, lease or otherwise acquire all or substantially all of the assets of
any other Person without the prior written consent of Lender, which consent may
be withheld in the sole and absolute discretion of Lender.
ARTICLE
EVENTS OF DEFAULT
SECTION 9.01. EVENTS OF DEFAULT. An "Event of Default" shall exist if
any one or more of the following events (herein collectively called "Events of
Default") shall occur and be continuing:
(a) Borrower shall fail to pay when due any principal of, or interest
on, the revolving Credit Note, Term Promissory Note or shall fail to pay when
due any fee, expense or other payment required hereunder.
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(b) any representation or warranty made under this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to Lender pursuant hereto or in connection herewith or with the Advances
hereunder, shall prove to be untrue or inaccurate in any material respect as of
the date on which such representation or warranty is made;
(c) default shall occur in the performance of any of the covenants or
agreements of Borrower hereunder or in any of the other Loan Documents;
(d) default shall occur in the payment of any material Indebtedness of
Borrower (other than the Obligation) or default shall occur in respect of any
note, loan agreement or credit agreement relating to any such Indebtedness and
such default shall continue for more than the period of grace, if any,
specified therein; or any such Indebtedness shall become due before its stated
maturity by acceleration of the maturity thereof or shall become due by its
terms and shall not be promptly paid or extended;
(e) any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the Borrower in accordance with the
respective terms thereof or shall in any way be terminated or become or be
declared ineffective or inoperative or shall in any way whatsoever cease to
give or provide the respective liens, security interests, rights, titles,
interests, remedies, powers or privileges intended to be created thereby;
(f) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of itself or of all or a
substantial part of its assets, (ii) file a voluntary petition in bankruptcy,
admit in writing that it is unable to pay its debts as they become due or
generally not pay its debts as they become become due, (iii) make a general
assignment for the benefit of creditors, (iv) file a petition or answer seeking
reorganization of an arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (v) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed
against it in any bankruptcy, reorganization or insolvency proceeding, or (vi)
take corporate action for the purpose of effecting any of the foregoing;
(g) an involuntary petition or complaint shall be filed against
Borrower seeking bankruptcy or reorganization of it or the appointment of a
receiver, custodian, trustee, intervenor or liquidator of it, or all or
substantially all of its assets, and such petition or complaint shall not have
been dismissed within thirty (30) days of the filing thereof; or an order,
order for relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving a petition or complaint
seeking reorganization of Borrower or appointing a receiver, custodian,
trustee, intervenor or liquidator of it, or of all or substantially all of its
assets;
(h) any final judgment(s) for the payment of money in excess of the sum
of Twenty Five Thousand Dollars ($25,000) in the aggregate shall be rendered
against Borrower and such judgment or judgments shall not be satisfied or
discharged at least ten (10) days prior to the date on which any of its assets
could be lawfully sold to satisfy such judgment;
(i) both the following events shall occur: (i) either (x) proceedings
shall have been instituted to terminate, or a notice of termination shall have
been filed with respect to, any Plan (other than a Multi-Employer Pension Plan
as that term is defined in Section 3(37) of ERISA) by Borrower, any member of
the Controlled Group, PBGC or any representative of any thereof, or any such
Plan shall be terminated, in each case under Section 4041 or 4042 of ERISA, or
(y) a Reportable Event, the occurrence of which would cause the imposition of a
lien under Section
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4068 of ERISA, shall have occurred with respect to any Plan (other than a
Multi-Employer Pension Plan as that term is defined in Section 3(37) of ERISA)
and be continuing for a period of sixty (60) days; and (ii) the sum of the
estimated liability to PBGC under Section 4062 of ERISA and the currently
payable obligations of Borrower to fund liabilities (in excess of amounts
required to be paid to satisfy the minimum funding standard of Section 412 of
the Code) under the Plan or Plans subject to such event shall exceed ten
percent (10%) of Net Worth at such time;
(j) any or all of the following events shall occur with respect to any
Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA)
to which Borrower contributes or contributed on behalf of its employees: (i)
Borrower incurs a withdrawal liability under Section 4201 of ERISA; or (ii) any
such plan is "in reorganization" as that term as that term is defined in
Section 4241 of ERISA; or (iii) any such Plan is terminated under Section 4041A
of ERISA and Lender determine in good faith that the aggregate liability likely
to be incurred by Borrower as a result of all or any of the events specified in
Subsections (i), (ii) and (iii) above occurring, shall have a Material Adverse
Effect; or
(k) there shall occur any change in the condition (financial or
otherwise) of Borrower which, in the reasonable opinion of Lender, has a
Material Adverse Effect
SECTION 9.02. REMEDIES UPON EVENT OF DEFAULT. If an Event of Default
shall have occurred and be continuing, then Lender may exercise any one or more
of the following rights and remedies, and any other remedies provided in any of
the Loan Documents, as Lender in its sole discretion, may deem necessary or
appropriate: (i) terminate Lender's commitment to lend hereunder, (ii) declare
the principal of, and all interest then accrued on, the Revolving Credit Note,
Term Promissory Note and any other liabilities hereunder to be forthwith due
and payable, whereupon the same shall forthwith become due and payable without
presentment, demand, protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind, all of which Borrower
hereby expressly waives, anything contained herein in the Revolving Credit
Note, or in the Term Promissory Note to the contrary notwithstanding, (iii)
reduce any claim to judgment, and/or (iv) without notice of default or demand,
pursue and enforce any of Lender's rights and remedies under the Loan
Documents, or otherwise provided under or pursuant to any applicable law or
agreement; provided, however, that if any Event of Default specified in SECTION
9.01 (f) and (g) shall occur, the principal of, and all interest on, the
Revolving Credit Note, Term Promissory Note and other liabilities hereunder
shall thereupon become due and payable concurrently therewith, and Lender's
obligations to lend shall immediately terminate hereunder, without any further
action by Lender and without presentment, demand, protest, notice of default,
notice of acceleration or of intention to accelerate or other notice of any
kind, all of which Borrower hereby expressly waives.
SECTION 9.03. PERFORMANCE BY LENDER. Should Borrower fail to perform
any covenant, duty or agreement contained herein or in any of the Loan
Documents, Lender may perform or attempt to perform such covenant, duty or
agreement on behalf of Borrower. In such event, Borrower shall, at the request
of Lender, promptly pay any amount expended by Lender in such performance or
attempted performance to Lender at its principal office in Kingsport, Tennessee
together with interest thereon at the highest lawful rate from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly
understood that Lender does not assume any liability or responsibility for the
performance of any duties of Borrower hereunder or under any of the Loan
Documents or other control over the management and affairs of Borrower.
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ARTICLE X
MISCELLANEOUS
SECTION 10.01. MODIFICATION. All modifications, consents, amendments or
waivers of any provision of any Loan Document, or consent to any departure by
Borrower therefrom, shall be effective only if the same shall be in writing and
concurred in by Lender and then shall be effective only in the specific
instance and for the purpose for which given.
SECTION 10.02. ACCOUNTING TERMS AND REPORTS. All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
Generally Accepted Accounting Principles consistently applied on the basis used
by Borrower in prior years. All financial reports furnished by Borrower to
Lender pursuant to this Agreement shall be prepared in such form and such
detail as shall be satisfactory to Lender, shall be prepared on the same basis
as those prepared by Borrower in prior years and shall be the same financial
reports as those furnished to Borrower's officers and directors.
SECTION 10.03. WAIVER. No failure to exercise, and no delay in
exercising, on the part of Lender, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The
rights of Lender hereunder and under the Loan Documents shall be in addition to
all other rights provided by law and/or equity. No modification or waiver of
any provision of this Agreement, the Revolving Credit Note, the Term Promissory
Note or any Loan Documents, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
SECTION 10.04. PAYMENT OF EXPENSES. Borrower agrees to pay all costs
and expenses of Lender (including, without limitation, the reasonable
attorneys' fees of Lender's legal counsel) incurred by Lender in connection
with the preservation and enforcement of and Lender's rights under this
Agreement, the Revolving Credit Note, Term Promissory Note and/or the other
Loan Documents, and all reasonable costs and expenses of Lender (including
without limitation the reasonable fees and expenses of Lenders' legal counsel)
in connection with the negotiation, preparation, execution and delivery of this
Agreement, the Revolving Credit Note, Term Promissory Note and the other Loan
Documents and any and all amendments, modifications and supplements thereof or
thereto.
SECTION 10.05. NOTICES. Except for telephonic notices permitted herein,
any notices or other communications required or permitted to be given by this
Agreement or any other documents and instruments referred to herein must be (i)
given in writing and personally delivered or mailed by prepaid certified or
registered mail, or (ii) made by facsimile delivered or transmitted, to the
party to whom such notice of communication is directed, to the address of such
party as follows:
(a) Borrower: King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: President
Facsimile No.: (423) 969-8055
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with copy to: King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attn: Legal Department
Facsimile No.: (423) 989-6282
(b) Lender: First American National Bank
4105 Ft. Henry Drive, Suite 300
Kingsport, Tennessee 37663
Attention: Jerry C. Greene, Senior Vice President
Facsimile No.: 423/229-0333
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is mailed or personally
delivered as aforesaid or, if transmitted by facsimile, on the day that such
notice is transmitted as aforesaid; provided, however, that any telephonic or
other notice received by Lender after 11:00 A.M. time on any day from Borrower
pursuant to SECTION 2.02 (with respect to a Notice of Borrowing) shall be
deemed for the purposes of such Section to have been given by Borrower on the
next succeeding Business Day. Any party may change its address for purposes of
this Agreement by giving notice of such change to the other parties pursuant to
this SECTION 10.05.
SECTION 10.06. Governing Law. This Agreement has been prepared, is
being executed and delivered, and is intended to be performed in the State of
Tennessee and the substantive laws of such state (without reference to any
conflict of laws provisions) and the applicable federal laws of the United
States of America shall govern the validity, construction, enforcement and
interpretation of this Agreement and all of the other Loan Documents.
SECTION 10.07. Waiver of Jury Trial; Choice of Forum; Consent to
Service of Process and Jurisdiction. Borrower hereby irrevocably and
unconditionally waives all right to trial by jury in any action, proceeding, or
counterclaim arising out of or related to this Agreement, the Advances or any
other document or instrument to which Borrower and Lender are parties or any of
the transactions contemplated hereby or thereby. Any suit, action or proceeding
against Borrower with respect to this Agreement, the Revolving Credit Note or
any judgment entered by any court in respect thereof, may be brought in the
courts of the State of Tennessee, County of Sullivan, or in the United States
District Court for the Eastern District of Tennessee, in Greeneville, Tennessee
and Borrower hereby submits to the non-exclusive jurisdiction of such courts
for the purpose of any such suit, action or proceeding. Borrower hereby agrees
that service of all writs, process and summonses in any such suit, action or
proceeding brought in the State of Tennessee may be brought upon the Process
Agent, and Borrower hereby irrevocably appoints the Process Agent, as its true
and lawful attorney-in-fact in the name, place and stead of Borrower to accept
such service of any and all such writs, process and summonses, and agrees that
the failure of Process Agent to give any notice of such service of process to
it shall not impair or affect the validity of such service or of any judgment
based thereon. Borrower hereby irrevocably consents to the service of process
in any suit, action or proceeding in said court by the mailing thereof by
Lender registered or certified mail, postage prepaid, to Borrower's address set
forth in SECTION 10.06 hereof. Borrower hereby irrevocably
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waives any objections which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Agreement
or any Revolving Credit Note brought in the said courts, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought
in any such court has been brought in any inconvenient forum.
SECTION 10.08. Invalid Provisions. If any provision of any Loan Document
is held to be illegal, invalid unenforceable under present or future laws
during the term of this Agreement, such provision shall be fully severable;
such Loan Document shall be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part of such Loan Document;
and the remaining provisions of such Loan Document shall remain in full force
and effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from such Loan Document. Furthermore, in lieu of
each such illegal, invalid or unenforceable provision shall be added as part of
such Loan Document a provision mutually agreeable to Borrower and Lender as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable. In the event Borrower and Lender
are unable to agree upon a provision to be added to the Loan Document within a
period of ten (10) Business Days after a provision of the Loan Document is held
to be illegal invalid or unenforceable, then a provision acceptable to Lender
as similar in terms to the illegal, invalid or unenforceable provision as is
possible and be legal, valid and enforceable shall be added automatically to
such Loan Document. In either case, the effective date of the added provision
shall be the date upon which the prior provision was held to be illegal,
invalid or unenforceable.
SECTION 10.09. Maximum Interest Rate. Regardless of any provision
contained in any of the Loan Documents, Lender shall never be entitled to
receive, collect or apply as interest on the Revolving Credit Note and/or Term
Promissory Note any amount in excess of interest calculated at the Maximum
Rate, and, in the event that Lender ever receives, collects or applies as
interest any such excess, the amount which would be excessive interest shall be
deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Obligation is paid in full, any remaining
excess shall forthwith be paid to Borrower. In determining whether or not the
interest paid or payable under any specific contingency exceeds interest
calculated at the Maximum Rate, Borrower and Lender shall, to the maximum
extent permitted under applicable law, (i) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest; (ii) exclude
voluntary prepayments and the effects thereof; and (iii) amortize, pro rate,
allocate and spread, in equal parts, the total amount of interest throughout
the entire contemplated term of the Revolving Credit Note and/or Term
Promissory Note; provided that, if the Revolving Credit Note and/or Term
Promissory Note are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds interest calculated at the Maximum Rate, Lender
shall refund to Borrower the amount of such excess or credit the amount of such
excess against the principal amount of the Revolving Credit Note and/or Term
Promissory Note, and in such event, Lender shall not be subject to any
penalties provided by any laws for contracting for, charging, taking, reserving
or receiving interest in excess of interest calculated at the Maximum Rate.
SECTION 10.10. Confidentiality. Lender agrees to hold any confidential
information which it may receive from Borrower pursuant to this Agreement in
confidence, except for disclosure to (i) legal counsel, accountants, and other
final advisors who are required by Lender to hold such confidential information
in confidence, (ii) regulatory officials, (iii) as required by law or legal
process or in connection with any legal proceeding, and (iv) to another
financial institution in connection with a disposition or proposed disposition
of a Lender's interests hereunder or under the Revolving Credit Note and/or
Term Promissory Note.
27
<PAGE> 33
SECTION 10.11. Nonliability of Lender. The relationship between
Borrower and Lender is, and shall at all times remain, solely that of borrower
and lender, and Lender does not undertake nor assume any responsibility or duty
to Borrower to review, inspect, supervise, pass judgment upon, or inform
Borrower of any matter in connection with any phase of Borrower's business,
operations, or condition, financial or otherwise. Borrower shall rely entirely
upon its own judgment with respect to such matters, and any review, inspection,
supervision, exercise of judgment, or information supplied to Borrower by
Lender in connection with any such matter is for the protection of Lender, and
neither Borrower nor any third party is entitled to rely thereon.
SECTION 10.12. Offset. Borrower hereby grants to Lender the right of
offset, to secure repayment of the Revolving Credit Note, upon any and all
moneys, securities or other property of Borrower and the proceeds therefrom,
now or hereafter held or received by or in transit to Lender, or any of its
agents, from or for the account of Borrower, whether for safe keeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower, and any and all
claims of Borrower against Lender at any time existing.
SECTION 10.13 Binding Effect. The Loan Documents shall be binding upon
and inure to the benefit of Borrower and Lender and their respective
successors, assigns and legal representatives; provided, however, that Borrower
may not, without the prior written consent of Lender, assign any rights,
powers, duties or obligations thereunder. Any assignment in violation of this
Section shall be void.
SECTION 10.14. Entirety. The Loan Documents embody the entire agreement
between the parties and supersede all prior agreements and understandings, if
any, relating to the subject matter hereof and thereof.
SECTION 10.15. Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Agreement.
SECTION 10.16. Survival. All representations and warranties made by
Borrower herein shall survive delivery of the Revolving Credit Note and Term
Promissory Note, the making of the Advances and Term Loan, respectively, and
the closing of any transactions herein contemplated.
SECTION 10.17. No Third Party Beneficiary. The parties do not intend
the benefits of this Agreement to inure to any third party, nor shall this
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, or for debts or claims accruing to any such persons against
Borrower. Notwithstanding anything contained herein or in the Revolving Credit
Note, Term Promissory Note or in any other Loan Document, or any conduct or
course of conduct by any or all of the parties hereto, before or after signing
this Agreement nor any other Loan Document shall be construed as creating any
right, claim or cause of action against Lender, or any of their officers,
directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
SECTION 10.18. Multiple Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
and the same
28
<PAGE> 34
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the undersigned have executed, or caused to be
executed, this Agreement as of the day and year first above written.
BORROWER:
KING PHARMACEUTICALS, INC.
By:/s/ John M. Gregory
-------------------------------
(SEAL) Name: John M. Gregory
----------------------------
Title: Chief Executive Officer
----------------------------
Attest:
/s/ Joseph R. Gregory
- ---------------------------
Joseph R. Gregory
LENDER:
FIRST AMERICAN NATIONAL BANK
By:/s/ Jerry C. Greene
-------------------------------
Jerry C. Greene,
Senior Vice President
29
<PAGE> 35
STATE OF TENNESSEE
COUNTY OF SULLIVAN
On this 21st day of August 1996, before me, a Notary Public in and for
said State, appeared John M. Gregory, to me personally known, who, being duly
sworn, did say that he is the Chief Executive Officer of King Pharmaceuticals,
Inc., a Tennessee corporation, the corporation named in and which executed the
within instrument, and that said instrument was signed on behalf of said
corporation; and said John M. Gregory acknowledged said instrument to be the
free act and deed of said corporation.
/s/ Melissa L. Duffy
----------------------------------
Name: Melissa L. Duffy
Notary Public
Commission expires:
7/20/99
- -------------------------
[SEAL]
MELISSA L. DUFFY
NOTARY PUBLIC AT LARGE
SULLIVAN CO. TENN.
30
<PAGE> 36
EXHIBIT A
Revolving Credit Note
$2,975,000 August 21, 1997
Sullivan County, Tennessee
FOR VALUE RECEIVED, the undersigned, KING PHARMACEUTICALS, INC., a Tennessee
corporation (the "Borrower"), promises to pay to the order of FIRST AMERICAN
NATIONAL BANK (the "Lender"), at its principal office at 4105 Ft. Henry Drive,
Kingsport, Tennessee, or at such other place as the holder from time to time
may designate in writing, the principal sum of TWO MILLION NINE HUNDRED SEVENTY
FIVE THOUSAND DOLLARS ($2,975,000), or the outstanding principal balance
thereof (collectively and separately referred to herein sometimes as the
"Loan") in lawful money of the United States of America and to pay interest on
the unpaid balance hereof in like money at such office on the first day of each
calendar month of each year from the date hereof until the principal hereof
shall have become due and payable on August 20, 2000, or earlier as provided
herein, at the rate of ninety days (90) - plus one and three quarters percent
(1.75%)(computed on the basis of the actual number of days elapsed over a year
of 360 days). "LIBOR" shall mean, for each interest period, the rate per annum
offered to the Lender (at approximately 11:00 A.M. London time, on the date two
Business Days in London prior to the first day of such interest period) by
prime banks in the London Interbank Market for deposits of the lawful money of
the United States of America for a period equal to the length of such interest
period and in an amount of the Loan which have been made by Lender to Borrower
hereunder and are scheduled to be outstanding during such interest period. Each
determination of the LIBOR by Lender shall, in the absence of manifest error,
be conclusive and binding. Lender shall attempt to notify Borrower of its
determination of the LIBOR as soon as practicable following such determination.
In no event shall the interest hereon exceed the maximum rate permitted to be
charged by applicable law or regulation.
This Note and any and all extensions, modifications, renewals or amendments
thereof is secured by a deed of trust executed by Borrower on even date
herewith.
Any default under the Loan and Security Agreement of even date herewith entered
into between Borrower and First American National Bank as Lender ("Loan
Agreement"), as amended from time to time, shall constitute a default under
this Note, in which event, at the option of the holder of this Note, the entire
principal nun evidenced hereby, together with interest thereon, without notice,
except as provided in the Loan Agreement, shall immediately become due and
payable.
The whole of the principal sum and, to the extent permitted by law, any accrued
interest shall bear, after default, interest at the highest lawful rate then in
effect pursuant to applicable law, or at the rate provided herein in the event
no maximum rate is prescribed by applicable law.
31
<PAGE> 37
At the option of the Lender hereof, the undersigned shall pay a late charge
equal to five percent (5.0%) of any installment payable hereunder not paid
within fifteen (15) days of the due date thereof.
LIBOR Advances may be prepaid at any time with three (3) prior Business Days'
notice to Lender, provided Borrower shall compensate Lender for any and all
funding losses when any LIBOR Advance is prepaid prior to the end of its
respective Interest Period.
If default is made in the payment of any installment due hereunder, whether
principal or interest, when the same shall become due or mature, or if default
is made in the payment of the indebtedness hereunder on demand or at maturity,
or in the event of default in or breach of any terms, provisions or conditions
of the Loan Agreement or any instrument(s) given to secure this Note, then at
the election of the legal holder hereof, at any time thereafter made and
without demand or notice, the owner and holder of this Note shall have the
right to declare all sums unpaid hereon at once due and payable. In the event
of such default, and the same is placed in the hands of any attorney for
collection, or a suit is filed hereon, or if the proceedings are held in
bankruptcy, receivership, through the reorganization of Borrower, or any surety
of borrower, or other legal or judicial proceedings for the collection hereof,
Borrower agrees to Pay to the owner and holder of this Note all costs of
collection, including reasonable attorneys' fees.
The Borrower and all endorsers and signers hereof, and each of them, expressly
waive presentment for payment, notice of nonpayment, protest, notice of
protest, bringing of suit, and diligence in taking any action to claim the
amounts owing hereunder and are and shall be jointly and severally, directly
and primarily, liable for the amount of all sums owing and to be owing hereon
and agree that this Notice, or any payment hereunder, may be extended from time
to time without affecting such liability.
During the existence of any default or delinquency under the terms of this
Note, the Loan Agreement, any other instrument evidencing indebtedness to
Borrower to Lender, or any instrument executed or to be executed as security
for the payment hereof, Lender or other owner and holder hereof is expressly
authorized to apply all payments made on this Note to the payment of such part
of any delinquency as it may elect.
The remedies of the Lender hereof as provided herein, in the Loan Agreement, or
in any instrument(s) securing this Note, shall be cumulative and concurrent,
and may be pursued singularly, successively or together, at the sole discretion
of the Lender hereof, and may be exercised as often as occasion therefor shall
arise. No act or omission of the Lender, including specifically any failure
to exercise any right, remedy or recourse shall be deemed to be a waiver or
release of the same, such waiver or release to be effected only through a
written document executed by the Lender and then only to the extent
specifically recited therein. A waiver or release with reference to any one
event shall not be construed as continuing, as a bar to, or as a waiver or
release of, any subsequent right, remedy or recourse as to a subsequent event.
Notwithstanding anything herein to the contrary, in no event shall interest
payable hereunder be in excess of the maximum rate allowed by applicable law.
Time is of the essence of this Note.
This Note and the instruments securing it shall be governed by, and construed
under, the laws of the State of Tennessee.
32
<PAGE> 38
The provisions hereof shall be binding upon the parties, their successors and
assigns. The provisions hereof are severable such that the invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of the remaining provisions.
This Note has been executed, delivered and accepted at Sullivan County,
Tennessee, and all funds disbursed to or for the benefit of the undersigned
will be disbursed in Kingsport, Sullivan County, Tennessee.
IN WITNESS WHEREOF, the undersigned have executed this Note on the day and year
first above written.
BORROWER:
KING PHARMACEUTICALS, INC.
(SEAL) By:
-------------------------------
Attest: Name:
-----------------------------
- -------------------------------- Title:
Joseph R. Gregory, Secretary ----------------------------
33
<PAGE> 39
EXHIBIT A2
Term Promissory Note
$1,025,000 August 21, 1997
Sullivan County, Tennessee
FOR VALUE RECEIVED, KING PHARMACEUTICALS, INC., a Tennessee corporation (the
"Debtor"), hereby unconditionally promises to pay to the order of FIRST
AMERICAN NATIONAL BANK (the "Payee"), at the offices of Payee at 4105 Ft. Henry
Drive, Suite 300, Kingsport, Tennessee 37663, or such other place as the Payee
or any holder hereof may from time to time designate, the principal sum of ONE
MILLION TWENTY FIVE THOUSAND DOLLARS ($1,025,000) in lawful money of the United
States of America and in immediately available funds, in thirty five (35)
consecutive monthly installments of TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY
TWO DOLLARS AND TWENTY TWO CENTS ($28,472.22) and one final installment of
TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY TWO DOLLARS AND THIRTY CENTS
($28,472.30) on the first day of each month commencing on September 1,1997.
Debtor hereby further promises to pay interest to the order of Payee on the
unpaid principal balance hereof at the Interest Rate (as hereinafter defined).
Such interest shall be paid in like money at said office or place from the date
hereof, commencing September 1, 1997 and on the first day of each month
thereafter until the indebtedness evidenced by this Note is paid in full.
Interest payable upon and after an Event of Default or termination or
non-renewal of the Loan and Security Agreement shall be payable upon demand.
For purposes hereof, the term Interest Rate shall mean a rate of ninety days
(90) - LIBOR plus one and three quarters percent (1.75%)(computed on the basis
of the actual number of days elapsed over a year of 360 days). "LIBOR" shall
mean, for each interest period, the rate per annum offered to the Lender tat
approximately 11:00 A.M. London time, on the date two Business Days in London
prior to the first day of such interest period) by prune banks in the London
Interbank Market for deposits of the lawful money of the United States of
America for a period equal to the length of such interest period and in an
amount of the Loan which have been made by Lender to Borrower hereunder and are
scheduled to be outstanding during such interest period. Each determination of
the LIBOR by Lender shall, in the absence of manifest error, be conclusive and
binding. Lender shall attempt to notify Borrower of in determination of the
LIBOR as soon as practicable following such determination. In no event shall
the interest hereon exceed the maximum rate permitted to be charged by
applicable law or regulation. In no event shall the interest charged hereunder
exceed the Maximum Interest Rate.
This Note is issued pursuant to the terms and provisions of the Loan and
Security Agreement to evidence the Term Loan by Payee to Debtor. This Note is
secured by a deed of trust of even date herewith. Unless payment is otherwise
made by Debtor, Payee may charge the amount of any payment due hereunder to any
account of Debtor maintained by Payee.
If any payment of principal or interest is not made when d hereunder, or if any
any Event of Default shall occur for any reason, or if the Loan and Security
Agreement shall be terminated or
34
<PAGE> 40
not renewed for any reason whatsoever, then and in any such event, in addition
to all rights and remedies of Payee under the Loan and Security Agreement,
applicable law or otherwise, all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently, Payee
may, at its option, declare any or all of Debtor's obligations, liabilities and
indebtedness owing to Payee under the Loan and Security Agreement, including,
without limitation, all amounts owing under this Note, to be due and payable,
whereupon the then unpaid balance hereof, together with all interest accrued
thereon, shall forthwith become due and payable, together with interest
accruing thereafter at the Interest Rate until the indebtedness evidenced by
this Note is paid in full, plus the costs and expenses of collection hereof,
including, but not limited to, attorneys' fees and legal expenses.
LIBOR Advances may be prepaid at any time with three (3) prior Business Days'
notice to Lender, provided Borrower shall compensate Lender for any and all
funding losses when any LIBOR Advance is prepaid prior to the end of its
respective Interest Period.
Debtor (i) waives diligence, demand, presentment, protest and notice of any
kind, (ii) agrees that it will not be necessary for Payee to first institute;
suit in order to enforce payment of this Note and (iii) consents to any one or
more extension or postponements of time of payment, release surrender or
substitution or collateral security; or forbearance or other indulgence,
without notice or consent. The pleading of any statute of limitations as a
defense to any demand against Debtor is expressly hereby waived by Debtor. Upon
an Event of Default or termination or non-renewal of the Loan and Security
Agreement, Payee shall have the right, but not the obligation to setoff against
this Note all money owed by Payee or Debtor.
Payee shall not be required to resort to any collateral for payment, but may
proceed against Debtor and any guarantors or endorser hereof in such order and
manner as Payee may choose. None of the rights of Payee shall be waived or
diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and any dispute
arising in connection herewith shall be governed by the internal laws of the
State of Tennessee without giving effect to principles of conflicts of law.
KING PHARMACEUTICALS, INC.
(SEAL) By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Attest:
- ----------------------------------
Joseph R. Gregory, Secretary
35
<PAGE> 41
EXHIBIT B
Description of Property
PARCEL 1: Situate in the 17th Civil District of Sullivan County, Tennessee, to
wit:
BEGINNING at an iron pin found on the west right of way of Fifth Street, p.t. of
curve joining Ash Street, thence with said Fifth Street right of way N. 24
degrees, 02 minutes, 25 seconds W. 128.97 minutes to an iron pin found, thence
continuing N. 30 degrees, 07 minutes, 17 seconds W. 550.38' to a P.K. Nail found
on the S. right of way line of Olive Street, thence with Olive Street N. 59
degrees, 13 minutes, 43 seconds E. 376.52' to a point, thence with Olive Street
N. 30 degrees, 46 minutes, 17 seconds W. 16.73' to a point, common corner with
Tract 3, thence with Tract 3 - N. 50 degrees, 52 minutes, 31 seconds E. 10.39'
to a point on the S. right of way line of Norfolk Southern Railroad, thence with
said S. right of way line of railroad the following calls: S. 32 degrees, 19
minutes, 59 seconds E. 417.49' to an iron pin found, S. 57 degrees, 29 minutes,
42 seconds W. 22.31' to an iron pin found, S. 30 degrees, 02 minutes, 17 seconds
E. 171.24' to an iron pin found S. 23 degrees, 37 minutes, 07 seconds E. 215.60'
to a fence post corner on the N. right of way line of Ash Street, thence with
said N. right of way line of Ash Street the following calls: S. 67 degrees, 58
minutes, 25 seconds W. 44.63' to a nail and cap found, S. 71 degrees, 28
minutes, 50 seconds W. 52.31' to a nail and cap found, thence S. 49 degrees, 37
minutes, 18 seconds W. 39.31' to an iron pin set, thence S. 76 degrees, 44
minutes, 26 seconds W. 159.19' to an iron pin found, thence S. 77 degrees, 28
minutes, 36 seconds W. 66.08' to an iron pin found at the P.C. of a curve,
thence with said curve to the right having a radius of 28.78' an arc length of
36.91' to the point of BEGINNING containing 6.707, more or less, and being
Parcel-1.
PARCEL 2: Situate in the 17th Civil District of Sullivan County, Tennessee, to
wit:
BEGINNING at a point on the E. right of way line of Beecham Street, common
corner with E.R. Allen, thence leaving Beecham Street N. 60 degrees, 49 minutes,
41 seconds E. 58.61' to an iron pin found on the W. right of way line of Norfolk
Southern Railroad, thence with said railroad right of way S. 26 degrees, 55
minutes, 28 seconds E. 155.51' to a point, thence with railroad right of way S.
59 degrees, 52 minutes, 31 seconds W. 50.44' to a point on the eastern right of
way line of Olive Street, common corner with Tract 2 as described on page 2 of
these legal descriptions, thence with the E. right of way line of Olive Street
as it becomes the E. right of way line of Beecham Street N. 29 degrees, 55
minutes, 58 seconds W. 156.24 to the point of BEGINNING containing .195, more or
less, and being Parcel 2.
PARCEL 3: Situate in the 17th Civil District of Sullivan County, Tennessee, to
wit:
BEGINNING at an iron pin found on the north right of way line of Ash Street at
its intersection with the east right of way line of Childress Alley, thence with
said east right of way line of Childress Alley the following calls: N. 23
degrees, 27 minutes, 35 seconds W., 260.00' to a point, N. 16 degrees, 30
minutes, 02 seconds W. 17.28' to a point, N. 31 degrees, 10 minutes, 25 seconds
W. 406 56' to an in iron pin set on the S. right of way line of Olive Street,
thence with said Olive Street N. 58 degrees, 51 minutes, 35 seconds E. 76.00 to
a point, thence leaving Olive Street S. 30 degrees, 16 minutes, 25 seconds E.
81.03 to a point, thence N. 58 degrees, 50 minutes, 54 seconds E. 7.50 to a
point, thence N. 30 16 minutes, 25 seconds W. 81.03 to a point on the S. right
of way line of Olive Street thence with said Olive Street N. 58 degrees, 51
minutes, 35 seconds E 83.50' to an iron pin found in the W. right of way line of
Fifth Street thence with said W. right of way line of Fifth Street the following
calls: S. 30 degrees, 16 minutes, 25 seconds E. 411.01' to a P.K Nail found, S.
32 degrees, 24 minutes, 57 seconds E. 16.99' to a drill hole found, S. 23
degrees, 37 minutes, 57 seconds E;. 244.76' to a drill hole found, thence on a
curve to the right having a radius of 27.89' an arc length of 42.89' to a drill
36
<PAGE> 42
hole found on the N. right of way of Ash Street, thence said of way line of Ash
Street S. 64 degrees, 33 minutes, 25 seconds W. 138.33' to the point of
BEGINNING containing 2.589, more or less.
PARCEL 4: Situate in the 17th Civil District of Sullivan County, Tennessee, to
wit:
BEGINNING at an iron pin found on the W. right of way line of Beecham Street,
common corner with Floyd Whitehead thence with said Beecham Street S. 30
degrees, 17 minutes, 05 seconds E. 37.38' to an iron pin found, common corner
with Roy McCurdy thence with McCurdy line S. 59 degrees, 02 minutes, 23 seconds
W. 165.17 feet to an iron pin found in the line of Dudley Hagy, thence with
Hagy N. 29 degrees, 52 minutes, 46 seconds W. 8.30' to an iron pin, common
corner with Floyd Whitehead (2nd Tract), thence with said Floyd Whitehead (2nd
Tract) N. 30 degrees, 09 minutes, 05 seconds W. 28.92' to an iron pin found
common corner with Floyd Whitehead; thence with Floyd Whitehead N. 58 degrees,
58 minutes, 58 seconds E. 165.04' to the point of BEGINNING containing 0.162,
more or less.
PARCEL 5: Situate in the 17th Civil District of Sullivan County, Tennessee, to
wit:
BEGINNING at iron pin found on the W. right of way line of Beecham Street,
common corner with Roy McCurdy, thence with Beecham Street the following calls:
S. 30 degrees, 29 minutes 53 seconds E. 37.20' to a point, S. 30 degrees, 29
minutes, 53 seconds E. 45.00' to an iron pin found, S. 29 degrees, 03 minutes
09 seconds E. 42.12' to a point on the N. right of way line of Olive Street,
thence with said Olive Street the following calls: S. 58 degrees, 25 minutes,
52 seconds W. 52.65' to a point, S. 59 degrees, 14 minutes, 42 seconds W.
36.00' to an iron pin found, S. 59 degrees, 20 minutes, 53 seconds W. 39.18' to
an iron pin found, S. 59 degrees, 08 minutes, 09 seconds W. 37.04' to an iron
pin found common corner with Joe Blackburn, thence with Blackburn, N. 30
degrees, 09 minutes, 16 seconds W. 87.16' to an iron pin found, thence with
Blackburn and Dudley Hagy N. 29 degrees, 52 minutes, 46 seconds W. 36.83' to a
point in the line of Hagy and common corner with Roy McCurdy, thence with
McCurdy N. 58 degrees, 52 minutes, 30 seconds E. 165.01' to the point of
BEGINNING containing 0.513, more or less.
Being the same property conveyed to RSR ACQUISITIONS n/k/a KING PHARMACEUTICALS,
INC., by deeds dated SEPTEMBER 20, 1996, NOVEMBER 27, 1996 and DECEMBER 23, 1993
and recorded in Deed Books 386, 390 and 343, pages 674, 185 and 270,
respectively In the Register's Office for Sullivan County, at Bristol,
Tennessee.
THE ABOVE parcels are all shown on survey of King Pharmaceuticals, Inc. by Cross
Land Surveying and Planning, Steven Gerald Cross, RLS #1429, 612 Greenfield
Place, Bristol, TN 37620, dated May 23, 1997 to which reference is hereby made.
37
<PAGE> 43
EXHIBIT C
Litigation
NONE
38
<PAGE> 44
EXHIBIT D
Contributions to Multi-Employer Pension Pan
NONE
39
<PAGE> 45
EXHIBIT E
Subsidiaries
1. Monarch Pharmaceuticals, Inc.
State of Incorporation: Tennessee
Ownership: Borrower owns 100%
2. King Pharmaceuticals of Nevada, Inc.
State of Incorporation: Nevada
Ownership: Borrower owns 100%
40
<PAGE> 46
EXHIBIT F
Environmental Matters
The following is a list of all known hazardous or toxic waste storage or dump
sites on any premises owned or leased by the Company or any of its subsidiaries
and a description of the nature of the substances located thereon and the type
of facility:
The following hazardous waste substances are temporarily stored periodically at
King:
<TABLE>
<CAPTION>
Waste Components
----- ----------
<S> <C>
Ignitable Liquid: Spent Analytical Solvent Methanol, Acetonitrile, Water
Flammable Liquid: Spent Analytical Solvent Methanol, Acetonitrile, Water, Acetone
Waste Combustible Liquid (Analysis in process 2/20/97)
NOS PET-NAPHTHA
</TABLE>
Waste is held temporarily in a temperature controlled, concrete building.
Accumulated waste is picked up for removal to a certified disposal site.
The following is a list of all surveys, audits and reports initiated by or
supplied to the Company or any of its subsidiaries at any time during the past
five (5) years regarding environmental concerns with respect to any real or
personal property owned, leased, occupied, or operated by the Company:
Industrial Hygiene Audit dated 2/5/93
Tennessee Department of Environment and Conservation report dated 6/22/95
41
<PAGE> 47
Exhibit G
Corporate Names/Tradenames
Other Corporate Names: RSR Acquisition Corp.
Other Tradesnames: 1. Monarch Pharmaceuticals, Inc.
2. Royal Vet
42
<PAGE> 48
Exhibit H
Permitted Liens
1. UCC-1 from Borrower to General Electric Capital Corp. Recorded May 29, 1997
in Book 398, page 839, in the Register of Deeds Office for Sullivan County, at
Bristol, Tennessee.
2. Deed of Trust in the amount of $1,750,000.00 from Borrower to Jack W. Hyder,
Jr., Trustee, securing The United Company, recorded March 18, 1997 in Book 395,
page 105, of the Register's Office for Sullivan County, at Bristol, Tennessee;
provided this Deed of Trust is properly made junior and subordinate, prior to or
contemporaneously with the execution of the Agreement, to all Deeds of Trust
filed by Lender pursuant to the Agreement.
3. Any liens upon manufacturing equipment purchased or leased by Borrower.
43
<PAGE> 49
TERM PROMISSORY NOTE
August 21, 1997
$1,025,000 Sullivan County, Tennessee
FOR VALUE RECEIVED, KING PHARMACEUTICALS, INC., a Tennessee corporation
(the "Debtor"), hereby unconditionally promises to pay to the order of FIRST
AMERICAN NATIONAL BANK (the "Payee"), at the offices of Payee at 4105 Ft. Henry
Drive, Suite 300, Kingsport, Tennessee 37663, or such other place as the Payee
or any holder hereof may from time to time designate, the principal sum of ONE
MILLION TWENTY FIVE THOUSAND DOLLARS ($1,025,000) in lawful money of the United
States of America and in immediately available funds, in thirty five (35)
consecutive monthly installments of TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY
TWO DOLLARS AND TWENTY TWO CENTS ($28,472.22) and one final installment of
TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY TWO DOLLARS AND THIRTY CENTS
($28,472.30) on the first day of each month commencing on September 1,1997.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate (as hereinafter
defined). Such interest shall be paid in like money at said office or place from
the date hereof, commencing September 1, 1997 and on the first day of each month
thereafter until the indebtedness evidenced by this Note is paid in full.
Interest payable upon and after an Event of Default or termination or
non-renewal of the Loan and Security Agreement shall be payable upon demand.
For purposes hereof, the term Interest Rate shall mean a rate of
ninety days (90) - LIBOR plus one and three quarters percent (1.75%)(computed on
the basis of the actual number of days elapsed over a year of 360 days). "LIBOR"
shall mean, for each interest period, the rate per annum offered to the Lender
(at approximately 11:00 A.M. London time, on the date two Business Days in
London prior to the first day of such interest period) by prime banks in the
London Interbank Market for deposits of the lawful money of the United States of
America for a period equal to the length of such interest period and in an
amount of the Loan which have been made by Lender to Borrower hereunder and are
scheduled to be outstanding during such interest period. Each determination of
the LIBOR by Lender shall, in the absence of manifest error, be conclusive and
binding. Lender shall attempt to notify Borrower of its determination of the
LIBOR as soon as practicable following such determination. In no event shall the
interest hereon exceed the maximum rate permitted to be charged by applicable
law or regulation. In no event shall the interest charged hereunder exceed the
Maximum Interest Rate.
<PAGE> 50
This Note is issued pursuant to the terms and provisions of the Loan
Security Agreement to evidence the Term Loan by Payee to Debtor. This Note is
secured by a deed of trust of even date herewith. Unless payment is otherwise
made by Debtor, Payee may charge the amount of any payment due hereunder to any
account of Debtor maintained by Payee.
If any payment of principal or interest is not made when due hereunder,
or if any other Event of Default shall occur for any reason, or if the Loan and
Security Agreement shall be terminated or not renewed for any reason whatsoever,
then and in any such event, in addition to all rights and remedies of Payee
under the Loan and Security Agreement, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Debtor's obligations, liabilities and indebtedness owing to Payee
under the Loan and Security Agreement, including, without limitation, all
amounts owing under this Note, to be due and payable, whereupon the then unpaid
balance hereof, together with all interest accrued thereon, shall forthwith
become due and payable, together with interest accruing thereafter at the
Interest Rate until the indebtedness evidenced by this Note is paid in full,
plus the costs and expenses of collection hereof, including, but not limited to,
attorneys' fees and legal expenses.
LIBOR Advances may be prepaid at any time with three (3) prior
Business Days' notice to Lender, provided Borrower shall compensate Lender for
any and all funding losses when any LIBOR Advance is prepaid prior to the end of
its respective Interest Period.
Debtor (i) waives diligence, demand, presentment, protest and notice
of any kind, (ii) agrees that it will not be necessary for Payee to first
institute suit in order to enforce payment of this Note and (iii) consents to
any one or more extension or postponements of time of payment, release
surrender or substitution or collateral security, or forbearance or other
indulgence, without notice or consent. The pleading of any statute of
limitations as a defense to any demand against Debtor is expressly hereby
waived by Debtor. Upon an Event of Default or termination or non-renewal of the
Loan and Security Agreement, Payee shall have the right, but not the obligation
to setoff against this Note all money owed by Payee or Debtor.
Payee shall not be required to resort to any collateral for payment,
but may proceed against Debtor and any guarantors or endorser hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
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<PAGE> 51
The validity, interpretation and enforcement of this Note and any
dispute arising in connection herewith shall be governed by the internal laws of
the State of Tennessee without giving effect to principles of conflicts of law.
KING PHARMACEUTICALS, INC.
(SEAL) By: /s/ John M. Gregory
---------------------------------
Name: John M. Gregory
-------------------------------
Title: Chief Executive Officer
-------------------------------
Attest:
/s/ Joseph R. Gregory
- ----------------------------------
Joseph R. Gregory, Secretary
3
<PAGE> 1
EXHIBIT 10.11
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made this 10th day of September,
1997, by and between KING PHARMACEUTICALS, INC., a Tennessee corporation
whose address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Borrower"),
MONARCH PHARMACEUTICALS, INC., a Tennessee corporation whose address is 355
Beecham Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE
BANK NATIONAL ASSOCIATION, a national banking association organized and existing
under the statutes of the United States of America, whose address is P.O. Box
3189, Bristol, Tennessee 37625 (the "Bank").
Recitals of Fact
In accordance with the terms of that certain loan agreement dated April 30,
1996, by and between the Borrower and the Bank (the "1996 Loan Agreement"),
Borrower obtained, among other things, a revolving credit loan from the Bank in
the original principle sum of Three Million Five Hundred Thousand and No/100
Dollars ($3,500,000.00) (the "1996 Revolving Credit Loan").
The Borrower has requested that the Bank commit to make loans and advances to
it on a revolving credit basis in an amount not to exceed at any one time
outstanding the principal sum of Eight Million Five Hundred Thousand and No/100
Dollars ($8,500,000.00) (the "1997 Revolving Credit Loan"). The Borrower will
use the revolving credit funds to provide working capital and the Bank has
agreed to make such loan and advances on the terms and conditions herein set
forth.
The 1997 Revolving Credit Loan will renew, extend, increase, amend and
supersede the 1996 Revolving Credit Loan. Furthermore, this Loan Agreement will
amend and supersede the 1996 Loan Agreement insofar as it pertains to the
revolving line of credit.
NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in
consideration of the mutual agreements herein contained, the parties agree as
follows:
AGREEMENTS
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following
terms shall have the following meanings (such meanings to be applicable equally
to both the singular and plural forms of such terms) unless the context
otherwise requires:
"Borrowing Base Certificate" means that certain certificate that is attached
hereto as Exhibit "A".
"Borrower Collateral" means the tangible and intangible personal property
of the Borrower that is intended to secure the loan contemplated under this
Loan Agreement, said personal property being specifically described in Section
4.1 of this Loan Agreement.
"Borrower Security Agreement" means the security agreement described in
Section 4.3(a) of this Loan Agreement.
"Closing Date" means the date set out in the first paragraph of this Loan
Agreement.
<PAGE> 2
"Contra Accounts" means the aggregate of Borrower's and Guarantor's accounts
receivable from a third party that are offset by the aggregate of Borrower's and
Guarantor's accounts payable owed to said third party.
"Event of Default" has the meaning assigned to that phrase in Section 14 of
this Loan Agreement.
"Guarantor Collateral" means the tangible and intangible personal property of
the Guarantor that is intended to secure the loans contemplated under this Loan
Agreement, said personal property being specifically described in Section 4.2 of
this Loan Agreement.
"Guarantor Security Agreement" means the security agreement described in
Section 4.3(b) of this Loan Agreement.
"Guaranty" means the guaranty agreement described in Section 3.2 of this Loan
Agreement.
"Loan Agreement" means this Loan Agreement between the Borrower, Guarantor
and Bank.
"Revolving Credit Advances" means advances of principal on the Revolving
Credit Loan by the Bank under the terms of this Loan Agreement to the Borrower
during the term of the 1997 Revolving Credit Loan.
"1997 Revolving Credit Loan" means the Borrower's revolving credit
indebtedness to the Bank pursuant to Section 2 of this Loan Agreement.
"Revolving Credit Note" means the promissory note described in Section 2.3 of
this Loan Agreement.
"Termination Date of the Revolving Credit Loan" shall mean May 31, 1999 or, in
the event that the Bank and the Borrower shall hereafter mutually agree in
writing that the 1997 Revolving Credit Loan and the Bank's commitment hereunder
shall be extended to another date, and the Note shall be modified or amended to
reflect such extension, such other date mutually agreed upon between the Bank
and the Borrower to which Bank's commitment shall have been extended.
"Working Capital," means the amount by which the Borrower's and its wholly
owned subsidiaries consolidated current assets exceed the Borrower's and its
wholly owned subsidiaries' consolidated current liabilities, all as determined
in accordance with generally accepted accounting principles applied on a
consistent basis.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles
consistent to those applied in the preparation of the financial statements
required to be delivered from time to time pursuant to Section 11.1 of this Loan
Agreement.
SECTION 2: COMMITMENT FUNDING AND TERMS OF 1997 REVOLVING CREDIT LOAN.
2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the
Bank agrees and commits to make loan advances or commitments under letters of
credit to the Borrower from time to time, from the Closing Date until the
Termination Date of the Revolving Credit Note, in aggregate principal amounts
not to exceed at any one time outstanding Eight Million Five Hundred Thousand
and No/100 Dollars ($8,500,000.00).
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<PAGE> 3
2.2 FUNDING THE LOAN. Revolving Credit Advances shall be made (i) by
automated transfer, as described in that certain agreement by and between the
Borrower and the Bank entitled "Automated Transfer Facility Including Automated
Principal Reduction", dated April 30, 1996, or (ii) upon the oral request,
followed by immediate written or fax confirmation, or the written request of the
Borrower to the Bank and to the attention of:
Kevin L. Jessee
Community Bank President
First Tennessee Bank National Association
P.0. Box 3189
Bristol, TN 37625
(423) 968-5308
(423) 968-5612 FAX
All Revolving Credit Advances shall be made by depositing the same to a checking
account in the name of the Borrower. All written confirmations shall be sent to
the address set forth in this Section 2.2. All fax confirmations shall be sent
to the fax number set forth in this Section 2.2.
2.3 THE NOTE AND INTEREST. The 1997 Revolving Credit Loan shall be evidenced
by the Revolving Credit Note of the Borrower, payable to the order of the Bank
in the principal amount of Eight Million Five Hundred Thousand and No/100
dollars ($8,500,000.00). The entire principal amount of the loan (including
outstanding commitments under letters of credit) shall be due and payable on the
Termination Date of the 1997 Revolving Credit Loan. The unpaid principal
balances of the Revolving Credit Note shall bear interest on disbursed and
unpaid principal balances at the rates specified in the Revolving Credit Note
and shall be payable as provided in the Revolving Credit Note.
2.4 PRE-PAYMENTS OR TERMINATION OF THE REVOLVING CREDIT NOTE. So long as no
Event of Default exists, the Borrower may, at its option, from time to time,
subject to the terms and conditions hereof, without penalty, borrow, repay, and
reborrow amounts under the Revolving Credit Note. By notice to the Bank in
writing, the Borrower shall be entitled to terminate the Bank's commitment to
make further advances on the Revolving Credit Note.
2.5 CONDITIONS PRECEDENT TO CLOSING AND FUNDING REVOLVING CREDIT NOTE. The
obligation of the Bank to fund the initial advance under the Revolving Credit
Note is subject to the conditions precedent set forth in Section 5.1 of this
Loan Agreement.
2.6 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT NOTE ADVANCES. The
obligation of the Bank to make the Revolving Credit Advances pursuant hereto
(including the initial advance on the Closing Date) shall be subject to the
following additional conditions precedent:
(a) The Borrower shall have furnished to the Bank each of the items referred
to in Section 5.1 of this Loan Agreement, all of which shall remain in full
force and effect as of the date of such Revolving Credit Advance
(notwithstanding that the Bank may not have required any such item to be
furnished prior to the Closing Date or previous Revolving Credit Advances).
(b) An Event of Default shall not have occurred.
(c) Each of the warranties and representations of Borrower, as set out in
Section 6 of this Loan Agreement, shall remain true and correct in all
material respects.
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<PAGE> 4
(d) Each of the warranties and representations of Guarantor, as set out in
Section 7 of this Loan Agreement, shall remain true and correct in all
material respects.
(e) Each of the joint warranties and representations of Borrower and
Guarantor, as set out in Section 8 of this Loan Agreement, shall remain true
and correct in all material respects.
(f) The aggregate outstanding Revolving Credit Advances will not exceed 85%
of the aggregate of Borrower's and Guarantor's accounts receivable that are
less than 90 days from the date of invoice, less Contra Accounts, plus 60% of
the aggregate of Borrower's and Guarantor's raw materials and finished goods
inventory (the "Borrowing Base"). The Borrowing Base shall be determined using
the Borrowing Base Certificate, as determined once per month, beginning on the
Closing Date and on the first day of each and every month thereafter until the
Termination Date of the 1997 Revolving Credit Loan.
2.7 BORROWING BASE CERTIFICATE. On the closing date and on the first day of
each and every month thereafter until the Termination Date of the 1997 Revolving
Credit Loan, Borrower shall complete and provide to the Bank the Borrowing Base
Certificate.
SECTION 3: GUARANTY.
3.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment of all
sums at any time owing to the Bank under this Loan Agreement, the Revolving
Credit Note, and/or Borrower Security Agreement.
3.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty
contemplated by Section 3.1 of this Loan Agreement, the Guarantor shall execute
the guaranty agreement that is attached hereto as Exhibit "B".
SECTION 4. COLLATERAL.
4.1 DESCRIPTION OF COLLATERAL SECURING REVOLVING CREDIT NOTE. The Revolving
Credit Note shall be secured by a first lien on the Borrower's inventory and
accounts, and all products and proceeds of the foregoing.
4.2 DESCRIPTION OF COLLATERAL SECURING GUARANTY. The Guaranty shall be secured
by a first lien on the Guarantor's inventory and accounts, and all products and
proceeds of the foregoing.
4.3 GRANTING AND PERFECTION OF SECURITY INTEREST. In order to provide the
Bank with the security contemplated by Sections 4.1 and 4.2 of this Loan
Agreement, the following shall be done:
(a) Borrower shall execute a security agreement granting the Bank a security
interest in the Borrower Collateral and Borrower shall execute such financing
statements and/or other documents as may be necessary to perfect said security
interest. The Borrower Security Agreement, the financing statements and such
other documents shall be in a form acceptable to the Bank.
(b) Guarantor shall execute a security agreement granting the Bank a
security interest in the Guarantor Collateral and Guarantor shall execute such
financing statements and/or other documents as may be necessary to perfect
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<PAGE> 5
said security interest. The Security Agreement, the financing statements and
such other documents shall be in a form acceptable to the Bank.
4.4 LOCKBOXES. On the closing date, the Borrower and the Guarantor shall each
establish a lockbox to be administered by the Bank. All of the Borrower's and
Guarantor's accounts receivable received on or after the Closing Date shall be
deposited into their respective lockbox. In order to facilitate the deposit of
all the Borrower's and Guarantor's accounts receivable into their respective
lockbox the Borrower and Guarantor shall each instruct all of their respective
customers, now and in the future, to mail their payments to the respective
lockbox address. The Borrower and Guarantor will notify the Bank of any payment
on the Borrower's and Guarantor's accounts receivable received directly by the
Borrower or the Guarantor. The Borrower and Guarantor shall give the Bank such
notice within one (1) business day of the receipt of any such payment.
SECTION 5. CONDITIONS OF LENDING.
5.1 CONDITIONS PRECEDENT TO FUNDING THE REVOLVING CREDIT NOTE. The obligation
of the Bank to fund the initial Revolving Credit Note advance is subject to the
following conditions precedent that the Bank shall have received in a form and
substance satisfactory to the Bank:
(a) This Loan Agreement;
(b) The Revolving Credit Note;
(c) The Borrower Security Agreement, together with such financing statements
or other documents as the Bank may require to perfect its security interest in
the Borrower Collateral;
(d) The Guaranty;
(e) The Guarantor Security Agreement, together with such financing
statements and other documents as the Bank may require to perfect its security
interest in the Guarantor Collateral;
(f) UCC lien searches from such recording offices as the Bank shall specify,
evidencing that the Bank has a first lien under the Borrower Security
Agreement and the Guarantor Security Agreement;
(g) The unqualified opinion of Bank's counsel that the Bank has a first
lien against the Borrower Collateral and Guarantor Collateral and that said
lien has been perfected;
(h) Certified corporate resolutions of the Borrower, authorizing this Loan
Agreement, the Revolving Credit Note, and the Borrower Security Agreement;
(i) Certified corporate resolutions of the Guarantor, authorizing this Loan
Agreement, the Guaranty, and the Guarantor Security Agreement;
(j) Certificate(s) of good standing for the Borrower from the state of its
incorporation and such other states as the Bank shall require;
(k) Certificate(s) of good standing for the Guarantor from the state of its
incorporation and such other states as the Bank shall require;
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<PAGE> 6
(1) The opinion of the Borrower's counsel that (i) the Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee; it has the power and authority to own its
properties and assets and is duly qualified to carry on its business in every
jurisdiction wherein such qualification is necessary; (ii) the transactions
herein contemplated have been duly authorized by all requisite corporate
authority, (iii) this Loan Agreement and the other instruments and documents
herein referred to have been duly authorized, validly executed and are in full
force and effect, (iv) the execution, delivery and performance of this Loan
Agreement, the Revolving Credit Note, and the Borrower Security Agreement will
not violate any provision of law, any order of any court or other agency of
government, the Charter or By-Laws of the Borrower, any provision of any
indenture, agreement or other instrument to which the Borrower is a party, or
by which the Borrower's respective properties or assets are bound, or be in
conflict, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien (other than
the lien of the Bank), charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Borrower, (v) the Guarantor is a wholly
owned subsidiary of the Borrower, and (vi) pertaining to such other matters as
the Bank may reasonably require.
(m) The opinion of the Guarantor's counsel that (i) the Guarantor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee; it has the power and authority to own its
properties and assets and is duly qualified to carry on its business in every
jurisdiction wherein such qualification is necessary; (ii) the transactions
herein contemplated have been duly authorized by all requisite corporate
authority and is fully enforceable against the Guarantor under the laws of the
State of Tennessee, (iii) this Loan Agreement, the Guaranty, and the Guarantor
Security Agreement and any other instrument and document herein referred to
have been duly authorized, validly executed and are in full force and effect,
(iv) the execution, delivery and performance of this Loan Agreement and the
Guarantor Security Agreement will not violate any provision of law, any order
of any court or other agency of government, the Charter or By-Laws of the
Borrower, any provision of any indenture, agreement or other instrument to
which the Guarantor is a party, or by which the Guarantor's respective
properties or assets are bound, or be in conflict, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien (other than the lien of the bank), charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
the Guarantor, (v) the Guarantor is a wholly owned subsidiary of the Borrower,
and (vi) pertaining to such other matters as the Bank may reasonably require.
SECTION 6: BORROWER'S REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
6.1 INCORPORATION. It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee; it has the power and
authority to own its properties and assets and is duly qualified to carry on its
business in every jurisdiction wherein such qualification is necessary.
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<PAGE> 7
6.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan
Agreement, the Revolving Credit Note, and the Borrower Security Agreement have
been duly authorized by all requisite action and will not violate any provision
of law, any order of any court or other agency of government, the Charter and
By-Laws of the Borrower, any provision of any indenture, agreement or other
instrument to which the Borrower is a party, or by which the Borrower's
respective properties or assets are bound, or be in conflict, result in a breach
of, or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien (other than the lien of the Bank), charge or encumbrance
of any nature whatsoever upon any of the properties or assets of the Borrower.
6.3 LITIGATION. There is no action, suit or proceeding at law or in equity or
by or before any governmental instrumentality or other agency now pending, or,
to the knowledge of the Borrower, threatened against or affecting the Borrower,
or any properties or rights of the Borrower and its wholly owned subsidiaries,
which, if adversely determined, would materially adversely affect the
consolidated financial condition of the Borrower and its wholly owned
subsidiaries.
6.4 TAXES. Borrower and its wholly owned subsidiaries have filed or caused to
be filed all federal, state or local tax returns which are required to be filed,
and have paid all taxes in connection therewith.
6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Neither Borrower or its
wholly owned subsidiaries is a party to any agreement or instrument or subject
to any charter or other corporate restrictions materially adversely affecting
the consolidated business, properties or assets, operations or conditions
(financial or otherwise) of Borrower and its wholly owned subsidiaries.
6.6 No DEFAULT. Borrower and its wholly owned subsidiaries are not in material
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument to which any of
them is a party, which default if not cured would materially and substantially
affect the consolidated financial condition, property or operations of the
Borrower and its wholly owned subsidiaries.
6.9 VALID LIEN. The security interest created by the Borrower Security
Agreement represents a valid first lien against the Borrower Collateral.
SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES
Guarantor represents and warrants that:
7.1 INCORPORATION. It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee; it has the power and
authority to own its properties and assets and is duly qualified to carry on its
business in every jurisdiction wherein such qualification is necessary.
7.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan
Agreement and the Guaranty have been duly authorized by all requisite action and
will not violate any provision of law, any order of any court or other agency of
government, the Charter and By-Laws of the Guarantor, any provision of any
indenture, agreement or other instrument to which the Guarantor is a party, or
by which the Guarantor's respective properties or assets are bound, or be in
conflict, result in a breach of, or constitute (with due notice or lapse of time
or both) a default under any such indenture agreement or other instrument, or
result in the creation or imposition of any lien (other than the lien of the
Bank), charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Guarantor.
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<PAGE> 8
7.3 LITIGATION. There is no action, suit or proceeding at law or in equity or
by or before any governmental instrumentality or other agency now pending, or,
to the knowledge of the Guarantor, threatened against or affecting the
Guarantor, or any properties or rights of the Guarantor, which, if adversely
determined, would materially adversely affect the financial or any other
condition of the Guarantor.
7.4 TAXES. Guarantor has filed or caused to be filed all federal, state or
local tax returns which are required to be filed, and has paid all taxes due and
owing to all such taxing authorities.
7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a party to
any agreement or instrument or subject to any charter or other corporate
restrictions materially adversely affecting its business, properties or assets,
operations or conditions (financial or otherwise) taken as a whole.
7.6 NO DEFAULT. Guarantor is not in material default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
if not cured would materially and substantially affect the financial condition,
property or operations of the Guarantor.
7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not extend the
Revolving Credit Loan to the Borrower but for the Guaranty, Guarantor's
execution of the Guaranty is in the best interest of the Guarantor.
7.8 VALID LIEN. The security interest created by the Guarantor Security
Agreement represents a valid first lien against the Guarantor Collateral.
SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES.
Borrower and Guarantor represent and warrant that:
8.1 FINANCIAL CONDITION. The consolidated financial statements of the Borrower
and its wholly owned subsidiaries, copies of which are attached hereto as
Exhibit "C", are correct and complete and fairly present the financial condition
of the Borrower and its wholly owned subsidiaries as of the date of said
financial statements and the results of their operations for said periods and as
of the Closing Date in all material respects. All such financial statements have
been prepared in accordance with generally accepted accounting principles,
applied on a consistent basis, maintained through the period involved.
8.2 TITLE TO ASSETS. Borrower and its subsidiaries, have good and marketable
title to all their properties and assets as reflected on the balance sheet which
is a part of the financial statements referred to in Section 8.1 of this Loan
Agreement.
8.3 GUARANTOR SUBSIDIARY OF BORROWER. The Guarantor is a wholly owned
subsidiary of the Borrower.
8.4 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of Borrower
and Guarantor, neither this Loan Agreement nor any schedule or exhibit hereto
(including without limitation the Revolving Credit Note, Guaranty, Borrower
Security Agreement and Guarantor Security Agreement), nor any written statement
or certificate furnished in connection herewith or any of the transactions
contemplated hereby, contain or will contain an untrue statement of a fact or
omits or will omit to state a fact that is necessary in order to make the
statements contained herein and therein, in the light of the circumstances under
which they are made, not materially misleading.
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<PAGE> 9
SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER.
The Borrower covenants and agrees that from the date hereof and until payment
in full of the principal of and interest on the indebtedness evidenced by the
Revolving Credit Note, unless the Bank shall otherwise in its sole discretion
consent in writing, the Borrower will:
9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and franchises,
comply with all laws applicable to it and continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar years.
9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases,
franchises, patents and trade names and preserve all the remainder of its
properties used or useful in the conduct of its business substantially as
conducted and operated during the present and preceding fiscal year.
9.3 INSURANCE. At all times maintain with insurance companies rated "A" or
better or otherwise acceptable to the Borrower and the Bank, hazard insurance
and such other insurance, for such amounts as is customarily maintained by
companies in the same or substantially similar business. The Bank shall be named
as loss payee on the Borrower's principle hazard insurance policies and any
policy covering inventory.
9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtedness and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of
each calendar quarter a Compliance Certificate, in the form of Exhibit "D"
attached hereto.
9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or
notice, furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or lapse
of time or both would constitute an Event of Default under the terms of this
Loan Agreement.
9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against
the Borrower's tangible and intangible personal assets, subject to the following
exceptions:
(a) Purchase money liens that were given for the purpose of financing the
acquisition of assets, including security interests arising from any Lease
Line of Credit, or the acquisition of product lines, so long as said purchase
money liens do not extend to the Borrower Collateral; and
(b) The liens described on Exhibit "E".
If any liens exist which are not permitted by this Section 9.7, Borrower will
obtain the immediate release of any such liens.
9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the
Bank.
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SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR.
The Guarantor covenants and agrees that from the date hereof and until payment
in full of the principal of and interest on the indebtedness evidenced by the
Revolving Credit Note, unless the Bank shall otherwise in its sole discretion
consent in writing, the Guarantor will:
10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to
preserve and keep in full force and effect its existence, rights and franchises,
comply with all laws applicable to it and continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar years.
10.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases,
franchises, patents and trade names and preserve all the remainder of its
properties used or useful in the conduct of its business substantially as
conducted and operated during the present and preceding fiscal year.
10.3 INSURANCE. At all times maintain with insurance companies rated "A" or
better or otherwise acceptable to the Guarantor and Bank, hazard insurance and
such other insurance, for such amounts as is customarily maintained by companies
in the same or substantially similar business. The Bank shall be named as loss
payee on the Guarantor's principle hazard insurance policies and any policy
covering inventory.
10.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtedness and
obligations promptly in accordance with normal terms and practices of its
business and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income and profits, or upon any of its properties, real, personal or
mixed, or upon any part thereof, before the same shall become in default.
10.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of
each calendar quarter a Compliance Certificate, in the form of Exhibit "F"
attached hereto.
10.6 NOTICE OF DEFAULT. At the time of the Guarantor's first knowledge or
notice, furnish the Bank with written notice of the occurrence of any event or
the existence of any condition which constitutes or upon written notice or lapse
of time or both would constitute an Event of Default under the terms of this
Loan Agreement.
10.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against
the Guarantor's tangible and intangible personal assets, subject to the
following exception:
(a) Purchase money liens that were given for the purpose of financing the
acquisition of assets, including security interests arising from any lease
line of credit or the acquisition of product lines, so long on as said
purchase money liens do not extend to Guarantor Collateral.
If any liens exist which are not permitted by this Section 10.7, Guarantor will
obtain the immediate release of any such liens.
10.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the
Bank.
SECTION 11: JOINT AFFIRMATIVE COVENANTS.
The Borrower and Guarantor, jointly and severally, covenant and agree that
from the date hereof and until payment in full of the principal of and interest
on the indebtedness evidenced by the Revolving Credit Note, unless the Bank
shall otherwise in its sole discretion consent in writing, the Borrower and
Guarantor will:
10
<PAGE> 11
11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of the Borrower, an unqualified audit of the Borrower's and its wholly
owned subsidiaries' consolidated financial statements as of the close of such
fiscal year of the Borrower, which financial statements shall include a
consolidated balance sheet and consolidated statement of income and surplus of
the Borrower and its subsidiaries, together with the unqualified audit report
and opinion of an independent Certified Public Accountant reasonably acceptable
to the Bank, showing the financial condition of the Borrower and its
subsidiaries at the close of such year and the results of operations during such
year; (b) within forty-five (45) days after the end of each fiscal quarter,
except the last fiscal quarter of the year, financial statements similar to
those described above for the Borrower and its subsidiaries, not audited but
certified as to accuracy and content by the Chief Financial Officer or CEO or
President or Controller of the Borrower (the "Certifying Officer"), such
consolidated balance sheets to be as of the end of such quarter and such
consolidated statements of income and surplus to be for the period from the
beginning of said year to the end of such quarter, in each case subject only to
audit and year-end adjustment.
11.2 ADDITIONAL INFORMATION. Furnish such other relevant information regarding
the operations, business affairs and financial condition of the Borrower and its
wholly owned subsidiaries as the Bank may reasonably request, including but not
limited to true and exact copies of Borrower's and its wholly owned
subsidiaries' books of account and tax returns, and all information furnished to
shareholders or any governmental authority, and permit the copying of the same.
11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the
Bank's expense, to visit and inspect any of the properties, books and financial
reports of the Borrower and its wholly owned subsidiaries and to discuss its
affairs, finances and accounts with the principal officers of the Borrower and
its wholly owned subsidiaries, at all such reasonable times during regular
business hours of the Bank and on reasonable advance notice and as often as the
Bank may reasonably request. The Bank shall keep confidential any information it
or its agents obtain as a result of this right of inspection. However, the Bank
shall be free to share any such information with such persons as it deems
necessary for purpose of enforcing its rights under this Loan Agreement, the
Revolving Credit Note, the Guaranty, the Borrower Security Agreement, the
Guarantor Security Agreement, or any other agreement between the Bank and the
Borrower and/or its wholly owned subsidiaries. Furthermore, the Bank and its
agents may disclose any such information as required by a subpoena, law or order
of any court of law.
11.4 MINIMUM NET WORTH. The Borrower and its wholly owned subsidiaries shall
maintain a minimum consolidated net worth of Twenty-five Million and No/100
Dollars ($25,000,000.00), as determined by generally accepted accounting
principles including intangible assets, with assets valued at historical costs
less allowances taken for depreciation, amortization and depletion. The minimum
consolidated net worth to be maintained by the Borrower and its wholly owned
subsidiaries shall increase at the end of each fiscal quarter, beginning with
the quarter ending June 30, 1997, by an amount equal to Fifty Percent (50%) of
the consolidated net profit for that fiscal quarter. There shall, however, be
no adjustment to the minimum consolidated net worth requirement in the event of
a net loss for a fiscal quarter.
11.5 DEBT TO EQUITY RATIO. The Borrower and its wholly owned subsidiaries
shall maintain a maximum consolidated debt to equity ratio (total debt divided
by total equity) of 1.55.
11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Borrower and its wholly owned
subsidiaries shall maintain a consolidated ratio of cash flow-to-debt service of
not less than 1.25 (total cash flow divided by total debt service) to be
measured quarterly based on the
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<PAGE> 12
consolidated financial statements required by Section 11.1. For purposes of this
requirement, "Cash Flow" shall be defined as Borrower's and its wholly owned
subsidiaries' consolidated net profits plus consolidated allowances for
depreciation, interest and equity injections consisting of cash for the past 365
calendar days; and "Debt Service" shall be defined as all scheduled payments of
principal, interest and equipment lease financing payable by the Borrower and
its wholly owned subsidiaries within the next 365 calendar days.
11.7 CURRENT RATIO. The Borrower and its wholly owned subsidiaries shall
maintain a consolidated current ratio of 1.25. For purposes of this Section,
"Current Ratio" shall be defined as the Borrower's and its wholly owned
subsidiaries' consolidated current assets divided by their consolidated current
liabilities.
SECTION 12: NEGATIVE COVENANTS OF BORROWER.
12.1 The Borrower covenants and agrees that at all times from and after the
closing date, unless the Bank shall otherwise consent in writing, which consent
shall not be unreasonably withheld, it will not, either directly or indirectly,
sell, lease, transfer, (except within the Borrower's own organization) or
dispose (other than in the normal course of business) of all or a substantial
part of its business or assets.
12.2 The Borrower covenants and agrees that at all times from and after the
Closing Date, it will not grant anyone other than the Bank a lien against any of
Guarantor's assets. Guarantor shall be permitted, however, to grant purchase
money liens for the purpose of financing assets acquired after the Closing Date,
including security interests arising from any Lease Line of Credit, which may
include the acquisition of product lines (any such lien shall not extend to
Borrower Collateral). Furthermore, this provision shall not impair the ability
of the Borrower to acquire property after the Closing Date by means of leases,
or sale and lease back transactions.
SECTION 13: NEGATIVE COVENANTS OF GUARANTOR.
13.1 The Guarantor covenants and agrees that at all times from and after the
closing date, unless the Bank shall otherwise consent in writing, which consent
shall not be unreasonably withheld, it will not, either directly or indirectly,
sell, lease, transfer, (except within the Guarantor's own organization) or
dispose (other than in the normal course of business) of all or a substantial
part of its business or assets.
13.2 The Guarantor covenants and agrees that at all times from and after the
Closing Date, it will not grant anyone other than the Bank a lien against any of
Guarantor's assets. Guarantor shall be permitted however, to grant purchase
money liens for the purpose of financing assets acquired after the Closing Date,
including security interests arising from any Lease Line of Credit, which may
include the acquisition of product lines (any such lien shall not extend to
Guarantor Collateral). Furthermore, this provision shall not impair the ability
of the Guarantor to acquire property after the Closing Date by means of leases,
or sale and lease back transactions.
SECTION 14: EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following shall occur:
14.1 PAYMENT OF PRINCIPAL, INTEREST. The Borrower defaults in the prompt
payment as and when due of principal or interest on the Revolving Credit Note or
any sums due under said note, this Loan Agreement or the Borrower Security
Agreement; or in the prompt payment when due of any other indebtedness,
liabilities, or obligations to the Bank, whether now existing or hereafter
created or arising; direct or indirect, absolute or contingent; or
12
<PAGE> 13
14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with respect to any
other material agreement to which it is a party or with respect to any other
material indebtedness when due or the performance of any other obligation
incurred in connection with any material indebtedness for borrowed money
("material" as used herein meaning indebtedness or obligations in excess of
$50,000.00) if the effect of such default is to accelerate the maturity of such
indebtedness, or if the effect of such default is to permit the holder thereof
to cause such indebtedness to become due prior to its stated maturity and the
holder has not waived its right to accelerate payment of such indebtedness; or
14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by the
Borrower and/or Guarantor herein, or in any report, certificate, financial
statement or other writing furnished in connection with or pursuant to this Loan
Agreement shall prove to be false, misleading or incomplete in any material
respect on the date as of which made; or
14.4 BANKRUPTCY, ETC. The Borrower and/or Guarantor shall mane an assignment
for the benefit of creditors, file a petition in bankruptcy, petition or apply
to any tribunal for the appointment of a custodian, receiver or any trustee for
it or a substantial part of its assets, or shall commence any proceeding under
any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against the Borrower and/or
Guarantor, in which an order for relief is entered or which remains undismissed
for a period of sixty (60) days or more; or the Borrower and/or Guarantor by any
act or omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or any trustee for it or any substantial
part of any of its properties, or shall suffer any such custodianship,
receivership or trusteeship to continue undischarged for a period of sixty (60)
days or more; or Borrower and/or Guarantor shall generally not pay its debts as
such debts become due; or
14.5 CONCEALMENT OF PROPERTY, ETC. The Borrower and/or Guarantor shall have
concealed, removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any of them,
or made any bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a lien upon any of its
property through legal proceedings or distraint which is not vacated within
sixty (60) days from the date thereof; or
14.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership that
results in the Gregory Family owning a combined fifty percent (50%) or less of
the capital stock of the Borrower, or fifty percent (50%) or less of the voting
power related to the capital stock. For purposes of this section the Gregory
Family shall consist of John M. Gregory, Joan P. Gregory, Jefferson J. Gregory,
Tern D. White-Gregory, Joseph R. Gregory, Herschel P. Blessing, Mary Ann
Blessing, lames E. Gregory, Dr. R. Henry Richards, Jeanie Richards, Fred Jarvis,
Mary Gregory-Jarvis, S.J. L.L.C., and Kingsway L.L.C., their spouses, lineal
descendants (including legally adopted children), heirs, and any trust,
foundation or not-for-profit corporation organized and existing for the benefit
of any of the foregoing.
14.7 COVENANTS. The Borrower and/or Guarantor defaults in the performance or
observance of any other covenant, agreement or undertaking on its or their part
to be performed or observed, contained herein, or in any other instrument or
document which now or hereafter evidences or secures all or any part of the
Revolving Credit Loan.
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<PAGE> 14
14.8 REMEDY. Upon the occurrence of any Event of Default, as specified herein,
He shall, at its option, be relieved of any obligation to make further Revolving
Credit Advances under this Loan Agreement or the Revolving Credit Note; and the
Bank may, at its option, thereupon declare the entire unpaid principal balance
of the Revolving Credit Note, all interest accrued and unpaid thereon and all
other amounts payable under this Loan Agreement to be immediately due and
payable for all purposes, and may exercise all rights and remedies available to
it under any other instrument or document which evidences, guaranties or secures
the Revolving Credit Note or the Guaranty, or available at law or in equity,
including the right to the appointment of a receiver to take possession of the
Borrower's and/or Guarantor's property.
SECTION 15: MISCELLANEOUS
15.1 AMENDMENTS. The provisions of this Loan Agreement, the Revolving Credit
Note, or any instrument or document executed pursuant hereto or securing or
guarantying the 1997 Revolving Credit Loan or the Guaranty, may be amended or
modified only by an instrument in writing signed by the parties to said document
or instrument. Guarantor need only be a party to an amendment of the Guaranty
and the Guarantor Security Agreement, and waives notice of any amendment,
modification or renewal of the Revolving Credit Note, this Loan Agreement, or
any other instrument or document executed pursuant hereto other than the
Guaranty and the Guarantor Security Agreement.
15.2 NOTICES. All notices and other communications provided for hereunder
shall be in writing and shall be mailed, certified mail, return receipt
requested, or delivered. Any such notices and other communications to the
Borrower shall be addressed as follows:
John M. Gregory
Chairman of the Board & CEO
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
WITH A COPY TO:
Legal Department
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
All such notices and over communications to the Guarantor shall be addressed as
follows:
John M. Gregory
Chapman of the Board & CEO
Monarch Pharmaceuticals, inc.
501 Fifth Street
Bristol, TN 37620
WITH A COPY TO:
Legal Department
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
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<PAGE> 15
All such notices and other communications the Bank shall be addressed as
follows:
Kevin L. Jessee
Community Bank President
First Tennessee Bank National Association
P.O. Box 3189
1155 Volunteer Parkway, Suite 201
Bristol, TN 37625,
or as to any such person at such other address as shall be designated by such
person in a written notice to the other parties hereto complying as to the
delivery with the terms of this Section 15.2. All such notices and other
communications shall be effective (i) if mailed, when received or three (3)
business days after mailing, whichever is earlier; or (ii) if delivered, upon
delivery.
15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
15.4 INDEMNIFICATION. The Borrower and Guarantor, jointly and individually,
agree to indemnify the Bank from and against any and all claims, losses and
liabilities, including, without limitation, reasonable attorneys' fees and
expenses, growing out of or resulting from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or liabilities
resulting solely and directly from the Bank's negligence or willful misconduct.
The indemnification provided for in this Section shall survive the payment in
full of the Revolving Credit Note.
15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties
made herein shall survive the delivery of the Revolving Credit Note. This Loan
Agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns, except that Borrower shall not have
the right to assign its rights hereunder or any interest therein.
15.6 GOVERNING LAW. This Loan Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
15.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
15.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this Loan
Agreement, whether used in the masculine, feminine, or neuter gender, shall
include all other genders; the singular shall include the plural, and vice
versa. Section headings are for convenience only and neither limit nor amplify
the provisions of this Loan Agreement.
15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions of
this Loan Agreement be determined to be illegal or unenforceable, all other
provisions, nevertheless, shall remain effective and binding on the parties
hereto.
15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be deemed to
indicate that the Bank is in control of the business, management or properties
of the Borrower and/or Guarantor, or has power over the daily management
functions and operating decisions made by the Borrower and/or Guarantor.
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<PAGE> 16
15.11 FEES AND EXPENSES. Except as otherwise expressly provided herein, the
Borrower agrees to reimburse the Bank for all legal fees and expenses, and
recording fees and taxes incurred by the Bank in connection with the loan
contemplated by this Loan Agreement. Furthermore, the Borrower agrees to pay, or
reimburse the Bank for, the actual out-of-pocket expenses, including but not
limited to counsel fees and expenses, court costs, accountants fees and
expenses, and fees and expenses of similar experts as deemed necessary by the
Bank, incurred by the Bank in connection with the enforcement of, or the
preservation of any rights under this Loan Agreement, the Revolving Credit Note,
and any instrument or document now or hereafter securing or guarantying said
note. The Guaranty shall guaranty the obligations of the Borrower set forth in
this section, in addition to the other obligations that may be owing under the
terms of this Loan Agreement, the Revolving Credit Note, the Guaranty, and any
instrument or document now or hereafter securing said note and/or guaranty.
15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the
Revolving Credit Note, the Guaranty, the Borrower Security Agreement and the
Guarantor Security Agreement, and the other instruments and documents executed
and delivered in connection herewith.
15.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default as
specified above, the Bank may apply any and all deposits (general or special,
matured or unmatured) and other credits of the Borrower against any and all
indebtedness of the Borrower to the Bank. The Borrower acknowledges as
appropriate the Bank's legal and equitable rights to setoff. Furthermore, upon
the occurrence of any Event of Default as specified above, the Bank may apply
any and all deposits (general or special, matured or unmatured) and other
credits of the Guarantor against any and all indebtedness of the Borrower to
the Bank covered by the Guaranty. The Guarantor acknowledges the Bank's legal
and equitable rights to setoff, appropriate.
15.14 VENUE OF ACTIONS. As an integral part of the consideration for the
making of this Loan Agreement, it is expressly understood and agreed that no
suit or action shall be commenced by the Borrower, or by any successor, personal
representative or assignee with respect to the Revolving Credit Note, or this
Loan Agreement or any other document or instrument which now or hereafter
evidences, secures or guaranties all or any part of the Revolving Credit Loan,
other than in a state court of competent jurisdiction in Sullivan County,
Tennessee, or in the United States District Court for the Eastern District of
Tennessee, and not elsewhere. As a further integral part of the consideration
for the making of this Loan Agreement, it is expressly understood and agreed
that no suit or action shall be commenced by the Guarantor, or by any successor,
personal representative or assignee with respect to the this Loan Agreement, or
any other document or instrument which now or hereafter evidences, secures or
guaranties all or any part of the Revolving Credit Loan, other than in a state
court of competent jurisdiction in Sullivan County, Tennessee, or in the United
States District Court for the Eastern District of Tennessee, and not elsewhere.
Nothing in this paragraph contained shall prohibit the Bank from instituting
suit in any court of competent jurisdiction for the enforcement of its rights
hereunder or in any other document or instrument which evidences, secures or
guaranties the obligations of Borrower and/or Guarantor contemplated by this
Loan Agreement.
15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR
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<PAGE> 17
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
15.16 ENTIRE AGREEMENT. This written agreement, the related written documents
referred to herein, and any other agreements executed contemporaneously herewith
set forth the complete and exclusive statement of the terms of the agreement
between the Borrower, Guarantor and the Bank with respect to the loan
contemplated by this Loan Agreement. Therefore, no prior written agreements or
contemporaneous or prior oral agreements between the parties shall be of any
effect with respect to the loan contemplated by this Loan Agreement.
IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this Loan
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.
KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory
--------------------------------
John M. Gregory
Chairman of the Board & CEO
MONARCH PHARMACEUTICALS, INC.
By /s/John M. Gregory
--------------------------------
John M. Gregory
Chairman of the Board & CEO
FIRST TENNESSEE BANK,
NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee
--------------------------------
Kevin L. Jessee
Community Bank President
17
<PAGE> 18
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, Marsha L. Lusby of the state and county mentioned, personally
appeared John M. Gregory, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Chairman of the Board & CEO of King Pharmaceuticals, Inc. the
within named bargainor, a corporation, and that as such Chairman of the Board,
President & CEO, executed the foregoing instrument for the purpose therein
contained, by personally signing the name of King Pharmaceuticals, Inc..
Witness my hand and seal, at office in this 10th day of September, 1997.
/s/ Marsh L. Lusby
---------------------------------
Notary Public
My commission expires Jan 2, 2001
-----------
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, Marsh L. Lusby of the state and county mentioned, personally
appeared John M. Gregory, with I am personally acquainted (or proved to me on
the basis of satisfactory evidence), and who, upon oath, acknowledged such
person to be the Chairman of the Board & CEO of Monarch Pharmaceuticals, Inc.
the within named bargainor, a corporation, and that as such Chairman of the
Board & CEO, executed the foregoing instrument for the purpose therein
contained, by personally signing the name of Monarch Pharmaceuticals, Inc..
Witness my hand and seal, at office in this 10th day of September, 1997.
/s/ Marsha L. Lusby
----------------------------------
Notary Public
My commission expires Jan 2, 2001
-----------
18
<PAGE> 19
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Before me, Marsha L. Lusby of-the state and county mentioned, personally
appeared Kevin L. Jessee, with I am acquainted (or proved to me on the basis of
satisfactory evidence), and who, upon oath, acknowledged such person to be the
Community Bank President of First Tennessee Bank National Association, the
within named bargainor, and that as such Community Bank President, executed the
foregoing instrument for the purpose therein contained, by personally signing
the name of First Tennessee Bank National Association.
Witness my hand and seal, at office in this 10th day of September, 1997.
/s/ Marsha L. Lusby
---------------------------------
Notary Public
My commission expires Jan 2, 2001
-----------
19
<PAGE> 20
MASTER NOTE
------------------------
Approval
BRISTOL, Tennessee
-------------------------
SEPTEMBER 10, 1997
-------------------------
FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one)
promise(s) to pay to the order of First Tennessee Bank National Association
(hereinafter referred to as the "Bank") at any lending office in the state
mentioned above or at such other place as the holder hereof may designate in
writing, in current local funds, the sum of up to
EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/00******************Dollars
($8,500,000.00), or so much thereof as may be advanced hereunder prior to
maturity, together with interest on the unpaid principal balance from
day-to-day remaining, computed from the day of advance until maturity at the
following rate:
<TABLE>
<CAPTION>
<S> <C>
[ ] FIXED RATE: ______% per annum,
[X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lesser of (a) the maximum rate
of interest ("Maximum Rate") which Bank may lawfully charge, or (b) a rate which is ____% per annum higher than the
base commercial rate of interest ("Base Rate") established from time to time by Bank. Each change in the Variable
See Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on
Allonge to the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the Base
Promissory Rate shall become effective, without notice to the undersigned, on [ ] the same date that the Base Rate changes; [ ]
Note the first day of the calendar month following any change in the Base Rate; [ ] the first day of the calendar quarter
following any change in the Base Rate; [ ]other ___________. The Base Rate is one of several interest rate indices
employed by the Bank. The undersigned acknowledge(s) that the Bank has made, and may hereafter make, loans bearing
interest at rates which are higher or lower than the Base Rate.
Such principal and interest shall be payable as shown below:
[X] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance, due on MAY 31, 1999 plus interest payable
[ ] At maturity.
[X] beginning SEPTEMBER 30, 1997 and continuing on the same day of each successive [X] monthly or [ ] quarterly
calendar period, except that the final interest installment shall be payable on the date the principal is due.
[ ] OTHER:
----------------------------------------------------------------------------------------------------------------
SECURITY: Except as otherwise provided herein, as of the date hereof,
[ ] This Note is secured by a mortgage(s) or deed(s) of trust dated
---------------------------------------------------------------------------------------------------------------------
[X] This Note is secured by security agreements(s) dated SEPTEMBER 10, 1997
----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMITMENT FEE: The undersigned agrees to pay an annual loan commitment
fee of $ N/A, due and payable at the time of execution of this Note,
and each year thereafter on the anniversary date thereof.
OTHER TERMS AND CONDITIONS: Unless otherwise provided herein, all payments
shall be applied first to pay the accrued interest to date on the unpaid
balance and next to the unpaid principal of the indebtedness.
As used herein, "other parties liable hereon" shall include, but not be
limited to, any and all guarantors, endorsers, sureties and co-makers.
Any payment not made when due hereunder (whether by acceleration or
otherwise) shall bear interest after maturity at the maximum effective contract
rate of interest which the Bank may lawfully charge on the date such payment
became due.
The undersigned acknowledges and agrees that any commitment fees
payable hereunder are bona fide commitment fees and are intended as reasonable
compensation to Bank for committing to make funds available to undersigned and
for no other purpose.
Subject to the terms and conditions herein set forth, Bank agrees to
advance funds upon the request of and as directed by the undersigned from time
to time beginning on the date hereof and terminating upon maturity. Within the
limits set forth herein, the undersigned may borrow, repay and reborrow each
advance. Notwithstanding the principal amount of the this Note, as stated on
the face hereof, the amount of principal actually owing at any given time shall
be the aggregate of all advances made, less all payments of principal actually
received by Bank.
Bank's obligation to make advances hereunder shall be subject to the
following conditions: (a) there has been no material adverse change in the
undersigned's financial condition, or the financial condition of any other
parties liable hereon, since execution of this Note; (b) each advance shall
constitute a representation and warranty by the undersigned and other parties
liable hereon that all representations and warranties contained herein or in any
other document pertaining to this credit facility are true and correct on and
as of the date of the advance, and that the undersigned and other parties
liable hereon are in strict compliance with all terms and conditions herein and
pertaining hereto; (c) the undersigned and other parties liable hereon will
furnish, from time to time, at Bank's option and at Bank's request, statements
of financial condition in a form satisfactory to Bank including independently
certified and audited statements prepared in accordance with generally accepted
accounting principles and auditing standards. The undersigned and other parties
liable hereon hereby authorizes Bank to charge an interest rate equal to
one-half percent (.5%) per annum higher than the interest rate agreed to
herein, or as modified hereafter, should the undersigned or other parties
liable hereon fail to deliver a financial statement in the form requested by
Bank within 10 days of Bank's request; (d) the undersigned and other parties
liable hereon will execute and deliver to Bank all other instruments and take
such other actions as Bank may reasonably request during the term hereof in
order to carry out the provisions and intent hereof.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect any security given for its payment, or to
enforce its collection, the undersigned will pay all the costs of collection
and litigation, together with a reasonable attorney's fee, all of which shall
be secured by any collateral pledged as security herefor. The undersigned also
agrees to pay any and all actual expenses including reasonable attorney's fees
incurred by Bank in (i) successfully defending any action or inaction in
connection with any aspect of the transaction evidenced by this instrument, or
(ii) any action, whether or not successful, taken to protect or enforce Bank's
rights in any collateral related to the transaction evidenced by this
instrument.
The undersigned and all other parties liable hereon waive protest,
demand, presentment, and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such
extensions, or the period or periods thereof, and without notice to or further
assent from them, all of whom will remain bound upon this Note notwithstanding
any such extension(s); and further agree that all or any collateral given, now
or hereafter, as security herefor may be released (with or without
substitution) without notice and without affecting their liability hereon; and
that additional makers, endorsers, guarantors, or sureties may become parties
hereto, and that any present or future party may be released from liability
hereunder, without notice, and without affecting the liability of any other
maker, or other parties liable hereon.
In the event of any default in the prompt and punctual payment, when
due, of this Note (or any installment hereof) or any bankruptcy, insolvency,
receivership, or similar proceeding instituted by or against the undersigned or
other parties liable hereon or his/her or their property or assets, or in the
event that the undersigned, or other parties liable hereon become insolvent,
however defined, or make an assignment for the benefit of creditors, or if a
judgment be entered against the undersigned, or other parties liable hereon, or
upon the issuance of any writ, levy or process, valid or invalid, which
purports to restrict the undersigned or other parties liable hereon with
respect to any of his/her or their funds or property on deposit with or in the
possession or custody or under the control of the Bank, or upon the death or
dissolution of the undersigned or other parties liable heron, or in the event
of any default in the prompt and punctual payment when due, of any other
indebtedness or obligation to the Bank owed, now or hereafter, by the
undersigned or other parties liable hereon, or upon any default in any deed of
trust, mortgage, security agreement, assignment or other security document
given, now or hereafter, to secure the indebtedness evidenced hereby, or if
any representation or warranty made by the undersigned or other parties liable
hereon pertaining to this credit shall prove to be false, untrue, or materially
misleading, or in the event of termination or any guaranty executed in
connection with this Note, or in the event that the Bank shall deem itself
insecure, then and in any of such events, this Note shall, at Bank's option,
without notice or demand for payment (the same being expressly waived), be and
become immediately due, payable and enforceable for all purposes, and Bank
shall be under no obligation to make further advances.
Any money or other property at any time in the possession of the Bank
belonging to the undersigned or any other parties liable hereon, and any
deposits or other sums at any time credited by or due from the Bank to the
undersigned or any other parties liable hereon, may at all times, at the option
of the Bank, be held and treated as collateral security for the payment of this
Note or any other liability of any of the undersigned, or any other party
liable hereon to the Bank, whether due or not due. The Bank may, at any time,
at its option, and without notice, set off the amount due or to become due
hereon against the claim of any of said parties against the Bank. To effect
these rights, the undersigned and all other parties liable heron agree, upon
request by the Bank, immediately to endorse, sign, and execute all necessary
instruments, and do hereby appoint the Bank (acting through any then officer
thereof) as attorney-in-fact for them with authority to endorse any instrument
requiring endorsement and to effect any transfer, and this appointment shall be
irrevocable as long as the undersigned, or any other party liable hereon, shall
be indebted to the Bank.
In the event of any renewal or extension of the loan indebtedness
evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank
shall have the right to charge interest at the highest of the following rates:
(i) the maximum rate permissible at the time the contract to make the loan was
executed; or (ii) the maximum rate permissible at the time the loan was made;
or (iii) the maximum rate permissible at the time of such renewal or extension;
or (iv) the maximum rate permitted by applicable federal law; it being intended
that those statutes and laws, state or federal, from time to time in effect,
which permit the charging of the higher rate of interest shall govern the
maximum rate which may be charged hereunder. In the event that for any reason
the foregoing provisions hereof shall not contain a valid, enforceable
designation of a rate of interest prior to maturity or method of determining
the same, then the indebtedness hereby evidenced shall bear interest prior to
maturity at the maximum effective rate which may be lawfully charged by the
Bank under applicable law.
Regardless of any provision herein, or in any other document executed
in connection herewith, the holder hereof shall never be entitled to receive,
collect, or apply, as interest hereon, any amount in excess of the maximum
contract rate which may be lawfully charged by the holder hereof under
applicable law; and in the event the holder hereof ever receives, collects, or
applies as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and, if the principal hereof is paid in full, any remaining excess
shall forthwith be paid to the undersigned. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the maximum
lawful contract rate, the undersigned and the holder hereof shall, to the
maximum extent permitted by applicable law, (a) characterize any non-principal
payment as a reasonable loan charge, rather than as interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate,
allocate, and spread, in equal parts, the total amount of interest throughout
the entire contemplated term hereof, so that the interest accrued or to accrue
throughout the entire term contemplated hereby shall at no time exceed the
maximum lawful contract rate. THE UNDERSIGNED JOINTLY AND SEVERALLY WAIVE(S) ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED (OR WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION
HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT. THE UNDERSIGNED AGREE(S) THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. King Pharmaceuticals, Inc.
- ------------------------------------ ----------------------------------
By: /s/ John M. Gregory ------------------------------------
- ---------------------------------- Chairman of the Board & CEO
- ------------------------------------ ----------------------------------
First Tennessee Bank National Association, Member FDIC, *Registered Service Mark
owned and licensed by First Tennessee National Corporation.
<PAGE> 21
ALLONGE TO PROMISSORY NOTE DATED SEPTEMBER 10, 1997
IN THE AMOUNT OF $8,500,000.00 (THE "NOTE") EXECUTED BY THE UNDERSIGNED
TO THE ORDER OF FIRST TENNESSEE BANK NATIONAL ASSOCIATION ("BANK")
(FOR USE WITH BLUE, GREEN AND WHITE NOTES ONLY - NEW LOAN)
1. The undersigned understands and agrees that the terms of the Note
relating to the interest rate shall be modified by deleting the paragraph of the
Note entitled Variable Rate in its entirety and replacing it with the following:
[X] Variable Rate: A variable rate per annum ("Variable Rate")
based on a [ ] three hundred and sixty (360) [X] three hundred and
sixty-five (365) day year which shall be equal to the lesser of (i)
the maximum rate of interest ("Maximum Rate") which Bank may lawfully
charge, or (ii) a rate which is 1.75 percent (1.75%) per annum higher
than the LIBOR Rate (as hereinafter defined), adjusted and determined
as of the opening of business on September 10, 1997 (the "Initial
Pricing Date") and on the 10th day of every third month hereafter
(each an "Interest Rate Change Date"). The LIBOR Rate shall mean the
London Interbank Offered Rate of interest for an interest period of
three (3) months, as reported in The Wall Street Journal published on
each Interest Rate Change Date. Each change in the Variable Rate which
results from a change in the LIBOR Rate shall become effective,
without notice to the undersigned, on each Interest Rate Change Date;
provided, however, that if The Wall Street Journal is not published on
such date, the LIBOR Rate shall be determined by reference to The Wall
Street Journal last published immediately preceding such date. In the
event that at any time prior to maturity the rate of interest
specified in clause (ii) above (determined as of the dates when
changes become effective above) shall exceed the Maximum Rate, Bank
may, at its option and without notice to the undersigned, charge
interest at the Maximum Rate for the entire term of the loan and all
unpaid interest then accrued at said Maximum Rate shall be due and
payable ten (10) days following the date upon which Bank notifies the
undersigned of the amount of such accrued but unpaid interest. (The
three (3) month LIBOR Rate quoted in The Wall Street Journal published
on the Initial Pricing Date is 5.72 percent (XXX%) per annum.)
The privilege is reserved to prepay this Note in whole or in
part, prior to maturity, without premium or penalty.
Notwithstanding any other provisions herein, if any Change in Law
(as hereinafter defined) shall make it unlawful for the Bank to make
or maintain a LIBOR Rate loan as contemplated by this Note, the
principal outstanding hereunder shall, if required by law and if the
Bank so requests, be converted on the date required to make the loan
evidenced by this Note legal to a loan accruing interest at the lesser
of the Maximum Rate or the base commercial rate of interest ("Base
Rate") established from time to time by the Bank. Each change in the
Base Rate shall become effective, without notice to the undersigned,
on the same date that the Base Rate changes. The undersigned hereby
agrees promptly to pay the Bank, upon demand, any costs incurred by
the Bank in making any conversion in accordance with this paragraph,
including any interest or fees payable by the Bank to lenders of funds
obtained by it in order to maintain its LIBOR Rate loans.
The undersigned acknowledges that the Base Rate is one of several
interest rate indices employed by the Bank and that the Bank has made,
and may hereafter make, loans bearing interest at rates which are
higher or lower than the Base Rate.
The undersigned hereby indemnifies the Bank and holds the Bank
harmless from any loss or expense which the Bank may sustain or incur
as a consequence of (i) a default by the undersigned in payment of the
principal amount of or interest on the loan evidenced hereby,
including any such loss or expense arising from interest or fees
payable by the Bank to lenders of funds obtained by it in order to
make or maintain its LIBOR Rate loans, or (ii) a Change in Law that
results in the imposition on the Bank of reserve requirements in
connection with LIBOR Rate loans made by the Bank. The undersigned
will make any payments under this indemnity to Bank, upon demand. The
undersigned further agrees to enter into a modification of this Note,
at the request of the Bank, to bring this Note into compliance with
any Change in Law.
"Change in Law" shall mean the adoption of any law, rule,
regulation, policy, guideline or directive (whether or not having the
force of law) or any change therein or in the interpretation or
application thereof, in all cases by any Governmental Authority having
jurisdiction over the Bank, in each case after the date hereof.
<PAGE> 22
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity
exercising regulatory functions of or pertaining to government.
2. The provisions hereof shall be binding upon the undersigned,
his/her heirs, executors, administrators, personal representatives, successors
and assigns, and shall inure to the benefit of the Bank, its successors and
assigns.
--------------------------------------------
INDIVIDUAL BORROWER
KING PHARMACEUTICALS, INC.
--------------------------------------------
By: /s/ John M. Gregory
-----------------------------------------
Title: CHAIRMAN OF THE BOARD AND CEO
--------------------------------------
BUSINESS ENTITY BORROWER
<PAGE> 1
Exhibit 10.12
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of December 13, 1995 by and among Mallinckrodt Chemical, Inc.
("Mallinckrodt"), a Delaware corporation, King Pharmaceuticals, Inc. ("King"), a
Tennessee corporation, and King Pharmaceuticals of Nevada, Inc. ("King-Nevada"),
a Nevada corporation.
WITNESSETH, THAT:
WHEREAS, subject to the terms of this Agreement and the covenants,
representations and promises of King set forth therein, Mallinckrodt desires to
purchase and King-Nevada wishes to sell all of its right, title and interest in
and to its APAP/hydrocodone bitartrate dosage forms, as hereinafter more fully
described; and
WHEREAS, subject to the terms of this Agreement and the covenants,
representations and promises of King set forth therein, Mallinckrodt desires to
purchase and King-Nevada wishes to sell all of its right, title and interest in
and to its brand name line of APAP/hydrocodone bitartrate dosage forms, as
hereinafter more fully described;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties hereinafter contained, the parties hereto agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein; the following terms shall have the following meanings,
respectively:
1.1 An "affiliate" shall mean, any entity which, directly or
indirectly, controls, is controlled by or is under common
control with another entity or entities or any group of common
shareholders or similar holders of an equity interest of any
such entity and "control", for the preceding purpose, shall
mean the possession, directly or indirectly, of the power to
direct or cause the direction of the
<PAGE> 2
management and policies of any entity, whether through the
ownership of voting securities, by contract or otherwise.
1.2 "ANDA" shall mean an Abbreviated New Drug Application as
described in the federal Food, Drug and Cosmetic Act, as
amended, and regulations promulgated thereunder.
1.3 "ANDA Agreements" shall mean any and all agreements of King or
King-Nevada, whether written or oral, (i) that relate to the
Purchased Assets (including without limitation and without
exception all contracts or agreements with customers for the
purchase of any Current Products or any agreements with any
party or parties relative to the distribution of such
products) or (ii) that relate to APAP/hydrocodone bitartrate
elixir that King or King-Nevada has contracted for the
manufacture of pursuant to an ANDA or other permit or license
owned by another party, a list of which agreements (along with
their expiration dates and a brief description of each) is set
forth on Schedule 1.3 hereto; provided that "ANDA Agreements"
shall not refer to any contracts of King to the extent related
to products of King other than those included in the Purchased
Assets.
1.4 "ANDA Business" shall mean the business activities of King and
King-Nevada and any of their affiliates related to the Current
Products and/or the Future Products, as the context shall
require.
1.5 "ANDA Financial Statements" shall have the meaning ascribed to
it in Section 5.3 hereof.
1.6 "Branded Line" shall mean the "Anexsia" branded
APAP/hydrocodone bitartrate dosage form product line and the
goodwill associated therewith, as well as any registered
trademarks or service marks (or applications therefor) or any
tradenames or other intellectual property rights of any nature
associated therewith.
1.7 "Bristol Facility" shall mean King's current manufacturing
facility located in Bristol, Tennessee.
1.8 "Bristol Shutdown" shall have the meaning ascribed to it in
Section 4.l(c) hereof.
2
<PAGE> 3
1.9 "cGMP" shall have the meaning ascribed to it in Section
5.13(c)(iv) hereof.
1.10 "Closing Date" shall mean the date hereof or such other date
as the parties hereto shall mutually agree.
1.11 "Closing Purchase Price" shall mean the amount to be paid by
Mallinckrodt to or on behalf of King-Nevada on the Closing
Date in accordance with Section 2.2 and as described in
subsections (a) and (b) of Section 2.4 hereof.
1.12 "Collateral Agreements" shall mean (i) those agreements
between King or King-Nevada and Mallinckrodt or executed by
either King or King-Nevada in favor of Mallinckrodt, as
appropriate, of even date herewith that are attached hereto as
Exhibits A, B and C and (ii) such other agreements entered
into as of the Closing Date as the parties shall deem
reasonably necessary to the consummation of the transactions
contemplated herein.
1.13 "Current Products" shall mean the four product codes and
strengths associated with King-Nevada's current three ANDAs
(#89-160, #89-725 and #40-084), and any and all changes,
amendments, periodic reports, supplements, authorizations,
documentation or permits relative thereto, for the production
of APAP/hydrocodone bitartrate dosage forms, a copy of the
full ANDA documentation for which product codes and strengths
is attached hereto as Schedule 1.13.
1.14 "Damages" shall have the meaning ascribed to it in Section
8.1 hereof.
1.15 "Deferred Payment" shall mean the amounts to be paid by
Mallinckrodt to King-Nevada in accordance with Section 2.4(c)
hereof.
1.16 The term "direct manufacturing costs" shall mean all costs of
labor, raw materials, quality assurance and packaging incurred
by King that are directly associated with production under the
Current Products or the Future Products, as
3
<PAGE> 4
appropriate, and shall not include any directly or indirectly
allocated overhead or similar general company expenses or
charges and shall also not include the value or cost of any
raw materials provided to King by Mallinckrodt. King's direct
manufacturing costs (excluding the cost of raw materials) are
attached hereto as Schedule 1.16.
1.17 "FDA Approval" shall have the meaning ascribed to it in
Section 2.4(c) hereof.
1.18 "Finished Goods Cost" shall have the meaning ascribed to it in
Section 3.4(a) hereof.
1.19 "Future Products" shall collectively mean (i) the two dosage
form product codes and strengths that are planned to be filed
as future supplements to currently existing ANDAs (i.e., 10
mg. hydrocodone bitartrate/650 mg. APAP and 10 mg. hydrocodone
bitartrate/660 mg. APAP, hereinafter referred to as "Future
Product One" and "Future Product Two", respectively) and (ii)
the three dosage form product codes and strengths that are
planned to be filed as one or more future ANDAs (i.e., 10 mg.
hydrocodone bitartrate/500 mg. APAP, 7.5 mg. hydrocodone
bitartrate/500 mg. APAP and 5.0 mg. hydrocodone bitartrate/
500 mg. APAP, hereinafter referred to as "Future Product
Three", "Future Product Four" and "Future Product Five",
respectively), all of which are currently under development by
King and/or which have been filed by King with the FDA but
have not yet received approval, and any and all changes,
amendments, supplements, periodic reports, authorizations,
documentation or permits relative thereto, a copy of the
current ANDA or other documentation for which product codes
and strengths is attached hereto as Schedule 1.19.
1.20 "Future Product One" shall have the meaning ascribed to it in
Section 1.19 above.
1.21 "Future Product Two" shall have the meaning ascribed to it in
Section 1.19 above.
4
<PAGE> 5
1.22 "Future Product Three" shall have the meaning ascribed to it
in Section 1.19 above.
1.23 "Future Product Four" shall have the meaning ascribed to it in
Section 1.19 above.
1.24 "Future Product Five" shall have the meaning ascribed to it in
Section 1.19 above.
1.25 "Hazardous Materials" shall have the meaning ascribed to it in
Section 5.14 hereof.
1.26 "Indemnified Party" shall have the meaning ascribed to it in
Section 8.2 hereof.
1.27 "Indemnifying Party" shall have the meaning ascribed to it in
Section 8.2 hereof.
1.28 "King Business" shall mean the full range of business
activities of King or its affiliates related to the production
of generic or branded drug dosage forms, including without
limitation the ANDA Business, whether or not carried out on
the premises of the Bristol Facility.
1.29 "Manufacturing Agreement" shall have the meaning ascribed to
it in Section 4.1 hereof.
1.30 "Pharmaceutical Products" shall have the meaning ascribed to
it in Section 5.13 hereof.
1.31 "Purchased Assets" shall mean the Current Products, Future
Products, the Branded Line, the ANDA Agreements, as well as
(i) any and all intellectual property rights related solely or
primarily to any of the foregoing, (ii) any and all
documentation, data or other information in King's or
King-Nevada's possession related solely or primarily to any of
the foregoing and (iii) any and all tooling,
5
<PAGE> 6
punches and dies related to the production of the Current
Products or Future Products, as appropriate.
1.32 "Purchase Price" shall refer to the total consideration paid
and payable to King-Nevada by Mallinckrodt in accordance with
the provisions of Section 2.4 below.
1.33 "Work-in-Process Cost" shall have the meaning ascribed to it
in Section 3.4 hereof.
1.34 All references to days herein refer to calendar days and not
business days, unless otherwise expressly provided.
ARTICLE II
PURCHASE AND SALE
2.1 Actions by King-Nevada on the Closing Date.
On the Closing Date, in reliance upon and in consideration of
the representations, warranties, covenants and agreements of
Mallinckrodt set forth herein and subject to the terms and
conditions set forth herein, King-Nevada shall sell, transfer
and assign to Mallinckrodt all of its right, title and
interest in and to the Purchased Assets, free and clear of
liens, claims, charges, encumbrances and restrictions of any
kind and deliver to Mallinckrodt an irrevocable General Bill
of Sale and Assignment relative to the Purchased Assets in the
form attached hereto as Exhibit A.
2.2 Actions by Mallinckrodt on the Closing Date.
On the Closing Date, in reliance upon and in consideration of
the representations, warranties, covenants and agreements of
King and King-Nevada set forth herein and subject to the terms
and conditions set forth herein, and against delivery of
6
<PAGE> 7
the General Bill of Sale and Assignment attached hereto as
Exhibit A, Mallinckrodt shall pay to King-Nevada the Closing
Purchase Price by wire transfer in immediately available
United States funds as follows:
(i) Mallinckrodt will pay, to an account designated by
King-Nevada to Mallinckrodt in writing at least five (5)
business days prior to the Closing Date, the sum of Sixteen
Million Seven Hundred Ninety Nine Thousand One Hundred
Seventy Eight Dollars and Eight Cents ($16,799,178.08)
against receipt by Mallinckrodt of a release of all liens,
rights and claims, in a form and in substance satisfactory
to Mallinckrodt, of Boehringer Mannheim Pharmaceuticals
Corporation ("Boehringer") with respect to the Branded Line
and any of the other Purchased Assets, and
(ii) immediately subsequent to the completion of the steps
outlined in clause (i) set forth immediately above and in
addition to the amount specified therein, Mallinckrodt will
pay, to an account designated by King-Nevada to Mallinckrodt
in writing at least five (5) business days prior to the
Closing Date, the sum of Fifteen Million Two Hundred
Thousand Eight Hundred Twenty One Dollars and Ninety Two
Cents ($15,200,821.92).
2.3 Joint Actions on the Closing Date.
On the Closing Date (or as soon thereafter as possible), the
parties will execute such documents, including the Collateral
Agreements, and take such other actions as have been deemed by
them to be reasonably necessary and appropriate to consummate
fully the transactions contemplated herein.
2.4 Purchase Price.
In consideration for King-Nevada's sale, transfer and
assignment of the Purchased Assets to Mallinckrodt pursuant to
the terms and conditions set forth herein, Mallinckrodt agrees
to pay King-Nevada, as full and fair purchase consideration
therefor, the sums set forth below ("Purchase Price"):
7
<PAGE> 8
(a) In consideration of King-Nevada's transfer to Mallinckrodt on
the Closing Date of all of King-Nevada's right, title and
interest in and to the Current Products, Mallinckrodt will pay
to King-Nevada, as full and fair consideration therefor, the
sum of Ten Million Dollars ($10,000,000).
(b) In consideration of King-Nevada's transfer to Mallinckrodt on
the Closing Date of all of King-Nevada's right, title and
interest in and to the Branded Line, Mallinckrodt will pay to
King-Nevada, as full and fair consideration therefor, the sum
of Twenty Two Million Dollars ($22,000,000).
(c) In consideration of King-Nevada's transfer to Mallinckrodt on
the Closing Date of all of King-Nevada's right, title and
interest in and to the Future Products, and subject to the
provisions of Section 3.3 set forth herein below, Mallinckrodt
will pay to King-Nevada, as full and fair consideration
therefor, up to Ten Million Dollars ($10,000,000) in
accordance with the following:
(i) Mallinckrodt will pay King-Nevada Two Million Five Hundred
Thousand Dollars ($2,500,000), by wire transfer of
immediately available United States funds to an account
designated by King-Nevada to Mallinckrodt in writing within
ten (10) days after each date on which King or King-Nevada
notifies Mallinckrodt in writing of (A) the final and
unqualified approval by the FDA of any of Future Product
One, Future Product Two, Future Product Three or Future
Product Four such that manufacture and commercial sale is
permitted with respect thereto (which notice shall include a
copy of the FDA's written approval with respect to any such
Future Product) and (B) upon completion of a process
validation report with respect to any such Future Product
and Mallinckrodt's written acknowledgment approving such
report (which approval shall not unreasonably be withheld),
for a total of up to Ten Million Dollars ($10,000,000) in
the aggregate
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once King or King-Nevada has notified Mallinckrodt that all
Future Products (with the exception of Future Product Five
for which no additional sums to King-Nevada shall be due
hereunder) have met the requirements of clauses (A) and (B)
set forth immediately above. For purposes of this Agreement,
the occurrence of the events described in clauses (A) and
(B) of the immediately preceding sentence shall constitute
and be referred to hereinafter as "FDA Approval".
(ii) King and King-Nevada hereby agree that if any one or more of
Future Product One, Future Product Two, Future Product Three
and Future Product Four shall not have received FDA Approval
on and as of the end of the thirtieth (30th) month after the
Closing Date but does receive FDA Approval on or before the
end of the thirty sixth (36th) month after the Closing Date,
then the amount otherwise payable by Mallinckrodt to
King-Nevada upon FDA Approval of any such Future Product
shall be One Million Five Hundred Thousand Dollars
($1,500,000) for each such Future Product as opposed to the
amount specified in clause (i) immediately above.
Furthermore, notwithstanding clause (i) set forth above,
King and King-Nevada hereby agree that if any one or more of
Future Product One, Future Product Two, Future Product Three
and Future Product Four shall nor have received FDA Approval
on and as of the end of the thirty sixth (36th) month after
the Closing Date, then no amount shall be payable by
Mallinckrodt to King-Nevada with respect to any such Future
Product, which fact shall in no respect have any effect on
Mallinckrodt's right to full title and interest in and to
any such Future Products and Mallinckrodt shall have full
right of ownership and use with respect to all regulatory
"work-in-process" relative to the unsuccessful attempt by
King to achieve FDA Approval for any such Future Products.
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2.5 Fair Market Value of Assets.
The parties hereto agree that the Purchase Price represents
the fair market value of the Purchased Assets. Any allocation
of the Purchase Price among the Purchased Assets that is
agreed upon by the parties shall be binding on King,
King-Nevada and Mallinckrodt for all purposes relating in any
fashion to liability for sales tax, income tax or any other
kind of tax or assessment.
2.6 Assets Purchased and Obligations Assumed.
The parties understand and agree that Mallinckrodt is not
hereunder purchasing any assets of King other than the
Purchased Assets as specifically defined herein. The parties
further understand and agree that Mallinckrodt is not
hereunder assuming or agreeing to be liable in any manner with
respect to any debt, obligation or liability of King except
and to the extent that Mallinckrodt expressly agrees to be
liable and responsible pursuant to Section 2.7 below, pursuant
to any other terms hereof or pursuant to the General Bill of
Sale and Assignment attached hereto as Exhibit A. The
trademarks, servicemarks, trade names, designs and logos,
whether registered, applied for or pending, associated with
King or King-Nevada that are not exclusively related to the
ANDA Business are not conveyed pursuant to this Agreement and
all right, title, and interest in and to the same shall remain
with King or King-Nevada as the case may be.
2.7 Assignment of Contracts.
In connection with the acquisition and sale of the Purchased
Assets provided for herein, King and King-Nevada hereby assign
to Mallinckrodt all of their rights, obligations and interests
under the ANDA Agreements; provided however, in no event shall
Mallinckrodt be deemed to have assumed liability or
responsibility for any obligations or liabilities under and
pursuant to the ANDA Agreements to the extent relating to any
performance required by and undertaken pursuant to the terms
of such agreements prior to the Closing Date unless
Mallinckrodt specifically and unambiguously so agrees in
writing. King and King-Nevada
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represent and warrant that, to the extent they have not done
so prior to the Closing Date, they will take all actions
available to them to obtain any and all consents that are
necessary for the assignment of the ANDA Agreements to
Mallinckrodt in order to vest in Mallinckrodt the full benefit
of all rights and payments granted under the terms of each and
every one of the ANDA Agreements to the same extent that King
and King-Nevada had such benefit prior to the Closing Date.
2.8 Delivery of Documentation
On the Closing Date or as soon thereafter as reasonably
possible, King-Nevada will deliver to Mallinckrodt any and all
intellectual property, documentation and other data included
within the Purchased Assets, including without limitation,
annual product reviews, copies of completed batch records,
stability reports, product complaint files, adverse drug
experience reports, supplier audit reports, and field alert
reports. King and King-Nevada may retain such materials and
data as may be necessary for them to carry out their
obligations under this Agreement and under the Collateral
Agreements. In addition, on the Closing Date or as immediately
thereafter as possible, King or King-Nevada (as appropriate)
will send to the FDA the notice required by 21 CFR
314.72(a)(i) relative to the transfer of ownership of the
Purchased Assets and shall thereafter provide all information
and make all further filings as Mallinckrodt shall direct to
confirm and perfect the ownership of Mallinckrodt in and to
the Purchased Assets.
ARTICLE III
CERTAIN OBLIGATIONS, RIGHTS AND COVENANTS OF THE PARTIES
3.1 Obligations of King and King-Nevada with Respect to Future
Products.
(a) From and after the Closing Date and until FDA
Approval or the elapse of thirty six (36) months
after the Closing Date (whichever occurs first), King
and King-Nevada will take all actions, at their
expense, that may be
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required (i) to ensure that future ANDAs or
supplements to existing ANDAs, as appropriate, with
respect to each of the Future Products are filed with
the FDA in compliance with all regulatory
requirements, in full and final form and as
expeditiously as possible, (ii) to ensure that the
FDA grants final and unqualified approval in writing
with respect to each of such future ANDAs or
supplements to existing ANDAs as soon as possible
such that manufacture and commercial sale of the
Future Product in question is permitted, and (iii) to
ensure that a process validation report with respect
to any such Future Product is prepared with
completeness and accuracy and as quickly as possible.
The actions required by King and King-Nevada in
accordance with the immediately preceding sentence
will be taken with the intent and effect that
Mallinckrodt will not be in any manner, as the owner
of each of the Future Products, limited in its
ability commercially to utilize each of such Future
Products to the fullest extent possible consistent
with the limitations of applicable laws and
regulations of general force and effect. It is
understood that all filings and other actions taken
by King and King-Nevada in connection with the Future
Products to secure FDA Approval will be subject to
review by and approval of Mallinckrodt. King and
King-Nevada will have an obligation hereunder to
answer any FDA inquiries with respect to the Future
Products in a timely and accurate manner, subject to
approval of and supervision by Mallinckrodt. The
parties expressly agree that if at any time
King-Nevada and Mallinckrodt or King and Mallinckrodt
disagree about the adequacy, form, content,
necessity, advisability, manner, procedure or timing
of any filing, response, action or inquiry related to
securing FDA Approval of any of the Future Products,
they will consult Lachman Consultants, Inc. at 1600
Stewart Avenue, Westbury, New York 11590 in order to
resolve their disagreement and the parties further
agree to follow the course of action suggested by
Lachman Consultants, Inc. The fees and expenses of
Lachman Consultants, Inc. arising from such
consultations shall be shared equally by either King
and Mallinckrodt or King-Nevada and Mallinckrodt, as
appropriate.
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(b) Notwithstanding the preceding subsection (a), if, upon the
expiration of thirty six (36) months from and after the
Closing Date and despite the best efforts of King and
King-Nevada in accordance with the requirements of this
Section 3.1, FDA Approval has not been received for any one
or more of the Future Products, King or King-Nevada will
immediately hand over to Mallinckrodt all of the
documentation and other materials relative to such Future
Products so that Mallinckrodt may continue to prosecute with
the FDA the applications with respect to any such Future
Products and, in connection with that process, King and
King-Nevada will continue to provide advice and consultation
to Mallinckrodt as reasonably necessary and will further
continue to provide to Mallinckrodt (or its agents or
representatives) and the FDA such access to the Bristol
Facility as may be required to ensure approval by the FDA
and any other relevant regulatory agencies with respect to
each of such Future Products.
3.2 Assurances of Title to Future Products.
Notwithstanding King's and King-Nevada's success or failure in
securing FDA Approval with respect to the Future Products, at
all times after the Closing Date Mallinckrodt will continue to
have full right, title and interest in and to the Future
Products and King and King-Nevada will do whatever is
necessary to defend and secure Mallinckrodt's full right,
title and interest in and to the Future Products.
3.3 Suspension of Payment.
If, prior to the expiration of the Manufacturing Agreement
between King and Mallinckrodt contemplated by Section 4.1
below, and due to causes other than a material breach by
Mallinckrodt of any of its obligations under this Agreement or
under any of the Collateral Agreements, either King or
King-Nevada ceases or is forced to cease or substantially
curtail production under the Manufacturing Agreement, or
otherwise breaches any of its continuing obligations
hereunder, as a consequence of (i) any action or communication
by the FDA or any other regulatory or governmental authority
or (ii) any financial or other business
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difficulty (including, without limitation, the filing by or
against King or King-Nevada of any petition under the federal
bankruptcy laws, or any similar state laws, or any insolvency,
appointment of a trustee for the assets and business of King
or King-Nevada, or any composition or arrangement for the
benefit of creditors), then the parties agree that
Mallinckrodt will have lost the benefit of the Purchased
Assets it has acquired under this Agreement and Mallinckrodt
shall therefore, in addition to any other rights or remedies
it may have available to it at law or in equity, have the
right to cancel payment of any as yet unpaid portion of the
Deferred Payment.
3.4 Ownership of Existing Inventory.
(a) Subject to King's compliance with the requirements of
subsection (d) of this Section 3.4, in the event that,
on the Closing Date, King has an inventory of finished
goods relative to the Current Products meeting all
applicable specifications (i.e., is not obsolete, is at
least six (6) months from expiration, is currently
useable and salable in the ordinary course of business
and meets the requirements of the appropriate ANDA)
that remains unsold as of the Closing Date, King will
notify Mallinckrodt within seven (7) days after the
Closing Date of the precise nature and amount of such
inventory. Mallinckrodt shall purchase all of such
inventory from King at a price, payable in cash or, at
Mallinckrodt's option, by offset against the amount of
any outstanding trade receivables owed to Mallinckrodt
by King, equal to the actual cost to King of any raw
materials (including but not limited to those raw
materials supplied by Mallinckrodt) utilized in
producing such inventory and the actual direct
manufacturing costs incurred by King in producing such
inventory (all of such actual cost hereinafter referred
to as "Finished Goods Cost"). Within ten (10) days
after notice by King to Mallinckrodt of the nature and
amount of its finished goods inventory, King shall
provide Mallinckrodt with written notice of its
calculation of the Finished Goods Cost and all
documentation supporting such calculation. Mallinckrodt
shall be obligated to consummate the purchase from King
of such finished goods
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inventory on the later of (i) ten (10) days after the date
on which it delivers a notice to King indicating its
agreement with the Finished Goods Cost as calculated hy King
or (ii) in the event Mallinckrodt does not so agree, ten
(10) days after the date on which the parties shall reach
agreement in good faith and in writing as to the actual
amount of the Finished Goods Cost. Any finished goods
inventory purchased hereunder, except with respect to the
compensation therefor, shall be treated by the parties as
finished product manufactured pursuant to the Manufacturing
Agreement contemplated in Section 4.1 below.
(b) Subject to King's compliance with the requirements of
subsection (d) of this Section 3.4, in the event that, on
the Closing Date, King has an existing inventory of
hydrocodone bitartrate and/or APAP that it has purchased
from Mallinckrodt that is to be used by King for production
hereunder, King will notify Mallinckrodt within seven (7)
days after the Closing Date of the precise nature and amount
of such inventory. Within twenty (20) days after the date of
such notice, Mallinckrodt shall purchase such raw materials
inventory from King at a price, payable in cash or, at
Mallinckrodt's option, by offset against the amount of any
outstanding trade receivables owed to Mallinckrodt by King,
equal to the amount originally invoiced by Mallinckrodt to
King for such raw materials less applicable discounts or
rebates, if any. Any raw materials inventory purchased
hereunder shall be utilized by the parties in the
manufacture of finished product in accordance with the terms
of the Manufacturing Agreement contemplated in Section 4.1
below.
(c) Subject to King's compliance with the requirements of
subsection (d) of this Section 3.4, in the event that, on
the Closing Date, King has an existing inventory of
work-in-process relative to the Current Products meeting all
applicable specifications (i.e., is not obsolete, would be,
if completed, useable and salable in the ordinary course of
business and meets the requirements of the appropriate
ANDA), King will notify Mallinckrodt within seven (7) days
after the Closing Date of the precise
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nature and amount of such inventory. Mallinckrodt shall
purchase all of such inventory from King at a price, payable
in cash or, at Mallinckrodt's option, by offset against the
amount of any outstanding trade receivables owed to
Mallinckrodt by King, equal to the actual cost to King of
any raw materials utilized in producing such inventory and
the actual direct manufacturing costs incurred by King in
producing such inventory (all of such actual costs
hereinafter referred to as "Work-in-Process Cost"). Within
ten (10) days after notice by King to Mallinckrodt of the
nature and amount of its work in process inventory, King
shall provide Mallinckrodt with written notice of its
calculation of the Work-in-Process Cost and all
documentation supporting such calculation. Mallinckrodt
shall be obligated to consummate the purchase from King of
such work-in-process inventory on the later of (i) ten (10)
days after the date on which it delivers a notice to King
indicating its agreement with the Work-in-Process Cost as
calculated by King or (ii) in the event Mallinckrodt does
not so agree, ten (10) days after the date on which the
parties shall reach agreement in good faith and in writing
as to the actual amount of the Work-in-Process Cost. King
shall retain in its physical possession any work-in-process
inventory purchased hereunder and shall complete the process
of converting such work-in-process into finished goods for a
price to be agreed upon by the parties but taking into
account only the incremental cost to King of completing the
manufacturing process with respect to such work-in-process
and in accordance with the applicable terms of the
Manufacturing Agreement provided for in Section 4.1 below.
Notwithstanding the preceding portions of this subsection
(c), King shall make every reasonable effort to avoid having
any inventory of work-in-process on the Closing Date by,
among other things, judicious scheduling of its
manufacturing runs of APAP/hydrocodone bitartrate dosage
forms and careful scheduling of product deliveries to
customers.
(d) King represents and warrants that it has used its best
commercial efforts, since the date of that certain Letter of
Intent by and between the parties dated September 12, 1995,
to keep its inventories of finished goods, work-
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in-process and raw materials as low as reasonably possible
and, in any event, at levels which do not exceed those
normally experienced by King during the past six (6) months
prior to the date hereof in connection with its ANDA
Business, adjusted for the amount of sales King has
experienced in connection with the ANDA Business at various
times during such six (6) month period.
3.5 Covenant Not to Compete.
(a) For and in consideration of the Purchase Price to be paid in
accordance herewith, and further for and in consideration of
Mallinckrodt's willingness to acquire the Purchased Assets
pursuant to the terms hereof, King, on behalf of itself, its
employees, its agents, its shareholders (but only those
owning ten (10%) or more of the stock of King) and its
affiliates (including, without limitation, King-Nevada),
agrees that, for the longer of five (5) years after the
Closing Date or the length of time during which the
Manufacturing Agreement is in effect, it will not, anywhere
in the world, in any manner, directly or indirectly, either
alone or in conjunction with others, engage in the
manufacture, development or sale of any APAP/hydrocodone
bitartrate dosage forms (solid or liquid), including without
limitation any such products that are part of the Purchased
Assets, or otherwise compete in any way with Mallinckrodt or
its affiliates in the manufacture, development or sale of
APAP/hydrocodone bitartrate dosage forms (solid or liquid).
(b) King understands and agrees that, in the event of a breach
by it or any of its affiliates of any obligations under this
Section 3.5, Mallinckrodt and its affiliates will suffer
irreparable damage for which its remedies at law are
inadequate and, therefore, Mallinckrodt or its affiliates
may receive, from a court of proper jurisdiction, an
injunction, a decree for specific performance or such other
equitable relief as may he deemed appropriate under the
circumstances, in addition to any other remedies they may
have.
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3.6 Supplements for Alternate Manufacturing Site.
As soon as possible after the Closing Date, King will file
ANDA supplements with the FDA with respect to each of the
Current Products and Future Products, at King's expense, for
the purpose of designating an alternate manufacturing site for
each of the Current Products and Future Products, such site to
be selected by Mallinckrodt as soon as possible; provided,
however, it is understood that Mallinckrodt will pay all
direct manufacturing costs associated with the production of
pilot product batches as and to the extent necessary to secure
FDA approval relative to such supplements.
ARTICLE IV
CERTAIN COLLATERAL TRANSACTIONS AND AGREEMENTS
4.1 Toll Processing by King.
(a) King, King-Nevada and Mallinckrodt understand and agree that
Mallinckrodt is unwilling to and will be unable for an
extended period of time to commence the manufacture of the
Current Products or to commence manufacture of any of the
Future Products (as and when authority for such manufacture
has been granted to Mallinckrodt) at Mallinckrodt's own
facilities or another facility designated by it and,
therefore, on and as of the Closing Date, King and
Mallinckrodt will enter into an agreement whereby King will
toll manufacture for Mallinckrodt the Current Products and
the Future Products (as and when authority for such
manufacture has been granted to Mallinckrodt) on the terms
and conditions and in the form of the Toll Manufacturing
Agreement for APAP/Hydrocodone Bitartrate Tablets attached
hereto as Exhibit B, herein referred to as the
"Manufacturing Agreement".
(b) The parties further understand and agree that the continued
performance by King of its obligations under the
Manufacturing Agreement is
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absolutely critical to Mallinckrodt since the value to
Mallinckrodt of its acquisition of the Purchased Assets
herein is dependent upon the ability to reach the market
with substantial volumes of finished product within the next
five (5) years. Therefore, the parties agree that, should
King for any reason be unable to perform its obligations
under and pursuant to the Manufacturing Agreement,
Mallinckrodt will have substantially lost the benefit of its
bargain as set forth in this Agreement.
(c) Notwithstanding any other provision hereof, in the event
that, for whatever reason that is not within the reasonable
control or responsibility of Mallinckrodt, and whether or
not within the reasonable control of King, that portion of
the Bristol Facility which is dedicated to or involved in
the production of finished product for Mallinckrodt pursuant
to the terms of the Manufacturing Agreement is unable, for a
period of sixty (60) days or more continuously, to engage in
and sustain production of such finished products and to
lawfully introduce or deliver for introduction into
interstate commerce such finished products ("Bristol
Shutdown"), the parties agree that Mallinckrodt will have
suffered damage, direct and consequential, to its dosage
pharmaceutical business and will have suffered lost
opportunity costs, all of which damage and cost will be, by
its very nature, difficult to calculate with precision.
Therefore, the parties agree that, by way of liquidated
damages (and not as a penalty), in the event there is and
any time there is, during the period commencing on the date
hereof and ending on December 31, 2000, a Bristol Shutdown,
King shall pay to Mallinckrodt an amount equal to the sum of
Five Hundred Thousand Dollars ($500,000) and the product
obtained by multiplying Sixteen Thousand Five Hundred
Dollars ($16,500) by the number of days in excess of sixty
(60) that any such Bristol Shutdown continues. The parties
agree that a Bristol Shutdown shall not be deemed to have
ended unless King has demonstrated to Mallinckrodt's
reasonable satisfaction for a period of ten (10) consecutive
days that the appropriate finished product production
facilities have run or are capable of running without
shutdown or material delay or other substantial problems and
that finished product
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produced therein may be lawfully introduced or delivered for
introduction into interstate commerce. The parties further
agree that if King shall have made such demonstration, the
Bristol Shutdown in question shall be deemed to have ended
on and as of the first day of any such demonstration.
Notwithstanding the preceding portions of this subsection
(c), a Bristol Shutdown shall not be deemed to have occurred
if the only reason therefor is that King's DEA quota for
manufacture has been completely used or exhausted despite
King's best efforts to meet its continuing obligations to
raise its DEA quota to a level necessary to meet its
production requirements under the Manufacturing Agreement.
For ease of reference and explanation only, attached hereto
as Schedule 4.1 is an example of the operation of the
formula set forth in this subsection (c).
4.2 Transitional Assistance by King and King-Nevada.
In consideration of Mallinckrodt's willingness to acquire the
Purchased Assets on the terms and conditions set forth herein,
from and after the Closing Date and for a period of not less
than one hundred eighty (180) days, King and King-Nevada agree
to provide certain sales and marketing, warehousing, shipping
and technical assistance to Mallinckrodt, at Mallinckrodt's
option, in connection with its use of the Purchased Assets in
accordance with the Transitional Services Agreement attached
hereto as Exhibit C.
ARTICLE V
CERTAIN REPRESENTATIONS AND WARRANTIES OF KING AND KING-NEVADA
King and King-Nevada hereby make the following representations and
warranties, each of which is true and correct on the Closing Date and shall
continue to be true and correct and each of which shall survive the Closing Date
and the transactions contemplated hereby. The phrase "to the knowledge of King
and/or King-Nevada" or any substantially equivalent phrase, as used in this
Article V, shall mean to the actual knowledge of employees or representatives of
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King and King-Nevada (as appropriate) after reasonable inquiry and review of all
relevant documents, facts and circumstances.
5.1 Corporate Existence, Qualification and Power of King and King-Nevada.
(a) King is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee. King has
the corporate power and authority to own and use its properties,
including use of the Purchased Assets, and to transact its
business in the manner in which it currently transacts or plans
to transact such business, including any and all activities in
connection with the ANDA Business, holds all franchises, licenses
and permits necessary and required therefor, and is duly licensed
or qualified as a foreign corporation in all jurisdictions in
which such licensing or qualification is required to conduct such
activities and where the failure to be so licensed or qualified
could reasonably be anticipated to have a material adverse effect
on the Purchased Assets or the ANDA Business. King has the
corporate power to enter into and consummate the transactions
contemplated by this Agreement. Except as set forth on Schedule
5.1, there are no firms or persons who are affiliates of King (or
King-Nevada) who have any ownership interest or rights of use in
and to in the Purchased Assets or the ANDA Business.
(b) King-Nevada is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada.
King-Nevada is a wholly owned subsidiary of King. King-Nevada has
the corporate power to own and use its properties, including the
Purchased Assets, and to transact its business in the manner in
which it currently transacts or plans to transact such business,
including any and all activities in connection with the ANDA
Business, holds all franchises, licenses and permits necessary
and required therefor, and is duly licensed or qualified as a
foreign corporation in all jurisdictions in which such licensing
or qualification is required to conduct such activities and where
the failure to be so licensed or qualified could reasonably be
anticipated to have a material adverse effect on the
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Purchased Assets or the ANDA Business. King-Nevada has the
corporate power to enter into and consummate the transactions
contemplated by this Agreement.
5.2 Authorization of Agreement by King and King-Nevada.
The execution and delivery of this Agreement and the Collateral
Agreements do not, and the compliance with and the fulfillment of, and
the consummation of the transactions contemplated by this Agreement
and the Collateral Agreements will not, violate or conflict with any
provisions of the Articles of Incorporation or Bylaws of King or
King-Nevada or result in a breach of, or constitute a default under,
or result in the acceleration of, any obligation under any agreement
or instrument to which King, King-Nevada or their affiliates is a
party or by which they are bound, or violate any order, judgment,
award or decree to which they are a party or to which they are
subject, which violation, conflict, breach or default could have a
material adverse effect on (i) the King Business, (ii) the Purchased
Assets, (iii) any interest or right of Mallinckrodt under this
Agreement or the Collateral Agreements, (iv) the ANDA Business or (v)
the consummation of the transactions contemplated hereby. Attached
hereto as Schedule 5.2 is a certified copy of all resolutions of the
Boards of Directors of King and King-Nevada and all other documents
authorizing King and King-Nevada to consummate the transactions
contemplated under this Agreement and the Collateral Agreements.
Except as set forth on Schedule 5.2, such resolutions and documents
represent the taking of all action required by law, the Articles of
Incorporation of King or King-Nevada, their Bylaws, or otherwise to
authorize and approve the execution, delivery and performance of this
Agreement and the Collateral Agreements on behalf of King and
King-Nevada. Except as noted on Schedule 5.2, there are no third
parties whose authorization or approval is required with respect to
the execution and performance by King or King-Nevada of this Agreement
or the Collateral Agreements. This Agreement and the Collateral
Agreements represent the binding and enforceable obligations of King
and King-Nevada.
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5.3 Financial Statements.
Attached hereto as Schedule 5.3 are statements of revenue and net
margin associated specifically with the ANDA Business for the nine (9)
months ended September 30, 1995 ("ANDA Financial Statements"). The
ANDA Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently maintained and
applied on a basis consistent with prior practices, and do present
fairly the financial position of the ANDA Business for the period
indicated.
5.4 Events Subsequent to December 13, 1994.
Since December 13, 1994, neither King, King-Nevada nor any of their
affiliates have, except as set forth on Schedule 5.4 hereof:
(i) mortgaged, pledged or caused to be created a security interest
with respect to any of the Purchased Assets,
(ii) suffered any damage, destruction, or loss materially adversely
affecting the Purchased Assets or the ANDA Business or the
ability of King to perform any of its obligations under this
Agreement or the Collateral Agreements,
(iii) sold, transferred or assigned any of the Purchased Assets, other
than finished products in the ordinary course of business,
(iv) been involved in any labor dispute or trouble which materially
and adversely affected or is likely to materially adversely
affect the Purchased Assets or the ANDA Business or the ability
of King to perform any of its obligations under this Agreement or
the Collateral Agreements, or
(v) suffered any material adverse change in the ANDA Business or the
Purchased Assets which materially and adversely affected the
value or utility of the Purchased Assets, the well-being of the
ANDA Business or the ability of King to perform any of its
obligations under this Agreement or the Collateral Agreements.
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5.5 Ability to Conduct Business.
None of King, King-Nevada, their agents, employees or affiliates is
subject to or bound by any judgment, order, writ, injunction or decree
of any court, or of any governmental body or of any arbitrator, or a
party to, bound by or a beneficiary of any agreement, which might
hinder or prevent the permitted use after the Closing Date by
Mallinckrodt of any of the Purchased Assets or its conduct of a
business similar to the ANDA Business as conducted by King or
King-Nevada or interfere in any way with Mallinckrodt's rights under
this Agreement or the Collateral Agreements or King's or King-Nevada's
obligations hereunder or thereunder.
5.6 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 5.6 there are no claims, obligations,
liabilities or indebtedness, existing or contingent, with respect to
King or King-Nevada that relate in any way to the Purchased Assets or
the ANDA Business.
5.7 Inventories.
The Current Products inventories of King (whether finished product,
work-in process or raw materials) will be properly valued in
accordance with Section 3.4 hereof and consist of items of a quality
currently useable and salable in the ordinary course of business, meet
all applicable specifications and are fit for their intended purposes.
King has good and marketable title to all of such inventories free and
clear of any liens, mortgages, pledges, encumbrances, claims or
charges of any kind except as identified on Schedule 5.7.
5.8 Title to Purchased Assets.
Except as noted on Schedule 5.8, King-Nevada has good and marketable
title to all of the Purchased Assets, free and clear of all mortgages,
liens, security interests, charges, claims, restrictions and other
encumbrances of every kind.
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5.9 Intellectual Property.
(a) Set forth on Schedule 5.9(a) is a description of all of the
intellectual property rights (whether owned by King or
King-Nevada or used by either or both of them as a result of
license, lease or other claim of right from a third party)
included as part of the Branded Line or as part of the Purchased
Assets being purchased hereunder.
(b) With respect to any items of intellectual property (including,
without limitation, patents, applications for patent, trademarks,
service marks, trade names, copyrights, trade secrets and
proprietary data, of all types) used by King, King-Nevada or
their affiliates in connection with the Branded Line or as part
of the Purchased Assets that are owned by King-Nevada, title to
such items is held by King-Nevada free and clear of all adverse
claims, liens, security interests, restrictions and other
encumbrances, and, to the knowledge of King and King-Nevada,
there are no circumstances that would indicate that there is any
reasonable basis to believe that any person or persons could or
would assert a claim of ownership, right of possession or use in
any way adverse to King's or King-Nevada's rights in and to any
such intellectual property, except as set forth on Schedule
5.9(b).
(c) With respect to any items of intellectual property (including,
without limitation, patents, applications for patent, trademarks,
service marks, trade names, copyrights, trade secrets and
proprietary data, of all types) used by King, King-Nevada or
their affiliates in connection with the Branded Line or in
connection with the Purchased Assets for which King, King-Nevada
or their affiliates have only the right of use as opposed to
ownership, King and King-Nevada are, to the knowledge of King and
King-Nevada, in compliance in all respects with the contracts,
agreements or understandings granting any such rights of use,
such contracts, agreements or understandings are in full force
and effect and there exists
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no default by any other party to such contracts, agreements or
understandings which might in any way jeopardize the rights of
King, King-Nevada or their affiliates to any intellectual
property therein granted or adversely affect in any manner the
Branded Line or the Purchased Assets.
(d) Except as set forth on Schedule 5.9(d), there are no claims,
demands, proceedings or other actions instituted, pending or, to
the knowledge of King and King-Nevada, threatened, nor to the
knowledge of King and King-Nevada are there any facts and
circumstances which could reasonably be anticipated to result in
any such claims, demands or proceedings, alleging that the use by
King, King-Nevada or their affiliates of any intellectual
property related to the Branded Line or the Purchased Assets, or
that the use, manufacture or licensing of any product, material,
design or process in connection with the Branded Line or the
Purchased Assets, infringes any patents or other intellectual
property rights of third parties, or otherwise challenging the
right of King, King-Nevada or their affiliates with respect to
the Branded Line or the Purchased Assets to maintain or use any
patent, trademark or service mark, or any application or
registration therefor, or any trade names, copyrights, trade
secrets, inventions, processes, machines, manufacture or
compositions of matter or any other item of intellectual
property.
(e) Except as set forth on Schedule 5.9(e), neither King nor
King-Nevada have granted to any party (including any affiliates)
any licenses, sublicenses or other rights (whether or not
presently outstanding) under any intellectual property rights
used in connection with the Branded Line or the Purchased Assets.
5.10 ANDA Agreements.
Except as set forth on Schedule 5.10, each of the ANDA Agreements is
valid and subsisting and represents a bona fide commercial
transaction, is currently in full
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force and effect, is enforceable in accordance with its terms, no
rights thereto have been assigned or transferred and no one has any
adverse claims with respect to the right of King or King-Nevada to
obtain the full benefits thereunder. Except as set forth on Schedule
5.10, to the knowledge of King and King-Nevada, there exist no events
of default by King, King-Nevada or any other party with respect to any
of the ANDA Agreements and no event has occurred which, upon the
passage of time or the giving of notice, or both, could result in any
such events of default or prevent King or King-Nevada from exercising
or obtaining the benefits thereunder or the benefits of any option
contained therein, or could cause the creation of a lien, restriction
or any sort of encumbrance upon any of the Purchased Assets. Further,
except as set forth on Schedule 5.10, each of the ANDA Agreements is
either fully assignable by King or King-Nevada to Mallinckrodt without
the need to secure consent from the other party or parties thereto or
King or King-Nevada (as appropriate) has secured any written consents
to assignment required with respect thereto.
5.11 Agreements with Suppliers.
Except as set forth on Schedule 5.11, each of the contracts (written
or oral) between King, King-Nevada or their affiliates and any other
party or parties for the supply by such third parties of raw
materials, products and/or services relative to the ANDA Business is
valid and subsisting, is currently in full force and effect, is
enforceable in accordance with its terms, no rights thereto have been
assigned or transferred and no one has any adverse claims with respect
to the right of the ANDA Business to obtain the full benefits
thereunder. Except as set forth on Schedule 5.11, to the knowledge of
King and King-Nevada, there exist no events of default by King or
King-Nevada with respect to such supply contracts.
5.12 Relationship With Suppliers and Customers.
King-Nevada and King have maintained and continue to maintain, with
respect to the ANDA Business, good working relationships with all of
their customers and suppliers and, except as set forth and explained
on Schedule 5.12 hereof, within
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the eleven (11) months prior to the Closing Date, no customer of the
ANDA Business has canceled or threatened any cancellation of any of
the ANDA Agreements (or has materially diminished any of its orders
thereunder) and no supplier to the ANDA Business has canceled or
threatened any cancellation of any supplied materials (or has
materially diminished the level of its supply).
5.13 Pharmaceutical Products.
(a) King and King-Nevada represent and warrant that they have
delivered to Mallinckrodt certain information or given
Mallinckrodt access to all existing information regarding each of
the Current Products (along with a description of its
container/closure system) currently manufactured, marketed, sold
or licensed by King, King-Nevada or their affiliates. The Current
Products and all other products currently manufactured, sold or
licensed by King, King-Nevada or their affiliates are referred to
collectively as the "Pharmaceutical Products".
(b) Except as set forth on Schedule 5.13 there have been no (i)
Pharmaceutical Products which have been recalled, withdrawn or
suspended by King, King-Nevada or their affiliates in the United
States and/or outside of the United States (whether voluntarily
or otherwise) during the period commencing January 1, 1995 and
ending on the date hereof, or (ii) proceedings in the United
States and/or outside of the United States pending against King,
King-Nevada or their affiliates at any time during the period
commencing January 1, 1995 and ending on the date hereof (whether
such proceedings have since been completed or remain pending)
seeking the recall, withdrawal, suspension or seizure of any
Pharmaceutical Product or seeking to enjoin King or its
affiliates from engaging in any activities pertaining to such
Pharmaceutical Products or to affirmatively perform activities
pertaining to such Pharmaceutical Products prior to shipping such
products.
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(c) To the knowledge of King and King-Nevada. except as set forth in
Schedule 5.13:
(i) there exists no set of facts which could reasonably be
expected to furnish a basis for the recall or withdrawal of
any Pharmaceutical Product or the suspension of any product
registration, product license, manufacturing license,
wholesale dealers license, export license or other
governmental license, approval or consent of any
governmental regulatory agency with respect to any of the
Pharmaceutical Products or the Bristol Facility;
(ii) there exists no set of facts which could reasonably be
expected to furnish a basis for the recall, withdrawal,
suspension or seizure by order of any state, federal or
foreign agency or court of law of any Pharmaceutical Product
or which could reasonably be expected to form the basis for
the issuance of an injunction pertaining to such
Pharmaceutical Products, including, without limitation, the
procedures used to manufacture and test such products;
(iii) there exists no set of facts which could reasonably be
expected to otherwise cause King, King-Nevada or their
affiliates to recall, withdraw or suspend any Pharmaceutical
Product from the market or to cease further distribution or
marketing of commercially available products pending further
approval or authorization from a governmental official or
agency, or to change the marketing classification of any
Pharmaceutical Product or to terminate or suspend clinical
testing of any Pharmaceutical Product; and
(iv) the Current Products have been manufactured in accordance
with the specifications under which such Current Products
have normally been manufactured and in accordance with the
specifications provided in the appropriate ANDA, and,
furthermore in accordance with all applicable requirements
of law,
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including without limitation current Good Manufacturing
Practices as defined by the FDA ("cGMP").
(d) Except as set forth on Schedule 5.13, and to the extent it
might have any adverse effect on the Purchased Assets or
King's and King-Nevada's performance hereunder or under any
of the Collateral Agreements, during the period commencing
on January 1, 1995 and ending on the date hereof, with
respect to Pharmaceutical Products, King, King-Nevada or
their affiliates have not received or been subject to (i)
any FDA Form 483s, (ii) any FDA Notices of Adverse Findings,
(iii) establishment inspection reports, (iv) consent
decrees, orders, settlement agreements or similar matters
relating in any fashion to the Pharmaceutical Products or
(v) warning letters or other correspondence from the FDA or
other governmental officials or agencies concerning the
Pharmaceutical Products in which FDA or such other
governmental officials or agencies asserted that the
operations of King or its affiliates (or their predecessors
in interest) may not be in compliance with applicable law,
regulations, rules or guidelines. If King is in receipt of
or been subject to any of the reports or actions listed in
the immediately preceding sentence, King has responded or
taken appropriate remedial measures in a timely fashion, as
detailed specifically on Schedule 5.13.
(e) Except as set forth on Schedule 5.13, neither King or
King-Nevada nor any of their affiliates and, to King's and
King-Nevada's knowledge, none of its customers for Current
Products, have filed any Adverse Reaction Reports with the
FDA during the period commencing January 1, 1995 and ending
on the date hereof and have complied in all respects with
current reporting requirements.
(f) Except as set forth on Schedule 5.13, no employee of King,
King-Nevada or their affiliates, nor any consultant
retained by King, King-Nevada or their affiliates during
the period beginning on January 1, 1994 and ending on the
date hereof, has been debarred under Section 306(a) or
Section 306(b) of the
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Federal Food, Drug and Cosmetic Act or has, during that
period, been convicted of or formally charged with a
criminal offense relating to the development or approval
process of any drug product, or a felony of any kind and
under any law, statute or regulation involving bribery,
payment of illegal gratuities, fraud, perjury, false
statements, racketeering, blackmail, extortion,
falsification or destruction of records, or interference
with, obstruction of an investigation into, or prosecution
of, any criminal offense or a conspiracy to commit, aid or
abet such felony.
(g) Except as set forth on Schedule 5.13 and during the period
commencing on January 1, 1994 and ending on the date hereof,
with respect to King, King-Nevada or their affiliates, there
have been no inspections, inspection reports or other
correspondence from the Drug Enforcement Administration
("DEA") in which the DEA or any other government agency
asserts that the operations of King, King-Nevada or their
affiliates is or was not or may not be in compliance with
the federal Controlled Substances Act, as amended, or any
similar law of any country or other jurisdiction.
5.14 Environmental Compliance at the Bristol Facility.
(a) To the knowledge of King-Nevada and King and except as set
forth on Schedule 5.14, on and as of the Closing Date, King
and its affiliates are, with respect to the Bristol
Facility, in compliance with all applicable laws, rules,
regulations and decrees (including all reporting
requirements) under any federal, state, local or foreign
body of law or authority, relative to environmental, health
and safety matters, including, but not limited to, the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251
et seq., as amended ("FWPCA"), the Safe Drinking Water Act,
42 U.S.C. Section 300f et seq., as amended, the Clean Air
Act, 42 U.S.C. 7401 et seq., as amended ("CAA"), the
Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., as amended ("RCRA"), the Toxic Substances
Control Act 15 U.S.C. Section 2601 et seq., as amended
("TSCA"), the
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Occupational Safety and Health Act, 29 U.S.C. Section 651 et
seq., as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601, as
amended ("CERCLA"), and the Emergency Planning and Community
Right-To-Know Act. 42 U.S.C. Section 11001, or the state law
counterparts of any of the foregoing listed statutes, as
well as all rules and regulations promulgated pursuant to
any of the foregoing statutes or their state law
counterparts, where any noncompliance with any of the
foregoing might have an adverse effect on the Purchased
Assets, the ANDA Business or King's or King-Nevada's
compliance with and performance under the terms of this
Agreement or any of the Collateral Agreements.
(b) To the knowledge of King and King-Nevada, all environmental
and operating permits necessary for the operation of the
Bristol Facility or production hereunder have been obtained
or have been applied for within the period of time permitted
by law, and if already obtained are in effect on the date
hereof. To the knowledge of King and King-Nevada, King is in
compliance with the terms of any such permits and no action
or investigation has been taken, commenced or threatened by
governmental authorities or any other person to revoke or
modify such permits or applications or to enforce the terms
of or take action for violation of such permits, and there
is no known condition which could cause such action or
investigation to be taken. Except as set forth on Schedule
5.14, neither King nor King-Nevada have, with respect to the
ANDA Business or the Bristol Facility, filed any
applications for permits to store, treat, handle, dispose or
transport waste or any Hazardous Materials (as defined below
in subsection (e) of this Section 5.14).
(c) To the knowledge of King and King-Nevada and except as set
forth on Schedule 5.14, no spill, release or discharge of
Hazardous Materials to the air, land or water subject to the
reporting requirements of any federal, state or local law or
regulation has occurred at the Bristol Facility and there
has been no corrective action, remediation or clean up
required as a
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consequence of such spill, release or discharge which spill,
release or discharge might have any material adverse effect
on the Purchased Assets, the ANDA Business or King's or
King-Nevada's compliance with or performance under this
Agreement or the Collateral Agreement.
(d) To the knowledge of King and King-Nevada, the Bristol
Facility has not been designated as a "Superfund Site" and
is not otherwise the subject of an order of removal or
remedial action pursuant to any applicable federal, state or
local law, and there are no conditions or circumstances
affecting the Bristol Facility which might cause it to be
designated as a "Superfund Site" or render it subject to an
order of removal or remedial action.
(e) For purposes of this Section 5.14, "Hazardous Materials"
means any materials defined as hazardous materials,
substances or waste in any way by law as of the Closing
Date, including without limitation: (i) any "hazardous
substance" or "Pollutant or Contaminant" (as defined in
Sections 101(14), (33) of CERCLA or the regulations
designated pursuant to Section 102 of CERCLA, 42 U.S.C.
Section 9602 and found at 40 C.F.R. Part 302), including any
element, compound, mixture, solution, or substance
designated pursuant to Section 102 of CERCLA and as
regulated by CERCLA, (ii) any substance designated pursuant
to Section 311(b)(2)(A) of FWPCA and as regulated by FWPCA,
(iii) any hazardous waste having the characteristics
identified under or listed pursuant to Section 3001 of RCRA,
42 U.S.C. Sections 6901, 6921, (iv) any substance containing
petroleum, as defined in Section 9001(8) of RCRA, 42 U.S.C.
Section 6991(8) or 40 C.F.R. Part 280 and as regulated by
RCRA, (v) any toxic pollutant listed under Section 307(a) of
the FWPCA, 33 U.S.C. Section 1317(a) and as regulated by
FWPCA, (vi) any hazardous air pollutant listed under Section
112 of the CAA, 42 U.S.C. Section 7401, 7412, as amended and
as regulated by the CAA, (vii) any imminently hazardous
chemical substance or mixture with respect to which action
has been taken pursuant to Section 7 of TSCA, 15 U.S.C.
Sections 2601, 2606, as amended and as regulated by TSCA, or
(ix) any other hazardous or toxic
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materials, contaminants, substances or wastes regulated by
any applicable environmental law.
5.15 Compliance with Other Laws.
In addition to King's and King-Nevada's representations and
warranties relative to compliance with laws, rules and
regulations as detailed in Sections 5.13 and 5.14 above,
except as set forth on Schedule 5.15, King and King-Nevada
are, with respect to the ANDA Business or the King Business in
general, not in violation of or in default with respect to any
applicable law, rule, regulation, order, writ or decree of any
court or any governmental commission, board, bureau, agency or
instrumentality, which violation or default might have an
adverse effect on the Purchased Assets, the ANDA Business or
King's or King-Nevada's compliance with and performance under
the terms of this Agreement or any of the Collateral
Agreements.
5.16 Litigation.
Except as set forth on Schedule 5.16 hereto, there is no suit,
claim, action or proceeding now pending or, to the knowledge
of King and King-Nevada, threatened before any court,
administrative or regulatory body, arbitrator, or any
governmental agency, or any grounds therefor which may result
in any judgment, order, decree, liability or other
determination which will, or could, have an adverse effect
upon the ANDA Business, the Purchased Assets or King's or King
Nevada's compliance with and performance under the terms of
this Agreement or any of the Collateral Agreements. No such
judgment, order or decree has been entered or any such
liability incurred which has or could have such effect. No
party has tendered to King, King-Nevada or their affiliates,
nor has King, King-Nevada or their affiliates accepted the
tender of the defense of any claim, action or proceeding which
has or could have such effect. There is no claim, action or
proceeding now pending or, to the knowledge of King and
King-Nevada, threatened before any court, administrative or
regulatory body, arbitrator, or any governmental agency, which
has or could have such effect.
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5.17 Product and Service Warranties.
King and King-Nevada represent and warrant that they have
delivered to Mallinckrodt all relevant information or given
Mallinckrodt access to all relevant information regarding the
standard forms of product and service warranties and
guarantees utilized by King and King-Nevada with respect to
the ANDA Business. Except as set forth on Schedule 5.17
hereof, during a period beginning on January 1, 1995 through
the date hereof, neither King or King-Nevada nor their
affiliates have received notice of, or become aware of facts
or circumstances that might support, any claims (including,
but not limited to, claims for product liability, defects or
breaches of product or service warranties) in connection with
the manufacture, production, sale, distribution or use of any
products under the ANDA Business or with respect to the King
Business generally, which claims might have an adverse effect
on the ANDA Business, the Purchased Assets or King's or
King-Nevada's compliance with and performance under the terms
of this Agreement or any of the Collateral Agreements.
5.18 Broker's Fees.
No broker, finder or agent has been retained by King,
King-Nevada or any of their affiliates, nor by anyone acting
on behalf of any one of them, with respect to the transactions
contemplated herein, nor have King, King-Nevada or any of
their affiliates agreed to pay any brokerage fees, finder's
fees or commissions with respect to the transactions
contemplated by this Agreement.
5.19 Consents.
Other than the notice required by 21 CFR 314.72(a)(i), no
consents, approval or authorization of the FDA, the DEA or any
other governmental agency or official, or under the terms of
any law, rule, regulation, judgment, order or consent decree,
are required for the execution and performance by King or
King-Nevada
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of this Agreement and/or the Collateral Agreements or for
the consummation of the transactions set forth herein or
therein.
5.20 Material Facts.
To the knowledge of King and King-Nevada, neither this
Agreement nor any schedule or exhibit hereto (including
without limitation the Collateral Agreements), nor any written
statement or certificate furnished in connection herewith or
any of the transactions contemplated hereby, contains or will
contain an untrue statement of a fact or omits or will omit to
state a fact that is necessary in order to make the statements
contained herein and therein, in the light of the
circumstances under which they are made, not materially
misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF MALLINCKRODT
Mallinckrodt hereby makes the following representations and warranties,
each of which is true and correct on the Closing Date and shall continue to be
true and correct, and each of which shall survive the Closing Date and the
transactions contemplated hereby.
6.1 Corporate Status.
Mallinckrodt is a corporation duly organized, validly existing
and in good standing under the laws of the Stare of Delaware,
and has the corporate power and the authority to own and use
its properties and to transact its business in which it is
engaged and has the corporate power to enter into and
consummate this Agreement.
6.2 Authorization of Agreement.
The execution and delivery of this Agreement and the
Collateral Agreements do not, and the compliance with and the
fulfillment of, and the consummation of the
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transactions contemplated by this Agreement and the Collateral
Agreements will not, violate or conflict with any provision of
the Articles of Incorporation or Bylaws of Mallinckrodt, or
its affiliates, or result in a breach of, or constitute a
default under, or result in the acceleration of, any
obligation under any agreement or instrument to which
Mallinckrodt, or its affiliates, is a party or by which it is
bound, or violate any order, judgment, award or decree to
which it is a party or to which it is subject which could have
a material adverse effect on the consummation of the
transactions contemplated hereby. Attached hereto as Schedule
6.2 is a copy of the resolution of the Board of Directors of
Mallinckrodt Group Inc., Mallinckrodt's ultimate corporate
parent, authorizing Mallinckrodt to consummate the
transactions contemplated hereunder, which resolution
constitutes all action required by law, Mallinckrodt's or
Mallinckrodt Group Inc.'s Articles of Incorporation, their
Bylaws or otherwise to authorize and approve the execution,
delivery and performance of this Agreement and the Collateral
Agreements by Mallinckrodt.
6.3 Broker's Fees.
Neither Mallinckrodt nor anyone on its behalf has retained any
broker, finder or agent or agreed to pay any brokerage fees,
finder's fees or commissions with respect to the transactions
contemplated by this Agreement.
6.4 Consents.
Except as noted specifically in Section 6.2 above, no consent
of any third party is necessary for Mallinckrodt to effect
consummation of the transactions contemplated hereby.
6.5 Ability to Conduct Business.
Neither Mallinckrodt nor its agents, employees or affiliates
is subject to or bound by any judgment, order, writ,
injunction or decree of any court, or of any governmental body
or any arbitrator, or a party to, bound by or a beneficiary of
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any agreement which might interfere in any way with King's or
King Nevada's rights under this Agreement or the Collateral
Agreements or Mallinckrod's obligations hereunder or
thereunder.
6.6 Compliance with Laws.
Mallinckrodt is not in violation of or in default with respect
to any applicable law, rule, regulation, order, writ or decree
of all court or any governmental commission, board, bureau,
agency or instrumentality, which violation or default might
have an adverse effect on Mallinckrodt's compliance with and
performance under the terms of this Agreement or any of the
Collateral Agreements.
6.7 Relationship with Suppliers.
Mallinckrodt has maintained and continues to maintain, with
respect to its production of raw materials that will be used
by King in its performance under the Manufacturing Agreement,
good working relationships with all of its suppliers and,
within the one (1) year prior to the Closing Date, no such
supplier has canceled or threatened cancellation of any of its
agreements with Mallinckrodt or has materially diminished its
supply of any materials thereunder.
6.8 Material Facts
To the knowledge of Mallinckrodt, neither this Agreement nor
any schedule or exhibit hereto (including without limitation
the Collateral Agreements), or any written statement or
certificate furnished in connection herewith or any of the
transactions contemplated hereby, contains or will contain an
untrue statement of a fact or omits or will omit to state a
fact that is necessary in order to make the statements
contained herein and therein, in light of the circumstances
under which they are made, nor materially misleading.
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ARTICLE VII
FURTHER AGREEMENTS OF THE PARTIES
7.1 Preservation of Business.
From and after the Closing Date and subject to normal
commercial and business requirements, King and King-Nevada
shall carry on the King Business diligently and shall use all
reasonable efforts to keep their business organization intact
(including maintaining appropriate levels of insurance against
normally insurable risks given the nature of its business).
7.2 Full Access.
Representatives of Mallinckrodt, at Mallinckrodt's expense,
shall have access after the Closing Date at all reasonable
times and upon advance arrangement with King to all premises,
properties, books, records, contracts and documents of the
ANDA Business (including, without limitation, access to raw
data in support of product lot approvals and stability
reports) and such other information concerning the King
Business generally as may be relevant to the protection of
Mallinckrodt's rights and interests hereunder, and King will
furnish to Mallinckrodt any information related to the
foregoing as Mallinckrodt may from time to time request.
Specifically, from and after the Closing Date, Mallinckrodt,
at its own expense, shall have the right, from time to time
and upon reasonable advance notice, during normal business
hours, when the Bristol Facility is in operation, to have one
or more of its employees or representatives visit the Bristol
Facility to review any of King's or King-Nevada's operations
relative to the ANDA Business or the King Business generally
as necessary for the protection of any of Mallinckrodt's
rights hereunder or under the Collateral Agreements. It is not
the intent of the parties, by the provisions of this Section
7.2 to give general access to Mallinckrodt to financial
information or other confidential and proprietary information
of King but only to give Mallinckrodt access to that
information it reasonably requires to ensure the continued
performance by King and King-
39
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Nevada of their obligations under this Agreement or the
Collateral Agreements. Mallinckrodt acknowledges that King and
King-Nevada and their affiliates will have manufacturing,
supply, development, confidentiality and distribution
agreements with entities other than Mallinckrodt involving
products other than the Current Products, Future Products, and
the Branded line and Mallinckrodt acknowledges it shall have
no right to access such confidential. proprietary, or general
business information about such operations or agreements.
7.3 Taxes.
Each of King-Nevada and Mallinckrodt shall pay and be
responsible for one-half of any sales, use or transfer tax
levied upon or incident to the consummation of the
transactions contemplated herein.
7.4 Further Assurances.
From time to time after the Closing Date, King and King-Nevada
shall, at the request of Mallinckrodt, execute and deliver or
cause to be executed or delivered all such deeds, assignments,
consents, documents and further instruments of transfer and
conveyance, and take or cause to be taken all such other
actions, all as Mallinckrodt may reasonably deem necessary or
desirable in order to fully and effectively vest in
Mallinckrodt, or to confirm its title to and possession of,
the Purchased Assets, or to assist Mallinckrodt, particularly
with regard to any requirements imposed by the FDA or any
other regulatory agency, in exercising any rights which
Mallinckrodt is currently or ultimately (as the case may be)
entitled to exercise with respect thereto.
7.5 Notification of Claims.
After the Closing Date, each party shall promptly notify all
of the others of any action, suit or proceeding that shall be
instituted or threatened against a party to restrain, prohibit
or otherwise challenge the legality of the continuing
40
<PAGE> 41
performance of any transactions or obligations under this
Agreement or the Collateral Agreements.
7.6 No Public Announcement.
Within thirty (30) days after the Closing Date the parties
agree to make a joint announcement to the press and trade
journals substantially and substantively in the form of
Schedule 7.6. Except as contemplated by the immediately
preceding sentence, neither of the parties shall, without the
approval of the other party hereto, make any press release or
other public announcement concerning the transactions
contemplated by this Agreement or the Collateral Agreements,
except to the extent that any party is reasonably of the
opinion that it must make a disclosure of relevant facts to
its shareholders in any particular circumstance and except as
and to the extent that any party shall be obligated by law to
make such an announcement, and in either case the disclosing
party shall so advise the other party in advance and both
parties hereto shall use their best efforts to cause a
mutually agreeable release or announcement to be issued.
7.7 Opinions of Counsel.
On and as of the Closing Date, King and King-Nevada will
provide to Mallinckrodt an opinion of King's counsel, Hunter,
Smith and Davis of Kingsport, Tennessee, as follows:
(i) King is a corporation duly organized, validly
existing and in good standing under the laws of the
State or Tennessee, has full corporate power and
authority to own and use its properties and to
transact the business in which it is engaged;
(ii) King-Nevada is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Nevada, has full corporate power and
authority to own and use its properties and to
transact the business in which it is engaged;
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<PAGE> 42
(iii) King and King-Nevada have full corporate power and
authority to enter into this Agreement and the
Collateral Agreements and to consummate the
transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement
and the Collateral Agreements by King and King-Nevada
have been duly authorized by all requisite corporate
action on the part of King and King-Nevada, and this
Agreement and the Collateral Agreements constitute the
valid and binding obligations of King and King-Nevada,
enforceable against them in accordance with their terms
except (A) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating
to creditors' rights and (B) that the remedy of
specific performance and injunctive and other forms of
equitable relief are subject to certain equitable
defenses and to the discretion of the court before
which any proceeding therefor may be brought;
(iv) the Bill of Sale and Assignment attached hereto as
Exhibit A and any other instruments of transfer and
conveyance being delivered to Mallinckrodt on and as of
the Closing Date are jointly sufficient and in proper
form to convey to Mallinckrodt all of the right, title
and interest of King-Nevada in and to the Purchased
Assets, and payment by Mallinckrodt of any
consideration hereunder as, when and if specifically
required, will effectively convey, transfer and assign
such right, title and interest in and to the Purchased
Assets to Mallinckrodt;
(v) to such counsel's knowledge, except as set forth on any
of the Schedules to this Agreement, neither King or
King-Nevada nor their affiliates are parties to,
subject to or bound by any agreement or any judgment,
order, writ, injunction, or decree of any court,
governmental body or arbitrator which would or could
conflict with or be breached by the execution, delivery
or performance by King or King-Nevada of this Agreement
or the Collateral Agreements or which would or could
prevent the carrying out of any of King's or
King-Nevada's obligations under this Agreement or the
Collateral Agreements;
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<PAGE> 43
(vi) to such counsel's knowledge, except as set forth herein
on any of the Schedules to this Agreement, neither King
or King-Nevada nor their affiliates are subject to or
bound by any judgment, order, writ, injunction or
decree of any court or of any governmental body or of
any arbitrator, or a party to, bound by, or a
beneficiary of any agreement which would or could
prevent the use by Mallinckrodt, after the Closing
Date, of the Purchased Assets, or which might create
any security interest, lien or other encumbrance
against any of the Purchased Assets;
(vii) to such counsel's knowledge, except as set forth on
any of the Schedules to this Agreement or as specified
in its opinion, no litigation, proceeding or
governmental investigation is pending against or
relating to the ANDA Business, the Purchased Assets or
the King Business; and
(viii) to such counsel's knowledge, except as set forth on
any of the Schedules to this Agreement, neither King or
King-Nevada nor their affiliates is in default under or
in violation of any agreement or any law or
governmental regulation, ordinance or rule applicable
to them or their operations, which default or violation
could have a material adverse effect on the ANDA
Business, the Purchased Assets or the King Business or
might prevent King or King-Nevada from complying with
or performing under this Agreement or the Collateral
Agreements.
ARTICLE VIII
INDEMNIFICATION
8.1 Agreement to Indemnify.
(a) King and King-Nevada hereby agree to indemnify,
defend and hold harmless Mallinckrodt and its
affiliates, from and against any and all demands,
claims, actions or causes of action, assessments,
losses, damages, injuries, liabilities, costs and
expenses, including without limitation, interest,
penalties and reasonable attorneys' fees and expenses
(collectively, "Damages") asserted against, resulting
to, imposed upon or
43
<PAGE> 44
incurred by Mallinckrodt or its affiliates, directly or
indirectly, related to, arising out of or resulting from:
(i) any and all claims, liabilities or obligations (whether
absolute, accrued or contingent) relating to or arising
out of any acts of, or omissions to act by King,
King-Nevada or their affiliates, or any of their
employees, agents or representatives, which take place
on or prior to the Closing Date hereunder in connection
with the ANDA Business, the Purchased Assets or the
King Business (including, without limitation any
obligations or liabilities under any of the ANDA
Agreements relating to performance required or
undertaken with respect thereto prior to the Closing
Date, except to the extent Mallinckrodt has and
specifically and unambiguously otherwise agreed in
writing), or
(ii) any breach of the representations, warranties,
covenants or agreements of King or King-Nevada
contained in this Agreement or in any of the Collateral
Agreements, or
(iii) any acts or omissions to act by King, King-Nevada or
their affiliates, or any of their employees, agents or
representatives, that result in any violation or
alleged violation of any law, rule, regulation, order
or judicial decree of any federal, state or local
government, domestic or international, that in any
manner adversely affect the rights and benefits of
Mallinckrodt under this Agreement or under any of the
Collateral Agreements or that materially affect or
prevent the performance by King or King-Nevada of any
of their obligations hereunder or thereunder.
(b) Mallinckrodt hereby agrees to indemnify, defend and
hold harmless King, King-Nevada and their affiliates
from and against any and all Damages asserted
against, resulting to, imposed upon or incurred by
King, King-Nevada or their affiliates directly or
indirectly, related to, arising out of or resulting
from:
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<PAGE> 45
(i) any breach of the representations, warranties,
covenants or agreement of Mallinckrodt or its
affiliates contained in this Agreement or in any of the
Collateral Agreements, or
(ii) any acts or omissions to act by Mallinckrodt or its
affiliates, or any of its employees, agents or
representatives, that result in any violation or
alleged violation of any law, rule, regulation, order
or judicial decree of any federal, state or local
government, domestic or international, that in any
manner adversely affect the rights and benefits of
King, King-Nevada or their affiliates under this
Agreement or under any of the Collateral Agreements or
that hinder or prevent the performance by Mallinckrodt
of any of its obligations hereunder or thereunder.
8.2 Post Closing Claims.
(a) In the event that a party (the "Indemnified Party") shall
reasonably believe that it has a claim for Damages ("Post
Closing Claim"), it shall give prompt notice in accordance
herewith to the responsible party or parties (the
"Indemnifying Party") of the nature and extent of such Post
Closing Claim and the Damages incurred by it. If the Damages
are liquidated in amount, the notice shall so state, and
such amount shall be deemed the amount of such Post Closing
Claim of the Indemnified Party against the Indemnifying
Party (subject to the right of the Indemnified Party to
submit claims for additional Damages incurred after the date
of any such notice). If the amount is not liquidated, the
notice shall so state and, in such event, such Post Closing
Claim shall be deemed asserted against the Indemnifying
Party, but no payment or satisfaction shall be made on
account thereof until the amount of such claim is
liquidated.
(b) If the Indemnifying Party shall not, within thirty (30) days
after the giving of such notice by the Indemnified Party,
notify the Indemnified Party in accordance herewith that the
Indemnifying Party disputes the right of the Indemnified
Party to indemnity in respect of such Post Closing Claim,
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<PAGE> 46
then any such Post Closing Claim shall he paid or satisfied
as follows: (i) if said Post Closing Claim is liquidated,
the full amount of Damages associated with such Post Closing
Claim shall be paid to the Indemnified Party by the
Indemnifying Party at the end of such thirty (30) day
period, or (ii) if the amount of such Post Closing Claim is
unliquidated at the time notice is originally given to the
Indemnifying Party, the Indemnified Party shall give a
second notice to the Indemnifying Party when the liquidated
amount of such Post Closing Claim is known and, unless the
Indemnifying Party shall object in writing to such amount
(as opposed to the Post Closing Claim itself, as to which
the right to dispute had expired) within twenty (20) days
after the giving of said second notice, then payment of the
Damages associated with such Post Closing Claim shall be
made by the Indemnifying Party to the Indemnified Party at
the end of such twenty (20) day period.
(c) Any portion of the amount of Damages asserted by an
Indemnified Party in connection with a Post Closing Claim
shall, if not objected to by the Indemnifying Party in
accordance with the procedures established herein, be
considered to be subject to satisfaction by payment without
further objection.
(d) If an Indemnifying Party shall notify the Indemnified Party
that it disputes any Post Closing Claim or the amount
thereof (which notice shall only be given if the
Indemnifying Party has a good faith belief that the
Indemnified Party is not entitled to indemnity or the full
amount of indemnity as claimed) then the parties hereto
shall endeavor to settle and compromise such claim, or may
agree to submit the same to arbitration, and, if unable to
agree on any settlement or compromise or on submission to
arbitration, such claim shall be settled by appropriate
litigation, and any liability and the amount of the Damages
established by reason of such settlement, compromise,
arbitration or litigation, or incurred as a result thereof,
shall be paid and satisfied as provided herein.
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<PAGE> 47
8.3 Conditions of Indemnification with Respect to Third Party Claims.
(a) An Indemnified Party will promptly give notice to the
Indemnifying Party of any claim of a third party which may
reasonably be expected to result in a Post Closing Claim by
the Indemnified Party. An Indemnifying Party shall have the
right to direct the defense, compromise or settlement of
such claim with counsel selected by it, provided the
Indemnifying Party gives written notice to the Indemnified
Party of its election to do so within twenty (20) days after
receipt of notice in accordance with the preceding sentence.
If the Indemnifying Party fails to so notify the Indemnified
Party of its election to defend any such third party claim,
the Indemnified Party will (upon further notice to the
Indemnifying Party) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for
the account and expense of the Indemnifying Party, subject
to the right of the Indemnifying Party to assume the defense
of such claim at any time prior to settlement, compromise or
final determination thereof if and only if such assumption
would not prejudice the defense of such claim or the rights
of the Indemnified Party.
(b) In the event an Indemnifying Party has assumed the defense
of any such claim, the Indemnified Party shall nonetheless
have the right to select its own counsel and participate in
the defense of such claim at and for its own expense and
account, subject to the right of the Indemnifying Party to
retain ultimate control of the management of the defense of
such claim, and further subject to the obligation of the
Indemnified Party reasonably to cooperate in all respects
with the Indemnifying Party for the effective defense of
such claim. Counsel for the Indemnified Party in such
circumstances shall consult and cooperate with counsel for
the Indemnifying Party in defending against any such third
party claim.
(c) An Indemnifying Party shall not under any circumstances,
without the written consent of the Indemnified Party, settle
or compromise any claim or consent to the entry of any
judgment which does not include as an
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<PAGE> 48
unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all
liability in respect of such claim, in form and substance
reasonably satisfactory to the Indemnified Party.
(d) Notwithstanding anything to the contrary contained herein,
if a third party claim is made which the third party is
unequivocally willing to settle for the payment of money but
the Indemnified Party elects not to settle, then the
Indemnifying Party shall not be liable hereunder with
respect to any Post Closing Claim arising from such third
party claim for more than the amount which such third party
at any time unequivocally agrees in writing to accept in
payment or compromise of the claim plus any related costs
and expenses incurred by the Indemnified Party as of the
date of such offer of settlement.
ARTICLE IX
MISCELLANEOUS
9.1 Remedies Cumulative.
The remedies provided in this Agreement shall be cumulative and shall
not preclude assertion by any party hereto of any other rights
(whether legal or equitable in nature) or the seeking of any other
remedies against any other party hereto.
9.2 Survival of Representations and Warranties.
The representations and warranties contained herein or in any schedule
or other document attached hereto shall be deemed representations and
warranties by the party by whom, or on whose behalf, the same is
delivered, except and unless as otherwise provided herein, and all
representations and warranties made by the parties in this Agreement,
or delivered pursuant hereto, are incorporated in and constitute a
part of this Agreement and shall survive the Closing Date.
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<PAGE> 49
9.3 Payment of Fees and Expenses.
Mallinckrodt shall pay and be responsible for all of its own
fees and expenses (including fees and expenses of its counsel,
accountants and other advisers) incurred incident to the
negotiation, preparation and execution of this Agreement and
the Collateral Agreements and the consummation of the
transactions contemplated herein. King-Nevada shall pay and be
responsible for all of its own and King's fees and expenses
(including fees and expenses of counsel, accountants and other
advisers) incurred by them incident to the negotiation,
preparation and execution of this Agreement and the Collateral
Agreements and the consummation of the transactions
contemplated herein.
9.4 Entire Agreement.
This Agreement, and any exhibits (including the Collateral
Agreements), schedules or other documents referenced herein
constitute the entire agreement of the parties as to the
subject matter hereof, and supersede all prior discussions,
negotiations and agreements, whether written or oral, express
or implied, between the parties with respect to its subject
matter, including that certain Letter of Intent between
Mallinckrodt and King dated September 12, 1995.
9.5 Modification.
This Agreement may not be modified except by a writing
specifically referring to this Agreement and executed by duly
authorized representatives of all parties.
9.6 Waiver.
The failure by any party to exercise any of its rights
hereunder or to enforce any of the terms or conditions of this
Agreement on any occasion shall not constitute or be deemed a
waiver of that party's rights thereafter to exercise any
rights hereunder or to enforce each and every term and
condition of this Agreement.
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<PAGE> 50
9.7 Severability.
A determination that any portion of this Agreement is
unenforceable or invalid shall not affect the enforceability
or validity of any of the remaining portions hereof or of this
Agreement as a whole. In the event that any part of any of the
covenants, sections or provisions herein may be determined by
a court of law or equity to be overly broad or against
applicable precedent or public policy, thereby making such
covenants, sections or provisions invalid or unenforceable,
the parties shall attempt to reach agreement with respect to a
valid and enforceable substitute for the deleted provisions
which shall be as close in its intent and effect as possible
to the deleted portions.
9.8 Notices.
All notices, consents, approvals or other notifications
required to be sent by any party to another party hereunder
shall be in writing and shall be deemed served upon a party if
delivered by hand or sent by United States registered or
certified mail, postage prepaid, with return receipt
requested, addressed to such other party at the address set
out below, or the last address of such party as shall have
been communicated to the other party. If a party changes its
address, written notice shall be given promptly to the other
party of the new address. Notice shall be deemed given on the
day it is mailed (in the case of delivery by mail) or the date
of delivery (in the case of delivery by hand) in accordance
with the provisions of this paragraph. All periods for notice
specified herein shall be deemed to refer to calendar days and
not business days, unless otherwise expressly provided. The
address for notices is as follows:
King: John M. Gregory
President and CEO
King Pharmaceuticals, Inc.
501 5th Street
Bristol, Tennessee 37620
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<PAGE> 51
King-Nevada: Brian G. Shrader
3753 Howard Hughes Parkway
Las Vegas, Nevada 89109
Copy to: John A. A. Bellamy
Corporate Counsel and Vice President
King Pharmaceuticals, Inc.
501 5th Street
Bristol, Tennessee 37620
Mallinckrodt: Michael J. Collins
Group Vice President
Mallinckrodt Chemical, Inc.
16305 Swingley Ridge Drive
Chesterfield, Missouri 63017
Copy to: Jake A. Larimer
Vice President and General Counsel
Mallinckrodt Chemical, Inc.
16305 Swingley Ridge Drive
Chesterfield, Missouri 63017
9.9 Binding Effect and Assignment.
This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their successors and assigns;
provided, however, that neither party shall, without the prior
written consent of the other party, assign or transfer any of
its rights, benefits, obligations, or other interest under
this Agreement or the Collateral Agreements to any other
party.
9.10 Governing Law.
This Agreement shall be construed, interpreted and enforced in
accordance with the laws (both substantive and procedural) of
the State of Missouri, but excluding any provision thereof
which would mandate the application of the laws of any other
jurisdiction.
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IN WITNESS WHEREOF, the parties hereto, by and through their duly
authorized representatives have executed this Agreement, as of the day and year
first above written.
MALLINCKRODT CHEMICAL, INC.
By: /s/ Richard T. Higgons
---------------------------------------
Richard T. Higgons,
Vice President Strategic Development
KING PHARMACEUTICALS OF NEVADA, INC.
By: /s/ John A.A. Bellamy
---------------------------------------
John A.A. Bellamy, Vice President
KING PHARMACEUTICALS, INC.
By: /s/ John M. Gregory
---------------------------------------
John M. Gregory, President and CEO
52
<PAGE> 1
EXHIBIT 10.13
King Pharmaceuticals, Inc. 800-336-7783
501 Fifth Street [KING PHARMACEUTICALS LOGO] (423) 989-8002
Bristol, Tennessee 37620 Fax: (423) 989-8006
John M. Gregory
Chairman of the Board
and C.E.O.
July 30, 1997
VIA OVERNIGHT DELIVERY
Mr. Ernest C. Bourne
Bourne & Co.
Interstate Tower
121 West Trade Street, Suite 2750
Charlotte, North Carolina 28202
Dear Mr. Bourne:
The purpose of this letter agreement is to set forth the terms and
conditions of the engagement of Bourne & Co. by King Pharmaceuticals, Inc.
(hereafter "King") as investment bankers to consult with King on a potential
underwriting of its common stock in an initial public offering.
A. King agrees to pay Bourne & Co. a fee equal to one percent (1%)
of the net proceeds resulting to King from a consummated
initial public offering of the common stock of King Pharmaceuticals,
Inc. which shall include, but shall not be limited to: (a) an
effective registration statement, (b) a complete settlement with an
underwriter, (c) the issuance of the common stock in the offering,
(d) the collection of all proceeds form the initial public
offering, and (c) the signature of all final documents necessary
or proper to effect the initial public offering.
B. Such one percent (1%) fee shall be due and payable, in immediately
available funds, if and only if all the conditions set forth in
paragraph A have been concluded prior to the termination of this
agreement and to King's reasonable satisfaction.
C. Such one percent (1%) fee shall be offset by all monthly retainer
fees previously paid to Bourne & Co. and by any such monthly
retainer fees then due and payable to Bourne & Co.
<PAGE> 2
D. This arrangement between Bourne & Co. and King is effective,
regardless of the date of execution hereof, from August 1, 1997 and
will continue in effect until 11:59 p.m. (E.D.T.) on July 31, 1998.
This agreement shall not automatically renew or extend beyond
11:59 p.m. (E.D.T.) on July 31, 1998.
E. King agrees to pay Bourne & Co. a monthly retainer fee of Ten
Thousand and No/100 Dollars ($10,000.00) per calendar month
during the term of this agreement (i.e., August 1, 1997 - July 31,
1998). Payment for the month of August 1997 will be due and payable
upon the execution of this agreement. Thereafter payments shall be
due and payable on the first day of each and every subsequent month
for a period of twelve calendar months or upon the date when all
the conditions set forth in paragraph A have been completely
satisfied, whichever first occurs.
F. During the term of this agreement, King agrees to reimburse Bourne
& Co. for any and all reasonable out-of-pocket costs incurred
on its behalf and to provide original receipts documenting same to
King. Bourne & Co. will obtain King's authorization prior to
incurring any and all such expenses.
G. This agreement supersedes all previous written or oral
understandings between Bourne & Co. and King. All other
understandings or agreements, whether oral or written, except
those pertaining to confidential or proprietary information, shall
be considered null and void. This agreement contemplates no other
obligation to Bourne & Co. from King other than as set forth herein
relating specifically to the consummation of an initial public
offering of King's common stock. King has no obligation or
responsibility to Bourne & Co. for funds flowing to King from any
source other than from a public offering of its stock under the
terms and provisions set forth herein. All other obligations,
liabilities, and commitments to Bourne & Co. from King or its
affiliates have been completely satisfied and paid in full.
H. Neither party may assign its rights or obligations under this
agreement.
I. This agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Tennessee. This
agreement or any provision hereof cannot be amended, changed,
supplemented or waived except in a writing signed by both of the
parties.
J. This agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors.
K. Nothing in this Agreement shall be deemed to create a joint
venture, partnership, amalgamation, employer/employee
relationship or any similar relationship between King and Bourne &
Co.
<PAGE> 3
L. Neither party shall disclose the existence of this agreement
without the written consent of the other. Bourne & Co. shall
issue no press releases regarding this transaction or the underlying
initial public offering without the written consent of King.
If this agreement meets with your approval, please execute on the
spaces provided below and return a copy to us keeping one for your files.
Very truly yours,
/s/John M. Gregory
------------------------------
John M. Gregory
Chairman of the Board &
Chief Executive Officer
Agreed to and accepted this 31 day of July, 1997.
BOURNE & CO.
By: /s/ Ernest C. Bourne
---------------------------
Ernest C. Bourne, President
<PAGE> 1
EXHIBIT 10.14
1997 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN FOR
EMPLOYEES OF KING PHARMACEUTICALS, INC.
KING PHARMACEUTICALS, INC., a Tennessee corporation (the "Company"),
hereby adopts this Incentive and Nonqualified Stock Option Plan for employees of
the Company and its Subsidiaries as defined under Section 1.15. The purposes of
this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to employees of the Company and its
Subsidiaries by assisting them to become owners of capital stock of the Company
and thus to benefit directly from its growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type
of employees considered essential to the long range success of the Company by
providing and offering them an opportunity to become owners of capital stock of
the Company under Options as defined under Section 1.9.
ARTICLE I.
DEFINITIONS
1.1 General. Whenever the following terms are used in this Plan they
shall have the meaning specified below unless the context clearly indicates to
the contrary.
1.2 Board. "Board" shall mean the Board of Directors of the Company.
1.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4 Committee. "Committee" shall mean the committee of the Board,
appointed as provided in Section 6.1.
1.5 Common Stock. "Common Stock" shall mean the common stock, no par
value per share, of the Company.
1.6 Company. "Company" shall mean King Pharmaceuticals, Inc. and those
corporations, if any, which are from time to time, its Subsidiaries.
1.7 Director. "Director" shall mean a member of the Board.
<PAGE> 2
1.8 Employee. "Employee" shall mean any employee (as defined in
accordance with the regulations and revenue rulings then applicable under
Section 3401(c) of the Code) of the Company or any of its Subsidiaries whether
such employee is so employed at the time this Plan is adopted or becomes so
employed subsequent to the adoption of this Plan.
1.9 Option. "Option" shall mean an option granted under the Plan to
purchase Common Stock. All Options are intended to be "incentive stock options"
under Section 422 of the Code to the extent that such treatment is available in
the Optionee's individual circumstances.
1.10 Option Price. "Option Price" shall have the meaning given in
Section 4.2.
1.11 Optionee. "Optionee" shall mean an Employee to whom an Option is
granted under the Plan.
1.12 Plan. "Plan" shall mean the 1997 Incentive and Nonqualified Stock
Option Plan for Employees of the Company and Subsidiaries, as may be amended
from time to time.
1.13 Pronouns. The masculine pronoun shall include the feminine and
neuter and the singular shall include the plural, where the context so
indicates.
1.14 Stock Option Agreement. "Stock Option Agreement" shall mean a
Stock Option Subscription Agreement between the Optionee and the Company.
1.15 Subsidiary. "Subsidiary" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations, or if each group of commonly controlled corporations,
other than the last corporation in an unbroken chain then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan. The shares of stock subject to Options
shall be shares of Common Stock of the Company. The aggregate number of shares
of Common Stock which may be issued upon exercise of Options under the Plan
shall not exceed 3,500,000 shares, subject to adjustment as provided in Section
4.6 hereof.
2.2 Unexercised Options. If any Option expires or is cancelled without
having been fully exercised, the number of shares subject to such Option but as
to which such Option was
- 2 -
<PAGE> 3
not exercised prior to its expiration or cancellation may again be optioned
hereunder, subject to the limitations of Section 2.1 and the other terms and
provisions of this Plan.
ARTICLE III.
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee of the Company shall be eligible to be
granted Options.
3.2 Granting of Options. The Committee shall from time to time, in its
absolute discretion:
(i) select from such Employees (including those to whom
Options have been previously granted under the Plan) such of them as in
its opinion shall be granted Options; and
(ii) determine the number of shares to be subject to such
Options granted to such selected Employees; and
(iii) determine the terms and conditions of such Options,
consistent with the Plan; and
(iv) establish such conditions as to the manner of exercise
of such Options as it may deem necessary, including but not limited to
requiring Optionees to enter into agreements regarding transferability
and other restrictions with respect to shares issuable upon exercise of
such Options.
3.3 Expiration of Time to Make Grants. No Option may be granted under
this Plan after the expiration of ten (10) years from the date the Plan is
adopted by the Board or the date the shareholders of the Company approve this
Plan, if earlier.
ARTICLE IV.
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company, and which shall contain such terms and conditions as the
Committee shall determine, consistent with the Plan.
4.2 Option Price. The purchase price under each Option shall be
determined by the Committee at the time the Option is granted, but in no event
shall such purchase price be less than one hundred percent (100%) of the fair
market value of the shares of Common Stock of
- 3 -
<PAGE> 4
the Company on the date of grant. "Fair market value" for purposes of the Plan
shall be (a) the mean between the high and low sales prices at which shares of
the Company were sold on the date of grant or, if there were no sales on that
day, then on the last day prior to the date of grant during which there were
sales, or (b) solely in the case of any Options granted on the date of the
initial public offering of the Common Stock of the Company, the price at which
the Common Stock is sold to the public.
4.3 Commencement of Exercisability. Subject to the provisions of
Section 7.2, Options shall become exercisable at such times and in such
installments (which may be cumulative) as the Committee shall provide in the
terms of each individual Stock Option Agreement; provided, however, that by a
resolution adopted after an Option is granted the Committee may, on such terms
and conditions as it may determine to be appropriate and subject to Section 7.2,
accelerate the time at which such Option or any portion thereof may be
exercised.
4.4 Expiration of Options. No Option may be exercised to any extent by
anyone after, and every Option shall expire no later than, the expiration of ten
(10) years from the date the Option was granted. Subject to the provisions of
this Section 4.4, the Committee shall provide, in the terms of each individual
Stock Option Agreement, when the Option expires and becomes unexercisable.
4.5 No Right to Continue in Employment. Nothing in this Plan or in any
Stock Option Agreement hereunder shall confer upon any Optionee any right to
continue in the employ or service of the Company or shall interfere with or
restrict in any way the rights of the Company, which are hereby expressly
reserved, to discharge any Optionee at any time for any reason whatsoever, with
or without good cause.
4.6 Adjustments in Outstanding Options. If the outstanding shares of
Common Stock subject to Options are, from time to time, changed into or
exchanged for a different number or kind of shares of capital stock or other
securities of the Company, or of another corporation, by reason of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend, combination of shares or otherwise, the Committee
shall make an appropriate adjustment in the aggregate number and kind of shares
which may be issued pursuant to Section 2.1 hereof and the number and kind of
shares as to which all outstanding Options, or portions thereof then
unexercised, shall be exercisable. Such adjustment in an outstanding Option
shall be made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices) and with any
necessary corresponding adjustment in Option Price per share. No fractional
shares shall be issued, and any fractional shares resulting from computations
pursuant to this Section 4.6 shall be eliminated from the
- 4 -
<PAGE> 5
respective Options. Any such adjustment made by the Committee shall be final and
binding upon all Optionees, the Company and all other interested persons.
ARTICLE V.
EXERCISE OF OPTIONS
5.1 Persons Eligible to Exercise. During the lifetime of the Optionee,
only the Optionee or the Optionee's guardian or conservator, as appointed by the
appropriate judicial authority, may exercise an Option granted to such Optionee,
or any portion thereof. After the death of the Optionee, any exercisable portion
of an Option may, prior to the time when such portion becomes unexercisable
under the terms of Section 4.4 or the Optionee's Stock Option Agreement, be
exercised by the Optionee's personal representative as appointed by the
appropriate judicial authority or by any person empowered to do so under the
deceased Optionee's will as probated or under the then applicable laws of
descent and distribution.
5.2 Partial Exercise. At any time prior to the time when any
exercisable Option or exercisable portion thereof expires or becomes
unexercisable under the terms of Section 4.4 or the Optionee's Stock Option
Agreement, such Option or portion thereof may be exercised in whole or in part;
provided, however, that the Company shall not be required to issue fractional
shares or to convert fractional shares into cash.
5.3 Manner of Exercise. An exercisable Option, or any exercisable
portion thereof, may be exercised solely by delivery to the Secretary of the
Company or Assistant Secretary or his office of all of the following prior to
the time when such Option or such portion becomes unexercisable under the terms
of Section 4.4 or the Optionee's Stock Option Agreement:
(i) Notice in writing signed by the Optionee or other person
then entitled to exercise such Option or portion thereof, stating that
such Option or portion thereof is exercised; and
(ii) Full payment of the Option Price (which shall be payable
in cash, by cashier's check, certified check or a combination thereof)
for the shares with respect to which such Option or portion thereof is
thereby exercised, together with payment or arrangement for payment of
federal income or other tax, if any, required to be withheld by the
Company with respect to such shares; and
(iii) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons
to exercise the Option or portion thereof as determined in the sole and
absolute discretion of the Committee or its counsel; and
- 5 -
<PAGE> 6
(iv) Such representations and documents as the Committee deems
necessary or advisable to effect compliance with all applicable
provisions of the Securities Act of 1933, as amended, and any other
federal, state or foreign securities laws or regulations. The Committee
may, in its absolute discretion, also take whatever additional actions
it deems appropriate to effect such compliance, including, without
limitation, placing legends on share certificates and issuing
stock-transfer orders to transfer agents and registrars.
5.4 Rights as Shareholders. The holders of Options shall not be, nor
have any of the rights or privileges of, shareholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option, unless and
until certificates representing such shares have been issued by the Company and
delivered to such holders. No adjustment shall be made for cash dividends for
which the record date is prior to the date such stock certificate is issued.
ARTICLE VI.
ADMINISTRATION
6.1 Stock Option Committee. The Committee shall consist of at least
three (3) Directors. Appointment of Committee members by the Board shall be
effective upon acceptance of appointment, and Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the Committee
shall be filled by the Board. Committee members shall be appointed by and shall
serve at the pleasure of the Board, and the Board may from time to time remove
members from, or add members to, the Committee and shall fill any vacancy on the
Committee. If the Company registers any of its equity securities under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), no person shall be eligible to serve on the Committee unless such person
is then a "Non-Employee Director" within the meaning of paragraph (b)(3) of Rule
16b-3 which has been adopted by the Securities and Exchange Commission under the
Exchange Act, as such Rule or its equivalent is then in effect.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
Options and to adopt such rules for the administration, interpretation, and
application of the Plan as are consistent herewith and to interpret, amend or
revoke any such rules. Any such interpretation and rules shall be consistent
with the basic purpose of the Plan to grant Options.
6.3 Majority Rule. The Committee shall act by a majority of its members
in office and the Committee may act either by vote at a telephonic or other
meeting or by a memorandum or other written instrument signed by a majority of
the Committee. The Secretary of the
- 6 -
<PAGE> 7
Company or the Assistant Secretary or the designee of either shall keep minutes
of all meetings of the Committee. The Committee shall make such rules of
procedure for the conduct of its business as it shall deem advisable.
6.4 Compensation; Professional Assistance; Good Faith Actions. Members
of the Committee shall not receive compensation for their services as members,
but all expenses and liabilities they incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and the officers and Directors of the
Company shall be entitled to rely upon the advice, opinions or valuations of any
such persons. No member of the Committee shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Plan or the Options, and all members of the Committee shall be fully protected
and held harmless by the Company in respect to any such action, determination or
interpretation.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1 Options Not Transferable. No Option or interest or right therein,
whether in whole or in part, shall be subject to disposition by transfer, gift,
alienation, anticipation, pledge, encumbrance, assignment or any other means,
whether such disposition be voluntary or involuntary or by operation of law or
by claim, judgment, levy, attachment, garnishment or any other legal or
equitable proceeding (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that nothing
in this Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution to the extent contemplated hereby.
7.2 Amendment, Suspension or Termination of the Plan. The Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board. However, without approval of the
Company's shareholders given within twelve (12) months before or after the
action by the Board or the Committee, no action of the Committee or the Board
may increase any limit imposed in Section 2.1 on the maximum number of shares
which may be issued upon exercise of Options, reduce the minimum option price
requirements in Section 4.2 or extend the limit imposed in Section 3.4 on the
period during which Options may be granted. Neither the amendment, suspension
nor termination of the Plan shall, without the consent of the holder of the
Option, alter or impair any rights or obligations under any Option theretofore
granted. No Option may be granted during any period of suspension nor after
termination of the Plan.
7.3 Effect of Plan Upon Other Options and Compensation Plans. The
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company.
- 7 -
<PAGE> 8
Nothing in this Plan shall be construed to limit the right of the Company (a) to
establish, modify, or terminate any other forms of incentives or compensation,
including, but not limited to, cash bonuses, for Employees of the Company; or
(b) to grant or assume options otherwise than under the Plan in connection with
any proper corporate purpose, including, but not by way of limitation, the grant
or assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, joint ventures, subsidiaries, firm or association.
7.4 Application of Proceeds. The proceeds received by the Company from
the sale of its shares of Common Stock under the Plan will be used for general
corporate purposes.
7.5 Titles. Titles are provided for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
7.6 Interpretation. The Options granted under this Plan are intended to
be "incentive stock options" as defined by Section 422 of the Code insofar as
possible, and the provisions of this Plan and all Stock Option Agreements shall
be construed in accordance with that intention. If any provision of this Plan or
any Stock Option Agreement shall be inconsistent or in conflict with any
applicable requirement for an incentive stock option, then such requirement
shall be deemed to override and supersede the inconsistent or conflicting
provision; provided, however, the foregoing provision shall not limit the
Company from granting to any Optionee Options which are in excess of the amount
which may be treated as incentive stock options, and any Options so granted in
excess of the limitations in Section 422(d) of the Code shall be treated as
nonqualified stock options; provided further, however, if the normal date of
exercise of the Option is accelerated because of a sale of the Company or other
similar event as provided in any Stock Option Agreement, such acceleration shall
nevertheless occur even if it shall cause all or a part of the Option to no
longer be an incentive stock option. Any provision required by the Code for an
incentive stock option that is omitted from this Plan or the Stock Option
Agreement shall be incorporated herein or therein by reference and shall apply
retroactively, if necessary, and shall be deemed a part of this Plan and any
Stock Option Agreement entered into under this Plan to the same extent as though
expressly set forth herein or therein. The Committee may amend this Plan or
amend the terms of any Stock Option Agreement in any manner that may be required
in order for the Options granted under this Plan to comply with the applicable
requirements for incentive stock options, and, if necessary, any such amendments
shall apply retroactively to the adoption of this Plan.
7.7 Effective Date. This Plan shall become effective as of the date of
its adoption by the Board; provided, however, that the Plan shall be approved by
the vote of the holders of a majority of the outstanding shares of the Company's
Common Stock within twelve (12) months before or after the adoption of the Plan
by the Board.
- 8 -
<PAGE> 9
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of King Pharmaceuticals, Inc. on October 15, 1997.
Executed on this 15th day of October, 1997.
--------------------------------------------
Secretary
Corporate Seal
Attest:
-------------------------------------
John A. A. Bellamy
Executive Vice President and
General Counsel
- 9 -
<PAGE> 1
EXHIBIT 11.1
King Pharmacuticals, Inc.
Computation of Per Share Earnings
(Amount in thousands, except for share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
--------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding 4,530,630 11,479,493 13,630,813 19,572,103 25,655,881
Common stock equivalents related
to 400,000 shares of convertible
preferred stock issued December 1994
and excercised October 1995,
adjusted for a 2.8 stock split and a 15%
stock dividend 6,925 966,000 - - -
---------- ----------- ------------ ----------- -----------
Total shares 4,537,555 12,445,993 13,630,813 12,572,103 25,655,881
========== =========== ============ =========== ===========
Net income 917 9,334 (240) (703) 4,555
Preferred dividends (8) (8) - - -
---------- ----------- ------------ ----------- -----------
Net income available
to common shareholders 909 9,326 (240) (703) 4,555
---------- ----------- ------------ ----------- -----------
Net income (loss) per share $ .20 $ .75 $ (.02) $ (.06) $ (.18)
========== =========== ============ =========== ===========
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Monarch Pharmaceuticals, Inc., a Tennessee corporation
2. King Pharmaceuticals of Nevada, Inc., a Nevada corporation
<PAGE> 1
EXHIBIT 23.2
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
King Pharmaceuticals, Inc.:
We consent to the inclusion in this registration statement on Form S-1
(Registration No. 333- ) of our reports dated October 22, 1997, on our
audits of the consolidated financial statements of King Pharmaceuticals, Inc.
and the statement of Gross Profit for the Cortisporin Products Line. We also
consent to the reference of our firm under the captions "Experts" and "Selected
Consolidated Financial Data".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Greensboro, North Carolina
October 24, 1997
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International,
a limited liability association incorporated in Switzerland.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 35
<SECURITIES> 0
<RECEIVABLES> 7,886
<ALLOWANCES> (493)
<INVENTORY> 8,622
<CURRENT-ASSETS> 17,718
<PP&E> 19,812
<DEPRECIATION> (2,806)
<TOTAL-ASSETS> 74,253
<CURRENT-LIABILITIES> 17,635
<BONDS> 22,913
0
0
<COMMON> 13,870
<OTHER-SE> (1,139)
<TOTAL-LIABILITY-AND-EQUITY> 74,253
<SALES> 33,817
<TOTAL-REVENUES> 33,817
<CGS> 9,538
<TOTAL-COSTS> 24,903
<OTHER-EXPENSES> (1,519)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,730
<INCOME-PRETAX> 7,395
<INCOME-TAX> 2,840
<INCOME-CONTINUING> 4,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,555
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,392
<SECURITIES> 209
<RECEIVABLES> 2,398
<ALLOWANCES> (93)
<INVENTORY> 6,097
<CURRENT-ASSETS> 13,885
<PP&E> 18,770
<DEPRECIATION> (2,079)
<TOTAL-ASSETS> 39,279
<CURRENT-LIABILITIES> 6,136
<BONDS> 13,980
5,863
0
<COMMON> 0
<OTHER-SE> (693)
<TOTAL-LIABILITY-AND-EQUITY> 39,279
<SALES> 15,457
<TOTAL-REVENUES> 20,457
<CGS> 8,782
<TOTAL-COSTS> 21,870
<OTHER-EXPENSES> 1,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,272
<INCOME-PRETAX> (347)
<INCOME-TAX> (107)
<INCOME-CONTINUING> (240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
